Pennsylvania | 25-0900168 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
World Headquarters | ||
1600 Technology Way | ||
P.O. Box 231 | ||
Latrobe, Pennsylvania | 15650-0231 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Title of Each Class | Outstanding at April 30, 2009 | |
Capital Stock, par value $1.25 per share | 73,182,230 |
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(in thousands, except per share data) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Sales |
$ | 441,311 | $ | 689,669 | $ | 1,679,260 | $ | 1,952,168 | ||||||||
Cost of goods sold |
337,529 | 451,803 | 1,193,385 | 1,281,273 | ||||||||||||
Gross profit |
103,782 | 237,866 | 485,875 | 670,895 | ||||||||||||
Operating expense |
108,054 | 150,461 | 392,084 | 443,414 | ||||||||||||
Restructuring and asset impairment charges
(Note 7) |
143,476 | 35,000 | 158,092 | 35,000 | ||||||||||||
Amortization of intangibles |
3,196 | 3,487 | 9,874 | 10,058 | ||||||||||||
Operating (loss) income |
(150,944 | ) | 48,918 | (74,175 | ) | 182,423 | ||||||||||
Interest expense |
6,672 | 8,005 | 21,814 | 24,335 | ||||||||||||
Other (income) expense, net |
(5,243 | ) | 385 | (8,630 | ) | (1,711 | ) | |||||||||
(Loss) income before income taxes and
minority interest expense |
(152,373 | ) | 40,528 | (87,359 | ) | 159,799 | ||||||||||
(Benefit) provision for income taxes |
(14,660 | ) | 16,616 | (1,456 | ) | 48,953 | ||||||||||
Minority interest expense |
161 | 742 | 845 | 2,651 | ||||||||||||
Net (loss) income |
$ | (137,874 | ) | $ | 23,170 | $ | (86,748 | ) | $ | 108,195 | ||||||
PER SHARE DATA (Note 14) |
||||||||||||||||
Basic (loss) earnings |
$ | (1.90 | ) | $ | 0.30 | $ | (1.18 | ) | $ | 1.41 | ||||||
Diluted (loss) earnings |
$ | (1.90 | ) | $ | 0.30 | $ | (1.18 | ) | $ | 1.38 | ||||||
Dividends per share |
$ | 0.12 | $ | 0.12 | $ | 0.36 | $ | 0.35 | ||||||||
Basic weighted average shares outstanding |
72,673 | 76,463 | 73,238 | 76,984 | ||||||||||||
Diluted weighted average shares outstanding |
72,673 | 77,503 | 73,238 | 78,374 | ||||||||||||
1
March 31, | June 30, | |||||||
(in thousands, except per share data) | 2009 | 2008 | ||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 98,190 | $ | 86,478 | ||||
Accounts receivable, less allowance for doubtful accounts of $22,538 and $18,473 |
295,322 | 512,794 | ||||||
Inventories |
426,455 | 460,800 | ||||||
Deferred income taxes |
47,953 | 53,330 | ||||||
Other current assets |
52,892 | 38,584 | ||||||
Total current assets |
920,812 | 1,151,986 | ||||||
Property, plant and equipment: |
||||||||
Land and buildings |
359,269 | 375,128 | ||||||
Machinery and equipment |
1,350,429 | 1,382,028 | ||||||
Less accumulated depreciation |
(979,915 | ) | (1,007,401 | ) | ||||
Property, plant and equipment, net |
729,783 | 749,755 | ||||||
Other assets: |
||||||||
Investments in affiliated companies |
2,142 | 2,325 | ||||||
Goodwill (Note 16) |
496,836 | 608,519 | ||||||
Intangible assets, less accumulated amortization of $48,638 and $42,010 (Note 16) |
173,291 | 194,203 | ||||||
Deferred income taxes |
24,080 | 25,021 | ||||||
Other |
50,427 | 52,540 | ||||||
Total other assets |
746,776 | 882,608 | ||||||
Total assets |
$ | 2,397,371 | $ | 2,784,349 | ||||
LIABILITIES |
||||||||
Current liabilities: |
||||||||
Current maturities of long-term debt and capital leases (Note 11) |
$ | 26,469 | $ | 813 | ||||
Notes payable to banks |
16,178 | 32,787 | ||||||
Accounts payable |
110,873 | 189,050 | ||||||
Accrued income taxes |
5,631 | 28,102 | ||||||
Accrued expenses |
82,234 | 121,639 | ||||||
Foreign exchange contract payable to bank |
30,626 | | ||||||
Other current liabilities (Note 7) |
137,583 | 148,920 | ||||||
Total current liabilities |
409,594 | 521,311 | ||||||
Long-term debt and capital leases, less current maturities (Note 11) |
459,446 | 313,052 | ||||||
Deferred income taxes |
75,486 | 76,980 | ||||||
Accrued pension and postretirement benefits |
111,975 | 129,179 | ||||||
Accrued income taxes |
16,315 | 17,213 | ||||||
Other liabilities |
56,549 | 57,180 | ||||||
Total liabilities |
1,129,365 | 1,114,915 | ||||||
Commitments and contingencies |
||||||||
Minority interest in consolidated subsidiaries |
18,678 | 21,527 | ||||||
SHAREOWNERS EQUITY |
||||||||
Preferred stock, no par value; 5,000 shares authorized; none issued |
| | ||||||
Capital stock, $1.25 par value; 120,000 shares authorized;
73,124 and 76,858 shares issued and outstanding |
91,410 | 96,076 | ||||||
Additional paid-in capital |
354,085 | 468,169 | ||||||
Retained earnings |
828,119 | 941,553 | ||||||
Accumulated other comprehensive (loss) income |
(24,286 | ) | 142,109 | |||||
Total shareowners equity |
1,249,328 | 1,647,907 | ||||||
Total liabilities and shareowners equity |
$ | 2,397,371 | $ | 2,784,349 | ||||
2
Nine months ended March 31 (in thousands) | 2009 | 2008 | ||||||
OPERATING ACTIVITIES |
||||||||
Net (loss) income |
$ | (86,748 | ) | $ | 108,195 | |||
Adjustments for non-cash items: |
||||||||
Depreciation |
62,650 | 59,262 | ||||||
Amortization |
9,874 | 10,058 | ||||||
Stock-based compensation expense |
6,241 | 7,387 | ||||||
Restructuring and asset impairment charges (Note 7) |
113,730 | 35,000 | ||||||
Deferred income tax provision |
(8,369 | ) | 19,730 | |||||
Other |
(190 | ) | (1,411 | ) | ||||
Changes in certain assets and liabilities, excluding effects of acquisitions: |
||||||||
Accounts receivable |
173,901 | 11,266 | ||||||
Inventories |
4,319 | (56,813 | ) | |||||
Accounts payable and accrued liabilities |
(87,953 | ) | (17,941 | ) | ||||
Accrued income taxes |
(12,759 | ) | (18,384 | ) | ||||
Other |
(10,957 | ) | 2,209 | |||||
Net cash flow provided by operating activities |
163,739 | 158,558 | ||||||
INVESTING ACTIVITIES |
||||||||
Purchases of property, plant and equipment |
(92,712 | ) | (130,587 | ) | ||||
Disposals of property, plant and equipment |
2,386 | 2,370 | ||||||
Acquisitions of business assets, net of cash acquired |
(64,519 | ) | 361 | |||||
Proceeds from divestitures |
| 3,000 | ||||||
Proceeds from sale of investments in affiliated companies |
| 5,915 | ||||||
Other |
(20 | ) | 3,222 | |||||
Net cash flow used for investing activities |
(154,865 | ) | (115,719 | ) | ||||
FINANCING ACTIVITIES |
||||||||
Net (decrease) increase in notes payable |
(16,053 | ) | 12,795 | |||||
Net increase in short-term revolving and other lines of credit |
55,526 | | ||||||
Term debt borrowings |
779,319 | 253,646 | ||||||
Term debt repayments |
(645,287 | ) | (230,244 | ) | ||||
Proceeds from interest rate swap agreement termination (Note 6) |
12,566 | | ||||||
Purchase of capital stock |
(127,648 | ) | (64,642 | ) | ||||
Dividend reinvestment and employee benefit and stock plans |
3,985 | 12,566 | ||||||
Cash dividends paid to shareowners |
(26,686 | ) | (26,777 | ) | ||||
Other |
1,642 | 3,302 | ||||||
Net cash flow provided by (used for) financing activities |
37,364 | (39,354 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents |
(34,526 | ) | 12,504 | |||||
CASH AND CASH EQUIVALENTS |
||||||||
Net increase in cash and cash equivalents |
11,712 | 15,989 | ||||||
Cash and cash equivalents, beginning of period |
86,478 | 50,433 | ||||||
Cash and cash equivalents, end of period |
$ | 98,190 | $ | 66,422 | ||||
3
1. | ORGANIZATION | |
Kennametal Inc. was incorporated in Pennsylvania in 1943 and maintains its world headquarters in Latrobe, Pennsylvania. Kennametal Inc. and its subsidiaries (collectively, Kennametal or the Company) is a leading global manufacturer and supplier of tooling, engineered components and advanced materials consumed in production processes. End users of our products include metalworking manufacturers and suppliers in the aerospace, automotive, machine tool, light machinery and heavy machinery industries, as well as manufacturers and suppliers in the highway construction, coal mining, quarrying and oil and gas exploration industries. Our end users products include items ranging from airframes to coal, medical implants to oil wells and turbochargers to motorcycle parts. We operate two global business units consisting of Metalworking Solutions & Services Group (MSSG) and Advanced Materials Solutions Group (AMSG). | ||
2. | BASIS OF PRESENTATION | |
The condensed consolidated financial statements, which include our accounts and those of our consolidated subsidiaries, should be read in conjunction with our 2008 Annual Report on Form 10-K. The condensed consolidated balance sheet as of June 30, 2008 was derived from the audited balance sheet included in our 2008 Annual Report on Form 10-K. These interim statements are unaudited; however, we believe that all adjustments necessary for a fair statement of the results of the interim periods were made and all adjustments are normal, recurring adjustments. The results for the nine months ended March 31, 2009 and 2008 are not necessarily indicative of the results to be expected for a full fiscal year. Unless otherwise specified, any reference to a year is to a fiscal year ended June 30. For example, a reference to 2009 is to the fiscal year ending June 30, 2009. When used in this Form 10-Q, unless the context requires otherwise, the terms we, our and us refer to Kennametal Inc. and its subsidiaries. | ||
3. | NEW ACCOUNTING STANDARDS | |
In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP 157-4). FSP 157-4 provides guidance on factors to be considered while estimating fair value in accordance with Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157), when there has been a significant decrease in market activity for an asset or liability. This guidance retains the existing exit price concept under SFAS 157 and therefore does not change the objective of fair value measurements, even when there has been a significant decrease in market activity. FSP 157-4 is effective for Kennametal as of June 30, 2009. We are in the process of evaluating the provisions of this FSP to determine the impact of adoption on our consolidated financial statements. | ||
In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosure about Fair Value of Financial Instruments (FSP 107-1). FSP 107-1 expands the fair value disclosures to interim periods for all financial instruments that are within the scope of SFAS No. 107, Disclosures about Fair Value of Financial Instruments. This FSP also requires entities to disclose the methods and significant assumptions used to estimate the fair value of financial instruments as well as significant changes in such methods and assumptions from prior periods. FSP 107-1 is effective for Kennametal as of September 30, 2009. We are in the process of evaluating the provisions of this FSP to determine the impact of adoption on our consolidated financial statements. | ||
In April 2009, the FASB issued FSP No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (FSP 141(R)-1). This FSP amends the guidance in SFAS No. 141 (revised 2007), Business Combinations (SFAS 141(R)) and establishes a model to account for preacquisition contingencies. Under this FSP, an acquirer is required to recognize at fair value an asset or liability assumed in a business combination that arises from a contingency if the acquisition-date fair value can be determined during the measurement period. If the acquisition date fair value cannot be determined, then the acquirer should follow the recognition criteria in SFAS No. 5, Accounting for Contingencies and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss an interpretation of FASB Statement No. 5, to determine whether the contingency should be recognized as of the acquisition date or after it. FSP 141(R)-1 is effective for Kennametal beginning July 1, 2009. We are in the process of evaluating the provisions of this FSP to determine the impact of adoption on our consolidated financial statements. |
4
On January 1, 2009, Kennametal adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133 (SFAS 161) as it relates to derivatives and hedging activities. SFAS 161 expands the current disclosure requirements in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133) and provides for an enhanced understanding of (1) how and why an entity uses derivative instruments, (2) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (3) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. See Note 6 for additional disclosures. | ||
In December 2008, the FASB issued FSP No. 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets (FSP 132(R)-1). FSP 132(R)-1 expands the current disclosure requirements in SFAS No. 132(R), Employers Disclosures about Pensions and Other Postretirement Benefits. FSP 132(R)-1 requires companies to disclose how investment allocation decisions are made by management, major categories of plan assets, significant concentrations of risk within plan assets and information about the valuation of plan assets. FSP 132(R)-1 is effective for Kennametal beginning July 1, 2009. We are in the process of evaluating the provisions of this FSP to determine the impact of adoption on our consolidated financial statements. | ||
In November 2008, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 08-7, Accounting for Defensive Intangible Assets (EITF 08-7). EITF 08-7 applies to all acquired intangible assets in situations in which the entity does not intend to actively use the asset but intends to hold the asset to prevent others from obtaining access to the asset with limited exceptions. EITF 08-7 requires that defensive intangible assets be accounted for as a separate unit of accounting and be assigned a useful life. EITF 08-7 is to be applied prospectively and is effective for Kennametal beginning July 1, 2009. We are in the process of evaluating the provisions of this EITF to determine the impact of adoption on our consolidated financial statements. | ||
In November 2008, the FASB ratified EITF Issue No. 08-6, Equity Method Investment Accounting Considerations (EITF 08-6). EITF 08-6 addresses a number of matters associated with the impact that SFAS 141(R) and SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160) might have on the accounting for equity method investments. EITF 08-6 provides guidance on how an equity method investment should initially be measured, how it should be tested for impairment and how changes in classification from equity method to cost method should be treated as well as other issues. EITF 08-6 is to be applied prospectively and is effective for Kennametal beginning July 1, 2009. We are in the process of evaluating the provisions of this EITF to determine the impact of adoption on our consolidated financial statements. | ||
On July 1, 2008, Kennametal adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the fair value option) with changes in fair value recognized in earnings at each subsequent reporting date. Kennametal records derivative contracts and hedging activities at fair value in accordance with SFAS 133. The adoption of SFAS 159 therefore had no impact on our consolidated financial statements as management did not elect the fair value option for any other financial instruments or certain other assets and liabilities. | ||
On July 1, 2008, Kennametal adopted SFAS No. 157, Fair Value Measurements (SFAS 157) as it relates to financial assets and financial liabilities. In February 2008, the FASB issued FSP No. FAS 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis, until July 1, 2009 for Kennametal. See Note 5 for additional disclosures. | ||
In December 2007, the FASB issued SFAS 141(R) which establishes principles and requirements for how an acquirer accounts for business combinations and includes guidance for the recognition, measurement and disclosure of the identifiable assets acquired, the liabilities assumed and any noncontrolling or minority interest in the acquiree. It also provides guidance for the measurement of goodwill, the recognition of contingent consideration and the accounting for pre-acquisition gain and loss contingencies, as well as acquisition-related transaction costs and the recognition of changes in the acquirers income tax valuation allowance. SFAS 141(R) is to be applied prospectively and is effective for Kennametal beginning July 1, 2009. We are in the process of evaluating the provisions of SFAS 141(R) to determine the impact of adoption on our consolidated financial statements. |
5
In December 2007, the FASB issued SFAS 160 which amends Accounting Research Bulletin No. 51, Consolidated Financial Statements to establish accounting and reporting standards for any noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that a noncontrolling interest in a subsidiary should be reported as a component of equity in the consolidated financial statements and requires disclosure on the face of the consolidated statement of income of the amounts of consolidated net income attributable to the parent and to the noncontrolled interest. SFAS 160 is to be applied prospectively and is effective for Kennametal as of July 1, 2009, except for the presentation and disclosure requirements, which, upon adoption, will be applied retrospectively for all periods presented. We are in the process of evaluating the provisions of SFAS 160 to determine the impact of adoption on our consolidated financial statements. | ||
In June 2007, the FASB ratified EITF Issue No. 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards (EITF 06-11). EITF 06-11 requires that tax benefits generated by dividends paid during the vesting period on certain equity-classified share-based compensation awards be classified as additional paid-in capital and included in a pool of excess tax benefits available to absorb tax deficiencies from share-based payment awards. EITF 06-11 was effective for Kennametal on July 1, 2008 and is to be applied on a prospective basis. The adoption of this EITF did not have a material impact on our consolidated financial statements. | ||
4. | SUPPLEMENTAL CASH FLOW DISCLOSURES |
Nine months ended March 31 (in thousands) | 2009 | 2008 | ||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 15,474 | $ | 17,860 | ||||
Income taxes |
12,361 | 41,863 | ||||||
Supplemental disclosure of non-cash information: |
||||||||
Contribution of stock to employees defined contribution benefit plans |
225 | | ||||||
Change in fair value of interest rate swaps |
730 | (18,626 | ) | |||||
Changes in accounts payable related to
purchases of property, plant and equipment |
(12,800 | ) | (14,500 | ) | ||||
5. | FAIR VALUE MEASUREMENTS | |
SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures related to fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions. We are in the process of evaluating the potential impact of SFAS 157, as it relates to pension plan assets, nonfinancial assets and nonfinancial liabilities, on our consolidated financial statements. | ||
SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is now the single source in GAAP for the definition of fair value, except for the fair value of leased property as defined in SFAS No. 13, Accounting for Leases. SFAS 157 established a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entitys own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Fair value measurements are assigned a level within the hierarchy based on the lowest significant input level. The three levels of the fair value hierarchy under SFAS 157 are described below: | ||
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. | ||
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. | ||
Level 3: Inputs that are unobservable. |
6
As of March 31, 2009 the fair values of the Companys financial assets and financial liabilities measured at fair value on a recurring basis are categorized as follows: |
(in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: |
||||||||||||||||
Current assets: |
||||||||||||||||
Derivative contracts a |
$ | | $ | 4,788 | $ | | $ | 4,788 | ||||||||
Total assets |
$ | | $ | 4,788 | $ | | $ | 4,788 | ||||||||
Current liabilities: |
||||||||||||||||
Derivative contracts a |
$ | | $ | 7 | $ | | $ | 7 | ||||||||
a | Foreign currency derivative contracts are valued based on observable market spot and forward rates and are classified within Level 2 of the fair value hierarchy. |
6. | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | |
As part of our financial risk management program, we use certain derivative financial instruments. We do not enter into derivative transactions for speculative purposes and therefore hold no derivative instruments for trading purposes. We use derivative financial instruments to provide predictability to the effects of changes in foreign exchange rates on our consolidated results and to achieve our targeted mix of fixed and floating interest rates on outstanding debt. We account for derivative instruments as a hedge of the related asset, liability, firm commitment or anticipated transaction when the derivative is specifically designated as a hedge of such items. Our objective in managing foreign exchange exposures with derivative instruments is to reduce volatility in cash flow, allowing us to focus more of our attention on business operations. With respect to interest rate management, these derivative instruments allow us to achieve our targeted fixed-to-floating interest rate mix as a separate decision from funding arrangements in the bank and public debt markets. We measure hedge effectiveness by assessing the changes in the fair value or expected future cash flows of the hedged item. The ineffective portions are recorded in other income or expense. | ||
As of March 31, 2009, derivatives designated and not designated as hedging instruments have been recorded in the condensed consolidated balance sheet at fair value as follows: |
(in thousands) | ||||
Derivatives designated as hedging instruments |
||||
Other current assets range forward contracts |
$ | 4,710 | ||
Total derivatives designated as hedging instruments |
4,710 | |||
Derivatives not designated as hedging instruments |
||||
Other current assets currency forward contracts |
78 | |||
Other current liabilities currency forward contracts |
(7 | ) | ||
Total derivatives not designated as hedging instruments |
71 | |||
Total derivatives |
$ | 4,781 | ||
Certain currency forward contracts hedging significant cross-border intercompany loans are considered as other derivatives and therefore do not qualify for hedge accounting. These contracts are recorded at fair value in the balance sheet, with the offset to other (income) loss, net. Losses (gains) related to derivatives not designated as hedging instruments have been recognized as follows: |
Three Months Ended | Nine Months Ended | |||||||
(in thousands) | March 31, 2009 | March 31, 2009 | ||||||
Other (income) expense, net currency forward contracts |
$ | 52 | $ | (10 | ) | |||
7
FAIR VALUE HEDGES | ||
Fixed-to-floating interest rate swap agreements, designated as fair value hedges, are entered into from time to time to hedge our exposure to fair value fluctuations on a portion of our fixed rate debt. These interest rate swap agreements convert a portion of our fixed rate debt to floating rate debt. These contracts require periodic settlement and the difference between amounts to be received and paid under the interest rate swap agreements is recognized in interest expense. We record the gain or loss on these contracts as an asset or a liability, as applicable, in the balance sheet, with the offset to the carrying value of the debt. Any gain or loss resulting from changes in the fair value of these contracts offset the corresponding gains or losses from changes in the fair values of the debt. As a result, changes in the fair value of these contracts have no net impact on current period earnings. | ||
In February 2009, we terminated interest rate swap agreements to convert $200 million of our fixed rate debt to floating rate debt. These agreements were originally set to mature in June 2012. Upon termination, we received a cash payment of $13.2 million. Within the consolidated statement of cash flow, the $12.6 million forward portion of the payment has been disclosed under cash flow provided by financing activities and the $0.6 million current interest portion has been disclosed under cash flow provided by operating activities. This gain is being amortized as a component of interest expense over the remaining term of the related debt using the effective interest rate method. During the three months ended March 31, 2009, $0.5 million was recognized as a reduction in interest expense. | ||
Gains related to fair value hedges have been recognized as follows: |
Three Months Ended | Nine Months Ended | |||||||
(in thousands) | March 31, 2009 | March 31, 2009 | ||||||
Interest expense interest rate swap agreements |
$ | (908 | ) | $ | (1,804 | ) | ||
CASH FLOW HEDGES | ||
Currency forward contracts and range forward contracts (a transaction where both a put option is purchased and a call option is sold), designated as cash flow hedges, hedge anticipated cash flows from cross-border intercompany sales of products and services. Gains and losses realized on these contracts at maturity are recorded in accumulated other comprehensive income (loss), net of tax, and are recognized as a component of other income, net when the underlying sale of products or services are recognized into earnings. The notional amount of the contracts translated into U.S. dollars at March 31, 2009, was $38.0 million. The time value component of the fair value of range forwards is excluded from the assessment of hedge effectiveness. Assuming the market rates remain constant with the rates at March 31, 2009, we expect to recognize into earnings in the next 12 months gains on outstanding derivatives of $4.7 million. | ||
Floating-to-fixed interest rate swap agreements, designated as cash flow hedges, are entered into from time to time to hedge our exposure to interest rate changes on a portion of our floating rate debt. These interest rate swap agreements convert a portion of our floating rate debt to fixed rate debt. We record the fair value of these contracts as an asset or a liability, as applicable, in the balance sheet, with the offset to accumulated other comprehensive income (loss), net of tax (AOCI). We had no such agreements outstanding at March 31, 2009. | ||
Gains related to cash flow hedges have been recognized as follows: |
Three Months Ended | Nine Months Ended | |||||||
(in thousands) | March 31, 2009 | March 31, 2009 | ||||||
Gain recognized in other comprehensive (loss) income range
forward contracts |
$ | (534 | ) | $ | (5,400 | ) | ||
Gain
reclassified from accumulated other comprehensive (loss)
income into other (income) expense, net range forward
contracts |
$ | (3,950 | ) | $ | (4,816 | ) | ||
For the three and nine months ended March 31, 2009, no portion of the gains recognized in earnings were due to ineffectiveness and no amount was excluded from our effectiveness testing. |
8
7. | RESTRUCTURING AND ASSET IMPAIRMENT CHARGES | |
Restructuring | ||
As previously announced, the Company continued to implement restructuring plans to reduce costs and improve operating efficiencies. These actions relate to facility rationalizations and employment reductions and are expected to be completed over the next six to nine months. Restructuring and related charges recorded in the nine months ended March 31, 2009 amounted to $52.8 million, including $48.1 million of restructuring charges, of which $1.0 million were related to inventory disposals and recorded in cost of goods sold. Restructuring-related charges of $5.9 million were recorded in cost of goods sold and a restructuring-related benefit of $1.2 million was recorded in operating expense during the nine months ended March 31, 2009. Total restructuring and related charges recorded since the inception of the restructuring plans were $61.0 million. Including these charges, the company expects to recognize approximately $115 million of charges related to its restructuring plans. Annual ongoing benefits from these actions, once fully implemented, are expected to be approximately $125 million. | ||
The restructuring accrual is recorded in other current liabilities in our condensed consolidated balance sheet and the amount attributable to each segment is as follows: |
Asset | Cash | March 31, | ||||||||||||||||||||||
(in thousands) | June 30, 2008 | Expense | Write-down | Expenditures | Translation | 2009 | ||||||||||||||||||
MSSG |
||||||||||||||||||||||||
Severance |
$ | 3,070 | $ | 31,049 | $ | | $ | (13,776 | ) | $ | (608 | ) | $ | 19,735 | ||||||||||
Facilities |
| 1,019 | (973 | ) | (9 | ) | (3 | ) | 34 | |||||||||||||||
Other |
131 | 516 | | (440 | ) | (7 | ) | 200 | ||||||||||||||||
Total MSSG |
3,201 | 32,584 | (973 | ) | (14,225 | ) | (618 | ) | 19,969 | |||||||||||||||
AMSG |
||||||||||||||||||||||||
Severance |
1,749 | 8,368 | | (5,203 | ) | (93 | ) | 4,821 | ||||||||||||||||
Facilities |
| 2,010 | (1,715 | ) | (135 | ) | (7 | ) | 153 | |||||||||||||||
Other |
| 156 | | (90 | ) | (19 | ) | 47 | ||||||||||||||||
Total AMSG |
1,749 | 10,534 | (1,715 | ) | (5,428 | ) | (119 | ) | 5,021 | |||||||||||||||
Corporate |
||||||||||||||||||||||||
Severance |
| 4,918 | | (1,149 | ) | 20 | 3,789 | |||||||||||||||||
Other |
| 30 | | (30 | ) | | | |||||||||||||||||
Total Corporate |
| 4,948 | | (1,179 | ) | 20 | 3,789 | |||||||||||||||||
Total |
$ | 4,950 | $ | 48,066 | $ | (2,688 | ) | $ | (20,832 | ) | $ | (717 | ) | $ | 28,779 | |||||||||
Asset impairment | ||
See discussion on our 2009 AMSG goodwill and indefinite-lived trademark impairment charges in Note 16 under the caption Goodwill and Other Intangible Assets. | ||
8. | STOCK-BASED COMPENSATION | |
Stock options are granted to eligible employees at fair market value on the date of grant. Stock options are exercisable under specific conditions for up to 10 years from the date of grant. On October 21, 2008, at its Annual Meeting of Shareowners, the Companys shareowners approved the Amended and Restated Kennametal Stock and Incentive Plan of 2002 (the 2002 Plan). The 2002 Plan was amended primarily to (i) increase the aggregate number of shares of the Companys Common Stock available for issuance under the 2002 Plan from 7,500,000 to 9,000,000, (ii) place a limit on the number of full share awards that may be made under the 2002 Plan, and (iii) provide that shares delivered to or withheld by the Company to pay withholding taxes under the 2002 Plan or any of the Companys prior stock plans and shares not issued upon the net settlement or net exercise of SARs, in each case, will no longer be available for future grants under the 2002 Plan. In addition to stock option grants, the 2002 Plan permits the award of restricted stock and restricted stock units to directors, officers and key employees. |
9
Under the provisions of the 2002 Plan, participants may deliver our stock, owned by the holder for at least six months, in payment of the option price and receive credit for the fair market value of the shares on the date of delivery. The fair value of shares delivered during the nine months ended March 31, 2009 and 2008 was $0.7 million and $1.0 million, respectively. | ||
Options | ||
The assumptions used in our Black-Scholes valuation related to stock option grants made during the nine months ended March 31, 2009 and 2008 were as follows: |
2009 | 2008 | |||||||
Risk-free interest rate |
3.0 | % | 4.5 | % | ||||
Expected life (years) (1) |
4.5 | 4.5 | ||||||
Expected volatility (2) |
27.7 | % | 23.6 | % | ||||
Expected dividend yield |
1.3 | % | 1.4 | % | ||||
1) | Expected life is derived from historical experience. | |
2) | Expected volatility is based on the historical volatility of our capital stock. |
Changes in our stock options for the nine months ended March 31, 2009 were as follows: |
Weighted | ||||||||||||||||
Weighted | Average | Aggregate | ||||||||||||||
Average Exercise | Remaining | Intrinsic value | ||||||||||||||
Options | Price | Life (years) | (in thousands) | |||||||||||||
Options outstanding, June 30, 2008 |
3,148,214 | $ | 24.87 | |||||||||||||
Granted |
798,510 | 29.16 | ||||||||||||||
Exercised |
(167,114 | ) | 14.20 | |||||||||||||
Lapsed and forfeited |
(277,479 | ) | 29.90 | |||||||||||||
Options outstanding, March 31, 2009 |
3,502,131 | $ | 25.96 | 6.3 | $ | 823 | ||||||||||
Options vested and expected to vest,
March 31, 2009 |
3,419,630 | $ | 25.87 | 6.2 | $ | 823 | ||||||||||
Options exercisable, March 31, 2009 |
2,028,308 | $ | 22.49 | 4.9 | $ | 823 | ||||||||||
Stock option expense for the nine months ended March 31, 2009 and 2008 was $3.3 million and $2.8 million, respectively. | ||
The weighted average fair value per option granted during the nine months ended March 31, 2009
and 2008 was $7.15 and $9.38, respectively. The fair value of options vested during the nine months ended March 31, 2009 and 2008 was $3.5 million and $3.9 million, respectively. |
||
The amount of cash received from the exercise of stock options during the nine months ended March 31, 2009 and 2008 was $1.7 million and $8.7 million, respectively. The related tax benefit for the nine months ended March 31, 2009 and 2008 was $1.0 million and $2.2 million, respectively. The total intrinsic value of options exercised during the nine months ended March 31, 2009 and 2008 was $2.9 million and $6.7 million, respectively. As of March 31, 2009, the total unrecognized compensation cost related to options outstanding was $5.7 million and is expected to be recognized over a weighted average period of 2.5 years. | ||
Restricted Stock | ||
Changes in our restricted stock for the nine months ended March 31, 2009 were as follows: |
Weighted | ||||||||
Average Fair | ||||||||
Shares | Value | |||||||
Unvested restricted stock, June 30, 2008 |
486,591 | $ | 31.55 | |||||
Granted |
175,302 | 29.25 | ||||||
Vested |
(132,962 | ) | 29.33 | |||||
Lapsed and forfeited |
(97,450 | ) | 28.74 | |||||
Unvested restricted stock, March 31, 2009 |
431,481 | $ | 31.94 | |||||
10
During the nine months ended March 31, 2009 and 2008, compensation expense related to restricted stock awards was $3.5 million and $3.6 million, respectively. As of March 31, 2009, the total unrecognized compensation cost related to unvested restricted stock was $7.2 million and is expected to be recognized over a weighted average period of 2.3 years. | ||
Restricted Stock Units | ||
The assumptions used in our valuation of the cumulative adjusted earnings per share (EPS) performance-based portion of restricted stock units granted during the nine months ended March 31, 2009 and 2008 were as follows: |
2009 | 2008 | |||||||
Expected quarterly dividend per share |
$ | 0.12 | $ | 0.12 | ||||
Risk-free interest rate |
2.3 | % | 3.3 | % | ||||
As of March 31, 2009, we assumed that none of the EPS performance-based restricted stock units will vest. | ||
Changes in the EPS performance-based portion of restricted stock units for the nine months ended March 31, 2009 were as follows: |
Weighted | ||||||||
Stock | Average Fair | |||||||
Units | Value | |||||||
Unvested EPS performance-based restricted stock units, June 30, 2008 |
531,435 | $ | 37.45 | |||||
Granted |
95,492 | 23.21 | ||||||
Forfeited |
(58,127 | ) | (37.45 | ) | ||||
Unvested EPS performance-based restricted stock units, March 31, 2009 |
568,800 | $ | 35.06 | |||||
The assumptions used in our lattice model valuation for the total shareholder return (TSR) performance-based portion of restricted stock units granted during the nine months ended March 31, 2009 and 2008 were as follows. |
2009 | 2008 | |||||||
Expected volatility |
34.1 | % | 24.1 | % | ||||
Expected dividend yield |
2.0 | % | 1.2 | % | ||||
Risk-free interest rate |
2.3 | % | 3.3 | % | ||||
Changes in the Companys TSR performance-based restricted stock units for the nine months ended March 31, 2009 were as follows: |
Weighted | ||||||||
Stock | Average Fair | |||||||
Units | Value | |||||||
Unvested TSR performance-based restricted stock units, June 30, 2008 |
286,149 | $ | 9.20 | |||||
Granted |
51,418 | 2.08 | ||||||
Forfeited |
(31,297 | ) | (9.20 | ) | ||||
Unvested TSR performance-based restricted stock units, March 31, 2009 |
306,270 | $ | 8.01 | |||||
Based on a change in the probability of achieving the performance criteria related to the vesting of the EPS performance based portion of the restricted stock units, we reversed previously recognized compensation expense related to these units. The net credit recognized as compensation expense related to restricted stock units was $0.7 million for the nine months ended March 31, 2009. For the nine months ended March 31, 2008, compensation expense related to restricted stock units was $1.0 million. As of March 31, 2009, the total unrecognized compensation cost related to unvested stock units was $1.3 million and is expected to be recognized over a weighted average period of 2.5 years. | ||
9. | BENEFIT PLANS | |
We sponsor several defined benefit pension plans. Additionally, we provide varying levels of postretirement health care and life insurance benefits to most U.S. employees. |
11
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(in thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Service cost |
$ | 1,912 | $ | 2,520 | $ | 5,800 | $ | 7,530 | ||||||||
Interest cost |
10,191 | 10,057 | 31,044 | 29,991 | ||||||||||||
Expected return on plan assets |
(11,519 | ) | (12,279 | ) | (34,996 | ) | (36,906 | ) | ||||||||
Amortization of transition obligation |
13 | 41 | 44 | 124 | ||||||||||||
Amortization of prior service credit |
(54 | ) | (10 | ) | (160 | ) | (31 | ) | ||||||||
Recognition of actuarial losses |
467 | 566 | 1,425 | 1,693 | ||||||||||||
Net periodic pension cost |
$ | 1,010 | $ | 895 | $ | 3,157 | $ | 2,401 | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(in thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Service cost |
$ | 89 | $ | 134 | $ | 267 | $ | 400 | ||||||||
Interest (benefit) cost |
(233 | ) | 434 | 604 | 1,301 | |||||||||||
Amortization of prior service cost |
12 | 11 | 36 | 35 | ||||||||||||
Recognition of actuarial gains |
(21 | ) | (131 | ) | (63 | ) | (394 | ) | ||||||||
Curtailment gain |
(3,169 | ) | | (3,169 | ) | | ||||||||||
Net periodic other postretirement
(benefit) cost |
$ | (3,322 | ) | $ | 448 | $ | (2,325 | ) | $ | 1,342 | ||||||
During the three and nine months ended March 31, 2009, the Company recognized a curtailment gain of $3.2 million resulting from a plant closure of which $1.9 million was recognized in cost of goods sold and $1.3 million was recognized in operating expense. | ||
10. | INVENTORIES | |
We used the last-in, first-out (LIFO) method of valuing inventories for approximately 53 percent and 48 percent of total inventories at March 31, 2009 and June 30, 2008, respectively. Because inventory valuations under the LIFO method are based on an annual determination of quantities and costs as of June 30 of each year, the interim LIFO valuations are based on our projections of expected year-end inventory levels and costs. Therefore, the interim financial results are subject to any final year-end LIFO inventory adjustments. | ||
Inventories consisted of the following: |
March 31, | June 30, | |||||||
(in thousands) | 2009 | 2008 | ||||||
Finished goods |
$ | 267,883 | $ | 288,188 | ||||
Work in process and powder blends |
160,469 | 176,680 | ||||||
Raw materials and supplies |
84,542 | 75,999 | ||||||
Inventories at current cost |
512,894 | 540,867 | ||||||
Less: LIFO valuation |
(86,439 | ) | (80,067 | ) | ||||
Total inventories |
$ | 426,455 | $ | 460,800 | ||||
12
11. | LONG TERM DEBT AND CAPITAL LEASES | |
Long term debt and capital lease obligations consist primarily of Senior Unsecured Notes issued in June 2002 having an aggregate face amount of $300.0 million as well as borrowings under a five-year, multi currency, revolving credit facility entered into in March 2006 (2006 Credit Agreement) which permits revolving credit loans of up to $500.0 million. The 2006 Credit Agreement requires us to comply with various restrictive and affirmative covenants, including two financial covenants: a maximum leverage ratio and a minimum consolidated interest coverage ratio (as those terms are defined in the agreement). | ||
We were in compliance with these financial covenants as of March 31, 2009. Based on our current projections, we expect to be in compliance with these covenants at June 30, 2009. However, given the severe downturn in global markets and the uncertainty related thereto, we cannot assure that we will be able to maintain compliance with these financial covenants through fiscal year 2010. We will continue to closely monitor our results of operations and financial performance as well as other pertinent factors for any potential impact on our ability to comply with the covenants. Management believes that it can avoid noncompliance with these financial covenants through fiscal year 2010 by taking a combination of actions including improving cash flows, reducing outstanding indebtedness, amending or replacing the 2006 Credit Agreement or obtaining waivers or forbearances from our lenders, but there can be no assurances in this regard. | ||
12. | ENVIRONMENTAL MATTERS | |
We are subject to various U.S. Federal, state and international environmental laws and regulatory requirements and are involved from time to time in investigations or proceedings of various potential environmental issues concerning activities at our facilities or former facilities or remediation efforts as a result of past activities (including past activities of companies we have acquired). From time to time, we receive notices from the U.S. Environmental Protection Agency or equivalent state or international environmental agencies that we are a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as the Superfund Act) and/or equivalent laws. These notices assert potential liability for cleanup costs at various sites, which include sites owned by us, sites we previously owned and treatment or disposal sites not owned by us. | ||
Superfund Sites We are involved as a PRP at several Superfund sites, and have responded to notices for other Superfund sites as to which our records disclose no involvement or for which predecessors of certain of our acquired companies have acknowledged responsibility. We have established reserves that we believe to be adequate to cover our share of the potential costs of remediation at certain of the Superfund sites; at March 31, 2009, the total of these accruals was $0.2 million. For the remaining Superfund sites, proceedings in those matters have not yet progressed to a stage where it is possible to estimate the ultimate cost of remediation, the timing and extent of remedial action that may be required by governmental authorities or the amount of our liability alone or in relation to that of any other PRPs. | ||
Other Environmental Issues We also maintain reserves for other potential environmental issues. At March 31, 2009, the total of these accruals was $5.0 million and represents anticipated costs associated with the remediation of these issues. We recorded favorable foreign currency translation adjustments of $1.0 million during the nine months ended March 31, 2009 related to these reserves. | ||
13. | INCOME TAXES | |
The effective income tax rate for the three months ended March 31, 2009 and 2008 was 9.6 percent and 41.0 percent, respectively. The decrease in the rate from the prior year was primarily the result of the impact of a goodwill impairment charge recorded in the current year as well as a goodwill impairment charge recorded in the prior year. The impact of these items was partially offset by differing rates and effects related to international operations. | ||
The effective income tax rate for the nine months ended March 31, 2009 and 2008 was 1.7 percent and 30.6 percent, respectively. The decrease in the rate from the prior year was primarily the result of the goodwill impairment charge recorded in the current year, as well as a goodwill impairment charge and a non-cash income tax charge related to a German tax reform bill that were recorded in the prior year. The impact of these items was partially offset by the release of a valuation allowance in Europe in the first quarter of the current year, a benefit from the completion of a routine income tax examination for certain prior fiscal years that was recorded in the second quarter of the current year, and differing rates and effects related to international operations. | ||
14. | EARNINGS PER SHARE | |
Basic earnings per share is computed using the weighted average number of shares outstanding during the period, while diluted earnings per share is calculated to reflect the potential dilution that occurs related to the issuance of capital stock under stock option grants, restricted stock awards and restricted stock unit grants. The difference between basic and diluted earnings per share relates solely to the effect of capital stock options and restricted stock awards. |
13
For the three and nine months ended March 31, 2009, the effect of unexercised capital stock options and restricted stock awards was anti-dilutive and therefore has been excluded from diluted shares outstanding as well as from the diluted earnings per share calculation. For purposes of determining the number of diluted shares outstanding for the three and nine months ended March 31, 2008, weighted average shares outstanding for basic earnings per share calculations were increased due solely to the dilutive effect of unexercised capital stock options and restricted stock awards by 1.0 million shares and 1.4 million shares, respectively. | ||
15. | COMPREHENSIVE (LOSS) INCOME | |
Comprehensive (loss) income is as follows: |
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(in thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Net (loss) income |
$ | (137,874 | ) | $ | 23,170 | $ | (86,748 | ) | $ | 108,195 | ||||||
Unrealized gain (loss) on derivatives designated and
qualified as cash flow hedges, net of income tax |
(1,404 | ) | 787 | (273 | ) | 1,168 | ||||||||||
Reclassification of unrealized gain (loss) on expired
derivatives designated and qualified as cash flow
hedges, net of income tax |
534 | (345 | ) | 5,400 | (2,443 | ) | ||||||||||
Unrecognized net pension and other postretirement
benefit
gains (losses), net of income tax |
84 | (369 | ) | 4,648 | (923 | ) | ||||||||||
Reclassification of net pension and other postretirement
benefit losses, net of income tax |
630 | 324 | 1,529 | 989 | ||||||||||||
Foreign currency translation adjustments, net of income
tax |
(36,284 | ) | 44,738 | (177,699 | ) | 102,936 | ||||||||||
Comprehensive (loss) income |
$ | (174,314 | ) | $ | 68,305 | $ | (253,143 | ) | $ | 209,922 | ||||||
16. | GOODWILL AND OTHER INTANGIBLE ASSETS | |
Goodwill represents the excess of cost over the fair value of the net assets of acquired companies. Goodwill and intangible assets with indefinite lives are tested at least annually for impairment. We perform our annual impairment tests during the June quarter in connection with our annual planning process. We also perform specific impairment tests on an interim basis if we deem that a triggering event indicating impairment of the goodwill for a reporting unit or an indefinite-lived intangible asset may have occurred. We evaluate the recoverability of goodwill for each of our reporting units by comparing the fair value of each reporting unit with its carrying value. The fair values of our reporting units are determined using a combination of a discounted cash flow analysis and market multiples based upon historical and projected financial information. We apply our best judgment when assessing the reasonableness of the financial projections used to determine the fair value of each reporting unit. We evaluate the recoverability of indefinite-lived intangible assets using a discounted cash flow analysis based on projected financial information. This evaluation is sensitive to changes in market interest rates and other external factors. | ||
In view of the severe downturn in global markets during the March quarter, we made an assessment of the possible impairment of the goodwill and other long-lived assets of our various reporting units. As a result of this assessment, we determined that the magnitude and duration of the economic downturn, as well as other factors, served as a triggering event for an impairment test of our surface finishing machines and services business as well as our engineered products business. These businesses are both part of our AMSG segment. As a result of our test, we recorded a non-cash pre-tax impairment charge of $111.0 million. The pre-tax impairment charge related to our surface finishing machines and services business was $48.1 million of which $37.3 million was for goodwill and $10.8 million was for the indefinite-lived trademark. No goodwill remains on the books for our surface finishing machines and services business and the remaining balance for the trademark was $5.0 million as of March 31, 2009. The pre-tax impairment charge for the engineered products business was $62.9 million, all of which was for goodwill. As of March 31, 2009, the remaining balance of goodwill for the engineered products business was $39.6 million. | ||
The further acceleration or extended persistence of the current downturn in global economic conditions could have a further negative impact on our business and financial performance. Going forward, this could require additional non-cash impairment charges related to our goodwill and intangible assets. |
14
(in thousands) | June 30, 2008 | Acquisitions | Impairment | Adjustments | Translation | March 31, 2009 | ||||||||||||||||||
MSSG |
$ | 282,187 | $ | | $ | | $ | 248 | $ | (23,470 | ) | $ | 258,965 | |||||||||||
AMSG |
326,332 | 21,461 | (100,168 | ) | | (9,754 | ) | 237,871 | ||||||||||||||||
Total |
$ | 608,519 | $ | 21,461 | $ | (100,168 | ) | $ | 248 | $ | (33,224 | ) | $ | 496,836 | ||||||||||
Estimated | March 31, 2009 | June 30, 2008 | ||||||||||||||||||
Useful Life | Gross Carrying | Accumulated | Gross Carrying | Accumulated | ||||||||||||||||
(in thousands) | (in years) | Amount | Amortization | Amount | Amortization | |||||||||||||||
Contract-based |
4 to 15 | $ | 6,331 | $ | (4,740 | ) | $ | 6,237 | $ | (4,469 | ) | |||||||||
Technology-based and
other |
4 to 15 | 38,210 | (17,543 | ) | 41,461 | (16,850 | ) | |||||||||||||
Customer-related |
5 to 20 | 109,693 | (20,524 | ) | 109,387 | (16,233 | ) | |||||||||||||
Unpatented technology |
30 | 19,371 | (3,519 | ) | 19,725 | (2,955 | ) | |||||||||||||
Trademarks |
5 to 10 | 9,701 | (2,312 | ) | 5,788 | (1,503 | ) | |||||||||||||
Trademarks |
Indefinite | 38,623 | | 53,615 | | |||||||||||||||
Total |
$ | 221,929 | $ | (48,638 | ) | $ | 236,213 | $ | (42,010 | ) | ||||||||||
15
17. | SEGMENT DATA | |
We operate two reportable operating segments consisting of MSSG and AMSG, and Corporate. We do not allocate certain corporate shared service costs, certain employee benefit costs, certain employment costs, such as performance-based bonuses and stock-based compensation expense, interest expense, other expense, income taxes or minority interest to our operating segments. | ||
Our external sales, intersegment sales and operating (loss) income by segment are as follows: |
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(in thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
External sales: |
||||||||||||||||
MSSG |
$ | 262,454 | $ | 459,407 | $ | 1,038,370 | $ | 1,301,837 | ||||||||
AMSG |
178,857 | 230,262 | 640,890 | 650,331 | ||||||||||||
Total external sales |
$ | 441,311 | $ | 689,669 | $ | 1,679,260 | $ | 1,952,168 | ||||||||
Intersegment sales: |
||||||||||||||||
MSSG |
$ | 25,263 | $ | 44,273 | $ | 112,306 | $ | 126,590 | ||||||||
AMSG |
3,025 | 9,396 | 14,640 | 29,944 | ||||||||||||
Total intersegment sales |
$ | 28,288 | $ | 53,669 | $ | 126,946 | $ | 156,534 | ||||||||
Total sales: |
||||||||||||||||
MSSG |
$ | 287,717 | $ | 503,680 | $ | 1,150,676 | $ | 1,428,427 | ||||||||
AMSG |
181,882 | 239,658 | 655,530 | 680,275 | ||||||||||||
Total sales |
$ | 469,599 | $ | 743,338 | $ | 1,806,206 | $ | 2,108,702 | ||||||||
Operating (loss) income: |
||||||||||||||||
MSSG |
$ | (39,943 | ) | $ | 75,679 | $ | 11,196 | $ | 193,017 | |||||||
AMSG |
(102,502 | ) | (6,110 | ) | (53,072 | ) | 51,067 | |||||||||
Corporate |
(8,499 | ) | (20,651 | ) | (32,299 | ) | (61,661 | ) | ||||||||
Total operating (loss) income |
$ | (150,944 | ) | $ | 48,918 | $ | (74,175 | ) | $ | 182,423 | ||||||
16
17
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
18
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
19
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(in thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
External sales |
$ | 262,454 | $ | 459,407 | $ | 1,038,370 | $ | 1,301,837 | ||||||||
Intersegment sales |
25,263 | 44,273 | 112,306 | 126,590 | ||||||||||||
Operating (loss) income |
(39,943 | ) | 75,679 | 11,196 | 193,017 | |||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(in thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
External sales |
$ | 178,857 | $ | 230,262 | $ | 640,890 | $ | 650,331 | ||||||||
Intersegment sales |
3,025 | 9,396 | 14,640 | 29,944 | ||||||||||||
Operating (loss) income |
(102,502 | ) | (6,110 | ) | (53,072 | ) | 51,067 | |||||||||
20
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(in thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Operating loss |
$ | (8,499 | ) | $ | (20,651 | ) | $ | (32,299 | ) | $ | (61,661 | ) | ||||
21
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
22
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
23
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
24
25
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Total Number of | Maximum Number of | |||||||||||||||
Shares Purchased as | Shares that May | |||||||||||||||
Total Number | Part of Publicly | Yet Be Purchased | ||||||||||||||
of Shares | Average Price | Announced Plans | Under the Plans or | |||||||||||||
Period | Purchased(1) | Paid per Share | or Programs | Programs | ||||||||||||
January 1 through January 31, 2009 |
1,042 | 22.83 | | | ||||||||||||
February 1 through February 28, 2009 |
6,659 | 17.82 | | | ||||||||||||
March 1 through March 31, 2009 |
5,558 | 16.42 | | | ||||||||||||
Total |
13,259 | 17.63 | | | ||||||||||||
` |
(1) | During the three months ended March 31, 2009, employees delivered 2,376 shares of restricted stock to Kennametal, upon vesting, to satisfy tax-withholding requirements and 4,224 shares of Kennametal stock as payment for the exercise price of stock options. Also during the three months ended March 31, 2009, 6,659 shares were purchased on the open market on behalf of Kennametal to fund the Companys dividend reinvestment program. |
(31)
|
Rule 13a-14a/15d-14(a) Certifications | |||
(31.1)
|
Certification executed by Carlos M. Cardoso, Chairman, President and Chief Executive Officer of Kennametal Inc. | Filed herewith. | ||
(31.2)
|
Certification executed by Frank P. Simpkins, Vice President and Chief Financial Officer of Kennametal Inc. | Filed herewith. | ||
(32)
|
Section 1350 Certifications | |||
(32.1)
|
Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Carlos M. Cardoso, Chairman, President and Chief Executive Officer of Kennametal Inc., and Frank P. Simpkins, Vice President and Chief Financial Officer of Kennametal Inc. | Filed herewith. |
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KENNAMETAL INC. |
||||
Date: May 6, 2009 | By: | /s/ Wayne D. Moser | ||
Wayne D. Moser | ||||
Vice President Finance and Corporate Controller | ||||
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