Pennsylvania | 25-0900168 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
World Headquarters | ||
1600 Technology Way | ||
P.O. Box 231 | ||
Latrobe, Pennsylvania | 15650-0231 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Title of Each Class | Outstanding at January 31, 2009 | |
Capital Stock, par value $1.25 per share | 73,110,829 |
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4. | 20 | |||||||
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PART II OTHER INFORMATION
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2. | 20 | |||||||
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4. | 20 | |||||||
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6. | 21 | |||||||
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Signatures | 22 | |||||||
EX-10.1 | ||||||||
EX-10.2 | ||||||||
EX-10.3 | ||||||||
EX-10.5 | ||||||||
EX-10.6 | ||||||||
EX-10.7 | ||||||||
EX-10.8 | ||||||||
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EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 |
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Three Months Ended
Six Months Ended
December 31,
December 31,
(in thousands, except per share data)
2008
2007
2008
2007
$
568,684
$
647,423
$
1,237,949
$
1,262,499
405,369
426,485
855,856
829,470
163,315
220,938
382,093
433,029
130,348
147,921
284,030
292,953
6,204
14,616
3,269
3,626
6,678
6,571
23,494
69,391
76,769
133,505
8,026
8,531
15,142
16,330
(4,790
)
(993
)
(3,387
)
(2,096
)
20,258
61,853
65,014
119,271
4,700
10,670
13,204
32,337
(101
)
1,037
684
1,909
$
15,659
$
50,146
$
51,126
$
85,025
$
0.22
$
0.65
$
0.70
$
1.10
$
0.21
$
0.64
$
0.69
$
1.08
$
0.12
$
0.12
$
0.24
$
0.23
72,630
77,111
73,515
77,272
73,199
78,647
74,347
78,821
Table of Contents
December 31,
June 30,
(in thousands, except per share data)
2008
2008
$
69,731
$
86,478
367,426
512,794
464,684
460,800
48,053
53,330
54,345
38,584
1,004,239
1,151,986
364,556
375,128
1,354,285
1,382,028
(982,869
)
(1,007,401
)
735,972
749,755
2,149
2,325
604,218
608,519
189,830
194,203
24,633
25,021
64,389
52,540
885,219
882,608
$
2,625,430
$
2,784,349
$
20,848
$
813
22,263
32,787
128,779
189,050
21,276
28,102
90,392
121,639
129,766
148,920
413,324
521,311
479,611
313,052
84,915
76,980
119,033
129,179
16,544
17,213
62,041
57,180
1,175,468
1,114,915
19,235
21,527
91,386
96,076
352,421
468,169
974,767
941,553
12,153
142,109
1,430,727
1,647,907
$
2,625,430
$
2,784,349
Table of Contents
Six months ended December 31 (in thousands)
2008
2007
$
51,126
$
85,025
42,240
39,146
6,678
6,571
4,526
4,876
1,346
2,290
11,328
(12
)
(2,048
)
113,176
45,519
(24,187
)
(39,946
)
(78,782
)
(60,652
)
2,571
(24,556
)
(5,482
)
3,671
115,490
68,934
(68,659
)
(79,559
)
1,668
1,891
(65,381
)
361
3,000
5,915
174
2,949
(132,198
)
(65,443
)
(10,581
)
11,503
20,100
44,900
578,012
111,592
(423,785
)
(102,777
)
(127,531
)
(55,391
)
3,758
11,917
(17,912
)
(17,525
)
3,814
(319
)
25,875
3,900
(25,914
)
5,649
(16,747
)
13,040
86,478
50,433
$
69,731
$
63,473
Table of Contents
1.
ORGANIZATION
Kennametal Inc. was incorporated in Pennsylvania in 1943 and maintains its world headquarters in
Latrobe, Pennsylvania. Kennametal Inc. and its subsidiaries (collectively, Kennametal or the
Company) is a leading global manufacturer and supplier of tooling, engineered components and
advanced materials consumed in production processes. End users of our products include
metalworking manufacturers and suppliers in the aerospace, automotive, machine tool, light
machinery and heavy machinery industries, as well as manufacturers and suppliers in the highway
construction, coal mining, quarrying and oil and gas exploration industries. Our end users
products include items ranging from airframes to coal, medical implants to oil wells and
turbochargers to motorcycle parts. We operate two global business units consisting of
Metalworking Solutions & Services Group (MSSG) and Advanced Materials Solutions Group (AMSG).
2.
BASIS OF PRESENTATION
The condensed consolidated financial statements, which include our accounts and those of our
consolidated subsidiaries, should be read in conjunction with our 2008 Annual Report on Form
10-K. The condensed consolidated balance sheet as of June 30, 2008 was derived from the audited
balance sheet included in our 2008 Annual Report on Form 10-K. These interim statements are
unaudited; however, we believe that all adjustments necessary for a fair statement of the
results of the interim periods were made and all adjustments are normal, recurring adjustments.
The results for the six months ended December 31, 2008 and 2007 are not necessarily indicative
of the results to be expected for a full fiscal year. Unless otherwise specified, any reference
to a year is to a fiscal year ended June 30. For example, a reference to 2009 is to the fiscal
year ending June 30, 2009. When used in this Form 10-Q, unless the context requires otherwise,
the terms we, our and us refer to Kennametal Inc. and its subsidiaries.
3.
NEW ACCOUNTING STANDARDS
In December 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) No. 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets (FSP
132(R)-1). FSP 132(R)-1 expands the current disclosure requirements in FASB Statement No.
132(R), Employers Disclosures about Pensions and Other Postretirement Benefits. FSP 132(R)-1
requires companies to disclose how investment allocation decisions are made by management, major
categories of plan assets, significant concentrations of risk within plan assets and information
about the valuation of plan assets. FSP 132(R)-1 is effective for Kennametal beginning July 1,
2009. We are in the process of evaluating the provisions of this FSP to determine the impact of
adoption on our consolidated financial statements.
In November 2008, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 08-7,
Accounting for Defensive Intangible Assets (EITF 08-7). EITF 08-7 applies to all acquired
intangible assets in situations in which the entity does not intend to actively use the asset
but intends to hold the asset to prevent others from obtaining access to the asset with limited
exceptions. EITF 08-7 requires that defensive intangible assets be accounted for as a separate
unit of accounting and be assigned a useful life. EITF 08-7 is to be applied prospectively and
is effective for Kennametal beginning July 1, 2009. We are in the process of evaluating the
provisions of this EITF to determine the impact of adoption on our consolidated financial
statements.
In November 2008, the FASB ratified EITF Issue No. 08-6, Equity Method Investment Accounting
Considerations (EITF 08-6). EITF 08-6 addresses a number of matters associated with the impact
that Statement of Financial Accounting Standard (SFAS) No. 141(R), Business Combinations, and
SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB
No. 51, might have on the accounting for equity method investments. EITF 08-6 provides guidance
on how an equity method investment should initially be measured, how it should be tested for
impairment and how changes in classification from equity method to cost method should be treated
as well as other issues. EITF 08-6 is to be applied prospectively and is effective for
Kennametal beginning July 1, 2009. We are in the process of evaluating the provisions of this
EITF to determine the impact of adoption on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activitiesan amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 expands the
current disclosure requirements in SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS 133). SFAS 161 is effective for Kennametal beginning January 1, 2009.
We are in the process of evaluating the provisions of SFAS 161 to determine the impact of
adoption on our consolidated financial statements.
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141(R)). SFAS 141(R) establishes principles and requirements for how an acquirer accounts for
business combinations and includes guidance for the recognition, measurement and disclosure of
the identifiable assets acquired, the liabilities assumed and any noncontrolling or minority
interest in the acquiree. It also provides guidance for the measurement of goodwill, the
recognition of contingent consideration and the accounting for pre-acquisition gain and loss
contingencies, as well as acquisition-related transaction costs and the recognition of changes
in the acquirers income tax valuation allowance. SFAS 141(R) is to be applied prospectively and
is effective for Kennametal beginning July 1, 2009. We are in the process of evaluating the
provisions of SFAS 141(R) to determine the impact of adoption on our consolidated financial
statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in Consolidated
Financial Statements, an amendment of ARB No. 51 (SFAS 160). SFAS 160 amends Accounting
Research Bulletin No. 51, Consolidated Financial Statements to establish accounting and
reporting standards for any noncontrolling interest in a subsidiary and for the deconsolidation
of a subsidiary. SFAS 160 clarifies that a noncontrolling interest in a subsidiary should be
reported as a component of equity in the consolidated financial statements and requires
disclosure on the face of the consolidated statement of income of the amounts of consolidated
net income attributable to the parent and to the noncontrolled interest. SFAS 160 is to be
applied prospectively and is effective for Kennametal as of July 1, 2009, except for the
presentation and disclosure requirements, which, upon adoption, will be applied retrospectively
for all periods presented. We are in the process of evaluating the provisions of SFAS 160 to
determine the impact of adoption on our consolidated financial statements.
In June 2007, the FASB ratified EITF Issue No. 06-11, Accounting for Income Tax Benefits of
Dividends on Share-Based Payment Awards (EITF 06-11). EITF 06-11 requires that tax benefits
generated by dividends paid during the vesting period on certain equity-classified share-based
compensation awards be classified as additional paid-in capital and included in a pool of excess
tax benefits available to absorb tax deficiencies from share-based payment awards. EITF 06-11
was effective for Kennametal on July 1, 2008 and is to be applied on a prospective basis. The
adoption of this EITF did not have a material impact on our consolidated financial statements.
On July 1, 2008, Kennametal adopted SFAS No. 159, The Fair Value Option for Financial Assets
and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159
permits entities to choose to measure many financial instruments and certain other assets and
liabilities at fair value on an instrument-by-instrument basis (the fair value option) with
changes in fair value recognized in earnings at each subsequent reporting date. Kennametal
records derivative contracts and hedging activities at fair value in accordance with SFAS 133.
The adoption of SFAS 159 therefore had no impact on our consolidated financial statements as
management did not elect the fair value option for any other financial instruments or certain
other assets and liabilities.
On July 1, 2008, Kennametal adopted SFAS No. 157, Fair Value Measurements (SFAS 157) as it
relates to financial assets and financial liabilities. In February 2008, the FASB issued FSP
No. FAS 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of
SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on at least an annual basis,
until July 1, 2009 for Kennametal.
SFAS 157 defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP) and expands disclosures related to fair value
measurements. The provisions of this standard apply to other accounting pronouncements that
require or permit fair value measurements and are to be applied prospectively with limited
exceptions. We are in the process of evaluating the potential impact of SFAS 157, as it relates
to pension plan assets, nonfinancial assets and nonfinancial liabilities, on our consolidated
financial statements.
SFAS 157 defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement
date. This standard is now the single source in GAAP for the definition of fair value, except
for the fair value of leased property as defined in SFAS No. 13, Accounting for Leases. SFAS
157 established a fair value hierarchy that distinguishes between (1) market participant
assumptions developed based on market data obtained from independent sources (observable inputs)
and (2) an entitys own assumptions about market participant assumptions developed based on the
best information available in the circumstances (unobservable inputs). The fair value hierarchy
consists of three broad levels, which gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). Fair value measurements are assigned a level within the
hierarchy based on the lowest significant input level. The three levels of the fair value
hierarchy under SFAS 157 are described below:
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date
for identical, unrestricted assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly, including quoted prices for similar assets or
liabilities in active markets; quoted prices for identical or similar assets or liabilities in
markets that are not active; inputs other than quoted prices that are observable for the asset
or liability (e.g., interest rates); and inputs that are derived principally from or
corroborated by observable market data by correlation or other means.
Level 3: Inputs that are unobservable.
As of December 31, 2008, the fair values of the Companys assets and liabilities measured at
fair value on a recurring basis are categorized as follows:
(in thousands)
Level 1
Level 2
Level 3
Total
$
$
7,156
$
$
7,156
14,422
14,422
$
$
21,578
$
$
21,578
$
$
34
$
$
34
a
Foreign currency derivative contracts are valued based on observable market spot
and forward rates and are classified within Level 2 of the fair value hierarchy. Interest rate
swaps are valued based on observable market swap rates and are classified within Level 2 of the
fair value hierarchy.
4.
SUPPLEMENTAL CASH FLOW DISCLOSURES
Six months ended December 31 (in thousands)
2008
2007
$
14,344
$
15,614
1,037
40,028
(13,691
)
11,573
(12,800
)
700
5.
RESTRUCTURING CHARGES
As previously announced, the Company continued to implement certain restructuring plans to
reduce costs and improve efficiency in our operations. These actions, including those taken in
2009, relate to facility rationalizations and employment reductions. The actions being taken
pursuant to these restructuring plans are expected to be completed over the next six to nine
months. Restructuring and related charges recorded in the six months
ended December 31, 2008 amounted to $19.2 million, including $14.9
million of restructuring charges, of which $0.3 million were related
to inventory disposals and recorded in cost of goods sold, and $4.3
million of restructuring-related charges recorded in cost of goods
sold. Total restructuring and related charges recorded since the
inception of the restructuring plans were $27.5
million. Including these
charges, the company expects to recognize approximately $90 million of charges related
to its restructuring plans. Approximately
95 percent of these charges are expected to be cash expenditures. Annual ongoing benefits from
these actions, once fully implemented, are expected to be approximately $100 million.
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The restructuring accrual is recorded in other current liabilities in our condensed consolidated
balance sheet and the amount attributable to each segment is as follows:
2008
2007
3.0
%
4.5
%
4.5
4.5
27.7
%
23.6
%
1.3
%
1.4
%
1)
Expected life is derived from historical experience.
2)
Expected volatility is based on the historical volatility of our capital stock.
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Changes in our stock options for the six months ended December 31, 2008 were as follows:
Weighted
Weighted
Average
Aggregate
Average Exercise
Remaining
Intrinsic value
Options
Price
Life (years)
(in thousands)
3,148,214
$
24.87
798,510
29.16
(159,114
)
14.29
(145,552
)
30.31
3,642,058
$
26.06
6.6
$
4,848
3,542,145
$
25.96
6.5
$
4,843
2,069,296
$
22.48
5.1
$
4,804
Weighted
Average Fair
Shares
Value
486,591
$
31.55
175,302
29.25
(123,398
)
29.35
(72,178
)
27.99
466,317
$
31.82
2008
2007
$
0.12
$
0.12
2.3
%
3.3
%
As of December 31, 2008, we assumed that none of the EPS performance-based restricted stock
units will vest.
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Changes in the EPS performance-based portion of restricted stock units for the six months ended
December 31, 2008 were as follows:
Weighted
Stock
Average Fair
Units
Value
531,435
$
37.45
95,492
23.21
(41,519
)
(37.45
)
585,408
$
35.13
The assumptions used in our lattice model valuation for the TSR performance-based portion of
restricted stock units granted during the six months ended December 31, 2008 and 2007 were as
follows.
2008
2007
34.1
%
24.1
%
2.0
%
1.2
%
2.3
%
3.3
%
Changes in the Companys total shareholder return (TSR) performance-based restricted stock units
for the six months ended December 31, 2008 were as follows:
Weighted
Stock
Average Fair
Units
Value
286,149
$
9.20
51,418
2.08
(22,355
)
(9.20
)
315,212
$
8.04
Three Months Ended
Six Months Ended
December 31,
December 31,
(in thousands)
2008
2007
2008
2007
$
1,923
$
2,508
$
3,888
$
5,010
10,267
9,986
20,853
19,934
(11,548
)
(12,305
)
(23,477
)
(24,627
)
13
41
31
83
(54
)
(10
)
(107
)
(21
)
469
564
958
1,127
$
1,070
$
784
$
2,146
$
1,506
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The table below summarizes the components of the net periodic other postretirement cost:
Three Months Ended
Six Months Ended
December 31,
December 31,
(in thousands)
2008
2007
2008
2007
$
89
$
133
$
178
$
266
418
433
837
867
12
12
24
24
(21
)
(131
)
(42
)
(263
)
$
498
$
447
$
997
$
894
8.
INVENTORIES
We used the last-in, first-out (LIFO) method of valuing inventories for approximately 51 percent
and 48 percent of total inventories at December 31, 2008 and June 30, 2008, respectively.
Because inventory valuations under the LIFO method are based on an annual determination of
quantities and costs as of June 30 of each year, the interim LIFO valuations are based on our
projections of expected year-end inventory levels and costs. Therefore, the interim financial
results are subject to any final year-end LIFO inventory adjustments.
Inventories consisted of the following:
December 31,
June 30,
(in thousands)
2008
2008
$
290,753
$
288,188
177,440
176,680
83,350
75,999
551,543
540,867
(86,859
)
(80,067
)
$
464,684
$
460,800
9.
ENVIRONMENTAL MATTERS
We are subject to various U.S. Federal, state and international environmental laws and
regulatory requirements and are involved from time to time in investigations or proceedings of
various potential environmental issues concerning activities at our facilities or former
facilities or remediation efforts as a result of past activities (including past activities of
companies we have acquired). From time to time, we receive notices from the U.S. Environmental
Protection Agency or equivalent state or international environmental agencies that we are a
potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation
and Liability Act (commonly known as the Superfund Act) and/or equivalent laws. These notices
assert potential liability for cleanup costs at various sites, which include sites owned by us,
sites we previously owned and treatment or disposal sites not owned by us.
Superfund Sites
We are involved as a PRP at several Superfund sites, and have responded to
notices for other Superfund sites as to which our records disclose no involvement or for which
predecessors of certain of our acquired companies have acknowledged responsibility. We have
established reserves that we believe to be adequate to cover our share of the potential costs of
remediation at certain of the Superfund sites; at December 31, 2008 the total of these accruals
was
$0.2 million. For the remaining Superfund sites, proceedings in those matters have not yet
progressed to a stage where it is possible to estimate the ultimate cost of remediation, the
timing and extent of remedial action that may be required by governmental authorities or the
amount of our liability alone or in relation to that of any other PRPs.
Other Environmental Issues
We also maintain reserves for other potential environmental issues.
At December 31, 2008, the total of these accruals was $5.2 million and represents anticipated
costs associated with the remediation of these issues. We recorded favorable foreign currency
translation adjustments of $0.8 million during the six months ended December 31, 2008 related to
these reserves.
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three Months Ended
Six Months Ended
December 31,
December 31,
(in thousands)
2008
2007
2008
2007
$
15,659
$
50,146
$
51,126
$
85,025
130
310
1,131
381
2,220
(658
)
4,866
(2,098
)
3,143
(85
)
4,564
(555
)
566
340
898
666
(48,736
)
24,935
(141,415
)
58,198
$
(27,018
)
$
74,988
$
(78,830
)
$
141,617
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of cost over the fair value of acquired companies. Goodwill and
intangible assets with indefinite lives are tested at least annually for impairment. We perform
our annual impairment tests during the June quarter in connection with our annual planning
process. We also perform specific impairment tests on an interim basis if we deem that a
triggering event indicating impairment of the goodwill for a reporting unit or an
indefinite-lived intangible asset may have occurred. We evaluate the recoverability of goodwill
for each of our reporting units by comparing the fair value of each reporting unit with its
carrying value. The fair values of our reporting units are determined using a combination of a
discounted cash flow analysis and market multiples based upon historical and projected financial
information. We apply our best judgment when assessing the reasonableness of the financial
projections used to determine the fair value of each reporting unit. We evaluate the
recoverability of indefinite-lived intangible assets using a discounted cash flow analysis based
on projected financial information. This evaluation is sensitive to changes in market interest
rates and other external factors.
A possible indicator of impairment is the relationship of a companys market capitalization to
its book value. As of December 31, 2008, our market capitalization exceeded our book value.
The persistence or further acceleration of the recent downturn in global economic conditions and
turbulence in financial markets could have a further negative impact on our market
capitalization and/or financial performance. Going forward, this could increase the likelihood
of future non-cash impairment charges related to our goodwill or indefinite-lived intangible
assets.
The carrying amount of goodwill attributable to each segment is as follows:
December 31,
(in thousands)
June 30, 2008
Acquisitions
Adjustments
Translation
2008
$
282,187
$
$
248
$
(19,034
)
$
263,401
326,332
21,260
(6,775
)
340,817
$
608,519
$
21,260
$
248
$
(25,809
)
$
604,218
Estimated
December 31, 2008
June 30, 2008
Useful Life
Gross Carrying
Accumulated
Gross Carrying
Accumulated
(in thousands)
(in years)
Amount
Amortization
Amount
Amortization
4 to 15
$
6,344
$
(4,639
)
$
6,237
$
(4,469
)
4 to 15
38,799
(17,067
)
41,461
(16,850
)
5 to 20
111,137
(19,128
)
109,387
(16,233
)
30
19,456
(3,322
)
19,725
(2,955
)
5 to 10
9,782
(1,995
)
5,788
(1,503
)
Indefinite
50,463
53,615
$
235,981
$
(46,151
)
$
236,213
$
(42,010
)
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14.
SEGMENT DATA
We operate two reportable operating segments consisting of MSSG and AMSG, and Corporate. We do
not allocate certain corporate shared service costs, certain employee benefit costs, certain
employment costs, such as performance-based bonuses and stock-based compensation expense,
interest expense, other expense, income taxes or minority interest to our operating segments.
Our external sales, intersegment sales and operating income by segment are as follows:
Three Months Ended
Six Months Ended
December 31,
December 31,
(in thousands)
2008
2007
2008
2007
$
344,630
$
434,733
$
775,916
$
842,430
224,054
212,690
462,033
420,069
$
568,684
$
647,423
$
1,237,949
$
1,262,499
$
36,353
$
39,186
$
87,043
$
82,317
4,662
9,695
11,615
20,548
$
41,015
$
48,881
$
98,658
$
102,865
$
380,983
$
473,919
$
862,959
$
924,747
228,716
222,385
473,648
440,617
$
609,699
$
696,304
$
1,336,607
$
1,365,364
$
7,827
$
61,986
$
51,138
$
117,338
19,437
27,197
49,427
57,177
(3,770
)
(19,792
)
(23,796
)
(41,010
)
$
23,494
$
69,391
$
76,769
$
133,505
Table of Contents
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Table of Contents
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Table of Contents
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Three Months Ended
Six Months Ended
December 31,
December 31,
(in thousands)
2008
2007
2008
2007
$
344,630
$
434,733
$
775,916
$
842,430
36,353
39,186
87,043
82,317
7,827
61,986
51,138
117,338
Three Months Ended
Six Months Ended
December 31,
December 31,
(in thousands)
2008
2007
2008
2007
$
224,054
$
212,690
$
462,033
$
420,069
4,662
9,695
11,615
20,548
19,437
27,197
49,427
57,177
Table of Contents
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Three Months Ended
Six Months Ended
December 31,
December 31,
(in thousands)
2008
2007
2008
2007
$
(3,770
)
$
(19,792
)
$
(23,796
)
$
(41,010
)
Table of Contents
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Table of Contents
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Table of Contents
Total Number of
Maximum Number of
Shares Purchased as
Shares that May
Total Number
Part of Publicly
Yet Be Purchased
of Shares
Average Price
Announced Plans
Under the Plans or
Period
Purchased
(1)
Paid per Share
or Programs
Programs
2,117
$
20.94
11,562
17.11
1,668
18.36
15,347
$
17.77
(1)
During the three months ended December 31, 2008, employees
delivered 3,834 shares of restricted stock to Kennametal,
upon vesting, to satisfy tax-withholding requirements. Also
during the three months ended December 31, 2008, 11,513
shares were purchased on the open market on behalf of
Kennametal to fund the Companys dividend reinvestment
program.
Table of Contents
Material Contracts
Deferred Fee Plan for Outside Directors, as amended
Filed herewith.
Directors Stock Incentive Plan, as amended
Filed herewith.
Performance Bonus Stock Plan of 1995, as amended
Filed herewith.
Kennametal Inc. Stock and Incentive Plan of 2002
(as amended on October 21, 2008)
Appendix A to the
2008 Proxy
Statement filed
September 8, 2008
is incorporated
herein by
reference.
Amendment No. 3 to Employment Agreement with
Carlos M. Cardoso
Filed herewith.
Form of Amendment to Amended and Restated
Employment Agreement with Named Executive Officers
(other than Mr. Cardoso)
Filed herewith.
Schedule of Named Executive Officers who have
entered into the Amendment to the Amended and
Restated Employment Agreement as set forth in
Exhibit 10.6.
Filed herewith.
Kennametal Inc. 2006 Executive Retirement Plan (as
amended effective December 30, 2008)
Filed herewith.
Kennametal Inc. Supplemental Executive Retirement
Plan (as amended effective December 30, 2008)
Filed herewith.
Rule 13a-14a/15d-14(a) Certifications
Certification executed by Carlos M. Cardoso,
Chairman, President and Chief Executive Officer of
Kennametal Inc.
Filed herewith.
Certification executed by Frank P. Simpkins, Vice
President and Chief Financial Officer of
Kennametal Inc.
Filed herewith.
Section 1350 Certifications
Certification Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, executed by Carlos M.
Cardoso, Chairman, President and Chief Executive
Officer of Kennametal Inc., and Frank P. Simpkins,
Vice President and Chief Financial Officer of
Kennametal Inc.
Filed herewith.
*
Denotes management contract or compensatory plan or arrangement.
Table of Contents
KENNAMETAL INC.
Date: February 4, 2009
By:
/s/ Wayne D. Moser
Wayne D. Moser
Vice President Finance and Corporate Controller
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Kennametal Inc.
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By: | /s/ David W. Greenfield | |||
Title: Vice President, Secretary and | ||||
General Counsel | ||||
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Kennametal Inc.
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By: | /s/ David W. Greenfield | |||
Title: Vice President, Secretary and General
Counsel |
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Kennametal Inc.
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By: | /s/ David W. Greenfield | |||
Title: Vice President, Secretary and General
Counsel |
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KENNAMETAL INC.
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By: | /s/ David W. Greenfield | |||
Name: | David W. Greenfield | |||
Title: | Vice President, Secretary, and General Counsel | |||
/s/ Carlos M. Cardoso | ||||
Carlos M. Cardoso | ||||
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KENNAMETAL INC. | ||||||||
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By: | |||||||
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Name: | |||||||
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Title: | |||||||
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[Officer] |
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NAME | DATE | |
David W. Greenfield
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December 4, 2008 | |
John H. Jacko, Jr.
|
December 8, 2008 | |
Frank P. Simpkins
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December 11, 2008 | |
Gary W. Weismann
|
December 11, 2008 |
a. | directly or indirectly engage in, or | ||
b. | assist or have an active interest in (whether as proprietor, partner, investor, shareholder, officer, director or any type of principal whatsoever), or enter the employ of, or act as agent for, or advisor or consultant to, any person, firm, partnership, association, corporation or business organization, entity or enterprise which is or is about to become directly or indirectly engaged in, |
Attained Age during the Calendar Month | Monthly Accrual | |
Less than 46
|
1.0417% (equivalent to 12.5004% per year) | |
46 but less than 51
|
1.5625% (equivalent to 18.7500% per year) | |
51 but less than 56
|
2.0833% (equivalent to 24.9996% per year) | |
56 but less than 59
|
2.6042% (equivalent to 31.2504% per year) | |
59 and up
|
3.1250% (equivalent to 37.5000% per year) |
7-1-2006 to 12-31-2013 |
=
|
90 months x 1.0417% | = | 93.7530% | ||||||||||||
1-1-2014 to 12-31-2018 |
=
|
60 months x 1.5625% | = | 93.7500% | ||||||||||||
1-1-2019 to 12-31-2023 |
=
|
60 months x 2.0833% | = | 124.9980% | ||||||||||||
1-1-2024 to 5-31-2026 |
=
|
29 months x 2.6042% | = | 75.5218% | ||||||||||||
Total Accrued Benefit |
|
388.02% of Final Average Earnings |
7-1-2006 to 12-31-2006 |
=
|
6 months x 1.5625% | = | 9.3750% | ||||||||||||
1-1-2007 to 12-31-2011 |
=
|
60 months x 2.0833% | = | 124.9980% | ||||||||||||
1-1-2012 to 12-31-2014 |
=
|
36 months x 2.6042% | = | 93.7512% | ||||||||||||
1-1-2015 to 3-31-2022 |
=
|
87 months x 3.1250% | = | 271.8750% | ||||||||||||
Total Accrued Benefit |
|
500.00% of Final Average Earnings |
7-1-2006 to 12-31-2013 |
=
|
90 months x 1.0417% | = | 93.7530% | ||||||||||||
1-1-2014 to 12-31-2018 |
=
|
60 months x 1.5625% | = | 93.7500% | ||||||||||||
1-1-2019 to 12-31-2023 |
=
|
60 months x 2.0833% | = | 124.9980% | ||||||||||||
1-1-2024 to 5-31-2024 |
=
|
5 months x 2.6042% | = | 13.0210% | ||||||||||||
Total Vested Benefit |
|
325.52% of Final Average Earnings |
7-1-2006 to 6-30-2019 |
=
|
156 months x 1.0417% | = | 162.5052% | ||||||||||||
7-1-2019 to 6-30-2024 |
=
|
60 months x 1.5625% | = | 93.7500% | ||||||||||||
7-1-2024 to 6-30-2029 |
=
|
60 months x 2.0833% | = | 124.9980% | ||||||||||||
7-1-2029 to 2-28-2031 |
=
|
20 months x 2.6042% | = | 52.0840% | ||||||||||||
Total Vested Benefit |
|
433.34% of Final Average Earnings |
Kennametal Inc.
|
||||
By: | /s/ David W. Greenfield | |||
Title: Vice President, Secretary and General
Counsel |
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1.1 | The purpose of this Supplemental Executive Retirement Plan is to ensure the payment of a competitive level of retirement income, in order to attract, retain, and motivate selected executives. The Plan is also intended to provide eligible executives with a retirement benefit that cannot be paid from the Companys qualified Retirement Income Plan, due to various limitations of the United States Internal Revenue Code. | |
1.2 | This Plan was previously amended and adopted, effective April 21, 1995; amended and adopted, effective July 26, 1999; amended and adopted, effective January 1, 2004; amended and adopted July 25, 2005, amended and adopted July 31, 2006 and was most recently amended and adopted, effective as of December 30, 2008. It is effective for each participant on the date he or she is designated as a Participant. | |
1.3 | The terms of this Plan are applicable only to eligible executives who are employed by the Company on or after April 21, 1995. Any executive who retired or otherwise terminated employment prior to such date, shall not be eligible to be designated a Participant under this Plan unless he or she returns to service with the Company on or after April 21, 1995. | |
1.4 | Notwithstanding the foregoing, in connection with the amendment of this Plan adopted effective July 31, 2006, the Company has provided for the closing of the class of officers and key executive employees who will be eligible to receive benefits under this Plan. (In connection with the adoption of such amendment, the Company has adopted a separate Kennametal Inc. 2006 Executive Retirement Plan to provide nonqualified retirement benefits for designated officers who are not eligible to participate in this Plan.) | |
1.5 | The Plan is intended to comply with the provisions of Section 409A of the Code, and the regulations and other binding guidance promulgated thereunder (Section 409A); provided, however, that the Plan shall be operated and administered in a manner to ensure that Grandfathered Benefits (as defined in Section 9.10) remain exempt from Section 409A. |
2.1 | Board of Directors means the Directors of the Company. | |
2.2 | Bonus Award means the annual cash award, if any, received by a Participant under the provisions of the Kennametal Inc. Management Performance Bonus Plan of any given fiscal year. Only an award generated by successful attainment of the Bonus Plans business objectives shall be considered a Bonus Award for the purposes of this Plan, provided that a Bonus Plan award of $0.00 to the Participant for a given fiscal year shall be taken into account for purposes of this Plan. No other kind of bonus award or grant will qualify as a Bonus Award for purposes of this Plan. |
1
2.3 | Cause means that the Participant: |
2.4 | Change in Control shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A promulgated under the Securities Exchange Act of 1934 as in effect on the date hereof (1934 Act), or if Item 6(e) is no longer in effect, any regulations issued by the Securities and Exchange Commission pursuant to the 1934 Act which serve similar purposes; provided that, without limitation, such a change in control shall be deemed to have occurred if (i) Kennametal shall be merged or consolidated with any corporation or other entity other than a merger or consolidation with a corporation or other entity all of whose equity interests are owned by Kennametal immediately prior to the merger or consolidation, or (ii) Kennametal shall sell all or substantially all of its operating properties and assets to another person, group |
2
of associated persons, or corporation; or (iii) any person (as such term is used in Sections 13(d) and 14(d) of the 1934 Act), is or becomes a beneficial owner, directly or indirectly, of securities of Kennametal representing 25% or more of the combined voting power of Kennametals then outstanding securities coupled with or followed by the existence of a majority of the board of directors of Kennametal consisting of persons other than persons who either were directors of Kennametal immediately prior to or were nominated by those persons who were directors of Kennametal immediately prior to such person becoming a beneficial owner, directly or indirectly, of securities of Kennametal representing 25% or more of the combined voting power of Kennametals then outstanding securities. |
3
2.15 | Primary Social Security Benefit means the monthly benefit, as provided by the Federal Social Security Act, to which the Participant would be entitled at age 65, based upon the assumption that such Participant will continue to receive until reaching age 65 monthly earnings at the same rate as he or she received such monthly earnings at the time of retirement, termination of employment or death. (Note: This definition is identical to that used under the Retirement Income Plan.) | |
2.16 | Retirement Income Plan means the funded, tax-qualified Kennametal Inc. Retirement Income Plan, as it may be amended and restated, from time to time. | |
2.17 | Retirement Income Plan Benefit means either (a) the monthly benefit that would be payable as a single life annuity under the Retirement Income Plan commencing upon a retirement at age 65, based on credited service and average earnings as of the Participants termination of service, calculated pursuant to the terms and provisions of the Retirement Income Plan as such terms and provisions literally apply to the Participant because the Participant is an active participant (accruing additional benefits) in the Retirement Income Plan up to his or her termination of service and will in fact be eligible to receive benefits reflecting credited service and average earnings determined to his or her termination of service; or (b) but for the amendment to the Retirement Income Plan effective December 31, 2003 that excluded such Participant from further active participation in such plan after such date, or in the case of a Participant first hired after December 31, 2003, excluded such Participant from any active participation in such plan, the monthly benefit that would be payable as a single life annuity under the Retirement Income Plan commencing upon a retirement at age 65, based on credited service and average earnings as of the Participants termination of service calculated pursuant to the terms and provisions of the Retirement Income Plan (other than vesting provisions) as such terms and provisions theoretically would have applied to the Participant if the Participant had not been excluded from active participation, or from further active participation, in the plan, but had instead been an active participant (accruing benefits) in the Retirement Income Plan up to his or her termination of service, based on his or her credited service and average earnings to such termination of service. That is, the Retirement Income Plan Benefit determined hereunder is either (a) the actual benefit that a Participant is eligible to receive under such plan because he or she is active participant in the Retirement Income Plan at termination of service, or (b) the theoretical benefit the Participant would have been eligible to receive had he or she been eligible to be an active participant in the Retirement Income Plan up to termination of service (determined without regard to the vesting provisions of the Retirement Income Plan). | |
2.18 | SERP Benefit means the benefit, calculated pursuant to Section V and Appendix A, that is payable to a Participant under the Plan who has attained a 100% vested percentage pursuant to Section IV. | |
2.19 | Surviving Spouse means the individual to whom the Participant is legally married at the time of his or her death. |
4
2.20 | Vested SERP Benefit means the percentage of the Participants SERP Benefit determined pursuant to Section IV. | |
2.21 | Target Retirement Income means the monthly amount determined as the applicable percentage of the total of (a) the Participants Final Base Salary plus (b) 1/36th of the sum of the Participants last three Bonus Awards. For this purpose, the applicable percentage is 60% at 30 Years of Service, plus or minus 1% for each Year of Service greater than or less than thirty. | |
2.22 | Year of Service means each full twelve-month period beyond Employees most recent hire date, as determined pursuant to the Companys regular personnel records and policies. (Note: This definition is not intended to be coextensive with the definition of Credited Service as used in the Retirement Income Plan.) Notwithstanding the foregoing, any service credit imputed to an Employee specifically for purposes of this Plan, pursuant to the specific terms of such Employees written employment agreement, shall be taken into account in determining such Employees Years of Service under this Plan. |
3.1 | Each officer or key executive Employee of the Company approved by the Committee, in its sole and complete discretion, shall be eligible to participate in the Plan. | |
3.2 | Any officer or key executive who becomes a Participant shall continue to be a Participant until his or her termination of employment, or until a date prior to such time, as determined by the Committee, in its sole discretion. | |
3.3 | Notwithstanding the foregoing, in connection with the amendment of this Plan adopted effective July 31, 2006, the Company has provided for the closing of the class of officers and key executive employees who will be eligible to receive benefits under this Plan. In connection with the adoption of the July 2006 amendment to this Plan, the Company has adopted a separate Kennametal Inc. 2006 Executive Retirement Plan to provide nonqualified retirement benefits for designated officers who are not eligible to participate in this Plan. Accordingly: |
5
4.1 | A Participant shall become vested in the SERP Benefit, determined under the provisions of Section V, only in accordance with the following vesting schedule: |
Age of Participant at | ||||
Termination of | Cumulative Vested | |||
Employment | SERP Benefit | |||
Less than age 56
|
0 | % | ||
56
|
20 | % | ||
57
|
40 | % | ||
58
|
60 | % | ||
59
|
80 | % | ||
60 or older
|
100 | % |
4.2 | Notwithstanding the percentage vesting schedule in Section 4.1, the SERP Benefit (determined under the provisions of Section V) of each Participant who is an Employee at the time of a Change in Control of the Company, shall become 100% vested. |
5.1 | The amount of each Participants SERP Benefit shall initially be calculated as the excess of the Target Retirement Income over the sum of (a) the Participants Retirement Income Plan Benefit plus (b) the Participants Primary Social Security Benefit. |
6
5.2 | The Target Retirement Income, the Retirement Income Plan Benefit, and the Social Security Benefit, shall be calculated according to the methodology described in Appendix A. | |
5.3 | The Committee shall cause the formula calculation described in Section 5.1 to be done annually, or as otherwise required, for each Participant. The Committee shall then be advised of the SERP Benefit amount for each Participant, and shall direct that an official list of Participants and their accrued SERP Benefit be prepared, which shall govern the payment of a benefit under the Plan, pursuant to Section VI (but subject to Section IV), until the next annual review and redetermination of a SERP Benefit amount. |
6.1 | Payment of the Participants Vested SERP Benefit, if any, shall commence on the first day of the seventh month following the month in which the Participants employment with the Company terminates voluntarily or involuntarily (except for Cause). | |
A Participants Vested SERP Benefit shall be paid in equal monthly installments, in the form of a single life annuity with no death or other survivor benefit other than those described in Section VII. However, the first monthly payment to the Participant shall equal the sum of seven monthly payments (to account for the six month delay in commencement of payments required under IRC § 409A(a)(1)(B)(i)). Each monthly installment is to be paid on the first day of the month. |
7.1 | In the event of the death of a Participant prior to the commencement of payment of a Plan benefit to the Participant, an amount equal to 50% of the amount of the benefit calculated in accordance with the vesting provisions of Section IV and the amount of the benefit of Section V which would otherwise have been payable to the Participant, will instead be payable to the Participants Surviving Spouse. Payments to such Surviving Spouse shall be made from the month following the month in which the death of the Participant occurred until the death of the Surviving Spouse. Each monthly installment is to be paid on the first day of the month. However, in the event the Participants death occurs after termination of employment as described in Section 6.1, the first monthly payment to the Surviving Spouse shall include an additional amount equal to the sum of the monthly payments that would have been made to the Participant prior to his or her death had monthly payments commenced on the first of the month following the Participants termination of employment as described in Section 6.1. For example, if a Participant terminated employment, as described in Section 6.1, on December 15 and then died on the following April 15, survived by a Surviving Spouse, the first payment to the Surviving Spouse shall include the sum of four monthly payments that would have been paid to the Participant in January, February and March and April (but for the six-month delay in commencement of payments) as well as the 50% Surviving Spouse benefit described in this Section VII. |
7
7.2 | In the event of the death of a Participant after the commencement of payment of a Plan benefit to the Participant, an amount equal to 50% of the amount of the Plan benefit then being paid to the Participant will instead be payable to the Participants Surviving Spouse. Payments to such Surviving Spouse shall be made from the month following the month in which the death of the Participant occurred, until the death of the Surviving Spouse. Each monthly installment is to be paid on the first day of the month. | |
7.3 | If the Surviving Spouse is five (5) or more years younger than the Participant, the monthly payment to the Surviving Spouse pursuant to paragraphs 7.1 and 7.2 shall be actuarially adjusted, so that it has the same present actuarial value as the full 50% payment to a hypothetical Surviving Spouse who is less than five (5) years younger than the Participant. For this purpose, the Committee shall use a life expectancy factor derived from the definition of Actuarial Equivalent under the Retirement Income Plan as in effect as of the date of the calculation. Effective as of January 1, 2004, the basis of Actuarial Equivalence under the Retirement Income Plan is the 1983 Group Annuity Mortality Table for Males, using 0% interest with the Surviving Spouses age set back four years. The life expectancy factors derived therefrom are set forth in Appendix B of the Plan. The foregoing actuarial adjustment shall be effected by dividing the life expectancy factor for the hypothetical Surviving Spouse by the life expectancy for the Surviving Spouse (calculated to four decimals). The quotient obtained shall be multiplied by the Surviving Spouses 50% benefit pursuant to paragraphs 7.1 and 7.2. An example of the method of actuarial adjustment is shown in Appendix C of the Plan. | |
7.4 | In the event that the Participant shall have been entitled to payments under Section 6 of the Plan, and/ or his or her Surviving Spouse (if any) shall have been entitled to payments under Section 7 of the Plan, and, in either case, upon the death of last to die of the Participant and Surviving Spouse (if any), the aggregate amount of the cumulative payments of the SERP Benefit shall have been less than $50,000, the Company shall pay a lump sum amount, equal to $50,000 less the aggregate amount of the cumulative payments of the SERP Benefit already made, to the person(s) determined below in the following order of preference: (1) to the person designated by the Participant in a written notice filed with the Committee, or, if the Participant has no such notice on file, or the person(s) designated in such notice do(es) not exist at the relevant time, then (2) to the executor or administrator of the Participants estate. Said payment will be made within 60 days of the date of death. |
8.1 | Claims for Benefits. The Committee shall determine the rights of any Participant to any benefits hereunder. Any Participant who believes that he or she has not received the benefits to which he is entitled under the Plan may file a claim in writing with the Committee. The Committee shall, no later than 90 days after the receipt of a claim (plus an additional period of 90 days if required for processing, provided that notice of the extension of time is given to the claimant within the first 90-day period), either allow or |
8
8.2 | Appeal Provisions. A claimant whose claim is denied (or his duly authorized representative) may within 60 days after receipt of denial of a claim file with the Committee a written request for a review of such claim. If the claimant does not file a request for review of his claim within such 60-day period, the claimant shall be deemed to have acquiesced in the original decision of the Committee on his claim, the decision shall become final and the claimant will not be entitled to bring a civil action under ERISA § 502(a). If such an appeal is so filed within such 60-day period, the Committee (or its delegate) shall conduct a full and fair review of such claim. During such review, the claimant (or the claimants authorized representative) shall be given the opportunity to review all documents that are pertinent to his claim and to submit issues and comments in writing. | |
The Committee (or its delegate) shall mail or deliver to the claimant a written decision on the matter based on the facts and the pertinent provisions of the Plan within 60 days after the receipt of the request for review (unless special circumstances require an extension of up to 60 additional days, in which case written notice of such extension shall be given to the claimant prior to the commencement of such extension). Such decision shall be written in a manner calculated to be understood by the claimant, shall state the specific reasons for the decision and the specific Plan provisions on which the decision was based and shall, to the extent permitted by law, be final and binding on all interested persons. If the decision on review is not furnished to the claimant within the above-mentioned time period, the claim shall be deemed to have been denied on review. | ||
8.3 | Further Proceedings. If a Participants claim for benefits is denied in whole or in part, such Participant may file suit only in a state court located in Westmoreland County, Pennsylvania or federal court located in Allegheny County, Pennsylvania. Notwithstanding, before such Participant may file suit in a state or federal court, Participant must exhaust the Plans administrative claims procedure. If any such judicial or administrative proceeding is undertaken, the evidence presented will be strictly limited to the evidence timely presented to the Plan Administrator. In addition, |
9
any such judicial or administrative proceeding must be filed within six months after the Plan Administrators final decision. |
9.1 | Administration. |
9.2 | No Guaranty of Employment . Nothing in this Plan shall be construed as guaranteeing future employment to any Participant. Without limiting the generality of the preceding sentence, except as otherwise set forth in a written agreement, a Participant continues to be an employee of the Company solely at the will of the Company, subject to discharge at any time, with or without Cause. The benefits provided for herein for a Participant shall not be deemed to modify, affect or limit any salary or salary increases, bonuses, profit |
10
sharing or any other type of compensation of a Participant in any manner whatsoever. Except as otherwise specifically provided herein, nothing contained in this Plan shall affect the right of a Participant to participate in or be covered by or under any qualified or nonqualified pension, profit sharing, group, bonus or other supplemental compensation, retirement or fringe benefit Plan constituting any part of the Companys compensation structure whether now or hereinafter existing. |
9.3 | Non-Competition. Receipt of the SERP Benefit is expressly conditioned upon the non-competition of the retired Participant with the Company, for so long as any payments are being made hereunder. Accordingly, unless the Participant first secures the written consent of the Board of Directors or the Committee, he shall not directly or indirectly, as an officer, director, employee, consultant, agent, partner, joint venturer, proprietor, or other, engage in or assist any business which is or may become in direct or indirect competition with the Company or any of its subsidiaries, other than as a mere investor holding not more than one percent of the equity interest of any such competing enterprise. In the event that the Committee makes a good-faith determination that a Participant receiving a SERP Benefit is or may be violating the non-competition provisions hereof, it shall immediately notify him or her of such finding in writing and afford him or her a reasonable opportunity (a period of not less than sixty days) to rebut such finding, or to desist from such competitive activity. In the event that the Committee believes that a violation of the non-competition provision continues uncorrected following the sixty-day period, it may then cease making SERP Benefit payments, and the retired Participant (and any Spouse or other beneficiary claiming through the Participant) shall forfeit any right to future payment of a SERP Benefit under the Plan. | |
9.4 | Source of Benefit Payments. This Plan is intended to be an unfunded plan of deferred compensation for a select group of management or highly compensated individuals, and it is intended that a SERP Benefit payable hereunder will be paid from the general assets of the Company. However, in the event of a Change in Control, amounts payable to a Participant or the Surviving Spouse or estate, under Sections 6 and 7 of the Plan, may be provided for in accordance with an Executive Deferred Compensation Trust (a so-called Rabbi trust) between the Company and a trustee. Should such an Executive Deferred Compensation Trust be established, the Company shall inform the Participant of the identity of the trustee upon the Participants request. |
9.5 | Non-Assignment, Alienation. Nothing in this Plan gives a Participant or any person claiming payments for or through him or her, any right, title, or interest in any asset held in the Company, prior to the payment thereof, and that the right of a Participant to any payment hereunder is strictly contractual and unsecured. In addition, the benefit to be paid hereunder may not be voluntarily or involuntarily sold, transferred, assigned, alienated, or encumbered, and any such attempt shall be void. | |
9.6 | Obligation of Successors. This Plan shall be binding upon the Company or any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise), to all or substantially all of the business and/or assets of the Company, or to any assignee thereof. To the extent that the Company must take additional contractual or other steps to |
11
make the Plan an enforceable contractual obligation of a successor (e.g., a purchaser of assets), the Company shall take such steps. This Plan and all rights of the Participant hereunder shall inure to the benefit of and be enforceable by the Participant or the Participants personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. |
9.7 | Amendment, Termination. This Plan may be amended or terminated at any time by action of the Board of Directors, provided that no such amendment or termination shall reduce or eliminate the right of a Participant to the payment of a Plan benefit earned prior to such amendment or termination. Notwithstanding the foregoing or any provision of the Plan to the contrary, the Company may at any time (without the consent of any Participant) modify, amend or terminate any or all of the provisions of this Plan to the extent necessary or advisable to conform the provisions of the Plan with IRC § 409A, the regulations issued thereunder or an exception thereto, regardless of whether such modification, amendment or termination of this Plan shall adversely affect the rights of a Participant under the Plan. | |
9.8 | Withholding. The Company may provide for the withholding, from any benefit payable under this Plan, all Federal, state, city, or other taxes as shall be appropriate pursuant to any law or governmental regulation or ruling, and may delay the payment of any benefit until the Participant or beneficiary provides payment to the Company of all applicable withholding taxes. | |
9.9 | Miscellaneous. This Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, to the extent not governed by federal law. Section headings are for convenience of reference only, and shall not affect the construction or interpretation of any of the provisions hereof. | |
9.10 | Grandfathered Benefits. Notwithstanding any provision to the contrary contained herein and with respect to deferred compensation benefits that were earned and vested under this Plan prior to January 1, 2005 (as determined under Section 409A, Grandfathered Benefits), such Grandfathered Benefits and the Plan shall be administered and interpreted in a manner intended to ensure that such Grandfathered Benefits remain exempt from Section 409A No amendments or other modifications shall be made to the Plan that would cause any such Grandfathered Benefits to become subject to Section 409A, and all amendments or modifications to the Plan shall be administered, interpreted and construed in a manner necessary to ensure that such Grandfathered Benefits remain exempt from Section 409A. |
12
Kennametal Inc. | ||||||
|
||||||
|
By:
Title: |
/s/ David W. Greenfield
|
13
¨ | Calculation begins with current monthly base salary and years of service, up to the present date. | |
¨ | Target Retirement Income equals a percent of (a) Final Base Salary plus (b) the monthly average (i.e., 1/36) of the sum of the last three Bonus Awards. The percentage is calculated as 60% for 30 years of service, plus or minus 1% for each year of service greater than or less than thirty. For example: |
Years of | Retirement | |||
Service | Target | |||
Newly hired
|
30 | % | ||
5
|
35 | % | ||
10
|
40 | % | ||
15
|
45 | % | ||
20
|
50 | % | ||
25
|
55 | % | ||
30
|
60 | % | ||
35
|
65 | % | ||
40
|
70 | % | ||
45
|
75 | % |
¨ | Calculate the Retirement Income Plan Benefit , based on current years of service and pensionable earnings, to date, and including current statutory limitations (IRC §§ 415 and 401(a)(17), and in a manner consistent with Treas. Reg. § 1.409A-2(a)(9) and Treas. Reg. § 1.409A-3(j)(5)), but not actuarially reduced for age less than 65. This calculation is made on the assumption (whether or not true) that the Participant is an active participant in the RIP and is currently eligible to accrue additional benefits thereunder. (Thus, the calculation is made even if the Participant is excluded from active participation under the terms of the RIP, as amended effective December 31, 2003.) | |
¨ | Calculate the Primary Social Security Benefit , based on earnings to date and assuming that current level of earnings will continue through age 65. | |
¨ | The SERP Benefit equals the Target Retirement Income (above) minus the sum of (a) the Retirement Income Plan Benefit plus (b) the Primary Social Security Benefit . | |
¨ | The SERP Benefit is then adjusted, if applicable, under the vesting schedule in Section 4.1. |
14
¨ | However, the minimum SERP Benefit is 10% of current Base Salary. | |
¨ | If the prior Vested SERP benefit (as last calculated under the above described method and posted to the official list of Participants and their respective Vested SERP Benefits) is greater than the new Vested SERP Benefit, use the prior Vested SERP Benefit. | |
¨ | Therefore, the Vested SERP Benefit is the greatest of: |
| Target Retirement Income minus sum of (a) Retirement Income Plan Benefit plus (b) the Primary Social Security Benefit, adjusted, if applicable, under the vesting schedule in Section 4.1. | ||
| 10% of Current Base Salary, or | ||
| Prior Vested SERP Benefit. |
15
Age | Joint Annuitant | |||
20
|
61.8209 | |||
21
|
60.8413 | |||
22
|
59.8620 | |||
23
|
58.8830 | |||
24
|
57.9043 | |||
25
|
56.9259 | |||
26
|
55.9480 | |||
27
|
54.9706 | |||
28
|
53.9937 | |||
29
|
53.0174 | |||
30
|
52.0418 | |||
31
|
51.0670 | |||
32
|
50.0929 | |||
33
|
49.1198 | |||
34
|
48.1476 | |||
35
|
47.1765 | |||
36
|
46.2066 | |||
37
|
45.2380 | |||
38
|
44.2708 | |||
39
|
43.3052 | |||
40
|
42.3420 | |||
41
|
41.3799 | |||
42
|
40.4194 | |||
43
|
39.4609 | |||
44
|
38.5048 | |||
45
|
37.5519 | |||
46
|
36.6027 | |||
47
|
35.6578 | |||
48
|
34.7181 | |||
49
|
33.7843 | |||
50
|
32.8570 | |||
51
|
31.9371 | |||
52
|
31.0249 | |||
53
|
30.1209 | |||
54
|
29.2251 | |||
55
|
28.3377 | |||
56
|
27.4584 | |||
57
|
26.5870 | |||
58
|
25.7232 | |||
59
|
24.8665 | |||
60
|
24.0165 | |||
61
|
23.1729 | |||
62
|
22.3357 | |||
63
|
21.5052 | |||
64
|
20.6824 | |||
65
|
19.8686 | |||
66
|
19.0651 | |||
67
|
18.2736 | |||
68
|
17.4961 | |||
69
|
16.7345 | |||
70
|
15.9910 | |||
71
|
15.2675 | |||
72
|
14.5650 | |||
73
|
13.8838 | |||
74
|
13.2233 | |||
75
|
12.5823 | |||
76
|
11.9593 | |||
77
|
11.3534 | |||
78
|
10.7651 | |||
79
|
10.1954 | |||
80
|
9.6460 | |||
81
|
9.1190 | |||
82
|
8.6159 | |||
83
|
8.1375 | |||
84
|
7.6840 | |||
85
|
7.2554 | |||
86
|
6.8510 | |||
87
|
6.4698 | |||
88
|
6.1104 | |||
89
|
5.7710 | |||
90
|
5.4494 | |||
91
|
5.1452 | |||
92
|
4.8567 | |||
93
|
4.5831 | |||
94
|
4.3236 | |||
95
|
4.0780 | |||
96
|
3.8449 | |||
97
|
3.6221 | |||
98
|
3.4067 | |||
99
|
3.2050 | |||
100
|
3.0190 | |||
101
|
2.8379 | |||
102
|
2.6613 | |||
103
|
2.4889 | |||
104
|
2.3201 | |||
105
|
2.1539 | |||
106
|
1.9885 | |||
107
|
1.8203 | |||
108
|
1.6485 | |||
109
|
1.4741 |
16
1. | Life expectancy set forth on the Group Annuity Mortality Table of a hypothetical Surviving Spouse who is age 69 = 16.7345 | |
2. | Life expectancy set forth on the Group Annuity Mortality Table of the Surviving Spouse who is age 65 = 19.8686 | |
3. | Quotient obtained by dividing 1 above by 2 above (16.7345 ÷ 19.8686) = 0.8423 | |
4. | Yearly benefit payable to Surviving Spouse = $10,000 x 50% x 0.8423 = $4,211.50 |
17
18
19
20
1. | I have reviewed this quarterly report on Form 10-Q of Kennametal Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d 15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: February 4, 2009 | /s/ Carlos M. Cardoso | |||
Carlos M. Cardoso | ||||
Chairman, President and Chief Executive Officer | ||||
1. | I have reviewed this quarterly report on Form 10-Q of Kennametal Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d 15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: February 4, 2009 | /s/ Frank P. Simpkins | |||
Frank P. Simpkins | ||||
Vice President and Chief Financial Officer | ||||
1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||
2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Corporation. |
/s/ Carlos M. Cardoso
|
||
Carlos M. Cardoso
|
||
Chairman, President and Chief Executive Officer
|
||
|
||
February 4, 2009
|
||
|
||
/s/ Frank P. Simpkins
|
||
Frank P. Simpkins
|
||
Vice President and Chief Financial Officer
|
||
|
||
February 4, 2009
|
* | This certification is made solely for purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose. |