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): October 25, 2006

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

EX-99.1

Item 2.02 Results of Operations and Financial Condition

On October 25, 2006, Kennametal Inc. (the Company) issued a press release announcing financial results for its first quarter ended September 30, 2006.

The press release contains certain non-GAAP financial measures, including gross profit, operating expense, operating income, income from continuing operations, net income and diluted earnings per share, in each case excluding special items. The special items include: (a) Loss on divestiture of consumer related products, including industrial saw blades (CPG) and transaction-related charges and (b) adjustment on J&L Industrial Supply divestiture and transaction-related charges for the three months ended September 30, 2006. Management excludes these items in measuring and compensating internal performance to more easily compare the Company’s financial performance period-to-period. The press release also contains adjusted free operating cash flow, adjusted sales and adjusted return on invested capital, which are also non-GAAP measures and are defined below.

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 investors 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.

Adjusted Free Operating Cash Flow

Free operating cash flow is a non-GAAP financial measure and is defined by the Company 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. Management has further adjusted free operating cash flow for the following significant unusual cash items: income taxes paid (refunded). Management considers adjusted free operating cash flow to be an important indicator of Kennametal’s cash generating capability because it excludes significant unusual items.

Adjusted Sales

Kennametal adjusts current period sales as reported under GAAP for specific items including foreign currency translation and adjusts current and prior period sales for the effects of acquisitions and divestitures. Management believes that adjusting 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 Return on Invested Capital

Adjusted Return on Invested Capital is a non-GAAP financial measure and is defined by the Company as the previous 12 months’ net income, adjusted for interest expense, securitization fees, minority 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 non-GAAP financial measures to describe the underlying operating results. Accordingly, we have compiled below certain reconciliations as required by Regulation G.

Adjusted EBIT

EBIT is an acronym for Earnings Before Interest and Taxes and is a non-GAAP financial measure. 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 minority interest expense, interest income, securitization fees and special items. Management uses this information in reviewing operating performance and in the determination of compensation.

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.

SUPPLEMENTAL INFORMATION AND RECONCILIATIONS

EBIT RECONCILIATION (Unaudited):

	Three Months Ended
	September 30
(in thousands, except percents)	2006			2005
Net income, as reported	$	30,361		$	28,097
Net income, as a percent of sales		5.6	%		5.1	%
Add back:
Interest		7,427			7,829
Taxes		13,929			15,300
Taxes on discontinued operations		254			(241	)
EBIT		51,971			50,985
Additional adjustments:
Special items:
Loss on divestiture of CPG and transaction- related charges		570			—
Adjustment on J&L divestiture and transaction-related charges		2,019			—
Minority interest expense		557			748
Interest income		(2,658	)		(934	)
Securitization fees		22			1,065
Adjusted EBIT	$	52,481		$	51,864
Adjusted EBIT as a percent of sales		9.7	%		9.5	%

PRIMARY WORKING CAPITAL RECONCILIATION (Unaudited):

	September 30,			June 30,
(in thousands)	2006			2006
Current assets	$	949,274		$	1,086,857
Current liabilities		357,653			462,199
Working capital in accordance with GAAP	$	591,621		$	624,658
Excluding items:
Cash and cash equivalents		(118,224	)		(233,976	)
Deferred income taxes		(55,580	)		(55,328	)
Other current assets		(53,757	)		(75,890	)
Total excluded current assets		(227,561	)		(365,194	)
Adjusted current assets		721,713			721,663
Current maturities of long-term debt and capital leases, including notes payable		(2,106	)		(2,214	)
Other current liabilities		(242,427	)		(335,078	)
Total excluded current liabilities		(244,533	)		(337,292	)
Adjusted current liabilities		113,120			124,907
Primary working capital	$	608,593		$	596,756

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

99.1 Fiscal 2007 First Quarter Earnings Announcement

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: October 25, 2006	By:	/s/ Frank P. Simpkins
		Frank P. Simpkins
		Interim Chief Financial Officer, Vice President Finance and Corporate Controller

EX-99.1

EXHIBIT 99.1

FISCAL 2007 FIRST QUARTER EARNINGS ANNOUNCEMENT

	FROM:	KENNAMETAL INC.
		P.O. Box 231
		Latrobe, PA 15650
		724-539-5000
		Investor Relations
		Contact: Quynh McGuire
		724-539-6559
		Media Relations
		Contact: Joy Chandler
		724-539-4618
	DATE:	October 25, 2006
	FOR RELEASE:	Immediate

KENNAMETAL ANNOUNCES RECORD FIRST QUARTER EPS,
SHARE REPURCHASE PROGRAM AND DIVIDEND INCREASE

- Reported earnings per diluted share (EPS) of $0.78; adjusted EPS of $0.82

- Adjusted ROIC improved 160 basis points

- Repurchase program for 3.3 million shares and 11 percent dividend increase approved

- Increased full-year guidance range to $4.30 — $4.50 EPS

LATROBE, Pa., October 25, 2006 — Kennametal Inc. (NYSE: KMT) today reported record first quarter fiscal 2007 EPS of $0.78, including charges from special items of $0.04 per share. This represents an increase of 8 percent over prior year. First quarter adjusted EPS were $0.82 compared with prior year quarter EPS of $0.72, an increase of 14 percent.

Kennametal’s President and Chief Executive Officer Carlos Cardoso said, “The momentum we gained in fiscal 2006 is continuing in the first quarter of fiscal 2007. We saw improvements that collectively resulted in the 12^th consecutive quarter of year-over-year earnings growth, coupled with strong cash flow from operations – an excellent performance by any measure.

We attribute this success to our ability to focus steadily on the execution of our strategy through adherence to the disciplined processes that comprise the Kennametal Value Business System. This strategy calls for us to leverage the continued strength of our core businesses, as well as to diversify our business mix, geographic presence and customer base. We believe that our proven strategic approach will deliver exceptional value to customers and shareowners as Kennametal transforms into an even more balanced enterprise with a solid foundation for future growth.”

Reconciliation of all non-GAAP financial measures are set forth in the attached tables.

Highlights of Fiscal 2007 First Quarter

• First quarter sales of $543 million were in line with the same quarter last year. Sales grew 6 percent on an organic basis offset by the net impact of acquisitions and divestitures, primarily the divestiture of J&L Industrial Supply (J&L). J&L outside sales were $65 million in the September quarter last year.

• Income from continuing operations was $29 million for the first quarter, compared with $28 million in the prior year quarter, an increase of 5 percent despite the J&L divestiture. J&L contributed $7 million in operating income in the September quarter last year. Income from continuing operations, excluding special items, was $31 million for the first quarter, an increase of 9 percent over the prior year quarter. The September 2007 quarter results benefited from lower securitization fees and higher interest income, as well as lower minority interest expense, reflecting the effective use of cash and consistent with the company’s previously communicated strategies.

• Income from discontinued operations reflects divested results of the Metalworking Solutions & Services Group’s consumer-related products business, including industrial saw blades (CPG) and the Advanced Materials Solutions Group’s Kemmer Praezision electronics business (Electronics).

• First quarter reported EPS were $0.78, including charges from special items of $0.04 per share, compared with prior year quarter reported EPS of $0.72, an increase of 8 percent. The September quarter also reflects a lower effective tax rate primarily due to the company’s pan-European business model strategy implemented last year. First quarter adjusted EPS were $0.82. A reconciliation follows:

Earnings Per Diluted Share Reconciliation

First Quarter FY 2007			First Quarter FY 2006
Reported EPS	$	0.78	Reported EPS	$	0.72
Loss on divestiture of CPG and transaction-related charges		0.01	No special items
Adjustment on J&L divestiture and transaction-related charges		0.03
Adjusted EPS	$	0.82		$	0.72

• Adjusted return on invested capital (ROIC) was up 160 basis points to 11.5 percent from 9.9 percent in the prior year.

2

• Cash flow from operations for the current quarter was an outflow of $19 million, compared with an inflow of $21 million in the prior year. Income tax payments were $86 million for the current quarter, primarily due to tax payments related to the gain on the sale of J&L and cash repatriated last quarter under the American Jobs Creation Act, compared with a refund of $1 million in the prior year quarter. Adjusted free operating cash flow for the September quarter, excluding the effects of income tax payments and refunds, was $45 million versus $6 million in the prior year quarter.

Business Segment Highlights of Fiscal 2007 First Quarter

Metalworking Solutions & Services Group (MSSG) continued to deliver top-line growth led by year-over-year expansion in the aerospace, distribution and energy markets. The North American market remained stable; Europe has begun to show a modest recovery and Asia Pacific and India delivered strong double-digit growth.

In the September quarter, MSSG sales were up 3 percent on an organic basis. North American sales increased 1 percent. Asia Pacific and India sales grew 12 percent and 15 percent, respectively. Europe sales increased 2 percent.

MSSG operating income was unchanged at $46 million and the operating margin of 13 percent was lower than the same period last year, primarily due to higher realized raw material costs in the current quarter, partially offset by ongoing cost containment and price realization, particularly in Europe and Asia Pacific.

Advanced Materials Solutions Group (AMSG) delivered significant top-line growth in the September quarter, driven by favorable market conditions and the effect of acquisitions. Strong growth in the energy and mining markets continued to contribute to AMSG’s results.

AMSG sales grew 11 percent on an organic basis. Energy product sales were up 35 percent, mining and construction product sales were higher by 8 percent and engineered product sales increased 2 percent.

AMSG operating income grew 15 percent over last year, while operating margin of 15 percent was lower than prior year due primarily to higher realized raw material costs in the current quarter and a less favorable business mix.

3

Outlook

Worldwide market conditions support Kennametal’s expectations of continued top-line growth during the balance of fiscal year 2007. Based on global economic indicators, the company believes that the North American market will remain solid. The company also believes that the market will improve and grow modestly in Europe, and that it will continue to be strong in developing economies. While there remain some uncertainties and risks related to the macro-economic environment, fundamental drivers for global demand appear to be stable.

“Virtually every move we have made at Kennametal has been oriented toward implementing our strategy and advancing our transformation,” said Carlos Cardoso. “As we strive to achieve our fiscal 2007 goals, we will continue to maintain our commitment to our proven strategy, driving organic growth and leveraging a favorable global industry environment to maximize the growth opportunities ahead.”

Kennametal expects organic revenue growth in the 7 to 10 percent range for fiscal 2007, which would extend its track record of consistently outpacing worldwide industrial production rates by two to three times. The company anticipates the majority of its end markets will continue to operate at favorable levels throughout the year, with moderating growth rates for some sectors.

For the second quarter of fiscal 2007, ongoing expansion around the globe supports the company’s projection of 6 to 9 percent organic sales growth, on top of strong performance in the prior year quarter.

The company has increased reported EPS guidance for the year to a range of $4.30 to $4.50, due to benefits associated with its pan-European business model strategy, which will drive a better than originally forecasted tax rate for fiscal year 2007. This range represents an increase in spite of some dilution from recent divestitures of non-core businesses. This revised earnings outlook reflects management’s confidence in the ability to maintain the strength of Kennametal’s performance. This forecasted range includes costs related to ongoing operating expense initiatives that will result in increased long-term profitability. On a comparable basis, the fiscal 2007 guidance midpoint represents a 29 percent growth rate, a substantial increase over prior year adjusted EPS from continuing operations of $3.41.

The company expects second quarter 2007 EPS to be $0.70 to $0.75. As previously announced, second quarter 2007 guidance includes approximately $0.10 per share of costs related to manufacturing streamlining initiated during this quarter, which is expected to have a payback within this fiscal year.

Kennametal expects to achieve its goal of 12 percent EBIT margin, and ROIC is on track for the projected 11 to 12 percent range for fiscal year 2007.

4

Kennametal anticipates reported cash flow from operations of approximately $190 million to $200 million for fiscal 2007. Included in this amount are income tax payments of $86 million, as mentioned above. Adjusted cash from operations is expected to be approximately $275 million to $285 million.

Based on anticipated capital expenditures of $90 million, the company expects to generate between $185 million to $195 million of adjusted free operating cash flow for fiscal 2007.

Share Repurchase Program and Dividend Increase

Kennametal announced today that its Board of Directors has authorized a repurchase program of up to 3.3 million shares of its outstanding common stock. The purchases would be made from time to time, on the open market or in private transactions, with consideration given to the market price of the stock, the nature of other investment opportunities, cash flows from operations and general economic conditions.

Kennametal also announced that its Board of Directors declared a quarterly cash dividend of $0.21 per share, which represents an increase of 11 percent, or $0.02 per share. The dividend is payable November 20, 2006 to shareowners of record as of the close of business on November 8, 2006.

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.

First quarter results for fiscal 2007 will be discussed in a live Internet broadcast at 10:00 a.m. Eastern time today. This event will be broadcast live on the company’s website, www.kennametal.com. Once on the homepage, click “Corporate,” and then “Investor Relations.” Also, the replay of this event will be available on the company’s website through November 8, 2006.

5

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. Forward-looking statements are statements that do not relate strictly to historical or current facts. You can identify forward-looking statements by the fact they use words such as “should,” “anticipate,” “estimate,” “approximate,” “expect,” “may,” “will,” “project,” “intend,” “plan,” “believe” and other words of similar meaning and expression in connection with any discussion of future operating or financial performance. These statements are likely to relate to, among other things, our strategy, goals, plans and projections regarding our financial position, results of operations, market position, and product development, all of 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. It is not possible to predict or identify all factors; however, they may include the following: global and regional economic conditions; energy costs; risks associated with the availability and costs of raw materials; commodity prices; risks associated with integrating recent acquisitions, as well as any future acquisitions, and achieving the expected savings and synergies; risks relating to business divestitures; competition; demands on management resources; risks associated with international markets, such as currency exchange rates and social and political environments or instability; future terrorist attacks or acts of war; labor relations; demand for and market acceptance of new and existing products; and risks associated with the implementation of restructuring plans, cost-reduction initiatives 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 a leading global 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 $2.3 billion annually of Kennametal products and services – delivered by our approximately 13,500 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 [KMT-E]

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FINANCIAL HIGHLIGHTS

Consolidated Statements of Income (Unaudited):

	Three Months Ended
	September 30,
(in thousands, except per share amounts)	2006			2005 a
Sales	$	542,811		$	545,766
Cost of goods sold		355,780			348,438
Gross profit		187,031			197,328
Operating expense		135,044			144,901
Loss on divestiture		1,686			—
Amortization of intangibles		1,940			1,351
Operating income		48,361			51,076
Interest expense		7,427			7,829
Other income, net		(3,006	)		(879	)
Income from continuing operations before income taxes and minority interest		43,940			44,126
Provision for income taxes		13,929			15,300
Minority interest expense		557			748
Income from continuing operations		29,454			28,078
Income from discontinued operations, net of income taxes		907			19
Net income	$	30,361		$	28,097
Basic earnings per share — continuing operations	$	0.77		$	0.74
Basic earnings per share — discontinued operations		0.02			0.00
Basic earnings per share	$	0.79		$	0.74
Diluted earnings per share — continuing operations	$	0.76		$	0.72
Diluted earnings per share — discontinued operations		0.02			0.00
Diluted earnings per share	$	0.78		$	0.72
Dividends per share	$	0.19		$	0.19
Basic weighted average shares outstanding		38,226			37,949
Diluted weighted average shares outstanding		39,058			38,915

^a Amounts have been reclassified to reflect discontinued operations related to the divestitures of Electronics — AMSG and CPG — MSSG.

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FINANCIAL HIGHLIGHTS (Continued)

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited):

	September 30,		June 30,
(in thousands)	2006		2006
ASSETS
Cash and equivalents	$	118,224	$	233,976
Accounts receivable, net		366,837		386,714
Inventories		354,876		334,949
Current assets of discontinued operations held for sale		—		24,280
Other current assets		109,337		106,938
Total current assets		949,274		1,086,857
Property, plant and equipment, net		546,408		530,379
Goodwill and intangible assets, net		674,834		618,423
Assets of discontinued operations held for sale		—		11,285
Other assets		189,362		188,328
Total	$	2,359,878	$	2,435,272
LIABILITIES
Current maturities of long-term debt and capital leases, including notes payable	$	2,106	$	2,214
Accounts payable		113,120		124,907
Current liabilities of discontinued operations held for sale		—		3,065
Other current liabilities		242,427		332,013
Total current liabilities		357,653		462,199
Long-term debt and capital leases		407,486		409,508
Other liabilities		259,963		253,574
Total liabilities		1,025,102		1,125,281
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES		15,177		14,626
SHAREOWNERS’ EQUITY		1,319,599		1,295,365
Total	$	2,359,878	$	2,435,272

SEGMENT DATA (Unaudited):

	Three Months Ended
	September 30,
(in thousands)	2006			2005 a
Outside Sales:
Metalworking Solutions and Services Group	$	357,084		$	331,580
Advanced Materials Solutions Group		185,727			149,184
J&L Industrial Supply		—			65,002
Total outside sales	$	542,811		$	545,766
Sales By Geographic Region:
United States	$	266,863		$	290,069
International		275,948			255,697
Total sales by geographic region	$	542,811		$	545,766
Operating Income (Loss):
Metalworking Solutions and Services Group	$	45,666		$	45,941
Advanced Materials Solutions Group		27,386			23,852
J&L Industrial Supply		—			6,844
Corporate and eliminations b		(24,691	)		(25,561	)
Total operating income	$	48,361		$	51,076

a	Amounts have been reclassified to reflect discontinued operations related to the divestiture of Electronics (AMSG) and CPG including industrial saw blades (MSSG).
b	Includes corporate functional shared services and intercompany eliminations.

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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 gross profit, operating expense, operating income, income from continuing operations, net income and diluted earnings per share, in each case excluding special items, adjusted free operating cash flow, adjusted segment sales, and adjusted return on invested capital (which are non-GAAP financial 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. Investors are cautioned that non-GAAP financial measures utilized by the Company may not be comparable to non-GAAP financial measures used by other companies.

RECONCILIATION TO GAAP — THREE MONTHS ENDED SEPTEMBER 30, 2006 (Unaudited)

								Income from
	Gross		Operating			Operating		Continuing		Net		Diluted
(in thousands, except per share amounts)	Profit		Expense			Income		Operations		Income		EPS
2006 Reported Results	$	187,031	$	135,044		$	48,361	$	29,454	$	30,361	$	0.78
Loss on divestiture of CPG and transaction-related charges		—		—			—		—		368		0.01
Adjustment on J&L divestiture and transaction-related charges		—		(333	)		2,019		1,252		1,252		0.03
2006 Results, excl. special items	$	187,031	$	134,711		$	50,380	$	30,706	$	31,981	$	0.82

For the three months ended September 30, 2005, there were no special items.

RECONCILIATION TO GAAP — YEAR ENDED JUNE 30, 2006 (Unaudited)

				Diluted EPS
	Income from			from
	Continuing			Continuing
(in thousands, except per share amounts)	Operations			Operations
2006 Reported Results	$	272,251		$	6.88
Gain on divestiture of J&L recorded at corporate level		(1,091	)		(0.03	)
J&L transaction-related charges recorded at corporate level		3,956			0.10
Tax impact of cash repatriation under AJCA		11,176			0.28
Loss on sale of Presto		9,457			0.24
Favorable resolution of tax contingencies		(10,873	)		(0.27	)
Divestiture impact of J&L(1)		(149,971	)		(3.79	)
2006 Adjusted Results	$	134,905		$	3.41

⁽¹⁾ Excludes the impact of commercial relationships entered into in connection with the divestiture transaction.

RECONCILIATION OF ADJUSTED FREE OPERATING CASH FLOW INFORMATION (Unaudited):

	Three Months Ended
	September 30,
(in thousands)	2006			2005
Net cash flow (used for) provided by operating activities	$	(18,800	)	$	20,526
Purchases of property, plant and equipment		(22,661	)		(14,875	)
Proceeds from disposals of property, plant and equipment		483			835
Free operating cash flow		(40,978	)		6,486
Income taxes paid (refunded)		86,236			(572	)
Adjusted free operating cash flow	$	45,258		$	5,914

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FINANCIAL HIGHLIGHTS (Continued)

MSSG SEGMENT (Unaudited)

	Three Months Ended
	September 30,
(in thousands)	2006			2005
Sales, as reported	$	357,084		$	331,580
Foreign currency exchange		(7,372	)		—
Divestiture-related adjustments		—			8,408
Adjusted sales	$	349,712		$	339,988

AMSG SEGMENT (Unaudited)

	Three Months Ended
	September 30,
(in thousands)	2006			2005
Sales, as reported	$	185,727		$	149,184
Foreign currency exchange		(1,880	)		—
Acquisition-related adjustments		(14,375	)		3,612
Adjusted sales	$	169,472		$	152,796

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RETURN ON INVESTED CAPITAL (Unaudited):

September 30, 2006 (in thousands, except percents)

	9/30/2006		6/30/2006		3/31/2006		12/31/2005		9/30/2005		Average
Invested Capital
Debt	$	409,592	$	411,722	$	365,906	$	410,045	$	415,250	$	402,503
Accounts receivable securitized		—		—		106,106		100,295		100,445		61,369
Minority interest		15,177		14,626		18,054		16,918		18,117		16,578
Shareowners’ equity		1,319,599		1,295,365		1,115,110		1,045,974		1,009,394		1,157,089
Total	$	1,744,368	$	1,721,713	$	1,605,176	$	1,573,232	$	1,543,206	$	1,637,539

	Quarter Ended
	9/30/2006		6/30/2006		3/31/2006		12/31/2005		Total
Interest Expense
Interest expense	$	7,427	$	7,478	$	7,728	$	7,984	$	30,617
Securitization fees		22		1,288		1,241		1,170		3,721
Total interest expense	$	7,449	$	8,766	$	8,969	$	9,154	$	34,338
Income tax benefit										9,134
Total interest expense, net of tax									$	25,204

	9/30/2006		6/30/2006			3/31/2006		12/31/2005		Total
Total Income
Net Income, as reported	$	30,361	$	164,196		$	32,903	$	31,087	$	258,547
Gain on divestiture of J&L		1,045		(132,001	)		—		—		(130,956	)
J&L transaction-related charges		207		2,796			1,160		—		4,163
Loss on divestiture of Electronics		—		15,366			—		—		15,366
Tax impact of cash repatriation under AJCA		—		11,176			—		—		11,176
Loss on divestiture of CPG, goodwill impairment and transaction-related charges		368		(2,192	)		5,030		—		3,206
Loss on divestiture of Presto		—		1,410			8,047		—		9,457
Favorable resolution of tax contingencies		—		(10,873	)		—		—		(10,873	)
Minority interest expense		557		525			782		511		2,375
Total Income, excluding special items	$	32,538	$	50,403		$	47,922	$	31,598	$	162,461
Total interest expense, net of tax											25,204
										$	187,665
Average invested capital										$	1,637,539
Adjusted Return on Invested Capital											11.5	%
Return on invested capital calculated utilizing net income, as reported is as follows:
Net income, as reported										$	258,547
Total interest expense, net of tax											25,204
										$	283,751
Average invested capital										$	1,637,539
Return on Invested Capital											17.3	%

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11

FINANCIAL HIGHLIGHTS (Continued)

RETURN ON INVESTED CAPITAL (Unaudited):

September 30, 2005 (in thousands, except percents)

	9/30/2005		6/30/2005		3/31/2005		12/31/2004		9/30/2004		Average
Invested Capital
Debt	$	415,250	$	437,374	$	485,168	$	405,156	$	435,435	$	435,667
Accounts receivable securitized		100,445		109,786		120,749		115,253		115,309		112,308
Minority interest		18,117		17,460		19,664		19,249		17,377		18,373
Shareowners’ equity		1,009,394		972,862		1,021,186		1,003,507		924,432		986,276
Total	$	1,543,206	$	1,537,482	$	1,646,767	$	1,543,165	$	1,492,553	$	1,552,635

	Quarter Ended
	9/30/2005		6/30/2005		3/31/2005		12/31/2004		Total
Interest Expense
Interest expense	$	7,829	$	7,897	$	6,803	$	6,121	$	28,650
Securitization fees		1,065		981		868		757		3,671
Total interest expense	$	8,894	$	8,878	$	7,671	$	6,878	$	32,321
Income tax benefit										11,086
Total interest expense, net of tax									$	21,235

	9/30/2005		6/30/2005		3/31/2005		12/31/2004		Total
Total Income
Net income, as reported	$	28,097	$	37,740	$	30,650	$	28,181	$	124,668
Goodwill impairment charge		—		—		3,306		—		3,306
Loss on assets held for sale		—		—		1,086		—		1,086
Minority interest expense		748		238		1,449		928		3,363
Total income, excluding special items	$	28,845	$	37,978	$	36,491	$	29,109	$	132,423
Total interest expense, net of tax										21,235
									$	153,658
Average invested capital									$	1,552,635
Adjusted Return on Invested Capital										9.9	%
Return on invested capital calculated utilizing net income, as reported is as follows:
Net income, as reported									$	124,668
Total interest expense, net of tax										21,235
									$	145,903
Average invested capital									$	1,552,635
Return on Invested Capital										9.4	%

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12