Kennametal Inc (KMT) 2002 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Kennametal fourth quarter earnings conference. At this time, all phone participants are in a listen-only mode. Later we will conduct a question and answer session, with instructions given at that time. If you should require assistance during the conference, just press zero then star. And as a reminder, this call is being recorded. I'd like to turn the conference over to Beth Riley, the Director of Investor Relations. Please go ahead.

Thanks

. Welcome, and thank you for joining us this morning to review our fiscal 2002 fourth quarter, and our expectations for fiscal 2003. As

noted, I'm Beth Riley, Director of Investor Relations for Kennametal. I'm pleased to have our Chairman, President and Chief Executive Officer, Markos Tambakeras, and Vice President and Chief Financial Officer, Nick Grasberger, joining me for the call.

Before we start, as always, I will reiterate our Safe Harbor statement. Today's presentation, including the answers to your questions, contain forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934 as amended. 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 the integrating and divesting of businesses and achieving the expected savings and synergies; demands on management resources; risks associated with international markets such as currency and 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 publicly to any revisions to forward-looking statements as a result of future events or developments. And now I'll turn the call over to Markos.

Thank you Beth. Good morning everyone. As you all know, the past 12 months have been very difficult for all of us. In fact, the manufacturing sector has been in a tough bind for almost two years now. The anticipated recovery in the U.S. economy not only did not occur, but was also exacerbated by significant declines in the European economies. Corporate governance crises and accounting scandals further damaged business confidence in an already soft market. Corresponding stock market declines extended existing reluctance to increase capital investment.

In many ways therefore, we have an unprecedented confluence of negative events. Against this backdrop, and while we were disappointed with the pressure this environment placed on our financial performance, I feel very good about we've handled ourselves, and where we are. While we continue to act to mitigate the short term, we did not neglect the long term. I am very proud of our Kennametal employees around the world. We continue to execute our strategy and prime the company to perform well in a tough economic environment.

Let me very briefly recap some of our major accomplishments in the past fiscal year, fiscal '02. We have completed the restructuring of our businesses, JLK as you know has been brought in, has been separated into two units, J&L and FSS. Both of those businesses have new management, they have been completely restructured, and they're extremely well positioned going forward. The electronics business has been repositioned as well, in fact we have moved all the manufacturing offshore, primarily to China. And we have concluded additional restructuring in the industrial products group business of metalworking, which is part of the old Greenfield acquisition.

We are confident that we have configured the company appropriately for the future. In addition to the above restructuring, we also took short-term cost actions that shared the pain, while preserving jobs, and we avoided cutting into muscle. We formalized our lean initiatives with the launch of the Kennametal Lean Enterprise. We implemented in excess of 120 projects, and received hard savings in excess of $11 million. We have now established a team of experienced internal growth consultants, global consultants. Every location in the company has a local lean coordinator. We have established a process for the identification and sharing of best practices. Lean is vital to our future competitiveness. It is our mechanism to offset inflationary pressures, and to raise productivity consistently year in and year out. And we believe we've only scratched the surface of the potential that exists here.

I am also very pleased to deliver another strong year of cash flow and debt reduction, despite the weak economic environment. The strategic acquisition of Widia was the result of our systematic efforts to position the company to earn the right to grow, balance our global revenues, and solidify our number two global market share position. The improvement that we have made to the balance sheet, the organizational structure and the management team, positioned us in order to take advantage of this compelling opportunity. The closing has been delayed somewhat by negotiations that Milacron needs to complete with the Indian securities regulators. We believe the delay is solely a matter of procedures, and we now expect the transaction to close around July 31st, or shortly thereafter.

Combination of Kennametal and Widia is good for our customers, our shareowners, our employees and the industry as a whole. The deal is of course very compelling strategically, financially and culturally. As a means of a progress report, we have been actively advancing our integration plans, assuredly not passively waiting for the deal to be closed. Our integration teams are now in place, on the ground, in Europe and in India, and they include key members from both our U.S. and European operation. In fact, as I've mentioned before, the team leader was one of the leaders of the highly successful Hertel integration, that was an acquisition that we made in Germany about eight years ago.

We are in the process of refining the integration plans, confirming our original costs and benefit assumptions. I am very confident we will hit the ground running. We will accomplish our objectives within the timeframe we originally committed. And finally, in addition to Widia, I was particularly pleased with our very successful refinancing of the company. We issued three and a half million shares of common stock, 300 million of senior unsecured notes, and we also secured a new three-year revolving credit facility. The attractive rate and the terms that we received in a very challenging market are of course a testament to the strength of our credit story.

Let me look forward to fiscal 2003. Despite positive macroeconomic indicators in the United States and in Germany that indicate the potential for increased investor activity, we have not yet seen sustained signs of increased demand in most of our customer markets, and the environment has not significantly improved. The most notable exception is the U.S. automotive market, where annual production is now forecasted approximately 16 and a half million vehicles on the strength of renewed financing incentives. Confidence in the euro zone stalled in June, while overall economic sentiment is on an upward trend, and the European economy's clearly in recovery, the strength and scope of this recovery remains in question. That in fact is the main theme.

Based on such indicators as the U.S. purchasing managers index, ISM, which has exceeded the expansionary 50 percent mark for five consecutive months, U.S. investor production, which had its sixth consecutive monthly increase in June, we still expect a modest improvement over fiscal 2002. And the European recovery likely will lag by a quarter or so. However the manufacturing recovery's occurring more slowly, and appears further out than anyone has anticipated, while the strength of the recovery remains the key question. We currently expect sales for the September quarter, which is our first quarter, to be down by low to mid single-digits versus last year, and to return to modest year over year growth in the December quarter, and continuing to pick up speed in our third and fourth quarters, which also are traditionally our strongest quarters.

And this is all very consistent. Increased customer demands from our key industrial end markets would obviously strengthen the confidence in this outlook as we go forward. Now regardless of the timing and the strength of the recovery, we will continue to execute our strategy as always. We are very confident that we have durable systems in place to sustain focus and improvement in primary working capital, cash generation, debt reduction, new product development and lean processes.

With this foundation, our focus for fiscal 2003 will be in three key areas. First will be growth. Growth through new products, through continuing intense marketing efforts, to continue to gain share, as well, of course, the completion and successful integration of Widia. Second priority we using the power of the Kennametal Lean Enterprise to continually improve our operating efficiencies, offset inflationary pressures and raise our productivity. Thirdly, and finally, continued focus on developing our employees, the biggest asset we have.

We do demand very high levels of performance, and we have accelerated our investment in training and in tools required to support strong performance. We formalized the formation of the Kennametal University in the last month, and in fiscal '02 we raised substantially our investments in training and development to one and a half percent of sales. This year we will raise that even further to a minimum of two percent of sales. Let me now turn over the discussion to Nick Grasberger.

Thank you Markos, and good morning. I'll provide the usual commentary on our financial performance, and conclude with our outlook for fiscal 2003. As Markos mentioned, the closing of the Widia acquisition has been delayed somewhat. We'll provide more detailed information on the integration program and the associated restructuring once the transaction is completed. For the fourth quarter I will again reference all FY '01 metrics on an adjusted basis that excludes goodwill amortization under FAS-142. Our press release includes a table reconciling through FY '01figures as they were reported.

Before I review the figures, I would like to note that we completed a very successful transition of our external auditors from Arthur Andersen to PricewaterhouseCoopers. PWC has confirmed management's conviction that Kennametal maintains tight financial controls, and strict adherence to accounting standards and its financial policies. For the fourth quarter of FY 2002, excluding special items, Kennametal earned net income of 21.4 million, or 67 cents per share, compared to 23.5 million, or 76 cents per share last year, a 12 percent decline in EPS.

Consolidated sales decreased nine percent to 403 million. We continue to realize modest sequential daily sales improvement across geographies over the quarter, despite continued year over year declines. Global orders improved sequentially, with both North American and European daily rates increasing over the period. Automotive and construction were on our only end markets to deliver year over year growth in North America. Other industrial markets remain soft, including both light and heavy engineering, machine tool builders, and tool and die makers. Declines in aerospace orders continued as expected. In Europe, heavy engineering maintained year over year growth on strength in tungsten valves, and in steel making. As expected, European automotive, aerospace, white engineering and machine tool builders all remained below prior year levels.

Notably the gross profit margin for the quarter was 34.1 percent, up slightly from last year. As planned, lean initiatives provided manufacturing efficiencies to offset the combined negative impact of underutilized capacity and unfavorable product mix. Pricing was essentially in line with prior year levels. Consolidated operating expenses for the quarter declined two percent from last year, to about $100 million. The quarter included $600,000 in restructuring charges for the ongoing J&L FSS business improvement program. This business improvement program has incurred 19.8 million in cost to date, and annualized benefits to date are about nine million. In addition, the previously announced closure of three manufacturing locations in the electronics and industrial distribution businesses proceeded during the quarter. Charges in the quarter were 2.1 million for MSSG and 1.3 million for electronics. These charges conclude all of our restructuring activities.

EBIT excluding special charges, was 39.7 million, down 18 percent from FY '01 on the lower sales. The EBIT margin was 9.8 percent, down from 11 percent in the fourth quarter of last year. Interest expense declined 36 percent during the quarter, compared to last year, due to ongoing debt reduction, including the issuance of equity and lower interest rates. Average U.S. interest rates of 4.8 percent were down more than 150 basis points versus last year. Consistent with previous guidance, the effective tax rate was 32 percent for the quarter, and for the full fiscal year. This compares to 33.9 percent in the same quarter last year.

We are very pleased to continue to deliver against our balance sheet and cash flow objectives. The fourth quarter was another quarter of strong cash flow, $43 million and 22 percent above last year. Inventory reductions provided about $15 million. Primary working capital as a ratio to sales was 29, 27.9 percent, versus 27.3 percent last year. Capital spending for the quarter was 14 million, versus 20 million last year, and capital spending continues to be prioritized to projects critical to workplace safety, and cost reduction until the economic environment improves. As of June 30, 2002, total debt was 411 million, down 30 percent, or about 200 million year over year, including approximately 120 million from the proceeds of the equity offering. Debt to capital declined 670 basis points to 36.2 percent.

I will now move on to a discussion of our individual business units, and their top line and EBIT results. I'll start with the metalworking group. Metalworking sales for the quarter were 231 million, a decline of six percent. In constant currency, Europe declined nine percent, and Asia again delivered high double-digit growth of 21 percent. North America declined eight percent, but improved sequentially. EBIT margin for MSSG declined against the prior year as 14.4 percent versus 16 percent last year, excluding special charges due to lower sales in the highly profitable North American markets, offset in part by lean initiatives, and ongoing cost controls.

Turning to our advanced materials group, sales were down ten percent. Mining and construction declined only slightly, with construction offsetting the weakness in mining. Engineered sales were flat, and energy declined by more than 25 percent, as the U.S. rig count remained more than 30 percent below last year's levels. Electronics continued significant year over year declines in a very depressed telecom market. Before special charges, AMSG EBIT margin was 15.4 percent versus 15.9 percent last year. Aggressive cost cutting, including improved manufacturing efficiencies, offset largely by pressure on the margin from lower sales.

J&L sales were down ten percent over this same period in the fiscal year 2001, excluding the strong tool divestiture. J&L continues to improve sequentially, and saw some improvement from the strength in the automotive sector. However, the demand from the increased auto production has not yet been fully realized from the second and third tier suppliers, that are J&L's primary customers. Before special charges, J&L's EBIT margin was three percent, against 6.8 percent a year ago. However the margin was approximately six percent, excluding an increase in the bad debt reserve, I'm sure you know. Full service supply sales decreased nine percent in the current quarter versus last year. Before special charges, FSS's EBIT margin was 1.1 percent, compared to one percent a year ago.

Let's move forward to a discussion on our fiscal year 2003. As noted in today's release, we are reaffirming our previous sales, earnings and cash flow guidance for the fiscal year. Additional guidance for the full year is as follows, and all of the following exclude the impact of Widia. The tax rate will be 32 percent. Capital spending in a range of 50 to 60 million. Depreciation in the range of 70 to 75 million. We expect that the working capital margin to sales to be about 25 percent, down from 28 percent in fiscal year 2002. And debt to capital we expect to finish the year at 40 to 42 percent. ROIC in the range of eight to nine percent. And interest expense essentially flat versus FY '02.

Despite modest sequential improvements in the past quarter, and broadly positive economic indicators, we've yet to see any indication of sustained improvement in demand for most of our end markets. Consequently we expect the first quarter to continue to be difficult, with year over year sales growth not beginning until at least the December quarter. As reported in this morning's release, we expect sales for the first quarter of FY '03 to decline year over year by low to mid single-digits, and EPS before special charges to range between 34 cents and 39 cents, down approximately ten to 20 percent. These numbers exclude approximately six cents of anticipated dilution from Widia. This Widia impact is consistent with our previous guidance, and will be updated after we close the acquisition and undertake a more thorough assessment of the business.

Included in our current target are the following assumptions regarding outlook by end market for the next three months. We now expect mid single-digit growth in automotive and construction, while heavy engineering is expected to be flat for the quarter. Additional steep declines in electronics, and single-digit declines in mining, light and general engineering, and tool and die makers are anticipated. We also now expect both oil and gas, and aerospace to decline 15 to 20 percent against last year's high levels. Over the next three months we now expect year over year geographic performance as follows. End markets in North America to decline at a three to five percent rate, Europe to be down six to eight percent, and Asia to grow at one to two percent. I'd now like to open the lines for any questions.

If you wish to ask a question, please press the one on your touchtone phone. You'll hear a tone indicating that you've been placed in queue. You can remove yourself from queue at any time by pressing the pound key. If you're using a speakerphone, please pick up your handset before pressing the number. Our first question is from

with Lehman Brothers. Please go ahead.

Hey guys. The expense control looked excellent in the quarter. I just wondered if you could give us, Nick, you know, that little run through you gave us for the first quarter, if you could give us maybe an idea of what to expect for the full year on your five largest end markets? In terms of volume growth, and just the tone.

Yes, for the, for the full year

, we are, as Markos indicated ...

.

, sorry - indicated that we expect the second half to be much stronger than the first, so we are looking for kind of one, one to two, one to three percent growth in most of the end markets, across all geographies for the full fiscal year.

OK. And there's nothing in there to make you think that auto would turn out to be a little bit weaker and all that with consumer confidence starting to come down?

No, we have auto still, I think relatively weak compared to what many are believing. We think one to three percent for the full 12 month.

, this is Markos. If I, if I might add, in essence what you're seeing in the profile for the year is a positive growth for all the markets, with the exception of aerospace and mining, on a total year basis, with other models maintaining pretty high levels of production. Germany is showing some signs of life, and some hope that it may not be as bad as we all anticipated. So net net you end up with what Nick said about it, two to two and a half percent over the year, for all the markets put together. And then you'll see that our growth then would be approximately double that.

OK. Thank you very much.

Our next question is from

with Midwest Research.

Hi, good morning.

Morning.

Morning

.

Let's see. Couple things here, which is first of all, what kind of latent cost reductions do we get out of '03, you know, sort of the full year run rate, since the restructuring's done, but we were, you know, only getting partial benefit in '02? What, can you quantify sort of that incremental impact?

Yes. It's about six million, and most of that is in the gross profit margin.

OK. Six million of incremental cost saves.

Yes.

OK.

Due to the restructuring.

All right. Now with this restructuring, is there expected to be any dampening of the margin seasonality in the business where, you know, if you typically starts out, I'm talking about metalworking in particular but, you know, you typically start out at the low end of your average for the year, and it sort of builds quarter by quarter throughout that. I'm sure it's somewhat volume related, but, you know, is that the trend we should look for again this year, or will it be more consistent quarter over quarter?

No, that trend would remain, would remain in place.

OK. Third thing here is you mentioned aggressive marketing being one of the action items for '03 and is there any particular quantification you can give to your marketing investment? Are you adding staff, and if so, by how much? Or is there a particular new marketing strategy that you are going to be pursuing?

I can, I can answer that. Let me see if I can cover the waterfront here. As you may recall we did not back down in our sales resources and marketing resources last year. And we maintaining that, that's number one. Number two we have really stepped up the investment in the range of ten to 15 percent within our operating expenses in terms of market penetration initiatives. This may be specific people, it is, it is increased coverage, it is a number of initiatives as well, for example, we talked about moving in to distribution more aggressively and covering space that we haven't addressed before.

In our advanced materials business, we have also gone for a national workforce arrangement for the engineering group, which is beginning to yield a much more effective sales process in the sense that we now have a broader spectrum of products being sold by single, in single force. We have stepped up our pricing management, we have introduced projects related to, let's say benefit sharing with our customers. So we're doing a host of things within core markets, adjacent markets and essentially at the end of the day becoming a lot more aggressive, and finally taking a lot more advantage of all these new products that we've talked about.

You recall we now have 35 percent of our sales coming from new products, which is in excess of double what it was just over two years ago. And we need to take advantage of those, we've had some outstanding success with many of these new products.

Great. Sounds like there's a lot underway there. A final question, what was net price realization for the quarter?

It was, it was flat to down about 50 basis points, I believe.

OK. Thanks very much.

Our next question is from

with McDonald. Please go ahead.

Hi, good morning. With regard to that last question, you said you stepped up, I believe you said you stepped up your marketing cost by ten to 15 percent. Can you quantify that in a dollar amount? With the incremental expense related to more gross of marketing?

Let's get you that number. I know it across the board, I want to do a more complete assessment.

OK, that's fine. And can you, you know, you've talked a little bit about this already but, you know, the monthly trend during the quarter in North America and in Europe, can you talk a little bit more about that, and which sectors you saw improving, which you saw weakening? Just to get a little bit more clarity.

yes, we've seen for each of the past several months about a one to two percent monthly sequential improvement in North America, and to a lesser extent in Europe. Clearly in North America it would be driven by automotive and construction. We've seen a bit of sequential improvement in the light and general engineering sectors, and then sequential declines in aerospace and energy.

Let me come back and answer your question. We're looking at about five to $10 million additional investment in marketing, which for us is quite a few pennies.

OK. OK, thank you very much.

Our next question is from

with Goldman Sachs.

Good morning.

Morning.

Hi.

It sounds like your commentary's a tad more cautious than it was in May, and yet you kept your outlook for the full year. Can you just talk about, you know, was it reweighting the quarters based, or how were able to maintain your outlook for the full year, even though things maybe in the last six weeks have deteriorated?

Well, first of all, if you recall one of the reasons we had a wide range in May, we went to 210 to 240 was because of the, let's say the early, having to come out early because of the Widia acquisition.

Right.

And so we are maintaining this range of between 210 and 240. That's point number one, which is rather wide. Secondly, clearly we have become more cautious in the short term, and that's consistent with everything we're seeing around, and that's also obviously to maintain our credibility. But thirdly, the indicators though we see, you know, underlying all this stuff that's going on, and on Wall Street, if you come back to the basic indicators, which we have obviously many years of experience on, those underlying indicators continue to point to the kind of pattern that we have seen before.

And so the ISM index still points to year over year growth in our December quarter, around the October to November time frame, same with industrial production, so. And so the numbers continue to show that kind of a pattern, now that's why when we put it all together, we feel quite confident we can get there. Now within the quarters you may see a little give and take, but unless something else changes on, dramatically, either on the positive or on the negative side, I just don't see a reason to change it.

OK. Fair enough. You guys used to do, kind of a bell-weather survey with your customers. Are you still doing that so

you just share with us, kind of, you know, are you seeing any of the macroeconomic positives coming through in the commentary from your customer base?

Very similar to what we said, yes, we do continue to talk to customers here and in Europe. Very similar to what I've said, kind of confirming the commentary. Quotation activity still continues to be quite strong, continues to be interest a capital equipment discussions at a higher level. Our advanced engineering group is pretty busy in terms of issuing those quotes. So, this is again, in the mix, pretty consistent with all the, you know, the interpretation that we gave you before.

OK. Just to switch gears a minute, you mentioned spending an incremental five to ten million on the marketing initiatives. Is this, and then you were going to spend more money on developing employees. Could you just talk about what that number is for developing employees, and where are you funding that from, is it from lean?

You bet. One and a half to two percent now of sales, and it's not as much as I'd like to spend, I'd like to spend more. But we are certainly finding it with lean, and with the benefits of the restructuring that we did in the past.

But those are two separate right? The five to ten million for the marketing is separate from the people investment?

Yes.

OK.

Yes. That's people training and developing investment as opposed to headcount, by the way.

OK. OK, on J&L you had increased the reserve for bad debt allowances. Can you talk about why you did that, and is that continuing into next year? Something we should think about for most of next year? Is this ...

No, it's really not. It was a, it was something that certainly in this environment, and given the customer base of J&L, there's been a lot of weakness in the customer base. And this was an adjustment that we've used one time, and we don't believe this will be an issue going forward.

But it's a level we're going to keep until things get better, right?

That's right.

EU approval on the Widia acquisition, so now all we're waiting for is the Indian side of things?

Right. All the other approvals in Europe and everything else we need has, we've received that some time. But, you know, things just move at a different pace.

OK. OK, that's it. I'll get back in queue, thanks.

Thank you.

Our next question is from

with Midwest Research. Please go ahead.

Yes. I've got a follow-up and, you know, I apologize because I think this is probably a really stupid question, but I just continue to be puzzled by the weak metalworking sales, even though we are gradually improving but, you know, down nine percent for the quarter. I just went through very quickly some of the manufacturing companies that I follow, and what their sales were for this quarter. You know, just for instance, Caterpillar sales were down four percent, Ingersoll-Rand was up three percent, Eaton was basically flat. I found oil service company Cooper Cameron that was down only one percent, you know, the automakers actually are up.

I'm just puzzled that the disconnect here between the still-slow volume for carbide tooling and, you know, what appears to be, you know, reasonable growth in the broad manufacturing economy. And, you know, granted I just picked two or three examples here, but is there anything secular going on in terms of tools maintaining longer lives, or in weak periods that people are able to, you know, refurbish, re-sharpen their tools? Are there anything like that, that's going on here that are, is going, you know, kind of effect sales on a secular basis going forward?

No

. In fact the examples that you cited are companies that are within our peer group, and we continually benchmark our performance against theirs. As we look at it, the issue really is quite simple, and it's one of different comparisons year over year. If you look back a year ago how our business was performing versus theirs, we, on a year over year basis in sales and earnings were holding up much better. So I think as we looked at it, and analyze it, we've concluded that those businesses that you cited have had much easier comparisons year over year than we have.

The other thing I would add

is the fact that also there's been, as you may know, a very inconsistent inventory buildup process. So whereas before goods in inventory, of course, would be maintained at higher levels because of anticipate sustainability, what you're seeing is the effect that we've all observed in the market, where they're not keeping as much finished goods inventory as before, and so there is some of that unsustainability that I, that I talked about.

For us, we keep looking at two things. One is the indices which again show that nine-month lag or so. And secondly capacity utilization, and as you know, capacity utilization hasn't really shown significant upward pace. So there is nothing here that would suggest a fundamental shift if you will, in our business or anything else. I'm not concerned about that.

So just, I mean, sort of like the real naïve question is, with 35 percent new products, do these new products have appreciably longer lives? You know, can you get through more, you know, cuts, more ...

Yes.

... you know, metal machined per unit in your, you know, kind of gradually, you know, kind of obsoleting yourself, you know, to put it, you know, very incorrectly. But, you know, is there any kind of trend like that going on?

No, because that's been the case for years and years. Every, you know, for the last 80 years, every time you brought out new tools they've produced better performance. And so we continue to do that. But at the same time, the introduction of new tools, we have, as you may have heard us talk before, the applications are getting harder, the demands on the manufacturing floor are getting higher, and at the same time, you know, in terms of throughput, and at the same time with a new tools we typically get better pricing and margin to offset that. So I think this is not a fundamental shift in the business. Now of course the other side of the story is that these new tools have also given us the opportunity to pick up some of the market share we've talked about.

OK. I just have one other small item, which is just any kind of qualitative commentary on Valenite and their behavior, you know, over the recent month or two since the announcement of their sale. Has that prompted any kind of change in their competitive posture in the marketplace here in North America?

No, none that we haven't seen for the last year or so.

OK. All right, thank you.

And if there are any additional questions, please press the one on your phone at this time. We do have a follow-up from the line of

. Please go ahead.

Just on other income, you know, if you adjust for the strong tool and it was actually much bigger than it was even a year ago. Can you just talk about what the variance was last year versus this year?

Yes, the issue there

were some gains on some currency contracts. As you know, we tend to hedge fiscal year foreign sales in advance, and we had some gains in the fourth quarter.

OK. Can you also break the operating expense into R&D, I mean, just breakout maybe R&D and I can get to the other?

Yes. Why don't we have Beth get back to you with that information,

.

OK. I guess that's it. Thanks.

Thank you.

And we also have a follow-up from the line of

. Please go ahead.

Yes, I just wondered if you guys have baked into your numbers anything for market share gains? And if you could just share with us a little bit of commentary about what your customers are saying about the potential with your, you know, with the consolidation with the Widia acquisition?

, yes. The market share gain is baked into the forecast. I mentioned earlier that we are looking at our market over the fiscal year to grow at about two to two and a half percent, so clearly the rest of the growth that's in our top line for the year is market share. I can, I can tell you the reaction from the Widia customers in Europe and in, and in India just could not have been better. The anticipation of a Kennametal coming in, the combined capabilities of the organization, the having now access to the broader portfolio that Kennametal brings with our strength in turning, which previously they didn't have, with their primary strength being in milling. I think the expectation that the organization or some of the organization would see disciplines and benefits of leveraging our R&D and so on. So everything we have heard is plus, plus everywhere. And I would include the employees of Widia in this, in this answer.

OK. Thank you.

And there are no further questions. Please continue.

All right, thanks everybody.

And this conference will be available for replay starting today at 3:15 p.m., and lasting until July 31st at midnight. You can access the AT&T Executive Playback Service from within the U.S. by dialing 800-475-6701, and entering the access code 644694. Again that number is 800-475-6701, with the access code of 644694. Outside the U.S. you can dial 320-365-3844, with the same access code, 644694. That does conclude our conference for today. Thanks again for your participation, and also for using AT&T's Executive Teleconference Service. You may now disconnect.