Kennametal Delivers on Fiscal Year 2000 Commitments

LATROBE, Pa., July 26 /PRNewswire/ -- Kennametal Inc. reported net income for the fourth quarter ended June 30, 2000, of $20.7 million or $0.68 per share, excluding special charges, an increase of 34 percent, compared to $15.5 million or $0.52 per share last year. The company's success in improving operating leverage drove strong earnings performance in its core operations where earnings per share, excluding special charges, rose 58 percent on four percent sales growth. Earnings per share, excluding amortization expense and special charges, were $0.89 per share compared to $0.74 per share in the prior year's quarter.

Kennametal Inc. President and Chief Executive Officer Markos I. Tambakeras said, "We achieved our fiscal year 2000 financial commitment, despite erratic end markets, an unfavorable currency exchange environment and rising interest rates. This reflects a new sense of resolve throughout the company to deliver on our financial commitments regardless of challenging market conditions. We have exceeded our expectations on cash flow and debt reduction and are quickly regaining our balance sheet flexibility. Fiscal year 2000 was a year of refocus and stabilization. We are earning the right to grow."

The company made excellent progress in cash generation, resulting in another strong quarter of debt reduction. During the quarter, the company generated free cash flow of $25.6 million, bringing the total free cash flow for the year to $183.8 million. Last year, the company generated free cash flow of $120.6 million, which included $82 million from the accounts receivable securitization program. Total debt at quarter-end was $699.2 million, a reduction of $162.0 million from June 30, 1999. The total debt-to-capital ratio was 45.6 percent, a reduction of 630 basis points from 51.9 percent at June 30, 1999. Primary working capital as a percent of sales declined by 550 basis points from fiscal 1999 and 60 basis points from the March quarter.

Consolidated sales for the June 2000 quarter of $473.8 million grew five percent over the year-ago quarter, excluding unfavorable currency translation effects of two percent. Sales for core operations grew seven percent over last year's quarter, excluding unfavorable currency translation effects of three percent.

Gross profit margin in the fourth quarter was 39.2 percent, an improvement of twenty basis points from the March quarter and an improvement of 200 basis points from last year's quarter due to continuing benefits from lean manufacturing initiatives and strong pricing discipline. Operating expenses for the quarter, excluding special charges, were $126.6 million, up from $120.2 million in the same quarter last year, primarily due to increased volume, spending on research and development and other strategic initiatives and the reinstatement of the salary reduction instituted in 1999.

The company remains on track to reap the benefits from its previously announced restructuring plan. Special charges of $2.0 million, or $0.04 per share were included in the quarter's results, bringing the total special charges for the year to $22.9 million, or $0.43 per share. Including special charges, net income for the quarter was $19.5 million or $0.64 per share compared to $15.5 million or $0.52 per share last year.

In commenting on the quarter, Mr. Tambakeras said, "The results of the current quarter clearly demonstrate that the company is executing on its initiatives. We are seeing strong market acceptance of our new products, an acceleration of product development and improved performance from a reinvigorated sales force. Our continuously improving manufacturing performance is giving us more operating leverage as the new products accelerate our growth, enhancing the impact of improving market conditions. We are gaining more confidence in our ability to be the customer's first choice in tooling solutions as well as a top-tier financial performer."

For fiscal 2000, sales were $1,853.7 million, flat compared to last year, excluding unfavorable foreign currency translation effects and the impact of the divestiture of the Strong Tool Company steel mill business, which affected the year by two and one percent, respectively. Net income for the full year, excluding special items, was $64.7 million, an increase of 19 percent from $54.3 million last year. Earnings per share for the year, excluding special items, were $2.13 per share compared to $1.82 per share last year, an increase of 17 percent. Including special items, net income was $51.7 million or $1.70 per share compared to $39.1 million or $1.31 per share for the same period last year.

During fiscal year 2000, the company experienced negative foreign currency translation effects and interest rate increases of 175 basis points, which had a negative impact on earnings per share of $0.16 and $0.07, respectively.

Mr. Tambakeras concluded, "Despite the satisfactory results of the total company, we were very disappointed with the underperformance at JLK. As stated previously, we are committed to getting JLK back on track as soon as possible. Our offer to bring in JLK reflects our conclusion that this will accelerate the process of improvement. We expect to discuss our outlook for JLK at the conclusion of the negotiations with the JLK special committee. Regardless of the JLK negotiations, we will continue to move the company forward to achieve our aspirations consistent with our established strategy."

Kennametal recently announced a proposal to JLK to acquire the outstanding shares of JLK that it does not already own. Kennametal currently owns approximately 83 percent of JLK.

Kennametal is a global leader in providing tools, tooling systems and solutions to the metalworking, mining, highway construction, oil and energy industries, and wear-resistant parts for a wide range of industries. Headquartered in Latrobe, Pa., Kennametal has approximately 13,000 employees worldwide and annual sales of approximately $1.9 billion.

This release contains "forward-looking statements" as defined by Section 21E of the Securities Exchange Act of 1934. Actual results may differ materially from those expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the extent that global economic conditions do not change materially, risks associated with integrating businesses and restructuring programs, demands on management resources, and risks associated with international markets such as currency exchange rates and competition. The company undertakes no obligation to publicly release any revisions to forward-looking statements to reflect events or circumstances occurring after the date hereof.

                           FINANCIAL HIGHLIGHTS

  Consolidated financial highlights for Kennametal Inc.  for the
  quarter and year ended June 30, 2000 and 1999 are shown in the following
  tables (in thousands, except per share amounts).

  Consolidated Statements of Income
                             Quarter Ended                 Year Ended
                                 June 30,                    June 30,
  Operations:              2000          1999            2000          1999

  Net sales          $  473,773    $  458,625      $1,853,663    $1,902,916

    Cost of goods
      sold (a)          288,045       287,835       1,147,287     1,198,651

  Gross profit          185,728       170,790         706,376       704,265

    Operating
     expenses (b)       127,382       120,204         502,401       517,044

    Restructuring and
     asset impairment
     chgs.                1,222            --          18,526        13,937

    Amortization of
     intangibles          6,335         6,637          26,452        25,788

  Operating income       50,789        43,949         158,997      147,496

    Interest expense     13,131        15,346          55,079       68,594

    Other (income)
     expense (c)          1,986          (369)          3,507          492

  Income before provision
   for income taxes and
   minority interest     35,672        28,972         100,411       78,410

  Provision for
   income taxes          15,215        11,900          43,700       32,900

  Minority interest       1,001         1,566           4,734        6,394

  Income before
   extraordinary item    19,456        15,506          51,977       39,116

  Loss on early extinguishments
   of debt, net
   of taxes (d)              --            --            (267)          --

  Net income         $   19,456    $   15,506      $   51,710   $   39,116

  Per Share Data:
  Diluted earnings
   per share         $     0.64    $     0.52      $     1.70   $     1.31

  Dividends
   per share         $     0.17    $     0.17      $     0.68   $     0.68

  Diluted average
   shares outstanding    30,535        30,096          30,364       29,960

  (a)  For the year ended June 30, 1999, these amounts include a charge of
       $6.9 million related to a program to streamline and optimize the
       global metalworking product offering.
  (b)  For the quarter and year ended June 30, 2000, these amounts include a
       charge of $0.8 million related to the evaluation of strategic
       alternatives.  For the year ended June 30, 2000, these amounts
       include a charge of $3.0 million for environmental remediation.  For
       the year ended June 30, 1999, these amounts include a charge of
       $3.8 million related to the purchase of 4.9 percent of Toshiba
       Tungaloy stock.
  (c)  For the quarter and year ended June 30, 2000, these amounts include
       charges of $1.4 million and $5.2 million, respectively, for fees
       incurred in connection with the company's accounts receivable
       securitization program.
  (d)  For the year ended June 30, 2000, this amount represents a non-cash
       charge for the accelerated write-off of deferred financing fees due
       to the early extinguishment of the company's term loan.


                         Supplemental Data Sheet

                            Quarter Ended                 Year Ended
                               June 30,                     June 30,
                          2000        1999(a)          2000        1999(a)
  Sales:
    Americas        $  170,897  $  161,658       $  671,627  $  662,113
    Europe              73,311      76,190          292,967     330,665
    Asia Pacific        15,214      12,276           56,320      45,427
  Global Metalworking  259,422     250,124        1,020,914   1,038,205
  Engineered Products   47,102      39,594          176,469     173,171
  Mining &
   Construction         41,716      43,849          165,899     173,028
  JLK/Industrial
   Supply(b)           125,533     125,058          490,381     518,512
  Total             $  473,773  $  458,625       $1,853,663  $1,902,916

  By Geographic Area:
  Within the
   United States    $  319,070  $  305,815       $1,233,797  $1,276,408
  International        154,703     152,810          619,866     626,508

  Operating Income (Loss), including special charges:
  Global
   Metalworking     $   38,319  $   27,953       $  128,283  $  116,306
  Engineered Products    8,488       5,923           23,711      24,473
  Mining & Construction  6,141       5,976           17,483      14,203
  JLK/Industrial Supply  3,743       8,497           28,174      34,532
  Corporate and
   Eliminations         (5,902)     (4,400)         (38,654)    (42,018)
  Total             $   50,789  $   43,949       $  158,997  $  147,496

  Operating Income (Loss), excluding special charges:
  Global
   Metalworking     $   38,189  $   27,953       $  139,266  $  131,186
  Engineered Products    8,614       5,923           25,160      24,473
  Mining & Construction  6,088       5,976           20,853      20,003
  JLK/Industrial Supply  4,498       8,497           28,929      34,532
  Corporate and
   Eliminations         (4,592)     (4,400)         (32,799)    (38,081)
  Total             $   52,797  $   43,949       $  181,409  $  172,113

  EPS excluding special
   charges and
   amortization
   expense          $     0.89  $     0.74       $     3.00  $     2.68

  Free Cash Flow:
  Net Income        $   19,456  $   15,506       $   51,710  $   39,116
  Non-cash Items         4,574         275           18,117      23,702
  Depreciation &
   Amortization         25,196      24,094          101,646      95,991
  Change in
   Working Capital      (7,116)     88,119           62,977      56,748
  Capital Expenditures (16,540)    (11,767)         (50,663)    (94,993)
  Free Cash Flow    $   25,570  $  116,227       $  183,787  $  120,564


                   Supplemental Data Sheet  (Continued)

  SELECTED BALANCE SHEET DATA:
                                           Quarter Ended
                           6/30/00      3/31/00      12/31/99       6/30/99

  Accounts Receivable    $ 231,917    $ 245,002     $ 224,022     $ 231,287
  Inventory                410,885      417,333       417,473       434,462
  Accounts Payable        (118,908)    (122,166)     (111,056)      (89,339)
  Total Primary Working
   Capital (PWC)         $ 523,894    $ 540,169     $ 530,439     $ 576,410
  PWC % Sales(c)              29.4%        30.0%         30.9%         34.9%
  Debt                   $ 699,242    $ 737,003     $ 771,417     $ 861,291
  Debt/Total Capital          45.6%        47.6%         48.9%         51.9%


  (a)  Certain amounts in prior year sales have been reclassified to conform
       to the current year presentation.
  (b)  Compared to the amounts reported separately by JLK, these amounts
       have been adjusted to properly     reflect the elimination of
       intercompany sales to Kennametal and its subsidiaries.
  (c) Calculated by averaging beginning of the year and quarter balances
      divided by annualized sales.

SOURCE: Kennametal Inc.