Edgar Filing: KENNAMETAL INC

Filed Pursuant to Rule 424(b)(5)
Registration No. 333-40809

Prospectus Supplement to Prospectus dated January 22, 1998.
[KENNAMETAL INC. LOGO]
$300,000,000
KENNAMETAL INC.
7.20% Senior Notes due 2012
----------------------

We will pay interest on the notes on June 15th and December 15th of each
year. The first such payment will be made on December 15, 2002. The notes will
be issued only in denominations of $1,000 and integral multiples of $1,000.

We have the option to redeem all or a portion of the notes at any time at a
redemption price described in this prospectus supplement. We must give at least
30 but not more than 60 days' notice of our intention to redeem the notes.

Concurrently with this offering, we are also offering 3,200,000 shares of
our capital stock, par value $1.25 per share (common stock), plus up to an
additional 480,000 shares if the underwriters for the common stock offering
exercise their option to purchase additional shares. Our offering of the notes
is not conditioned on our common stock offering.

See "Risk Factors" beginning on page S-9 to read about certain factors you
should consider before buying notes.
----------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------

Per Note Total
-------- -----

Initial public offering price............................... 99.629% $298,887,000
Underwriting discount....................................... 1.250% $ 3,750,000
Proceeds, before expenses, to Kennametal.................... 98.379% $295,137,000

The initial public offering price set forth above does not include accrued
interest, if any. Interest on the notes will accrue from June 19, 2002 and must
be paid by the purchaser if the notes are delivered after June 19, 2002.
----------------------

The underwriters expect to deliver the notes in book-entry form only
through the facilities of The Depository Trust Company against payment in New
York, New York on June 19, 2002.

Joint Book-Running Managers

GOLDMAN, SACHS & CO. JPMORGAN

----------------------

LEHMAN BROTHERS
----------------------
BANC ONE CAPITAL MARKETS, INC. FLEET SECURITIES, INC.
PNC CAPITAL MARKETS, INC. TOKYO-MITSUBISHI INTERNATIONAL PLC
NATCITY INVESTMENTS, INC.
COMERICA SECURITIES THE ROYAL BANK OF SCOTLAND
----------------------

Prospectus Supplement dated June 14, 2002.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus supplement and the accompanying prospectus (including the
documents incorporated by reference) contain certain "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.

PROSPECTUS SUPPLEMENT SUMMARY

This summary only highlights information contained elsewhere in this
prospectus supplement and the accompanying prospectus. As a result, it does not
contain all of the information that you should consider before purchasing the
notes. You should read the entire prospectus supplement, including the
accompanying prospectus and the documents incorporated by reference, which are
described under the caption "Where You Can Find More Information." When used in
this prospectus supplement, unless the context requires otherwise, the terms
"we," "our," and "us" refer to Kennametal Inc. and its subsidiaries. Unless
otherwise specified, any reference to a "year" is to a fiscal year ended June
30.

On May 3, 2002, we signed a definitive agreement to purchase the Widia
Group (Widia) in Europe and India from Milacron Inc. for E188 million, subject
to a purchase price adjustment based on the change in the net assets of Widia
from December 31, 2001 to the closing date. The acquisition remains subject to
European regulatory approvals and negotiated conditions of closing. Assuming
regulatory approvals, we expect to close the Widia acquisition by July 1, 2002.

KENNAMETAL INC.

We are a leading global manufacturer, marketer and distributor of a broad
range of cutting tools, tooling systems, supplies and technical services, as
well as wear-resistant parts. We believe that our reputation for manufacturing
excellence and technological expertise and innovation in our principal products
has helped us achieve a leading market presence in our primary markets. We
believe we are the largest North American and the second largest global provider
of metalcutting tools and tooling systems. End users of our products include
metalworking manufacturers and suppliers in the aerospace, automotive, machine
tool and farm machinery industries, as well as manufacturers and suppliers in
the highway construction, coal mining, quarrying and oil and gas exploration
industries.

We operate through four principal business segments:

METALWORKING SOLUTIONS & SERVICES GROUP (MSSG). MSSG specializes in
developing and manufacturing tools and tooling systems that are used to cut
metal through applications such as turning, milling and drilling. A
metalworking tooling system usually consists of a steel toolholder and a
consumable cutting tool called an insert. During a metalworking operation,
the insert contacts the workpiece and cuts it to a desired shape while the
workpiece or tooling system is rapidly rotated. The insert is consumed
during use, providing us with an ongoing opportunity for sales of
additional inserts. Our inserts are made of cemented carbides, ceramics,
cermets and other hard materials. We manufacture a complete line of
toolholders and toolholding systems by machining and fabricating steel bars
and other metal alloys. We believe that we are the largest North American
and the second largest global provider of metalcutting tools and tooling
systems.

ADVANCED MATERIALS SOLUTIONS GROUP (AMSG). Building on our expertise
in making inserts, we have developed innovative consumable tools utilizing
tungsten carbide powder metallurgy for a wide variety of demanding
industrial applications. We believe we are the largest global manufacturer,
marketer and distributor of tools for the underground coal mining and
highway construction industries. These tools are made from steel parts and
tipped with cemented tungsten carbide to cut through materials such as
coal, rock and pavement. Examples of these tools are bits for longwall
shearer and continuous miner drums and grader and snowplow blades. We also
manufacture parts made of tungsten carbide, which we call wear products,
for customers who need parts that are extremely strong and can withstand
severe abrasion or wear.

J&L INDUSTRIAL SUPPLY (J&L). J&L is one of the largest distributors
of a broad range of metalworking consumables and related products to small
and medium-sized metalworking
S-1

customers in the United States. Our direct-marketing program offers 130,000
stock keeping units through our 2,065 page master catalog, a monthly
promotional sales flyer called the "Advantage," additional mailings and
advertisements, telemarketing efforts, and a direct sales effort. We offer
customers the advantages of (1) a single source of supply for all
metalworking consumables and related products, (2) same-day direct shipping
and (3) a state-of-the-art order entry system that tracks product
availability and pricing. We also provide product application support
through our "Tech Team," a source of technical product information.

FULL SERVICE SUPPLY (FSS). FSS is one of the largest integrated
suppliers of a broad range of metalworking consumables and related products
to large metalworking customers in the United States and Canada. FSS
enables customers to achieve substantial cost savings in metalworking
consumables and overall manufacturing processes by outsourcing the
procurement, inventory management and distribution to the factory floor.
Customers, such as General Motors Corporation, Honeywell and Emerson
Electric, use FSS programs at designated manufacturing facilities to (1)
consolidate all of their metalworking consumables and related product
purchases with one vendor, (2) eliminate a significant portion of the
administrative overhead burden associated with the internal purchasing
function, (3) ensure appropriate technical expertise in the selection and
use of supplies for complex metalworking processes and (4) minimize the
level of investment in tooling inventory, thereby reducing inventory
carrying costs. Our technical experts customize and manage a comprehensive
computerized product identification, tracking and purchasing system that
analyzes and optimizes supply usage, helps select appropriate products and
allows for "just-in-time" replacement of inventory. We believe that FSS
programs typically reduce a customer's costs of acquiring, possessing and
using metalworking products by approximately 5% to 20% per year.

With approximately 11,800 employees worldwide at March 31, 2002, our total
revenues for the twelve months ended March 31, 2002 were $1.6 billion, with
approximately one-third of those revenues coming from outside the United States.
Revenue and operating income for the twelve months ended March 31, 2002, by
business segment, are described in the following charts:

[2001 REVENUE/OPERATING INCOME PIE CHARTS]
REVENUE BY SEGMENT

Metalworking Solutions & Services Group..................... 56.0%

Advanced Materials Solutions Group.......................... 20.0%

J&L Industrial Supply....................................... 15.0%

Full Service Supply......................................... 9.0%

Revenue: $1.6 billion

OPERATING INCOME BY SEGMENT

Metalworking Solutions & Services Group..................... 68%

Advanced Materials Solutions Group.......................... 22%

J&L Industrial Supply....................................... 7%

Full Service Supply......................................... 3%

2001 Operating Income: $127.9 million*

* Before restructuring, asset impairment and other special charges.

S-2

INDUSTRY OVERVIEW

We estimate the size of our global market for metalworking consumables and
wear-resistant parts to be approximately $13 billion, including an approximately
$8.5 billion market for metalworking consumables and other related products. We
believe five significant trends are currently impacting the metalworking
industry:

- Continuing advances in customers' metalworking manufacturing technology,
requiring more technologically advanced tools;

- Demand for world class capabilities including customer service, technical
application support and information and product technology while, at the
same time, maintaining or reducing costs;

- Growing demand for suppliers that can provide a complete selection of
tools, supplies and services globally;

- Increasing demand from large customers to outsource procurement and
inventory management processes through integrated supply programs; and

- Consolidation of manufacturing and of fragmented distribution channels as
customers seek a single source of supply for their metalworking needs.

BUSINESS STRATEGY

Our aspiration is to become the premier tooling solutions supplier of
consumable tools, related supplies and services to the global metalworking
industry and to other industries that can benefit from tungsten carbide
products. We believe our market-leadership position is the result of our
successful implementation of our business strategy, the major elements of which
include:

- Strengthen Leading Global Market Position. We are the #1 tooling
solutions provider in North America and #2 in the world. We believe our
#2 position in Europe will be strengthened upon completion of the Widia
acquisition, which combines our complementary European businesses which
have little customer overlap.

- Offer Most Comprehensive Range of Products and Services. We strive to
provide the most comprehensive product offering in the metalworking
industry. As a result of strong research and development and various
acquisitions, we market and distribute what we believe to be one of the
broadest lines of tools, tooling systems and services typically used by
metalworking customers. We also manufacture all of the major consumable
tools needed by customers in their metalcutting manufacturing processes.

- Provide Innovative and Technologically Superior Products. We supply high
quality and technologically innovative consumable metalcutting tools and
tooling systems to the metalworking industry which we believe has been
instrumental in achieving our leading market position. We believe we
operate one of the most advanced metalworking technology centers in the
world. For the first nine months of fiscal 2002, we estimate that 34% of
our sales came from products introduced within the last five years.

- Leverage Customer-Focused Selling Culture. We have positioned ourselves
to become the premier tooling solutions supplier as well as a
full-service tooling manufacturer and distributor. Our solutions-based,
value-added services and products differentiate us from our competitors
and continue to strengthen our relationships with valued customers
allowing us to achieve a high level of customer intimacy.

S-3

production and delivery schedules in a cost-effective manner. Our
sophisticated order entry and inventory management systems enable us to
ship more than 90 percent of our products from stock. In addition, our
technically skilled sales force of more than 900 people provides product
selection and application support to enable customers to optimize their
industrial processes.

- Maintain Commitment to Strong Balance Sheet and Cash Flow Generation. We
are firmly committed to maintaining a strong financial profile. We have
generated consistent levels of free operating cash flow since 1999 and
expect to generate at least $100 million of free cash flow each year in
the future. In addition, management has reduced the ratio of total debt
to total capital from 51.9% at June 30, 1999 to 39.9% at March 31, 2002
(before we record the non-cash charge related to the adoption of SFAS No.
142).

- Focus on Aggressively Reducing Costs. In November 1999, we embarked on a
program to streamline our manufacturing operations in order to
continually improve our competitive position. In September 2000, we
announced a similar plan focused on improving the operating performance
of J&L. Since November 1999, we closed or downsized seven plants and over
30 warehouses and J&L satellite stores. Also, in this same period, we
reduced our work force by approximately 1,400 people, or 10%. By the end
of fiscal 2003, we expect to have realized annual cost savings of $35 -
40 million as a result of these actions. We expect to realize further
efficiencies from our continuing efforts to reduce our manufacturing and
administrative costs through our lean initiatives. In addition, we
believe the effective integration of Widia into our European and
Asia/Pacific operations will afford further opportunities to increase
efficiency and improve productivity.

In addition to the above business strategies, we seek to further improve
operating efficiencies, as well as to pursue selected acquisitions that enhance
our existing product offerings and strengthen our geographic presence.

RECENT DEVELOPMENTS

COMMON STOCK OFFERING

Concurrent with this notes offering, we are undertaking a public offering
of 3,200,000 shares of our capital stock, par value $1.25 per share (common
stock), or 3,680,000 shares if the underwriters exercise their option to
purchase additional shares from us in full. Net proceeds, after deducting
underwriting discounts and commissions and offering expenses, from the common
stock offering are expected to be approximately $108.8 million (or $125.1
million if the underwriters exercise their option to purchase additional shares
from us in full). We expect to use the net proceeds, together with the net
proceeds of this notes offering and borrowings under the new bank credit
facility, to repay senior bank indebtedness, to pay the purchase price of the
Widia acquisition and for general corporate purposes, including capital
expenditures, other acquisitions and investments. See "Use of Proceeds." This
notes offering and the common stock offering are independent offerings and are
not conditioned upon each other.

PROPOSED NEW BANK CREDIT FACILITY

We expect to enter into a $650 million 3-year senior unsecured revolving
credit facility arranged by J.P. Morgan Securities Inc. on or before July 1,
2002. We cannot assure you that we will successfully negotiate and arrange this
bank credit transaction or a similar transaction. We intend to use the new bank
credit facility to refinance our existing bank credit facilities, which are
comprised of a $700 million 5-year revolving credit facility, which matures on
August 30, 2002, and a E212 million 3-year revolving credit facility, which
matures on December 20, 2003.

S-4

THE WIDIA GROUP ACQUISITION

On May 3, 2002, we signed a definitive agreement to purchase the Widia
Group (Widia) in Europe and India from Milacron Inc. for E188 million, subject
to a purchase price adjustment based on the change in the net assets of Widia
from December 31, 2001 to the closing date. The acquisition remains subject to
European regulatory approval and negotiated conditions of closing. Assuming
regulatory approval, we expect to close the Widia acquisition by July 1, 2002.

Widia is a leading manufacturer and marketer of metalworking tools,
engineered products and related services in Europe and India. Widia has an
extensive product line of metalworking consumables, and is a recognized leader
in milling applications. Widia employs approximately 3,400 employees, and
operates eight manufacturing facilities in Europe and two in India. We currently
intend to integrate the operations of Widia into existing operations. In
addition, we expect to merge Widia's German operations into a new Kennametal
European subsidiary at the closing. Widia sells primarily through direct sales
and has sales and service personnel in many European countries.

We intend to fund the acquisition through the proposed new bank credit
facility, this notes offering or the common stock offering, or a combination of
these financing transactions. Sufficient capacity exists under our existing bank
credit facilities to fund the acquisition should the transaction close prior to
completion of one or all of these financing transactions.

DISPOSITION OF STRONG TOOL COMPANY

On April 19, 2002, consistent with our business strategy, we sold Strong
Tool Company, our industrial supply distributor based in Cleveland, Ohio, for
$8.6 million consisting of cash proceeds of $4.0 million and a seller note of
$4.6 million. This disposition resulted in a pretax loss of $3.5 million and is
in line with our strategy to refocus our J&L business segment on its core
catalog business. Annualized sales of this business were approximately $34
million.

CHANGE OF INDEPENDENT AUDITORS

Effective May 14, 2002, we dismissed Arthur Andersen LLP as our independent
auditors and engaged PricewaterhouseCoopers LLP as our independent auditors for
our fiscal year ending June 30, 2002.

SFAS NO. 142

Effective July 1, 2001, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." Under SFAS No. 142, all goodwill amortization ceased
effective July 1, 2001. As a result of the adoption of this rule, we expect to
record a non-cash charge of $230 million to $260 million, specific to the
electronics (AMSG segment) and the industrial product group (MSSG segment)
businesses, which were acquired in 1998. We will record the actual charge in our
financial statements for the fiscal year ended June 30, 2002.
----------------------

Our executive offices are located at 1600 Technology Way, P.O. Box 231,
Latrobe, Pennsylvania 15650, and our telephone number is (724) 539-5000.

S-5

THE OFFERING

Issuer........................ Kennametal Inc.

Aggregate amount.............. $300,000,000 7.20% Senior Notes due 2012.

Interest...................... Interest will accrue on the notes from the date
of delivery at a rate of 7.20% per annum.
Interest will be payable semi-annually, in
cash, on June 15 and December 15 of each year,
commencing December 15, 2002.

Maturity...................... June 15, 2012.

Ranking....................... The notes will be:

- senior unsecured obligations of Kennametal
and rank equally in right of payment with all
of Kennametal's existing and future senior
unsecured indebtedness; and

- junior to all existing and future liabilities
of our subsidiaries (at March 31, 2002, after
giving effect to this notes offering, the
common stock offering, the new bank credit
facility and the Widia acquisition, our
subsidiaries would have had approximately
$327 million of indebtedness, including $301
million of guarantees under the new bank
credit facility but excluding intercompany
indebtedness).

Optional redemption........... We have the option to redeem the notes in whole
or in part for the greater of:

- 100% of the principal amount of the notes
being redeemed, or

- the sum of the present values of the
remaining scheduled payments of principal and
interest on the notes being redeemed,
discounted at an adjusted treasury rate,

plus, in each case, accrued and unpaid interest
to the redemption date.

Certain covenants............. The indenture under which the notes will be
issued will contain covenants for your benefit
which, among other things and subject to
certain exceptions, restrict our ability to:

- create liens;

- engage in sale-leaseback transactions;

- enter into certain consolidations or mergers;
or

- sell all or substantially all of our assets.

Use of proceeds............... We intend to use the net proceeds of this notes
offering, together with the net proceeds of the
common stock offering and borrowings under the
new bank credit facility, to repay senior bank
indebtedness, to finance the Widia acquisition
and for general corporate purposes. See "Use of
Proceeds."

RISK FACTORS

In evaluating an investment in the notes, prospective investors should
carefully consider, along with the other information set forth in or
incorporated by reference into this prospectus supplement, the specific factors
set forth under "Risk Factors" for risks involved with an investment in the
notes.

S-6

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth summary consolidated historical financial
data for each of the fiscal years in the three year period ended June 30, 2001.
Also included is summary consolidated financial data for the nine-month periods
ended March 31, 2002 and 2001. You should read the information set forth in this
table in conjunction with our consolidated financial statements and the related
notes thereto and other financial data contained elsewhere or incorporated by
reference in this prospectus supplement. Interim results for the nine months
ended March 31, 2002 are not necessarily indicative of, and are not projections
for, the results to be expected for the full fiscal year.

NINE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
------------------------------------ -----------------------
2001 2000 1999 2002 2001
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA, EMPLOYEE DATA AND RATIOS)

OPERATING RESULTS:
Net sales........................ $1,807,896 $1,866,578 $1,914,961 $1,180,844 $1,365,391
Cost of goods sold............... 1,192,176 1,228,685 1,272,090 806,893 896,852
Operating expense................ 425,641 434,136 455,903 288,711 323,238
Interest expense................. 50,381 55,079 68,594 25,076 39,091
Restructuring, asset impairment
and other special charges...... (1) 21,457 22,412 24,617 25,020 7,517
Income taxes..................... 37,300 43,700 32,900 11,387 30,128
Income from continuing
operations..................... 53,887 51,977 39,116 23,128 43,859
Accounting changes, net of tax... (2)(3) (599) -- -- -- (599)
Net income....................... (3)(4) 53,288 51,710 39,116 23,128 43,260
---------- ---------- ---------- ---------- ----------
FINANCIAL POSITION:
Net working capital.............. $ 386,711 $ 397,403 $ 373,582 $ 10,625 $ 414,813
Total assets..................... 1,825,442 1,941,121 2,000,480 1,746,251 1,857,173
Total debt, including capital
leases......................... 607,115 699,242 861,291 547,896 654,930
Total shareowners' equity........ (3) 796,769 780,254 745,131 815,870 786,943
---------- ---------- ---------- ---------- ----------
PER SHARE DATA:
Basic earnings................... (3) $ 1.74 $ 1.71 $ 1.31 $ 0.75 $ 1.42
Diluted earnings................. (3)(4) 1.73 1.70 1.31 0.74 1.41
Dividends........................ 0.68 0.68 0.68 0.51 0.51
Market price (at period end)..... 36.90 21.44 31.00 40.43 27.50
---------- ---------- ---------- ---------- ----------
OTHER DATA:
Net cash flow from operating
activities..................... $ 187,556 $ 221,207 $ 226,552 $ 104,433 $ 133,484
Capital expenditures............. 59,929 50,663 94,993 30,349 40,121
EBITDA........................... (5)... 242,007 257,136 242,995 115,899 188,809
Number of employees.............. 12,525 13,200 13,640 11,838 12,933
Basic weighted average shares
outstanding (000).............. 30,560 30,263 29,917 31,002 30,523
Diluted weighted average shares
outstanding (000).............. 30,749 30,364 29,960 31,454 30,656
---------- ---------- ---------- ---------- ----------
KEY RATIOS:
Gross profit margin.............. 34.1% 34.2% 33.6% 31.7% 34.3%
Earnings to fixed charges........ (6) 2.6x 2.6x 2.0x 2.1x 2.7x
Pro forma earnings to fixed
charges........................ (7) 2.6x -- -- 1.9x --
EBITDA to interest expense....... (5) 4.8x 4.7x 3.5x 4.6x 4.8x
EBITDA, less capital expenditures
to interest expense............ (5) 3.6x 3.7x 2.2x 3.4x 3.8x
Total debt to EBITDA............. (5) 2.5x 2.7x 3.5x -- --
Total debt to total capital...... (3) 42.9% 45.6% 51.9% 39.9% 45.1%
Inventory turnover............... 3.1x 2.9x 2.8x 3.0x 3.0x

---------------

(1) Amounts reflect costs associated with restructuring and related period
costs, and asset impairment charges in the nine months ended March 31, 2002;
restructuring and asset impairment charges and

S-7

costs primarily associated with the JLK tender offer in the nine months
ended March 31, 2001; costs associated with restructuring and asset
impairment charges related to operational improvement programs, a loss on
divestiture and costs primarily associated with the JLK tender offer in the
nine months ended March 31, 2001; costs associated with environmental
remediation, strategic alternative, and restructuring and asset impairment
charges related to operational improvement programs initiated in 2000; costs
associated with the acquisition of shares of Toshiba Tungaloy and
restructuring and asset impairment charges related to operational
improvement programs initiated in 1999.

(2) Accounting changes in 2001 reflect the change in the method of accounting
for derivative financial instruments (SFAS No. 133).

(3) For the nine months ended March 31, 2002, amounts are not reflective of a
non-cash charge of $230,000 to $260,000 related to the adoption of SFAS No.
142. We will record the actual charge in our financial statements for the
fiscal year ended June 30, 2002.

(4) Excluding restructuring, asset impairment and other special charges in the
nine months ended March 31, 2002, net income was $40,141 and diluted
earnings per share were $1.28. Excluding restructuring, asset impairment and
other special charges in the nine months ended March 31, 2001, net income
was $48,053 and diluted earnings per share was $1.57. Excluding
restructuring, asset impairment and other special charges in 2001 and the
charge for the accounting principle change of $599, net of tax, net income
was $66,587 and diluted earnings per share were $2.17. Excluding
restructuring, asset impairment and other special charges in 2000 and an
extraordinary loss of $267, net of tax, net income was $64,689 and diluted
earnings per share were $2.13. Excluding restructuring, asset impairment and
other special charges in 1999, net income was $54,299 and diluted earnings
per share were $1.82.

(5) EBITDA is defined as income before provision for income taxes and minority
interest, plus interest expense, depreciation and amortization. EBITDA is
commonly presented as an indicator of operating performance. It is not,
however, intended as an alternative measure of operating results or cash
flow from operations as determined in accordance with generally accepted
accounting principles in the United States. EBITDA is not necessarily
comparable to similarly titled measures for other companies.

(6) For purposes of calculating this ratio, earnings represents income from
continuing operations before fixed charges, minority interest, provision for
income taxes and the cumulative effect of accounting changes. Fixed charges
includes interest expense, including amounts capitalized and the portion
(approximately one-third) of rental expenses considered to be representative
of interest expense.

(7) After giving effect to the application of the proceeds of this notes
offering, the common stock offering, the new bank credit facility and the
Widia acquisition.

S-8

RISK FACTORS

You should consider carefully the following risk factors, in addition to
the other information set forth in this prospectus supplement and the
accompanying prospectus, before deciding to invest in the notes.

RISKS ASSOCIATED WITH OUR BUSINESS

THE CYCLICAL NATURE OF OUR BUSINESS COULD CAUSE FLUCTUATIONS IN OPERATING
RESULTS.

Our business is cyclical in nature. As a result of this cyclicality, we
have experienced, and in the future we can be expected to experience,
significant fluctuation in our sales and operating income, which may affect our
ability to service the notes and our other debt obligations.

OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO MANY UNCERTAINTIES, AND A
SIGNIFICANT REDUCTION IN INTERNATIONAL SALES OF OUR PRODUCTS COULD HAVE A
MATERIAL ADVERSE EFFECT ON US.

Our international operations are subject to various political, economic and
other uncertainties and risks that are not present in domestic operations, which
could adversely affect our business. A significant reduction of our
international business due to any of these risks would adversely affect our
sales. In fiscal 2001, we derived approximately one-third of our revenues from
sources outside the United States. If the Widia acquisition is consummated, this
percentage is expected to increase. Risks faced by our international operations
include:

- periodic economic downturns;

- fluctuations in currency exchange rates;

- customs matters and changes in trade policy or tariff regulations;

- unexpected changes in regulatory requirements;

- higher tax rates and potentially adverse tax consequences including
restrictions on repatriating earnings, adverse tax withholding
requirements and "double taxation;"

- intellectual property protection difficulties;

- longer payment cycles and difficulty in collecting accounts receivable;

- complications in complying with a variety of foreign laws and
regulations;

- costs and difficulties in integrating, staffing and managing
international operations;

- transportation delays and interruptions; and

- natural disasters and the greater difficulty in recovering from them in
some of the foreign countries in which we operate.

Also, various foreign jurisdictions have laws limiting the right and
ability of foreign subsidiaries to pay dividends and remit earnings to
affiliated companies unless specified conditions are met. Further, sales in
foreign jurisdictions typically are made in local currencies and transactions
with foreign affiliates customarily are accounted for in the local currency of
the selling company. While we regularly borrow in local currencies and enter
into foreign exchange contracts to reduce our currency exposure, to the extent
we do not fully mitigate the effect of changes in the relative value of the U.S.
dollar and foreign currencies, our results of operations and financial condition
(which are reported in U.S. dollars) could be affected adversely by negative
changes in these relative values.

In addition, foreign operations involve uncertainties arising from local
business practices, cultural considerations and international political and
trade tensions. If we are unable to successfully manage the risks associated
with expanding our global business or to adequately

S-9

manage operational fluctuations internationally, it could have a material
adverse effect on our business, financial condition and results of operations.

IF THE PRICES FOR OUR RAW MATERIALS INCREASE, OUR PROFITABILITY COULD BE
IMPAIRED.

The raw materials we use for our products consist of ore concentrates,
compounds and secondary materials containing tungsten, tantalum, titanium,
niobium and cobalt. Although adequate supply of these raw materials currently
exists, our major sources for raw materials are located abroad and prices at
times have been volatile. If the prices of our raw materials increase, our
operating expense could increase significantly.

DEMAND FOR SOME OF OUR PRODUCTS MAY BE ADVERSELY IMPACTED BY REGULATIONS
AFFECTING THE MINING AND DRILLING INDUSTRIES OR UTILITIES INDUSTRY.

Some of our principal customers are mining and drilling companies. Many of
these customers supply coal, oil, gas or other fuels as a source for the
production of utilities in the United States and other industrialized regions.
The operations of these mining and drilling companies are geographically diverse
and are subject to or impacted by a wide array of regulations in the
jurisdictions where they operate, such as applicable environmental laws and an
array of regulations governing the operations of utilities. As a result of
changes in regulations and laws relating to such industries, our customers'
operations could be disrupted or curtailed by governmental authorities. The high
cost of compliance with mining, drilling and environmental regulations may also
induce customers to discontinue or limit their operations, and may discourage
companies from developing new opportunities. As a result of these factors,
demand for our mining and drilling related products could be substantially
affected by regulations adversely impacting the mining and drilling industries
or altering the consumption patterns of utilities.

A DECLINE IN AUTOMOTIVE SALES AND PRODUCTION COULD RESULT IN A DECLINE IN OUR
RESULTS OF OPERATIONS OR A DETERIORATION IN OUR FINANCIAL CONDITION.

Some of our primary customers are automobile companies in the United States
and abroad. Automobile sales and production are cyclical and can be affected by
the strength of a country's general economic condition. In addition, automobile
production and sales can be affected by labor relations, regulatory
requirements, trade agreements and other factors. A decline in automotive sales
and production could result in a decline in our results of operations or a
deterioration in our financial condition. If demand changes and we fail to
respond appropriately, our business, financial position and results of
operations could be adversely affected.

LABOR DISPUTES AND INCREASING LABOR COSTS COULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR BUSINESS.

Some of our principal domestic and many of our foreign operations are
parties to collective bargaining agreements with their employees. We cannot
assure you that any disputes, work stoppages or strikes will not arise in the
future. In addition, when existing collective bargaining agreements expire, we
cannot assure you that we will be able to reach new agreements with our
employees. Such new agreements may be on substantially different terms and may
result in increased labor costs. Future disputes with our employees could have a
material adverse effect upon our business, financial position and results of our
operations.

WE OPERATE IN A HIGHLY COMPETITIVE ENVIRONMENT.

Our domestic and foreign operations are subject to significant competitive
pressures. We compete directly and indirectly with other manufacturers and
suppliers of metalworking tools and

S-10

wear-resistant parts. At least one of our competitors is larger, and some of our
competitors may have greater access to financial resources and may be less
leveraged than us.

In addition, the metalworking supply industry is a large, fragmented
industry that is highly competitive. Our J&L and FSS business segments face
competition from traditional channels of distribution such as retail outlets,
small dealerships and regional and national distributors using direct sales
forces, from manufacturers of metalworking supplies, from large warehouse stores
and from other direct mail distributors. We believe that sales of metalworking
supplies will become more concentrated over the next few years, which may
increase the competitiveness of the industry. Certain of J&L's competitors offer
a greater variety of products and have substantially greater financial and other
resources than us.

Customers are increasingly aware of the total costs of fulfilling their
purchasing requirements and are seeking low cost alternatives to traditional
methods of purchasing and sources of supply. We believe that the current trend
is to reduce the number of suppliers and rely more on lower cost alternatives
such as direct mail and/or integrated supply arrangements. We cannot assure you
that we will be able to take advantage of this trend effectively or that we will
be able to establish relationships with supply customers.

OUR CONTINUED SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR INTELLECTUAL
PROPERTY.

Our future success depends in part upon our ability to protect our
intellectual property. We rely principally on nondisclosure agreements and other
contractual arrangements and trade secret law and, to a lesser extent, trademark
and patent law, to protect our intellectual property. However, these measures
may be inadequate to protect our intellectual property from infringement by
others or prevent misappropriation of our proprietary rights. In addition, the
laws of some foreign countries do not protect proprietary rights to the same
extent as do U.S. laws. Our inability to protect our proprietary information and
enforce our intellectual property rights through infringement proceedings could
have a material adverse effect on our business, financial condition and results
of operations.

PRODUCT LIABILITY CLAIMS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

The sale of metalworking, mining, highway construction and other tools and
related products entails an inherent risk of product liability claims. We cannot
assure you that the coverage limits of our insurance policies will be adequate
or that our policies will cover any particular loss. Insurance can be expensive,
and we may not always be able to purchase insurance on commercially acceptable
terms, if at all. Claims brought against us that are not covered by insurance or
that result in recoveries in excess of insurance coverage could have a material
adverse effect on our business, financial condition and results of operations.

WE ARE SUBJECT TO VARIOUS ENVIRONMENTAL LAWS, AND ANY VIOLATION OF, OR OUR
LIABILITIES UNDER, THESE LAWS COULD ADVERSELY AFFECT US.

Our operations necessitate the use and handling of hazardous materials and,
as a result, we are subject to various federal, state, local and foreign laws,
regulations and ordinances relating to the protection of health, safety and the
environment, including those governing discharges to air and water, handling and
disposal practices for solid and hazardous wastes, the cleaning up of
contaminated sites and the maintenance of a safe work place. These laws impose
penalties, fines and other sanctions for non-compliance and liability for
response costs, property damages and personal injury resulting from past and
current spills, disposals or other releases of, or exposure to, hazardous
materials. We could incur substantial costs as a result of noncompliance with or
liability for cleanup or other costs or damages under these laws. We may be
subject to more stringent environmental laws in the future. If more stringent
environmental laws are enacted

S-11

in the future, these laws could have a material adverse effect on our business,
financial condition and results of operations.

WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE OUR PROPOSED ACQUISITION OF THE
WIDIA BUSINESSES.

If and when the proposed Widia acquisition is consummated, we expect to
integrate operations, management and personnel of the Widia businesses with our
existing operations. The expansion of our European and Asian businesses
resulting from the Widia acquisition may strain our administrative, operational
and financial resources. The integration of the Widia businesses will require
the dedication of management resources that may temporarily detract from our
day-to-day business. These types of demands and uncertainties could have a
material adverse effect on our business, financial condition and results of
operations. We may not be able to manage the combined operations and assets
effectively or realize any of the anticipated benefits of the acquisition. In
addition, any material delays or unexpected costs we incur in connection with
the integration process could harm our business, financial condition and results
of operations.

We may not achieve desired levels of synergies in connection with the
proposed Widia acquisition and the costs of achieving these synergies may be
substantially greater than we anticipate. If we fail to achieve our desired
levels of synergies, or if the costs of achieving them are substantially greater
than we anticipate, our business, financial condition and results of operations
could be adversely affected.

IF WE ARE UNABLE TO RETAIN QUALIFIED EMPLOYEES, OUR GROWTH MAY BE HINDERED.

Our ability to provide high-quality products and services depends in part
on our ability to retain our skilled personnel in the areas of management,
product engineering, servicing and sales. Competition for such personnel is
intense and our competitors can be expected to attempt to hire our skilled
employees from time to time. Our results of operations could be materially and
adversely affected if we are unable to retain the customer relationships and
technical expertise provided by our management team and our professional
personnel.

A DISRUPTION OF OUR INFORMATION SYSTEMS COULD ADVERSELY AFFECT US.

We believe that our computer software programs are an integral part of our
business and growth strategies. We depend upon our information systems generally
to process orders, to manage inventory and accounts receivable collections, to
purchase, sell and ship products efficiently and on a timely basis, to maintain
cost-effective operations and to provide superior service to our customers. We
cannot assure you that a disruption will not occur. Any disruption could have a
material adverse effect on our business, financial condition and results of
operations.

RISKS RELATING TO THE NOTES

OUR EXISTING U.S. DOLLAR BANK CREDIT FACILITY MATURES ON AUGUST 30, 2002 AND WE
MAY NOT BE ABLE TO ARRANGE OUR NEW BANK CREDIT FACILITY PRIOR TO THAT DATE, OR
AT ALL.

We are currently in negotiation with lenders on a new bank credit facility
to replace our existing bank credit facilities. We cannot assure you that we
will successfully negotiate and arrange this bank credit transaction or a
similar transaction prior to the expiration of the existing U.S. dollar bank
credit facility, or at all. If we are unable to arrange this new bank credit
transaction prior to the expiration of our existing U.S. dollar bank credit
facility, this would have a material adverse effect on us, including our
liquidity.

OUR LEVEL OF INDEBTEDNESS MAY LIMIT CASH FLOW AVAILABLE TO INVEST IN THE ONGOING
NEEDS OF OUR BUSINESS, WHICH COULD PREVENT US FROM FULFILLING OUR OBLIGATIONS
UNDER THE NOTES.

We have a significant amount of indebtedness. After giving effect to this
notes offering, the common stock offering, the new bank credit facility and the
Widia acquisition, as of March 31,
S-12

2002, our total indebtedness would have been approximately $643 million and our
ratio of earnings to fixed charges for the nine months ended March 31, 2002
would have been approximately 1.9x.

Our level of indebtedness could have important consequences to you. For
example, it could:

- require us to dedicate a substantial portion of our cash flow from
operations to the payment of debt service, reducing the availability of
our cash flow to fund working capital, capital expenditures, acquisitions
and other general corporate purposes;

- increase the amount of interest that we have to pay because certain of
our borrowings are at variable rates of interest;

- increase our vulnerability to adverse economic or industry conditions;

- limit our ability to obtain additional financing in the future to enable
us to react to changes in our business or industry; or

- place us at a competitive disadvantage compared to businesses in our
industry that have less indebtedness.

Additionally, any failure to comply with covenants in the instruments
governing our debt could result in an event of default which, if not cured or
waived, would have a material adverse effect on us.

See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Description of
the Notes."

DESPITE OUR LEVEL OF INDEBTEDNESS, WE AND OUR SUBSIDIARIES WILL BE ABLE TO INCUR
SUBSTANTIALLY MORE DEBT. THIS COULD EXACERBATE THE RISKS DESCRIBED ABOVE.

We and our subsidiaries will be able to incur substantial additional
indebtedness in the future. Although the credit agreements governing our
existing bank credit facilities contain, and the credit agreement that will
govern our new bank credit facility is expected to contain, restrictions on the
incurrence of additional indebtedness, these restrictions are subject to a
number of qualifications and exceptions, and the indebtedness incurred in
compliance with these restrictions could be substantial. To the extent new debt
is added to our currently anticipated debt levels, the substantial leverage
risks described above would increase.

TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL. IF WE
CANNOT GENERATE THE REQUIRED CASH, WE MAY NOT BE ABLE TO MAKE THE NECESSARY
PAYMENTS UNDER THE NOTES.

Our ability to make payments on our indebtedness, including the notes, and
to fund planned capital expenditures and research and development efforts will
depend on our ability to generate cash in the future. Our ability to generate
cash, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.

Our historical financial results have been, and we anticipate that our
future financial results will be, subject to fluctuations. We cannot assure you
that our business will generate sufficient cash flow from our operations or that
future borrowings will be available to us in an amount sufficient to enable us
to pay our indebtedness, including the notes, or to fund our other liquidity
needs and make necessary capital expenditures. Our inability to pay our debts
would require us to pursue one or more alternative strategies, such as reducing
or delaying planned expansion, selling assets, refinancing or restructuring our
indebtedness or selling equity capital. However, we cannot assure you that any
alternative strategies will be feasible at the time or prove adequate, which
could cause us to default on our obligations and impair our liquidity. Also,
some alternative strategies would require the prior consent of our senior
lenders, which we may not be able to obtain.
S-13

THE NOTES ARE EFFECTIVELY SUBORDINATED TO ANY SECURED INDEBTEDNESS AND TO THE
INDEBTEDNESS AND OTHER LIABILITIES OF OUR SUBSIDIARIES.

The notes will be unsecured obligations and will rank equal in right of
payment to all of our other unsecured and unsubordinated indebtedness. The notes
will be effectively subordinated to any of our secured indebtedness to the
extent of the security and to the liabilities of our subsidiaries. In
particular, claims of creditors of our subsidiaries, including trade creditors,
secured creditors and creditors holding indebtedness or guaranties issued by our
subsidiaries, will generally have priority with respect to the assets and
earnings of those subsidiaries over the claims of our creditors, including
holders of the notes, even if the obligations of our subsidiaries do not rank in
priority over the notes. In addition, our significant domestic subsidiaries have
guaranteed the borrowings under each of our existing bank credit facilities, and
we expect that our significant domestic subsidiaries will guarantee borrowings
under our new bank credit facility. At March 31, 2002, after giving effect to
this notes offering, the common stock offering, the new bank credit facility and
the Widia acquisition, our subsidiaries would have had approximately $327
million of indebtedness, including $301 million of guarantees under the new bank
credit facility but excluding intercompany indebtedness. As of March 31, 2002,
we had approximately $9 million of secured indebtedness, consisting primarily of
capitalized leases.

RESTRICTIONS IMPOSED BY OUR BANK CREDIT FACILITIES LIMIT OUR ABILITY TO OBTAIN
ADDITIONAL FINANCING AND TO PURSUE BUSINESS OPPORTUNITIES.

The operating and financial restrictions and covenants in our debt
instruments, including our bank credit facilities, may adversely affect our
ability to finance our future operations or capital needs or to pursue certain
business activities. In particular, our bank credit facilities require us to
maintain certain financial ratios. Our ability to comply with these ratios may
be affected by events beyond our control. A breach of any of these covenants or
our inability to comply with the required financial ratios could result in a
default under our bank credit facilities. In the event of any default under our
bank credit facilities, the lenders under those facilities could elect to
declare all borrowings outstanding, together with accrued and unpaid interest
and other fees, to be due and payable, to require us to apply all of our
available cash to repay these borrowings or to prevent us from making debt
service payments on the notes, any of which would cause an event of default
under the notes.

BECAUSE THERE IS NO ESTABLISHED TRADING MARKET FOR THE NOTES, YOU MAY NOT BE
ABLE TO RESELL YOUR NOTES.

The notes will be registered under the Securities Act, but will constitute
a new issue of securities with no established trading market, and we cannot
assure you as to:

- the liquidity of any trading market that may develop;

- the ability of holders to sell their notes; or

- the price at which the holders would be able to sell their notes.

IF A TRADING MARKET WERE TO DEVELOP, THE NOTES MIGHT TRADE AT HIGHER OR LOWER
PRICES THAN THEIR PRINCIPAL AMOUNT OR PURCHASE PRICE, DEPENDING ON MANY FACTORS,
INCLUDING PREVAILING INTEREST RATES, THE MARKET FOR SIMILAR NOTES AND OUR
FINANCIAL PERFORMANCE.

We understand that the underwriters presently intend to make a market in
the notes. However, they are not obligated to do so, and any market-making
activity with respect to the notes may be discontinued at any time without
notice. In addition, any market-making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act and may be limited during the
offering of the notes. We cannot assure you that an active trading market will
exist for the notes or that any trading market that does develop will be liquid.

S-14

USE OF PROCEEDS

We estimate that the net proceeds from the sale of the notes will be $294.5
million, after deducting underwriting commissions and discounts and our
estimated offering expenses. We intend to use the net proceeds from the sale of
the notes, together with proceeds from the common stock offering and borrowings
under the new bank credit facility, to repay senior bank indebtedness, to pay
the purchase price of the Widia acquisition and for general corporate purposes,
including capital expenditures, other acquisitions and investments. Our existing
bank credit facilities require us to reduce our commitments under these
facilities by the amount of the net proceeds of this notes offering and the
common stock offering. If the amount of the reduced commitments falls below the
amount of outstanding loans under these facilities, we will be required to repay
these loans to the extent they exceed the amounts of the reduced commitments.
The effective interest rate on the approximately $363 million aggregate
principal amount of borrowings outstanding as of March 31, 2002 under our
existing U.S. dollar bank credit facility, which matures on August 30, 2002, was
4.77%, including the effect of our interest rate swap agreements. The effective
interest rate on the approximately E180 million aggregate principal amount of
borrowings outstanding as of March 31, 2002 under our existing Euro bank credit
facility, which matures on December 20, 2003, was 4.34%. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" for a discussion of our existing
bank credit facilities.

S-15

CAPITALIZATION

The following table sets forth, as of March 31, 2002, (1) our
capitalization on an actual basis, (2) adjustments for the consummation of this
notes offering, the common stock offering, the new bank credit facility and the
Widia acquisition and (3) our capitalization on an as adjusted basis to reflect
the consummation of this notes offering, the common stock offering, the new bank
credit facility and the Widia acquisition. You should read the information set
forth in this table in conjunction with our consolidated financial statements
and the related notes thereto and other financial data contained elsewhere or
incorporated by reference in this prospectus supplement.

AS OF MARCH 31, 2002
--------------------------------------------
FINANCINGS AND
ACTUAL WIDIA ACQUISITION AS ADJUSTED
------ ----------------- -----------
(IN THOUSANDS)

Debt:
Existing U.S. dollar bank credit facility....... $ 362,700 $(362,700) $ --
Existing Euro bank credit facility.............. 156,704 (156,704) --
---------- --------- ----------
Subtotal..................................... 519,404 (519,404) --
Other........................................... 20,820 11,189 32,009
New bank credit facility........................ -- 301,163 301,163
7.20% senior notes due 2012..................... -- 300,000 300,000
Capitalized leases.............................. 7,672 1,940 9,612
---------- --------- ----------
Total debt................................... 547,896 94,888 642,784
---------- --------- ----------

Minority interest in consolidated subsidiaries.... 8,907 4,964 13,871
---------- --------- ----------

Shareowners' equity:
Preferred stock, 5,000 shares authorized; none
issued....................................... -- -- --
Capital stock, $1.25 par value per share; 70,000
shares authorized; 33,807, 3,200 and 37,007
shares issued................................ 42,259 4,000 46,259
Additional paid-in capital...................... 371,911 104,752 476,663
Retained earnings............................... 547,967 -- 547,967
Less treasury shares, at cost; 2,657 shares
held......................................... (72,804) -- (72,804)
Unearned compensation........................... (4,885) -- (4,885)
Accumulated other comprehensive loss............ (68,578) -- (68,578)
---------- --------- ----------
Total shareowners' equity*................... 815,870 108,752 924,622
---------- --------- ----------
Total capitalization......................... $1,372,673 $ 208,604 $1,581,277
========== ========= ==========

---------------

* Effective July 1, 2001, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." Under SFAS No. 142, all goodwill amortization ceased
effective July 1, 2001. As a result of the adoption of this rule, we expect to
record a non-cash charge of $230 million to $260 million, specific to the
electronics (AMSG segment) and the industrial product group (MSSG segment)
businesses, which were acquired in 1998. We will record the actual charge in
our financial statements for the fiscal year ended June 30, 2002.

S-16

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth selected consolidated historical financial
data for each of the fiscal years in the five year period ended June 30, 2001.
Also included is selected consolidated financial data for the nine-month periods
ended March 31, 2002 and 2001. You should read the information set forth in this
table in conjunction with our consolidated financial statements and the related
notes thereto and other financial data contained elsewhere or incorporated by
reference in this prospectus supplement. Interim results for the nine months
ended March 31, 2002 are not necessarily indicative of, and are not projections
for, the results to be expected for the full fiscal year.

NINE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED MARCH 31,
-------------------------------------------------------------- -----------------------
2001 2000 1999 1998 1997 2002 2001
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA, EMPLOYEE DATA AND RATIOS)

OPERATING RESULTS:
Net sales............. $1,807,896 $1,866,578 $1,914,961 $1,687,516 $1,160,452 $1,180,844 $1,365,391
Cost of goods sold.... 1,192,176 1,228,685 1,272,090 1,057,089 713,182 806,893 896,852
Operating expense..... 425,641 434,136 455,903 419,182 317,315 288,711 323,238
Interest expense...... 50,381 55,079 68,594 59,536 10,393 25,076 39,091
Restructuring, asset
impairment and other
special charges..... (1) 21,457 22,412 24,617 4,595 -- 25,020 7,517
Income taxes.......... 37,300 43,700 32,900 53,900 44,900 11,387 30,128
Income from continuing
operations.......... 53,887 51,977 39,116 71,197 72,032 23,128 43,859
Accounting changes,
net of tax.......... (2)(3) (599) -- -- -- -- -- (599)
Net income............ (3)(4) 53,288 51,710 39,116 71,197 72,032 23,128 43,260
---------- ---------- ---------- ---------- ---------- ---------- ----------
FINANCIAL POSITION:
Net working capital... $ 386,711 $ 397,403 $ 373,582 $ 447,992 $ 175,877 $ 10,625 $ 414,813
Total assets.......... 1,825,442 1,941,121 2,000,480 2,091,520 851,243 1,746,251 1,857,173
Total debt, including
capital leases...... 607,115 699,242 861,291 967,667 174,464 547,896 654,930
Total shareowners'
equity.............. (3)(5) 796,769 780,254 745,131 735,460 459,608 815,870 786,943
---------- ---------- ---------- ---------- ---------- ---------- ----------
PER SHARE DATA:
Basic earnings........ (3) $ 1.74 $ 1.71 $ 1.31 $ 2.61 $ 2.71 $ 0.75 $ 1.42
Diluted earnings...... (3)(4) 1.73 1.70 1.31 2.58 2.69 0.74 1.41
Dividends............. 0.68 0.68 0.68 0.68 0.66 0.51 0.51
Market price (at
period end)......... 36.90 21.44 31.00 41.75 43.00 40.43 27.50
---------- ---------- ---------- ---------- ---------- ---------- ----------
OTHER DATA:
Net cash flow from
operating
activities.......... $ 187,556 $ 221,207 $ 226,552 $ 101,524 $ 99,850 $ 104,433 $ 133,484
Capital
expenditures........ 59,929 50,663 94,993 104,774 73,779 30,349 40,121
EBITDA................ (6) 242,007 257,136 242,995 257,423 169,955 115,899 188,809
Number of employees... 12,525 13,200 13,640 14,380 7,550 11,838 12,933
Basic weighted average
shares outstanding
(000)............... (5) 30,560 30,263 29,917 27,263 26,575 31,002 30,523
Diluted weighted
average shares
outstanding (000)... (5) 30,749 30,364 29,960 27,567 26,786 31,454 30,656
---------- ---------- ---------- ---------- ---------- ---------- ----------

S-17

NINE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------------- -------------------
2001 2000 1999 1998 1997 2002 2001
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA, EMPLOYEE DATA AND RATIOS)

KEY RATIOS:
Gross profit margin......... (1) 34.1% 34.2% 33.6% 37.4% 38.5% 31.7% 34.3%
Earnings to fixed charges... (7) 2.6x 2.6x 2.0x 3.0x 8.8x 2.1x 2.7x
Pro forma earnings to fixed
charges................... (8) 2.6x -- -- -- -- 1.9x --
EBITDA to interest
expense................... (6) 4.8x 4.7x 3.5x 4.3x 16.4x 4.6x 4.8x
EBITDA, less capital
expenditures to interest
expense................... (6) 3.6x 3.7x 2.2x 2.6x 9.3x 3.4x 3.8x
Total debt to EBITDA........ (6) 2.5x 2.7x 3.5x 3.8x 1.0x -- --
Total debt to total
capital................... (3) 42.9% 45.6% 51.9% 55.4% 27.1% 39.9% 45.1%
Inventory turnover.......... 3.1x 2.9x 2.8x 3.2x 3.4x 3.0x 3.0x

---------------

(1) Amounts reflect costs associated with restructuring and related period
costs, and asset impairment charges in the nine months ended March 31, 2002;
restructuring and asset impairment charges and costs primarily associated
with the JLK tender offer in the nine months ended March 31, 2001;
restructuring and asset impairment charges related to operational
improvement programs, a loss on divestiture and costs primarily associated
with the JLK tender offer in 2001; costs associated with environmental
remediation, strategic alternatives, and restructuring and asset impairment
charges related to operational improvement programs initiated in 2000; costs
associated with the acquisition of shares of Toshiba Tungaloy and
restructuring and asset impairment charges related to operational
improvement programs initiated in 1999; deferred financing costs related to
a postponed public offering intended to have been offered in connection with
the acquisition of Greenfield Industries, Inc. in 1998.

(2) Accounting changes in 2001 reflect the change in the method of accounting
for derivative financial instruments (SFAS No. 133).

(5) In 1998, we issued 3.45 million shares of common stock for net proceeds of
$171,439.

(6) EBITDA is defined as income before provision for income taxes and minority
interest, plus interest expense, depreciation and amortization. EBITDA is
commonly presented as an indicator of operating performance. It is not,
however, intended as an alternative measure of operating results or cash
flow from operations as determined in accordance with generally accepted
accounting principles in the United States. EBITDA is not necessarily
comparable to similarly titled measures for other companies.

(7) For purposes of calculating this ratio, earnings represents income from
continuing operations before fixed charges, minority interest, provision for
income taxes and the cumulative effect of accounting changes. Fixed charges
includes interest expense, including amounts capitalized and the portion
(approximately one-third) of rental expenses considered to be representative
of interest expense.

(8) After giving effect to the application of the proceeds of this notes
offering, the common stock offering, the new bank credit facility and the
Widia acquisition.

S-18

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

This prospectus supplement contains, in addition to historical information,
forward-looking statements. These forward-looking statements involve risk and
uncertainties that could cause our actual outcomes to differ materially from the
results expressed or implied by the forward-looking statements. See "Special
Note Regarding Forward-Looking Statements." You should carefully consider all of
the information contained or incorporated by reference in this prospectus
supplement and the accompanying prospectus, including the discussion under the
caption "Risk Factors" of specific risks involved in an investment in the notes.

In September 2000, we reorganized the financial reporting of our operations
to focus on global business units consisting of Metalworking Solutions &
Services Group (MSSG), Advanced Materials Solutions Group (AMSG) and
JLK/Industrial Supply and corporate functional shared services. Subsequent to
the acquisition of the minority shares of JLK, we split the financial reporting
of these operations into two units, J&L Industrial Supply (J&L) and Full Service
Supply (FSS). We also changed our internal reporting structure to add the
operations of an integrated supply business to FSS, that was previously reported
in J&L. The results for all periods presented have been restated to conform to
the new reporting structure. The presentation of segment information reflects
the manner in which we organize segments for making operating decisions and
assessing performance.

RESULTS OF OPERATIONS

This discussion of our results of operations is divided into two parts, the
first of which addresses our results of operations for the nine months ended
March 31, 2002 compared to the nine months ended March 31, 2001, and the second
of which addresses our results of operations for the fiscal year ended June 30,
2001 compared to the fiscal year ended June 30, 2000 and the fiscal year ended
June 30, 1999. The following discussion should be read in connection with the
consolidated financial statements and the related footnotes.

NINE MONTHS ENDED MARCH 31, 2002 COMPARED TO NINE MONTHS ENDED MARCH 31, 2001

SALES

Sales for the nine months ended March 31, 2002 were $1,180.8 million
compared to $1,365.4 million in the same period a year ago, a decline of 14
percent. Sales declined 12 percent excluding unfavorable foreign currency
effects of one percent and less workdays in the nine months ended March 31,
2002. Sales in North America contributed to the majority of this decline due to
overall weak market conditions. In local currency, European sales were down six
percent compared to the prior year.

GROSS PROFIT MARGIN

Consolidated gross profit margin was 31.7 percent for the nine months ended
March 31, 2002, compared with 34.3 percent in same period a year ago. Excluding
special charges in each period, the gross profit margin was 31.9 percent in 2002
and 34.3 percent in 2001. The decline in the gross profit margin was due
primarily to underutilized capacity from volume declines and an unfavorable
customer and product mix, partially offset by continued manufacturing
efficiencies from lean initiatives. Foreign currency translation also reduced
the margin. Special charges in 2002 related to facility closures including
inventory abandonment charges of $1.7 million and period costs of $0.7 million.
Special charges in 2001 of $0.4 million related to the write-down of certain
product lines that were discontinued as part of a program to streamline and
optimize J&L's product offering.

S-19

OPERATING EXPENSE

For the nine months ended March 31, 2002, operating expense was $288.7
million, a decline of 10 percent compared to the same period a year ago,
excluding costs of $2.1 million in the prior year related primarily to the
tender offer to acquire the minority shares of JLK Direct Distribution Inc.
(JLK). Ongoing cost-cutting and lean initiatives, combined with several short-
term savings actions, reduced expenses nearly in line with sales declines.
Moreover, the reduction was achieved even as spending on growth programs and
research and development was sustained. Excluding foreign exchange, operating
expense declined nine percent.

RESTRUCTURING AND ASSET IMPAIRMENT CHARGE

In November 2001, we announced a restructuring program whereby we expect to
recognize special charges of $15 million to $20 million, including period costs
of $5 million to $6 million, for the closure of three manufacturing locations
and the relocation of the production of a certain product line from another
plant, and associated work force reductions. This was done in response to
continued steep declines in the end market demand in the electronics and
industrial product group's businesses. Additionally, we have implemented other
worldwide work force reductions in these segments in reaction to the declines in
our end markets. Approximately two-thirds of the special charges will be cash
expenditures. We expect to realize ongoing annual benefits of $8 million to $10
million by the end of fiscal 2002. These actions are expected to improve our
competitiveness and we expect them to be completed by the end of fiscal 2002.

We implemented the measures associated with the closing and consolidation
of the AMSG electronics facility in Chicago, IL, and MSSG industrial product
group's Pine Bluff, AR and Monticello, IN locations. As a result, we recorded
restructuring charges of $12.0 million for the nine months ended March 31, 2002
related to exit costs associated with these actions, including severance for
substantially all 298 employees at these facilities. Additionally in the
December 2001 quarter, as part of the closure of the electronics plant, we
recorded a non-cash charge of $0.8 million, net of salvage value, associated
with the abandonment and scrapping of inventory. This charge was recorded as a
component of cost of goods sold. In the March 2002 quarter, we recorded a charge
of $1.5 million related to severance for 72 individuals, primarily in the MSSG
segment. The total charge to date of $14.3 million includes non-cash items of
$6.2 million.

Through March 31, 2002, we incurred cash expenditures of $4.3 million
resulting in an accrual of $3.8 million at March 31, 2002. We incurred period
costs associated with these actions of $1.0 million for the nine months ended
March 31, 2002, which were expensed as incurred as a component of cost of sales.

In 2001, we began to implement a business improvement plan in the J&L and
FSS segments. We expect to substantially complete this plan by the end of fiscal
2002. In the J&L segment for the nine months ended March 31, 2002, we recorded
restructuring and asset impairment charges of $8.9 million. The charges were
comprised of a write-down of a portion of the book value of a business system of
$5.3 million, $1.9 million for severance for 60 individuals, $1.5 million for
facility closures and $0.2 million for the closure of the German operations.
Additionally, as part of the closure of the German operations, we recorded a
non-cash charge of $0.4 million, net of salvage value, in the December 2001
quarter associated with the abandonment and liquidation of inventory in these
operations. This charge was recorded as a component of cost of goods sold.

In anticipation of migrating to a new business system, J&L capitalized
costs associated with the development of system functionality specifically
designed for the J&L business. In the December 2001 quarter, after further
evaluation of the development of the system, we determined it was no longer
feasible that J&L would use this portion of the business system because the
vendor ceased supporting the system. Therefore, we recorded a non-cash charge of

S-20

$5.3 million, representing the portion of costs capitalized in connection with
system enhancements specifically for the J&L business.

In the FSS segment for the nine months ended March 31, 2002, we recorded a
restructuring charge of $0.3 million for severance related to 16 individuals.
Additionally in our core businesses in 2001, we took actions to reduce our
salaried work force in response to the weakened U.S. manufacturing sector. This
core-business resize program has been completed.

The costs accrued for all restructuring activities were based on estimates
using the latest information available at the time that the accrual was
established. We continue to review our business strategies and pursue other
cost-reduction activities in all business segments, some of which could result
in future charges. Charges incurred for the nine months ended March 31, 2002 and
the restructuring accrual at March 31, 2002 are as follows (in thousands):

RESTRUCTURING
EXPENSE
JUNE 30, FOR NEW EXPENSE NON-CASH CASH MARCH 31,
2001 INITIATIVES ADJUSTMENTS ADJUSTMENTS EXPENDITURES 2002
-------- ------------- ----------- ----------- ------------ ---------

J&L business
improvement
program:
Employee
severance....... $ 251 $1,897 $ 6 $ -- $(2,072) $ 82
Facility
closures........ 940 1,690 93 (572) (1,088) 1,063
Business system.... -- 5,257 -- (5,257) -- --
FSS business
improvement
program............ 141 372 (71) -- (429) 13
Core-business resize
program............ 2,336 -- (77) -- (1,808) 451
------ ------ ---- ------- ------- ------
Total.............. $3,668 $9,216 $(49) $(5,829) $(5,397) $1,609
====== ====== ==== ======= ======= ======

The expense adjustments for the facility closures were due to incremental
costs incurred to exit these facilities. The other expense adjustments relate to
reductions in actual amounts paid for severance costs compared to what was
initially anticipated. We recorded expense adjustments as a component of
restructuring and asset impairment charge.

In 2000, we announced plans to close, consolidate or downsize several
plants, warehouses and offices, and associated work force reductions as part of
our overall plan to increase asset utilization and financial performance, and to
reposition Kennametal to become the premier tooling solutions supplier. The
costs charged against the restructuring accrual for the 2000 programs as of
March 31, 2002 were as follows (in thousands):

JUNE 30, CASH EXPENSE MARCH 31,
2001 EXPENDITURES ADJUSTMENTS 2002
-------- ------------ ----------- ---------

Employee severance.................. $ 153 $ (130) $ (3) $ 20
Facility rationalizations........... 2,269 (1,392) (27) 850
------ ------- ---- ----
Total............................. $2,422 $(1,522) $(30) $870
====== ======= ==== ====

AMORTIZATION EXPENSE

We adopted Statement of Financial Accounting Standard (SFAS) No. 142,
"Goodwill and Other Intangible Assets" on July 1, 2001. As a result of the
non-amortization provisions of SFAS No. 142, we ceased amortizing goodwill
resulting in amortization expense for the nine months ended March 31, 2002 of
$2.1 million compared to $18.5 million in the year-ago period.

S-21

INTEREST EXPENSE

Interest expense for the nine months ended March 31, 2002 declined 36
percent to $25.1 million, compared to the same period last year, due to ongoing
reduction in debt and lower average borrowing rates. Our average U.S. borrowing
rate of 5.06 percent was 220 basis points below year ago levels due to Federal
Reserve rate cuts and improved pricing under our bank credit facility due to
improved credit ratios.

OTHER EXPENSE (INCOME), NET

For the nine months ended March 31, 2002, other income was $0.2 million
compared to other expense of $6.8 million in the year-ago period. Fees
associated with the accounts receivable securitization program declined $2.7
million to $2.0 million in 2002. The decline in these fees was due primarily to
lower interest rates in the commercial paper market. The remainder of the
decline was due to higher foreign exchange gains of $1.8 million and lower
royalty and other expense.

INCOME TAXES

The effective tax rate for the nine months ended March 31, 2002 was 32.0
percent compared to an effective tax rate of 39.5 percent for the nine months
ended March 31, 2001. The pro forma effective tax rate for the nine months ended
March 31, 2001 would have been 33.9 percent, reflecting the non-amortization
provisions of SFAS No. 142. The remainder of the decline primarily reflects a
reduction of the statutory German tax rate effective July 1, 2001.

CHANGE IN ACCOUNTING PRINCIPLE

On July 1, 2000, we adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," resulting in the recording of a loss from
the cumulative effect from the change in accounting principle of $0.6 million,
net of tax, or $0.02 per diluted share. The loss primarily related to the
write-down of previously paid foreign currency option premiums.

NET INCOME

Net income for the nine months ended March 31, 2002 was $23.1 million, or
$0.74 per diluted share, compared to net income of $43.3 million, or $1.41 per
diluted share, in the same period last year. Pro forma earnings for the nine
months ended March 31, 2001 were $58.0 million, or $1.89 per diluted share,
reflecting the non-amortization provisions of SFAS No. 142. Excluding special
charges in each period, net income was $40.1 million, or $1.28 per diluted
share, in the nine months ended March 31, 2002 compared to pro forma net income
of $63.2 million, or $2.06 per diluted share, in the nine months ended March 31,
2001. The decline in earnings was attributable to lower sales levels and
margins, partially offset by lower operating expense and interest costs, and a
decline in our effective tax rate.

Special charges in the nine months ended March 31, 2002 of $25.0 million,
or $0.54 per diluted share, related to business improvement plans currently
being executed. Special charges in the nine months ended March 31, 2001 of $7.5
million, or $0.14 per diluted share, related to the J&L and FSS business
improvement plans and costs associated with the tender offer to acquire the
outstanding shares of JLK, coupled with a charge of $0.6 million, net of tax, or
$0.02 per diluted share, related to the adoption of SFAS No. 133.

BUSINESS SEGMENT REVIEW

We operate four global business units consisting of Metalworking Solutions
& Services Group (MSSG), Advanced Materials Solutions Group (AMSG), J&L
Industrial Supply (J&L) and Full Service Supply (FSS).

S-22

Metalworking Solutions & Services Group

NINE MONTHS ENDED
MARCH 31,
--------------------
2002 2001
---- ----
(IN THOUSANDS)

External sales.............................................. $666,006 $754,759
Intersegment sales.......................................... 86,680 80,481
Operating income............................................ 68,080 98,930

For the nine months ended March 31, 2002, MSSG sales declined 10 percent
compared to the same period last year, excluding unfavorable foreign exchange
effects, due predominately to weak market conditions in North America. Most
major end markets weakened year-over-year. In North America and Europe, sales
were down 16 and three percent, respectively, while Asia was up 15 percent, all
in local currency.

Operating income was $76.2 million compared to $107.0 million last year,
excluding restructuring and related period costs of $8.1 million and $1.0
million, respectively, in 2002 and 2001, and goodwill amortization in 2001. The
decline in operating income was primarily due to lower sales.

Advanced Materials Solutions Group

NINE MONTHS ENDED
MARCH 31,
--------------------
2002 2001
---- ----
(IN THOUSANDS)

External sales.............................................. $227,498 $263,746
Intersegment sales.......................................... 18,014 21,024
Operating income............................................ 16,699 32,118

Compared to the same period last year, AMSG sales declined 13 percent in
the nine months ended March 31, 2002, excluding foreign exchange effects. The
decline was predominately attributable to weak market conditions in the
electronics business. Operating income was $23.3 million compared to $38.6
million last year, excluding restructuring and related period costs in 2002 of
$6.6 million and a restructuring credit of $0.3 million and goodwill
amortization in 2001. The decline was due to lower gross profit from
under-utilization of capacity caused by volume declines, primarily in
electronics. Restructuring and related period costs in 2002 stemmed from the
reorganization of the North American electronics business, including the closure
of a plant in Chicago.

J&L Industrial Supply

NINE MONTHS ENDED
MARCH 31,
--------------------
2002 2001
---- ----
(IN THOUSANDS)

External sales.............................................. $173,997 $224,708
Intersegment sales.......................................... 1,602 3,026
Operating income (loss)..................................... (1,725) 4,533

For the nine months ended March 31, 2002, J&L sales declined 18 percent
compared to the same period last year, excluding the effects of the divestiture
of ATS Industrial Supply, Inc. (ATS). The decline in sales was primarily
attributable to weak demand in the broad industrial market. Operating income was
$8.1 million for the nine months ended March 31, 2002 compared to $12.8 million
in the same period last year, excluding special charges in each period and
goodwill amortization in 2001. Operating income declined primarily due to the
reduction in sales despite the lower cost structure as a result of the business
improvement plan. J&L operating income for the nine months ended March 31, 2002
and 2001 was reduced by $9.8 million and
S-23

$4.0 million, respectively, related to restructuring and asset impairment
charges. Additionally, operating income for the nine months ended March 31, 2001
included $2.1 million of costs primarily related to the tender offer to acquire
the outstanding shares of JLK.

Full Service Supply

NINE MONTHS ENDED
MARCH 31,
--------------------
2002 2001
---- ----
(IN THOUSANDS)

External sales............................................. $113,343 $122,178
Intersegment sales......................................... 1,995 4,562
Operating income........................................... 1,799 5,944

Compared to the same period last year, FSS sales declined seven percent for
the nine months ended March 31, 2002 due to the general weakness in the North
American industrial market. Operating income of $2.1 million, declined $4.2
million compared to the same period last year, excluding restructuring charges
of $0.3 million in both 2002 and 2001 related to severance. The decline was due
to lower sales levels coupled with overall lower gross margins due to higher
percentage of sales to the automotive sector.

FISCAL YEAR ENDED JUNE 30, 2001 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2000 AND
FISCAL YEAR ENDED JUNE 30, 1999

SALES

Sales of $1,807.9 million in 2001 increased two percent compared to sales
of $1,866.6 million in 2000, excluding unfavorable foreign exchange effects of
three percent due to the stronger U.S. dollar and the effects of fewer workdays
in 2001 of two percent. Sales benefited from broad-based end market growth in
Europe and sustained growth in Asia. Sales in North American end markets
softened throughout 2001, particularly in automotive, due to the slowdown in
U.S. manufacturing sector.

Sales for 2000 were $1,866.6 million, flat compared to sales of $1,915.0
million in 1999, excluding unfavorable foreign exchange effects and the effects
of a divestiture of two and one percent, respectively. Market conditions were
soft in many of our served markets in the first half of 2000. Market conditions
began to improve in the second half of the year, led by North America, followed
by Europe, while Asia Pacific showed steady growth throughout the year.

GROSS PROFIT MARGIN

The consolidated gross profit margin for 2001 was 34.1 percent, 34.7
percent on a constant currency basis. This included a charge of $3.6 million
associated primarily with the write-down of certain product lines that were
discontinued as part of a program to streamline and optimize the product
offering of J&L. Excluding this charge and period costs associated with facility
rationalizations for each period, the gross profit margin was flat compared with
34.3 percent in the prior year, despite weaker sales. Gross margin benefited
from productivity improvements, continued implementation of lean manufacturing
techniques and maintaining pricing discipline. This was partially offset by
higher material costs and energy prices. Period costs included in gross profit
in 2001 and 2000 were $0.6 million and $2.9 million, respectively, related to
the facility closures.

In 2000, the gross profit margin was 34.1 percent compared to 33.6 percent
in 1999. The increase in gross margin was predominately due to improved
manufacturing variances across most business units as a result of lean
manufacturing techniques and strong cost controls, despite lower production
levels. The gross margin in 1999 was affected by a $6.9 million charge related
to the implementation of a new program to streamline and optimize the global

S-24

metalworking product offering and $0.4 million of period costs associated with a
facility closure. Excluding these charges, the 1999 gross margin would have been
34.0 percent.

OPERATING EXPENSE

In 2001, operating expense declined to $425.6 million from $434.1 million
in 2000. However, operating expense increased one percent on a constant currency
basis. We offset inflationary pressures through restructuring benefits and other
productivity improvements. Despite the decline, we incurred incremental costs of
approximately $6.5 million on investments for strategic initiatives, including
new sales and marketing programs, productivity programs and our e-business
initiative. In 2001, operating expense included $2.1 million of costs related
primarily to the tender offer for the minority shares of JLK. Operating expense
for 2000 included a $3.0 million charge for environmental remediation costs and
$0.8 million for costs incurred and expensed for the evaluation of strategic
alternatives related to JLK.

Operating expense declined $21.8 million, or three percent in local
currency, in 2000, down from $455.9 million in 1999. The improvement was due to
our resolve to control costs through ongoing cost and productivity improvement
programs. Operating expense for 1999 included a charge of $3.8 million recorded
on the purchase of 4.9 percent of Toshiba Tungaloy stock due to the difference
between the cost and the fair market value of the securities on the date the
securities were purchased.

RESTRUCTURING AND ASSET IMPAIRMENT CHARGES

In the September 2000 quarter, we began to implement a business improvement
plan in the J&L and FSS segments. We anticipate costs of $15 to $20 million
associated with this plan. We expect to substantially complete this plan by the
end of fiscal 2002. In the J&L segment for 2001, we recorded a restructuring and
asset impairment charge of $2.5 million for severance for 115 individuals, $1.8
million associated with the closure of 11 underperforming satellite locations,
including the German operations, and $0.7 million for the exiting of three
warehouses. This included a $0.4 million non-cash write-down of the book value
of certain property, plant and equipment, net of salvage value, that we
determined would no longer be utilized in ongoing operations. The charge for
exiting the warehouses and the satellite closures included a non-cash
write-down, net of salvage value, of $0.6 million primarily related to inventory
that was abandoned and not relocated. J&L also finalized and implemented a
program to optimize the overall catalog product offering. We identified certain
products that would no longer be offered to customers and scrapped these
products, resulting in a non-cash charge of $3.0 million, net of salvage value.
These charges were recorded as a component of cost of goods sold. In the FSS
segment for 2001, we recorded restructuring charges of $0.6 million related to
severance for eight individuals. The costs accrued for these plans were based on
estimates using the latest information available at the time that the accrual
was established. We incurred period costs of $0.3 million related to these
initiatives in 2001 which were included in cost of goods sold as incurred. We
expect annualized benefits of approximately $7 million to be realized beginning
in 2002.

Beginning in March 2001, we took actions to reduce our salaried work force
in response to the weakened U.S. manufacturing sector. As a result of
implementing this core-business resize program, we recorded a restructuring
charge of $4.6 million related to severance for 209 individuals. We expect these
actions to result in ongoing annual benefits of approximately $9 million. This
program was completed. We continue to review our business strategies and pursue
other cost-reduction activities in all business segments, some of which could
result in

S-25

future charges. The components of the 2001 charges and the restructuring accrual
at June 30, 2001 were as follows:

TOTAL ASSET CASH JUNE 30,
CHARGE WRITE-DOWNS EXPENDITURES 2001
------ ----------- ------------ --------
(IN THOUSANDS)

J&L business improvement program:
Product pruning...................... $ 3,024 $(3,024) $ -- $ --
Employee severance................... 2,475 -- (2,224) 251
Facility closures.................... 2,453 (987) (526) 940
FSS business improvement program....... 571 -- (430) 141
Core-business resize program........... 4,583 -- (2,247) 2,336
------- ------- ------- ------
Total.................................. $13,106 $(4,011) $(5,427) $3,668
======= ======= ======= ======

In November 1999, we announced plans to close, consolidate or downsize
several plants, warehouses and offices, and associated work force reductions as
part of our overall plan to increase asset utilization and financial
performance, and to reposition us to become the premier tooling solutions
supplier. These actions have favorably affected our performance. We implemented
these programs throughout 2000 and they are substantially complete. The costs
accrued for the implemented programs were based upon estimates using the latest
information available at the time that the accrual was established. The
components of the charges were as follows:

INCREMENTAL INITIAL
TOTAL ASSET PENSION RESTRUCTURING
CHARGE WRITE-DOWNS OBLIGATION LIABILITY
------ ----------- ----------- -------------
(IN THOUSANDS)

Asset impairment charges.......... $ 4,808 $(4,808) $ -- $ --
Employee severance................ 7,396 -- (787) 6,609
Product rationalization........... 100 (100) -- --
Facility rationalizations......... 6,322 (1,470) (205) 4,647
------- ------- ----- -------
Total............................. $18,626 $(6,378) $(992) $11,256
======= ======= ===== =======

In conjunction with our ongoing review of underperforming businesses,
certain assets are reviewed for impairment pursuant to the provisions of SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." An asset impairment charge of $1.7 million was
recorded, related to a metalworking manufacturing operation in Shanghai, China.
This operation became fully operational in 1998 and at the time of review, had
not generated the performance that was expected at the time we entered into this
market. We performed an in-depth review of the operations, capacity utilization
and the local management team, and engaged a consultant to perform an
independent review of the same. These reviews enabled us to determine that the
market served by this operation is not expected to develop to the extent
originally anticipated, but that the operations were in good working order,
utilized modern technology, and the management team in place was competent. We
also determined that this facility had excess capacity given the level of market
demand.

Accordingly, we updated our operating forecast to reflect the current
market demand. In comparing the undiscounted projected cash flows of the updated
forecast to the net book value of the assets of this operation, we determined
that the full value of these assets would not be recoverable. Accordingly, a
charge was recorded to adjust the carrying value of the long-lived assets of
this operation to fair value. The estimated fair value of these assets was based
on various methodologies, including a discounted value of estimated future cash
flows.

The product rationalization charge of $0.1 million represented the
write-down of certain discontinued product lines manufactured in these
operations. We manufactured these products
S-26

specifically for the market served by these operations and we determined that
these products are no longer salable. This charge has been recorded as a
component of cost of goods sold.

We recorded an asset impairment charge of $2.8 million related to the
write-down of equipment in our North American metalworking operations and $0.3
million in our engineered products operations. In connection with the
repositioning of the company, we completed an assessment of the assets currently
being used in these operations and determined that these assets were not going
to be further utilized in conducting these operations. This amount represented
the write-down of the book value of the assets, net of salvage value.

The charge for facility rationalizations related to employee severance for
153 employees and other exit costs associated with the closure or downsizing of
a metalworking manufacturing operation in Kingswinford, United Kingdom, a
circuit board drill plant in Janesville, Wisc., a German warehouse facility, and
several offices in the Asia Pacific region and South America. Included in this
charge was an incremental pension obligation of $0.2 million due to a plan
curtailment. This amount was included in the pension obligation and was
presented as a component of other liabilities. The charge also included $3.4
million for employee severance for 41 employees and other exit costs associated
with the closure of a mining and construction manufacturing operation in China
and the exit of the related joint venture.

We accrued $7.4 million related to severance packages provided to 171
hourly and salaried employees terminated in connection with a global work force
reduction. Included in this charge was an incremental pension obligation of $0.8
million, incurred as a result of the severance packages provided. This amount
was included in the pension obligation and was presented as a component of other
liabilities.

The costs related to the asset impairment charges, employee severance and
facility rationalizations of $18.5 million were recorded as restructuring and
asset impairment charges. The costs charged against the restructuring accrual as
of June 30, 2001 and 2000 were as follows:

BEGINNING CASH JUNE 30,
ACCRUAL EXPENDITURES ADJUSTMENTS 2000
--------- ------------ ----------- --------
(IN THOUSANDS)

Employee severance.................. $ 6,609 $(4,076) $-- $2,533
Facility rationalizations........... 4,647 (1,129) -- 3,518
------- ------- --- ------
Total............................... $11,256 $(5,205) $-- $6,051
======= ======= === ======

JUNE 30, CASH JUNE 30,
2000 EXPENDITURES ADJUSTMENTS 2001
-------- ------------ ----------- --------
(IN THOUSANDS)

Employee severance.................. $2,533 $(2,475) $ 95 $ 153
Facility rationalizations........... 3,518 (1,296) 47 2,269
------ ------- ---- ------
Total............................... $6,051 $(3,771) $142 $2,422
====== ======= ==== ======

In 2001, we incurred period costs of $0.3 million related to these
initiatives and were included in cost of goods sold as incurred. The adjustments
to the accruals are due to differences in actual amounts paid to certain
individuals and incurred to rationalize facilities compared to what was
initially anticipated. These adjustments were recorded as a component of
restructuring and asset impairment charge. In the second half of 2001, we
realized annual benefits of approximately $15 million associated with these
programs.

In 2000, we incurred period costs of $0.8 million related to these
initiatives, and costs of $1.7 million associated with the implementation of
lean manufacturing techniques, both of which were included in cost of goods sold
as incurred. Benefits realized in 2000 approximated this level of cost.

S-27

In 1999, we implemented restructuring plans including several programs to
reduce costs, improve operations and enhance customer satisfaction. Accruals for
these 1999 programs were $0.4 million and $1.5 million at June 30, 2001 and
2000, respectively. We recorded additional restructuring expense of $0.3 million
associated with a plant closure due to incremental costs incurred to close this
plant, prior to its disposition in 2001. Costs charged against the accrual for
the voluntary early retirement plan and the plant closure in 2001 were $0.4
million and $1.0 million, respectively. Additionally in 2001, we recorded an
adjustment of $0.4 million related primarily to the recovery of accounts
receivable associated with the write-down of an investment in and net
receivables from certain mining and construction operations in emerging markets.
This adjustment was due to higher collections of outstanding accounts receivable
than was initially anticipated and was recorded as a component of restructuring
and asset impairment charge.

INTEREST EXPENSE

Interest expense for 2001 declined $4.7 million to $50.4 million due
primarily to reduced borrowing levels. The 2001 results included $0.3 million
related to the write-down of a portion of deferred financing fees due to the
reduction of the availability under our existing US revolving bank credit
facility. Excluding this item, interest expense declined nine percent. Our
average U.S. borrowing rates of 7.06 percent were 34 basis points higher
compared to a year ago due to higher interest rate levels during the first six
months of 2001. This was partially offset by improved pricing due to our
improved financial condition.

In 2000, interest expense declined $13.5 million to $55.1 million due to
reduced debt levels, partially offset by higher borrowing rates. Our average
U.S. borrowing rates of 6.72 percent were 34 basis points higher compared to
1999 due to the rising interest rate environment, partially offset by improved
pricing due to our improved financial condition.

OTHER EXPENSE, NET

For 2001 and 2000, other expense, net of $11.7 million and $3.3 million,
respectively, included fees of $5.7 million and $5.2 million, respectively,
related to the accounts receivable securitization program. The increase in these
fees was due to higher levels of accounts receivable securitized through this
program. In 2001, other expense also included a loss of $5.8 million associated
with the divestiture of ATS. In 2000, other expense was partially offset by a
net one-time gain of $1.4 million from the sale of miscellaneous underutilized
assets.

INCOME TAXES

The effective tax rate for 2001 was 39.5 percent compared to an effective
rate of 43.5 percent and 42.0 percent, respectively, for 2000 and 1999. The
decline in the effective tax rate for 2001 was attributable to successful tax
planning initiatives in Europe. The increase in the effective tax rate for 2000
compared to 1999 was directly attributable to higher nondeductible goodwill.

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT

In November 1999, we repaid our term loan under the existing US revolving
bank credit facility. This resulted in an acceleration of the amortization of
deferred financing fees of $0.4 million, which was recorded as an extraordinary
loss of $0.3 million, net of tax, or $0.01 per diluted share.

CHANGE IN ACCOUNTING PRINCIPLE

On July 1, 2000, we adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," resulting in the recording of a loss from
the cumulative effect from the

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change in accounting principle of $0.6 million, net of tax, or $0.02 per diluted
share. The loss primarily related to the write-down of previously paid foreign
currency option premiums.

NET INCOME

Net income for 2001 was $53.3 million, or $1.73 per diluted share, compared
to $51.7 million, or $1.70 per diluted share, in 2000. Excluding special charges
in both years, diluted earnings per share were $2.17 in 2001 compared to $2.13
in 2000. We experienced significant weakness in key North American markets and
unfavorable foreign exchange effects, however, earnings improved due to
continued cost control and cost reduction activities, lower interest expense and
a reduction in our effective tax rate. Special charges in 2001 of $22.5 million,
or $0.44 per diluted share, related primarily to the J&L and FSS business
improvement programs, the ATS divestiture, the core-business resize program and
costs associated with the tender offer for the minority shares of JLK.

Net income for 2000 was $51.7 million, or $1.70 per diluted share, compared
to $39.1 million, or $1.31 per diluted share, in 1999. Excluding special charges
in both years, diluted earnings per share were $2.13 in 2000 compared to $1.82
in 1999. The increase in earnings in 2000 was attributable to improved
operational effectiveness, lean techniques and continued cost discipline.
Special charges in 2000 were $22.9 million, or $0.43 per diluted share, and were
primarily related to operational improvement programs. In 1999, special charges
were $24.6 million, or $0.51 per diluted share, related to operational
improvement programs and a one-time charge incurred in the acquisition of 4.9
percent of Toshiba Tungaloy.

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The following table provides a comparison of our reported results and the
results excluding special items for 2001, 2000 and 1999:

DILUTED
GROSS OPERATING NET EARNINGS
PROFIT INCOME INCOME PER SHARE
------ --------- ------ ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Reported results -- 2001................. $615,720 $156,400 $53,288 $1.73
J&L business improvement program......... 3,643 7,952 4,726 0.16
Loss on divestiture of ATS............... -- -- 3,438 0.11
Core-business resize program............. -- 4,583 2,680 0.09
JLK tender offer costs................... -- 2,141 1,268 0.04
Adoption of SFAS 133..................... -- -- 599 0.02
FSS business improvement program......... -- 571 330 0.01
Reduction of credit facility
availability........................... -- -- 208 0.01
2000 and 1999 restructuring program
adjustments............................ -- 82 50 --
-------- -------- ------- -----
Results excluding special items --2001... $619,363 $171,729 $66,587 $2.17
======== ======== ======= =====
Reported results -- 2000................. $637,893 $158,779 $51,710 $1.70
2000 core-business restructuring
programs............................... 100 18,626 10,573 0.35
Environmental remediation................ -- 3,000 1,695 0.06
JLK strategic alternatives costs......... -- 786 444 0.01
Extraordinary loss on debt
extinguishment......................... -- -- 267 0.01
-------- -------- ------- -----
Results excluding special items --2000... $637,993 $181,191 $64,689 $2.13
======== ======== ======= =====
Reported results -- 1999................. $642,871 $147,243 $39,116 $1.31
1999 restructuring programs.............. -- 13,937 8,984 0.30
Product pruning.......................... 6,900 6,900 4,005 0.14
Toshiba Tungaloy investment charge....... -- 3,780 2,194 0.07
-------- -------- ------- -----
Results excluding special items --1999... $649,771 $171,860 $54,299 $1.82
======== ======== ======= =====

BUSINESS SEGMENT REVIEW

Metalworking Solutions & Services Group

In the MSSG segment, we provide consumable metalcutting tools and tooling
systems to manufacturing companies in a wide range of industries throughout the
world. Metalcutting operations include turning, boring, threading, grooving,
milling and drilling. Our tooling systems consist of a steel toolholder and an
indexable cutting tool such as an insert or drill made from cemented tungsten
carbides, high-speed steel or other hard materials. We also provide solutions to
our customers' metalcutting needs through engineering services aimed at
improving their competitiveness.

2001 2000 1999
---- ---- ----
(IN THOUSANDS)

External sales............................... $999,813 $1,029,395 $1,046,054
Intersegment sales........................... 111,780 134,398 108,994
Operating income............................. 130,558 131,676 119,702

In 2001, MSSG external sales increased one percent compared to the prior
year, excluding unfavorable foreign exchange effects of four percent.
International markets experienced strong year-over-year growth, with particular
strength in Europe. However, in North America, sales were

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down four percent primarily due to a decline in demand in the automotive market,
coupled with significant weakness in the light engineering market. In Europe,
sales increased nine percent, in local currency, due to broad-based growth
reflecting strength in the machine tool and engineering markets. Demand in the
European automotive market remained strong, though at a slightly diminished rate
compared to the prior year. Sales in Asia continued to grow, up eight percent in
local currency, compared to a year ago.

Operating income in 2001 was $130.6 million and was reduced by
restructuring charges of $3.3 million, primarily associated with severance costs
for 129 people as part of the core-business resize program, and period costs of
$0.2 million associated with facility closures. Excluding restructuring and
period costs in each period, operating income declined $11.0 million, or eight
percent, due to lower sales levels in the highly profitable North American
market, offset in part by lean initiatives and ongoing cost controls.

External sales in MSSG in 2000 increased one percent compared to 1999,
excluding unfavorable foreign currency effects of three percent. Sales in North
America were up two percent in local currency compared to 1999 due predominately
to strong demand in the automotive and truck markets and, to a lesser extent,
increased demand in the oil field services and machine tool end markets,
especially in the second half of 2000. Sales in the European metalworking market
declined two percent compared to 1999, excluding unfavorable foreign currency
translation effects of nine percent. The decline in sales was due to weakness in
most served markets, however, sales in automotive and machine tool builder
markets were stronger in the second half of 2000. Sales in the Asia Pacific
region continued to grow and were up 18 percent, in local currency, compared to
1999.

Operating income in 2000 of $131.7 million was reduced by restructuring and
asset impairment charges of $11.0 million and period costs of $2.4 million.
Excluding special charges and period costs in each period, operating income
increased $10.1 million, or seven percent, compared to 1999 due to strong cost
controls and improved manufacturing performance due to lean techniques, despite
lower production levels. Restructuring and asset impairment charges in 2000
resulted from employee severance packages for 135 people, the downsizing of the
Kingswinford, United Kingdom plant, closure of a German warehouse facility and
several offices in Asia Pacific and South America, and asset impairment charges.
Operating income for 1999 included restructuring costs associated with the
Solon, Ohio high-speed steel plant closure and product rationalization charges
of $11.1 million and a $3.8 million charge recorded on the purchase of Toshiba
Tungaloy stock. Period costs associated with the Solon plant closing were $2.1
million and $0.4 million in 2000 and 1999, respectively.

Advanced Materials Solutions Group

This segment's principal business is the production and sale of cemented
tungsten carbide products used in mining and highway construction, engineered
applications including circuit board drills, compacts and other similar
applications. These products have technical commonality to our core metalworking
products. We also sell metallurgical powders to manufacturers of cemented
tungsten carbide products.

2001 2000 1999
---- ---- ----
(IN THOUSANDS)

External sales.................................. $352,933 $345,447 $349,210
Intersegment sales.............................. 28,167 25,263 29,384
Operating income................................ 43,270 41,204 38,693

AMSG sales for 2001 increased four percent compared to 2000, excluding
unfavorable foreign exchange effects of two percent. Sales benefited from robust
growth in energy, mining and engineered products groups due to increased gas and
oil exploration and production, and

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higher demand for coal. This was partially offset by a decline in electronics
which was due to a sharp decline in demand from the telecommunications industry
in the last half of 2001.

Operating income for 2001 was $43.3 million and was reduced by
restructuring costs of $0.9 million, associated primarily with severance costs
for 80 people as part of the core-business resize program, and period costs of
$0.1 million associated with a facility closure. Excluding restructuring and
period costs in each year, operating income declined $2.2 million, or five
percent, due to operating inefficiencies in the electronics business caused by
weak sales, partially offset by sales growth in the other businesses and margin
improvement in the energy and mining businesses. Operating income for 2000 was
reduced by $4.8 million related to the closure of a manufacturing operation in
China and exit of the related joint venture, the closure of a circuit board
drill plant in Janesville, Wisc., employee severance and asset impairment
charges. Additionally, period costs of $0.5 million were incurred in 2000
related to the drill plant closure.

Compared to 1999, AMSG external sales in 2000 increased one percent,
excluding unfavorable foreign exchange effects of two percent, due primarily to
strong demand for electronic circuit board drills, which increased sales by two
percent. This was offset by depressed demand for mining tools in North America
and metallurgical powders as a result of weakness in the underground coal and
oil and gas exploration end markets, which contributed two percent to the sales
decline. Sales to the oil field services end market, contributing one percent to
the sales decline, were soft in the first half of 2000, but showed renewed
demand in the second half.

Operating income in 2000 of $41.2 million increased five percent compared
to 1999, excluding restructuring charges and period costs, due primarily to
higher sales levels, lower manufacturing variances, continued cost controls and
lean manufacturing techniques. Restructuring charges of $5.8 million were
incurred in 1999 related to the write-down of an investment in, and net
receivables from, international operations in emerging markets as a result of
changing market conditions in the regions these operations serve.

J&L Industrial Supply

2001 2000 1999
---- ---- ----
(IN THOUSANDS)

External sales.................................. $296,264 $333,061 $368,579
Intersegment sales.............................. 3,823 5,038 4,259
Operating income................................ 3,689 17,208 19,812

In 2001, J&L sales declined nine percent excluding the effect of the ATS
disposition of one percent and unfavorable foreign exchange effects. Sales were
affected by the automotive downturn and weakening in the broader U.S. industrial
market. Operating income in 2001 of $3.7 million included costs of $8.0 million
associated with the business improvement program and $2.1 million primarily
related to the tender offer to acquire the minority shares of JLK. Excluding
special charges in each period, operating income declined $4.1 million due
primarily to lower sales levels, partially offset by operational improvements
resulting from the business improvement program. As part of a business
improvement plan, J&L recorded a restructuring and asset impairment charge
associated with costs related to product pruning initiatives, severance for 115
individuals, the closure of 11 underperforming satellite locations, including
the German operations, and the exit of three warehouse locations.

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J&L external sales for 2000 were $333.1 million, a decline of six percent
from $368.6 million in 1999 excluding the effects of the divestiture of the
Strong Tool Co. steel mill business in 1999. Net sales decreased primarily due
to weakness in the industrial end markets in both the catalog business and the
acquired distributors, particularly oil field services and aerospace. Operating
income in 2000 declined to $17.2 million primarily due to lower sales levels.
Operating income for 2000 included special charges of $0.6 million for employee
separation costs and $0.2 million of costs related to the evaluation of
strategic alternatives of JLK.

Full Service Supply

2001 2000 1999
---- ---- ----
(IN THOUSANDS)

External sales.................................. $158,886 $158,675 $151,118
Intersegment sales.............................. 5,278 7,827 11,919
Operating income................................ 7,541 12,021 15,043

In 2001, FSS sales were flat compared to 2000 as sales in existing accounts
grew five percent, but was tempered by the downturn in the automotive end
market. This growth also was offset by a decline in the integrated supply
business transferred to FSS in 2001 as this business has relatively higher
exposure to the automotive industry. Operating income for 2001, excluding
restructuring costs of $0.6 million, declined by $3.9 million due to overall
lower gross margins caused by a shift in end markets served and higher operating
expense due to higher shipping costs incurred to provide enhanced customer
service. Restructuring costs in 2001 related to severance costs for eight people
incurred as part of the business improvement program.

FSS external sales for 2000 were $158.7 million, an increase of five
percent from $151.1 million in 1999 due to growth in new and existing FSS
programs. Sales growth in 2000, however, was hampered by start-up issues related
to the implementation of the new business system. Operating income for 2000
declined to $12.0 million from $15.0 million in 1999 due primarily to higher
operating expense due to the implementation of the new business system and
higher sales levels.

LIQUIDITY AND CAPITAL RESOURCES

Our cash flow from operations is the primary source of financing for
capital expenditures, internal growth and debt service payments. The most
significant risks associated with our ability to generate sufficient cash flow
from operations is the overall level of demand for our products. However, we
believe we can adequately control costs and manage our working capital to meet
our cash flow needs, including paying interest on the notes, despite low levels
of demand.

During the nine months ended March 31, 2002, we generated $104.4 million in
cash flow from operations, a decline of $29.1 million compared to the same
period in 2001. The decline resulted from lower earnings in 2002 of $20.1
million and lower non-cash charges in 2002 of $13.7 million, partially offset by
higher working capital improvements of $4.8 million. The working capital
improvement included $17.5 million of proceeds from a new pool of accounts
receivable securitized, partially offset by a $14.3 million reduction in
existing pools of securitized accounts receivable, due to overall lower levels
of accounts receivable resulting from lower sales levels. Periodically, this can
occur when we do not generate sufficient new, qualifying receivables to
replenish the pool as a result of an overall reduction in the level or quality,
or change in the composition of accounts receivable. We believe our cash flow
from operations and borrowing

S-33

capacity provide sufficient alternative sources of liquidity in the event of a
reduction in the level of securitized accounts receivable.

During 2001, we generated $187.6 million in cash from operations, compared
to $221.2 million in 2000. The reduction was due to a decline in working capital
improvements in 2001 after a robust reduction in 2000. The continued reduction
of working capital reflected our initiatives to generate strong cash flow.

Net cash used for investing activities was $30.9 million for the nine
months ended March 31, 2002, a decline of $48.6 million compared to the nine
months ended March 31, 2001. The decline was primarily due to a reduction in the
purchase of minority interests of consolidated subsidiaries of $42.8 million.
Our projection of capital expenditures for 2002 is in the range of $40 to $50
million primarily to purchase equipment for new product manufacturing and to
maintain our facilities. We believe this level of capital spending is sufficient
to maintain competitiveness and improve productivity.

Net cash used for investing activities was $102.5 million in 2001. Compared
to the prior year, the increase in net cash used for investing activities of
$59.4 million was primarily due to the repurchase of JLK and other minority
interests of $47.5 million and increased capital spending of $9.3 million. We
believe the level of capital spending in 2001 was sufficient to improve
productivity and make necessary improvements to remain competitive.

Net cash used for financing activities was $75.9 million for the nine
months ended March 31, 2002, an increase of $19.9 million compared to the nine
months ended March 31, 2001. This increase primarily was due to higher debt
repayments in 2002 of $28.6 million, offset by higher proceeds from employee
stock plans of $5.3 million and lower treasury stock purchases of $4.1 million
in 2002.

Net cash flow used for financing activities was $92.2 million in 2001,
which compares to $173.3 million in 2000. This decline was due to lower debt
repayments of $86.4 million coupled with higher company contributions of capital
stock to U.S. defined contribution pension plans of $11.6 million. In 2001,
these contributions resulted in the issuance of 386,544 shares of our common
stock, with a market value of $10.8 million. These declines were partially
offset by treasury stock repurchases of $16.5 million. Lower debt repayments
were the result of the purchase of the JLK and other minority interests, lower
cash flow from operations and the repurchase of treasury stock.

Substantially concurrent with the closing of this issuance of the notes, we
expect to enter into a $650 million 3-year senior unsecured revolving credit
facility arranged by J.P. Morgan Securities Inc. We cannot assure you that we
will successfully negotiate and arrange this bank credit transaction or a
similar transaction or transactions. We intend to use the new bank credit
facility to refinance our existing bank credit facilities, which are comprised
of a $700 million 5-year revolving credit facility which matures on August 30,
2002, and a E212 million 3-year revolving credit facility which matures on
December 20, 2003. The revolving credit loan under our existing U.S. dollar bank
credit facility is classified as a current liability. The effective interest
rate on the approximately $363 million aggregate principal amount of borrowings
outstanding under our existing U.S. dollar bank credit facility as of March 31,
2002 was 4.77%, including the effect of our interest rate swap agreements. The
effective interest rate on the approximately E180 million aggregate principal
amount of borrowings outstanding under our existing Euro bank credit facility as
of March 31, 2002 was 4.34%.

Our existing bank credit facilities contain financial and operating
covenants, including restrictions on our ability to, among other things, incur
additional debt or create, incur or permit the existence of certain liens, and
require us to achieve and maintain certain financial ratios, including minimum
net worth, maximum leverage ratio and minimum fixed charge coverage ratio. We
expect the new bank credit facility to include similar covenants.

S-34

In September 2001, we continued our program to repurchase, from time to
time, our outstanding capital stock for investment or other general corporate
purposes. We purchased 375,000 shares of our capital stock at a total cost of
$12.4 million. As a result of these repurchases, we have completed our
repurchase program announced January 31, 1997 of 1.6 million shares.
Additionally, we brought the total purchased under the authority of the
repurchase program announced in October 2000 to approximately 0.2 million
shares. We are permitted to repurchase up to 2.0 million shares under the
October 2000 program. The repurchases were financed principally by cash from
operations and short-term borrowings. Repurchases may be made from time to time
in the open market, in negotiated or other permissible transactions.

On June 18, 1999, we entered into an agreement with a financial institution
whereby we securitize, on a continuous basis, an undivided interest in a
specific pool of our domestic trade accounts receivable. We are permitted to
securitize up to $100.0 million of accounts receivable under this agreement. The
financial institution charges us fees based on the level of accounts receivable
securitized under this agreement and the commercial paper market rates plus the
financial institution's cost to administer the program. The costs incurred under
this program, $5.7 million, $5.2 million and $0.2 million in 2001, 2000 and
1999, respectively, are accounted for as a component of other expense, net. At
June 30, 2001 and 2000, we securitized accounts receivable of $93.7 million and
$88.5 million, respectively, under this program. In 1999, the proceeds from the
securitization were used to permanently reduce a portion of our long-term debt.

FINANCIAL CONDITION

Total assets were $1,746.3 million at March 31, 2002, a decline of four
percent compared to June 30, 2001. Net working capital, excluding the revolving
credit loan under the existing U.S. revolving bank credit facility of $362.7
million, was $373.3 million, down three percent from $386.7 million at June 30,
2001. Primary working capital as a percentage of sales (PWC%) at March 31, 2002
was 28.1 percent, compared to 27.3 percent at June 30, 2001 and 27.7 percent at
March 31, 2001. The decline in net working capital was primarily due to lower
sales levels and our focus on controlling growth in these accounts. The increase
in PWC% was due to lower sales levels. Inventory turnover was 3.0 at March 31,
2002 and 3.1 at June 30, 2001, compared to 3.0 at March 31, 2001. The total
debt-to-total capital ratio declined to 39.9 percent at March 31, 2002 from 42.9
percent at June 30, 2001 and 45.1 percent at March 31, 2001 primarily due to
continued focus on debt reduction, despite lower earnings levels.

Primary working capital (PWC) is defined as inventory plus accounts
receivable, less accounts payable. PWC% is calculated by averaging beginning of
the year and quarter-end balances for PWC, divided by sales for the most recent
12-month period. While PWC% is not a defined term under generally accepted
accounting principles in the United States as an alternative measure of asset
utilization efficiency, and may not be comparable to other similarly titled
measures of other companies, we believe PWC% is a meaningful measure of our
efficiency in utilizing working capital to generate sales.

NEW ACCOUNTING STANDARDS

In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities -- a replacement of FASB
Statement No. 125" was issued. SFAS No. 140 revises criteria for accounting for
asset securitizations, other financial-asset transfers and collateral and
introduces new disclosures, but otherwise carries forward most of SFAS No. 125's
provisions without amendment. SFAS No. 140 has an immediate impact through new
disclosure requirements and amendments of the collateral provisions of SFAS No.
125. These changes must be applied for fiscal years ending after December 15,
2000. The adoption of SFAS No. 140 did not significantly affect our financial
condition at June 30, 2001.
S-35

In September 2000, the Emerging Issues Task Force (EITF) finalized EITF
Issue 00-10, "Accounting for Shipping and Handling Fees and Costs," to address
the diversity in the income statement classification of amounts charged to
customers for shipping and handling, as well as for costs incurred related to
shipping and handling. The Issue requires all amounts billed to a customer in a
sale transaction related to shipping and handling to be classified as revenue.
The Issue further requires companies to adopt and disclose a policy on the
accounting for shipping and handling costs. Such costs may not be netted against
revenue, however, disclosure of the amount and classification of these costs is
required if material and not included in cost of goods sold. The adoption of
this Issue in the June 2001 quarter did not affect reported earnings, however,
it resulted in the reclassification of amounts in previously reported financial
statements.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets,"
and SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. We do not believe that the
prospective adoption of this standard will have a material impact on our
consolidated results for 2002.

SFAS No. 142 changes the accounting for goodwill and certain other
intangible assets from an amortization method to an impairment only approach. We
adopted SFAS No. 142 effective July 1, 2001 and therefore, goodwill will no
longer be amortized to earnings. We will continue to amortize all non-goodwill
intangible assets (i.e. patents, non-compete agreements) over their existing
remaining useful lives. We incurred expense in 2001 of $21.0 million related to
amortizing goodwill.

Under SFAS No. 142, all goodwill amortization ceased effective July 1,
2001. Material amounts of recorded goodwill attributable to each of our
reporting units, including those affected by the restructuring program announced
in November 2001, were tested for impairment by comparing the fair value of each
reporting unit with its carrying value. As a result of the adoption of this
rule, we expect to record a non-cash charge of $230 million to $260 million,
specific to the electronics (AMSG segment) and the industrial product group
(MSSG segment) businesses, which were acquired in 1998 as part of Greenfield
Industries. The fair values of these reporting units were determined using a
combination of a discounted cash flow analysis and market multiples based upon
historical and projected financial information. The final phase of testing,
which will narrow this range to an actual charge, is expected to be completed
during the June 2002 quarter. The initial phase of the impairment tests was
required to be performed within six months of adoption of SFAS No. 142, or
December 31, 2001, and is required at least annually thereafter. On an ongoing
basis (absent any impairment indicators), we expect to perform our impairment
tests during the June quarter, in connection with our annual planning process.

Under SFAS No. 142, the impairment adjustment recognized at adoption of
this standard will be reflected as a cumulative effect of a change in accounting
principle, effective July 1, 2001. Impairment adjustments recognized after
adoption, if any, are required to be recognized as a component of operating
expense.

SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. It applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and/or the normal operation of a long-lived asset. We are required
to adopt this standard on July 1, 2002 and are preparing a plan for
implementation.

In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" was issued. SFAS No. 144 addresses financial accounting and
reporting for the impairment of long-lived assets and for long-lived assets to
be disposed of and supersedes SFAS No. 121. This statement retains the
fundamental provisions of SFAS No. 121 for recognition and measurement of the
impairment of long-lived assets to be held and used and
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measurement of long-lived assets to be disposed of by sale. The provisions of
this standard are effective for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years. We are currently evaluating the
effects of this standard and are preparing a plan for implementation.

In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections," was issued.
The Statement updates, clarifies and simplifies existing accounting
pronouncements. While the technical corrections to existing pronouncements are
not substantive in nature, in some instances, they may change accounting
practice. The provisions of this standard related to SFAS No. 13, "Accounting
for Leases," are effective for transactions occurring after May 15, 2002. All
other provisions of this standard must be applied for financial statements
issued on or after May 15, 2002, with early application encouraged. We are
currently evaluating the effects of SFAS No. 145 and are preparing a plan for
implementation.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES

In preparing our financial statements in conformity with accounting
principles generally accepted in the United States, we make judgments and
estimates about the amounts reflected in our financial statements. As part of
our financial reporting process, our management collaborates to determine the
necessary information on which to base our judgments and develop estimates used
to prepare the financial statements. We use historical experience and available
information to make these judgments and estimates. However, different amounts
could be reported using different assumptions and in light of different facts
and circumstances. Therefore, actual amounts could differ from the estimates
reflected in our financial statements. Our significant accounting policies are
described in Note 2 of our audited consolidated financial statements included
elsewhere in this prospectus supplement. We believe that the following
discussion addresses our critical accounting policies.

ACCOUNTING FOR CONTINGENCIES

We accrue for contingencies in accordance with SFAS No. 5, "Accounting for
Contingencies," or when it is probable that a liability or loss has been
incurred and the amount can be reasonably estimated. Contingencies by their
nature relate to uncertainties that require our exercise of judgment both in
assessing whether or not a liability or loss has been incurred and estimating
any amount of potential loss. The most important contingencies affecting our
financial statements include accounts receivable collectibility, inventory
valuation, environmental health and safety matters, pending litigation and the
realization of deferred tax assets.

LONG-LIVED ASSETS

As required under SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," we evaluate the
recoverability of property, plant and equipment and intangible assets other than
goodwill that are amortized whenever events or changes in circumstances indicate
the carrying amount of any such assets may not be fully recoverable. Changes in
circumstances include technological advances, changes in our business model,
capital structure, economic conditions or operating performance. Our evaluation
is based upon, among other things, our assumptions about the estimated future
undiscounted cash flows these assets are expected to generate. When the sum of
the undiscounted cash flows is less than the carrying value, we will recognize
an impairment loss. We continually apply our best judgment when performing these
evaluations to determine the timing of the testing, the undiscounted cash flows
used to assess recoverability and the fair value of the asset.

We evaluate the recoverability of the goodwill and other intangible assets
that are not amortized attributable to each of our reporting units as required
under SFAS No. 142, by

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comparing the fair value of each reporting unit with its carrying value. The
fair values of our reporting units are determined using a combination of a
discounted cash flow analysis and market multiples based upon historical and
projected financial information. We continually apply our best judgment when
performing these evaluations to determine the reasonableness of the financial
projections used to assess the fair value of each reporting unit.

PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

We sponsor these types of benefit plans for a majority of our employees and
retirees. We account for these plans as required under SFAS No. 87, "Employers'
Accounting for Pensions," SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," and SFAS No. 112, "Employer's
Accounting for Postemployment Benefits." Accounting for the cost of these plans
requires the estimation of the cost of the benefits to be provided well into the
future and attributing that cost over the expected work life for each employee
participating in these plans. This estimation requires our judgment about the
discount rate used to determine these obligations, expected return on plan
assets, rate of future compensation increases, rate of future health care costs,
withdrawal and mortality rates and participant retirement age. Differences
between our estimates and actual results may significantly affect the cost of
our obligations under these plans.

RESTRUCTURING ACTIVITIES

We accrue the cost of our restructuring activities in accordance with
Emerging Issues Task Force Issue 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)," depending upon the facts and
circumstances surrounding the situation. We exercise our judgment in estimating
the total costs of each of these activities. As we implement these activities,
the actual costs may differ from the estimated costs due to changes in the facts
and circumstances that were not foreseen at the time of our initial cost
accrual.

COMMITMENTS AND CONTINGENCIES

We are not aware of factors that are reasonably likely to adversely affect
liquidity trends or increase our risk beyond the risk factors outlined herein
and in other filings with the SEC.

PURCHASE COMMITMENTS

We have purchase commitments for materials, supplies and plant and
equipment as part of the ordinary conduct of business. A few of these
commitments extend beyond one year and are based on minimum purchase
requirements. In the aggregate, we believe these commitments are not at prices
in excess of current market.

OPERATING LEASES

We have entered into operating leases for certain of our manufacturing
facilities, warehouses, equipment and office buildings. The effect of these
operating leases is not considered significant in relation to our annual cash
flow from operations and total outstanding debt.

OTHER CONTRACTUAL OBLIGATIONS

We do not have material financial guarantees or other contractual
commitments that are reasonably likely to adversely affect our liquidity.

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RELATED PARTY TRANSACTIONS

We do not have any related party transactions that affect our operations,
results of operations, cash flow or financial condition.

ENVIRONMENTAL MATTERS

We are involved in various environmental cleanup and remediation activities
at several of our manufacturing facilities. In addition, we are currently named
as a potentially responsible party (PRP) at several Superfund sites in the
United States. In December 1999, we recorded a remediation reserve of $3.0
million with respect to our involvement in these matters, which is recorded as a
component of operating expense. This represents our best estimate of the
undiscounted future obligation based on our evaluations and discussions with
outside counsel and independent consultants, and the current facts and
circumstances related to these matters. We recorded this liability because
certain events occurred, including the identification of other PRPs, an
assessment of potential remediation solutions and direction from the government
for the remedial action plan, that clarified our level of involvement in these
matters and our relationship to other PRPs. This led us to conclude that it was
probable that a liability had been incurred. Through March 31, 2002, we have
incurred costs of $0.4 million, which were charged to this accrual.

In addition to the amount currently reserved, we may be subject to loss
contingencies related to these matters estimated to be up to an additional $3.0
million. We believe that such undiscounted unreserved losses are reasonably
possible but are not currently considered to be probable of occurrence. The
reserved and unreserved liabilities could change substantially in the near term
due to factors such as the nature and extent of contamination, changes in
remedial requirements, technological changes, discovery of new information, the
financial strength of other PRPs, the identification of new PRPs and the
involvement of and direction taken by the government on these matters.

We maintain a Corporate Environmental, Health and Safety (EH&S) Department,
as well as an EH&S Policy Committee, to ensure compliance with environmental
regulations and to monitor and oversee remediation activities. In addition, we
have established an EH&S administrator at each of our global manufacturing
facilities. Our financial management team periodically meets with members of the
Corporate EH&S Department and the Corporate Legal Department to review and
evaluate the status of environmental projects and contingencies. On a quarterly
basis, we establish or adjust financial provisions and reserves for
environmental contingencies in accordance with SFAS No. 5, "Accounting for
Contingencies."

MARKET RISK

We are exposed to certain market risks arising from transactions that are
entered into in the normal course of business. We seek to minimize these risks
through our normal operating and financing activities and, when considered
appropriate, through the use of derivative financial instruments. We do not
enter into derivative transactions for speculative purposes and therefore hold
no derivative instruments for trading purposes. Our objective in managing these
exposures is to reduce both earnings and cash flow volatility to allow us to
focus our attention on our core-business operations. We hedge our foreign
exchange and interest rate exposures in a manner that dampens the effect of
changes in foreign exchange and interest rates on consolidated results.

A portion of our operations consists of investments in foreign
subsidiaries. Our exposure to market risk for changes in foreign exchange rates
arises from these investments, intercompany loans utilized to finance these
subsidiaries, trade receivables and payables, and firm commitments arising from
international transactions. We manage our foreign exchange transaction risk to
reduce the volatility of cash flows caused by currency fluctuations through
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internal natural offsets, to the fullest extent possible, and foreign exchange
contracts. These contracts are designated as hedges of transactions, which will
settle in future periods, that otherwise would expose us to foreign currency
risk.

In December 2000, we entered into Euro-denominated forward contracts to
hedge the foreign exchange exposure of our net investment in Euro-based
subsidiaries. Our objective for entering into these contracts was to reduce our
exposure to fluctuations in accumulated other comprehensive loss due to exchange
rate fluctuations. These forward contracts had a notional amount of E212.0
million and matured in January 2001.

On January 8, 2001, we borrowed E212.0 million under our existing Euro
revolving bank credit facility to meet this obligation and designated the
foreign exchange exposure under this agreement as a hedge of our net investment
in Euro-based subsidiaries. The objective for this designation was to reduce our
exposure to fluctuations in accumulated other comprehensive loss due to exchange
rate fluctuations. Future changes in the value of borrowings under the existing
Euro revolving bank credit facility due to exchange rate fluctuations will be
recorded as a component of cumulative translation adjustment, net of tax. At
June 30, 2001, a hypothetical change of 10 percent in exchange rates would
result in a $17.9 million increase or decrease in the outstanding balance and a
$10.7 million increase or decrease in the cumulative translation adjustment.

Our foreign exchange hedging program protects portions of our currency
exposure from unfavorable exchange rate movements. This exposure arises from
anticipated cash collections from foreign subsidiaries on transactions between
domestic and foreign subsidiaries. This program utilizes purchased options,
range forwards and forward contracts primarily to sell foreign currency. The
notional amounts of the contracts translated into U.S. dollars at June 30, 2001
and 2000 rates were $77.9 million and $121.7 million, respectively. At June 30,
2001, a hypothetical 10 percent strengthening or weakening of the U.S. dollar
would not materially change pretax income related to these positions; however,
accumulated other comprehensive loss would change by $1.5 million. At June 30,
2000, a hypothetical 10 percent strengthening of the U.S. dollar would result in
an increase in pretax income of $7.8 million, while a 10 percent weakening of
the U.S. dollar would result in a decrease in pretax income of $3.2 million,
related to these positions.

In June 2001, we accelerated the payment of intercompany sales of product
from certain foreign subsidiaries. While this transaction did not affect
consolidated June 30, 2001 results, it eliminated a significant portion of
hedged anticipated transactions, and therefore, we unwound and discontinued
hedge accounting for the related derivative contracts. This resulted in the
recognition of gains of $0.6 million, net of hedge ineffectiveness of $0.2
million, as a component of other expense, net. A portion of the gain, $0.2
million, has been deferred in accumulated other comprehensive loss and will be
recognized in 2002 as the remaining portion of the anticipated transactions are
expected to occur in 2002.

In addition, we may enter into forward contracts to hedge transaction
exposures or significant cross-border intercompany loans by either purchasing or
selling specified amounts of foreign currency at a specified date. At June 30,
2001 and 2000, we had several outstanding forward contracts to sell foreign
currency, with notional amounts, translated into U.S. dollars at June 30, 2001
and 2000 rates, of $31.8 million and $26.7 million, respectively. A hypothetical
10 percent change in the applicable 2001 and 2000 year-end exchange rates would
result in an increase or decrease in pretax income of $1.6 million and $0.8
million, respectively, related to these positions.

Our exposure to market risk for changes in interest rates relates primarily
to our long-term debt obligations. We seek to manage our interest rate risk in
order to balance our exposure between fixed and floating rates while attempting
to minimize our borrowing costs. To achieve these objectives, we primarily use
interest rate swap agreements to manage exposure to interest
S-40

rate changes related to our borrowings. At June 30, 2001 and 2000, we had
interest rate swap agreements outstanding that effectively convert a notional
amount of $200.0 million and $300.0 million, respectively, of debt from floating
to fixed interest rates. At June 30, 2001, these agreements mature at various
times between April 2002 and June 2003.

At June 30, 2001 and 2000, we had $607.1 million and $699.2 million,
respectively, of debt outstanding at effective interest rates of 5.60 percent
and 7.11 percent, respectively, including the effect of interest rate swaps. A
hypothetical change of 10 percent in our effective interest rate from year-end
2001 and 2000 levels would increase or decrease interest expense by
approximately $2.1 million and $3.0 million, respectively.

We are exposed to counterparty credit risk for nonperformance and, in the
unlikely event of nonperformance, to market risk for changes in interest and
currency rates. We manage exposure to counterparty credit risk through credit
standards, diversification of counterparties and procedures to monitor
concentrations of credit risk. We do not anticipate nonperformance by any of the
counterparties.

We recently experienced higher energy and raw material costs due to
external market forces. In 2001, we were able to offset the effect of rising
prices through cost reduction initiatives, price increases on products sold to
customers and existing long-term purchase contracts. We believe our competition
also experienced this trend. We will continue to make supply arrangements that
meet the future planned operating requirements in a cost-effective manner, but
cannot predict that future price increases will not have a material affect on
our consolidated results.

Our investment in Toshiba Tungaloy is classified as an available-for-sale
security and, therefore, is carried at its quoted market value, adjusted for
changes in currency exchange rates. At June 30, 2001 and 2000, the carrying and
fair value of our investment was $12.4 million and $27.6 million, respectively.
A hypothetical change of 10 percent in the quoted market value of this common
stock at June 30, 2001 and 2000 would result in a $1.2 million and $2.8 million,
respectively, increase or decrease in fair value.

EFFECTS OF INFLATION

Despite modest inflation in recent years, rising costs continue to affect
our operations throughout the world. We strive to minimize the effects of
inflation through cost containment, productivity improvements and price
increases under highly competitive conditions.

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BUSINESS

OVERVIEW

We are a leading global manufacturer, marketer and distributor of a broad
range of cutting tools, tooling systems, supplies and technical services, as
well as wear-resistant parts.

We specialize in developing and manufacturing metalworking tools and
wear-resistant parts using a specialized type of powder metallurgy. Our
metalworking tools are made of cemented tungsten carbides, ceramics, cermets,
high-speed steel and other hard materials. We also manufacture and market a
complete line of toolholders, toolholding systems and rotary cutting tools by
machining and fabricating steel bars and other metal alloys. We also manufacture
tungsten carbide products used in engineered applications, mining and highway
construction, and other similar applications, including circuit board drills,
compacts and metallurgical powders.

BUSINESS STRATEGY

- Provide Superior Customer Service, Product Availability and Technical
Support. Our skills in rapidly filling orders, maintaining high levels
of product availability and providing technical product application
support are vital to the ability of our customers to meet their
production and delivery schedules in a cost-effective manner. Our
sophisticated order entry and inventory management systems enable us to
ship more than 90 percent of our products from stock. In addition, our
technically skilled sales force of more than 900 people provides product
selection and application support to enable customers to optimize their
industrial processes.

- Maintain Commitment to Strong Balance Sheet and Cash Flow Generation. We
are firmly committed to maintaining a strong financial profile. We have
generated consistent levels of
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free operating cash flow since 1999 and expect to generate at least $100
million of free cash flow each year in the future. In addition,
management has reduced the ratio of total debt to total capital from
51.9% at June 30, 1999 to 39.9% at March 31, 2002 (before we record the
non-cash charge related to the adoption of SFAS No. 142).

BUSINESS SEGMENT REVIEW

Metalworking Solutions & Services Group -- MSSG

In the MSSG segment, we provide consumable metalcutting tools and tooling
systems to manufacturing companies in a wide range of industries throughout the
world. Metalcutting operations include turning, boring, threading, grooving,
milling and drilling. Our tooling systems consist of a steel toolholder and an
indexable cutting tool such as an insert or drill made from cemented tungsten
carbides, high-speed steel and other hard materials. Other cutting tools include
end mills, reamers and taps. We provide solutions to our customers' metalcutting
needs through engineering services aimed at improving their competitiveness. We
also manufacture cutting tools, drill bits, saw blades and other tools for the
consumer market which are marketed under private label and other proprietary
brands.

During a metalworking operation, the toolholder is positioned in a machine
that provides the turning power. While the workpiece or toolholder is rapidly
rotating, the cutting tool insert or drill contacts the workpiece and cuts or
shapes the workpiece. The cutting tool insert or drill is consumed during use
and must be replaced periodically.

We serve a wide variety of industries that cut and shape metal parts
including manufacturers of automobiles, trucks, aerospace components, farm
equipment, oil and gas drilling and processing equipment, railroad, marine,
power generation equipment, machinery, appliances, factory equipment and metal
components, as well as the job shops and maintenance operations. We deliver our
products to customers through a direct field sales force, distribution,
integrated supply programs, mail-order and e-business.

Advanced Materials Solutions Group -- AMSG

In the AMSG segment, our principal business is the production and sale of
cemented tungsten carbide products used in mining and highway construction,
engineered applications, including circuit board drills, compacts and other
similar applications. These products have technical commonality to our core
metalworking products. We also sell metallurgical powders to manufacturers of
cemented tungsten carbide products. We also provide application specific
component design services and on-site application support services.

Our mining and construction tools are fabricated from steel parts and
tipped with cemented carbide. Mining tools, used primarily in the coal industry,
include longwall shearer and continuous
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miner drums, blocks, conical bits, drills, pinning rods, augers and a wide range
of mining tool accessories. Highway construction cutting tools include
carbide-tipped bits for ditching, trenching and road planing, grader blades for
site preparation and routine roadbed control, and snowplow blades and shoes for
winter road plowing. We produce these products for mine operators and suppliers,
highway construction companies, municipal governments and manufacturers of
mining equipment. We believe we are the world market leader in mining and
highway construction tooling.

Our customers use engineered products in manufacturing or other operations
where extremes of abrasion, corrosion or impact require combinations of hardness
or other toughness afforded by cemented tungsten carbides or other hard
materials. We sell these products through a direct field sales force and
distribution. We believe we are the largest independent supplier of oil field
compacts in the world. Compacts are the cutting edges of oil well drilling bits,
which are commonly referred to as "rock bits."

J&L Industrial Supply -- J&L

In this segment, we provide metalworking consumables and related products
to small- and medium-sized manufacturers in the United States and the United
Kingdom. J&L markets products and services through annual mail-order catalogs
and monthly sales flyers, telemarketing, retail stores, the Internet and field
sales. J&L distributes a broad range of metalcutting tools, abrasives, drills,
machine tool accessories, precision measuring tools, gauges, hand tools and
other supplies used in metalcutting operations. The majority of industrial
supplies distributed by J&L are purchased from other manufacturers, although the
product offering does include Kennametal-manufactured items.

Full Service Supply -- FSS

In the FSS segment, we provide metalworking consumables and related
products to medium-and large-sized manufacturers in the United States and
Canada. FSS offers integrated supply programs that provide inventory management
systems, just-in-time availability and programs that focus on total cost
savings. Through FSS programs, large commercially-oriented customers seeking a
single source of metalcutting supplies engage us to carry out all aspects of
complex metalworking supply processes, including needs assessment, cost
analysis, procurement planning, supplier selection, "just-in-time" restocking of
supplies and ongoing technical support.

INTERNATIONAL OPERATIONS

Our principal international operations in the MSSG and AMSG segments are
conducted in Western Europe, Canada, the Asia Pacific region, South Africa and
Mexico. In addition, we have manufacturing and/or distribution in Israel and
South America, and sales agents, distributors and joint ventures in Eastern
Europe and other areas of the world. Our Western European operations are
integral to our U.S. operations, however, the diversification of our overall
operations tend to minimize the impact on total sales and earnings of changes in
demand in any one particular geographic area.

MARKETING AND DISTRIBUTION

We sell our manufactured products through the following distinct sales
channels: (1) a direct sales force; (2) integrated supply and FSS programs; (3)
retail showrooms; (4) mail-order catalogs; (5) a network of independent
distributors and sales agents in the United States and certain international
markets; and (6) the Internet. Service engineers and technicians directly assist
customers with product design, selection and application. In addition, we sell
purchased products through FSS programs, retail showrooms, mail-order catalogs
and the Internet.

S-44

We market our products under various trademarks and tradenames, such as
Kennametal*, Hertel*, the letter K combined with other identifying letters
and/or numbers*, Block Style K*, Kendex*, Kenloc*, KennaMAX*, Top Notch*,
Erickson*, Kyon*, KM*, Drill-Fix*, Fix-Perfect*, Disston*, Chicago Latrobe*,
Putnam*, Greenfield*, RTW* and Cleveland*. We also sell products to customers
who resell these products under the customers' names or private labels.

RAW MATERIALS AND SUPPLIES

Major metallurgical raw materials consist of ore concentrates, compounds
and secondary materials containing tungsten, tantalum, titanium, niobium and
cobalt. Although adequate supply of these raw materials currently exists, our
major sources for raw materials are located abroad and prices at times have been
volatile. For these reasons, we exercise great care in the selection, purchase
and inventory availability of raw materials. We also purchase steel bars and
forgings for making toolholders, high-speed steel and other tool parts, rotary
cutting tools and accessories. We obtain products purchased for use in
manufacturing processes and for resale from thousands of suppliers located in
the United States and abroad.

RESEARCH AND DEVELOPMENT

Our product development efforts focus on providing solutions to our
customers' manufacturing problems and productivity requirements. We use a
program, ACE or Achieving a Competitive Edge, to provide discipline and focus
for the product development process by establishing "gateways," or sequential
tests, during the development process to remove inefficiencies and accelerate
improvements. ACE speeds and streamlines development into a series of actions
and decision points, combining effort and resources to produce new and enhanced
products, faster. ACE assures a strong link between customer needs and corporate
strategy, and enables us to gain full benefit from our investment in new product
development.

Research and development expenses totaled $18.9 million, $19.2 million and
$18.8 million in 2001, 2000 and 1999, respectively. Additionally, certain costs
associated with improving manufacturing processes are included in cost of goods
sold. We hold a number of patents and licenses, which, in the aggregate, are not
material to the operation of our businesses.

SEASONALITY

Our business is not materially affected by seasonal variations. However, to
varying degrees, traditional summer vacation shutdowns of metalworking
customers' plants and holiday shutdowns often affect our sales levels during the
first and second quarters of our fiscal year.

BACKLOG

Our backlog of orders generally is not significant to our operations. We
fill approximately 90 percent of all orders from stock, and the balance
generally is filled within short lead times.

INDUSTRY OVERVIEW

- Continuing advances in customers' metalworking manufacturing technology,
requiring more technologically advanced tools;

---------------

* Trademark owned by us or one of our subsidiaries.
S-45

- Demand for world class capabilities including customer service, technical
application support and information and product technology while, at the
same time, maintaining or reducing costs;

- Growing demand for suppliers that can provide a complete selection of
tools, supplies and services globally;

- Increasing demand from large customers to outsource procurement and
inventory management processes through integrated supply programs; and

- Consolidation of manufacturing and of fragmented distribution channels as
customers seek a single source of supply for their metalworking needs.

COMPETITION

We are one of the world's leading producers of cemented carbide tools and
high-speed steel tools, and maintains a strong competitive position, especially
in North America and Europe. We actively compete in the sale of all our
products, with approximately 40 companies engaged in the cemented tungsten
carbide business in the United States and many more outside the United States.
Several competitors are divisions of larger corporations. In addition, several
hundred fabricators and toolmakers, many of whom operate out of relatively small
shops, produce tools similar to ours and buy the cemented tungsten carbide
components for such tools from cemented tungsten carbide producers, including
us. Major competition exists from both U.S.-based and international-based
concerns. In addition, we compete with thousands of industrial supply
distributors.

The principal elements of competition in our businesses are service,
product innovation, quality, availability and price. We believe that our
competitive strength rests on our customer service capabilities, including
multiple distribution channels, our global presence, state-of-the-art
manufacturing capabilities, ability to develop solutions to customer needs
through new and improved tools, and the consistent high quality of our products.
Based upon our strengths, we are able to sell products based on the value added
to the customer rather than strictly on competitive prices.

REGULATION

Compliance with government laws and regulations pertaining to the discharge
of materials or pollutants into the environment or otherwise relating to the
protection of the environment did not have a material effect on our capital
expenditures or competitive position for 2001, nor is such compliance expected
to have a material effect in the future.

EMPLOYEES

We employed approximately 11,800 persons at March 31, 2002, of which
approximately 7,600 were located in the United States and 4,200 in other parts
of the world, principally Europe and Asia Pacific. At June 30, 2001,
approximately 2,400 employees were represented by labor unions, of which
approximately 600 were hourly-rated employees located at five plants in the
United States. The remaining 1,800 employees represented by labor unions were
employed at fourteen locations outside of the United States. We consider our
labor relations to be generally good.

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MANAGEMENT

OFFICERS

NAME, AGE, AND POSITION EXPERIENCE DURING PAST FIVE YEARS(2)
----------------------- ------------------------------------

Markos I. Tambakeras, 51(1)(3)............ President and Chief Executive Officer since July 1,
President and Chief Executive Officer 1999. Formerly, employed by Honeywell Inc. as President
of Industrial Controls Business from 1997 to 1999.
William R. Newlin, 61(1)(3)............... Chairman of the Board since October 1996. Director since
Chairman of the Board 1982.
David B. Arnold, 62(1).................... Vice President since 1979. Chief Technical Officer since
Vice President, Chief Technical Officer 1988.
James R. Breisinger, 52(1)................ Vice President since 1990. Chief Operating Officer,
Vice President, Chief Operating Officer, Advanced Materials Solutions Group since August 2000.
Advanced Materials Solutions Group Chief Financial Officer from September 1998 to August
2000. Chief Operating Officer, Greenfield Industries,
Inc. from March through September 1998. Corporate
Controller from 1994 to 1998.
M. Rizwan Chand, 38(1).................... Vice President since May 2000. Previously, Vice
Vice President, Chief Human Resources President, Human Resources for Aetna International in
Officer 1999. Previously, with Mary Kay Inc. as Senior Vice
President, Global Human Resources from 1996 to 1999.
Stanley B. Duzy, Jr., 55(1)............... Vice President since November 1999. Formerly, employed
Vice President Business Development and by Honeywell Inc. as Vice President of Industrial
Administration Controls Business from 1998 to 1999 and Vice President
and Controller, Asia Pacific from 1992 to 1997.
Derwin R. Gilbreath, 54(1)................ Vice President since January 1997. Chief Operating
Vice President, Chief Operating Officer, Officer, Metalworking Solutions & Services Group since
Metalworking Solutions & Services Group August 2000. Chief Operating Officer, Greenfield
Industries Inc. from September 1998 to August 2000.
Director of Global Manufacturing from 1995 to 1998.
F. Nicholas Grasberger III, 38(1)......... Vice President and Chief Financial Officer since August
Vice President, Chief Financial Officer 2000. Formerly, Corporate Treasurer, H.J. Heinz Company
from 1997 to 2000.
David W. Greenfield, 52(1)................ Vice President, Secretary and General Counsel since
Vice President, Secretary and General October 2001. Formerly a member of Buchanan Ingersoll
Counsel Professional Corporation (attorneys-at-law) July 2000 to
September 2001. Special Counsel for ArvinMeritor (a
provider of components for vehicles) from February 1999
to July 2000. Senior Vice President, General Counsel and
Secretary for Meritor Automotive, Inc. (predecessor to
ArvinMeritor) from May 1997 to February 1999.
Timothy A. Hibbard, 45.................... Elected Corporate Controller and Chief Accounting
Corporate Controller and Chief Officer in February 2002. Director of Finance for the
Accounting Officer Advanced Materials Solutions Group from September 2000
to February 2002. Vice President and Controller of
Greenfield Industries Inc. from October 1998 to
September 2000. Division Controller of Mining &
Construction Division from April 1998 to October 1998.
Vice President, Finance, Automotive Remanufacturers,
Inc. prior thereto.

S-47

NAME, AGE, AND POSITION EXPERIENCE DURING PAST FIVE YEARS(2)
----------------------- ------------------------------------

Brian E. Kelly, 39........................ Assistant Treasurer and Director of Tax since September
Assistant Treasurer, Director of Tax 1998. Manager of Corporate Tax from 1996 to 1998.
Lawrence J. Lanza, 53..................... Assistant Treasurer and Director of Treasury Services
Assistant Treasurer, Director of since April 1999. Previously, Director, Global Capital
Treasury Services Markets for CBS Corporation, formerly Westinghouse
Electric Corporation, from 1972 to 1998.
H. Patrick Mahanes, Jr., 59(1)............ Vice President since 1987. Executive Vice President,
Executive Vice President, Global Global Strategic Initiatives since 2000. Chief Operating
Strategic Initiatives Officer from 1995 to August 2000.
James E. Morrison, 51..................... Vice President since 1994. Treasurer since 1987.
Vice President, Treasurer
Wayne D. Moser, 49(4)..................... Vice President since 1998. Formerly, General Manager,
Vice President, Integration Mining & Construction from 1997 to 2002.
Ralph G. Niederst, 51(1).................. Vice President since May 2000. Formerly, Director of
Vice President, Chief Information Management Information Technology at Harsco
Officer Corporation's Heckett Multiserv from 1995 to 2000.
Kevin G. Nowe, 49......................... Assistant General Counsel since 1992 and Assistant
Assistant Secretary, Assistant General Secretary since 1993.
Counsel
Ajita G. Rajendra, 50..................... Vice President since 1998. General Manager of Industrial
Vice President, General Manager, Products Group since 1997. Vice President of the
Industrial Products Group Electronic Products Group of Greenfield Industries Inc.
from 1996 to 1997.
P. Mark Schiller, 54...................... Vice President since 1992. Director of Kennametal
Vice President, Director of Kennametal Distribution Services since 1990.
Distribution Services
Michael P. Wessner, 41(1)................. Vice President since January 2001. Formerly, Chief
Vice President, Chief Operating Officer, Executive Officer, Emco/ESS Holdings from 1999 to 2000
J&L Industrial Supply and Vice President, Midwest Region for Office Depot from
1995 to 1999.

---------------
Notes:

(1) Executive officer.

(2) Each officer has been elected by the Board of Directors to serve until
removed or until a successor is elected and qualified, and has served
continuously as an officer since first elected.

(3) Mr. Newlin will be stepping down as Chairman of the Board effective July 1,
2002, and will assume the role of lead director and will continue to chair
the Executive Committee of the Board of Directors. Mr. Tambakeras will
become Chairman of the Board effective July 1, 2002.

(4) Mr. Moser has been selected to lead the integration of Widia and Kennametal.

S-48

DIRECTORS

NAME, AGE AND YEAR PRINCIPAL OCCUPATION AND DIRECTORSHIPS OF OTHER
FIRST ELECTED(1) PUBLICLY TRADED CORPORATIONS(2)
------------------ -----------------------------------------------

>Richard C. Alberding..................... Retired, having served as Executive Vice President,
Age: 71 Marketing and International, of Hewlett-Packard Company
Director since 1982 (a designer and manufacturer of electronic products for
measurement and computation). Director of Walker
Interactive Systems, Inc., Sybase, Inc., PC TEL, DMC
Stratex Network, and Quick Eagle Networks. Former
director of Quickturn Design Systems, Inc., Storm
Technology, Inc. and Paging and Networks, Inc.
Peter B. Bartlett(3)...................... General Partner of Brown Brothers Harriman & Co. (a
Age: 68 private bank). Former director of Erie Indemnity
Director since 1975 Company, Erie Life Insurance Company and Erie Insurance
Company.
Ronald M. DeFeo........................... Chairman of the Board of Terex Corporation, a global
Age: 50 manufacturer of equipment for the construction and
Director since 2001 mining industries, since May 1998; Chief Executive
Officer of Terex since 1994 and President and Chief
Operating Officer since 1993. Director of United Rentals
Inc.
A. Peter Held............................. President of Cooper Tools, a division of Cooper
Age: 58 Industries, Inc. (a manufacturer and marketer of hand
Director since 1995 tools and industrial power tools), having previously
served as Vice President and General Manager
International of its Champion Spark Plug Division from
1992 to 1994. Director of Loxcreen, Inc.
Kathleen J. Hempel........................ From 1992 to 1997, served as Vice Chairman and Chief
Age: 51 Financial Officer of Fort Howard Corporation
Director since 2000 (manufacturer, converter and marketer of sanitary tissue
products) having previously served as Senior Executive
Vice President and Vice President of Human Resources.
Director of Oshkosh Truck Corporation, A.O. Smith
Corporation, Whirlpool Corporation, Visteon Corporation
and Actuant Corporation.
Aloysius T. McLaughlin, Jr................ Retired, having served as Vice Chairman of Dick
Age: 67 Corporation (a general contractor) from 1993 to 1995 and
Director since 1986 as its President and Chief Operating Officer from 1985
until 1993.
William R. Newlin(4)...................... Chairman of the Board of Directors of Kennametal.
Age: 61 President and Chief Executive Officer of Buchanan
Director since 1982 Ingersoll Professional Corporation (attorneys at law)
since 1980. Managing General Partner of CEO Venture
Funds (private venture capital funds). Director of Black
Box Corporation, National City Bank of Pennsylvania,
Parker/ Hunter Incorporated and the Pittsburgh
Technology Council.

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NAME, AGE AND YEAR PRINCIPAL OCCUPATION AND DIRECTORSHIPS OF OTHER
FIRST ELECTED(1) PUBLICLY TRADED CORPORATIONS(2)
------------------ -----------------------------------------------

Markos I. Tambakeras...................... President and Chief Executive Officer of Kennametal
Age: 51 since July 1999. Mr. Tambakeras will become Chairman of
Director since 1999 the Board of Kennametal effective July 1, 2002. From
1997 to June 1999, served as President, Industrial
Controls Business of Honeywell Incorporated (provider of
control technologies), having previously served as
President, Industrial Automation and Control, Honeywell
Incorporated from 1995 to 1996 and as President,
Honeywell Asia Pacific in Hong Kong from 1992 to 1994.
Director of ITT Industries, Inc.
Larry D. Yost............................. Chairman and Chief Executive Officer of ArvinMeritor,
Age: 64 Inc. (a provider of components for vehicles), having
Director since 1987 previously served as President, Heavy Vehicle Systems,
Rockwell International Corporation, from November 1994
until March 1997 and as Senior Vice President of the
Operations Group of Allen-Bradley Company until November
1994.

---------------
(1) Each current director has served continuously since such director was first
elected.

(2) Unless otherwise shown in the table, each person named has served in such
person's principal occupation during the past five years.

(3) We engaged Brown Brothers Harriman & Co., the banking firm of which Peter B.
Bartlett is a General Partner, to perform services for Kennametal during
fiscal 2001 and fiscal 2002.

(4) Mr. Newlin will be stepping down as Chairman of the Board effective July 1,
2002, and will assume the role of lead director and will continue to chair
the Executive Committee of the Board. We engaged Buchanan Ingersoll
Professional Corporation, the law firm of which Mr. Newlin is President and
Chief Executive Officer, to perform services for Kennametal during fiscal
2001 and fiscal 2002.

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DESCRIPTION OF THE NOTES

GENERAL

We will issue the notes under an indenture between us and the trustee, Bank
One Trust Company, N.A., dated June 19, 2002 and supplemented on June 19, 2002.
This prospectus supplement briefly outlines some of the provisions of the
indenture, as supplemented. If you would like more information on these
provisions, review the indenture and its supplement that we will file with the
SEC. See "Where You Can Find More Information" in this prospectus supplement on
how to locate the indenture and its supplement. You may also review the
indenture and its supplement at the trustee's offices at 100 Broad Street,
Columbus, Ohio 43215.

The indenture does not limit the amount of notes that may be issued. The
notes issued in this offering will be in an initial principal amount of $300
million.

The notes will be denominated in U.S. dollars and we will pay principal and
interest in U.S. dollars. The notes will not be subject to any conversion,
amortization, or sinking fund. We will issue the notes only in fully registered
book-entry form without coupons in denominations of $1,000 and integral
multiples of $1,000, except in the limited circumstances discussed below. You
may transfer or exchange the notes without charge at the trustee's Corporate
Trust Office in New York City, or at any other office or agency that we maintain
for such purpose.

The indenture permits us and our subsidiaries to incur additional secured
and unsecured debt. Subject to the limitations described under the section
"-- Consolidation, Merger or Sale," the indenture does not contain any other
provisions that would protect you from (1) a highly leveraged or similar
transaction involving Kennametal; (2) a change of control or (3) a
reorganization, restructuring, merger or similar transaction involving
Kennametal that may adversely affect you. In addition, subject to the
limitations described in "-- Consolidation, Merger or Sale," we may, in the
future, sell all of our assets or merge or consolidate with another entity.
Indebtedness which we would incur as a result of such a transaction could impair
our ability to perform our obligations with respect to the notes.

In the discussion that follows, whenever we talk about paying principal on
the notes, we mean at maturity or redemption. Also, in discussing the time for
notices and how the different interest rates are calculated, all times are New
York City time, unless otherwise noted.

INTEREST RATES AND MATURITY

The notes bear interest at a rate of 7.20% per annum. In each case, the
notes will bear interest from June 19, 2002, or from the most recent interest
payment date to which interest has been paid or duly provided for, and will be
payable semi-annually in cash. We will pay interest on the notes on June 15 to
persons who were registered holders at the close of business on June 1 and on
December 15 to persons who were registered holders at the close of business on
December 1, of each year. The first such payment will be made on December 15,
2002. We will pay the principal and interest on the notes at an office or agency
that we will maintain in New York City. However, we may pay such interest by
check mailed to the holder at the address listed in the security register.

The notes mature on June 15, 2012. The notes will not be subject to any
sinking fund.

REDEMPTION

We may redeem notes at our option at any time. Notes are redeemable in
whole or in part in increments of $1,000 upon no more than 60, and at least 30,
days' prior notice. If we do not redeem all the notes at one time, the trustee
selects the notes to be redeemed in a manner it determines to be fair and
appropriate. Unless we default in payment of the redemption price,

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interest on the redeemed notes will cease to accrue on and after the redemption
date. If we redeem the notes, we will pay the holders of the notes being
redeemed the greater of

(1) 100% of the principal amount of their redeemed notes; or

(2) as determined by the Independent Investment Banker, the sum of the
present values of the remaining principal amount and scheduled payments
of interest on the notes to be redeemed (not including any portion of
payments of interest accrued as of the redemption date), discounted to
the redemption date in accordance with customary market practice on a
semi-annual basis at the Treasury Rate plus 40 basis points;

plus, in each case, accrued and unpaid interest on the redeemed notes to the
redemption date.

The present value of payments will be calculated assuming a 360-day year
consisting of twelve 30-day months. For purposes of calculating the redemption
price, the following terms will have the meanings set forth below:

- Comparable Treasury Issue is the United States Treasury security selected
by the Independent Investment Banker as having a maturity comparable to
the remaining term of the notes to be redeemed that would be used, at the
time of selection and in accordance with customary market practice, in
pricing new issues of corporate debt securities of comparable maturity to
the remaining term of the notes.

- Comparable Treasury Price is:

- the average of the bid and asked prices for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) on the third
business day preceding the redemption date, as set forth in the daily
statistical release (or any successor release) published by the
Federal Reserve Bank of New York and designated "Composite 3:30 p.m.
Quotations for U.S. Government Securities," or

- if such release (or any successor release) is not published or does
not contain such prices on such business day:

- the average of the Reference Treasury Dealer Quotations for that
redemption date, after excluding the highest and lowest of the
Reference Treasury Dealer Quotations, or

- If the trustee obtains fewer than three Reference Treasury Dealer
Quotations, the average of all Reference Treasury Dealer Quotations
so received.

- Independent Investment Banker is one of the Reference Treasury Dealers
selected by us.

- Reference Treasury Dealer is each of Goldman, Sachs & Co. and J.P. Morgan
Securities Inc., and their respective successors (if any of these persons
shall cease to be a primary U.S. government securities dealer in New York
City, we will substitute for that person someone who is a primary U.S.
government securities dealer in New York City).

- Reference Treasury Dealer Quotations are the average, as determined by
the trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the trustee by each Reference Treasury Dealer at
5:00 p.m. (New York City time) on the third business day preceding the
redemption date.

- Treasury Rate is the rate per annum equal to the semi-annual equivalent
yield to maturity of a Comparable Treasury Issue, assuming a price for
the Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for the redemption date.

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RANKING

The notes are senior unsecured obligations and will rank equally with all
our existing and future senior unsecured and unsubordinated indebtedness. A
substantial portion of our business is conducted through subsidiaries and the
notes will be effectively subordinated to all liabilities (including trade
payables and guarantees) of our subsidiaries, including guarantees of existing
and future bank credit facilities by certain of our domestic subsidiaries. At
March 31, 2002, on a pro forma basis after giving effect to this notes offering,
our common stock offering, the new bank credit facility and the Widia
acquisition, our subsidiaries would have had approximately $327 million of
indebtedness, including $301 million of guarantees under the new bank credit
facility but excluding intercompany indebtedness. As of March 31, 2002, we had
approximately $9 million of secured indebtedness.

FURTHER ISSUANCES

We may from time to time, without notice to or the consent of the
registered holders of the notes, create and issue further notes ranking equally
and ratably with the notes in all respects (or in all respects except for the
payment of interest accruing prior to the issue date of such further notes or
except for the first payment of interest following the issue date of such
further notes), so that such further notes shall be consolidated and form a
single series with the notes and shall have the same terms as to status,
redemption or otherwise as the notes.

BOOK-ENTRY NOTES -- REGISTRATION, TRANSFER AND PAYMENT OF INTEREST AND PRINCIPAL

Book-entry notes will be issued in the form of global notes that will be
deposited with The Depository Trust Company, New York, New York, or DTC, and
will be registered in the name of Cede & Co. (DTC's nominee). The deposit of
global notes with, or on behalf of, DTC and their registration in the name of
Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the
actual beneficial owners of the global notes representing the notes. DTC's
records reflect only the identity of its participants to whose accounts the
notes are credited, which may or may not be the beneficial owners. The direct
participant remains responsible for keeping account of its holdings on behalf of
its customers.

Conveyance of notices and other communications by DTC to its participants
and by its participants to beneficial owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect.

This means that we will not issue certificates to each actual purchaser of
the notes. Only direct participants in DTC may purchase under DTC's system. One
global note for the notes will be issued and deposited with DTC, who will keep a
computerized record of its participants (for example, your broker) whose clients
have purchased the notes. The participant will then keep a record of its clients
who purchased the notes. Beneficial owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings from the direct participant in DTC. Unless it is
exchanged in whole or in part for a certificated note, a global note may not be
transferred; except that DTC, its nominees, and their successors may transfer a
global note as a whole to one another.

Beneficial interests in global notes will be shown on, and transfers of
global notes will be made only through, records maintained by DTC and its
participants. Beneficial owners of interests in the global notes must rely on
DTC's procedures. Beneficial owners who are not direct participants in DTC must
rely on the direct participant's procedures in order to exercise such owner's
rights under the global note or the indenture and its supplement. The laws of
some jurisdictions require certain purchasers of securities to take physical
delivery of such securities in certificated form. Such laws may impair your
ability to transfer beneficial interests in a global note representing the
notes.

S-53

DTC has provided us the following information regarding DTC.

DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the United States Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered under the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC holds securities that its participants
deposit with DTC. DTC also records the settlement among its participants of
securities transactions, such as transfers and pledges, in deposited securities
through computerized records for its participants' accounts. This eliminates the
need to exchange certificates. The participants in DTC include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations.

DTC's book-entry system is also used by other organizations such as
securities brokers and dealers, and banks and trust companies that work through
a direct participant in DTC. The rules that apply to DTC and its participants
are on file with the SEC.

DTC is owned by a number of its direct participants and by the New York
Stock Exchange, Inc., The American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc.

We will wire principal and interest payments to DTC's nominee. The trustee
and we will treat DTC's nominee as the owner of the global notes for all
purposes. Accordingly, we, the trustee and any paying agent will have no direct
responsibility or liability to pay amounts due on the global notes to owners of
beneficial interests in the global notes.

It is DTC's current practice, upon the date of payment of principal or
interest, to credit its direct participants' accounts on the payment date
according to their respective holdings of beneficial interests in the global
notes as shown on DTC's records unless DTC believes that it will not receive
payment on the payment date. In addition, it is DTC's current practice to assign
any consenting or voting rights of Cede & Co. to its direct participants whose
accounts are credited with notes on a record date, by using an omnibus proxy.
Neither DTC nor Cede & Co. will consent or vote with respect to the global
notes. Payments by participants to owners of beneficial interests in the global
notes will be governed by the customary practices between the participants and
owners of beneficial interests, as is the case with notes held for the account
of customers registered in "street name." However, payments to the owners of the
beneficial interests will be the responsibility of the participants and not of
DTC, the trustee or us.

Notes represented by a global note will be exchangeable for certificated
notes with the same terms in authorized denominations only if:

- DTC notifies us that is unwilling or unable to continue as depositary or
if DTC ceases to be a clearing agency registered under applicable law and
a successor depositary is not appointed by us within 90 days;

- an Event of Default exists under the indenture and its supplement; or

- we determine that the global notes will be exchanged for certificated
notes and notify the trustee of our decision.

CERTIFICATED NOTES -- REGISTRATION, TRANSFER, AND PAYMENT OF INTEREST AND
PRINCIPAL

If we issue certificated notes, they will be registered in the name of the
noteholder. We will obtain the name of the noteholder from DTC's participants.
The notes may be transferred or exchanged, pursuant to administrative procedures
in the indenture, without the payment of any service charge (other than any tax
or other governmental charge) by contacting the paying agent.

S-54

Holders of over $5 million in principal amount of notes can request that
payment of principal and interest be wired to them by contacting the paying
agent at least one business day prior to the payment date. Otherwise, payments
will be made by check.

The underwriters will make settlement for the notes in immediately
available funds. We will make all payments of principal and interest in
immediately available funds. The notes will trade in DTC's Same-Day Funds
Settlement System until maturity, and secondary market trading activity in the
notes will be required by DTC to settle in immediately available funds.

COVENANTS

LIMITATION ON LIENS; SALE AND LEASEBACK TRANSACTIONS

We covenant in the indenture as supplemented that we will not and will not
permit any of our Restricted Subsidiaries to:

(Limitation on Liens) create, incur or otherwise cause to exist or
become effective any Liens (other than Permitted Liens) of any kind on any
asset now owned or hereafter acquired without making effective provision
whereby any and all notes then outstanding will be secured by a Lien
equally and ratably with any and all other obligations thereby secured for
so long as any such obligations are secured;

(Limitation on Sale and Leaseback Transactions) enter into any sale
and leaseback of a Principal Property (except for leases, including
renewals, of five years or less) unless (1) either we or our Restricted
Subsidiary is then permitted under the indenture as supplemented to incur
Indebtedness secured by a Lien on such property or (2) within 180 days
after such sale and leaseback, we apply to the voluntary retirement of
funded debt an amount equal to the greater of the net proceeds of the sale
of the property leased in the sale and leaseback or the fair value (in our
opinion) of the leased property at the time we entered into such sale and
leaseback.

The trustee may waive our compliance with these covenants if the holders of
a majority in aggregate principal amount of the notes consent to the waiver. If
we comply with the defeasance or covenant defeasance provisions of the
indenture, we are not required to comply with such covenants.

KEY DEFINITIONS

- Capitalized Lease Obligation means an obligation that is required to be
classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with generally accepted accounting
principles, and the amount of Indebtedness represented by such obligation
shall be the capitalized amount of such obligation determined in
accordance with such principles.

- Consolidated Net Worth means the excess of Kennametal and its
consolidated subsidiaries' assets over liabilities, plus minority
interest, as determined from time to time in accordance with generally
accepted accounting principles.

- Consolidated Tangible Assets means, on the date of any determination,
total assets less goodwill and other intangibles of Kennametal and its
consolidated subsidiaries, in each case as set forth on the most recently
available consolidated balance sheet of Kennametal and its consolidated
subsidiaries in accordance with generally accepted accounting principles.

- Indebtedness means, with respect to any Person, at any date, any of the
following, without duplication, (1) any liability, contingent or
otherwise, of such Person (A) for borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or
only to a portion thereof), (B) evidenced by a note, bond, debenture or
similar
S-55

instrument or (C) for the payment of money relating to a Capitalized
Lease Obligation or other obligation (whether issued or assumed) relating
to the deferred purchase price of property; (2) all conditional sale
obligations and all obligations under any title retention agreement (even
if the rights and remedies of the seller under such agreement in the
event of default are limited to repossession or sale of such property),
but excluding trade accounts payable arising in the ordinary course of
business; (3) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction other
than entered into in the ordinary course of business; (4) all
indebtedness of others secured by (or for which the holder of such
indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on any asset or property (including, without
limitation, leasehold interests and any other tangible or intangible
property) of such Person, whether or not such indebtedness is assumed by
such Person or is not otherwise such Person's legal liability; provided,
that if the obligations so secured have not been assumed in full by such
Person or are otherwise not such Person's legal liability in full, the
amount of such indebtedness for the purposes of this definition shall be
limited to the lesser of the amount of such indebtedness secured by such
Lien or the fair market value of the assets of the property securing such
Lien; (5) all indebtedness of others (including all interest and
dividends on any Indebtedness or preferred stock of any other Person) for
the payment of which is guaranteed, directly or indirectly, by such
Person or that is otherwise its legal liability or which such Person has
agreed to purchase or repurchase or in respect of which such Person has
agreed contingently to supply or advance funds; and (6) obligations in
respect of Currency Agreements and Interest Swap Obligations (as such
capitalized terms are defined in the indenture).

- Issue Date shall mean the first date on which a note is authenticated by
the trustee pursuant to the indenture.

- Lien means any mortgage, pledge, security interest, encumbrance, lien,
charge or adverse claim affecting title or resulting in an encumbrance
against real or personal property or a security interest of any kind
(including, without limitation, any conditional sale or other title
retention agreement or lease in the nature thereof which is a Capitalized
Lease Obligation).

- Permitted Liens means, with respect to any Person: (1) Liens existing on
the Issue Date; (2) Liens on property or assets of, or any shares of
stock of or secured debt of, any corporation existing at the time such
corporation becomes a Restricted Subsidiary or any of our Restricted
Subsidiaries or at the time such corporation is merged into us or any of
our Restricted Subsidiaries; (3) Liens in favor of us or any of our
Restricted Subsidiaries; (4) Liens in favor of governmental bodies to
secure progress or advance payments; (5) Liens securing industrial
revenue or pollution control bonds; (6) Liens on Property to secure
Indebtedness incurred for the purpose of (a) financing all or any part of
the purchase price of such Property incurred prior to, at the time of, or
within 180 days after, the acquisition of such Property or (b) financing
all or any part of the cost of construction, improvement, development or
expansion of any such Property; (7) statutory liens or landlords',
carriers', warehouseman's, mechanics', suppliers', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provisions, if any, as shall be required in conformity with
generally accepted accounting principles shall have been made therefor;
(8) Liens incurred in connection with any accounts receivable programs up
to an aggregate of $125 million; (9) Liens on current assets of ours or
our Restricted Subsidiaries securing Indebtedness of ours or our
Restricted Subsidiaries and Liens in connection with Sale and Leaseback
Transactions, provided that at the time of the incurrence of such
Indebtedness

S-56

or the entering into of such Sale and Leaseback Transaction, the
aggregate amount of Indebtedness (other than Indebtedness secured by
Liens described in clauses (1) through (8) above) of ours and our
Restricted Subsidiaries secured by Liens does not exceed 10% of our
Consolidated Tangible Assets; and (10) any extensions, substitutions,
replacements or renewals in whole or in part of a Lien (an "existing
Lien") enumerated in clauses (1) through (9) above; provided that the
Lien may not extend beyond (A) the Property or Indebtedness subject to
the existing Lien and (B) improvements and construction on such Property
and the Indebtedness secured by the Lien may not exceed the Indebtedness
secured at the time by the existing Lien.

- Person means any individual, corporation, partnership, limited
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political
subdivision thereof, or any other entity.

- Principal Property means any manufacturing plant or warehouse owned or
leased by us or any of our Subsidiaries, the gross book value of which
exceeds four percent of Consolidated Net Worth, other than manufacturing
plants and warehouses which our Board of Directors by resolution
declares, together with all other plants and warehouses previously so
declared, is not of material importance to the total business conducted
by us and our Restricted Subsidiaries as an entirety.

- Property of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included
in our most recent consolidated balance sheet under generally accepted
accounting principles.

- Restricted Subsidiary means any of our Subsidiaries that is not an
Unrestricted Subsidiary.

- Subsidiary of any Person means (1) any Person of which more than 50% of
the total voting power of shares of capital stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more of the
Restricted Subsidiaries of that Person or a combination thereof, and (2)
any partnership, joint venture or other Person in which such Person or
one or more of the Restricted Subsidiaries of that Person or a
combination thereof has the power to control by contract or otherwise the
board of directors or equivalent governing body or otherwise controls
such entity.

- Unrestricted Subsidiary means (1) any Subsidiary not organized under the
laws of a state of the United States or the District of Columbia and any
Subsidiary of such Subsidiary which is not organized under the laws of a
state of the United States or the District of Columbia and (2) any of our
Subsidiaries that at the time of determination shall be designated an
Unrestricted Subsidiary by our Board of Directors and any Subsidiary of
such Subsidiary. Our Board of Directors may designate any Subsidiaries
(including any newly-acquired or newly-formed Subsidiary) organized under
the laws of a state of the United States or of the District of Columbia
to be an Unrestricted Subsidiary unless such Subsidiary owns any capital
stock of, or owns or holds any Property of, Kennametal or any other
Restricted Subsidiary; provided, however, that the Subsidiary to be so
designated has total assets of $35,000,000 or less.

EVENTS OF DEFAULT; MODIFICATION OF INDENTURE

See "-- Indenture Events of Default" on page 11 of the accompanying
prospectus for a description of the events of default. See "-- Modification of
Indenture" on page 11 of the accompanying prospectus for a description of our
right to modify the indenture.

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DEFEASANCE AND COVENANT DEFEASANCE

We may elect either:

- to terminate (and be deemed to have satisfied) all our obligations with
respect to the notes (except for the obligations to register the transfer
or exchange of the notes, to replace mutilated, destroyed, lost or stolen
notes, to maintain an office or agency in respect of the notes, to
compensate and indemnify the trustee and to punctually pay or cause to be
paid the principal of and interest on and any other amounts payable in
respect of all notes when due) ("defeasance") or

- to be released from our obligations with respect to certain covenants,
including those described above under "-- Covenants" ("covenant
defeasance")

upon the deposit with the trustee (and in the case of a defeasance, 121 days
after such defeasance), in trust for such purpose, of money and/or U.S.
Government Obligations (as defined in the indenture) which through the payment
of principal and interest in accordance with their terms will provide money, in
an amount sufficient (in the opinion of a nationally recognized firm of
independent public accountants) to pay the principal of, interest on and any
other amounts payable in respect of the outstanding notes. Such a trust may be
established only if, among other things, we have delivered to the trustee an
opinion of counsel (as specified in the indenture) with regard to certain
matters, including an opinion that the holders of the notes will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and discharge and will be subject to federal income tax on the same amounts and
in the same manner and at the same times as would have been the case if such
deposit and defeasance or covenant defeasance had not occurred.

CONSOLIDATION, MERGER OR SALE

We may not merge or consolidate with any entity, sell or lease
substantially all of our assets or assign our obligations under the indenture to
another entity unless:

- the successor entity is organized and exists under the laws of the United
States, any state thereof, or the District of Columbia;

- the successor entity expressly assumes our obligation to pay the
principal, and premium, if any, and interest on the notes and to perform
and observe all the covenants and conditions of the indenture binding on
us; and

- immediately after any such merger, consolidation, or sale, no default or
event of default has occurred and is continuing under the indenture.

What might constitute the sale of "all or substantially all" of our assets
as used in the indenture varies according to the facts and circumstances of a
particular sale transaction. This term has no clearly established meaning under
New York law (which governs the indenture) and is subject to judicial
interpretation. For these reasons, it may be unclear if a disposition of assets
by us would be subject to this provision.

THE TRUSTEE

Bank One Trust Company, N.A. is the trustee under the indenture and the
supplemental indenture.

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IMPORTANT UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

This section summarizes some of the U.S. federal income tax considerations
relating to the purchase, ownership, and disposition of the notes. This summary
does not provide a complete analysis of all potential tax considerations. The
information provided below is based on existing authorities. These authorities
may change, or the Internal Revenue Service (the "IRS") or a court might
interpret the existing authorities differently, possibly on a retroactive basis.
In either case, the tax consequences of purchasing, owning or disposing of notes
could differ from those described below. The summary generally applies only to
"U.S. Holders" that purchase notes in the initial offering at their issue price
and hold the notes as "capital assets" (generally, for investment). For this
purpose, U.S. Holders include citizens or residents of the United States and
corporations organized under the laws of the United States or any state. Trusts
are U.S. Holders if they are subject to the primary supervision of a U.S. court
and the control of one of more U.S. persons. Special rules apply to nonresident
alien individuals and foreign corporations and trusts ("Non-U.S. Holders"). This
summary describes some, but not all, of these special rules. For U.S. federal
income tax purposes, income earned through a foreign or domestic partnership or
similar entity is attributed to its owners. Accordingly, if a partnership holds
notes, the tax treatment of a holder will generally depend on the status of the
partner and the activities of the partnership. The summary generally does not
address tax considerations that may be relevant to particular investors because
of their specific circumstances, or because they are subject to special rules.
Finally, the summary does not describe the effect of the federal estate and gift
tax laws on U.S. Holders or the effects of any applicable foreign, state, or
local laws.

Investors considering the purchase of notes should consult their own tax
advisors regarding the application of the U.S. federal income tax laws to their
particular situations and the consequences of federal estate and gift tax laws,
foreign, state and local laws, and tax treaties.

U.S. HOLDERS

TAXATION OF INTEREST

U.S. Holders will be required to recognize as ordinary income any interest
paid or accrued on the notes, in accordance with their regular method of
accounting. In general, if the terms of a debt instrument entitle a holder to
receive payments other than fixed periodic interest that exceed the issue price
of the instrument, the holder may be required to recognize additional interest
as "original issue discount" over the term of the instrument. We believe that
the notes will not be issued with original issue discount.

SALE, EXCHANGE OR REDEMPTION OF THE NOTES

A U.S. Holder will generally recognize capital gain or loss if the holder
disposes of a note in a sale, exchange or redemption. The holder's gain or loss
will equal the difference between the proceeds received by the holder and the
holder's adjusted tax basis in the note. The proceeds received by the holder
will include the amount of any cash and the fair market value of any other
property received for the note. The holder's tax basis in the note will
generally equal the amount the holder paid for the note. The portion of any
proceeds that is attributable to accrued interest will not be taken into account
in computing the holder's capital gain or loss. Instead, that portion will be
recognized as ordinary interest income to the extent that the holder has not
previously included the accrued interest in income. The gain or loss recognized
by a holder on a disposition of the note will be long-term capital gain or loss
if the holder held the note for more than one year. Long-term capital gains of
non-corporate taxpayers are taxed at lower rates than those applicable to
ordinary income. The deductibility of capital losses is subject to limitation.

S-59

SPECIAL TAX RULES APPLICABLE TO NON-U.S. HOLDERS

TAXATION OF INTEREST

Payments of interest to Non-U.S. Holders are generally subject to U.S.
federal income tax at a rate of 30 percent, collected by means of withholding by
the payor. Payments of interest on the notes to most Non-U.S. Holders, however,
will qualify as "portfolio interest," and thus will be exempt from the
withholding tax, if the holders certify their nonresident status as described
below. The portfolio interest exception will not apply to payments of interest
to a Non-U.S. Holder that

- owns, directly or indirectly, at least 10 percent of our voting stock,

- is a "controlled foreign corporation" that is related to us through stock
ownership, or

- is a bank whose receipt of interest on the notes is described in section
881(c)(3)(A) of the Internal Revenue Code of 1986, as amended.

In general, a foreign corporation is a controlled foreign corporation if at
least 50 percent of its stock is owned, directly or indirectly, on any day
during the taxable year by one or more U.S. persons that each owns, directly or
indirectly, at least 10 percent of the corporation's voting stock.

The portfolio interest exception and several of the special rules for
Non-U.S. Holders described below apply only if the holder certifies its
nonresident status. A Non-U.S. Holder can meet this certification requirement by
providing a Form W-8BEN or appropriate substitute form to us or our paying
agent. If the holder holds the note through a financial institution or other
agent acting on the holder's behalf, the holder will be required to provide
appropriate documentation to the agent. The holder's agent will then be required
to provide certification to us or our paying agent, either directly or through
other intermediaries. For payments made to a foreign partnership, the
certification requirements generally apply to the partners rather than the
partnership.

SALE, EXCHANGE OR REDEMPTION OF NOTES

Non-U.S. Holders generally will not be subject to U.S. federal income tax
on any gain realized on the sale, exchange, or other disposition of notes. This
general rule, however, is subject to several exceptions. For example, the gain
would be subject to U.S. federal income tax if

- the gain is effectively connected with the conduct by the Non-U.S. Holder
of a U.S. trade or business,

- the Non-U.S. Holder had previously been a citizen or resident of the
United States and thus is subject to special rules that apply to
expatriates, or

- the Non-U.S. Holder is an individual who is present in the United States
for 183 days or more in the taxable year of the disposition and certain
other conditions are satisfied.

INCOME OR GAINS EFFECTIVELY CONNECTED WITH A U.S. TRADE OR BUSINESS

The preceding discussion of the tax consequences of the purchase, ownership
or disposition of notes by a Non-U.S. Holder assumes that the holder is not
engaged in a U.S. trade or business. If any interest on the notes or gain from
the sale, exchange or other disposition of the notes is effectively connected
with a U.S. trade or business conducted by the Non-U.S. Holder, then the income
or gain will be subject to U.S. federal income tax at regular graduated rates in
the same manner as the income or gain of a U.S. Holder. If the Non-U.S. Holder
is eligible for the benefits of a tax treaty between the United States and the
holder's country of residence, any "effectively connected" income or gain will
generally be subject to U.S. federal income tax only if

S-60

it is also attributable to a permanent establishment maintained by the holder in
the United States. Payments of interest that are effectively connected with a
U.S. trade or business, and therefore included in the gross income of a Non-U.S.
Holder, will not be subject to the 30 percent withholding tax. To claim
exemption from withholding, the holder must certify its qualification, which can
be done by filing a Form W-8ECI. If the Non-U.S. Holder is a corporation, that
portion of its earnings and profits that is effectively connected with its U.S.
trade or business would generally be subject to a "branch profits tax." The
branch profits tax rate is generally 30 percent, although an applicable tax
treaty might provide for a lower rate.

U.S. FEDERAL ESTATE TAX

The estates of nonresident alien individuals are subject to U.S. federal
estate tax on property with a U.S. situs. The notes will not be U.S. situs
property as long as interest on the notes paid immediately before the death of
the holder would have qualified as portfolio interest exempt from withholding
tax (without regard to whether the holder provides the required certification)
as described above under "Special Tax Rules Applicable to Non-U.S.
Holders -- Taxation of Interest," and provided that the interest payments with
respect to the notes would not have been, if received immediately before the
death of the holder, effectively connected with the conduct of a United States
trade or business by such holder. The U.S. federal estate tax liability of the
estate of a nonresident alien may be affected by a tax treaty between the United
States and the decedent's country of residence.

BACKUP WITHHOLDING AND INFORMATION REPORTING

Unless a U.S. Holder is an exempt recipient, such as a corporation,
interest and proceeds received from the sale of the notes will generally be
subject to information reporting and will also be subject to U.S. federal backup
withholding tax at the applicable rate (currently 30%) if the holder fails to
supply an accurate taxpayer identification number or otherwise fails to comply
with applicable United States information reporting or certification
requirements.

We must also report to the IRS annually and to Non-U.S. Holders the amount
of interest paid to such Non-U.S. Holders any tax withheld with respect to such
interest payments, regardless of whether withholding was required. Copies of the
information returns reporting such interest payments and any withholding may
also be made available to the tax authorities in other jurisdictions under the
provisions of an applicable income tax treaty.

In general, no backup withholding will be required with respect to payments
of interest we make with respect to the notes if a Non-U.S. Holder has provided
us with a Form W-8BEN (or a suitable substitute form) and we do not have actual
knowledge or reason to know that the holder is a United States person. In
addition, no backup withholding will be required regarding a sale or other
disposition of the notes even if made within the United States or through
certain United States financial intermediaries if the payor receives the Form
described above and does not have actual knowledge or reason to know that the
holder is a United States person or if the holder can otherwise establish an
exemption.

Any amounts withheld under the backup withholding rules will be allowed as
a credit against a holder's U.S. federal income tax liability provided the
required information is furnished to the IRS.

The preceding discussion of certain U.S. federal income tax considerations
is for general information only. It is not tax advice. Each prospective investor
should consult its own tax advisor regarding the particular U.S. federal, state,
local, and foreign tax consequences of purchasing, holding, and disposing of our
notes, including the consequences of any proposed change in applicable laws.

S-61

COMMON STOCK OFFERING

Concurrent with this notes offering, we are undertaking a public offering
of 3,200,000 shares of our capital stock, par value of $1.25 per share (common
stock), or 3,680,000 shares if the underwriters exercise their option to
purchase additional shares from us in full. Net proceeds, after deducting
underwriting discounts and commissions and offering expenses, from the common
stock offering are expected to be approximately $108.8 million, or $125.1
million if the underwriters exercise their option to purchase additional shares
from us in full. We expect to use the net proceeds together with the net
proceeds of this notes offering and borrowings under the new bank credit
facility, to repay senior bank indebtedness, to pay the purchase price of the
Widia acquisition and for general corporate purposes, including capital
expenditures, other acquisitions and investments. See "Use of Proceeds." Offers
for our common stock are only being made by delivery of a separate prospectus
supplement. This notes offering and the common stock offering are independent
offerings and are not conditioned upon each other.

S-62

UNDERWRITING

We and the underwriters named below have entered into an underwriting
agreement with respect to the notes. Subject to certain conditions, each
underwriter has severally agreed to purchase the principal amount of notes
indicated in the following table.

Principal Amount of
Underwriters Notes
------------ -------------------

Goldman, Sachs & Co......................................... $ 90,000,000
J.P. Morgan Securities Inc.................................. 90,000,000
Lehman Brothers Inc......................................... 18,750,000
Banc One Capital Markets, Inc............................... 18,750,000
Fleet Securities, Inc....................................... 18,750,000
PNC Capital Markets, Inc.................................... 18,750,000
Tokyo-Mitsubishi International plc.......................... 18,750,000
NatCity Investments, Inc.................................... 12,750,000
Comerica Securities......................................... 6,750,000
The Royal Bank of Scotland plc.............................. 6,750,000
------------
Total..................................................... $300,000,000
============

The underwriters are committed to take and pay for all of the notes being
offered, if any are taken.

Notes sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus
supplement. Any notes sold by the underwriters to securities dealers may be sold
at a discount from the initial public offering price of up to 0.60% of the
principal amount of the notes. Any such securities dealers may resell any notes
purchased from the underwriters to certain other brokers or dealers at a
discount from the initial public offering price of up to 0.25% of the principal
amount of the notes. If all the notes are not sold at the initial public
offering price, the underwriters may change the offering price and the other
selling terms.

The notes are a new issue of securities with no established trading market.
We have been advised by the underwriters that the underwriters intend to make a
market in the notes but are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the notes.

In connection with this offering, the underwriters may purchase and sell
notes in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
notes than they are required to purchase in this offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the notes while this
offering is in progress.

The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased notes sold
by or for the account of such underwriter in stabilizing or short covering
transactions.

These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the notes. As a result, the price of the notes may be
higher than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the underwriters at any
time. These transactions may be effected in the over-the-counter market or
otherwise.

S-63

Each underwriter has represented, warranted and agreed that: (1) it has not
offered or sold and, prior to the expiry of a period of six months from the
closing date, will not offer or sell any notes to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; (2) it has only communicated
or caused to be communicated and will only communicate or cause to be
communicated any invitation or inducement to engage in investment activity
(within the meaning of section 21 of the Financial Services and Markets Act 2000
(FSMA)) received by it in connection with the issue or sale of any notes in
circumstances in which section 21(1) of the FSMA does not apply to us; and (3)
it has complied and will comply with all applicable provisions of the FSMA with
respect to anything done by it in relation to the notes in, from or otherwise
involving the United Kingdom.

The notes may not be offered, sold, transferred or delivered in or from The
Netherlands, as part of their initial distribution or as part of any
re-offering, and neither this prospectus supplement nor any other document in
respect of this notes offering may be distributed or circulated in The
Netherlands, other than to individuals or legal entities which include, but are
not limited to, banks, brokers, dealers, institutional investors and
undertakings with a treasury department, who or which trade or invest in
securities in the conduct of a business or profession.

We estimate that our share of the total expenses of this notes offering,
excluding underwriting discounts and commissions, will be approximately $0.7
million. Goldman, Sachs & Co. has agreed to reimburse us for certain of our
expenses incurred in connection with the offering of the notes.

We have agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

Certain of the underwriters and their affiliates have provided from time to
time, and expect to provide in the future, investment and commercial banking and
financial advisory services to us and our affiliates in the ordinary course of
business, for which they have received and may continue to receive customary
fees and commissions. Goldman, Sachs & Co., J.P. Morgan Securities Inc. and
Lehman Brothers Inc. are also acting as underwriters for the concurrent offering
of common stock.

J.P. Morgan Securities Inc. will act as lead arranger for our new bank
credit facility and is an affiliate of JPMorgan Chase Bank, which is expected to
be the administrative agent and a lender under our new bank credit facility. The
Royal Bank of Scotland plc is an affiliate of Citizens Bank of Pennsylvania,
which is expected to be a lender under our new bank credit facility. PNC Capital
Markets, Inc. is an affiliate of PNC Bank, National Association, which is a
syndication agent and a lender under each of our existing bank credit facilities
and is expected to be a lender under our new bank credit facility. Fleet
Securities, Inc. is an affiliate of Fleet Capital Corporation, which is a
syndication agent and a lender under our existing U.S. dollar bank credit
facility and is expected to be a lender under our new bank credit facility.
NatCity Investments, Inc. is an affiliate of National City Bank of Pennsylvania,
which is a lender under our existing U.S. dollar bank credit facility and is
expected to be a lender under our new bank credit facility. Comerica Securities
is an affiliate of Comerica Bank, which is a lender under our existing U.S.
dollar bank credit facility and is expected to be a lender under our new bank
credit facility. Tokyo-Mitsubishi International plc is an affiliate of Bank of
Tokyo-Mitsubishi Trust Company, which is a lender under each of our existing
bank credit facilities and is expected to be a lender under our new bank credit
facility. Banc One Capital Markets, Inc. is an affiliate of Bank One, NA, which
is a lender under each of our existing bank credit facilities and is expected to
be a lender under our new bank credit facility. Bank One Trust Company, N.A., an
affiliate of Banc One Capital Markets, Inc., is the trustee for the notes and
will receive customary fees in connection with its services. Our

S-64

borrowings under each of our existing bank credit facilities are expected to be
repaid with the proceeds of this notes offering and the common stock offering
and borrowings under our new bank credit facility. As a result of these
repayments, each of PNC Bank, National Association, Fleet Capital Corporation,
National City Bank of Pennsylvania, Comerica Bank, Bank of Tokyo-Mitsubishi
Trust Company and Bank One, NA will receive its proportionate share of these
repayments based upon its commitment level under each of our existing bank
credit facilities.

J.P. Morgan Securities Inc. will make the notes available for distribution
on the Internet through a proprietary Web site and/or a third-party system
operated by Market Axess Inc., an Internet-based communications technology
provider. Market Axess Inc. is providing the system as a conduit for
communications between J.P. Morgan Securities Inc. and its customers and is not
a party to any transactions. Market Axess Inc., a registered broker-dealer, will
receive compensation from J.P. Morgan Securities Inc. based on transactions J.P.
Morgan Securities Inc. conducts through the system. J.P. Morgan Securities Inc.
will make the notes available to its customers through the Internet
distributions, whether made through a proprietary or third-party system, on the
same terms as distributions made through other channels.

This offering is being conducted pursuant to Conduct Rule 2710(c)(8) of the
National Association of Securities Dealers.

LEGAL MATTERS

The validity of the notes being offered by this prospectus supplement will
be passed upon for us by Buchanan Ingersoll Professional Corporation,
Pittsburgh, Pennsylvania. William R. Newlin, Chairman of the Board of
Kennametal, is a shareholder in Buchanan Ingersoll Professional Corporation. As
of March 31, 2002, Mr. Newlin owned 25,368 shares of common stock and held stock
credits representing approximately 36,956 shares of common stock and options to
acquire 141,000 shares of common stock. Certain legal matters in connection with
the offering will be passed upon for the underwriters by Simpson Thacher &
Bartlett, New York, New York. Simpson Thacher & Bartlett will rely as to matters
of Pennsylvania law upon the opinion of Buchanan Ingersoll Professional
Corporation.

EXPERTS

The consolidated financial statements of Kennametal as of June 30, 2001 and
June 30, 2000 and for each of the three years in the period ended June 30, 2001,
incorporated by reference in this prospectus supplement and in the registration
statement, of which this prospectus supplement is a part, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference in the
registration statement in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, as well as proxy statements
and other information with the SEC. You may read and copy any document we file
with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain further information about the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our SEC
filings are also available to the public over the Internet at the SEC's web site
at http://www.sec.gov, which contains reports, proxy statements and other
information regarding registrants like us that file electronically with the SEC.

This prospectus supplement is part of a registration statement on Form S-3
filed by us with the SEC under the Securities Act. As permitted by SEC rules,
this prospectus supplement does

S-65

not contain all of the information included in the registration statement and
the accompanying exhibits filed with the SEC. You may refer to the registration
statement and its exhibits for more information.

The SEC allows us to "incorporate by reference" into this prospectus
supplement the information we file with the SEC. This means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus supplement. If we subsequently file updating or superseding
information in a document that is incorporated by reference into this prospectus
supplement, the subsequent information will also become part of this prospectus
supplement and will supersede the earlier information.

We are incorporating by reference the following documents that we have
filed with the SEC:

- our Annual Report on Form 10-K for the year ended June 30, 2001;

- our Quarterly Reports on Form 10-Q for the quarters ended September 30,
2001, December 31, 2001 and March 31, 2002;

- our Current Reports on Form 8-K for the events dated May 6, 2002 (as
amended by our Form 8-K/A filed on May 8, 2002), May 1, 2002 (as amended
by our Form 8-K/A filed on May 17, 2002) and March 21, 2002; and

- our definitive proxy statement dated September 13, 2001 with respect to
the Annual Meeting of Shareowners held on October 30, 2001.

We are also incorporating by reference into this prospectus supplement all
of our future filings with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act until this offering has been completed.

You may obtain a copy of any of our filings which are incorporated by
reference, at no cost, by writing to or telephoning us at the following address:

Kennametal Inc.
World Headquarters
1600 Technology Way
P.O. Box 231
Latrobe, Pennsylvania 15650-0231
Attention: David W. Greenfield,
Vice President, Secretary and General Counsel
Telephone: (724) 539-5000

You should rely only on the information provided in this prospectus
supplement or incorporated by reference. We have not authorized anyone to
provide you with different information. You should not assume that the
information in this prospectus supplement is accurate as of any date other than
the date on the first page of the prospectus supplement. We are not making this
offer of securities in any state or country in which the offer or sale is not
permitted.

S-66

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Unaudited Condensed Consolidated Statements of Income for
the Three Months Ended March 31, 2002 and 2001, and the
Nine Months Ended March 31, 2002 and 2001................. F-2

Unaudited Condensed Consolidated Balance Sheets as of March
31, 2002 and June 30, 2001................................ F-3

Unaudited Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended March 31, 2002 and 2001......... F-4

Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-5

Report of Independent Public Accountants.................... F-15

Audited Consolidated Statements of Income for the Years
Ended June 30, 2001, 2000 and 1999........................ F-16

Audited Consolidated Balance Sheets as of June 30, 2001 and
2000...................................................... F-17

Audited Consolidated Statements of Cash Flows for the Years
Ended June 30, 2001, 2000 and 1999........................ F-18

Audited Consolidated Statement of Changes in Shareowners'
Equity for the Years Ended June 30, 2001, 2000 and 1999... F-19

Notes to Audited Consolidated Financial Statements.......... F-20

F-1

KENNAMETAL INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS NINE MONTHS ENDED
ENDED MARCH 31, MARCH 31,
------------------- -----------------------
2002 2001 2002 2001
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)

OPERATIONS
Net sales................................... $393,852 $468,191 $1,180,844 $1,365,391
Cost of goods sold.......................... 266,205 303,684 806,893 896,852
-------- -------- ---------- ----------
Gross profit................................ 127,647 164,507 373,951 468,539
Operating expense........................... 95,695 106,786 288,711 323,238
Restructuring and asset impairment charge... 3,944 2,286 22,650 4,633
Amortization of intangibles................. 728 6,063 2,107 18,533
-------- -------- ---------- ----------
Operating income............................ 27,280 49,372 60,483 122,135
Interest expense............................ 7,421 12,496 25,076 39,091
Other expense (income), net................. (14) 1,873 (179) 6,766
-------- -------- ---------- ----------
Income before provision for income taxes and
minority interest......................... 19,873 35,003 35,586 76,278
Provision for income taxes.................. 6,359 13,824 11,387 30,128
Minority interest........................... 370 785 1,071 2,291
-------- -------- ---------- ----------
Income before cumulative effect of change in
accounting principle...................... 13,144 20,394 23,128 43,859
Cumulative effect of change in accounting
principle, net of tax of $399............. -- -- -- (599)
-------- -------- ---------- ----------
Net income.................................. $ 13,144 $ 20,394 $ 23,128 $ 43,260
======== ======== ========== ==========
PER SHARE DATA
Basic earnings per share before cumulative
effect of change in accounting
principle................................. $ 0.42 $ 0.67 $ 0.75 $ 1.44
Cumulative effect of change in accounting
principle per share....................... -- -- -- (0.02)
-------- -------- ---------- ----------
Basic earnings per share.................... $ 0.42 $ 0.67 $ 0.75 $ 1.42
======== ======== ========== ==========
Diluted earnings per share before cumulative
effect of change in accounting
principle................................. $ 0.42 $ 0.66 $ 0.74 $ 1.43
Cumulative effect of change in accounting
principle per share....................... -- -- -- (0.02)
-------- -------- ---------- ----------
Diluted earnings per share.................. $ 0.42 $ 0.66 $ 0.74 $ 1.41
======== ======== ========== ==========
Dividends per share......................... $ 0.17 $ 0.17 $ 0.51 $ 0.51
======== ======== ========== ==========
Basic weighted average shares outstanding... 31,089 30,483 31,002 30,523
======== ======== ========== ==========
Diluted weighted average shares
outstanding............................... 31,553 30,692 31,454 30,656
======== ======== ========== ==========

See accompanying notes to unaudited condensed consolidated financial statements.
F-2

KENNAMETAL INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, JUNE 30,
2002 2001
--------- --------
(IN THOUSANDS)

ASSETS
Current assets:
Cash and equivalents...................................... $ 10,705 $ 12,940
Marketable equity securities available-for-sale........... 9,462 12,419
Accounts receivable, less allowance for doubtful accounts
of $10,115 and $7,999................................... 168,094 206,175
Inventories............................................... 351,129 373,221
Deferred income taxes..................................... 66,177 57,452
Other current assets...................................... 18,602 18,989
---------- ----------
Total current assets........................................ 624,169 681,196
---------- ----------
Property, plant and equipment:
Land and buildings........................................ 227,018 227,382
Machinery and equipment................................... 809,987 776,494
Less accumulated depreciation............................. (598,500) (531,002)
---------- ----------
Net property, plant and equipment........................... 438,505 472,874
---------- ----------
Other assets:
Investments in affiliated companies....................... 4,332 3,875
Intangible assets, less accumulated amortization of
$109,742 and $108,675................................... 623,119 624,760
Other..................................................... 56,126 42,737
---------- ----------
Total other assets.......................................... 683,577 671,372
---------- ----------
Total assets................................................ $1,746,251 $1,825,442
========== ==========
LIABILITIES
Current liabilities:
Current maturities of long-term debt and capital leases... $ 377,357 $ 2,031
Notes payable to banks.................................... 6,282 22,499
Accounts payable.......................................... 93,810 118,073
Accrued vacation pay...................................... 28,775 29,134
Accrued income taxes...................................... 3,972 16,425
Accrued payroll........................................... 19,202 22,189
Other current liabilities................................. 84,146 84,134
---------- ----------
Total current liabilities................................... 613,544 294,485
---------- ----------
Long-term debt and capital leases, less current
maturities................................................ 164,257 582,585
Deferred income taxes....................................... 54,953 53,844
Other liabilities........................................... 88,720 87,898
---------- ----------
Total liabilities........................................... 921,474 1,018,812
---------- ----------
Minority interest in consolidated subsidiaries.............. 8,907 9,861
---------- ----------
SHAREOWNERS' EQUITY
Preferred stock, no par value; 5,000 shares authorized; none
issued.................................................... -- --
Capital stock, $1.25 par value; 70,000 shares authorized;
33,807 and 33,615 shares issued........................... 42,259 42,018
Additional paid-in capital.................................. 371,911 353,804
Retained earnings........................................... 547,967 540,965
Treasury shares, at cost; 2,657 and 2,774 shares held....... (72,804) (65,963)
Unearned compensation....................................... (4,885) (2,165)
Accumulated other comprehensive loss........................ (68,578) (71,890)
---------- ----------
Total shareowners' equity................................... 815,870 796,769
---------- ----------
Total liabilities and shareowners' equity................... $1,746,251 $1,825,442
========== ==========

See accompanying notes to unaudited condensed consolidated financial statements.
F-3

KENNAMETAL INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS
ENDED MARCH 31,
-----------------
2002 2001
---- ----
(IN THOUSANDS)

OPERATING ACTIVITIES
Net income.................................................. $23,128 $43,260
Adjustments for non-cash items:
Depreciation.............................................. 53,130 54,907
Amortization.............................................. 2,107 18,533
Restructuring and asset impairment charge................. 12,914 1,091
Cumulative effect of change in accounting principle, net
of tax................................................. -- 599
Other..................................................... (1,673) 5,076
Changes in certain assets and liabilities, net of
acquisition:
Accounts receivable....................................... 37,469 7,275
Proceeds from accounts receivable securitization.......... 3,200 4,300
Inventories............................................... 25,948 13,553
Accounts payable and accrued liabilities.................. (31,886) (5,271)
Other..................................................... (19,904) (9,839)
------- -------
Net cash flow from operating activities..................... 104,433 133,484
------- -------
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................. (30,349) (40,121)
Disposals of property, plant and equipment.................. 5,799 3,558
Purchase of subsidiary stock................................ -- (42,750)
Other....................................................... (6,350) (170)
------- -------
Net cash flow used for investing activities................. (30,900) (79,483)
------- -------
FINANCING ACTIVITIES
Net decrease in notes payable............................... (5,104) (2,289)
Net decrease in revolver and other lines of credit.......... (53,022) (34,905)
Term debt borrowings........................................ 455 1,120
Term debt repayments........................................ (8,076) (1,033)
Purchase of treasury stock.................................. (12,417) (16,494)
Dividend reinvestment and employee benefit and stock
plans..................................................... 19,709 14,414
Cash dividends paid to shareowners.......................... (15,807) (15,550)
Other....................................................... (1,654) (1,315)
------- -------
Net cash flow used for financing activities................. (75,916) (56,052)
------- -------
Effect of exchange rate changes on cash and equivalents..... 148 (285)
------- -------
CASH AND EQUIVALENTS
Net decrease in cash and equivalents........................ (2,235) (2,336)
Cash and equivalents, beginning of year..................... 12,940 22,323
------- -------
Cash and equivalents, end of period......................... $10,705 $19,987
======= =======
SUPPLEMENTAL DISCLOSURES
Interest paid............................................... $24,705 $39,734
Income taxes paid........................................... 27,078 25,847

See accompanying notes to unaudited condensed consolidated financial statements.
F-4

KENNAMETAL INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. The condensed consolidated financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements included in
our 2001 Annual Report. The condensed consolidated balance sheet as of June
30, 2001 was derived from the audited balance sheet included in our 2001
Annual Report. These interim statements are unaudited; however, we believe
all adjustments necessary for a fair presentation were made. All such
adjustments are of a normal recurring nature unless otherwise disclosed. The
results for the three and nine months ended March 31, 2002 and 2001 are not
necessarily indicative of the results to be expected for a full fiscal year.
Unless otherwise specified, any reference to a "year" is to a fiscal year
ended June 30. We reclassified certain amounts in the prior years' condensed
consolidated financial statements to conform with the current year
presentation.

2. Inventories are stated at lower of cost or market. We use the last-in,
first-out (LIFO) method for determining the cost of a significant portion of
our U.S. inventories. We determine cost for the remainder of our inventories
under the first-in, first-out (FIFO) or average cost methods. We used the
LIFO method of valuing inventories for approximately 55 percent of total
inventories at March 31, 2002. Because inventory valuations under the LIFO
method are based on an annual determination of quantities and costs as of
June 30 of each year, the interim LIFO valuations are based on our
projections of expected year-end inventory levels and costs. Therefore, the
interim financial results are subject to any final year-end LIFO inventory
adjustments.

Inventories as of the balance sheet dates consisted of the following (in
thousands):

MARCH 31, JUNE 30,
2002 2001
--------- --------

Finished goods............................................ $273,035 $284,801
Work in process and powder blends......................... 93,708 94,231
Raw materials and supplies................................ 31,053 32,130
-------- --------
Inventories at current cost............................... 397,796 411,162
Less LIFO valuation....................................... (46,667) (37,941)
-------- --------
Total inventories......................................... $351,129 $373,221
======== ========

3. We are involved in various environmental cleanup and remediation activities
at several of our manufacturing facilities. In addition, we are currently
named as a potentially responsible party (PRP) at several Superfund sites in
the United States. In December 1999, we recorded a remediation reserve of
$3.0 million with respect to our involvement in these matters, which was
recorded as a component of operating expense. This represents our best
estimate of the undiscounted future obligation based on our evaluations and
discussions with outside counsel and independent consultants, and the
current facts and circumstances related to these matters. We recorded this
liability because certain events occurred, including the identification of
other PRPs, an assessment of potential remediation solutions and direction
from the government for the remedial action plan that clarified our level of
involvement in these matters and our relationship to other PRPs. This led us
to conclude that it was probable a liability had been incurred. Through
March 31, 2002, we incurred costs of $0.4 million, which were charged
against this accrual.

KENNAMETAL INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

extent of contamination, changes in remedial requirements, technological
changes, discovery of new information, the financial strength of other
PRPs, the identification of new PRPs and the involvement of and direction
taken by government agencies on these matters.

We maintain a Corporate Environmental, Health and Safety (EH&S) Department,
as well as an EH&S Policy Committee, to ensure compliance with
environmental regulations and to monitor and oversee remediation
activities. In addition, we have established an EH&S administrator at each
of our global manufacturing facilities. Our financial management team
periodically meets with members of the Corporate EH&S Department and the
Corporate Legal Department to review and evaluate the status of
environmental projects and contingencies. On a quarterly basis, we
establish or adjust financial provisions and reserves for environmental
contingencies in accordance with Statement of Financial Accounting Standard
(SFAS) No. 5, "Accounting for Contingencies."

4. For purposes of determining the number of dilutive shares outstanding,
weighted average shares outstanding for basic earnings per share
calculations were increased due solely to the dilutive effect of unexercised
stock options for the three and nine months ended March 31, 2002 and 2001.
Unexercised stock options to purchase our capital stock of 0.6 million and
1.5 million for the three months ended March 31, 2002 and 2001,
respectively, and 1.2 million and 1.6 million shares for the nine months
ended March 31, 2002 and 2001, respectively, are not included in the
computation of diluted earnings per share because the option price was
greater than the average market price.

5. Comprehensive income for the three and nine months ended March 31, 2002 and
2001 is as follows (in thousands):

THREE MONTHS NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
----------------- ------------------
2002 2001 2002 2001
---- ---- ---- ----

Net income.................................... $13,144 $20,394 $23,128 $ 43,260
Cumulative effect of change in accounting
principle, net of tax....................... -- -- -- 1,571
Unrealized gain (loss) on derivatives
designated and qualified as cash flow
hedges, net of tax.......................... 1,547 (533) 1,058 (2,673)
Reclassification of net unrealized gains on
matured derivatives, net of tax............. (362) (319) (1,412) (832)
Unrealized gain (loss) on marketable equity
securities available-for-sale, net of tax... 1,120 (920) (1,506) (6,791)
Minimum pension liability adjustment, net of
tax......................................... 49 43 (105) 44
Foreign currency translation adjustments...... 1,441 (5,078) 5,276 (12,189)
------- ------- ------- --------
Comprehensive income.......................... $16,939 $13,587 $26,439 $ 22,390
======= ======= ======= ========

F-6

KENNAMETAL INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of accumulated other comprehensive loss consist of the
following (in thousands):

MARCH 31, JUNE 30,
2002 2001
--------- --------

Unrealized gain (loss) on marketable equity securities
available-for-sale, net of tax............................ $ (222) $ 1,284
Unrealized losses on derivatives designated and qualified as
cash flow hedges, net of tax.............................. (2,875) (2,522)
Minimum pension liability adjustment, net of tax............ (3,625) (3,520)
Foreign currency translation adjustments.................... (61,856) (67,132)
-------- --------
Total accumulated other comprehensive loss.................. $(68,578) $(71,890)
======== ========

6. On July 1, 2000, we adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," resulting in the recording of current
assets of $1.6 million, long-term assets of $1.4 million, current
liabilities of $1.3 million, long-term liabilities of $0.7 million, a
decrease in accumulated other comprehensive loss of $1.6 million, net of
tax, and a loss from the cumulative effect from the change in accounting
principle of $0.6 million, net of tax. We recognized expense of less than
$0.1 million and $0.6 million for the three months ended March 31, 2002 and
2001, respectively, and expense of $0.1 million and $0.7 million for the
nine months ended March 31, 2002 and 2001, respectively, as a component of
other expense (income), net related to hedge ineffectiveness. Based upon
foreign exchange and interest rates at March 31, 2002, we expect to
recognize into earnings in the next 12 months net current liabilities of
$5.1 million related to outstanding derivative instruments and net gains of
$0.2 million, recorded in accumulated other comprehensive loss, related to
expired derivative instruments.

7. Effective July 1, 2001, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," which establishes new accounting and reporting
requirements for goodwill and other intangible assets, including new
measurement techniques for evaluating the recoverability of such assets.
Under SFAS No. 142, all goodwill amortization ceased effective July 1, 2001.
Material amounts of recorded goodwill attributable to each of our reporting
units, including those affected by the restructuring program announced in
November 2001 (see Note 8), were tested for impairment by comparing the fair
value of each reporting unit with its carrying value. As a result of the
adoption of this rule, we expect to record a non-cash charge of $230 million
to $260 million, specific to the electronics (AMSG segment) and the
industrial product group (MSSG segment) businesses, which were acquired in
1998 as part of Greenfield Industries. The fair values of these reporting
units were determined using a combination of a discounted cash flow analysis
and market multiples based upon historical and projected financial
information. The final phase of testing, which will narrow this range to an
actual charge, is expected to be completed during the June 2002 quarter. The
initial phase of the impairment tests were required to be performed within
six months of adoption of SFAS No. 142, or December 31, 2001, and are
required at least annually thereafter. On an ongoing basis (absent any
impairment indicators), we expect to perform our impairment tests during the
June quarter, in connection with our annual planning process.

Under SFAS No. 142, the impairment adjustment recognized at adoption of
this standard will be reflected as a cumulative effect of a change in
accounting principle, effective July 1, 2001.

F-7

KENNAMETAL INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Impairment adjustments recognized after adoption, if any, are required to
be recognized as a component of operating expense.

Changes in the carrying amounts of goodwill since June 30, 2001 primarily
relate to the translation effects of goodwill on non-dollar functional
currency subsidiaries. The carrying amount of goodwill attributable to each
segment, before the anticipated non-cash charge from the adoption of SFAS
No. 142, at March 31, 2002 and June 30, 2001 is as follows (in thousands):

MARCH 31, JUNE 30,
2002 2001
--------- --------

MSSG...................................................... $315,801 $315,463
AMSG...................................................... 249,699 249,345
J&L Industrial Supply..................................... 45,748 45,748
Full Service Supply....................................... 4,707 4,707
-------- --------
Total..................................................... $615,955 $615,263
======== ========

In connection with adopting SFAS No. 142, we also reassessed the useful
lives and the classification of our identifiable intangible assets and
determined that they continue to be appropriate. The remaining lives of
these assets primarily range from one to four years. The components of our
amortized intangible assets are as follows (in thousands):

MARCH 31, 2002 JUNE 30, 2001
----------------------------- -----------------------------
GROSS CARRYING ACCUMULATED GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
-------------- ------------ -------------- ------------

Contract based..................... $11,515 $ (9,177) $12,098 $ (7,969)
Technology based and other......... 4,742 (3,041) 5,098 (2,817)
Intangible pension asset........... 3,125 -- 3,087 --
------- -------- ------- --------
Total.............................. $19,382 $(12,218) $20,283 $(10,786)
======= ======== ======= ========

Amortization expense for intangible assets was $0.7 million and $2.1
million for the three and nine months ended March 31, 2002, respectively.
Estimated amortization expense for the remainder of 2002 and the five
succeeding years are as follows (in thousands):

2002 (remainder)............................................ $ 647
2003........................................................ 1,931
2004........................................................ 644
2005........................................................ 283
2006........................................................ 219
2007........................................................ 90

Actual results of operations for the three and nine months ended March 31,
2002 and pro forma results of operations for the three and nine months
ended March 31, 2001 had we

F-8

KENNAMETAL INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

applied the non-amortization provisions of SFAS No. 142 in these periods
are as follows (in thousands, except per share amounts):

THREE MONTHS NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
----------------- -----------------
2002 2001 2002 2001
---- ---- ---- ----

Reported net income......................... $13,144 $20,394 $23,128 $43,260
Add: goodwill amortization, net of tax...... -- 5,486 -- 14,707
------- ------- ------- -------
Adjusted net income......................... $13,144 $25,880 $23.128 $57,967
======= ======= ======= =======
Basic earnings per share:
Reported net income....................... $ 0.42 $ 0.67 $ 0.75 $ 1.42
Goodwill amortization..................... -- 0.18 -- 0.48
------- ------- ------- -------
Adjusted net income....................... $ 0.42 $ 0.85 $ 0.75 $ 1.90
======= ======= ======= =======
Diluted earnings per share:
Reported net income....................... $ 0.42 $ 0.66 $ 0.74 $ 1.41
Goodwill amortization..................... -- 0.18 -- 0.48
------- ------- ------- -------
Adjusted net income....................... $ 0.42 $ 0.84 $ 0.74 $ 1.89
======= ======= ======= =======

8. In November 2001, we announced a restructuring program whereby we expect to
recognize special charges of $15 million to $20 million, including period
costs of $5 million to $6 million, for the closure of three manufacturing
locations and the relocation of the production of a certain product line
from another plant, and associated work force reductions. This was done in
response to continued steep declines in the end market demand in the
electronics and industrial product group's businesses. Additionally, we have
implemented other worldwide work force reductions in these segments in
reaction to the declines in our end markets. These actions are expected to
improve our competitiveness and we expect to be completed by the end of
fiscal 2002.

We implemented the measures associated with the closing and consolidation
of the AMSG electronics facility in Chicago, IL, and MSSG industrial
product group's Pine Bluff, AR and Monticello, IN locations. As a result,
we recorded restructuring charges of $0.3 million and $12.0 million,
respectively, for the three and nine months ended March 31, 2002 related to
exit costs associated with these actions, including severance for
substantially all 298 employees at these facilities. Additionally in the
December 2001 quarter, as part of the closure of the electronics plant, we
recorded a non-cash charge of $0.8 million, net of salvage value,
associated with the abandonment and scrapping of inventory. This charge was
recorded as a component of cost of goods sold. In the March 2002 quarter,
we recorded a charge of $1.5 million related to severance for 72
individuals, primarily in the MSSG segment. The total charge to date of
$14.3 million includes non-cash items of $6.2 million.

Through March 31, 2002, we incurred cash expenditures of $4.3 million,
resulting in an accrual of $3.8 million at March 31, 2002. We incurred
period costs associated with these actions of $0.7 million and $1.0
million, respectively, for the three and nine months ended March 31, 2002,
which were expensed as incurred as a component of cost of sales.

F-9

KENNAMETAL INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In 2001, we began to implement a business improvement plan in the J&L
Industrial Supply (J&L) and Full Service Supply (FSS) segments. We expect
to substantially complete this plan by the end of fiscal 2002. In the J&L
segment for the three and nine months ended March 31, 2002, we recorded
restructuring and asset impairment charges of $1.9 million and $8.9
million, respectively. The charge for the March 2002 quarter is comprised
of $1.3 million for the closure of 10 satellites and two warehouses and
call centers and $0.6 million for severance for 25 individuals.
Additionally, as part of the facility closures, we recorded a charge of
$0.5 million, net of salvage value, associated with the abandonment and
scrapping of inventory at these locations. This charge was recorded as a
component of cost of goods sold.

For the nine months ended March 31, 2002, the charges for J&L are comprised
of a write-down of a portion of the book value of a business system of $5.3
million, $1.9 million for severance for 60 individuals, $1.5 million for
facility closures and $0.2 million for the closure of the German
operations. Additionally, as part of the closure of the German operations,
we recorded a non-cash charge of $0.4 million, net of salvage value, in the
December 2001 quarter associated with the abandonment and liquidation of
inventory in these operations. This charge was recorded as a component of
cost of goods sold.

In the FSS segment for the three and nine months ended March 31, 2002, we
recorded restructuring charges of $0.2 million and $0.3 million,
respectively, for severance related to nine and 16 individuals,
respectively. Additionally in our core business in 2001, we took actions to
reduce our salaried work force in response to the weakened U.S.
manufacturing sector. This core-business resize program is completed.

The costs accrued for all restructuring activities were based on estimates
using the latest information available at the time that the accrual was
established. We continue to review our business strategies and pursue other
cost-reduction activities in all business segments, some of which could
result in future charges. Charges incurred for the nine months ended

F-10

KENNAMETAL INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

March 31, 2002 and the restructuring accrual at March 31, 2002 are as
follows (in thousands):

RESTRUCTURING
EXPENSE
JUNE 30, FOR NEW EXPENSE NON-CASH CASH MARCH 31,
2001 INITIATIVES ADJUSTMENTS ADJUSTMENTS EXPENDITURES 2002
-------- ------------- ----------- ----------- ------------ ---------

J&L business improvement
program:
Employee severance....... $ 251 $1,897 $ 6 $ -- $(2,072) $ 82
Facility closures........ 940 1,690 93 (572) (1,088) 1,063
Business system.......... -- 5,257 -- (5,257) -- --
FSS business improvement
program.................. 141 372 (71) -- (429) 13
Core-business resize
program.................. 2,336 -- (77) -- (1,808) 451
------ ------ ---- ------- ------- ------
Total...................... $3,668 $9,216 $(49) $(5,829) $(5,397) $1,609
====== ====== ==== ======= ======= ======

The expense adjustments for the facility closures were due to incremental
costs incurred to exit these facilities. The other expense adjustments
relate to reductions in actual amounts paid for severance costs compared to
what was initially anticipated. We recorded expense adjustments as a
component of restructuring and asset impairment charge.

In 2000, we announced plans to close, consolidate or downsize several
plants, warehouses and offices, and associated work force reductions as
part of our overall plan to increase asset utilization and financial
performance, and to reposition Kennametal to become the premier tooling
solutions supplier. The costs charged against the restructuring accrual for
the 2000 programs as of March 31, 2002 were as follows (in thousands):

JUNE 30, CASH EXPENSE MARCH 31,
2001 EXPENDITURES ADJUSTMENTS 2001
-------- ------------ ----------- ---------

Employee severance......................... $ 153 $ (130) $ (3) $ 20
Facility rationalizations.................. 2,269 (1,392) (27) 850
------ ------- ---- ----
Total.................................... $2,422 $(1,522) $(30) $870
====== ======= ==== ====

In 1999, we implemented restructuring programs to reduce costs, improve
operations and enhance customer satisfaction. Accruals for these 1999
programs were $0.1 million at March 31, 2002. Costs charged against the
accrual for the voluntary early retirement plan for the nine months ended
March 31, 2002 were $0.3 million.

9. We operate four global business units consisting of Metalworking Solutions &
Services Group (MSSG), Advanced Materials Solutions Group (AMSG), J&L and
FSS, and corporate functional shared services. Our external sales,
intersegment sales and operating income by

F-11

KENNAMETAL INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

segment for the three and nine months ended March 31, 2002 and 2001 are as
follows (in thousands):

THREE MONTHS NINE MONTHS ENDED
ENDED MARCH 31, MARCH 31,
------------------- -----------------------
2002 2001 2002 2001
---- ---- ---- ----

External sales:
MSSG.................................. $224,971 $260,098 $ 666,006 $ 754,759
AMSG.................................. 72,879 91,858 227,498 263,746
J&L Industrial Supply................. 58,873 74,504 173,997 224,708
Full Service Supply................... 37,129 41,731 113,343 122,178
-------- -------- ---------- ----------
Total external sales.................... $393,852 $468,191 $1,180,844 $1,365,391
======== ======== ========== ==========
Intersegment sales:
MSSG.................................. $ 29,071 $ 31,241 $ 86,680 $ 80,481
AMSG.................................. 5,934 7,352 18,014 21,024
J&L Industrial Supply................. 533 981 1,602 3,026
Full Service Supply................... 639 787 1,995 4,562
-------- -------- ---------- ----------
Total intersegment sales................ $ 36,177 $ 40,361 $ 108,291 $ 109,093
======== ======== ========== ==========
Total sales:
MSSG.................................. $254,042 $291,339 $ 752,686 $ 835,240
AMSG.................................. 78,813 99,210 245,512 284,770
J&L Industrial Supply................. 59,406 75,485 175,599 227,734
Full Service Supply................... 37,768 42,518 115,338 126,740
-------- -------- ---------- ----------
Total sales............................. $430,029 $508,552 $1,289,135 $1,474,484
======== ======== ========== ==========
Operating income (loss):
MSSG.................................. $ 25,999 $ 38,318 $ 68,080 $ 98,930
AMSG.................................. 6,988 12,188 16,699 32,118
J&L Industrial Supply................. 1,208 2,896 (1,725) 4,533
Full Service Supply................... 380 2,125 1,799 5,944
Corporate and eliminations............ (7,295) (6,155) (24,370) (19,390)
-------- -------- ---------- ----------
Total operating income.................. $ 27,280 $ 49,372 $ 60,483 $ 122,135
======== ======== ========== ==========

J&L operating income was reduced for costs associated with restructuring
and asset impairment charges of $2.4 million and $1.8 million for the three
months ended March 31, 2002 and 2001, respectively, and $9.8 million and
$4.0 million for the nine months ended March 31, 2002 and 2001,
respectively. Additionally, operating income for the three and nine months
ended March 31, 2001 includes $0.1 million and $2.1 million, respectively,
of costs primarily related to the tender offer to acquire the outstanding
shares of JLK Direct Distribution Inc. Restructuring charges included in
FSS operating income for the three and nine months ended March 31, 2002
were $0.2 million and $0.3 million, respectively, and for the three and
nine months ended March 31, 2001 were $0.3 million.

F-12

KENNAMETAL INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MSSG and AMSG operating income was reduced by $1.9 million and $0.6
million, respectively, for the three months ended March 31, 2002 related to
restructuring and related period costs. MSSG, AMSG and Corporate operating
income was reduced by $8.1 million, $6.6 million and $0.2 million,
respectively, for the nine months ended March 31, 2002 related to
restructuring and related period costs, and asset impairment charges. MSSG
operating income for the three and nine months ended March 31, 2001 was
reduced by $1.0 million related to restructuring and asset impairment
charges. AMSG operating income for the three and nine months ended March
31, 2001 includes a $0.3 million credit associated with the net reduction
of restructuring and asset impairment liabilities.

10. In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" was issued. SFAS No. 144 addresses financial accounting
and reporting for the impairment of long-lived assets and for long-lived
assets to be disposed of and supersedes SFAS No. 121. This statement retains
the fundamental provisions of SFAS No. 121 for recognition and measurement
of the impairment of long-lived assets to be held and used and measurement
of long-lived assets to be disposed of by sale. The provisions of this
standard are effective for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years. We are currently evaluating
the effects of this standard and are preparing a plan for implementation.

In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections," was
issued. The Statement updates, clarifies and simplifies existing accounting
pronouncements. While the technical corrections to existing pronouncements
are not substantive in nature, in some instances, they may change
accounting practice. The provisions of this standard related to SFAS No. 13
are effective for transactions occurring after May 15, 2002. All other
provisions of this standard must be applied for financial statements issued
on or after May 15, 2002, with early application encouraged. We are
currently evaluating the effects of SFAS No. 145 and are preparing a plan
for implementation.

11. On April 19, 2002, we sold Strong Tool Company, our industrial supply
distributor based in Cleveland, Ohio, for $8.6 million comprising cash
proceeds of $4.0 million and a seller note for $4.6 million. This action
resulted in a pretax loss of $3.5 million and is in line with our strategy
to refocus the J&L segment on its core catalog business. Annualized sales of
this business were approximately $34 million.

12. On May 3, 2002, we signed a definitive agreement to purchase the Widia Group
(Widia) in Europe and India from Milacron Inc. for EUR 188 million
(approximately $170 million). The acquisition, which is expected to close in
two to three months, remains subject to European regulatory approval and
negotiated conditions of closing.

Widia, with approximately $240 million in sales in calendar 2001, is a
leading manufacturer and marketer of metalworking tools, engineered
products and related services in Europe and India. Widia has an extensive
product line of metalworking consumables, and is a recognized leader in
milling applications. Widia employs approximately 3,400 employees, and
operates eight manufacturing facilities in Europe and two in India. Widia's
German operations will be merged into a new Kennametal European subsidiary
at the closing. We currently intend on integrating the operations of the
Widia Group into existing operations. Widia sells primarily through direct
sales and has sales and service personnel in many European countries.

F-13

KENNAMETAL INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

We plan to fund the acquisition on a permanent basis as part of a
comprehensive refinancing of our capital structure, the key components of
which are expected to be the establishment of a new, three-year revolving
credit facility, public term debt, and the issuance of $100-150 million of
equity. Sufficient capacity exists under our existing bank credit
facilities to fund the acquisition should the transaction close prior to
completion of one or all of the planned financing transactions.

F-14

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE SHAREOWNERS OF KENNAMETAL INC.

We have audited the accompanying consolidated balance sheets of Kennametal
Inc. (a Pennsylvania corporation) and subsidiaries as of June 30, 2001 and 2000,
and the related consolidated statements of income, shareowners' equity and cash
flows for each of the three years in the period ended June 30, 2001. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kennametal Inc. and
subsidiaries as of June 30, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
2001, in conformity with accounting principles generally accepted in the United
States.

ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Pittsburgh, Pennsylvania

July 20, 2001

F-15

KENNAMETAL INC.

AUDITED CONSOLIDATED STATEMENTS OF INCOME

YEAR ENDED JUNE 30
-------------------------------------
2001 2000 1999
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)

OPERATIONS
Net sales............................................ $1,807,896 $1,866,578 $1,914,961
Cost of goods sold................................... 1,192,176 1,228,685 1,272,090
---------- ---------- ----------
Gross profit......................................... 615,720 637,893 642,871
Operating expense.................................... 425,641 434,136 455,903
Restructuring and asset impairment charges........... 9,545 18,526 13,937
Amortization of intangibles.......................... 24,134 26,452 25,788
---------- ---------- ----------
Operating income..................................... 156,400 158,779 147,243
Interest expense..................................... 50,381 55,079 68,594
Other expense, net................................... 11,690 3,289 239
---------- ---------- ----------
Income before provision for income taxes and minority
interest........................................... 94,329 100,411 78,410
Provision for income taxes........................... 37,300 43,700 32,900
Minority interest.................................... 3,142 4,734 6,394
---------- ---------- ----------
Income before extraordinary loss and cumulative
effect of change in accounting principle........... 53,887 51,977 39,116
Extraordinary loss on early extinguishment of debt,
net of tax of $178................................. -- (267) --
Cumulative effect of change in accounting principle,
net of tax of $399................................. (599) -- --
---------- ---------- ----------
Net income........................................... $ 53,288 $ 51,710 $ 39,116
========== ========== ==========
PER SHARE DATA
Basic earnings per share before extraordinary loss
and cumulative effect of change in accounting
principle.......................................... $ 1.76 $ 1.72 $ 1.31
Extraordinary loss per share......................... -- (0.01) --
Cumulative effect of change in accounting principle
per share.......................................... (0.02) -- --
---------- ---------- ----------
Basic earnings per share............................. $ 1.74 $ 1.71 $ 1.31
========== ========== ==========
Diluted earnings per share before extraordinary loss
and cumulative effect of change in accounting
principle.......................................... $ 1.75 $ 1.71 $ 1.31
Extraordinary loss per share......................... -- (0.01) --
Cumulative effect of change in accounting principle
per share.......................................... (0.02) -- --
---------- ---------- ----------
Diluted earnings per share........................... $ 1.73 $ 1.70 $ 1.31
========== ========== ==========
Dividends per share.................................. $ 0.68 $ 0.68 $ 0.68
========== ========== ==========
Basic weighted average shares outstanding............ 30,560 30,263 29,917
========== ========== ==========
Diluted weighted average shares outstanding.......... 30,749 30,364 29,960
========== ========== ==========

The accompanying notes are an integral part of these statements.
F-16

KENNAMETAL INC.

AUDITED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30
------------------
2001 2000
---- ----
(IN THOUSANDS,
EXCEPT PER SHARE DATA)

ASSETS
Current assets:
Cash and equivalents...................................... $ 12,940 $ 22,323
Marketable equity securities available-for-sale........... 12,419 27,614
Accounts receivable, less allowance for doubtful accounts
of $7,999 and $12,214................................... 206,175 231,917
Inventories............................................... 373,221 410,885
Deferred income taxes..................................... 57,452 42,911
Other current assets...................................... 18,989 13,065
---------- ----------
Total current assets........................................ 681,196 748,715
---------- ----------
Property, plant and equipment:
Land and buildings........................................ 227,382 230,448
Machinery and equipment................................... 776,494 720,556
Less accumulated depreciation............................. (531,002) (452,220)
---------- ----------
Net property, plant and equipment........................... 472,874 498,784
---------- ----------
Other assets:
Investments in affiliated companies....................... 3,875 2,571
Intangible assets, less accumulated amortization of
$108,675 and $88,458.................................... 624,760 661,172
Other..................................................... 42,737 29,879
---------- ----------
Total other assets.......................................... 671,372 693,622
---------- ----------
Total assets................................................ $1,825,442 $1,941,121
========== ==========
LIABILITIES
Current liabilities:
Current maturities of long-term debt and capital leases... $ 2,031 $ 3,855
Notes payable to banks.................................... 22,499 57,701
Accounts payable.......................................... 118,073 118,908
Accrued income taxes...................................... 16,425 30,226
Accrued vacation pay...................................... 29,134 28,217
Accrued payroll........................................... 22,189 20,605
Other current liabilities................................. 84,134 91,800
---------- ----------
Total current liabilities................................... 294,485 351,312
---------- ----------
Long-term debt and capital leases, less current
maturities................................................ 582,585 637,686
Deferred income taxes....................................... 53,844 31,727
Other liabilities........................................... 87,898 85,036
---------- ----------
Total liabilities........................................... 1,018,812 1,105,761
---------- ----------
Minority interest in consolidated subsidiaries.............. 9,861 55,106
---------- ----------
SHAREOWNERS' EQUITY
Preferred stock, no par value; 5,000 shares authorized; none
issued.................................................... -- --
Capital stock, $1.25 par value; 70,000 shares authorized;
33,615 and 33,200 shares issued........................... 42,018 41,500
Additional paid-in capital.................................. 353,804 335,314
Retained earnings........................................... 540,965 508,733
Treasury stock, at cost; 2,774 and 2,677 shares held........ (65,963) (55,236)
Unearned compensation....................................... (2,165) (2,814)
Accumulated other comprehensive loss........................ (71,890) (47,243)
---------- ----------
Total shareowners' equity................................... 796,769 780,254
---------- ----------
Total liabilities and shareowners' equity................... $1,825,442 $1,941,121
========== ==========

The accompanying notes are an integral part of these statements.
F-17

KENNAMETAL INC.

AUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED JUNE 30
---------------------------------
2001 2000 1999
---- ---- ----
(IN THOUSANDS)

OPERATING ACTIVITIES
Net income.................................................. $ 53,288 $ 51,710 $ 39,116
Adjustments for non-cash items:
Depreciation............................................ 73,163 75,194 70,203
Amortization............................................ 24,134 26,452 25,788
Loss on divestiture..................................... 5,781 -- --
Restructuring and asset impairment charges.............. 4,325 6,378 17,119
Cumulative effect of change in accounting principle, net
of tax................................................ 599 -- --
Loss on early extinguishment of debt, net of tax........ -- 267 --
Other................................................... 12,362 11,472 6,583
Changes in certain assets and liabilities, net of effects of
acquisitions and divestitures:
Accounts receivable..................................... 9,620 (17,257) 25,973
Proceeds from accounts receivable securitization........ 5,200 6,500 82,000
Inventories............................................. 19,894 14,331 (3,867)
Accounts payable and accrued liabilities................ (827) 44,968 (32,701)
Other................................................... (19,983) 1,192 (3,662)
--------- --------- ---------
Net cash flow from operating activities..................... 187,556 221,207 226,552
--------- --------- ---------
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................. (59,929) (50,663) (94,993)
Disposals of property, plant and equipment.................. 4,227 8,109 9,555
Purchase of marketable equity securities.................... -- -- (12,162)
Acquisitions, net of cash................................... -- -- (5,164)
Divestitures, net of cash................................... 729 -- 1,617
Purchase of subsidiary stock................................ (47,505) -- (332)
Other....................................................... (26) (531) (503)
--------- --------- ---------
Net cash flow used for investing activities................. (102,504) (43,085) (101,982)
--------- --------- ---------
FINANCING ACTIVITIES
Net increase (decrease) in notes payable.................... 4,038 (18,491) (23,328)
Net increase (decrease) in revolving and other lines of
credit.................................................... (78,905) (15,100) 61,800
Term debt borrowings........................................ 1,216 378 25,285
Term debt repayments........................................ (2,941) (129,810) (170,040)
Dividend reinvestment and employee benefit and stock
plans..................................................... 22,854 11,276 3,299
Purchase of treasury stock.................................. (16,494) -- --
Cash dividends paid to shareowners.......................... (21,056) (20,570) (20,328)
Other....................................................... (949) (1,018) (1,045)
--------- --------- ---------
Net cash flow used for financing activities................. (92,237) (173,335) (124,357)
--------- --------- ---------
Effect of exchange rate changes on cash and equivalents..... (2,198) 128 (1,171)
--------- --------- ---------
CASH AND EQUIVALENTS
Net increase (decrease) in cash and equivalents............. (9,383) 4,915 (958)
Cash and equivalents, beginning of year..................... 22,323 17,408 18,366
--------- --------- ---------
Cash and equivalents, end of year........................... $ 12,940 $ 22,323 $ 17,408
========= ========= =========
SUPPLEMENTAL DISCLOSURES
Interest paid............................................... $ 51,480 $ 55,000 $ 67,065
Income taxes paid........................................... 36,608 17,092 21,738

The accompanying notes are an integral part of these statements.
F-18

KENNAMETAL INC.

AUDITED CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY

YEAR ENDED JUNE 30
------------------------------
2001 2000 1999
---- ---- ----
(IN THOUSANDS)

CAPITAL STOCK
Balance at beginning of year................................ $ 41,500 $ 41,128 $ 41,025
Issuance of capital stock under employee benefit and stock
plans..................................................... 518 372 103
-------- -------- --------
Balance at end of year...................................... 42,018 41,500 41,128
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year................................ 335,314 325,382 320,645
Dividend reinvestment....................................... 1,511 1,250 340
Issuance of capital stock under employee benefit and stock
plans..................................................... 16,979 8,682 4,397
-------- -------- --------
Balance at end of year...................................... 353,804 335,314 325,382
-------- -------- --------
RETAINED EARNINGS
Balance at beginning of year................................ 508,733 477,593 458,805
Net income.................................................. 53,288 51,710 39,116
Cash dividends.............................................. (21,056) (20,570) (20,328)
-------- -------- --------
Balance at end of year...................................... 540,965 508,733 477,593
-------- -------- --------
TREASURY STOCK
Balance at beginning of year................................ (55,236) (57,199) (59,131)
Purchase of treasury stock, at cost......................... (16,494) -- --
Dividend reinvestment....................................... 1,284 1,236 392
Issuance of capital stock under employee benefit and stock
plans..................................................... 4,483 727 1,540
-------- -------- --------
Balance at end of year...................................... (65,963) (55,236) (57,199)
-------- -------- --------
UNEARNED COMPENSATION
Balance at beginning of year................................ (2,814) (3,330) --
Issuance of capital stock under employee benefit and stock
plans..................................................... (1,921) (1,094) (3,473)
Amortization of unearned compensation....................... 2,570 1,610 143
-------- -------- --------
Balance at end of year...................................... (2,165) (2,814) (3,330)
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of year................................ (47,243) (38,443) (25,884)
Unrealized gain (loss) on marketable equity securities
available-for-sale, net of tax............................ (7,379) 7,503 1,160
Cumulative effect of change in accounting principle, net of
tax....................................................... 1,571 -- --
Unrealized losses on derivatives designated and qualified as
cash flow hedges, net of tax.............................. (2,044) -- --
Reclassification of unrealized gains or losses on expired
derivatives, net of tax................................... (2,049) -- --
Minimum pension liability adjustment, net of tax............ (2,670) 415 (1,265)
Foreign currency translation adjustments.................... (12,076) (16,718) (12,454)
-------- -------- --------
Other comprehensive loss.................................... (24,647) (8,800) (12,559)
-------- -------- --------
Balance at end of year...................................... (71,890) (47,243) (38,443)
-------- -------- --------
Total shareowners' equity, June 30.......................... $796,769 $780,254 $745,131
======== ======== ========
COMPREHENSIVE INCOME
Net income.................................................. $ 53,288 $ 51,710 $ 39,116
Other comprehensive loss.................................... (24,647) (8,800) (12,559)
-------- -------- --------
Comprehensive income........................................ $ 28,641 $ 42,910 $ 26,557
======== ======== ========

The accompanying notes are an integral part of these statements.
F-19

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--NATURE OF OPERATIONS

Kennametal Inc. is a global leader engaged in the manufacture, purchase and
distribution of a broad range of tools, tooling systems and solutions to the
metalworking, mining, oil and energy industries, and wear-resistant parts for a
wide range of industries. Unless otherwise specified, any reference to a "year"
is to a fiscal year ended June 30.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The summary of significant accounting policies is presented below to assist
evaluating our consolidated financial statements.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Kennametal
and majority-owned subsidiaries. All significant intercompany balances and
transactions are eliminated.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH EQUIVALENTS

Temporary cash investments having original maturities of three months or
less are considered cash equivalents. Cash equivalents principally consist of
investments in money market funds and certificates of deposit.

MARKETABLE EQUITY SECURITIES AVAILABLE-FOR-SALE

Our investment in marketable equity securities is accounted for as an
available-for-sale security under Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." This investment is reported at fair value, as determined through
quoted market sources. The unrealized gain on this investment is recorded as a
component of accumulated other comprehensive loss, net of tax.

ACCOUNTS RECEIVABLE

Accounts receivable includes $2.8 million and $2.4 million of receivables
from affiliates at June 30, 2001 and 2000, respectively.

INVENTORIES

Inventories are carried at the lower of cost or market. We use the last-in,
first-out (LIFO) method for determining the cost of a significant portion of our
U.S. inventories. The cost of the remainder of inventories is determined under
the first-in, first-out (FIFO) or average cost methods.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are carried at cost. Major improvements are
capitalized, while maintenance and repairs are expensed as incurred. Retirements
and disposals are removed from cost and accumulated depreciation accounts, with
the gain or loss reflected in income. Interest is capitalized during the
construction of major facilities. Capitalized interest is included in the cost
of the constructed asset and is amortized over its estimated useful life.

F-20

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Depreciation for financial reporting purposes is computed using the
straight-line method over the estimated useful lives of the assets ranging from
three to 40 years. Leased property and equipment under capital leases are
amortized using the straight-line method over the terms of the related leases.

INTANGIBLE ASSETS

Intangible assets, which include the excess of cost over net assets of
acquired companies, are amortized using the straight-line method over periods
ranging from two to 40 years. We assess the recoverability of goodwill by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired entities. The carrying value of goodwill would be adjusted to the
present value of the future operating cash flows if it cannot be recovered over
its remaining life. The net book value of goodwill is $615.3 million and $647.9
million at June 30, 2001 and 2000, respectively.

DEFERRED FINANCING FEES

Fees incurred in connection with new borrowings are capitalized and
amortized to interest expense over the life of the related obligation.

EARNINGS PER SHARE

Basic earnings per share is computed using the weighted average number of
shares outstanding during the period, while diluted earnings per share is
calculated to reflect the potential dilution that occurs related to issuance of
capital stock under stock option grants. The difference between basic and
diluted earnings per share relates solely to the effect of capital stock
options.

For purposes of determining the number of dilutive shares outstanding,
weighted average shares outstanding for basic earnings per share calculations
were increased for the dilutive effect of unexercised capital stock options by
189,419; 100,653 and 43,453 shares in 2001, 2000 and 1999, respectively. Options
to purchase 1.5 million, 1.7 million and 1.8 million shares at June 30, 2001,
2000 and 1999, respectively, are not included in the computation of diluted
earnings per share because the option exercise price was greater than the
average market price.

REVENUE RECOGNITION

We recognize revenue from product sales upon shipment to the customer and
title passes.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs of $18.9 million, $19.2 million and $18.8
million in 2001, 2000 and 1999, respectively, were expensed as incurred.

SHIPPING AND HANDLING FEES AND COSTS

All fees billed to customers for shipping and handling are classified as a
component of net sales. All costs associated with shipping and handling are
classified as a component of cost of goods sold.

F-21

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and handling costs. Such costs may not be netted against revenue, however,
disclosure of the amount and classification of these costs is required if
material and not included in cost of goods sold. The adoption of this Issue in
the June 2001 quarter did not affect reported earnings, however, it resulted in
the reclassification of amounts in previously reported financial statements.

INCOME TAXES

Deferred income taxes are recognized based on the future income tax effects
(using enacted tax laws and rates) of differences in the carrying amounts of
assets and liabilities for financial reporting and tax purposes. A valuation
allowance is recognized if it is "more likely than not" that some or all of a
deferred tax asset will not be realized.

CHANGE IN ACCOUNTING PRINCIPLE

On July 1, 2000, we adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," resulting in the recording of current
assets of $1.6 million, long-term assets of $1.4 million, current liabilities of
$1.3 million, long-term liabilities of $0.7 million, a decrease in accumulated
other comprehensive loss of $1.6 million, net of tax, and a loss from the
cumulative effect from the change in accounting principle of $0.6 million, net
of tax.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities of international operations are translated into U.S.
dollars using year-end exchange rates, while revenues and expenses are
translated at average exchange rates throughout the year. The resulting net
translation adjustments are recorded as a component of accumulated other
comprehensive loss.

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

From time to time, we use derivative financial instruments to hedge a
portion of our exposure to fluctuations in foreign exchange and interest rates.
We hedge these exposures in a manner that dampens the effect of changes in
foreign exchange and interest rates on consolidated results. We account for
derivative instruments as a hedge of the related asset, liability, firm
commitment or anticipated transaction when designated as a hedge of such items.
We do not enter into derivative transactions for speculative purposes and
therefore hold no derivative instruments for trading purposes. Our objective in
managing these exposures is to reduce both earnings and cash flow volatility to
allow us to focus our attention on our core-business operations.

Forward contracts, purchased options and range forward contracts,
designated as cash flow hedges, hedge anticipated cash flows from cross-border
intercompany sales of product and services. These contracts mature at various
times through August 2002. Gains and losses realized on these contracts at
maturity are recorded in accumulated other comprehensive loss, net of tax, and
are recognized as a component of other expense, net when the underlying sales of
product or services are recognized into earnings. We recognized expense of $0.8
million as a component of other expense, net, in 2001 related to hedge
ineffectiveness. The time value component of the fair value of purchased options
and range forwards is excluded from the assessment of hedge effectiveness.

Floating-to-fixed interest rate swap agreements, designated as cash flow
hedges, hedge our exposure to interest rate changes on a portion of our floating
rate debt, and mature at various times through June 2003. We record the fair
value of these contracts in the balance sheet, with the offset to accumulated
other comprehensive loss, net of tax. The difference between the amounts to be
received and paid under interest rate swap agreements is recognized in interest
expense.

F-22

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Forward contracts hedging significant cross-border intercompany loans are
considered other derivatives and therefore, not eligible for hedge accounting.
These contracts are recorded at fair value in the balance sheet, with the offset
to other expense, net.

Based upon foreign exchange and interest rates at June 30, 2001, we expect
to recognize into earnings in the next 12 months net current liabilities of $2.1
million related to outstanding derivative instruments and net gains of $0.4
million, recorded in accumulated other comprehensive loss, related to expired
derivative instruments.

We have designated the foreign exchange exposure under our Euro Credit
Agreement (see Note 8) as a hedge of our net investment in Euro-based
subsidiaries. The objective for this designation is to reduce our exposure to
fluctuations in accumulated other comprehensive loss due to exchange rate
fluctuations. Changes in the value of borrowings under the Euro Credit Agreement
due to exchange rate fluctuations are recorded as a component of cumulative
translation adjustment, net of tax. A gain of $13.8 million is recorded as a
component of cumulative translation adjustment at June 30, 2001.

In June 2001, we accelerated the payment of certain intercompany sales of
product from foreign subsidiaries. While this transaction did not affect
consolidated June 30, 2001 results, it eliminated a significant portion of
hedged anticipated transactions, and therefore, we unwound and discontinued
hedge accounting for the related derivative contracts. This resulted in the
recognition of gains of $0.6 million, net of hedge ineffectiveness of $0.2
million, as a component of other expense, net. A portion of the gain, $0.2
million, has been deferred in accumulated other comprehensive loss and will be
recognized in 2002 as the remaining portion of the anticipated transactions are
expected to occur in 2002.

NEW ACCOUNTING STANDARDS

SFAS No. 142 changes the accounting for goodwill and certain other
intangible assets from an amortization method to an impairment only approach. We
adopted SFAS No. 142 effective July 1, 2001 and therefore, all goodwill will no
longer be amortized to earnings. We will continue to amortize all non-goodwill
intangible assets (i.e. patents, non-compete agreements) over their existing
remaining useful lives. We are required to complete a transitional goodwill
impairment test for all goodwill, at the reporting unit level, by December 31,
2001 and are currently preparing for this test. We incurred expense in 2001 of
$21.0 million related to amortizing goodwill.

SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. It applies

F-23

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

to legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and/or the normal
operation of a long-lived asset. We are required to adopt this standard on July
1, 2002 and are preparing a plan for implementation.

RECLASSIFICATIONS

Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the current-year presentation.

NOTE 3--ACQUISITIONS AND DIVESTITURES

In the December 1999 quarter, we engaged an investment bank to explore
strategic alternatives regarding our 83 percent-owned subsidiary, JLK Direct
Distribution Inc. (JLK), including a possible divestiture. At that time, we
believed a divestiture might enhance growth prospects for both Kennametal and
JLK by allowing each company to focus on its core competencies. We completed a
thorough and disciplined process of evaluating strategic alternatives and on May
2, 2000, decided to terminate consideration of a possible divestiture at that
time. We incurred and expensed $0.8 million in costs associated with this
evaluation in 2000.

On July 20, 2000, we proposed to the Board of Directors of JLK to acquire
the outstanding shares of JLK we did not already own. On September 11, 2000, we
announced a definitive merger agreement with JLK to acquire all the outstanding
minority shares. Pursuant to the agreement, JLK agreed to commence a cash tender
offer for all of its shares of Class A Common Stock at a price of $8.75 per
share. The tender offer commenced on October 3, 2000 and expired on November 15,
2000 resulting in JLK reacquiring 4.3 million shares for $37.5 million.
Following JLK's purchase of shares in the tender offer, we acquired these shares
at the same price in a merger. We incurred transaction costs of $3.3 million,
which were included in the total cost of the transaction. JLK incurred costs of
$2.1 million associated with the transaction, which were expensed as incurred.
The transaction was unanimously approved by the JLK Board of Directors,
including its special committee comprised of independent directors of the JLK
Board.

In July 2000, Kennametal, JLK and the JLK directors (including one former
director) were named as defendants in several putative class action lawsuits.
The lawsuits sought an injunction, rescission, damages, costs and attorney fees
in connection with our proposal to acquire the outstanding shares of JLK.

On November 3, 2000, we entered into a Memorandum of Understanding (MOU)
with respect to a proposed settlement of the lawsuits. The proposed settlement
would provide for complete releases of the defendants, as well as among other
persons their affiliates and representatives, and would extinguish and enjoin
all claims that have been, could have been or could be asserted by or on behalf
of any member of the class against the defendants which in any manner relate to
the allegations, facts or other matters raised in the lawsuits or which
otherwise relate in any manner to the agreement, the offer and the merger. The
MOU also provided, among other matters, for the payment by JLK of up to
approximately $0.3 million in attorneys' fees and expenses to plaintiffs'
counsel. The final settlement of the lawsuits was approved through a definitive
stipulation of settlement in June 2001, and no other payment was made.

In April 2001, we sold ATS Industrial Supply, Inc., our industrial supply
distributor based in Salt Lake City, Utah, for $6.8 million comprising cash
proceeds of $1.0 million and a seller note for $5.8 million. This action
resulted in a pretax loss of approximately $5.8 million and is in line with our
strategy to refocus the J&L segment on its core catalog business. Annualized
sales of this business were approximately $17 million.

F-24

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4--MARKETABLE EQUITY SECURITIES AVAILABLE-FOR-SALE

On January 18, 1999, we entered into a business cooperation agreement with
Toshiba Tungaloy Co., Ltd. (TT), a leading Japanese manufacturer of consumable
metalcutting products, to enhance the global business prospects of both
companies. The agreement includes various joint activities in areas such as
product research and development, private labeling, cross-licensing, and sales
and marketing. As part of the agreement, we purchased approximately 4.9 percent
of the outstanding shares of TT in a private transaction from TT's largest
shareholder, Toshiba Corporation, for $15.9 million, including the costs of the
transaction. In order to enter into this agreement, we purchased the shares at a
predetermined price and therefore, realized a one-time charge of $3.8 million
due to the difference between the cost ($15.9 million) and the fair market value
of the securities on the date the securities were purchased ($12.1 million). Due
to the provisions of this agreement, we were not able to record this difference
as an asset. This charge was recorded as a component of operating expense. The
gross unrealized gain on this investment is $2.1 million and $14.2 million at
June 30, 2001 and 2000, respectively.

NOTE 5--ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM

On June 18, 1999, we entered into an agreement with a financial institution
whereby we securitize, on a continuous basis, an undivided interest in a
specific pool of our domestic trade accounts receivable. Pursuant to this
agreement, we, and several of our domestic subsidiaries, sell our domestic
accounts receivable to Kennametal Receivables Corporation, a wholly-owned,
bankruptcy-remote subsidiary (KRC). KRC was formed to purchase these accounts
receivable and sell participating interests in such accounts receivable to the
financial institution which, in turn, purchases and receives ownership and
security interests in those assets. As collections reduce the amount of accounts
receivable included in the pool, we sell new accounts receivable to KRC which,
in turn, securitizes these new accounts receivable with the financial
institution.

We are permitted to securitize up to $100.0 million of accounts receivable
under this agreement. The financial institution charges us fees based on the
level of accounts receivable securitized under this agreement and the commercial
paper market rates plus the financial institution's cost to administer the
program. The costs incurred under this program, $5.7 million, $5.2 million and
$0.2 million in 2001, 2000 and 1999, respectively, are accounted for as a
component of other expense, net. At June 30, 2001 and 2000, we securitized
accounts receivable of $93.7 million and $88.5 million, respectively, under this
program. Our retained interests in securitized accounts receivable is not
considered material. In 1999, the proceeds from the securitization were used to
permanently reduce a portion of our long-term debt (see Note 8).

NOTE 6--INVENTORIES

Inventories consisted of the following:

2001 2000
---- ----
(IN THOUSANDS)

Finished goods.............................................. $284,801 $306,334
Work in process and powder blends........................... 94,231 96,101
Raw materials and supplies.................................. 32,130 35,707
-------- --------
Inventories at current cost................................. 411,162 438,142
Less LIFO valuation......................................... (37,941) (27,257)
-------- --------
Total inventories........................................... $373,221 $410,885
======== ========

We used the LIFO method of valuing our inventories for approximately 44 and
45 percent of total inventories at June 30, 2001 and 2000, respectively. We use
the LIFO method in order to

F-25

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

more closely match current costs with current revenues, thereby reducing the
effects of inflation on earnings. In 2001, we recognized $3.6 million primarily
related to the scrapping of certain product lines that were discontinued as part
of a program to streamline and optimize our catalog product offering (see Note
13). In 1999, we recognized a similar charge of $6.9 million in our global
metalworking product offering (see Note 13).

NOTE 7--OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following:

2001 2000
---- ----
(IN THOUSANDS)

Accrued employee benefits................................... $21,829 $25,787
Payroll, state and local taxes.............................. 9,568 8,255
Accrued interest expense.................................... 2,803 5,123
Other accrued expenses...................................... 49,934 52,635
------- -------
Total other current liabilities............................. $84,134 $91,800
======= =======

NOTE 8--LONG-TERM DEBT AND CAPITAL LEASES

Long-term debt and capital lease obligations consisted of the following:

2001 2000
---- ----
(IN THOUSANDS)

Bank Credit Agreement, revolving credit loans, 4.705% to
5.805% in 2001 and 7.030% to 7.530% in 2000, due in
2003...................................................... $375,000 $606,000
Euro Credit Agreement, revolving credit loans, 5.648% in
2001, due in 2004......................................... 179,140 --
Borrowings outside the U.S., varying from 1.12% to 14.50% in
2001 and 1.00% to 14.50% in 2000, due in installments
through 2013.............................................. 13,840 18,798
Lease of office facilities with terms expiring through 2008
at 4.56% to 7.50%......................................... 7,906 7,815
Other....................................................... 8,730 8,928
-------- --------
Total debt and capital leases............................... 584,616 641,541
-------- --------
Less current maturities:
Long-term debt......................................... (524) (2,918)
Capital leases......................................... (1,507) (937)
-------- --------
Total current maturities.................................... (2,031) (3,855)
-------- --------
Long-term debt and capital leases........................... $582,585 $637,686
======== ========

In 1998, we entered into a $1.4 billion Bank Credit Agreement. Subject to
certain conditions, the Bank Credit Agreement permitted term loans of up to
$500.0 million and revolving credit loans of up to $900.0 million for working
capital, capital expenditures and general corporate purposes. At June 30, 2001,
interest payable under revolving credit loans is based on LIBOR plus 0.625%. The
Bank Credit Agreement also includes a commitment fee on the revolving credit
loans of 0.15% of the unused balance.

The Bank Credit Agreement also contains various restrictive and affirmative
covenants requiring the maintenance of certain financial ratios. The term loan
was repaid in November 1999. This resulted in an acceleration of the write-off
of deferred financing fees of $0.4 million, which was recorded as an
extraordinary loss of $0.3 million, net of tax. The revolving credit loans

F-26

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

mature on August 31, 2002. In 1999, the term loan was permanently reduced with
the net proceeds received from the accounts receivable securitization program
(see Note 5).

On December 20, 2000, we entered into a EUR 212.0 million Euro-denominated
revolving credit facility (Euro Credit Agreement) to hedge the foreign exchange
exposure of our net investment in Euro-based subsidiaries and to diversify our
interest rate exposure. Amounts borrowed under the Euro Credit Agreement are
required to be used to repay indebtedness under the Bank Credit Agreement and,
to the extent the Bank Credit Agreement is repaid, for working capital and
general corporate purposes. At June 30, 2001, the Euro Credit Agreement bears
interest at EURIBOR plus 0.875%, includes a commitment fee of 0.25% of the
unused balance and matures in December 2003.

On January 8, 2001, we borrowed EUR 212.0 million under this facility to
meet our obligation under then outstanding Euro-denominated forward contracts.
The proceeds from the Euro-denominated forward contracts of $191.1 million were
used to repay amounts borrowed under the Bank Credit Agreement. Subsequently,
the availability under the Bank Credit Agreement was permanently reduced to
$700.0 million, resulting in a write-down of a portion of deferred financing
fees of $0.3 million. This charge was recorded as a component of interest
expense.

Future principal maturities of long-term debt are $0.5 million, $388.7
million, $179.4 million, $0.2 million and $0.2 million, respectively, in 2002
through 2006.

Future minimum lease payments under capital leases for the next five years
in total are as follows:

(IN THOUSANDS)
--------------

2002........................................................ $ 1,851
2003........................................................ 1,668
2004........................................................ 1,226
2005........................................................ 884
2006........................................................ 2,104
After 2006.................................................. 1,373
-------
Total future minimum lease payments......................... 9,106
Less amount representing interest........................... (1,200)
-------
Present value of minimum lease payments..................... $ 7,906
=======

NOTE 9--NOTES PAYABLE AND LINES OF CREDIT

Notes payable to banks of $22.5 million and $57.7 million at June 30, 2001
and 2000, respectively, represent short-term borrowings under U.S. and
international credit lines with commercial banks. These credit lines, translated
into U.S. dollars at June 30, 2001 rates, totaled $111.8 million at June 30,
2001, of which $89.3 million was unused. The weighted average interest rate for
short-term borrowings was 5.13 percent and 7.30 percent at June 30, 2001 and
2000, respectively.

F-27

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10--INCOME TAXES

Income before income taxes and the provision for income taxes consisted of
following:

2001 2000 1999
---- ---- ----
(IN THOUSANDS)

Income before provision for income taxes:
United States................................... $35,108 $ 59,679 $36,858
International................................... 59,221 40,732 41,552
------- -------- -------
Total income before provision for income taxes....... $94,329 $100,411 $78,410
======= ======== =======
Current income taxes:
Federal......................................... $ 9,663 $ 16,053 $18,300
State........................................... 5,034 1,729 3,300
International................................... 15,234 19,861 11,900
------- -------- -------
Total current income taxes........................... 29,931 37,643 33,500
Deferred income taxes................................ 7,369 6,057 (600)
------- -------- -------
Provision for income taxes........................... $37,300 $ 43,700 $32,900
======= ======== =======
Effective tax rate................................... 39.5% 43.5% 42.0%
======= ======== =======

The reconciliation of income taxes computed using the statutory U.S. income
tax rate and the provision for income taxes was as follows:

2001 2000 1999
---- ---- ----
(IN THOUSANDS)

Income taxes at U.S statutory rate.................... $33,015 $35,144 $27,444
State income taxes, net of federal tax benefits....... 2,696 528 2,397
Nondeductible goodwill................................ 5,557 5,605 5,630
Combined effects of international earnings............ (4,899) (123) 203
International losses with no related tax benefits..... 1,135 2,527 1,915
Tax benefits from costs to repay senior debt.......... -- -- (3,607)
Other................................................. (204) 19 (1,082)
------- ------- -------
Provision for income taxes............................ $37,300 $43,700 $32,900
======= ======= =======

F-28

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred tax assets and liabilities consisted of the following:

2001 2000
---- ----
(IN THOUSANDS)

Deferred tax assets:
Inventory valuation and reserves.......................... $22,735 $19,956
Other postretirement benefits............................. 18,087 20,658
Accrued employee benefits................................. 16,771 14,323
Net operating loss carryforwards.......................... 11,820 10,694
Other..................................................... 10,575 8,865
------- -------
Total....................................................... 79,988 74,496
Valuation allowance......................................... (7,411) (4,108)
------- -------
Total deferred tax assets................................... $72,577 $70,388
======= =======
Deferred tax liabilities:
Tax depreciation in excess of book........................ $43,088 $44,995
Pension benefits.......................................... 9,967 9,709
Other..................................................... 15,914 4,500
------- -------
Total deferred tax liabilities.............................. $68,969 $59,204
======= =======

Deferred income taxes were not provided on cumulative undistributed
earnings of international subsidiaries and affiliates. At June 30, 2001,
unremitted earnings of non-U.S. subsidiaries were determined to be permanently
reinvested. It is not practical to estimate the income tax affect that might be
incurred if earnings were remitted to the United States.

Included in deferred tax assets at June 30, 2001 are unrealized tax
benefits totaling $11.8 million related to net operating loss carryforwards. The
realization of these tax benefits is contingent on future taxable income in
certain international operations. Of this amount, $6.2 million relates to net
operating loss carryforwards in the United Kingdom and Germany, which can be
carried forward indefinitely. The remaining unrealized tax benefits relate to
net operating loss carryforwards in certain other international operations that
are fully reserved and the majority of which expire over the next five years. At
June 30, 2001, we have a valuation allowance of $7.4 million to offset the
deferred tax benefits that may not be realized in the foreseeable future, an
increase of $3.3 million compared to 2000. Of this increase, $2.0 million
relates to historical losses incurred in our J&L Germany subsidiary, which has
ceased operations.

NOTE 11--PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

We sponsor several pension plans that cover substantially all employees.
Pension benefits under defined benefit pension plans are based on years of
service and, for certain plans, on average compensation immediately preceding
retirement. Pension costs are determined in accordance with SFAS No. 87,
"Employers' Accounting for Pensions." We fund pension costs in accordance with
the funding requirements of the Employee Retirement Income Security Act of 1974,
as amended, for U.S. plans and in accordance with local regulations or customs
for non-U.S. plans. In 2000, we made a qualified transfer of pension assets of
$2.2 million from a U.S. pension plan to pay for medical benefit claims and
administrative expenses incurred for postretirement health care benefits.

We presently provide varying levels of postretirement health care and life
insurance benefits to most U.S. employees. Postretirement health care benefits
are available to employees and their spouses retiring on or after age 55 with
ten or more years of service after age 40. Beginning with

F-29

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

retirements on or after January 1, 1998, our portion of the costs of
postretirement health care benefits will be capped at 1996 levels.

The funded status of our pension plans and amounts recognized in the
consolidated balance sheets were as follows:

2001 2000
---- ----
(IN THOUSANDS)

Change in benefit obligation:
Benefit obligation, beginning of year..................... $354,314 $357,102
Service cost.............................................. 11,317 13,414
Interest cost............................................. 26,368 25,187
Participant contributions................................. 722 857
Actuarial (gains) losses.................................. 4,562 (21,754)
Benefits paid............................................. (18,649) (17,818)
Effect of curtailment and other........................... 305 937
Foreign currency translation adjustments.................. (5,244) (3,611)
-------- --------
Benefit obligation, end of year............................. $373,695 $354,314
======== ========
Change in plan assets:
Fair value of plan assets, beginning of year.............. $472,208 $460,957
Actual return on plan assets.............................. (10,433) 29,242
Company contributions..................................... 2,501 1,709
Participant contributions................................. 722 857
Pension asset transfer.................................... -- (2,250)
Benefits paid............................................. (18,649) (17,818)
Other..................................................... (660) 1,266
Foreign currency translation adjustments.................. (2,472) (1,755)
-------- --------
Fair value of plan assets, end of year...................... $443,217 $472,208
======== ========
Funded status of plans...................................... $ 69,522 $117,894
Unrecognized transition obligation.......................... (1,268) (3,109)
Unrecognized prior service cost............................. 4,451 4,654
Unrecognized actuarial gains................................ (55,860) (117,220)
Minimum pension liability................................... (8,906) (4,206)
-------- --------
Net accrued benefit (obligation)............................ $ 7,939 $ (1,987)
======== ========
Amounts recognized in the balance sheet consist of:
Prepaid benefit........................................... $ 32,205 $ 27,096
Accrued benefit obligation................................ (24,266) (29,083)
-------- --------
Net accrued benefit (obligation)............................ $ 7,939 $ (1,987)
======== ========

Prepaid pension benefits are included in other long-term assets. Accrued
pension benefit obligations are included in other long-term liabilities. U.S.
defined benefit pension plan assets consist principally of common stocks,
corporate bonds and U.S. government securities. International defined benefit
pension plan assets consist principally of common stocks, corporate bonds and
government securities.

F-30

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Included in the above information are international pension plans with
accumulated benefit obligations exceeding the fair value of plan assets as
follows:

2001 2000
---- ----
(IN THOUSANDS)

Projected benefit obligation................................ $54,279 $52,860
Accumulated benefit obligation.............................. 53,283 51,960
Fair value of plan assets................................... 28,263 31,136

The components of net pension benefit include the following:

2001 2000 1999
---- ---- ----
(IN THOUSANDS)

Service cost......................................... $ 11,317 $13,414 $12,126
Interest cost........................................ 26,368 25,187 18,268
Expected return on plan assets....................... (43,526) (39,388) (30,505)
Amortization of transition obligation................ (2,052) (2,030) (2,140)
Amortization of prior service cost................... 428 514 551
Recognition of actuarial gains....................... (2,836) (1,662) (2,709)
-------- ------- -------
Net benefit.......................................... $(10,301) $(3,965) $(4,409)
======== ======= =======

The significant actuarial assumptions used to determine the present value
of net pension obligations were as follows:

2001 2000 1999
---- ---- ----

Discount rate:
U.S. plans........................................ 7.5% 8.0% 7.5%
International plans............................... 5.5 - 6.8% 5.5 - 7.0% 5.5 - 6.5%
Rate of future salary increases:
U.S. plans........................................ 4.5% 4.5% 4.5%
International plans............................... 3.0 - 4.3% 3.5 - 4.3% 3.0 - 4.3%
Rate of return on plan assets:
U.S. plans........................................ 10.0% 10.0% 9.5%
International plans............................... 6.5 - 8.0% 6.5 - 8.0% 6.5 - 7.0%

The funded status of our other postretirement benefit plan and amounts
recognized in the consolidated balance sheets were as follows:

2001 2000
---- ----
(IN THOUSANDS)

Change in benefit obligation:
Benefit obligation, beginning of year..................... $ 36,064 $ 37,922
Service cost.............................................. 1,130 1,168
Interest cost............................................. 2,744 2,536
Actuarial (gains) losses.................................. 4,667 (2,219)
Benefits paid............................................. (3,483) (3,343)
-------- --------
Benefit obligation, end of year............................. $ 41,122 $ 36,064
-------- --------
Funded status of plans...................................... $(41,122) $(36,064)
Unrecognized prior service cost............................. 1,484 1,890
Unrecognized actuarial gains................................ (4,823) (10,242)
-------- --------
Net accrued obligation...................................... $(44,461) $(44,416)
======== ========

F-31

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of other postretirement cost include the following:

2001 2000 1999
---- ---- ----
(IN THOUSANDS)

Service cost............................................. $1,130 $1,168 $1,196
Interest cost............................................ 2,744 2,536 2,633
Amortization of prior service cost....................... 406 406 406
Recognition of actuarial gains........................... (753) (465) (286)
------ ------ ------
Net cost................................................. $3,527 $3,645 $3,949
====== ====== ======

Accrued postretirement benefit obligations of $41.1 million at both June
30, 2001 and 2000 are included in other long-term liabilities. The discount rate
used to determine the present value of the other postretirement benefit
obligation was 7.5%, 8.0% and 7.5% in 2001, 2000 and 1999, respectively. The
annual assumed rate of increase in the per capita cost of covered benefits (the
health care cost trend rate) for health care plans was 7.5% in 2001 and was
assumed to decrease gradually to 5.0% in 2006 and remain at that level
thereafter. Assumed health care cost trend rates have a significant effect on
the cost components and obligation for the health care plans. A change of one
percentage point in the assumed health care cost trend rates would have the
following effects on the total service and interest cost components of other
postretirement cost and the other postretirement benefit obligation at June 30,
2001:

1% INCREASE 1% DECREASE
----------- -----------
(IN THOUSANDS)

Effect on total of service and interest cost components.... $ 190 $ (160)
Effect on other postretirement benefit obligation.......... 1,580 (1,420)

We also sponsor several defined contribution pension plans. Pension costs
for defined contribution plans were $12.1 million, $9.8 million and $9.5 million
in 2001, 2000 and 1999, respectively. Effective October 1, 1999, company
contributions to U.S. defined contribution pension plans are made primarily in
our capital stock, resulting in the issuance of 386,544 and 268,964 shares
during 2001 and 2000, respectively, with a market value of $10.8 million and
$7.6 million, respectively.

We provide for postemployment benefits pursuant to SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." We accrue the cost of
separation and other benefits provided to former or inactive employees after
employment but before retirement. Postemployment benefit costs were not
significant in 2001, 2000 and 1999.

NOTE 12--ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss consist of the
following:

2001 2000
---- ----
(IN THOUSANDS)

Unrealized gain on marketable equity securities
available-for-sale, net of tax............................ $ 1,284 $ 8,663
Unrealized losses on derivatives designated and qualified as
cash flow hedges, net of tax.............................. (2,522) --
Minimum pension liability adjustment, net of tax............ (3,520) (850)
Foreign currency translation adjustments.................... (67,132) (55,056)
-------- --------
Total accumulated other comprehensive loss.................. $(71,890) $(47,243)
======== ========

F-32

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13--RESTRUCTURING AND ASSET IMPAIRMENT CHARGES

In the September 2000 quarter, we began to implement a business improvement
plan in the J&L Industrial Supply (J&L) and Full Service Supply (FSS) segments.
We anticipate costs of $15 to $20 million associated with this plan. In the J&L
segment for 2001, we recorded a restructuring and asset impairment charge of
$2.5 million for severance for 115 individuals, $1.8 million associated with the
closure of 11 underperforming satellite locations, including the German
operations, and $0.7 million for the exiting of three warehouses. This includes
a $0.4 million non-cash write-down of the book value of certain property, plant
and equipment, net of salvage value, that we determined would no longer be
utilized in ongoing operations. The charge for exiting the warehouses and the
satellite closures includes a non-cash write-down, net of salvage value, of $0.6
million primarily related to inventory that was abandoned and not relocated. J&L
also finalized and implemented a program to optimize the overall catalog product
offering. We identified certain products that would no longer be offered to
customers and scrapped these products, resulting in a non-cash charge of $3.0
million, net of salvage value. These charges were recorded as a component of
cost of goods sold. In the FSS segment for 2001, we recorded restructuring
charges of $0.6 million for severance related to eight individuals. The costs
accrued for these plans were based on estimates using the latest information
available at the time that the accrual was established. We incurred period costs
of $0.3 million related to these initiatives in 2001 which were included in cost
of goods sold as incurred.

Beginning in March 2001, we took actions to reduce our salaried work force
in response to the weakened U.S. manufacturing sector. As a result of
implementing this core-business resize program, we recorded a restructuring
charge of $4.6 million related to severance for 209 individuals. This program is
completed. We continue to review our business strategies and pursue other
cost-reduction activities in all business segments, some of which could result
in future charges. The components of the 2001 charges and the restructuring
accrual at June 30, 2001 are as follows:

TOTAL ASSET CASH JUNE 30,
CHARGE WRITE-DOWNS EXPENDITURES 2001
------ ----------- ------------ --------
(IN THOUSANDS)

F-33

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

estimates using the latest information available at the time that the accrual
was established. The components of the charges are as follows:

INCREMENTAL INITIAL
TOTAL ASSET PENSION RESTRUCTURING
CHARGE WRITE-DOWNS OBLIGATION LIABILITY
------ ----------- ----------- -------------
(IN THOUSANDS)

Asset impairment charges............. $ 4,808 $(4,808) $ -- $ --
Employee severance................... 7,396 -- (787) 6,609
Product rationalization.............. 100 (100) -- --
Facility rationalizations............ 6,322 (1,470) (205) 4,647
------- ------- ----- -------
Total................................ $18,626 $(6,378) $(992) $11,256
======= ======= ===== =======

In conjunction with our ongoing review of underperforming businesses,
certain assets are reviewed for impairment pursuant to the provisions of SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." An asset impairment charge of $1.7 million was
recorded, related to a metalworking manufacturing operation in Shanghai, China.
This operation became fully operational in 1998 and at the time of review, had
not generated the performance that was expected at the time we entered into this
market. We performed an in-depth review of the operations, capacity utilization
and the local management team, and engaged a consultant to perform an
independent review of the same. These reviews enabled us to determine that the
market served by this operation is not expected to develop to the extent
originally anticipated, but that the operations were in good working order,
utilized modern technology, and the management team in place was competent. We
also determined that this facility had excess capacity given the level of market
demand.

The product rationalization charge of $0.1 million represents the
write-down of certain discontinued product lines manufactured in these
operations. We manufactured these products specifically for the market served by
these operations and we determined that these products are no longer salable.
This charge has been recorded as a component of cost of goods sold.

We recorded an asset impairment charge of $2.8 million related to the
write-down of equipment in our North American metalworking operations and $0.3
million in our engineered products operations. In connection with the
repositioning of the company, we completed an assessment of the assets currently
being used in these operations and determined that these assets were not going
to be further utilized in conducting these operations. This amount represents
the write-down of the book value of the assets, net of salvage value.

The charge for facility rationalizations relates to employee severance for
153 employees and other exit costs associated with the closure or downsizing of
a metalworking manufacturing operation in Kingswinford, United Kingdom, a
circuit board drill plant in Janesville, Wisc., a German warehouse facility, and
several offices in the Asia Pacific region and South America. Included in this
charge is an incremental pension obligation of $0.2 million due to a plan
curtailment. This amount is included in the pension obligation and is presented
as a component of other liabilities. The charge also includes $3.4 million for
employee severance for 41

F-34

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

employees and other exit costs associated with the closure of a mining and
construction manufacturing operation in China and the exit of the related joint
venture.

We accrued $7.4 million related to severance packages provided to 171
hourly and salaried employees terminated in connection with a global work force
reduction. Included in this charge is an incremental pension obligation of $0.8
million, incurred as a result of the severance packages provided. This amount is
included in the pension obligation and is presented as a component of other
liabilities.

The costs related to the asset impairment charges, employee severance and
facility rationalizations of $18.5 million are recorded as restructuring and
asset impairment charges. The costs charged against the restructuring accrual as
of June 30, 2001 and 2000 were as follows:

BEGINNING CASH JUNE 30,
ACCRUAL EXPENDITURES ADJUSTMENTS 2000
--------- ------------ ----------- --------
(IN THOUSANDS)

Employee severance..................... $ 6,609 $(4,076) $-- $2,533
Facility rationalizations.............. 4,647 (1,129) -- 3,518
------- ------- --- ------
Total.................................. $11,256 $(5,205) $-- $6,051
======= ======= === ======

JUNE 30, CASH JUNE 30,
2000 EXPENDITURES ADJUSTMENTS 2001
-------- ------------ ----------- --------
(IN THOUSANDS)

Employee severance...................... $2,533 $(2,475) $ 95 $ 153
Facility rationalizations............... 3,518 (1,296) 47 2,269
------ ------- ---- ------
Total................................... $6,051 $(3,771) $142 $2,422
====== ======= ==== ======

In 2001, we incurred period costs of $0.3 million related to these
initiatives which were included in cost of goods sold as incurred. The
adjustments to the accruals are due to differences in actual amounts paid to
certain individuals and incurred to rationalize facilities compared to what was
initially anticipated. These adjustments were recorded as a component of
restructuring and asset impairment charge.

In March 1999, we completed restructuring plans, including several programs
to reduce costs, improve operations and enhance customer satisfaction. The costs
accrued for these plans were based on estimates using the latest information
available at the time that the accrual was established. The components of the
charges are as follows:

ASSET
WRITE-DOWNS
& OTHER INITIAL
TOTAL NON-CASH RESTRUCTURING
CHARGE ADJUSTMENTS LIABILITY
------ ------------- -------------
(IN THOUSANDS)

Product rationalization......................... $ 6,900 $ (6,900) $ --
Plant closure................................... 4,200 (2,000) 2,200
Impairment of international operations.......... 5,800 (5,800) --
Voluntary early retirement program.............. 3,937 (2,419) 1,518
------- -------- ------
Total........................................... $20,837 $(17,119) $3,718
======= ======== ======

F-35

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The product rationalization charge represents a write-down of certain
product lines that were discontinued as part of a program to streamline and
optimize our global metalworking product offering. This charge is net of salvage
value and was recorded as a component of cost of goods sold. Estimated salvage
values were based on estimates of proceeds to be realized through the sale of
this inventory outside the normal course of business.

The program resulted in a reduction in the number of products offered from
an estimated 58,000 to 38,000 and was an extension of our initiative to reduce
the number of our North American warehouses. By streamlining the product
offering, we have improved customer service and inventory turnover, allowed for
more efficient operations, thereby reducing costs and improving capacity
utilization, and eliminated redundancy in our product offering. Sales of these
products represented less than five percent of global metalworking sales. We
proactively converted customers from these older products to newer products.

We also initiated plans to close a drill manufacturing plant in Solon,
Ohio. The manufacturing of products made at this plant was relocated to other
existing plants in the United States. The closure eliminated excess capacity at
other plant locations. We decommissioned the existing plant and sold the
property in 2001. The charge consists of employee termination benefits for 155
hourly and salaried employees, which is substantially all employees at this
plant, and the write-down of assets included in property, plant and equipment,
net of salvage value.

The costs resulting from the relocation of employees, hiring and training
new employees and other costs resulting from the temporary duplication of
certain operations incurred in 2000 and 1999 were $2.1 million and $0.4 million,
respectively, and were included in cost of goods sold as incurred.

An asset impairment charge was recorded to write-down, to fair market
value, an investment in and net receivables from certain mining and construction
international operations in emerging markets as a result of changing market
conditions in the regions these operations serve. In the March 1999 quarter, we
completed a study of these operations, the markets for these products, and the
current economic situation in these regions, to provide recommendations for
solving operational concerns. As a result of this study and continued economic
deterioration in these regions, we determined that the carrying amount of our
investment in and net receivables from these operations would not be
recoverable.

A voluntary early retirement benefit program was offered to and accepted by
34 domestic employees. In exchange for their retirement, we will provide those
employees pension and health benefits that would have been earned by the
employees through their normal retirement date. As a result of providing these
additional pension benefits, $2.4 million of the total cost was funded through
our pension plan. There are no tax benefits associated with this cost as we may
only deduct actual cash payments made to the pension plan.

The charges for the plant closure, the write-down of the investment in and
net receivables from certain international operations, and the voluntary early
retirement benefit program are recorded as the restructuring and asset
impairment charges. The costs charged against the restructuring accrual as of
June 30, 2001, 2000 and 1999 were as follows:

BEGINNING CASH JUNE 30,
ACCRUAL EXPENDITURES ADJUSTMENTS 1999
--------- ------------ ----------- --------
(IN THOUSANDS)

Plant closure.......................... $2,200 $ -- $-- $2,200
Voluntary early retirement program..... 1,518 (151) -- 1,367
------ ----- --- ------
Total.................................. $3,718 $(151) $-- $3,567
====== ===== === ======

F-36

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

JUNE 30, CASH JUNE 30,
1999 EXPENDITURES ADJUSTMENTS 2000
-------- ------------ ----------- --------
(IN THOUSANDS)

Plant closure........................... $2,200 $(2,046) $595 $ 749
Voluntary early retirement program...... 1,367 (602) -- 765
------ ------- ---- ------
Total................................... $3,567 $(2,648) $595 $1,514
====== ======= ==== ======

JUNE 30, CASH JUNE 30,
2000 EXPENDITURES ADJUSTMENTS 2001
-------- ------------ ----------- --------
(IN THOUSANDS)

Plant closure........................... $ 749 $(1,025) $276 $ --
Voluntary early retirement program...... 765 (372) -- 393
------ ------- ---- ----
Total................................... $1,514 $(1,397) $276 $393
====== ======= ==== ====

In 2001, the adjustment to the plant closure is due to incremental costs
incurred to close this plant, prior to its disposition in 2001. Additionally, we
recorded an adjustment of $0.4 million related to the recovery of accounts
receivable associated with the write-down of an investment in and net
receivables from certain mining and construction operations in emerging markets.
These net adjustments of $0.1 million are recorded as a component of
restructuring and asset impairment charge.

In 2000, the adjustment to the accrual for the plant closure is due to the
receipt of more value upon disposition of equipment than initially anticipated.
This adjustment was not included in the determination of net income for 2000.

NOTE 14--FINANCIAL INSTRUMENTS

The fair values of our financial instruments at June 30, 2001 and 2000
approximate the carrying values of such instruments. The methods used to
estimate the fair value of our financial instruments are as follows:

CASH AND EQUIVALENTS, CURRENT MATURITIES OF LONG-TERM DEBT AND NOTES PAYABLE
TO BANKS

The carrying amounts approximate their fair value because of the short
maturity of the instruments.

MARKETABLE EQUITY SECURITIES

The fair value is estimated based on the quoted market price of this
security, as adjusted for the currency exchange rate at June 30.

LONG-TERM DEBT

Fair value was determined using discounted cash flow analysis and our
incremental borrowing rates for similar types of arrangements.

FOREIGN EXCHANGE CONTRACTS

The notional amount of outstanding foreign exchange contracts, translated
at current exchange rates, were $109.7 million and $148.4 million at June 30,
2001 and 2000, respectively. We would have received $1.6 million and $2.0
million at June 30, 2001 and 2000, respectively, to settle these contracts,
representing the fair value of these agreements. Due to the adoption of SFAS No.
133 effective July 1, 2000, the carrying value equals the fair value for these
contracts at June 30, 2001. Fair value approximated the carrying value at June
30, 2000. Fair value was estimated based on quoted market prices of comparable
instruments.

F-37

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INTEREST RATE SWAP AGREEMENTS

At June 30, 2001 and 2000, we had interest rate swap agreements outstanding
that effectively convert a notional amount of $200.0 million and $300.0 million,
respectively, of debt from floating to fixed interest rates. The agreements
outstanding at June 30, 2001 mature at various times between April 2002 and June
2003. At June 30, 2001, we would have paid $6.6 million, and at June 30, 2000,
we would have received $1.8 million, to settle our interest rate swap
agreements, which represents the fair value of these agreements. Due to the
adoption of SFAS No. 133 effective July 1, 2000, the carrying value equals the
fair value for these contracts at June 30, 2001. Fair value was estimated based
on the mark-to-market value of the contracts which closely approximates the
amount that we would receive or pay to terminate the agreements at year end.

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject us to concentrations of
credit risk consist primarily of temporary cash investments and trade
receivables. By policy, we make temporary cash investments with high credit
quality financial institutions. With respect to trade receivables,
concentrations of credit risk are significantly reduced because we serve
numerous customers in many industries and geographic areas.

NOTE 15--STOCK OPTIONS, AWARDS AND PURCHASE PLAN

Stock options generally are granted to eligible employees at fair market
value at the date of grant. Options are exercisable under specified conditions
for up to ten years from the date of grant. We have four plans under which
options may be granted: the 1992 plan, the 1996 plan and two 1999 plans. No
options may be granted under the 1992 plan after October 2002, no options may be
granted under the 1996 plan after October 2006 and no options may be granted
under the 1999 plans after April and October 2009. No charges to income have
resulted from grants under the 1992 and 1996 plans.

Under provisions of the plans, participants may deliver our stock, owned by
the holder for at least six months, in payment of the option price and receive
credit for the fair market value of the shares on the date of delivery. The fair
value of shares delivered in 2001 were $0.2 million. Shares delivered in 2000
and 1999 were not significant.

We measure compensation expense related to stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, at the time options are granted, no compensation
expense was recognized in the accompanying consolidated financial statements due
to the option strike price being greater than or equal to the market value of
the stock on the grant date. If compensation expense was determined based on the
estimated fair value of options granted in 2001, 2000 and 1999, consistent with
the methodology in SFAS No. 123, "Accounting for Stock Based Compensation," our
2001, 2000 and

F-38

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1999 net income and earnings per share would be reduced to the pro forma amounts
indicated below:

2001 2000 1999
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Net income:
As reported....................................... $53,288 $51,710 $39,116
Pro forma......................................... 50,802 50,287 37,489
Basic earnings per share:
As reported....................................... 1.74 1.71 1.31
Pro forma......................................... 1.66 1.66 1.25
Diluted earnings per share:
As reported....................................... 1.73 1.70 1.31
Pro forma......................................... 1.65 1.66 1.25

The fair values of the options granted were estimated on the date of their
grant using the Black-Scholes option-pricing model based on the following
weighted average assumptions:

2001 2000 1999
---- ---- ----

Risk-free interest rate..................................... 5.9% 6.6% 5.1%
Expected life (years)....................................... 5 5 5
Expected volatility......................................... 33.2% 31.1% 24.4%
Expected dividend yield..................................... 2.4% 2.5% 2.6%

Stock option activity for 2001, 2000 and 1999 is set forth below:

2001 2000 1999
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
(NUMBER OF OPTIONS) OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------------- ------- -------- ------- -------- ------- --------

Options outstanding,
beginning of year....... 2,856,298 $33.05 2,635,256 $33.84 1,620,206 $38.40
Granted................... 726,850 25.51 317,600 27.01 1,127,750 26.78
Exercised................. (263,719) 22.48 (20,808) 19.81 (52,950) 23.72
Lapsed and forfeited...... (405,993) 34.40 (75,750) 38.86 (59,750) 39.47
--------- ------ --------- ------ --------- ------
Options outstanding, end
of year................. 2,913,436 $32.08 2,856,298 $33.05 2,635,256 $33.84
--------- ------ --------- ------ --------- ------
Options exercisable, end
of year................. 1,959,311 $34.99 2,025,723 $35.30 1,808,308 $36.54
--------- ------ --------- ------ --------- ------
Weighted average fair
value of options granted
during the year......... $ 7.95 $ 8.30 $ 6.02
====== ====== ======

F-39

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock options outstanding at June 30, 2001:

OPTIONS OUTSTANDING
----------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICES OPTIONS LIFE (YEARS) PRICE OPTIONS PRICE
--------------- ------- ------------ -------- ------- --------

$16.94 -- $23.98............ 405,947 7.80 $22.90 327,795 $23.06
24.47...................... 474,100 9.06 24.47 -- --
24.75 -- 26.07............. 327,495 6.99 25.52 191,995 25.40
26.41 -- 31.31............. 452,910 7.75 28.23 322,828 28.41
31.69...................... 313,334 7.08 31.69 209,209 31.69
31.84 -- 38.00............. 386,450 5.04 36.49 354,284 36.51
48.56...................... 397,200 6.08 48.56 397,200 48.56
49.25 -- 53.97............. 156,000 6.50 51.91 156,000 51.91
--------- ---- ------ --------- ------
2,913,436 7.16 $32.08 1,959,311 $34.99
========= ==== ====== ========= ======

In addition to stock option grants, several plans permit the award of
restricted stock to directors, officers and key employees. During 2001, 2000 and
1999, we granted restricted stock awards of 75,790, 34,800 and 113,000 shares,
respectively, which vest over periods of two to six years from the grant date.
For some grants, vesting may accelerate due to achieving certain performance
goals. Accordingly, a portion of the total cost of these awards of $1.9 million,
$1.1 million and $3.1 million for 2001, 2000 and 1999, respectively, is
considered unearned compensation. In 1999, additional unearned compensation of
$0.4 million was recognized related to the difference in the stock price between
the date of an option grant and the date the employee commenced employment. This
option award vests over a three-year period from the grant date. Unearned
compensation is amortized to expense over the vesting period. Compensation
expense related to these awards was $2.6 million, $1.6 million and $0.1 million
in 2001, 2000 and 1999, respectively.

On October 24, 2000, our shareowners approved the Employee Stock Purchase
Plan (ESPP), which provides for the purchase by employees of up to 1.5 million
shares of capital stock through payroll deductions. Employees who choose to
participate in the ESPP receive an option to purchase capital stock at a
discount equal to the lower of 85 percent of the fair market value of the
capital stock on the first or last day of a purchase period. The ESPP was
launched on February 1, 2001 and employees purchased 11,538 shares under the
ESPP through June 30, 2001.

NOTE 16--ENVIRONMENTAL MATTERS

F-40

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

incurred. Through June 30, 2001, we have incurred costs of $0.4 million, which
were charged against this accrual.

We maintain a Corporate Environmental, Health and Safety (EH&S) Department,
as well as an EH&S Policy Committee, to ensure compliance with environmental
regulations and to monitor and oversee remediation activities. In addition, we
have established an EH&S administrator at all our global manufacturing
facilities. Our financial management team periodically meets with members of the
Corporate EH&S Department and the Corporate Legal Department to review and
evaluate the status of environmental projects and contingencies. On a quarterly
basis, we establish or adjust financial provisions and reserves for
environmental contingencies in accordance with SFAS No. 5, "Accounting for
Contingencies."

NOTE 17--RIGHTS PLAN

On July 24, 2000, our Board of Directors adopted a new shareowner rights
plan to replace our existing plan, which has been in effect since 1990. The new
plan became effective upon the expiration of the existing plan on November 2,
2000 and provided for the distribution to shareowners of one stock purchase
right for each share of capital stock held as of September 5, 2000. Each right
entitles a shareowner to buy 1/100th of a share of a new series of preferred
stock at a price of $120 (subject to adjustment).

The rights are exercisable only if a person or group of persons acquires or
intends to make a tender offer for 20 percent or more of our capital stock. If
any person acquires 20 percent of the capital stock, each right will entitle the
shareowner to receive that number of shares of capital stock having a market
value of two times the exercise price. If we are acquired in a merger or other
business combination, each right will entitle the shareowner to purchase at the
exercise price that number of shares of the acquiring company having a market
value of two times the exercise price. The rights will expire on November 2,
2010 and are subject to redemption at $0.01 per right.

NOTE 18--SEGMENT DATA

In September 2000, we reorganized the financial reporting of our operations
to focus on global business units consisting of Metalworking Solutions &
Services Group (MSSG), Advanced Materials Solutions Group (AMSG) and
JLK/Industrial Supply, and corporate functional shared services. Subsequent to
the acquisition of the minority shares of JLK, we split the financial reporting
of these operations into two units, J&L and FSS. We also changed our internal
reporting structure to add the operations of an integrated supply business to
FSS, that was previously reported in J&L. The results of all periods presented
have been restated to conform to the new reporting structure. The presentation
of segment information reflects the manner in which we organize segments for
making operating decisions and assessing performance.

Intersegment sales are accounted for at arm's-length prices, reflecting
prevailing market conditions within the various geographic areas. Such sales and
associated costs are eliminated in the consolidated financial statements.

F-41

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Sales to a single customer did not aggregate 10 percent or more of total
sales in 2001, 2000 or 1999. Export sales from U.S. operations to unaffiliated
customers were $78.7 million, $75.8 million and $69.9 million in 2001, 2000 and
1999, respectively.

METALWORKING SOLUTIONS & SERVICES GROUP

In the MSSG segment, we provide consumable metalcutting tools and tooling
systems to manufacturing companies in a wide range of industries throughout the
world. Metalcutting operations include turning, boring, threading, grooving,
milling and drilling. Our tooling systems consist of a steel toolholder and an
indexable cutting tool such as an insert or drill made from cemented tungsten
carbides, high-speed steel and other hard materials. We also provide solutions
to our customers' metalcutting needs through engineering services aimed at
improving their competitiveness.

ADVANCED MATERIALS SOLUTIONS GROUP

In the AMSG segment, the principal business is the production and sale of
cemented tungsten carbide products used in mining and highway construction,
engineered applications, including circuit board drills, compacts and other
similar applications. These products have technical commonality to our core
metalworking products. We also sell metallurgical powders to manufacturers of
cemented tungsten carbide products.

J&L INDUSTRIAL SUPPLY

FULL SERVICE SUPPLY

Segment detail is summarized as follows:

2001 2000 1999
---- ---- ----
(IN THOUSANDS)

External sales:
MSSG....................................... $ 999,813 $1,029,395 $1,046,054
AMSG....................................... 352,933 345,447 349,210
J&L Industrial Supply...................... 296,264 333,061 368,579
Full Service Supply........................ 158,886 158,675 151,118
---------- ---------- ----------
Total external sales......................... $1,807,896 $1,866,578 $1,914,961
========== ========== ==========
Intersegment sales:
MSSG....................................... $ 111,780 $ 134,398 $ 108,994
AMSG....................................... 28,167 25,263 29,384
J&L Industrial Supply...................... 3,823 5,038 4,259
Full Service Supply........................ 5,278 7,827 11,919
---------- ---------- ----------
Total intersegment sales..................... $ 149,048 $ 172,526 $ 154,556
========== ========== ==========

F-42

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2001 2000 1999
---- ---- ----
(IN THOUSANDS)

Total sales:
MSSG....................................... $1,111,593 $1,163,793 $1,155,048
AMSG....................................... 381,100 370,710 378,594
J&L Industrial Supply...................... 300,087 338,099 372,838
Full Service Supply........................ 164,164 166,502 163,037
---------- ---------- ----------
Total sales.................................. $1,956,944 $2,039,104 $2,069,517
========== ========== ==========
Operating income:
MSSG....................................... $ 130,558 $ 131,676 $ 119,702
AMSG....................................... 43,270 41,204 38,693
J&L Industrial Supply...................... 3,689 17,208 19,812
Full Service Supply........................ 7,541 12,021 15,043
Corporate.................................. (28,658) (43,330) (46,007)
---------- ---------- ----------
Total operating income....................... 156,400 158,779 147,243
Interest expense............................. 50,381 55,079 68,594
Other expense, net........................... 11,690 3,289 239
---------- ---------- ----------
Income before income taxes and minority
interest................................... $ 94,329 $ 100,411 $ 78,410
========== ========== ==========
Depreciation and amortization:
MSSG....................................... $ 62,374 $ 64,727 $ 63,822
AMSG....................................... 21,024 21,892 19,486
J&L Industrial Supply...................... 8,400 9,044 8,458
Full Service Supply........................ 804 342 291
Corporate.................................. 4,695 5,641 3,934
---------- ---------- ----------
Total depreciation and amortization.......... $ 97,297 $ 101,646 $ 95,991
========== ========== ==========
Equity income (loss):
MSSG....................................... $ 470 $ 615 $ 650
AMSG....................................... (15) (18) (777)
---------- ---------- ----------
Total equity income (loss)................... $ 455 $ 597 $ (127)
========== ========== ==========
Total assets:
MSSG....................................... $ 937,863 $ 978,188 $1,039,854
AMSG....................................... 429,981 475,741 510,034
J&L Industrial Supply...................... 224,939 218,247 204,721
Full Service Supply........................ 63,056 69,435 68,957
Corporate.................................. 169,603 199,510 176,914
---------- ---------- ----------
Total assets................................. $1,825,442 $1,941,121 $2,000,480
========== ========== ==========

F-43

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2001 2000 1999
---- ---- ----
(IN THOUSANDS)

Capital expenditures:
MSSG....................................... $ 32,913 $ 35,125 $ 63,722
AMSG....................................... 7,947 7,235 16,116
J&L Industrial Supply...................... 2,679 6,939 9,441
Full Service Supply........................ 439 760 240
Corporate.................................. 15,951 604 5,474
---------- ---------- ----------
Total capital expenditures................... $ 59,929 $ 50,663 $ 94,993
========== ========== ==========
Investments in affiliated companies:
MSSG....................................... $ 3,688 $ 3,006 $ 2,821
AMSG....................................... 187 (435) (1,977)
---------- ---------- ----------
Total investments in affiliated companies.... $ 3,875 $ 2,571 $ 844
========== ========== ==========

J&L operating income for 2001 was reduced by $5.0 million related to
restructuring and asset impairment charges, $3.0 million related to product
pruning initiatives (see Note 13), and $2.1 million of costs primarily related
to the tender offer to acquire the minority shares of JLK (see Note 3). MSSG,
AMSG, FSS and Corporate operating income for 2001 was reduced by $3.3 million,
$0.9 million, $0.6 million and $0.4 million, respectively, related to
restructuring charges (see Note 13).

MSSG operating income for 2000 was reduced by $11.0 million related to
asset impairment charges, costs associated with facility and product
rationalizations, and employee severance (see Note 13). AMSG operating income
for 2000 was reduced by $4.8 million related to costs associated with facility
rationalizations including costs to exit a related joint venture, employee
severance and asset impairment charges (see Note 13). J&L operating income for
2000 was reduced by $0.6 million related to employee severance costs (see Note
13) and $0.2 million related to the evaluation of strategic alternatives (see
Note 3). Corporate operating income for 2000 was reduced by $3.0 million related
to environmental remediation costs (see Note 16), $2.2 million related to
employee severance costs (see Note 13), and $0.6 million related to the
evaluation of strategic alternatives (see Note 3).

MSSG operating income for 1999 was reduced by $11.1 million related to the
product rationalization program and to close a drill manufacturing plant in
Solon, Ohio (see Note 13) and a $3.8 million one-time charge incurred in the
acquisition of 4.9 percent of Toshiba Tungaloy (see Note 4). AMSG operating
income for 1999 was reduced by $5.8 million related to a write-down of an
investment in and net receivables from certain international operations in
emerging markets (see Note 13). Corporate operating income for 1999 was reduced
by $3.9 million related to a voluntary early retirement benefit program (see
Note 13).

F-44

KENNAMETAL INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Geographic information for sales, based on country of origin, and assets is
follows:

2001 2000 1999
---- ---- ----
(IN THOUSANDS)

External sales:
United States.............................. $1,267,506 $1,318,806 $1,356,697
Germany.................................... 192,283 196,533 209,097
United Kingdom............................. 86,670 96,220 107,289
Canada..................................... 61,335 60,823 52,949
Other...................................... 200,102 194,196 188,929
---------- ---------- ----------
Total external sales......................... $1,807,896 $1,866,578 $1,914,961
========== ========== ==========
Total assets:
United States.............................. $1,368,055 $1,485,695 $1,552,670
Germany.................................... 166,259 154,534 162,405
United Kingdom............................. 93,432 92,463 85,363
Canada..................................... 33,982 28,203 29,854
Other...................................... 163,714 180,226 170,188
---------- ---------- ----------
Total assets................................. $1,825,442 $1,941,121 $2,000,480
========== ========== ==========

F-45

PROSPECTUS
KENNAMETAL INC.
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
DEBT SECURITIES
COMMON STOCK

KENNAMETAL FINANCING I
PREFERRED SECURITIES
GUARANTEED AS SET FORTH HEREIN BY
KENNAMETAL INC.
------------------------
Kennametal Inc., a Pennsylvania corporation ("Kennametal" or the
"Company"), from time to time may offer together or separately: (i) Stock
Purchase Contracts ("Stock Purchase Contracts") to purchase shares of capital
stock, par value $1.25 per share ("Common Stock"), of the Company; (ii) Stock
Purchase Units ("Stock Purchase Units"), each representing ownership of a Stock
Purchase Contract and Preferred Securities (as defined herein) or debt
obligations of third parties, including U.S. Treasury securities, securing the
holder's obligation to purchase Common Stock under the Stock Purchase Contracts;
(iii) its debentures (the "Trust Debentures") to be purchased with the proceeds
from the sale of preferred securities representing preferred undivided
beneficial interests in Kennametal Financing I ("Preferred Securities"), a
statutory business trust created under the laws of the State of Delaware (the
"Trust"), and its other debentures, notes and other debt securities in one or
more series, (the "Senior Debt Securities;" and together with the Trust
Debentures, the "Debt Securities"); (iv) Common Stock; and (v) the Trust may
offer, from time to time, its Preferred Securities, in each case in amounts, at
prices and on terms to be determined at the time or times of offering. The
aggregate initial offering price of all of the Securities (as defined herein)
which may be sold pursuant to this Prospectus will not exceed U.S.
$1,400,000,000 (or its equivalent based on the applicable exchange rate at the
time of issue in one or more foreign currencies or currency units as shall be
designated by Kennametal). The Stock Purchase Contracts, Stock Purchase Units,
Debt Securities, Common Stock and Preferred Securities are collectively called
the "Securities."

(continued on next page)

The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the trading symbol "KMT." An accompanying Prospectus Supplement will state
whether any Securities offered thereby will be listed on any national securities
exchange. If such Securities are not listed on any national securities exchange,
there can be no assurance that there will be a secondary market for any such
Securities.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------

The Company may sell the Securities to or through underwriters, through
dealers or agents, directly to purchasers or through a combination of such
methods. See "Plan of Distribution." An accompanying Prospectus Supplement sets
forth the names of any underwriters, dealers or agents, if any, involved in the
sale of the Securities in respect of which this Prospectus is being delivered,
and any applicable fee, commission or discount arrangements with them.
------------------------
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
------------------------
THE DATE OF THIS PROSPECTUS IS JANUARY 22, 1998.

(continued from prior page)

Certain specific terms of the particular Securities in respect of which
this Prospectus is being delivered are set forth in an accompanying prospectus
supplement (the "Prospectus Supplement"), including, where applicable: (i) in
the case of Stock Purchase Contracts, the number of shares of Common Stock
issuable thereunder, the purchase price of the Common Stock, the date or dates
on which the Common Stock is required to be purchased by the holders of the
Stock Purchase Contracts, any periodic payments required to be made by the
Company to the holders of the Stock Purchase Contracts or vice versa, and the
terms of the offering and sale thereof; (ii) in the case of Stock Purchase
Units, the specific terms of the Stock Purchase Contracts and any Preferred
Securities or debt obligations of third parties securing the holder's obligation
to purchase the Common Stock under the Stock Purchase Contracts, and the terms
of the offering and sale thereof; (iii) in the case of Debt Securities, the
specific designation, aggregate principal amount, denominations, maturity,
interest payment dates, interest rate (which may be fixed or variable) or method
of calculating interest, if any, applicable Extension Period (as defined below)
or interest deferral terms, if any, place or places where principal, premium, if
any, and interest, if any, will be payable, any terms of redemption, any sinking
fund provisions, terms for any conversion or exchange into other securities,
initial offering or purchase price, methods of distribution and any other
special terms; (iv) in the case of Preferred Securities, the specific title,
aggregate amount, stated liquidation preference, number of securities, the rate
of payment of periodic cash distributions ("Distributions") or method of
calculating such rate, applicable Extension Period or Distribution deferral
terms, if any, place or places where Distributions will be payable, any terms of
redemption, initial offering or purchase price, methods of distribution and any
other special terms; and (v) in the case of Common Stock, the number of shares
offered, the methods of distribution and the public offering or purchase price.
If so specified in the applicable Prospectus Supplement, the Securities offered
thereby may be issued in whole or in part in the form of one or more temporary
or permanent global securities ("Global Securities").

Unless otherwise specified in a Prospectus Supplement, the Debt Securities
will be senior unsecured obligations of the Company and will rank pari passu in
right of payment with all of the Company's other senior unsecured obligations.
If provided in an accompanying Prospectus Supplement, the Company will have the
right to defer principal payments or payments of interest on any series of Debt
Securities by extending the interest payment period thereon at any time or from
time to time for such number of consecutive interest payment periods (which
shall not extend beyond the maturity of the Debt Securities) with respect to
each deferral period as may be specified in such Prospectus Supplement (each, an
"Extension Period"). See "Description of Debt Securities--Option to Defer
Interest Payments". The Debt Securities may be denominated in U.S. Dollars, or
at the option of Kennametal, to the extent described herein and in the
applicable Prospectus Supplement, in one or more foreign currencies or currency
units.

The Company will be the owner of the common securities (the "Common
Securities" and, together with the Preferred Securities, the "Trust Securities")
of the Trust. The payment of Distributions with respect to the Preferred
Securities and payments on liquidation or redemption with respect to the
Preferred Securities, in each case out of funds held by the Trust, will be
irrevocably guaranteed by the Company to the extent described herein (the
"Guarantee"). Certain payments in respect of the Common Securities may also be
guaranteed by the Company. See "Description of the Guarantee." Unless otherwise
specified in a Prospectus Supplement, the obligations of the Company under the
Guarantee will be senior unsecured obligations of the Company and will rank pari
passu with all of the Company's other senior unsecured obligations. Concurrently
with the issuance by the Trust of the Preferred Securities, the Trust will
invest the proceeds thereof and any contributions made in respect of the Common
Securities in the Trust Debentures, which will have terms corresponding to the
terms of the Preferred Securities. The Trust Debentures will be the sole assets
of the Trust, and payments under the Trust Debentures and those made by the
Company in respect of fees and expenses incurred by the Trust will be the only
revenues of the Trust. Upon the occurrence of certain events as are described
herein and in the applicable Prospectus Supplement, the Company may redeem the
Trust Debentures and cause the redemption of the Trust Securities. In addition,
if provided in the applicable Prospectus Supplement, the Company may dissolve
the Trust at any time and, after satisfaction of the liabilities to creditors of
the Trust as provided by applicable law, cause the Trust Debentures to be
distributed to the holders of the Preferred Securities in liquidation of their
interests in

the Trust. See "Description of Preferred Securities--Redemption--Distribution of
Trust Debentures" and "--Liquidation Distribution Upon Dissolution."

Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash Distributions accruing from the date of original
issuance and payable periodically as specified in an accompanying Prospectus
Supplement. If provided in an accompanying Prospectus Supplement, the Company
will have the right to defer payments of interest on the Trust Debentures by
extending the interest payment period thereon at any time or from time to time
for one or more Extension Periods (which shall not extend beyond the maturity of
the Trust Debentures). If interest payments are so deferred, Distributions on
the Preferred Securities will also be deferred and the Company will not be
permitted, subject to certain exceptions set forth herein, to declare or pay any
cash distributions with respect to the Company's capital stock or debt
securities that rank junior to the Trust Debentures. During an Extension Period,
Distributions will continue to accumulate (and the Preferred Securities will
accumulate additional Distributions thereon at the rate per annum if and as
specified in the related Prospectus Supplement). See "Description of Preferred
Securities--Distributions."

Taken together, the Company's obligations under the Trust Debentures, the
Indenture (as defined herein), the Declaration (as defined herein) and the
Guarantee, in the aggregate, have the effect of providing a full, irrevocable
and unconditional guarantee of payments of Distributions and other amounts due
on the Preferred Securities. See "Relationship Among the Preferred Securities,
the Trust Debentures and the Guarantee."
------------------------

No dealer, salesman or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus, any
accompanying Prospectus Supplement or the documents incorporated or deemed
incorporated by reference herein. If given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any underwriter, dealer or agent. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, any securities other than
the registered securities to which it relates, or an offer to sell or a
solicitation of an offer to buy those securities to which it relates, in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus or any Prospectus
Supplement nor any sale made hereunder shall, under any circumstances, create
any implication that there has not been any change in the facts set forth in
this Prospectus or in the affairs of the Company since the date hereof.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the Commission's regional offices at
Seven World Trade Center, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and copies may be obtained
at prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. In addition, the Registration Statement may
be accessed electronically at the Commission's site on the World Wide Web at
http://www.sec.gov. The Company's reports are also on file at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.

The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto, as
permitted by the rules and regulations of the Commission. For further
information with respect to the Securities being offered, reference is made to
the Registration Statement which can be inspected at the public reference
facilities at the offices of the Commission. No separate financial statements of
the Trust have been included herein. The Company and the Trust do not consider
that such financial statements would be material to holders of the Preferred
Securities because the Trust is a newly formed special purpose entity, has no
operating history or independent operations and is not engaged in and does not
propose to engage in any activity other than its holding as trust assets the
Trust Debentures, and the issuance of the Trust Securities. See "The Trust,"
"Description of Preferred Securities" and "Description of the Guarantee."

The Trust is not currently subject to the information reporting
requirements of the Exchange Act.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed with the Commission are incorporated herein
by reference:

(1) Kennametal's Annual Report on Form 10-K for the fiscal year ended June
30, 1997, and Greenfield Industries, Inc.'s ("Greenfield") Annual
Report on Form 10-K for the fiscal year ended December 31, 1996;

(2) Kennametal's Proxy Statement dated September 12, 1997, and Greenfield's
Information Statement pursuant to Section 14(f) dated October 17, 1997;

(3) Kennametal's Current Report on Form 8-K dated November 20, 1997, as
amended on December 31, 1997;

(4) Kennametal's Quarterly Report on Form 10-Q for the period ended
September 30, 1997, and Greenfield's Quarterly Reports on Form 10-Q for
the periods ended March 31, 1997, June 30, 1997 and September 30, 1997;
and

(5) the descriptions of Kennametal's Common Stock and Preferred Stock
Purchase Rights contained in Kennametal's Registration Statements filed
under Section 12(b) of the Exchange Act, including any amendments or
reports filed for the purpose of updating such descriptions.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not

be deemed, except as so modified or superseded, to constitute a part of this
Prospectus or any such amendment or supplement.

The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated herein, other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into such documents. Requests for such documents should be directed to:
Kennametal Inc., Route 981 South at Westmoreland County Airport, Latrobe,
Pennsylvania 15650, Attention: David T. Cofer, Vice President, Secretary and
General Counsel, telephone (412) 539-5000.

KENNAMETAL INC.

The Company is a vertically integrated global manufacturer, marketer and
distributor of a broad range of consumable tools, supplies and services for the
metalworking, mining and highway construction industries. Kennametal specializes
in developing and manufacturing tools utilizing tungsten carbide powder
metallurgy for the three primary metalcutting methods: turning, milling and
drilling. In addition, through its 80%-owned subsidiary, JLK Direct Distribution
Inc. ("JLK"), the Company markets and distributes a broad line of consumable
metalcutting tools, as well as abrasives, machine tool accessories, hand tools,
measuring equipment and other industrial supplies used in the metalworking
industry. The Company is a recognized leader in turning and milling consumable
metalcutting tools and believes it is the largest North American and the second
largest global provider of consumable metalcutting tools and supplies.
Leveraging its expertise in tungsten carbide powder metallurgy, the Company has
developed innovative consumable tools for the mining and construction industries
and believes it is the largest global manufacturer, marketer and distributor of
such tools to these markets. End users of the Company's metalworking products
include manufacturers and suppliers in the aerospace, automotive, construction
and farm machinery, railroad equipment, power generation and transmission
equipment, home appliance, electrical equipment and oil field services and gas
exploration industries.

The address of the Company's principal executive office is Route 981 South
at Westmoreland County Airport, Latrobe, Pennsylvania 15650 and its telephone
number is (412) 539-5000.

THE TRUST

The Trust is a statutory business trust created under the laws of the State
of Delaware pursuant to (i) an agreement of trust, dated as of November 12,
1997, executed by the Company, as sponsor (the "Sponsor") and certain of the
trustees of the Trust (the "Kennametal Trustees") and (ii) the filing of a
certificate of trust with the Secretary of State of the State of Delaware on
November 12, 1997. Such agreement of trust will be amended and restated in its
entirety (the "Declaration") substantially in the form filed as an exhibit to
the Registration Statement of which this Prospectus forms a part. The
Declaration will be qualified as an indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The Company will directly or
indirectly acquire Common Securities in an aggregate liquidation amount equal to
3% of the total capital of the Trust. The Trust exists for the exclusive
purposes of (i) issuing the Trust Securities representing undivided beneficial
interests in the assets of the Trust, (ii) investing the proceeds of the Trust
Securities in the Trust Debentures and (iii) engaging in only those other
activities necessary or incidental thereto unless otherwise specified in the
applicable Prospectus Supplement. The Trust has a term of approximately seven
(7) years, but may dissolve earlier as provided in the Declaration.

Pursuant to the Declaration, the number of Kennametal Trustees initially is
five. Three of the Kennametal Trustees (the "Regular Trustees") are persons who
are employees or officers of or who are affiliated with the Company. Pursuant to
the Declaration, the fourth trustee will be a financial institution that is
unaffiliated with the Company, which trustee serves as institutional trustee
under the Declaration and as indenture trustee for the purposes of compliance
with the provisions of the Trust Indenture Act (the "Institutional Trustee").
For the purpose of compliance with the provisions of the Trust Indenture Act,
the Institutional Trustee will also act as trustee (the "Guarantee Trustee")
under the Guarantee for the purposes of the Trust Act (as defined herein), until

removed or replaced by the holder of the Common Securities. See "Description of
the Guarantee" and "Description of Preferred Securities--Voting Rights;
Amendment of Declaration."

The Institutional Trustee will hold title to the Trust Debentures for the
benefit of the holders of the Trust Securities and the Institutional Trustee
will have the power to exercise all rights, powers and privileges under the
Indenture as the holder of the Trust Debentures. In addition, the Institutional
Trustee will maintain exclusive control of a segregated non-interest bearing
bank account (the "Property Account") to hold all payments made in respect of
the Trust Debentures for the benefit of the holders of the Trust Securities. The
Institutional Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities out
of funds from the Property Account. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the Preferred Securities. The
Company, as the direct or indirect holder of all the Common Securities, will
have the right to appoint, remove or replace any Kennametal Trustee and to
increase or decrease the number of Kennametal Trustees; provided, that the
number of Kennametal Trustees shall be at least three, a majority of which shall
be Regular Trustees. The Company will pay all fees and expenses related to the
Trust and the offering of the Trust Securities. See "Description of the
Guarantee."

The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the
Declaration, the Delaware Business Trust Act, as amended (the "Trust Act"), and
the Trust Indenture Act. See "Description of the Preferred Securities."

The trustee in the State of Delaware (the "Delaware Trustee") is First
Chicago Delaware, Inc., Wilmington, Delaware. The principal place of business of
the Trust is c/o Kennametal Inc., Route 981 South, at Westmoreland County
Airport, Latrobe, PA 15650, and its telephone number is (412) 539-5000.

RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth the ratio of earnings to fixed charges of
Kennametal for the periods indicated. For the purpose of the calculation of this
ratio, earnings represents income from continuing operations before fixed
charges, minority interest, provision for income taxes and the cumulative effect
of accounting changes. Fixed charges includes interest expense, including
amounts capitalized and the portion (one-third) of rental expenses deemed to be
representative of interest expense.

THREE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED SEPTEMBER 30,
-------------------------------- -------------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----

3.75 2.47 8.02 8.62 8.75 7.65 14.94

USE OF PROCEEDS

Unless otherwise specified in the applicable Prospectus Supplement,
Kennametal intends to apply the net proceeds from the sale of the Securities
(including Trust Debentures issued to the Trust in connection with the
investment by the Trust of all of the proceeds from the sale of the Preferred
Securities) to which this Prospectus relates to its general funds to be used for
general corporate purposes including capital expenditures, acquisitions, the
reduction of indebtedness and other purposes. Funds not required immediately for
such purposes may be invested in short-term obligations or used to reduce the
future level of the Company's indebtedness.

DESCRIPTION OF DEBT SECURITIES

The following description sets forth certain general terms and provisions
of the Debt Securities to which any Prospectus Supplement may relate. The
particular terms and provisions of the series of Debt Securities offered by a
Prospectus Supplement, and the extent to which such general terms and provisions
described below may apply thereto, will be described in the Prospectus
Supplement relating to such series of Debt Securities.

The Debt Securities are to be issued in one or more series under an
Indenture, as supplemented or amended from time to time (as supplemented or
amended, the "Indenture"), between the Company and The First National Bank of
Chicago, as trustee (the "Debt Trustee"). This summary of certain terms and
provisions of the Debt Securities and the Indenture is not necessarily complete,
and reference is hereby made to the copy of the form of the Indenture which is
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part, and to the Trust Indenture Act. Whenever particular defined terms of the
Indenture are referred to in this Section or in a Prospectus Supplement, such
defined terms are incorporated herein or therein by reference.

GENERAL

Unless otherwise specified in the applicable Prospectus Supplement, each
series of Debt Securities will be issued as senior unsecured debt under the
Indenture and will rank pari passu in right of payment with all of the Company's
other senior unsecured obligations. Except as otherwise provided in the
applicable Prospectus Supplement, the Indenture does not limit the incurrence or
issuance of other secured or unsecured debt of the Company, whether under the
Indenture, any other indenture that the Company may enter into in the future or
otherwise. See the Prospectus Supplement relating to any offering of Securities.

The Debt Securities will be issuable in one or more series pursuant to an
indenture supplemental to the Indenture or a resolution of the Company's Board
of Directors or a committee thereof.

The applicable Prospectus Supplement or Prospectus Supplements will
describe the following terms of each series of Debt Securities: (i) the title of
the Debt Securities; (ii) any limit upon the aggregate principal amount of the
Debt Securities; (iii) the date or dates on which the principal of the Debt
Securities is payable or the method of determination thereof or the right, if
any, of the Company to defer payment of principal; (iv) the rate or rates, if
any, at which the Debt Securities shall bear interest (including reset rates, if
any, and the method by which any such rate will be determined), the Interest
Payment Dates on which any such interest shall be payable and the right, if any,
of the Company to defer any interest payment; (v) the place or places where,
subject to the terms of the Indenture as described below under "--Payment and
Paying Agents," the principal of and premium, if any, and interest, if any, on
the Debt Securities will be payable ("Place of Payment") and where, subject to
the terms of the Indenture as described below under "--Denominations,
Registration and Transfer," the Company will maintain an office or agency where
Debt Securities may be presented for registration of transfer or exchange and
the place or places where notices and demands to or upon the Company in respect
of the Debt Securities and the Indenture may be made; (vi) any period or periods
within, or date or dates on which, the price or prices at which and the terms
and conditions upon which Debt Securities may be redeemed, in whole or in part,
at the option of the Company pursuant to any sinking fund or otherwise; (vii)
the obligation, if any, of the Company to redeem or purchase the Debt Securities
pursuant to any sinking fund or analogous provisions or at the option of a
holder and the period or periods within which, the price or prices at which, the
currency or currencies (including currency unit or units) in which and the other
terms and conditions upon which the Debt Securities shall be redeemed or
purchased, in whole or in part, pursuant to such obligation; (viii) the
denominations in which any Debt Securities shall be issuable if other than
denominations of $1,000 and any integral multiple thereof; (ix) if other than in
U.S. Dollars, the currency or currencies (including currency unit or units) in
which the principal of (and premium, if any) and interest, if any, on the Debt
Securities shall be payable, or in which the Debt Securities shall be
denominated; (x) any additions, modifications or deletions in the Events of
Default or covenants of the Company specified in the Indenture with respect to
the Debt Securities; (xi) if other than the principal amount thereof, the
portion of the principal amount of Debt Securities that shall be payable upon
declaration of acceleration of the maturity thereof; (xii) any additions or
changes to the Indenture with respect to a series of Debt Securities as shall be
necessary to permit or facilitate the issuance of such series in bearer form,
registrable or not registrable as to principal, and with or without interest
coupons; (xiii) any index or indices used to determine the amount of

payments of principal of and premium, if any, on the Debt Securities and the
manner in which such amounts will be determined; (xiv) subject to the terms
described under "--Global Debt Securities," whether the Debt Securities of the
series shall be issued in whole or in part in the form of one or more Global
Securities and, in such case, the depositary for such Global Securities; (xv)
the appointment of any trustee, registrar, paying agent or agents; (xvi) the
terms and conditions of any obligation or right of the Company or a holder to
convert or exchange Debt Securities into Preferred Securities or other
securities; (xvii) whether the defeasance and covenant defeasance provisions
described under "--Satisfaction and Discharge; Defeasance" shall be
inapplicable; and (xviii) any other terms of the Debt Securities not
inconsistent with the provisions of the Indenture.

Debt Securities may be sold at a substantial discount below their stated
principal amount, bearing no interest or interest at a rate which at the time of
issuance is below market rates. Certain material U.S. federal income tax
consequences and special considerations applicable to any such Debt Securities
will be described in the applicable Prospectus Supplement.

If the purchase price of any of the Debt Securities is payable in one or
more foreign currencies or currency units or if any Debt Securities are
denominated in one or more foreign currencies or currency units or if the
principal of, premium, if any, or interest, if any, on any Debt Securities is
payable in one or more foreign currencies or currency units, the restrictions,
elections, certain material U.S. federal income tax considerations, specific
terms and other information with respect to such issue of Debt Securities and
such foreign currency or currency units will be set forth in the applicable
Prospectus Supplement.

If any index is used to determine the amount of payments of principal,
premium, if any, or interest on any series of Debt Securities, certain material
U.S. federal income tax, accounting and other considerations applicable thereto
will be described in the applicable Prospectus Supplement.

DENOMINATIONS, REGISTRATION AND TRANSFER

Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities will be issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. Debt Securities of
any series will be exchangeable for other Debt Securities of the same issue and
series, of any authorized denominations of a like aggregate principal amount,
the same original issue date ("Original Issue Date"), stated maturity ("Stated
Maturity") and bearing the same interest rate.

Each series of Debt Securities may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the appropriate Securities Registrar or at the
office of any transfer agent designated by the Company for such purpose with
respect to such series of Debt Securities and referred to in the applicable
Prospectus Supplement, without service charge and upon payment of any taxes and
other governmental charges as described in the Indenture. The Company will
appoint the Debt Trustee of each series of Debt Securities as Securities
Registrar for such series under the Indenture. If the applicable Prospectus
Supplement refers to any transfer agents (in addition to the Securities
Registrar) initially designated by the Company with respect to any series of
Debt Securities, the Company may at any time rescind the designation of any such
transfer agent or approve a change in the location through which any such
transfer agent acts, provided that the Company maintains a transfer agent in
each Place of Payment for such series. The Company may at any time designate
additional transfer agents with respect to any series of Debt Securities.

In the event of any redemption, neither the Company nor the Debt Trustee
shall be required to (i) issue, register the transfer of or exchange Debt
Securities of any series during a period beginning at the opening of business 15
days before the day of mailing of a notice for redemption of Debt Securities of
that series, and ending at the close of business on the day of mailing of the
relevant notice of redemption or (ii) transfer or exchange any Debt Securities
so selected for redemption, except, in the case of any Debt Securities being
redeemed in part, any portion thereof not to be redeemed.

GLOBAL DEBT SECURITIES

Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities of a series may be issued in whole or in part in the form of one
or more global securities ("Global Debt Securities") that will be deposited
with, or on behalf of, a depositary identified in the Prospectus Supplement
relating to such series. Global Debt Securities may be issued only in fully
registered form and in either temporary or permanent form. Unless and until it
is exchanged in whole or in part for the individual Debt Securities represented
thereby, a Global Debt Security may not be transferred except as a whole by the
depositary for such Global Debt Security to a nominee of such depositary or by a
nominee of such depositary to such depositary or another nominee of such
depositary or by the depositary or any nominee to a successor depositary or any
nominee of such successor.

The specific terms of the depositary arrangement with respect to a series
of Debt Securities will be described in the Prospectus Supplement relating to
such series. The Company anticipates that the following provisions will
generally apply to depositary arrangements.

Upon the issuance of a Global Debt Security, and the deposit of such Global
Debt Security with or on behalf of the applicable depositary, the depositary for
such Global Debt Security or its nominee will credit on its book-entry
registration and transfer system, the respective principal amounts of the
individual Debt Securities represented by such Global Debt Security to the
accounts of persons that have accounts with such depositary ("Participants").
Such accounts shall be designated by the dealers, underwriters or agents with
respect to such Debt Securities or by the Company if such Debt Securities are
offered and sold directly by the Company. Ownership of beneficial interests in a
Global Debt Security will be limited to participants or persons that may hold
interests through Participants. Ownership of beneficial interests in such Global
Debt Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the applicable depositary or its
nominee (with respect to interests of Participants) and the records of
Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Debt Security.

So long as the depositary for a Global Debt Security, or its nominee, is
the registered owner of such Global Debt Security, such depositary or such
nominee, as the case may be, will be considered the sole owner or holder of the
Debt Securities represented by such Global Debt Security for all purposes under
the Indenture. Except as provided below, owners of beneficial interests in a
Global Debt Security will not be entitled to have any of the individual Debt
Securities of the series represented by such Global Debt Security registered in
their names, will not receive or be entitled to receive physical delivery of any
such Debt Securities of such series in definitive form and will not be
considered the owners or holders thereof under the Indenture.

Payments of principal of (and premium, if any) and interest on individual
Debt Securities represented by a Global Debt Security registered in the name of
a depositary or its nominee will be made to such depositary or its nominee, as
the case may be, as the registered owner of the Global Debt Security
representing such Debt Securities. None of the Company, the Debt Trustee, any
paying agent, or the Securities Registrar for such Debt Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interest of the Global Debt
Security for such Debt Securities or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.

The Company expects that the depositary for a series of Debt Securities or
its nominee, upon receipt of any payment of principal, premium or interest in
respect of a permanent Global Debt Security representing any of such Debt
Securities, immediately will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interest in the principal
amount of such Global Debt Security for such Debt Securities as shown on the
records of such depositary or its nominee. The Company also expects that
payments by Participants to owners of beneficial interests in such Global Debt
Security held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name."
Such payments will be the responsibility of such Participants.

Unless otherwise specified in the applicable Prospectus Supplement, if the
depositary for a series of Debt Securities is at any time unwilling, unable or
ineligible to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, the Company will issue individual Debt Securities
of such series in exchange for the Global Debt Security representing such series
of Debt Securities. In addition, unless otherwise specified in the applicable
Prospectus Supplement, the Company may at any time and in its sole discretion,
subject to any limitations described in the Prospectus Supplement relating to
such Debt Securities, determine not to have any Debt Securities of such series
represented by one or more Global Debt Securities and, in such event, will issue
individual Debt Securities of such series in exchange for such Global Debt
Securities. Further, if the Company so specifies with respect to the Debt
Securities of a series, an owner of a beneficial interest in a Global Debt
Security representing Debt Securities of such series may, on terms acceptable to
the Company, the Debt Trustee and the depositary for such Global Debt Security,
receive individual Debt Securities of such series in exchange for such
beneficial interests, subject to any limitations described in the Prospectus
Supplement relating to such Debt Securities. In any such instance, an owner of a
beneficial interest in a Global Debt Security will be entitled to physical
delivery of individual Debt Securities of the series represented by such Global
Debt Security equal in principal amount to such beneficial interest and to have
such Debt Securities registered in its name. Individual Debt Securities of such
series so issued will be issued in denominations, unless otherwise specified by
the Company, of $1,000 and integral multiples thereof. The applicable Prospectus
Supplement may specify other circumstances under which individual Debt
Securities may be issued in exchange for the Global Debt Security representing
any Debt Securities.

PAYMENT AND PAYING AGENTS

Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Debt Securities will
be made at the office of the Debt Trustee in Delaware or at the office of such
paying agent or paying agents as the Company may designate from time to time in
the applicable Prospectus Supplement, except that at the option of the Company
payment of any interest may be made (i) except in the case of Global Debt
Securities, by check mailed to the address of the person or entity entitled
thereto as such address shall appear in the Securities Register or (ii) by
transfer to an account maintained by the person or entity entitled thereto as
specified in the Securities Register, provided that proper transfer instructions
have been received by the Regular Record Date. Unless otherwise indicated in the
applicable Prospectus Supplement, payment of any interest on Debt Securities
will be made to the person or entity in whose name such Debt Security is
registered at the close of business on the Regular Record Date for such
interest, except in the case of defaulted interest ("Defaulted Interest"). The
Company may at any time designate additional paying agents or rescind the
designation of any paying agent; however, the Company will at all times be
required to maintain a paying agent in each Place of Payment for each series of
Debt Securities.

Any moneys deposited with the Debt Trustee or any paying agent, or held by
the Company in trust, for the payment of the principal of (and premium, if any)
or interest on any Debt Security and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall, at the request of the Company, be repaid to the Company or released from
such trust, as applicable, and the holder of such Debt Security shall thereafter
look, as a general unsecured creditor, only to the Company for payment thereof.

OPTION TO DEFER INTEREST PAYMENTS

If provided in the applicable Prospectus Supplement, the Company shall have
the right, at any time and from time to time during the term of any series of
Debt Securities, to defer the payment of interest for such number of consecutive
interest payment periods as may be specified in the applicable Prospectus
Supplement (each, an "Extension Period"), subject to the terms, conditions and
covenants, if any, specified in such Prospectus Supplement, provided that such
Extension Period may not extend beyond the Stated Maturity of the final
installment of principal of such series of Debt Securities. Certain material
U.S. federal income tax consequences and special considerations applicable to
any such Debt Securities will be described in the applicable Prospectus
Supplement.

MODIFICATION OF INDENTURE

From time to time, the Indenture may be modified by the Company and the
Debt Trustee without the consent of any holders of any series of Debt Securities
with respect to certain matters, including (i) to cure any ambiguity, defect or
inconsistency or to correct or supplement any provision which may be
inconsistent with any other provision of the Indenture, (ii) to qualify, or
maintain the qualification of, the Indenture under the Trust Indenture Act and
(iii) to make any change that does not materially adversely affect the interests
of any holder of such series of Debt Securities. In addition, under the
Indenture, certain rights, covenants and obligations of the Company and the
rights of holders of any series of Debt Securities may be modified by the
Company and the Debt Trustee with the written consent of the holders of at least
a majority in aggregate principal amount of such series of outstanding Debt
Securities; but no extension of the maturity of any series of Debt Securities,
reduction in the interest rate or extension of the time for payment of interest,
change in the optional redemption or repurchase provisions in a manner adverse
to any holder of such series of Debt Securities, other modification in the terms
of payment of the principal of, or interest on, such series of Debt Securities,
or reduction of the percentage required for modification, will be effective
against any holder of such series of outstanding Debt Securities without such
holder's consent.

In addition, the Company and the Debt Trustee may execute, without the
consent of any holder of the Debt Securities, any supplemental Indenture for the
purpose of creating any new series of Debt Securities.

INDENTURE EVENTS OF DEFAULT

The Indenture provides that any one or more of the following described
events with respect to a series of Debt Securities that has occurred and is
continuing constitutes an "Indenture Event of Default" with respect to such
series of Debt Securities:

(i) failure for 30 days to pay any interest or any sinking fund payment on
such series of the Debt Securities when due (subject to the deferral of any due
date in the case of an Extension Period); or

(ii) failure to pay any principal or premium, if any, on such series of the
Debt Securities when due whether at maturity, upon redemption, by declaration or
otherwise; or

(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice has been
given to the Company from the Debt Trustee or the holders of at least 25% in
principal amount of such series of outstanding Debt Securities; or

(iv) default resulting in acceleration of other indebtedness of the Company
for borrowed money where the aggregate principal amount so accelerated exceeds
$25 million and such acceleration is not rescinded or annulled within 30 days
after the written notice thereof to the Company by the Trustee or to the Company
and the Trustee by the holders of 25% in aggregate principal amount of the Debt
Securities of such series then outstanding, provided that such Event of Default
will be remedied, cured or waived if the default that resulted in the
acceleration of such other indebtedness is remedied, cured or waived; or

(v) certain events in bankruptcy, insolvency or reorganization of the
Company.

The holders of a majority in outstanding principal amount of such series of
Debt Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Debt Trustee. The Debt
Trustee or the holders of not less than 25% in aggregate outstanding principal
amount of such series of Debt Securities may declare the principal due and
payable immediately upon an Indenture Event of Default. The holders of a
majority in aggregate outstanding principal amount of such series of Debt
Securities may annul such declaration and waive the default if the default
(other than the non-payment of the principal of such series of Debt Securities
which has become due solely by such acceleration) has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debt Trustee.

The holders of a majority in outstanding principal amount of a series of
Debt Securities affected thereby may, on behalf of the holders of all the
holders of such series of Debt Securities, waive any past default, except a
default in the payment of principal or interest (unless such default has been
cured and a sum sufficient to pay all
11

matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debt Trustee) or a default in respect
of a covenant or provision which under the Indenture cannot be modified or
amended without the consent of the holder of each outstanding Debt Security of
such series of Debt Securities. The Company is required to file annually with
the Debt Trustee a certificate as to whether or not the Company is in compliance
with all the conditions and covenants applicable to it under the Indenture.

In case an Indenture Event of Default shall occur and be continuing as to a
series of Debt Securities, all of which are held by the Trust, the Institutional
Trustee will have the right to declare the principal of and the interest on such
Debt Securities, and any other amounts payable under the Indenture, to be
forthwith due and payable and to enforce its other rights as a creditor with
respect to such Debt Securities.

CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS

The Indenture provides that the Company shall not consolidate with or merge
into any other person or entity or sell, assign, convey, transfer or lease its
properties and assets substantially as an entirety to any person or entity
unless (i) either the Company is the continuing corporation, or any successor or
purchaser is a corporation, partnership, or trust or other entity organized
under the laws of the United States of America, any State thereof or the
District of Columbia, and any such successor or purchaser expressly assumes the
Company's obligations on the Debt Securities under a supplemental indenture; and
(ii) immediately before and after giving effect thereto, no Indenture Event of
Default, and no event which, after notice or lapse of time or both, would become
an Indenture Event of Default, shall have happened and be continuing.

The general provisions of the Indenture do not afford holders of the Debt
Securities protection in the event of a highly leveraged or other transaction
involving the Company that may adversely affect holders of the Debt Securities.

SATISFACTION AND DISCHARGE; DEFEASANCE

The Indenture provides that when, among other things, all Debt Securities
not previously delivered to the Debt Trustee for cancellation (i) have become
due and payable or (ii) will become due and payable at their Stated Maturity
within one year, and the Company deposits or causes to be deposited with the
Debt Trustee, as trust funds in trust for the purpose, an amount in the currency
or currencies in which the Debt Securities are payable sufficient to pay and
discharge the entire indebtedness on the Debt Securities not previously
delivered to the Debt Trustee for cancellation, for the principal (and premium,
if any) and interest to the date of the deposit or to the Stated Maturity, as
the case may be, then the Indenture will cease to be of further effect (except
as to the Company's obligations to pay all other sums due pursuant to the
Indenture and to provide the officers' certificates and opinions of counsel
described therein), and the Company will be deemed to have satisfied and
discharged the Indenture.

The Indenture provides that the Company may elect either (a) to terminate
(and be deemed to have satisfied) all its obligations with respect to any series
of Debt Securities (except for the obligations to register the transfer or
exchange of such Debt Securities, to replace mutilated, destroyed, lost or
stolen Debt Securities, to maintain an office or agency in respect of the Debt
Securities, to compensate and indemnify the Trustee ("defeasance") or (b) to be
released from its obligations with respect to certain covenants, ("covenant
defeasance"), upon the deposit with the Trustee, in trust for such purpose, of
money and/or U.S. Government Obligations (as defined in the Indenture) which
through the payment of principal and interest in accordance with their terms
will provide money, in an amount sufficient (in the opinion of a nationally
recognized firm of independent public accountants) to pay the principal of,
interest on and any other amounts payable in respect of the outstanding Debt
Securities of such series. Such a trust may be established only if, among other
things, the Company has delivered to the Trustee an opinion of counsel (as
specified in the Indenture) with regard to certain matters, including an opinion
to the effect that the holders of such Debt Securities will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and discharge and will be subject to Federal income tax on the same amounts and
in the same manner and at the same times as would have been the case if such
deposit and defeasance or covenant defeasance, as the case may be, had not
occurred.

REDEMPTION

Unless otherwise indicated in the applicable Prospectus Supplement, Debt
Securities will not be subject to any sinking fund.

Unless otherwise indicated in the applicable Prospectus Supplement, the
Company may, at its option, redeem the Debt Securities of any series in whole at
any time or in part from time to time, at the redemption price set forth in the
applicable Prospectus Supplement plus accrued and unpaid interest to the date
fixed for redemption, and Debt Securities in denominations larger than $50 may
be redeemed in part but only in integral multiples of $50. If the Debt
Securities of any series are so redeemable only on or after a specified date or
upon the satisfaction of additional conditions, the applicable Prospectus
Supplement will specify such date or describe such conditions.

Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Debt Securities to be
redeemed at such holder's registered address. Unless the Company defaults in the
payment of the redemption price, on and after the redemption date interest shall
cease to accrue on such Debt Securities or portions thereof called for
redemption.

CONVERSION OR EXCHANGE

If and to the extent indicated in the applicable Prospectus Supplement, the
Debt Securities of any series may be convertible or exchangeable into other
securities. The specific terms on which Debt Securities of any series may be so
converted or exchanged will be set forth in the applicable Prospectus
Supplement. Such terms may include provisions for conversion or exchange, either
mandatory, at the option of the holder, or at the option of the Company, in
which case the number of shares of other securities to be received by the
holders of Debt Securities would be calculated as of a time and in the manner
stated in the applicable Prospectus Supplement.

CERTAIN COVENANTS

The Indenture contains certain covenants regarding, among other matters,
corporate existence, payment of taxes and reports to holders of Debt Securities.
If and to the extent indicated in the applicable Prospectus Supplement, these
covenants may be removed or additional covenants added with respect to any
series of Debt Securities.

GOVERNING LAW

The Indenture and the Debt Securities will be governed by and construed in
accordance with the laws of the State of New York.

MISCELLANEOUS

The Company will pay all fees and expenses related to (i) the offering of
the Trust Securities and the Debt Securities, (ii) the organization, maintenance
and dissolution of the Trust, (iii) the retention of the Kennametal Trustees and
(iv) the enforcement by the Institutional Trustee of the rights of the holders
of the Preferred Securities.

INFORMATION CONCERNING THE DEBT TRUSTEE

The Debt Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Debt Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of the Debt Securities, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby. The Debt Trustee is not required to expend or risk its own
funds or otherwise incur personal financial liability in the performance of its
duties if the Debt Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.

The First National Bank of Chicago, the Debt Trustee, is also Institutional
Trustee under the Declaration and Guarantee Trustee under the Guarantee. The
Company maintains trust and other business relationships in the ordinary course
of business with The First National Bank of Chicago. Pursuant to the provisions
of the Trust Indenture Act, upon the occurrence of certain events, The First
National Bank of Chicago may be deemed to have a conflicting interest, by virtue
of its acting as the Institutional Trustee, the Debt Trustee and the Guarantee
Trustee, its other business relationships with the Company, and by virtue of its
subsidiary acting as Delaware Trustee, and thereby may be required to resign and
be replaced by a successor trustee under the Indenture, the Declaration and the
Guarantee.

DESCRIPTION OF PREFERRED SECURITIES

Pursuant to the terms of the Declaration, the Kennametal Trustees on behalf
of the Trust will issue the Preferred Securities and the Common Securities. The
Preferred Securities will represent preferred undivided beneficial interests in
the assets of the Trust and the holders thereof will be entitled to a preference
in certain circumstances with respect to Distributions and amounts payable on
redemption or liquidation over the Common Securities, as well as other benefits
as described in the Declaration. This summary of certain provisions of the
Preferred Securities and the Declaration is not necessarily complete, and
reference is hereby made to the copy of the Declaration, including the
definitions therein of certain terms, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and to the Trust
Indenture Act. Wherever particular defined terms of the Declaration are referred
to in this Section or in a Prospectus Supplement, such defined terms are
incorporated herein by reference.

GENERAL

The Preferred Securities of the Trust will rank pari passu, and payments
will be made thereon pro rata, with the Common Securities of the Trust except as
described under "--Subordination of Common Securities." Legal title to the Trust
Debentures will be held by the Institutional Trustee in trust for the benefit of
the holders of the Preferred Securities and Common Securities. The Guarantee
Agreement executed by the Company for the benefit of the holders of the Trust's
Preferred Securities (the "Guarantee") will be a guarantee with respect to the
Preferred Securities but will not guarantee payment of Distributions or amounts
payable on redemption or liquidation of the Preferred Securities when the Trust
does not have funds on hand available to make such payments. See "Description of
the Guarantee."

DISTRIBUTIONS

The Trust's Preferred Securities will represent preferred undivided
beneficial interests in the assets of the Trust, and the Distributions on each
Preferred Security will be payable at a rate specified in the Prospectus
Supplement for the Preferred Securities. The amount of Distributions payable for
any period will be computed on the basis of a 360-day year of twelve 30-day
months unless otherwise specified in the applicable Prospectus Supplement.
Distributions that are in arrears will accumulate additional Distributions
thereon at the rate per annum if and as specified in the applicable Prospectus
Supplement ("Additional Amounts"). The term "Distributions" as used herein
includes any Additional Amounts unless otherwise stated.

Distributions on the Preferred Securities will be cumulative, will
accumulate from the date of original issuance and will be payable on such dates
as specified in the applicable Prospectus Supplement. In the event that any date
on which Distributions are payable on the Preferred Securities is not a Business
Day (as defined below), payment of the Distribution payable on such date will be
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay) except that, if such Business Day
is in the next succeeding calendar year, payment of such Distribution shall be
made on the immediately preceding Business Day, in each case with the same force
and effect as if made on such date (each date on which Distributions are payable
in accordance with the foregoing, a "Distribution Date"). A "Business Day" shall
mean any day other than a Saturday or a Sunday, or a day on which banking
institutions in The City of New York are authorized or required by law or
executive order to remain closed or a day on which the corporate trust office of
the Institutional Trustee or the Debt Trustee is closed for business.

If provided in the applicable Prospectus Supplement, the Company has the
right under the Indenture to defer payments of interest on the Trust Debentures
by extending the interest payment period thereon from time to time for a period
or periods that will be specified in the applicable Prospectus Supplement. Such
extension right, if exercised, would result in the deferral of Distributions on
the Preferred Securities (though such Distributions would continue to accumulate
additional Distributions thereon at the rate per annum if and as specified in
the applicable Prospectus Supplement) during any such extended interest payment
period. Such right to extend the interest payment period for the Trust
Debentures is limited to a period not extending beyond the Stated Maturity of
the Trust Debentures. In the event that the Company exercises this right, then
(a) the Company shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a

liquidation payment with respect to, any of its capital stock other than (i)
purchases or acquisitions of capital stock (of the Company in connection with
the satisfaction by the Company of its obligations under any employee or agent
benefit plans or the satisfaction by the Company of its obligations pursuant to
any contract or security outstanding on the date of such event requiring the
Company to purchase capital stock of the Company), (ii) as a result of a
reclassification of the Company's capital stock or the exchange or conversion of
one class or a series of the Company's capital stock for another class or a
series of the Company's capital stock, (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged, (iv) dividends or distributions in capital stock of the Company (or
rights to acquire capital stock) or repurchases or redemptions of capital stock
solely from the issuance or exchange of capital stock and (v) redemptions or
repurchases of any rights pursuant to the Rights Agreement, and the declaration
thereunder of a dividend of rights in the future), (b) the Company shall not
make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Company that rank junior
to the Trust Debentures, although it may make any such payments or repay,
repurchase or redeem any debt securities that rank pari passu with the Trust
Debentures and (c) the Company shall not make any guarantee payments with
respect to the foregoing (other than payments pursuant to the Guarantee or the
Common Securities Guarantee (as defined herein)). Prior to the termination of
any such Extension Period, the Company may further extend the interest payment
period; provided, that such Extension Period, together with all such previous
and further extensions thereof, may not extend beyond the Stated Maturity of the
Trust Debentures. Upon the termination of any Extension Period and the payment
of all amounts then due, the Company may select a new Extension Period, subject
to the above requirements. See "Description of the Debentures--Option to Defer
Interest Payments." If Distributions are deferred, the deferred Distributions
and accumulated additional Distributions thereon shall be paid to holders of
record of the Preferred Securities as they appear on the books and records of
the Trust on the record date next following the termination of such deferral
period.

It is anticipated that the revenue of the Trust available for distribution
to holders of its Preferred Securities will be limited to payments under the
Trust Debentures in which the Trust will invest the proceeds from the issuance
and sale of the Preferred Securities and the Common Securities. If the Company
does not make interest payments on such Trust Debentures, the Institutional
Trustee will not have funds available to pay Distributions on the Preferred
Securities. The payment of Distributions (if and to the extent the Trust has
funds legally available for the payment of such Distributions and cash
sufficient to make such payments) is guaranteed by the Company on a limited
basis as set forth herein under "Description of the Guarantee."

Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the register of the Trust on the relevant record
dates, which, as long as the Preferred Securities remain in book-entry form,
will be one Business Day prior to the relevant Distribution Date. Subject to any
applicable laws and regulations and the provisions of the Declaration, unless
otherwise specified in the applicable Prospectus Supplement, each such payment
will be made as described under "Book-Entry Issuance." In the event any
Preferred Securities are not in book-entry form, the relevant record date for
such Preferred Securities shall be the date, at least 15 days prior to the
relevant Distribution Date, that is specified in the applicable Prospectus
Supplement.

REDEMPTION

MANDATORY REDEMPTION. Unless otherwise specified in the applicable
Prospectus Supplement, upon any repayment, redemption, in whole or in part, of
any Trust Debentures that are held by the Trust unless otherwise specified in
the applicable Prospectus Supplement, whether at maturity or upon earlier
redemption as provided in the Indenture, the proceeds from such repayment or
redemption shall be applied by the Institutional Trustee to redeem a Like Amount
(as defined below) of the related Trust Securities, upon not less than 30 nor
more than 60 days notice, at a redemption price (the "Redemption Price") equal
to the aggregate liquidation amount of such Trust Securities plus accumulated
and unpaid Distributions thereon to the date of redemption (the "Redemption
Date") and the related amount of the premium, if any, paid by the Company upon
the concurrent redemption of such Trust Debentures. If less than all of any
series of Trust Debentures that are held by the Trust are to be repaid or
redeemed on a Redemption Date, then the proceeds from such repayment or
redemption shall be allocated to the redemption pro rata of the Preferred
Securities and the Common Securities. The amount of premium, if any,

paid by the Company upon the redemption of all or any part of any Trust
Debentures held by the Trust shall be allocated pro rata to the Preferred
Securities and the Common Securities.

DISTRIBUTION OF TRUST DEBENTURES. Unless otherwise specified in the
applicable Prospectus Supplement, the Company will have the right at any time to
dissolve the Trust and, after satisfaction of the liabilities of creditors of
the Trust as provided by applicable law, to cause the Trust Debentures in
respect of the Trust Securities issued by the Trust to be distributed to the
holders of the Trust Securities in liquidation of the Trust.

After the liquidation date fixed for any distribution of Trust Debentures
held by the Trust, (i) the Preferred Securities will no longer be deemed to be
outstanding, (ii) the depositary (if any) for the Preferred Securities, as the
record holder of the Preferred Securities, will receive a registered global
certificate or certificates representing the Trust Debentures to be delivered
upon such distribution and (iii) any certificates representing such Preferred
Securities not held by or on behalf of such depositary will be deemed to
represent the Trust Debentures having a principal amount equal to the
liquidation amount of the Preferred Securities, and bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid Distributions on the
Preferred Securities, until such certificates are presented to the Regular
Trustees or their agent for transfer or reissuance.

There can be no assurance as to the market prices for the Preferred
Securities or the Trust Debentures that may be distributed in exchange for
Preferred Securities if a dissolution or liquidation of the Trust were to occur.
Accordingly, the Preferred Securities that an investor may purchase, or the
Trust Debentures that the investor may receive on dissolution or liquidation of
the Trust, may trade at a discount to the price that the investor paid to
purchase the Preferred Securities offered hereby.

SPECIAL EVENT REDEMPTION. If a Tax Event or an Investment Company Event
(each as defined below or in the applicable Prospectus Supplement, a "Special
Event") shall occur and be continuing, unless otherwise specified in the
applicable Prospectus Supplement, the Company will have the right to redeem the
Trust Debentures in whole (but not in part) and therefore cause a mandatory
redemption of the Trust Securities in whole (but not in part) at the Redemption
Price within 90 days following the occurrence of such Special Event.

If provided in the applicable Prospectus Supplement, the Company shall have
the right to extend or shorten the maturity of any series of Trust Debentures
held by the Trust at the time that the Company exercises its right to elect to
dissolve the Trust and, after satisfaction of the liability to creditors of the
Trust as provided by applicable law, cause such Trust Debentures to be
distributed to the holders of the Preferred Securities and Common Securities of
the Trust in liquidation of the Trust, provided that it can extend the maturity
only if certain conditions specified in the applicable Prospectus Supplement are
met at the time such election is made and at the time of such extension.

"Tax Event" means the receipt by the Trust of an opinion of counsel
experienced in such matters to the effect that, as a result of (i) any amendment
to, or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein affecting taxation, (ii) any amendment to or
change in an interpretation or application of such laws or regulations by any
legislative body, court, governmental agency or regulatory authority or (iii)
any interpretation or pronouncement that provides for a position with respect to
such laws or regulations that differs from the generally accepted position on
the date the Preferred Securities are issued, which amendment or change is
effective or which interpretation or pronouncement is announced on or after the
date of issuance of the Preferred Securities under the Declaration, there is
more than an insubstantial risk that (x) the Trust is, or will be within 90 days
of the date thereof, subject to U.S. federal income tax with respect to income
received or accrued on the Trust Debentures, (y) interest payable by the Company
on the Debentures is not, or within 90 days of the date thereof, will not be,
deductible, in whole or in part, for U.S. federal income tax purposes, or (z)
the Trust is, or will be within 90 days of the date thereof, subject to more
than a de minimis amount of other taxes, duties or other governmental charges.

"Investment Company Event" means the occurrence of a change in law or
regulation or a written change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law") to the effect that there is a more than
insubstantial risk that the Trust is or will be considered an "investment
company" that is required to be registered under the Investment

Company Act of 1940, as amended (the "Investment Company Act"), which Change in
1940 Act Law becomes effective on or after the date of original issuance of the
Preferred Securities.

"Like Amount" means (i) with respect to a redemption of any Trust
Securities, Trust Securities having a liquidation amount equal to that portion
of the principal amount of Trust Debentures to be contemporaneously redeemed in
accordance with the Indenture, allocated to the Common Securities and to the
Preferred Securities based upon the relative liquidation amounts of such classes
of Trust Securities, and the proceeds of which will be used to pay the
Redemption Price of such Trust Securities, and (ii) with respect to a
distribution of Trust Debentures to holders of any Trust Securities in
connection with a dissolution or liquidation of Trust, Trust Debentures having a
principal amount equal to the liquidation amount of the Trust Securities of the
holder to whom such Trust Debentures are distributed.

REDEMPTION PROCEDURES

Preferred Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Trust Debentures. Redemptions of Preferred Securities shall be
made and the Redemption Price shall be payable on each Redemption Date only to
the extent that the Trust has funds on hand available for the payment of such
Redemption Price. See also "--Subordination of Common Securities."

If the Trust gives a notice of redemption in respect of the Preferred
Securities, then, on the Redemption Date, to the extent funds are available, the
Institutional Trustee will deposit irrevocably with the Depositary for the
Preferred Securities (if such Preferred Securities are issued in the form of one
or more Global Preferred Securities) funds sufficient to pay the applicable
Redemption Price and will give such Depositary irrevocable instructions and
authority to pay the Redemption Price to the beneficial owners of the Preferred
Securities. See "--Global Preferred Securities" and "Book-Entry Issuance." If
the Preferred Securities are not issued in the form of one or more Global
Preferred Securities, the Trust, to the extent funds are available, will
irrevocably deposit with the paying agent for the Preferred Securities funds
sufficient to pay the applicable Redemption Price and will give such paying
agent irrevocable instructions and authority to pay the Redemption Price to the
holders thereof upon surrender of their certificates evidencing the Preferred
Securities. Notwithstanding the foregoing, Distributions payable on or prior to
the Redemption Date for the Preferred Securities called for redemption shall be
payable to the holders of the Preferred Securities on the relevant record dates
for the related Distribution Dates. If a notice of redemption shall have been
given and funds deposited as required, then upon the date of such deposit, all
rights of the holders of the Preferred Securities so called for redemption will
cease, except the right of the holders of the Preferred Securities to receive
the Redemption Price, but without interest on such Redemption Price, and the
Preferred Securities will cease to be outstanding. In the event that any date
fixed for redemption of Preferred Securities is not a Business Day, then payment
of the Redemption Price payable on such date will be made on the next succeeding
day which is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day falls in the next
calendar year, such payment will be made on the immediately preceding Business
Day. In the event that payment of the Redemption Price in respect of Preferred
Securities called for redemption is improperly withheld or refused and not paid
either by the Trust or by the Company pursuant to the Guarantee as described
under "Description of the Guarantee", Distributions on such Preferred Securities
will continue to accumulate at the then applicable rate, from the Redemption
Date originally established by the Trust for the Preferred Securities to the
date such Redemption Price is actually paid, in which case the actual payment
date will be the date fixed for redemption for purposes of calculating the
Redemption Price.

Subject to applicable law (including, without limitation, U.S. federal
securities law), the Company or its subsidiaries may at any time and from time
to time purchase outstanding Preferred Securities by tender, in the open market
or by private agreement.

If less than all of the Preferred Securities and Common Securities issued
by the Trust are to be redeemed on a Redemption Date, then the aggregate
liquidation amount of such Preferred Securities and Common Securities to be
redeemed shall be allocated pro rata among the Preferred Securities and Common
Securities of such Trust based on the relative liquidation amounts of such
classes of Trust Securities. The particular Preferred Securities to

be redeemed shall be selected on a pro rata basis not more than 60 days prior to
the Redemption Date by the Institutional Trustee from the outstanding Preferred
Securities not previously called for redemption, by such method as the
Institutional Trustee shall deem fair and appropriate and which may provide for
the selection for redemption of portions (equal to $50 or an integral multiple
of $50 in excess thereof) of the liquidation amount of Preferred Securities of a
denomination larger than $50. The Institutional Trustee shall promptly notify
the registrar in writing of the Preferred Securities selected for redemption
and, in the case of any Preferred Securities selected for partial redemption,
the liquidation amount thereof to be redeemed. For all purposes of each
Declaration, unless the context otherwise requires, all provisions relating to
the redemption of Preferred Securities shall relate, in case of any Preferred
Securities redeemed or to be redeemed only in part, to the portion of the
aggregate liquidation amount of Preferred Securities which has been or is to be
redeemed.

Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Preferred Securities to be
redeemed at its registered address. Unless the Company defaults in payment of
the Redemption Price on the Trust Debentures, on and after the Redemption Date
interest will cease to accrue on the Trust Debentures or portions thereof (and
Distributions will cease to accumulate on the Preferred Securities or portions
thereof) called for redemption.

SUBORDINATION OF COMMON SECURITIES

Payment of Distributions (including Additional Amounts, if applicable) on,
and the Redemption Price of, the Trust's Preferred Securities and Common
Securities, as applicable, shall be made pro rata based on the liquidation
amount of such Trust Securities; provided, however, that if on any Distribution
Date or Redemption Date, an Indenture Event of Default shall have occurred and
be continuing, no payment of any Distribution (including Additional Amounts, if
applicable) on, or Redemption Price of, any of the Trust's Common Securities,
and no other payment on account of the redemption, liquidation or other
acquisition of such Common Securities, shall be made unless payment in full in
cash of all accumulated and unpaid Distributions (including Additional Amounts,
if applicable) on all of the Trust's outstanding Preferred Securities for all
Distribution periods terminating on or prior thereto, or in the case of payment
of the Redemption Price the full amount of such Redemption Price on all of the
Trust's outstanding Preferred Securities then called for redemption, shall have
been made or provided for, and all funds available to the Institutional Trustee
shall first be applied to the payment in full in cash of all Distributions
(including Additional Amounts, if applicable) on, or Redemption Price of, the
Trust's Preferred Securities then due and payable.

In the case of any Event of Default under the Declaration resulting from an
Indenture Event of Default, the Company as holder of the Trust's Common
Securities will be deemed to have waived any right to act with respect to any
such Event of Default under the Declaration until the effect of all such Events
of Default with respect to the Preferred Securities have been cured, waived or
otherwise eliminated. Until any such Events of Default under the Declaration
have been so cured, waived or otherwise eliminated, the Institutional Trustee
shall act solely on behalf of the holders of the Preferred Securities and not on
behalf of the Company as holder of the Trust's Common Securities, and only the
holders of the Preferred Securities will have the right to direct the
Institutional Trustee to act on their behalf.

LIQUIDATION DISTRIBUTION UPON DISSOLUTION

Unless otherwise specified in the applicable Prospectus Supplement,
pursuant to the Declaration, the Trust shall dissolve (i) on November 12, 2004,
the expiration of the term of the Trust, (ii) upon the bankruptcy of the
Company, (iii) upon the filing of a certificate of dissolution or its equivalent
with respect to the Company, after receipt by the Institutional Trustee of
written direction from the Company to dissolve the Trust or after obtaining the
consent of the holders of at least a majority in liquidation amount of the Trust
Securities affected thereby voting together as a single class to dissolve the
Trust, or the revocation of the charter of the Company and the expiration of 90
days after the date of revocation without a reinstatement thereof, (iv) upon the
distribution of Trust Debentures, (v) upon the entry of a decree of a judicial
dissolution of the holder of the Common Securities, the Company or the Trust, or
(vi) upon the redemption of all the Trust Securities.

If an early dissolution occurs as described in clause (ii), (iii) or (v)
above, the Trust shall be liquidated by the Kennametal Trustees as expeditiously
as the Kennametal Trustees determine to be possible by distributing, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, to the holders of the applicable Trust Securities a Like Amount of the
Trust Debentures that are then held by the Trust, unless such distribution is
determined by the Institutional Trustee not to be practical, in which event such
holders will be entitled to receive out of the assets of the Trust available for
distribution to holders, after satisfaction of liabilities to creditors of the
Trust as provided by applicable law, an amount equal to, in the case of holders
of Preferred Securities, the aggregate of the liquidation amount plus accrued
and unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities shall be paid on a pro rata basis. The
holder(s) of the Trust's Common Securities will be entitled to receive
distributions upon any such liquidation pro rata with the holders of the
Preferred Securities, except that if an Indenture Event of Default has occurred
and is continuing, the Preferred Securities shall have a priority over the
Common Securities. If specified in the applicable Prospectus Supplement, a
supplemental Indenture may provide that if an early dissolution occurs as
described in clause (v) above, the Trust Debentures that are then held by the
Trust may be subject to optional redemption in whole (but not in part).

EVENTS OF DEFAULT; NOTICE

Any one of the following events constitutes an "Event of Default" under the
Declaration (an "Event of Default") with respect to the Preferred Securities
issued thereunder (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):

(i) the occurrence of an Indenture Event of Default under the Indenture; or

(ii) default by the Trust in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of 30
days; or

(iii) default by the Trust in the Payment of any Redemption Price of any
Trust Security when it becomes due and payable; or

(iv) default in the performance, or breach, in any material respect, of any
covenant or warranty of the Kennametal Trustees in the Declaration (other than a
covenant or warranty a default in the performance of which or the breach of
which is dealt with in clause (ii) or (iii) above), and continuation of such
default or breach for a period of 90 days after written notice has been given to
the defaulting Kennametal Trustee or Trustees by the holders of at least 25% in
aggregate liquidation amount of the outstanding Preferred Securities, which
notice shall specify such default or breach and require it to be remedied and
shall state that such notice is a "Notice of Default" under the Declaration; or

(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Institutional Trustee and the failure by the Company to appoint a
successor Institutional Trustee within 60 days thereof.

Within five Business Days after the occurrence of any Event of Default
actually known to the Institutional Trustee, the Institutional Trustee shall
transmit notice of such Event of Default to the holders of the Preferred
Securities, the Regular Trustees and the Company, as Sponsor, unless such Event
of Default shall have been cured or waived. The Company, as Sponsor, and the
Regular Trustees are required to file annually with the Institutional Trustee a
certificate as to whether or not they are in compliance with all the conditions
and covenants applicable to them under the Declaration.

If an Indenture Event of Default has occurred and is continuing, the
Preferred Securities of the Trust shall have a preference over the Common
Securities of the Trust upon dissolution of the Trust as described above. See
"--Liquidation Distribution Upon Dissolution." The existence of an Event of
Default does not entitle the holders of Preferred Securities to accelerate the
maturity thereof.

REMOVAL OF KENNAMETAL TRUSTEES

Unless an Indenture Event of Default shall have occurred and be continuing
with respect to the Trust Debentures, any Kennametal Trustee may be removed at
any time by the holder of the Common Securities. If an Indenture Event of
Default with respect to any series of Trust Debentures has occurred and is
continuing, the Institutional Trustee and the Delaware Trustee may be removed at
such time by the holders of a majority in liquidation amount of the outstanding
Preferred Securities of the Trust. In no event will the holders of the Preferred
Securities of the Trust have the right to vote to appoint, remove or replace the
Administrative Trustees, which voting rights are vested exclusively in the
Company as the holder of the Common Securities of the Trust. No resignation or
removal of a Kennametal Trustee and no appointment of a successor trustee shall
be effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the Declaration.

CO-TRUSTEES AND SEPARATE INSTITUTIONAL TRUSTEE

Unless an Event of Default with respect to the Preferred Securities of the
Trust shall have occurred and be continuing, at any time or times, for the
purpose of meeting the legal requirements of the Trust Indenture Act or of any
jurisdiction in which any part of the trust property ("Trust Property") may at
the time be located, the Company, as the holder of the Common Securities of the
Trust, and the Regular Trustees shall have power to appoint one or more persons
either to act as a co-trustee, jointly with the Institutional Trustee, of all or
any part of such Trust Property, or to act as separate trustee of any such
property, in either case with such powers as may be provided in the instrument
of appointment, and to vest in such person or persons in such capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of the applicable Declaration. In case an Indenture Event of Default
with respect to the Trust Debentures has occurred and is continuing, the
Institutional Trustee alone shall have power to make such appointment.

MERGER OR CONSOLIDATION OF TRUST TRUSTEES

Any entity into which the Institutional Trustee, the Delaware Trustee or
any Regular Trustee that is not a natural person may be merged or converted or
with which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which such Trustee shall be a party, or any
entity succeeding to all or substantially all the corporate trust business of
such Trustee, shall be the successor of such Trustee under the Declaration,
provided such entity shall be otherwise qualified and eligible.

MERGERS, CONSOLIDATIONS OR AMALGAMATIONS

The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body, except as
described below or as described in "--Liquidation Distribution Upon
Dissolution". The Trust may, with the consent of the Regular Trustees and
without the consent of the holders of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any State; provided, that (i) if the Trust is not the
survivor, such successor entity either (x) assumes all of the obligations of the
Trust under the Trust Securities or (y) substitutes for the Trust Securities
other securities having substantially the same terms as the Trust Securities
(the "Successor Securities"), so long as the Successor Securities rank the same
as the Trust Securities rank with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) the Company expressly acknowledges a
trustee of such successor entity possessing the same powers and duties as the
Institutional Trustee as the holder of the Trust Debentures, (iii) the Preferred
Securities or any Successor Securities are listed, or any Successor Securities
will be listed upon notification of issuance, on any national securities
exchange or with another organization on which the Preferred Securities are then
listed or quoted, (iv) such merger, consolidation, amalgamation or replacement
does not cause the Preferred Securities (including any Successor Securities) to
be downgraded by any nationally recognized statistical rating organization, (v)
such merger, consolidation, amalgamation or replacement does not adversely
affect the rights, preferences and privileges of the holders of the Trust
Securities (including any Successor Securities) in any material respect (other
than with respect to any dilution of the holders' interest in the new entity),
(vi) such successor entity has a purpose substantially identical to that of the
Trust, (vii) prior to such merger, consolidation, amalgamation or replacement,
the Company has received an opinion of independent counsel to the Trust
experienced in such
21

matters to the effect that, (A) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences and privileges of
the holders of the Trust Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of the holders'
interest in the new entity), (B) following such merger, consolidation,
amalgamation or replacement, neither the Trust nor such successor entity will be
required to register as an investment company under the 1940 Act and (C)
following such merger, consolidation, amalgamation or replacement, the Trust (or
the successor entity) will continue to be classified as a grantor trust for
United States federal income tax purposes and (viii) the Company guarantees the
obligations of such successor entity under the Successor Securities at least to
the extent provided by the Guarantee and the Common Securities Guarantee.
Notwithstanding the foregoing, the Trust shall not, except with the consent of
holders of 100% in liquidation amount of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by any other entity or permit any
other entity to consolidate, amalgamate, merge with or into, or replace it, if
such consolidation, amalgamation, merger or replacement would cause the Trust or
the successor entity to be classified as other than a grantor trust for United
States federal income tax purposes.

VOTING RIGHTS; AMENDMENT OF DECLARATION

Except as provided below and under "Description of the
Guarantee--Modification of the Guarantee; Assignment" and as otherwise required
by law and the Declaration, the holders of the Preferred Securities will have no
voting rights.

Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in aggregate liquidation amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Institutional Trustee,
or direct the exercise of any trust or power conferred upon the Institutional
Trustee under the Declaration including the right to direct the Institutional
Trustee, as holder of the Trust Debentures, to (i) exercise the remedies
available under the Indenture with respect to the Trust Debentures, (ii) waive
any past Indenture Event of Default that is waivable under Section 513 of the
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of all the Trust Debentures shall be due and payable or (iv) consent
to any amendment, modification or termination of the Indenture or the Trust
Debentures where such consent shall be required; provided, however, that, where
a consent or action under the Indenture would require the consent or act of
holders of more than a majority in principal amount of the Trust Debentures (a
"Super-Majority") affected thereby, only the holders of at least such
Super-Majority in aggregate liquidation amount of the Preferred Securities may
direct the Institutional Trustee to give such consent or take such action. The
Institutional Trustee shall notify all holders of the Preferred Securities of
any notice of default received from the Debt Trustee with respect to the Trust
Debentures. Such notice shall state that such Indenture Event of Default also
constitutes an Event of Default. Except with respect to directing the time,
method and place of conducting a proceeding for a remedy, the Institutional
Trustee shall not take any of the actions described in clause (i), (ii) or (iii)
above unless the Institutional Trustee has obtained an opinion of tax counsel
experienced in such matters to the effect that, as a result of such action, the
Trust will not fail to be classified as a grantor trust for United States
federal income tax purposes.

In the event the consent of the Institutional Trustee, as a holder of the
Trust Debentures, is required under the Indenture with respect to any amendment,
modification or termination of the Indenture, the Institutional Trustee shall
request the direction of the holders of the Trust Securities with respect to
such amendment, modification or termination and shall vote with respect to such
amendment, modification or termination as directed by a majority in liquidation
amount of the Trust Securities voting together as a single class; provided,
however, that where a consent under the Indenture would require the consent of a
Super-Majority, the Institutional Trustee may only give such consent at the
direction of the holders of at least the proportion in liquidation amount of the
Trust Securities which the relevant Super-Majority represents of the aggregate
principal amount of the Trust Debentures outstanding. The Institutional Trustee
shall be under no obligation to take any such action in accordance with the
directions of the holders of the Trust Securities unless the Institutional
Trustee has obtained an opinion of tax counsel experienced in such matters to
the effect that for the purposes of United States federal income tax, the Trust
will not be classified as other than a grantor trust.

A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Event of Default.
22

Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth the following information: (i) the date of
such meeting or the date by which such action is to be taken; (ii) a description
of any resolution proposed for adoption at such meeting on which such holders
are entitled to vote or of such matter upon which written consent is sought; and
(iii) instructions for the delivery of proxies or consents. No vote or consent
of the holders of Preferred Securities will be required for the Trust to redeem
and cancel Preferred Securities or distribute Trust Debentures in accordance
with the Declaration.

Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by the Company or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Company, shall not be entitled to vote or consent and shall,
for purposes of such vote or consent, be treated as if such Preferred Securities
were not outstanding.

The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "Book-Entry Issuance."

Holders of the Preferred Securities will have no rights to appoint or
remove the Kennametal Trustees, who may be appointed, removed or replaced solely
by the Company as the indirect or direct holder of all of the Common Securities.

GLOBAL PREFERRED SECURITIES

The Preferred Securities of the Trust may be issued in whole or in part in
the form of one or more Global Preferred Securities that will be deposited with,
or on behalf of, the depositary identified in the Prospectus Supplement relating
to the Preferred Securities. Unless otherwise indicated in the applicable
Prospectus Supplement for the Preferred Securities, the depositary will be The
Depository Trust Company ("DTC"). Global Preferred Securities may be issued only
in fully registered form and in either temporary or permanent form. Unless and
until it is exchanged in whole or in part for the individual Preferred
Securities represented thereby, a Global Preferred Security may not be
transferred except as a whole by the depositary for such Global Preferred
Security to a nominee of such depositary or by a nominee of such depositary to
such depositary or another nominee of such depositary or by such depositary or
any nominee to a successor depositary or any nominee of such successor.

While the specific terms of the depositary arrangement with respect to the
Preferred Securities of the Trust (if other than as described under "Book-Entry
Issuance") will be described in the Prospectus Supplement relating to the
Preferred Securities, the Company anticipates that the following provisions will
generally apply to depositary arrangements.

Upon the issuance of a Global Preferred Security, and the deposit of such
Global Preferred Security with or on behalf of the applicable depositary, the
depositary for such Global Preferred Security or its nominee will credit, on its
book-entry registration and transfer system, the respective aggregate
liquidation amounts of the individual Preferred Securities represented by such
Global Preferred Securities to the accounts of Participants. Such accounts shall
be designated by the dealers, underwriters or agents with respect to such
Preferred Securities or by the Company if such Preferred Securities are offered
and sold directly by the Company. Ownership of beneficial interests in a Global
Preferred Security will be limited to Participants or persons that may hold
interests through Participants. Ownership of beneficial interests in such Global
Preferred Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the applicable depositary or its
nominee (with respect to interests of Participants) and the records of
Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Preferred Security.

So long as the depositary for a Global Preferred Security, or its nominee,
is the registered owner of such Global Preferred Security, such depositary or
such nominee, as the case may be, will be considered the sole owner or holder of
the Preferred Securities represented by such Global Preferred Security for all
purposes under the Declaration. Except as provided below, owners of beneficial
interests in a Global Preferred Security will not be entitled to have any of the
individual Preferred Securities represented by such Global Preferred Security
registered in their names, will not receive or be entitled to receive physical
delivery of any such Preferred Securities in definitive form and will not be
considered the owners or holders thereof under the Declaration.

Payments of liquidation amount, premium or Distributions in respect of
individual Preferred Securities represented by a Global Preferred Security
registered in the name of a depositary or its nominee will be made to such
depositary or its nominee, as the case may be, as the registered owner of the
Global Preferred Security representing such Preferred Securities. None of the
Company, the Institutional Trustee, any paying agent or the registrar for such
Preferred Securities will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests of the Global Preferred Security representing such Preferred
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.

The Company expects that the depositary for the Preferred Securities of the
Trust, or its nominee, upon receipt of any payment of liquidation amount,
premium or Distributions in respect of a Global Preferred Security representing
any of such Preferred Securities, immediately will credit Participants' accounts
with payments in amounts proportionate to their respective beneficial interest
in the aggregate of such Global Preferred Security for such Preferred Securities
as shown on the records of such depositary or its nominee. The Company also
expects that payments by Participants to owners of beneficial interests in such
Global Preferred Security held through such Participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name." Such payments will be the responsibility of such Participants.

Unless otherwise specified in the applicable Prospectus Supplement, if a
Depositary for the Preferred Securities of a Trust is at any time unwilling,
unable or ineligible to continue as a depositary and a successor depositary is
not appointed by the Company within 90 days, the Trust will issue individual
Preferred Securities of the Trust in exchange for the Global Preferred Security
representing such Preferred Securities. In addition, the Company may at any time
and in its sole discretion, subject to any limitations described in the
Prospectus Supplement relating to the Preferred Securities, determine not to
have any Preferred Securities of the Trust represented by one or more Global
Preferred Securities and, in such event, the Trust will issue individual
Preferred Securities in exchange for the Global Preferred Security or Securities
representing such Preferred Securities. Further, if the Company so specifies
with respect to the Preferred Securities of the Trust, an owner of a beneficial
interest in a Global Preferred Security representing such Preferred Securities
may, on terms acceptable to the Company, the Institutional Trustee and the
Depositary for such Global Preferred Security, receive individual Preferred
Securities in exchange for such beneficial interests, subject to any limitations
described in the Prospectus Supplement relating to such Preferred Securities. In
any such instance, an owner of a beneficial interest in a Global Preferred
Security will be entitled to physical delivery of individual Preferred
Securities represented by such Global Preferred Security equal in liquidation
amount to such beneficial interest and to have such Preferred Securities
registered in its name. Individual Preferred Securities so issued will be issued
in denominations, unless otherwise specified by the Company, of $50 and integral
multiples thereof.

PAYMENT AND PAYING AGENCY

Payments in respect of the Preferred Securities shall be made to the
applicable depositary, which shall credit the relevant accounts at such
depositary on the applicable Distribution Dates or, if the Preferred Securities
are not held by a depositary, such payments shall be made by check mailed to the
address of the holder entitled thereto as such address shall appear on the
Register. Unless otherwise specified in the applicable Prospectus Supplement,
the paying agent for the Preferred Securities shall initially be the
Institutional Trustee and any co-paying agent chosen by the Institutional
Trustee and acceptable to the Regular Trustees and the Company. The paying agent
shall be permitted to resign as paying agent upon 30 days' written notice to the
Institutional Trustees and the Company. In the event that the Institutional
Trustee shall no longer be the paying agent, the Regular Trustees
24

shall appoint a successor to act as paying agent (which shall be a bank or trust
company acceptable to the Regular Trustees and the Company).

REGISTRAR AND TRANSFER AGENT

Unless otherwise specified in the applicable Prospectus Supplement, the
Institutional Trustee will act as registrar and transfer agent for the Preferred
Securities.

Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Trust will not be required to register or cause to be registered
the transfer of the Preferred Securities after the Preferred Securities have
been called for redemption.

INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE

The Institutional Trustee, other than during the occurrence and continuance
of an Event of Default, undertakes to perform only such duties as are
specifically set forth in the Declaration and, after such Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise or
use in the conduct of his or her own affairs. Subject to this provision, the
Institutional Trustee is under no obligation to exercise any of the powers
vested in it by the Declaration at the request of any holder of Preferred
Securities unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby. If no Event of Default has
occurred and is continuing and the Institutional Trustee is required to decide
between alternative causes of action, construe ambiguous provisions in the
Declaration or is unsure of the application of any provision of the Declaration,
and the matter is not one on which holders of Preferred Securities are entitled
under the Declaration to vote, then the Institutional Trustee shall take such
action as is directed by the Company and if not so directed, shall take such
action as it deems advisable and in the best interests of the holders of the
Trust Securities and will have no liability except for its own bad faith,
negligence or willful misconduct.

MISCELLANEOUS

The Regular Trustees are authorized and directed to conduct the affairs of
and to operate the Trust in such a way that the Trust will not be deemed to be
an "investment company" required to be registered under the Investment Company
Act or fail to be classified as a grantor trust for U.S. federal income tax
purposes and so that the Debentures will be treated as indebtedness of the
Company for U.S. federal income tax purposes. In this connection, the Company
and the Regular Trustees are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of the Trust or the Declaration,
that the Company and the Regular Trustees determine in their discretion to be
necessary or desirable for such purposes, as long as such action does not
materially adversely affect the interests of the holders of the Preferred
Securities.

Holders of the Preferred Securities have no preemptive or similar rights.

The Trust may not borrow money or issue debt or mortgage or pledge any of
its assets.

DESCRIPTION OF THE GUARANTEE

Set forth below is a summary of information concerning the Guarantee which
will be executed and delivered by the Company for the benefit of the holders
from time to time of Preferred Securities. The Guarantee will be qualified as an
indenture under the Trust Indenture Act. The First National Bank of Chicago, an
independent trustee, will act as indenture trustee under the Guarantee (the
"Guarantee Trustee") for the purposes of compliance with the provisions of the
Trust Indenture Act. The terms of the Guarantee will be those set forth in the
Guarantee and those made part of the Guarantee by the Trust Indenture Act. The
following summary is not necessarily complete, and reference is hereby made to
the copy of the form of the Guarantee (including the definitions therein of
certain terms) which is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part, and to the Trust Indenture Act. Whenever
particular defined terms of the Guarantee are referred to in this Prospectus,
such defined terms are incorporated herein by reference. The Guarantee will be
held by the Trustee for the benefit of the holders of the Preferred Securities.

GENERAL

Pursuant to the Guarantee, unless otherwise specified in the applicable
Prospectus Supplement, the Company will irrevocably and unconditionally agree,
to the extent set forth therein, to pay in full to the holders of the Preferred
Securities issued by the Trust, the Guarantee Payments (as defined herein)
(except to the extent paid by the Trust), as and when due, regardless of any
defense, right of set-off or counterclaim which the Trust may have or assert.
The following payments or distributions with respect to Preferred Securities
issued by the Trust, to the extent not paid by or on behalf of the Trust (the
"Guarantee Payments"), will be subject to the Guarantee (without duplication):
(i) any accrued and unpaid distributions which are required to be paid on the
Preferred Securities, to the extent the Trust shall have funds available
therefor; (ii) with respect to any Preferred Securities called for redemption by
the Trust, the redemption price (the "Redemption Price") and all accrued and
unpaid distributions to the date of redemption, to the extent the Trust has
funds available therefor and (iii) upon a voluntary or involuntary dissolution,
winding-up or termination of the Trust (other than in connection with the
distribution of Trust Debentures to the holders of Preferred Securities or the
redemption of all of the Preferred Securities), the lesser of (a) the aggregate
of the liquidation amount and all accrued and unpaid distributions on the
Preferred Securities to the date of payment, to the extent the Trust has funds
available therefor, and (b) the amount of assets of the Trust remaining
available for distribution to holders of the Preferred Securities in liquidation
of the Trust. The Company's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Company to the
holders of Preferred Securities or by causing the Trust to pay such amounts to
such holders.

The Guarantee will be a full and unconditional guarantee of the Guarantee
Payments with respect to the Preferred Securities, but will not apply to any
payment of distributions except to the extent the Trust shall have funds
available therefor. If the Company does not make interest payments on the Trust
Debentures purchased by the Trust, the Trust will not pay distributions on the
Preferred Securities issued by the Trust and will not have funds available
therefor. See "Relationship Among the Preferred Securities, the Trust Debentures
and the Guarantee." The Guarantee, when taken together with the Company's
obligations under the Indenture and the Declaration, will have the effect of
providing a full and unconditional guarantee on a subordinated basis by the
Company of payments due on the Preferred Securities.

The Company has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to the Common Securities
(the "Common Securities Guarantee") to the same extent as the Guarantee, except
that upon an Indenture Event of Default, holders of the Preferred Securities
shall have priority over holders of Common Securities with respect to
distributions and payments on liquidation, redemption or otherwise.

CERTAIN COVENANTS OF THE COMPANY

In the Guarantee, the Company will covenant that, so long as any Preferred
Securities issued by the Trust remain outstanding, if there shall have occurred
any event that would constitute an event of default under the Guarantee or the
Declaration, then (a) the Company shall not declare or pay any dividend on, make
any distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of

its capital stock (other than (i) purchases or acquisitions of capital stock of
the Company in connection with the satisfaction by the Company of its
obligations under any employee benefit plans or the satisfaction by the Company
of its obligations pursuant to any contract or security outstanding on the date
of such event requiring the Company to purchase capital stock of the Company,
(ii) as a result of a reclassification of the Company's capital stock or the
exchange or conversion of one class or series of the Company's capital stock for
another class or series of the Company's capital stock, (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged, (iv) dividends or distributions in capital stock of the
Company and (v) redemptions or purchases of any rights pursuant to the Rights
Agreement, any successor to the Rights Agreement, and the declaration thereunder
of a dividend of rights in the future), (b) the Company shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company which rank junior to the Trust
Debentures, although it may make any such payments or repay, repurchase or
redeem any debt securities that rank pari passu with the Trust Debentures and
(c) the Company shall not make any guarantee payments with respect to the
foregoing (other than payments pursuant to the Guarantee or the Common
Securities Guarantee).

MODIFICATION OF THE GUARANTEE; ASSIGNMENT

Except with respect to any changes which do not adversely affect the rights
of holders of Preferred Securities (in which case no vote will be required), the
Guarantee may be amended only with the prior approval of the holders of not less
than a majority in liquidation amount of the outstanding Preferred Securities
issued by the Trust. All guarantees and agreements contained in the Guarantee
shall bind the successors, assigns, receivers, trustees and representatives of
the Company and shall inure to the benefit of the holders of the Preferred
Securities then outstanding.

TERMINATION

The Guarantee will terminate as to the Preferred Securities (i) upon full
payment of the Redemption Price of all Preferred Securities then outstanding,
(ii) upon distribution of the Trust Debentures held by the Trust to the holders
of the Preferred Securities of the Trust or (iii) upon full payment of the
amounts payable in accordance with the Declaration upon liquidation of the
Trust. The Guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of Preferred Securities must return
payment of any sums paid under such Preferred Securities or the Guarantee.

EVENTS OF DEFAULT

An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder.

The holders of a majority in liquidation amount of the Preferred Securities
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee in respect of the Guarantee or
to direct the exercise of any trust or power conferred upon the Guarantee
Trustee under the Guarantee. If the Guarantee Trustee fails to enforce the
Guarantee, any holder of Preferred Securities may institute a legal proceeding
directly against the Company to enforce such holder's rights under the
Guarantee, without first instituting a legal proceeding against the Trust, the
Guarantee Trustee or any other person or entity. Notwithstanding the foregoing,
if the Company has failed to make a required guarantee payment, a holder of
Preferred Securities may directly institute a proceeding against the Company for
enforcement of the Guarantee for such payment. The Company waives any right or
remedy to require that any action be brought first against the Trust or any
other person or entity before proceeding directly against the Company.

STATUS OF THE GUARANTEE

The Guarantee will constitute a senior unsecured obligation of the Company
and will rank pari passu with all of the Company's other senior unsecured
obligations. The terms of the Preferred Securities provide that each holder of
Preferred Securities issued by the Trust by acceptance thereof agrees to the
subordination provisions and other terms of the Guarantee.

The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the guarantee without instituting a
legal proceeding against any other person or entity).

INFORMATION CONCERNING THE GUARANTEE TRUSTEE

The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, undertakes to perform only such duties as are specifically set
forth in the Guarantee and, after default, shall exercise the same degree of
care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provisions, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of Preferred Securities, unless offered reasonable
indemnity against the costs, expenses and liabilities which might be incurred
thereby; but the foregoing shall not relieve the Guarantee Trustee, upon the
occurrence of an event of default under the Guarantee, from exercising the
rights and powers vested in it by the Guarantee.

GOVERNING LAW

The Guarantee will be governed by and construed in accordance with the
internal laws of the State of New York.

RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE TRUST DEBENTURES
AND THE GUARANTEE

As long as payments of interest and other payments are made when due on the
Trust Debentures, such payments will be sufficient to cover Distributions and
other payments due on the Preferred Securities, primarily because (i) the
aggregate principal amount of the Trust Debentures will be equal to the sum of
the aggregate stated liquidation amount of the Preferred Securities and Common
Securities; (ii) the interest rate and interest and other payment dates on the
Trust Debentures will match the Distribution rate and Distribution and other
payment dates for the Preferred Securities; (iii) the Company shall be obligated
to pay, directly or indirectly, all costs, expenses, debts and obligations of
the Trust (other than with respect to the Trust Securities); and (iv) the
Declaration further provides that the Trust will not engage in any activity that
is not consistent with the limited purposes of the Trust.

Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Trust has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of the Guarantee." Taken together, the Company's
obligations under the Trust Debentures, the Indenture, the Declaration and the
Guarantee have the effect of providing a full, irrevocable and unconditional
guarantee of payments of Distributions and other amounts due on the Preferred
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only the
combined operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Trust's obligations under the
Preferred Securities. If and to the extent that the Company does not make
payments on the Trust Debentures, the Trust will not pay Distributions or other
amounts due on the Preferred Securities. The Guarantee does not cover payment of
Distributions when the Trust does not have sufficient funds to pay such
Distributions.

Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set-off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofor made, or is concurrently on
the date of such payment making, a payment under the Guarantee.

A holder of any Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the Trust or
any other person or entity.

The Trust's Preferred Securities evidence preferred undivided beneficial
interests in the assets of the Trust, and the Trust exists for the sole purpose
of issuing the Preferred Securities and Common Securities and investing the
proceeds thereof in Trust Debentures. A principal difference between the rights
of a holder of a Preferred Security and a holder of a Trust Debenture is that a
holder of a Trust Debenture will accrue, and (subject to the permissible
extension of the interest period) is entitled to receive, interest on the
principal amount of Trust Debentures held, while a holder of Preferred
Securities is only entitled to receive Distributions if and to the extent the
Trust has funds available for the payment of such Distributions.

Upon any voluntary or involuntary dissolution of the Trust involving the
liquidation of the Trust Debentures, the holders of Preferred Securities of the
Trust will be entitled to receive, out of assets held by the Trust, the
Liquidation Distribution in cash. See "Description of Preferred
Securities--Liquidation Distribution Upon Dissolution." Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, the Institutional Trustee
as holder of the Trust Debentures would be entitled to receive payment in full
of principal and interest, before any shareholders of the Company receive
payments or distributions.

DESCRIPTION OF COMMON STOCK

The following brief description of the Company's capital stock does not
purport to be complete and is subject in all respects to applicable Pennsylvania
law and to the provisions of the Company's Amended and Restated Articles of
Incorporation (the "Restated Articles") and its By-Laws (the "By-Laws"), copies
of which have been filed with the Commission.

COMMON STOCK

The Company has authorized 70,000,000 shares of capital stock, par value
$1.25 per share ("Common Stock"). As of November 30, 1997, there were 26,284,093
shares of Common Stock outstanding. Holders of Common Stock are entitled to such
dividends as may be declared by the Board of Directors out of funds legally
available therefor after payment of dividends on any outstanding Preferred Stock
and are entitled to one vote for each share of Common Stock held by them with
respect to all matters upon which they are entitled to vote.

PREFERRED STOCK

The Company has authorized 5,000,000 shares of Class A Preferred Stock, no
par value per share (the "Preferred Stock"). At present, there are no shares of
Preferred Stock outstanding. The Board of Directors of the Company, without
further action by the stockholders, is authorized to designate and issue in
series Preferred Stock and to fix as to any series the dividend rate, redemption
prices, preferences on dissolution, the terms of any sinking fund, conversion
rights, voting rights, and any other preferences or special rights and
qualifications. The Board of Directors of the Company has authorized 200,000
shares of Series One Preferred Stock for use in the Rights Agreement. See
"Rights Agreement."

Any Preferred Stock so issued may rank senior to the Common Stock with
respect to the payment of dividends or amounts upon liquidation, dissolution or
winding up, or both. In addition, any such shares of Preferred Stock may have
class or series voting rights. Issuances of Preferred Stock, while providing the
Company with flexibility in connection with general corporate purposes, may,
among other things, have an adverse effect on the rights of holders of Common
Stock. The Company has no present plans to issue any Preferred Stock.

COVENANT RESTRICTIONS

In connection with the acquisition of Greenfield, the Company, on November
17, 1997, entered into a bank credit facility with BankBoston, N.A., Deutsche
Bank AG, New York Branch, Mellon Bank, N.A. and PNC Bank, National Association
(the "New Bank Credit Facility"). The Company's New Bank Credit Facility
contains financial and operating covenants, including restrictions on the
ability of the Company to, among other things, incur additional debt, make
advances and investments, create, incur or permit the existence of certain
liens, make loans or guarantees and requires the Company to achieve and maintain
certain financial ratios, including minimum net worth, maximum leverage ratio
and minimum fixed charge coverage ratio.

Securities issued by the Company in the future, including the Debt
Securities and future credit agreements, may contain various restrictive
covenants similar or in addition to the covenants above described.

CERTAIN CHARTER AND BY-LAW PROVISIONS

Certain provisions of the Restated Articles and By-Laws could have an
anti-takeover effect. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Company's Board of Directors
and in the policies formulated by the Board and to discourage an unsolicited
takeover of the Company if the Board determines that such takeover is not in the
best interests of the Company and its shareholders. However, these provisions
could have the effect of discouraging certain attempts to acquire the Company or
remove incumbent management even if some or a majority of shareholders deemed
such an attempt to be in their best interests.

The provisions in the Restated Articles and By-Laws include: (i) the
classification of the Board of Directors into three classes; (ii) a procedure
which requires shareholders to nominate directors in advance of a meeting to
30

elect such directors; and (iii) the authority to issue additional shares of
Common Stock or Preferred Stock without shareholder approval.

The Restated Articles also include a provision requiring a 75 percent
shareholder vote for certain mergers or other business combinations or
transactions with five percent shareholders; a provision requiring a 75 percent
shareholder vote to remove the entire Board, a class of the Board, any
individual member of the Board without cause, or to increase the size of the
Board to more than twelve members or decrease the size of the Board to fewer
than eight members; a provision requiring disinterested shareholder approval of
stock repurchases at a premium over market by the Company from certain four
percent Shareholders (as defined in the Restated Articles); and a provision
requiring a majority of disinterested shareholders to approve certain business
combinations involving a stockholder who beneficially owns more than 10 percent
of the voting power of the Company, unless certain minimum price, form of
consideration and procedural requirements are satisfied or the transaction is
approved by a majority of disinterested directors.

Pursuant to the Restated Articles, the Board of Directors is permitted to
consider the effects of a change in control on non-shareholder constituencies of
the Company, such as its employees, suppliers, creditors, customers and the
communities in which it operates. Pursuant to this provision, the Board may be
guided by factors in addition to price and other financial considerations.

PBCL Anti-Takeover Provisions. The Pennsylvania Business Corporation Law
(the "PBCL") contains a number of statutory "anti-takeover" provisions,
including Subchapters E, F, G and H of Chapter 25 and Section 2538 of the PBCL,
which apply automatically to a Pennsylvania registered corporation (usually a
public company) unless such corporation elects to opt-out as provided in such
provisions. The Company, as a Pennsylvania registered corporation, has elected
in its By-Laws to opt-out of certain of the anti-takeover provisions entirely,
namely Subchapters G and H.

The following descriptions are qualified in their entirety by reference to
such provisions of the PBCL:

Subchapter E (relating to control transactions) generally provides
that if any person or group acquires 20% or more of the voting power of a
covered corporation, the remaining shareholders may demand from such person
or group the fair value of their shares, including a proportionate amount
of any control premium.

Subchapter F (relating to business combinations) generally delays for
five years and imposes conditions upon "business combinations" between an
"interested shareholder" and the corporation. The term "business
combination" is defined broadly to include various transactions between a
corporation and an interested shareholder including mergers, sales or
leases of specified amounts of assets, liquidations, reclassifications and
issuances of specified amounts of additional shares of stock of the
corporation. An "interested shareholder" is defined generally as the
beneficial owner of at least 20% of a corporation's voting shares.

Section 2538 of the PBCL generally establishes certain shareholder
approval requirements with respect to specified transactions with
"interested shareholders."

TRANSFER AGENT AND REGISTRAR

ChaseMellon Shareholder Services, L.L.C. is the Transfer Agent and
Registrar for the Common Stock.

RIGHTS AGREEMENT

The Company has adopted a rights plan pursuant to which the Board of
Directors authorized and the Company distributed one preferred stock purchase
right (each a "right") for each outstanding share of Common Stock of the
Company. The terms of the rights are governed by a Rights Agreement between the
Company and Mellon Bank, N.A., as Rights Agent, dated as of October 25, 1990
(the "Rights Agreement"). The rights, which currently are automatically
transferred with the related shares of Common Stock and are not separately
transferable, will entitle the holder thereof to purchase one-hundredth of a
share of a new series of preferred stock of the Company at a price of $105
(subject to certain adjustments).

Subject to certain restrictions, the rights become exercisable only if a
person or group of persons acquires or intends to make a tender offer for 20
percent or more of the Company's Common Stock. If any person acquires 20 percent
of the Common Stock, each right will entitle the shareholder to receive upon
exercise that number of shares of Common Stock having a market value of two
times the exercise price. If the Company is acquired in a merger or certain
other business combinations, each right then will entitle the shareholder to
purchase at the exercise price, that number of shares of the acquiring company
having a market value of two times the exercise price.

The rights will expire on November 2, 2000, and are subject to redemption
in certain circumstances by the Company at a redemption price of $0.01 per
right.

The foregoing summary description of the Rights Agreement does not purport
to be complete and is qualified in its entirety by reference to the Rights
Agreement, a copy of which has been filed with the Commission as an exhibit in
the Registration Statement of which this Prospectus forms a part. For a more
detailed description of the Rights Agreement, see the Company's Form 8-A filed
with the Commission with respect to the rights and incorporated by reference
into this Prospectus.

DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS

The Company may issue Stock Purchase Contracts, including contracts
obligating holders to purchase from the Company, and the Company to sell to the
holders, a specified number of shares of Common Stock or Preferred Stock at a
future date or dates. The consideration per share of Preferred Stock or Common
Stock may be fixed at the time the Stock Purchase Contracts are issued or may be
determined by reference to a specific formula set forth in the Stock Purchase
Contracts. The Stock Purchase Contracts may be issued separately or as Stock
Purchase Units consisting of a Stock Purchase Contract and Preferred Securities
or debt obligations of third parties, including U.S. Treasury securities,
securing the holders' obligations to purchase the Common Stock under the Stock
Purchase Contracts. The Stock Purchase Contracts may require the Company to make
periodic payments to the holders of the Stock Purchase Units or vice versa, and
such payments may be unsecured or prefunded on some basis. The Stock Purchase
Contracts may require holders to secure their obligations thereunder in a
specified manner.

The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units. The description in the applicable
Prospectus Supplement will not necessarily be complete, and reference will be
made to the Stock Purchase Contracts, and, if applicable, collateral
arrangements and depositary arrangements, relating to such Stock Purchase
Contracts or Stock Purchase Units.

BOOK ENTRY ISSUANCE

Unless otherwise specified in the applicable Prospectus Supplement, DTC
will act as depositary for Securities issued in the form of Global Securities.
Such Securities will be issued only as fully-registered securities registered in
the name of Cede & Co. (DTC's nominee). One or more fully-registered Global
Securities will be issued for such Securities representing in the aggregate the
total number of such Securities, and will be deposited with or on behalf of DTC.

DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
the American Stock Exchange and the National Association of Securities Dealers,
Inc. Access to the DTC system is also available to others such as securities
brokers and dealers, banks and trust companies that clear through or maintain
custodial relationships with Direct Participants, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants are
on file with the Commission.

Purchases of Securities within the DTC system must be made by or through
Direct Participants, which will receive a credit for such Securities on DTC's
records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Securities. Transfers of ownership
interests in Securities issued in the form of Global Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in such Securities, except in the event that use of
the book-entry system for such Securities is discontinued.

DTC has no knowledge of the actual Beneficial Owners of the Securities
issued in the form of Global Securities. DTC's records reflect only the identity
of the Direct Participants to whose accounts such Securities are credited, which
may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.

Redemption notices shall be sent to Cede & Co. as the registered holder of
Securities issued in the form of Global Securities. If less than all of a series
of such Securities are being redeemed, DTC's current practice is to determine by
lot the amount of the interest of each Direct Participant to be redeemed.

Although voting with respect to Securities issued in the form of Global
Securities is limited to the holders of record of such Securities, in those
instances in which a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to such Securities. Under its usual procedures, DTC
would mail an omnibus proxy (the "Omnibus Proxy") to the issuer of such
Securities as soon as possible after the record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those Direct Participants to whose
accounts such Securities are credited on the record date (identified in a
listing attached to the Omnibus Proxy).

Payments in respect of Securities issued in the form of Global Securities
will be made by the issuer of such Securities to DTC. DTC's practice is to
credit Direct Participants' accounts on the relevant payment date in
33

accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participant and not of DTC, the Institutional Trustee, either Trust or the
Company, subject to any statutory or regulatory requirements as may be in effect
from time to time. Payments to DTC are the responsibility of the issuer of the
applicable Securities, disbursement of such payments to Direct Participants is
the responsibility of DTC, and disbursements of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depositary with respect to
any Securities at any time by giving reasonable notice to the issuer of such
Securities. In the event that a successor depositary is not obtained, individual
Security certificates representing such Securities are required to be printed
and delivered. The Company, at its option, may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor depositary).

The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Trust and the Company believe to be
accurate, but the Trust and the Company assume no responsibility for the
accuracy thereof. Neither the Trust nor the Company has any responsibility for
the performance by DTC or its Participants of their respective obligations as
described herein or under the rules and procedures governing their respective
operations.

PLAN OF DISTRIBUTION

Any of the Securities being offered hereby may be sold in any one or more
of the following ways from time to time: (i) through agents; (ii) to or through
underwriters; (iii) through dealers; and (iv) directly by the Company or, in the
case of Preferred Securities, by the Trust to purchasers.

The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.

Offers to purchase Securities may be solicited by agents designated by the
Company from time to time. Any such agent involved in the offer or sale of the
Securities in respect of which this Prospectus is delivered will be named, and
any commissions payable by the Company or the Trust to such agent will be set
forth, in the applicable Prospectus Supplement. Unless otherwise indicated in
such Prospectus Supplement, any such agent will be acting on a reasonable best
efforts basis for the period of its appointment. Any such agent may be deemed to
be an underwriter, as that term is defined in the Securities Act, of the
Securities so offered and sold.

If Securities are sold by means of an underwritten offering, the Company
and, in the case of an offering of Preferred Securities, the Trust will execute
an underwriting agreement with an underwriter or underwriters at the time an
agreement for such sale is reached, and the names of the specific managing
underwriter or underwriters, as well as any other underwriters, the respective
amounts underwritten and the terms of the transaction, including commissions,
discounts and any other compensation of the underwriters and dealers, if any,
will be set forth in the applicable Prospectus Supplement which will be used by
the underwriters to make resales of the Securities in respect of which this
Prospectus is being delivered to the public. If underwriters are utilized in the
sale of any Securities in respect of which this Prospectus is being delivered,
such Securities will be acquired by the underwriters for their own account and
may be resold from time to time in one or more transactions, including
negotiated transactions, at fixed public offering prices or at varying prices
determined by the underwriters and the Company or the Trust, as applicable, at
the time of sale. Securities may be offered to the public either through
underwriting syndicates represented by managing underwriters or directly by one
or more underwriters. If any underwriter or underwriters are utilized in the
sale of Securities, unless otherwise indicated in the applicable Prospectus
Supplement, the underwriting agreement will provide that the obligations of the
underwriters are subject to certain conditions precedent and that the
underwriters with respect to a sale of such Securities will be obligated to
purchase all such Securities if any are purchased.

The Company or the Trust, as applicable, may grant to the underwriters
options to purchase additional Securities, to cover over-allotments, if any, at
the initial public offering price (with additional underwriting

commissions or discounts), as may be set forth in the Prospectus Supplement
relating thereto. If the Company or the Trust, as applicable, grants any
over-allotment option, the terms of such over-allotment option will be set forth
in the Prospectus Supplement for such Securities.

If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Company or the Trust, as applicable, will sell
such Securities to the dealer as principal. The dealer may then resell such
Securities to the public at varying prices to be determined by such dealer at
the time of resale. Any such dealer may be deemed to be an underwriter, as such
term is defined in the Securities Act, of the Securities so offered and sold.
The name of the dealer and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.

Offers to purchase Securities may be solicited directly by the Company or
the Trust, as applicable, and the sale thereof may be made by the Company or the
Trust directly to institutional investors or others, who may be deemed to be
underwriters within the meaning of the Securities Act with respect to any resale
thereof. The terms of any such sales will be described in the Prospectus
Supplement relating thereto.

Securities may also be offered and sold, if so indicated in the applicable
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms ("remarketing firms"), acting as principals for their own
accounts or as agents for the Company or the Trust, as applicable. Any
remarketing firm will be identified and the terms of its agreement, if any, with
the Company or the Trust and its compensation will be described in the
applicable Prospectus Supplement. Remarketing firms may be deemed to be
underwriters, as that term is defined in the Securities Act, in connection with
the Securities remarketed thereby.

If so indicated in the applicable Prospectus Supplement, the Company or the
Trust, as applicable, may authorize agents and underwriters to solicit offers by
certain institutions to purchase Securities from the Company or the Trust at the
public offering price set forth in the applicable Prospectus Supplement pursuant
to delayed delivery contracts providing for payment and delivery on the date or
dates stated in the applicable Prospectus Supplement. Such delayed delivery
contracts will be subject to only those conditions set forth in the applicable
Prospectus Supplement. A commission indicated in the applicable Prospectus
Supplement will be paid to underwriters and agents soliciting purchases of
Securities pursuant to delayed delivery contracts accepted by the Company or the
Trust, as applicable.

Agents, underwriters, dealers and remarketing firms may be entitled under
relevant agreements with the Company or the Trust, as applicable, to
indemnification by the Company or the Trust, as applicable, against certain
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments which such agents, underwriters, dealers and
remarketing firms may be required to make in respect thereof.

Each series of Securities will be a new issue and, other than the Common
Stock, which is listed on the NYSE, will have no established trading market. The
Company may elect to list any series of Securities on an exchange, and in the
case of the Common Stock, except as set forth in the applicable Prospectus
Supplement, on any additional exchange, but, unless otherwise specified in the
applicable Prospectus Supplement, the Company shall not be obligated to do so.
No assurance can be given as to the liquidity of the trading market for any of
the Securities.

Agents, underwriters, dealers and remarketing firms may be customers of,
engage in transactions with, or perform services for, the Company and its
subsidiaries in the ordinary course of business.

LEGAL MATTERS

The validity of the Securities will be passed upon by Buchanan Ingersoll
Professional Corporation, Pittsburgh, Pennsylvania. William R. Newlin, Chairman
of the Board of the Company, is a shareholder in Buchanan Ingersoll Professional
Corporation. As of July 30, 1997, Mr. Newlin owned 24,385 shares of Common
Stock, stock credits representing the right to acquire 9,260 shares of Common
Stock pursuant to the Company's directors deferred fee plan, 20,000 shares of
JLK common stock and held options to acquire 1,500 shares of Common Stock and
15,000 shares of JLK common stock. Except as provided in the applicable
Prospectus

Supplement, if the Securities are underwritten, the validity of the Securities
will be passed upon for the underwriters by Simpson Thacher & Bartlett, New
York, New York. Simpson Thacher & Bartlett will rely on Buchanan Ingersoll
Professional Corporation with respect to matters of Pennsylvania law.

EXPERTS

The consolidated financial statements of the Company as of June 30, 1996
and June 30, 1997 and for each of the three years in the period ended June 30,
1997, incorporated in this Registration Statement by reference to the Form 10-K
for the fiscal year ended June 30, 1997, of which this Prospectus is a part,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports. The consolidated financial statements of Greenfield as
of December 31, 1995 and December 31, 1996 and for each of the three years in
the period ended December 31, 1996, incorporated in this Registration Statement
by reference to the Form 8-K dated November 20, 1997, as amended, have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

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No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus supplement
or the accompanying prospectus. You must not rely on any unauthorized
information or representations. This prospectus supplement is an offer to sell
only the notes offered hereby, but only under circumstances and in jurisdictions
where it is lawful to do so. The information contained in this prospectus
supplement and the accompanying prospectus is current only as of their
respective dates.

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TABLE OF CONTENTS

Prospectus Supplement

Page
----

Special Note Regarding Forward-Looking
Statements........................... i
Prospectus Supplement Summary.......... S-1
Risk Factors........................... S-9
Use of Proceeds........................ S-15
Capitalization......................... S-16
Selected Consolidated Financial
Information.......................... S-17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... S-19
Business............................... S-42
Management............................. S-47
Description of the Notes............... S-51
Important United States Federal Income
Tax Considerations................... S-59
Common Stock Offering.................. S-62
Underwriting........................... S-63
Legal Matters.......................... S-65
Experts................................ S-65
Where You Can Find More Information.... S-65
Index to Consolidated Financial
Statements........................... F-1
Prospectus
Available Information.................. 4
Incorporation of Certain Documents by
Reference............................ 4
Kennametal Inc......................... 5
The Trust.............................. 5
Ratio of Earnings to Fixed Charges..... 6
Use of Proceeds........................ 6
Description of Debt Securities......... 7
Description of Preferred Securities.... 15
Description of the Guarantee........... 26
Relationship Among the Preferred
Securities, the Trust Debentures and
the Guarantee........................ 29
Description of Common Stock............ 30
Description Stock Purchase Contracts
and Stock Purchase Units............. 32
Book Entry Issuance.................... 33
Plan of Distribution................... 34
Legal Matters.......................... 35
Experts................................ 36

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$300,000,000

[KENNAMETAL INC. LOGO]

KENNAMETAL INC.
7.20% Senior Notes due 2012
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PROSPECTUS SUPPLEMENT

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GOLDMAN, SACHS & CO.
JPMORGAN
LEHMAN BROTHERS
BANC ONE CAPITAL MARKETS, INC.
FLEET SECURITIES, INC.
PNC CAPITAL MARKETS, INC.
TOKYO-MITSUBISHI INTERNATIONAL PLC
NATCITY INVESTMENTS, INC.
COMERICA SECURITIES
THE ROYAL BANK OF SCOTLAND
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