SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (date of earliest event reported): January 29, 2003 KENNAMETAL INC. (Exact name of registrant as specified in charter) PENNSYLVANIA 1-5318 25-0900168 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification Number) World Headquarters 1600 Technology Way P.O.Box 231 Latrobe, Pennsylvania 15650 (Address of Principal Executive Offices) Registrant's telephone number, including area code: (724) 539-5000
Item 9. Regulation FD Disclosure On January 29, 2003, Kennametal Inc. issued a press release announcing second-quarter fiscal 2003 financial results. Attached hereto as Exhibit 99.1 is a copy of such press release. This information is not "filed" pursuant to the Securities Exchange Act 1934 and is not incorporated by reference into any registrations under the Securities Act of 1933. Additionally, the submission of this Report on Form 8-K is not an admission as to the materiality of any information in the report that is required to be disclosed solely by Regulation FD.
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 hereunto duly authorized. Dated: January 29, 2003 KENNAMETAL INC. By: /s/ Timothy A. Hibbard ------------------------------ Name: Timothy A. Hibbard Title: Corporate Controller and Chief Accounting Officer
EXHIBIT INDEX EXHIBIT DESCRIPTION REFERENCE ------- ----------- --------- 99.1 Press Release dated January 29, 2003 Filed herewith
Exhibit 99.1 FROM: KENNAMETAL INC. [KENNAMETAL logo] P.O. Box 231 Latrobe, PA 15650 Investor Relations 724-539-6141 Contact: Beth A. Riley Media Relations 724-539-4618 Contact: Steve Halvonik DATE: January 29, 2003 FOR RELEASE: Immediate KENNAMETAL MEETS QUARTER EXPECTATIONS Widia Integration Progressing Rapidly LATROBE, Pa., January 29, 2003 - Kennametal Inc. (NYSE: KMT) today reported fiscal 2003 second quarter earnings of $0.27 per diluted share compared with earnings of $0.32 per diluted share last year, excluding special items in each period. On the same basis through the first six months, earnings were $0.58 per diluted share versus last year's earnings of $0.75. Fiscal 2003 second quarter earnings included the expected $0.05 dilution from the Widia acquisition. - ------------------------------------------------------------------------------- EARNINGS PER SHARE EXCLUDING SPECIAL ITEMS Company Guidance (10/23/02) $0.24 to $0.29 Analyst Estimate Range (01/21/03) $0.25 to $0.30 Earnings, Excluding Special Items $0.27 - -------------------------------------------------------------------------------- On a reported basis, diluted earnings per share were $0.07 for the quarter, above last year's loss per share of $0.08. For the first six months, reported diluted earnings per share were $0.38 against last year's loss per share of $7.66. The prior year included a non-cash SFAS 142 impairment charge associated with the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets". Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "Through the December quarter, and despite a persistently oblique recovery, we delivered two consecutive months of volume growth to end the quarter. Revenues grew 14 percent, fueled by the Widia acquisition, and we were particularly pleased to improve gross margins by 100 basis points as the Kennametal Lean Enterprise, prior restructurings and continued pricing discipline all delivered additional benefits." - more -
-2- Tambakeras continued, "Our technological leadership was affirmed as we achieved a significant milestone in the quarter by earning 41 percent of our sales from new products. At the same time, we continue to generate strong cash flow and manage our capital expenditures very prudently. We are also aggressively focused on our customer acquisition process to accelerate market share growth." - ------------------------------------------------------------------------------- SECOND QUARTER HIGHLIGHTS - ------------------------------------------------------------------------------- o Sales of $431.7 million were 14 percent above last year's $380.3 million. Sales growth was driven by a 14 percent positive benefit from net acquisitions and divestitures, and also included a 1 percent benefit from foreign currency exchange. o Gross profit margin, excluding special charges in both periods, of 31.9 percent increased 100 basis points compared with the second quarter of fiscal 2002. Manufacturing efficiencies from the Kennametal Lean Enterprise and a benefit from foreign currency exchange offset the combination of lower Widia margins, unfavorable customer and product mix and $1.6 million in decreased pension income. o Operating expense for the quarter increased 23 percent, to $114.4 million, excluding special charges. Excluding $15.9 million in net acquisition and divestiture operating expense and $2.6 million unfavorable foreign currency exchange, operating expense was just 3 percent above prior year. o The current quarter included net special charges of $9.9 million, or $0.20 per diluted share, primarily associated with the 5 percent salaried workforce reduction announced last quarter. Prior-year results included special charges of $18.3 million, or $0.40 per diluted share, associated with previously announced restructurings. Prior year charges were divided approximately evenly among the J&L/FSS business improvement plan, the closure of two IPG drill plants and the closure of the Chicago, IL Electronics plant. o Interest expense of $9.6 million was 16 percent above the same quarter last year on a higher average debt level for the quarter associated with the Widia acquisition. o The effective tax rate, excluding special charges, for the December 2002 quarter was 27.6 percent, compared with prior year of 32.0 percent. The December tax rate includes a year-to-date adjustment to bring the previously announced full-year effective tax rate to 30.0 percent. o Excluding special items, net income was $9.4 million for the quarter, a 5 percent decrease compared with net income of $10.0 million last year. Reported net income was $2.5 million against net loss of $2.5 million in the same quarter last year. - more -
-3- o Decreased pension income reduced earnings per diluted share by $0.04 for the quarter versus the prior year. Pretax income for the quarter was reduced by $1.8 million (non-cash) compared to the same period in fiscal 2002 due to the effect of a decrease in the expected rate of return on Kennametal's pension fund assets, coupled with lower discount rates associated with pension and other postretirement benefit liabilities. o Free operating cash flow remains strong and on plan at $25.4 million, versus $49.8 million in the same period last year. Primary working capital continues to be tightly controlled with its ratio to sales at 27.5 percent, slightly better than prior year. Primary working capital of $510.7 million was up 20 percent, or $82 million, from the same period last year entirely due to the impact of the Widia acquisition. o Total debt was $617 million, up $206 million from June 2002, primarily due to the closing of the Widia acquisition. OUTLOOK Global economic recovery remains largely stalled as 2003 begins, with only modest expectations for recovery in the U.S., and continued weak economic indicators in Europe and Japan. Well-publicized geopolitical tensions further constrain the potential for near-term growth. Tambakeras said, " Previous indicators that a definitive recovery would begin early in calendar 2003 have not been borne out. Capacity utilization remains stuck at 75%, current indicators now suggest U.S. industrial production growth of at most one percent in the first half of the current calendar year, and the European outlook is even softer. The revised economic outlook has required us to moderate our previous growth assumptions for the second half of our fiscal year. However, we continue to be highly confident in strong sales acceleration and earnings leverage when the economy recovers." Tambakeras continued, "While disappointed by the delayed economic recovery, we are extremely pleased by the progress in our integration of the Widia acquisition. The integration is ahead of schedule in both Europe and India. Restructuring activities are on-track, synergies are being realized and a comprehensive IT integration is complete. In February, just five months after acquiring the company, our European sales and service organization will be fully integrated. The combined force will provide our customers even more complete and enhanced tooling solutions from a single supplier. At the same time, we have substantially improved our own operational effectiveness and productivity through the integration." Based on assumptions that the first half of calendar 2003 will be weaker than predicted earlier, sales for the third quarter of fiscal 2003 are expected to grow 18 to 20 percent, with diluted earnings per share between $0.47 and $0.52, excluding special charges. The earnings assumption includes $0.04 of dilution from Widia. - more -
-4- For the year ending in June 2003, sales are anticipated to grow 12 to 14 percent, and diluted earnings per share are forecasted to range from $1.65 to $1.80, excluding special charges. The earnings assumption includes $0.10 of dilution from Widia. Despite the reduction in earnings expectations, cash flow for the year is still expected to exceed $100 million. As previously announced, a reduction in pension income is lowering diluted EPS for the year by $0.15 per share, or approximately $0.04 per share per quarter. DIVIDEND DECLARED Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable February 25, 2003, to shareowners of record as of the close of business February 10, 2003. Second 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 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
-5- 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 about 14,500 employees worldwide, the company's annual sales approximate $1.8 billion, with nearly half 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 www.kennametal.com # # # # #
-6- FINANCIAL HIGHLIGHTS Consolidated financial highlights for Kennametal Inc. (NYSE: KMT) for the quarters and six-month periods ended December 31, 2002 and 2001 are shown in the following tables (in thousands, except per share amounts). CONSOLIDATED STATEMENTS OF INCOME Quarter Ended Six Months Ended December 31, December 31, ------------------------ ------------------------ 2002 2001 2002 2001 --------- --------- --------- --------- Net sales $ 431,731 $ 380,338 $ 835,949 $ 786,992 Cost of goods sold 294,248 263,873 567,497 540,688 --------- --------- --------- --------- Gross profit 137,483 116,465 268,452 246,304 Operating expense(1) 115,677 93,139 220,512 193,016 Restructuring and asset impairment charges 8,561 17,128 8,380 18,706 Amortization of intangibles 1,300 689 2,114 1,379 --------- --------- --------- --------- Operating income 11,945 5,509 37,446 33,203 Interest expense 9,594 8,290 18,079 17,655 Other (income) expense, net(2) (1,721) 105 (1,127) (165) --------- --------- --------- --------- Income (loss) before provision for income taxes and minority interest 4,072 (2,886) 20,494 15,713 Provision for income taxes 893 (923) 6,148 5,029 Minority interest 709 497 1,047 701 --------- --------- --------- --------- Income (loss) before cumulative effect of change in accting. principle 2,470 (2,460) 13,299 9,983 Cumulative effect of change in accounting principle, net of tax(3) -- -- -- (250,406) --------- --------- --------- --------- Net income (loss) $ 2,470 $ (2,460) $ 13,299 $(240,423) ========= ========= ========= ========= Diluted earnings (loss) per share $ 0.07 $ (0.08) $ 0.38 $ (7.66) ========= ========= ========= ========= Dividends per share $ 0.17 $ 0.17 $ 0.34 $ 0.34 ========= ========= ========= ========= Diluted weighted average shares outstanding 35,414 30,926 35,379 31,405 ========= ========= ========= ========= (1) For the quarter and six months ended December 31, 2002, these amounts include charges of $1.3 million and $2.0 million, respectively, for integration activities related to the Widia acquisition. (2) For the quarters ended December 31, 2002 and 2001, these amounts include charges of $0.5 million and $0.6 million, respectively, for fees incurred in connection with the company's accounts receivable securitization program. For the six months ended December 31, 2002 and 2001, these amounts include similar charges of $1.1 million and $1.5 million, respectively. (3) For the six months ended December 31, 2001, this amount represents a non-cash charge for the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." -more-
-7- FINANCIAL HIGHLIGHTS (CONTINUED) The following tables provide a comparison of the company's reported results, and the results excluding special items, for fiscal 2003 and fiscal 2002 QUARTER ENDED DECEMBER 31, Diluted Gross Operating Net Income Earn./(Loss) Profit Income /(Loss) Per Share ------ --------- ---------- ------------ 2002 Reported Results $137,483 $ 11,945 $ 2,470 $ 0.07 MSSG Restructuring -- 4,849 3,394 0.10 AMSG Restructuring -- 2,259 1,577 0.04 Corporate Restructuring -- 958 670 0.02 Widia Integration Costs 54 1,364 970 0.03 -------- -------- -------- -------- Total Core Business 54 9,430 6,611 0.19 -------- -------- -------- -------- J&L Restructuring -- 466 327 0.01 FSS Restructuring -- 29 20 -- -------- -------- -------- -------- Total Non-Core Business -- 495 347 0.01 -------- -------- -------- -------- 2002 Results Excluding Special Items $137,537 $ 21,870 $ 9,428 $ 0.27 ======== ======== ======== ======== 2001 Reported Results $116,465 $ 5,509 $ (2,460) $ (0.08) MSSG Restructuring -- 6,247 4,248 0.14 AMSG Restructuring 750 5,954 4,049 0.13 Corporate Restructuring -- 157 107 -- -------- -------- -------- -------- Total Core Business 750 12,358 8,404 0.27 -------- -------- -------- -------- J&L Restructuring 399 5,853 3,980 0.13 FSS Restructuring -- 66 44 -- -------- -------- -------- -------- Total Non-Core Business 399 5,919 4,024 0.13 -------- -------- -------- -------- 2001 Results Excluding Special Items $117,614 $ 23,786 $ 9,968 $ 0.32 ======== ======== ======== ========
-8- FINANCIAL HIGHLIGHTS (CONTINUED) SIX MONTHS ENDED DECEMBER 31, Diluted Gross Operating Net Income Earn./(Loss) Profit Income / (Loss) Per Share ------ --------- ---------- ------------ 2002 Reported Results $ 268,452 $ 37,446 $ 13,299 $ 0.38 MSSG Restructuring -- 4,849 3,394 0.10 AMSG Restructuring -- 2,078 1,454 0.04 Corporate Restructuring -- 958 670 0.02 Widia Integration Costs 54 2,075 1,453 0.03 --------- --------- --------- -------- Total Core Business 54 9,960 6,971 0.19 --------- --------- --------- -------- J&L Restructuring -- 466 327 0.01 FSS Restructuring -- 29 20 -- --------- --------- --------- -------- Total Non-Core Business -- 495 347 0.01 --------- --------- --------- -------- 2002 Results Excluding Special Items $ 268,506 $ 47,901 $ 20,617 $ 0.58 ========= ========= ========= ======== 2001 Reported Results $ 246,304 $ 33,203 $(240,423) $ (7.66) MSSG Restructuring -- 6,237 4,241 0.14 AMSG Restructuring 750 5,954 4,049 0.13 Corporate Restructuring -- 157 107 -- MSSG ( Adoption of SFAS 142) -- -- 168,314 5.37 AMSG ( Adoption of SFAS 142) -- -- 82,092 2.61 --------- --------- --------- -------- Total Core Business 750 12,348 258,803 8.25 --------- --------- --------- -------- J&L Restructuring 399 7,471 5,079 0.16 FSS Restructuring -- 36 25 -- --------- --------- --------- -------- Total Non-Core Business 399 7,507 5,104 0.16 --------- --------- --------- -------- 2001 Results Excluding Special Items $ 247,453 $ 53,058 $ 23,484 $ 0.75 ========= ========= ========= ======== -more-
-9- FINANCIAL HIGHLIGHTS (CONTINUED) SEGMENT DATA: Quarter Ended Six Months Ended December 31, December 31, --------------------------- --------------------------- 2002 2001 2002 2001 --------- --------- --------- --------- Sales: Metalworking Solutions and Services Group $ 280,646 $ 218,078 $ 526,148 $ 441,035 Advanced Materials Solutions Group 72,682 71,614 151,999 154,619 J&L Industrial Supply 48,076 56,003 96,283 115,124 Full Service Supply 30,327 34,643 61,519 76,214 --------- --------- --------- --------- Total Sales $ 431,731 $ 380,338 $ 835,949 $ 786,992 ========= ========= ========= ========= Sales By Geographic Region: Within the United States $ 229,506 $ 242,509 $ 468,630 $ 508,235 International 202,225 137,829 367,319 278,757 --------- --------- --------- --------- Total Sales $ 431,731 $ 380,338 $ 835,949 $ 786,992 ========= ========= ========= ========= Operating Income (Loss), as reported: Metalworking Solutions and Services Group $ 18,017 $ 17,410 $ 42,332 $ 42,081 Advanced Materials Solutions Group 5,716 (652) 16,396 9,711 J&L Industrial Supply 1,722 (3,665) 3,886 (2,933) Full Service Supply (332) 247 (351) 1,419 Corporate and Eliminations (13,178) (7,831) (24,817) (17,075) --------- --------- --------- --------- Total Operating Income $ 11,945 $ 5,509 $ 37,446 $ 33,203 ========= ========= ========= ========= Operating Income (Loss), excluding special charges: Metalworking Solutions and Services Group $ 24,226 $ 23,657 $ 49,252 $ 48,318 Advanced Materials Solutions Group 7,979 5,302 18,478 15,665 J&L Industrial Supply 2,188 2,188 4,352 4,538 Full Service Supply (303) 313 (322) 1,455 Corporate and Eliminations (12,220) (7,674) (23,859) (16,918) --------- --------- --------- --------- Total Operating Income $ 21,870 $ 23,786 $ 47,901 $ 53,058 ========= ========= ========= ========= -MORE-
-10- FINANCIAL HIGHLIGHTS (CONTINUED) CASH FLOW INFORMATION Quarter Ended Six Months Ended December 31, December 31, --------------------------- --------------------------- 2002 2001 2002 2001 --------- --------- --------- --------- Net income $ 2,470 $ (2,460) $ 13,299 $(240,423) Adoption of SFAS 142 -- -- -- 250,406 Other Non-cash items 3,883 16,154 6,336 18,221 Depreciation and amortization 20,914 18,591 39,980 37,302 Change in primary working capital 16,715 43,645 18,675 38,216 Change in other working capital (7,319) (16,996) (2,879) (32,741) --------- --------- --------- --------- Cash flow from operations 36,663 58,934 75,411 70,981 Capital expenditures (11,536) (10,087) (22,011) (20,114) Proceeds from asset disposals 238 920 843 3,525 --------- --------- --------- --------- Free operating cash flow $ 25,365 $ 49,767 $ 54,243 $ 54,392 ========= ========= ========= ========= CONDENSED BALANCE SHEETS Quarter Ended ---------------------------------------------------------------------------------- 12/31/02 9/30/02 6/30/02 3/31/02 12/31/01 ---------- ---------- ---------- ---------- ---------- ASSETS Cash and equivalents $ 18,155 $ 14,300 $ 10,385 $ 10,705 $ 10,414 Accounts receivable, net of allowance 199,261 221,313 179,101 168,094 162,916 Inventories 403,530 403,590 345,076 351,129 367,724 Deferred income taxes 80,204 71,084 71,375 82,949 83,987 Other current assets 53,868 40,110 31,447 28,064 24,728 ---------- ---------- ---------- ---------- ---------- TOTAL CURRENT ASSETS 755,018 750,397 637,384 640,941 649,769 ---------- ---------- ---------- ---------- ---------- Property, plant and equipment, net 480,066 480,696 435,116 438,505 448,263 Goodwill and Intangible assets, net 479,122 467,140 367,992 370,324 371,263 Other assets 104,937 109,225 83,119 60,458 60,797 ---------- ---------- ---------- ---------- ---------- TOTAL $1,819,143 $1,807,458 $1,523,611 $1,510,228 $1,530,092 ========== ========== ========== ========== ========== LIABILITIES Short-term debt $ 17,591 $ 16,992 $ 23,480 $ 383,639 $ 406,677 Accounts payable 92,114 101,823 101,586 93,810 101,817 Accrued liabilities 171,726 171,045 137,034 152,867 148,428 ---------- ---------- ---------- ---------- ---------- TOTAL CURRENT LIABILITIES 281,431 289,860 262,100 630,316 656,922 Long-term debt 599,425 599,615 387,887 164,257 173,514 Deferred income taxes 46,801 53,475 52,570 52,564 51,815 Other liabilities 135,101 125,816 96,421 88,720 89,880 ---------- ---------- ---------- ---------- ---------- TOTAL LIABILITIES 1,062,758 1,068,766 798,978 935,857 972,131 ---------- ---------- ---------- ---------- ---------- MINORITY INTEREST 18,656 17,685 10,671 8,907 9,271 ---------- ---------- ---------- ---------- ---------- SHAREOWNERS' EQUITY 737,729 721,007 713,962 565,464 548,690 ---------- ---------- ---------- ---------- ---------- TOTAL $1,819,143 $1,807,458 $1,523,611 $1,510,228 $1,530,092 ========== ========== ========== ========== ========== * * - end - * *