Kennametal has made solid progress in executing strategies to balance our businesses across served geographies and end markets. However, we are not immune to the rapid and significant global decline in industrial production that has taken place over the past few months, said chairman, president and chief executive officer Carlos Cardoso. As a result, we continue to take actions to reduce our costs and right size our business in line with current economic conditions while minimizing the impact of such on our customers. These steps, along with sharp focus on maximizing cash flow as well as maintaining our strong balance sheet and ensuring sound liquidity are at the top of our priorities. Through all of this, we will manage through the current economic downturn and we expect to emerge as an even stronger company, when industrial activity turns upward. Cardoso added.

Fiscal 2009 Second Quarter Key Developments

Sales for the second quarter were $569 million, compared with $647 million in the same quarter last year. The 12% decrease in sales was consist of of a 10% organic decline and a 5% decrease from unfavorable foreign currency effects, partially offset by the net favorable impact of acquisitions and divestitures of 2% and more workdays of 1%.

As earlier announced, the company continued to implement certain restructuring plans to reduce costs and improve efficiencies in its operations. During the December quarter, Kennametal recognized pre-tax charges related to these initiatives of $10 million, or $0.14 per share. Pre-tax charges recorded to date for these initiatives were $27 million. Including these charges, the company expects to recognize about $90 million of pre-tax charges related to its restructuring plans. The remaining charges are expected to be incurred over the next six to nine months. The majority of these charges are expected to be cash expenditures. Annual ongoing benefits from these actions, once fully implemented, are expected to be about $100 million.

Operating income was $23 million for the quarter. This signifies a decrease of $46 million, or 66%, from $69 million in the prior year quarter. Absent the impact of the reformation and related charges, operating income for the quarter was $34 million, a decline of $36 million or 52% from the prior year quarter. This decrease was driven chiefly by reduced sales volumes and the related lower manufacturing cost absorption as well as disruption costs from restructuring programs. This was partly offset by lower provisions for employee incentive compensation plans and higher price realization.

The effective tax rate for the current quarter was 23.2%, compared with 17.3% in the prior year quarter. Absent the effect of reformation and related charges, the current quarter rate was 16.5%, which consist of a benefit from the recent completion of a routine income tax examination for certain prior fiscal years.

Net income was $16 million for the present year quarter. Absent the charges related to restructuring, net income for the current quarter decreased 50% to $25 million, from $50 million in the prior year quarter. This decrease was primarily the result of lower operating income partially offset by higher other income, driven mostly by favorable foreign currency transaction results.

Reported EPS were $0.21, compared with prior year quarter reported EPS of $0.64. Adjusted EPS of $0.35 decreased 45%, compared with prior year quarter reported EPS.

Fiscal 2009 First Half Key Developments

During the first half of 2009, Kennametal recognized pre-tax charges related to the previously mentioned restructuring plans of $19 million, or $0.23 per share.

Operating income was $77 million, compared with $134 million in the same period last year, a decrease of 42%. Absent charges related to restructuring, operating income was $96 million, which was down $38 million, or 28%, from the prior year period. This decrease was principally the result of reduced sales volumes and the related lower manufacturing cost absorption as well as disruption costs from restructuring programs. This was partly offset by lower provisions for employee incentive compensation plans and higher price realization.

The effective tax rate for the present period was 20.3%, compared with 27.1% in the prior year period. Absent the effect of restructuring and related charges in the current year and a charge for a German tax law change in the prior year, the current year rate was 18.1% and the prior year rate was 21.6%. The year-to-year decrease in the adjusted rate was due to the release of a deferred tax benefit valuation allowance and a benefit from the recent completion of a routine income tax examination.

Net income was $51 million for the present year period, compared with $85 million for the prior year. Absent the charges related to restructuring and the German tax law change, net income for the current period decreased 25% to $68 million, from $92 million in the prior year. This decrease was driven chiefly by lower operating income, partially offset by the favorable impact of a lower effective tax rate.

Reported EPS was $0.69, a decrease of 36% from the prior year reported EPS of $1.08. The current period reported EPS included charges of $0.23 per share related to the company’s restructuring plans. Prior year period reported EPS included a non-cash charge of $0.08 per share for the impact of the German tax law change. Absent these charges, adjusted EPS for the first half of fiscal 2009 of $0.92 decreased 21%, compared with prior year adjusted EPS of $1.16.

Segment Highlights of Fiscal 2009 Second Quarter

Metalworking Solutions & Services Group (MSSG) sales decreased by 21% during the December quarter, driven primarily by an organic sales decline of 15%, unfavorable foreign currency effects of 5% and 1% from the impact of divestitures. On a global basis, industrial production declined in contrast to the prior year quarter. Demand in most industry and market sectors has weakened. On a regional basis, Europe, India and North America reported organic sales declines of 17%, 17% and 16%, respectively, for the December quarter. Asia Pacific and Latin America also experienced organic sales declines of 9% and 2%, respectively.

MSSG operating income and margin decreased extensively, compared with the prior year. During the December quarter, MSSG recognized restructuring and related charges of $7 million. Absent these charges, MSSG operating income decreased 76% and the operating margin decreased to 4%. The primary drivers of the decline in operating margin were unfavorable absorption of manufacturing costs due to lower production and temporary disruption effects related to restructuring initiatives. The impact of recent price increases essentially offset the effect of higher raw material costs.

Advanced Materials Solutions Group (AMSG) sales increased 5% during the December quarter, driven by 8% from the impact of acquisitions partially offset by 3% from unfavorable foreign currency effects. Organic sales were flat as increased mining and construction sales and higher energy-related sales were offset by lower sales of engineered products.

AMSG operating income decreased by 29% and the operating margin decreased to 9% from the same quarter last year. During the December quarter, AMSG recognized restructuring and related charges of $3 million. Absent these charges, AMSG operating income decreased 18% and the operating margin decreased 290 basis points.