================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 30, 2003 KENNAMETAL INC. (Exact name of registrant as specified in its charter) Commission file number 1-5318 PENNSYLVANIA 25-0900168 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) WORLD HEADQUARTERS 1600 TECHNOLOGY WAY P.O. BOX 231 LATROBE, PENNSYLVANIA 15650-0231 (Address of registrant's principal executive offices) Registrant's telephone number, including area code: (724) 539-5000 ================================================================================
ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION Explanatory Note: This filing on Form 8-K/A amends and restates in its entirety the Form 8-K filed by the registrant on July 30, 2003. This 8-K/A is being filed to correct the reconciliation of Debt to Equity included in the text of the 8-K which contained a typographical error. Additionally Exhibit 99.1 inadvertently excluded, in the Reconciliation to GAAP Cash Flow Information, the total Free Operating Cash Flow. The press release as filed with PR Newswire on July 30, 2003 and included on the Kennametal website did contain the appropriate information. On July 30, 2003, Kennametal Inc. ("Kennametal") issued a press release announcing financial results for its fourth quarter and fiscal year ended June 30, 2003. The press release contains non-GAAP (generally accepted accounting principles) financial measures, including gross profit, operating expense, operating income, net income (loss) and diluted EPS in each case excluding special items. The special items include: restructuring charges, Widia integration costs electronics and goodwill impairment. Kennametal management excludes these items in measuring and compensating internal performance to better understand underlying operations. We believe investors should have available the same information that management uses to measure and compensate performance. Kennametal management believes that presentation of these non-GAAP financial measures provides useful information into the results of operations of the company for the current, past and future periods. Kennametal also presents free operating cash flow in the press release. Free operating cash flow is a non-GAAP presentation and is defined as cash provided by continuing operations (in accordance with GAAP) less capital expenditures and proceeds from asset disposals. Free operating cash flow is considered to be an important indicator of Kennametal's ability to generate liquidity because it better represents cash generated from operations that can be used for strategic initiatives, dividends or debt repayment. Additionally, during our quarterly 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. Primary working capital - ----------------------- Primary working capital is a non-GAAP presentation and is defined as accounts receivable, net of allowance for doubtful accounts, plus inventories minus accounts payable. The most directly comparable GAAP number 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. EBIT - ---- EBIT is an acronym for Earnings Before Interest and Taxes and is not a calculation in accordance with GAAP. However, we believe that EBIT is widely used as a measure of operating performance and we believe EBIT to be 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. Adjusted sales - -------------- Kennametal adjusted sales as reported under GAAP for specific items including acquisitions and foreign currency translation. Management believes that adjusting the sales as reported under GAAP provides additional insight into the underlying operations. Management uses this information in reviewing operating performance and in the determination of compensation. Adjusted Gross Profit - --------------------- Kennametal adjusted gross profit as recorded under GAAP for specific items including Widia integration and restructuring charges. Management believes that the adjusted gross profit information is an important indicator of the Company's underlying operating performance.
Operating expense reconciliation: - -------------------------------- Kennametal adjusted operating expense as reported under GAAP for Widia Integration, Restructuring charges, Widia operating expense, foreign exchange and decreased pension income. Management believes that the adjusted operating expense provides additional insight into the underlying operations. Management uses this information in reviewing operating performance and in the determination of compensation. Debt-to-Capital: - ---------------- Debt to equity in accordance with GAAP is defined as total debt divided by Stockholder's Equity and total debt. Debt to equity is defined by Kennametal as total current and long term debt divided by total Shareowner's equity plus minority interest plus total debt. Kennametal adjusted its debt to equity percentage for the additional minimum pension charge and electronics impairment that is recorded in equity. Management believes that the adjustment provides additional insight into the underlying capital structuring and performance of the company.
FINANCIAL HIGHLIGHTS RECONCILIATION TO GAAP PRIMARY WORKING CAPITAL (UNAUDITED) June 30, --------------------------- 2003 2002 --------- --------- Current assets $ 764,679 $ 637,384 Current liabilities 336,347 262,100 --------- --------- Working capital in accordance with GAAP 428,332 375,284 Excluded items: Cash and cash equivalents (15,093) (10,385) Deferred income taxes (79,564) (71,375) Other current assets (42,119) (31,447) --------- --------- Total excluded current assets $(136,776) $(113,207) Adjusted current assets 627,903 524,177 Short-term debt (10,845) (23,480) Accrued liabilities (205,649) (137,034) --------- --------- Total excluded current liabilities $(216,494) $(160,514) Adjusted current liabilities 119,853 101,586 Primary working capital $ 508,050 $ 422,591
SUPPLEMENTAL INFORMATION AND RECONCILIATIONS KENNAMETAL INC. EBIT RECONCILIATION (UNAUDITED) Quarter Ended Twelve Months Ended June 30, June 30, ---------------------------- ---------------------------- 2003 2002 2003 2002 --------- --------- --------- --------- Operating income, as reported $ 5,875 $ 30,834 $ 67,925 $ 91,317 As % of sales 1.3% 7.7% 3.9% 5.8% Adjusted other (income)(1) (1,981) (145) (1,608) (1,321) --------- --------- --------- --------- EBIT 7,856 30,979 69,533 92,638 Adjustments: Restructuring 4,195 5,025 15,844 30,045 Electronics impairment 16,110 - 16,110 - Strong Tool divestiture - 3,522 - 3,522 Widia integration 3,681 144 7,685 144 --------- --------- --------- --------- EBIT, excluding special charges $ 31,842 $ 39,670 $ 109,172 $ 126,349 ========= ========= ========= ========= As % of sales 6.9% 9.8% 6.2% 8.0% (1) Other (income), as reported $ (2,117) $ (182) $ (2,531) $ (361) Minus Interest income (549) (570) (2,815) (1,531) Plus Securitization fees 413 533 1,892 2,491 --------- --------- --------- --------- Adjusted other (income) $ (1,981) $ (145) $ (1,608) $ (1,321) ========= ========= ========= ========= -more-
FINANCIAL HIGHLIGHTS (CONTINUED) MSSG SEGMENT (UNAUDITED): Quarter Ended Twelve Months Ended June 30, June 30, ----------------------------- ----------------------------- 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Sales, as reported $ 299,032 $ 231,151 $ 1,123,175 $ 897,157 Widia sales (43,038) - (162,427) - Foreign currency exchange (23,694) - (57,311) - ----------- ----------- ----------- ----------- Adjusted sales $ 232,300 $ 231,151 $ 903,437 $ 897,157 =========== =========== =========== =========== MSSG EBIT (UNAUDITED): Quarter Ended Twelve Months Ended June 30, June 30, ----------------------- ----------------------- 2003 2002 2003 2002 -------- -------- -------- -------- MSSG Operating income, as reported $ 24,139 $ 29,243 $ 90,627 $ 97,323 As % of sales 8.1% 12.7% 8.1% 10.8% Other income 3,073 2,020 3,619 4,539 -------- -------- -------- -------- EBIT 27,212 31,263 94,246 101,862 Adjustments: MSSG restructuring 3,134 2,104 9,060 10,245 Widia integration 2,511 - 6,493 - -------- -------- -------- -------- EBIT, excluding special charges $ 32,857 $ 33,367 $109,799 $112,107 ======== ======== ======== ======== As % of sales 11.0% 14.4% 9.8% 12.5% -more-
FINANCIAL HIGHLIGHTS (CONTINUED) AMSG SEGMENT (UNAUDITED): Quarter Ended Twelve Months Ended June 30, June 30, ------------------------- ------------------------- 2003 2002 2003 2002 --------- --------- --------- --------- Sales, as reported $ 88,185 $ 80,170 $ 319,223 $ 307,668 Widia acquisition (1,438) - (1,438) - Carmet acquisition - - (4,851) - Foreign currency exchange (4,184) - (9,521) - --------- --------- --------- --------- Adjusted sales $ 82,563 $ 80,170 $ 303,413 $ 307,668 ========= ========= ========= ========= AMSG EBIT (UNAUDITED): Quarter Ended Twelve Months Ended June 30, June 30, ------------------------ ------------------------ 2003 2002 2003 2002 -------- -------- -------- -------- AMSG Operating income (expense), as reported $ (7,805) $ 10,082 $ 17,348 $ 26,781 As % of sales -8.9% 12.6% 5.4% 8.7% Other income (expense) 111 1,139 (30) 847 -------- -------- -------- -------- EBIT (7,694) 11,221 17,318 27,628 Adjustments: AMSG restructuring 1,224 1,424 4,406 7,997 Electronics impairment 16,110 - 16,110 - Widia integration 1,170 - 1,192 - -------- -------- -------- -------- EBIT, excluding special charges $ 10,810 $ 12,645 $ 39,026 $ 35,625 ======== ======== ======== ======== As % of sales 12.3% 15.8% 12.2% 11.6% -more-
FINANCIAL HIGHLIGHTS (CONTINUED) J&L SEGMENT (UNAUDITED): Quarter Ended Twelve Months Ended June 30, June 30, ------------------------- ------------------------- 2003 2002 2003 2002 --------- --------- --------- --------- Sales, as reported $ 48,158 $ 52,013 $ 196,170 $ 226,010 Strong Tool sales - (1,651) - (25,860) Foreign currency exchange (546) - (1,982) - --------- --------- --------- --------- Adjusted sales $ 47,612 $ 50,362 $ 194,188 $ 200,150 ========= ========= ========= ========= J&L EBIT (UNAUDITED): Quarter Ended Twelve Months Ended June 30, June 30, ------------------------ ------------------------ 2003 2002 2003 2002 -------- -------- -------- -------- J&L Operating income, as reported $ 931 $ 1,044 $ 6,140 $ (681) As % of sales 1.9% 2.0% 3.1% 0.3% Other (expense) (3) (3,487) (58) (3,370) -------- -------- -------- -------- EBIT 928 (2,443) 6,082 (4,051) Adjustments: Loss on sale of strong tool 3,522 -- 3,522 J&L restructuring (64) 247 1,203 10,093 -------- -------- -------- -------- EBIT, excluding special charges $ 864 $ 1,326 $ 7,285 $ 9,564 ======== ======== ======== ======== As % of sales 1.8% 2.5% 3.7% 4.2% -more-
FINANCIAL HIGHLIGHTS (CONTINUED) FSS SEGMENT (UNAUDITED): Quarter Ended Twelve Months Ended June 30, June 30, ------------------------- ------------------------- 2003 2002 2003 2002 --------- --------- --------- --------- Sales, as reported $ 28,390 $ 39,564 $ 120,389 $ 152,907 Foreign currency exchange (47) - (68) - --------- --------- --------- --------- Adjusted sales $ 28,343 $ 39,564 $ 120,321 $ 152,907 ========= ========= ========= ========= FSS EBIT (UNAUDITED): Quarter Ended Twelve Months Ended June 30, June 30, --------------------- ---------------------- 2003 2002 2003 2002 ------- ------- ------- ------- FSS Operating income, as reported $ 264 $ 215 $ (56) $ 2,014 As % of sales 0.9% 0.5% 0.0% 1.3% Other (expense) income - (100) 58 (163) ------- ------- ------- ------- EBIT 264 115 2 1,851 ======= ======= ======= ======= Adjustments: FSS restructuring - 335 38 635 ------- ------- ------- ------- EBIT, excluding special charges $ 264 $ 450 $ 40 $ 2,486 ======= ======= ======= ======= As % of sales 0.9% 1.1% 0.0% 1.6% -more-
SUPPLEMENTAL INFORMATION AND RECONCILIATIONS RECONCILIATION TO GAAP - GROSS PROFIT (UNAUDITED) QUARTER ENDED QUARTER ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, ------------------ ------------------ ------------------ ------------------- AS A % AS A % AS A % AS A % 2003 OF SALES 2002 OF SALES 2003 OF SALES 2002 OF SALES ---- -------- ---- -------- ---- -------- ---- -------- Gross Profit $148,791 32.1% $136,873 34.0% $568,904 32.3% $510,824 32.3% Widia integration and restructuring charges 2,011 0.4% 357 0.1% 2,209 0.2% 2,727 0.1% -------- ---- -------- ---- -------- ---- -------- ---- Gross Profit, excluding special items $150,802 32.5% $137,230 34.1% $571,113 32.5% $513,551 32.4% ======== ==== ======== ==== ======== ==== ======== ==== OPERATING EXPENSE RECONCILIATION: (UNAUDITED) Quarter ended Quarter ended June 30, 2003 June 30, 2002 ------------- ------------- Operating expense, as reported 121,757 100,685 Integration costs (1,670) (155) -------------------------- Operating expense, excluding special items 120,087 100,530 Less: Widia operating expense 12,000 - Unfavorable foreign exchange 7,947 - Decrease in pension income 1,591 - -------------------------- Operating expense, excluding special items and Widia expense, foreign exchange and decreased pension income 98,549 100,530 DEBT TO EQUITY RECONCILIATION (UNAUDITED): June 30, 2003 ------------- In accordance with GAAP 42.1% Less: Adjustments (0.6%) -------- Adjusted debt to capital 41.5% Electronics impairment (0.5%) Excluding minimum pension adjustments (1.1%) -------- Adjusted Debt to Equity net of pension 39.9% -------- -end-
Exhibit Index Exhibit Description - ------- ----------- 99.1 Press Release dated July 30, 2003. Furnished herewith.
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. KENNAMETAL INC. Date: August 14, 2003 By: /s/ TIMOTHY A. HIBBARD ---------------------------- Timothy A. Hibbard Corporate Controller and Chief Accounting Officer
Exhibit 99.1 [KENNAMETAL INC. LOGO] FROM: KENNAMETAL INC. P.O. Box 231 Latrobe, PA 15650 Investor Relations 724-539-6141 Contact: Beth A. Riley Media Relations 724-539-4662 Contact: Riz Chand DATE: July 30, 2003 FOR RELEASE: Immediate KENNAMETAL REPORTS FOURTH QUARTER EARNINGS ------------------------------------------ - Sales up 15% on acquisitions - Reported loss per diluted share of $0.14, per guidance - Another strong quarter of cash flow LATROBE, Pa., July 30, 2003 - Kennametal Inc. (NYSE: KMT) today reported a fiscal 2003 fourth quarter loss of $0.14 per diluted share compared with earnings of $0.48 per diluted share last year. Excluding special items in each period, diluted earnings per share were $0.45 for the quarter, at the high end of guidance, against last year's earnings per share of $0.67. Sales of $463.8 million were 15 percent above prior year, driven by the Widia acquisition. Free operating cash flow was $55 million versus $43 million in fiscal 2002. Earnings Per Share Excluding Special Items Company Guidance (07/09/03) $0.43 to $0.45 Analyst Estimate Range (07/29/03) $0.38 to $0.44 Earnings, Excluding Special Items $0.45 For the total fiscal year, diluted earnings per share were $0.51, compared against last year's loss per share of $6.70. Excluding special items in each period, diluted earnings per share were $1.41 against last year's earnings per share of $1.95. The prior year included a non-cash impairment charge associated with the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets". Sales of $1,759 million grew 11 percent, and free operating cash flow was $136 million. Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "We are pleased to deliver a credible performance in fiscal 2003, in the context of a manufacturing recession that persisted in North America, for the third year, and deepened in Europe. Our continuing disciplined management of the business strengthened the foundation that will enhance our operating leverage as global manufacturing economies improve." - more -
-2- Tambakeras continued, "We substantially improved our competitiveness across all fronts. The delivery of another strong year of free operating cash flow, in excess of $130 million despite $25 million spent on the Widia integration, was particularly gratifying. Product innovation was unabated, and we confirmed our technological leadership by attaining our target of 40 percent of sales from new products. At the same time, we delivered against very aggressive objectives for the Widia acquisition. In the face of a sustained manufacturing recession, I remain particularly impressed by the resilience and resourcefulness of our employees. " Tambakeras further noted that Institutional Shareholder Services (ISS) recently reviewed and rated Kennametal's corporate governance profile and, according to ISS, Kennametal outperformed 96% of the companies in the S&P 400 and 98% of the companies in the Capital Goods group. HIGHLIGHTS FOURTH QUARTER - FY03 - --------------------- - - Sales of $463.8 million were 15 percent above last year's $402.9 million. Sales growth was driven by a 13 percent positive benefit from acquisitions. - - Reported net loss was $4.9 million against net income of $15.4 million in the same quarter last year. Excluding special items, net income was $15.9 million for the quarter; a 26 percent decrease compared to net income of $21.4 million last year including the impact of Widia dilution and reduced pension income. - - The current quarter included net special charges of $20.8 million, or $0.59 per diluted share, primarily associated with the previously announced Widia integration efforts and Electronics' impairment charge. Prior-year results included net special charges of $6.1 million, or $0.19 per diluted share, associated with the completion of previously announced restructurings and the divestiture of Strong Tool. - - Decreased pension income reduced earnings per diluted share by $0.05 for the quarter versus the prior year. Pretax income for the quarter was reduced by $2.6 million (non-cash) compared to the same period in fiscal 2002 due to the effect of a decrease in the expected rate of return on Kennametal's pension fund assets, coupled with lower discount rates related to pension liabilities. - - At year-end, Kennametal's pension plan had an unfunded obligation of $3.7 million that resulted in a $35.2 million charge, net of tax, to equity under SFAS No. 87. The company is adequately funded from an ERISA perspective, and still does not anticipate any cash funding requirements during fiscal 2004. - - Free operating cash flow remained strong at $55.0 million, versus $43.5 million in the same period last year. - more -
-3- - - Total debt was $526 million, up $114 million from June 2002, but down $91 million from the closing of the Widia acquisition in the September quarter. FISCAL 2003 VERSUS 2002 - ----------------------- - - Sales for the 12 months ending June 30, 2003 of $1,759 million grew 11 percent. Net acquisitions and divestitures contributed growth of 11 percent. - - Reported net income was $18.1 million against a net loss of $211.9 million in the prior year. Excluding special items, net income was $49.9 million, a decrease of 19 percent compared to $61.6 million last year. - - Special charges of $31.7 million, or $0.90 per share, were included in the year's results related primarily to the Widia integration and the previously announced Electronics' impairment charge. Prior-year results included special charges of $273.5 million, or $8.65 per share, related primarily to the SFAS No. 142 impairment charge of $250.4 million. A chart detailing special charges for both years is attached. - - Free operating cash flow remained strong at $136 million, versus $131 million for the prior year. OUTLOOK - ------- Global economic signals remain mixed at the beginning of the current quarter. The sustainability of the modest sales improvement in June is unclear, as near-term visibility remains limited. However, the macroeconomic outlook beyond the next three to six months is cautiously more positive, and continues to suggest that a North American recovery will precede any improvement in Europe. Tambakeras said, "In fiscal 2004, we expect to accelerate the realization of benefits from our efforts. As projected, the Widia acquisition is anticipated to become accretive to earnings in the first quarter. Our competitive repositioning of the company will gain traction even with a modest market improvement." Sales for the first quarter of fiscal 2004 are expected to grow 9 to 11 percent year-over-year. Reported diluted earnings per share are expected to be $0.20 to $0.27 per share. This includes an estimate for special charges associated with the completion of the Widia integration of approximately $0.08 to $0.10 per share, consistent with previously announced integration assumption. Excluding these charges, diluted earnings per share are forecasted to range from $0.30 to $0.35 per share. For the full year, sales are expected to grow 4 to 6 percent year-over-year. Reported diluted earnings per share are expected to be $1.70 to $2.10 per share. This includes an estimate for special charges associated with the completion of the Widia integration approximately $0.10 to $0.20 per share. Excluding these charges, diluted earnings per share are forecasted to - more -
-4- range from $1.90 to $2.20 per share. The earnings forecast includes $0.15 to $0.20 of accretion from Widia, better than the $0.10 to $0.15 per share originally estimated. An incremental increase in pension expense is lowering diluted EPS for the fiscal year by approximately $0.30 per share. In addition, combining information obtained from the valuation of acquired Widia assets with further review and analysis, management has determined that the current useful lives of Kennametal's assets should be extended to more appropriately match the life of those assets. The resulting depreciation expense reduction is expected to be approximately $0.30. Kennametal expects to generate between $100 and $125 million of free operating cash flow for the year. Kennametal advises shareholders 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. DIVIDEND DECLARED - ----------------- Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable August 25, 2003, to shareowners of record as of the close of business August 8, 2003. Fourth quarter results will be discussed in a live Internet broadcast at 10:00 a.m. today. Access the live or archived conference by visiting the Investor Relations section of Kennametal's corporate web site at www.kennametal.com. This release contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the fact they use words such as "should," "anticipate," "estimate," "approximate," "expect," "may," "will," "project," "intend," "plan," "believe," and others words of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements are likely to relate to, among other things, our goals, plans and projections regarding our financial position, results of operations, market position and product development, which are based on current expectations that involve inherent risks and uncertainties, including factors that could delay, divert or change any of them in the next several years. Although it is not possible to predict or identify all factors, they may include the following: global economic conditions; future terrorist attacks; epidemics; risks associated with integrating and divesting businesses and achieving the expected savings and synergies; demands on management resources; risks associated with international markets such as currency exchange rates, and social and political environments; competition; labor relations; commodity prices; demand for and market acceptance of new and existing products; and risks associated with the implementation of restructuring plans and environmental remediation matters. We can give no assurance that any goal or plan set forth in forward-looking statements can be - more -
-5- achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments. Kennametal Inc. aspires to be the premier tooling solutions supplier in the world with operational excellence throughout the value chain and best-in-class manufacturing and technology. Kennametal strives to deliver superior shareowner value through top-tier financial performance. The company provides customers a broad range of technologically advanced tools, tooling systems and engineering services aimed at improving customers' manufacturing competitiveness. With about 14,000 employees worldwide, the company's annual sales approximate $1.8 billion, with nearly half coming from sales outside the United States. Kennametal is a five-time winner of the GM "Supplier of the Year" award and is represented in more than 60 countries. Kennametal operations in Europe are headquartered in Furth, Germany. Kennametal Asia Pacific operations are headquartered in Singapore. For more information, visit the company's web site at www.kennametal.com. - more -
FINANCIAL HIGHLIGHTS Consolidated financial highlights for Kennametal Inc. (NYSE: KMT) for the quarters and twelve-month periods ended June 30, 2003 and 2002 are shown in the following tables (in thousands, except per share amounts). CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) QUARTER ENDED TWELVE MONTHS ENDED JUNE 30, JUNE 30, ----------------------------- ----------------------------- 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Net sales $ 463,765 $ 402,898 $ 1,758,957 $ 1,583,742 Cost of goods sold(1) 314,974 266,025 1,190,053 1,072,918 ----------- ----------- ----------- ----------- Gross profit 148,791 136,873 568,904 510,824 Operating expense(2) 121,757 100,685 464,861 389,396 Restructuring and asset impairment charges(3) 20,305 4,657 31,954 27,307 Amortization of intangibles 854 697 4,164 2,804 ----------- ----------- ----------- ----------- Operating income 5,875 30,834 67,925 91,317 Interest expense(4) 9,108 7,551 36,166 32,627 Other (income), net(5) (2,117) (182) (2,531) (361) ----------- ----------- ----------- ----------- (Loss) Income before provision for income taxes and minority interest (1,116) 23,465 34,290 59,051 Provision for income taxes(6) 3,678 7,513 14,300 18,900 Minority interest 74 582 1,860 1,653 ----------- ----------- ----------- ----------- (Loss) Income before cumulative effect of change in accounting principle (4,868) 15,370 18,130 38,498 Cumulative effect of change in accounting principle, net of tax(7) - - - (250,406) ----------- ----------- ----------- ----------- Net (loss) income $ (4,868) $ 15,370 $ 18,130 $ (211,908) =========== =========== =========== =========== Diluted (loss) earnings per share $ (0.14) $ 0.48 $ 0.51 $ (6.70) =========== =========== =========== =========== Dividends per share $ 0.17 $ 0.17 $ 0.68 $ 0.68 =========== =========== =========== =========== Basic weighted average share outstanding 35,396 31,673 35,202 31,169 =========== =========== =========== =========== Diluted weighted average shares outstanding 35,682 32,159 35,479 31,627 =========== =========== =========== =========== (1) For the quarter and twelve months ended June 30, 2003, these amounts include charges of $2.0 million and $2.2 million, respectively, for integration activities related to the Widia acquisition. (2) For the quarter and twelve months ended June 30, 2003, these amounts include charges of $1.7 million and $5.5 million, respectively, for integration activities related to the Widia acquisition. -more-
FINANCIAL HIGHLIGHTS (CONTINUED) (3) For the quarter and twelve months ended June 30, 2003, these amounts include a non-cash charge of $16.1 million for impairment of long-lived assets within the Electronics business. (4) For the quarter and twelve months ended June 30, 2003, these amounts include $0.5 million for recognition of a portion of deferred financing fees due to the company reducing its borrowing capacity under its U.S. credit facility. For the quarter and twelve months ended June 30, 2002, these amounts include $0.3 million related to recognition of the remaining unamortized balance of deferred financing fees from the company's U.S. credit facilities that were replaced with a new 3-year facility. (5) For the quarters ended June 30, 2003 and 2002, these amounts include charges of $0.4 million and $0.5 million, respectively, for fees incurred in connection with the company's accounts receivable securitization program. For the twelve months ended June 30, 2003 and 2002, these amounts include similar charges of $1.9 million and $2.5 million, respectively. For the quarter and twelve months ended June 30, 2002, these amounts include a charge of $3.5 million related to the divestiture of Strong Tool Company. (6) For the quarter and twelve months ended June 30, 2003, the effective tax rate was (329.6%) and 41.7%, respectively. These amounts reflect that a portion of the Electronics impairment could not be tax effected, otherwise, the tax rate for the quarter and twelve month period would have been 30%. (7) For the twelve months ended June 30, 2002, this amount represents a non-cash charge for the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
FINANCIAL HIGHLIGHTS (CONTINUED) In addition to reported results under U.S. GAAP for the fiscal periods, the following financial highlight tables also include, where appropriate, a reconciliation of results excluding special items and free operating cash flow (which are non-GAAP measures), to the most directly comparable GAAP measures. RECONCILIATION TO GAAP - QUARTER ENDED JUNE 30 (UNAUDITED) Diluted Operating (Loss)/ Operating Income/ Net (Loss)/ Earnings Gross Profit Expense (Loss) Income Per Share --------------- -------------- --------------- -------------- -------------- 2003 Reported Results $ 148,791 $ 121,757 $ 5,875 $ (4,868) $ (0.14) MSSG Restructuring - - 3,134 2,194 0.06 AMSG Restructuring - - 1,224 857 0.02 AMSG Electronics impairment - - 16,110 15,269 0.43 Corporate Restructuring - - (99) (69) - Widia Integration Costs - MSSG 1,146 (1,365) 2,511 1,758 0.06 Widia Integration Costs - AMSG 865 (305) 1,170 818 0.02 J&L Restructuring - - (64) (45) - --------------- -------------- --------------- -------------- -------------- 2003 Results Excluding Special Items $ 150,802 $ 120,087 $ 29,861 $ 15,914 $ 0.45 =============== ============== =============== ============== ============== 2002 Reported Results $ 136,873 $ 100,685 $ 30,834 $ 15,370 $ 0.48 MSSG Restructuring 384 - 2,104 1,423 0.04 AMSG Restructuring 350 (11) 1,424 960 0.03 Corporate Restructuring - - 915 621 0.02 Widia Integration Costs - Corporate - (144) 144 98 - Deferred Financing Fees - - - 184 0.01 J&L Restructuring (377) - 247 168 0.01 FSS Restructuring - - 335 226 0.01 J&L Strong Tool Divestiture - - - 2,390 0.07 --------------- -------------- --------------- -------------- -------------- 2002 Results Excluding Special Items $ 137,230 $ 100,530 $ 36,003 $ 21,440 $ 0.67 =============== ============== =============== ============== ============== -more-
FINANCIAL HIGHLIGHTS (CONTINUED) TWELVE MONTHS ENDED JUNE 30 (UNAUDITED) Diluted Earnings/ Operating Operating Net Income/ (Loss) Gross Profit Expense Income (Loss) Per Share --------------- -------------- --------------- -------------- -------------- 2003 Reported Results $ 568,904 $ 464,861 $ 67,925 $ 18,130 $ 0.51 MSSG Restructuring - - 9,060 6,342 0.18 AMSG Restructuring - - 4,406 3,084 0.09 AMSG Electronics impairment - - 16,110 15,269 0.43 Corporate Restructuring - - 1,137 796 0.02 Widia Integration Costs - MSSG 1,344 (5,149) 6,493 4,545 0.14 Widia Integration Costs - AMSG 865 (327) 1,192 834 0.02 J&L Restructuring - - 1,203 843 0.02 FSS Restructuring - - 38 26 - --------------- -------------- --------------- -------------- -------------- 2003 Results Excluding Special Items $ 571,113 $ 459,385 $ 107,564 $ 49,869 $ 1.41 =============== ============== =============== ============== ============== 2002 Reported Results $ 510,824 $ 389,396 $ 91,317 $ (211,908) $ (6.70) MSSG Restructuring 544 - 10,245 6,958 0.22 AMSG Restructuring 1,654 (11) 7,997 5,430 0.17 Corporate Restructuring - - 1,075 730 0.02 MSSG (Adoption of SFAS 142) - - - 168,314 5.32 AMSG (Adoption of SFAS 142) - - - 82,092 2.60 Widia Integration Costs - Corporate - (144) 144 98 - Deferred Financing Fees - - - 184 0.01 J&L Restructuring 529 - 10,093 6,863 0.22 FSS Restructuring - - 635 430 0.01 J&L Strong Tool Divestiture - - - 2,390 0.08 --------------- -------------- --------------- -------------- -------------- 2002 Results Excluding Special Items $ 513,551 $ 389,241 $ 121,506 $ 61,581 $ 1.95 =============== ============== =============== ============== ============== -more-
FINANCIAL HIGHLIGHTS (CONTINUED) SEGMENT DATA (UNAUDITED): Quarter Ended Twelve Months Ended June 30, June 30, -------------------------- ---------------------------- 2003 2002 2003 2002 --------- --------- ----------- ----------- Sales: Metalworking Solutions and Services Group $ 299,032 $ 231,151 $ 1,123,175 $ 897,157 Advanced Materials Solutions Group 88,185 80,170 319,223 307,668 J&L Industrial Supply 48,158 52,013 196,170 226,010 Full Service Supply 28,390 39,564 120,389 152,907 --------- --------- ----------- ----------- Total Sales $ 463,765 $ 402,898 $ 1,758,957 $ 1,583,742 ========= ========= =========== =========== Sales By Geographic Region: Within the United States $ 238,323 $ 257,709 $ 946,518 $ 1,019,849 International 225,442 145,189 812,439 563,893 --------- --------- ----------- ----------- Total Sales $ 463,765 $ 402,898 $ 1,758,957 $ 1,583,742 ========= ========= =========== =========== Operating Income (Loss), as reported: Metalworking Solutions and Services Group $ 24,139 $ 29,243 $ 90,627 $ 97,323 Advanced Materials Solutions Group (7,805) 10,082 17,348 26,781 J&L Industrial Supply 931 1,044 6,140 (681) Full Service Supply 264 215 (56) 2,014 Corporate and Eliminations (11,654) (9,750) (46,134) (34,120) --------- --------- ----------- ----------- Total Operating Income $ 5,875 $ 30,834 $ 67,925 $ 91,317 ========= ========= =========== =========== Operating Income (Loss), excluding special charges: Metalworking Solutions and Services Group $ 29,784 $ 31,347 $ 106,180 $ 107,568 Advanced Materials Solutions Group 10,699 11,506 39,056 34,778 J&L Industrial Supply 867 1,290 7,343 9,412 Full Service Supply 264 550 (18) 2,649 Corporate and Eliminations (11,753) (8,690) (44,997) (32,901) --------- --------- ----------- ----------- Total Operating Income $ 29,861 $ 36,003 $ 107,564 $ 121,506 ========= ========= =========== =========== -more-
FINANCIAL HIGHLIGHTS (CONTINUED) OPERATING INCOME RECONCILIATION (UNAUDITED): MSSG AMSG J&L FSS Corp & Elim. Total -------- -------- -------- -------- ------------ -------- 2003 Reported Operating Income (Loss) $ 24,139 $ (7,805) $ 931 $ 264 $(11,654) $ 5,875 Restructuring 3,134 1,224 (64) - (99) 4,195 Widia Integration Costs 2,511 1,170 - - - 3,681 Electronics Impairment - 16,110 - - - 16,110 ------------------------------------------------------------------ 2003 Operating Income (Loss) Excluding Special Charges $ 29,784 $ 10,699 $ 867 $ 264 $(11,753) $ 29,861 ================================================================== 2002 Reported Operating Income (Loss) $ 29,243 $ 10,082 $ 1,044 $ 215 $ (9,750) $ 30,834 Restructuring 2,104 1,424 246 335 916 5,025 Widia Integration Costs - - - - 144 144 ------------------------------------------------------------------ 2002 Operating Income (Loss) Excluding Special Charges $ 31,347 $ 11,506 $ 1,290 $ 550 $ (8,690) $ 36,003 ================================================================== TWELVE MONTHS ENDED JUNE 30, MSSG AMSG J&L FSS Corp & Elim. Total -------- -------- -------- -------- ------------ -------- 2003 Reported Operating Income (Loss) $ 90,627 $ 17,348 $ 6,140 $ (56) $(46,134) $ 67,925 Restructuring 9,060 4,406 1,203 38 1,137 15,844 Widia Integration Costs 6,493 1,192 - - - 7,685 Electronics Impairment - 16,110 - - - 16,110 ------------------------------------------------------------------ 2003 Operating Income (Loss) Excluding Special Charges $106,180 $ 39,056 $ 7,343 $ (18) $(44,997) $107,564 ================================================================== 2002 Reported Operating Income (Loss) $ 97,323 $ 26,781 $ (681) $ 2,014 $(34,120) $ 91,317 Restructuring 10,245 7,997 10,093 635 1,075 30,045 Widia Integration Costs - - - - 144 144 ------------------------------------------------------------------ 2002 Operating Income (Loss) Excluding Special Charges $107,568 $ 34,778 $ 9,412 $ 2,649 $(32,901) $121,506 ================================================================== -more-
FINANCIAL HIGHLIGHTS (CONTINUED) RECONCILIATION TO GAAP CASH FLOW INFORMATION (UNAUDITED) Quarter Ended Twelve Months Ended June 30, June 30, --------------------------- --------------------------- 2003 2002 2003 2002 --------- --------- --------- --------- Net income $ (4,868) $ 15,370 $ 18,130 $(211,908) Adoption of SFAS 142 - - - 250,406 Electronics impairment 16,110 - 16,110 - Other non-cash items 11,796 8,468 21,126 26,144 Depreciation and amortization 22,224 18,392 84,043 73,629 Change in primary working capital 30,897 16,366 48,825 60,362 Change in other assets and liabilities (8,125) (6,535) (4,766) (34,548) --------- --------- --------- --------- Net cash flow provided by operating activities 68,034 52,061 183,468 164,085 Purchase of property, plant and equipment (13,447) (13,691) (49,413) (44,040) Proceeds from disposals of property, plant and equipment 371 5,106 1,875 10,905 --------- --------- --------- --------- Free operating cash flow $ 54,958 $ 43,476 $ 135,930 $ 130,950 ========= ========= ========= ========= CONDENSED BALANCE SHEETS (UNAUDITED) Quarter Ended ----------------------------------------------------------------------------------- 06/30/03 03/31/03 12/31/02 09/30/02 06/30/02 ----------- ----------- ----------- ----------- ----------- ASSETS Cash and equivalents $ 15,093 $ 17,250 $ 18,155 $ 14,300 $ 10,385 Accounts receivable, net of allowance 235,648 235,908 199,261 221,313 179,101 Inventories 392,255 408,996 403,530 403,590 345,076 Deferred income taxes 79,564 81,651 80,204 71,084 71,375 Other current assets 42,119 44,286 53,868 40,110 31,447 ----------- ----------- ----------- ----------- ----------- TOTAL CURRENT ASSETS 764,679 788,091 755,018 750,397 637,384 ----------- ----------- ----------- ----------- ----------- Property, plant and equipment, net 493,373 476,208 480,066 480,696 435,116 Goodwill and Intangible assets, net 473,932 491,987 478,060 467,140 367,992 Other assets 47,108 107,159 104,937 109,225 83,119 ----------- ----------- ----------- ----------- ----------- TOTAL $ 1,779,092 $ 1,863,445 $ 1,818,081 $ 1,807,458 $ 1,523,611 =========== =========== =========== =========== =========== LIABILITIES Short-term debt $ 10,845 $ 15,068 $ 17,591 $ 16,992 $ 23,480 Accounts payable 119,853 120,981 92,114 101,823 101,586 Accrued liabilities 205,649 208,816 171,726 171,045 137,034 ----------- ----------- ----------- ----------- ----------- TOTAL CURRENT LIABILITIES 336,347 344,865 281,431 289,860 262,100 ----------- ----------- ----------- ----------- ----------- Long-term debt 514,842 565,067 599,425 599,615 387,887 Deferred income taxes 8,660 38,382 46,801 53,475 52,570 Other liabilities 178,453 140,550 135,101 125,816 96,421 ----------- ----------- ----------- ----------- ----------- TOTAL LIABILITIES 1,038,302 1,088,864 1,062,758 1,068,766 798,978 ----------- ----------- ----------- ----------- ----------- MINORITY INTEREST 18,880 18,070 17,594 17,685 10,671 ----------- ----------- ----------- ----------- ----------- SHAREOWNERS' EQUITY 721,910 756,511 737,729 721,007 713,962 ----------- ----------- ----------- ----------- ----------- TOTAL $ 1,779,092 $ 1,863,445 $ 1,818,081 $ 1,807,458 $ 1,523,611 =========== =========== =========== =========== =========== -more-
RECONCILIATION OF FORECASTED GAAP CASH FLOW INFORMATION (UNAUDITED) TWELVE MONTHS ENDED JUNE 30, 2004 ------------------- Forecasted net cash flow provided by operating activities $170,000 - $195,000 Forecasted purchases and disposals of property, plant and equipment (70,000) ------------------- Forecasted free operating cash flow $100,000 - $125,000 =================== -end-