2 Fellow Shareowners In 2002, we continued to execute our strategy to unlock Kennametal’s full potential, and made considerable progress toward our objective of becoming the world’s premier tooling solutions supplier. We sustained our focus on both the balance sheet and income statement, and while we were not satisfied with our sales and earnings, we were quite pleased with our performance in the context of a very difficult environment.  Global economic conditions unquestionably made 2002 a difficult year. In fact, the manufacturing sector has been contending with an acute recession for almost two years. Not only did the anticipated recovery in the U.S. economy not occur, the continued weakness was exacerbated by significant declines in the European economies. Corporate governance crises and accounting scandals further damaged business confidence in an already soft market. These drove corresponding stock market declines that extended existing reluctance to increase capital investment. In many ways, therefore, we had an unprecedented confluence of negative events, and we were clearly disappointed with the pressure this environment placed on our earnings performance. Against this backdrop I feel very good about how we’ve handled ourselves and how we have positioned the company for the long term. Some of our accomplishments in 2002 included continued strong cash flow, a steady stream of new products, and significant investment in the development of our organization and our people. We also completed the repositioning of our catalog company, J&L Industrial Supply, and made several promising university alliances. We are particularly proud of our very successful refinancing effort and the smooth auditor transition from Arthur Andersen to PricewaterhouseCoopers. While we acted to mitigate the short-term issues, we did not neglect the long term. I am very proud of our Kennametal employees around the world. We continued to execute our strategy and perform well in a tough economic environment. In short, we continued to Earn the Right to Grow.  Earning the Right to Grow Three years ago I committed to position Kennametal for growth.  In order to realize our ultimate goal of sustainable organic and acquired growth we needed to build the structure, systems and management team to support profitable growth over the long term. After three years of hard work, Kennametal has enhanced its reputation as a fundamentally solid and credible company, with first-rate management and continued conservative accounting methods that present an accurate and honest representation of our company. Increase Cash Flow and Improve Balance Sheet An increased focus on cash generation, including the introduction of a formal “Cash Max” program, unlocked Kennametal’s cash potential. Generating free operating cash at a rate more than double the level of net operating income allowed us to reduce debt by more than 50 percent, or $450 million, and the primary working capital to sales ratio from 35 percent to 28 percent in the past three years. With systems in place to ensure continued consistent cash generation and a significantly stronger balance sheet, our company has much more flexibility to capitalize on profitable growth opportunities – as evidenced by the acquisition of Widia.