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

Kennametal Inc.

(Exact Name of Registrant as Specified in Its Charter)

(State or Other Jurisdiction of Incorporation)

1-5318		25-0900168
(Commission File Number)		(IRS Employer Identification No.)

(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

Item 2.02 Results of Operations and Financial Condition

On April 26, 2006, Kennametal Inc. (the “Company”) issued a press release announcing financial results for its third quarter ended March 31, 2006.

The press release contains certain non-GAAP financial measures, including net income and diluted earnings per share, in each case excluding special items. The special items include: (a) charges related to the UK-based high speed steel business divestiture, goodwill impairment charges, J&L Industrial Supply transaction-related charges and certain income tax effects of such charges, all from the quarter ended March 31, 2006; and (b) Full Service Supply divestiture-related charges and certain income tax effects of such charges for the quarter ended March 31, 2005. The press release also contains: adjusted sales excluding acquisition and divestitures; adjusted operating income; adjusted effective tax rate; and adjusted return on invested capital, which is also a non-GAAP measure and is defined below.

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.

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.

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.

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

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 restructuring charges, interest income and other items. Management uses this information in reviewing operating performance and in the determination of compensation.

SUPPLEMENTAL INFORMATION AND RECONCILIATIONS

KENNAMETAL INC. EBIT RECONCILIATION (Unaudited)

		Quarter Ended								Nine Months Ended
		March 31,								March 31,
(in thousands, except percents)		2006				2005				2006				2005
Net income, as reported		$	32,903			$	30,650			$	92,087			$	81,551
Net income as a percent of sales			5.2	%			5.1	%			5.2	%			4.8	%
Add back:
Interest			7,728				6,803				23,541				19,380
Taxes			20,143				18,933				49,733				39,540
EBIT			60,774				56,386				165,361				140,471
Additional adjustments:
Minority interest			782				1,449				2,041				3,354
Loss on assets held for sale and goodwill			5,722				6,253				5,722				6,253
UK based high-speed steel business asset write-down			7,355				—				7,355				—
J&L Industrial Supply transaction related charges			1,871				—				1,871				—
Interest income			(976	)			(828	)			(3,017	)			(2,078	)
Securitization fees			1,241				868				3,476				2,205
Adjusted EBIT		$	76,769			$	64,128			$	182,809			$	150,205
Adjusted EBIT as a percent of sales			12.2	%			10.7	%			10.2	%			8.9	%

Item 9.01 Financial Statements and Exhibits

(c) Exhibits

99.1 Fiscal 2006 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 26, 2006		By:		/s/ Frank P. Simpkins
				Frank P. Simpkins      Vice President of Finance and Corporate Controller

Exhibit 99.1

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:		April 26, 2006
FOR RELEASE:		Immediate

		KENNAMETAL REPORTS STRONG THIRD QUARTER
-		Q3 06 sales up 6 percent, reflects 12 percent organic growth
-		Reported earnings per diluted share (EPS) of $0.82; adjusted EPS of $1.17, up 27 percent from prior year adjusted EPS of $0.92
-		Another strong quarter of cash flow generation

LATROBE, Pa., April 26, 2006 — Kennametal Inc. (NYSE: KMT) today reported that EPS for third quarter of fiscal 2006 was $0.82, compared with prior year reported EPS of $0.80. Reported fiscal 2006 third-quarter adjusted EPS was $1.17, compared with prior year adjusted EPS of $0.92, an increase of 27 percent.

Fiscal 2006 third quarter performance reflects the impact of previously announced divestitures. These divestitures are consistent with the company’s strategy of exiting non-core businesses. Therefore, third quarter results included charges associated with the sale of UK-based high speed steel business and transaction related costs from the divestiture of J&L Industrial Supply. The disposition of the UK-based high speed steel business was part of Kennametal’s acceleration of its manufacturing rationalization and is expected to improve future overall EBIT margins by 10 to 20 basis points. The divestiture of J&L is in line with Kennametal’s strategy to focus on its core manufacturing businesses. This transaction will complete the company’s planned exit from owned distribution, and will allow Kennametal to build new and grow existing distributor relationships.

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Additionally in the third quarter, a goodwill impairment charge was recognized for the small, high speed steel consumer retail product line because the company is pursuing strategic alternatives for this business.

President and Chief Executive Officer Carlos M. Cardoso said, “We are pleased with third quarter results, which represent the 9^th consecutive quarter of year-over-year growth. Our team executed on clearly defined strategic initiatives to deliver another quarter of strong sales, EPS and return on invested capital. We will continue to focus on sustainable growth, portfolio enhancement, expanding margins and cash flow as evidenced by our actions this quarter. This quarter’s performance is a result of being focused on our customers and implementing our strategy through the Kennametal Value Business System, or KVBS.”

Highlights of Fiscal 2006 Third Quarter

•

Third quarter sales of $631 million were up 6 percent versus the same quarter last year, including 12 percent organic sales growth, partially offset by 3 percent unfavorable foreign currency exchange as well as a 3 percent net impact of acquisitions and divestitures.

•

Net income was $33 million compared to $31 million in the prior year, up 7 percent.

•

The effective tax rate for the quarter was 37.4 percent. Excluding special charges totaling $0.33 per share for which there were no tax benefits and other items, the effective tax rate was 31.1 percent. Such adjusted tax rate was lower than our expected tax rate of 35.0 percent due to favorable earnings mix and other items, which contributed $0.07 per share to the current quarter.

•

Reported EPS for third quarter was $0.82, compared with prior year reported EPS of $0.80. Third quarter adjusted EPS of $1.17 was up 27 percent compared to adjusted EPS of $0.92 for prior year quarter.

Earnings Per Diluted Share Reconciliation
Third Quarter FY 2006
Reported EPS		$	0.82
UK-based high speed steel business divestiture			0.20
Goodwill impairment			0.13
J&L Industrial Supply transaction-related charges			0.03
Impact of special charges on overall tax rate			(0.01	)
Adjusted EPS		$	1.17

Third Quarter FY 2005
Reported EPS		$	0.80
Full Service Supply divestiture related charges			0.15
Impact of special charges on overall tax rate			(0.03	)
Adjusted EPS		$	0.92

•

Net cash from operations was $42 million, including an outflow of $33 million for the funding of the UK pension plan, versus $66 million in the same quarter last year. Excluding the pension funding, cash flow from operations of $75 million increased 12 percent from the prior year.

•

Record adjusted return on invested capital was up 160 basis points to 10.7 percent from 9.1 percent in the prior year.

Business Segment Highlights of Fiscal 2006 Third Quarter

Metalworking Solutions & Services Group (MSSG) continued to deliver strong growth, despite difficult comparisons to a strong quarter last year. Growth in the Metalworking business continues to outpace the growth in its addressed markets, demonstrating the effects of price realization and further market penetration.

In the March quarter, MSSG sales were up 7 percent on volume and price, excluding acquisitions, divestitures and foreign exchange. North American cemented carbide and high-speed steel grew 9 percent and 6 percent, respectively. Europe sales were increased 8 percent. Rest of the world grew 6 percent. North American consumer products declined 6 percent.

MSSG operating income excluding special charges was up 10 percent, on 5 percent reported sales growth and the operating margin of 15.7 percent was up 70 basis points excluding special charges over the same period last year.

Advanced Materials Solutions Group (AMSG) delivered significant top line growth in the current quarter, also despite difficult comparisons to the prior year. The underlying markets in Mining, Construction and Energy remain strong for Kennametal. Electronics is the only market showing year-over-year decline. Despite this challenge, the overall AMSG segment continues to report considerable growth. Overall market conditions, price realization and market share penetration are primary factors to favorable results.

AMSG sales grew 24 percent on volume and price, excluding acquisitions, divestitures and foreign exchange. Mining and Construction was up 22 percent, Energy sales increased 56 percent and Engineered Products sales grew 18 percent. Electronics decreased 7 percent.

AMSG operating income grew 50 percent versus last year, on 35 percent reported sales growth with the operating margin increasing 180 basis points to 18.2 percent.

J&L sales grew 12 percent on volume and price, excluding impact of foreign exchange and operating income grew 19 percent. Operating margin of 12.7 percent was up 90 basis points versus prior year.

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Highlights of First Nine Months of Fiscal 2006

•

Sales of $1.8 billion were up 6 percent versus prior year, including 9 percent organic growth, partially offset by a 2 percent net impact of acquisitions and divestitures and 1 percent of unfavorable foreign currency exchange.

•

Net income was $92 million compared to $82 million in the prior year, up 13 percent.

•

Reported EPS was $2.34, compared with prior year reported EPS of $2.15. For the first nine months of fiscal 2006, adjusted EPS was $2.69 compared with prior year adjusted EPS of $2.26.

Outlook

Global economic indicators forecast continued expansion through fiscal 2006 in North America and the rest-of-the-world markets, and flat to modest growth in European markets. Kennametal’s organic sales growth for the fourth quarter of fiscal year 2006 is expected to be 7 to 10 percent, relative to very strong performance from the prior year quarter. Worldwide market conditions support the company’s expectations of continued top line growth in the fourth quarter.

Consistent with year-to-date results and full year guidance for fiscal 2006, Kennametal expects to finish the year with organic revenue growth in the 9 to 10 percent range, consistently outpacing worldwide industrial production rates by two to three times. The company anticipates the majority of its end markets to continue operating at high levels, with moderating growth rates for certain sectors.

Cardoso said, “We have consistently achieved our goals, as shown by our performance in the third quarter, and we are cautiously optimistic that the outlook for our end markets for the remainder of the fiscal year remains favorable. Despite difficult comparables, the global manufacturing forecast is consistent with our belief that the industrial sector will continue to show strength. Our proven business model enables us to effectively deliver volume growth and price realization through disciplined processes and we expect to continue to outperform the market.”

As discussed in prior statements, fourth quarter fiscal 2006 is expected to reflect a gain related to the divestiture of J&L Industrial Supply, as well as charges associated with the sale of the Kemmer Praezision Electronics business. The company anticipates ongoing pressure on raw material prices as mentioned during the past year. Consistent with historical seasonal patterns and reflecting confidence in the company’s ability to maintain the strength of its year-to-date performance, forecasted EPS for the fourth quarter and full fiscal year 2006 are detailed as follows.

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Fiscal Year 2006 Outlook
Fourth Quarter FY 2006
EPS range		$	3.83 - $4.12
Gain from J&L Industrial Supply divestiture			(3.20) - (3.30	)
Kemmer Praezision divestiture			0.45 - 0.50
UK-based high speed steel business divestiture			0.00 - 0.04
Adjusted EPS range		$	1.17 - $1.27

Fiscal Year 2006
EPS range (a)		$	6.31 - $6.60
Gain from J&L Industrial Supply Divestiture			(3.20) - (3.30	)
Kemmer Praezision Divestiture			0.45 - 0.50
UK-based high speed steel business divestiture			0.20 - 0.24
Adjusted EPS range		$	3.85-$3.95

(a)

Reflects approximately $0.25 per share negative impact from the combination of expensing stock options due to SFAS 123(R) and the effects of the reduction in discount rate applied to the company’s domestic pension plans.

Improvements in operating margins are expected to continue, and return on invested capital is solidly on track for the projected 10 to 12 percent range, for fiscal year 2006.

Kennametal anticipates net cash flow provided by operating activities of approximately $190 million to $210 million for fiscal 2006. Based on anticipated capital expenditures of $80 million, Kennametal expects to generate between $110 million to $130 million of free operating cash flow for fiscal 2006, including the $33 million funding of the UK pension plan in the third quarter.

The above guidance on sales growth, operating margins, ROIC and cash all assume the J&L transaction closes at the end of Kennametal’s fiscal year.

Dividend Declared

Kennametal also announced that its Board of Directors declared a quarterly cash dividend of $0.19 per share. The dividend is payable May 23, 2006 to shareowners of record as of the close of business on May 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.

Third quarter results 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 May 10, 2006.

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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 other 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 and regional economic conditions; risks associated with the availability and costs of raw materials; risks associated with integrating acquisitions and achieving the expected savings and synergies; risks relating to divesting J&L Industrial Supply and other businesses; energy costs; commodity prices; competition; demands on management resources; risks associated with international markets, such as currency exchange rates and social and political environments; future terrorist attacks; labor relations; 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 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 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 [KMT-E]

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FINANCIAL HIGHLIGHTS

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 net income, diluted earnings per share, segment results and effective tax rate in each case excluding special charges, and adjusted return on invested capital (which is a non-GAAP financial measure), 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.

Consolidated Statements of Income (Unaudited):

		Quarter Ended								Nine Months Ended
		March 31,								March 31,
(in thousands, except per share amounts)		2006				2005				2006				2005
Sales		$	631,114			$	597,355			$	1,785,590			$	1,685,009
Cost of goods sold (1)			413,812				386,094				1,168,681				1,118,939
Gross profit			217,302				211,261				616,909				566,070
Operating expense (2)			148,498				146,422				441,442				416,884
Loss on assets held for sale and goodwill impairment charge (3)			5,722				6,253				5,722				6,253
Amortization of intangibles			1,409				723				4,198				1,894
Operating income			61,673				57,863				165,547				141,039
Interest expense			7,728				6,803				23,541				19,380
Other (expense) income, net			(117	)			(28	)			1,855				2,786
Income before provision for income taxes and minority interest			53,828				51,032				143,861				124,445
Provision for income taxes			20,143				18,933				49,733				39,540
Minority interest			782				1,449				2,041				3,354
Net income		$	32,903			$	30,650			$	92,087			$	81,551
Basic earnings per share		$	0.85			$	0.83			$	2.41			$	2.22
Diluted earnings per share		$	0.82			$	0.80			$	2.34			$	2.15
Dividends per share		$	0.19			$	0.17			$	0.57			$	0.51
Basic weighted average shares outstanding			38,832				37,093				38,283				36,736
Diluted weighted average shares outstanding			39,978				38,253				39,396				37,935

(1)		For the quarter and nine months ended March 31, 2006, these amounts include $7.4 million related to asset write down as a result of the sale of the UK-based high speed steel business.
(2)		For the quarter and nine months ended March 31, 2006, these amounts include transaction related costs of $1.9 million related to the divestiture of J&L Industrial Supply.
(3)		For the quarter and nine months ended March 31, 2006, these amounts include $5.0 million related to goodwill impairment charges and $0.7 million related to asset write down as a result of the sale of the UK-based high speed steel business. For the quarter and nine months ended March 31, 2005, these amounts include $4.7 million related to a FSS goodwill impairment charge and $1.5 million for FSS loss on assets held for sale.

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FINANCIAL HIGHLIGHTS (Continued)

RECONCILIATION TO GAAP – QUARTER ENDED MARCH 31, 2006 (Unaudited):

						Diluted
						Earnings
(in thousands, except per share amounts)		Net Income				Per Share
2006 Reported Results		$	32,903			$	0.82
UK-based high speed steel business divestiture			8,047				0.20
Goodwill impairment charge			5,030				0.13
J&L Industrial Supply transaction-related charge			1,171				0.03
Impact of special charges on overall tax rate			(544	)			(0.01	)
2006 Results, excluding special charges		$	46,607			$	1.17

RECONCILIATION TO GAAP – NINE MONTHS ENDED MARCH 31, 2006 (Unaudited):

						Diluted
						Earnings
(in thousands, except per share amounts)		Net Income				Per Share
2006 Reported Results		$	92,087			$	2.34
UK-based high speed steel business divestiture			8,047				0.20
Goodwill impairment charge			5,030				0.13
J&L Industrial Supply transaction-related charge			1,171				0.03
Impact of special charges on overall tax rate			(544	)			(0.01	)
2006 Results, excluding special charges		$	105,791			$	2.69

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

						Diluted
						Earnings
(in thousands, except per share amounts)		Net Income				Per Share
2005 Reported Results		$	30,650			$	0.80
FSS goodwill impairment charge			4,707				0.12
Loss on assets held for sale			1,076				0.03
Impact of special charges on overall tax rate			(1,391	)			(0.03	)
2005 Results, excluding special charges		$	35,042			$	0.92

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

						Diluted
						Earnings
(in thousands, except per share amounts)		Net Income				Per Share
2005 Reported Results		$	81,551			$	2.15
FSS goodwill impairment charge			4,707				0.12
Loss on assets held for sale			1,076				0.03
Impact of special charges on overall tax rate			(1,430	)			(0.04	)
2005 Results, excluding special charges		$	85,904			$	2.26

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FINANCIAL HIGHLIGHTS (Continued)

SEGMENT DATA (Unaudited):

		Quarter Ended								Nine Months Ended
		March 31,								March 31,
(in thousands)		2006				2005				2006				2005
Outside Sales:
Metalworking Solutions and Services Group		$	373,951			$	357,197			$	1,070,919			$	1,009,297
Advanced Materials Solutions Group			182,777				135,460				509,946				375,673
J&L Industrial Supply			74,386				67,054				204,725				189,809
Full Service Supply			—				37,644				—				110,230
Total Outside Sales		$	631,114			$	597,355			$	1,785,590			$	1,685,009
Sales By Geographic Region:
Within the United States		$	346,440			$	323,484			$	966,058			$	926,791
International			284,674				273,871				819,532				758,218
Total Sales by Geographic Region		$	631,114			$	597,355			$	1,785,590			$	1,685,009
Operating Income (Loss):
Metalworking Solutions and Services Group		$	45,605			$	53,555			$	135,324			$	135,150
Advanced Materials Solutions Group			33,274				22,211				85,704				50,613
J&L Industrial Supply			9,454				7,915				22,610				19,502
Full Service Supply			—				(5,036	)			—				(4,370	)
Corporate and eliminations (1)			(26,660	)			(20,782	)			(78,091	)			(59,856	)
Total Operating Income, as reported		$	61,673			$	57,863			$	165,547			$	141,039

(1)

Includes corporate functional shared services and intercompany eliminations.

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FINANCIAL HIGHLIGHTS (Continued)

ADJUSTED SALES RECONCILIATION TO GAAP – (Unaudited)

MSSG SEGMENT

		Quarter Ended
		March 31,
(in thousands)		2006				2005
Sales, as reported		$	373,951			$	357,197
Foreign currency exchange			13,462				—
Acquisition and divestiture			—				3,891
Adjusted sales		$	387,413			$	361,088

AMSG SEGMENT

		Quarter Ended
		March 31,
(in thousands)		2006				2005
Sales, as reported		$	182,777			$	135,460
Foreign currency exchange			3,693				—
Acquisition and divestiture			(13,917	)			4,149
Adjusted sales		$	172,553			$	139,609

J&L SEGMENT

		Quarter Ended
		March 31,
(in thousands)		2006				2005
Sales, as reported		$	74,386			$	67,054
Foreign currency exchange			671				—
Adjusted sales		$	75,057			$	67,054

ADJUSTED OPERATING INCOME RECONCILIATION TO GAAP FOR THE QUARTER ENDED MARCH 31, 2006 – (Unaudited)

MSSG SEGMENT

2006 Reported Operating Income		$	45,605
UK-based high speed steel business impact			8,047
Goodwill impairment impact			5,030
2006 Adjusted Operating Income		$	58,682

EFFECTIVE TAX RATE RECONCILIATION TO GAAP – (Unaudited)

2006 Reported Quarter Effective Tax Rate			37.4	%
UK-based high speed steel business divestiture			-4.9	%
Goodwill impairment charge			-0.7	%
Other items, net			-0.7	%
2006 Adjusted Quarter Effective Tax Rate			31.1	%

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FINANCIAL HIGHLIGHTS (Continued)

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited):

		March 31,				June 30,
(in thousands)		2006				2005
ASSETS
Cash and equivalents		$	41,908			$	43,220
Trade receivables, net of allowance			377,686				403,097
Receivables securitized			(106,106	)			(109,786	)
Accounts receivable, net			271,580				293,311
Inventories			366,845				386,674
Deferred income taxes			72,807				70,391
Current assets held for sale			88,185				—
Other current assets			28,813				37,466
Total current assets			870,138				831,062
Property, plant and equipment, net			508,299				519,301
Goodwill and intangible assets, net			624,729				652,791
Long term assets held for sale			50,243				—
Other assets			103,209				89,183
Total		$	2,156,618			$	2,092,337
LIABILITIES
Short-term debt, including notes payable		$	4,388			$	50,889
Accounts payable			111,826				154,839
Current liabilities held for sale			27,474				—
Accrued liabilities			243,157				222,930
Total current liabilities			386,845				428,658
Long-term debt			361,518				386,485
Deferred income taxes			52,927				59,551
Other liabilities			222,164				227,321
Total liabilities			1,023,454				1,102,015
MINORITY INTEREST			18,054				17,460
SHAREOWNERS’ EQUITY			1,115,110				972,862
Total		$	2,156,618			$	2,092,337

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FINANCIAL HIGHLIGHTS (Continued)

RETURN ON INVESTED CAPITAL (Unaudited):

For the Period Ended March 31, 2006 (in thousands, except percents)

Invested Capital		3/31/2006				12/31/2005				9/30/2005				6/30/2005				3/31/2005				Average
Debt		$	365,906			$	410,045			$	415,250			$	437,374			$	485,168			$	422,749
Accounts receivable securitized			106,106				100,295				100,445				109,786				120,749				107,476
Minority interest			18,054				16,918				18,117				17,460				19,664				18,043
Shareowners’ equity			1,115,110				1,045,974				1,009,394				972,862				1,021,186				1,032,905
Total		$	1,605,176			$	1,573,232			$	1,543,206			$	1,537,482			$	1,646,767			$	1,581,173
	Quarter Ended
Interest Expense			3/31/2006				12/31/2005				9/30/2005				6/30/2005			Total
Interest expense		$	7,728			$	7,984			$	7,829			$	7,897			$	31,438
Securitization fees			1,241				1,170				1,065				981				4,457
Total interest expense		$	8,969			$	9,154			$	8,894			$	8,878			$	35,895
Income tax benefit																			12,599
Total interest expense, net of tax																		$	23,296
Total Income			3/31/2006				12/31/2005				9/30/2005				6/30/2005			Total
Net Income, as reported		$	32,903			$	31,087			$	28,097			$	37,740			$	129,827
UK-based high speed steel business			8,047				—				—				—				8,047
Goodwill impairment charge			5,030				—				—				—				5,030
J&L Industrial Supply transaction-related charges			1,171				—				—				—				1,171
Impact of special charges on overall tax rate			(544	)			—				—				—				(544	)
Minority interest expense			782				511				748				238				2,279
Total Income, excluding special items		$	47,389			$	31,598			$	28,845			$	37,978			$	145,810
Total Income, excluding special items																		$	145,810
Total interest expense, net of tax																			23,296
																		$	169,106
Average invested capital																		$	1,581,173
Adjusted Return on Invested Capital																			10.7	%
Return on invested capital calculated utilizing net income, as reported is as follows:
Net Income, as reported																		$	129,827
Total Interest Expense, net of tax																			23,296
																		$	153,123
Average invested capital																		$	1,581,173
Return on Invested Capital																			9.7	%

FINANCIAL HIGHLIGHTS (Continued)

RETURN ON INVESTED CAPITAL (Unaudited):

For the Period Ended March 31, 2005 (in thousands, except percents)

Invested Capital		3/31/2005				12/31/2004				9/30/2004				6/30/2004				3/31/2004				Average
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
Interest Expense			3/31/2005				12/31/2004				9/30/2004				6/30/2004			Total
Interest expense		$	6,803			$	6,121			$	6,456			$	6,405			$	25,785
Securitization fees			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
Total Income			3/31/2005				12/31/2004				9/30/2004				6/30/2004			Total
Net Income, as reported		$	30,650			$	28,181			$	22,720			$	29,852			$	111,403
Restructuring and asset impairment charges			4,707				—				—				—				4,707
Loss on assets held for sale			1,076				—				—				—				1,076
Impact of special charges on overall tax rate			(1,391	)			—				—				—				(1,391	)
Minority interest expense			1,449				928				977				36				3,390
Total Income, excluding special items		$	36,491			$	29,109			$	23,697			$	29,888			$	119,185
Total Income, excluding special items																		$	119,185
Total interest expense, net of tax																			19,334
																		$	138,519
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	%

-end-