Kennametal Inc. today reported earnings for the fiscal year ending June 30, 2001 of $2.17 per share, an increase of two percent, compared to $2.13 per share last year, excluding special items in each period. Earnings per share would have grown 15 percent to $2.46 without the negative impact of foreign exchange. On a reported basis, earnings per share were $1.73 per share against $1.70 per share last year.

For the fourth quarter, earnings per share were $0.60 per share, toward the upper end of April guidance, compared to $0.68 per share last year, excluding special items in each period.

Kennametal President and Chief Executive Officer Markos I. Tambakeras remarked, "We are pleased to have delivered on our April commitments despite severe declines in many of our end markets. Our performance was driven by outstanding effort by Kennametal employees around the world. We acted quickly to offset the declining North American industrial markets, and began accelerating our cost-cutting initiatives last September. As the decline deepened and spread, we aggressively pursued new opportunities and believe we grew market share. As a result, we offset the majority of the severe market pressure to deliver strong 2001 results."

Tambakeras added, "At the same time, we continued to execute our strategy. I am particularly pleased with a second consecutive year of outstanding cash generation and debt reduction despite the manufacturing recession. Deployment of lean techniques more broadly through our manufacturing network and into corporate functions including finance, purchasing and IT, allowed us to maintain margins despite declining volumes. In addition, we sustained our growth investments to continually improve our competitiveness. The introduction of nearly 7,000 new products captured market share and improved customer satisfaction. E-Business investments produced the launch of our online web site that will allow customers to order, check pricing and inventory, and follow the status of their order more efficiently. Unique to our industry, these functions are available regardless of how the order is placed -- fax, email, phone, EDI or online.

   Highlights

   Fourth Quarter

During the fourth quarter the company adopted the new accounting standard "Accounting for Shipping and Handling Fees and Costs." The adoption is simply a reclassification of existing fees and costs, which does not affect earnings.

  --  Sales of $442.5 million declined 7 percent versus $477.1 million last
      year.  Excluding the unfavorable impact of foreign currency (2
      percent) and the ATS divestiture (1 percent), sales were 4 percent
      below the prior year.  Sales benefited from the combination of
      continued growth in Europe and Asia and strength in North American
      mining and energy sectors.  According to prior accounting standards,
      sales were $439.5 million against $473.8 million last year.

  --  Gross profit margin of 34.0 percent, excluding special charges,
      declined 140 basis points versus the fourth quarter of fiscal 2000.
      Foreign currency and operating inefficiencies in the Electronics
      business due to low volumes were the primary drivers of the decline.
      Price increases and incremental productivity improvements from lean
      implementation offset sales volume declines and increases in raw
      material costs.  According to prior accounting standards, gross
      profit margin was 37.8 percent against 39.2 percent last year.

  --  Operating expense for the quarter was reduced 7 percent to $102.4
      million. Lean initiatives delivered incremental cost reduction and
      productivity improvements that combined with restructuring benefits
      to balance funding of key growth initiatives.  Excluding foreign
      exchange, operating expense declined 4 percent. According to prior
      accounting standards, operating expense was $119.4 million against
      $127.4 million last year.

  --  As anticipated, the effective tax rate for the fourth quarter was
      39.7 percent compared to 42.7 percent last year.

  --  Interest expense declined 14 percent during the quarter compared to
      last year due to the ongoing reduction in debt and lower average
      interest rates.

  --  Excluding special items, net income was $18.5 million, an 11 percent
      decrease compared to $20.7 million last year.

  --  As previously announced, special charges of $13.9 million, or $0.28
      per share, were included in the quarter's results related to the
      divestiture of ATS, the J&L business improvement plan and work force
      reductions.  Prior-year results included special charges of $2.0
      million, or $0.04 per share related to restructuring in the core
      business and costs associated with JLK strategic alternatives.

  --  Diligent cash flow and balance sheet management generated another
      quarter of notable results. Free operating cash flow of $34.7 million
      ($136.9 million for the year) benefited from a 12 percent reduction
      in primary working capital versus prior year.  This reduction yielded
      primary working capital as a percent of sales of 27.3 percent - the
      lowest level in 10 years.

  --  Total debt was $607.1 million; down from $699.2 million at the
      beginning of the year despite the investment in a share repurchase
      program ($16.5 million), and the acquisition of JLK ($41.7 million).

   Fiscal 2001 versus 2000

  --  Organic sales for the 12 months ending June 30, 2001 increased 2
      percent.  Actual sales of $1,807.9 million were down 3 percent,
      negatively affected by foreign currency (3 percent) and fewer
      business days (2 percent).  According to prior accounting standards,
      sales were $1,795.4 million against $1,853.7 million last year.

  --  Excluding special items, net income was $66.6 million, an increase of
      3 percent compared to $64.7 million last year.

  --  Special charges of $22.5 million, or $0.44 per share, were included
      in the year's results related primarily to the J&L and FSS business
      improvement program ($8.6 million), the ATS divestiture ($5.8
      million), core business resize program ($4.6 million) and costs
      associated with the JLK tender offer ($2.1 million).  Prior-year
      results included special charges of $22.9 million, or $0.43 per share
      related primarily to restructuring and asset impairment charges in
      the core businesses ($18.6 million) and a charge for environmental
      remediation ($3.0 million).

   Outlook

Looking forward, Tambakeras noted, "The North American manufacturing recession has not eased, and we do not expect improvement until calendar 2002. In addition, the European economy is clearly beginning to slow. Consequently, we are forecasting continued weakness through the first half of fiscal 2002. At the same time, we will continue to execute against the factors that we can control. The evolution of Lean Throughout into the Kennametal Lean Enterprise will formalize standards and procedures to extend operating efficiencies to every area of the company. Continued product development will sustain the momentum of nearly 14,000 new products over the past two years, and will be combined with aggressive marketing to acquire market share."

Sales for the first half of fiscal 2002 are expected to decline 4 to 6 percent, with a corresponding 10 to 15 percent decline in earnings per share. The first quarter is forecasted to be the weakest quarter for the year. A strong second half driven by economic improvement is anticipated to deliver growth, which will result in flat to slightly higher sales and earnings per share increase of 5 to 10 percent for the year. Cash flow for the year should be within the ongoing long-term range of $100 to $150 million.

    Outlook

                           FINANCIAL HIGHLIGHTS

Consolidated financial highlights for Kennametal Inc. for the quarter and year ended June 30, 2001 and 2000 are shown in the following tables (in thousands, except per share amounts).

                    Consolidated Statements of Income

                                Quarter Ended             Year Ended
                                   June 30,                June 30,
                               2001        2000        2001       2000
                                As          As          As         As
                             Reported    Reported    Reported   Reported

  Net sales                 $442,505    $477,125   $1,807,896  $1,866,578
    Cost of goods sold (A)   295,324     308,184    1,192,176   1,228,685

  Gross profit               147,181     168,941      615,720     637,893

    Operating expense (B)    102,403     110,602      425,641     434,136
    Restructuring and asset
     impairment charge         4,912       1,222        9,545      18,526
    Amortization of
     intangibles               5,601       6,335       24,134      26,452

  Operating income            34,265      50,782      156,400     158,779

    Interest expense ©      11,290      13,131       50,381      55,079
    Other expense, net (D)     4,924       1,979       11,690       3,289

  Income before provision for
   income taxes and minority
   interest                   18,051      35,672       94,329     100,411

  Provision for income taxes   7,172      15,215       37,300      43,700

  Minority interest              851       1,001        3,142       4,734

  Income before extraordinary
   loss and cumulative effect
   of change in accounting
   principle                  10,028      19,456       53,887      51,977

  Extraordinary loss on early
   extinguishment of debt,
   net of tax                      -           -            -        (267)

  Cumulative effect of change
   in accounting principle,
   net of tax                      -           -         (599)          -

  Net income                 $10,028     $19,456      $53,288     $51,710

  Per Share Data:
  Diluted earnings per share   $0.32       $0.64        $1.73       $1.70
  Dividends per share          $0.17       $0.17        $0.68       $0.68
  Diluted weighted average
   shares outstanding         31,027      30,535       30,749      30,364

  (A) For the quarter and year ended June 30, 2001, these amounts include
      charges of $3.2 million and $3.7 million, respectively, related to
      the JLK business improvement program.

  (B) For the year ended June 30, 2001, this amount includes $2.1 million
      primarily related to the tender offer to acquire the outstanding
      shares of JLK.  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 JLK.  For the year ended June 30, 2000,
      this amount includes a charge of $3.0 million for environmental
      remediation.

  © For the year ended June 30, 2001, this amount includes a charge of
      financing fees as a result of the reduction in the availability under
      the company's U.S. credit facility.

  (D) For the quarters ended June 30, 2001 and 2000, these amounts include
      charges of $1.1 million and $1.4 million, respectively, for fees
      incurred in connection with the company's accounts receivable
      securitization program.  For the years ended June 30, 2001 and 2000,
      these amounts include similar charges of $5.7 million and
      $5.2 million, respectively.  For the quarter and year ended June 30,
      2001, these amounts include a charge of $5.8 million related to the
      divestiture of Abrasive & Tool Specialties.  For the year ended
      June 30, 2000, this amount includes one-time gains of $1.4 million
      from the sales of underutilized assets.


                         Supplemental Data Sheet
                         SELECTED OPERATING DATA:

                            Quarter Ended               Year Ended
                              June 30,                   June 30,
                          2001         2000 (A)      2001        2000 (A)
  Sales:(B)
  Metalworking Services
   and Solutions Group  $245,054      $261,597     $999,813    $1,029,395
  Advanced Materials
   Solutions Group        89,187        89,621      352,933       345,447
  J&L Industrial Supply   66,327        83,486      296,264       333,061
  Full Service Supply     41,937        42,421      158,886       158,675
  Total                 $442,505      $477,125   $1,807,896    $1,866,578

  Sales By Geographic
   Region: (B)
  Within the
   United States        $285,631      $322,053   $1,189,014    $1,245,134
  International          156,874       155,072      618,882       621,444
  Total                 $442,505      $477,125   $1,807,896    $1,866,578

  Operating Income
   (Loss), including
   special charges: (B)
  Metalworking Services
   and Solutions Group   $31,628       $39,202     $130,558      $131,676
  Advanced Materials
   Solutions Group        11,152        14,631       43,270        41,204
  J&L Industrial Supply     (802)        1,635        3,689        17,208
  Full Service Supply      1,555         2,408        7,541        12,021
  Corporate and
   Eliminations           (9,268)       (7,094)     (28,658)      (43,330)
  Total                  $34,265       $50,782     $156,400      $158,779

  Operating Income
   (Loss), excluding
   special charges: (B)
  Metalworking Services
   and Solutions Group   $33,883       $39,072     $133,828      $142,659
  Advanced Materials
   Solutions Group        12,317        14,704       44,197        46,023
  J&L Industrial Supply    3,232         2,390       13,815        17,963
  Full Service Supply      1,807         2,408        8,113        12,021
  Corporate and
   Eliminations           (8,814)       (5,784)     (28,224)      (37,476)
  Total                  $42,425       $52,790     $171,729      $181,190

  Diluted EPS excluding
   special charges and
  amortization expense     $0.78         $0.89        $2.95         $3.00

  Diluted EPS excluding
   special charges         $0.60         $0.68        $2.17         $2.13

  Free Operating
   Cash Flow: ©
  Net Income             $10,028       $19,456      $53,288       $51,710
  Non-cash Items          16,301         4,574       23,067        18,117
  Depreciation &
   Amortization           23,857        25,196       97,297       101,646
  Change in Working
   Capital                 4,289        11,325       23,140        77,155
  Capital Expenditures   (19,808)      (16,540)     (59,929)      (50,663)
  Free Operating
   Cash Flow             $34,667       $44,011     $136,863      $197,965


                       SELECTED BALANCE SHEET DATA:

                                          Quarter Ended
                         6/30/01       3/31/01     12/31/00       9/30/00

  Accounts Receivable   $206,175      $214,332     $203,344      $218,863
  Inventory              373,221       387,520      389,460       392,741
  Accounts Payable      (118,073)     (108,371)    (102,217)     (111,873)
  Total Primary
   Working Capital
   (PWC)                $461,323      $493,481     $490,587      $499,731
  PWC % Sales (D)           27.3%         27.7%        27.8%         28.3%
  Debt                  $607,115      $654,930     $687,487      $672,593
  Debt/Total Capital        42.9%         45.1%        46.7%         44.7%


  (A) Kennametal reports global business units consisting of Metalworking
      Services and Solutions Group, Advanced Materials Solutions Group, Full
      Service Supply and J&L Industrial Supply, and corporate functional
      shared services.  Certain amounts in prior year sales and operating
      income (loss) have been restated to conform to this reporting
      structure.

  (B) Amounts reflect reclassification of shipping fees charged customers to
      sales, and freight and handling costs to cost of goods sold, as
      required by Emerging Issues Task Force 00-10, "Accounting for Shipping
      and Handling Fees and Costs."

  © Prior year amounts restated to exclude the effect of changes in value
      of marketable investment securities available-for-sale.

  (D) Calculated by averaging the current and the previous four quarter-end
      balances for PWC, divided by sales for the most recent 12-month
      period.

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SOURCE: Kennametal Inc.