Kennametal Inc. 8-K

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q49c5JZLH1wpn6ndf2K57LHI1J35K0QBwURql7lLdZ/NxgWKgjdf1LSPzwu0fwEm PN9qBiJY5avhtEZ5yqrl4A== 0000950152-05-003566.txt : 20050427 0000950152-05-003566.hdr.sgml : 20050427 20050427092050 ACCESSION NUMBER: 0000950152-05-003566 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050427 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050427 DATE AS OF CHANGE: 20050427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENNAMETAL INC CENTRAL INDEX KEY: 0000055242 STANDARD INDUSTRIAL CLASSIFICATION: MACHINE TOOLS, METAL CUTTING TYPES [3541] IRS NUMBER: 250900168 STATE OF INCORPORATION: PA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05318 FILM NUMBER: 05774724 BUSINESS ADDRESS: STREET 1: 1600 TECHNOLOGY WAY STREET 2: P O BOX 231 CITY: LATROBE STATE: PA ZIP: 15650 BUSINESS PHONE: 7245395000 MAIL ADDRESS: STREET 1: 1600 TECHNOLOGY WAY STREET 2: PO BOX 231 CITY: LATROBE STATE: PA ZIP: 15650 8-K 1 j1357801e8vk.htm KENNAMETAL INC. 8-K Kennametal Inc. 8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): April 27, 2005

Kennametal Inc.

(Exact Name of Registrant as Specified in Its Charter)

Pennsylvania

(State or Other Jurisdiction of Incorporation)


1-5318		25-0900168

(Commission File Number)		(IRS Employer Identification No.)

World Headquarters
1600 Technology Way
P.O. Box 231

Latrobe, Pennsylvania 15650-0231

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (724) 539-5000

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS


Item 2.02 Results of Operations and Financial Condition
Item 9.01. Financial Statements and Exhibits.
Exhibit 99.1

Item 2.02 Results of Operations and Financial Condition

On April 27, 2005, Kennametal issued a press release announcing financial results for its third quarter ended March 31, 2005.

The press release contains certain non-GAAP financial measures, including gross profit, operating expense, operating income, other (income) / expense, net income and diluted earnings per share in each case excluding special items. The special items include: FSS goodwill impairment charge, loss on assets held for sale, restructuring charges, Widia integration costs, pension curtailment, gain on Toshiba investment, and charges related to a note receivable. The press release also contains free operating cash flow, debt to capital, and adjusted return on invested capital, which are also non-GAAP measures and are defined below.

Kennametal management excludes these items in measuring and compensating internal performance to more easily compare the Company’s financial performance period to period. Kennametal management believes that presentation of these non-GAAP financial measures provides useful information about the results of operations of the Company for the current, past and future periods.

Management believes that the investor should have available the same information that management uses to assess operating performance, determine compensation, and assess the capital structure of the Company. These non-GAAP measures should not be considered in isolation or as a substitute for the most comparable GAAP measures. Non-GAAP financial measures utilized by the Company may not be comparable to non-GAAP financial measures used by other companies.

Free Operating Cash Flow

Free operating cash flow is a non-GAAP financial measure and is defined as cash provided by operations (in accordance with GAAP) less capital expenditures plus proceeds from disposals of fixed assets. Management considers free operating cash flow to be an important indicator of Kennametal’s cash generating capability because it better represents cash generated from operations that can be used for strategic initiatives (such as acquisitions), dividends, debt repayment and other investing and financing activities.

Debt to Capital

Debt to equity in accordance with GAAP is defined as total debt divided by shareowners’ equity. Debt to capital is a non-GAAP financial measure and is defined by Kennametal as total debt divided by total shareowners’ equity plus minority interest plus total debt. Management believes that this financial measure provides additional insight into the underlying capital structuring and performance of the Company.

Adjusted Return on Invested Capital

Adjusted Return on Invested Capital is a non-GAAP financial measure and is defined as the previous 12 months net income, adjusted for interest expense and special items, divided by the sum of the previous 12 months average balances of debt, securitized accounts receivable, minority interest and shareowners’ equity. Management believes that this financial measure provides additional insight into the underlying capital structuring and performance of the Company. Management utilizes this non-GAAP measure in determining compensation and assessing the operations of the Company.

A copy of the Company’s earnings announcement is furnished under Exhibit 99.1 attached hereto. Reconciliations of the above non-GAAP financial measures are included in the earnings announcement.

Additionally, during our quarterly teleconference we may use various other non-GAAP financial measures to describe the underlying operating results. Accordingly, we have compiled below certain reconciliations as required by Regulation G.

Primary Working Capital

Primary working capital is a non-GAAP presentation and is defined as accounts receivable, net plus inventories, net minus accounts payable. The most directly comparable GAAP measure is working capital, which is defined as current assets less current liabilities. We believe primary working capital better represents Kennametal’s performance in managing certain assets and liabilities controllable at the business unit level and is used as such for internal performance measurement.

EBIT

EBIT is an acronym for Earnings Before Interest and Taxes and is not a calculation in accordance with GAAP. The most directly comparable GAAP measure is net income. However, we believe that EBIT is widely used as a measure of operating performance and we believe EBIT to be an important indicator of the Company’s operational strength and performance. Nevertheless, the measure should not be considered in isolation or as a substitute for operating income, cash flows from operating activities or any other measure for determining liquidity that is calculated in accordance with GAAP. Additionally, Kennametal will adjust EBIT for restructuring charges, interest income, and other items. Management uses this information in reviewing operating performance and in the determination of compensation.

EBITDA

EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization and is not a calculation in accordance with GAAP. The most directly comparable GAAP measure is net income. However, we believe that EBITDA is widely used as a measure of operating performance and we believe EBITDA to be an important indicator of the Company’s operational strength and performance. Nevertheless, the measure should not be considered in isolation or as a substitute for operating income, cash flows from operating activities or any other measure for determining liquidity that is calculated in accordance with GAAP. Additionally, Kennametal will adjust EBITDA for restructuring charges, interest income, and other items. Management uses this information in reviewing operating performance and in the determination of compensation.

Adjusted Sales

Kennametal adjusts current period sales as reported under GAAP for specific items including foreign currency translation. Management believes that adjusting the current period sales as reported under GAAP yields a more consistent comparison of year over year results and provides additional insight into the underlying operations. Management uses this information in reviewing operating performance and in the determination of compensation.

Adjusted Gross Profit

Kennametal adjusts gross profit as recorded under GAAP for specific items including Widia integration, restructuring and asset impairment charges. Management believes that the adjusted gross profit information is an important indicator of the Company’s underlying operating performance.

Management uses this information in reviewing operating performance and in the determination of compensation.

Operating Expense Reconciliation

Kennametal adjusts operating expense as reported under GAAP for Widia integration costs and current period foreign exchange. Management believes that the adjusted operating expense provides additional insight into the underlying operations. Management uses this information in reviewing operating performance and in the determination of compensation.

SUPPLEMENTAL INFORMATION AND RECONCILIATIONS

FINANCIAL HIGHLIGHTS

RECONCILIATION OF PRIMARY WORKING CAPITAL TO GAAP WORKING CAPITAL (Unaudited)


	March 31,
	2005			2004
Current assets	$	885,829		$	790,892
Current liabilities		458,464			340,743


Working capital in accordance with GAAP	$	427,365		$	450,149


Excluding items:
Cash and cash equivalents		(34,792	)		(27,528	)
Deferred income taxes		(98,063	)		(88,480	)
Other current assets		(82,822	)		(38,803	)


Total excluded current assets	$	(215,677	)	$	(154,811	)


Adjusted current assets		670,152			636,081


Short-term debt, including notes payable		(56,225	)		(8,193	)
Accrued liabilities		(259,971	)		(200,304	)


Total excluded current liabilities	$	(316,196	)	$	(208,497	)


Adjusted current liabilities		142,268			132,246


Primary working capital	$	527,884		$	503,835

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FINANCIAL HIGHLIGHTS (Continued)

KENNAMETAL INC. EBIT RECONCILIATION (Unaudited)


	Quarter Ended						Nine Months Ended
	March 31,						March 31,
	2005			2004			2005			2004
Net income, as reported	$	30,650		$	24,070		$	81,551		$	43,727

As % of sales		5.1	%		4.6	%		4.8	%		3.1	%

Add back:

Interest		6,803			6,332			19,380			19,479

Taxes		18,933			11,579			39,540			21,345


EBIT		56,386			41,981			140,471			84,551

Additional adjustments:

Minority interest		1,449			533			3,354			1,632

Restructuring and asset impairment charges ⁽¹⁾		4,707			—			4,707			6,520

Loss on assets held for sale		1,546			—			1,546			—

Widia integration		—			—			—			1,559

Pension curtailment		—			—			—			1,299

Gain on Toshiba investment		—			—			—			(4,397	)

Note receivable		—			—			—			2,000

Interest income		(828	)		(376	)		(2,078	)		(1,251	)

Securitization fees		868			356			2,205			1,236


Adjusted EBIT	$	64,128		$	42,494		$	150,205		$	93,149


Adjusted EBIT as % of sales		10.7	%		8.1	%		8.9	%		6.5	%

Depreciation expense		16,208			16,299			46,646			47,183

Intangible amortization		723			614			1,894			1,570


Adjusted EBITDA	$	81,059		$	59,407		$	198,745		$	141,902

(1)

For the nine months ended March 31, 2004, includes charges in cost of goods sold and restructuring expense.

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FINANCIAL HIGHLIGHTS (Continued)

MSSG SEGMENT (Unaudited)


	Quarter Ended					Nine Months Ended
	March 31,					March 31,
	2005			2004		2005			2004
Sales, as reported	$	357,197		$	317,506	$	1,009,297		$	872,128

Foreign currency exchange		(12,651	)		—		(35,920	)		—


Adjusted sales	$	344.546		$	317,506	$	973,377		$	872,128

MSSG EBIT (Unaudited)


	Quarter Ended						Nine Months Ended
	March 31,						March 31,
	2005			2004			2005			2004
MSSG operating income, as reported	$	53,555		$	36,751		$	135,150		$	82,937

As % of sales		15.0	%		11.6	%		13.4	%		9.5	%

Other income (expense)		513			(26	)		1,246			1,940


EBIT		54,068			36,725			136,396			84,877

Adjustments:

MSSG restructuring ⁽¹⁾		—			—			—			5,023
Widia integration		—			—			—			1,511


EBIT, excluding special items	$	54,068		$	36,725		$	136,396		$	91,411


As % of sales		15.1	%		11.6	%		13.5	%		10.5	%

(1)

Includes charges in cost of goods sold and restructuring expense

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FINANCIAL HIGHLIGHTS (Continued)

AMSG SEGMENT (Unaudited)


	Quarter Ended					Nine Months Ended
	March 31,					March 31,
	2005			2004		2005			2004
Sales, as reported	$	135,460		$	111,464	$	375,673		$	299,846

Foreign currency exchange		(2,557	)		—		( 7,517	)		—


Adjusted sales	$	132,903		$	111,464	$	368,156		$	299,846

AMSG SEGMENT (Unaudited)


	Quarter Ended						Nine Months Ended
	March 31,						March 31,
	2005			2004			2005			2004
AMSG operating income, as reported	$	22,211		$	15,146		$	50,613		$	36,375

As % of sales		16.4	%		13.6	%		13.5	%		12.1	%

Other (expense) income		(523	)		55			(1,199	)		1,115


EBIT		21,688			15,201			49,414			37,490

Adjustments:

AMSG restructuring ⁽¹⁾		—			—			—			1,497

Widia integration		—			—			—			48



EBIT, excluding special items	$	21,688		$	15,201		$	49,414		$	39,035


As % of sales		16.0	%		13.6	%		13.2	%		13.0	%

(1)

Includes charges in cost of goods sold and restructuring expense

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FINANCIAL HIGHLIGHTS (Continued)

J&L SEGMENT (Unaudited)


	Quarter Ended					Nine Months Ended
	March 31,					March 31,
	2005			2004		2005			2004
Sales, as reported	$	67,054		$	60,074	$	189,809		$	158,554

Foreign currency exchange		(327	)		—		(1,515	)		—


Adjusted sales	$	66,727		$	60,074	$	188,294		$	158,554

J&L EBIT (Unaudited)


	Quarter Ended						Nine Months Ended
	March 31,						March 31,
	2005			2004			2005			2004
J&L operating income, as reported	$	7,915		$	6,419		$	19,502		$	13,410

As % of sales		11.8	%		10.7	%		10.3	%		8.5	%

Other (expense) income		(1	)		(2	)		8			23


EBIT		7,914			6,417			19,510			13,433

Adjustments		—			—			—			—


EBIT, excluding special items	$	7,914		$	6,417		$	19,510		$	13,433


As % of sales		11.8	%		10.7	%		10.3	%		8.5	%

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FINANCIAL HIGHLIGHTS (Continued)

FSS SEGMENT (Unaudited)


	Quarter Ended					Nine Months Ended
	March 31,					March 31,
	2005			2004		2005			2004
Sales, as reported	$	37,644		$	35,186	$	110,230		$	99,055

Foreign currency exchange		(229	)		—		(588	)		—


Adjusted sales	$	37,415		$	35,186	$	109,642		$	99,055

FSS EBIT (Unaudited)


	Quarter Ended						Nine Months Ended
	March 31,						March 31,
	2005			2004			2005			2004
FSS operating income (loss), as reported	$	(5,036	)	$	376		$	(4,370	)	$	(64	)

As % of sales		(13.4	%)		1.1	%		(4.0	%)		(0.1	%)

Other (expense) income		4			—			4			2


EBIT		(5,032	)		376			(4,366	)		(62	)

Adjustments:

FSS goodwill impairment charge		4,707			—			4,707			—

Loss on assets held for sale		1,546			—			1,546			—


EBIT, excluding special items	$	1,221		$	376		$	1,887		$	(62	)


As % of sales		3.2	%		1.1	%		1.7	%		(0.1	%)

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RECONCILIATION TO GAAP – GROSS PROFIT (Unaudited)


	Quarter Ended										Nine Months Ended
	March 31,										March 31,
			As a %					As a %					As a %					As a %
	2005		of Sales			2004		of Sales			2005		of Sales			2004		of Sales
Gross profit	$	211,261		35.4	%	$	175,854		33.5	%	$	566,070		33.6	%	$	467,593		32.7	%

Widia integration and restructuring charges		—		0.0	%		—		0.0	%		—		0.0	%		2,961		0.2	%

Pension curtailment		—		0.0	%		—		0.0	%		—		0.0	%		779		0.1	%


Gross profit, excluding special items	$	211,261		35.4	%	$	175,854		33.5	%	$	566,070		33.6	%	$	471,333		33.0	%

OPERATING EXPENSE RECONCILIATION (Unaudited)


	Quarter Ended					Nine Months Ended
	March 31,					March 31,
	2005			2004		2005			2004
Operating expense, as reported	$	147,968		$	132,218	$	418,430		$	378,180

Loss on assets held for sale		(1,546	)		—		(1,546	)		—

Integration costs		—			—		—			(1,448	)

Pension curtailment		—			—		—			(520	)

Note receivable		—			—		—			(1,817	)


Operating expense, excluding special items		146,422			132,218		416,884			374,395

Less:

Unfavorable foreign exchange		3,342			—		10,543			—


Operating expense, excluding special items and foreign exchange	$	143,080		$	132,218	$	406,341		$	374,395

Item 9.01 Financial Statements and Exhibits

99.1. Fiscal 2005 Third Quarter Earnings Announcement

-end-

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


		KENNAMETAL INC.


Date: April 27, 2005	By:	/s/ Timothy A. Hibbard

		Timothy A. Hibbard
		Corporate Controller and Chief Accounting Officer

EX-99.1 2 j1357801exv99w1.htm EXHIBIT 99.1 Exhibit 99.1

EXHIBIT 99.1

FISCAL 2005 THIRD QUARTER EARNINGS ANNOUNCEMENT


		FROM:		KENNAMETAL INC.
				P.O. Box 231
				Latrobe, PA 15650
				724-539-6141

				Investor Relations
				Contact: Beth A. Riley

				Media Relations
				Contact: Joy Chandler

		DATE:		April 27, 2005
		FOR RELEASE:		Immediate

KENNAMETAL REPORTS STRONG THIRD QUARTER RESULTS

—   Q3 05 sales up 14 percent

—   Adjusted Earnings per diluted share (EPS) of $0.92, up 39 percent

—   Adjusted EPS outlook for FY05 increased to $3.17 — $3.22

LATROBE, Pa., April 27, 2005- Kennametal Inc. (NYSE: KMT) today reported fiscal 2005 third-quarter adjusted EPS of $0.92 compared with prior year reported EPS of $0.66 and original guidance of $0.80 to $0.85. Third quarter reported EPS of $0.80 includes $0.12 of charges related to the Full Service Supply (FSS) divestiture.

For the first nine months of fiscal 2005, adjusted EPS were $2.26 compared with prior year adjusted EPS of $1.34. Reported EPS for the current period were $2.15 and include special items totaling $0.11 related to the FSS divestiture. Prior year period reported EPS were $1.20 and included special items totaling $0.14.

Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, “Building on the momentum of the first half, we sustained a robust rate of growth on top of the 14 percent growth posted in the third quarter of fiscal 2004. As a result, we delivered the highest quarterly sales and earnings in Kennametal’s history, while continuing to generate strong cash flow. Consistent execution of our strategies through the Kennametal Value Business System supported growth in every geography and nearly every market, despite our modest automotive exposure—representing only 18 percent of sales, less than half of which is in North America. We also continued to proactively improve the growth and profitability profile of our portfolio with the Extrude Hone acquisition and the announced divestiture of the Full Service Supply business.”

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Highlights of the Fiscal 2005 Third Quarter

•   Sales of $597 million up 14 percent versus the same quarter last year, including 12 percent organic sales growth, 3 percent benefit from foreign currency exchange and 2 percent from acquisitions offset by 3 percent from fewer workdays.

•   Reported net income was $31 million versus $24 million, as improved sales volume was leveraged against a more productive operating structure offset by charges related to the FSS divestiture.

•   Net cash flow from operations was $66 million versus $54 million last year. Free operating cash flow was $45 million versus the prior year level of $41 million due primarily to increased operating leverage.

•   Debt to capital decreased to 32 percent versus 37 percent at the end of the prior year quarter, including the impact of the Extrude Hone acquisition.

•   Adjusted Return on Invested Capital improved 290 basis points to 9.1 percent versus 6.2 percent in the prior year.

•   Completed the acquisition of Extrude Hone Corporation for approximately $133.6 million, net of acquired cash and direct acquisition costs.

Highlights of First Nine Months of Fiscal 2005

•   Sales of $1.7 billion up 18 percent on 14 percent organic sales growth, 3 percent benefit from foreign currency exchange and 2 percent from acquisitions offset by 1 percent from fewer workdays.

•   Reported net income was $82 million versus $44 million in the same period last year, reflecting the benefits of increased operating leverage, partially offset by charges related to the FSS divestiture.

•   Net cash flow from operations was $150 million versus $109 million last year. Free operating cash flow totaled $96 million for the nine-month period versus $76 million in last year’s comparable period, due to growth in cash from operations offset by increased capital spending.

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Divestiture

As previously announced, Kennametal Inc. has signed a definitive agreement to sell its FSS business unit. During the quarter ended March 31, 2005, the Company recognized an impairment charge related to FSS goodwill of $5 million and recorded a loss on assets held for sale of $1 million. The impact on EPS was $0.12 during the quarter and $0.11 for the nine-month period.

This transaction is expected to close during Kennametal’s Fiscal 2005 fourth quarter.

Outlook

Tambakeras said, “We are pleased to be on pace for a record year of sales and earnings, and remain steadfastly focused on delivering superior shareowner value.”

Organic sales for the fourth quarter of fiscal 2005 are expected to grow 9 to 11 percent, despite significantly tougher comparisons. Reported EPS is expected to be $0.90 to $0.95. The effective tax rate for the fourth quarter is expected to be approximately 36 percent (this is an increase versus prior expectations of 32 percent). The full year rate is expected to be approximately 33 percent. As stated previously, the execution of our business strategy, as well as the impact of tax planning, will result in fluctuations of the tax rate from quarter to quarter.

Kennametal anticipates net cash flow provided by operating activities of approximately $190 to $215 million, or between 8 and 9 percent of sales, in fiscal 2005. Purchases of property, plant and equipment, net of proceeds from disposals of property, plant and equipment are still expected to be approximately $75 to $80 million. Adjusting net cash flow provided by operating activities for the above items, Kennametal expects to generate between $115 and $130 million of free operating cash flow for fiscal 2005.

Kennametal advises shareowners to note monthly order trends, for which the company makes a disclosure ten business days after the conclusion of each month. This information is available on the Investor Relations section of Kennametal’s corporate web site at www.kennametal.com.

Dividend Declared
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable May 24, 2005, to shareowners of record as of the close of business on May 9, 2005.

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Third quarter results will be discussed in a live Internet broadcast at 10:00 a.m. (Eastern) today. Access the live or archived conference by visiting the Investor Relations section of Kennametal’s corporate web site at www.kennametal.com.

This release contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the fact they use words such as “should,” “anticipate,” “estimate,” “approximate,” “expect,” “may,” “will,” “project,” “intend,” “plan,” “believe,” and others words of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements are likely to relate to, among other things, our goals, plans and projections regarding our financial position, results of operations, market position and product development, which are based on current expectations that involve inherent risks and uncertainties, including factors that could delay, divert or change any of them in the next several years. Although it is not possible to predict or identify all factors, they may include the following: global economic conditions; future terrorist attacks; epidemics; risks associated with integrating and divesting businesses and achieving the expected savings and synergies; demands on management resources; risks associated with international markets such as currency exchange rates, and social and political environments; competition; labor relations; commodity prices; demand for and market acceptance of new and existing products; and risks associated with the implementation of restructuring plans and environmental remediation matters. We can give no assurance that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.

Kennametal Inc. (NYSE:KMT) is the world’s premier supplier of tooling, engineered components and advanced materials consumed in production processes. The company improves customers’ competitiveness by providing superior economic returns through the delivery of application knowledge and advanced technology to master the toughest of materials application demands. Companies producing everything from airframes to coal, from medical implants to oil wells and from turbochargers to motorcycle parts recognize Kennametal for extraordinary contributions to their value chains. Customers buy over $2.2 billion annually of Kennametal products and services—delivered by our 14,000 talented employees in over 60 countries—with almost 50 percent of these revenues coming from outside the United States. Visit us at www.Kennametal.com.

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FINANCIAL HIGHLIGHTS

Consolidated Statements of Income (Unaudited)


	Quarter Ended				Nine Months Ended
(in thousands, except per share amounts)	March 31,				March 31,
	2005		2004		2005			2004
Sales	$	597,355	$	524,230	$	1,685,009		$	1,429,583

Cost of goods sold ⁽¹⁾		386,094		348,376		1,118,939			961,990


Gross profit		211,261		175,854		566,070			467,593

Operating expense ⁽²⁾		147,968		132,218		418,430			378,180

Restructuring and asset impairment charges⁽³⁾		4,707		—		4,707			3,670

Amortization of intangibles		723		614		1,894			1,570


Operating income		57,863		43,022		141,039			84,173

Interest expense		6,803		6,332		19,380			19,479

Other expense (income), net ⁽⁴⁾		28		508		(2,786	)		(2,010	)


Income before provision for income taxes and minority interest		51,032		36,182		124,445			66,704

Provision for income taxes		18,933		11,579		39,540			21,345

Minority interest		1,449		533		3,354			1,632


Net income	$	30,650	$	24,070	$	81,551		$	43,727


Basic earnings per share	$	0.83	$	0.67	$	2.22		$	1.23


Diluted earnings per share	$	0.80	$	0.66	$	2.15		$	1.20


Dividends per share	$	0.17	$	0.17	$	0.51		$	0.51


Basic weighted average shares outstanding		37,093		35,828		36,736			35,589


Diluted weighted average shares outstanding		38,253		36,662		37,935			36,307

1)		For the nine months ended March 31, 2004, these amounts include charges of $0.1 million for integration activities related to the Widia acquisition, $2.9 million related to restructuring programs, and $0.8 million for a pension curtailment.

2)		For the quarter and nine months ended March 31, 2005, these amounts include a loss on assets held for sale of $1.5 million. For the nine months ended March 31, 2004, these amounts include charges of $1.4 million for integration activities related to the Widia acquisition, $1.8 million related to a reserve for a note receivable from a divestiture of a business by Kennametal in 2002, and $0.5 million related to a pension curtailment.

3)		For the quarter and nine months ended March 31, 2005, these amounts include $4.7 million related to a FSS goodwill impairment charge. For the nine months ended March 31, 2004, these amounts include $3.7 million related to restructuring programs.

4)		For the nine months ended March 31, 2004, these amounts include income of $4.4 million related to a gain on the sale of Toshiba Tungaloy investment and a charge of $0.2 million on a reserve for a note receivable from a divestiture of a business by Kennametal in 2002.

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FINANCIAL HIGHLIGHTS (Continued)

In addition to reported results under generally accepted accounting principles in the United States of America (GAAP), the following financial highlight tables also include, where appropriate, a reconciliation of results excluding special items, free operating cash flow, debt to capital, and adjusted return on invested capital (which are non-GAAP measures), to the most directly comparable GAAP measures. Management believes that the investor should have available the same information that management uses to assess operating performance, determine compensation, and assess the capital structure of the Company. These non-GAAP measures should not be considered in isolation or as a substitute for the most comparable GAAP measures. Non-GAAP financial measures utilized by the Company may not be comparable to non-GAAP financial measures used by other companies.

RECONCILIATION TO GAAP – QUARTER ENDED MARCH 31, 2005 (Unaudited)


								Other				Diluted
			Operating			Operating		(Income) /		Net		Earnings
	Gross Profit		Expense			Income		Expense		Income		Per Share
2005 Reported Results	$	211,261	$	147,968		$	57,863	$	28	$	30,650	$	0.80
FSS goodwill impairment charge		—		—			4,707		—		3,306		0.09
Loss on assets held for sale		—		(1,546	)		1,546		—		1,086		0.03

2005 Results, excluding special items	$	211,261	$	146,422		$	64,116	$	28	$	35,042	$	0.92

Reported EPS for the quarter ended March 31, 2005 of $0.80 is up 21 percent from reported EPS of $0.66 for the quarter ended March 31, 2004. Adjusted EPS for the quarter ended March 31, 2005 of $0.92 is up 39 percent from reported EPS of $0.66 for the quarter ended March 31, 2004.

RECONCILIATION TO GAAP – NINE MONTHS ENDED MARCH 31, 2005 (Unaudited)


								Other					Diluted
			Operating			Operating		(Income) /			Net		Earnings
	Gross Profit		Expense			Income		Expense			Income		Per Share
2005 Reported Results	$	566,070	$	418,430		$	141,039	$	(2,786	)	$	81,551	$	2.15
FSS goodwill impairment charge		—		—			4,707		—			3,277		0.08
Loss on assets held for sale		—		(1,546	)		1,546		—			1,076		0.03

2005 Results, excluding special items	$	566,070	$	416,884		$	147,292	$	(2,786	)	$	85,904	$	2.26

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FINANCIAL HIGHLIGHTS (Continued)

For the quarter ended March 31, 2004, there were no special items.

RECONCILIATION TO GAAP – NINE MONTHS ENDED MARCH 31, 2004 (Unaudited)


								Other						Diluted
			Operating			Operating		(Income) /			Net			Earnings
	Gross Profit		Expense			Income		Expense			Income			Per Share
2004 Reported Results	$	467,593	$	378,180		$	84,173	$	(2,010	)	$	43,727		$	1.20

MSSG restructuring		2,850		—			5,023		—			3,416			0.10

AMSG restructuring		—		—			1,497		—			1,018			0.03

Widia integration costs – MSSG		63		(1,448	)		1,511		—			1,027			0.03
Widia integration costs — AMSG		48		—			48		—			33			—
Pension curtailment		779		(520	)		1,299		—			883			0.02
Gain on Toshiba investment		—		—			—		4,397			(2,990	)		(0.08	)
Note receivable		—		(1,817	)		1,817		(183	)		1,360			0.04

2004 Results, excluding special items	$	471,333	$	374,395		$	95,368	$	2,204		$	48,474		$	1.34

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FINANCIAL HIGHLIGHTS (Continued)

SEGMENT DATA (Unaudited):


	Quarter Ended						Nine Months Ended
	March 31,						March 31,
	2005			2004			2005			2004
Outside Sales:
Metalworking Solutions and Services Group	$	357,197		$	317,506		$	1,009,297		$	872,128
Advanced Materials Solutions Group		135,460			111,464			375,673			299,846
J&L Industrial Supply		67,054			60,074			189,809			158,554
Full Service Supply		37,644			35,186			110,230			99,055

Total Outside Sales	$	597,355		$	524,230		$	1,685,009		$	1,429,583


Sales By Geographic Region:
Within the United States	$	323,484		$	289,506		$	926,791		$	791,151
International		273,871			234,724			758,218			638,432

Total Sales by Geographic Region	$	597,355		$	524,230		$	1,685,009		$	1,429,583


Operating Income (Loss), as reported:
Metalworking Solutions and Services Group	$	53,555		$	36,751		$	135,150		$	82,937
Advanced Materials Solutions Group		22,211			15,146			50,613			36,375
J&L Industrial Supply		7,915			6,419			19,502			13,410
Full Service Supply		(5,036	)		376			(4,370	)		(64	)
Corporate and eliminations ⁽¹⁾		(20,782	)		(15,670	)		(59,856	)		(48,485	)

Total Operating Income, as reported	$	57,863		$	43,022		$	141,039		$	84,173


Operating Income (Loss), excluding special items:
Metalworking Solutions and Services Group	$	53,555		$	36,751		$	135,150		$	89,471
Advanced Materials Solutions Group		22,211			15,146			50,613			37,920
J&L Industrial Supply		7,915			6,419			19,502			13,410
Full Service Supply		1,217			376			1,883			(64	)
Corporate and eliminations ⁽¹⁾		(20,782	)		(15,670	)		(59,856	)		(45,369	)

Total Operating Income, excluding special items	$	64,116		$	43,022		$	147,292		$	95,368

(1)

Includes corporate functional shared services and intercompany eliminations.

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FINANCIAL HIGHLIGHTS (Continued)

OPERATING INCOME (LOSS) RECONCILIATION (Unaudited) :


	QUARTER ENDED MARCH 31,
	MSSG		AMSG		J&L		FSS			Corp & Elim			Total
2005 Reported Operating Income (Loss)	$	53,555	$	22,211	$	7,915	$	(5,036	)	$	(20,782	)	$	57,863
FSS goodwill impairment charge		—		—		—		4,707			—			4,707
Loss on assets held for sale		—		—		—		1,546			—			1,546

2005 Operating Income (Loss), excluding special items	$	53,555	$	22,211	$	7,915	$	1,217		$	(20,782	)	$	64,116


	NINE MONTHS ENDED MARCH 31,
	MSSG		AMSG		J&L		FSS			Corp & Elim			Total
2005 Reported Operating Income (Loss)	$	135,150	$	50,613	$	19,502	$	(4,370	)	$	(59,856	)	$	141,039
FSS goodwill impairment charge		—		—		—		4,707			—			4,707
Loss on assets held for sale		—		—		—		1,546			—			1,546

2005 Operating Income (Loss), excluding special items	$	135,150	$	50,613	$	19,502	$	1,883		$	(59,856	)	$	147,292

For the quarter ended March 31, 2004, there were no special items.


	NINE MONTHS ENDED MARCH 31,
	MSSG		AMSG		J&L		FSS			Corp & Elim			Total
2004 Reported Operating Income (Loss)	$	82,937	$	36,375	$	13,410	$	(64	)	$	(48,485	)	$	84,173
Restructuring		5,023		1,497		—		—			—			6,520
Widia integration costs		1,511		48		—		—			—			1,559
Pension curtailment		—		—		—		—			1,299			1,299
Note receivable		—		—		—		—			1,817			1,817

2004 Operating Income (Loss), excluding special items	$	89,471	$	37,920	$	13,410	$	(64	)	$	(45,369	)	$	95,368

RECONCILIATION TO FREE OPERATING CASH FLOW INFORMATION (Unaudited) :


	Quarter Ended						Nine Months Ended
	March 31,						March 31,
	2005			2004			2005			2004
Net income	$	30,650		$	24,070		$	81,551		$	43,727
Other non-cash items		12,332			4,238			16,565			15,457
Depreciation and amortization		16,931			16,913			48,540			48,753
Change in inventory		(8,751	)		(1,969	)		(21,481	)		13,468
Change in accounts receivable		(29,766	)		(26,610	)		(14,774	)		(3,213	)
Change in accounts payable		12,340			18,260			991			9,080
Change in other assets and liabilities		32,569			19,222			38,339			(17,805	)

Net cash flow provided by operating activities		66,305			54,124			149,731			109,467

Purchase of property, plant and equipment		(21,523	)		(14,207	)		(57,292	)		(36,060	)
Proceeds from disposals of property, plant and equipment		579			610			3,912			2,998

Free operating cash flow	$	45,361		$	40,527		$	96,351		$	76,405

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FINANCIAL HIGHLIGHTS (Continued)

CONDENSED BALANCE SHEETS (Unaudited) :


	03/31/05			12/31/04			09/30/04			06/30/04			03/31/04
ASSETS

Cash and equivalents	$	34,792		$	32,168		$	28,688		$	25,940		$	27,528
Trade receivables, net of allowance		382,188			367,940			369,008			364,725			357,795
Receivables securitized		(120,749	)		(115,253	)		(115,309	)		(117,480	)		(108,916	)

Accounts receivable, net		261,439			252,687			253,699			247,245			248,879
Inventories		408,713			421,183			404,478			388,077			387,202
Deferred income taxes		98,063			99,731			96,144			95,240			88,480
Current assets held for sale		50,469			—			—			—			—
Other current assets		32,353			39,605			37,178			40,443			38,803

Total current assets		885,829			845,374			820,187			796,945			790,892
Property, plant and equipment, net		512,806			506,253			487,616			484,475			481,793
Goodwill and intangible assets, net		661,908			543,062			546,487			542,014			554,614
Assets held for sale		2,715			—			—			—			—
Other assets		135,873			133,451			115,733			115,229			57,743

Total	$	2,199,131		$	2,028,140		$	1,970,023		$	1,938,663		$	1,885,042


LIABILITIES
Short-term debt, including notes payable	$	56,225		$	28,888		$	116,446		$	126,807		$	8,193
Accounts payable		142,268			142,465			146,543			148,216			132,246
Current liabilities held for sale		14,437			—			—			—			—
Accrued liabilities		245,534			226,568			217,636			211,504			200,304

Total current liabilities		458,464			397,921			480,625			486,527			340,743
Long-term debt		428,943			376,268			318,989			313,400			486,119
Deferred income taxes		91,088			56,340			65,973			67,426			39,132
Other liabilities		179,786			174,855			162,627			167,926			192,546

Total liabilities		1,158,281			1,005,384			1,028,214			1,035,279			1,058,540

MINORITY INTEREST		19,664			19,249			17,377			16,232			16,598

SHAREOWNERS’ EQUITY		1,021,186			1,003,507			924,432			887,152			809,904


Total	$	2,199,131		$	2,028,140		$	1,970,023		$	1,938,663		$	1,885,042

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FINANCIAL HIGHLIGHTS (Continued)

Debt to Capital Reconciliation (Unaudited):


	March 31,
	2005			2004
Total debt	$	485,168		$	494,312
Total shareowners’ equity		1,021,186			809,904


Debt to equity, GAAP		47.5	%		61.0	%

Total debt	$	485,168		$	494,312

Minority interest		19,664			16,598
Total shareowners’ equity		1,021,186			809,904


Total capital	$	1,526,018		$	1,320,814

Debt to Capital		31.8	%		37.4	%

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FINANCIAL HIGHLIGHTS (Continued)

RETURN ON INVESTED CAPITAL (Unaudited):

For the Period Ended March 31, 2005


	3/31/2005		12/31/2004		9/30/2004		6/30/2004		3/31/2004		Average

Invested Capital
Debt	$	485,168	$	405,156	$	435,435	$	440,207	$	494,312	$	452,056
Accounts receivable securitized		120,749		115,253		115,309		117,480		108,916		115,541
Minority interest		19,664		19,249		17,377		16,232		16,598		17,824
Shareowners’ equity		1,021,186		1,003,507		924,432		887,152		809,904		929,236

Total	$	1,646,767	$	1,543,165	$	1,492,553	$	1,461,071	$	1,429,730	$	1,514,657


					Quarter Ended
	3/31/2005		12/31/2004		9/30/2004		6/30/2004		Total

Interest Expense
Interest expense	$	6,803	$	6,121	$	6,456	$	6,405	$	25,785
Securitization interest		868		757		580		443		2,648

Total interest expense	$	7,671	$	6,878	$	7,036	$	6,848	$	28,433

Income tax benefit										9,099

Total Interest Expense, net of tax									$	19,334


	Quarter Ended
	3/31/2005		12/31/2004		9/30/2004		6/30/2004			Total

Total Income
Net Income, as reported	$	30,650	$	28,181	$	22,720	$	29,852		$	111,403

Restructuring and asset impairment charges		3,306		—		—		—			3,306
Loss on assets held for sale		1,086		—		—		—			1,086
Minority interest expense		1,449		928		977		(36	)		3,318

Total Income, excluding special items	$	36,491	$	29,109	$	23,697	$	29,816		$	119,113


Total Income, excluding special items										$	119,113
Total Interest Expense, net of tax											19,334

										$	138,447
Average invested capital										$	1,514,657

Adjusted Return on Invested Capital											9.1	%

Return on Invested Capital calculated utilizing Net Income, as reported is as follows:
Net Income, as reported										$	111,403
Total Interest Expense, net of tax											19,334

										$	130,737
Average invested capital										$	1,514,657

Return on Invested Capital											8.6	%

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FINANCIAL HIGHLIGHTS (Continued)

RETURN ON INVESTED CAPITAL (Unaudited):

For the Period Ended March 31, 2004


	3/31/2004		12/31/2003		9/30/2003		6/30/2003		3/31/2003		Average

Invested Capital
Debt	$	494,312	$	481,327	$	520,138	$	525,687	$	580,135	$	520,320
Accounts receivable securitized		108,916		101,422		95,318		99,316		93,614		99,717
Minority interest		16,598		16,286		16,089		18,880		18,070		17,185
Shareowners’ equity		809,904		791,442		746,562		721,577		756,511		765,199

Total	$	1,429,730	$	1,390,477	$	1,378,107	$	1,365,460	$	1,448,330	$	1,402,421


					Quarter Ended
	3/31/2004		12/31/2003			9/30/2003		6/30/2003		Total

Interest Expense
Interest expense	$	6,332	$	6,547		$	6,600	$	9,108	$	28,587
Securitization interest		356		483			397		413		1,649

Total interest expense	$	6,688	$	7,030		$	6,997	$	9,521	$	30,236

Income tax benefit											9,676

Total interest expense, net of tax										$	20,560


						Quarter Ended
	3/31/2004		12/31/2003			9/30/2003		6/30/2003			Total

Total Income
Net income, as reported	$	24,070	$	10,892		$	8,764	$	(4,868	)	$	38,858

Minority interest expense		533		404			695		74			1,706
MSSG restructuring		—		1,109			2,307		2,194			5,610
AMSG restructuring		—		1,018			—		857			1,875
Corporate restructuring		—		—			—		(69	)		(69	)
J&L restructuring		—		—			—		(45	)		(45	)
Widia integration costs — MSSG		—		—			1,027		1,758			2,785
Widia integration costs — AMSG		—		—			33		818			851
AMSG electronics impairment		—		—			—		15,269			15,269
Pension curtailment		—		883			—		—			883
Gain on Toshiba investment		—		(2,990	)		—		—			(2,990	)
Note receivable		—		1,360			—		—			1,360

Total Income, excluding special items	$	24,603	$	12,676		$	12,826	$	15,988		$	66,093

Total Income, excluding special items											$	66,093
Total Interest Expense, net of tax												20,560

											$	86,653
Average invested capital											$	1,402,421

Adjusted Return on Invested Capital												6.2	%

Return on Invested Capital calculated utilizing Net Income, as reported is as follows:
Net Income, as reported											$	38,858
Total Interest Expense, net of tax												20,560

											$	59,418
Average invested capital											$	1,402,421

Return on Invested Capital												4.2	%

- end -

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		—	Q3 05 sales up 14 percent

		—	Adjusted Earnings per diluted share (EPS) of $0.92, up 39 percent

		—	Adjusted EPS outlook for FY05 increased to $3.17 — $3.22

•	Sales of $597 million up 14 percent versus the same quarter last year, including 12 percent organic sales growth, 3 percent benefit from foreign currency exchange and 2 percent from acquisitions offset by 3 percent from fewer workdays.

•	Reported net income was $31 million versus $24 million, as improved sales volume was leveraged against a more productive operating structure offset by charges related to the FSS divestiture.

•	Net cash flow from operations was $66 million versus $54 million last year. Free operating cash flow was $45 million versus the prior year level of $41 million due primarily to increased operating leverage.

•	Debt to capital decreased to 32 percent versus 37 percent at the end of the prior year quarter, including the impact of the Extrude Hone acquisition.

•	Adjusted Return on Invested Capital improved 290 basis points to 9.1 percent versus 6.2 percent in the prior year.

•	Completed the acquisition of Extrude Hone Corporation for approximately $133.6 million, net of acquired cash and direct acquisition costs.

•	Sales of $1.7 billion up 18 percent on 14 percent organic sales growth, 3 percent benefit from foreign currency exchange and 2 percent from acquisitions offset by 1 percent from fewer workdays.

•	Reported net income was $82 million versus $44 million in the same period last year, reflecting the benefits of increased operating leverage, partially offset by charges related to the FSS divestiture.

•	Net cash flow from operations was $150 million versus $109 million last year. Free operating cash flow totaled $96 million for the nine-month period versus $76 million in last year’s comparable period, due to growth in cash from operations offset by increased capital spending.