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8-K
Table of Contents

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): July 28, 2004

KENNAMETAL INC.

(Exact name of registrant as specified in its charter)

Commission file number 1-5318

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

World Headquarters
1600 Technology Way
P.O. Box 231
Latrobe, Pennsylvania 15650-0231
(Address of registrant’s principal executive offices)

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

 

Table of Contents

         
Item
   Description
   Page No.
1.
   Changes in Control of Registrant   N/A
2.
   Acquisitions or Disposition of Assets   N/A
3.
   Bankruptcy or Receivership   N/A
4.
   Changes in Registrant's Certifying Accountant   N/A
5.
   Other Events and Regulation FD Disclosure   N/A
6.
   Resignations of Registrant's Directors   N/A
7.
   Financial Statements and Exhibits   N/A
8.
   Change in Fiscal Year   N/A
9.
   Regulation FD Disclosure   N/A
10.
   Amendments to Registrant's Code of Ethics, or Waiver of a Provision of the Code of Ethics   N/A
11.
   Temporary Suspension of Trading under Registrant's Employee Benefit Plans   N/A
  Results of Operations and Financial Condition   2
 Earnings Release

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Item 12. Results of Operations and Financial Condition

On July 28, 2004, Kennametal Inc. (“Kennametal” or “the Company”) issued a press release announcing financial results for its fourth quarter ended June 30, 2004.

The press release contains certain non-GAAP financial measures, including gross profit, operating expense, operating income, other (income) expense, net, net income and diluted EPS in each case excluding special items. The special items include: restructuring charges, Widia integration costs, Electronics impairment, pension curtailment, gain on Toshiba Tungaloy investment, and a charge related to a note receivable. Kennametal management excludes these items in measuring and compensating internal performance to more easily compare the Company’s financial performance period to period. We believe investors should have available the same information that management uses to measure and compensate performance. 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.

In addition to the items above, the press release also contains free operating cash flow and debt-to-capital, as defined below:

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. Free operating cash flow is considered 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 and total debt. Debt-to-capital is defined by Kennametal as total current and long term debt divided by total Shareowner’s equity plus minority interest plus total debt. Management believes that these financial measures provide additional insight into the underlying capital structuring and performance of the Company.

A copy of the Company’s earnings announcement is reflected 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

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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.

Adjusted Sales
Kennametal adjusted sales as reported under GAAP for specific items including acquisitions and foreign currency translation. Management believes that adjusting the sales as reported under GAAP 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 adjusted gross profit as recorded under GAAP for specific items including Widia integration and restructuring charges and pension curtailment. Management believes that the adjusted gross profit information is an important indicator of the Company’s underlying operating performance.

Operating Expense Reconciliation
Kennametal adjusted operating expense as reported under GAAP for Widia integration costs, Widia operating expense, pension curtailment, a charge related to a note receivable, and 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.

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SUPPLEMENTAL INFORMATION AND RECONCILIATIONS

FINANCIAL HIGHLIGHTS

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

                 
    June 30,
    2004
   2003
Current assets
   $ 796,945     $ 782,352  
Current liabilities
     489,382       336,347  
 
    
 		      
 		  
Working capital in accordance with GAAP
     307,563       446,005  
Excluded items:
                
Cash and cash equivalents
     (25,940 )     (15,093 )
Deferred income taxes
     (95,240 )     (97,237 )
Other current assets
     (40,443 )     (48,606 )
 
    
 		      
 		  
Total excluded current assets
   $ (161,623 )   $ (160,936 )
Adjusted current asset
     635,322       621,416  
Short-term debt, including notes payable
     (126,807 )     (10,845 )
Accrued liabilities
     (214,359 )     (206,993 )
 
    
 		      
 		  
Total excluded current liabilities
   $ (341,166 )   $ (217,838 )
Adjusted current liabilities
     148,216       118,509  
Primary working capital
   $ 487,106     $ 502,907  

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FINANCIAL HIGHLIGHTS (Continued)

KENNAMETAL INC. EBIT RECONCILIATION (Unaudited)

                                 
    Quarter Ended   Twelve Months Ended
    June 30,
   June 30,
    2004
   2003
   2004
   2003
Net income, as reported
   $ 29,852     $ (4,868 )   $ 73,578     $ 18,130  
As % of Sales
     5.5 %     -1.0 %     3.7 %     1.0 %
Add back:
                                
Interest
     6,405       9,108       25,884       36,166  
Taxes
     14,154       3,678       35,500       14,300  
 
    
 		      
 		      
 		      
 		  
EBIT
     50,411       7,918       134,962       68,596  
Additional adjustments:
                                
Minority interest
     (36 )     74       1,596       1,860  
Restructuring and asset impairment charges(1)
     —       20,305       6,520       31,954  
Widia integration
     —       3,681       1,559       7,685  
Pension Curtailment
     —       —       1,299       —  
Gain on Toshiba Tungaloy Investment
     —       —       (4,397 )     —  
Note Receivable
     —       —       2,000       —  
Interest income
     (369 )     (549 )     (1,620 )     (2,815 )
Securitization fees
     443       413       1,679       1,892  
 
    
 		      
 		      
 		      
 		  
Adjusted EBIT
   $ 50,449     $ 31,842     $ 143,598     $ 109,172  
 
    
 		      
 		      
 		      
 		  
As % of Sales
     9.3 %     6.9 %     7.3 %     6.2 %

(1)   Includes charges in cost of goods sold and restructuring expense.

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FINANCIAL HIGHLIGHTS (Continued)

MSSG SEGMENT (Unaudited):

                                 
    Quarter Ended   Twelve Months Ended
    June 30,
   June 30,
    2004
   2003
   2004
   2003
Sales, as reported
   $ 326,377     $ 289,996     $ 1,198,505     $ 1,086,831  
Widia sales(1)
     —       —       (26,018 )     —  
Foreign currency exchange
     (12,014 )     —       (66,694 )     —  
 
    
 		      
 		      
 		      
 		  
Adjusted sales
   $ 314,363     $ 289,996     $ 1,105,793     $ 1,086,831  
 
    
 		      
 		      
 		      
 		  

MSSG EBIT (Unaudited):

                                 
    Quarter Ended   Twelve Months Ended
    June 30,
   June 30,
    2004
   2003
   2004
   2003
MSSG operating income, as reported
   $ 43,720     $ 23,616     $ 126,657     $ 88,213  
As % of sales
     13.4 %     8.1 %     10.6 %     8.1 %
Other income (expense)
     669       3,073       2,608       3,619  
 
    
 		      
 		      
 		      
 		  
EBIT
     44,389       26,689       129,265       91,832  
Adjustments:
                                
MSSG restructuring(2)
     —       3,134       5,023       9,060  
Widia integration
     —       2,511       1,511       6,493  
 
    
 		      
 		      
 		      
 		  
EBIT, excluding special charges
   $ 44,389     $ 32,334     $ 135,799     $ 107,385  
 
    
 		      
 		      
 		      
 		  
As % of sales
     13.6 %     11.1 %     11.3 %     9.9 %

(1)   Widia was acquired on August 30, 2002. Sales related to Widia for July and August have been removed from the 2003 results in order to reflect comparable Widia activity for both years.
 
(2)   Includes charges in cost of goods sold and restructuring expense.

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FINANCIAL HIGHLIGHTS (Continued)

AMSG SEGMENT (Unaudited):

                                 
    Quarter Ended   Twelve Months Ended
    June 30,
   June 30,
    2004
   2003
   2004
   2003
Sales, as reported
   $ 119,227     $ 96,699     $ 419,073     $ 353,262  
Widia sales(1)
     —       —       (5,476 )     —  
Foreign currency exchange
     (2,509 )     —       (23,032 )     —  
 
    
 		      
 		      
 		      
 		  
Adjusted sales
   $ 116,718     $ 96,699     $ 390,565     $ 353,262  
 
    
 		      
 		      
 		      
 		  

AMSG EBIT (Unaudited):

                                 
    Quarter Ended   Twelve Months Ended
    June 30,
   June 30,
    2004
   2003
   2004
   2003
AMSG operating income (loss), as reported
   $ 16,793     $ (7,282 )   $ 53,168     $ 19,762  
As % of sales
     14.1 %     -7.5 %     12.7 %     5.6 %
Other income (expense)
     902       111       2,017       (30 )
 
    
 		      
 		      
 		      
 		  
EBIT
     17,695       (7,171 )     55,185       19,732  
Adjustments:
                                
AMSG restructuring(2)
     —       1,224       1,497       4,406  
Widia integration
     —       1,170       48       1,192  
AMSG Electronics impairment
     —       16,110       —       16,110  
 
    
 		      
 		      
 		      
 		  
EBIT, excluding special charges
   $ 17,695     $ 11,333     $ 56,730     $ 41,440  
 
    
 		      
 		      
 		      
 		  
As % of sales
     14.8 %     11.7 %     13.5 %     11.7 %

(1)   Widia was acquired on August 30, 2002. Sales related to Widia for July and August have been removed from the 2003 results in order to reflect comparable Widia activity for both years.
 
(2)   Includes charges in cost of goods sold and restructuring expense.

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FINANCIAL HIGHLIGHTS (Continued)

J&L SEGMENT (Unaudited):

                                 
    Quarter Ended   Twelve Months Ended
    June 30,
   June 30,
    2004
   2003
   2004
   2003
Sales, as reported
   $ 59,741     $ 48,158     $ 218,295     $ 196,170  
Foreign currency exchange
     (722 )     —       (2,199 )     —  
 
    
 		      
 		      
 		      
 		  
Adjusted sales
   $ 59,019     $ 48,158     $ 216,096     $ 196,170  
 
    
 		      
 		      
 		      
 		  

J&L EBIT (Unaudited):

                                 
    Quarter Ended   Twelve Months Ended
    June 30,
   June 30,
    2004
   2003
   2004
   2003
J&L operating income, as reported
   $ 6,137     $ 931     $ 19,547     $ 6,140  
As % of sales
     10.3 %     1.9 %     9.0 %     3.1 %
Other (expense)
     3       (3 )     26       (58 )
 
    
 		      
 		      
 		      
 		  
EBIT
     6,140       928       19,573       6,082  
Adjustments:
                                
J&L restructuring
     —       (64 )     —       1,203  
 
    
 		      
 		      
 		      
 		  
EBIT, excluding special charges
   $ 6,140     $ 864     $ 19,573     $ 7,285  
 
    
 		      
 		      
 		      
 		  
As % of sales
     10.3 %     1.8 %     9.0 %     3.7 %

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FINANCIAL HIGHLIGHTS (Continued)

FSS SEGMENT (Unaudited):

                                 
    Quarter Ended   Twelve Months Ended
    June 30,
   June 30,
    2004
   2003
   2004
   2003
Sales, as reported
   $ 36,513     $ 28,912     $ 135,568     $ 122,694  
Foreign currency exchange
     (112 )     —       (440 )     —  
 
    
 		      
 		      
 		      
 		  
Adjusted sales
   $ 36,401     $ 28,912     $ 135,128     $ 122,694  
 
    
 		      
 		      
 		      
 		  

FSS EBIT (Unaudited):

                                 
    Quarter Ended   Twelve Months Ended
    June 30,
   June 30,
    2004
   2003
   2004
   2003
FSS operating income / (loss), as reported
   $ 882     $ 264     $ 818     $ (56 )
As % of sales
     2.4 %     0.9 %     0.6 %     0.0 %
Other (expense) income
     —       —       2       58  
 
    
 		      
 		      
 		      
 		  
EBIT
     882       264       820       2  
Adjustments:
                                
FSS restructuring
     —       —       —       38  
 
    
 		      
 		      
 		      
 		  
EBIT, excluding special charges
   $ 882     $ 264     $ 820     $ 40  
 
    
 		      
 		      
 		      
 		  
As % of sales
     2.4 %     0.9 %     0.6 %     0.0 %

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RECONCILIATION TO GAAP – GROSS PROFIT (Unaudited)

                                                                 
    Quarter Ended   Quarter Ended   Twelve Months Ended   Twelve Months Ended
    June 30, 2004
   June 30, 2003
   June 30, 2004
   June 30, 2003
            As a %           As a %           As a %           As a %
    2004
   of Sales
   2003
   of Sales
   2004
   of Sales
   2003
   of Sales
Gross Profit
   $ 185,774       34.3 %   $ 148,791       32.1 %   $ 653,367       33.1 %   $ 568,904       32.3 %
Widia integration and restructuring charges
     —       0.0 %     2,011       0.4 %     2,961       0.2 %     2,209       0.2 %
Pension Curtailment
     —       0.0 %     —       0.0 %     779       0.0 %     —       0.0 %
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Gross Profit, excluding special items
   $ 185,774       34.3 %   $ 150,802       32.5 %   $ 657,107       33.3 %   $ 571,113       32.5 %
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		  

OPERATING EXPENSE RECONCILIATION (Unaudited):

                                 
    Quarter ended   Quarter ended   Twelve Months Ended   Twelve Months Ended
    June 30, 2004
   June 30, 2003
   June 30, 2004
   June 30, 2003
Operating expense, as reported
   $ 134,441     $ 121,757     $ 512,621     $ 464,861  
Widia integration costs
     —       (1,670 )     (1,448 )     (5,476 )
Pension Curtailment
     —       —       (520 )     —  
Note Receivable
     —       —       (1,817 )     —  
 
    
 		      
 		      
 		      
 		  
Operating expense, excluding special items
     134,441       120,087       508,836       459,385  
Less:
                                
Widia operating expense(1)
     —       —       8,441       —  
Unfavorable foreign exchange
     3,895       —       23,321       —  
 
    
 		      
 		      
 		      
 		  
Operating expense, excluding special items, Widia expense and foreign exchange
   $ 130,546     $ 120,087     $ 477,074     $ 459,385  
 
    
 		      
 		      
 		      
 		  

(1)   Widia was acquired on August 30, 2002. Operating expenses related to Widia for July and August have been removed from the 2003 results in order to reflect comparable Widia activity for both years.

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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.
Registrant
 
        
Date: July 28, 2004
  By:    
      /s/ Timothy A. Hibbard
Timothy A. Hibbard
Corporate Controller and Chief
Accounting Officer

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Ex-99.1
 

         
  Fiscal 2004 4th Quarter Earnings Announcement   Exhibit 99.1
         
(KENNAMETAL LOGO)
  FROM:   KENNAMETAL INC.
P.O. Box 231
Latrobe, PA 15650
724-539-6141
 
        
Confidential Draft
      Investor Relations
Contact: Beth A. Riley

Media Relations
Contact: Joy Chandler
 
        
  DATE:   July 28, 2004
 
        
  FOR RELEASE:   Immediate

KENNAMETAL REPORTS STRONG FINISH TO FISCAL 2004 —
CONTINUED GROWTH EXPECTED IN FISCAL 2005

  •   Q4 sales up 17 percent — 12 percent organic
 
  •   EPS up 80 percent, and above previous guidance
 
  •   Continuing good cash flow and debt reduction
 
  •   Strong outlook for FY05, EPS up 25-35 percent

LATROBE, Pa., July 28, 2004 — Kennametal Inc. (NYSE: KMT) today reported fiscal 2004 fourth-quarter EPS of $0.81 compared with adjusted earnings of $0.45 in 2003. There were no special items reported in the fiscal 2004 fourth quarter results. Reported results in last year’s fourth quarter were a loss of $0.14 per diluted share due to special items totaling $0.59 per share.

Earnings Per Share

Company Guidance: $0.70 to $0.80
Analyst Estimate Range: $0.76 to $0.81
Diluted Earnings Per Share (“EPS”): $0.81

Total Year 2004
 For fiscal 2004, reported EPS of $2.02 compared with earnings of $0.51 last year. Excluding special items in each period, EPS of $2.15 were 52 percent above the prior year’s comparable EPS of $1.41.

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“We were delighted to deliver excellent sales growth and operating leverage in 2004,” said Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras. “Of particular note, Q4 included the highest quarterly sales, and the lowest primary working capital to sales ratio in the company’s history. These results were driven by broad-based strong performances by all business units, and across most end markets. ”

Tambakeras further noted, “In addition to our strong earnings performance, we continue to generate good cash flow and strengthen our balance sheet. Free operating cash flow of $125 million contributed to an 870 basis point reduction in debt to capital, which ended the year at 33 percent.”

Highlights of the Fiscal 2004 Fourth Quarter

•   Record sales of $542 million were up 17 percent, primarily on 12 percent organic growth.
 
•   Net income was $29.9 million versus a net loss of $4.9 million in Q4 last year. Net income grew 88 percent compared to last year, excluding special items, reflecting the benefits of increased volume, mix, and a leaner cost structure.
 
•   Net cash flow from operations was $68 million, versus $67 million for the prior year. Free operating cash flow totaled $49 million for the quarter, $5 million lower than Q4 of 2003 due to increased capital expenditures.
 
•   As of June 30, 2004, total debt was $440 million, down $85 million from June 2003.
 
•   Debt to capital decreased to 33 percent versus 42 percent at the end of the prior year.

Highlights of Fiscal 2004

•   Sales of $2.0 billion were up 12 percent on a 5 percent improvement from organic sales, 2 percent incremental sales from acquisitions and a 5 percent benefit from foreign currency exchange rates.
 
•   Reported net income totaled $73.6 million versus $18.1 million last year. Excluding special items in both periods, net income improved
57 percent to $78.3 million versus $49.9 million last year.

Outlook

Global industrial economic indicators support expectations of additional growth through fiscal 2005 in North America and rest-of-world markets, and a return to modest growth in the first quarter for our European markets.

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Tambakeras said, “We were very pleased with our performance in fiscal 2004, and the outlook for our end markets remains good. In 2005, we will leverage further the 6 processes of the Kennametal Value Business System (KVBS), our strong geographic and end-market balance and superior technology, to continue to outperform our markets. We will remain focused on growing market share and offsetting challenges such as high raw material costs by consistently finding new ways to add value for our customers and to continue to benefit from the skills and commitment of our employees.”

Sales for the first quarter of fiscal 2005 are expected to grow 9 to 11 percent. Reported EPS is expected to be $0.50 to $0.60.

For the full year, sales are expected to grow 7 to 9 percent. Reported EPS are expected to be $2.65 to $2.85, up 25 to 35 percent.

Kennametal anticipates net cash flow provided by operating activities of approximately $180 to $220; million in fiscal 2005. Purchases of property, plant and equipment, net of proceeds from disposals of property, plant and equipment are expected to be approximately $70 to $80 million. Adjusting net cash flow provided by operating activities for the above items, Kennametal expects to generate between $110 and $140 million of free operating cash flow for fiscal 2005.

Kennametal advises shareholders 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 August 25, 2004, to shareowners of record as of the close of business August 10, 2004.

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

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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 related to 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. aspires to be the premier tooling solutions supplier in the world with operational excellence throughout the value chain and best-in-class manufacturing and technology. Kennametal strives to deliver superior shareowner value through top-tier financial performance. The company provides customers a broad range of technologically advanced tools, tooling systems and engineering services aimed at improving customers’ manufacturing competitiveness. With about 13,500 employees worldwide, the company’s annual sales approximate $2.0 billion, with nearly half coming from sales outside the United States. Kennametal is a five-time winner of the GM “Supplier of the Year” award and is represented in more than 60 countries. Kennametal operations in Europe are headquartered in Fürth, Germany. Kennametal Asia Pacific operations are headquartered in Singapore. For more information, visit the company’s web site at www.kennametal.com.

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FINANCIAL HIGHLIGHTS

Consolidated financial highlights for Kennametal Inc. (NYSE: KMT) for the quarter and twelve months ended June 30, 2004 and 2003 are shown in the following tables (in thousands, except per share amounts).

Consolidated Statements of Income (Unaudited)

                                 
    Quarter Ended   Twelve Months Ended
    June 30,
   June 30,
    2004
   2003
   2004
   2003
Sales
   $ 541,858     $ 463,765     $ 1,971,441     $ 1,758,957  
Cost of goods sold(A)
     356,084       314,974       1,318,074       1,190,053  
 
    
 		      
 		      
 		      
 		  
Gross profit
     185,774       148,791       653,367       568,904  
Operating expense(B)
     134,441       121,757       512,621       464,861  
Restructuring and asset impairment charges(C)
     —       20,305       3,670       31,954  
Amortization of intangibles
     664       854       2,234       4,164  
 
    
 		      
 		      
 		      
 		  
Operating income
     50,669       5,875       134,842       67,925  
Interest expense
     6,405       9,108       25,884       36,166  
Other (income) expense, net(D)
     294       (2,117 )     (1,716 )     (2,531 )
 
    
 		      
 		      
 		      
 		  
Income before provision for income taxes and minority interest
     43,970       (1,116 )     110,674       34,290  
Provision for income taxes(E)
     14,154       3,678       35,500       14,300  
Minority interest
     (36 )     74       1,596       1,860  
 
    
 		      
 		      
 		      
 		  
Net income
   $ 29,852     $ (4,868 )   $ 73,578     $ 18,130  
 
    
 		      
 		      
 		      
 		  
Basic earnings per share
   $ 0.83     $ (0.14 )   $ 2.06     $ 0.52  
 
    
 		      
 		      
 		      
 		  
Diluted earnings per share
   $ 0.81     $ (0.14 )   $ 2.02     $ 0.51  
 
    
 		      
 		      
 		      
 		  
Dividends per share
   $ 0.17     $ 0.17     $ 0.68     $ 0.68  
 
    
 		      
 		      
 		      
 		  
Basic weighted average shares outstanding
     36,051       35,396       35,704       35,202  
 
    
 		      
 		      
 		      
 		  
Diluted weighted average shares outstanding
     36,952       35,682       36,473       35,479  
 
    
 		      
 		      
 		      
 		  

(A)   For the twelve months ended June 30, 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. For the quarter and twelve months ended June 30, 2003, these amounts include charges of $2.0 million and $2.2 million, respectively, for integration activities related to the Widia acquisition.
 
(B)   For the twelve months ended June 30, 2004, these amounts include charges of $1.8 million related to a note receivable from a divestiture of a business by Kennametal in 2002, $0.5 million related to a pension curtailment, and $1.4 million for integration activities related to the Widia acquisition. For the quarter and twelve months ended June 30, 2003, these amounts include charges of $1.7 million and $5.5 million, respectively, for integration activities related to the Widia acquisition.
 
(C)   For the quarter and twelve months ended June 30, 2003, these amounts include a non-cash charge of $16.1 million for impairment of long-lived assets within the Electronics business.

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(D)   For the twelve months ended June 30, 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 note receivable from a divestiture of a business by Kennametal in 2002.
 
(E)   For the quarter and twelve months ended June 30, 2003, the effective tax rate was (329.6%) and 41.7%, respectively. These amounts reflect that a portion of the Electronics impairment could not be tax effected, otherwise, the tax rate for the quarter and twelve month period would have been 30%.

FINANCIAL HIGHLIGHTS (Continued)

In addition to reported results under U.S. GAAP, the following financial highlight tables also include, where appropriate, a reconciliation of results excluding special items and free operating cash flow (which are non-GAAP measures), to the most directly comparable GAAP measures. Management believes that each of these non-GAAP financial measures is useful to investors to more easily compare the Company’s financial performance period to period.

For the quarter ended June 30, 2004, there were no special items.

RECONCILIATION TO GAAP — QUARTER ENDED JUNE 30, 2003 (Unaudited)

                                         
                                    Diluted
            Operating   Operating   Net   Earnings
    Gross Profit
   Expenses
   Income
   Income
   Per Share
2003 Reported Results
   $ 148,791     $ 121,757     $ 5,875     $ (4,868 )   $ (0.14 )
MSSG Restructuring
     —       —       3,134       2,194       0.06  
AMSG Restructuring
     —       —       1,224       857       0.02  
AMSG Electronics Impairment
     —       —       16,110       15,269       0.43  
Corporate Restructuring
     —       —       (99 )     (69 )     —  
J&L Restructuring
     —       —       (64 )     (45 )     —  
Widia Integration Costs — MSSG
     1,146       (1,365 )     2,511       1,758       0.06  
Widia Integration Costs — AMSG
     865       (305 )     1,170       818       0.02  
 
    
 		      
 		      
 		      
 		      
 		  
2003 Results Excluding Special Items
   $ 150,802     $ 120,087     $ 29,861     $ 15,914     $ 0.45  
 
    
 		      
 		      
 		      
 		      
 		  

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FINANCIAL HIGHLIGHTS (Continued)

RECONCILIATION TO GAAP — TWELVE MONTHS ENDED JUNE 30 (Unaudited)

                                                 
                            Other           Diluted
            Operating   Operating   (Income) /   Net   Earnings
    Gross Profit
   Expenses
   Income
   Expense, net
   Income
   Per Share
2004 Reported Results
   $ 653,367     $ 512,621     $ 134,842     $ (1,716 )   $ 73,578     $ 2.02  
MSSG Restructuring
     2,850       —       5,023       —       3,416       0.09  
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
   $ 657,107     $ 508,836     $ 146,037     $ 2,498     $ 78,325     $ 2.15  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
                                                 
2003 Reported Results
   $ 568,904     $ 464,861     $ 67,925     $ (2,531 )   $ 18,130     $ 0.51  
MSSG Restructuring
     —       —       9,060       —       6,342       0.18  
AMSG Restructuring
     —       —       4,406       —       3,084       0.09  
AMSG Electronics Impairment
     —       —       16,110       —       15,269       0.43  
Corporate Restructuring
     —       —       1,137       —       796       0.02  
J&L Restructuring
     —       —       1,203       —       843       0.02  
FSS Restructuring
     —       —       38       —       26       —  
Widia Integration Costs — MSSG
     1,344       (5,149 )     6,493       —       4,545       0.14  
Widia Integration Costs — AMSG
     865       (327 )     1,192       —       834       0.02  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
2003 Results Excluding Special Items
   $ 571,113     $ 459,385     $ 107,564     $ (2,531 )   $ 49,869     $ 1.41  
 
    
 		      
 		      
 		      
 		      
 		      
 		  

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FINANCIAL HIGHLIGHTS (Continued)

SEGMENT DATA (Unaudited):

                                 
    Quarter Ended   Twelve Months Ended
    June 30,
   June 30,
    2004
   2003*
   2004
   2003*
Outside Sales:
                                
Metalworking Solutions and Services Group
   $ 326,377     $ 289,996     $ 1,198,505     $ 1,086,831  
Advanced Materials Solutions Group
     119,227       96,699       419,073       353,262  
J&L Industrial Supply
     59,741       48,158       218,295       196,170  
Full Service Supply
     36,513       28,912       135,568       122,694  
 
    
 		      
 		      
 		      
 		  
Total Outside Sales
   $ 541,858     $ 463,765     $ 1,971,441     $ 1,758,957  
 
    
 		      
 		      
 		      
 		  
Sales By Geographic Region:
                                
Within the United States
   $ 283,453     $ 238,323     $ 1,020,629     $ 946,518  
International
     258,405       225,442       950,812       812,439  
 
    
 		      
 		      
 		      
 		  
Total Outside Sales
   $ 541,858     $ 463,765     $ 1,971,441     $ 1,758,957  
 
    
 		      
 		      
 		      
 		  
Operating Income (Loss), as reported:
                                
Metalworking Solutions and Services Group
   $ 43,720     $ 23,616     $ 126,657     $ 88,213  
Advanced Materials Solutions Group
     16,793       (7,282 )     53,168       19,762  
J&L Industrial Supply
     6,137       931       19,547       6,140  
Full Service Supply
     882       264       818       (56 )
Corporate and Eliminations (1)
     (16,863 )     (11,654 )     (65,348 )     (46,134 )
 
    
 		      
 		      
 		      
 		  
Total Operating Income
   $ 50,669     $ 5,875     $ 134,842     $ 67,925  
 
    
 		      
 		      
 		      
 		  
Operating Income (Loss), as reported:
                                
Metalworking Solutions and Services Group
   $ 43,720     $ 29,261     $ 133,191     $ 103,766  
Advanced Materials Solutions Group
     16,793       11,222       54,713       41,470  
J&L Industrial Supply
     6,137       867       19,547       7,343  
Full Service Supply
     882       264       818       (18 )
Corporate and Eliminations (1)
     (16,863 )     (11,753 )     (62,232 )     (44,997 )
 
    
 		      
 		      
 		      
 		  
Total Operating Income
   $ 50,669     $ 29,861     $ 146,037     $ 107,564  
 
    
 		      
 		      
 		      
 		  

*   Prior year segment data has been restated for organizational changes.
 
(1)   Includes corporate functional shared services and intercompany eliminations.

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FINANCIAL HIGHLIGHTS (Continued)

OPERATING INCOME / (LOSS) RECONCILIATION (Unaudited):

For the quarter ended June 30, 2004, there were no special items.

QUARTER ENDED JUNE 30,

                                                 
    MSSG
   AMSG
   J&L
   FSS
   Corp & Elim
   Total
2003 Reported Operating Income (Loss)
   $ 23,616     $ (7,282 )   $ 931     $ 264     $ (11,654 )   $ 5,875  
Restructuring
     3,134       1,224       (64 )     —       (99 )     4,195  
Electronics impairment
     —       16,110       —       —       —       16,110  
Widia Integration Costs
     2,511       1,170       —       —       —       3,681  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
2003 Operating Income (Loss) Excluding Special Items
   $ 29,261     $ 11,222     $ 867     $ 264     $ (11,753 )   $ 29,861  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
TWELVE MONTHS ENDED JUNE 30,
                                                 
    MSSG
   AMSG
   J&L
   FSS
   Corp & Elim
   Total
2004 Reported Operating Income (Loss)
   $ 126,657     $ 53,168     $ 19,547     $ 818     $ (65,348 )   $ 134,842  
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
   $ 133,191     $ 54,713     $ 19,547     $ 818     $ (62,232 )   $ 146,037  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
2003 Reported Operating Income (Loss)
   $ 88,213     $ 19,762     $ 6,140     $ (56 )   $ (46,134 )   $ 67,925  
Restructuring
     9,060       4,406       1,203       38       1,137       15,844  
Electronics impairment
     —       16,110       —       —       —       16,110  
Widia Integration Costs
     6,493       1,192       —       —       —       7,685  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
2003 Operating Income (Loss) Excluding Special Items
   $ 103,766     $ 41,470     $ 7,343     $ (18 )   $ (44,997 )   $ 107,564  
 
    
 		      
 		      
 		      
 		      
 		      
 		  

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FINANCIAL HIGHLIGHTS (Continued)

RECONCILIATION TO FREE OPERATING CASH FLOW INFORMATION (Unaudited)

                                 
    Quarter Ended   Twelve Months Ended
    June 30,
   June 30,
    2004
   2003
   2004
   2003
Net income
   $ 29,852     $ (4,868 )   $ 73,578     $ 18,130  
Electronics impairment
     —       16,110       —       16,110  
Other non-cash items
     (1,498 )     11,264       13,959       19,346  
Depreciation and amortization
     17,236       22,224       65,989       84,043  
Change in inventory
     (3,213 )     23,527       10,255       38,171  
Change in accounts receivable
     (986 )     10,632       (4,199 )     11,480  
Change in accounts payable
     16,696       (3,262 )     25,776       (826 )
Change in other assets and liabilities
     10,305       (8,269 )     (7,500 )     (4,910 )
 
    
 		      
 		      
 		      
 		  
Net cash flow provided by operating activities
     68,392       67,358       177,858       181,544  
Purchase of property, plant and equipment
     (20,902 )     (13,447 )     (56,962 )     (49,413 )
Proceeds from disposals of property, plant and equipment
     1,227       371       4,225       1,875  
 
    
 		      
 		      
 		      
 		  
Free operating cash flow
   $ 48,717     $ 54,282     $ 125,121     $ 134,006  
 
    
 		      
 		      
 		      
 		  

CONDENSED BALANCE SHEETS (Unaudited)

                                         
    06/30/04
   03/31/04
   12/31/03
   09/30/03
   06/30/03
ASSETS
                                        
Cash and equivalents
   $ 25,940     $ 27,528     $ 15,086     $ 14,720     $ 15,093  
Accounts receivable, net of allowance
     247,245       248,879       223,087       232,146       231,803  
Inventories
     388,077       387,202       386,250       387,877       389,613  
Deferred income taxes
     95,240       87,651       88,020       86,888       97,237  
Other current assets
     40,443       38,803       39,460       47,003       48,606  
 
    
 		      
 		      
 		      
 		      
 		  
Total current assets
     796,945       790,063       751,903       768,634       782,352  
 
    
 		      
 		      
 		      
 		      
 		  
Property, plant and equipment, net
     484,475       481,793       487,530       489,242       489,828  
Goodwill and Intangible assets, net
     542,014       554,614       500,890       484,662       473,173  
Other assets
     115,229       59,641       72,802       67,108       68,534  
 
    
 		      
 		      
 		      
 		      
 		  
Total
   $ 1,938,663     $ 1,886,111     $ 1,813,125     $ 1,809,646     $ 1,813,887  
 
    
 		      
 		      
 		      
 		      
 		  
LIABILITIES
                                        
Short-term debt, including notes payable
   $ 126,807     $ 8,193     $ 12,872     $ 11,375     $ 10,845  
Accounts payable
     148,216       132,246       112,563       107,653       118,509  
Accrued liabilities
     214,359       202,460       183,835       197,578       206,993  
 
    
 		      
 		      
 		      
 		      
 		  
Total current liabilities
     489,382       342,899       309,270       316,606       336,347  
 
    
 		      
 		      
 		      
 		      
 		  
Long-term debt
     313,400       486,119       468,455       508,763       514,842  
Deferred income taxes
     64,571       38,045       36,087       41,368       43,543  
Other liabilities
     167,926       192,546       191,585       180,258       178,698  
 
    
 		      
 		      
 		      
 		      
 		  
Total liabilities
     1,035,279       1,059,609       1,005,397       1,046,995       1,073,430  
 
    
 		      
 		      
 		      
 		      
 		  
MINORITY INTEREST
     16,232       16,598       16,286       16,089       18,880  
 
    
 		      
 		      
 		      
 		      
 		  
SHAREOWNERS’ EQUITY
     887,152       809,904       791,442       746,562       721,577  
 
    
 		      
 		      
 		      
 		      
 		  
Total
   $ 1,938,663     $ 1,886,111     $ 1,813,125     $ 1,809,646     $ 1,813,887  
 
    
 		      
 		      
 		      
 		      
 		  

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Debt to Capital Reconciliation (Unaudited)

                 
    June 30,
    2004
   2003
Total Debt
     440,207       525,687  
Total Shareowners’ Equity
     887,152       721,577  
 
    
 		      
 		  
Debt to Equity, GAAP
     33.2 %     42.1 %
                 
Total Debt
     440,207       525,687  
Minority Interest
     16,232       18,880  
Total Shareowners’ Equity
     887,152       721,577  
 
    
 		      
 		  
Total Capital
     1,343,591       1,266,144  
                 
Debt to Capital
     32.8 %     41.5 %

-end-

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