Good morning. I would like to welcome everyone to the Kennametal second quarter fiscal year 2009 earnings call. (Operator instructions). I will now turn today’s conference over to Quinn McGuire (ph), Director of Investor Relations.

Thank you. Welcome everyone. Thank you for joining us to review Kennametal’s second quarter fiscal 2009 results. We issued our quarterly earnings press release earlier today. You may access this announcement via our website at www.kennametal.com. Consistent with our practice and prior quarterly conference calls, we’ve invited various members of the media to listen to this call. It’s also being broadcast live on our website, and a recording of this call will be available on our site for replay through February 28, 2009. I’m Quinn McGuire, Director of Investor Relations for Kennametal. Joining me for our call today are Chairman, President, and Chief Executive Officer, Carlos Cardoso, Vice President and Chief Financial Officer Frank Simpkins, and Vice President of Finance and Corporate Controller Wayne Moser. Carlos and Fred will provide details on the quarter financial performance, as well as our outlook for the remainder of fiscal 2009. After the remarks, we’ll be happy to answer your questions. At this time, I’d like to direct your attention to our forward-looking disclosure statement. The discussion we’ll have today contains comments that may constitute forward-looking statements, as defined under the private securities litigation reform act of 1995. Such forward-looking statements involve a number of assumptions, risks, and uncertainties that could cause the company’s actual results, performance, or achievements, to differ materially from those expressed in or applied by such forward-looking statements. Additional information regarding these risk factors and uncertainties is detailed in Kennametal’s filings with the Securities and Exchange Commission. In addition, Kennametal provided the SEC with a form 8-K, a copy of which is currently available on our website. This enables us to discuss non-GAAP financial measures during this call, in accordance with SEC regulation G. This 8-K represents GAAP financial measures that we believe are most directly comparable to those non-GAAP financial measures. And it provides a reconciliation of those measures, as well. I will now turn the call over Carlos.

Thank you, Quinn. Good morning everyone. Thank you for joining us today. As you know, the second quarter of fiscal 2009 was an intensely challenging period for most companies around the world. As the global recession deepened and credit markets tighten, the industrial production and capital spending declined significantly. At Kennametal, we experienced weaker demand in the early of, or all our end markets. Many of our customers utilize all available inventories to avoid additional cash expenditures. From a geographic perspective, North America’s sectors slowed dramatically and both the direct and distribution channels were in negative territory year-over-year. While the Arizona manufacturing purchasing managing purchasing manager index, or PMI, punched the record lows, signaling the industry’s lack of confidence in a near-term recovery. In Asia, growth continued to decline sharply and the manufacturing sector in India was further worsened. Those factors collectively contributed to what was a very difficult operating environment in the second fiscal quarter. Kennametal managed through those unprecedented and challenging market conditions by continue to execute strategies to help to maintain our financial flexibility and balance sheet strength. Our main priorities are to maximize cash flow, accelerate restructuring plans, and right size our business appropriately. We accelerated our restructuring plan announced in April 2008, to which we are improving our operating efficiencies, applying lean to our support functions such as customer procurement centers and streamlining our manufacturing footprint. Earlier in January, we announced additional actions to reduce our global salary workforce and right size our business, in order to further adjust to current economic conditions. Together, those programs involve a reduction in our global headcount of 1,200 positions. Those actions represent additional structural changes designed to ultimately lower operating expenses and maximize cash flow, while minimizing the impact on our customers and remaining well positioned for future…

Thank you, Carlos. I’ll provide further comments on our performance for the December quarter and I’ll move on to the outlook for the remainder of our fiscal 2009 year. As always, some of my comments will exclude current special items and that’s been posted on our 8-K and our press release. So to summarize the quarter, we experienced the challenging period in quarter. Sales declined in all major metalworking markets and organic sales were flat in our advance material business resulting from a steep and sudden global decline in industrial production. The lower impact of sales volumes and production levels as well as the effect of temporary disruption costs from restructuring activities were offset somewhat by lower provisions for employee incentive compensation, considerably improved price realization, and higher other income. We continued to implement restructuring actions to further reduce costs and improve efficiency in our operations and we recently announced further cost reduction actions. Especially in this challenging environment, maximizing cash flow and ensuring adequate liquidity remains our top priority and focus. For the first half ended December, we generated free operating cash flow 48 million, despite the sharp downturn in sales. Now, I’ll walk you through each of the key items on the income statement. Sales for the quarter were 569 million, compared with 647 million in the same quarter last year. The 12% decrease in sales was comprised of a 10% organic decline and 5% from unfavorable foreign currency effects, partly offset by net favorable impact of acquisitions and divestitures of 2% and more workdays of 1%. The year-to-year decline in organic sales occurred quite abruptly and sharply in the latter part of the December quarter as a result of unusually early and rapid shutdowns of customer plants in combination with swift actions by customers to reduce their…

Thank you, Frank. As we advance through the rest of fiscal year 2009, we will take the necessary steps to effectively manage our business through this uncertain market. This includes an intense focus on controlling costs, maximizing cash flow, a share liquidity, and maintaining balance sheet strength to provide us with the financial flexibility. Our financial strength provides us with a solid foundation for the future, especially in these difficult times. As always, we will continue to manage our portfolio and build on our core business. We remain committed to our proven discipline and principles and our Kennametal Value Business System or KVBS. This management operating system guides our enterprise in the areas such as strategic planning, product development, sales growth, talent development, portfolio management, and lean enterprise profits. In summary, although we recognize there will continue to be challenges, we believe we are prepared to meet the demands ahead. Thank you for your time and your interest in Kennametal. We will now take questions.

Thank you. (Operator instructions) Your first question comes from the line of Eli Lustgarten of Longbow Securities.

Good morning, everyone.

Hi, Eli. How are you doing?

Good. I have a couple of housekeeping I wanted to make sure of. Frank, did you say the tax rate for the year will be 20 to 21? Because you said 21 to 21 and I said (inaudible) heard that. The tax rate for the year will be around 20 to 21?

That’s correct.

Okay. And, with the 25% in the third quarter, are you talking about a similar rate in the fourth quarter? Is that what we’re assuming at this point?

No, it would come down to a little bit lower, maybe around 22 in the fourth quarter, and it’s related to some of the charges that we have to take in Europe that we don't get a significant tax break given our structure there.

And, does this hold into next year or—I know you don't like those—but we are at a moving pass in 09, so—

Yeah, I think it’s a little premature to get into that. And, I think we’ve set our long-term goal over the horizon is to get a sustainable tax rate in the low 20’s.

So, that’d be the same. The corporate charges are going to run in the 16 million quarterly rate? Is that the new annual rate, quarterly rate for a while?

Well, I mean, as you saw in the corporate operating segment, we had 4 million. I would say it could be a little bit higher. It could be that anywhere from 18 to 20 million, but I would expect to be in the lower part of that at this month.

And if interest charges drop, how far down will they go from $8 million?

I mean, I'm looking at it in net net interest income. It'll probably go down a little over a million dollars sequentially.

Okay. Now when you talk about demand, I mean even at the very dire third quarter organic drop in the 20s, what are you assuming the fourth quarter rebounds a bit to a mid-teens drop or something like that, or is that?

No, single digit, Eli.

Okay.

We see the quarter rebounding, but at a much lower—

Much lower decline, mid-single digit decline. And that's just because businesses are starting to function as opposed to really not functioning in the current quarter?

Yes. Again, Eli, I think, on the third quarter, let me start there, because I can't see much different third and fourth quarter in this environment. That's why the numbers are there. And the reason here in January, we saw a pretty steep drop off in the month of December. That has obviously not improved in January. And given the extended shut downs and the visibility being somewhat cloudy, you're looking at January soft. That's why the guidance is where it is. And then we'll take it from there. But it's going to be similar in the next two quarters I think.

That sucks. If you basically shut down most of your acquisition activity at this point for the rest of the year and are you looking at pairing back capital spending from the $110 million at this point?

Capital spending, yes. I mean, we have pretty much paired everything down that was not committed. And although we are still looking at acquisitions from an analysis perspective and negotiations, until we have a better visibility, the future is very unlikely that we'll see something from that. Yes, on capital we spent almost $70 million in the first half. We will have some carry over from some commitments but this will get - we'll be running at maintenance levels by the fourth quarter.

And it'll probably stay that way for a while until things improve by itself.

Yes, correct. So next year you obviously have that impact as well as the disruption cost that will no longer be there as we ramp up the benefits from the plant closures.

And the pension points as 100%, there's no financial requirements in 2009 or calendar 2009 is there at all?

No, that's correct. You know, the pension, that's a big focus of our risk committee and our funding actually improved from the September quarter to the December quarter. We're still over 100%. And our treasurer did a great job and his team. They're making sure that we're on top of all the developments in that arena. So that was good. And the refinancing needs, the 2011, and our public debt comes due in 2012.

And one final question. Are you seeing any price pressure or price erosion in any of your businesses at this point?

Well, I mean, we see customers are trying to put pressure on the pricing, but we have not seen any price erosion. As a matter of fact, this past quarter our pricing has improved.

And your competitors are holding on too I assume at this point.

Yes.

All right. Thank you very much.

Thank you, Eli.

Your next question comes from the line of Walt Lidtek - Barrington Research.

Thanks. Good morning, everyone. Eli didn't leave us with very many questions, but I wonder if you could talk about the 39% international decline. And you may have done this already, but just break it up by the different geographic sectors.

You mean what's in the press release, or the breakdown by…?

Yes, well is the international decline of 39% - how much did Europe go down?

Europe, it was down 17% on a net basis. That's volume and price net there. And I would say that Asia Pack was nine and India was also 17%.

Okay. All right. And you ran through those numbers already. And are you saying this environment can going back to the pricing question. Given the steep declines that you're experiencing right now is there - are you seeing any signs of price discounting? Are you going to need to lower prices to try and keep your volumes going?

Well, I mean, we at this point do not anticipate having to, or see prices coming down. Like I said, our competition has stuck with the prices, but - and we're not going to trade the pricing for volume at this point.

Yes, the only thing I would add, as you know, Walt, a couple things in the December quarter. Mostly in MSSG side with the exception of Europe which went January 1st had the price increases. And as you know it takes three or four quarters before you fully realize that the past price increases have been in there. I think the competition has been increasing theirs. We will keep a keen eye on that and we did have a significant product launch visa vie the metal working side of the Beyond product and this is minimum of a 30% productivity improvement. So the competition, this is just getting out into the marketplace and we're having extremely well received results from our customers. And that's just ramping up at this point. So that will help us going forward.

It's a magnitude of 3,000 SKUs that we introduced new products with really good value and acceptability in the marketplace. And we've just begin to get benefits from that this past quarter.

Okay. And, okay. And just on the share repurchase. How many shares were repurchased during the quarter?

Zero.

Zero, okay. Okay, thanks very much.

Thank you, Walt.

Your next question comes from the line of Andy Casey - Wachovia Securities.

Question on the - well, couple questions on the third quarter guidance. First on the margin. If I exclude restructuring in $0.15 related to the incentive adjustment, I think you talked about in Q2, it looks like the Q2 decremental margin would have been around 60%. And then if I'm doing the math right and take your midpoint for Q3 from the various things, if looks like there's a 45% assumed decremental. Is that all price increase or are you expecting a little bit better manufacturing absorption in Q3.

Again, in the December quarter, trying to fix production when it falls off really steep, it's tough. Andy, I think you know that. And then I think the price is a factor, but as you remember, the restructuring benefits from the cost to serve start kicking in a lot stronger in the second half of our fiscal year, particularly in the March quarter for the CPS. And then the recently announced restructuring actions that we talked about in early January will help sever that. So, yes, we're trying to get the decremental margins to longer terms to be less that 40%, but as production volumes continue to decline and with January starting off slow, the 45% at this point in the mid 40s is kind of our best shot at this point. We'll continue to look at the temporary even though we talked about permanent cost reductions. We're obviously looking at hourly as well.

Obviously we started to do pay-as-you-go. In the beginning of the year we announced our restructure pretty early in this environment. So we'll get some good benefits in the second half of the year.

Okay. Thanks for that clarity. And then on the top line, they're down 22 to a little bit more dramatic decline than that. Is that assuming further deterioration on the year-over-year basis in the MSSG or just kind of an inversion from the AMSG 5% positive in Q2 to something flat to negative given your comments about energy?

I mean, that's it's continuing from what we've experienced in kind of the - at the end of the December quarter.

Okay. Thank you very much.

Thank you, Andy.

Your next question comes from the line of Joe Kiss - Buckingham Research.

Hi, Joe. Joe?

Sorry. His line is now open.

Hi. Can you hear me?

Yes.

Okay. I wonder if you can talk of the inventories and receivables both declined in the quarter. Is that all seasonal?

No, I think sometimes in Europe you have some seasonality with the end of the calendar year, but that's been more of a focus globally, kind of a call to arms, pretty much across the organization, Joe. So the receivables are driven by the focus in looking at all geographies and inventory. It's tough to really reduce inventories when you feel a sudden decline in volumes, so on a constant currency, yes, they were down a little bit, but we're going to continue to look at taking inventory down further in the second half.

Okay. And then, just a clarification, what percent of the pension is in equities?

Like a lot of companies, a standard benchmark is 70% equities and the rest in fixed. We probably have the inverse of that right now in fixed versus equities.

Okay. And the distributor inventory levels? Any read on that, and any conversations you're having with those guys to give us come color on what they're saying and thinking?

Yes, Joe, as you know, our distributors typically don't carry a lot of inventory. But my feeling is that towards the end of the year, everyone decreased their inventory. And, again, it's hard to tell when the timing is, but we feel that sooner or later, they're going to start processing some inventory.

And then, last question. Can you just give us any color on mixed changes coming up, say, for the next year? We're sitting here watching Joy and Bucyrus and Manitowoc, and all the guys with big backlogs watching their backlogs get cancelled. And I'm sure a lot of those end markets are higher margin for you guys, as well. Can you just give us any sense on how do you bake in the mix changes into your expectations?

Based on what we told you, we expect the energy to continue to go down slightly, and the same thing with mining. But we also expect aerospace to get slightly better. So there's a lot of elements that we're putting into our forecast, and our current forecast sees the mix as we described it.

Okay. All right, thank you very much.

Your next question comes from Scott Blumenthal of Emerald Advisors.

Yes, can you hear me?

Yes. How are you doing, Scott?

Okay, fine. Carlos, one of the programs, or one of your projects that you talked about over the last couple of years was SKU reduction. And you just mentioned the Beyond product line, and we've introduced another 3,000 SKUs. Have you made any more progress, or has that become a new focus to ramp that up a little bit more quickly than what you'd expected?

Actually, our focus is still the same. We're still focusing on reduction of SKUs. What we try to accomplish is, for every new SKU that we bring in, we take that plus the goal that we have for reduction. Frank, do you have the number? I don't have the number on hand on what the SKUs are, but they are getting close to the 100,000, from the original almost 400,000 a few years ago. And typically, we introduced about 10,000 SKUs per year. So we've reduced 10,000 plus so that we can continue to make our progress toward the 100,000.

Yes, this is Quinn McGuire. We ended up the year at about 158 SKUs. And I'll follow up with you to get you the number where we are today.

A hundred and fifty eight thousand, did you say, Quinn?

At June 30th.

At June 30th of '08.

Right. Okay, that's great.

I'll follow up to get you an update.

Okay, terrific. Carlos or Frank, would you be able to give us a gauge as to what the overall capacity utilization is at this point, across the enterprise?

Yes, it's really difficult to tell you at this point because of January and December have come down quite a bit. And, as you know, we are in the process a number of plants for our April announcement.

Okay. And maybe if I look at this from a different angle, where do you look at capacity utilization across the enterprise, with regards to break-even, Frank? Are we break-even at 50%, 40%?

Yes, again, for competitive purposes, I'm going to defer that question.

Okay. Well, how about this one then. Switching to the inventory and raw materials, you reported that raw materials were a little bit higher at some point. Considering the economic circumstances here, I hope we should expect them to come down a little bit. Are you seeing any of that, and what are your expectations there?

Yes, again, this goes back to even what we said back in July. We had expected the first half to be up and the second half to start declining. And we saw that trend, albeit it didn't go down substantially from Q1 to Q2, but we do see the trends coming down, with a particular increase for us would be in steel and cobalt being the main drivers, and tungsten kind of moving sideways a little bit here. But we expect that to continue to trend down. Now, we don't pay spot prices or markets. We do have contracts to protect us on the upside, and as well as the downside. But according to our forecasts, we do have some of that built into the second half. Of all our raw material costs.

Okay, terrific. Thanks much.

Your next question comes from Steve Barger of Keybanc.

Good morning.

Hi, Steve.

I want to circle back to the Asia pack revenue. I think Chinese industrial production came in around 6% for the quarter, and they obviously saw a positive GDP. The disconnect between that and the negative 9% you saw, is that all India, or is there something else going on?

No, I wouldn't say there's anything unusual going on. India was a little bit higher than, say, China, but it was pretty slow across most of the in-market.

Again, Steve, although we're talking about year-over-year, a year ago those markets were a lot hotter than what they are today. So it's a declining year-over-year. But there's still growth in Asia.

No, right, I understand. I was just trying to get the sense of the difference between industrial production or that growth, versus what's happening to your revenues, there, and trying to get, again, to a market share question.

Yes, but it all depends upon if we're a little bit stronger in automotive or general engineering. If those customs are shut down, it's really tough to gauge that. That's the best I can give you at this point.

Okay.

I can tell you that we're not losing market share in Asia.

Are you gaining market share in the downturn?

Again, it's hard to tell, because the changes are so rapidly. Things are coming down so fast. But looking at orders and bids that we do, and quotes that we do, I can tell you that we are in a good position.

Okay. And just to follow up on the prior question to mine, Frank, you said that you do have some benefit from lower cobalt and steel built into the back-half expectation?

Correct.

And you were buying ahead on steel a little bit, right? And has all that higher priced inventory already gone, or are you expecting it to tail off in the back half?

Yes, I wouldn't say there's much there. And we would never buy a significant amount toward some of the orders we have. But it's not going to be a major driver or a drag in the second half.

Okay, great. That's all I have.

Thank you.

Your next question comes from Henry Kirn of UBS.

Morning, guys.

Good morning.

How are you?

Good. Within advanced materials, mining and construction was still up in the quarter. Could you give a little more of a breakdown between what you're seeing between the two? Is mining up and construction down?

Yes, I would say mining was probably a little bit stronger than construction in the quarter, and then construction has the seasonal impact. So I would say mining continues to be a little bit stronger as we head into our third quarter.

Okay. And in terms of your visibility at this point in the cycle, could you talk a little bit about...

The seasonal impacts and I would say money continues to be a little bit stronger as we head into our third quarter.

Okay and in terms of your visibility at this point in the cycle, could you talk a little bit about how far out you can see today versus maybe six months ago or a year ago?

Yeah we typically don’t see that far. I mean again we ship our orders pretty much within the month. So we depend on the models that we have. We depend on the industrial production and so forth. So we are not a backlog company.

Okay, maybe if I can speak one more. And if I step back what sign poster are you looking at to say that maybe things could turn around? What end markets do you think could actually pick up at this point?

I think that you know we are going to continue to see the energy decelerating, we are going to continue to see mining, and automotive we're going to continue to see that to be there to be down for awhile, six to nine months. I think the industries typically general engineering comes back first. And aerospace has an opportunity to come up first.

Henry, I think aerospace will probably be you know a little sooner and then stimulus-related players they'll probably whether it's you know some OEM's and as Carl said the general engineering and the job shops we're supporting some of them in the big OEM we'll keep a close eye on them as well.

Okay, thanks a lot.

Thank you.

Your next question comes from the line of Dana Walker (ph) of Calmore Investments (ph)

Good morning.

Good morning Dana.

Could you talk about the difference in your revenue performance between consumerable products and tooling?

We look at that as one in the same and I think as we shared with you in the past 80% of our business is consumerables so that's the line share. I mean we'll have some durable goods pipe you know orders on the steel side and we have some different parts of the business on some OEM equipment. But the line share of it is definitely the consumerable side.

As you go through this weak period though is the tooling side is that weaker still or are they roughly equivalent?

They are equivalent.

The company raised its capital expenditure program starting in fiscal 08 and expected to do more so in 09. Can you talk about having spent that money what that will allow you to do on either head count or on footprints that you may not have been able to do otherwise?

It's actually three elements, Dana, you know the majority of our capital spent supports new products. New products have higher value, we got higher margin on those products. Okay and we get less price pressure on the downturn. The other portion was for obviously to reduce our cost and be able to close some of the opportunities that we have announced. So part of our restructuring is taking advantage of that capital that we have vested in. And obviously as we move forward internationally a lot of our capital was invested outside of the Western economy. So that is going to help us continue to reduce our cost and grow in those geographies.

Frank, your year-end inventory target might look like what?

Lower, lower than where I'm at today You know I am hoping to take out you know another 25 to 50 million at this point. But if it's going to be dicey obviously we'll get a little bit more visibility going before. But we are going to continue to focus on reducing inventory.

Final thought, in 2010 or your fiscal 2010 you would expect the full benefit from this $100 million in cost structure reduction? Or would it be phased?

No that—we will exit this year at a pretty high run rate. But in fiscal 10 we expect to realize $100 million associated with them. Cost to serve and the actions set off in January. So the answer is yes.

And you would think generally or within a range or a CapEx in '10 might look like what?

At this point I can tell you less than $100 million until we get in a little bit more detail. We'll see how it goes.

Thanks for your help, so long.

Thank you.

(Operator Instructions) I will now turn the conference back over to Quinn McGuire for closing remarks.

Thank you for joining us today this concludes our discussion. Please contact me Quinn McGuire at 724-539-6559 for any follow-up questions. Thank you.

(Operator Instructions). This concludes today's conference call you may now disconnect.