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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
Date of report (Date of earliest event reported): October 25, 2016
 
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.)        
 
 
 
600 Grant Street
Suite 5100
Pittsburgh, Pennsylvania
 
 
  
15219-2706
 
 
 
(Address of Principal Executive Offices)
 
 
  
(Zip Code)
Registrant’s telephone number, including area code: (412) 248-8200
(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):
[ ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






 
 
 
 
 




TABLE OF CONTENTS

Item 2.02 Results of Operations and Financial Condition.
Item 5.07 Submission of Matters to a Vote of Security Holders.
Item 9.01 Financial Statements and Exhibits.
Item 2.02 Results of Operations and Financial Condition.
On October 26, 2016, Kennametal Inc. (Kennametal or the Company) issued an earnings announcement for its fiscal 2017 first quarter ended September 30, 2016.
The press release contains certain non-generally accepted accounting principles (GAAP) financial measures. The following GAAP financial measures have been presented on an adjusted basis: sales; gross profit and margin; operating expense; operating expense as a percentage of sales; operating (loss) income and margin; net (loss) income; diluted loss per share (LPS) and diluted earnings per share (EPS); effective tax rate; Industrial sales, operating income and margin; WIDIA operating loss and margin; and Infrastructure sales, operating (loss) income and margin. Adjustments for the three months ended September 30, 2016 include restructuring and related charges. Adjustments for the three months ended September 30, 2015 include: (1) restructuring and related charges, (2) divestiture-related charges and (3) operations of divested businesses. Management adjusts for these items in measuring and compensating internal performance and to more readily compare the Company’s financial performance period-to-period. The press release also contains free operating cash flow and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) which are non-GAAP measure 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 and past 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. 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.
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 (which is the most directly comparable GAAP measure) 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 dividends, debt repayment, strategic initiatives, and other investing and financing activities.
EBITDA
EBITDA is a non-GAAP financial measure and is defined as net income attributable to Kennametal, with interest expense, interest income, provision for income taxes, depreciation and amortization added back. The most directly comparable GAAP measure is net income attributable to Kennametal. However, we believe that EBITDA is widely used as a measure of operating performance and is an important indicator of the Company’s operational strength and performance. Nevertheless, the measure should not be considered in isolation or as a substitute for operating income, cash flows from operating activities or any other measure for determining liquidity that is calculated in accordance with GAAP. Additionally, Kennametal will adjust EBITDA. Management uses this information in reviewing operating performance.
Additionally, during our quarterly earnings teleconference we may use various non-GAAP financial measures to describe the underlying operating results. Accordingly, we have compiled below certain reconciliations as required by Regulation G. 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.






Primary Working Capital
Primary working capital is a non-GAAP financial measure 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 segment level and is used as such for internal performance measurement.
PRIMARY WORKING CAPITAL (UNAUDITED)
 
 
 
 
(in thousands, except percents)
9/30/2016
6/30/2016
3/31/2016
12/31/2015
9/30/2015
Average
Current assets
$
991,837

$
1,075,341

$
1,099,260

$
1,062,992

$
1,168,511

$
1,079,588

Current liabilities
402,574

427,275

421,415

394,983

438,406

416,931

Working capital, GAAP
$
589,263

$
648,066

$
677,845

$
668,009

$
730,105

$
662,657

Excluding items:
 
 
 
 
 
 
Cash and cash equivalents
(119,411
)
(161,579
)
(136,564
)
(138,978
)
(97,199
)
(130,746
)
Other current assets
(64,660
)
(84,016
)
(111,479
)
(113,113
)
(120,583
)
(98,770
)
    Total excluded current assets
(184,071
)
(245,595
)
(248,043
)
(252,091
)
(217,782
)
(229,516
)
    Adjusted current assets
807,766

829,746

851,217

810,901

950,729

850,072

Current maturities of long-term debt and capital leases, including notes payable
(1,381
)
(1,895
)
(4,140
)
(5,942
)
(25,285
)
(7,729
)
Other current liabilities
(225,189
)
(243,341
)
(247,943
)
(237,444
)
(235,385
)
(237,860
)
    Total excluded current liabilities
(226,570
)
(245,236
)
(252,083
)
(243,386
)
(260,670
)
(245,589
)
    Adjusted current liabilities
176,004

182,039

169,332

151,597

177,736

171,342

Primary working capital
$
631,762

$
647,707

$
681,885

$
659,304

$
772,993

$
678,730

 
 
Three Months Ended
 
 
 
9/30/2016
6/30/2016
3/31/2016
12/31/2015
Total
Sales
 
$
477,140

$
521,224

$
497,837

$
524,021

$
2,020,222

Primary working capital as a percentage of sales
 
 
 
33.6
%

PRIMARY WORKING CAPITAL (UNAUDITED)
 
 
 
 
(in thousands, except percents)
06/30/2016
3/31/2016
12/31/2015
9/30/2015
06/30/2015
Average
Current assets
$
1,075,341

$
1,099,260

$
1,062,992

$
1,168,511

$
1,258,546

$
1,132,930

Current liabilities
427,275

421,415

394,983

438,406

482,744

432,965

Working capital, GAAP
$
648,066

$
677,845

$
668,009

$
730,105

$
775,802

$
699,965

Excluding items:
 
 
 
 
 
 
Cash and cash equivalents
(161,579
)
(136,564
)
(138,978
)
(97,199
)
(105,494
)
(127,963
)
Other current assets
(84,016
)
(111,479
)
(113,113
)
(120,583
)
(132,148
)
(112,268
)
    Total excluded current assets
(245,595
)
(248,043
)
(252,091
)
(217,782
)
(237,642
)
(240,231
)
    Adjusted current assets
829,746

851,217

810,901

950,729

1,020,904

892,699

Current maturities of long-term debt and capital leases, including notes payable
(1,895
)
$
(4,140
)
(5,942
)
(25,285
)
(15,702
)
(10,593
)
Other current liabilities
(243,341
)
(247,943
)
(237,444
)
(235,385
)
(279,661
)
(248,755
)
    Total excluded current liabilities
(245,236
)
(252,083
)
(243,386
)
(260,670
)
(295,363
)
(259,348
)
    Adjusted current liabilities
182,039

169,332

151,597

177,736

187,381

173,617

Primary working capital
$
647,707

$
681,885

$
659,304

$
772,993

$
833,523

$
719,082

 
 
Three Months Ended
 
 
 
06/30/16
03/31/16
12/31/15
09/30/15
Total
Sales
 
$
521,224

$
497,837

$
524,021

$
555,354

$
2,098,436

Primary working capital as a percentage of sales
 
 
 
34.3
%







Debt to Capital
Debt to Capital is a non-GAAP financial measure and is defined by Kennametal as total debt divided by the sum of total equity plus total debt. The most directly comparable GAAP measure is debt to equity, which is defined as total debt divided by total equity. Management believes that Debt to Capital provides additional insight into the underlying capital structure and performance of the Company.
DEBT TO CAPITAL (UNAUDITED)
 
September 30,
 
June 30,
(in thousands, except percents)
 
2016
 
2016
Total debt
 
$
695,408

 
$
695,443

Total equity
 
967,344

 
995,801

Debt to equity, GAAP
 
71.9
%
 
69.8
%
Total debt
 
$
695,408

 
$
695,443

Total equity
 
967,344

 
995,801

Total capital
 
$
1,662,752

 
$
1,691,244

Debt to capital
 
41.8
%
 
41.1
%







Item 5.07 Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Shareowners on October 25, 2016, our Shareowners voted on the election of four directors, the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2017, an advisory vote on executive compensation, an approval of the Kennametal Inc. Annual Incentive Plan and an approval of the Kennametal Inc. 2016 Stock and Incentive Plan. Of the 73,179,805 shares present in person or by proxy, the following is the number of shares voted in favor of, abstained or voted against each matter and the number of shares having authority to vote on each matter but withheld.
I.
With respect to the votes cast for the re-election of four directors with the terms to expire in 2017:
 
 
For
 
Against
 
Withheld  
 
Broker Non-Votes
Cindy L. Davis
 
68,342,055

 
—

 
1,231,814

 
3,605,936

William J. Harvey
 
68,423,100

 
—

 
1,150,769

 
3,605,936

William M. Lambert
 
68,693,085

 
—

 
880,784

 
3,605,936

Sagar A. Patel
 
68,783,140

 
—

 
790,729

 
3,605,936

The following other directors’ terms of office continued after the meeting: Ronald M. De Feo, Philip A. Dur, Timothy R. McLevish, Lawrence W. Stranghoener and Steven H. Wunning.

II.
With respect to the ratification of the selection of the firm PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending June 30, 2017:
 
 
For
 
Against
 
Abstained
 
Broker Non-Votes
PricewaterhouseCoopers LLP
 
72,323,985

 
410,748

 
445,072

 
—


III.
With respect to the advisory vote on executive compensation:
 
 
For
 
Against
 
Abstained
 
Broker Non
-Votes
Executive compensation
 
66,121,605

 
3,248,507

 
203,757

 
3,605,936


IV.
With respect to the approval of the Kennametal Inc. Annual Incentive Plan:
 
 
For
 
Against
 
Abstained
 
Broker Non
-Votes
Kennametal Inc. Annual Incentive Plan
 
68,073,842

 
1,302,760

 
197,267

 
3,605,936


V.
With respect to the approval of the Kennametal Inc. 2016 Stock and Incentive Plan:
 
 
For
 
Against
 
Abstained
 
Broker Non
-Votes
Kennametal Inc. 2016 Stock and Incentive Plan
 
59,600,940

 
7,545,954

 
2,426,975

 
3,605,936


Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
99.1 Fiscal 2017 First Quarter Earnings Announcement






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:
October 26, 2016
 
 
By:
 
/s/ Martha Fusco
 
 
 
 
 
 
 
 
 
Martha Fusco
 
 
 
 
 
 
 
 
 
Vice President Finance and Corporate Controller
 
 


Exhibit


Exhibit 99.1
https://cdn.kscope.io/c01d7f8001092cce5de2032d0a41b624-kmtheadera01a01a01a05.jpg
FOR IMMEDIATE RELEASE:
DATE: October 26, 2016             
Investor Relations
CONTACT: Kelly Boyer
PHONE: 412-248-8287
Corporate Relations - Media
CONTACT: Christina Sutter
PHONE: 724-539-5708
KENNAMETAL ANNOUNCES FISCAL 2017 FIRST QUARTER RESULTS
PITTSBURGH, (October 26, 2016) – Kennametal Inc. (NYSE: KMT) today reported results for the fiscal 2017 first quarter ended September 30, 2016, with loss per diluted share (LPS) of $0.27, compared with the prior year quarter LPS of $0.08. Adjusted earnings per diluted share (EPS) were $0.11 in the current quarter compared with adjusted EPS of $0.14 in the prior year quarter.
The current period reported results included restructuring and related charges of $0.38 per share. The prior year quarter reported results included restructuring and related charges of $0.14 per share and divestiture-related charges of $0.08 per share.
"Kennametal’s 2017 first quarter results were mostly in-line with our expectations except for the unusually high tax rate,” commented Ron De Feo President and CEO. “Progress is accelerating internally. We are improving our market position and lowering our costs, despite challenging end markets."
De Feo continued, "Approximately 75% of the previously announced workforce reduction and 65% of the correlating savings have been identified and are in the implementation phase. Longer-term factory and product modernization projects are underway, with substantial opportunities being confirmed. Lastly, selling initiatives are ongoing, but these are the hardest to forecast as market forces are still generally negative. We are increasing our full year outlook range but remain generally cautious on the overall year.”
This earnings release contains non-GAAP financial measures. Reconciliations of all non-GAAP financial measures are set forth in the tables attached to this earnings release, and corresponding descriptions are contained in the company’s report on Form 8-K, to which this news release is attached.

Fiscal 2017 First Quarter Key Developments
 
•
Sales were $477 million, compared with $555 million in the same quarter last year. Sales decreased by 14 percent, reflecting a 9 percent decline due to divestiture, a 3 percent organic decline and a 2 percent unfavorable currency exchange impact.

•
Pre-tax restructuring and related charges were $32 million, or $0.38 per share, and pre-tax benefits were approximately $18 million, or $0.19 per share in the quarter. In the same quarter last year, pre-tax restructuring and related charges were $15 million, or $0.14 per share, and pre-tax benefits were approximately $9 million, or $0.08 per share.





•
Operating loss was $9 million, compared to operating income of $7 million in the same quarter last year. Adjusted operating income was flat at $22 million in the current and prior year periods. Year-over-year adjusted operating results reflect the positive effects of lower raw material costs, incremental restructuring benefits and slightly better productivity, offset by the negative impacts of unfavorable mix in all segments, organic sales decline and higher employment-related costs. Adjusted operating margin was 4.7 percent in the current period and 4.3 percent in the prior year period.

•
The reported effective tax rate (ETR) was 29.9 percent (provision on a loss) and the adjusted ETR was 38.7 percent (provision on income). For the first quarter of fiscal 2016, the reported ETR was 292.8 percent (provision on a loss) and the adjusted ETR was 24.9 percent (provision on income). The change in the adjusted ETR year-over-year is driven primarily by tax benefits on losses in the U.S. that were recorded in the prior year which could not be recognized in the current year due to the full valuation allowance on our domestic deferred tax assets.

•
LPS was $0.27, compared with $0.08 in the prior year quarter. Adjusted EPS were $0.11 in the current quarter and $0.14 in the prior year quarter.

•
Year-to-date free operating cash flow was negative $19 million compared to positive $3 million in the same period last year. The decrease in free operating cash flow was primarily attributable to lower cash earnings, comparatively lower reductions in primary working capital and front-end loaded cash requirements for severance related to our headcount reduction initiative. These were offset partially by lower tax payments.

•
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) were $17 million, compared with $36 million in the prior year quarter. Adjusted EBITDA were $48 million in the current quarter and $54 million in the prior year quarter.

Segment Developments for the Fiscal 2017 First Quarter

As previously announced, in order to take advantage of the growth opportunities of our WIDIA brand, we implemented a new operating structure at the start of fiscal 2017.
A key attribute of the new structure is the establishment of the WIDIA operating segment. In order to better leverage the opportunities that lie in this business, in addition to being more agile and competitive in the marketplace, we are placing higher levels of focus, determination and leadership in the business. Industrial and WIDIA in 2017 are formed from the previously reported Industrial segment. We now have three reportable operating segments: Industrial, WIDIA and Infrastructure. Restated quarterly segment results are included in this press release.
 
•
Industrial segment sales of $269 million remained relatively flat compared to $270 million in the prior year quarter, reflecting organic growth of 3 percent, offset by 2 percent unfavorable currency exchange and 1 percent due to divestiture. Excluding the impact of currency exchange and divestiture, sales increased approximately 6 percent in aerospace and defense, 5 percent in general engineering and 1 percent in transportation, offset partially by a decrease of approximately 11 percent in energy. Activity in the aerospace sector remains elevated with sales growing globally. General engineering sales in Americas and Asia have benefited from stability in the indirect channel stock levels, offsetting the general industrial weakness caused by the continued decline in the energy sector. The transportation market was mixed with more projects contributing to higher sales in Asia, partially offset by less favorable conditions in Europe and the Americas. On a segment regional basis excluding the impact of currency exchange and divestiture, sales increased 7 percent in Asia and 4 percent in the Americas, offset partially by a decrease of 1 percent in Europe.

•
Industrial segment operating income was $6 million compared with $21 million in the prior year. Adjusted operating income was $24 million compared to $27 million in the prior year quarter, driven primarily by higher employment-related costs and unfavorable mix, partially offset by incremental restructuring benefits and organic sales growth. Industrial adjusted operating margin was 9.0 percent compared with 10.0 percent in the prior year.

•
The WIDIA segment, selling primarily in the general engineering end market, recorded sales of $41 million, a decrease of 5 percent from $43 million in the prior year quarter due to organic decline of 3 percent, unfavorable currency exchange of 1 percent and a 1 percent decrease due to fewer business days. On a regional basis excluding the impact of currency exchange, sales decreased 10 percent in Europe and 5 percent in the Americas, partially offset by an increase of 5 percent in Asia.





•
WIDIA segment operating loss was $6 million compared to $2 million in the prior year. Adjusted operating loss was $3 million compared to $1 million in the prior year quarter, primarily driven by organic sales decline and unfavorable mix. WIDIA adjusted operating loss margin was 6.7 percent compared with 2.3 percent in the prior year.
    
•
Infrastructure segment sales of $167 million decreased 31 percent from $242 million in the prior year quarter. The decrease was driven by divestiture impact of 20 percent, 10 percent organic sales decline and 1 percent unfavorable currency exchange. Excluding the impact of currency exchange and divestiture, sales decreased by approximately 22 percent in earthworks, 6 percent in energy and 4 percent in general engineering. Key energy markets, particularly in North America, continued to see contraction in the first quarter, with U.S. rig counts declining over 40 percent year-over-year. In addition, conditions in underground mining in North America declined further, with sales down 36 percent year-over-year. As previously disclosed, this weakness is expected to continue for the foreseeable future. On a segment regional basis excluding the impact of divestiture and currency exchange, sales decreased 16 percent in the Americas, 8 percent in Asia and 3 percent in Europe.

•
Infrastructure segment operating loss was $8 million, flat compared to the same quarter of the prior year. Adjusted operating income was $2 million compared to adjusted operating loss of $3 million in the prior year quarter. The change in adjusted operating results was primarily due to lower raw material costs and incremental restructuring benefits, partially offset by lower organic sales and unfavorable mix. Infrastructure adjusted operating income margin was 1.4 percent compared with adjusted operating loss margin of 1.4 percent in the prior year.

Restructuring Programs

Restructuring programs are currently expected to produce combined annual ongoing pre-tax permanent savings of $140-$155 million. In total, pre-tax charges for these initiatives are expected to be approximately $155-$175 million.
Restructuring and related charges and savings (pre-tax)
 
 
Estimated Charges
Current Quarter Charges
Charges To Date
Estimated Annualized Savings
Approximate Current Quarter Savings
Expected Completion Date
Headcount reduction initiatives
$50M
$27M
$30M
$65M
$4M
6/30/2017
Other
$105M-$125M
$5M
$73M
$75M-$90M
$14M
12/31/2018
Total
$155M-$175M
$32M
$103M
$140M-$155M
$18M
 

Outlook

The company now expects consolidated adjusted EPS for the full fiscal year to be in the range of $1.20 and $1.50 per share, an increase from its previous guidance of $1.10 to $1.40 per share. This increase reflects restructuring benefits related to its headcount initiative, partially offset by continued end market headwinds and a higher than originally anticipated tax rate.

The company's expectations of full year free operating cash flow of $90 million to $110 million remains unchanged, as the front-loaded severance for headcount initiatives will be largely offset by cash savings from this program in the fiscal year.

Dividend Declared

Kennametal also announced that its board of directors declared a quarterly cash dividend of $0.20 per share. The dividend is payable November 29, 2016 to shareholders of record as of the close of business on November 11, 2017.
The company will discuss its fiscal 2017 first quarter results in a live webcast at 8:30 a.m. Eastern Time Thursday, October 27, 2016. This event will be broadcast live on the company’s website, www.kennametal.com. To access the webcast, select "About Us", “Investor Relations” and then “Events.” A recorded replay of this event also will be available on the company’s website through November 27, 2016.





Certain statements in this release may be forward-looking in nature, or “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. For example, statements about Kennametal’s outlook for earnings, sales volumes, and cash flow for fiscal year 2017 and our expectations regarding future growth and financial performance are forward-looking statements. Any forward looking statements are based on current knowledge, expectations and estimates that involve inherent risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, our actual results could vary materially from our current expectations. There are a number of factors that could cause our actual results to differ from those indicated in the forward-looking statements. They include: economic recession; our ability to achieve all anticipated benefits of restructuring initiatives; our foreign operations and international markets, such as currency exchange rates, different regulatory environments, trade barriers, exchange controls, and social and political instability; changes in the regulatory environment in which we operate, including environmental, health and safety regulations; potential for future goodwill and other intangible asset impairment charges; our ability to protect and defend our intellectual property; continuity of information technology infrastructure; competition; our ability to retain our management and employees; demands on management resources; availability and cost of the raw materials we use to manufacture our products; product liability claims; integrating acquisitions and achieving the expected savings and synergies; global or regional catastrophic events; demand for and market acceptance of our products; business divestitures; energy costs; commodity prices; labor relations; and implementation of environmental remediation matters. Many of these risks and other risks are more fully described in Kennametal’s latest annual report on Form 10-K and its other periodic filings with the Securities and Exchange Commission. 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.

About Kennametal
At the forefront of advanced materials innovation for more than 75 years, Kennametal Inc. is a global industrial technology leader delivering productivity to customers through materials science, tooling and wear-resistant solutions. Customers across aerospace, earthworks, energy, general engineering and transportation turn to Kennametal to help them manufacture with precision and efficiency. Every day approximately 12,000 employees are helping customers in more than 60 countries stay competitive. Kennametal generated nearly $2.1 billion in revenues in fiscal 2016. Learn more at www.kennametal.com.






FINANCIAL HIGHLIGHTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
 
Three Months Ended September 30,
(in thousands, except per share amounts)
2016
 
2015
Sales
$
477,140

 
$
555,354

Cost of goods sold
333,610

 
404,130

     Gross profit
143,530

 
151,224

Operating expense
119,865

 
129,243

Restructuring and asset impairment charges
28,605

 
9,120

Amortization of intangibles
4,271

 
6,247

     Operating (loss) income
(9,211
)
 
6,614

Interest expense
6,993

 
6,979

Other expense, net
118

 
1,087

Loss before income taxes
(16,322
)
 
(1,452
)
Provision for income taxes
4,879

 
4,252

Net loss
(21,201
)
 
(5,704
)
Less: Net income attributable to noncontrolling interests
455

 
522

Net loss attributable to Kennametal
$
(21,656
)
 
$
(6,226
)
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS
Basic loss per share
$
(0.27
)
 
$
(0.08
)
Diluted loss per share
$
(0.27
)
 
$
(0.08
)
Dividends per share
$
0.20

 
$
0.20

Basic weighted average shares outstanding
80,054

 
79,728

Diluted weighted average shares outstanding
80,054

 
79,728





CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
September 30, 2016
 
June 30, 2016
 
 ASSETS
 
 
 
Cash and cash equivalents
$
119,411

 
$
161,579

Accounts receivable, net
348,470

 
370,916

Inventories
459,296

 
458,830

Other current assets
64,660

 
84,016

Total current assets
991,837

 
1,075,341

Property, plant and equipment, net
735,448

 
730,640

Goodwill and other intangible assets, net
501,589

 
505,695

Other assets
78,559

 
51,107

Total assets
$
2,307,433

 
$
2,362,783

 
 LIABILITIES
 
 
 
Current maturities of long-term debt and capital leases, including notes payable
$
1,381

 
$
1,895

Accounts payable
176,004

 
182,039

Other current liabilities
225,189

 
243,341

Total current liabilities
402,574

 
427,275

Long-term debt and capital leases
694,027

 
693,548

Other liabilities
243,488

 
246,159

Total liabilities
1,340,089

 
1,366,982

KENNAMETAL SHAREHOLDERS’ EQUITY
934,996

 
964,323

NONCONTROLLING INTERESTS
32,348

 
31,478

Total liabilities and equity
$
2,307,433

 
$
2,362,783


SEGMENT DATA (UNAUDITED)
Three Months Ended September 30,
(in thousands)
2016
 
2015
Outside Sales:
 
 
 
Industrial (1)
$
269,043

 
$
270,191

WIDIA (1)
41,015

 
43,142

Infrastructure
167,082

 
242,021

Total outside sales
$
477,140

 
$
555,354

Sales By Geographic Region:
 
 
 
North America
$
215,211

 
$
253,149

Western Europe
119,982

 
155,721

Rest of World
141,947

 
146,484

Total sales by geographic region
$
477,140

 
$
555,354

Operating (Loss) Income:
 
 
 
Industrial (1)
$
5,556

 
$
21,459

WIDIA (1)
(5,756
)
 
(1,709
)
Infrastructure
(7,587
)
 
(8,428
)
Corporate (2)
(1,424
)
 
(4,708
)
Total operating (loss) income
$
(9,211
)
 
$
6,614

(1)  Amounts for the three months ended September 30, 2015 have been restated to reflect the change in reportable operating segments
(2)  Represents unallocated corporate expenses





In addition to reported results under generally accepted accounting principles in the United States of America (GAAP), the following financial highlight tables include, where appropriate, a reconciliation of adjusted results including: sales; gross profit and margin; operating expense; operating expense as a percentage of sales; operating (loss) income and margin; net (loss) income; diluted (LPS) EPS; effective tax rate; Industrial sales, operating income and margin; WIDIA operating loss and margin; Infrastructure sales, operating (loss) income and margin; free operating cash flow and EBITDA (which are non-GAAP financial measures), to the most directly comparable GAAP measures. For those adjustments that are presented ‘net of tax’, the tax effect of the adjustment can be derived by calculating the difference between the pre-tax and the post-tax adjustments presented. The tax effect on adjustments is calculated by preparing an overall tax calculation including the adjustments and then a tax calculation excluding the adjustments. The difference between these calculations results is the tax impact of the adjustments.
Management believes that investors should have available the same information that management uses to assess operating performance, determine compensation and assess the capital structure of the company. These non-GAAP measures should not be considered in isolation or as a substitute for the most comparable GAAP measures. Investors are cautioned that non-GAAP financial measures utilized by the company may not be comparable to non-GAAP financial measures used by other companies. Reconciliations of all non-GAAP financial measures are set forth in the attached tables and descriptions of certain non-GAAP financial measures are contained in our report on Form 8-K to which this release is attached.

THREE MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED)
 
 
(in thousands, except percents and per share data)
Sales
Gross profit
Operating expense
Operating (loss) income
Net (loss) income(3)
Diluted (LPS) EPS
Effective tax rate
Reported results
$
477,140

$
143,530

$
119,865

$
(9,211
)
$
(21,656
)
$
(0.27
)
(29.9
)%
Reported margins
 
30.1
%
25.1
%
(1.9
)%
 
 
 
Restructuring and related charges (4)
—

1,995

(1,057
)
31,657

30,603

0.38

68.6

Adjusted results
$
477,140

$
145,525

$
118,808

$
22,446

$
8,947

$
0.11

38.7
 %
Adjusted margins
 
30.5
%
24.9
%
4.7
 %
 
 
 
(3) Represents amounts attributable to Kennametal Shareholders.
(4) Includes pre-tax restructuring related charges recorded in corporate of $13.
 
Industrial
WIDIA
Infrastructure
(in thousands, except percents)
Sales
Operating income
Sales
Operating loss
Sales
Operating (loss) income
Reported results
$
269,043

$
5,556

$
41,015

$
(5,756
)
$
167,082

$
(7,587
)
Reported operating margin
 
2.1
%
 
(14.0
)%
 
(4.5
)%
Restructuring and related charges (5)
—

18,708

—

3,026

—

9,910

Adjusted results
$
269,043

$
24,264

$
41,015

$
(2,730
)
$
167,082

$
2,323

Adjusted operating margin
 
9.0
%
 
(6.7
)%
 
1.4
 %
(5) Excludes pre-tax restructuring related charges recorded in corporate of $13.





THREE MONTHS ENDED SEPTEMBER 30, 2015 (UNAUDITED)
 
 
(in thousands, except percents and per share data)
Sales
Gross profit
Operating expense
Operating income
Net (loss) income(3)
Diluted (LPS) EPS
Effective tax rate
Reported results
$
555,354

$
151,224

$
129,243

$
6,614

$
(6,226
)
$
(0.08
)
(292.8
)%
Reported margins
 
27.2
%
23.3
%
1.2
%
 
 
 
Restructuring and related charges (6)
—

1,627

(4,363
)
15,111

11,154

0.14

42.8

Divestiture-related charges
—

—

—

—

6,368

0.08

276.2

Operations of divested businesses
(51,206
)
(7,643
)
(6,062
)
82

256

—

(1.3
)
Adjusted results
$
504,148

$
145,208

$
118,818

$
21,807

$
11,552

$
0.14

24.9
 %
Adjusted margins
 
28.8
%
23.6
%
4.3
%
 
 
 
(6) Includes pre-tax restructuring related charges recorded in corporate of $3,333.
 
Industrial (1)
WIDIA (1)
Infrastructure
(in thousands, except percents)
Sales
Operating income
Sales
Operating loss
Sales
Operating loss
Reported results
$
270,191

$
21,459

$
43,142

$
(1,709
)
$
242,021

$
(8,428
)
Reported operating margin
 
7.9
%
 
(4.0
)%
 
(3.5
)%
Restructuring and related charges (7)
—

5,462

—

722

—

5,594

Operations of divested businesses
(2,543
)
(78
)
—

—

(48,663
)
160

Adjusted results
$
267,648

$
26,843

$
43,142

$
(987
)
$
193,358

$
(2,674
)
Adjusted operating margin
 
10.0
%
 
(2.3
)%
 
(1.4
)%
(7) Excludes pre-tax restructuring related charges recorded in corporate of $3,333.

FREE OPERATING CASH FLOW (UNAUDITED)
 
Three Months Ended
 
 
September 30,
(in thousands)
 
2016
 
2015
Net cash flow from operating activities
 
$
21,860

 
$
38,707

Purchases of property, plant and equipment
 
(42,264
)
 
(37,217
)
Proceeds from disposals of property, plant and equipment
 
1,138

 
1,933

Free operating cash flow
 
$
(19,266
)
 
$
3,423





EBITDA (UNAUDITED)
 
Three Months Ended
 
 
September 30,
(in thousands)
 
2016
 
2015
Net loss attributable to Kennametal, reported
$
(21,656
)
 
$
(6,226
)
Add back:
 
 
 
  Interest expense
6,993

 
6,979

  Interest income
(248
)
 
(475
)
  Provision for income taxes, reported
4,879

 
4,252

  Depreciation
 
23,167

 
25,312

  Amortization
 
4,271

 
6,247

EBITDA
 
$
17,406

 
$
36,089

 
 
 
 
 
Adjustments:
 
 
 
  Restructuring and related charges
30,603

 
11,154

  Divestiture-related charges
 
—

 
6,368

  Operations of divested businesses
—

 
256

Adjusted EBITDA
 
$
48,009

 
$
53,867


SUPPLEMENTAL INFORMATION FOR SELECTED FISCAL YEAR 2016 FINANCIAL RESULTS (UNAUDITED)
(in thousands, except percents)
Previously disclosed segment results were restated for establishment of the WIDIA segment. This supplemental information regarding selected fiscal year 2016 financial results should be read in connection with the company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on August 11, 2016. The information includes non-GAAP financial measures and, in accordance with SEC Regulation G, the company has provided a reconciliation for each non-GAAP financial measure to the most directly comparable GAAP financial measure.
TWELVE MONTHS ENDED JUNE 30, 2016 (UNAUDITED)
Industrial
WIDIA
 
Sales
Operating income
Sales
Operating loss
Reported results
$
1,098,439

$
90,324

$
170,723

$
(9,081
)
Reported margin
 
8.2
%
 
(5.3
)%
Restructuring and related charges
—

24,291

—

3,734

Fixed asset disposal charges
—

2,635

—

746

Goodwill and other intangible asset impairment charges
—

—

—

2,345

Operations of divested businesses
(4,106
)
—

—

—

Loss on divestiture
—

3,610

—

—

Adjusted results
$
1,094,333

$
120,860

$
170,723

$
(2,256
)
Adjusted margin
 
11.0
%
 
(1.3
)%





THREE MONTHS ENDED JUNE 30, 2016 (UNAUDITED)
Industrial
WIDIA
 
Sales
Operating income
Sales
Operating (loss) income
Reported results
$
285,547

$
30,469

$
43,027

$
(1,028
)
Reported margin
 
10.7
%
 
(2.4
)%
Restructuring and related charges
—

6,697

—

1,031

Fixed asset disposal charges
—

2,635

—

746

Loss on divestiture
—

29

—

—

Adjusted results
$
285,547

$
39,830

$
43,027

$
749

Adjusted margin
 
13.9
%
 
1.7
 %

THREE MONTHS ENDED MARCH 31, 2016 (UNAUDITED)
Industrial
WIDIA
 
Sales
Operating income
Sales
Operating loss
Reported results
$
274,123

$
26,371

$
42,249

$
(1,679
)
Reported margin
 
9.6
%
 
(4.0
)%
Restructuring and related charges
—

8,091

—

1,255

Loss on divestiture
—

(3,677
)
—

—

Adjusted results
$
274,123

$
30,785

$
42,249

$
(424
)
Adjusted margin
 
11.2
%
 
(1.0
)%

THREE MONTHS ENDED DECEMBER 31, 2015 (UNAUDITED)
Industrial
WIDIA
Sales
Operating income
Sales
Operating loss
Reported results
$
268,578

$
12,025

$
42,305

$
(4,665
)
Reported margin
 
4.5
%
 
(11.0
)%
Restructuring and related charges
—

4,041

—

726

Goodwill and other intangible asset impairment charges
—

—

—

2,345

Operations of divested businesses
(1,563
)
78

—

—

Loss on divestiture
—

7,258

—

—

Adjusted results
$
267,015

$
23,402

$
42,305

$
(1,594
)
Adjusted margin
 
8.8
%
 
(3.8
)%

THREE MONTHS ENDED SEPTEMBER 30, 2015 (UNAUDITED)
Industrial
WIDIA
Sales
Operating income
Sales
Operating loss
Reported results
$
270,191

$
21,459

$
43,142

$
(1,709
)
Reported margin
 
7.9
%
 
(4.0
)%
Restructuring and related charges
—

5,462

—

722

Operations of divested businesses
(2,543
)
(78
)
—

—

Adjusted results
$
267,648

$
26,843

$
43,142

$
(987
)
Adjusted margin
 
10.0
%
 
(2.3
)%