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Kennametal Meets Fourth Quarter Expectations; Continues to Generate Strong Cash Flow Despite Declining Global Markets
LATROBE, Pa., July 24 /PRNewswire-FirstCall/ -- Kennametal Inc. (NYSE: KMT) today reported fiscal 2002 fourth quarter earnings of $0.67 per diluted share, a decrease of 12 percent, compared with earnings of $0.76* per diluted share last year, excluding special items in each period.
Earnings Per Share Excluding Special Items
Company Guidance (05/01/02) $0.62 to $0.72
Analyst Estimate Range (07/22/02) $0.67 to $0.72
Earnings, Excluding Special Items $0.67
On a reported basis, diluted earnings per share were $0.48 for the quarter, 4 percent above last year's earnings per share of $0.46*.
* Fiscal 2001 performance quoted in this release excludes goodwill
amortization as defined by SFAS 142, "Goodwill and Other Intangible
Assets" to allow equivalent comparisons. A table reconciling the
fiscal 2001 impact of goodwill amortization is included later in this
release.
Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "The external environment made fiscal 2002 a very challenging year, with global economies deteriorating as Europe followed the United States economy in decline. Despite the external adversity, we remained focused on executing our strategy and continuing to unlock the potential of the Kennametal franchise. Notable accomplishments for fiscal 2002 included: another year of free operating cash flow in excess of $100 million (approx. two times net income), despite the market declines; major new product introductions which resulted in sales from new products of 35%, the highest level in more than 10 years; and formalizing the Kennametal Lean Enterprise, which delivered in excess of $10 million in cost savings. Our core metalworking business gained market share, and we completed the J&L restructuring. Finally, the focused efforts of recent years to prime the company for growth allowed us to announce the highly strategic Widia acquisition, which we expect to close in the near future."
Tambakeras continued, "The success of our efforts over the past 3 years to reposition the company has provided Kennametal with the management team, operational structure and balance sheet to not only be able to acquire Widia, but to also conclude a very successful extensive refinancing of the company in June 2002. The combination of strong business prospects and an impressive credit story drove three financing transactions which positioned Kennametal for growth with a solid capital foundation characterized by high-quality investors and attractive terms."
Highlights
Fourth Quarter
-- Sales of $402.9 million declined 9 percent, versus $442.5 million last
year. The net unfavorable impact of acquisitions and divestitures
essentially offset the benefit of additional workdays, and the foreign
exchange impact was negligible. Average daily sales for the June 2002
quarter improved 1% sequentially versus the March quarter, compared to
a typical sequential decline in the low single-digits.
-- Gross profit margin, excluding special charges in both periods, of
34.1 percent increased 10 basis points compared with the fourth
quarter of fiscal 2001. Lean initiatives continue to provide
manufacturing efficiencies that offset the combined negative pressure
of underutilized capacity due to volume declines and an unfavorable
customer and product mix.
-- Operating expense for the quarter was reduced 2 percent, to
$100.5 million, excluding special charges.
-- The current quarter included special charges of $9.0 million, or
$0.19 per diluted share, associated with the completion of previously
announced restructurings and the divestiture of Strong Tool.
Prior-year results included special charges of $13.9 million, or
$0.28 per share, related to the divestiture of ATS, the J&L business
improvement plan and work force reductions.
-- Interest expense of $7.3 million was 36 percent below the same quarter
last year due to ongoing debt reduction and lower average borrowing
rates.
-- The effective tax rate for the June 2002 quarter was 32.1 percent,
compared with prior year of 33.9 percent, as anticipated.
-- Excluding special items, net income was $21.4 million, a 9 percent
decrease compared with net income of $23.5 million last year.
Reported net income was $15.4 million against net income of
$14.3 million in the same quarter last year.
-- Free operating cash flow was $42.6 million, versus $34.9 million in
the same period last year. Primary working capital continues to be
tightly controlled with its ratio to sales at 27.9 percent, up
slightly from last year driven by the sales decline. Primary working
capital of $422.6 million was down 8 percent, or $39 million, from the
same period last year.
-- Total debt was $411.4 million, down $195.7 million from June 2001,
including approximately $120 million from the issuance of equity.
Three years of focused debt reduction has lowered total debt by more
than 50%, or $450 million.
Fiscal 2002 versus 2001
-- Organic sales for the 12 months ending June 30, 2002 declined
11 percent. Actual sales of $1,583.7 million were down 12 percent.
Negative pressures included foreign exchange and net acquisitions and
divestitures.
-- Excluding special items, net income was $61.6 million, a decrease of
29 percent compared to $86.7 million last year.
-- Through twelve months, diluted earnings per share were $1.95, or
31 percent below last year's earnings of $2.82. Reported diluted
earnings per share were a loss of $6.70 (primarily due to a $7.92 per
share impact from a non-cash SFAS 142 impairment charge, see below),
against last year's earnings per share of $2.35.
-- Special charges of $286.8 million, or $8.65 per share, were included
in the year's results related primarily to the SFAS No. 142 impairment
charge of $250.4 million. Prior-year results included special charges
of $22.5 million, or $0.44 per share. A chart detailing special
charges for both years is attached.
SFAS No. 142 Non-Cash Goodwill Impairment Charge
As previously identified, the company recorded a non-cash goodwill impairment charge of $250.4 million, net of $2.4 million tax, associated with the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets." The charge was within the previously disclosed range of $230 million to $260 million and is specific to certain businesses acquired in 1997 as part of Greenfield Industries. If the previous accounting rules had remained in effect, no charge would have occurred. The company reiterated its January 17, 2002 observation that the non-cash charge will have no effect on Kennametal's operating performance or cash flow, and management remains committed to maintaining a strong balance sheet.
As noted previously, the charge will be reflected in the income statement, effective July 1, 2001, as the cumulative effect of the adoption of this new accounting standard.
Outlook
Looking forward, Tambakeras said, "Based on current economic assumptions, we are confident that Kennametal is positioned for growth in fiscal 2003, and will be able to deliver accelerated benefits as a repositioned company. Key indicators including industrial production and the Institute of Supply Management (ISM -- formally NAPM) index have been steadily improving. However, the recovery continues to be slower than previously anticipated, and the strength and timing of sustained economic improvement remains unclear. We are beginning the year on the heels of two quarters of very modest sequential sales improvement. Consequently, we expect the sluggish recovery to continue, with a return to year-over-year growth in the December quarter at the earliest. While the global economies slowly strengthen, we will continue to invest in growth initiatives, Kennametal Lean Enterprise and further development of our people as we build on the foundation of the past three years with a mission to improve the competitiveness of our customers' operations around the world. Our focus on both the income statement and the balance sheet will continue."
Fiscal 2003 Full Year Outlook
$ in millions, except EPS; Excludes special charges
Pre-Widia Including Widia
Sales Growth Plus 5% to 7% Plus 19% to 23%
EBITDA $210 to $240 $230 to $260
Diluted EPS $2.25 to $2.55 $2.10 to $2.40
EPS Growth Plus 15% to 30% Plus 10% to 25%
Free Operating Cash Flow $100 to $150 $100 to $150
EBITDA = Income before income taxes and minority interest plus interest
expense, depreciation and amortization
Assuming economic conditions continue to slowly strengthen, sales for the first quarter of fiscal 2003 are expected to be down low- to mid-single digits, with diluted earnings per share between $0.34 and $0.39, excluding approximately $0.06 dilution from Widia.
Dividend Declared
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable August 23, 2002, to shareowners of record as of the close of business August 9, 2002.
Fourth quarter results will be discussed in a live Internet broadcast at 10:00 a.m. today. Access the live or archived conference by visiting the Investor Relations section of Kennametal's corporate web site at http://www.kennametal.com.
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. You can identify these forward-looking statements by the fact they use words such as "should," "anticipate," "estimate," "approximate," "expect," "may," "will," "project," "intend," "plan," "believe," and others words of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements are likely to relate to, among other things, our goals, plans and projections regarding our financial position, results of operations, market position and product development, which are based on current expectations that involve inherent risks and uncertainties, including factors that could delay, divert or change any of them in the next several years. Although it is not possible to predict or identify all factors, they may include the following: global economic conditions; risks associated with integrating and divesting businesses and achieving the expected savings and synergies; demands on management resources; risks associated with international markets such as currency exchange rates, and social and political environments; competition; labor relations; commodity prices; demand for and market acceptance of new and existing products; and risks associated with the implementation of restructuring plans and environmental remediation matters. We can give no assurance that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.
Kennametal Inc. aspires to be the premier tooling solutions supplier in the world with operational excellence throughout the value chain and best-in-class manufacturing and technology. Kennametal strives to deliver superior shareowner value through top-tier financial performance. The company provides customers a broad range of technologically advanced tools, tooling systems and engineering services aimed at improving customers' manufacturing competitiveness. With approximately 12,000 employees worldwide, the company's fiscal 2002 annual sales were approximately $1.6 billion, with a third coming from sales outside the United States. Kennametal is a five-time winner of the GM "Supplier of the Year" award and is represented in more than 60 countries. Kennametal operations in Europe are headquartered in Furth, Germany. Kennametal Asia Pacific operations are headquartered in Singapore. For more information, visit the company's web site at http://www.kennametal.com
FINANCIAL HIGHLIGHTS
Consolidated financial highlights for Kennametal Inc. (NYSE: KMT) for the quarter and year ended June 30, 2002 and 2001 are shown in the following tables (in thousands, except per share amounts).
Consolidated Statements of Income
Quarter Ended Twelve Months Ended
June 30, June 30,
2002 2001 2002 2001
Net sales $402,898 $442,505 $1,583,742 $1,807,896
Cost of goods sold(1) 266,025 295,324 1,072,918 1,192,176
Gross profit 136,873 147,181 510,824 615,720
Operating expense(2) 100,685 102,403 389,396 425,641
Restructuring and
asset impairment
charges 4,657 4,912 27,307 9,545
Amortization of
intangibles 697 5,601 2,804 24,134
Operating income 30,834 34,265 91,317 156,400
Interest expense(3) 7,551 11,290 32,627 50,381
Other expense
(income), net(4) (182) 4,924 (361) 11,690
Income before provision for
income taxes and minority
interest 23,465 18,051 59,051 94,329
Provision for income taxes 7,513 7,172 18,900 37,300
Minority interest 582 851 1,653 3,142
Income before cumulative
effect of change in acting.
principle 15,370 10,028 38,498 53,887
Cumulative effect of change in
accounting principle, net of
tax(5) - - (250,406) (599)
Net income/(loss) $15,370 $10,028 $(211,908) $53,288
Diluted earnings/(loss) per
share $0.48 $0.32 $(6.70) $1.73
Dividends per share $0.17 $0.17 $0.68 $0.68
Diluted weighted average
shares outstanding 32,159 31,027 31,627 30,749
(1) For the quarter and year ended June 30, 2001, these amounts
include charges of $3.2 million and $3.7 million, respectively,
related to the JLK business improvement plan.
(2) For the year ended June 30, 2001, this amount includes $2.1
million primarily related to the tender offer to acquire the
outstanding shares of JLK.
(3) For the quarter and year ended June 30, 2002 these amounts include
$0.3 million related to recognition of the remaining unamortized
balance of deferred financing fees from the company's U.S. credit
facilities that were replaced with a new 3 year facility. For the
year ended June 30, 2001, this amount includes a charge of $0.3
million related to the recognition of a portion of deferred
financing fees as a result of the reduction in the availability
under the company's U.S. credit facility.
(4) For the quarters ended June 30, 2002 and 2001, these amounts
include charges of $0.5 million and $1.1 million, respectively,
for fees incurred in connection with the company's accounts
receivable securitization program. For the years ended June 30,
2002 and 2001, these amounts include similar charges of $2.5
million and $5.7 million, respectively. For the quarter and year
ended June 30, 2002, these amounts include a charge of $3.5
million related to the divestiture of Strong Tool Company. For
the quarter and year ended June 30, 2001, these amounts include a
charge of $5.8 million related to the divestiture of Abrasive &
Tool Specialties.
(5) For the year ended June 30, 2002, this amount represents a non-
cash charge for the adoption of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets." For
the year ended June 30, 2001, this amount represents a non-cash
charge for the adoption of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities."
FINANCIAL HIGHLIGHTS (Continued)
Pro forma Fiscal 2001 Operating Results Excluding Goodwill Amortization:
Period Ended
June 30, 2001
Quarter Year
Operating income $39,150 $177,422
Interest expense 11,290 50,381
Other expense, net 4,924 11,690
Income before provision for income
taxes and minority interest 22,936 115,351
Provision for income taxes 7,778 39,100
Minority interest 862 3,389
Income before cumulative effect of
change in accounting principle 14,296 72,862
Cumulative effect of change in
accounting principle, net of tax - (599)
Pro forma net income $14,296 $72,263
Pro forma diluted earnings per share $0.46 $2.35
The following tables provide a comparison of the company's reported results, and the results excluding special items, for fiscal 2002 and fiscal 2001.
QUARTER ENDED JUNE 30,
Diluted
Earnings
Gross Operating Net Per
Profit Income Income Share
2002 Reported Results $136,873 $30,834 $15,370 $0.48
MSSG Restructuring 384 2,104 1,423 0.04
AMSG Restructuring 350 1,424 960 0.03
Corporate Restructuring - 915 621 0.02
Widia Integration Costs - 144 98 -
Deferred Financing Fees - - 184 0.01
Total Core Business 734 4,587 3,286 0.10
J&L Restructuring (377) 247 168 0.01
FSS Restructuring - 335 226 0.01
Strong Tool Divestiture - - 2,390 0.07
Total Non-Core Business (377) 582 2,784 0.09
2002 Results Excluding Special Items $137,230 $36,003 $21,440 $0.67
2001 Reported Results $147,181 $34,265 $10,028 $0.32
MSSG Restructuring - 2,255 1,373 0.05
AMSG Restructuring - 1,165 710 0.02
Corporate Special Charge - 454 278 0.01
Total Core Business - 3,874 2,361 0.08
J&L Restructuring 3,234 4,035 2,460 0.08
FSS Restructuring - 252 163 0.01
ATS Divestiture - - 3,522 0.11
Total Non-Core Business 3,234 4,287 6,145 0.20
2001 Results Excluding Special Items $150,415 $42,426 $18,534 $0.60
FINANCIAL HIGHLIGHTS (Continued)
YEAR Ended JUNE 30,
Net Diluted
Gross Operating Income/ Earn/(Loss)
Profit Income (Loss) Per Share
2002 Reported Results $510,824 $91,317 $(211,908) $(6.70)
MSSG Restructuring 544 10,245 6,958 0.22
MSSG (Adoption of SFAS 142) - - 168,314 5.32
AMSG Restructuring 1,654 7,997 5,430 0.17
AMSG (Adoption of SFAS 142) - - 82,092 2.60
Corporate Restructuring - 1,075 730 0.02
Widia Integration costs - 144 98 -
Deferred Financing Fees - - 184 0.01
Total Core Business 2,198 19,461 263,806 8.34
J&L Restructuring 529 10,093 6,863 0.22
FSS Restructuring - 635 430 0.01
Strong Tool Divestiture - - 2,390 0.08
Total Non-Core Business 529 10,728 9,683 0.31
2002 Results Excluding Special
Items $513,551 $121,506 $61,581 $1.95
2001 Reported Results $615,720 $156,400 $53,288 $1.73
MSSG Restructuring - 3,271 1,988 0.06
AMSG Restructuring - 927 564 0.02
Corporate Restructuring &
Other - 434 475 0.02
Total Core Business - 4,632 3,027 0.10
J&L Restructuring & Other 3,653 10,127 5,804 0.19
FSS Restructuring - 572 347 0.01
ATS Divestiture - - 3,522 0.12
Total Non-Core Business 3,653 10,699 9,673 0.32
Adoption of SFAS 133 - - 599 0.02
2001 Results Excluding Special
Items $619,373 $171,731 $66,587 $2.17
FINANCIAL HIGHLIGHTS (Continued)
SEGMENT DATA:
Quarter Ended Year Ended
June 30, June 30,
2002 2001(1) 2002 2001(1)
Sales:(2)
Metalworking Solutions and
Services Group $231,151 $245,054 $897,157 $999,813
Advanced Materials Solutions
Group 80,170 89,187 307,668 352,933
J&L Industrial Supply 52,013 64,556 226,010 289,264
Full Service Supply 39,564 43,708 152,907 165,886
Total Sales $402,898 $442,505 $1,583,742 $1,807,896
Sales By Geographic Region:(2)
Within the United States $257,709 $285,631 $1,019,849 $1,189,014
International 145,189 156,874 563,893 618,882
Total Sales $402,898 $442,505 $1,583,742 $1,807,896
Operating Income (Loss), as
reported:(2)
Metalworking Solutions and
Services Group $29,243 $31,628 $97,323 $130,558
Advanced Materials Solutions
Group 10,082 11,152 26,781 43,270
J&L Industrial Supply 1,044 (844) (681) 3,689
Full Service Supply 215 1,597 2,014 7,541
Corporate and Eliminations (9,750) (9,268) (34,120) (28,658)
Total Operating Income $30,834 $34,265 $91,317 $156,400
Operating Income (Loss),
excluding special charges:(2)
Metalworking Solutions and
Services Group $31,347 $33,883 $107,568 $133,829
Advanced Materials Solutions
Group 11,506 12,317 34,778 44,197
J&L Industrial Supply 1,290 3,191 9,412 13,816
Full Service Supply 550 1,849 2,649 8,113
Corporate and Eliminations (8,690) (8,814) (32,901) (28,224)
Total Operating Income $36,003 $42,426 $121,506 $171,731
Operating Income (Loss),
excluding special charges
and goodwill
amortization: (2)(3)
Metalworking Solutions and
Services Group $36,227 $143,211
Advanced Materials Solutions
Group 14,214 52,785
J&L Industrial Supply 3,820 16,808
Full Service Supply 1,864 8,173
Corporate and Eliminations (8,814) (28,224)
Total Operating Income $47,311 $192,753
(1) Kennametal reports global business units consisting of
Metalworking Solutions and Services Group, Advanced Materials
Solutions Group, J&L Industrial Supply, Full Service Supply and
corporate functional shared services. Certain amounts in prior
year sales and operating income (loss) have been restated to
conform to this reporting structure.
(2) Amounts reflect reclassification of shipping fees charged
customers to sales, and freight and handling costs to costs of
goods sold, as required by Emerging Issues Task Force 00-10,
"Accounting for Shipping and Handling Fees and Costs."
(3) As reported amounts for fiscal 2002 are reflective of the non-
amortization provision of SFAS 142, "Goodwill and Other Intangible
Assets."
FINANCIAL HIGHLIGHTS (Continued)
CASH FLOW INFORMATION
Quarter Ended Year Ended
June 30, June 30,
2002 2001(1) 2002 2001(1)
Net income (Loss) $15,370 $10,028 $(211,908) $53,288
Adoption of SFAS 142 - - 250,406 -
Other Non-cash items (9,134) 16,301 2,107 23,067
Depreciation and amortization 18,392 23,857 73,629 97,297
Change in primary working capital 16,850 19,986 60,846 36,245
Change in other working capital 10,375 (16,100) (18,794) (22,341)
Cash flow from operations 51,853 54,072 156,286 187,556
Capital expenditures (13,691) (19,808) (44,040) (59,929)
Proceeds from asset disposals 4,462 669 10,261 4,227
Free operating cash flow $42,624 $34,933 $122,507 $131,854
(1) Certain amounts have been reclassified to be consistent with the
current year presentation.
CONDENSED BALANCED SHEETS
Quarter Ended
6/30/02 3/31/02 12/31/01 9/30/01 6/30/01
ASSETS
Cash and
equivalents $10,385 $10,705 $10,414 $10,722 $12,940
Accounts
receivables,
net of
allowance 179,101 168,094 162,916 196,003 206,175
Inventories 345,076 351,129 367,724 382,701 373,221
Deferred
income taxes 88,678 66,177 67,215 64,673 57,452
Other current
assets 31,447 28,064 24,728 25,036 31,408
Total
current
assets 654,687 624,169 632,997 679,135 681,196
Property, plant
and equipment,
net 435,116 438,505 448,263 467,268 472,874
Goodwill,
net 359,055 363,160 363,318 363,732 615,263
Intangible
assets, net 8,937 7,164 7,945 8,716 9,497
Other assets 83,119 60,458 60,797 50,943 46,612
Total $1,540,914 $1,493,456 $1,513,320 $1,569,794 $1,825,442
LIABILITIES
Short-term
debt $23,480 $383,639 $406,677 $418,448 $24,530
Accounts
payable 101,586 93,810 101,817 103,993 118,073
Accrued
liabilities 154,337 136,095 131,656 137,055 151,882
Total current
liabilities 279,403 613,544 640,150 659,496 294,485
Long-term
debt 387,887 164,257 173,514 209,613 582,585
Deferred income
taxes 52,570 52,564 51,815 48,556 53,844
Other
liabilities 96,421 88,720 89,880 90,716 87,898
Total
liabilities 816,281 919,085 955,359 1,008,381 1,018,812
MINORITY
INTEREST 10,671 8,907 9,271 10,187 9,861
SHAREOWNERS'
EQUITY 713,962 565,464 548,690 551,226 796,769
Total $1,540,914 $1,493,456 $1,513,320 $1,569,794 $1,825,442
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SOURCE Kennametal Inc.
Web site: http: //www.kennametal.com
CONTACT: Investors - Beth A. Riley, +1-724-539-6141, or Media - Steve Halvonik, +1-724-539-4618, both of Kennametal Inc.