Good morning. I would like to welcome everyone to Kennametal's Third Quarter Fiscal Year 2011 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Quynh McGuire, Director of Investor Relations. Please go ahead.

Thank you, Tiffany. Welcome, everyone. Thank you for joining us to review Kennametal's Third Quarter Fiscal 2011 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 prior 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 27, 2011. I am Quynh 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 Finance and Corporate Controller, Martha Bailey. Carlos and Frank will provide further explanation on the quarter's financial performance. After their 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 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 has 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. And 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 to Carlos.

Thank you, Quynh. Good morning, everyone. Thank you for joining us today. We are hosting this call from São Paulo Brazil. Our Board of Directors and some members of our senior management team recently visited our manufacturing facility located near -- in the Atuba. Kennametal's established operations in Brazil in 1999 and we have continued to grow our presence in this region. I'm pleased to report that March quarter results continue to demonstrate that Kennametal's global team is successively executing our ongoing strategies. During the quarter, we realized organic sales growth of 25% on a year-over-year basis. Note that, that is against a strong top line comparisons from the same period in the prior year. In addition, we achieved the all-time records with operating margin of slightly over 15%, a return on invested capital of approximately 13% for the March quarter. Even with sales that are lower than our prior peak. The macroeconomic environment has been better than our expectations. Global business conditions remain positive throughout the quarter. Industrial production continues to show strength around the world and emerging markets such as China, India, and Brazil remain growth leaders. Specific to Kennametal, for the year-to-date period, we saw 39% of sales increase year-over-year in our rest of the world markets. Again, this growth is on top of strong comparatives from prior year. Regarding our served end markets, general engineering and transportation continue to expand. Our strong sales growth reflected higher customer demand in both our served end markets, as well as geographic regions. From a macro-perspective, growth remains strong in most areas. China and India continue to be very strong with China taking some measures in the near-term to control growth while India is well insulated from external events. In Brazil, the industrial production rate is expected to remain high.…

Thank you, Carlos. I'll provide some comments on our performance for the March quarter and then I'll move on to our update outlook for the remainder of the fiscal 2011 period. So my comments exclude special items, so please refer to the reconciliation schedules that we provided in our earnings release and related to Form 8-K. So let me start off by summarizing the quarter. We continue to make good progress by executing our strategies as Carlos articulated, our organic sales growth was very good coming in at 25% on top of tougher comparables. We once again have strong operating results and we further strengthened our financial position. And we set a March quarter record for earnings per share of $0.83 and an all-time record for adjusted operating margin of 15.2% and return on invested capital of 12.9%. And we achieved our fourth consecutive quarterly record for operating income. I'm pleased with our overall performance especially in light of input cost pressures in the implementation of a new SAP system at the start of the quarter. Now let me walk you through the key items of our income statement. Turning to sales. Our sales for the quarter increased 25% to $615 million, compared to $493 million in the March quarter last year. Our sales growth was achieved despite stronger comparisons of double-digit organic growth of 11% in the prior-year quarter. This represents the fifth consecutive quarter of year-over-year organic sales growth. We also continue to make progress of a better balancing of our business globally. At the end of the March quarter, 54% of our sales were generated outside of North America with Western Europe at 28% and the rest of the world at 26% of sales. Now let me call your attention to the recent events in Libya and…

Thank you, Frank. As we move forward, with the key [ph] to build on our enterprise approach. We have transformed Kennametal to become a market trading organization, aligning our business with our serve end markets. This provides customers with the access to our entire product portfolio, facilitate top line growth through cross-selling opportunities and streamlines our costs by improving supply chain and manufacturing efficiency. We are positioned to focus more on customers, gain market share and further increase our profitability. Based on expectations of continued global growth and our ability to maintain strong operating leverage, we have, again, increased our guidance for fiscal year 2011. Our updated organic sales guidance of 24% to 25% for the year, demonstrates that Kennametal continues to outperform the forecasted industrial production rates. Our revised EPS guidance in the range of $2.75 to $2.85 per share compared with the previous range of $2.50 to $2.65 per share, represents an increase of about 9% at the midpoint. This increased guidance reflects record operating margin performers, even our sales volumes that have not yet reached the prior peak levels. During the recent cycle -- during the current cycle, we expect to achieve higher profitability and price deteriors [ph] due to the structural improvements to our cost phase. We continue to be committed to realizing 40% incremental margins for the cycle. In summary, we have strengthened our financial position and enhanced our liquidity. We expect to continue generating strong cash flow. Our global team remains focused on our next milestone target of 15% EBIT margin and 15% return on investment capital. We believe that we can achieve those goals. And, at the end, even further a longer path to premier. Enabled by our long-term strategies, we believe our performers validate our ability to achieve a sustainable level of profitability in the high-teens range. For the past several years, we have taken the necessary actions to further strengthen our foundation and extend our profitability. We continue to balance our several end [ph] markets, business mix and geographic levers. Kennametal is a breakaway company that has demonstrated its ability to be profitable throughout the cycle. We will maximize our strong financial position to meet those targets and deliver continued shareholder value. Thank you for your time and your interest in Kennametal and we will now take care of your questions.

[Operator Instructions] Your first question comes from Eli Lustgarten from Longbow securities.

Just some clarification. Tax rate, you said, this year is 22%, is that what we assume for next year also? Or we thought, I mean, it's sort of an important issue that has been...

Well, I can't obviously get into next year's, we'll provide that in July. But yes, the 22%, is kind of what we anticipate, as you saw the mix between rest of the world and Europe. Europe was a little bit stronger. And as that continues to perform, we should see a deterioration in tax rate or a reduction in tax rate, I should say. As you know, last quarter we guided 24%, we picked up 2 points as result of strong the performance on the second half.

Okay. One of the other things that was a surprise in numbers is the absence of currency in infrastructure, and almost minimal currency versus what we are seeing around at other companies in industrial. Is currency a bigger factor in the fourth quarter for you at this point? You gave us the year, but we are looking currency benefits in the quarter?

Yes. Eli, each of the first three quarters, currency was actually negative. I think it was a couple pennies negative in the quarter, both transaction and translation. And the fourth quarter is actually the first time, and I'm speaking primarily from Europe perspective, but we'll actually have a slight benefit in the fourth quarter. So you're exactly correct.

And the same thing from a number of workdays. I mean, there was a factor that we had a couple of less workdays in this quarter, we get them back in the fourth quarter?

No. Compared to last year, the workdays are essentially the same in the fourth quarter on a year-over-year basis.

And if we talk about the profitability of industrial which seems to be lagging. I mean, it's a big gain versus last year and that's a decent incremental margin or so, but we're still running in the less than 14% kind of number where, 14.3% I guess number, in a business that I guess was expecting to get well over 15% at some point. Can you talk about what's going on in the cost price there? And can we expect to break 15% in the fourth quarter and is that a reasonable goal for an average for the year near-term?

Yes, I think that the performance has been pretty good from a little shy of 12% in the first quarter and we went little bit above 12% in the second quarter. We saw a nice increase of almost 2 points or 200 basis points of improvement in the industrial operating income percent so and we like the improvement. Yes, there is some timing issues with the cost -- input cost in the pricing and there's probably -- we implemented a new system here so hopefully, we can catch up a couple of things here in the fourth quarter. So to have that type of performance, on top of some of the raw material headwinds, putting in a new SAP system at the end of the quarter, I'm actually extremely pleased with the performance of industrial and I think we're moving in the right direction.

As a company, I mean, we are achieving all-time records and this is one of the reasons we have 2 segments. And we look at the segments, sometimes one will perform -- one quarter performs better than the other. But more than likely about 15% EBIT margin.

And it's still reasonable to expect Industrials to get around [ph] 15% as a goal at this point?

That's the goal.

Have prices gone up enough with the way you start to run price increases that you essentially recover all of your costs in the next couple of quarters? You sort of hinted that was the case, but with the new round coming at this point, do you expect to be there by the end of the next 2 quarters?

All right. Yes, as we wrap up the fourth quarter, again, based upon where raw materials is, it's like trying to catch a falling knife sometimes with this tungsten, the way it's been behaving here, but we should be able to recover 100% of our costs in the fourth quarter.

All right.

Your next question is from Andy Casey with Wells Fargo Securities.

Thanks. First, on the third quarter corporate expense, a pretty detailed question but if I'm doing the math right, after adjusting for restructuring, it looked like it came down a couple of million in Q3 from Q2. First, is that math correct and then if so, what drove the sequential decrease and how sustainable is that?

Yes. I would imagine that the third and fourth quarter will be similar. It's just watching expense some of the some of the, I'll call it the SAP implementation costs, we implemented in the January conference. So those costs are trending down as we have as anticipated so yes, at this point I would say that the fourth quarter should be very similar. But your numbers are correct.

Okay, thanks. And then, I'm at another detail on the remainder of the year, this 22% for the full year, is that a net number or does that exclude the restructuring?

That's an all-end [ph] number.

Okay. All right. Thank you very much.

Your next question is from Henry Kirn with UBS.

You've taken out $165 million in fixed costs, you're closing the final 4 facilities. How do you think of the footprint going forward? Is there still any opportunity to do further rationalization and take out even more fixed cost or are we sort of at that the steady state where things are as good as they can be on that level?

Henry, we believe there is always opportunity, I mean, we have a very strong lean culture so every year, we take cost out. The $165 million obviously was singled out at -- because it was a big number and the required special charges. Our anticipation is that in 2011 we go back to the pre-recession where every year we have what sometimes is a significant cost reductions to lean savings. So there are more opportunities and we'll continue to look at those. Everything hinges around how much growth we expect. Is it below 10% or more than 10% but typically what we see right now is to roll into pay-as-you go type of profits.

And could you give a little bit of an updated view on your priorities for the balance sheet and what you're seeing in the M&A market right now?

Yes. I think that we -- the M&A market is good. I mean, we have a strong pipeline. We are very engaged in looking at opportunities. But again, we are very, very disciplined about our M&A process and it's hard to forecast M&A activities. So we can be very optimistic about it and we are ready and have the right balance sheets to take advantage of our good opportunities.

Thanks a lot.

Your next question is from Adam Uhlman with Cleveland research.

Just talk about the Europe business seems to be holding up a bit better than expected. Could you get us a little bit more granular on the market dynamics there?

Yes. I mean, our strength in Europe is because of our mix being filtered into the German market. And as I have been saying for the last few quarters, I think we've been able to outperform the overall European GDP or IPI as a result of our mix. I mean, Germany continues to outperform every country in Europe and the East driven primarily by general engineering and automotive and is driven primarily by exports. And actually their machine tools business is trying to come back. So and they have strong exports into China and India and to, in certain cases, the Latin America. So we feel very good of, I think, the future if we used to be good, and that helps us not only in the top line, but as we can as we from the results of the quarter, that helps us with the tax rate as well.

Okay, got it. And then regarding the commentary around the Japanese quake and the order pick up that you folks have seen or quoting activity -- I guess, how sticky would that business be if you were to win over some business that was supplied by Japanese manufacturers previously?

You know it's really hard to forecast that I mean, we just -- we're seeing that the quoting activity going up. We've seen some of the very little of the buy ex [ph] because I mean, this has only been pretty vague in this as you from Frank, that the distributors -- that's primarily a distribution type of business. The distributors typically carry about 2 months inventory so if you see when we're under of that to occur versus where we are today of about two months old, we anticipate to know more in the next month or so. More details.

Yes. Great. Thanks.

Your next question is from Ann Duignan with JP Morgan. Ann Duignan - JP Morgan Chase & Co: Can I just ask you about your balance sheet performance? Inventories and day sales outstanding were a little bit higher than last year and last quarter. Can you just talk, was that related to SAP implementation or you just give us some color on what's going on there?

Yes. There's obviously some growing pains there and obviously, the sales are a bit higher on the receivable side but we probably -- we'll try to pick that up here in the fourth quarter that's why we didn't change the casual guidance. But as you go through just kind of learning the applications, and you would expect that anytime, that you implement a new system as well. And now, if you look at the inventory on a year-over-year basis, you don't have the cash flow there. Probably up $17 million, the terms [ph] have been flat but we expect at the start to move in the right direction as production teams get also use to the system. Ann Duignan - JP Morgan Chase & Co: Okay, that's a good color. And then Carlos, maybe been a little facetious when I ask this question, but I can totally appreciate Brazil versus Latrobe. But can you just describe the purpose of hosting the Board meeting in Brazil and what are your objectives, your business objectives in Brazil?

I mean we have a practice of taking the board through one of our facilities and have the Board meeting in one of our facilities every year and it's basically in this period. And what we do -- and we take an international maybe every third year. What we do is we take them to places where we had made major investments and/or acquisitions after a couple of years so that they can really see sort of how the investments of the company used, is deployed and sort of understand the market and then get to see the benefits of investing. And that took place here, so we brought the board here and we had a very, very successful visit. And Brazil for us, actually, has the highest growth rate of all of our geographies. Not by a book by much. So this has been very a good investment for us. As I've said, we've been here since 1999 so we're kind of a little bit of late-comer into this -- [indiscernible] -- but we built a new plant here and we actually did an acquisition here so we are really leveraging those benefits right now. I don't know if that answer your question. Ann Duignan - JP Morgan Chase & Co: Okay, yes. No, that's help to add the color, because I was thinking maybe a large acquisition is coming down the pipeline or something. So that's helpful to the understand the context. And just one real final one, Carlos. It's looking like you might you just have given the rate of recovery in revenues and earnings but there is a potential that $3 billion revenue target could be achieved sooner rather than later. To what point do you start thinking about having to reinvest in the businesses, to reinvest in capacity expansion et cetera and could that put pressure on your 15% ROIC target?

Yes. I think that -- I mean, you said it perfectly, we have talked about this $3 billion target. Clearly it's going to come earlier. I mean, it's already an indication based on our performance [indiscernible] that we will get so far, that we had in the third quarter looking at the fourth quarter. And basically, capital takes about, to deploy effectively, it takes about 12 months okay? So you will not put the pressure on the returns of the capital because you're going to have to build capacity gradually. And the trick, when we talk about $3 billion, it's not like we have certain product lines. We would not be at 90%, we'll close to 90% in all products. We will probably at 90% in certain products, where we have to then expand those product lines but certainly, I would not anticipate at this point, to have a major investment even to go beyond $3 billion. I mean I feel very comfortable that we can stay around the depreciation for a while longer. Ann Duignan - JP Morgan Chase & Co: Okay, excellent. I'll get back in queue. Thanks so much.

Your next question is from Walt Liptak with Barrington.

Thanks. I wanted to ask you about the tungsten prices coming up and just get some more clarity on it. You said that, it goes in your commentary, it will be fourth quarter and first quarter, the next two quarters, where you get the cost recovery. But then you mentioned, I think Frank mentioned, 100% cost recovery in the fourth. Can you explain the difference?

Yes. Again, I think the point there is we were a little bit behind here because the raw material costs increase and now, we're going to cover 100% in the course for the full year. We're obviously still behind and we're still going to be chasing that a little bit in the first quarter of next year. But hopefully, with the increases, if they do take a little time, we should get back on track by the first half of the next year but my comp were just 100% of costs increases by the end of fourth quarter.

And do you take out prices already for the fourth quarter?

Yes, they've been announced.

Okay. In Both in North America and Europe or just at?

All around the world, globally.

Okay. And what about tungsten supply? Do you access to supplies, is supply tight?

No. We at -- from Kennametal perspective, we have not had any shortage for type neon [ph] for supplies. It has been the price.

Okay and you mentioned the earthquake in Japan causing issues for some of your competitors. Is that in your guidance that you'd might pick up some share in the fourth quarter and next year because of that?

No. I mean we, just don't have enough detail with it. We don't change our sales forecast based on quarterly activity only. Well, we certainly are putting...

Okay. In the full-year guidance, did you use the adjusted EPS number to $0.83?

Yes.

Okay. Okay, thanks very much.

Thank you.

There are no further questions at this time.

This concludes our discussion. Please contact me, Quynh McGuire at (724) 539-6559, for any follow-up question. Thank you for joining us and have a nice day.