Kennametal Inc. today reported first quarter earnings of $0.43 per diluted share, a decrease of 17 percent, compared with pro forma earnings of $0.52 per diluted share last year, excluding special items in each period. On a reported basis, diluted earnings per share were $0.40 per share against last year's pro forma earnings per share of $0.44, down 9 percent. Pro forma earnings per share for fiscal 2001 reflect the non-amortization provisions of SFAS 142, "Goodwill and Other Intangible Assets" to allow equivalent comparisons.

Kennametal President and Chief Executive Officer, Markos I. Tambakeras, remarked, "We were pleased to deliver consensus results in light of the current environment, and continue to feel good about our relative strong performance in a broad manufacturing recession. Despite continuing diversification in products and geographies, our results declined as expected. Broad economic weakness began to spread to Europe and the rest of the world, while deepening in North America. Nonetheless, the steady progress we have made over the past two years to refocus and revitalize the company continues to yield benefits. We continue to adjust our cost structure in response to declining demand, while supporting programs that have increased our market share. Our steady focus on cash generation and debt reduction delivered a significant reduction in interest expense. This reduction coupled with ongoing tax planning initiatives to generate sustainable incremental benefits to the bottom line. We remain focused on near-term actions to continue to reduce costs while maintaining the core infrastructure and investment required to sustain future growth."

  First Quarter Highlights

  * Sales of $406.7 million declined 10 percent versus $453.6 million last
    year.  Excluding the unfavorable impact of foreign currency (2 percent),
    the ATS divestiture (1 percent) and a positive benefit from incremental
    workdays (1 percent), sales were 8 percent below the prior year.  Sales
    growth in Europe in the low-single digits for the quarter and continued
    growth in Mining and Energy were offset by further weakness in North
    American industrial markets.

  * Gross profit margin of 31.9 percent declined 170 basis points versus the
    first quarter of fiscal 2001.  Foreign currency and operating
    inefficiencies due to low volumes in two business units were the primary
    drivers of the decline.  The impacted units were the Electronics
    business of our Advanced Materials Solutions Group and the IPG business
    of our Metalworking Solutions and Services Group.  Price increases and
    incremental productivity improvements from lean enterprise
    implementation offset sales volume declines and modest increases in raw
    material costs in the rest of the company.

  * Operating expense for the quarter was reduced 9 percent to
    $99.9 million, excluding special charges.  The elimination of waste and
    expense through lean initiatives and other cost-cutting measures nearly
    kept pace with the revenue decline.  Excluding foreign exchange,
    operating expense declined 7 percent.

  * As previously announced, special charges of $1.6 million, or $0.03 per
    diluted share, for the JLK business improvement plan were included in
    the current quarter's results.  Prior-year results included special
    charges of $3.2 million, or $0.06 per diluted share, related to the JLK
    business improvement plan and costs primarily related to the tender
    offer; and $0.6 million, net of tax, or $0.02 per diluted share,
    associated with the adoption of an accounting standard.

  * Net interest expense of $9.0 million is 30 percent below the same
    quarter last year due to ongoing reduction in debt and lower average
    interest rates.

  * The effective tax rate for the September 2001 quarter was 32.0 percent
    compared with pro forma prior year of 35.5 percent.  The current rate
    primarily reflects a reduction of the statutory German tax rate.

  * Excluding special items, net income was $13.5 million, a 15 percent
    decrease compared to pro forma net income of $15.9 million last year.
    Reported net income was $11.5 million.

  * Free operating cash flow of $1.4 million met expectations as several
    one-time factors reduced the total for the quarter, while not decreasing
    expectations for the year.  The results reflect lower pro forma profit,
    cash payments on fiscal 2001 accrued restructuring charges and a
    one-time tax payment.  The tax payment will be recouped, and generate
    additional savings, later in fiscal 2002.  Primary working capital was
    closely controlled despite the sales decline.  This control is evident
    in the primary working capital as a percent of sales ratio of
    27.5 percent, which compares to 28.3 percent in the same period last
    year.  In addition, days in sales outstanding declined and inventory
    turns improved during the same period.  Primary working capital in total
    of $474.7 million is down 5 percent from the same period last year.

  * Total debt was $628.1 million, down $44.5 million from September 2000,
    but up from $607.1 million at the beginning of the year.  The increase
    from June was primarily driven by share repurchases of $12.4 million and
    the negative impact of currency on foreign-denominated debt.  Debt
    reduction for the remainder of fiscal 2002 is expected to be on track to
    deliver the 35 percent to 40 percent debt to capital target.


Looking forward, Tambakeras said, "While we did not experience an acute immediate impact from the terrorist attacks last month, those events clearly slowed an already weak global economy. The resulting economic and political uncertainty limits our visibility over the next few quarters, so we are managing costs very closely. However, we remain determined to exploit business opportunities that still exist, while not compromising our long-term competitiveness by over-reacting to near-term factors. Over the past two years we have implemented a number of steps to make Kennametal a more formidable competitor. We have significantly improved our financial flexibility by improving the balance sheet and formalizing the processes to produce a more lean organization. Disciplined product innovation and strengthened customer relationships have provided market share gains. We will build on this foundation as we continue to execute our long-term strategy."

Given the current economic environment, sales for the second quarter of fiscal 2002 are expected to decline 8 to 15 percent, with diluted earnings per share between $0.30 and $0.40, excluding special charges. The timing of economic improvement remains uncertain. However, based on current assessments, we are forecasting diluted earnings per share for the year to range from $2.30 to $2.60, excluding special charges. Cash flow for the year should still attain the ongoing long-term range of $100 million to $150 million.

First quarter results will be discussed in a live broadcast over the Internet at 10 a.m. today. The live conference can be accessed by visiting the Investor Relations section of Kennametal's corporate web site at

Dividend Declared

Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable November 23, 2001, to shareowners of record as of the close of business November 9, 2001.

This release contains "forward-looking statements" as defined by Section 21E of the Securities Exchange Act of 1934, as amended. 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 deteriorate or do not improve materially in the second half of our fiscal year, risks associated with integrating and divesting businesses, demands on management resources, risks associated with international markets such as currency exchange rates and social and political environments, competition, commodity prices, risks associated with the implementation of restructuring plans, as well as other risks and uncertainties including those detailed from time to time in the filings of the company with the Securities and Exchange Commission. The company undertakes no obligation to publicly release any revisions to forward-looking statements to reflect events or circumstances occurring after the date hereof.

Kennametal Inc. aspires to be the premier tooling solutions supplier in the world with operational excellence throughout the value chain and best-in-class manufacturing and technology. Kennametal strives to deliver superior shareowner value through top-tier financial performance. The company provides customers a broad range of technologically advanced tools, tooling systems and engineering services aimed at improving customers' manufacturing competitiveness. With approximately 12,000 employees worldwide, the company's fiscal 2001 annual sales were $1.8 billion, with a third coming from sales outside the United States. Kennametal is a five-time winner of the GM "Supplier of the Year" award and is represented in more than 60 countries. Kennametal operations in Europe are headquartered in Furth, Germany. Kennametal Asia Pacific operations are headquartered in Singapore. For more information, visit the company's web site at


Consolidated financial highlights for Kennametal Inc. for the quarters ended September 30, 2001 and 2000 are shown in the following tables (in thousands, except per share amounts). All fiscal year 2002 data is subject to year-end (June 30) adjustment and audit by independent public accountants.

  Consolidated Statements of Income

                                                      Quarter Ended
                                                       September 30,
                                                  2001              2000

  Net sales                                     $406,654          $453,635

          Cost of goods sold                     276,815           301,019

  Gross profit                                   129,839           152,616

          Operating expense(1)                    99,877           111,286

          Restructuring and asset
           impairment charges                      1,578             1,535

          Amortization of intangibles                690             6,323

  Operating income                                27,694            33,472

          Interest expense                         9,041            12,885

          Other expense, net(2)                       54             2,868

  Income before provision for income
   taxes and minority interest                    18,599            17,719

  Provision for income taxes                       5,951             7,176

  Minority interest                                  204               602

  Income before cumulative effect of
   change in accounting principle                 12,444             9,941

  Cumulative effect of change in
   accounting principle, net of tax(3)                --              (599)

  Net income                                     $12,444            $9,342

  Diluted earnings per share                       $0.40             $0.30

  Dividends per share                              $0.17             $0.17

  Diluted weighted average shares
   outstanding                                    31,435            30,742

(1) For the quarter ended September 30, 2000, this includes a charge of $1.7 million, primarily related to the tender offer to acquire the outstanding shares of JLK.

(2) For the quarters ended September 30, 2001 and 2000, these amounts include charges of $0.9 million and $1.6 million, respectively, for fees incurred in connection with the company's accounts receivable securitization program.

(3) For the quarter ended September 30, 2000, this amount represents a non-cash charge for the adoption of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities."

 Pro forma SFAS 142 Operating Results - Quarter Ended September 30, 2000:

  Operating income                            $38,872

  Interest expense                             12,885

  Other expense, net                            2,868

  Income before provision for income
   taxes and minority interest                 23,119

  Provision for income taxes                    8,207

  Minority interest                               760

  Income before cumulative effect of
   change in accounting principle              14,152

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

  Pro forma net income                        $13,553

  Pro forma diluted earnings per share          $0.44

                         Supplemental Data Sheet


                                                      Quarter Ended
                                                      September 30,
                                                  2001            2000(1)
  Metalworking Solutions and Services
   Group                                        $222,957          $248,677
  Advanced Materials Solutions Group              83,005            87,511
  J&L Industrial Supply                           59,121            76,623
  Full Service Supply                             41,571            40,824
  Total Sales                                   $406,654          $453,635

  Sales By Geographic Region:(2)
  Within the United States                      $265,726          $305,027
  International                                  140,928           148,608
  Total Sales                                   $406,654          $453,635

  Operating Income (Loss), as
  Metalworking Solutions and Services
   Group                                         $24,671           $28,759
  Advanced Materials Solutions Group              10,363            11,191
  J&L Industrial Supply                              732            (1,195)
  Full Service Supply                              1,172             2,007
  Corporate and Eliminations                      (9,244)           (7,290)
  Total Operating Income                         $27,694           $33,472

  Operating Income (Loss), excluding
   special charges:(2)
  Metalworking Solutions and Services
   Group                                         $24,661           $28,727
  Advanced Materials Solutions Group              10,363            11,191
  J&L Industrial Supply                            2,350             1,972
  Full Service Supply                              1,142             2,157
  Corporate and Eliminations                      (9,244)           (7,310)
  Total Operating Income                         $29,272           $36,737

  Cash Flow Information:
  Net income                                     $12,444            $9,342
  Non-cash items                                  (1,153)            2,989
  Depreciation and amortization                   18,712            24,566
  Change in primary working capital               (5,429)           18,554
  Change in other working capital                (15,747)           (7,117)
  Cash flow from operations                        8,827            48,334
  Capital expenditures                           (10,027)          (11,471)
  Proceeds from asset disposals                    2,605                84
  Free operating cash flows                       $1,405           $36,947


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

  Accounts Receivable      $196,003  $206,175  $214,332  $203,344  $218,863
  Inventory                 382,701   373,221   387,520   389,460   392,741
  Accounts Payable         (103,993) (118,073) (108,371) (102,217) (111,873)
  Total Primary Working
   Capital (PWC)           $474,711  $461,323  $493,481  $490,587  $499,731
  PWC % Sales(3)              27.5%     27.3%     27.7%     27.8%     28.3%

  Debt                     $628,061  $607,115  $654,930  $687,487  $672,593
  Debt/Total Capital          43.6%     42.9%     45.1%     46.7%     44.7%

(1) Kennametal reports global business units consisting of Metalworking Solutions and Services 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.

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

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


SOURCE: Kennametal Inc.

Contact: Beth A. Riley, Director, Investor Relations of Kennametal,

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