Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kennametal Third Quarter Fiscal Year 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to Ms. Quynh McGuire, Director of Investor Relations. Ms. McGuire, you may now begin your conference.

Thank you, Regina. Welcome, everyone. Thank you for joining us today to review Kennametal's third quarter fiscal 2008 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 in prior quarterly conference calls, we've invited various members of the media to listen to this call. It is also being broadcast live on our website, and a recording of this call will be available on our site for replay through May 23rd, 2008. I am Quynh McGuire, Director of Investor Relations with Kennametal. Joining me for our call today are our Chairman, President and Chief Executive Officer, Carlos Cardoso; Vice President and Chief Financial Officer, Frank Simpkins; and Vice President, Finance and Corporate Controller, Wayne Moser. Carlos and Frank will provide details on our fiscal third quarter financial performance, as well as on our outlook for the remainder of fiscal 2008. After their remarks, we will be happy to answer your questions. And at this time, I would like to direct your attention to our forward-looking disclosure statement. The discussions we will 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 implied 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 presents 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 to Carlos.

Thank you, Quynh. Good morning, everyone, thank you for joining us. Let’s review our performance for the fiscal 2008 March quarter. Kennametal continued to deliver solid results on an adjusted basis particularly in light of a challenging economic environment in North America. Due to our strategy of having a global business that is well balancing products, markets and geographies, we achieved 4% organic sales growth for the March quarter on a year-over-year basis, which was up sequential from 2% growth in the December 2007 quarter. This also represented the 17th consecutive quarter of year-over-year organic sales growth. Adjusted earnings per share or EPS of $0.75 were at high-end of our guidance and reflect the year-over-year increase of 14%. Adjusted return on invested capital or ROIC was 12.3%, up a 130 basis points from prior year quarter. We achieved March quarter records for sales, adjusted EPS and adjusted return on invested capital. At the same time, we continue to improve our operational efficiency due to focused efforts to slower... to lower SG&A costs with decreased cost operating expenses at a percentage of sales by 40 basis points from the prior year period and a 100 basis points sequentially. Rising raw material costs continued to present challenges during the fiscal third quarter. Steel costs have been increasing primarily due to continued strong demand globally, as well as higher energy prices. Regarding cobalt, we believe that it may be --- it may continue to be volatile for the next 6 to 12 months. However, there are indications that prices have already fixed and could decline as supply increases due to additional mines coming into production. Tungsten ore and APT prices have been relatively stable for the past 12 to 24 months as supply and recycling activities have grown. Due to Kennametal's market leadership…

Thank you, Carlos. I will provide some further insights on our performance for the March quarter and I will move on to the outlook for the remainder of the fiscal year. Some of my comments will exclude the effect of the goodwill impairment charge recorded in the current year quarter. To summarize, we do delivered a solid quarter in terms of our overall financial results. During the March quarter, we faced challenges related to certain North American markets and high raw material costs as Carlos alluded to. But despite these headwinds, we delivered a record March quarter for sales, adjusted EPS, and ROIC. Our reported fiscal 2008 third quarter diluted earnings per share were $0.30 compared to $0.66 in the prior year quarter. In the March quarter, we did record a goodwill impairment charge of $0.45 per share related to our surface finishing machines and services business. Absent this charge, adjusted EPS of $0.75 were at the high-end of our guidance and increased 14% compared with the prior year quarter reported EPS. Now, I will walk you through the key items of our continuing operations on the income statement. I will start with sales. Sales for the quarter came in at $690 million compared with $616 million in the same quarter last year. Our sales grew 12% year-over-year and that included 4% organic growth, 4% from acquisitions and 6% from FX. The March quarter actually had fewer workdays than the prior year quarter and that reduced the overall sales growth by 2%. Organic growth was driven by strong sales in certain geographies such as Europe and Asia-Pacific and continued to strengthen certain market sectors such as mining. Organic sales growth was slightly higher than our guidance of 2% to 3% despite the continued softness in North America and lower demand…

Thank you, Frank. As we move forward, we’ll continue to apply our disciplined growth strategy to create new opportunities. Our performance during the March 2008 quarter demonstrated that we are resilient business. We delivered solid results even in a relatively tough environment of high raw material costs, moderating demand and generally weaker business conditions. We can stay ahead of the current challenges by continually deploying the Kennametal Value Business System. KVBS provides us with a strong foundation on which to build our enterprise and execute our strategy. We are optimistic about the future. Our core business continues to have strong operating leverage and effective cost control initiatives that enable us to deliver on our long-term commitments. We also have a strong balance sheet, we have -- and we do expect to continue to generate steady cash flow. We will utilize cash as always on a priority basis to increase our shareholder value. Those priorities include making acquisitions, allocating capital investments and buying back our shares on an opportunistic basis. Our acquisition pipeline remains active and we continue to follow a disciplined approach. Meanwhile, we will further reduce our cost by restructuring our manufacturing footprint, continues to lower SG&A expenses and realizing additional savings through the implementation of our lean practices. We continue to firmly believe that we have the ability to deliver margin expansion, earnings growth and strong cash flow over both the short and long-term. As we strive to achieve our goals, we remained focused on our strategy to grow and balance our business. Kennametal has a solid business portfolio, a broad geographic presence and numerous platforms for growth, and we will work hard to execute our strategy to achieve our goals. Thank you for listening to this call today, and we would be happy to take your questions now. Question and Answer

[Operator instructions]. Your first question will be from the line of Andy Casey with Wachovia Securities.

Thanks. Good morning, everybody.

Hi, Andy.

I have got a few questions. The first… I apologize if you already indicated, it's kind of a clarification, did currency benefit the bottom line and if so by how much?

Yes, Andy, the currency… we had a benefit on the translation. We actually had a transaction loss in other income, but bottom line, it was approximately $0.04 in the quarter.

Okay. Thanks, Frank. And then, did you include any currency, it looks like you did in the top line forecast for Q4, but did you include any in the bottom line?

Yes. I mean I would say it's very consistent with the current quarter.

Okay. Now on the more detailed questions, on the MSSG customer inventory reduction, you mentioned it's hard to see any balance sheet impacts since inventory kind of grew in line with sales on a sequential basis from the second quarter. What do you think the earnings impact was, if any, in the quarter of that?

I don't think there was much of an impact in there, Andy, to be honest with you. I mean we did have a higher sales growth as you know sequentially from the December quarter where we went from in total 2% to 4% and MSSG continues to be somewhat impacted in the North America market. But overall, you know the puts and takes, I wouldn't think there is a big impact one way or the other in there.

Okay. Then the last question, it's on the growth strategy, specifically the EBIT margin. Year to date, you run around on 11.1% on EBIT margin excluding the goodwill stuff, and the implied Q4 guidance, it appears you are anticipating a fiscal '08 margin of somewhere between 10.5% to 11%, that to be down marginally year-over-year. In comparing that to the 15% margin goal, it's pretty big jump. Do you still anticipate ex-restructuring charges you can achieve that in fiscal '09. And if so, what has to really happen given the full restructuring action benefit really isn’t expected, at least I perceive it's not expected until 12 to 18 months in the future?

Yeah, I will start Andy on those. I think we can deal with this offline, but I think your implied EBIT margin is a little bit low based up on the guidance we have in the fourth quarter and we can go offline on those, that's the first part. Then as we go forward, you really have to break it into three pockets. Obviously, the cost to serve issue or the restructuring actions, which will be a driver first, and we have announced that and you can figure out based upon the EBIT benefit what the margin impact will be going forward. Secondarily, we have a number of things you are looking at vis-à-vis portfolio management, which is tough at the time, which we cannot comment on right now, which will also have a favorable impact going forward if we are able to execute those. And then some of the performance on the operations, both on the advanced material side, recovering the raw material cost, we did see some nice improvements. We were chasing the cost on the raw material side, particularly on cobalt, that appears to have somewhat subsided, talking to some more suppliers, and really get into Extrude Hone in a couple of their markets turned in the right direction. So I think those three items at the top level from my perspective will help be the catalyst going forward.

Yeah. Andy, in addition to that, when I look at where we are today and what we know going forward, it doesn't look like it is possible for us to achieve the 15% by '09, and we kind of talked about in the last quarterly earnings meeting. However, we still are looking at the actions that we need to take and what the economic environment is going to look like, and 15% is still I believe achievable for this business as the next milestone, and we believe that we can get that shortly after the 2009 fiscal year.

Okay. Thank you very much.

Your next question will be from the line of Eli Lustgarten of Longbow Securities.

Good morning.

How are you doing, Eli?

Not too bad. Wayne, can we talk a little bit about this restructuring program and shrinking the footprint? I mean we’ve always expecting when things slowdown that you would accelerate it, this thing should be more of an extended program, can we expect... you hope to get $20 million, $25 million a year, can we expect much of it in fiscal 2009, because it's going to have a big bearing on how we estimate next year, so that we can expect any of the benefits to really show up? Or is it going to take the year to get most of it under the belt?

Eli, this is Frank. I will start off. It will almost be like a tale of two halves, lot of these are proposals. You have to go through a lot of negotiations as you know. So, we expect to initiate some items, Q4, and then we'd expect to also try to do them on a accelerated basis. So, by… most of the bigger items, we would like to have done in the first half of fiscal '09, and then start exiting the second half of fiscal '09 on a kind of a run rate that you would expect to get to the $20 million to $25 million from a benefit perspective.

So, we anticipate... and it is hard to calculate the timing, Eli, but we anticipate that to be close to neutral for the year.

As you know, these things have to be done carefully and very precise, but the faster we do, the better off the organization is. So, the management team is committed to do it right to begin with, but to be fast because... again, we understand the faster we do it, the better off we are as a company, and the better off it is for our employees.

Okay. One other, could you… the 22% tax rate you were saying, is that sustainable for the fourth quarter in 2009?

Yes. From an organic basis, that’s – the 22% to 22.5% depending on the mix of business, that's what I would assume for the fourth quarter, and as we start getting into the plan, it's a little premature, but I would expect us to be in the low 20s in 2009, but then again that will depend on kind of the mix of the business as we see it, and as we get a little bit into the planning process in fiscal '09 we’ll provide that guidance in the near future.

Okay. Now, how far behind are we in pricing? Back of the envelope says that you are probably no more than half way caught up in the pricing in… from the raw material side, particularly in advanced materials. Is that about fair and can we get back there by early 2009? Or how long do you take to get even as things stabilize?

Yes, I think you are on point. At the beginning of the year, I think that the questions asked, the realization, we thought we would get 70% this year. Now we continued to get surprises a little bit on the cobalt side throughout the fiscal year and obviously steel, everybody is dealing with that one. I mean it is what it is. But we did see some better improvement Q3 over Q2 last year, the sequential basis. So, the price increases continue to accelerate and hopefully some of the raw materials will drop out, but from an overall realization, up nice from last quarter, and to your point, right around the mid-point and moving forward towards recovering a little bit more into Q4.

Eli, the… as you know, we’ve had an history of fully recover the raw material cost increases that carried out 12 months. I mean we’ve done that time after time. We believe we can do that as a result from opposition in the marketplace. In addition to that, we have started this year a program, where we are looking at profitability by customers, and we have been very, very diligent about looking into customers that are not profitable, how do we deal with that and how do we improve the profitability with the customers? And that's going really well, I mean surprisingly well for us. So, we see that being a benefit again going into this quarter and into 2009.

And when you look at the operating profit margin by segment, I assume you are assuming that the metalworking improvement that we are seeing is sustainable, but we are seeing very lagging profitability in advance materials. Is that… should we… I expect the fourth quarter will be very much like the third, should we expect that the big leverage next year is advanced materials finally getting its act together and getting back to almost a more normal level of profitability, probably not what we want it be, bit more normal?

Yes, I think, Eli… I think you are right on, but we are not [inaudible] for going forward strictly on the improvement of AMSG. I think that our metal working business has a lot of run rate, a lot of --- again, potential, and we could… we’ll continue to leverage the metalworking. But suddenly what we see this year, half of the margin degradation in AMSG is related to raw material price increase, and again if we talk about the fact that we see that being a looking at peaks, specially cobalt, and having had APT pretty much flat, you know, we should be able to recover through the price increase actions that we have, about half… close to half of the margin degradation. And then, you know, we have the balance of that is split equally between our operational challenge as a mix. We also see the mix, as we said earlier in the call, we see energy coming back and that should help us going back into next year as well as the operational performance improvements.

Okay. One final question, we still talk about having an equal mix between the two operations, you know, obviously we still continue… but we are continuing at the two-third, one-third kind of scenario. Should we expect anything to accelerate that change, or is it… we talked about it, but we really not seeing much material changes in the mix between the two businesses?

I think there is a number of areas that we are looking at, one of it is portfolio management, the other is continued acquisition, and those are very difficult to predict. And as you can see in this last quarter, and we anticipate that to continue, adverse materials business has grown at a decent rate. So, I think, all of our move will participate or drive our view of continuing in the path of MSSG get into the 50% of our total portfolio.

Do you think we need a big acquisition at some point to get there, I mean?

Well, I mean, we don't… just to give you a point of reference, in 2003, we were less than $300 million. We are going to end up the year close to a billion dollars in that business, and we did not make any major acquisitions. So, we went from… more than tripled the business in the last five years. So, we do not... a big acquisition will be nice, but we do not need the big acquisition.

I guess what I am looking at is 460 and 230, which is one… two-third to one-third, how we close that gap without an acquisition. Hey, we’ll talk offline. Thank you.

Thank you.

Your next question will be from the line of Stephen Volkmann of J.P. Morgan.

Hi, good morning, guys.

How are you doing, Steven? Stephen Volkmann – JPMorgan: Just a couple of… kind of follow ups, I guess here. On the outlook for the fourth quarter, I guess, if I am reading this right, we actually did a little better than I expected in the current quarter of 4% organic, I think, and may be you can even add the 2% from sales days and think of it as kind of a 6% run rate in the quarter. And then you said a number of things about various end markets looking to be turning up a little bit and yet we are looking at 2% to 3% in the fourth quarter, can you just help me square that?

Yes. I think, Steve, we are just trying to figure out what's happened in North America, and especially from… to distribution side, so nothing unusual. Last year, the fourth quarter from a comp was 6% organic growth. We expect Europe to soften a little bit. What happens though in June is always tough as you get some of the automotive shutdowns and it's always tough to gauge in the summer months what's going to happen, so we are being a little bit cautious here. And if the order rates come out a little bit better, you will see it on a monthly basis, but that's kind of where we think we are at right now.

And by the way, Steve, I’d just like to make an additional point. This quarter we grew 4% in spite of a pretty tough comp, last year was 7% growth in this quarter. So, 7% last year, we still did 4%. And again as Frank said, we are looking cautiously at the...what's happening in the North American market. And again, we publish that the order rates every month, if things get better, then we will obviously take advantage of that. Stephen Volkmann – JPMorgan: Okay, thank you. And just with respect to the raw materials, I guess I can’t get the cobalt out of this, but your commentary makes it seem like this is the worst of it is now kind of behind us and yet obviously steel continues to be a big issue for everybody. Is that just at this point, has that just become less important to you now at this, or how should we think about that?

Well, I mean I think we need to keep those separately, Steven. I think the raw… steel is going to continue to be a gamble; god knows what's going to happen with that. But, the main cost driver for us is tungsten and cobalt, when you look at the total cost, so one of the major drivers for us. With the steel, everybody gets surcharges and you recover a lot faster, where in the cobalt, I mean it takes us a little longer to get that, because our customers don't necessarily understand cobalt is a thin traded commodity, they don’t always understand exactly how things there work. So, it requires a lot more effort in our part. So, we were referring specifically to the cobalt. We’ve seen and talked to a lot of people in market place, and they seem to think that that has peaked at this point.

Okay. I got it, thanks. And then just the final thing, can you just talk a little bit about pricing? I assume it's probably better outside the US than inside the US and any comment you might be able to make there and then with respect to what you are seeing broadly amongst your competitors as well? Thank you.

Yes, I mean price is now more difficult in the state versus outside. I mean I think pricing is always a difficult proposition. I think that this company is well positioned from the point of view that we have a good value proposition. In addition to that when you... when we have an average of 40% of our sales coming from new products, with the higher value proposition, it makes it a little less challenging for us to raise the prices. Relative to our competition, as you know, we have a number of... we have two major competitors, but then we have thousands of small competitors and we are seeing what exactly happens when things get tight. I mean I think that one of our competitors is very disciplined, and he is very responsible in the marketplace. So you probably don't see a lot of difference between us and them. I think that the other major competitor, it’s probably middle on the road. I think the challenges with the small competitors that niche players in each of the different markets and they go for pricing immediately when things get tight. So it doesn't present a really big challenge for us at this point.

Thanks. I am sorry, Carlos, did you say pricing is not more difficult in the US than abroad?

Yes, it's not.

Great, thanks.

Your next question will be from the line of Terry Darling of Goldman Sachs.

Yes. Frank, wondering if you can put some color behind some of the commentary around price by breaking out for us the volume versus price components of the 4% organic growth this quarter versus whatever that breakout was in the first and second quarters?

Yes, if I had to… all this would be rough, I’d say 1% was price in the current quarter and volume on organic would be 3%. Ad then last quarter… I don't think it rounded to 1% to be honest with you, Andy… Terry. So, we've been chasing those two in the first half, but we are up about 1% price this last quarter.

Okay. But then may be you were 0.5% or something like that?

Exactly.

And that's what you mean when you say you doubled the price 3Q versus... got it, okay. And then I am wondering if you can get in a little more detail as to why you think cobalt prices have peaked in terms of inventories or additional supplies coming on as you had referenced earlier, take us into what the fundamentals are there that make you feel that other than just basic sense you get from your suppliers?

We’ve got a spy… we have very good contacts in the industry and we know what’s going on there. And then from a cobalt perspective, there is… number one, there is some softness in the US, so that plays a little bit from some purchase. But the bigger issue is copper and nickel mines coming on online could have been in place and this is kind of the big [inaudible]. Cobalt is a by-product of both copper as well as nickel. And then in the Congo, the price is rather volatile. There is more concentrates and more supply coming online given some of the stability in the marketplace there. So, people that we have on the ground there with those items given the volatility on the raw material side, feel that it is at its peak at this point, and it may be valuable for the next 6 to 9 months, but it should have eventually start trending down in the near future. But the big drivers are the supply coming on line and some softness in certain markets.

And the timing of those new supply start ups is imminent or at some point over the next 6 to 9 months which is why you expect it to continue to be volatile over that period?

Terry, it's an on-going trend. There are some mines already online and then, anywhere from between one and three year as we go forward.

But, you’ve not engaged any purchases where the contract price is lower than what you had [inaudible] we are not at that point yet?

That's correct, but it's again… this is like the first... you guys track the cobalt, you saw how it has been consistently going up. At this level, it's been somewhat stable.

Yes.

And now you’ll start seeing versus the $51, you see some bids at the high 40's, so you are starting to see some volatility as we go forward.

Okay. And lastly, Carlos, just want to make sure I understand what you mean by portfolio management use of that phrase. Is it discontinuation of some product lines, is it sale of businesses that you own that are under performing, is it a combination of both or is there something else in this then?

It is a combination of both.

Okay, thanks very much.

Your next question will be from the line of Mark Koznarek of Cleveland Research.

Hi. Thank you.

How are you doing, Mark?

Fine. Good morning. First question here has to do with the restructuring actions, the footprint reduction. First of all, can you give us a better sense of the number of facilities you might be talking about? I think in the past you’ve said that you typically sort of embed it within your operations, you are shutting down at a handful, somewhat less than 5, a year. So, is this an acceleration, a significant acceleration of this shutdown that we are going to wipe the slate clean for the next couple years, or how can you help us define what more specifically what this is all about?

Yes. Mark, we cannot tell you the number of facilities or talk specifically about the facilities as you may guess. That's very critical for us to do that. But what I can tell you is that this will be a acceleration of what we have been doing and this is not going to wipe the slate clean. In other words, we’re going to… you’re going to be left with more opportunities after this one. This is basically what we can do with the resources that we have in an accelerated basis. As a result of obviously the moderation in the top line, as we’ve always said, we were closing based on the top line growth, and we did share with everyone that we do have a long-term plan that has us reduce the number of facilities by half in the long-term, and that we would accelerate that based on the top line. So, our top line has moderated a little bit and this is a good opportunity for us to accelerate our plan, and that's what we are doing.

And the segment that you are focusing on?

Both.

Both. I mean, we are really looking at… on manufacturing, the back end of our business is becoming more and more integrated. As we talked before, when we built major plants like that engine plant, is a manufacturing plant, is a center of excellence, and those plants typically serve all businesses. And we now do have number of those plants around, so we would continue to look at manufacturing from a manufacturing point of view, not necessarily by business.

Okay. And now this is separate from the portfolio management action. So, there is two parallel strategies unfolding here, is that right?

Absolutely, Mark. I am glad you brought that up, because I want to make sure that we are very clear that this is what’s on the table, is the restructuring. The portfolio management is a separate action. As I always said, we have multiple levers, we are going to continue to use multiple levers. We are just not in position at this point to talk in more detail about the portfolio management.

Yes. Mark, I think I answered that as well when Andy asked that question. You are looking at three pieces, right. You have the restructuring actions, which will yield the benefit. We have the portfolio management and then the performance of the business.

Okay. We are hearing from some of your channel partners that there is a notable project category that you are exiting via sale, is that something that is considered portfolio management action, or is that really… what we are hearing is actually these shutdowns and the restructuring?

Mark, we can’t comment on that at this point.

Okay. Then let me move on to my next question, which is the Extrude Hone writedown. Some of that goodwill and intangibles were being amortized, so what's… is there an expected savings from that impairment?

No. You’ve got to bifurcate intangibles basically in the two pieces. Goodwill, and I will call it other intangibles, which would be customer less trade marks, patents, et cetera. What we wrote down was goodwill, which was not being amortize, so there is no benefit associated. We will continue to amortize the definite light assets as we have been doing throughout since the ownership, but the goodwill is basically not like the old rules where we used to amortize it. It’s permanent and that's what the test focuses on in this case. We actually wrote down the goodwill, the entire piece of it, and there is no benefit going forward.

Okay. And then final look clarification, when you were answering a question, I think it might have been for Eli, about the piece of the restructuring actions, there was a comment about close to neutral for the year. What did you mean by that?

When we look at it, obviously, it depends on timing negotiations, and when you can get things done. Most of the cost we would like to have incurred, relatively in the first three to six months, and then as we exit the fiscal year, we will be on a pretty good run rate. But when, there will be some slight negative impact on the numbers in fiscal '09. It’s just tough to put a number out there, because we don't know how the timing is going to go… could be move to the left, or could move to the right. So, there will be a slight impact if I had to guess today in fiscal '09 but it’s tough to quantify at this point.

Maybe I am overlooking something then, Frank, that if your cost is going to be 40 or 50 and your benefit is half of that, how is that close to neutral?

Well, we are going to obviously initiate some actions hopefully in the fourth quarter of this fiscal year and then the first half of next year.

Okay. See you can absorb some this year and then so?

Yes, this is in fiscal '09. We are were starting on a number of different fronts.

Okay. All right, thank you.

Your next question will be from the line of Marty Pollack of NWQ Investment Management.

Yes. I... I was kind of between two calls, so perhaps you might have answered this. Now, the $40 million charge, the breakdown in terms of the advanced versus MSG, could you say or did you describe what the breakdown is on that?

Marty, no, we did not break down... break by business unit or by project or facility. At this level, we're still... a lot of these were proposals. We're in negotiations, so at this point we really can't comment on too many specifics.

Just sort of taking a bigger perspective, going back [inaudible] the advanced material side, and if you could just describe… you've got better organic growth there, you've got what you described as a weaker energy market, but overall it seems that that's where you are clearly getting more return, better bounce. There is more high value added proprietary type element to that business. So, where are... in terms of longer-term, to get to that 50% EBIT which I think is your target, it seems at this point, you've exceeded that on the metal solution side by quite a bit and you are at this point underperforming significantly the other. When do we get to that balance... and sort of is the problem the cost side more, or is that essentially the revenue side is part of the problem, or a combination of both, if you could just provide a bit more clarity?

Yeah, Marty, it's a little bit of both. The pressure clearly... if you were to look at just this quarter, the degradation of the margin, over half of that was raw material related. And like I said earlier, we are gaining some momentum there on that front. So, that's something that we think we can fix relatively going forward. And then the rest is really... the remaining 50% split equally is a combination of mix of the industries we are serving as well as kind of some of the performance i.e. Extrude Hone now. Extrude Hone and a couple of other smaller businesses, we will fix those going forward, so that will add to it. And then some of the other markets were still very at times North America centric, so as we exploit the international opportunities and some of the end markets that we serve improve, that will help drive the catalyst back to where the rates were not too long ago.

And if basically if you... in terms of breaking down advance by again North America and the rest of the world versus MSG Metal Solutions, what's the breakdown on the metal solution side North America versus the rest?

We don't have that handy here. But if you want to call Quynh after the call, we can provide more color on that.

Okay. And just last, on the surface machine writedown, on the goodwill writedown, can you just describe what is the revenue base that has contributed and it's EBITDA or EBIT contribution [inaudible]?

Yes. For competitive purpose we haven't provided sales of profitability by individual business units. So, we are not at liberty to disclose that. We don't feel that would be appropriate for competitive reasons.

I see. Thank you.

Your next question will be from the line of Jack Hain of Barrington Research.

Thanks. Good morning.

God morning, Jack.

I have a couple of quick questions. Firstly, Frank, you mentioned earlier that you are seeing inventory reduction at your North American distributors surprising given the environment, but as we enter into the back half of the calendar year, are you seeing any early indications of that trend slowing and/or reversing?

Yes. Again it's we are only… we are in April. I wouldn't say it's further declining. I think some of the distributors were burning inventory through December as well as March, but we will have a meeting with some of our key distributors vis-à-vis the Distributor Advisory Counsel meetings early maybe to get a better indication, but we don't expect any further declines as much as they were in potential the prior quarter. So, we are watching, but it's just a little bit too early to comment on that. And the other point, the distributors typically don't stock a whole lot of inventory. So, burn some existing, they call these rainy day strategies, and they try to minimize how much they actually hold. So, they are not going to all of a sudden order a lot of inventory and put it back on the shelves, because that's not how they operate from most of our distributors models.

Just like they don't take it down that quickly.

Okay. And then the second question regarding geographic outlook, you are seeing very strong organic growth, particularly in Latin America and Asia Pacific region. Do you feel that that is sustainable at current levels, or do you think that will taper off some time in the next couple of quarters?

Well, I don't think we will change in the next couple of quarters, but the economic indicators indicates that the growth in be China will still be good growth, but not… will be decelerating slightly. But at this point we feel that in the next couple of quarters it's going to be sustainable.

Okay. The rest of my questions were answered. Thank you.

Thank you, Jack.

Your next question will be from the line of Anna [ph] of UBS.

Hi, good morning.

Hi, Anna.

Just was wondering about what you are seeing in Europe as far as market activity? Are you seeing... are you starting see to any of the same [inaudible] reductions that you are talking about in the US, or any changes in any end market that you hadn’t seen before [inaudible]?

Anna, we just came from a trip in Europe as I said earlier, and did a lot of picking around to see what is going on and we feel that Europe is still strong. We haven't seen any changes in any markets and I think that for this quarter we feel very confident that the markets they are going to stay at the level that they have been.

And do you any thoughts kind of over the next two to three quarters, what your… any anticipation of what you might see out there?

I mean, I think that probably... again the economic indicators indicate that there will be slightly slower growth, but still positive growth. And so we continue to be optimistic and based on the economic indicator that we see, we are still optimistic about the economy overall in Europe.

Right. Thank you so much.

Your next question will be from the line Mike [ph] of Atlantic Investments.

Yes, good morning.

Hi, Mike.

Hi. Just a quick follow up question, and I apologize if you guys commented on this. I think, Frank, you made a reference to a plant issue in AMSG, was that material in the quarter, or is there any way to quantify that?

It wasn’t material. I think last quarter I think I said there was about 40 basis fine impact. Now, we did lose two months out of the quarter, January and February, but the facilities were essentially back online in the month of March, so if anything, it would basically be insignificant.

Okay, great. Thank you, that's it.

Your next question will be from the line of Steve Barger of KeyBanc Capital Markets.

Hi, good morning.

How are you doing, Steve?

Good. I wanted see if we can approach the plant closure from another angle. Can you talk about this square footage that will be taken out either in total or as a percentage of your complete foot print?

Yes. Steve, I don't have those numbers. One other thing that I want to emphasis though, typically when we are looking at facilities, they will have a high square footage. They have basically a facility has at certain structure and cost associated with a facility. So, I was look at it from a cost perspective. We typically are going to reduce, as I said earlier, and throughout the last couple of years is that we want to cut the number of facilities in half in the long-term, but that didn't mean that we are going to cut the square footage in half. The square footage impact will be slightly much smaller relative to the number of facilities. So we are going after the facilities that have the higher cost and obviously have the highest benefit of not having it.

Right, okay. And I know this is a tough question to answer, but Carlos you said 15% is something that you can achieve beyond FY '09. Is there anywhere to put any timing around that, is that an FY '10 kind of initiative now, or could it even stretch beyond that?

I think that we will be in a much better position to answer that one when we finish our budget for 2009 and obviously release the guidance for 2009, because we are still working through the 2009 planning right now. Like I said, we still have a bunch of levers that we would look at to see what levers we pool, and we are still 15% EBIT margin is still our next milestone, still driving for that, still believe that it is achievable, and I believe that is achievable in the not too far future.

Okay, very good. Thanks.

Your last question will be from the line of Mark Koznarek of Cleveland Research.

Yeah, thanks. Just a follow up on the facility shutdown, is there going to be a revenue impact?

De minimis.

Okay, thanks.

Thank you, Mark.

At this time, there are no further questions. Ms. McGuire, are there any closing remarks?

Yes. I just want to say this concludes the discussion for today on the third quarter earnings results. Please contact me, Quynh McGuire at 724-539-6559 for any follow-up questions, and thank you for joining us.

Thank you for participating in today's Kennametal's third quarter fiscal 2008 earnings conference call. This call will be available for replay beginning at 1’o clock PM Eastern Standard Time today through 11:59 PM Eastern Standard Time on May 23rd, 2008. The conference ID number for the replay is 39013045. Again, the conference ID number for the replay is 39013045. The number to dial for the replay is 1800-642-1687 or 706-645-9291. This concludes today's conference. Thank you again for participating. You may now disconnect.