FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994
Commission file number 1-5318
KENNAMETAL INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0900168
(State or other jurisdiction of (I.R.S. Employer
of incorporation) Identification No.)
ROUTE 981 AT WESTMORELAND COUNTY AIRPORT
P.O. BOX 231
LATROBE, PENNSYLVANIA 15650
(Address of registrant's principal executive offices)
Registrant's telephone number, including area code: (412) 539-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
TITLE OF EACH CLASS OUTSTANDING AT OCTOBER 31, 1994
- ---------------------------------------- -------------------------------
Capital Stock, par value $1.25 per share 26,473,356
KENNAMETAL INC.
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1994
------------------------------------
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
- --------------------------------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets (Unaudited)
September 30, 1994 and June 30, 1994
Condensed Consolidated Statements of Income (Unaudited)
Three months ended September 30, 1994 and 1993
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended September 30, 1994 and 1993
Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KENNAMETAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------
(Dollars in thousands)
September 30, June 30,
1994 1994
------------- ---------
ASSETS
- ------
Current Assets:
Cash and equivalents $ 9,444 $ 17,190
Accounts receivable, less allowance for
doubtful accounts of $10,419 and $9,328 149,542 143,691
Inventories 170,122 158,179
Deferred income taxes 13,768 13,744
--------- ---------
Total current assets 342,876 332,804
--------- ---------
Property, Plant and Equipment 475,734 467,652
Less: accumulated depreciation (232,687) (224,554)
--------- ---------
Net property, plant and equipment 243,047 243,098
--------- ---------
Other Assets:
Investments in affiliated companies 7,239 6,393
Intangible assets, less accumulated
amortization of $17,358 and $16,540 30,522 32,141
Deferred income taxes 65,803 65,606
Other 14,956 17,490
--------- ---------
Total other assets 118,520 121,630
--------- ---------
Total assets $ 704,443 $ 697,532
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current maturities of term debt
and capital leases $ 6,007 $ 4,364
Notes payable to banks 53,718 52,753
Accounts payable 48,142 52,148
Accrued vacation pay 14,769 15,569
Other 76,643 77,193
--------- ---------
Total current liabilities 199,279 202,027
--------- ---------
Term Debt and Capital Leases,
Less Current Maturities 89,291 90,178
Deferred Income Taxes 19,457 19,279
Other Liabilities 53,152 51,800
--------- ---------
Total liabilities 361,179 363,284
--------- ---------
Minority Interest 10,135 11,412
Shareholders' Equity:
Capital stock, $1.25 par value;
70,000,000 shares authorized;
29,369,658 shares issued 36,712 36,712
Preferred stock, 5,000,000 shares
authorized; none issued - -
Additional paid-in capital 84,407 83,839
Retained earnings 252,144 245,428
Treasury shares, at cost (2,896,374 and
3,015,466 shares) (37,517) (39,247)
Pension liability adjustment (536) (536)
Cumulative translation adjustments (2,081) (3,360)
--------- ---------
Total shareholders' equity 333,129 322,836
--------- ---------
Total liabilities and shareholders' equity $ 704,443 $ 697,532
========= =========
See accompanying notes to condensed consolidated financial statements.
KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------
(Dollars in thousands, except per share data)
Three Months Ended
------------------
September 30,
1994 1993
-------- --------
NET SALES $218,838 $175,665
COSTS AND EXPENSES:
Cost of goods sold 128,051 105,647
Research and development 4,419 3,632
Marketing 50,768 42,830
General and administrative 12,877 14,057
Interest expense 3,474 4,084
Amortization of intangibles 773 948
Restructuring charge - 24,749
-------- --------
Total costs and expenses 200,362 195,947
-------- --------
OTHER INCOME 92 726
-------- --------
INCOME (LOSS) BEFORE TAXES ON INCOME
AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGES 18,568 (19,556)
PROVISION (BENEFIT) FOR INCOME TAXES 7,900 (1,500)
-------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES 10,668 (18,056)
CUMULATIVE EFFECT OF ACCOUNTING CHANGES,
NET OF INCOME TAXES:
Postretirement benefits - (20,060)
Income taxes - 5,057
-------- --------
NET INCOME (LOSS) $ 10,668 $(33,059)
======== ========
PER SHARE DATA:
Earnings (loss) before cumulative
effect of accounting changes $ 0.40 $ (0.82)
Cumulative effect of accounting changes:
Postretirement benefits - (0.92)
Income taxes - 0.23
-------- --------
Earnings (loss) per share $ 0.40 $ (1.51)
======== ========
Dividends per share $ 0.15 $ 0.145
======== ========
Average shares outstanding
(in thousands) 26,390 21,954
======== ========
See accompanying notes to condensed consolidated financial statements.
KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------
(Dollars in thousands)
Three Months Ended
------------------
September 30,
1994 1993
-------- --------
OPERATING ACTIVITIES:
Net income (loss) $ 10,668 $(33,059)
Adjustments for non-cash items 10,162 25,676
Changes in certain assets and liabilities (21,411) 13,151
-------- --------
Net cash flow from (used for) operating activities (581) 5,768
-------- --------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (7,713) (4,205)
Purchase of Hertel AG, net of cash - (19,226)
Other 1,595 (483)
-------- --------
Net cash flow used for investing activities (6,118) (23,914)
-------- --------
FINANCING ACTIVITIES:
Increase in short-term debt 24 40,175
Increase in term debt 2,288 12,669
Reduction in term debt (1,831) (15,055)
Dividend reinvestment and employee stock plans 2,299 1,284
Cash dividends paid to shareholders (3,953) (3,181)
Other - (125)
-------- --------
Net cash flow from (used for) financing activities (1,173) 35,767
-------- --------
Effect of exchange rate changes on cash 126 1,479
-------- --------
CASH AND EQUIVALENTS:
Net increase (decrease) in cash and equivalents (7,746) 19,100
Cash and equivalents, beginning 17,190 4,149
-------- --------
Cash and equivalents, ending $ 9,444 $ 23,249
======== ========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 2,294 $ 2,585
Income taxes paid $ 1,627 $ 2,678
See accompanying notes to condensed consolidated financial statements.
KENNAMETAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
1. The condensed consolidated financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements included
in the company's 1994 Annual Report. The condensed consolidated balance
sheet as of June 30, 1994 has been derived from the audited balance
sheet included in the company's 1994 Annual Report. These interim
statements are unaudited; however, management believes that all
adjustments necessary for a fair presentation have been made and all
adjustments are normal, recurring adjustments. The results for the
three months ended September 30, 1994 are not necessarily indicative of
the results to be expected for the full fiscal year.
2. Inventories are stated at lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for a significant portion of
domestic inventories and the first-in, first-out (FIFO) method or
average cost for other inventories. The company used the LIFO method
of valuing its inventories for approximately 60 percent of total
inventories at September 30, 1994. Because inventory valuations under
the LIFO method are based on an annual determination of quantities and
costs as of June 30 of each year, the interim LIFO valuations are based
on management's projections of expected year-end inventory levels and
costs. Therefore, the interim financial results are subject to any
final year-end LIFO inventory adjustments.
3. The major classes of inventory as of the balance sheet dates were as
follows (dollars in thousands):
September 30, June 30,
1994 1994
------------- ---------
Finished goods $125,406 $112,202
Work in process and powder blends 53,783 54,831
Raw materials and supplies 22,561 20,571
-------- --------
Inventory at current cost 201,750 187,604
Less LIFO valuation (31,628) (29,425)
-------- --------
Total inventories $170,122 $158,179
======== ========
4. The company has been involved in various environmental cleanup and
remediation activities at several of its manufacturing facilities. In
addition, the company has been named as a potentially responsible party
at four Superfund sites in the United States. However, it is
management's opinion, based on its evaluations and discussions with
outside counsel and independent consultants, that the ultimate
resolution of these environmental matters will not have a material
adverse effect on the results of operations or financial position of the
company.
The company maintains a Corporate Environmental, Health and Safety
(EH&S) Department to effect compliance with all environmental
regulations and to monitor and oversee remediation activities. In
addition, the company has established an EH&S administrator at each of
its domestic manufacturing facilities. The company's financial
management team periodically meets with members of the Corporate EH&S
Department and the Corporate Legal Department to review and evaluate the
status of environmental projects and contingencies. On a quarterly and
annual basis, management establishes or adjusts financial provisions and
reserves for environmental contingencies in accordance with Statement of
Financial Accounting Standards (SFAS) No. 5, "Accounting for
Contingencies."
5. On August 4, 1993, the company completed the acquisition of an 81
percent interest in Hertel AG (Hertel) for $43 million in cash and $55
million of assumed debt. Hertel is a manufacturer of cemented carbide
tools and tooling systems based in Furth, Germany.
The Hertel acquisition was recorded under the purchase method of
accounting and, accordingly, the results of operations of Hertel for the
period beginning as of August 4, 1993, forward are included in the
accompanying condensed consolidated financial statements. The purchase
price has been allocated to assets acquired and liabilities assumed
based on fair market value at the date of acquisition. The excess of
the purchase price over the fair market value of the net assets acquired
has been recorded as goodwill and is being amortized over twenty years.
The fair values (as adjusted) of assets acquired and liabilities assumed
are summarized below (in thousands):
Current assets $114,800
Property, plant and equipment 70,200
Intangible assets (goodwill) 5,800
Deferred tax asset 40,600
Other noncurrent assets 12,400
Current liabilities 104,700
Long-term liabilities 89,400
As presented above, current liabilities includes a reserve of
approximately $36.0 million (pretax) for the restructuring of Hertel.
The restructuring costs primarily include amounts for severance, phase-
out and relocation. The cumulative charges to the restructuring reserve
total $20.1 million, leaving a balance of $16.3 million at September 30,
1994. It is expected that the restructuring, which began in fiscal
1994, will be substantially completed during fiscal year 1995.
In the September 1994 quarter, the company purchased an additional
37,000 common shares of Hertel at a purchase price of DM128 per share.
The company's ownership interest in Hertel as of September 30, 1994 was
85 percent.
In connection with the acquisition of Hertel, the company recognized a
special charge in the September 1993 quarter of approximately $20.4
million after taxes in connection with the closure of its manufacturing
facility in Neunkirchen, Germany, and other integration related actions.
The cumulative charges to the related reserve total $19.4 million, a
significant portion of which were cash charges, leaving a balance of
$5.3 million at September 30, 1994. It is expected that spending
related to this charge will be substantially completed during fiscal
year 1995.
The effect of the purchase on the company's operations, assuming the
transaction had occurred on July 1, 1992, would be as follows:
Pro Forma (Unaudited)
(Dollars in Thousands, Except Per Share Data)
---------------------------------------------
Three Months Ended
------------------
September 30,
1994 1993
-------- ----------
(Actual) (Pro Forma)
Net sales $218,838 $188,347
======== ========
Income (loss) before cumulative
effect of accounting changes $ 10,668 $(19,829)
======== ========
Net income (loss) $ 10,668 $(34,832)
======== ========
Per share data:
Earnings (loss) before cumulative
effect of accounting changes $ 0.40 $ (0.90)
Cumulative effect of accounting changes:
Postretirement benefits - (0.92)
Income taxes - 0.23
-------- -------
Earnings (loss) per share $ 0.40 $ (1.59)
======== =======
The pro forma financial information presented above does not purport to
present what the company's results of operations would actually have
been if the acquisition of Hertel had occurred on July 1, 1992, or to
project the company's results of operations for any future period.
6. Effective July 1, 1993, the company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The change
did not significantly affect earnings before cumulative effect of
changes in methods of accounting in the first quarter of fiscal year
1994.
The company provides varying levels of postretirement health care and
life insurance benefits to most U.S. employees who retire from active
service after having attained age 55 and 10 years of service. This plan
remains in effect for all current retirees and employees who will retire
prior to January 1, 1997. However, for those employees retiring on or
after January 1, 1997, the following plan amendments will be effective.
The company's retiree health care payments will be capped at 1996
levels. To qualify for medical benefits at normal retirement (age 65 or
later), employees must have a minimum of 5 years of service after age
40. Medical benefits will be available for only those retirements that
begin on or after the normal retirement age of 65.
The following table presents the components of the company's liability
for future retiree health care and life insurance benefits as of June
30, 1994 and July 1, 1993.
(Dollars in thousands)
June 30, July 1,
1994 1993
--------- --------
Accumulated postretirement benefit obligations:
Retirees $(14,800) $(15,100)
Fully eligible active participants (8,000) (7,600)
Other active participants (13,000) (11,300)
-------- --------
Total obligation $(35,800) $(34,000)
Assets at fair value - -
-------- --------
Accrued postretirement benefit cost $(35,800) $(34,000)
======== ========
As of September 30, 1994, the company's accrued postretirement benefit
liability was $35.8 million.
The components of retiree health care cost for the first quarter of
fiscal year 1995 were as follows:
(Dollars in thousands)
Service cost $ 300
Interest cost 725
------
Total cost $1,025
======
The discount rate used in calculating the accumulated postretirement
benefit obligations was 8.5 percent. In determining the accumulated
postretirement benefit obligations at July 1, 1993 and June 30, 1994,
the assumed rates of increase in health care were 15 percent for
retirees under age 65 and 10 percent for persons age 65 and older.
These rates are assumed to decrease to varying degrees annually to
6 percent for years 2002 and thereafter. A 1 percent increase in the
trend rate would increase both the accumulated postretirement benefit
obligation at June 30, 1994 and the total cost of the plan for the first
quarter of fiscal year 1995 by approximately 8 percent. The accumulated
postretirement benefit obligation is unfunded.
Effective July 1, 1994, the company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." Under the new standard, the
company must recognize the obligation to provide benefits to former or
inactive employees after employment, but before retirement. The
implementation of the new standard did not have a material impact on the
results of operations or financial position of the company.
7. Effective July 1, 1993, the company adopted SFAS No. 109, "Accounting
for Income Taxes." The company previously accounted for income taxes
pursuant to the provisions of APB No. 11. The new standard requires the
use of the liability method to recognize deferred income tax assets and
liabilities using enacted tax rates. As a result of implementing the
change in accounting principle, a net deferred tax liability of $5.6
million was recognized relating to net operating loss carryforwards and
other tax attributes existing as of July 1, 1993. In addition, the
income tax effect of the new method of accounting related to the
company's adoption of SFAS No. 106 as of July 1, 1993 was the
recognition of additional deferred tax assets of $13.9 million. The
combined effect of these items resulted in the recognition of an $8.3
million net deferred tax asset and a net income tax benefit of $5.1
million.
The components of the company's deferred tax assets and liabilities
arising under SFAS No. 109 were as follows:
(Dollars in thousands)
June 30, July 1,
1994 1993
--------- --------
Deferred tax assets:
Net operating loss carryforwards $ 50,839 $ 1,086
Deductible temporary differences:
Inventories 8,071 6,375
Property, plant and equipment 3,889 1,902
Vacation pay 3,471 3,287
Pensions and other long-term liabilities 1,630 2,288
Postretirement benefits other than pensions 13,972 13,940
Other deductible temporary differences 4,575 2,424
-------- --------
Total deferred tax assets 86,447 31,302
Valuation allowance (5,760) (1,086)
-------- --------
Net deferred tax asset $ 80,687 $ 30,216
======== ========
Deferred tax liabilities:
Accumulated depreciation $ 20,617 $ 21,953
======== ========
As a component of its cumulative adjustment from implementing SFAS No.
109, the company recognized a charge of $1.1 million to establish a
valuation reserve related to certain tax attributes comprising its net
deferred tax asset. As of July 1, 1993, deferred tax liabilities
associated with existing taxable temporary differences exceeded deferred
tax assets from future deductible temporary differences, excluding those
attributable to SFAS No. 106, by approximately $5.7 million. The
recognition by the company as of July 1, 1993, of the entire transition
obligation related to adopting the provisions of SFAS No. 106 resulted
in the recognition of a $13.9 million deferred tax asset. Future
operating costs under SFAS No. 106 are expected to exceed deductible
amounts for income tax purposes for many years. In addition, under
current federal tax regulations, should the company incur tax losses in
future periods, such losses may be carried forward to offset taxable
income for a period of up to 15 years. Based upon the length of the
period during which the SFAS No. 106-generated deferred tax asset can be
utilized, the company believes that it is more likely than not that
future taxable income will be sufficient to offset fully these future
deductions and a valuation allowance for this deferred tax asset is not
necessary.
At June 30, 1994, the company had unused tax benefits of $50.8 million
related to non-U.S. net operating loss (NOL) carryforwards for income
tax purposes, of which $46.7 million can be carried forward indefinitely
with the balance expiring at various dates through 2001. A significant
portion ($46.7 million) of the unused tax benefits relate to the Federal
Republic of Germany.
The company believes that it is more likely than not that $45.1 million
of NOL carryforwards will be utilized in future periods. The recorded
tax benefits are expected to be realized by achieving future profitable
operations in Germany. The German NOL carryforwards can be carried
forward indefinitely.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
There were no material changes in financial position, liquidity or capital
resources between June 30, 1994 and September 30, 1994. The ratio of current
assets to current liabilities was 1.7 as of September 30, 1994 as compared
with 1.6 as of June 30, 1994. The debt to capital ratio (i.e., total debt
divided by the sum of total debt and shareholders' equity) was 31 percent as
of September 30, 1994 unchanged from June 30, 1994.
In the September 1993 quarter, the company recorded cumulative effect charges
aggregating $15 million after taxes for the adoption of SFAS No. 106 and SFAS
No. 109. While these charges did not involve the use of cash, they had a
significant effect on various components of the company's consolidated
financial position at September 30, 1993.
Capital expenditures are estimated to be $50-55 million in fiscal year 1995.
Expenditures are being made to modernize facilities and upgrade machinery and
equipment. Capital expenditures are being financed with cash from operations
and borrowings under existing revolving credit agreements with banks.
RESULTS OF OPERATIONS
SALES AND EARNINGS
During the quarter ended September 30, 1994, consolidated sales were $219
million, up 25 percent from $176 million in the same quarter last year. The
prior year sales include only two months of Hertel revenues. On a comparable
year over year basis, it is estimated that sales were up 16 percent from the
prior year.
Net income for the September 1994 quarter was $10.7 million, or $0.40 per
share, as compared with a net loss of $33.1 million, or $1.51 per share in the
same quarter last year. The net loss in the prior year includes the
unfavorable cumulative noncash effect of adopting SFAS No. 106 ($20.1 million
net of income tax effect) and the favorable cumulative noncash effect of
adopting SFAS No. 109 ($5.1 million). In addition to the cumulative effect of
changes in accounting principles, prior year results included a restructuring
charge of $20.4 million after taxes.
The following table presents the company's sales by product class and
geographic area (dollars in thousands):
Quarter ended September 30,
1994 1993 % Change
---------- ---------- --------
Sales by Product Class:
Metalworking $183,581 $144,991 26.6
Mining and construction 28,367 25,278 12.2
Metallurgical 6,890 5,396 27.7
-------- --------
Net sales $218,838 $175,665 24.6
======== ========
Sales by Geographic Area:
Within the U.S. $140,569 $119,247 17.9
Foreign and export 78,269 56,418 38.7
-------- --------
Net sales $218,838 $175,665 24.6
======== ========
METALWORKING PRODUCTS
During the September 1994 quarter, worldwide sales of metalworking products
increased 27 percent from last year. The prior year metalworking sales
include only two months of Hertel revenues. On a comparable year over year
basis, worldwide sales of metalworking products are estimated to have
increased 15 percent.
In the United States, sales of metalcutting inserts and toolholding devices
increased 15 percent. Total sales of industrial supply products increased 22
percent as a result of increased sales through mail order catalogs and full
service supply programs.
International sales of metalworking products increased 48 percent from the
previous year primarily because of the impacts of the Hertel acquisition,
favorable foreign currency translation effects and higher sales volume in
Europe. Excluding the acquisition impacts and currency translation effects,
international metalworking sales increased an estimated 11 percent.
MINING AND CONSTRUCTION PRODUCTS
During the September 1994 quarter, sales of mining and construction tools
increased 12 percent from the previous year primarily because of strong
domestic demand for mining tools. International demand for highway
construction and mining tools remains weak, particularly in Europe.
METALLURGICAL PRODUCTS
During the September 1994 quarter, sales of metallurgical products increased
28 percent from the previous year primarily because of strong international
demand for carbide powders.
GROSS PROFIT MARGIN
As a percentage of sales, the gross profit margin for the September 1994
quarter was 41.5 percent as compared with 39.9 percent in the prior year. The
gross profit margin benefited from a favorable sales mix and increased
manufacturing efficiencies. However, these benefits were partially offset by
higher raw material costs.
OPERATING EXPENSES
For the quarter ended September 30, 1994, research and development, marketing
and general and administrative expenses increased 12 percent as a result of
the acquisition impacts, higher sales volume and unfavorable foreign currency
translation effects.
As a percentage of sales, operating expenses decreased to 31.1 percent as
compared with 34.5 percent last year. The operating expense ratio decreased
as a result of the decrease in general and administrative expenses combined
with the increase in consolidated sales.
INTEREST EXPENSE
Interest expense was $3.5 million for the September 1994 quarter, as compared
with $4.1 million for the same period last year. The decrease was primarily
due to the lower amount of debt outstanding in the September 1994 quarter as
compared with the prior year. As of September 30, 1994 approximately 35
percent of the company's total debt was subject to variable interest rates.
INCOME TAXES
The effective tax rate for the September 1994 quarter was 43 percent compared
with an effective tax rate, excluding the acquisition impacts, effects of the
accounting changes and the restructuring charge, of 41.8 percent in the prior
year.
OUTLOOK
In looking to the second quarter ending December 31, 1994, management expects
consolidated sales to increase from the $195 million achieved in the same
quarter last year. Sales of metalworking products in the United States should
benefit from the continued expansion of the economy, catalog sales and full
service supply programs. In addition, international sales are expected to
improve as the European economies continue to expand. Sales of mining and
construction tools should continue to grow from increased domestic demand for
mining tools.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in footnote 4 to the condensed consolidated
financial statements, contained in Part I, Item 1 of this Form 10-Q, is
incorporated by reference herein and supplements the information previously
reported in Part I, Item 3 of the company's Form 10-K for the year
ended June 30, 1994, which is also incorporated by reference herein.
It is management's opinion, based on its evaluation and discussions with
outside counsel, that the company has viable defenses to these cases and
that, in any event, this litigation will not have a materially adverse effect
on the results of operations or financial position of the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders on October 31, 1994, the stockholders
of the company voted on the election of directors, a proposed amendment to
Article Fifth of the Amended and Restated Articles of Incorporation increasing
the authorized capital stock from 30,000,000 shares to 70,000,000 shares and
the election of independent auditors. The following is the number of shares
voted in favor of and against each matter, and the number of shares having
authority to vote on each matter but withheld.
1. With respect to the votes cast for directors whose terms expire in 1997.
For Withheld Broker Non-Vote
---------- ---------- ---------------
Richard C. Alberding 22,452,937 364,042 0
Quentin C. McKenna 22,687,195 129,784 0
William R. Newlin 22,699,115 117,864 0
2. With respect to the resolution proposing that Article Fifth of the Amended and
Restated Articles of Incorporation be amended to increase the authorized number of
shares of the capital stock from 30,000,000 shares to 70,000,000 shares.
For Against Abstained Broker Non-Vote
---------- --------- --------- ---------------
Amendment to Articles 16,770,797 5,903,404 142,778 3,086,766
3. With respect to the election of the firm of Arthur Andersen & Co., independent
auditors, to audit the accounts of the company and its subsidiary companies for the
fiscal year ending June 30, 1995.
For Against Abstained Broker Non-Vote
---------- --------- --------- ---------------
Arthur Andersen & Co. 22,713,474 66,013 37,492 0
ITEM 5. OTHER INFORMATION
On November 2, 1994, the company issued a press release announcing that it had
signed an agreement with W.W. Grainger, Inc. to establish an alliance to
market metalcutting tools and accessories and maintenance, repair and
operations products.
W.W. Grainger, Inc., with 1993 sales of $2.6 billion, is a nationwide
distributor of equipment, components and supplies to the commercial,
industrial, contractor and institutional markets.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reference
(a) Exhibits
(3)(i) Articles of Incorporation
Amended and Restated Articles of
Incorporation as Amended Filed herewith
(99) Additional Exhibits
Press Release Dated November 2, 1994 Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended September 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KENNAMETAL INC.
Date: November 14, 1994 By: /s/ RICHARD J. ORWIG
---------------------
Richard J. Orwig
Vice President
Chief Financial and Administrative Officer
5
1,000
QTR-1
JUN-30-1995
JUL-01-1994
SEP-30-1994
9,444
0
149,542
10,419
170,122
342,876
475,734
232,687
704,443
199,279
0
36,712
0
0
296,417
704,443
218,838
218,838
128,051
200,362
(92)
0
3,474
18,568
7,900
10,668
0
0
0
10,668
.40
.40
EXHIBIT 3(i)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
AS AMENDED
FIRST. The name of the Corporation is Kennametal Inc.
SECOND. The location and post office address of its registered office
in this Commonwealth is Route 981 Westmoreland County Airport, Latrobe,
Pennsylvania 15650.
THIRD. The purpose or purposes of the Corporation are to have unlimited
power to engage in and to do any lawful act concerning any or all lawful
business for which corporations may be incorporated under the Business
Corporation Law, approved the 5th day of May, A.D. 1933, P.L. 364, as amended,
including but not limited to, manufacturing, processing, research or
development, and the business of manufacturing cemented carbide products
including tools and related items.
FOURTH. The term of its existence is perpetual.
FIFTH. The authorized capital stock of the Corporation shall be
70,000,000 shares of Capital Stock of the par value of $1.25 per share and
5,000,000 shares of Class A Preferred Stock without par value.
A description of each class of shares and a statement of the voting
rights, designations, preferences, qualifications, privileges, limitations,
options, restrictions, conversion rights and other special or relative rights
granted to or imposed upon the shares of each class and of the authority vested
in the Board of Directors of the Corporation to establish series of Class A
Preferred Stock and to fix and determine the relative rights and preferences as
between series of Class A Preferred Stock, and the variations therein, are as
follows:
1. The Board of Directors is hereby expressly authorized, at any
time or from time to time, to divide any or all of the shares of Class A
Preferred Stock into one or more series, and in the resolution or
resolutions establishing a particular series, before issuance of any of
the shares thereof, to fix and determine the number of shares and the
designation of such series, so as to distinguish it from the shares of
all other series and classes, and to fix and determine the voting rights,
preferences, qualifications, privileges, limitations, options, conversion
rights, restrictions, and other special or relative rights of such
series. Each of such series may differ from every other series
previously authorized, as may be determined by the Board of Directors in
any or all respects, to the fullest extent now or hereafter permitted by
the laws of the Commonwealth of Pennsylvania, including, but not limited
to, the variations between different series in the following respects:
(a) the distinctive designation of such series and the number
of shares which shall constitute such series, which number may be
increased or decreased (but not below the number of shares thereof
then outstanding) from time to time by the Board of Directors;
(b) the annual dividend or dividend rate for such series, and
the date or dates from which dividends shall commence to accrue;
(c) the price or prices at which, and the terms and conditions
on which, if any, the shares of such series may be redeemed or made
redeemable;
(d) the purchase or sinking fund provisions, if any, for the
purchase or redemption of shares of such series;
(e) the preferential amount or amounts, if any, payable upon
shares of such series in the event of liquidation, dissolution, or
winding up of the Corporation;
(f) the voting rights, if any, of the shares of such series;
provided, that exclusive of any other voting rights fixed and
determined for shares of Class A Preferred Stock or any series
thereof, and solely for purposes of determining, in connection with
a stockholder vote required by Article SEVENTH, Article EIGHTH,
Article NINTH or Article TENTH, (i) the outstanding stock of the
Corporation entitled to vote and (ii) the percentage thereof that is
voted affirmatively by the holders thereof, the portions of such
outstanding stock and of such percentage thereof, respectively, that
are represented by the holders of outstanding shares of Class A
Preferred Stock shall be determined on the basis of (i) the
aggregate number of votes, if any, that the holders of all
outstanding shares of Class A Preferred Stock are entitled to cast
and (ii) the aggregate number of votes, if any, that the holders of
all outstanding shares of Class A Preferred Stock affirmatively do
cast, respectively, in connection with a stockholder vote required
by Article SEVENTH, Article EIGHTH, Article NINTH or Article TENTH;
(g) the terms and conditions, if any, upon which shares of such
series may be converted and the class or classes or series of shares
of the Corporation or other securities into which such shares may be
converted;
(h) the relative seniority, priority or junior rank of such
series as to dividends or assets with respect to any other classes
or series of capital stock then or thereafter to be issued; and
(i) such other terms, preferences, qualifications, privileges,
limitations, options, restrictions, and other special rights, if
any, of shares of such series as the Board of Directors may, at the
time of such resolution or resolutions, lawfully fix or determine
under the laws of the Commonwealth of Pennsylvania.
All shares within each series of Class A Preferred Stock shall be alike
in every particular, expect with respect to the dates from which
dividends, if any, shall commence to accrue.
2. Unless otherwise provided by law, the Articles of Incorporation
or the By-laws of the Corporation, or in a resolution or resolutions
establishing any particular series of Class A Preferred Stock, the
aggregate number of authorized shares of Class A Preferred Stock may be
increased by an amendment to the Articles of Incorporation approved
solely by a majority vote of the outstanding shares of Capital Stock.
3. The Board of Directors may in its discretion, at any time or
from time to time, issue or cause to be issued all or any part of the
authorized and unissued shares of Class A Preferred Stock or all or any
part of the authorized and unissued shares of Capital Stock for
consideration of such character and value as the Board of Directors shall
from time to time fix or determine.
4. The holders of Capital Stock shall have one vote per share.
5. The Capital Stock shall be subject to the prior rights of
holders of any series of Class A Preferred Stock outstanding, according
the the preferences, if any, of such series.
6. The Corporation may issue shares of stock, option rights, or
securities having conversion or option rights, without first offering
them to the holders of Class A Preferred Stock or Capital Stock.
SIXTH. The Board of Directors of the Corporation, when evaluating any
offer of another party to (a) make a tender or exchange offer for any equity
security of the Corporation, (b) merge or consolidate the Corporation with
another corporation or other person, or (c) purchase or otherwise acquire all
or substantially all of the properties and assets of the Corporation, shall, in
connection with the exercise of its judgment in determining what is in the best
interests of the Corporation and its stockholders, give due consideration to
all relevant factors, including without limitation the social and economic
effects on the employees, suppliers and other constituents of the Corporation
and its subsidiaries and on the communities in which the Corporation and its
subsidiaries operate or are located.
SEVENTH. (a) Except as set forth in paragraph (b) of this Article
Seventh, the affirmative vote of the holders of seventy-five percent (75%) of
the outstanding stock of the Corporation entitled to vote shall be required
for:
(i) any merger or consolidation to which the Corporation, or any of
its subsidiaries, and an Interested Person (as hereinafter defined) are
parties;
(ii) any sale or other disposition by the Corporation, or any of its
subsidiaries, of all or substantially all of the assets of the
Corporation or any of its subsidiaries to an Interested Person;
(iii) any purchase or other acquisition by the Corporation, or any of
its subsidiaries, of all or substantially all of the assets or stock of
an Interested Person; and
(iv) any other transaction with an Interested Person which requires
the approval of the stockholders of the Corporation under the
Pennsylvania Business Corporation Law, as in effect from time to time.
(b) The provisions of paragraph (a) of this Article Seventh shall not be
applicable to any transaction described therein, if such transaction is
approved by resolution of the Board of Directors of the Corporation, provided
that a majority of the members of the Board of Directors voting for the
approval of such transaction were duly elected and acting members of the Board
of Directors prior to the date that the person, firm or corporation, or any
group thereof, with whom such transaction is proposed, became an Interested
Person.
(c) As used in this Article Seventh, the term "Interested Person" shall
mean any person, firm or corporation, or any group thereof acting or intending
to act in concert, including any person directly or indirectly controlling or
controlled by or under direct or indirect common control with such person, firm
or corporation or group, which owns of record or beneficially, directly or
indirectly, five percent (5%) or more of any class of voting securities of the
Corporation. The Board of Directors' determination of who constitutes an
Interested Person within the meaning of this provision shall be conclusive.
(d) The affirmative vote of the holders of seventy-five percent (75%) of
the outstanding stock of the Corporation entitled to vote shall be required to
amend, alter or repeal this Article Seventh.
EIGHTH. (a) An affirmative vote of the holders of seventy-five percent
(75%) of the outstanding stock of the Corporation entitled to vote shall be
required for:
(i) The removal of the entire Board of Directors, a class of the
board of Directors or any individual director without assigning any
cause; and
(ii) Increasing the size of the Board to more than twelve, or
decreasing the size of the Board to fewer than eight, members.
(b) The affirmative vote of the holders of seventy-five percent (75%) of
the outstanding stock of the Corporation entitled to vote shall be required to
amend, alter or repeal this Article Eighth.
(c) Any reclassification of the Board of Directors or decrease in its
size which would have the effect of eliminating the seat of an existing
director shall be considered the removal of a director and within the voting
requirements of this provision.
NINTH. (a) Any purchase by the Corporation, directly or indirectly, of
shares of Voting Stock (as hereinafter defined) from a 4% Shareholder (as
hereinafter defined) at a price per share in excess of the Market Price (as
hereinafter defined) at the time of such purchase shall, except as hereinafter
expressly provided, require the affirmative vote of the holders of that amount
of the voting power of the then outstanding shares of Voting Stock equal to the
sum of (i) the voting power of the shares of Voting Stock of which such
4% Shareholder is the beneficial owner (as hereinafter defined) and (ii) a
majority of the voting power of the remaining outstanding shares of Voting
Stock, voting together as a single class. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that a
lesser percentage may be specified, by law or any agreement with any national
securities exchange, or otherwise.
(b) The provisions of paragraph (a) of this Article Ninth shall not be
applicable to (i) any offer to purchase made by the Corporation which is made
on the same terms and conditions to all holders of the same class of Voting
Stock as those so purchased, (ii) any transaction which may be deemed to be a
purchase by the Corporation of Voting Stock which is made in connection with
the terms or operation of any stock option or other employee benefit plan now
or hereafter maintained by the Corporation, or (iii) any purchase by the
Corporation of Voting Stock on the open market and not as a result of a
privately negotiated transaction.
(c) For purposes of this Article Ninth:
(i) A "person" shall mean any individual, firm, corporation,
partnership, trust or other entity.
(ii) "Voting Stock" shall mean the outstanding shares of all classes
or series of authorized capital stock of the Corporation entitled to vote
generally in the election of directors.
(iii) "4% Shareholder" shall mean any person (other than the
Corporation or any corporation of which a majority of any class or series
of equity security is owned, directly or indirectly, by the Corporation),
including any group formed for the purpose of acquiring, holding or
voting Voting Stock, who or which is the beneficial owner, directly or
indirectly, of at least 4% of the voting power of the outstanding Voting
Stock and became such beneficial owner within two years prior to the date
of the purchase referred to in paragraph (a) of this Article Ninth or any
agreement in respect thereof.
(iv) A person shall be a "beneficial owner" of any Voting Stock which
such person directly or indirectly, beneficially or of record, owns or
controls by agreement, understanding, voting trust or otherwise.
(v) For purposes of determining whether a person is a 4% Shareholder
pursuant to paragraph (c)(iii) of this Article Ninth, the number of
shares of Voting Stock deemed to be outstanding shall include shares
deemed owned through application of paragraph (c)(iv) of this Article
Ninth but shall not include any other shares of Voting Stock which may be
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(vi) "Market Price" means the last closing sale price immediately
preceding the time in question of a share of the stock in question on the
Composite Tape for New York Stock Exchange Listed Stocks, or, if such
stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on the
principal United States Securities Exchange registered under the
Securities Exchange Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such Exchange, the last closing bid
quotation with respect to a share of such stock immediately preceding the
time in question on the National Association of Securities Dealers, Inc.
Automated Quotations System or any system then in use (or any other
system of reporting or ascertaining quotations then available), or if
such stock is not quoted, the fair market value at the time in question
of a share of such stock as determined by the Board in good faith.
(vii) "Disinterested Director" means (A) any member of the Board of
Directors of the Corporation (the "Board") who neither is a director or
officer of, has a material equity interest in, nor is, the 4% Shareholder
referred to in paragraph (a) of this Article Ninth and who was a member
of the Board more than two years prior to the date of the purchase
referred to in paragraph (a) of this Article Ninth, and (B) any successor
of a Disinterested Director who was not nominated for election as a
director by the 4% Shareholder referred to in paragraph (a) of this
Article Ninth and who is recommended to succeed a Disinterested Director
by a majority of Disinterested Directors then on the Board.
(d) A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine for purposes of this Article Ninth, on the
basis of information known to them after reasonable inquiry, (i) whether a
person is a 4% Shareholder, (ii) the number of shares of Voting Stock
beneficially owned by any person, (iii) whether a price is in excess of the
Market Price, and (iv) such other matters with respect to which a determination
is required under this Article Ninth. The good faith determination of a
majority of the Disinterested Directors shall be conclusive and binding for all
purposes of this Article Ninth.
TENTH. (a) In addition to any affirmative vote required by law, the
Articles of Incorporation, or the By-laws of the Corporation, Business
Combinations with an Interested Shareholder shall require the affirmative vote
of at least a majority of the votes entitled to be cast by the holders of all
then outstanding shares of Voting Stock other than the Interested Shareholder,
voting together as a single class; provided, however, that such affirmative
vote shall not be required and such Business Combination shall require only the
affirmative vote, if any, required by law, the Articles of Incorporation, or
the By-laws of the Corporation if:
(i) The Business Combination shall have been approved by a majority
of Disinterested Directors; or
(ii) All of the following six conditions shall have been met:
(A) The transaction constituting the Business Combination shall
provide for a consideration to be received by holders of Capital
Stock in exchange for their stock, and the aggregate amount of the
cash consideration and the Fair Market Value as of the date of the
consummation of the Business Combination of consideration other than
cash to be received per share by holders of Capital Stock in such
Business Combination shall be at least equal to the highest of the
following:
(I) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes, and
soliciting dealers' fees) paid by the Interested Shareholder in
order to acquire any shares of Capital Stock beneficially owned
by the Interested Shareholder which were acquired (x) within
the two-year period immediately prior to the first public
announcement of the proposed Business Combination (the
"Announcement Date") or (y) in the transaction in which the
Interested Shareholder became an Interested Shareholder,
whichever is higher;
(II) the Fair Market Value per share of Capital Stock on
the Announcement Date or on the date on which the Interested
Shareholder became an Interested Shareholder (the
"Determination Date"), whichever is higher;
(III) the highest Fair Market Value per share of Capital
Stock for the two years immediately preceding the Announcement
Date, where the closing sale price is determined for each
trading day without reference to the immediately preceding
30-day period; and
(IV) (if applicable) the price per share equal to the Fair
Market Value per share of Capital Stock determined pursuant to
clause (II) preceding, multiplied by the ratio of (x) the
highest per share price (including any brokerage commissions,
transfer taxes, and soliciting dealers' fees) paid in order to
acquire any shares of Capital Stock beneficially owned by the
Interested Shareholder which were acquired within the two-year
period immediately prior to the Announcement Date to (y) the
Fair Market Value per share of Capital Stock on the first day
in such two-year period on which the Interested Shareholder
beneficially owned any shares of Capital Stock.
All per share prices shall be adjusted to reflect any
intervening stock splits, stock dividends, and reverse stock splits.
(B) If the transaction constituting the Business Combination
shall provide for a consideration to be received by holders of any
class of outstanding Voting Stock other than Capital Stock, the
aggregate amount of the cash and the Fair Market Value as of the
date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of
shares of such Voting Stock shall be at least equal to the highest
of the following (it being intended that the requirements of this
clause (ii)(B) shall be required to be met with respect to every
such class of outstanding Voting Stock whether or not the Interested
Shareholder beneficially owns any shares of a particular class of
such Voting Stock):
(I) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes, and
soliciting dealers' fees) paid by the Interested Shareholder in
order to acquire any shares of such class of Voting Stock
beneficially owned by the Interested Shareholder which were
acquired (x) within the two-year period immediately prior to
the Announcement Date or (y) in the transaction in which the
Interested Shareholder became an Interested Shareholder,
whichever is higher;
(II) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of Voting
Stock are entitled in the event of any liquidation,
dissolution, or winding up of the Corporation;
(III) the highest Fair Market Value per share of such class
of Voting Stock for the two years immediately preceding the
Announcement Date, where the closing sale price is determined
for each trading day without reference to the immediately
preceding 30-day period;
(IV) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the Determination
Date, whichever is higher; and
(V) (if applicable) the price per share equal to the Fair
Market Value per share of such class of Voting Stock determined
pursuant to clause (IV) immediately preceding, multiplied by
the ratio of (x) the highest per share price (including any
brokerage commissions, transfer taxes, and soliciting dealers'
fees) paid in order to acquire any shares of such class of
Voting Stock beneficially owned by the Interested Shareholder
which were acquired within the two-year period immediately
prior to the Announcement Date to (y) the Fair Market Value per
share of such class of Voting Stock on the first day in such
two-year period on which the Interested Shareholder
beneficially owned any share of such class of Voting Stock.
All per share prices shall be adjusted to reflect any intervening
stock splits, stock dividends, and reverse stock splits.
(C) The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Capital Stock) shall be
in cash or in the same form as was previously paid in order to
acquire shares of such class of Voting Stock which are beneficially
owned by the Interested Shareholder. If the Interested Shareholder
beneficially owns shares of any class of Voting Stock which were
acquired with varying forms of consideration, the form of
consideration to be received by holders of such class of Voting
Stock shall be either cash or the form used to acquire the largest
number of shares of such class of Voting Stock beneficially owned by
the Interested Shareholder.
(D) After such Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business
Combination:
(I) except as approved by a majority of the Disinterested
Directors, there shall have been no failure to declare and pay
at the regular date therefor any full quarterly dividends
(whether or not cumulative) on any outstanding preferred stock;
(II) there shall have been (x) no reduction in the annual
rate of dividends paid on the Capital Stock (except as
necessary to reflect any subdivision of the Capital Stock),
except as approved by a majority of the Disinterested
Directors, and (y) an increase in such annual rate of dividends
(as necessary to prevent any such reduction) in the event of
any reclassification (including any reverse stock split),
recapitalization, reorganization, or any similar transaction
which has the effect of reducing the number of outstanding
shares of the Capital Stock, unless the failure so to increase
such annual rate is approved by a majority of the Disinterested
Directors; and
(III) such Interested Shareholder shall not have become the
beneficial owner of any additional shares of Voting Stock
except as part of the transaction in which such Interested
Shareholder became an Interested Shareholder.
(E) After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received the
benefit, directly or indirectly (except proportionately as a
shareholder), of any loans, advances, guarantees, pledges, or other
financial assistance or any tax credits or other tax advantages provided
by the Corporation, whether in anticipation of or in connection with a
Business Combination or otherwise.
(F) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (or any subsequent provisions replacing such Act,
rules, or regulations) shall be mailed to public shareholders of the
Corporation at least 30 days prior to the consummation of such Business
Combination (whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent provisions).
(b) For the purposes of this Article Tenth:
(i) The term "Business Combination" shall mean:
(A) any merger or consolidation of the Corporation or any
Subsidiary with (I) any Interested Shareholder or with (II) any
other corporation (whether or not itself an Interested Shareholder)
which is, or after such merger or consolidation would be, an
Affiliate or Associate of an Interested Shareholder;
(B) any sale, lease, exchange, mortgage, pledge, transfer, or
other disposition (in one transaction or a series of transactions)
to or with any Interested Shareholder and/or any Affiliate or
Associate of any Interested Shareholder of any assets of the
Corporation or any Subsidiary thereof having an aggregate Fair
Market Value of, equal to or in excess of a Substantial Part of the
assets of the Corporation;
(C) the issuance, exchange, sale, or transfer by the
Corporation or any Subsidiary (in one transaction or a series of
transactions) of any securities of the Corporation or any Subsidiary
to any Interested Shareholder and/or any Affiliate or Associate of
any Interested Shareholder in exchange for cash, securities, or
other consideration (or a combination thereof) having an aggregate
Fair Market Value of, equal to or in excess of a Substantial Part of
the assets of the Corporation;
(D) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any
Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder; or
(E) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger
or consolidation of the Corporation with any of its Subsidiaries
which involves or is proposed by or on behalf of any Interested
Shareholder or any Affiliate or Associate of any Interested
Shareholder and has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any
class of equity securities or securities convertible into equity
securities of the Corporation or any Subsidiary which is directly or
indirectly owned by an Interested Shareholder or any Affiliate or
Associate of any Interested Shareholder.
(ii) The term "person" shall mean any individual, firm, corporation,
partnership, trust or other entity.
(iii) The term "Interested Shareholder" at any particular time shall
mean any person (other than the Corporation or any Subsidiary and other
than any profit sharing, employee stock ownership, or other employee
benefit plan of the Corporation or any Subsidiary or any trustee of or
fiduciary with respect to any such plan when acting in such capacity) who
or which:
(A) is at such time the beneficial owner, directly or
indirectly, of more than ten percent (10%) of the voting power of
the outstanding Voting Stock;
(B) was at any time within the two-year period immediately
prior to such time the beneficial owner, directly or indirectly, of
more than ten percent (10%) of the voting power of the then
outstanding Voting Stock; or
(C) is at such time an assignee of or has otherwise succeeded
to the beneficial ownership of any shares of Voting Stock which were
at any time within two years prior to such time beneficially owned
by any Interested Shareholder, if such assignment or succession
shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of
the Securities Act of 1933, as amended.
(iv) A person shall be a "beneficial owner" of any Voting Stock:
(A) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly, within the meaning of
Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended, as in effect on September 1, 1988;
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether or not such right is
exercisable immediately or only after the passage of time) pursuant
to any agreement, arrangement, or understanding or upon the exercise
of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement,
arrangement, or understanding; or
(C) which is beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement, or understanding for the
purpose of acquiring, holding, voting, or disposing of any shares of
Voting Stock.
(v) For the purposes of determining whether a person is an
Interested Shareholder pursuant to Section (b)(iii) of this Article
Tenth, the number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned by an Interested Shareholder through
application of Section (b)(iv) of this Article Tenth but shall not
include any other shares of Voting Stock which may be issuable pursuant
to any agreement, arrangement, or understanding, or upon the exercise of
conversion rights, warrants or options, or otherwise.
(vi) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended, as in effect on
September 1, 1988 (the term "registrant" in said Rule 12b-2 meaning in
this case the Corporation).
(vii) "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition
of Interested Shareholder set forth in Section (b)(iii) of this Article
Tenth the term "Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly or
indirectly, by the Corporation.
(viii) "Disinterested Director" means any member of the Board of
Directors of the Corporation (the "Board") who is unaffiliated with, and
not a representative of, an Interested Shareholder and who was a member
of the Board prior to the time that the Interested Shareholder became an
Interested Shareholder and any successor of a Disinterested Director who
is unaffiliated with, and not a representative of, the Interested
Shareholder and is recommended or elected to succeed a Disinterested
Director by a majority of the Disinterested Directors then on the Board.
(ix) "Fair Market Value" means: (a) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding
the date in question of a share of such stock on the Composite Tape for
New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on
the Composite Tape, on the New York Stock Exchange, or, if such stock is
not listed on such exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934, as
amended, on which such stock is listed, or, if such stock is not listed
on any such exchange, the highest closing bid quotation with respect to a
share of such stock during the 30-day period preceding the date in
question on the National Association of Securities Dealers, Inc.,
Automated Quotations System or any system then in use, or if no such
quotations are available, the fair market value on the date in question
of a share of such stock as determined by the Board of Directors in good
faith with the approval of at least a majority of the Disinterested
Directors in the determination made; and (b) in the case of property
other than cash or stock, the fair market value of such property on the
date in question as determined by the Board of Directors in good faith
with the approval of at least a majority of the Disinterested Directors
in the determination made.
(x) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in Section (a)(ii) of this Article Tenth shall include
the shares of Capital Stock and/or the shares of any class of outstanding
Voting Stock retained by the holders of such shares.
(xi) A "Substantial Part of the assets of the Corporation" shall mean
more than twenty-five percent (25%) of the fair market value of the total
assets of the Corporation as of the end of its most recent fiscal quarter
ending prior to the time the determination is made.
(xii) The term "Voting Stock" shall mean the outstanding shares of
all classes or series of authorized capital stock of the Corporation
entitled to vote generally in the election of directors.
(xiii) The term "Capital Stock" shall mean the outstanding shares of
the Capital Stock of the par value of $1.25 per share and shall also mean
any class of common stock which may be authorized under the Articles of
Incorporation.
(c) A majority of the Disinterested Directors shall have the power and
duty to determine for the purposes of this Article Tenth, on the basis of
information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article Tenth, including without limitation
(i) whether a person is an Interested Shareholder, (ii) the number of shares of
Voting Stock beneficially owned by any person, (iii) whether a person is an
Affiliate or Associate of another, (iv) whether the applicable conditions set
forth in Section (a)(ii) of this Article Tenth have been met with respect to
any Business Combination, and (v) whether the assets which are the subject of
any Business Combination equal or exceed, or whether the consideration to be
received from the issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination equals or exceeds, a Substantial Part of
the assets of the Corporation. Any such determination made in good faith shall
be binding and conclusive on all parties.
(d) Nothing contained in this Article Tenth shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
(e) Unless otherwise clear from the context, all terms used in this
Article Tenth shall have the meanings given to them in this Article Tenth. The
masculine gender shall include the feminine and neuter genders, and vice versa;
and the singular shall include the plural, and vice versa.
(f) Notwithstanding any other provisions of law, the Articles of
Incorporation, or the By-laws of the Corporation, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of
shareholders entitled to cast at least eighty percent (80%) of the votes which
all shareholders would be entitled to cast at an annual election of directors,
voting together as a single class, shall be required to amend, alter, or
repeal, or to adopt any provision inconsistent with, this Article Tenth.
STATEMENT WITH RESPECT TO SHARES
SERIES ONE PREFERRED STOCK
RESOLVED that pursuant to the authority conferred upon the Board of
Directors by Paragraph 1 of Article 5th of the Articles of Incorporation of the
Corporation, as amended, there is hereby established a series of the Class A
Preferred Stock of the Corporation to consist initially of 200,000 shares with
the designation and relative rights and preferences thereof to be as follows:
"Section 1. DESIGNATION. The shares of such series shall be designated
as "Series One Preferred Stock." Shares of this series shall be issued
pursuant to the exercise of rights to purchase Series One Preferred Stock
distributed to the holders of Capital Stock, par value $1.25 per share, of the
Corporation (the "Capital Stock").
Section 2. DIVIDENDS AND DISTRIBUTIONS. Subject to the rights and
preferences of the holders of any shares of any series of Class A Preferred
Stock ranking senior as to dividends to this Series One Preferred Stock, the
holders of shares of Series One Preferred Stock, in preference to the holders
of Capital Stock and shares of stock ranking junior as to dividends to the
Series One Preferred Stock, shall be entitled to receive, when and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the 15th day of September, December,
March and June in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series One Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $25.00 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends plus 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions, other than a dividend
payable in shares of Capital Stock, or a subdivision of the outstanding shares
of Capital Stock (by reclassification or otherwise), paid on the Capital Stock
at any time during the quarter year immediately preceding the quarter year
ending on the day immediately preceding such Quarterly Dividend Payment Date.
In the event the Corporation shall at any time after October 23, 1990 (the
"Rights Declaration Date") during any quarter year immediately preceding the
quarter year ending on the day immediately preceding a Quarterly Dividend
Payment Date (i) declare any dividend on Capital Stock payable in shares of
Capital Stock, or (ii) subdivide the outstanding Capital Stock or combine the
outstanding Capital Stock into a greater or lesser number of shares of Capital
Stock, then in each such case the amounts to which holders of shares of Series
One Preferred Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by multiplying each such
amount by a fraction the numerator of which is the number of shares of Capital
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Capital Stock that were outstanding immediately prior
to such event.
Dividends shall begin to accrue and be cumulative on outstanding shares of
Series One Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series One Preferred Stock,
unless the date of issue is a Quarterly Dividend Payment Date or is a date
after the record date for the determination of holders of shares of Series One
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series One Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series One Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed for the payment
thereof.
Section 3. VOTING RIGHTS.
(A) Each share of Series One Preferred Stock shall entitle the holder
thereof to 100 votes (and each one one-hundredth of a share of Series One
Preferred Stock shall entitle the holder thereof to one vote) on all matters
submitted to a vote of the stockholders of the Corporation. In the event that
the Corporation shall at any time declare or pay any dividend on Capital Stock
payable in shares of Capital Stock or effect a subdivision or combination or
consolidation of the outstanding shares of Capital Stock (by reclassification
or otherwise than by payment of a dividend in shares of Capital Stock) into a
greater or lesser number of shares of Capital Stock, then and in each such
event, the number of votes per share to which holders of shares of Series One
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Capital Stock outstanding immediately after such event, and the
denominator of which is the number of shares of Capital Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by applicable law, the holders
of shares of Series One Preferred Stock and the holders of shares of Capital
Stock shall vote together as one class for the election of directors of the
Corporation and on all other matters submitted to a vote of stockholders of the
Corporation.
(C) Except as provided herein, or by applicable law, holders of Series
One Preferred Stock shall have no special voting rights and their consent shall
not be required (except to the extent they are entitled to vote with holders of
Capital Stock as set forth herein) for authorizing or taking any corporate
action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series One Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series One Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or as to assets) to the
Series One Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or as to
assets) with the Series One Preferred Stock, except dividends paid
ratably on the Series One Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or as to
assets) to the Series One Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares of any such
junior stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or as to assets) to the Series One
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series One Preferred Stock, or any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up)
with the Series One Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates
and other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under Paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in such
manner.
Section 5. REACQUIRED SHARES. Any shares of Series One Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued shares
of Class A Preferred Stock and may be reissued as part of a new series of
Class A Preferred Stock to be created by resolution or resolutions of the Board
of Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Subject to the rights
and preferences of the holders of any shares of any series of Class A Preferred
Stock ranking senior as to assets to this Series One Preferred Stock, (A) upon
any involuntary or voluntary liquidation, dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or as to assets) to the Series One
Preferred Stock unless, prior thereto, the holders of shares of Series One
Preferred Stock shall have received an amount per share equal to the Per Share
Series One Liquidation Preference. The Per Share Series One Liquidation
Preference shall be equal to the sum of (x) $100.00 plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, plus (y) the Participation Preference.
The "Participation Preference" is an amount per each share of Series One
Preferred Stock outstanding, equal to the product of (A) the Excess
Distribution Amount, as hereinafter defined times (B) a fraction whose
numerator is 100 and whose denominator is the sum of (i) the product of 100
times the number of outstanding shares of Series One Preferred Stock, plus
(ii) the product of 100 times a fraction whose numerator is the number of
outstanding shares of Capital Stock and whose denominator is the Adjustment
Number; provided however, if the foregoing computation results in a negative
number, then the Participation Preference shall be 0. Following the payment of
the full amount of the Series One Liquidation Preference, holders of shares of
Capital Stock shall receive the remaining assets to be distributed.
The "Excess Distribution Amount" is an amount equal to the amount
available for distribution to stockholders of the Corporation after payment of
all debts and liabilities less the sum of (i) the liquidation preferences in
respect of all shares of preferred stock of the Corporation other than the
Series One Preferred Stock, (ii) the product of 100 times the number of
outstanding shares of Series One Preferred Stock, and (iii) the product of the
number of outstanding shares of Capital Stock times a fraction whose numerator
is 100 and whose denominator is the Adjustment Number.
(B) The Adjustment Number shall initially be 100 and shall be subject to
adjustment as provided in this subsection (B). In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
Capital Stock payable in shares of Capital Stock, (ii) subdivide the
outstanding Capital Stock, or (iii) combine the outstanding Capital Stock into
a smaller number of shares, then in each such case the Adjustment Number in
effect immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the number of shares
of Capital Stock outstanding immediately after such event and the denominator
of which is the number of shares of Capital Stock that were outstanding
immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Capital Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series One Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Capital Stock is changed or
exchanged. In the event the Corporation shall at any time (i) declare any
dividend on Capital Stock payable in shares of Capital Stock, or (ii) subdivide
the outstanding Capital Stock or combine the outstanding Capital Stock into a
greater or lesser number of shares of Capital Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series One Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Capital Stock outstanding immediately after such event and the denominator of
which is the number of shares of Capital Stock that were outstanding
immediately prior to such event.
Section 8. REDEMPTION. The outstanding shares of Series One Preferred
Stock may be redeemed at the option of the Board of Directors as a whole, but
not in part, at any time, or from time to time, at a cash price per share equal
to (i) the product of the Adjustment Number times the Average Market Value, as
such term is hereinafter defined, of the Capital Stock, plus (ii) all dividends
which on the redemption date have accrued on the shares to be redeemed and have
not been paid or declared and a sum sufficient for the payment thereof set
apart, without interest; provided, however, that if and whenever any quarter-
yearly dividend shall have accrued on the Series One Preferred Stock which has
not been paid or declared and a sum sufficient for the payment thereof set
apart, the Corporation may not purchase or otherwise acquire any shares of
Series One Preferred Stock unless all shares of such stock at the time
outstanding are so purchased or otherwise acquired. The "Average Market Value"
is the average of the closing sale prices of the Capital Stock during the 30
day period immediately preceding the date before the redemption date on the
Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is
not quoted on the Composite Tape, on the New York Stock Exchange, or, if such
stock is not listed on such Exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934, as amended, on
which such stock is listed, or, if such stock is not listed on any such
exchange, the average of the closing bid quotations with respect to a share of
Capital Stock during such 30-day period on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then in use,
or if no such quotations are available, the fair market value of the Capital
Stock as determined by the Board of Directors in good faith.
Section 9. FRACTIONAL SHARES. Series One Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, if applicable, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series One Preferred Stock."
EXHIBIT (99)
[KENNAMETAL LOGO] NEWS
FROM KENNAMETAL INC.
P.O. Box 231
Latrobe, PA 15650
Phone 412-539-4617
Michael J. Mussog
Manager
External Reporting
DATE November 2, 1994
FOR RELEASE Immediate
KENNAMETAL AND GRAINGER ESTABLISH MARKETING ALLIANCE
- ----------------------------------------------------
LATROBE, PA, November 2, 1994 - Kennametal Inc. (KMT/NYSE) announced today an
agreement with W.W. Grainger, Inc. to establish an alliance to market
metalcutting tools and accessories and maintenance, repair and operations
(MRO) products. Under this alliance, customers will benefit from our combined
expertise in cutting tools and accessories for metalcutting applications and
MRO products.
W.W. Grainger, Inc. with 1993 sales of $2.6 billion, is a nationwide
distributor of equipment, components and supplies to the commercial,
industrial, contractor and institutional markets. GWW shares are traded on
the New York and Chicago stock exchanges.
