Kennametal Inc. today reported fiscal 2003 second quarter earnings of $0.27 per diluted share compared with earnings of $0.32 per diluted share last year, excluding special items in each period. On the same basis through the first six months, earnings were $0.58 per diluted share versus last year's earnings of $0.75.

Fiscal 2003 second quarter earnings included the expected $0.05 dilution from the Widia acquisition.

                Earnings Per Share Excluding Special Items

  Company Guidance (10/23/02)                     $0.24 to $0.29
  Analyst Estimate Range (01/21/03)               $0.25 to $0.30
  Earnings, Excluding Special Items                    $0.27

On a reported basis, diluted earnings per share were $0.07 for the quarter, above last year's loss per share of $0.08. For the first six months, reported diluted earnings per share were $0.38 against last year's loss per share of $7.66. The prior year included a non-cash SFAS 142 impairment charge associated with the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets."

Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "Through the December quarter, and despite a persistently oblique recovery, we delivered two consecutive months of volume growth to end the quarter. Revenues grew 14 percent, fueled by the Widia acquisition, and we were particularly pleased to improve gross margins by 100 basis points as the Kennametal Lean Enterprise, prior restructurings and continued pricing discipline all delivered additional benefits."

Tambakeras continued, "Our technological leadership was affirmed as we achieved a significant milestone in the quarter by earning 41 percent of our sales from new products. At the same time, we continue to generate strong cash flow and manage our capital expenditures very prudently. We are also aggressively focused on our customer acquisition process to accelerate market share growth."

  Second Quarter Highlights

  --   Sales of $431.7 million were 14 percent above last year's
       $380.3 million.  Sales growth was driven by a 14 percent positive
       benefit from net acquisitions and divestitures, and also included a
       1 percent benefit from foreign currency exchange.

  --   Gross profit margin, excluding special charges in both periods, of
       31.9 percent increased 100 basis points compared with the second
       quarter of fiscal 2002.  Manufacturing efficiencies from the
       Kennametal Lean Enterprise and a benefit from foreign currency
       exchange offset the combination of lower Widia margins, unfavorable
       customer and product mix and $1.6 million in decreased pension
       income.

  --   Operating expense for the quarter increased 23 percent, to
       $114.4 million, excluding special charges.  Excluding $15.9 million
       in net acquisition and divestiture operating expense and
       $2.6 million unfavorable foreign currency exchange, operating
       expense was just 3 percent above prior year.

  --   The current quarter included net special charges of $9.9 million, or
       $0.20 per diluted share, primarily associated with the 5 percent
       salaried workforce reduction announced last quarter.  Prior-year
       results included special charges of $18.3 million, or $0.40 per
       diluted share, associated with previously announced restructurings.
       Prior year charges were divided approximately evenly among the
       J&L/FSS business improvement plan, the closure of two IPG drill
       plants and the closure of the Chicago, IL Electronics plant.

  --   Interest expense of $9.6 million was 16 percent above the same
       quarter last year on a higher average debt level for the quarter
       associated with the Widia acquisition.

  --   The effective tax rate, excluding special charges, for the December
       2002 quarter was 27.6 percent, compared with prior year of
       32.0 percent.  The December tax rate includes a year-to-date
       adjustment to bring the previously announced full-year effective tax
       rate to 30.0 percent.

  --   Excluding special items, net income was $9.4 million for the
       quarter, a 5 percent decrease compared with net income of
       $10.0 million last year.  Reported net income was $2.5 million
       against net loss of $2.5 million in the same quarter last year.

  --   Decreased pension income reduced earnings per diluted share by
       $0.04 for the quarter versus the prior year.  Pretax income for the
       quarter was reduced by $1.8 million (non-cash) compared to the same
       period in fiscal 2002 due to the effect of a decrease in the
       expected rate of return on Kennametal's pension fund assets, coupled
       with lower discount rates associated with pension and other
       postretirement benefit liabilities.

  --   Free operating cash flow remains strong and on plan at
       $25.4 million, versus $49.8 million in the same period last year.
       Primary working capital continues to be tightly controlled with its
       ratio to sales at 27.5 percent, slightly better than prior year.
       Primary working capital of $510.7 million was up 20 percent, or
       $82 million, from the same period last year entirely due to the
       impact of the Widia acquisition.

  --   Total debt was $617 million, up $206 million from June 2002,
       primarily due to the closing of the Widia acquisition.

  Outlook

Global economic recovery remains largely stalled as 2003 begins, with only modest expectations for recovery in the U.S., and continued weak economic indicators in Europe and Japan. Well-publicized geopolitical tensions further constrain the potential for near-term growth. Tambakeras said, "Previous indicators that a definitive recovery would begin early in calendar 2003 have not been borne out. Capacity utilization remains stuck at 75%, current indicators now suggest U.S. industrial production growth of at most one percent in the first half of the current calendar year, and the European outlook is even softer. The revised economic outlook has required us to moderate our previous growth assumptions for the second half of our fiscal year. However, we continue to be highly confident in strong sales acceleration and earnings leverage when the economy recovers."

Tambakeras continued, "While disappointed by the delayed economic recovery, we are extremely pleased by the progress in our integration of the Widia acquisition. The integration is ahead of schedule in both Europe and India. Restructuring activities are on-track, synergies are being realized and a comprehensive IT integration is complete. In February, just five months after acquiring the company, our European sales and service organization will be fully integrated. The combined force will provide our customers even more complete and enhanced tooling solutions from a single supplier. At the same time, we have substantially improved our own operational effectiveness and productivity through the integration."

Based on assumptions that the first half of calendar 2003 will be weaker than predicted earlier, sales for the third quarter of fiscal 2003 are expected to grow 18 to 20 percent, with diluted earnings per share between $0.47 and $0.52, excluding special charges. The earnings assumption includes $0.04 of dilution from Widia.

For the year ending in June 2003, sales are anticipated to grow 12 to 14 percent, and diluted earnings per share are forecasted to range from $1.65 to $1.80, excluding special charges. The earnings assumption includes $0.10 of dilution from Widia. Despite the reduction in earnings expectations, cash flow for the year is still expected to exceed $100 million.

As previously announced, a reduction in pension income is lowering diluted EPS for the year by $0.15 per share, or approximately $0.04 per share per quarter.

Dividend Declared

Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable February 25, 2003, to shareowners of record as of the close of business February 10, 2003.

Second quarter results will be discussed in a live Internet broadcast at 10:00 a.m. today. Access the live or archived conference by visiting the Investor Relations section of Kennametal's corporate web site at www.kennametal.com.

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 others 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 economic conditions; risks associated with integrating and divesting businesses and achieving the expected savings and synergies; demands on management resources; risks associated with international markets such as currency exchange rates, and social and political environments; competition; labor relations; commodity prices; 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. 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 about 14,500 employees worldwide, the company's annual sales approximate $1.8 billion, with nearly half 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 www.kennametal.com

FINANCIAL HIGHLIGHTS

Consolidated financial highlights for Kennametal Inc. for the quarters and six-month periods ended December 31, 2002 and 2001 are shown in the following tables (in thousands, except per share amounts).

  Consolidated Statements of Income

                                      Quarter Ended      Six Months Ended
                                       December 31,        December 31,
                                      2002      2001      2002      2001

  Net sales                         $431,731  $380,338  $835,949   $786,992

          Cost of goods sold         294,248   263,873   567,497    540,688

  Gross profit                       137,483   116,465   268,452    246,304

          Operating expense(1)       115,677    93,139   220,512    193,016

          Restructuring and asset
           impairment charges          8,561    17,128     8,380     18,706

          Amortization of
           intangibles                 1,300       689     2,114      1,379

  Operating income                    11,945     5,509    37,446     33,203

          Interest expense             9,594     8,290    18,079     17,655

          Other (income) expense,
           net(2)                     (1,721)      105    (1,127)      (165)

  Income (loss) before provision
   for income taxes and minority
   interest                            4,072    (2,886)   20,494     15,713

  Provision for income taxes             893      (923)    6,148      5,029

  Minority interest                      709       497     1,047        701

  Income (loss) before cumulative
   effect of change in accting.
   principle                           2,470    (2,460)   13,299      9,983

  Cumulative effect of change in
   accounting principle, net of
   tax(3)                                  -         -         -   (250,406)

  Net income (loss)                   $2,470   $(2,460)  $13,299  $(240,423)

  Diluted earnings (loss) per share    $0.07    $(0.08)    $0.38     $(7.66)

  Dividends per share                  $0.17     $0.17     $0.34      $0.34

  Diluted weighted average shares
   outstanding                        35,414    30,926    35,379     31,405

  (1)  For the quarter and six months ended December 31, 2002, these
       amounts include charges of $1.3 million and $2.0 million,
       respectively, for integration activities related to the Widia
       acquisition.

  (2)  For the quarters ended December 31, 2002 and 2001, these amounts
       include charges of $0.5 million and $0.6 million, respectively, for
       fees incurred in connection with the company's accounts receivable
       securitization program.  For the six months ended December 31, 2002
       and 2001, these amounts include similar charges of $1.1 million and
       $1.5 million, respectively.

  (3)  For the six months ended December 31, 2001, this amount represents a
       non-cash charge for the adoption of Statement of Financial
       Accounting Standards No. 142, "Goodwill and Other Intangible
       Assets."

The following tables provide a comparison of the company's reported results, and the results excluding special items, for fiscal 2003 and fiscal 2002

  QUARTER ENDED DECEMBER 31,
                                                                  Diluted
                                                          Net   Earn./(Loss)
                                 Gross    Operating     Income/     Per
                                 Profit     Income      (Loss)     Share
  2002 Reported Results         $137,483     $11,945     $2,470     $0.07
       MSSG Restructuring              -       4,849      3,394      0.10
       AMSG Restructuring              -       2,259      1,577      0.04
       Corporate Restructuring         -         958        670      0.02
       Widia Integration Costs        54       1,364        970      0.03
            Total Core Business       54       9,430      6,611      0.19
       J&L Restructuring               -         466        327      0.01
       FSS Restructuring               -          29         20         -
            Total Non-Core Business    -         495        347      0.01
  2002 Results Excluding
        Special Items           $137,537     $21,870     $9,428     $0.27

  2001 Reported Results         $116,465      $5,509    $(2,460)   $(0.08)
       MSSG Restructuring              -       6,247      4,248      0.14
       AMSG Restructuring            750       5,954      4,049      0.13
       Corporate Restructuring         -         157        107         -
            Total Core Business      750      12,358      8,404      0.27
       J&L Restructuring             399       5,853      3,980      0.13
       FSS Restructuring               -          66         44         -
            Total Non-Core Business  399       5,919      4,024      0.13
  2001 Results Excluding
        Special Items           $117,614     $23,786     $9,968     $0.32


  SIX MONTHS ENDED DECEMBER 31,
                                                                  Diluted
                                                          Net   Earn./(Loss)
                                 Gross     Operating    Income/      Per
                                 Profit     Income      (Loss)      Share
  2002 Reported Results         $268,452     $37,446    $13,299     $0.38
       MSSG Restructuring              -       4,849      3,394      0.10
       AMSG Restructuring              -       2,078      1,454      0.04
       Corporate Restructuring         -         958        670      0.02
       Widia Integration Costs        54       2,075      1,453      0.03
            Total Core Business       54       9,960      6,971      0.19
       J&L Restructuring               -         466        327      0.01
       FSS Restructuring               -          29         20         -
            Total Non-Core Business    -         495        347      0.01
  2002 Results Excluding
        Special Items           $268,506     $47,901    $20,617     $0.58

  2001 Reported Results         $246,304     $33,203  $(240,423)   $(7.66)
       MSSG Restructuring              -       6,237      4,241      0.14
       AMSG Restructuring            750       5,954      4,049      0.13
       Corporate Restructuring         -         157        107         -
       MSSG (Adoption of SFAS 142)     -           -    168,314      5.37
       AMSG (Adoption of SFAS 142)     -           -     82,092      2.61
            Total Core Business      750      12,348    258,803      8.25
       J&L Restructuring             399       7,471      5,079      0.16
       FSS Restructuring               -          36         25         -
            Total Non-Core Business  399       7,507      5,104      0.16
  2001 Results Excluding
        Special Items           $247,453     $53,058    $23,484     $0.75


  SEGMENT DATA:

                                       Quarter Ended      Six Months Ended
                                        December 31,        December 31,
                                       2002      2001      2002      2001
  Sales:
  Metalworking Solutions and
   Services Group                    $280,646  $218,078  $526,148  $441,035
  Advanced Materials Solutions Group   72,682    71,614   151,999   154,619
  J&L Industrial Supply                48,076    56,003    96,283   115,124
  Full Service Supply                  30,327    34,643    61,519    76,214
  Total Sales                        $431,731  $380,338  $835,949  $786,992

  Sales By Geographic Region:
  Within the United States           $229,506  $242,509  $468,630  $508,235
  International                       202,225   137,829   367,319   278,757
  Total Sales                        $431,731  $380,338  $835,949  $786,992

  Operating Income (Loss), as
   reported:
  Metalworking Solutions and
   Services Group                     $18,017   $17,410   $42,332   $42,081
  Advanced Materials Solutions Group    5,716      (652)   16,396     9,711
  J&L Industrial Supply                 1,722    (3,665)    3,886    (2,933)
  Full Service Supply                    (332)      247      (351)    1,419
  Corporate and Eliminations          (13,178)   (7,831)  (24,817)  (17,075)
  Total Operating Income              $11,945    $5,509   $37,446   $33,203

  Operating Income (Loss), excluding
   special charges:
  Metalworking Solutions and
   Services Group                     $24,226   $23,657   $49,252   $48,318
  Advanced Materials Solutions Group    7,979     5,302    18,478    15,665
  J&L Industrial Supply                 2,188     2,188     4,352     4,538
  Full Service Supply                    (303)      313      (322)    1,455
  Corporate and Eliminations          (12,220)   (7,674)  (23,859)  (16,918)
  Total Operating Income              $21,870   $23,786   $47,901   $53,058


  CASH FLOW INFORMATION

                                        Quarter Ended     Six Months Ended
                                         December 31,       December 31,
                                         2002     2001     2002      2001

  Net income                            $2,470  $(2,460) $13,299  $(240,423)
  Adoption of SFAS 142                       -        -        -    250,406
  Other Non-cash items                   3,883   16,154    6,336     18,221
  Depreciation and amortization         20,914   18,591   39,980     37,302
  Change in primary working capital     16,715   43,645   18,675     38,216
  Change in other working capital       (7,319) (16,996)  (2,879)   (32,741)
  Cash flow from operations             36,663   58,934   75,411     70,981
  Capital expenditures                 (11,536) (10,087) (22,011)   (20,114)
  Proceeds from asset disposals            238      920      843      3,525
  Free operating cash flow             $25,365  $49,767  $54,243    $54,392


  CONDENSED BALANCE SHEETS

                                                   Quarter Ended
                                           12/31/02    9/30/02     6/30/02
  ASSETS
  Cash and equivalents                      $18,155     $14,300     $10,385
  Accounts receivable, net of allowance     199,261     221,313     179,101
  Inventories                               403,530     403,590     345,076
  Deferred income taxes                      80,204      71,084      71,375
  Other current assets                       53,868      40,110      31,447
    Total current assets                    755,018     750,397     637,384
  Property, plant and equipment, net        480,066     480,696     435,116
  Goodwill and Intangible assets, net       479,122     467,140     367,992
  Other assets                              104,937     109,225      83,119
    Total                                $1,819,143  $1,807,458  $1,523,611

  LIABILITIES
  Short-term debt                           $17,591     $16,992     $23,480
  Accounts payable                           92,114     101,823     101,586
  Accrued liabilities                       171,726     171,045     137,034
    Total current liabilities               281,431     289,860     262,100
  Long-term debt                            599,425     599,615     387,887
  Deferred income taxes                      46,801      53,475      52,570
  Other liabilities                         135,101     125,816      96,421
    Total liabilities                     1,062,758   1,068,766     798,978

  MINORITY INTEREST                          18,656      17,685      10,671

  SHAREOWNERS' EQUITY                       737,729     721,007     713,962

    Total                                $1,819,143  $1,807,458  $1,523,611


                                                      Quarter Ended
                                                3/31/02           12/31/01
  ASSETS
  Cash and equivalents                           $10,705           $10,414
  Accounts receivable, net of allowance          168,094           162,916
  Inventories                                    351,129           367,724
  Deferred income taxes                           82,949            83,987
  Other current assets                            28,064            24,728
    Total current assets                         640,941           649,769
  Property, plant and equipment, net             438,505           448,263
  Goodwill and Intangible assets, net            370,324           371,263
  Other assets                                    60,458            60,797
    Total                                     $1,510,228        $1,530,092

  LIABILITIES
  Short-term debt                               $383,639          $406,677
  Accounts payable                                93,810           101,817
  Accrued liabilities                            152,867           148,428
    Total current liabilities                    630,316           656,922
  Long-term debt                                 164,257           173,514
  Deferred income taxes                           52,564            51,815
  Other liabilities                               88,720            89,880
    Total liabilities                            935,857           972,131

  MINORITY INTEREST                                8,907             9,271

  SHAREOWNERS' EQUITY                            565,464           548,690

    Total                                     $1,510,228        $1,530,092

SOURCE: Kennametal Inc.