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): January 27, 2011

Kennametal Inc.

(Exact Name of Registrant as Specified in Its Charter)

Pennsylvania		1-5318		25-0900168
(State or Other Jurisdiction of Incorporation)		(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):

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

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

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

[ ] 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 January 27, 2011, Kennametal Inc. (Kennametal or the Company) issued an earnings announcement for its fiscal second quarter ended December 31, 2010.

The press release contains certain non-generally accepted accounting principles (GAAP) financial measures. The following GAAP financial measures have been presented on an adjusted basis: gross profit, operating expense, operating income, Industrial operating income and margin, Infrastructure operating income and margin, net income (loss) and diluted earnings per share. Adjustments include: (1) restructuring and related charges for the three and six months ended December 31, 2010 and 2009, respectively, and (2) divestiture related charges for the three and six months ended December 31, 2009. Management adjusts for these items in measuring and compensating internal performance and to more readily compare the Company’s financial performance period-to-period. The press release also contains free operating cash flow and adjusted return on invested capital (ROIC), which are both 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 and past 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. 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.

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 (which is the most directly comparable GAAP measure) 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 dividends, debt repayment, strategic initiatives (such as acquisitions), and other investing and financing activities.

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, noncontrolling interest expense and special items, divided by the sum of the previous five quarters average balances of debt and total equity. The most directly comparable GAAP measure is return on invested capital calculated utilizing GAAP net income. Management believes that this financial measure provides additional insight into the underlying capital structure 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 earnings 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. 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.

Debt to Capital

Debt to capital is a non-GAAP financial measure and is defined by Kennametal as total debt divided by the sum of total shareowners’ equity plus total debt. The most directly comparable GAAP measure is debt to equity, which is defined as total debt divided by shareowners’ equity. Management believes that debt to capital provides additional insight into the underlying capital structuring and performance of the Company.

DEBT TO CAPITAL (UNAUDITED)		December 31,				June 30,
(in thousands, except percents)		2010				2010
Total debt		$	316,379			$	337,668
Total shareowners’ equity			1,476,427				1,333,443
Debt to equity, GAAP			21.4	%			25.3	%
Total debt		$	316,379			$	337,668
Total shareowners’ equity			1,476,427				1,333,443
Total capital		$	1,792,806			$	1,671,111
Debt to capital			17.6	%			20.2	%

 RETURN ON INVESTED CAPITAL (UNAUDITED)
 September 30, 2010 (in thousands, except percents)

Invested Capital		9/30/2010				6/30/2010				3/31/2010				12/31/2009				9/30/2009				Average
Debt		$	318,819			$	337,668			$	336,175			$	338,781			$	367,359			$	339,760
Total equity			1,437,616				1,333,443				1,374,321				1,400,245				1,400,759				1,389,277
Total		$	1,756,435			$	1,671,111			$	1,710,496			$	1,739,026			$	1,768,118			$	1,729,037
						Three Months Ended
Interest Expense							9/30/2010				6/30/2010				3/31/2010				12/31/2009			Total
Interest expense						$	5,963			$	6,347			$	6,531			$	5,954			$	24,795
Income tax benefit																							6,670
Total interest expense, net of tax																						$	18,125
Total Income							9/30/2010				6/30/2010				3/31/2010				12/31/2009			Total
Net income attributable to Kennametal, as reported						$	34,921			$	40,584			$	9,685			$	5,967			$	91,157
Restructuring and related charges							4,253				9,681				22,329				5,143				41,406
Loss on divestiture and related charges							-				-				-				56				56
Noncontrolling interest expense							1,035				366				518				270				2,189
Total income, adjusted						$	40,209			$	50,631			$	32,532			$	11,436			$	134,808
Total interest expense, net of tax																							18,125
																						$	152,933
Average invested capital																						$	1,729,037
Adjusted Return on Invested Capital																							8.8	%
Return on invested capital calculated utilizing net income, as reported is as follows:
Net income attributable to Kennametal, as reported																						$	91,157
Total interest expense, net of tax																							18,125
																						$	109,282
Average invested capital																						$	1,729,037
Return on Invested Capital																							6.3	%

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

99.1 Fiscal 2011 Second 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.

Exhibit 99.1

FOR IMMEDIATE RELEASE:

DATE: January 27, 2011

Investor Relations
CONTACT: Quynh McGuire
PHONE: 724-539-6559

Media Relations
CONTACT: Joy Chandler

PHONE: 724-539-4618

KENNAMETAL ANNOUNCES STRONG SECOND QUARTER RESULTS;
INCREASES GUIDANCE FOR FISCAL YEAR 2011

	-		Second quarter reported EPS $0.52, adjusted EPS $0.57
	-		Organic sales growth of 31 percent
	-		December quarter record adjusted operating margin of 11.8 percent
	-		Increases adjusted EPS guidance to $2.50 to $2.65 from $2.25 to $2.45

LATROBE, Pa., (January 27, 2011) – Kennametal Inc. (NYSE: KMT) today reported fiscal 2011 second quarter earnings per diluted share (EPS) of $0.52 compared with prior year quarter reported EPS of $0.07. Absent restructuring and divestiture related charges, adjusted EPS for the current quarter were $0.57, compared with the prior year quarter adjusted EPS of $0.14.

Carlos Cardoso, Kennametal’s Chairman, President and Chief Executive Officer said, “We are pleased to deliver another period of strong performance. In the December quarter, we saw ongoing top-line growth and realized strong operating leverage. Our solid financial results demonstrated the permanent nature of our cost reduction initiatives.

The business environment continues to reflect improvement on a worldwide basis, and sales volumes remain strong. We expect to continue to benefit from a steady industrial recovery, with gradual but sustainable growth in the overall macro environment. As we move forward, Kennametal’s global team will continue to execute our strategies. We will maintain our customer-focused enterprise approach and plan to maximize additional margin expansion opportunities.”

Reconciliations of all non-GAAP financial measures are set forth in the attached tables, and the corresponding descriptions are contained in our report on Form 8-K to which this release is attached.

Fiscal 2011 Second Quarter Key Developments

•

Sales were $566 million, compared with $443 million in the same quarter last year. Sales increased as a result of strong organic growth of 31 percent, partially offset by a 2 percent unfavorable impact from foreign currency effects and an unfavorable impact from fewer business days.

•

Pre-tax restructuring and related charges of $5 million, or $0.05 per diluted share, were recorded in the quarter. The company realized pre-tax benefits from restructuring programs of approximately $41 million.

•

Operating income was $62 million compared with operating income of $15 million in the same quarter last year. Absent restructuring and related charges in both periods, operating income was $67 million, compared with operating income of $20 million in the prior year quarter. Adjusted operating margin reached a second quarter record of 11.8 percent. The strong margin performance was driven by higher sales, favorable capacity utilization and mix, and incremental restructuring benefits of $8 million. These benefits were partially offset by the restoration of temporary cost reductions, higher input costs and higher employment costs.

•

The effective tax rate was 21.3 percent compared to 27.6 percent for the September quarter. The sequential decrease in the rate was primarily driven by the favorable impact of the Tax Relief Act of 2010, particularly the RD&E credit extension, and the strength of our pan-European operations.

•

Reported EPS were $0.52 compared with prior year quarter reported EPS of $0.07. Adjusted EPS were $0.57 compared with prior year quarter adjusted EPS of $0.14. A reconciliation follows:

Earnings Per Diluted Share Reconciliation

Second Quarter FY 2011						Second Quarter FY 2010
Reported EPS		$	0.52			Reported EPS		$	0.07
Restructuring and related charges			0.05			Restructuring and related charges			0.07
Adjusted EPS		$	0.57			Adjusted EPS		$	0.14

•

Cash flow from operating activities was $67 million for the six months ended December 31, 2010, compared with $53 million in the prior year period. Net capital expenditures were $14 million for the six months ended December 31, 2010. The company generated year to date free operating cash flow of $54 million compared with $36 million in the same period last year.

•

Adjusted ROIC was 10.9 percent as of December 31, 2010.

Segment Developments for the Fiscal 2011 Second Quarter

•

Industrial segment sales of $369 million improved by 33 percent from $278 million in the prior year quarter, driven by organic growth of 37 percent, partially offset by unfavorable foreign currency effects of 2 percent and an unfavorable impact due to fewer business days. On an organic basis, sales increased in most served market sectors led by strong growth in general engineering and transportation sales of 49 percent and 36 percent, respectively. On a regional basis, sales increased by approximately 48 percent in Asia, 34 percent in Europe and 31 percent in the Americas.

•

Industrial segment operating income was $42 million compared with $6 million for the same quarter of the prior year. Absent restructuring and related charges recorded in both periods, Industrial operating income was $46 million compared with $9 million in the prior year quarter. The primary drivers of the increase in operating income were higher sales volume, improved capacity utilization, better product mix and incremental restructuring benefits. These benefits were partially offset by the restoration of temporary cost reductions and higher input costs. Industrial adjusted operating margin increased substantially from the prior year quarter to 12.4 percent from 3.1 percent.

•

Infrastructure segment sales of $197 million increased 19 percent from $165 million in the prior year quarter due to organic growth. The organic increase was driven by higher sales in the energy and earthworks markets of 22 percent and 17 percent, respectively. On a regional basis, organic sales increased by approximately 24 percent in Asia, 21 percent in the Americas and 12 percent in Europe.

•

Infrastructure segment operating income was $22 million, compared with $18 million in the same quarter of the prior year. Absent restructuring and related charges recorded in both periods, Infrastructure operating income was $23 million in the current quarter compared with $20 million in the prior year quarter. Operating income improved primarily due to higher sales, increased capacity utilization and incremental restructuring benefits, partially offset by higher input costs and the restoration of temporary cost reductions. Infrastructure adjusted operating margin remained relatively flat at 11.8 percent compared to the prior year quarter.

Fiscal 2011 First Half Key Developments

•

Sales were $1,095 million, compared with $852 million in the same period last year. Sales increased as a result of strong organic growth of 33 percent, partially offset by a 3 percent unfavorable impact from foreign currency effects and an unfavorable impact from fewer business days.

•

Operating income was $119 million compared with operating income of $6 million in the same period last year. Absent restructuring and related charges in both periods, operating income was $129 million, compared with operating income of $19 million in the same period of the prior year. The corresponding adjusted operating margins were 11.7 percent and 2.2 percent for six months ended December 31, 2010 and 2009, respectively.

•

Reported EPS were $0.94 compared with a loss per share of $0.05 in the prior year period. Absent restructuring and divestiture related charges, adjusted EPS for the current year were $1.04, compared with the prior year period adjusted EPS of $0.10.

Outlook

Global economic conditions and worldwide industrial production are expected to continue to improve. As such, Kennametal has increased its fiscal 2011 organic sales growth guidance to a range of 21 percent to 24 percent from its previous estimate of 19 percent to 21 percent. Foreign currency impacts are still expected to be slightly negative for fiscal 2011.

The company has also increased its EPS guidance for fiscal 2011 to the range of $2.50 to $2.65 per share from the previous range of $2.25 to $2.45 per share, excluding charges related to restructuring.

Cash flow from operations is expected to be in the range of $260 million to $280 million for fiscal 2011 as compared to the previous range of $240 million to $260 million. Capital expenditures are expected to be approximately $80 million which is unchanged from the previous guidance. The range of free operating cash flow is increased to $180 million to $200 million from $160 million to $180 million.

Dividend Declared

Kennametal also announced that its Board of Directors declared a regular quarterly cash dividend of $0.12 per share. The dividend is payable February 23, 2011 to shareowners of record as of the close of business on February 8, 2011.

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 website at www.kennametal.com.

Second quarter results for fiscal 2011 will be discussed in a live Internet broadcast at 9:00 a.m. Eastern time today. This event will be broadcast live on the company’s website, www.kennametal.com. Once on the homepage, select “Investor Relations” and then “Events.” The replay of this event will also be available on the company’s website through February 28, 2011.

Certain statements in this release may be forward-looking in nature, or “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. For example, statements about Kennametal’s outlook for earnings, sales volumes, and cash flow for fiscal year 2011 and our expectations regarding future growth and financial performance are forward-looking statements. These statements are based on current estimates that involve inherent risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, our actual results could vary materially from our current expectations. There are a number of factors that could cause our actual results to differ from those indicated in the forward-looking statements. They include: prolonged economic recession; restructuring and related actions (including associated costs and anticipated benefits); availability and cost of the raw materials we use to manufacture our products; our foreign operations and international markets, such as currency exchange rates, different regulatory environments, trade barriers, exchange controls, and social and political instability; changes in the regulatory environment in which we operate, including environmental, health and safety regulations; our ability to protect and defend our intellectual property; competition; our ability to retain our management and employees; demands on management resources; demand for and market acceptance of our products; integrating acquisitions and achieving the expected savings and synergies; business divestitures; implementation of environmental remediation matters; and successful completion of information systems upgrades, including our enterprise system software. Many of these risks are more fully described in Kennametal’s latest annual report on Form 10-K and its other periodic filings with the Securities and Exchange Commission. 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) delivers productivity to customers seeking peak performance in demanding environments by providing innovative custom and standard wear-resistant solutions. This proven productivity is enabled through our advanced materials sciences and application knowledge. Our commitment to a sustainable environment provides additional value to our customers. Companies operating in everything from airframes to coal mining, from engines to oil wells and from turbochargers to construction recognize Kennametal for extraordinary contributions to their value chains. In fiscal year 2010, customers bought approximately $1.9 billion of Kennametal products and services – delivered by our approximately 11,000 talented employees doing business in more than 60 countries – with more than 50 percent of these revenues coming from outside North America. Visit us at www.kennametal.com. [KMT-E]

FINANCIAL HIGHLIGHTS

 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

		Three Months Ended								Six Months Ended
		December 31,								December 31,
(in thousands, except per share amounts)		2010				2009				2010				2009
Sales		$	565,768			$	442,865			$	1,094,926			$	852,260
Cost of goods sold			365,743				302,777				706,161				594,371
Gross profit			200,025				140,088				388,765				257,889
Operating expense			132,105				117,902				257,125				234,064
Restructuring charges			3,391				3,348				6,651				11,178
Amortization of intangibles			2,912				3,367				5,860				6,707
Operating income			61,617				15,471				119,129				5,940
Interest expense			5,564				5,954				11,527				12,325
Other (income) expense, net			(253	)			(1,866	)			1,658				(4,818	)
Income (loss) from continuing operations before income taxes			56,306				11,383				105,944				(1,567	)
Provision (benefit) for income taxes			12,016				5,090				25,698				(39	)
Income (loss) from continuing operations			44,290				6,293				80,246				(1,528	)
Loss from discontinued operations			-				(56	)			-				(1,423	)
Net income (loss)			44,290				6,237				80,246				(2,951	)
Less: Net income attributable to noncontrolling interests			821				270				1,856				899
Net income (loss) attributable to Kennametal		$	43,469			$	5,967			$	78,390			$	(3,850	)
Amounts Attributable to Kennametal Shareowners:
Income (loss) from continuing operations		$	43,469			$	6,023			$	78,390			$	(2,427	)
Loss from discontinued operations			-				(56	)			-				(1,423	)
Net income (loss) attributable to Kennametal		$	43,469			$	5,967			$	78,390			$	(3,850	)
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL
Basic earnings (loss) per share:
Continuing operations		$	0.53			$	0.07			$	0.95			$	(0.03	)
Discontinued operations			-				-				-				(0.02	)
		$	0.53			$	0.07			$	0.95			$	(0.05	)
Diluted earnings (loss) per share:
Continuing operations		$	0.52			$	0.07			$	0.94			$	(0.03	)
Discontinued operations			-				-				-				(0.02	)
		$	0.52			$	0.07			$	0.94			$	(0.05	)
Dividends per share		$	0.12			$	0.12			$	0.24			$	0.24
Basic weighted average shares outstanding			82,186				81,149				82,146				80,461
Diluted weighted average shares outstanding			83,337				81,855				83,012				80,461

 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

		December 31,				June 30,
(in thousands)		2010				2010
ASSETS
Cash and cash equivalents		$	147,157			$	118,129
Accounts receivable, net			340,531				326,699
Inventories			425,957				364,268
Other current assets			111,488				106,835
Total current assets			1,025,133				915,931
Property, plant and equipment, net			665,779				664,535
Goodwill and other intangible assets, net			654,707				644,749
Other assets			49,374				42,608
Total assets		$	2,394,993			$	2,267,823
LIABILITIES
Current maturities of long-term debt and capital leases, including notes payable		$	4,236			$	22,993
Accounts payable			116,849				125,360
Other current liabilities			248,834				244,652
Total current liabilities			369,919				393,005
Long-term debt and capital leases			312,143				314,675
Other liabilities			236,504				226,700
Total liabilities			918,566				934,380
KENNAMETAL SHAREOWNERS’ EQUITY			1,455,468				1,315,500
NONCONTROLLING INTERESTS			20,959				17,943
Total liabilities and equity		$	2,394,993			$	2,267,823

SEGMENT DATA (UNAUDITED)		Three Months Ended								Six Months Ended
		December 31,								December 31,
(in thousands)		2010				2009				2010				2009
Outside Sales(1):
Industrial		$	369,139			$	277,784			$	699,797			$	526,137
Infrastructure			196,629				165,081				395,129				326,123
Total outside sales		$	565,768			$	442,865			$	1,094,926			$	852,260
Sales By Geographic Region:
United States		$	232,164			$	186,470			$	474,600			$	373,057
International			333,604				256,395				620,326				479,203
Total sales by geographic region		$	565,768			$	442,865			$	1,094,926			$	852,260
Operating Income (Loss)(1):
Industrial		$	42,157			$	5,903			$	78,265			$	(11,948	)
Infrastructure			21,566				18,250				48,069				29,898
Corporate (2)			(2,106	)			(8,682	)			(7,205	)			(12,010	)
Total operating income		$	61,617			$	15,471			$	119,129			$	5,940

(1)	Amounts for the three and six months ended December 31, 2009 have been restated to reflect the change in reportable operating segments
(2)	Represents unallocated corporate expenses

In addition to reported results under generally accepted accounting principles in the United States of America (GAAP), the following financial highlight tables include, where appropriate, a reconciliation of adjusted results including gross profit, operating expense, operating income, Industrial operating income and margin, Infrastructure operating income and margin, net income and diluted earnings per share, free operating cash flow and return on invested capital (which are non-GAAP financial measures), to the most directly comparable GAAP measures. For those adjustments that are presented ‘net of tax’, the tax effect of the adjustment can be derived by calculating the difference between the pre-tax and the post-tax adjustments presented. The tax effect on adjustments is calculated by preparing an overall tax calculation including the adjustments and then a tax calculation excluding the adjustments. The difference between these calculations results in the tax impact of the adjustments.

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. 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. Reconciliations of all non-GAAP financial measures are set forth in the attached tables and descriptions of certain non-GAAP financial measures are contained in our report on Form 8-K to which this release is attached.

 THREE MONTHS ENDED DECEMBER 31, 2010 (UNAUDITED)

(in thousands, except per		Gross				Operating				Operating				Net
share amounts)		Profit				Expense				Income				Income(3)				Diluted EPS
2011 Reported Results		$	200,025			$	132,105			$	61,617			$	43,469			$	0.52
2011 Reported Operating Margin											10.9	%
Restructuring and related charges			993				(758	)			5,142				4,366				0.05
2011 Adjusted Results		$	201,018			$	131,347			$	66,759			$	47,835			$	0.57
2011 Adjusted Operating Margin											11.8	%
														Industrial				Infrastructure
														Operating				Operating
(in thousands, except percents)														Income				Income
2011 Reported Results														$	42,157			$	21,566
2011 Reported Operating Margin															11.4	%			11.0	%
Restructuring and related charges															3,562				1,580
2011 Adjusted Results														$	45,719			$	23,146
2011 Adjusted Operating Margin															12.4	%			11.8	%

 THREE MONTHS ENDED DECEMBER 31, 2009 (UNAUDITED)

		Gross				Operating				Operating				Net
(in thousands, except per share amounts)		Profit				Expense				Income				Income(3)				Diluted EPS
2010 Reported Results		$	140,088			$	117,902			$	15,471			$	5,967			$	0.07
2010 Reported Operating Margin											3.5	%
Restructuring and related charges			562				(201	)			4,111				5,143				0.07
Divestiture related charges			-				-				-				56				-
2010 Adjusted Results		$	140,650			$	117,701			$	19,582			$	11,166			$	0.14
2010 Adjusted Operating Margin											4.4	%
														Industrial				Infrastructure
														Operating				Operating
(in thousands, except percents)														Income				Income
2010 Reported Results														$	5,903			$	18,250
2010 Reported Operating Margin															2.1	%			11.1	%
Restructuring and related charges															2,666				1,445
2010 Adjusted Results														$	8,569			$	19,695
2010 Adjusted Operating Margin															3.1	%			11.9	%

 SIX MONTHS ENDED DECEMBER 31, 2010 (UNAUDITED)

(in thousands, except per		Gross				Operating				Operating				Net
share amounts)		Profit				Expense				Income				Income(3)				Diluted EPS
2011 Reported Results		$	388,765			$	257,125			$	119,129			$	78,390			$	0.94
2011 Reported Operating Margin											10.9	%
Restructuring and related charges			1,964				(780	)			9,395				8,117				0.10
2011 Adjusted Results		$	390,729			$	256,345			$	128,524			$	86,507				1.04
2011 Adjusted Operating Margin											11.7	%

 SIX MONTHS ENDED DECEMBER 31, 2009 (UNAUDITED)

(in thousands, except per		Gross				Operating				Operating				Net (Loss)
share amounts)		Profit				Expense				Income				Income(3)				Diluted EPS
2010 Reported Results		$	257,889			$	234,064			$	5,940			$	(3,850	)		$	(0.05	)
2010 Reported Operating Margin											0.7	%
Restructuring and related charges			1,018				(464	)			12,660				10,403				0.12
Divestiture related charges			-				-				-				1,340				0.03
2010 Adjusted Results		$	258,907			$	233,600			$	18,600			$	7,893			$	0.10
2010 Adjusted Operating Margin											2.2	%

FREE OPERATING CASH FLOW (UNAUDITED)		Six Months Ended
		December 31,
(in thousands)		2010				2009
Net cash flow provided by operating activities		$	67,401			$	53,431
Purchases of property, plant and equipment			(21,150	)			(19,266	)
Proceeds from disposals of property, plant and equipment			7,451				1,659
Free operating cash flow		$	53,702			$	35,824

 RETURN ON INVESTED CAPITAL (UNAUDITED)
 December 31, 2010 (in thousands, except percents)

Invested Capital		12/31/2010				9/30/2010				6/30/2010				3/31/2010				12/31/2009				Average
Debt		$	316,379			$	318,819			$	337,668			$	336,175			$	338,781			$	329,564
Total equity			1,476,427				1,437,616				1,333,443				1,374,321				1,400,245				1,404,410
Total		$	1,792,806			$	1,756,435			$	1,671,111			$	1,710,496			$	1,739,026			$	1,733,974
		Three Months Ended
Interest Expense							12/31/2010				9/30/2010				6/30/2010				3/31/2010			Total
Interest expense						$	5,564			$	5,963			$	6,347			$	6,531			$	24,405
Income tax benefit																							6,174
Total interest expense, net of tax																						$	18,231
Total Income							12/31/2010				9/30/2010				6/30/2010				3/31/2010			Total
Net income attributable to Kennametal, as reported						$	43,469			$	34,921			$	40,584			$	9,685			$	128,659
Restructuring and related charges							4,366				3,751				9,681				22,329				40,127
Noncontrolling interest expense							821				1,035				366				518				2,740
Total income, adjusted						$	48,656			$	39,707			$	50,631			$	32,532			$	171,526
Total interest expense, net of tax																							18,231
																						$	189,757
Average invested capital																						$	1,733,974
Adjusted Return on Invested Capital																							10.9	%
Return on invested capital calculated utilizing net income, as reported is as follows:
Net income attributable to Kennametal, as reported																						$	128,659
Total interest expense, net of tax																							18,231
																						$	146,890
Average invested capital																						$	1,733,974
Return on Invested Capital																							8.5	%