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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): January 24, 2007
Kennametal Inc.
(Exact Name of Registrant as Specified in Its Charter)
| Pennsylvania | 1-5318 | 25-0900168 | ||
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| World Headquarters | ||
| 1600 Technology Way | ||
| P.O. Box 231 | ||
| Latrobe, Pennsylvania | 15650-0231 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (724) 539-5000
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy
the filing obligation of the registrant under any of the following provisions (see General
Instruction A.2. below):
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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Item 2.02 Results of Operations and Financial Condition
On January 24, 2007, Kennametal Inc. (the Company) issued a press release announcing financial
results for its second quarter ended December 31, 2006.
The press release contains certain non-GAAP financial measures. The following GAAP financial
measures have been presented excluding special items: gross profit, operating expense, operating
income, income from continuing operations, net income and diluted earnings per share. For the
three and six months ended December 31, 2006, these special items include: (a) Electronics
impairment and divestiture-related charges, (b) loss on divestiture of CPG and transaction-related
charges and (c) adjustment on J&L divestiture and transaction-related charges. For the year ended
June 30, 2006, these special items include: (a) gain on divestiture of J&L recorded at corporate
level, (b) J&L transaction-related charges recorded at corporate level, (c) tax impact of cash
repatriation under AJCA, (d) loss on sale of Presto, (e) favorable resolution of tax contingencies
and (f) divestiture impact of J&L. Management excludes these items in measuring and compensating
internal performance to more easily compare the Company’s financial performance period-to-period.
The press release also contains adjusted free operating cash flow, adjusted sales and adjusted
return on invested capital, which are also non-GAAP measures and are defined below.
Management believes that presentation of these non-GAAP financial measures provides useful
information about the results of operations of the Company for the current, past and future
periods. Management believes that investors should have available the same information that
management uses to assess operating performance, determine compensation and assess the capital
structure of the Company. These non-GAAP measures should not be considered in isolation or as a
substitute for the most comparable GAAP measures. Non-GAAP financial measures utilized by the
Company may not be comparable to non-GAAP financial measures used by other companies.
Adjusted Free Operating Cash Flow
Free operating cash flow is a non-GAAP financial measure and is defined by the Company as cash
provided by operations (in accordance with GAAP) less capital expenditures plus proceeds from
disposals of fixed assets. Management considers free operating cash flow to be an important
indicator of Kennametal’s cash generating capability because it better represents cash generated
from operations that can be used for strategic initiatives (such as acquisitions), dividends, debt
repayment and other investing and financing activities. Management has further adjusted free
operating cash flow for the following significant unusual cash items: income taxes paid (refunded).
Management considers adjusted free operating cash flow to be an important indicator of
Kennametal’s cash generating capability because it excludes significant unusual items.
Adjusted Sales
Kennametal adjusts current period sales as reported under GAAP for specific items including foreign
currency translation and adjusts current and prior period sales for the effects of acquisitions and
divestitures. Management believes that adjusting sales as reported under GAAP yields a more
consistent comparison of year-over-year results and provides additional insight into the underlying
operations. Management uses this information in reviewing operating performance and in the
determination of compensation.
Adjusted Return on Invested Capital
Adjusted Return on Invested Capital is a non-GAAP financial measure and is defined by the Company
as the previous 12 months’ net income, adjusted for interest expense, securitization fees, minority
interest expense and special items, divided by the sum of the previous 12 months’ average balances
of debt, securitized accounts receivable, minority interest and shareowners’ equity. Management
believes that this financial measure provides additional insight into the underlying capital
structuring and performance of the Company. Management utilizes this non-GAAP measure in
determining compensation and assessing the operations of the Company. The most directly comparable
GAAP measure is return on invested capital calculated utilizing GAAP net income.
A copy of the Company’s earnings announcement is furnished under Exhibit 99.1 attached hereto.
Reconciliations of the above non-GAAP financial measures are included in the earnings announcement.
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Additionally, during our quarterly teleconference we may use various non-GAAP financial measures to
describe the underlying operating results. These non-GAAP measures should not be considered in
isolation or as a substitute for the most comparable GAAP measures. Non-GAAP financial measures
utilized by the Company may not be comparable to non-GAAP financial measures used by other
companies. Accordingly, we have compiled below certain reconciliations as required by Regulation G.
Adjusted Gross Profit
Management may discuss gross profit and its corresponding margin excluding plant closure costs for
the three months ended December 31, 2006. Management may exclude this item to more easily compare
the Company’s performance period-to-period. The most directly comparable GAAP measure is gross
profit.
Primary Working Capital
Primary working capital is a non-GAAP presentation and is defined as accounts receivable, net plus
inventories, net minus accounts payable. The most directly comparable GAAP measure is working
capital, which is defined as current assets less current liabilities. We believe primary working
capital better represents Kennametal’s performance in managing certain assets and liabilities
controllable at the business unit level and is used as such for internal performance measurement.
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SUPPLEMENTAL INFORMATION AND RECONCILIATIONS
ADJUSTED GROSS PROFIT RECONCILIATION (Unaudited):
| Three Months Ended | ||||||||||||
| December 31, | September 30, | |||||||||||
| (in thousands, except percents) | 2006 | 2005 | 2006 | |||||||||
Gross profit, as reported |
$ | 198,150 | $ | 196,721 | $ | 187,031 | ||||||
Gross profit margin |
34.8 | % | 35.0 | % | 34.5 | % | ||||||
Special items: |
||||||||||||
Plant closure costs |
2,636 | — | — | |||||||||
Adjusted gross profit |
$ | 200,786 | $ | 196,721 | $ | 187,031 | ||||||
Adjusted gross profit margin |
35.3 | % | 35.0 | % | 34.5 | % | ||||||
PRIMARY WORKING CAPITAL RECONCILIATION (Unaudited):
| December 31, | June 30, | |||||||
| (in thousands) | 2006 | 2006 | ||||||
Current assets |
$ | 959,582 | $ | 1,086,857 | ||||
Current liabilities |
371,410 | 462,199 | ||||||
Working capital in accordance with GAAP |
$ | 588,172 | $ | 624,658 | ||||
Excluding items: |
||||||||
Cash and cash equivalents |
(114,121 | ) | (233,976 | ) | ||||
Other current assets |
(103,124 | ) | (131,218 | ) | ||||
Total excluded current assets |
(217,245 | ) | (365,194 | ) | ||||
Adjusted current assets |
742,337 | 721,663 | ||||||
Current maturities of long-term debt and capital
leases, including notes payable |
(2,786 | ) | (2,214 | ) | ||||
Other current liabilities |
(244,541 | ) | (335,078 | ) | ||||
Total excluded current liabilities |
(247,327 | ) | (337,292 | ) | ||||
Adjusted current liabilities |
124,083 | 124,907 | ||||||
Primary working capital |
$ | 618,254 | $ | 596,756 | ||||
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Item 9.01 Financial Statements and Exhibits
(d) Exhibits
99.1 Fiscal 2007 Second Quarter Earnings Announcement
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| KENNAMETAL INC. | ||||
| Date: January 24, 2007 | By: | /s/ Wayne D. Moser | ||
| Wayne D. Moser | ||||
| Vice President Finance and Corporate Controller | ||||
EXHIBIT 99.1
FISCAL 2007 SECOND QUARTER EARNINGS ANNOUNCEMENT
FROM:
|
KENNAMETAL INC. | |
| P.O. Box 231 | ||
| Latrobe, PA 15650 | ||
| 724-539-5000 | ||
| Investor Relations | ||
| Contact: Quynh McGuire | ||
| 724-539-6559 | ||
| Media Relations | ||
| Contact: Joy Chandler | ||
| 724-539-4618 | ||
DATE:
|
January 24, 2007 | |
FOR RELEASE:
|
Immediate |
KENNAMETAL ANNOUNCES SECOND QUARTER FISCAL 2007 RESULTS
- Reported earnings per diluted share (EPS) of $0.77; adjusted EPS of $0.85
- Record December quarter sales, and adjusted EPS & ROIC
LATROBE, Pa., January 24, 2007 — Kennametal Inc. (NYSE: KMT) today reported second quarter fiscal
2007 EPS of $0.77, including a charge of $0.08 per share related to discontinued operations. This
represents a decrease of 3 percent from the prior year. Second quarter adjusted EPS were $0.85
compared with prior year EPS of $0.79, an increase of 8 percent.
For the first six months of fiscal 2007, reported EPS increased 1 percent to $1.54, including
charges from special items of $0.13 per share. Adjusted EPS for the first half of fiscal 2007 were
$1.67 compared with prior year EPS of $1.52, representing an increase of 10 percent.
Kennametal’s President and Chief Executive Officer Carlos Cardoso said, “I’m pleased to report that
we delivered on our commitment for sales growth and exceeded our expectations for EPS and return on
invested capital (ROIC). This performance represents a record December quarter for sales, and for
adjusted EPS and ROIC. With these collective results, we extended our track record of consecutive
quarterly growth. Our solid financial performance demonstrates that we have strong operating
leverage and effective cost-control measures which should continue to enhance our earnings
performance going forward.”
Cardoso added, “We attribute our results to our focused strategy, which we implement by applying
the disciplined processes of our management operating system, the Kennametal Value Business System. We continue to make progress on
the transformation of Kennametal by driving steady performance in our core Metalworking and
Advanced Materials businesses, and growing each segment to achieve a balanced portfolio. At the
same time, we continue to successfully diversify our company’s global footprint and customer base.
We are well positioned to achieve our long-term goals.”
“Our
strong cash flow generation also plays an important role in our transformation,” Cardoso said,
“as it allows us to invest in multiple ways in our
company’s future. We have the
financial flexibility to make strategic acquisitions in our core businesses and to take advantage
of opportunities to increase our ownership of affiliates in key markets which presently have
minority interests.”
Reconciliation of all non-GAAP financial measures are set forth in the attached tables.
Highlights of Fiscal 2007 Second Quarter
| • | Sales for the quarter were $569 million compared with $563 million in the same quarter last year. Sales grew 6 percent on an organic basis offset by the net impact of acquisitions and divestitures, primarily the divestiture of J&L Industrial Supply (J&L). J&L sales were $65 million in the December quarter last year. |
| • | Income from continuing operations was $34 million compared with $31 million in the prior year quarter, an increase of 9 percent despite the J&L divestiture. J&L contributed $6 million in operating income in the December quarter last year. The current year quarter results also included plant closure costs of $2.6 million ($0.07 per share), which did not provide a tax benefit. Additionally, the December quarter results benefited from lower securitization fees. |
| • | The December quarter reflects a $0.04 per share tax benefit related to the extension of the research, development and experimental tax credit. The company also continues to realize benefits from its pan-European business strategy. |
| • | During the current quarter, the company completed the divestiture of Advanced Materials Solutions Group’s Kemmer Praezision electronics business (Electronics). Discontinued operations includes an impairment charge of $3.0 million related to a building that was owned by Electronics and not included in the transaction. This completes the divestiture of Electronics. |
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| • | Reported EPS were $0.77, including a charge of $0.08 per share related to discontinued operations, compared with prior year quarter reported EPS of $0.79. Adjusted EPS were $0.85. A reconciliation follows: |
Earnings Per Diluted Share Reconciliation
Second Quarter FY 2007 |
||||
Reported EPS |
$ | 0.77 | ||
Electronics impairment and
divestiture-related charges |
0.08 | |||
Adjusted EPS |
$ | 0.85 | ||
Second Quarter FY 2006 |
||||
Reported EPS |
$ | 0.79 | ||
No special items
|
||||
| $ | 0.79 | |||
| • | Adjusted return on invested capital (ROIC) was up 110 basis points to 11.1 percent from 10.0 percent in the prior year. |
Highlights of Fiscal 2007 First Half
| • | Sales of $1.1 billion were level with the same period last year. Sales grew 6 percent on an organic basis offset by the net impact of acquisitions and divestitures, primarily the divestiture of J&L, which had sales of $130 million in the prior year period. |
| • | Income from continuing operations was $63 million, compared with $59 million in the prior year period, an increase of 7 percent despite the J&L divestiture and costs of $2.6 million ($0.07 per share) associated with a plant closure. J&L contributed $13 million in operating income in the prior year period. Income from continuing operations, excluding special items, was $64 million, an increase of 9 percent over the prior year period. |
| • | The first half of fiscal 2007 also reflects a lower effective tax rate compared with the prior year, primarily due to the $0.04 per share tax benefit related to the extension of the research, development and experimental tax credit. The company also continues to realize benefits from its pan-European business strategy. |
| • | Reported EPS were $1.54, including charges from special items of $0.13 per share, compared with prior year reported EPS of $1.52. Adjusted EPS were $1.67. A reconciliation follows: |
Earnings Per Diluted Share Reconciliation
First Half FY 2007 |
||||
Reported EPS |
$ | 1.54 | ||
Loss on divestiture of CPG and
transaction-related charges |
0.01 | |||
Adjustment on J&L divestiture and
transaction-related charges |
0.03 | |||
Electronics impairment and
divestiture-related charges |
0.09 | |||
Adjusted EPS |
$ | 1.67 | ||
First Half FY 2006 |
||||
Reported EPS |
$ | 1.52 | ||
No special items
|
||||
| $ | 1.52 | |||
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| • | Cash flow from operating activities was $36 million for the first half of fiscal 2007, compared with $76 million in the prior year period. Included in fiscal 2007 first half cash flow from operations were income tax payments of $86 million, primarily due to tax payments related to the gain on the sale of J&L and cash repatriated in 2006 under the American Jobs Creation Act. Adjusted free operating cash flow, excluding the effects of these income tax payments, was $78 million versus $45 million in the prior year period. |
Business Segment Highlights of Fiscal 2007 Second Quarter
Metalworking Solutions & Services Group (MSSG) continued to deliver top-line growth this quarter
led by year-over-year expansion in the distribution, aerospace and
general engineering markets. The North
American market continued to moderate, while conditions in the European market continued to
improve, and Asia Pacific and India delivered solid growth.
In the
December quarter, MSSG sales were up 5 percent on an adjusted basis. European sales increased
11 percent, while North American sales increased 1 percent. Asia Pacific and India sales grew 6
percent and 7 percent, respectively.
MSSG operating income was up 6 percent and the operating margin of 12 percent was lower than the
same period last year, primarily due to costs associated
with a plant closure in the current quarter and higher realized raw
material costs, partially offset by ongoing cost containment.
Advanced Materials Solutions Group (AMSG) continued to deliver top-line growth in the December
quarter, driven by favorable market conditions and the effect of acquisitions. Strong growth in
the energy and mining markets continued to contribute to AMSG’s results.
AMSG sales
grew 10 percent on an adjusted basis. Energy product sales, including Conforma Clad
sales, were up 35 percent, mining and construction product sales were higher by 8 percent and
engineered product sales increased 2 percent.
AMSG operating income grew 15 percent over last year, while operating margin of 17 percent was
lower than prior year due primarily to higher realized raw material costs in the current quarter,
partially offset by the effects of acquisitions and new product introductions.
Outlook
Worldwide market conditions support Kennametal’s expectations of continued top-line growth during
the balance of fiscal year 2007. Based on global economic indicators, the company believes that
the moderation in the North American market will persist in the near term. The company also
believes that the European market will continue on a positive trend, and that business conditions
will continue to be strong in developing economies. While there remain some uncertainties and
risks related to the macro-economic environment, fundamental drivers for global demand appear to be
stable.
4
Kennametal expects organic revenue growth in the 6 to 7 percent range for fiscal 2007, which would
extend its track record of consistently outpacing worldwide industrial production rates by two to
three times. The company anticipates many of its end markets will continue to operate at favorable
levels throughout the fiscal year, with moderating growth rates for some regions and market
sectors.
For the third quarter of fiscal 2007, ongoing expansion around the globe supports the company’s
projection of 6 to 8 percent organic sales growth, on top of strong performance in the prior year
quarter.
The
company’s guidance for adjusted EPS for the full fiscal year is
in the range of $4.40 to $4.50. On a
comparable basis, the fiscal 2007 guidance midpoint represents a 31 percent growth rate, a
substantial increase over prior year adjusted EPS from continuing operations of $3.41.
The company expects third quarter 2007 EPS to be $1.25 to $1.30. Third quarter 2007 guidance
includes approximately $0.03 per share of costs related to the completion of the plant closure
initiated in the December quarter, which is expected to have a payback within this fiscal year.
Kennametal expects to achieve its goal of 12 percent EBIT margin, and ROIC is on track for the
projected 11 to 12 percent range for fiscal year 2007.
Kennametal anticipates reported cash flow from operations of approximately $190 million to $200
million for fiscal 2007. Included in this amount are income tax payments of $86 million, as
mentioned above. Adjusted cash flow from operations is expected to be approximately $275 million
to $285 million.
Based on anticipated capital expenditures of $90 million, the company expects to generate between
$185 million to $195 million of adjusted free operating cash flow for fiscal 2007.
Dividend Declared
Kennametal announced today that its Board of Directors declared a regular quarterly cash dividend
of $0.21 per share. The dividend is payable February 21, 2007, to shareowners of record as of the
close of business on February 6, 2007.
Kennametal advises shareowners to note monthly order trends, for which the company makes a
disclosure ten business days after the conclusion of each month. This information is available on
the Investor Relations section of Kennametal’s corporate web
site at www.kennametal.com.
Second quarter results for fiscal 2007 will be discussed in a live Internet broadcast at 10:00 a.m.
Eastern time today. This event will be broadcast live on the company’s website,
5
www.kennametal.com. Once on the homepage, click “Corporate,” and then “Investor Relations.” The
replay of this event will also be available on the company’s website through February 7, 2007.
This release contains “forward-looking” statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements are statements that do not relate strictly to historical or current facts. You can
identify forward-looking statements by the fact they use words such as “should,” “anticipate,”
“estimate,” “approximate,” “expect,” “may,” “will,” “project,” “intend,” “plan,” “believe” and
other words of similar meaning and expression in connection with any discussion of future operating
or financial performance. These statements are likely to relate to, among other things, our
strategy, goals, plans and projections regarding our financial position, results of operations,
market position, and product development, all of 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. It is not possible to predict or identify all factors; however,
they may include the following: global and regional economic conditions; energy costs; risks
associated with the availability and costs of raw materials; commodity prices; risks associated
with integrating recent acquisitions, as well as any future acquisitions, and achieving the
expected savings and synergies; risks relating to business divestitures, including those described
in the above release; competition; demands on management resources; risks associated with
international markets, such as currency exchange rates and social and political environments or
instability; future terrorist attacks or acts of war; labor relations; demand for and market
acceptance of new and existing products; and risks associated with the implementation of
restructuring plans, cost-reduction initiatives 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 provide additional information about many of the specific risks our
Company faces in the “Risk Factors” Section of our Annual Report on Form 10-K, as well as in our
other securities filings. We undertake no obligation to release publicly any revisions to
forward-looking statements as a result of future events or developments.
Kennametal Inc. (NYSE:KMT) is a leading global supplier of tooling, engineered components and
advanced materials consumed in production processes. The company improves customers’
competitiveness by providing superior economic returns through the delivery of application
knowledge and advanced technology to master the toughest of materials application demands.
Companies producing everything from airframes to coal, from medical implants to oil wells and from
turbochargers to motorcycle parts recognize Kennametal for extraordinary contributions to their
value chains. Customers buy over $2.3 billion annually of Kennametal products and services –
delivered by our approximately 13,500 talented employees in over 60 countries – with almost 50
percent of these revenues coming from outside the United States. Visit us at
www.kennametal.com [KMT-E]
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FINANCIAL HIGHLIGHTS
Consolidated Statements of Income (Unaudited):
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2006 | 2005 a | 2006 | 2005 a | |||||||||||||
Sales |
$ | 569,321 | $ | 562,536 | $ | 1,112,132 | $ | 1,108,302 | ||||||||
Cost of goods sold |
371,171 | 365,815 | 726,951 | 714,253 | ||||||||||||
Gross profit |
198,150 | 196,721 | 385,181 | 394,049 | ||||||||||||
Operating expense |
140,329 | 142,674 | 275,373 | 287,575 | ||||||||||||
Loss on divestiture |
— | — | 1,686 | — | ||||||||||||
Amortization of intangibles |
1,955 | 1,438 | 3,895 | 2,789 | ||||||||||||
Operating income |
55,866 | 52,609 | 104,227 | 103,685 | ||||||||||||
Interest expense |
7,286 | 7,984 | 14,713 | 15,813 | ||||||||||||
Other income, net |
(625 | ) | (1,178 | ) | (3,631 | ) | (2,057 | ) | ||||||||
Income from continuing operations before income taxes and minority interest |
49,205 | 45,803 | 93,145 | 89,929 | ||||||||||||
Provision for income taxes |
15,006 | 14,382 | 28,935 | 29,682 | ||||||||||||
Minority interest expense |
642 | 511 | 1,199 | 1,259 | ||||||||||||
Income from continuing operations |
33,557 | 30,910 | 63,011 | 58,988 | ||||||||||||
| (Loss) income from discontinued operations, net of income taxes b |
(3,506 | ) | 177 | (2,599 | ) | 196 | ||||||||||
Net income |
$ | 30,051 | $ | 31,087 | $ | 60,412 | $ | 59,184 | ||||||||
Basic earnings (loss) per share |
||||||||||||||||
Continuing operations |
$ | 0.87 | $ | 0.81 | $ | 1.65 | $ | 1.55 | ||||||||
Discontinued operations b |
(0.09 | ) | — | (0.07 | ) | 0.01 | ||||||||||
| $ | 0.78 | $ | 0.81 | $ | 1.58 | $ | 1.56 | |||||||||
Diluted earnings (loss) per share |
||||||||||||||||
Continuing operations |
$ | 0.86 | $ | 0.79 | $ | 1.61 | $ | 1.51 | ||||||||
Discontinued operations b |
(0.09 | ) | — | (0.07 | ) | 0.01 | ||||||||||
| $ | 0.77 | $ | 0.79 | $ | 1.54 | $ | 1.52 | |||||||||
Dividends per share |
$ | 0.21 | $ | 0.19 | $ | 0.40 | $ | 0.38 | ||||||||
Basic weighted average shares outstanding |
38,331 | 38,174 | 38,270 | 38,014 | ||||||||||||
Diluted weighted average shares outstanding |
39,225 | 39,278 | 39,142 | 39,064 | ||||||||||||
| a | Amounts have been reclassified to reflect discontinued operations related to the divestitures of Electronics — AMSG and CPG — MSSG. | |
| b | (Loss) income from discontinued operations reflects divested results of Electronics – AMSG and CPG – MSSG. |
-more-
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FINANCIAL HIGHLIGHTS (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited):
| December 31, | June 30, | |||||||
| (in thousands) | 2006 | 2006 | ||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 114,121 | $ | 233,976 | ||||
Accounts receivable, net |
382,426 | 386,714 | ||||||
Inventories |
359,911 | 334,949 | ||||||
Current assets of discontinued operations held for sale |
— | 24,280 | ||||||
Other current assets |
103,124 | 106,938 | ||||||
Total current assets |
959,582 | 1,086,857 | ||||||
Property, plant and equipment, net |
560,335 | 530,379 | ||||||
Goodwill and intangible assets, net |
680,246 | 618,423 | ||||||
Assets of discontinued operations held for sale |
— | 11,285 | ||||||
Other assets |
199,731 | 188,328 | ||||||
Total |
$ | 2,399,894 | $ | 2,435,272 | ||||
LIABILITIES |
||||||||
Current maturities of long-term debt and capital leases, including notes payable |
$ | 2,786 | $ | 2,214 | ||||
Accounts payable |
124,083 | 124,907 | ||||||
Current liabilities of discontinued operations held for sale |
— | 3,065 | ||||||
Other current liabilities |
244,541 | 332,013 | ||||||
Total current liabilities |
371,410 | 462,199 | ||||||
Long-term debt and capital leases |
373,686 | 409,508 | ||||||
Other liabilities |
269,243 | 253,574 | ||||||
Total liabilities |
1,014,339 | 1,125,281 | ||||||
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES |
15,807 | 14,626 | ||||||
SHAREOWNERS’ EQUITY |
1,369,748 | 1,295,365 | ||||||
Total |
$ | 2,399,894 | $ | 2,435,272 | ||||
SEGMENT DATA (Unaudited):
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (in thousands) | 2006 | 2005 a | 2006 | 2005 a | ||||||||||||
Outside Sales: |
||||||||||||||||
Metalworking Solutions and Services Group |
$ | 373,995 | $ | 336,197 | $ | 731,079 | $ | 667,777 | ||||||||
Advanced Materials Solutions Group |
195,326 | 161,002 | 381,053 | 310,186 | ||||||||||||
J&L Industrial Supply |
— | 65,337 | — | 130,339 | ||||||||||||
Total outside sales |
$ | 569,321 | $ | 562,536 | $ | 1,112,132 | $ | 1,108,302 | ||||||||
Sales By Geographic Region: |
||||||||||||||||
United States |
$ | 268,299 | $ | 295,907 | $ | 535,162 | $ | 585,977 | ||||||||
International |
301,022 | 266,629 | 576,970 | 522,325 | ||||||||||||
Total sales by geographic region |
$ | 569,321 | $ | 562,536 | $ | 1,112,132 | $ | 1,108,302 | ||||||||
Operating Income (Loss): |
||||||||||||||||
Metalworking Solutions and Services Group |
$ | 45,208 | $ | 42,585 | $ | 90,874 | $ | 88,526 | ||||||||
Advanced Materials Solutions Group |
33,993 | 29,582 | 61,379 | 53,434 | ||||||||||||
J&L Industrial Supply |
— | 6,312 | — | 13,156 | ||||||||||||
Corporate and eliminations c |
(23,335 | ) | (25,870 | ) | (48,026 | ) | (51,431 | ) | ||||||||
Total operating income |
$ | 55,866 | $ | 52,609 | $ | 104,227 | $ | 103,685 | ||||||||
| a | Amounts have been reclassified to reflect discontinued operations related to the divestitures of Electronics — AMSG and CPG — MSSG. | |
| c | Includes corporate functional shared services and intercompany eliminations. |
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8
FINANCIAL HIGHLIGHTS (Continued)
In addition to reported results under generally accepted accounting principles in the United States
of America (GAAP), the following financial highlight tables also include, where appropriate, a
reconciliation of gross profit, operating expense, operating income, income from continuing
operations, net income and diluted earnings per share, in each case excluding special items,
adjusted free operating cash flow, adjusted segment sales, and adjusted return on invested capital
(which are non-GAAP financial measures), to the most directly comparable GAAP measures. Management
believes that the investor should have available the same information that management uses to
assess operating performance, determine compensation, and assess the capital structure of the
Company. These non-GAAP measures should not be considered in isolation or as a substitute for the
most comparable GAAP measures. Investors are cautioned that non-GAAP financial measures utilized
by the Company may not be comparable to non-GAAP financial measures used by other companies.
RECONCILIATION TO GAAP — THREE MONTHS ENDED DECEMBER 31, 2006 (Unaudited)
| Income from | ||||||||||||||||||||||||
| (in thousands, except per share | Gross | Operating | Operating | Continuing | Net | Diluted | ||||||||||||||||||
| amounts) | Profit | Expense | Income | Operations | Income | EPS | ||||||||||||||||||
2006 Reported Results |
$ | 198,150 | $ | 140,329 | $ | 55,866 | $ | 33,557 | $ | 30,051 | $ | 0.77 | ||||||||||||
Electronics impairment
and divestiture-related charges |
— | — | — | — | 3,213 | 0.08 | ||||||||||||||||||
2006 Results, excl. special items |
$ | 198,150 | $ | 140,329 | $ | 55,866 | $ | 33,557 | $ | 33,264 | $ | 0.85 | ||||||||||||
For the three months ended December 31, 2005, there were no special items.
RECONCILIATION TO GAAP – SIX MONTHS ENDED DECEMBER 31, 2006 (Unaudited)
| Income from | ||||||||||||||||||||||||
| (in thousands, except per share | Gross | Operating | Operating | Continuing | Net | Diluted | ||||||||||||||||||
| amounts) | Profit | Expense | Income | Operations | Income | EPS | ||||||||||||||||||
2006 Reported Results |
$ | 385,181 | $ | 275,373 | $ | 104,227 | $ | 63,011 | $ | 60,412 | $ | 1.54 | ||||||||||||
Electronics impairment
and divestiture-related charges |
— | — | — | — | 3,213 | 0.09 | ||||||||||||||||||
Loss on divestiture of CPG and
transaction-related charges |
— | — | — | — | 368 | 0.01 | ||||||||||||||||||
Adjustment on J&L divestiture
and transaction-related charges |
— | (333 | ) | 2,019 | 1,252 | 1,252 | 0.03 | |||||||||||||||||
2006 Results, excl. special items |
$ | 385,181 | $ | 275,040 | $ | 106,246 | $ | 64,263 | $ | 65,245 | $ | 1.67 | ||||||||||||
For the six months ended December 31, 2005, there were no special items.
RECONCILIATION TO GAAP – YEAR ENDED JUNE 30, 2006 (Unaudited)
| Diluted EPS | ||||||||
| Income from | from | |||||||
| Continuing | Continuing | |||||||
| (in thousands, except per share amounts) | Operations | Operations | ||||||
2006 Reported Results |
$ | 272,251 | $ | 6.88 | ||||
Gain on divestiture of J&L recorded at corporate level |
(1,091 | ) | (0.03 | ) | ||||
J&L transaction-related charges recorded at corporate level |
3,956 | 0.10 | ||||||
Tax impact of cash repatriation under AJCA |
11,176 | 0.28 | ||||||
Loss on sale of Presto |
9,457 | 0.24 | ||||||
Favorable resolution of tax contingencies |
(10,873 | ) | (0.27 | ) | ||||
Divestiture impact of J&Ld |
(149,971 | ) | (3.79 | ) | ||||
2006 Adjusted Results |
$ | 134,905 | $ | 3.41 | ||||
| d | Excludes the impact of commercial relationships entered into in connection with the divestiture transaction. |
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FINANCIAL HIGHLIGHTS (Continued)
RECONCILIATION OF ADJUSTED FREE OPERATING CASH FLOW INFORMATION (Unaudited):
| Six Months Ended | ||||||||
| December 31, | ||||||||
| (in thousands) | 2006 | 2005 | ||||||
Net cash flow provided by operating activities |
$ | 35,820 | $ | 75,623 | ||||
Purchases of property, plant and equipment |
(44,929 | ) | (31,297 | ) | ||||
Proceeds from disposals of property, plant and equipment |
781 | 1,452 | ||||||
Free operating cash flow |
(8,341 | ) | 45,778 | |||||
Income taxes paid (refunded) during first quarter |
86,236 | (572 | ) | |||||
Adjusted free operating cash flow |
$ | 77,895 | $ | 45,206 | ||||
MSSG
ADJUSTED SALES (Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (in thousands) | 2006 | 2005 | 2006 | 2005 | ||||||||||||
Sales, as reported |
$ | 373,995 | $ | 336,197 | $ | 731,079 | $ | 667,777 | ||||||||
Foreign
currency translation |
(11,398 | ) | — | (18,770 | ) | — | ||||||||||
Divestiture-related adjustments |
— | 7,966 | — | 16,374 | ||||||||||||
Adjusted sales |
$ | 362,597 | $ | 344,163 | $ | 712,309 | $ | 684,151 | ||||||||
AMSG
ADJUSTED SALES (Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (in thousands) | 2006 | 2005 | 2006 | 2005 | ||||||||||||
Sales, as reported |
$ | 195,326 | $ | 161,002 | $ | 381,053 | $ | 310,186 | ||||||||
Foreign
currency translation |
(2,101 | ) | — | (3,222 | ) | — | ||||||||||
Acquisition- and divestiture-related adjustments |
(14,562 | ) | 1,595 | (29,696 | ) | 5,207 | ||||||||||
Adjusted sales |
$ | 178,663 | $ | 162,597 | $ | 348,135 | $ | 315,393 | ||||||||
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RETURN ON INVESTED CAPITAL (Unaudited):
December 31, 2006 (in thousands, except percents)
| Invested Capital | 12/31/2006 | 9/30/2006 | 6/30/2006 | 3/31/2006 | 12/31/2005 | Average | ||||||||||||||||||
| Debt | $ | 376,472 | $ | 409,592 | $ | 411,722 | $ | 365,906 | $ | 410,045 | $ | 394,748 | ||||||||||||
Accounts receivable securitized |
— | — | — | 106,106 | 100,295 | 41,280 | ||||||||||||||||||
Minority interest |
15,807 | 15,177 | 14,626 | 18,054 | 16,918 | 16,116 | ||||||||||||||||||
Shareowners’ equity |
1,369,748 | 1,319,599 | 1,295,365 | 1,115,110 | 1,045,974 | 1,229,159 | ||||||||||||||||||
Total |
$ | 1,762,027 | $ | 1,744,368 | $ | 1,721,713 | $ | 1,605,176 | $ | 1,573,232 | $ | 1,681,303 | ||||||||||||
| Three Months Ended | ||||||||||||||||||||
| Interest Expense | 12/31/2006 | 9/30/2006 | 6/30/2006 | 3/31/2006 | Total | |||||||||||||||
Interest expense |
$ | 7,286 | $ | 7,427 | $ | 7,478 | $ | 7,728 | $ | 29,919 | ||||||||||
Securitization fees |
6 | 22 | 1,288 | 1,241 | 2,557 | |||||||||||||||
Total interest expense |
$ | 7,292 | $ | 7,449 | $ | 8,766 | $ | 8,969 | $ | 32,476 | ||||||||||
Income tax benefit |
11,237 | |||||||||||||||||||
Total interest expense, net of tax |
$ | 21,239 | ||||||||||||||||||
| Total Income | 12/31/2006 | 9/30/2006 | 6/30/2006 | 3/31/2006 | Total | |||||||||||||||
Net Income, as reported |
$ | 30,051 | $ | 30,361 | $ | 164,196 | $ | 32,903 | $ | 257,511 | ||||||||||
Gain on divestiture of J&L |
— | 1,045 | (132,001 | ) | — | (130,956 | ) | |||||||||||||
J&L transaction-related charges |
— | 207 | 2,796 | 1,160 | 4,163 | |||||||||||||||
Loss on divestiture of Electronics, impairment and transaction-related charges |
3,213 | — | 15,366 | — | 18,579 | |||||||||||||||
Tax impact of cash repatriation under AJCA |
— | — | 11,176 | — | 11,176 | |||||||||||||||
Loss on divestiture of CPG, goodwill impairment and transaction-related charges |
— | 368 | (2,192 | ) | 5,030 | 3,206 | ||||||||||||||
Loss on divestiture of Presto |
— | — | 1,410 | 8,047 | 9,457 | |||||||||||||||
Favorable resolution of tax contingencies |
— | — | (10,873 | ) | — | (10,873 | ) | |||||||||||||
Minority interest expense |
642 | 557 | 525 | 782 | 2,506 | |||||||||||||||
Total Income, excluding special items |
$ | 33,906 | $ | 32,538 | $ | 50,403 | $ | 47,922 | $ | 164,769 | ||||||||||
Total interest expense, net of tax |
21,239 | |||||||||||||||||||
| $ | 186,008 | |||||||||||||||||||
Average invested capital |
$ | 1,681,303 | ||||||||||||||||||
Adjusted Return on Invested Capital |
11.1 | % | ||||||||||||||||||
| Return on invested capital calculated utilizing net income, as reported is as follows: | ||||||||||||||||||||
Net income, as reported |
$ | 257,511 | ||||||||||||||||||
Total interest expense, net of tax |
21,239 | |||||||||||||||||||
| $ | 278,750 | |||||||||||||||||||
Average invested capital |
$ | 1,681,303 | ||||||||||||||||||
Return on Invested Capital |
16.6 | % | ||||||||||||||||||
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FINANCIAL HIGHLIGHTS (Continued)
RETURN ON INVESTED CAPITAL (Unaudited):
December 31, 2005 (in thousands, except percents)
| Invested Capital | 12/31/2005 | 9/30/2005 | 6/30/2005 | 3/31/2005 | 12/31/2004 | Average | ||||||||||||||||||
Debt |
$ | 410,045 | $ | 415,250 | $ | 437,374 | $ | 485,168 | $ | 405,156 | $ | 430,599 | ||||||||||||
Accounts receivable securitized |
100,295 | 100,445 | 109,786 | 120,749 | 115,253 | 109,306 | ||||||||||||||||||
Minority interest |
16,918 | 18,117 | 17,460 | 19,664 | 19,249 | 18,282 | ||||||||||||||||||
Shareowners’ equity |
1,045,974 | 1,009,394 | 972,862 | 1,021,186 | 1,003,507 | 1,010,585 | ||||||||||||||||||
Total |
$ | 1,573,232 | $ | 1,543,206 | $ | 1,537,482 | $ | 1,646,767 | $ | 1,543,165 | $ | 1,568,772 | ||||||||||||
| Three Months Ended | ||||||||||||||||||||
| Interest Expense | 12/31/2005 | 9/30/2005 | 6/30/2005 | 3/31/2005 | Total | |||||||||||||||
Interest expense |
$ | 7,984 | $ | 7,829 | $ | 7,897 | $ | 6,803 | $ | 30,513 | ||||||||||
Securitization fees |
1,170 | 1,065 | 981 | 868 | 4,084 | |||||||||||||||
Total interest expense |
$ | 9,154 | $ | 8,894 | $ | 8,878 | $ | 7,671 | $ | 34,597 | ||||||||||
Income tax benefit |
12,109 | |||||||||||||||||||
Total interest expense, net of tax |
$ | 22,488 | ||||||||||||||||||
| Total Income | 12/31/2005 | 9/30/2005 | 6/30/2005 | 3/31/2005 | Total | |||||||||||||||
Net income, as reported |
$ | 31,087 | $ | 28,097 | $ | 37,740 | $ | 30,650 | $ | 127,574 | ||||||||||
Goodwill impairment charge |
— | — | — | 3,306 | 3,306 | |||||||||||||||
Loss on assets held for sale |
— | — | — | 1,086 | 1,086 | |||||||||||||||
Minority interest expense |
511 | 748 | 238 | 1,449 | 2,946 | |||||||||||||||
Total income, excluding special items |
$ | 31,598 | $ | 28,845 | $ | 37,978 | $ | 36,491 | $ | 134,912 | ||||||||||
Total interest expense, net of tax |
22,488 | |||||||||||||||||||
| $ | 157,400 | |||||||||||||||||||
Average invested capital |
$ | 1,568,772 | ||||||||||||||||||
Adjusted Return on Invested Capital |
10.0 | % | ||||||||||||||||||
| Return on invested capital calculated utilizing net income, as reported is as follows: | ||||||||||||||||||||
Net income, as reported |
$ | 127,574 | ||||||||||||||||||
Total interest expense, net of tax |
22,488 | |||||||||||||||||||
| $ | 150,062 | |||||||||||||||||||
Average invested capital |
$ | 1,568,772 | ||||||||||||||||||
Return on Invested Capital |
9.6 | % | ||||||||||||||||||
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12