FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______ to _______
Commission File Number 1-5318
KENNAMETAL INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0900168
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Route 981 at Westmoreland County Airport
P. O. Box 231
Latrobe, Pennsylvania 15650
(Address of principal executive offices)
Registrant's telephone number, including area code: (412) 539-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Capital Stock, par value $1.25 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of August 31, 1994, the aggregate market value of the
registrant's Capital Stock held by non-affiliates of the
registrant, estimated solely for the purposes of this Form 10-K,
was approximately $616,425,050. For purposes of the foregoing
calculation only, all directors and executive officers of the
registrant and each person who may be deemed to own beneficially
more than 5% of the registrant's Capital Stock, have been deemed
affiliates.
As of August 31, 1994, there were 26,377,648 shares of Capital
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1994 Annual Report to Shareholders are
incorporated by reference into Parts I, II, and IV.
Portions of the Proxy Statement for the 1994 Annual Meeting of
Shareholders are incorporated by reference into Parts III and IV.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Item No.
- - - --------
<S> <C>
PART I
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
Officers of the Registrant
PART II
5. Market for the Registrant's Capital Stock and Related Stockholder
Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements on Accounting and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
Overview
- - - --------
Kennametal Inc. was incorporated in Pennsylvania in 1943.
Kennametal Inc. and subsidiaries ("Kennametal" or the "company")
manufacture, purchase and distribute a broad range of tools,
tooling systems, supplies and services for the metalworking,
mining and highway construction industries. Kennametal
specializes in developing and manufacturing metalcutting tools
and wear-resistant parts using a specialized type of powder
metallurgy. Kennametal's metalcutting tools are made of cemented
carbides, ceramics, cermets and other hard materials. The
company manufactures a complete line of toolholders and
toolholding systems by machining and fabricating steel bars and
other metal alloys. Kennametal's mining and construction cutting
tools are tipped with cemented carbide and are used for
underground coal mining and highway construction, repair and
maintenance. Metallurgical products consist of powders made from
ore concentrates, compounds and secondary materials.
Business Segment and Product Classes
- - - ------------------------------------
The company operates predominantly as a tooling supplier
specializing in powder metallurgy, which represents a single
business segment. While many of the company's products are
similar in composition, sales are classified into three major
categories: metalworking products, mining and construction
products and metallurgical products. The company's sales by
product class are presented on page 17 of the 1994 Annual Report
to Shareholders and such information is incorporated herein by
reference. Information about the company's operations by
geographic area is presented on page 31 of the 1994 Annual Report
to Shareholders and such information is incorporated herein by
reference.
Metalworking Products
- - - ---------------------
Kennametal manufactures, markets and distributes a full-line of
products and services for the metalworking industry. The company
provides metalcutting tools, abrasives, precision measuring
devices, power tools, hand tools and machine tool accessories to
manufacturing companies in a wide range of industries.
A Kennametal tooling system usually consists of a steel
toolholder and an indexable cutting tool called an insert.
During a metalworking operation, the toolholder is positioned in
a machine tool which provides the turning power. While the
workpiece or toolholder is rapidly rotating, the cutting tool
insert contacts the workpiece and cuts or shapes the workpiece.
The cutting tool insert is consumed during use and must be
replaced periodically. Metalcutting operations include turning,
boring, threading, grooving, milling and drilling. The company
also makes wear-resistant parts for use in abrasive environments
and specialty applications.
Mining and Construction Products
- - - --------------------------------
Mining and construction cutting tools are fabricated from steel
parts and tipped with cemented carbide. Mining tools, used
primarily in the coal industry, include longwall shearer and
continuous miner drums, blocks, bits, pinning rods, augers and a
wide range of mining tool accessories. The company also supplies
compacts for mining, quarrying, water well drilling and oil and
gas exploration.
Construction cutting tools include carbide-tipped bits for
ditching, trenching and road planing; grader blades for site
preparation and routine roadbed control and snowplow blades and
shoes for winter road plowing.
Metallurgical Products
- - - ----------------------
The company makes proprietary metallurgical powders for use as a
basic material in many of its metalworking, mining and
construction products. In addition, the company produces a
variety of metallurgical powders and related materials for
specialized markets. These products include intermediate carbide
powders, hardfacing materials and matrix powders which are sold
to manufacturers of cemented carbide products, oil and gas
drilling equipment and diamond drill bits.
Recent Acquisition
- - - -------------------
In August 1993, the company acquired an 81 percent interest in
Hertel AG ("Hertel") for $43 million in cash and $55 million of
assumed debt. Hertel, based in Furth, Germany, is a manufacturer
and marketer of cemented carbide tools and tooling systems which
are similar to the metalcutting tools and tooling systems
produced by the company. The acquisition of Hertel has not
materially changed the product lines offered by the company.
While the company's primary market is the United States, however,
Hertel's primary market is Germany and Western Europe. The
acquisition of Hertel significantly increased the company's
market share in these markets. Hertel had consolidated sales of
approximately $201 million for the year ended December 31, 1992.
Non-U.S. Operations
- - - -------------------
The company's principal non-U.S. operations are conducted in
Western Europe and Canada. In addition, the company has joint
ventures in Japan, India and Italy, sales offices and sales
agents in Asia-Pacific and sales agents in eastern Europe and
other areas of the world. The company's non-U.S. operations are
subject to the usual risks of doing business in those countries,
including currency fluctuations and changes in social, political
and economic environments. In management's opinion, the
company's business is not materially dependent upon any one non-
U.S. location involving significant risk.
The company's foreign and export sales are presented on page 17
of the 1994 Annual Report to Shareholders, and such information
is incorporated herein by reference. Information pertaining to
the effects of foreign currency fluctuations is contained under
the caption "Foreign Currency Translation" in the notes to the
consolidated financial statements on page 24 of the 1994 Annual
Report to Shareholders, and such information is incorporated
herein by reference.
Marketing and Distribution
- - - --------------------------
The company's products are sold through three distinct channels:
direct sales, full-service supply and mail order catalogs. The
company's manufactured products are sold to end-users primarily
through a direct sales force. Service engineers and technicians
directly assist customers with product design, selection and
application. In addition, Kennametal-manufactured products,
together with a broad range of purchased products, are sold
through full-service supply programs and mail order catalogs.
The company also uses independent distributors and sales agents
in foreign markets and in selected manufacturing regions of the
United States.
The company's products are marketed under various trademarks and
tradenames, such as Kennametal*, the letter K combined with other
identifying letters and/or numbers, Block Style K*, Kendex*,
Kenloc*, Top Notch*, Erickson*, Kyon* and KM*. Purchased
products are sold under the manufacturer's name or a private
label.
Competition
- - - -----------
Kennametal is one of the world's leading producers of cemented
carbide tools and maintains a strong competitive position,
especially in the United States and Canada. There is active
competition in the sale of all products made by the company, with
approximately 30 companies engaged in the cemented carbide
business in the United States and many more outside the U.S.
Several competitors are divisions of larger corporations. In
addition, several hundred fabricators and toolmakers in the
United States, many of whom operate out of relatively small
shops, produce tools similar to those made by the company and buy
the cemented carbide components for such tools from cemented
carbide producers, including the company. Major domestic
competition exists from both U.S.-based and foreign-based
concerns. In addition, the company competes with thousands of
industrial supply companies in the United States.
The principal methods of competition in the company's business
are service, product innovation, technical product performance,
quality, availability and price. The company believes that its
competitive strength rests on its customer service capabilities
including its multiple distribution channels, its ability to
develop new and improved tools responsive to the needs of its
customers and the consistent high quality of its products. These
factors frequently permit the company to sell such products based
on the value added for the customer rather than strictly on
price.
Seasonality
- - - -----------
Seasonal variations do not have a major effect on the company's
business. However, to varying degrees, traditional summer
vacation shutdowns of metalworking customers' plants and holiday
shutdowns often affect the company's sales levels during the
first and second quarters of its fiscal year.
Backlog
- - - -------
The company's backlog of orders is generally not significant to
its operations. Approximately 80 percent of all orders are
filled from stock and the balance is generally filled within
short lead-times.
Research and Development
- - - ------------------------
The company is involved in research and development of new
products and processes. Research and development expenses
totaled $15.2 million, $14.7 million and $13.7 million in 1994,
1993 and 1992, respectively. Additionally, certain costs
associated with improving manufacturing processes are included in
cost of goods sold. The company holds a number of patents and
licenses which, in the aggregate, are not material to the
operation of the business.
The company has brought a number of new or improved products to
market during the past few years. These include metalcutting
inserts that incorporate innovative tool geometries for improved
chip control and productivity; improved stationary toolholders
and quick-change tooling systems including KM* tooling; KC9010*
and KC9025* multi-coated metalcutting inserts for turning
applications; and KCD25* diamond-coated metalcutting inserts.
Raw Materials and Supplies
- - - --------------------------
Major metallurgical raw materials consist of ore concentrates,
compounds and secondary materials containing tungsten, tantalum,
titanium, niobium and cobalt. Although these raw materials are
in relatively adequate supply, major sources are located abroad
and prices at times have been volatile. For these reasons, the
company exercises great care in the selection, purchase and
inventory availability of these materials. The company also
purchases substantial quantities of steel bars and forgings for
making toolholders and other tool parts and accessories.
Products purchased for resale are obtained from hundreds of
suppliers located in the U.S. and abroad.
Employees
- - - ---------
The company employed approximately 6,600 persons at June 30,
1994, of which 4,000 were located in the United States and 2,600
in other parts of the world, principally Europe and Canada.
Approximately 1,200 employees were represented by labor unions,
of which 130 were hourly-rated employees located at plants in the
Latrobe, Pennsylvania area. The remaining 1,070 employees
represented by labor unions were employed at eight plants located
outside of the United States. The company considers its labor
relations to be generally good.
Regulation
- - - ----------
Compliance with government laws and regulations pertaining to the
discharge of materials or pollutants into the environment or
otherwise relating to the protection of the environment, did not
have a material effect on the company's capital expenditures,
earnings or competitive position for the year covered by this
report, nor is such compliance expected to have a material effect
in the future.
- - - -------------------------------------
* Trademark owned by Kennametal Inc.
<PAGE>
ITEM 2. PROPERTIES
Presented below is a summary of principal plants and other
significant real property used by the company and its majority-
owned subsidiaries as of June 30, 1994. Further information
pertaining to the company's corporate headquarters and principal
plants is presented under the caption "Locations, Subsidiaries
and Affiliates" on page 38 of the company's 1994 Annual Report to
Shareholders, and such information is incorporated herein by
reference.
United States
- - - -------------
The company owns and operates nine principal manufacturing
locations within the United States, including two each in North
Carolina, Ohio and Pennsylvania, and one each in Virginia,
Tennessee and Nevada. Refining and other metallurgical
operations occur at three of these locations (Fallon, Nevada;
Latrobe (Kingston), Pennsylvania and Henderson, North Carolina).
Marketing activities are supported by a network of warehouses and
customer service centers strategically located throughout the
United States. A significant portion of this space is leased.
The majority of the company's research and development efforts
are conducted in a corporate technology center located adjacent
to corporate headquarters in Latrobe, Pennsylvania. The new
facility, completed in fiscal 1992, consolidated the research and
development activities previously performed at six locations in
the Latrobe area.
Hertel Cutting Technologies Inc. leases office facilities in
Knoxville, Tennessee.
Canada
- - - ------
The company owns and operates two manufacturing plants in British
Columbia, including a metallurgical plant in Port Coquitlam,
British Columbia. Canadian marketing activities are supported by
a network of leased warehouses and customer service centers.
Europe
- - - ------
Kennametal Hertel G.m.b.H. owns office property in
Friedrichsdorf, Germany and warehousing facilities in
Neunkirchen, Germany.
Kennametal Hertel U.K., a branch of Kennametal Inc. (U.S.),
leases a facility in Kingswinford (Birmingham), England, which is
used for manufacturing, warehousing and offices.
Kennametal Hertel Belgium S.A. leases a facility in Herstal
(Liege), Belgium, which is used for offices and warehousing.
Kennametal Hertel France S.A. leases a facility in Ris Orangis
(Paris), France, which is used for warehousing, offices and a
limited amount of manufacturing.
Kennametal Hertel AG ("Hertel") owns manufacturing facilities in
Ebermannstadt, Mistelgau and Nabburg, Germany. In addition,
Hertel leases a manufacturing facility in Vohenstrauss, Germany
and warehousing and office facilities in Furth, Germany.
Nederlandse Hardmetaal Fabrieken B.V., a wholly-owned subsidiary
of Hertel owns property in Arnhem, Netherlands which is used for
manufacturing and offices.
Other Non-U.S. Locations
- - - ------------------------
Kennametal Australia Pty. Ltd. owns property in Sydney,
Australia, which is used for offices and warehousing.
Office and warehouse facilities are leased in Korea and
Singapore.
Present Condition of Properties
- - - -------------------------------
All significant properties are used in the company's dominant
business of powder metallurgy, tools, tooling systems and
supplies. The company's production capacity is adequate for its
present needs. The company believes that its properties have
been adequately maintained, are generally in good condition and
are suitable for the company's business as presently conducted.
ITEM 3. LEGAL PROCEEDINGS
(a) On August 13, 1993, the company was served with a
Notice of Violation dated August 9, 1993, issued by the United
States Environmental Protection Agency ("EPA"). The EPA alleges
violations concerning visible emissions from the company's
Fallon, Nevada facility. On October 6, 1993, the EPA issued an
interim compliance order with respect to this matter. On April
26, 1994, the company was served with a second Notice of
Violation dated April 19, 1994, which relates to the first Notice
of Violation. The EPA alleges in the second but related notice
the violation of a regulation concerning the allowable
particulate emission rate. The company anticipates that the EPA
will impose a penalty in excess of $100,000 with respect to these
violations; however, it is management's opinion, based on its
evaluation and discussions with outside counsel, that the
ultimate resolution of this matter will not have a material
adverse effect on the results of operations or financial position
of the company.
(b) At the annual meeting of shareholders of Hertel held on
December 6, 1993, two minority shareholders of Hertel (Dr.
Bernard Appel and Christa Gotz), one of whom purported to own or
control 2,500 shares and the other of whom purported to own 5
shares, filed protests with respect to the resolution adopted by
the Hertel shareholders which authorized and approved Hertel
entering into the Domination Contract with the company which
permits the company to direct Hertel's operations. The filing of
a protest is a prerequisite to a shareholder's filing a formal
complaint which must be filed within an applicable time period.
Only Mrs. Gotz filed a formal complaint within the applicable
time period. Her complaint was filed in the District Court at
Nuremberg, Bavaria, Germany, and sought to declare null and void
the shareholder resolution by arguing that it should not have
been considered at the annual meeting because the requisite prior
notice period for presenting a resolution to approve a domination
contract (30 days) had not expired, even though Hertel had
published notice of the proposed Domination Contract more than 30
days prior to the date of the annual meeting, due to Hertel's
having also subsequently published, within 30 days prior to the
date of the annual meeting, a clarification of certain terms of
the Domination Contract relating to payment of German taxes on
future minimum dividend payments to minority shareholders. The
complaint also asserted that the tax treatment specified in the
clarifications is improper under German law which renders the
resolution void. On July 14, 1994, the Court in Nuremberg issued
its decision. The Court ruled that the tax treatment of payments
to Hertel minority shareholders was not correct and voided the
clarification regarding the tax treatment of future dividends.
However, the Court refused to void the shareholder approval of
the Domination Contract which therefore remains in effect.
Neither party appealed this decision which has become final. It
is management's opinion that the change in tax treatment will not
have a material adverse effect on the results of operations or
financial position of the company.
Under German law, the company is required to offer to minority
shareholders to purchase their shares for a reasonable
compensation and to guarantee dividends during the term of the
Domination Contract (ending June 30, 1996, subject to annual
renewals) and to pay to Hertel any net cumulative losses it
sustains during the term and has liability to Hertel creditors as
if Hertel merged with the company. Apart from the complaint
challenging the validity of the resolution approving and
authorizing the Domination Contract, minority shareholders are
contesting the reasonableness of the purchase price for minority
shares and the minimum dividend on minority shares offered by the
company in connection with the Domination Contract. It is
management's opinion that Hertel has viable defenses to the
contest of the reasonableness of the minority share purchase
price and minimum dividend and, in any event, that the ultimate
outcome of this matter will not have a material adverse effect on
the results of operations or financial position of the company.
(c) There are no other material pending legal proceedings,
other than litigation incidental to the ordinary course of
business, to which the company or any of its subsidiaries is a
party or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal year 1994, there were no
matters submitted to a vote of security holders through the
solicitation of proxies or otherwise.
<PAGE>
<TABLE>
OFFICERS OF THE REGISTRANT
<CAPTION>
Name, Age, and Position Experience During Past Five Years (2)
- - - ----------------------- -------------------------------------
<S> <C>
Robert L. McGeehan, 57 (1) President and Director since 1989. Chief
President Executive Officer since October 1, 1991.
Chief Executive Officer Vice President from 1984 to 1989. Director
Director of Metalworking Systems Division from 1988
to 1989.
David B. Arnold, 55 (1) Vice President since 1979. Director of
Vice President Kennametal International from 1983 to 1988.
Chief Technical Officer
James R. Breisinger, 44 Vice President since 1990. Named
Vice President Controller in 1994. Managing Director of
Controller Europe from 1991 to 1994. Controller from
1983 to 1991.
David T. Cofer, 49 (1) Vice President since 1986. Secretary and
Vice President General Counsel since 1982.
Secretary and General Counsel
Richard P. Gibson, 59 Assistant Treasurer since 1985. Director
Assistant Treasurer of Taxes since 1980.
Director of Taxes
Michael E. Godfrey, 61 Named Director of Financial Projects in
Director of Financial Projects 1994. Controller from 1991 to 1994.
Manager of Division Accounting from 1985
to 1991.
James W. Heaton, 62 Senior Vice President since 1990. Director
Senior Vice President Engineering for the Metalworking Systems
Director of Customer Satisfaction Division from 1978 to 1990.
Richard C. Hendricks, 55 (1) Vice President since 1982. General
Vice President Manager of the Mining and Metallurgical
Director of Corporate Business Division from 1990 to 1992 and General
Development Manager of Advanced Materials Division
from 1986 to 1990.
Timothy D. Hudson, 48 Elected Vice President in 1994. Director
Vice President of Human Resources since 1992. Corporate
Director of Human Resources Manager of Human Resources from 1978 to
1992.
H. Patrick Mahanes, Jr., 51 (1) Vice President since 1987. Director of
Vice President Metalworking Manufacturing from 1988 to
Director of Operations 1991. Director of Corporate Technology
from 1987 to 1988.
Richard V. Minns, 56 Vice President since 1990. Director of
Vice President Sales for the Metalworking Systems Division
Director of Metalworking Sales, since 1985.
North America
James E. Morrison, 43 Elected Vice President in 1994. Treasurer
Vice President since 1987.
Treasurer
Kevin G. Nowe, 42 Joined the company as Assistant General
Assistant Secretary Counsel in 1992 and was elected Assistant
Assistant General Counsel Secretary in 1993. Previously was Senior
Counsel and Corporate Secretary of Emro
Marketing Company in Enon, Ohio.
Richard J. Orwig, 53 (1) Vice President since 1987. Named Chief
Vice President Financial and Administrative Officer in
Chief Financial and Administrative 1994. Director of Administration from
Officer 1991 to 1994. Director of Human Resources
from 1989 to 1991.
Alan G. Ringler, 44 (1) Vice President since 1989. Director of
Vice President Metalworking, North America, from 1991 to
Director of Metalworking Systems 1992, Managing Director, Europe from 1990
Division to 1991 and Director of Marketing and
Customer Service for the Metalworking
Systems Division from 1989 to 1990.
Michael W. Ruprich, 38 (1) Elected Vice President and named President
Vice President, Kennametal Inc. of J&L America Inc. in 1994. General
President, J&L America Inc. Manager of J&L from 1993 to 1994. National
Sales and Marketing Manager from 1992 to
1993. General Manager-East Coast Region
from 1990 to 1992.
P. Mark Schiller, 46 Elected Vice President in 1992. Joined
Vice President the company in 1988 as Project Manager,
Director of Kennametal Distribution Logistics. Director of Materials
Services Management from 1988 to 1990. Prior to
1988, he held various systems development
and distribution positions at Fisher
Scientific Company.
<FN>
Notes:
- - - -----
(1) Executive officer of the Registrant.
(2) Each officer has been elected by the Board of Directors to serve
until removed or until a successor is elected and qualified, and
has served continuously as an officer since first elected.
</FN>
</TABLE>
PART II
The information required under Items 5 through 8 is included in
the 1994 Annual Report to Shareholders and such information is
incorporated herein by reference as indicated by the following
table.
<TABLE>
<CAPTION>
Incorporated by Reference to Captions
and Pages of the 1994 Annual Report
-------------------------------------
<S> <C>
Item 5. Market for the Registrant's Note 5 to the Consolidated Financial
Capital Stock and Related Statements, Term Debt and Capital Leases
Stockholder Matters (with respect to dividend restrictions)
on page 26.
Quarterly Financial Data (Unaudited)
on page 32.
Item 6. Selected Financial Data Eleven Year Summary (information with
respect to the years 1990 to 1994)
on pages 34 and 35.
Item 7. Management's Discussion and Management's Discussion & Analysis
Analysis of Financial Condition on pages 16 to 19.
and Results of Operations
Item 8. Financial Statements and Item 14(a)1. herein and Quarterly
Supplementary Data Financial Data (Unaudited) on page 32.
Item 9. Changes in and Disagreements Not applicable.
on Accounting and Financial
Disclosure
</TABLE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference is the information set forth in
Part I under the caption "Officers of the Registrant," and the
information set forth under the caption "Election of Directors"
in the company's definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days after June 30,
1994 (1994 Proxy Statement).
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the information set forth
under the caption "Compensation of Executive Officers" and
certain information regarding directors' fees under the caption
"Board of Directors and Board Committees" in the 1994 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the information set forth
under the caption "Ownership of Capital Stock by Directors,
Nominees and Executive Officers" with respect to the directors'
and officers' shareholdings and under the caption "Principal
Holders of Voting Securities" with respect to other beneficial
owners in the 1994 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference is certain information set forth
in the notes to the table under the caption "Election of
Directors" and under the caption "Certain Transactions" in the
1994 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K report.
1. Financial Statements
The consolidated balance sheets as of June 30, 1994 and
1993, the consolidated statements of income,
shareholders' equity, and cash flows for each of the
three years in the period ended June 30, 1994,and the
notes to consolidated financial statements, together with
the report thereon of Arthur Andersen & Co. dated
August 1, 1994, presented in the company's 1994 Annual
Report to Shareholders, are incorporated herein by
reference.
2. Financial Statement Schedules
The financial statement schedules shown below should be
read in conjunction with the financial statements
contained in the 1994 Annual Report to Shareholders.
Other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
Separate financial statements of the company are omitted
because the company is primarily an operating company and
all subsidiaries included in the consolidated financial
statements are wholly-owned, with the exception of
Kennametal Hertel AG, in which the company has an 82
percent interest.
Financial Statement Schedules:
Report of Independent Public Accountants
V - Property, Plant and Equipment for the Three Years Ended
June 30, 1994
VI - Accumulated Depreciation and Amortization of Property, Plant
and Equipment for the Three Years Ended June 30, 1994
VIII - Valuation and Qualifying Accounts for the Three Years Ended
June 30, 1994
IX - Short-Term Borrowings for the Three Years Ended June 30, 1994
X - Supplementary Income Statement Information for the Three Years
Ended June 30, 1994
3. Exhibits
<TABLE>
<S> <C>
(3) Articles of Incorporation and
Bylaws
3(i) Articles of Incorporation Exhibit 3.1 of the company's
September 30, 1993 Form 10-Q
is incorporated herein by
reference.
3(ii) Bylaws Exhibit 3.1 of the company's
March 31, 1991 Form 10-Q is
incorporated herein by
reference.
(4) Instruments Defining the Rights
of Security Holders, Including
Indentures
(4.1) Rights Agreement dated Exhibit 4 of the company's
October 25, 1990 Form 8-K dated October 23,
1990 is incorporated herein
by reference.
(4.2) Form of Note Agreement Exhibit 4.3 of the company's
with various creditors 1990 Form 10-K is incorporated
dated as of May 1, 1990 herein by reference.
Note: Copies of instruments
with respect to long-term
debt or capitalized lease
obligations which do not
exceed 10% of consolidated
assets will be furnished
to the Securities and
Exchange Commission upon
request.
(10) Material Contracts
(10.1)* Management Performance The discussion regarding
Bonus Plan the Management Performance
Bonus Plan under the caption
"Report of the Board of
Directors Committee on
Executive Compensation"
contained in the company's
1994 Proxy Statement is
incorporated herein by
reference.
(10.2)* Stock Option Plan Exhibit 10.3 of the company's
of 1982, as amended December 31, 1985 Form 10-Q
is incorporated herein by
reference.
(10.3)* Stock Option and Exhibit 10.1 of the company's
Incentive Plan of 1988 December 31, 1988 Form 10-Q
is incorporated herein by
reference.
(10.4)* Form of Stock Option Exhibit 10.2 of the company's
Agreement with respect December 31, 1988 Form 10-Q
to the Plan set forth is incorporated herein by
as Exhibit 10.3 hereof reference.
(10.5)* Officer employment Exhibit 10.3 of the company's
agreements, as amended 1988 Form 10-K is incorporated
and restated herein by reference.
(10.6)* Deferred Fee Plan for Exhibit 10.4 of the company's
Outside Directors 1988 Form 10-K is incorporated
herein by reference.
(10.7)* Executive Deferred Exhibit 10.5 of the company's
Compensation Trust 1988 Form 10-K is incorporated
Agreement herein by reference.
(10.8)* Form of Employment Exhibit 10.8 of the company's
Agreement with certain 1990 Form 10-K is incorporated
executive officers herein by reference.
(10.9)* Stock Option and Exhibit 10.1 of the company's
Incentive Plan of 1992 September 30, 1992 Form 10-Q
is incorporated herein by
reference.
(10.10)* Directors Stock Exhibit 10.2 of the company's
Incentive Plan September 30, 1992 Form 10-Q
is incorporated herein by
reference.
(10.11)* Severance Agreement Exhibit 10.11 of the company's
executed by and between 1993 Form 10-K is incorporated
Kennametal Inc. and herein by reference.
H. L. Dykema
(10.12) Credit Agreement dated Exhibit 10.12 of the company's
as of July 29, 1993 1993 Form 10-K is incorporated
by and among Kennametal herein by reference.
Inc. and Deutsche Bank
AG, Mellon Bank N.A. and
PNC Bank, National
Association
(10.13) Underwriting Agreement Exhibit 1.1 of the company's
(U.S. Version) March 31, 1994 Form 10-Q is
incorporated herein by
reference.
(10.14) Underwriting Agreement Exhibit 1.2 of the company's
(International Version) March 31, 1994 Form 10-Q is
incorporated herein by
reference.
(10.15) Amendment No. 1 dated Filed herewith.
as of October 26, 1993
to Credit Agreement
dated as of July 29,
1993 by and among
Kennametal Inc. and
Deutsche Bank AG, Mellon
Bank N.A. and PNC Bank,
National Association
(10.16) Amendment No. 2 dated Filed herewith.
as of June 15, 1994 to
Credit Agreement dated
as of July 29, 1993 by
and among Kennametal
Inc. and Deutsche Bank
AG, Mellon Bank N.A. and
PNC Bank, National
Association
(13) Annual Report to Shareholders The 1994 Annual Report is
included as an exhibit
hereto. With the exception
of the information
specifically incorporated by
reference in this Form 10-K,
the 1994 Annual Report is
not to be deemed filed as a
part hereof.
(21) Subsidiaries of the Registrant Filed herewith.
(23) Consent of Independent Public Filed herewith.
Accountants
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended June 30, 1994.
- - - ----------------
* Denotes management contract or compensatory plan or arrangement.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
KENNAMETAL INC.
By RICHARD J. ORWIG
--------------------------
Richard J. Orwig
Vice President, Chief Financial
and Administrative Officer
Date: September 21, 1994
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
QUENTIN C. MCKENNA
- - - ------------------------
Quentin C. McKenna Chairman of the Board September 21, 1994
ROBERT L. MCGEEHAN
- - - ------------------------
Robert L. McGeehan President, Chief Executive September 21, 1994
Officer and Director
JAMES R. BREISINGER
- - - ------------------------
James R. Breisinger Vice President, Controller September 21, 1994
and Chief Accounting Officer
RICHARD J. ORWIG
- - - ------------------------
Richard J. Orwig Vice President, Chief September 21, 1994
Financial and Administrative
Officer
RICHARD C. ALBERDING
- - - ------------------------
Richard C. Alberding Director September 21, 1994
PETER B. BARTLETT
- - - ------------------------
Peter B. Bartlett Director September 21, 1994
ROBERT N. ESLYN
- - - ------------------------
Robert N. Eslyn Director September 21, 1994
WARREN H. HOLLINSHEAD
- - - -------------------------
Warren H. Hollinshead Director September 21, 1994
ALOYSIUS T. MCLAUGHLIN, JR.
- - - ----------------------------
Aloysius T. McLaughlin, Jr. Director September 21, 1994
WILLIAM R. NEWLIN
- - - ------------------------
William R. Newlin Director September 21, 1994
EUGENE R. YOST
- - - ------------------------
Eugene R. Yost Director September 21, 1994
LARRY YOST
- - - ------------------------
Larry Yost Director September 21, 1994
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Shareholders of
Kennametal Inc.
We have audited, in accordance with generally accepted auditing
standards, the financial statements included in Kennametal Inc.'s
annual report to shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated August 1,
1994. Our audit was made for the purpose of forming an opinion
on those statements taken as a whole. The schedules listed in
the index in Item 14(a)2 of this Form 10-K are the responsibility
of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and
are not a part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
August 1, 1994
<PAGE>
<TABLE>
KENNAMETAL INC. SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED JUNE 30, 1994
- - - ------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<CAPTION>
Foreign Business
Balance at Currency Combinations, Balance at
Beginning of Additions Translation Transfers and End of
Classification Year At Cost Retirements Adjustments Adjustments Year
- - - -------------- ------------ --------- ----------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1994
- - - ----
Land $ 10,069 $ 639 $ 117 $ 30 $ (228)(a)(b) $ 10,393
Buildings and
improvements 104,882 1,047 8,009 3,800 26,843 (a)(b) 128,563
-------- ------- ------- ------ ------- --------
$114,951 $ 1,686 $ 8,126 $3,830 $26,615 $138,956
======== ======= ======= ====== ======= ========
Machinery and
equipment $205,720 $17,388 $14,801 $2,648 $23,203 (a)(b) $234,158
Furniture and
fixtures 80,385 8,085 6,479 (449) 11,615 (a)(b) 93,157
Automotive
equipment 1,372 154 199 29 25 (b) 1,381
-------- ------- ------- ------ ------- --------
$287,477 $25,627 $21,479 $2,228 $34,843 $328,696
======== ======= ======= ====== ======= ========
1993
- - - ----
Land $ 10,200 $ - $ 32 $ (99) $ - $ 10,069
Buildings and
improvements 96,140 11,351 965 (1,644) - 104,882
-------- ------- ------- ------- -------- --------
$106,340 $11,351 $ 997 $(1,743) $ - $114,951
======== ======= ======= ======= ======== ========
Machinery and
equipment $208,672 $ 6,674 $ 4,634 $(4,992) $ - $205,720
Furniture and
fixtures 82,628 4,812 5,670 (1,385) - 80,385
Automotive
equipment 1,867 262 695 (62) - 1,372
-------- ------- ------- ------- -------- --------
$293,167 $11,748 $10,999 $(6,439) $ - $287,477
======== ======= ======= ======= ======== ========
1992
- - - ----
Land $ 10,226 $ - $ 170 $ 95 $ 49 $ 10,200
Buildings and
improvements 70,572 13,134 2,606 1,702 13,338 96,140
-------- ------- ------- ------- -------- --------
$ 80,798 $13,134 $ 2,776 $ 1,797 $ 13,387 $106,340
======== ======= ======= ======= ======== ========
Machinery and
equipment $215,891 $19,690 $11,768 $ 6,078 $(21,219)(c) $208,672
Furniture and
fixtures 74,423 3,389 3,540 1,259 7,097 82,628
Automotive
equipment 4,848 342 3,306 (17) - 1,867
-------- ------- ------- ------- -------- --------
$295,162 $23,421 $18,614 $ 7,320 $(14,122) $293,167
======== ======= ======= ======= ======== ========
<FN>
(a) Includes the reclassification of assets relating to the
Neunkirchen manufacturing facility which are held for sale.
(b) Includes the fair value of property, plant and equipment
acquired in connection with the purchase of an 81 percent
interest in Hertel AG.
(c) Represents transfer of assets relating to the completion of
the Corporate Technology Center.
</FN>
</TABLE>
<PAGE>
<TABLE>
KENNAMETAL INC. SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED JUNE 30, 1994
- - - --------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<CAPTION>
Additions Foreign
Balance at Charged to Currency Balance at
Beginning of Costs and Translation Transfers and End of
Classification Year Expenses Retirements Adjustments Adjustments Year
- - - -------------- ------------ ---------- ----------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1994
- - - ----
Buildings and
improvements $ 26,235 $ 3,993 $ 2,122 $ 122 $(2,805)(a) $ 25,423
Machinery and
equipment 127,995 25,668 14,032 (283) (125)(a) 139,223
Furniture and
fixtures 55,086 9,209 4,944 239 (548)(a) 59,042
Automotive
equipment 807 190 117 5 (19) 866
-------- ------- ------- ------- ------- --------
$210,123 $39,060 $21,215 $ 83 $(3,497) $224,554
======== ======= ======= ======= ======= ========
1993
- - - ----
Buildings and
improvements $ 23,570 $ 3,649 $ 354 $ (630) $ - $ 26,235
Machinery and
equipment 122,692 13,730 4,390 (4,037) - 127,995
Furniture and
fixtures 51,711 9,855 5,428 (1,052) - 55,086
Automotive
equipment 1,032 268 474 (19) - 807
-------- ------- ------- ------- -------- --------
$199,005 $27,502 $10,646 $(5,738) $ - $210,123
======== ======= ======= ======= ======== ========
1992
- - - ----
Buildings and
improvements $ 21,084 $ 2,989 $ 1,149 $ 646 $ - $ 23,570
Machinery and
equipment 115,185 13,859 10,746 4,394 - 122,692
Furniture and
fixtures 43,723 10,333 3,247 902 - 51,711
Automotive
equipment 2,138 668 1,774 - - 1,032
-------- ------- ------- ------- -------- --------
$182,130 $27,849 $16,916 $ 5,942 $ - $199,005
======== ======= ======= ======= ======== ========
<FN>
(a) Includes the reclassification of assets relating to the
Neunkirchen manufacturing facility which are held for sale.
</FN>
</TABLE>
<PAGE>
<TABLE>
KENNAMETAL INC. SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JUNE 30, 1994
- - - ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<CAPTION>
Additions
--------------------------------------------
Balance at Charged to Deductions Balance at
Beginning of Costs and Business from End of
Description Year Expenses Recoveries Combinations (a) Reserves (b) Year
- - - ----------- ------------ ----------- ---------- ---------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1994
- - - ----
Allowance for doubtful
accounts $2,062 $ 608 $334 $6,682 $358 $9,328
====== ===== ==== ====== ==== ======
1993
- - - ----
Allowance for doubtful
accounts $2,054 $754 $247 $ - $993 $2,062
====== ==== ==== ====== ==== ======
1992
- - - ----
Allowance for doubtful
accounts $2,142 $605 $237 $ - $930 $2,054
====== ==== ==== ====== ==== ======
<FN>
(a) Represents the allowance recognized in connection with the
purchase of an 81 percent interest in Hertel AG.
(b) Represents uncollected accounts charged against the allowance.
</FN>
</TABLE>
<PAGE>
<TABLE>
KENNAMETAL INC. SCHEDULE IX
SHORT-TERM BORROWINGS
FOR THE THREE YEARS ENDED JUNE 30, 1994
- - - ------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<CAPTION>
Maximum Average Weighted
Amount Amount Average
Category of Balance at Weighted Outstanding Outstanding Interest Rate
Short-Term End of Average During the During the During the
Borrowings Period Interest Rate Period Period (a) Period (a)
- - - ----------- ----------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1994
- - - ----
Amounts payable
to banks $52,753 6.0% $89,880 $51,231 5.9%
======= ==== ======= ======= ====
1993
- - - ----
Amounts payable
to banks $20,553 7.0% $39,327 $28,626 5.6%
======= ==== ======= ======= ====
1992
- - - ----
Amounts payable
to banks $28,490 5.5% $48,608 $35,512 6.0%
======= ==== ======= ======= ====
<FN>
(a) Average borrowings are based on month-end balances.
The average interest rate is based on the month-end balances
and the month-end interest rates.
</FN>
</TABLE>
<PAGE>
<TABLE>
KENNAMETAL INC. SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE THREE YEARS ENDED JUNE 30, 1994
- - - -----------------------------------------------------------------------------
(Dollars in thousands)
<CAPTION>
Charged to Costs and Expenses
-----------------------------
<S> <C> <C> <C>
1994 1993 1992
------- ------- -------
Maintenance and repairs $34,630 $25,161 $25,917
======= ======= =======
Rent expense $11,522 $ 8,545 $ 9,666
======= ======= =======
Advertising costs $ 7,671 $ 6,752 $ 6,127
======= ======= =======
</TABLE>
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit
No. Reference
- - - ------- ------------------------------------
<S> <C>
3.1 Articles of Incorporation Exhibit 3.1 of the company's
September 30, 1993 Form 10-Q is
incorporated herein by reference.
3.2 Bylaws Exhibit 3.1 of the company's
March 31, 1991 Form 10-Q is
incorporated herein by reference.
4.1 Rights Agreement dated Exhibit 4 of the company's
October 25, 1990 Form 8-K dated October 23,
1990 is incorporated herein
by reference.
4.2 Form of Note Agreement with Exhibit 4.3 of the company's 1990
various creditors dated as Form 10-K is incorporated herein
of May 1, 1990 by reference.
10.1 Management Performance The discussion regarding the
Bonus Plan Management Performance Bonus Plan
under the caption "Report of the
Board of Directors Committee on
Executive Compensation" contained in
the company's 1994 Proxy Statement is
incorporated herein by reference.
10.2 Stock Option Plan of 1982, Exhibit 10.3 of the company's
as amended December 31, 1985 Form 10-Q is
incorporated herein by reference.
10.3 Stock Option and Exhibit 10.1 of the company's
Incentive Plan of 1988 December 31, 1988 Form 10-Q is
incorporated herein by reference.
10.4 Form of Stock Option Exhibit 10.2 of the company's
Agreement with respect to December 31, 1988 Form 10-Q is
the Plan set forth as incorporated herein by reference.
Exhibit 10.3 hereof
10.5 Officer employment agreements, Exhibit 10.3 of the company's 1988
as amended and restated Form 10-K is incorporated herein by
reference.
10.6 Deferred Fee Plan for Exhibit 10.4 of the company's 1988
Outside Directors Form 10-K is incorporated herein by
reference.
10.7 Executive Deferred Exhibit 10.5 of the company's 1988
Compensation Trust Form 10-K is incorporated herein by
Agreement reference.
10.8 Form of Employment Agreement Exhibit 10.8 of the company's 1990
with certain executive officers Form 10-K is incorporated herein by
reference.
10.9 Stock Option and Exhibit 10.1 of the company's
Incentive Plan of 1992 September 30, 1992 Form 10-Q is
incorporated herein by reference.
10.10 Directors Stock Incentive Plan Exhibit 10.2 of the company's
September 30, 1992 Form 10-Q is
incorporated herein by reference.
10.11 Severance Agreement executed Exhibit 10.11 of the company's 1993
by and between Kennametal Inc. Form 10-K is incorporated herein by
and H.L. Dykema reference.
10.12 Credit Agreement dated as of Exhibit 10.12 of the company's 1993
July 29, 1993 by and among Form 10-K is incorporated herein by
Kennametal Inc. and Deutsche reference.
Bank AG, Mellon Bank N.A. and
PNC Bank, National Association
10.13 Underwriting Agreement Exhibit 1.1 of the company's
(U.S. Version) March 31, 1994 Form 10-Q is
incorporated herein by reference.
10.14 Underwriting Agreement Exhibit 1.2 of the company's
(International Version) March 31, 1994 Form 10-Q is
incorporated herein by reference.
10.15 Amendment No. 1 dated as of Filed herewith.
October 26, 1993 to Credit
Agreement dated as of
July 29, 1993 by and among
Kennametal Inc. and Deutsche
Bank AG, Mellon Bank N.A. and
PNC Bank, National Association
10.16 Amendment No. 2 dated as of Filed herewith.
June 15, 1994 to Credit
Agreement dated as of
July 29, 1993 by and among
Kennametal Inc. and Deutsche
Bank AG, Mellon Bank N.A. and
PNC Bank, National Association
13 Annual Report to Shareholders Filed herewith.
21 Subsidiaries of the Registrant Filed herewith.
23 Consent of Independent Public Filed herewith.
Accountants
</TABLE>
EXHIBIT 10.15
AMENDMENT NO. 1
THIS AMENDMENT NO.1 is made and entered into this 26th
day of October, 1993, by and among KENNAMETAL INC., a
Pennsylvania corporation (the "Borrower"), and DEUTSCHE BANK
AG, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH, MELLON
BANK, N.A., and PNC BANK, NATIONAL ASSOCIATION (the
"Lenders").
RECITAL:
WHEREAS, the Borrower and the Lenders entered into a
Credit Agreement dated as of July 29, 1993, (the "Agreement")
which they now desire to amend as set forth below.
NOW, THEREFORE, in consideration of the promises and of
the mutual covenants herein contained and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Article 6, Section 6.06, is hereby amended and the
following is added to and made a part of said
Article 6, Section 6.06, as a new Subsection
6.06(f):
"(f) Sales, conveyances, assignments, leases,
abandonments, or other transfers or
dispositions of properties (other than
accounts receivable) between Subsidiaries
of the Borrower."
IN WITNESS WHEREOF, the parties hereto, by their
officers thereunto duly authorized, have executed and
delivered this Amendment No. 1 on the day and year first
written above.
MELLON BANK, N.A. KENNAMETAL INC.
BY /s/ DANIEL A. BRAILER BY /s/ JAMES E. MORRISON
---------------------- ---------------------------
Daniel A. Brailer James E. Morrison
IT'S Vice President IT'S Vice President & Treasurer
DEUTSCHE BANK AG, NEW YORK
BRANCH AND/OR CAYMAN
PNC BANK NATIONAL ASSOCIATION ISLAND BRANCH
BY /s/ PETER M. HILTON BY /s/ BOWEN T. DEPKE
--------------------- ---------------------------
Peter M. Hilton Bowen T. Depke
IT'S Vice President IT'S A.V.P.
AND
BY /s/ ROLF-PETER MIKOLAYCZYK
---------------------------
Rolf-Peter Mikolayczyk
IT'S Director
EXHIBIT 10.16
AMENDMENT NO. 2
This AMENDMENT NO. 2 (this "Amendment") dated as of
June 15, 1994, by and among KENNAMETAL INC., a Pennsylvania
corporation (the "Borrower"), and DEUTSCHE BANK AG, New York
Branch and/or Cayman Islands Branch, MELLON BANK, N.A. and PNC
BANK, NATIONAL ASSOCIATION (the "Lenders"):
RECITALS:
A. The Borrower and the Lenders entered into a Credit
Agreement dated as of July 29, 1993, as amended by Amendment No.
1 thereto dated as of October 26, 1993 (the "Credit Agreement").
B. The Borrower has requested the Lenders to amend the
Credit Agreement in certain respects and the Lenders have agreed
to such amendments as are set forth herein.
NOW, THEREFORE, the parties hereto, intending to be
legally bound hereby, covenant and agree, as follows:
SECTION 1. DEFINITIONS. In addition to other words and
terms defined elsewhere in this Amendment, capitalized terms not
otherwise defined herein shall have the meanings given to them in
the Credit Agreement.
SECTION 2. AMENDMENTS TO CREDIT AGREEMENT. The Credit
Agreement is amended in the following respects:
(a) DEFINITIONS. (i) The following definitions are
deleted from Section 1.01: Funding Period, Notes.
(ii) The following definitions are added to the table
at the beginning of Section 1.01:
Bid Loan Maturity Date 2.02A(e)
Bid Loan Confirmation 2.02A(c)
Bid Rate 2.02A(b)(iii)
(iii) The following definitions are added to Section
1.01:
"Adjusted Borrower Total Assets" shall
mean all assets of the Borrower determined
on an unconsolidated basis in accordance
with GAAP, LESS investments in subsidiaries
and intangible assets determined in
accordance with GAAP.
(Page 1)
"Bid Loan Borrowing" shall mean a
borrowing consisting of a Bid Loan or
concurrent Bid Loans having the same Funding
Period.
"Bid Loan" shall mean a Loan from a
Lender to the Borrower pursuant to the
procedures described in Section 2.02A.
"Bid Loan Notes" shall mean the
promissory notes of the Borrower executed
and delivered under Section 2.02A(k), and
any promissory note issued in substitution
therefor pursuant to Section 8.14(c),
together with all extensions, renewals,
refinancings or refundings thereof in whole
or in part.
"Funding Period" shall mean the period
during which an interest rate Option or Bid
Rate shall apply, selected in accordance
with Section 2.04(c) or 2.02A(j).
"Note" or "Notes" shall mean the
Revolving Credit Note(s), the Bridge Loan
Note(s) or the Bid Loan Note(s), as the case
may be, of the Borrower executed and
delivered under this Agreement, together
with all extensions, renewals, refinancings
or refundings of any thereof in whole or
part.
"Total Tranche B Committed Amounts"
shall mean the sum of the Tranche B
Revolving Credit Committed Amounts of all
Lenders.
(b) THE CREDITS. Article II is amended in the
following respects:
(i) TRANCHE B COMMITMENTS. Section 2.01(a)(ii) is
amended by deleting the first two sentences thereof and
substituting the following:
Subject to the terms and conditions and
relying upon the representations and
warranties herein set forth, each Lender,
severally and not jointly, agrees (such
agreement being herein called such Lender's
"Tranche B Revolving Credit Commitment") to
make loans (the "Tranche B Revolving Credit
Loans") to the Borrower at any time or from
time to time on or after the date hereof and
to but not including the Tranche B Maturity
Date; PROVIDED (A) at no time shall the sum
(Page 2)
of the outstanding aggregate principal
amount of all Tranche B Revolving Credit
Loans and Bid Loans exceed the Total Tranche
B Committed Amount (or an equivalent amount
thereof in the Alternate Currency) and (B)
at all times the outstanding aggregate
principal amount of all Tranche B Revolving
Credit Loans made by each Lender shall be
equal to the product of the percentage which
its Tranche B Revolving Credit Committed
Amount represents of the Total Tranche B
Committed Amount times the outstanding
aggregate principal amount of all Tranche B
Revolving Credit Loans.
(ii) REDUCTION OF THE REVOLVING CREDIT COMMITTED
AMOUNTS. Section 2.01(e) is amended by deleting the first
sentence thereof and substituting the following:
The Borrower may at any time or from time to
time reduce Pro Rata the Tranche A Revolving
Credit Committed Amounts or the Tranche B
Revolving Credit Committed Amounts of the
Lenders to an aggregate amount (which may be
zero) not less than the sum of the unpaid
principal amount of the Tranche A Revolving
Credit Loans or the sum of the Tranche B
Revolving Credit Loans and the Bid Loans, as
the case may be, then outstanding plus the
principal amount of all Tranche A Revolving
Credit Loans or the sum of the Tranche B
Revolving Credit Loans and the Bid Loans, as
the case may be, not yet made as to which
notice has been given by the Borrower under
Section 2.03 or 2.02A hereof.
(iii) BID LOANS. Section 2.02A is added to the
Credit Agreement to read in its entirety as follows:
2.02A BID LOANS.
(a) BID LOANS. The Borrower may, as
set forth in this Section 2.02A, request one
or more of the Lenders to make one or more
Bid Loans to the Borrower at any time or
from time to time prior to the Tranche B
Maturity Date. Each Lender may, but shall
have no obligation to, offer to make one or
more such Bid Loans and the Borrower may,
but shall have no obligation to, accept any
such offers in the manner set forth in this
Section 2.02A. The sum of the outstanding
aggregate principal amount of all Bid Loans
and all Tranche B Revolving Credit Loans
(Page 3)
shall at no time exceed the Total Tranche B
Committed Amount (or an equivalent amount
thereof in the Alternate Currency). All Bid
Loans shall be denominated in Dollars.
(b) BID LOAN PROCEDURES. Prior to
11:00 a.m., Pittsburgh time, on the Business
Day of any Bid Loan, the Borrower and the
Lender making such Bid Loan shall have
verbally agreed (in a recorded telephone
conversation) that such Lender will make and
the Borrower will accept such Bid Loan,
which agreement shall include agreement as
to the following matters:
(i) the proposed date of such Bid
Loan and the Funding Period therefor;
(ii) the principal amount of such
Bid Loan, selected in accordance with
Section 2.02A(i);
(iii) the fixed rate of interest
per annum, calculated on the basis of a
365-day year (rounded upwards, if
necessary, to the nearest 1/10,000th of
1%) (the "Bid Rate") applicable to such
Bid Loan; and
(c) CONFIRMATION TO THE LENDERS. The
Borrower shall, by 11:30 a.m., Pittsburgh
time, on the day (which shall be a Business
Day) of a proposed Bid Loan, deliver to each
Lender, by telex or telecopy, confirmation
of the Bid Loans it has agreed to accept and
that Lenders have agreed to make on such day
in substantially the form of Exhibit H (a
"Bid Loan Confirmation"). The Bid Loan
Confirmation shall specify (i) the principal
amount of each such Bid Loan; (ii) the
Funding Period for each such Bid Loan;
(iii) the Bid Rate applicable to each such
Bid Loan and (iv) the identity of the Lender
for each such Bid Loan.
(d) FUNDING OF BID LOANS. Not later
than 1:00 p.m. Pittsburgh time, on the date
agreed to by the Borrower and a Lender
pursuant to Section 2.02A(b), such Lender
shall make the amount of its Bid Loan
available to the Borrower at such Lender's
Domestic Lending Office in immediately
available funds. If any Lender makes a new
(Page 4)
Bid Loan hereunder on a day on which the
Borrower is to repay all or any part of an
outstanding Bid Loan from such Lender, such
Lender shall apply the proceeds of its new
Bid Loan to make such repayment and only an
amount equal to the difference (if any)
between the amount being borrowed and the
amount being repaid shall be made available
by such Lender to the Borrower as provided
by this Section 2.02A(d), or remitted by the
Borrower to such Lender as provided in
Section 2.09, as the case may be.
(e) BID LOAN MATURITY DATES. The
principal amount of each Bid Loan shall be
due and payable on the last day of the
applicable Funding Period agreed to by the
Borrower and the Lender making such Bid Loan
(the "Bid Loan Maturity Date").
(f) BID LOAN INTEREST PAYMENT DATES.
Interest on each Bid Loan shall be due and
payable on the Bid Loan Maturity Date
thereof and thereafter on demand at the
rates provided for in Section 2.09(c).
(g) UTILIZATION OF TRANCHE B REVOLVING
CREDIT COMMITMENT. For purposes of
determining the available Tranche B
Revolving Credit Commitments of the Lenders
at any time (but not for purposes of
Section 2.08(a)), each outstanding Bid Loan
shall be deemed to have utilized the Tranche
B Revolving Credit Commitments of the
Lenders (including those Lenders that have
not made such Bid Loan) Pro Rata in
accordance with their Tranche B Revolving
Credit Commitments.
(h) INTEREST RATES FOR BID LOANS. The
outstanding principal amount of each Bid
Loan shall bear interest for each day until
due at a rate per annum equal to the Bid
Rate quoted by the Lender making such Bid
Loan.
(i) PRINCIPAL AMOUNTS. The aggregate
principal amount of each Bid Loan shall be
at least $1,000,000 or a higher integral
multiple of $100,000.
(j) FUNDING PERIODS. The Funding
Period for any Bid Loan shall be for any
period up to and including 90 days;
PROVIDED, (i) no such Funding Period shall
end after
(Page 5)
the Tranche B Revolving Credit Maturity Date
and (ii) the Borrower shall, in selecting
such Funding Periods, allow for foreseeable
mandatory repayments of the Loans.
(k) BID LOAN NOTES. The obligation of
the Borrower to repay the unpaid principal
amount of the Bid Loans made to it by each
Lender and to pay interest thereon shall be
evidenced in part by promissory notes of the
Borrower, dated June 15, 1994 in
substantially the form attached hereto as
Exhibit K, payable to the order of such
Lender.
(iv) INTEREST RATES. Section 2.04(b) is deleted and
the following is substituted:
(b) APPLICABLE MARGIN. The "Applicable
Margin" for the Euro-Rate Portion and As-
Offered Rate Portion of the Revolving Credit
Loans for any day shall mean 0.375%.
(v) FUNDING PERIODS. Section 2.04(c) is amended by
deleting the clause preceding the table and substituting the
following:
At any time when the Borrower shall select,
convert to or renew the Euro-Rate Option or
As-Offered Rate Option to apply to any part
of the Loans, the Borrower shall specify one
or more Funding Periods during which each
such Option shall apply, such Funding Periods
being as set forth below:
(vi) REPAYMENTS. (A) Sections 2.06(a)(i) and (iv)
are deleted and the following are substituted:
(i) Whether such repayment is to be
applied to the Tranche A Revolving Credit
Loans, Tranche B Revolving Credit Loans,
Bridge Loans or Bid Loans;
* * *
(iv) The principal amounts selected in
accordance with Section 2.04(d) hereof of the
Base Rate Portion and each part of each
Funding Segment of the Euro-Rate Portion or
the As-Offered Rate Portion and the principal
amount selected in accordance with Section
2.02A(i) hereof of Bid Loans (identified by
reference to their Funding Period).
(Page 6)
(B) Sections 2.06(b)(a) is redesignated Section
2.06(b)(i) and Section 2.06(b)(b) is deleted and the following is
substituted:
(ii) At the expiration of any Funding
Period with respect to repayment of any Bid
Loan, or the Euro-Rate Portion or the As-
Offered Rate Portion with respect to any part
of the Funding Segment corresponding to such
expiring Funding Period.
(viii) FEES. (A) Section 2.08(a) is amended by
deleting the first sentence thereof and substituting the
following:
(a) TRANCHE B COMMITMENT FEES. The
Borrower shall pay to each Lender a
commitment fee (the "Tranche B Commitment
Fee") equal to .10% per annum (based on a
year of 360 days and actual days elapsed),
for each day from and including
(Page 7)
the date of this Agreement to but not
including June 1, 1994 and equal to .05% per
annum (based on a year of 360 days and actual
days elapsed), for each day from and
including June 1, 1994 to but not including
the Tranche B Maturity Date, on the amount
(not less than zero) equal to (i) such
Lender's Tranche B Revolving Credit Committed
Amount on such day, MINUS (ii) the Dollar
equivalent of the aggregate principal amount
of such Lender's Tranche B Revolving Credit
Loans outstanding on such day. For purposes
of calculating the Tranche B Commitment Fee
payable to a Lender, the outstanding
principal amount of Bid Loans made by such
Lender shall be deemed to be outstanding
Tranche B Revolving Credit Loans of such
Lender, but the outstanding principal amounts
of Bid Loans made by another Lender shall not
be deemed to be outstanding Tranche B
Revolving Credit Loans of such Lender.
(B) Section 2.08(c) is amended by deleting the first
sentence and substituting the following:
The Borrower shall pay to each Lender a
facility fee (the "Facility Fee) equal to (i)
.15% per annum (based on a year of 360 days
and actual days elapsed), for each day from
and including the date of this Agreement to
but not including June 1, 1994, and .125% per
annum (based on a year of 360 days and actual
days elapsed), for each day from and
including June 1, 1994 to but not including
the Tranche A Maturity Date on the amount
(not less than zero) equal to such Lender's
Tranche A Revolving Credit Committed Amount
on such day and (ii) .15% per annum (based on
a year of 360 days and actual days elapsed),
for each day from and including the date of
this Agreement to but not including the
Tranche B Maturity Date on the amount (not
less than zero) equal to such Lender's
Tranche B Revolving Credit Committed Amount
on such day.
(ix) PRO RATA TREATMENT. Section 2.09(a) is deleted
and the following is substituted:
(a) PRO RATA TREATMENT. Each borrowing
of Revolving Credit Loans and each conversion
and renewal of interest rate Options
hereunder shall be made, and all payments
made in respect of principal of and interest
on Revolving Credit Loans and Fees due from
the Borrower hereunder or under the Revolving
Notes shall be applied, Pro Rata from and to
each Lender, as the case may be, except for
payments of interest involving an Affected
Lender as provided in Section 2.04(e) hereof
and payments to a Lender subject to a
withholding deduction under Section 2.12(c)
hereof. All payments made in respect of
principal of any Bid Loan Borrowing due from
the Borrower hereunder or under the Bid Loan
Notes shall be made to each Lender
participating in such Bid Loan Borrowing in
proportion to the respective principal
amounts of their outstanding Bid Loans
comprising such Bid Loan Borrowing. All
payments made in respect of interest on any
Bid Loan Borrowing due from the Borrower
hereunder or under the Bid Loan Notes shall
be made to each Lender participating in such
Bid Loan Borrowing in proportion to the
respective amounts of accrued and unpaid
interest on their Bid Loans comprising such
Bid Loan Borrowing, except for payments to a
Lender subject to a withholding deduction
under Section 2.12(c) hereof. The failure of
any Lender to make a Loan shall not relieve
any other Lender of its obligation to lend
hereunder; no Lender shall be responsible for
the failure of any other Lender to make a
Loan.
(x) INTEREST ON OVERDUE AMOUNTS. Section 2.09(c)(i)
is deleted and the following is substituted:
(Page 8)
(i) In the case of any part of the Euro-
Rate Portion or As-Offered Rate Portion of
any Loans or any Bid Loan, (A) until the end
of the applicable then-current Funding Period
at a rate per annum 2% above the rate
otherwise applicable to such part, and (B)
thereafter in accordance with the following
clause (ii); and
(c) CONDITIONS TO ALL LOANS. Section 4.03 is amended
by deleting the reference to "Section 2.03" and substituting a
reference to "Section 2.02A or 2.03".
(d) FORM 5500 REPORTS. Section 5.01(e)(iii) is
deleted.
(e) USE OF PROCEEDS. Section 5.09(iv) is deleted and
the following is substituted:
(iv) the proceeds of all other Loans for
general corporate purposes (other than for the
Hertel Acquisition).
(f) HERTEL DEBT. Section 5.11 is deleted and
the following is substituted:
5.11. HERTEL DEBT. The Borrower shall
cause Hertel (or the Subsidiary of the
Borrower acquiring substantially all of the
assets of Hertel) to maintain at all times
bank lines of at least 70,000,000 Deutsche
Mark.
(g) CONSOLIDATED FIXED CHARGE COVERAGE RATIO. The last
five lines of the table set forth in Section 6.01(c) are deleted
and the following is substituted:
Four fiscal quarters ending
6/30/94 and the four fiscal
quarters ending at each
fiscal quarter end thereafter 1.0 to 1
(h) MAINTENANCE OF ADJUSTED BORROWER TOTAL ASSETS. A
new Section 6.01(d) is added to the Credit Agreement to read as
follows:
(d) MAINTENANCE OF ADJUSTED BORROWER
TOTAL ASSETS. The Borrower shall at all times
maintain Adjusted Borrower Total Assets of at
least $300,000,000.
(i) INDEBTEDNESS. Section 6.03 is deleted and the
following is substituted:
6.03. INDEBTEDNESS. The Borrower shall
not, and shall not permit any Subsidiary to, at
(Page 9)
any time create, incur, assume or suffer to
exist any Restricted Indebtedness, or agree,
become or remain liable (contingently or
otherwise) to do any of the foregoing, except
Restricted Indebtedness the outstanding
principal amount of which does not exceed (a)
$200,000,000 in the aggregate at any time on or
prior to June 30, 1994, (b) $225,000,000 in the
aggregate at any time from July 1, 1994 to and
including June 30, 1995 or (c) $250,000,000 at
any time thereafter.
(j) GUARANTEES, INDEMNITIES, ETC. Section 6.04(d) is
amended by increasing the amount $150,000,000 to $165,000,000.
(k) DISPOSITION OF PROPERTIES. Section 6.06 is deleted
and the following is substituted:
6.06. DISPOSITIONS OF ACCOUNTS. The
Borrower shall not sell, assign, discount,
transfer, or otherwise dispose of, voluntarily
or involuntarily, any of its accounts
receivable or chattel paper, with or without
recourse, or agree, become or remain liable
(contingently or otherwise) to do any of the
foregoing, except
(a) sales, assignments, transfers and
other dispositions in the ordinary course of
business; and
(b) financings based upon direct or
indirect security interests in, or purchase
of, accounts receivable not exceeding
$5,000,000 aggregate principal amount at any
one time outstanding.
(l) ASSIGNMENTS. Section 8.14(c) is amended by adding
the following sentence after clause (iv):
Notwithstanding the foregoing, any Lender
assigning its rights and obligations under
this Agreement may retain any Bid Loans made
by it outstanding at such time, and in such
case shall retain its rights hereunder in
respect of any Bid Loans so retained until
such Bid Loans have been repaid in full in
accordance with this Agreement.
(m) EXHIBITS. (i) Exhibit D-1 is amended by deleting
the references to Sections 6.03(f), 6.03(h), 6.03(k), 6.03(l),
6.06(c) and Section 6.06(d) contained in Paragraph 2 thereof and
by adding a reference to Section 6.03.
(Page 10)
(ii) Exhibit H to the Credit Agreement is deleted and
new Exhibits H and K are added to the Credit Agreement to read in
their entireties as set forth in Exhibits H and K to this
Amendment.
(n) TRANSFER SUPPLEMENT. Schedule II to Exhibit E to
the Credit Agreement is amended by adding the following after
"Bridge Loans" in the table for the Transferor Lender and the
Purchasing Lender:
Bid Loans $
SECTION 3. REPRESENTATIONS AND WARRANTIES. The
Borrower represents and warrants to the Lenders that:
(a) POWER AND AUTHORITY. The Borrower has power and
authority to execute, deliver and carry out the provisions of
this Amendment and the Loan Documents, as amended hereby
(collectively, the "Amended Credit Documents"). The execution
and delivery of this Amendment and the Bid Loan Notes have been
duly authorized by all necessary action on the part of the
Borrower. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental
Authority is required in connection with the execution and
delivery of this Amendment or the Bid Loan Notes.
(b) ENFORCEABILITY. This Amendment and the Bid Loan
Notes have been duly and validly executed and delivered by the
Borrower and the Amended Credit Documents constitute legal, valid
and binding agreements of the Borrower enforceable in accordance
with their respective terms, except as enforceability of the
foregoing may be limited by bankruptcy, insolvency or other laws
of general application relating to or affecting the enforcement
of creditors' rights or by general principles of equity limiting
the availability of equitable remedies.
(c) CONFLICT WITH OTHER INSTRUMENTS. Neither the
execution and delivery of this Amendment or the Bid Loan Notes
nor consummation of the transactions contemplated herein or in
the Amended Credit Documents or compliance with the terms and
provisions hereof or thereof will conflict with or result in a
breach of any of the terms, conditions or provisions of the
articles of incorporation or by-laws (or other constituent
documents) of the Borrower or any of its Subsidiaries (other than
the Excluded Hertel Subsidiaries), any Law or any agreement or
instrument which is material to the Borrower and its Subsidiaries
taken as a whole or constitute a default thereunder.
(d) REPRESENTATIONS AND WARRANTIES UNDER THE CREDIT
AGREEMENT. The representations and warranties contained in the
Amended Credit Documents are true on and as of the date hereof
(Page 11)
with the same effect as though such representations and
warranties had been made on and as of the date hereof.
(e) EVENTS OF DEFAULT. No Event of Default and no
Potential Default has occurred and is continuing or exists under
the Amended Credit Documents or will occur or exist after giving
effect to this Amendment.
For purposes of Section 7.01(c) of the Credit Agreement, the
foregoing representations and warranties shall be deemed to have
been made in connection with the Credit Agreement.
SECTION 4. CONDITIONS OF AMENDMENT. Subject to the
following conditions, the provisions of Section 2 of this
Amendment shall become effective:
(a) CORPORATE ACTION. The Borrower shall have
furnished to each Lender a certificate certifying as to (i) the
corporate action referred to in Section 3(a) hereof, (ii) any
amendments to the Borrower's articles of incorporation or by-laws
since June 29, 1993 (or a statement that there have been no such
amendments), and (iii) the incumbency of the officers authorized
to sign this Amendment, the Bid Loan Notes and any other
documents, instruments or certificates required under this
Amendment, together with true signatures of such officers. The
Lenders may conclusively rely on such certificate.
(b) BID LOAN NOTES. The Borrower shall have furnished
to each Lender a Bid Loan Note conforming to the requirements of
Section 2.02A(k) of the Credit Agreement, as amended hereby.
(c) OPINION OF COUNSEL. Each Lender shall have
received an opinion addressed to each Lender, dated the date
hereof, of David Cofer, Esquire, General Counsel of the Borrower,
covering the same matters as were covered by his opinion and the
opinion of Buchanan Ingersoll attached as Exhibits F-1 and F-2,
respectively, to the Credit Agreement, but taking into account
the execution and delivery of this Amendment and the Bid Loan
Notes.
(d) AMENDMENT FEE. The Borrower shall have paid each
Lender an amendment fee of $3,000.
(e) ADDITIONAL MATTERS. Each Lender shall have
received such other certificates, opinions, documents and
instruments as may be requested by any Lender. All corporate and
other proceedings, and all documents, instruments and other
matters in connection with the transactions contemplated by this
Agreement and the other Loan Documents shall be satisfactory in
form and substance to each Lender.
(Page 12)
SECTION 5. MISCELLANEOUS. The Borrower agrees to
reimburse the Lenders for their reasonable out-of-pocket expenses
arising in connection with the negotiation, preparation and
execution of this Amendment, including the reasonable fees and
expenses of Reed Smith Shaw & McClay, counsel for the Lenders.
Except as amended or waived hereby, the provisions of
the Loan Documents shall remain in full force and effect.
This Amendment shall be deemed to be a contract under
the laws of the Commonwealth of Pennsylvania and for all purposes
shall be construed in accordance with and governed by the laws of
such Commonwealth.
This Amendment may be executed in as many counterparts
as may be deemed necessary and convenient and by the separate
parties hereto on separate counterparts, each of which when so
executed and delivered shall be deemed to constitute an original,
but all such separate counterparts shall constitute but one and
the same instrument.
If any provision of this Amendment, or the application
thereof to any party hereto, shall be held invalid or
unenforceable, such invalidity or unenforceability shall not
affect any other provisions or applications of this Amendment
which can be given effect without the invalid and unenforceable
provision or application, and to this end the parties hereto
agree that the provisions of this Amendment are and shall be
severable.
(Page 13)
IN WITNESS WHEREOF, the parties hereto by their
officers thereunto duly authorized have executed this Amendment
as of the date and year first above written.
[Corporate Seal]
Attest: KENNAMETAL INC.
/s/ DAVID T. COFER By /s/ JAMES E. MORRISON
- - - --------------------------------- ------------------------------
David T. Cofer James E. Morrison
Title Secretary Title Vice President & Treasurer
DEUTSCHE BANK AG, MELLON BANK, N.A.
New York Branch and/or
Cayman Islands Branch
By /s/ ROLF-PETER MIKOLAYCZYK By /s/ DANIEL A. BRAILER
----------------------------- ----------------------------------
Rolf-Peter Mikolayczyk Daniel A. Brailer
Title Director Title First Vice President
By /s/ ROSS A. HOWARD
-----------------------------
Ross A. Howard
Title Assistant Vice President
PNC BANK, NATIONAL ASSOCIATION
By /s/ PETER M. HILTON
-----------------------------
Peter M. Hilton
Title Vice President
(Page 14)
<PAGE>
<TABLE>
EXHIBIT H
KENNAMETAL INC.
REVOLVING CREDIT FACILITY - STANDARD NOTICE/BID LOAN CONFIRMATION
DATE: / /
---------------
<CAPTION>
INTEREST RATE QUOTES (U.S.$)
BASE RATE AS - OFFERED BID LOAN EURO (U.S.$) LOAN
------------ -------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER FUNDING FUNDING FUNDING
BANK (OVERNIGHT) RATE PERIOD(DAYS) RATE PERIOD(DAYS) RATE PERIOD(DAYS)
- - - --------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
MELLON ____________ ____________ ____________ ____________ ____________ ____________ ____________
PNC ____________ ____________ ____________ ____________ ____________ ____________ ____________
DEUTSCHE ____________ ____________ ____________ ____________ ____________ ____________ ____________
TRANCHE B
EFFECTIVE MATURITY INTEREST
CURRENCY DATE DATE RATE OPTION MELLON PNC DEUTSCHE
- - - -------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
USD ____________ ____________ ____________ ____________ ____________ ____________ ____________
USD ____________ ____________ ____________ ____________ ____________ ____________ ____________
USD ____________ ____________ ____________ ____________ ____________ ____________ ____________
TRANCHE A
EFFECTIVE MATURITY EURO
CURRENCY DATE DATE RATE MELLON PNC DEUTSCHE TOTAL
- - - -------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
NOTE: Bld, As-Offered & Base Rates Are On A 365/366 Day A Year Bases. Euro Rates Are On A 360 Day Year Basis.
</TABLE>
<PAGE>
EXHIBIT K
KENNAMETAL INC.
BID LOAN NOTE
$45,000,000 Pittsburgh, Pennsylvania
June 15, 1994
FOR VALUE RECEIVED, the undersigned, KENNAMETAL INC., a
Pennsylvania corporation (the "Borrower"), promises to pay to the
order of DEUTSCHE BANK AG, New York Branch and/or Cayman Islands
Branch (the "Lender") (i) on the last day of the Funding Period,
the aggregate unpaid principal amount of all Bid Loans made by the
Lender to the Borrower pursuant to Section 2.02A of the Agreement
to which such Funding Period applies and (ii) on the Tranche B
Maturity Date, the lesser of the principal sum of FORTY-FIVE
MILLIONS DOLLARS ($45,000,000) and the aggregate unpaid principal
amount of all Bid Loans made by the Lender to the Borrower pursuant
to Section 2.02A of the Agreement. The Borrower further promises
to pay to the order of the Lender interest on the unpaid principal
amount hereof from time to time outstanding at the rate or rates
per annum determined pursuant to the Agreement, payable on the
dates set forth in the Agreement.
This Note is one of the "Bid Loan Notes" as referred to
in, and is entitled to the benefits of, the Credit Agreement, dated
as of July 29, 1993, by and among the Borrower and the Lenders
parties thereto from time to time (as the same may be amended,
modified or supplemented from time to time, the "Agreement"), which
among other things provides for the acceleration of the maturity
hereof upon the occurrence of certain events and for repayments in
certain circumstances and upon certain terms and conditions. Terms
defined in the Agreement have the same meanings herein.
The Borrower hereby expressly waives presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement
of this Note and the Agreement, and an action for amounts due
hereunder or thereunder shall immediately accrue.
This Note shall be governed by and construed and enforced
in accordance with the laws of the Commonwealth of Pennsylvania,
without regard to principles of choice of law.
KENNAMETAL INC.
BY: /s/ JAMES E. MORRISON
-------------------------------
Vice President & Treasurer
<PAGE>
KENNAMETAL INC.
BID LOAN NOTE
$45,000,000 Pittsburgh, Pennsylvania
June 15, 1994
FOR VALUE RECEIVED, the undersigned, KENNAMETAL INC., a
Pennsylvania corporation (the "Borrower"), promises to pay to the
order of PNC BANK, NATIONAL ASSOCIATION (the "Lender") (i) on the
last day of the Funding Period, the aggregate unpaid principal
amount of all Bid Loans made by the Lender to the Borrower pursuant
to Section 2.02A of the Agreement to which such Funding Period
applies and (ii) on the Tranche B Maturity Date, the lesser of the
principal sum of FORTY-FIVE MILLIONS DOLLARS ($45,000,000) and the
aggregate unpaid principal amount of all Bid Loans made by the
Lender to the Borrower pursuant to Section 2.02A of the Agreement.
The Borrower further promises to pay to the order of the Lender
interest on the unpaid principal amount hereof from time to time
outstanding at the rate or rates per annum determined pursuant to
the Agreement, payable on the dates set forth in the Agreement.
This Note is one of the "Bid Loan Notes" as referred to
in, and is entitled to the benefits of, the Credit Agreement, dated
as of July 29, 1993, by and among the Borrower and the Lenders
parties thereto from time to time (as the same may be amended,
modified or supplemented from time to time, the "Agreement"), which
among other things provides for the acceleration of the maturity
hereof upon the occurrence of certain events and for repayments in
certain circumstances and upon certain terms and conditions. Terms
defined in the Agreement have the same meanings herein.
The Borrower hereby expressly waives presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement
of this Note and the Agreement, and an action for amounts due
hereunder or thereunder shall immediately accrue.
This Note shall be governed by and construed and enforced
in accordance with the laws of the Commonwealth of Pennsylvania,
without regard to principles of choice of law.
KENNAMETAL INC.
BY: /s/ JAMES E. MORRISON
-------------------------------
Vice President & Treasurer
<PAGE>
KENNAMETAL INC.
BID LOAN NOTE
$45,000,000 Pittsburgh, Pennsylvania
June 15, 1994
FOR VALUE RECEIVED, the undersigned, KENNAMETAL INC., a
Pennsylvania corporation (the "Borrower"), promises to pay to the
order of MELLON BANK, N.A., (the "Lender") (i) on the last day of
the Funding Period, the aggregate unpaid principal amount of all
Bid Loans made by the Lender to the Borrower pursuant to Section
2.02A of the Agreement to which such Funding Period applies and
(ii) on the Tranche B Maturity Date, the lesser of the principal
sum of FORTY-FIVE MILLIONS DOLLARS ($45,000,000) and the aggregate
unpaid principal amount of all Bid Loans made by the Lender to the
Borrower pursuant to Section 2.02A of the Agreement. The Borrower
further promises to pay to the order of the Lender interest on the
unpaid principal amount hereof from time to time outstanding at the
rate or rates per annum determined pursuant to the Agreement,
payable on the dates set forth in the Agreement.
This Note is one of the "Bid Loan Notes" as referred to
in, and is entitled to the benefits of, the Credit Agreement, dated
as of July 29, 1993, by and among the Borrower and the Lenders
parties thereto from time to time (as the same may be amended,
modified or supplemented from time to time, the "Agreement"), which
among other things provides for the acceleration of the maturity
hereof upon the occurrence of certain events and for repayments in
certain circumstances and upon certain terms and conditions. Terms
defined in the Agreement have the same meanings herein.
The Borrower hereby expressly waives presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement
of this Note and the Agreement, and an action for amounts due
hereunder or thereunder shall immediately accrue.
This Note shall be governed by and construed and enforced
in accordance with the laws of the Commonwealth of Pennsylvania,
without regard to principles of choice of law.
KENNAMETAL INC.
BY: /s/ JAMES E. MORRISON
-------------------------------
Vice President & Treasurer
EXHIBIT 13
1994 KENNAMETAL INC. ANNUAL REPORT
[Photograph]
(Front Cover)
PROFILE Kennametal is a manufacturer, marketer and distributor
of a broad range of tools for the metalworking, mining and
highway construction industries. Kennametal is one of the
world's leading producers of cutting tools and wear resistant
parts made of cemented carbides and other hard materials.
METALWORKING PRODUCTS Kennametal provides a full line of
products and services for the metalworking industry. The company
provides cutting tools and accessories for metalcutting
applications, including turning, milling and drilling.
MINING AND CONSTRUCTION PRODUCTS Kennametal is the world's
leading producer of mining and construction tools. Mining tools
include drums, blocks, bits, compacts and accessories.
Construction tools include blocks, bits, grader blades and
snowplow blades.
METALLURGICAL PRODUCTS Kennametal produces proprietary
metallurgical powders for use in its metalworking, mining and
construction products. In addition, the company produces a
variety of powders for specialized markets.
MISSION STATEMENT Kennametal is a global, customer-needs-driven
provider of tools, tooling systems, supplies and services to the
metalworking industry. In addition, Kennametal operates
businesses having a technical commonality with core businesses,
given they meet minimum financial goals.
CONTENTS
1 Financial Highlights
2 Letter to Shareholders
7 Kennametal Overview
15 Financial Graphs
16 Management's Discussion and Analysis
20 Consolidated Statements of Income
21 Consolidated Balance Sheets
22 Consolidated Statements of Shareholders' Equity
23 Consolidated Statements of Cash Flows
24 Notes to Consolidated Financial Statements
32 Quarterly Financial Data
33 Report of Audit Committee
33 Report of Independent Public Accountants
34 Eleven Year Summary
36 Board of Directors
37 Corporate Officers
38 Corporate and Worldwide Data
ABOUT THE REPORT Kennametal continues to make significant
progress in its efforts to be the world's premier provider of
tools, tooling systems, supplies and services to the metalworking
industry. This year's report highlights significant changes
which have affected that progress.
(Inside Front Cover)
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Percent
Year ended June 30 1994 1993 Change
(dollars in thousands,
except per share data)
- - - -------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING HIGHLIGHTS
Net sales $802,513 $598,496 +34
Net income (loss) (4,088) 20,094 n.m.
Earnings (loss) per share (1) (0.17) 0.93 n.m.
Return on equity (2) (1.5)% 8.1% n.m.
Cash flow from operations 30,249 42,018 -28
BALANCE SHEET HIGHLIGHTS
Total assets $697,532 $448,263 +56
Total debt 147,295 110,628 +33
Shareholders' equity 322,836 255,141 +27
Debt to capital ratio 31.3% 30.2% n.m.
INVESTMENT SPENDING
Capital expenditures $ 27,313 $ 23,099 +18
Research and development expenses 15,201 14,714 +3
STOCK DATA (1)
Stock price - high $ 29 9/16 $ 19 7/8
Stock price - low 15 3/8 12 15/16
Stock price - year-end 24 5/8 16 3/4
Dividends per share 0.58 0.58
<FN>
n.m. - not meaningful.
1 Reflects the increased number of shares resulting from a 2-for-1 stock
split in the form of a 100 percent stock dividend in
August 1994.
2 Without the restructuring charge and accounting changes, the return on
equity was 11.4 percent in 1994.
</FN>
</TABLE>
[Graphs]
(Page 1)
TO OUR SHAREHOLDERS
[Photograph]
CAPTION: Our expanded global presence enables us to participate
fully in the recovery of the world's economies and to build our
competitive leadership by providing the highest level of service
to customers anywhere in the world.
ROBERT L. MCGEEHAN
President and Chief Executive Officer
IN 1994, KENNAMETAL NAVIGATED A COMPLEX DOMESTIC AND GLOBAL
MARKETPLACE IN WHICH WE WERE ABLE TO CREATE OPPORTUNITIES, AS
WELL AS WEATHER DISAPPOINTMENTS.
Revenues for the year rose to a record $803 million, up 34
percent from 1993. A significant portion of this growth resulted
from the alliance with Hertel AG, a German toolmaker in which we
acquired an 81 percent interest in August 1993. Excluding
Hertel, sales were up nine percent over the preceding year.
The slow but steady economic recovery in the United States
resulted in an increase in domestic revenues, despite the
negative impact of decreased sales of metalworking and highway
construction tools due to widespread floods in the Midwest, an
unusually severe winter and the Los Angeles earthquake.
In spite of these unusual events during the year, sales of
highway construction tools increased 15 percent as the pace of
road construction and rehabilitation projects intensified in many
parts of the U.S. Mining tool sales, however, were flat in the
midst of a United Mineworkers strike in the U.S. and weak demand
internationally.
Strong growth in production among our customers in the
automotive, heavy construction equipment and agricultural
equipment industries led the U.S. economic recovery and created
increased demand for Kennametal tools. We also saw sales
improvements to aircraft engine and oil and gas producers, who
began to emerge in 1994 after a long period of contraction.
Sales of our traditional product lines, metalcutting inserts
and toolholding devices, rose 11 percent in the U.S. Strong
demand for hardfacing products produced a 19 percent gain in
sales of metallurgical products, and growth in our full-service
supply programs and our expanding mail-order catalog business
drove sales of industrial supply products to a 22 percent gain.
Outside the United States, we faced a varied and challenging
economic landscape. Asia-Pacific markets, struggling through a
deep and widespread economic downturn, remained weak. Notable
exceptions were Australia and South Korea, where we achieved
significant gains in sales in 1994.
(Page 2)
[Photograph]
CAPTION: Our customers' paramount concern is to increase the
productivity of their capital-intensive production processes.
Our challenge is to meet this need through not only our products,
but also our people, our technology and our commitment to be not
just a supplier, but a partner.
QUENTIN C. MCKENNA
Chairman of the Board
Sales in Canada also increased 16 percent as that economy
began to recover. But the European market posed difficult
challenges, and, without the acquisition of Hertel, international
sales of metalworking products would have remained flat.
As a result of the acquisition of Hertel, we were able to
achieve a 78 percent increase in international sales. Economic
conditions in most of Europe remained weak, though we now see
indications that an economic recovery could, after several years
of contraction, be at hand.
WE STRENGTHENED KENNAMETAL'S RESOURCES FOR THE LONG-TERM BY
RAISING NEW CAPITAL, REDUCING DEBT AND PUTTING BEHIND US CHARGES
ASSOCIATED WITH OUR ACQUISITION, RESTRUCTURING ACTIVITIES AND
REQUIRED NEW ACCOUNTING STANDARDS.
In anticipation of solid earnings performance in 1994, we
made a decision that it was the right time to take one-time
charges against earnings rather than defer them and at the same
time to strengthen Kennametal's asset base and capital structure
for the future.
Prior to these one-time charges, Kennametal had net income
of $31.3 million. Against this, we took a restructuring charge
of $20.4 million after taxes plus the adoption of new accounting
standards had a negative impact of $15 million, net of income tax
effect.
As a result, Kennametal recorded a net loss of $4.1 million,
or $0.17 per share, compared with net income of $20.1 million, or
$0.93 per share in 1993. The average number of shares
outstanding in 1994 was 2.6 million greater than those
outstanding in the prior year.
In December 1993, we moved to strengthen our company's long-
term financial position through an offering of new shares of
Kennametal common stock. This sale was received enthusiastically
by investors, providing net proceeds to the company of
approximately $74 million in new equity capital.
We undertook this offering primarily to finance the
acquisition of Hertel and to maintain the company's capital
structure within our previously established guidelines.
Kennametal's
(Page 3)
inherent financial strength and cash flows would have enabled us
to finance the acquisition with debt, but we concluded that the
resulting debt-service burden would have limited our ability to
capture future opportunities.
Since the market awarded Kennametal a strong share price, we
determined that an equity offering would be a timely step that
would provide the company with increased financial flexibility
and resources for investment in our future.
Beyond raising capital, the share offering enabled us to
convey the Kennametal story to a wider audience in the investment
community at an exciting time in the history of our company. We
attracted new domestic and international investors, increased
investor interest in our stock, as well as liquidity in the
market for our shares. The result has been record share prices.
WE ARE POSITIONING KENNAMETAL AS A BORDERLESS GLOBAL COMPANY,
PREPARED TO PURSUE OPPORTUNITIES AND MEET CUSTOMER DEMANDS
WHEREVER WE CAN IDENTIFY THEM IN THE WORLD MARKETPLACE.
The ability to win and serve customers anywhere in the
global marketplace is the foundation on which we are building not
only increased growth and profitability, but stability in cash
flow and earnings.
The acquisition of Hertel gives Kennametal the engineering,
manufacturing and logistical infrastructure we need to become a
more viable competitor in Europe and to strengthen our position
in the markets in Eastern Europe and the Asia-Pacific region that
we believe offer superior long-term growth opportunities.
Both Kennametal and Hertel possess resources and skills
unique to each partner, from manufacturing and marketing
expertise to excellence in specific product lines. The
integration of these strengths enables our merged companies to
provide a comprehensive response to the needs of our metalworking
customers worldwide, and, in addition, while the two companies
are being integrated operationally, both will retain their own
brand name identities in the marketplace -- valuable assets we
will use to maximize market penetration and return on our
investment.
We are currently in the process of integrating Kennametal's
business with that of Hertel. As part of this integration, we
closed the Kennametal manufacturing facility in Neunkirchen,
Germany.
(Page 4)
We also developed a restructuring plan for Hertel
operations, which is improving profitability by reducing working
capital requirements and overall expenses, as well as improving
capacity utilization.
Some 20 integration teams made up of Kennametal and Hertel
employees are currently dedicated to realizing the benefits of
combining the two companies. These teams are empowered to manage
the wide variety of issues involved in the integration, from
manufacturing changes and consolidations to marketing and legal
concerns, research and development, information systems and
communication.
The pace of integration is progressing ahead of our
expectations, enabling us to realize more immediate value from
the synergies created by the alliance and to accelerate our
advance toward the goal of being the low-cost, highest-quality
producer of metalworking tooling in the world.
OUR FOCUS IS ON MAKING IT EASIER TO DO BUSINESS WITH KENNAMETAL.
Today, manufacturers seek to reduce the number of suppliers
they deal with, while forging closer and more productive working
ties with those who can add value to the relationship. Because
companies which can meet this challenge will uncover important
new opportunities for growth, we are taking the initiative to
explore and develop new and more productive ways of meeting our
customers' needs.
Our customers' paramount concern is to increase the
productivity of their capital-intensive production processes.
Our challenge is to meet this need through not only our products,
but also our people, our technology and our commitment to be not
just a supplier, but a partner.
Our investment in the Corporate Technology Center continues
to pay dividends with an ongoing stream of new and improved
products developed in response to the changing needs of our
customers in all manufacturing industries.
We also expanded and enhanced our worldwide management
information system network, a vital competitive asset, to
increase our control of the many marketing channels for
Kennametal's expanding product range.
The Metalworking Systems Division undertook a thorough
reengineering of its marketing and sales organization in 1994 to
improve the speed and quality of response to our customers. The
process created integrated sales teams made up of employees from
direct sales,
(Page 5)
telemarketing, order entry, application support and sales
management. Through a new customer contact model, customers are
now connected directly with the team member who possesses the
specific skill or knowledge needed and who can provide an
immediate and thorough response.
KENNAMETAL'S STRATEGIES ARE WORKING BECAUSE EMPLOYEES SUPPORT
THEM TIRELESSLY.
Through a tough economic downturn, and now amid the
challenges of integrating Hertel, Kennametal employees have shown
that they understand and support the company's strategies and
goals. Their efforts have been reinforced by the Hertel
employees who have joined us, whose tradition of dedication and
hard work matches our own. Now numbering 6,600 worldwide,
Kennametal's employees are the foundation of the company and will
continue to be the key to our success.
THE ACTIONS TAKEN OVER THE PAST YEAR POSITION KENNAMETAL FOR
SUSTAINED GROWTH.
The success of our efforts to control costs and rationalize
our operations has resulted in a structure that today provides
Kennametal with significant earnings leverage. Our expanded
global presence enables us to participate fully in the recovery
of the world's economies and to build our competitive leadership
by providing the highest level of service to customers anywhere
in the world.
Today, we are in an excellent position to take advantage of
global economic and manufacturing trends. New and exciting
partnerships will enable Kennametal to expand mutually beneficial
relationships with a growing number of customers.
We are confident that the successes achieved in 1994 will
serve as a model for our future growth.
QUENTIN C. MCKENNA ROBERT L. MCGEEHAN
- - - --------------------- -----------------------------
Quentin C. McKenna Robert L. McGeehan
Chairman of the Board President and Chief Executive
Officer
Latrobe, Pennsylvania
August 1, 1994
(Page 6)
KENNAMETAL OVERVIEW
For Kennametal, 1994 was a year of careful investment and
untiring effort that produced solid signs of growth. A wide
variety of factors contributed to the year's successes:
Teamwork as well as outstanding individual efforts by Kennametal
employees -- New relationships with customers -- Continuing
research and development efforts that reinforce Kennametal's
technological leadership -- Aggressive pursuit of emerging markets
- - - -- Ongoing evolution of products to meet changing customer needs
- - - -- Integration efforts building on Kennametal and Hertel
manufacturing, marketing and product strengths -- Execution of
our channel marketing strategy -- Continued development of
global logistics systems
The following selection of photos are representative of some of
the key factors contributive to Kennametal's present and future
prosperity.
(Page 7)
[Photograph]
[Photograph]
The KM-LOC (TM) clamping device is the most recent addition to
Kennametal's proven KM (TM) modular quick-change tooling system.
The new device employs a cam and a preloaded disc spring pack to
provide positive stop-to-stop locking and unlocking with less
than half a turn of a wrench, making the KM (TM) system even more
user-friendly. Kennametal products continually evolve to meet
ever-changing customer demands.
(Page 8)
Global manufacturers require world-class tooling. Kennametal
tools, including KM (TM) quick-change toolholders and carbide
turning and milling inserts, machined these six-cylinder engine
crankshafts for Ford Motor Company's new "world car."
Successfully launched last year in Europe as the Mondeo, the car
is coming to the U.S. in the fall of 1994 as the Ford Contour and
Mercury Mystique. Kennametal tools meet Ford's legendary
standards for performance and quality, and three of Kennametal's
manufacturing facilities have earned the Ford Q1 status as
preferred suppliers to Ford Motor Company.
Globalization of industry has produced new business relationships
between Kennametal and its customers. In addition to its
traditional role as a tooling supplier, Kennametal now offers
tooling application and purchasing and management services in a
variety of forms. Typical of these partnerships and "win-win"
arrangements is the Full Service Supply program in which
Kennametal stocks and maintains the customer's tool crib,
supplying all the cutting tool requirements of a metalworking
operation.
[Photograph]
(Page 9)
Teamwork propels Kennametal's success. Throughout the company,
employees from various functional areas work in units that are
dedicated to getting the job done faster and better. For
example, some 20 integration teams, consisting of both Kennametal
and Hertel employees, are expediting the progress of the Hertel
integration. Pictured here are some members of one of those
groups, the Business Systems team. Including employees from
customer service, metalworking manufacturing, finance and
management information systems, the team defined the needs of the
business systems of the combined operations and implemented such
systems to enable both companies to eliminate quickly unnecessary
redundancies and better serve our customers.
[Photograph]
Kennametal and Hertel are combining their technological and
manufacturing strengths to provide customers with the best
product available in the marketplace. Prime examples are
Kennametal's new general-use KC9010 (TM) and KC9025 (TM) coated
carbide metalcutting insert grades, which benefit from
Kennametal's expertise in tungsten carbide manufacturing at the
Orwell, Ohio, plant. The substrates are then coated at the
Hertel facility in Ebermannstadt, Germany, to take advantage of
Hertel's advanced coating and manufacturing automation
technologies, including the coating operations shown here.
(Page 10)
[Photograph]
[Photograph]
Kennametal's new KCD25 (TM) thin-film diamond-coated insert grade
is engineered to machine new energy-efficient manufacturing
materials, such as abrasive aluminum alloys and nonmetallics.
Kennametal Corporate Technology developed a chemical vapor
deposition process for diamond coatings that produces inserts
combining the outstanding wear resistance of diamonds with a
carbide substrate's economy and ability to support complex chip
control geometries. This sequence shows a chip-control KCD25
(TM) insert poised to begin a cut; amidst a flow of metalcutting
coolant; then beginning to machine an aluminum workpiece.
(Page 11)
[Photograph]
These tungsten carbide tips for mining roof drill bits, arranged
for sintering at the Mining and Construction Division
manufacturing plant in Bedford, Pennsylvania, are destined for
customers around the world. Following a year of record sales,
the Division is moving to take advantage of promising
opportunities for global growth by aggressively pursuing emerging
markets, such as Eastern Europe and China.
One clear benefit of the acquisition of Hertel is a synergy of
product expertise. Hertel is known for leadership in rotating
tooling, including solid carbide drills and milling cutters, as
shown here. These tools complement Kennametal's traditional
strength in tools for lathe applications, enabling the combined
companies to offer customers a comprehensive selection of the
world's most productive cutting tools.
(Page 12)
A growing number of customers are reaching for J&L Industrial
Supply catalogs. The company continues its record of growth and
profitability by effectively serving the needs of smaller
customers. Through mail order catalogs and retail outlets, J&L
provides one-stop shopping for a comprehensive selection of
metalworking tools and supplies, including selected Kennametal
products. J&L has grown to a total of eight U.S. locations,
stocking more than six million tools and serving customers in all
50 states, as well as Canada, Mexico, and Puerto Rico.
[Photograph]
[Photograph]
(Page 13)
[Photograph]
This year's Alex G. McKenna award winners, Jack Taylor (left) and
Rolf Chudzick, work on separate continents, but share the high
standards and limitless enthusiasm displayed by Alex G. McKenna,
former Kennametal board chairman and the first recipient of this
award. Jack Taylor joined Kennametal in 1959 in the engineering
department and moved to the Mining Tool Division (now Mining and
Construction Division) in 1975. Since then, his efforts in
marketing and sales management for highway construction products
have helped to make Kennametal the world-market leader in highway
and construction tooling. Rolf Chudzick's work in sales and
manufacturing management at Kennametal G.m.b.H. in Germany has
spanned more than twenty-five years and has demonstrated his
unique ability to motivate people from varied cultures to work
together.
Global logistics is the foundation for global competitiveness.
Through its Kennametal Distribution Services group, Kennametal
coordinates manufacturing, inventories and delivery on a
worldwide basis. Kennametal has consolidated its worldwide
warehouse capacity to include nine U.S. locations and three
outside the U.S., resulting in efficiencies that produce same-day
shipping performance exceeding 98 percent.
[Photograph]
(Page 14)
FINANCIAL GRAPHS
[Graphs]
(Page 15)
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS: 1994 COMPARED WITH 1993
OVERVIEW. For the fiscal year ended June 30, 1994, Kennametal
recorded a net loss of $4.1 million, or $0.17 per share, as
compared with net income of $20.1 million, or $0.93 per share in
1993. All share and per share data (except where noted) reflect
the retroactive effect of a 2-for-1 stock split in the form of a
100 percent stock dividend declared for holders of record as of
August 10, 1994.
The net loss for the fiscal year ended June 30, 1994, includes
the unfavorable cumulative noncash effect of adopting Statement
of Financial Accounting Standards (SFAS) No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions"
($20.1 million net of income tax effect) and the favorable
cumulative noncash effect of adopting SFAS No. 109 "Accounting
for Income Taxes" ($5.1 million). In addition, the results
include a restructuring charge ($20.4 million after taxes) and
the impact of additional operating costs resulting from the
adoption of SFAS No. 106 ($1.2 million). Sales were $803
million, as compared with $598 million last year. The increase
in sales resulted primarily from the acquisition of an 81 percent
interest in Hertel AG (Hertel). Excluding Hertel, sales were
$652 million.
The Hertel acquisition increased the net loss for fiscal year
1994 by $2.6 million. Excluding the cumulative effect of
accounting changes, the restructuring charge and the acquisition
impacts, the company had net income of $33.9 million as compared
with $20.1 million last year.
SALES AND MARKETS. Excluding the effects of the acquisition of
Hertel, worldwide sales of metalworking products increased 11
percent from last year as a result of strong domestic demand for
metalcutting tools. Excluding price increases and negative
foreign currency translation effects, worldwide metalworking
volume increased 12 percent.
In the United States, excluding the effects of the acquisition of
Hertel, sales of metalcutting inserts and toolholding devices
increased 11 percent while sales of industrial supply products
increased 22 percent.
Worldwide sales of mining and construction tools increased two
percent from last year as a result of comparatively weak
international demand for highway construction and mining tools.
However, domestic sales of mining and construction tools
increased seven percent because of strong demand for highway
construction tools. Worldwide sales of metallurgical products
increased 19 percent as a result of strong domestic demand for
hardfacing products.
Foreign and export sales increased 78 percent from last year. A
significant portion of the increase relates to the acquisition of
Hertel.
Management expects higher sales of metalworking products in
fiscal 1995 as the U.S. economy continues to expand and the
European economy continues to emerge from the recession.
Metalworking sales in the U.S. should continue to benefit from
catalog sales. Mining and construction tool sales should
continue to increase primarily because of greater domestic coal
production.
COSTS AND EXPENSES. As a percentage of sales, the gross margin
was 41.1 percent, the same as last year. The gross margin was
unfavorably affected by the inclusion of Hertel's financial
results.
Operating expenses, consisting of research and development,
marketing and general and administrative expenses, increased 31
percent. The increase primarily relates to the impact of the
Hertel acquisition. As a percentage of sales, operating expenses
were 32.8 percent, down from 33.6 percent, mostly because of
higher sales in the U.S.
Average total employment increased 31 percent from last year.
The increase in average total employment relates principally to
the acquisition of Hertel.
(Page 16)
Interest expense increased 45 percent from 1993. The increase
was primarily due to debt incurred and assumed in connection with
the Hertel acquisition. Average debt outstanding was $164
million in 1994 as compared with $125 million in 1993.
Approximately 35 and 44 percent of the company's total debt was
subject to variable interest rates at June 30, 1994 and 1993,
respectively.
The effective tax rate was 59.7 percent in 1994, up from 41.1
percent in 1993. Excluding the effects of the restructuring
charge, the adjusted effective tax rate was 39.1 percent in 1994.
The adjusted effective tax rate for 1994 benefited from the use
of greater foreign tax credits when compared to the effective tax
rate for 1993.
<TABLE>
SALES BY PRODUCT CLASS AND GEOGRAPHIC AREA
<CAPTION>
Year ended June 30 1994 1993 1992
- - - --------------------------------------------------------------------------------------------------
Percent Percent Percent
(Dollars in thousands) of Total Amount Change Amount Change Amount
- - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
By Product Class:
Metalworking products 84% $676,355 +41% $478,137 -1% $482,058
Mining and construction
products 13 101,575 +2 99,614 +12 89,257
Metallurgical products 3 24,583 +19 20,745 +4 19,852
Other products - - - - - 3,366
-------------------------------------------------------------------------
Net sales 100% $802,513 +34% $598,496 +1% $594,533
=========================================================================
By Geographic Area:
Within the U.S. 65% $517,856 +18% $438,910 +1% $434,195
Foreign and export 35 284,657 +78 159,586 - 160,338
-------------------------------------------------------------------------
Net sales 100% $802,513 +34% $598,496 +1% $594,533
=========================================================================
</TABLE>
RESULTS OF OPERATIONS: 1993 COMPARED WITH 1992
OVERVIEW. Net income for 1993 was $20.1 million, up 56 percent
from $12.9 million in 1992. The 1993 results include a
nonrecurring after-tax gain of $1.0 million ($0.05 per share)
related to the settlement of a patent infringement suit.
Excluding the nonrecurring gain, net income for 1993 was up 48
percent.
Earnings for 1993 increased primarily because of increased sales
of metalcutting inserts and toolholding devices in the United
States. In addition, earnings were favorably affected by lower
manufacturing costs associated with higher production levels in
the company's metalworking operations. However, operating
expenses increased slightly from 1992 because of increased
selling and marketing efforts.
SALES AND MARKETS. Worldwide sales of metalworking products
decreased one percent from 1992 because of lower sales volume in
Europe and lower overall sales of industrial supply products.
Excluding price increases and negative foreign currency
translation effects, worldwide metalworking volume declined one
percent from 1992.
In the United States, metalworking sales were flat compared with
those of 1992. Sales of metalcutting inserts and toolholding
devices increased two percent while sales of industrial supply
products decreased three percent as a result of product
rationalization efforts. Sales of industrial supply products
through full service supply programs and mail-order catalogs
continued to experience growth.
Sales of mining and construction tools increased 12 percent from
1992 because of higher volume and greater demand for highway
construction and mining tools.
(Page 17)
Foreign and export sales declined one percent from 1992 because
of lower sales volume in Europe and negative foreign currency
translation effects. However, sales continued to grow in Asia-
Pacific markets. Excluding foreign currency translation effects,
foreign and export sales increased one percent from 1992.
COSTS AND EXPENSES. As a percentage of sales, the gross margin
was 41.1 percent for 1993, up from 38.9 percent in 1992. The
gross margin for 1993 was favorably affected by higher production
levels, more favorable sales mix, cost containment and
productivity efforts. However, the gross margin for 1993 was
adversely affected by negative foreign currency translation
effects.
Operating expenses, consisting of research and development,
marketing and general and administrative expenses, increased two
percent from 1992 because of increased selling and marketing
efforts, higher salaries, wages and employee benefit costs,
additional depreciation charges related to the new Corporate
Technology Center and the start-up of a catalog sales branch in
Los Angeles, California, in August 1992. As a percentage of
sales, operating expenses were 33.6 percent for 1993, up from
33.1 percent in 1992.
Payroll and related expenses totaled $221 million in 1993, up
slightly from $216 million in 1992. Average total employment
decreased three percent from 1992 because of cost reduction
programs.
Interest expense decreased five percent from 1992 because of
lower average borrowings and slightly lower interest rates.
Average debt outstanding was $125 million in 1993, down five
percent from $132 million in 1992. Approximately 44 and 50
percent of the company's total debt was subject to variable
interest rates at June 30, 1993 and 1992, respectively.
The effective tax rate was 41.1 percent in 1993, up from 38.6
percent in 1992. Excluding the effects of certain nonrecurring
items in 1992, the adjusted effective tax rate was 42.5 percent.
The effective tax rate for 1993 benefited from the use of greater
foreign tax credits when compared to the adjusted effective tax
rate for 1992.
LIQUIDITY AND CAPITAL RESOURCES
Kennametal generates sufficient cash from operations to meet most
of its financing needs. In addition, at June 30, 1994, the
company had global lines of credit with banks totaling $225
million, of which $172 million was unused. Non-U.S. subsidiaries
generally obtain financing through revolving credit agreements
with local banks.
During 1994, the company generated $30 million in cash from
operations. Cash provided from operations decreased from last
year primarily because of spending in connection with
restructuring and integration related activities. Capital
expenditures, totaling $27 million, were utilized to upgrade
machinery and equipment and to modernize facilities. The company
paid $14 million of cash dividends.
On August 4, 1993, the company completed the acquisition of an 81
percent interest in Hertel. In connection with the acquisition,
the company obtained a new $130 million credit agreement dated as
of July 29, 1993 (the "credit agreement"). The credit agreement
provided a $40 million bridge loan facility earmarked to purchase
Hertel shares ($38.7 million of which was borrowed) and $90
million of revolving credit lines in two equal tranches. The
bridge loan was repaid on December 24, 1993, and, therefore,
expired. The Tranche A line of credit matured on July 27, 1994,
while the Tranche B line of credit matures on July 27, 1996.
(Page 18)
On December 23, 1993, the company completed the sale of 1,972,250
shares of common stock (exclusive of the 2-for-1 stock split
impact), resulting in net proceeds of $73,594,000. The company
used $38,700,000 of the proceeds from the offering to repay the
bridge loan and $34,894,000 to reduce borrowings under the
revolving credit lines.
During 1993, the company generated $42 million in cash from
operations which was used primarily to finance $23 million of
capital expenditures and pay $13 million of cash dividends.
Capital expenditures were utilized to upgrade machinery and
equipment, to upgrade management information systems and to
relocate and expand the J&L Industrial Supply facility in
Charlotte, North Carolina.
During 1992, the company generated $47 million in cash from
operations which was used primarily to finance $37 million of
capital expenditures and pay $12 million of cash dividends.
Capital expenditures were used to complete construction of the
new $27 million Corporate Technology Center, to expand and
modernize facilities, to upgrade machinery and equipment and to
acquire management information systems.
Capital expenditures for fiscal 1995, which have been estimated
at approximately $50-55 million, will be employed to modernize
facilities and upgrade machinery and equipment. The company
plans to finance these expenditures with cash from operations and
borrowings under existing revolving credit agreements.
FINANCIAL POSITION
Kennametal maintained its strong financial position through
fiscal 1994. Working capital was $131 million and $121 million
as of June 30, 1994 and 1993, respectively. Total debt was $147
million and $111 million as of June 30, 1994 and 1993,
respectively. The ratio of total debt to capital was 31.3
percent and 30.2 percent as of June 30, 1994 and 1993,
respectively. Over the long-term, the company's financial
objective is to maintain a debt to capital ratio of not more than
40 percent.
In the first quarter of fiscal year 1994, the company recorded
cumulative effect charges aggregating $15 million after taxes for
the adoption of SFAS No. 106 and SFAS No. 109. While these
charges did not involve the use of cash, they significantly
affected various components of the company's consolidated
financial position at June 30, 1994.
NEW ACCOUNTING STANDARD
In November 1992, the Financial Accounting Standards Board issued
SFAS No. 112 "Employers' Accounting for Postemployment Benefits,"
which requires companies to recognize the obligation to provide
benefits to their former or inactive employees after employment,
but before retirement. The company will adopt this new standard
in fiscal 1995. The company does not expect the new accounting
requirement to have a material effect on its financial
statements.
INFLATION
Despite modest inflation in recent years, rising costs continue
to affect the company's businesses throughout the world.
Kennametal strives to minimize the effects of inflation through
cost containment, productivity efforts and price increases under
competitive conditions.
(Page 19)
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<CAPTION>
Year ended June 30 1994 1993 1992
- - - ---------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net sales $802,513 $598,496 $594,533
-------- -------- --------
Costs and expenses:
Cost of goods sold 472,533 352,773 362,967
Research and development 15,201 14,714 13,656
Marketing 189,487 144,850 137,494
General and administrative 58,612 41,348 45,842
Interest expense 13,811 9,549 10,083
Amortization of intangibles 3,996 3,425 3,479
Restructuring charge 24,749 - -
Patent litigation income - (1,738) -
-------- -------- --------
Total costs and expenses 778,389 564,921 573,521
-------- -------- --------
Other income (expense) 1,860 519 (40)
Income before taxes on income,
minority interest and cumulative
effect of accounting changes 25,984 34,094 20,972
Provisions for income taxes:
Current 17,200 11,100 10,300
Deferred (1,700) 2,900 (2,200)
-------- -------- --------
Total provisions for income taxes 15,500 14,000 8,100
Minority interest in losses of
Hertel AG 431 - -
-------- -------- --------
Income before cumulative
effect of accounting changes 10,915 20,094 12,872
Cumulative effect of accounting
changes, net of income taxes:
Postretirement benefits (20,060) - -
Income taxes 5,057 - -
-------- -------- --------
Net income (loss) $ (4,088) $ 20,094 $ 12,872
======== ======== ========
PER SHARE DATA
Earnings before cumulative
effect of accounting changes $ 0.45 $ 0.93 $ 0.60
Cumulative effect of accounting
changes:
Postretirement benefits (0.83) - -
Income taxes 0.21 - -
-------- -------- --------
Earnings (loss) per share $ (0.17) $ 0.93 $ 0.60
======== ======== ========
Dividends per share $ 0.58 $ 0.58 $ 0.58
======== ======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
(Page 20)
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
As of June 30 1994 1993
- - - ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 17,190 $ 4,149
Accounts receivable, less allowance for
doubtful accounts of $9,328 and $2,062 143,691 89,496
Inventories 158,179 115,230
Deferred income taxes 13,744 -
-------- --------
Total current assets 332,804 208,875
-------- --------
Property, Plant and Equipment:
Land and buildings 138,956 114,951
Machinery and equipment 328,696 287,477
Less accumulated depreciation (224,554) (210,123)
-------- --------
Net property, plant and equipment 243,098 192,305
-------- --------
Other Assets:
Investments in affiliated companies 6,393 4,819
Intangible assets, less accumulated
amortization of $16,540 and $12,368 32,141 29,766
Deferred income taxes 65,606 -
Other 17,490 12,498
-------- --------
Total other assets 121,630 47,083
-------- --------
Total assets $697,532 $448,263
======== ========
LIABILITIES
Current Liabilities:
Current maturities of term debt and
capital leases $ 4,364 $ 2,184
Notes payable to banks 52,753 20,553
Accounts payable 52,148 32,492
Accrued vacation pay 15,569 12,233
Other 77,193 20,536
-------- --------
Total current liabilities 202,027 87,998
-------- --------
Term Debt and Capital Leases,
Less Current Maturities 90,178 87,891
Deferred Income Taxes 19,279 10,744
Other Liabilities 51,800 6,489
-------- --------
Total liabilities 363,284 193,122
-------- --------
Minority Interest in Hertel AG 11,412 -
SHAREHOLDERS' EQUITY
Shareholders' Equity:
Capital stock, $1.25 par value; 30,000,000 shares
authorized; 29,369,658 and 12,712,579
shares issued 36,712 15,891
Preferred stock, 5,000,000 shares authorized;
none issued - -
Additional paid-in capital 83,839 28,135
Retained earnings 245,428 263,531
Treasury shares, at cost (3,015,466 and
1,754,744 shares) (39,247) (44,974)
Pension liability adjustment (536) -
Cumulative translation adjustments (3,360) (7,442)
-------- --------
Total shareholders' equity 322,836 255,141
-------- --------
Total liabilities and shareholders' equity $697,532 $448,263
======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
(Page 21)
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<CAPTION>
Year ended June 30 1994 1993 1992
- - - ------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Stock
Balance at beginning of year $ 15,891 $ 15,891 $ 15,891
Issuance of common stock 2,465 - -
Two-for-one stock split 18,356 - -
-------- -------- --------
Balance at end of year 36,712 15,891 15,891
-------- -------- --------
Additional Paid-in Capital
Balance at beginning of year 28,135 27,594 27,274
Dividend reinvestment and
stock purchase plan 424 144 340
Employee stock plans 2,507 397 (20)
Issuance of common stock 71,129 - -
Two-for-one stock split (18,356) - -
-------- -------- --------
Balance at end of year 83,839 28,135 27,594
-------- -------- --------
Retained Earnings
Balance at beginning of year 263,531 256,016 255,584
Net income (loss) (4,088) 20,094 12,872
Cash dividends (14,015) (12,579) (12,440)
-------- -------- --------
Balance at end of year 245,428 263,531 256,016
-------- -------- --------
Treasury Shares
Balance at beginning of year (44,974) (48,734) (52,080)
Dividend reinvestment and
stock purchase plan 590 1,567 1,516
Employee stock plans 5,137 2,193 1,830
-------- -------- --------
Balance at end of year (39,247) (44,974) (48,734)
-------- -------- --------
Pension Liability Adjustment
Additional minimum pension liability (536) - -
-------- -------- --------
Cumulative Translation Adjustments
Balance at beginning of year (7,442) 744 (3,134)
Current year translation
adjustments 4,082 (8,186) 3,878
-------- -------- --------
Balance at end of year (3,360) (7,442) 744
-------- -------- --------
Total shareholders' equity,
June 30 $322,836 $255,141 $251,511
======== ======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
(Page 22)
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Year ended June 30 1994 1993 1992
- - - -----------------------------------------------------------------------------
<S> <S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (4,088) $ 20,094 $ 12,872
Adjustments for non-cash items:
Depreciation and amortization 43,232 30,927 31,328
Other 14,984 3,202 (958)
Changes in certain assets and liabilities,
net of effects from acquisitions:
Accounts receivable (11,352) (1,644) 8,562
Inventories 9,638 (1,524) 5,493
Accounts payable and accrued liabilities (18,007) (1,422) (9,929)
Other (4,158) (7,615) (98)
-------- -------- --------
Net cash flow from operating activities 30,249 42,018 47,270
-------- -------- --------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (27,313) (23,099) (36,555)
Disposals of property, plant and equipment 6,716 1,460 3,968
Purchase of Hertel AG, net of cash (19,595) - -
Other (2,344) (2,373) (2,503)
-------- -------- --------
Net cash flow used for investing activities (42,536) (24,012) (35,090)
-------- -------- --------
FINANCING ACTIVITIES
Increase (decrease) in short-term debt 11,246 (7,310) (1,536)
Increase in term debt 5,715 1,000 700
Reduction in term debt (64,098) (9,266) (4,473)
Net proceeds from issuance of common stock 73,594 - -
Dividend reinvestment and employee stock
plans 8,658 4,301 3,666
Cash dividends paid to shareholders (14,015) (12,579) (12,440)
Other 2,731 1,180 (371)
-------- -------- --------
Net cash flow from (used for)
financing activities 23,831 (22,674) (14,454)
-------- -------- --------
Effect of exchange rate changes on cash 1,497 (190) (7)
-------- -------- --------
CASH AND EQUIVALENTS
Net increase (decrease) in cash and
equivalents 13,041 (4,858) (2,281)
Cash and equivalents, beginning 4,149 9,007 11,288
-------- -------- --------
Cash and equivalents, ending $ 17,190 $ 4,149 $ 9,007
======== ======== ========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 12,403 $ 9,617 $ 10,564
Income taxes paid 16,296 13,232 9,221
The accompanying notes are an integral part of these statements.
</TABLE>
(Page 23)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management has prepared the accompanying consolidated financial
statements in accordance with generally accepted accounting
principles. The summary of significant accounting policies
within these principles is presented below to assist in
evaluating the company's financial statements.
PRINCIPLES OF CONSOLIDATION. The consolidated financial
statements include the accounts of the company and its majority-
owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
CASH EQUIVALENTS. Temporary cash investments having original
maturities of three months or less are considered cash
equivalents. Cash equivalents consist principally of investments
in money market funds and certificates of deposit.
ACCOUNTS RECEIVABLE include $6,293,000 and $3,786,000 of
receivables from affiliates at June 30, 1994 and 1993,
respectively.
INVENTORIES are carried at the lower of cost or market. The
company uses the last-in, first-out (LIFO) method for determining
the cost of a significant portion of its domestic inventories.
The remainder of inventories are determined under the first-in,
first-out (FIFO) or average cost methods.
PROPERTY, PLANT AND EQUIPMENT are carried at cost. Major
additions and betterments are capitalized, while maintenance and
repairs which do not improve or extend the lives of the
respective assets are expensed as incurred. Retirements and
disposals are removed from cost and accumulated depreciation
accounts, with the gain or loss reflected in income. Interest is
capitalized during construction of major facilities. Capitalized
interest, which is included in the asset's cost, is amortized
over the estimated useful life of the asset.
DEPRECIATION, for financial reporting purposes, is computed using
the straight-line method over the estimated useful lives of the
assets ranging from 4 to 40 years. Assets recorded under capital
leases are amortized over the term of the related leases by use
of the straight-line method.
INTANGIBLE ASSETS, which include the excess of cost over net
assets of acquired companies, are amortized using the straight-
line method over periods ranging from 5 to 40 years.
RESEARCH AND DEVELOPMENT costs are expensed as incurred.
INCOME TAXES. Effective July 1, 1993, the company adopted
Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes." The statement requires the use of
an asset and liability approach for financial accounting and
reporting for income taxes. If it is more likely than not that
some portion or all of a deferred tax asset will not be realized,
a valuation allowance is recognized.
The company does not provide for federal income taxes on
unremitted earnings of non-U.S. subsidiaries and unconsolidated
affiliates. Any federal income taxes on such earnings, if
remitted, would generally be offset by available foreign tax
credits. There were no significant unremitted earnings from
unconsolidated affiliates at June 30, 1994.
FOREIGN CURRENCY TRANSLATION. For the most part, assets and
liabilities of non-U.S. operations are translated into U.S.
dollars using year-end exchange rates, while revenues and
expenses are translated at average exchange rates throughout the
year. The resulting net translation adjustments are recorded as
a separate component of shareholders' equity.
EARNINGS PER SHARE is computed using the weighted average number
of shares outstanding during the year. Weighted average shares
outstanding were 24,304,000, 21,712,000 and 21,452,000 in 1994,
1993 and 1992, respectively.
PENSION PLANS cover substantially all employees. Pension
benefits are based on years of service and, for certain plans, on
average compensation immediately preceding retirement. Pension
costs are determined in accordance with SFAS No. 87 "Employers'
Accounting for Pensions." The company funds pension costs in
accordance with the funding requirements of the Employee
Retirement Income Security Act of 1974 (ERISA) for U.S. plans and
in accordance with local regulations or customs for non-U.S.
plans.
2 ACQUISITION AND RESTRUCTURING
On August 4, 1993, the company completed the acquisition of an 81
percent interest in Hertel AG (Hertel) for $43 million in cash
and $55 million of assumed debt. Hertel is a manufacturer of
cemented carbide tools and tooling systems based in Furth,
Germany.
The Hertel acquisition was recorded under the purchase method of
accounting and, accordingly, the results of operations of Hertel
for the period beginning as of August 4, 1993, forward are
included in the accompanying consolidated financial statements.
The purchase price has been allocated to assets acquired and
liabilities assumed based on fair market value at the date of
acquisition. The excess of the purchase price over the fair
market value of the net assets acquired has been recorded as
goodwill and is being amortized over twenty years.
(Page 24)
The fair values (as adjusted) of assets acquired and liabilities
assumed are summarized below:
<TABLE>
<CAPTION>
(Dollars in thousands)
- - - --------------------------------------------------------
<S> <C>
Current assets $114,800
Property, plant and equipment 70,200
Intangible assets (goodwill) 5,300
Deferred tax asset (Note 7) 40,600
Other noncurrent assets 10,500
Current liabilities 104,100
Long-term liabilities 89,400
</TABLE>
As presented above, current liabilities includes a reserve of
approximately $36.0 million (pretax) for the restructuring of
Hertel. The restructuring costs primarily include amounts for
severance, phaseout and relocation. The charges to the
restructuring reserve were $16.1 million, leaving a balance of
$20.3 million at June 30, 1994. It is expected that the
restructuring, which began in fiscal 1994, will be substantially
completed during fiscal year 1995.
In connection with the acquisition of Hertel, the company
recognized a special charge in the September 1993 quarter of
approximately $20.4 million after taxes in connection with the
closure of its manufacturing facility in Neunkirchen, Germany,
and other integration related actions. The charges to the
related reserve were $18.5 million, a significant portion of
which was cash charges, leaving a balance of $6.2 million at June
30, 1994. It is expected that the spending related to this
charge will be substantially completed during fiscal year 1995.
The effect of the purchase on the company's operations, assuming
the transaction had occurred on July 1, 1992, would be as
follows:
<TABLE>
PRO FORMA (UNAUDITED)
<CAPTION>
(Dollars in thousands, except per share data) 1994 1993
- - - -----------------------------------------------------------------------
<S> <C> <C>
Net sales $815,195 $808,711
======== ========
Income before cumulative
effect of accounting changes $ 9,136 $ 15,156
======== ========
Net income (loss) $ (5,867) $ 15,156
======== ========
Per share data:
Earnings before cumulative
effect of accounting changes $ 0.38 $ 0.70
Cumulative effect of accounting changes:
Postretirement benefits (0.83) -
Income taxes 0.21 -
-------- --------
Earnings (loss) per share $ (0.24) $ 0.70
======== ========
</TABLE>
The pro forma financial information presented above does not
purport to present what the company's results of operations would
actually have been if the acquisition of Hertel had occurred on
July 1, 1992, or to project the company's results of operations
for any future period.
3 INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993
- - - -----------------------------------------------------------------------
<S> <C> <C>
Finished goods $112,202 $ 97,365
Work in process and powder blends 54,831 38,177
Raw materials and supplies 20,571 8,803
-------- --------
Inventories at current cost 187,604 144,345
Less LIFO valuation (29,425) (29,115)
-------- --------
Total inventories $158,179 $115,230
======== ========
</TABLE>
Inventories are stated at lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for a
significant portion of domestic inventories and the first-in,
first-out (FIFO) method or average cost for other inventories.
The company used the LIFO method of valuing its inventories for
approximately 55 percent and 70 percent of total inventories at
June 30, 1994 and 1993, respectively. The company uses the LIFO
method for valuing the majority of its inventories in order to
match more closely current costs with current revenues, thereby
reducing the effects of inflation on earnings.
4 CURRENT LIABILITIES
Included in other current liabilities at June 30 were the
following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993
- - - --------------------------------------------------------------------
<S> <C> <C>
Accrued liabilities related to restructuring $ 25,631 $ -
Accrued compensation 11,961 4,299
Payroll, state and local taxes 8,172 3,289
Federal and state income taxes 5,546 4,633
Accrued warranty 4,651 -
Postretirement benefits other than pensions 2,074 -
Accrued interest 1,114 1,303
Other accrued expenses 18,044 7,012
-------- --------
Total other current liabilities $ 77,193 $ 20,536
======== ========
</TABLE>
(Page 25)
5 TERM DEBT AND CAPITAL LEASES
Term debt and capital lease obligations consisted of the
following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993
- - - --------------------------------------------------------------------------
<S> <C> <C>
Senior notes, 9.64%, due in installments
through 2000 $ 50,000 $ 50,000
Notes payable under domestic revolving
credit agreements, varying from 3.70%
to 3.75% (1993) - 20,000
Industrial Revenue Notes, 8.05% tax exempt,
due in installments through 1996 1,667 6,000
Foreign borrowings, varying
from 5.0%-10.25% (1994) and
5.0%-8.4% (1993), due in
installments through 2006 20,291 6,116
Lease of office facilities with
lease periods expiring through 2010
at 6.75% - 7.55% 13,182 -
Other 9,402 7,959
-------- --------
Total term debt and capital leases 94,542 90,075
Less current maturities:
Term debt (2,811) (2,184)
Capital leases (1,553) -
-------- --------
(4,364) (2,184)
-------- --------
Long-term debt and capital leases $ 90,178 $ 87,891
======== ========
</TABLE>
Future principal maturities of term debt are $2.8 million, $15.2
million, $17.4 million, $12.5 million and $12.3 million,
respectively, in fiscal years 1995 through 1999.
Certain of the term debt agreements contain various restrictions
relating to, among other things, net worth, incurrence of
additional debt, transactions in the company's own stock and
dividends.
Minimum lease payments under capital leases expiring subsequent
to June 30, 1994, are (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
<S> <C>
1995 $ 1,553
1996 1,553
1997 1,553
1998 1,553
1999 1,553
Thereafter 14,449
---------
Total minimum lease payments 22,214
Less amount representing interest (9,032)
---------
Present value of net minimum lease payments $ 13,182
=========
</TABLE>
The company has no significant obligations under operating lease
agreements.
6 NOTES PAYABLE AND LINES OF CREDIT
Notes payable to banks of $52.8 million at June 30, 1994, and
$20.6 million at June 30, 1993, represent short-term borrowings
under domestic and foreign credit lines with banks.
Domestic and foreign credit lines totaled approximately
$225 million of which $172 million was unused at June 30, 1994.
Domestic credit lines are covered by one revolving credit
agreement totaling $90 million. Borrowings under this agreement
are available at fixed or variable interest rates. The credit
lines expire during fiscal 1995 and 1996 and require the company
to pay a facility fee on the total line or a commitment fee on
unborrowed amounts under one of the lines. The company has the
option to terminate this agreement in whole or in part at any
time.
7 INCOME TAXES
Effective July 1, 1993, the company adopted SFAS No. 109
"Accounting for Income Taxes." The company previously accounted
for income taxes pursuant to the provisions of APB No. 11. The
new standard requires the use of the liability method to
recognize deferred income tax assets and liabilities using
enacted tax rates. Financial statements for prior years have not
been restated to apply the provisions of SFAS No. 109. As a
result of implementing the change in accounting principle, a net
deferred tax liability of $5.6 million was recognized relating to
net operating loss carryforwards and other tax attributes
existing as of July 1, 1993. In addition, the income tax effect
of the new method of accounting related to the company's adoption
of SFAS No. 106 as of July 1, 1993, was the recognition of
additional deferred tax assets of $13.9 million. The combined
effect of these items resulted in the recognition of an $8.3
million net deferred tax asset and a net income tax benefit of
$5.1 million.
The current provisions for income taxes, excluding the effects of
accounting changes, consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993 1992
- - - ------------------------------------------------------------
<S> <C> <C> <C>
Federal $15,000 $ 7,100 $ 6,000
State 3,100 2,000 800
Foreign (900) 2,000 3,500
------- ------- -------
Total $17,200 $11,100 $10,300
======= ======= =======
</TABLE>
(Page 26)
The components of income before taxes on income were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993 1992
- - - -------------------------------------------------------------
<S> <C> <C> <C>
Domestic $39,095 $33,655 $19,920
Foreign (13,111) 439 1,052
------- ------- -------
Total $25,984 $34,094 $20,972
======= ======= =======
</TABLE>
The reconciliation of the difference between income taxes
computed using the statutory U.S. income tax rate and the
provision for income taxes is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993 1992
- - - --------------------------------------------------------------
<S> <C> <C> <C>
Income taxes at U.S.
statutory rate $ 9,094 $11,592 $ 7,130
State taxes, net of federal
income tax benefit 2,018 1,331 540
Foreign tax effects 2,883 (255) 1,674
Foreign losses not
currently benefited 2,325 540 249
Divestiture of subsidiary - - (921)
Other (820) 792 (572)
------- ------- -------
Total provision
for income taxes $15,500 $14,000 $ 8,100
======= ======= =======
</TABLE>
Deferred tax assets and liabilities as of June 30, 1994, and
July 1, 1993, were comprised of the following:
<TABLE>
<CAPTION>
June 30, July 1,
(Dollars in Thousands) 1994 1993
- - - -------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $50,839 $ 1,086
Deductible temporary differences:
Inventories 8,071 6,375
Property, plant and equipment 3,889 1,902
Vacation pay 3,471 3,287
Pensions and other long-term liabilities 1,630 2,288
Postretirement benefits other than pensions 13,972 13,940
Other deductible temporary differences 4,575 2,424
------- -------
Total deferred tax assets 86,447 31,302
Valuation allowance (5,760) (1,086)
------- -------
Net deferred tax asset $80,687 $30,216
======= =======
Deferred tax liabilities:
Accumulated depreciation $20,617 $21,953
======= =======
</TABLE>
The sources of deferred income taxes in 1993 and 1992 were as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
- - - --------------------------------------------------------------------------
<S> <C> <C>
Depreciation $ 200 $ 200
Inventory 400 (600)
Patent litigation 2,200 -
Vacation pay 200 (1,000)
Other timing differences (100) (800)
------- -------
Total $ 2,900 $(2,200)
======= =======
</TABLE>
As a component of its cumulative adjustment from implementing
SFAS No. 109, the company recognized a charge of $1.1 million to
establish a valuation reserve related to certain tax attributes
comprising its net deferred tax asset. As of July 1, 1993,
deferred tax liabilities associated with existing taxable
temporary differences exceeded deferred tax assets from future
deductible temporary differences, excluding those attributable to
SFAS No. 106, by approximately $5.7 million. The recognition by
the company as of July 1, 1993, of the entire transition
obligation related to adopting the provisions of SFAS No. 106
resulted in the recognition of a $13.9 million deferred tax
asset. Future operating costs under SFAS No. 106 are expected to
exceed deductible amounts for income tax purposes for many years.
In addition, under current federal tax regulations, should the
company incur tax losses in future periods, such losses may be
carried forward to offset taxable income for a period of up to 15
years. Based upon the length of the period during which the SFAS
No. 106-generated deferred tax asset can be utilized, the company
believes that it is more likely than not that future taxable
income will be sufficient to offset fully these future deductions
and a valuation allowance for this deferred tax asset is not
necessary.
At June 30, 1994, the company had unused tax benefits of $50.8
million related to non-U.S. net operating loss (NOL)
carryforwards for income tax purposes, of which $46.7 million can
be carried forward indefinitely with the balance expiring at
various dates through 2001. A significant portion ($46.7
million) of the unused tax benefits relate to the Federal
Republic of Germany (Germany).
The net change in the valuation allowance for deferred tax assets
was an increase of $4.7 million in fiscal 1994 and relates to the
acquired NOL carryforwards generated by Hertel subsidiaries prior
to the date of acquisition and losses generated by foreign
subsidiaries in fiscal 1994. A valuation allowance has been
established for those tax credits which are not expected to be
realized. No net benefit has been given to the non-German NOL
carryforwards because of the limited carryforward periods and/or
the uncertain business conditions relating to the operations
giving rise to such carryforwards.
The company believes that it is more likely than not that $45.1
million of NOL carryforwards will be utilized in future periods.
The recorded tax benefits are expected to be realized by
achieving future profitable operations in Germany. The German
NOL carryforwards can be carried forward indefinitely.
(Page 27)
The $45.1 million of NOL carryforwards relate principally to
those generated by Hertel in Germany prior to the date of
acquisition. Based on average exchange rates in effect during
the respective periods, Hertel had sales of approximately $229
million, $201 million and $136 million for calendar 1991, 1992
and the first six months of 1993 and sustained net losses for
those periods of approximately $44.2 million, $60.5 million and
$13.5 million, respectively. While Hertel recorded significant
tax losses in Germany in the periods immediately preceding the
acquisition, prior to those periods the company had a history of
profitability. The company was founded in Germany in 1947 and
has operated continuously since that time. Prior to the
acquisition, Hertel had undertaken a major restructuring program
to improve performance by implementing a cost reduction program
and enhancing asset utilization. Additionally, subsequent to the
acquisition, Kennametal implemented a plan of integration and
restructuring at Hertel which was designed to improve Hertel's
profitability by lowering working capital requirements, reducing
overall expenses and improving capacity utilization.
In addition, Kennametal has a history of profitability in
Germany. Kennametal G.m.b.H., Kennametal's wholly-owned
subsidiary in Germany, has operated profitably in Germany since
its inception in 1964. Kennametal is currently in the process of
integrating and rationalizing its businesses with that of Hertel.
As part of this rationalization, Kennametal has closed its German
manufacturing facility and consolidated other operations.
Based upon the above described facts and circumstances and the
improved financial results of Hertel since the date of
acquisition, Kennametal believes that it will continue to gain
substantial efficiencies and cost savings through rationalizing
the combined Kennametal/Hertel German operations and thereby
achieve future profitable operations sufficient to realize the
recorded tax benefits.
8 PENSION BENEFITS
The following table sets forth the funded status of the company's
U.S. pension plans and the amounts recognized in the consolidated
balance sheets at June 30, 1994 and 1993:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993
- - - ---------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $119,025 $113,041
Nonvested benefits 2,881 4,129
-------- --------
Accumulated benefit obligation 121,906 117,170
Value of future salary projections 39,442 35,866
-------- --------
Projected benefit obligation 161,348 153,036
Fair value of plan assets 203,715 201,622
-------- --------
Plan assets in excess of projected
benefit obligation 42,367 48,586
Amounts not recognized in
the financial statements:
Unrecognized net asset from July 1, 1986 (18,868) (21,048)
Unrecognized prior service cost 1,299 1,609
Unrecognized net gain (21,959) (28,657)
Adjustment to recognize minimum liability (1,624) -
-------- --------
Prepaid pension asset at June 30 $ 1,215 $ 490
======== ========
</TABLE>
Plan assets consist principally of common stocks, corporate bonds
and U.S. government securities. The discount rate used in
determining the actuarial present value of benefit obligations
was 8.25 percent for 1994 and 1993, and the rate of increase in
future compensation levels was 5 percent for 1994 and 5.25
percent for 1993. The expected long-term rate of return on
assets was 9 percent for 1994 and 1993.
The components of net pension expense (credit) for the company's
U.S. pension plans were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993 1992
- - - ------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 5,777 $ 6,338 $ 6,355
Interest cost on projected
benefit obligation 12,345 12,644 11,601
Return on plan assets (8,885) (27,814) (24,873)
Net amortization and deferral (11,099) 9,946 8,011
-------- -------- --------
Net pension expense (credit) $ (1,862) $ 1,114 $ 1,094
======== ======== ========
</TABLE>
Pension plans of certain non-U.S. subsidiaries are not required
to report to U.S. government agencies pursuant to ERISA. In
connection with the acquisition of Hertel, the company assumed
the unfunded vested benefit obligations of Hertel. The unfunded
vested benefit obligation at June 30, 1994, was $12.4 million and
is included in other noncurrent liabilities on the consolidated
balance sheet. There were no significant unfunded vested
benefits for the company's non-U.S. pension plans at June 30,
1993.
(Page 28)
Total pension expense (credit) for U.S. and non-U.S. plans
amounted to $(1,196,000), $1,799,000 and $2,446,000 in 1994, 1993
and 1992, respectively.
9 OTHER POSTRETIREMENT BENEFITS
The company provides varying levels of postretirement health care
and life insurance benefits to most U.S. employees who retire
from active service after having attained age 55 and 10 years of
service. This plan remains in effect for all current retirees
and employees who will retire prior to January 1, 1997. However,
for those employees retiring on or after January 1, 1997, the
following plan amendments will be effective. The company's
retiree health care payments will be capped at 1996 levels. To
qualify for medical benefits at normal retirement (age 65 or
later), employees must have a minimum of 5 years of service after
age 40. Medical benefits will be available for only those
retirements that begin on or after the normal retirement age of
65.
Effective July 1, 1993, the company adopted SFAS No. 106
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." These benefits are now accrued over the period the
employee provides services to the company (accrual basis). Prior
to the change, costs were charged to expense as incurred (cash
basis). The accounting change resulted in a one-time charge to
earnings of $20.1 million, net of taxes of $13.9 million.
Postretirement benefit expense was $3.9 million in 1994
(including $2.1 million due to the application of the new rule),
$1.9 million in 1993 and $1.6 million in 1992.
The following table presents the components of the company's
liability for future retiree health care and life insurance
benefits as of June 30, 1994, and July 1, 1993:
<TABLE>
<CAPTION>
June 30, July 1,
(Dollars in thousands) 1994 1993
- - - ------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees $(14,800) $(15,100)
Fully eligible active participants (8,000) (7,600)
Other active participants (13,000) (11,300)
-------- --------
Total obligation (35,800) (34,000)
Assets at fair value - -
-------- --------
Accrued postretirement benefit liability $(35,800) $(34,000)
======== ========
</TABLE>
As of June 30, 1994, the company's accrued postretirement benefit
liability was $35.8 million. The long-term portion of the
accrued liability, $33.8 million, is included in other noncurrent
liabilities on the consolidated balance sheet.
The components of retiree health care expense for 1994 were as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994
- - - -------------------------------------
<S> <C>
Service cost $1,080
Interest cost 2,820
------
Total cost $3,900
======
</TABLE>
The discount rate used in calculating the accumulated
postretirement benefit obligations was 8.5 percent. In
determining the accumulated postretirement benefit obligations at
July 1, 1993 and June 30, 1994, the assumed rates of increase in
health care costs were 15 percent for retirees under age 65 and
10 percent for persons age 65 and older. These rates are assumed
to decrease in varying degrees annually to 6 percent for years
2002 and thereafter. A 1 percent increase in the trend rate
would increase both the accumulated postretirement benefit
obligation at June 30, 1994, and the total cost of the plan for
fiscal year 1994 by approximately 8 percent. The accumulated
postretirement benefit obligation is unfunded.
In November 1992, the Financial Accounting Standards Board issued
Statement No. 112 "Employers' Accounting for Postemployment
Benefits." Under the new standard, the company must recognize
the obligation to provide benefits to former or inactive
employees after employment, but before retirement. The company
must adopt this new standard no later than fiscal 1995.
Management does not expect that the implementation of the new
standard will have a significant effect on the results of
operations or financial position of the company.
10 FINANCIAL INSTRUMENTS
FAIR VALUE. The company had $17.2 million in cash and cash
equivalents at June 30, 1994, which approximates fair value
because of the short maturity of these investments.
The estimated fair value of the company's term debt was $84.1
million at June 30, 1994. The fair value of the company's term
debt was estimated using discounted cash flow analyses, based on
the company's incremental borrowing rates for similar types of
borrowing arrangements.
(Page 29)
OFF-BALANCE-SHEET RISK. The company is a party to financial
instruments with off-balance-sheet risk in the normal course of
business to reduce its own exposure to fluctuations in currency
exchange rates. These financial instruments include forward
currency contracts which involve credit risk in excess of the
amount recognized in the financial statements. The company
believes that the actual exposure to loss is minimal and
immaterial. As of June 30, 1994, the company had no financial
instruments with significant off-balance-sheet risk.
CONCENTRATIONS OF CREDIT RISK. Financial instruments that
potentially subject the company to concentrations of credit risk
consist primarily of temporary cash investments and trade
receivables. By policy, the company places its temporary cash
investments with high credit quality financial institutions.
Concentrations of credit risks with respect to trade receivables
are limited because there are a large number of customers in the
company's customer base spread across many industries and
geographic areas. As of June 30, 1994, the company had no
significant concentrations of credit risk.
11 SHAREHOLDERS' EQUITY
On August 1, 1994, the company's Board of Directors authorized a
2-for-1 stock split in the form of a stock dividend payable on
August 22, 1994, to shareholders of record August 10, 1994. The
split resulted in the issuance of 14,684,829 additional shares of
common stock from authorized but unissued shares. The stated par
value of each share was not changed from $1.25. The issuance of
authorized but unissued shares resulted in the transfer of $18.4
million from additional paid-in capital to capital stock,
representing the par value of the shares issued. All references
in the financial statements to average number of shares
outstanding and related prices, per share amounts and stock
option plan data have been restated to reflect the split.
12 STOCK OPTIONS
Under stock option plans approved by shareholders in 1992 and
1988, stock options are granted to eligible employees at a price
not less than fair market value at the date of grant. Options
are exercisable under specified conditions for up to ten years
from the date of grant. No options may be granted under the 1988
plan after October 1998 and no options may be granted under the
1992 plan after October 2002. No charges to income have resulted
from the operation of the plans.
Under provisions of the plans, participants may deliver
Kennametal stock in payment of the option price and receive
credit for the fair market value of the shares on the date of
delivery. Shares valued at $1,246,000 (62,934 shares), $328,000
(20,668 shares) and $307,000 (18,668 shares) were delivered in
1994, 1993 and 1992, respectively.
Under the 1992 and 1988 plans, shares may be awarded to eligible
employees without payment. The respective plans specify such
shares are awarded in the name of the employee, who has all the
rights of a shareholder, subject to certain restrictions or
forfeitures. To date, no such awards have been made.
Transactions under the company's stock option plans were as
follows:
<TABLE>
<CAPTION>
Number of Shares 1994 Option
--------------------------------- Prices
1994 1993 1992 Per Share
-------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Options outstanding,
beginning of year 914,616 1,115,384 940,760 $17.32-11.41
Granted 100,000 42,000 348,500 20.53
Exercised (508,966) (201,196) (170,676) 17.32-11.41
Lapsed and forfeited (30,000) (41,572) (3,200) 16.94-14.50
------- --------- --------- ------------
Options outstanding,
end of year 475,650 914,616 1,115,384 $20.53-14.06
======= ========= ========= ============
Exercisable at year-end 235,504 741,710 917,182 $16.94-14.06
======= ========= ========= ============
Available for
future grant 961,290 1,031,290 40,894
======= ========= =========
</TABLE>
13 SHAREHOLDER RIGHTS PLAN
During fiscal 1991, the company adopted a Shareholder Rights Plan
to protect shareholders against abusive takeover tactics and to
preserve the company's long-range strategic plans from
disruption. The Board of Directors declared a distribution of
one preferred stock purchase right for each outstanding share of
capital stock of the company. Each right will entitle a
shareholder to buy one one-hundredth of a share of a new series
of preferred stock at a price of $105 (subject to adjustment).
The rights will be exercisable only if a person or group of
persons acquires or intends to make a tender offer for 20 percent
or more of the company's capital stock. If any person acquires
20 percent of the company's capital stock, each right will
entitle the shareholder to receive that number of shares of the
company's capital stock having a market value of two times the
exercise price. If the company is acquired in a merger or other
business combination, each right will entitle the shareholder to
purchase at the exercise price, that number of shares of the
acquiring company having a market value of two times the exercise
price.
(Page 30)
The rights will expire on November 2, 2000, and are subject to
redemption by the company at $0.01 per right.
14 SEGMENT DATA
The company operates predominantly as a tooling supplier
specializing in powder metallurgy. The following is information
about the company's operations by geographic area:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993 1992
- - - --------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
Gross sales:
United States $610,320 $512,748 $500,141
Europe and other 296,702 156,183 159,637
-------- -------- --------
Total 907,022 668,931 659,778
-------- -------- --------
Less intersegment transfers:
United States 70,005 52,492 49,718
Europe and other 34,504 17,943 15,527
-------- -------- --------
Total 104,509 70,435 65,245
-------- -------- --------
Net sales $802,513 $598,496 $594,533
======== ======== ========
Operating income:
United States $ 47,560 $ 39,452 $ 28,876
Europe and other (8,263) 1,483 1,710
-------- -------- --------
Total operating income 39,297 40,935 30,586
-------- -------- --------
Eliminations (1,362) 451 509
Interest expense (13,811) ( 9,549) (10,083)
Patent litigation income - 1,738 -
Other income (expense) 1,860 519 (40)
-------- -------- --------
Income before taxes on income $ 25,984 $ 34,094 $ 20,972
======== ======== ========
Identifiable assets:
United States $422,517 $359,996 $370,250
Europe and other 279,558 94,730 100,417
Eliminations (26,455) (18,316) (14,382)
Corporate 21,912 11,853 15,882
-------- -------- --------
Total assets $697,532 $448,263 $472,167
======== ======== ========
</TABLE>
Intersegment transfers are accounted for at arm's-length prices
reflecting prevailing market conditions within the various
geographic areas. Such sales and associated costs are eliminated
in the consolidated financial statements. Operating income is
defined as net sales less costs and expenses, except interest
expense, patent litigation income and other income (expense).
Identifiable assets are those assets that are identified with the
operations in each geographic area. Corporate assets consist
mainly of cash equivalents, investments in unconsolidated
affiliates and the cash surrender value of life insurance.
Sales to a single customer did not aggregate ten percent or more
of total sales. Export sales from U.S. operations to
unaffiliated customers were $22.7 million, $21.7 million and
$16.2 million in 1994, 1993 and 1992, respectively.
15 PATENT LITIGATION
During 1991, a trial court awarded $7.1 million in damages, plus
attorneys' fees, to GTE Products Corporation (GTE) in a patent
infringement suit filed against the company in the Federal
District Court for the Western District of Virginia. The suit
involved an infringement of a GTE patent on certain styles of
carbide cutter bits used in the road planing industry.
In connection with this litigation, the company recorded a pretax
charge to earnings in fiscal 1991 totaling $6.4 million ($0.18
per share). Kennametal settled this suit with GTE for $5.8
million in cash which resulted in a one-time gain of $1.0 million
(after-tax), or $0.05 per share in fiscal 1993.
16 PENDING LITIGATION
The company has been involved in various environmental clean-up
and remediation activities at several of its manufacturing
facilities. In addition, the company has been named as a
potentially responsible party at four Superfund sites in the
United States. However, it is management's opinion, based on its
evaluations and discussions with outside counsel and independent
consultants, that the ultimate resolution of these environmental
matters will not have a material adverse effect on the results of
operations or financial position of the company.
The company maintains a Corporate Environmental, Health and
Safety (EH&S) Department to effect compliance with all
environmental regulations and to monitor and oversee remediation
activities. In addition, the company has established an EH&S
administrator at each of its domestic manufacturing facilities.
The company's financial management team periodically meets with
members of the Corporate EH&S Department and the Corporate Legal
Department to review and evaluate the status of environmental
projects and contingencies. On a quarterly and annual basis,
management establishes or adjusts financial provisions and
reserves for environmental contingencies in accordance with SFAS
No. 5 "Accounting for Contingencies."
(Page 31)
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
SELECTED QUARTERLY FINANCIAL DATA
<CAPTION>
(Dollars in thousands, except per share data)
NET EARNINGS
NET GROSS INCOME (LOSS)
SALES PROFIT (LOSS) PER SHARE
-------- -------- ---------
<S> <C> <C> <C> <C>
Year ended
June 30, 1994
First quarter $175,665 $ 70,018 $(33,057) $ (1.51)
Second quarter 195,167 76,913 4,088 $ 0.18
Third quarter 211,809 88,429 11,090 $ 0.43
Fourth quarter 219,872 94,620 13,791 $ 0.52
-------- -------- --------
Fiscal year $802,513 $329,980 $ (4,088) $ (0.17)
======== ======== ========
Year ended
June 30, 1993
First quarter $148,830 $ 58,976 $ 3,025 $ 0.14
Second quarter 140,697 54,574 2,078 $ 0.10
Third quarter 153,691 64,943 7,333 $ 0.34
Fourth quarter 155,278 67,230 7,658 $ 0.35
-------- -------- --------
Fiscal year $598,496 $245,723 $ 20,094 $ 0.93
======== ======== ========
</TABLE>
Earnings (loss) per share amounts for each quarter are required
to be computed independently and, therefore, may not equal the
amount computed for the year.
The net loss for the first quarter of fiscal 1994 included the
unfavorable cumulative noncash effect of adopting SFAS No. 106
($20.1 million net of income tax effect) and the favorable
cumulative noncash effect of adopting SFAS No. 109 ($5.1
million). In addition to the cumulative effect of changes in
accounting principles, first quarter 1994 results included a
restructuring charge of $20.4 million (after taxes) relating to
the acquisition of an 81 percent interest in Hertel.
In the second quarter of fiscal 1993, the company recorded an
after-tax gain of $1.0 million ($0.05 per share) relating to the
settlement of the GTE patent litigation.
STOCK PRICE RANGES AND DIVIDENDS PAID (UNAUDITED)
Kennametal's capital stock is traded on the New York Stock
Exchange (symbol KMT).
The approximate number of shareholders of record as of August 10,
1994, was 2,828.
Stock price ranges and dividends paid during each quarter were as
follows:
<TABLE>
<CAPTION>
1994 1993 Dividends Paid
--------------------- -------------------- ------------------------
Quarter High Low High Low 1994 1993
- - - ------- -------- -------- --------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
First quarter $19 1/16 $15 3/8 $17 1/4 $13 $0.145 $0.145
Second quarter 23 18 3/16 14 11/16 12 15/16 0.145 0.145
Third quarter 29 9/16 21 1/16 16 3/4 14 0.145 0.145
Fourth quarter 29 9/16 23 1/8 19 7/8 15 13/16 0.145 0.145
-------- -------- --------- --------- ------ ------
Fiscal year $29 9/16 $15 3/8 $19 7/8 $12 15/16 $ 0.58 $ 0.58
======== ======== ========= ========= ====== ======
</TABLE>
REPORT OF MANAGEMENT
TO THE SHAREHOLDERS OF KENNAMETAL INC.
The management of Kennametal Inc. is responsible for the
integrity of all information contained in this report. The
financial statements and related information were prepared by
management in accordance with generally accepted accounting
principles and, as such, contain amounts that are based on
management's best judgment and estimates.
Management maintains a system of policies, procedures and
controls designed to provide reasonable, but not absolute,
assurance that the financial data and records are reliable in all
material respects and that assets are safeguarded from improper
or unauthorized use. The company maintains an active internal
audit department which monitors compliance with this system.
The Board of Directors, acting through its Audit Committee, is
ultimately responsible for determining that management fulfills
its responsibilities in the preparation of the financial
statements. The Audit Committee meets periodically with
management, the internal auditors and the independent public
accountants to discuss auditing and financial reporting matters.
The internal auditors and independent public accountants have
full access to the Audit Committee without the presence of
management.
Kennametal has always placed the utmost importance on conducting
its business activities in accordance with the spirit and letter
of the law and the highest ethical standards. This philosophy is
embodied in a code of business conduct, and management employees
are required annually to submit certificates of compliance with
this code.
ROBERT L. MCGEEHAN
- - - ------------------------------------------
Robert L. McGeehan
President and Chief Executive Officer
RICHARD J. ORWIG
- - - ------------------------------------------
Richard J. Orwig
Vice President
Chief Financial and Administrative Officer
(Page 32)
REPORT OF AUDIT COMMITTEE
The Audit Committee of the Board of Directors is composed of
three independent directors and met four times during fiscal year
1994.
The Audit Committee's charter is to monitor Kennametal's
financial reporting process for accuracy, completeness and
timeliness. In fulfilling its responsibility, the committee
recommended to the Board of Directors the reappointment of Arthur
Andersen & Co. as the company's independent public accountants.
The Audit Committee reviewed with the internal auditors and the
independent accountants the overall scope and specific plans for
their respective audits. The committee evaluated with management
Kennametal's annual and quarterly reporting process and the
adequacy of the company's internal controls. The committee met
with the internal auditors and independent accountants, with and
without management present, to review the results of their
examinations, their evaluations of the company's internal
controls and the overall quality of Kennametal's financial
reporting.
The Audit Committee participates in a self-assessment program
whereby the composition, activities and interactions of the
committee are periodically evaluated by the committee. The
purpose of the program is to provide guidance with regard to the
continual fulfillment of the committee's responsibilities.
DICK ALBERDING
- - - -------------------------
Richard C. Alberding
Chairman, Audit Committee
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF KENNAMETAL INC.
We have audited the accompanying consolidated balance sheets of
Kennametal Inc. and subsidiaries as of June 30, 1994 and 1993,
and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period
ended June 30, 1994. These financial statements are the
responsibility of the company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Kennametal Inc. and subsidiaries as of June 30, 1994
and 1993, and the results of its operations and its cash flows
for each of the three years in the period ended June 30, 1994, in
conformity with generally accepted accounting principles.
As discussed in Notes 7 and 9, to the consolidated financial
statements, effective July 1, 1993, the Company changed its
methods of accounting for income taxes and postretirement
benefits other than pensions.
ARTHUR ANDERSEN & CO.
- - - ------------------------
Arthur Andersen & Co.
Pittsburgh, Pennsylvania
August 1, 1994
(Page 33)
<TABLE>
ELEVEN YEAR SUMMARY
(Dollars in thousands, except per share data)
<CAPTION>
Fiscal year ended June 30
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA: (1)
Earnings (loss) $ (0.17) $ 0.93 $ 0.60 $ 1.00 $ 1.54 $ 1.45 $ 1.19 $ 0.85 $ 0.03 $ 0.76 $ 0.48
Dividends 0.58 0.58 0.58 0.58 0.58 0.56 0.52 0.485 0.43 0.39 0.36
Book value 12.25 11.64 11.64 11.42 11.02 9.84 9.04 8.15 7.58 8.67 8.40
- - - ------------------------------------------------------------------------------------------------------------------------------------
RESULTS OF
OPERATIONS:
Net sales $802,513 $598,496 $594,533 $617,833 $589,023 $472,200 $419,900 $354,450 $355,377 $341,342 $319,343
Cost of goods sold 472,533 352,773 362,967 358,529 342,434 274,929 244,026 205,682 217,999 196,593 197,527
Operating
expenses (2) 263,300 200,912 196,992 200,288 179,259 138,346 124,074 112,432 111,167 107,923 96,611
Unusual charges
(credits) (3) 24,749 (1,738) - 6,350 - - - - 20,402 - -
Pretax income 25,984 34,094 20,972 38,386 55,113 50,894 43,419 31,600 771 34,312 22,860
Income taxes 15,500 14,000 8,100 17,300 23,000 20,900 19,100 14,400 200 15,289 10,900
Minority interest in
losses of Hertel AG 431 - - - - - - - - - -
Accounting
changes (4) (15,003) - - - - - - - - - -
Net income (loss) (4,088) 20,094 12,872 21,086 32,113 29,994 24,319 17,200 571 19,023 11,960
- - - ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
Working capital $130,777 $120,877 $108,104 $ 88,431 $108,954 $ 91,032 $ 99,565 $102,271 $101,442 $125,822 $125,449
Plant and equipment
(net) 243,098 192,305 200,502 193,830 175,523 166,390 161,788 139,815 126,734 129,202 123,287
Total assets 697,532 448,263 472,167 476,194 451,379 383,252 359,258 326,994 300,024 327,456 322,333
Long-term debt
and capital leases 90,178 87,891 95,271 73,113 81,314 57,127 74,405 72,085 69,286 34,053 35,234
Shareholders'
equity (5) 322,836 255,141 251,511 243,535 231,598 204,465 186,238 166,190 153,325 216,122 211,027
- - - ------------------------------------------------------------------------------------------------------------------------------------
OTHER DATA:
Capital expenditures $ 27,313 $ 23,099 $ 36,555 $ 55,323 $ 35,998 $ 28,491 $ 46,336 $ 34,111 $ 24,083 $ 24,276 $ 15,536
Depreciation 39,236 27,502 27,849 28,642 27,043 25,161 23,134 19,684 17,538 16,438 15,274
Number of employees
(at year-end) 6,598 4,850 4,980 5,360 5,580 5,420 4,990 4,760 4,800 5,470 5,540
Average shares out-
standing (in
thousands) (1) 24,304 21,712 21,452 21,094 20,872 20,696 20,526 20,322 20,582 25,138 24,958
- - - ------------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL
RATIOS:
Sales growth 34.1% 0.7% (3.8)% 4.9% 24.7% 12.5% 18.5% (0.3)% 4.1% 6.9% 18.0%
Gross margin (6) 41.1 41.1 38.9 42.0 41.9 41.8 41.9 42.0 38.7 42.4 38.1
Operating margin (7) 8.3 7.5 5.8 9.6 11.4 12.5 12.3 10.3 7.4 10.8 7.9
Pretax margin 3.2 5.7 3.5 6.2 9.4 10.8 10.3 8.9 0.2 10.1 7.2
Effective tax rate 59.7 41.1 38.6 45.1 41.7 41.1 44.0 45.6 25.9 44.6 47.7
Net margin (8) (0.5) 3.4 2.2 3.4 5.5 6.4 5.8 4.9 0.2 5.6 3.7
Return on average
equity (9) (1.5) 8.1 5.2 8.7 14.9 15.4 13.9 10.9 0.4 8.9 5.8
Total debt to
capital ratio 31.3 30.2 33.7 34.9 33.4 31.9 35.8 36.0 34.3 17.6 18.1
Current ratio 1.6x 2.4x 2.0x 1.6x 2.0x 1.9x 2.3x 2.6x 2.8x 3.3x 3.2x
<FN>
1 Adjusted to reflect the increased number of shares resulting
from a 2-for-1 stock split in the form of a 100 percent stock
dividend in August 1994.
2 Operating expenses include research and development, marketing
and general and administrative expenses.
3 Unusual charges for 1994 reflect a special charge of $24.7
million related to the closing of the Neunkirchen manufacturing
facility and other Hertel integration related activities.
Unusual credits for 1993 reflect a favorable settlement in patent
litigation partially reversing the 1991 charges. Unusual
charges for 1991 reflect an adverse decision in patent litigation.
Unusual charges for 1986 include the disposition of certain assets,
the rationalization of production facilities and other items.
4 Accounting changes for 1994 reflect a charge of $20.1 million
(net of income tax effect) for the adoption of SFAS No. 106 and a
credit of $5.1 million for the adoption of SFAS No. 109.
5 During the second quarter of fiscal 1994 the company completed
the sale of approximately 2.0 million shares of common stock
(presplit basis) resulting in net proceeds of $73.6 million.
During the first quarter of fiscal 1986, the company purchased
approximately 2.4 million shares of Kennametal stock at a
total cost of approximately $60 million.
6 Gross margin equals net sales less cost of goods sold, as a
percentage of sales.
7 Operating margin equals gross profit less operating expenses,
as a percentage of sales.
8 Net margin equals net income (loss) as a percentage of sales.
9 Without the restructuring charge and accounting changes, the
return on average equity was 11.4 percent in 1994.
</FN>
</TABLE>
(Pages 34 and 35)
BOARD OF DIRECTORS
QUENTIN C. MCKENNA, 67, is Chairman of the Board of Directors and
its longest-serving member. He joined the board in 1971 when he
was an executive with Hughes Aircraft Corporation. Mr. McKenna
joined Kennametal and became President in 1978. He became Chief
Executive Officer in 1979 and remained CEO until he retired in
1991. He was elected Chairman of the Board in 1986.
QUENTIN C. MCKENNA
ROBERT L. MCGEEHAN is President and Chief Executive Officer of
Kennametal. He was elected President in 1989 and CEO in 1991,
succeeding Mr. McKenna. He became a member of the Board of
Directors in 1989 and is chairman of the board's Nominating
Committee. Prior to that, he was a Vice President from 1984 to
1989 and Director of the Metalworking Systems Division from 1988
to 1989. Mr. McGeehan is 57.
ROBERT L. MCGEEHAN
RICHARD C. ALBERDING joined the Board of Directors in 1982 and is
chairman of the Audit Committee and a member of the Executive
Committee. He is retired Executive Vice President of Marketing
and International for Hewlett-Packard Company, which designs and
manufactures electronic products for measurement and computation.
He is 63 years old.
DICK ALBERDING
PETER B. BARTLETT has been a member of the Board of Directors
since 1975. He presently serves on the Executive Committee and
the Audit Committee. Mr. Bartlett, 60, is a General Partner of
Brown Brothers Harriman & Co., a private banking firm.
P. B. BARTLETT
ROBERT N. ESLYN, 71, retired, having served as Senior Vice
President of Kennametal from 1986 to 1988 and as Vice President
and Group General Manager of the Metalworking Products Group
until 1986. He became a director in 1988 and is a member of the
board's Nominating Committee.
ROBERT N. ESLYN
WARREN H. HOLLINSHEAD, the newest member of Kennametal's board,
was elected in 1990 and serves on the Committee on Executive
Compensation. He retired on July 1, 1994, having served as Chief
Financial Officer and as Executive Vice President of Westinghouse
Electric Corporation, a technology-based manufacturing and
services company. He is 58 years old.
W. H. HOLLINSHEAD
ALOYSIUS T. MCLAUGHLIN, Jr., 59, is Vice Chairman of Dick
Corporation, a general contractor. A member of the board since
1986, he chairs the Committee on Executive Compensation and also
serves on the Executive Committee.
A. T. MCLAUGHLIN
WILLIAM R. NEWLIN, a member of the board since 1982, is chairman
of the Executive Committee. He is Managing Director of Buchanan
Ingersoll Professional Corporation, attorneys-at-law. Mr. Newlin
is 53 years old.
WILLIAM R. NEWLIN
EUGENE R. YOST joined the board in 1990 and currently serves as a
member of the Committee on Executive Compensation. Mr. Yost, 66,
was co-founder and, until 1991, Chairman of the Board of Black
Box Corporation, a catalog distributor of data communication
devices.
E. R. YOST
LARRY YOST has been a director since 1987 and is a member of the
board's Audit and Nominating Committees. Mr. Yost, 56, is Senior
Vice President, Operations Group of Allen-Bradley Company, a
manufacturer and marketer of industrial automation controls,
communications systems and electronic products.
LARRY YOST
(Page 36)
CORPORATE OFFICERS
ROBERT L. MCGEEHAN is President and Chief Executive Officer. He
was elected President in 1989 and CEO in 1991. He was a Vice
President from 1984 to 1989. He was Director of the Metalworking
Systems Division from 1988 to 1989 and General Manager from 1985
to 1988. He is 57 years old.
ROBERT L. MCGEEHAN
DAVID B. ARNOLD, 55, has been a Vice President since 1979 and
became Chief Technical Officer in 1988. He was Director of
Kennametal International from 1983 to 1988.
DAVID B. ARNOLD
JAMES R. BREISINGER, 44, was named Controller in 1994. He was
Managing Director of Europe from 1991 to 1994. A Vice President
since 1990, he was Controller from 1983 to 1991.
JAMES R. BREISINGER
DAVID T. COFER has been Secretary and General Counsel since 1982.
Elected a Vice President in 1986, he is 49 years old.
DAVID T. COFER
RICHARD P. GIBSON, Director of Taxes since 1980, was named
Assistant Treasurer in 1985. He is 59.
R. P. GIBSON
MICHAEL E. GODFREY, 61, was named Director of Financial Projects
in 1994. He was Controller from 1991 to 1994 and was Manager of
Division Accounting from 1985 to 1991.
MICHAEL E. GODFREY
JAMES W. HEATON was named Senior Vice President and Director of
Customer Satisfaction in 1990. He was Director of Engineering
for the Metalworking Systems Division from 1978 to 1990. He is
62.
JAMES W. HEATON
RICHARD C. HENDRICKS, 55, is Director of Corporate Business
Development and has been a Vice President since 1982. He was
General Manager of the Mining and Metallurgical Division from
1990 to 1992 and was General Manager of the Advanced Materials
Division from 1986 to 1990.
RICHARD C. HENDRICKS
TIMOTHY D. HUDSON, 48, has served as Director of Human Resources
since 1992 and was elected a Vice President in 1994. He was
Corporate Manager of Human Resources from 1978 to 1992, and
Manager of Human Resources, Mining and Construction Division from
1974 to 1978.
TIMOTHY D. HUDSON
H. PATRICK MAHANES, Jr., 51, is Director of Operations. He was
Director of the Metalworking Manufacturing Division from 1988 to
1991 and has been a Vice President since 1987. He directed
Corporate Technology from 1987 to 1988 and Manufacturing
Technology from 1985 to 1987.
H. P. MAHANES
RICHARD V. MINNS has been Director of Sales for the Metalworking
Systems Division since 1985. Fifty-six years old, he was elected
a Vice President in 1990.
R. V. MINNS
JAMES E. MORRISON was named a Vice President in 1994. He served
as Manager of Treasury Services from 1985 until he was elected
Treasurer in 1987. He is 43 years old.
JAMES E. MORRISON
KEVIN G. NOWE, 42, was elected Assistant Secretary in 1993. He
has also served as Assistant General Counsel since 1992.
Previously, he was Senior Counsel & Corporate Secretary of Emro
Marketing Company in Enon, Ohio.
KEVIN G. NOWE
RICHARD J. ORWIG, 53, has been a Vice President since 1987. He
was named Chief Financial and Administrative Officer in 1994. He
was Director of Administration from 1991 to 1994 and Director of
Human Resources from 1989 to 1991. He was Director of Corporate
Planning from 1984 to 1989.
RICHARD J. ORWIG
ALAN G. RINGLER, 44, was elected a Vice President in 1989. Now
Director of Metalworking Systems Division, he was Director of
Metalworking, North America, from 1991 to 1992, Managing
Director, Europe, from 1990 to 1991 and Director of Marketing and
Customer Service for the Metalworking Systems Division from 1989
to 1990.
ALAN G. RINGLER
MICHAEL W. RUPRICH was named President of J&L America Inc. and
elected a Kennametal Vice President in 1994. He was General
Manager of J&L from 1993 to 1994, National Sales and Marketing
Manager from 1992 to 1993 and General Manager - East Coast Region
from 1990 to 1992. He is 38 years old.
MICHAEL W. RUPRICH
P. MARK SCHILLER, 46, is Director of Kennametal Distribution
Services. Mr. Schiller was elected a Vice President in 1992. He
was Director of Materials Management from 1988 to 1990.
P. MARK SCHILLER
(Page 37)
CORPORATE AND WORLDWIDE DATA
LOCATIONS, SUBSIDIARIES AND AFFILIATES (as of June 30, 1994)
CORPORATE HEADQUARTERS
Route 981 at Westmoreland County Airport
P.O. Box 231
Latrobe, PA 15650
Phone (412)539-5000
PLANT LOCATIONS-UNITED STATES
Fallon, Nevada
Henderson, North Carolina
Roanoke Rapids, North Carolina
Orwell, Ohio
Solon (Cleveland), Ohio
Bedford, Pennsylvania
Latrobe, Pennsylvania
Johnson City, Tennessee
New Market, Virginia
PLANT LOCATIONS-INTERNATIONAL
Arnhem, Netherlands
Victoria, Canada
Port Coquitlam, Canada
Kingswinford, England
Ris Orangis (Paris), France
Ebermannstadt, Germany
Mistelgau, Germany
Nabburg, Germany
Vohenstrauss, Germany
CONSOLIDATED SUBSIDIARIES
Hertel Cutting Technologies Inc., United States
Kennametal Australia Pty. Ltd., Australia
Kennametal Foreign Sales Corporation, Barbados
Kennametal Hertel AG, Germany (82%)
Kennametal Ltd., Canada
Kennametal GTS Pte. Ltd., Singapore
J&L America Inc., United States
Kennametal Hertel G.m.b.H., Germany
CONSOLIDATED SUBSIDIARIES of Kennametal Hertel AG
Kennametal Hertel France S.A., France
Kennametal Hertel Belgium S.A., Belgium
Kennametal Hertel Nederland B.V., Netherlands
Nederlandse Hardmetaal Fabrieken B.V., Netherlands
Karl Hertel G.m.b.H., Austria
Hertel Iberica S.A., Spain
Hertel Japan Limited, Japan
OTHER LOCATIONS
Bangkok, Thailand
Bombay, India
Raleigh, North Carolina
Seoul, Korea
AFFILIATED COMPANIES
(% ownership indicated)
Kennametal Ca.Me.S., S.p.A., Milan, Italy (51%)
Kennametal Hertel S.p.A., Milan, Italy (20%)
Kobe Kennametal K.K., Tokyo, Japan (49%)
Kennametal - Idemitsu Corporation, Latrobe, PA (50%)
CORPORATE DATA
TRANSFER AGENT REGISTRAR OF STOCK AND DIVIDEND DISBURSING AGENT
Mellon Bank N.A.
c/o Securities Transfer Service
P.O. Box 444
Pittsburgh, PA 15230
STOCK LISTING
New York Stock Exchange, Symbol KMT
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen & Co.
ANNUAL REPORT ON FORM 10-K
Form 10-K, as filed with the Securities and Exchange Commission,
will be available in September 1994. A copy may be obtained
without charge by contacting the investor relations department at
(412)539-5137.
INFORMATION
Securities analysts, shareholders, news media and others seeking
financial information should contact Mr. Michael J. Mussog,
Manager of External Reporting, at (412)539-4617. News media and
others seeking general information should contact Mr. William P.
Kennedy, Manager of Product Publicity, at (412)539-5765.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
This plan provides shareholders with a convenient way to acquire
additional shares of Kennametal capital stock without paying
brokerage fees or service charges. Participants may reinvest
their dividends, plus optional cash if desired, to acquire these
additional shares. Mellon Bank N.A. administers the plan and
acts as the agent for the participants. For more information,
contact the company's secretary at (412)539-5204.
EQUAL OPPORTUNITY EMPLOYER
Kennametal is an equal opportunity employer. All matters
regarding recruiting, hiring, training, compensation, benefits,
promotions, transfers and all other personnel policies will
continue to be free from all discriminatory practices.
ANNUAL MEETING
The annual meeting of shareholders is scheduled for Monday,
October 31, 1994, at the Corporate Technology Center in Latrobe,
PA. Notice of the meeting will be mailed on or about September
23, 1994, to shareholders of record on September 6, 1994. All
shareholders are cordially invited to attend. Proxies will be
solicited by the Board of Directors.
(Page 38)
The following are trademarks of Kennametal Inc. and are used as
such herein: block style K, Kennametal, KCD25, KM-LOC, KM, KC,
KCD, KC9010, KC9025, Finding Better Ways, J&L and Kennametal
Hertel. Hertel is a trademark of Hertel AG and is used as such
herein.
Copyright 1994, Kennametal Inc., all rights reserved.
CF94-28(25)H4 Printed in U.S.A.
[Symbol]
Printed on recycled paper.
(Inside Back Cover)
[Logo]
Kennametal Inc.
Latrobe, PA 15650
(412) 539-5000
(Back Cover)
APPENDIX TO EXHIBIT 13
FURNISHED IN ACCORDANCE WITH RULE 309 OF REGULATION S-T
NARRATIVE DESCRIPTION OF GRAPHIC AND IMAGE
INFORMATION IN REGISTRANT'S
1994 ANNUAL REPORT TO SHAREHOLDERS
Page of
Annual Report Description of Graphic or Image Information
- - - ------------- --------------------------------------------------
- - - ----------
Front Cover Photograph of KC990 (TM) in action.
Page 1 Graphs containing the following information appear
on bottom of page:
<TABLE>
<CAPTION>
NET SALES
YEAR (MILLIONS OF DOLLARS)
<S> <C>
1990 589.0
1991 617.8
1992 594.5
1993 598.5
1994 802.5
<CAPTION>
EARNINGS (LOSS) PER SHARE
YEAR (DOLLARS)
<S> <C>
1990 1.54
1991 1.00
1992 0.60
1993 0.93
1994 (0.17)
<CAPTION>
DIVIDENDS PER SHARE
YEAR (DOLLARS)
<S> <C>
1990 0.58
1991 0.58
1992 0.58
1993 0.58
1994 0.58
</TABLE>
Page 2 Illustration of Robert L. McGeehan, President and
Chief Executive Officer appears on left side of
page.
Page 3 Illustration of Quentin C. McKenna, Chairman of the
Board appears on right side of page.
Page 8 Photograph of Ford Mondeo crankshafts on production
line appears on top of page.
Page 8 Photograph of the KM-LOC (TM) clamping device
appears on bottom right of page.
Page 9 Photograph of three people at tool crib counter
appears on bottom right of page.
Page 10 Photograph of automated coating tray appears on
bottom right of page.
Page 11 Photograph of Management Information Systems team in
computer control room appears on top of page.
Page 11 Photographs of KCD25 (TM) insert grade in action
appear on bottom left of page.
Page 12 Photograph of mining roof drill bits appears on top
left of page.
Page 13 Photograph of customer ordering from a J&L catalog
appears on top right of page.
Page 13 Photograph of selected Hertel products including
solid carbide drill bits and milling products
appears on bottom of page.
Page 14 Photograph of 1994 McKenna award winners appears on
top left of page.
Page 14 Photograph of Kennametal truck at loading dock
appears on bottom right of page.
Page 15 Graphs containing the following information appear
on page:
<TABLE>
<CAPTION>
SALES PER EMPLOYEE
YEAR (THOUSANDS OF DOLLARS)
<S> <C>
1990 106.7
1991 113.5
1992 116.4
1993 121.8
1994 125.2
<CAPTION>
RESEARCH AND DEVELOPMENT
EXPENSES
YEAR (MILLIONS OF DOLLARS)
<S> <C>
1990 13.3
1991 14.8
1992 13.7
1993 14.7
1994 15.2
<CAPTION>
CASH FLOW FROM OPERATIONS
YEAR (MILLIONS OF DOLLARS)
<S> <C>
1990 68.0
1991 43.4
1992 47.3
1993 42.0
1994 30.2
<CAPTION>
RETURN ON EQUITY
YEAR (PERCENTAGE)
<S> <C>
1990 14.9
1991 8.7
1992 5.2
1993 8.1
1994 (1.5)
<CAPTION>
DEBT TO CAPITAL
YEAR (PERCENTAGE)
<S> <C>
1990 33.4
1991 34.9
1992 33.7
1993 30.2
1994 31.3
<CAPTION>
CAPITAL INVESTMENT
CAPITAL EXPENDITURES
YEAR (MILLIONS OF DOLLARS)
<S> <C>
1990 36.0
1991 55.3
1992 36.6
1993 23.1
1994 27.3
<CAPTION>
CAPITAL INVESTMENT
DEPRECIATION
YEAR (MILLIONS OF DOLLARS)
<S> <C>
1990 27.0
1991 28.6
1992 27.8
1993 27.5
1994 39.2
</TABLE>
Inside
Back Cover The symbol for use of recycled paper appears in the
lower right corner.
Outside
Back Cover The Kennametal logo appears in the middle of the
page on the left side.
EXHIBIT 21
PRINCIPAL SUBSIDIARIES
Jurisdiction in Which
Name of Subsidiary Organized or Incorporated
------------------ -------------------------
Hertel Cutting Technologies Inc. Tennessee, United States
Kennametal Australia Pty. Ltd. Australia
Kennametal Foreign Sales Corporation Barbados
Kennametal Hertel AG Germany
Kennametal Ltd. Ontario, Canada
Kennametal GTS Pte. Ltd. Singapore
J&L America Inc. Michigan, United States
Kennametal Hertel G.m.b.H. Germany
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports, included or incorporated by
reference in this Form 10-K, into the Company's previously filed
registration statements on Form S-8, Registration No. 2-80182,
Form S-8, Registration No. 33-25331, Form S-8, Registration
No. 33-55768, Form S-8, Registration No. 33-55766 and Form S-3,
Registration No. 33-61854, including the prospectuses therein,
relating to the company's Stock Option Plan of 1982, Stock Option
and Incentive Plan of 1988, Stock Option and Incentive Plan of
1992, Directors Stock Incentive Plan and the Dividend
Reinvestment and Stock Purchase Plan (as amended). It should be
noted that we have not audited any financial statements of the
Company subsequent to June 30, 1994 or performed any audit
procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
September 21, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the June 30,
1994 Consolidated Financial Statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-START> JUL-1-1993
<PERIOD-END> JUN-30-1994
<CASH> 17,190
<SECURITIES> 0
<RECEIVABLES> 143,691
<ALLOWANCES> 9,328
<INVENTORY> 158,179
<CURRENT-ASSETS> 332,804
<PP&E> 467,652
<DEPRECIATION> 224,554
<TOTAL-ASSETS> 697,532
<CURRENT-LIABILITIES> 202,027
<BONDS> 0
<COMMON> 36,712
0
0
<OTHER-SE> 286,124
<TOTAL-LIABILITY-AND-EQUITY> 697,532
<SALES> 802,513
<TOTAL-REVENUES> 802,513
<CGS> 472,533
<TOTAL-COSTS> 778,389
<OTHER-EXPENSES> (1,860)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,811
<INCOME-PRETAX> 25,984
<INCOME-TAX> 15,500
<INCOME-CONTINUING> 10,915
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (15,003)
<NET-INCOME> (4,088)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
