Kennametal Inc 10-Q for FY2020 Q2

Kennametal Inc (KMT)

10-Q 2020-02-04 For: 2019-12-31

Added on April 07, 2026

About this 10-Q

Kennametal Inc filed this 10-Q on February 4, 2020, covering the quarter ended December 31, 2019 (FY2020 Q2).

Headline figures

Quarter ended December 31, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $505.08M; down 14.0% from $587.39M a year earlier
Net loss: $5.94M; compared with net income of $54.7M a year earlier
Diluted EPS: -$0.07; compared with $0.66 a year earlier

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Pennsylvania		25-0900168
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

525 William Penn Place
Suite 3300
Pittsburgh,	Pennsylvania	15219
(Address of principal executive offices)		(Zip Code)



600 Grant Street	Suite 5100	Pittsburgh,	Pennsylvania	15219-2706
(Former name, former address and former fiscal year, if changed since last report)



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐



Title of each class	Trading Symbol	Name of each exchange on which registered
Capital Stock, par value $1.25 per share	KMT	New York Stock Exchange
Preferred Stock Purchase Rights		New York Stock Exchange



Item No.		Page No.

PART I - FINANCIAL INFORMATION

1.	Financial Statements

	Condensed Consolidated Statements of Income (Unaudited) Three and six months ended December 31, 2019 and 2018	4

	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and six months ended December 31, 2019 and 2018	4

	Condensed Consolidated Balance Sheets (Unaudited) December 31, 2019 and June 30, 2019	5

	Condensed Consolidated Statements of Cash Flow (Unaudited) Six months ended December 31, 2019 and 2018	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

3.	Quantitative and Qualitative Disclosures About Market Risk	38

4.	Controls and Procedures	39

PART II - OTHER INFORMATION
1.	Legal Proceedings	40

2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

6.	Exhibits	41

Signatures		42



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Three Months Ended December 31,						Six Months Ended December 31,
(in thousands, except per share amounts)	2019			2018			2019			2018
Sales	$	505,080		$	587,394		$	1,023,168		$	1,174,080
Cost of goods sold	373,062			388,796			752,170			764,389
Gross profit	132,018			198,598			270,998			409,691
Operating expense	107,548			114,635			221,739			237,920
Restructuring and asset impairment charges (Notes 7 and 18)	62,329			1,545			66,995			2,620
Loss on divestiture (Note 4)	6,517			—			6,517			—
Amortization of intangibles	3,262			3,560			7,008			7,141
Operating (loss) income	(47,638		)	78,858			(31,261		)	162,010
Interest expense	8,055			8,104			15,936			16,201
Other income, net	(4,211		)	(4,022		)	(6,891		)	(6,782		)
(Loss) income before income taxes	(51,482		)	74,776			(40,306		)	152,591
(Benefit) provision for income taxes	(45,253		)	18,529			(41,487		)	37,921
Net (loss) income	(6,229		)	56,247			1,181			114,670
Less: Net (loss) income attributable to noncontrolling interests	(290		)	1,549			653			3,274
Net (loss) income attributable to Kennametal	$	(5,939	)	$	54,698		$	528		$	111,396
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS
Basic (loss) earnings per share	$	(0.07	)	$	0.66		$	0.01		$	1.35
Diluted (loss) earnings per share	$	(0.07	)	$	0.66		$	0.01		$	1.34
Dividends per share	$	0.20		$	0.20		$	0.40		$	0.40
Basic weighted average shares outstanding	83,075			82,331			82,979			82,218
Diluted weighted average shares outstanding	83,075			83,310			83,618			83,233



	Three Months Ended December 31,						Six Months Ended December 31,
(in thousands)	2019			2018			2019			2018
Net (loss) income	$	(6,229	)	$	56,247		$	1,181		$	114,670
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on derivatives designated and qualified as cash flow hedges	461			170			856			(91		)
Reclassification of unrealized (gain) loss on derivatives designated and qualified as cash flow hedges	(393		)	262			(212		)	857
Unrecognized net pension and other postretirement benefit (loss) gain	(3,056		)	871			(449		)	1,194
Reclassification of net pension and other postretirement benefit loss	1,990			1,298			3,950			2,606
Foreign currency translation adjustments	25,751			(3,400		)	(9,674		)	(19,605		)
Total other comprehensive income (loss), net of tax	24,753			(799		)	(5,529		)	(15,039		)
Total comprehensive income (loss)	18,524			55,448			(4,348		)	99,631
Less: comprehensive income (loss) attributable to noncontrolling interests	247			2,049			(201		)	2,542
Comprehensive income (loss) attributable to Kennametal Shareholders	$	18,277		$	53,399		$	(4,147	)	$	97,089



(in thousands, except per share data)	December 31, 2019			June 30, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	105,210		$	182,015
Accounts receivable, less allowance for doubtful accounts of $10,693 and $10,083, respectively	310,379			379,855
Inventories (Note 10)	522,499			571,576
Other current assets	97,824			57,381
Total current assets	1,035,912			1,190,827
Property, plant and equipment:
Land and buildings	350,138			351,142
Machinery and equipment	1,886,074			1,804,871
Less accumulated depreciation	(1,227,574		)	(1,221,118		)
Property, plant and equipment, net	1,008,638			934,895
Other assets:
Goodwill (Note 18)	285,826			300,011
Other intangible assets, less accumulated amortization of $130,964 and $158,507, respectively (Note 18)	141,398			160,998
Operating lease right-of-use assets (Note 11)	50,153			—
Deferred income taxes	33,386			20,507
Other	67,720			49,031
Total other assets	578,483			530,547
Total assets	$	2,623,033		$	2,656,269
LIABILITIES
Current liabilities:
Notes payable to banks	2,102			157
Current operating lease liabilities (Note 11)	13,993			—
Accounts payable	173,160			212,908
Accrued income taxes	8,859			29,223
Accrued expenses	45,135			76,616
Other current liabilities	165,861			142,822
Total current liabilities	409,110			461,726
Long-term debt, less current maturities (Note 12)	593,223			592,474
Operating lease liabilities (Note 11)	36,415			—
Deferred income taxes	23,283			23,322
Accrued pension and postretirement benefits	170,918			174,003
Accrued income taxes	9,146			9,038
Other liabilities	33,911			21,002
Total liabilities	1,276,006			1,281,565
Commitments and contingencies
EQUITY (Note 16)
Kennametal Shareholders’ Equity:
Preferred stock, no par value; 5,000 shares authorized; none issued	—			—
Capital stock, $1.25 par value; 120,000 shares authorized; 82,894 and 82,421 shares issued, respectively	103,618			103,026
Additional paid-in capital	536,522			528,827
Retained earnings	1,044,247			1,076,862
Accumulated other comprehensive loss	(378,219		)	(373,543		)
Total Kennametal Shareholders’ Equity	1,306,168			1,335,172
Noncontrolling interests	40,859			39,532
Total equity	1,347,027			1,374,704
Total liabilities and equity	$	2,623,033		$	2,656,269



(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Derivatives ⁽¹⁾	$	—	$	211	$	—	$	211
Total assets at fair value	$	—	$	211	$	—	$	211

Liabilities:
Derivatives⁽¹⁾	$	—	$	200	$	—	$	200
Total liabilities at fair value	$	—	$	200	$	—	$	200



Instrument	Notional (EUR in thousands)⁽²⁾		Notional (USD in thousands)⁽²⁾		Maturity
Foreign currency-denominated intercompany loan payable	€	28,527	$	32,060	June 26, 2022
Foreign currency-denominated intercompany loan payable	20,028		22,508		November 22, 2021



(in thousands)	June 30, 2019		Expense		Asset Write-Down			Translation			Cash Expenditures			December 31, 2019
Industrial
Severance	$	8,863	$	47,429	$	—		$	325		$	(10,337	)	$	46,280
Facilities	—		2,298		(2,298		)	—			—			—
Other	35		4		—			—			(14		)	25
Total Industrial	$	8,898	$	49,731	$	(2,298	)	$	325		$	(10,351	)	$	46,305

Widia
Severance	$	2,306	$	329	$	—		$	(21	)	$	(221	)	$	2,393
Facilities	—		24		(24		)	—			—			—
Other	24		—		—			—			—			24
Total Widia	$	2,330	$	353	$	(24	)	$	(21	)	$	(221	)	$	2,417

Infrastructure
Severance	$	7,956	$	1,870	$	—		$	(213	)	$	(1,863	)	$	7,750
Facilities	—		758		(758		)	—			—			—
Other	28		2		—			(1		)	(4		)	25
Total Infrastructure	$	7,984	$	2,630	$	(758	)	$	(214	)	$	(1,867	)	$	7,775
Total	$	19,212	$	52,714	$	(3,080	)	$	90		$	(12,439	)	$	56,497



	Options		Weighted Average Exercise Price		Weighted Average Remaining Life (years)	Aggregate Intrinsic value (in thousands)
Options outstanding, June 30, 2019	781,673		$	33.92
Exercised	(34,525	)	26.62
Lapsed or forfeited	(42,544	)	43.30
Options outstanding, December 31, 2019	704,604		$	33.71	3.3	$	3,757
Options vested, December 31, 2019	704,604		$	33.71	3.3	$	3,757
Options exercisable, December 31, 2019	704,604		$	33.71	3.3	$	3,757



	Performance Vesting Stock Units		Performance Vesting Weighted Average Fair Value		Time Vesting Stock Units		Time Vesting Weighted Average Fair Value
Unvested, June 30, 2019	405,230		$	35.58	926,927		$	36.43
Granted	275,216		28.74		619,154		27.95
Vested	(146,377	)	27.09		(435,815	)	33.79
Performance metric adjustments, net	32,707		32.79		—		—
Forfeited	(1,440	)	39.26		(8,479	)	35.20
Unvested, December 31, 2019	565,336		$	34.28	1,101,787		$	32.72


1.	BASIS OF PRESENTATION


2.	NEW ACCOUNTING STANDARDS


3.	SUPPLEMENTAL CASH FLOW DISCLOSURES


4.	DIVESTITURE



(in thousands)	Six Months Ended December 31, 2019
Operating cash flows from operating leases	$	7,978
ROU assets obtained in exchange for new operating lease liabilities	$	5,572



Year Ended June 30, (in thousands)	December 31, 2019
Remaining six months of 2020	$	8,206
2021	13,093
2022	8,532
2023	5,602
2024	3,884
Thereafter	19,304
Total undiscounted operating lease payments	$	58,621
Less: discount to net present value	8,213
Total operating lease liabilities	$	50,408



Year Ended June 30, (in thousands)	June 30, 2019
2020	$	17,074
2021	12,212
2022	6,693
2023	4,294
2024	2,636
Thereafter	17,168
Total future minimum lease payments	$	60,077



	Three Months Ended December 31,	Six Months Ended December 31,
(in thousands)	2018	2019	2018
Weighted-average shares outstanding during period	82,331	82,979	82,218
Add: Unexercised stock options and unvested restricted stock units	979	639	1,015
Number of shares on which diluted earnings per share is calculated	83,310	83,618	83,233
Unexercised stock options with an exercise price greater than the average market price and restricted stock units not included in the computation because they were anti-dilutive	469	641	400



	Kennametal Shareholders’ Equity
(in thousands)	Capital stock			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Non- controlling interests			Total equity
Balance as of September 30, 2019	$	103,542		$	530,695		$	1,066,763		$	(402,434	)	$	39,084		$	1,337,650
Net loss	—			—			(5,939		)	—			(290		)	(6,229		)
Other comprehensive income	—			—			—			24,215			538			24,753
Dividend reinvestment	2			50			—			—			—			52
Capital stock issued under employee benefit and stock plans⁽³⁾	76			5,827			—			—			—			5,903
Purchase of capital stock	(2		)	(50		)	—			—			—			(52		)
Additions to noncontrolling interest	—			—			—			—			1,527			1,527
Cash dividends	—			—			(16,577		)				—			(16,577		)
Total equity, December 31, 2019	$	103,618		$	536,522		$	1,044,247		$	(378,219	)	$	40,859		$	1,347,027



(in thousands)	Pension and other postretirement benefits			Currency translation adjustment			Derivatives			Total
Attributable to Kennametal:
Balance, June 30, 2019	$	(222,270	)	$	(147,595	)	$	(3,678	)	$	(373,543	)
Other comprehensive (loss) income before reclassifications	(449		)	(8,821		)	856			(8,414		)
Amounts reclassified from AOCL	3,950			—			(212		)	3,738
Net current period other comprehensive income (loss)	3,501			(8,821		)	644			(4,676		)
AOCL, December 31, 2019	$	(218,769	)	$	(156,416	)	$	(3,034	)	$	(378,219	)

Attributable to noncontrolling interests:
Balance, June 30, 2019	$	—		$	(3,450	)	$	—		$	(3,450	)
Other comprehensive loss before reclassifications	—			(853		)	—			(853		)
Net current period other comprehensive loss	—			(853		)	—			(853		)
AOCL, December 31, 2019	$	—		$	(4,303	)	$	—		$	(4,303	)



	Estimated Useful Life (in years)	December 31, 2019					June 30, 2019
(in thousands)	Estimated Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization				Gross Carrying Amount		Accumulated Amortization
Contract-based	3 to 15	—		—				7,062		(7,062		)
Technology-based and other	4 to 20	32,684		(22,139		)		46,228		(31,890		)
Customer-related	10 to 21	181,962		(83,923		)		205,213		(94,711		)
Unpatented technology	10 to 30	31,649		(16,696		)		31,702		(15,492		)
Trademarks	5 to 20	13,074		(8,206		)		14,755		(9,352		)
Trademarks	Indefinite	12,993		—				14,545		—
Total		$	272,362	$	(130,964	)		$	319,505	$	(158,507	)



	Three Months Ended
	December 31, 2019				December 31, 2018
(in thousands)	Industrial	Widia	Infrastructure	Total Kennametal	Industrial	Widia	Infrastructure	Total Kennametal
Americas	41%	47%	61%	48%	40%	45%	66%	50%
EMEA	38	26	17	30	41	26	15	30
Asia Pacific	21	27	22	22	19	29	19	20



	Six Months Ended
	December 31, 2019				December 31, 2018
(in thousands)	Industrial	Widia	Infrastructure	Total Kennametal	Industrial	Widia	Infrastructure	Total Kennametal
Americas	41%	48%	62%	49%	40%	45%	66%	50%
EMEA	38	26	18	30	40	25	15	29
Asia Pacific	21	26	20	21	20	30	19	21



	Three Months Ended December 31, 2019
(in thousands)	Industrial	Widia	Infrastructure	Total Kennametal
General engineering	45%	100%	34%	46%
Transportation	32	—	—	18
Aerospace	14	—	—	8
Energy	9	—	29	15
Earthworks	—	—	37	13



	Three Months Ended December 31, 2018
(in thousands)	Industrial	Widia	Infrastructure	Total Kennametal
General engineering	44%	100%	32%	44%
Transportation	34	—	—	18
Aerospace	13	—	—	7
Energy	9	—	36	19
Earthworks	—	—	32	12



	Six Months Ended December 31, 2018
(in thousands)	Industrial	Widia	Infrastructure	Total Kennametal
General engineering	44%	100%	32%	44%
Transportation	34	—	—	19
Aerospace	13	—	—	7
Energy	9	—	35	18
Earthworks	—	—	33	12



	Three Months Ended December 31, 2019		Six Months Ended December 31, 2019
(in percentages)	As Reported	Constant Currency	As Reported	Constant Currency
End market sales decline:
Energy	(28)%	(27)%	(24)%	(23)%
Transportation	(14)	(13)	(17)	(15)
General engineering	(12)	(9)	(11)	(8)
Aerospace	(7)	(6)	(5)	(3)
Earthworks	(4)	(3)	(4)	(2)
Regional sales decline:
Americas	(17)%	(15)%	(14)%	(13)%
Europe, the Middle East and Africa (EMEA)	(14)	(11)	(12)	(9)
Asia Pacific	(7)	(6)	(12)	(11)



	Three Months Ended December 31,						Six Months Ended December 31,
(in thousands, except operating margin)	2019			2018			2019			2018
Sales	$	279,242		$	317,320		$	559,270		$	637,878
Operating (loss) income	(19,259		)	57,519			2,012			116,061
Operating margin	(6.9		)%	18.1		%	0.4		%	18.2		%



	Three Months Ended December 31, 2019			Six Months Ended December 31, 2019
	Americas	EMEA	Asia Pacific	Americas	EMEA	Asia Pacific
Industrial
Constant currency regional sales decline	(10)%	(14)%	(4)%	(8)%	(13)%	(10)%
Foreign currency exchange impact⁽¹⁾	—	(3)	(1)	(1)	(3)	(1)
Regional sales decline⁽⁵⁾	(10)%	(17)%	(5)%	(9)%	(16)%	(11)%

Widia
Constant currency regional sales decline	(6)%	(6)%	(17)%	(4)%	(3)%	(20)%
Foreign currency exchange impact⁽¹⁾	—	(2)	—	—	(2)	(1)
Regional sales decline⁽⁵⁾	(6)%	(8)%	(17)%	(4)%	(5)%	(21)%

Infrastructure
Constant currency regional sales (decline) growth	(22)%	2%	(5)%	(18)%	5%	(8)%
Foreign currency exchange impact⁽¹⁾	—	(4)	(1)	1	(4)	(2)
Divestiture impact⁽³⁾	(3)	—	—	(2)	—	—
Regional sales (decline) growth⁽⁵⁾	(25)%	(2)%	(6)%	(19)%	1%	(10)%

Total
Constant currency regional sales decline	(15)%	(11)%	(6)%	(13)%	(9)%	(11)%
Foreign currency exchange impact⁽¹⁾	—	(3)	(1)	—	(3)	(1)
Divestiture impact⁽³⁾	(2)	—	—	(1)	—	—
Regional sales decline⁽⁵⁾	(17)%	(14)%	(7)%	(14)%	(12)%	(12)%



Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs ⁽²⁾
October 1 through October 31, 2019	11,688	$	29.28	—	10,100,100
November 1 through November 30, 2019	2,710	33.84		—	10,100,100
December 1 through December 31, 2019	1,167	36.45		—	10,100,100
Total	15,565	$	30.61	—


(1)	During the current period, 1,503 shares were purchased on the open market on behalf of Kennametal to fund the Company’s dividend reinvestment program. Also, during the current period employees delivered 14,062 shares of restricted stock to Kennametal, upon vesting, to satisfy tax withholding requirements.


(2)	On July 25, 2013, the Company publicly announced an amended repurchase program for up to 17 million shares of its outstanding capital stock outside of the Company's dividend reinvestment program.



(31)	Rule 13a-14(a)/15d-14(a) Certifications
(31.1)	Certification executed by Christopher Rossi, President and Chief Executive Officer of Kennametal Inc.	Filed herewith.
(31.2)	Certification executed by Damon J. Audia, 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 Christopher Rossi, President and Chief Executive Officer of Kennametal Inc., and Damon J. Audia, Vice President and Chief Financial Officer of Kennametal Inc.	Filed herewith.
(101)	XBRL
(101.INS) ⁽³⁾	XBRL Instance Document	Filed herewith.
(101.SCH) ⁽⁴⁾	XBRL Taxonomy Extension Schema Document	Filed herewith.
(101.CAL) ⁽⁴⁾	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith.
(101.DEF) ⁽⁴⁾	XBRL Taxonomy Definition Linkbase	Filed herewith.
(101.LAB) ⁽⁴⁾	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith.
(101.PRE) ⁽⁴⁾	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith.


(3)	The instance document does not appear in the Interactive Data File because its XBRL (Extensible Business Reporting Language) tags are embedded within the Inline XBRL document.