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) |
DEBT TO CAPITAL (UNAUDITED) | March 31, | June 30, | ||||||
(in thousands, except percents) | 2015 | 2014 | ||||||
Total debt | $ | 903,758 | $ | 1,061,783 | ||||
Total equity | 1,401,859 | 1,961,608 | ||||||
Debt to equity, GAAP | 64.5 | % | 54.1 | % | ||||
Total debt | $ | 903,758 | $ | 1,061,783 | ||||
Total equity | 1,401,859 | 1,961,608 | ||||||
Total capital | $ | 2,305,617 | $ | 3,023,391 | ||||
Debt to capital | 39.2 | % | 35.1 | % |
KENNAMETAL INC. | ||||||||
Date: May 5, 2015 | By: | /s/ Martha Fusco | ||||||
Martha Fusco | ||||||||
Interim Chief Financial Officer Vice President Finance and Corporate Controller |
• | Sales were $639 million, compared with $755 million in the same quarter last year. Sales decreased by 15 percent, reflecting a 9 percent organic decline and a 6 percent unfavorable currency exchange impact. |
• | The company performed its annual impairment test of goodwill and indefinite-lived intangible assets as of March 31, 2015. As a result, the company recorded a non-cash pre-tax goodwill and other intangible asset impairment charge of $160 million, or $0.90 per share in the Infrastructure reporting unit due to the further weakening of the outlook for the reporting unit's key end markets in the March quarter and the finalization of the December quarter impairment testing. As of March 31, 2015, the remaining goodwill balance for the Infrastructure segment was approximately $112 million. |
• | Phase 1 restructuring and related charges amounted to $5 million pre-tax in the quarter, with total pre-tax charges since inception of $44 million recognized of the projected total program charges of $55-$60 million. The expected completion of this phase is by June 30, 2016. Phase 1 pre-tax benefits realized in the quarter were approximately $8 million, with total pre-tax benefits estimated to be $50-$55 million in annual savings. |
• | Phase 2 restructuring and related charges amounted to $12 million pre-tax in the quarter of the currently projected total program charges of $90-$100 million. The expected completion of this phase is by December 31, 2016. Phase 2 pre-tax benefits realized in the quarter were approximately $1 million, with total pre-tax benefits estimated to be $40-$50 million in annual savings. |
• | On a combined basis, pre-tax restructuring and related charges amounted to $17 million, or $0.12 per share, and pre-tax benefits were approximately $9 million, or $0.08 per share in the quarter. |
• | Operating loss was $120 million, compared with operating income of $77 million in the same quarter last year. Adjusted operating income was $56 million, compared with the prior year quarter of $90 million. The decrease in adjusted operating results in the current period was primarily driven by organic sales decline, unfavorable mix in Infrastructure and unfavorable currency exchange, offset partially by restructuring benefits. Adjusted operating margin was 8.8 percent in the current period and 11.9 percent in the prior period. |
• | The effective tax rate was 64.4 percent (benefit on a loss), compared with 24.1 percent (provision on income) in the prior year. Excluding the impact of special charges, the adjusted effective tax rate of 23.1 percent decreased primarily due to the mix of pre-tax book income in jurisdictions with different tax rates. |
• | LPS was $0.58, compared with the prior year quarter EPS of $0.64. Adjusted EPS were $0.46 in the current quarter and $0.75 in the prior year quarter. |
• | Industrial segment sales of $355 million decreased 11 percent from $400 million in the prior year quarter due to unfavorable currency exchange of 8 percent, organic decline of 2 percent and 1 percent from divestiture. Excluding the impact of currency exchange, sales increased approximately 2 percent in transportation while general engineering decreased approximately 1 percent and aerospace and defense decreased approximately 6 percent. New project tooling packages in the Asian transportation market offset weakness in Europe and the Americas. General engineering was impacted by weak global demand in the energy market. On a regional basis, sales increased 12 percent in Asia, offset by sales decreases of 6 percent in Europe and 4 percent in the Americas. |
• | Industrial segment operating income was $35 million compared with $51 million in the prior year. Adjusted operating income was $44 million compared to $59 million in the prior year quarter, driven by organic sales decline, partially offset by restructuring program benefits. Industrial adjusted operating margin was 12.4 percent compared with 14.8 percent in the prior year. |
• | Infrastructure segment sales of $284 million decreased 20 percent from $356 million in the prior year. The decrease was driven by 16 percent organic sales decline and 4 percent unfavorable currency exchange. Excluding the impact of currency exchange, sales decreased by approximately 23 percent in energy and approximately 15 percent in earthworks. Energy sales were impacted by an accelerated decline in demand for oil and gas products in all regions. Extended weakening in mining activity, particularly in the U.S. and Asia, coupled with decreased U.S. road rehabilitation tool demand and reduced project spending globally led to lower earthworks sales. On a regional basis, sales decreased 18 percent in the Americas, 15 percent in Asia and 11 percent in Europe. |
• | Infrastructure segment operating loss was $153 million, compared with operating income of $28 million in the same quarter of prior year. During the quarter non-cash pre-tax goodwill and other intangible asset impairment charges of $160 million were recorded related to a more severe decline in the outlook of key end markets than previously expected as well as finalizing the impairment charge recorded in the December quarter. Adjusted operating income was $14 million compared to $33 million in the prior year quarter. Adjusted operating income decreased primarily due to lower organic sales and an unfavorable mix, partially offset by the benefits of the restructuring savings. Infrastructure adjusted operating margin was 5.0 percent compared with 9.3 percent in the prior year. |
• | Sales were $2,010 million, compared with $2,065 million in the same period last year. Sales decreased by 3 percent, driven by 4 percent organic decline and 3 percent unfavorable currency exchange, partially offset by 4 percent net from acquisition and divestiture activity. |
• | Operating loss was $393 million, compared with operating income of $185 million in the same period last year. Adjusted operating income was $186 million in the current period, compared with adjusted operating income of $211 million in the prior year. Adjusted operating income decreased primarily due to organic sales decline and unfavorable mix, offset partially by restructuring benefits and a non-recurring inventory charge of approximately $6 million in the prior period. Adjusted operating margin was 9.2 percent, compared with 10.2 percent in the prior year. |
• | LPS was $4.98 in the current year period, compared with EPS of $1.42 the prior year period. Adjusted EPS were $1.55 in the current year period and $1.74 in the prior year period. |
RESTRUCTURING AND RELATED CHARGES AND SAVINGS (PRE-TAX) | |||||
Estimated Charges | Charges To Date | Estimated Annualized Savings | Savings To Date | Expected Completion Date | |
Phase 1 | $55M-$60M | $44M | $50M-$55M | $20M | 6/30/2016 |
Phase 2 | $90M-$100M | $12M | $40M-$50M | $1M | 12/31/2016 |
Phase 3 | $40M-$45M | — | $25M-$30M | — | 3/31/2017 |
Total | $185M-$205M | $56M | $115M-$135M | $21M |
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||
(in thousands, except per share amounts) | 2015 | 2014 | 2015 | 2014 | ||||||||||
Sales | $ | 638,970 | $ | 755,242 | $ | 2,009,543 | $ | 2,064,986 | ||||||
Cost of goods sold | 439,500 | 516,287 | 1,392,516 | 1,420,823 | ||||||||||
Gross profit | 199,470 | 238,955 | 617,027 | 644,163 | ||||||||||
Operating expense | 138,025 | 152,298 | 423,972 | 434,983 | ||||||||||
Restructuring and asset impairment charges | 175,435 | 2,703 | 565,837 | 5,013 | ||||||||||
Amortization of intangibles | 6,402 | 7,124 | 20,361 | 18,791 | ||||||||||
Operating (loss) income | (120,392 | ) | 76,830 | (393,143 | ) | 185,376 | ||||||||
Interest expense | 7,760 | 8,883 | 23,929 | 24,001 | ||||||||||
Other (income) expense, net | (378 | ) | (561 | ) | 32 | 906 | ||||||||
(Loss) income from continuing operations before income taxes | (127,774 | ) | 68,508 | (417,104 | ) | 160,469 | ||||||||
(Benefit) provision for income taxes | (82,223 | ) | 16,514 | (23,975 | ) | 45,750 | ||||||||
Net (loss) income | (45,551 | ) | 51,994 | (393,129 | ) | 114,719 | ||||||||
Less: Net income attributable to noncontrolling interests | 678 | 1,129 | 1,914 | 1,808 | ||||||||||
Net (loss) income attributable to Kennametal | $ | (46,229 | ) | $ | 50,865 | $ | (395,043 | ) | $ | 112,911 | ||||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS | ||||||||||||||
Basic (loss) earnings per share | $ | (0.58 | ) | $ | 0.65 | $ | (4.98 | ) | $ | 1.44 | ||||
Diluted (loss) earnings per share | $ | (0.58 | ) | $ | 0.64 | $ | (4.98 | ) | $ | 1.42 | ||||
Dividends per share | $ | 0.18 | $ | 0.18 | $ | 0.54 | $ | 0.54 | ||||||
Basic weighted average shares outstanding | 79,389 | 78,718 | 79,282 | 78,631 | ||||||||||
Diluted weighted average shares outstanding | 79,389 | 79,744 | 79,282 | 79,622 |
(in thousands) | March 31, 2015 | June 30, 2014 | |||||
ASSETS | |||||||
Cash and cash equivalents | $ | 146,175 | $ | 177,929 | |||
Accounts receivable, net | 451,534 | 531,515 | |||||
Inventories | 632,479 | 703,766 | |||||
Other current assets | 111,124 | 111,986 | |||||
Total current assets | 1,341,312 | 1,525,196 | |||||
Property, plant and equipment, net | 813,026 | 884,458 | |||||
Goodwill and other intangible assets, net | 702,824 | 1,318,752 | |||||
Other assets | 144,886 | 139,680 | |||||
Total assets | $ | 3,002,048 | $ | 3,868,086 | |||
LIABILITIES | |||||||
Current maturities of long-term debt and capital leases, including notes payable | $ | 99,620 | $ | 80,117 | |||
Accounts payable | 174,312 | 206,891 | |||||
Other current liabilities | 250,586 | 275,748 | |||||
Total current liabilities | 524,518 | 562,756 | |||||
Long-term debt and capital leases | 804,138 | 981,666 | |||||
Other liabilities | 271,533 | 362,056 | |||||
Total liabilities | 1,600,189 | 1,906,478 | |||||
KENNAMETAL SHAREHOLDERS’ EQUITY | 1,371,177 | 1,929,256 | |||||
NONCONTROLLING INTERESTS | 30,682 | 32,352 | |||||
Total liabilities and equity | $ | 3,002,048 | $ | 3,868,086 |
SEGMENT DATA (UNAUDITED) | Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||
(in thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||
Outside Sales: | ||||||||||||||
Industrial | $ | 354,810 | $ | 399,669 | $ | 1,104,225 | $ | 1,108,546 | ||||||
Infrastructure | 284,160 | 355,573 | 905,318 | 956,440 | ||||||||||
Total outside sales | $ | 638,970 | $ | 755,242 | $ | 2,009,543 | $ | 2,064,986 | ||||||
Sales By Geographic Region: | ||||||||||||||
North America | $ | 301,403 | $ | 351,532 | $ | 955,468 | $ | 923,100 | ||||||
Western Europe | 180,173 | 238,260 | 554,610 | 641,548 | ||||||||||
Rest of World | 157,394 | 165,450 | 499,465 | 500,338 | ||||||||||
Total sales by geographic region | $ | 638,970 | $ | 755,242 | $ | 2,009,543 | $ | 2,064,986 | ||||||
Operating Income (Loss): | ||||||||||||||
Industrial | $ | 35,311 | $ | 51,403 | $ | 121,123 | $ | 124,441 | ||||||
Infrastructure | (153,100 | ) | 28,012 | (505,799 | ) | 68,305 | ||||||||
Corporate (1) | (2,603 | ) | (2,585 | ) | (8,467 | ) | (7,370 | ) | ||||||
Total operating (loss) income | $ | (120,392 | ) | $ | 76,830 | $ | (393,143 | ) | $ | 185,376 |
THREE MONTHS ENDED MARCH 31, 2015 - (UNAUDITED) | ||||||||||||||||||||
(in thousands, except percents) | Sales | Gross Profit | Operating Expense | Operating (Loss) Income | Net (Loss) Income (2) | Diluted (LPS) EPS | Effective Tax Rate | |||||||||||||
2015 Reported Results | $ | 638,970 | $ | 199,470 | $ | 138,025 | $ | (120,392 | ) | $ | (46,229 | ) | $ | (0.58 | ) | 64.4 | % | |||
2015 Reported Margins | 31.2 | % | 21.6 | % | (18.8 | )% | ||||||||||||||
Restructuring and related charges (3) | — | 336 | (658 | ) | 16,729 | 9,686 | 0.12 | 3.3 | ||||||||||||
Goodwill and other intangible asset impairment charges | — | — | — | 159,700 | 71,143 | 0.90 | (40.2 | ) | ||||||||||||
Tax redeployment expense | — | — | — | — | 2,138 | 0.02 | (4.4 | ) | ||||||||||||
2015 Adjusted Results | $ | 638,970 | $ | 199,806 | $ | 137,367 | $ | 56,037 | $ | 36,738 | $ | 0.46 | 23.1 | % | ||||||
2015 Adjusted Margins | 31.3 | % | 21.5 | % | 8.8 | % |
(in thousands, except percents) | Industrial Sales | Industrial Operating Income | Infrastructure Sales | Infrastructure Operating (Loss) Income | ||||||||
2015 Reported Results | $ | 354,810 | $ | 35,311 | $ | 284,160 | $ | (153,100 | ) | |||
2015 Reported Operating Margin | 10.0 | % | (53.9 | )% | ||||||||
Restructuring and related charges (4) | — | 8,673 | — | 7,487 | ||||||||
Goodwill and other intangible asset impairment charges | — | — | — | 159,700 | ||||||||
2015 Adjusted Results | $ | 354,810 | $ | 43,984 | $ | 284,160 | $ | 14,087 | ||||
2015 Adjusted Operating Margin | 12.4 | % | 5.0 | % |
THREE MONTHS ENDED MARCH 31, 2014 - (UNAUDITED) | ||||||||||||||||||
(in thousands, except percents) | Sales | Gross Profit | Operating Expense | Operating Income | Net Income (2) | Diluted EPS | ||||||||||||
2014 Reported Results | $ | 755,242 | $ | 238,955 | $ | 152,298 | $ | 76,830 | $ | 50,865 | $ | 0.64 | ||||||
2014 Reported Margins | 31.6 | % | 20.2 | % | 10.2 | % | ||||||||||||
TMB inventory step-up | — | 7,721 | — | 7,721 | 5,769 | 0.07 | ||||||||||||
TMB acquisition- related charges | — | 200 | (2,246 | ) | 2,446 | 1,703 | 0.02 | |||||||||||
Restructuring and related charges | — | 76 | — | 2,779 | 1,747 | 0.02 | ||||||||||||
2014 Adjusted Results | 755,242 | 246,952 | 150,052 | 89,776 | 60,084 | 0.75 | ||||||||||||
2014 Adjusted Margins | 32.7 | % | 19.9 | % | 11.9 | % |
(in thousands, except percents) | Industrial Sales | Industrial Operating Income | Infrastructure Sales | Infrastructure Operating Income | ||||||||
2014 Reported Results | $ | 399,669 | $ | 51,403 | $ | 355,573 | $ | 28,012 | ||||
2014 Reported Operating Margin | 12.9 | % | 7.9 | % | ||||||||
TMB inventory step-up | — | 5,412 | — | 2,309 | ||||||||
TMB acquisition-related charges | — | 955 | — | 1,491 | ||||||||
Restructuring and related charges | — | 1,569 | — | 1,210 | ||||||||
2014 Adjusted Results | $ | 399,669 | $ | 59,339 | $ | 355,573 | $ | 33,022 | ||||
2014 Adjusted Operating Margin | 14.8 | % | 9.3 | % |
NINE MONTHS ENDED MARCH 31, 2015 - (UNAUDITED) | ||||||||||||
(in thousands, except percents) | Sales | Operating (Loss) Income | Net (Loss) Income (2) | Diluted (LPS) EPS | ||||||||
2015 Reported Results | $ | 2,009,543 | $ | (393,143 | ) | $ | (395,043 | ) | $ | (4.98 | ) | |
2015 Reported Operating Margin | (19.6 | )% | ||||||||||
Restructuring and related charges | — | 37,105 | 25,628 | 0.33 | ||||||||
Technology asset impairment charge | — | 5,500 | 3,377 | 0.04 | ||||||||
Goodwill and other intangible asset impairment charges | — | 536,200 | 487,039 | 6.14 | ||||||||
Tax redeployment expense | — | — | 2,138 | 0.02 | ||||||||
2015 Adjusted Results | $ | 2,009,543 | $ | 185,662 | $ | 123,139 | $ | 1.55 | ||||
2015 Adjusted Operating Margin | 9.2 | % |
NINE MONTHS ENDED MARCH 31, 2014 - (UNAUDITED) | ||||||||||||
(in thousands, except percents) | Sales | Operating Income | Net Income (2) | Diluted EPS | ||||||||
2014 Reported Results | $ | 2,064,986 | $ | 185,376 | $ | 112,911 | $ | 1.42 | ||||
2014 Reported Operating Margin | 9.0 | % | ||||||||||
TMB inventory step-up | — | 15,420 | 11,518 | 0.14 | ||||||||
TMB acquisition-related charges | — | 5,278 | 3,734 | 0.05 | ||||||||
Restructuring and related charges | — | 5,091 | 3,482 | 0.04 | ||||||||
Tax repatriation expense | — | — | 7,170 | 0.09 | ||||||||
2014 Adjusted Results | $ | 2,064,986 | $ | 211,165 | $ | 138,815 | $ | 1.74 | ||||
2014 Adjusted Operating Margin | 10.2 | % |
FREE OPERATING CASH FLOW (UNAUDITED) | Nine Months Ended | |||||||
March 31, | ||||||||
(in thousands) | 2015 | 2014 | ||||||
Net cash flow from operating activities | $ | 219,576 | $ | 153,242 | ||||
Purchases of property, plant and equipment | (77,620 | ) | (85,961 | ) | ||||
Proceeds from disposals of property, plant and equipment | 1,300 | 928 | ||||||
Free operating cash flow | $ | 143,256 | $ | 68,209 |
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