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): May 6, 2019
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) 248-8000
(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))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Capital Stock, par value $1.25 per share | KMT | New York Stock Exchange |
Preferred Stock Purchase Rights | New York Stock Exchange | |
Item 2.02 Results of Operations and Financial Condition.
On May 6, 2019, Kennametal Inc. (Kennametal or the Company) issued an earnings announcement for its fiscal 2019 third quarter ended March 31, 2019. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated by reference into this Item 2.02.
The earnings announcement issued on May 6, 2019 is being furnished as Exhibit 99.1 to this Current Report on Form 8-K and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section unless the Company specifically incorporates it by reference in a document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
Item 2.05 Costs Associated with Exit or Disposal Activities.
As disclosed in the press release attached hereto as Exhibit 99.1, on May 6, 2019, Kennametal also announced details of the next phase of restructuring actions associated with simplification/modernization. These actions are expected to reduce structural costs and are currently estimated to achieve $35 million to $40 million of annualized savings by the end of fiscal 2020. The Company is expected to incur pre-tax charges of $55 million to $65 million through fiscal 2019 and 2020 for these restructuring activities, which are anticipated to be primarily cash expenditures.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
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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: | May 6, 2019 | By: | /s/ Patrick S. Watson | ||||||
Patrick S. Watson | |||||||||
Vice President Finance and Corporate Controller | |||||||||
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Exhibit 99.1
FOR IMMEDIATE RELEASE:
DATE: May 6, 2019
Investor Relations | Media Relations |
CONTACT: Kelly Boyer | CONTACT: Lori Lecker |
PHONE: 412-248-8287 | PHONE: 412-248-8224 |
Kennametal Announces Fiscal 2019 Third Quarter Results:
10th consecutive quarter of year-over-year earnings per share growth
Highlights
• | Earnings per diluted share (EPS) of $0.82; adjusted EPS increases 10 percent year-over-year to $0.77 |
• | Sales of $597 million down 2 percent year-over-year; continued organic sales growth of 3 percent |
• | Earnings improvement of 35 percent; adjusted EBITDA margin improves to 19.4 percent |
• | Fiscal 2019 outlook tightened, adjusted EPS range of $3.00 - $3.10 per share, within previous outlook range |
• | Next phase of restructuring actions associated with simplification/modernization expected to achieve annual savings of $35-$40 million by end of fiscal 2020 |
PITTSBURGH, (May 6, 2019) – Kennametal Inc. (NYSE: KMT) (the "Company") today reported results for its fiscal 2019 third quarter ended March 31, 2019, with EPS of $0.82, compared with $0.61 in the prior year quarter, and adjusted EPS of $0.77, compared with $0.70 in the prior year quarter.
“We delivered organic sales growth in every business segment, on increasingly tougher comparables, and end markets remained generally positive except for automotive,” said President and Chief Executive Officer, Chris Rossi. "Earnings improved, and our adjusted EBITDA margin for the quarter increased notably year-over-year which is in-line with the fiscal 2021 targets outlined at our most recent Investor Day.”
Rossi continued, “We are seeing the increasing benefits from simplification/modernization in our financial results. Moving forward, we expect the associated restructuring efforts to further reduce structural costs while maintaining customer commitments.”
Simplification/Modernization Restructuring
The Company today announced details of the next phase of restructuring associated with simplification /modernization. These actions are expected to reduce structural costs and are currently estimated to achieve $35-$40 million of annualized savings by the end of fiscal 2020. The Company is expected to incur pre-tax charges of $55-$65 million through fiscal 2019 and 2020 for these restructuring activities.
Fiscal 2019 Third Quarter Key Developments
Sales of $597 million decreased 2 percent from $608 million year-over-year, reflecting 4 percent unfavorable currency exchange effect and a 1 percent unfavorable business day effect, partially offset by 3 percent organic sales growth.
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In connection with the Company's simplification/modernization initiative, pre-tax restructuring and related charges were $3 million, or $0.03 per share, and incremental pre-tax benefits from simplification/modernization restructuring were approximately $3 million in the quarter. Annualized run-rate pre-tax benefits of approximately $12 million have been achieved in connection with these substantially completed simplification/modernization initiatives.
Operating income was $82 million, or 13.7 percent margin, compared to $81 million, or 13.3 percent margin, in the prior year quarter. Adjusted operating income was $85 million, or 14.3 percent margin, compared to $83 million, or 13.6 percent margin, in the prior year quarter. The increase in adjusted operating income was due primarily to organic sales growth, incremental simplification/modernization benefits and lower compensation expense, partially offset by unfavorable volume-related labor and fixed cost absorption in certain facilities in part due to simplification/modernization efforts in progress, higher raw material costs and unfavorable currency exchange. Price realization exceeded raw material cost inflation.
The reported effective tax rate (ETR) for the quarter was 11.0 percent and the adjusted ETR was 19.8 percent, compared to reported ETR of 31.2 percent and adjusted ETR of 23.1 percent in the prior year quarter. The change in the adjusted ETR was primarily due to U.S. tax reform.
Reported EPS in the current quarter includes a non-recurring benefit related to U.S. tax reform of $0.08 and restructuring and related charges of $0.03. Reported EPS in the prior year quarter includes a non-recurring charge related to U.S. tax reform of $0.08 and restructuring and related charges of $0.01.
Net cash flow provided by operating activities was $157 million compared to $158 million in the prior year period. Free operating cash flow (FOCF) was $15 million compared to $54 million in the prior year period. The change in FOCF was driven primarily by higher working capital and greater net capital expenditures due in part to simplification/modernization initiatives, partially offset by increased cash flow from operations before changes in certain other assets and liabilities.
Outlook
The Company updated its outlook for fiscal year 2019:
• | Adjusted EPS of $3.00 to $3.10 on organic sales growth of approximately 5 percent |
• | Adjusted ETR of approximately 22 percent |
• | Capital spending of $200 to $220 million |
• | Free operating cash flow of $120 to $140 million |
Segment Results
Industrial sales of $319 million decreased 4 percent from $333 million year-over-year, reflecting a 5 percent unfavorable currency exchange impact, partially offset by organic sales growth of 1 percent. Operating income was $57 million, or 18.0 percent margin, compared to $50 million, or 15.1 percent margin, in the prior year quarter. Adjusted operating income was $58 million, or 18.3 percent margin, compared to $51 million, or 15.4 percent margin, in the prior year quarter. The increase in adjusted operating income was driven primarily by organic sales growth and incremental simplification/modernization benefits, partially offset by unfavorable volume-related labor and fixed cost absorption in certain facilities in part due to simplification/modernization efforts in progress and unfavorable currency exchange.
Widia sales of $51 million decreased 2 percent from $52 million year-over-year, driven by a 4 percent unfavorable currency exchange impact and an unfavorable business day effect of 1 percent, partially offset by organic sales growth of 3 percent. Operating income was break-even, compared to $1 million, or 2.4 percent margin, in the prior year quarter. Adjusted operating income was $1 million, or 1.3 percent margin, compared to $1 million, or 2.4 percent margin, in the prior year quarter. The change in adjusted operating income was driven primarily by lower margins from one-time costs associated with simplification efforts to streamline the product portfolio, partially offset by organic sales growth.
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Infrastructure sales of $228 million increased 2 percent from $223 million year-over-year, driven by organic sales growth of 6 percent, partially offset by an unfavorable currency exchange impact of 3 percent and an unfavorable business day effect of 1 percent. Operating income was $25 million, or 11.0 percent margin, compared to $30 million, or 13.5 percent margin, in the prior year quarter. Adjusted operating income was $27 million, or 11.7 percent margin, compared to $31 million, or 13.8 percent margin, in the prior year quarter. The decrease in adjusted operating income was primarily driven by higher raw material costs and manufacturing expenses, partially offset by organic sales growth and incremental simplification/modernization benefits.
Dividend Declared
Kennametal also announced that its Board of Directors declared a quarterly cash dividend of $0.20 per share. The dividend is payable on May 29, 2019 to shareholders of record as of the close of business on May 14, 2019.
The Company will discuss its fiscal 2019 third quarter results in a live webcast at 8:00 a.m. Eastern Time, Tuesday, May 7, 2019.
The conference call will be broadcast via real-time audio on the Kennametal website at www.kennametal.com. Once on the homepage, select "About Us", “Investor Relations” and then “Events.” A replay of the call will be available on the Company’s website on the Investor Relations/Events page beginning on May 7, 2019 at 10:00 a.m. through June 4, 2019.
This earnings release contains non-GAAP financial measures. Reconciliations and descriptions of all non-GAAP financial measures are set forth in the tables that follow.
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, cash flow and capital expenditures for fiscal year 2019 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: downturns in the business cycle or the economy; our ability to achieve all anticipated benefits of restructuring, simplification and modernization initiatives; risks related to 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; 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
With over 80 years as an industrial technology leader, Kennametal Inc. delivers 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 10,000 employees are helping customers in more than 60 countries stay competitive. Kennametal generated nearly $2.4 billion in revenues in fiscal 2018. Learn more at www.kennametal.com. Follow @Kennametal: Twitter, Instagram, Facebook, LinkedIn and YouTube.
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FINANCIAL HIGHLIGHTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||
(in thousands, except per share amounts) | 2019 | 2018 | 2019 | 2018 | ||||||||||
Sales | $ | 597,204 | $ | 607,936 | $ | 1,771,285 | $ | 1,721,734 | ||||||
Cost of goods sold | 389,118 | 391,519 | 1,153,509 | 1,133,866 | ||||||||||
Gross profit | 208,086 | 216,417 | 617,776 | 587,868 | ||||||||||
Operating expense | 120,135 | 130,630 | 358,054 | 373,361 | ||||||||||
Restructuring and asset impairment charges | 2,440 | 1,264 | 5,061 | 6,834 | ||||||||||
Amortization of intangibles | 3,640 | 3,690 | 10,780 | 11,028 | ||||||||||
Operating income | 81,871 | 80,833 | 243,881 | 196,645 | ||||||||||
Interest expense | 8,104 | 7,468 | 24,305 | 21,848 | ||||||||||
Other income, net (1) | (4,993 | ) | (3,876 | ) | (11,775 | ) | (11,314 | ) | ||||||
Income before income taxes | 78,760 | 77,241 | 231,351 | 186,111 | ||||||||||
Provision for income taxes | 8,632 | 24,130 | 46,553 | 51,204 | ||||||||||
Net income | 70,128 | 53,111 | 184,798 | 134,907 | ||||||||||
Less: Net income attributable to noncontrolling interests | 1,578 | 2,245 | 4,852 | 3,256 | ||||||||||
Net income attributable to Kennametal | $ | 68,550 | $ | 50,866 | $ | 179,946 | $ | 131,651 | ||||||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS | ||||||||||||||
Basic earnings per share | $ | 0.83 | $ | 0.62 | $ | 2.19 | $ | 1.62 | ||||||
Diluted earnings per share | $ | 0.82 | $ | 0.61 | $ | 2.16 | $ | 1.59 | ||||||
Dividends per share | $ | 0.20 | $ | 0.20 | $ | 0.60 | $ | 0.60 | ||||||
Basic weighted average shares outstanding | 82,479 | 81,793 | 82,305 | 81,445 | ||||||||||
Diluted weighted average shares outstanding | 83,339 | 83,109 | 83,266 | 82,670 | ||||||||||
(1) Includes income of $3.6 million and $4.5 million for the three months ended March 31, 2019 and 2018, respectively, and $10.7 million and $13.4 million for the nine months ended March 31, 2019 and 2018, respectively, from the combined effects of net periodic pension income and postretirement benefit cost (other than the service cost component) as a result of the adoption of ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" on July 1, 2018. The prior period was restated to reflect the retrospective adoption of this standard.
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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands) | March 31, 2019 | June 30, 2018 | |||||
ASSETS | |||||||
Cash and cash equivalents | $ | 112,597 | $ | 556,153 | |||
Accounts receivable, net | 403,411 | 401,290 | |||||
Inventories | 588,613 | 525,466 | |||||
Other current assets | 58,221 | 63,257 | |||||
Total current assets | 1,162,842 | 1,546,166 | |||||
Property, plant and equipment, net | 885,836 | 824,213 | |||||
Goodwill and other intangible assets, net | 463,426 | 478,270 | |||||
Other assets | 95,579 | 77,088 | |||||
Total assets | $ | 2,607,683 | $ | 2,925,737 | |||
LIABILITIES | |||||||
Current maturities of long-term debt, including notes payable | $ | — | $ | 400,200 | |||
Accounts payable | 205,069 | 221,903 | |||||
Other current liabilities | 224,949 | 264,428 | |||||
Total current liabilities | 430,018 | 886,531 | |||||
Long-term debt | 592,070 | 591,505 | |||||
Other liabilities | 220,190 | 217,374 | |||||
Total liabilities | 1,242,278 | 1,695,410 | |||||
KENNAMETAL SHAREHOLDERS’ EQUITY | 1,325,121 | 1,194,325 | |||||
NONCONTROLLING INTERESTS | 40,284 | 36,002 | |||||
Total liabilities and equity | $ | 2,607,683 | $ | 2,925,737 | |||
SEGMENT DATA (UNAUDITED) | Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||
(in thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||
Outside Sales: | ||||||||||||||
Industrial | $ | 318,636 | $ | 333,012 | $ | 956,515 | $ | 942,922 | ||||||
Widia | 50,966 | 52,217 | 148,592 | 145,204 | ||||||||||
Infrastructure | 227,602 | 222,707 | 666,178 | 633,608 | ||||||||||
Total sales | $ | 597,204 | $ | 607,936 | $ | 1,771,285 | $ | 1,721,734 | ||||||
Sales By Geographic Region: | ||||||||||||||
Americas | $ | 302,919 | $ | 294,189 | $ | 887,675 | $ | 832,065 | ||||||
EMEA | 181,390 | 192,876 | 527,505 | 534,040 | ||||||||||
Asia Pacific | 112,895 | 120,871 | 356,105 | 355,629 | ||||||||||
Total sales | $ | 597,204 | $ | 607,936 | $ | 1,771,285 | $ | 1,721,734 | ||||||
Operating Income (2): | ||||||||||||||
Industrial | $ | 57,218 | $ | 50,239 | $ | 173,279 | $ | 122,782 | ||||||
Widia | (4 | ) | 1,260 | 3,817 | 1,414 | |||||||||
Infrastructure | 24,934 | 30,097 | 69,407 | 74,320 | ||||||||||
Corporate (3) | (277 | ) | (763 | ) | (2,622 | ) | (1,871 | ) | ||||||
Total operating income | $ | 81,871 | $ | 80,833 | $ | 243,881 | $ | 196,645 | ||||||
(2) Amounts for the three and nine months ended March 31, 2018 were restated to reflect retrospective application for adoption of ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" on July 1, 2018. Operating income was affected by the restatement of the prior year period in the following manner for the three months ended March 31, 2018: Industrial lower $2.8 million, Widia lower $0.4 million, Infrastructure lower $1.7 million and Corporate lower expense of $0.3 million. For the nine months ended March 31, 2018: Industrial lower $8.4 million; Widia lower $1.1 million, Infrastructure lower $5.0 million and Corporate lower expense of $1.2 million.
(3) Represents unallocated corporate expenses
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NON-GAAP RECONCILIATIONS (UNAUDITED)
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: operating income and margin; ETR; net income attributable to Kennametal shareholders; diluted EPS; Industrial operating income and margin; Widia operating income and margin; Infrastructure operating income and margin; FOCF; EBITDA and consolidated and segment organic sales growth (all of which are non-GAAP financial measures), to the most directly comparable GAAP financial measures. Adjustments for the three months ended March 31, 2019 and 2018 include: (1) restructuring and related charges; and (2) non-recurring effect of tax reform. 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 in the tax impact of the adjustments.
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 financial measures should not be considered in isolation or as a substitute for the most comparable GAAP financial measures. Investors are cautioned that non-GAAP financial measures used by management may not be comparable to non-GAAP financial measures used by other companies. Reconciliations and descriptions of all non-GAAP financial measures are set forth in the disclosures below.
Reconciliations to the most directly comparable GAAP financial measures for the following forward-looking non-GAAP financial measures for the full fiscal year of 2019 have not been provided, including but not limited to: adjusted EPS, adjusted ETR, organic sales growth and FOCF. The most comparable GAAP financial measures are earnings per share, ETR, sales growth and net cash flow from operating activities, respectively. Because the non-GAAP financial measures on a forward-looking basis are subject to uncertainty and variability as they are dependent on many factors - including, but not limited to, the effect of foreign currency exchange fluctuations, impacts from potential acquisitions or divestitures, gains or losses on the potential sale of businesses or other assets, restructuring costs, asset impairment charges, gains or losses from early extinguishment of debt, the tax impact of the items above and the impact of tax law changes or other tax matters - reconciliations to the most directly comparable forward-looking GAAP financial measures are not available without unreasonable effort.
THREE MONTHS ENDED MARCH 31, 2019 (UNAUDITED) | ||||||||||||||
(in thousands, except percents and per share data) | Sales | Operating income | ETR | Net income(4) | Diluted EPS | |||||||||
Reported results | $ | 597,204 | $ | 81,871 | 11.0 | % | $ | 68,550 | $ | 0.82 | ||||
Reported margins | 13.7 | % | ||||||||||||
Restructuring and related charges | — | 3,433 | 0.1 | 2,614 | 0.03 | |||||||||
Non-recurring effect of tax reform (5) | — | — | 8.7 | (6,840 | ) | (0.08 | ) | |||||||
Adjusted results | $ | 597,204 | $ | 85,304 | 19.8 | % | $ | 64,324 | $ | 0.77 | ||||
Adjusted margins | 14.3 | % | ||||||||||||
(4) Attributable to Kennametal
(5) Additional benefit recorded to reflect the effect of regulations and other relevant guidance issued through March 31, 2019 on the amounts recorded for the application of a measure of the Tax Cuts and Jobs Act of 2017 (TCJA) requiring a one-time transition tax on previously untaxed accumulated earnings and profits of non-U.S. companies (toll tax). The toll tax charge is $71 million.
Industrial | Widia | Infrastructure | ||||||||||||||||
(in thousands, except percents) | Sales | Operating income(2) | Sales | Operating income(2) | Sales | Operating income(2) | ||||||||||||
Reported results | $ | 318,636 | $ | 57,218 | $ | 50,966 | $ | (4 | ) | $ | 227,602 | $ | 24,934 | |||||
Reported operating margin | 18.0 | % | — | % | 11.0 | % | ||||||||||||
Restructuring and related charges | — | 1,003 | — | 662 | — | 1,768 | ||||||||||||
Adjusted results | $ | 318,636 | $ | 58,221 | $ | 50,966 | $ | 658 | $ | 227,602 | $ | 26,702 | ||||||
Adjusted operating margin | 18.3 | % | 1.3 | % | 11.7 | % | ||||||||||||
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THREE MONTHS ENDED MARCH 31, 2018 (UNAUDITED) | ||||||||||||||
(in thousands, except percents and per share data) | Sales | Operating income | ETR | Net income(4) | Diluted EPS | |||||||||
Reported results | $ | 607,936 | $ | 80,833 | 31.2 | % | $ | 50,866 | $ | 0.61 | ||||
Reported margins | 13.3 | % | ||||||||||||
Restructuring and related charges | — | 1,681 | 0.2 | 1,230 | 0.01 | |||||||||
Non-recurring effect of tax reform (6) | — | — | (8.3 | ) | 6,382 | 0.08 | ||||||||
Adjusted results | $ | 607,936 | $ | 82,514 | 23.1 | % | $ | 58,478 | $ | 0.70 | ||||
Adjusted margins | 13.6 | % | ||||||||||||
(6) Additional charge recorded to reflect adjustments to the amounts recorded for the toll tax considering regulatory guidance issued through March 31, 2018.
Industrial | Widia | Infrastructure | ||||||||||||||||
(in thousands, except percents) | Sales | Operating income(2) | Sales | Operating income(2) | Sales | Operating income(2) | ||||||||||||
Reported results | $ | 333,012 | $ | 50,239 | $ | 52,217 | $ | 1,260 | $ | 222,707 | $ | 30,097 | ||||||
Reported operating margin | 15.1 | % | 2.4 | % | 13.5 | % | ||||||||||||
Restructuring and related charges | — | 1,023 | — | 17 | — | 641 | ||||||||||||
Adjusted results | $ | 333,012 | $ | 51,262 | $ | 52,217 | $ | 1,277 | $ | 222,707 | $ | 30,738 | ||||||
Adjusted operating margin | 15.4 | % | 2.4 | % | 13.8 | % | ||||||||||||
Free Operating Cash Flow (FOCF)
FOCF is a non-GAAP financial measure and is defined by the Company as net cash flow provided by operating activities (which is the most directly comparable GAAP financial measure) less capital expenditures plus proceeds from disposals of fixed assets. Management considers FOCF to be an important indicator of the Company's cash generating capability because it better represents cash generated from operations that can be used for dividends, debt repayment, strategic initiatives (such as acquisitions) and other investing and financing activities.
Nine Months Ended March 31, | ||||||||
FREE OPERATING CASH FLOW (UNAUDITED) | ||||||||
(in thousands) | 2019 | 2018 | ||||||
Net cash flow provided by operating activities (7) | $ | 157,465 | $ | 157,886 | ||||
Purchases of property, plant and equipment (7) | (145,942 | ) | (105,610 | ) | ||||
Disposals of property, plant and equipment | 3,575 | 2,196 | ||||||
Free operating cash flow | $ | 15,098 | $ | 54,472 | ||||
Earnings before interest, taxes, depreciation and amortization (EBITDA)
EBITDA is a non-GAAP financial measure and is defined as net income attributable to Kennametal (which is the most directly comparable GAAP measure and is sometimes referred to as "earnings"), with interest expense, interest income, provision for income taxes, depreciation and amortization added back. Management believes 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 present EBITDA on an adjusted basis. Management uses this information in reviewing operating performance.
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Three Months Ended March 31, | |||||||
EBITDA (UNAUDITED) | |||||||
(in thousands) | 2019 | 2018 | |||||
Net income attributable to Kennametal | $ | 68,550 | $ | 50,866 | |||
Add back: | |||||||
Interest expense | 8,104 | 7,468 | |||||
Interest income | (752 | ) | (1,023 | ) | |||
Provision for income taxes | 8,632 | 24,130 | |||||
Depreciation | 24,281 | 23,933 | |||||
Amortization of intangibles | 3,640 | 3,690 | |||||
EBITDA | $ | 112,455 | $ | 109,064 | |||
Margin | 18.8 | % | 17.9 | % | |||
Adjustments: | |||||||
Restructuring and related charges | 3,433 | 1,681 | |||||
Adjusted EBITDA | $ | 115,888 | $ | 110,745 | |||
Adjusted margin | 19.4 | % | 18.2 | % | |||
Organic Sales Growth
Organic sales growth is a non-GAAP financial measure of sales growth (decline) (which is the most directly comparable GAAP measure) excluding the impacts of acquisitions, divestitures, business days and foreign currency exchange from year-over-year comparisons. Management believes this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis. Management reports organic sales growth at the consolidated and segment levels.
ORGANIC SALES GROWTH (UNAUDITED) | ||||||||
Three Months Ended March 31, 2019 | Industrial | Widia | Infrastructure | Total | ||||
Organic sales growth | 1% | 3% | 6% | 3% | ||||
Foreign currency exchange impact (8) | (5) | (4) | (3) | (4) | ||||
Business days impact (9) | — | (1) | (1) | (1) | ||||
Sales (decline) growth | (4)% | (2)% | 2% | (2)% | ||||
(8) Foreign currency exchange impact is calculated by dividing the difference between current period sales at prior period foreign exchange rates and prior period sales by prior period sales.
(9) Business days impact is calculated by dividing the year-over-year change in weighted average working days (based on mix of sales by country) by prior period weighted average working days.
8