SEC Filing | Kennametal Inc.

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1 ================================================================================ FORM 11-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Commission File Number: 1-5318 A. Full title of the plan and the address of the plan, if different from that of the issuer named below: THE KENNAMETAL THRIFT PLAN B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: Kennametal Inc. 1600 Technology Way P.O. Box 231 Latrobe, Pennsylvania 15650 ================================================================================

2 THE KENNAMETAL THRIFT PLAN INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Public Accountants...................................................................... 2 Financial Statements: Statements of Net Assets Available for Plan Benefits December 31, 1998 and 1997............................................................................... 3 Statement of Changes in Net Assets Available for Plan Benefits Year ended December 31, 1998............................................................................. 4 Statement of Changes in Net Assets Available for Plan Benefits Six months ended December 31, 1997....................................................................... 5 Statement of Changes in Net Assets Available for Plan Benefits Year ended June 30, 1997................................................................................. 6 Notes to Financial Statements............................................................................ 7 Supplemental Schedules: Item 27a - Schedule of Assets Held for Investment Purposes December 31, 1998........................................................................................ 12 Item 27d - Schedule of Reportable Transactions Year ended December 31, 1998............................................................................. 14 Signatures.................................................................................................... 15 Exhibit 23 - Consent of Independent Public Accountants........................................................ 16

3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Kennametal Inc. and to the Kennametal Inc. ERISA Compliance Committee: We have audited the accompanying statements of net assets available for plan benefits of The Kennametal Thrift Plan (the Plan) as of December 31, 1998 and 1997, and the related statements of changes in net assets available for plan benefits for the year ended December 31, 1998, the six months ended December 31, 1997 and the year ended June 30, 1997. These financial statements and the schedules referred to below are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of the Plan as of December 31, 1998 and 1997, and the changes in net assets available for plan benefits for the year ended December 31, 1998, the six months ended December 31, 1997 and the year ended June 30, 1997, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of assets held for investment purposes and reportable transactions are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules and fund information have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP - ----------------------- Arthur Andersen LLP Pittsburgh, Pennsylvania June 22, 1999 2

4 THE KENNAMETAL THRIFT PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS DECEMBER 31, 1998 AND 1997 December 31, December 31, 1998 1997 ---- ---- ASSETS Receivables: Participant Contributions $ 198,305 $ 203,191 Employer Contributions 76,217 71,690 ------------ ------------ Total Receivables 274,522 274,881 ------------ ------------ General Investments: Putnam Mutual Funds 123,156,740 100,753,013 Common/Collective Trusts-Fixed Income Fund 58,786,939 62,641,682 Kennametal Inc. Common Stock 11,877,634 1,994,428 Participant Loans 3,913,407 2,489,562 ------------ ------------ Total General Investments 197,734,720 167,878,685 ------------ ------------ NET ASSETS AVAILABLE FOR PLAN BENEFITS $198,009,242 $168,153,566 ============ ============ The accompanying notes are an integral part of these statements. 3

5 THE KENNAMETAL THRIFT PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1998 Putnam Mutual Funds ----------------------------------------------------------- Asset Primco Allocation Growth & New Totals Fund Voyager Balanced Income Opportunities ------ ---- ------- -------- ------ ------------- Net Assets at December 31, 1997 $168,153,566 $62,641,682 $62,197,271 $12,409,934 $ 8,604,371 $ 9,432,393 Additions: Participant Contributions 16,114,687 1,314,120 4,104,167 1,132,183 2,274,363 3,719,560 Employer Contributions 5,261,948 431,937 1,356,318 360,326 699,193 1,218,910 Earnings on Investments (includes interest on loans) 11,075,033 3,733,483 4,599,925 444,946 1,092,510 622,937 Net Realized Gains (Losses) 1,921,981 -- 2,228,749 87,193 (113,145) 194,216 Net Unrealized Gains (Losses) 8,951,349 -- 6,243,312 868,935 485,549 2,224,377 Loan Repayments -- 87,026 251,969 54,287 108,128 193,884 Other 82,098 71,611 -- -- -- -- ------------ ----------- ----------- ----------- ----------- ----------- Total Additions 43,407,096 5,638,177 18,784,440 2,947,870 4,546,598 8,173,884 ------------ ----------- ----------- ----------- ----------- ----------- Deductions: Benefit Payments (10,478,105) (6,284,609) (2,405,731) (337,829) (413,462) (341,939) Loan Issues -- (825,836) (800,277) (119,078) (138,819) (278,421) Loan Distributions (93,666) -- -- -- -- -- Employee Withdrawals (2,701,946) (914,138) (762,416) (143,608) (402,102) (265,932) Administrative Fees (123,760) (101,812) (10,421) (2,195) (2,257) (3,497) Forfeitures (71,611) (3,957) (35,589) (6,429) (4,578) (9,543) Other (82,332) (82,328) -- -- -- -- ------------ ----------- ----------- ----------- ----------- ----------- Total Deductions (13,551,420) (8,212,680) (4,014,434) (609,139) (961,218) (899,332) ------------ ----------- ----------- ----------- ----------- ----------- Net Transfers Between Funds -- (1,280,240) (9,534,184) (1,906,891) 77,144 1,243,203 ------------ ----------- ----------- ----------- ----------- ----------- Net Assets at December 31, 1998 $198,009,242 $58,786,939 $67,433,093 $12,841,774 $12,266,895 $17,950,148 ============ =========== =========== =========== =========== =========== Putnam Mutual Funds ------------------------------------------ Asset Asset Kennametal Allocation Allocation International Common Contributions Loan Growth Conservative Growth Stock Receivable Fund ------ ------------ ------ ----- ---------- ---- Net Assets at December 31, 1997 $2,548,786 $2,367,461 $3,192,797 $ 1,994,428 $274,881 $2,489,562 Additions: Participant Contributions 1,039,532 513,568 1,008,579 1,013,501 (4,886) -- Employer Contributions 347,187 178,843 319,690 345,017 4,527 -- Earnings on Investments (includes interest on loans) 119,275 157,411 161,224 143,322 -- -- Net Realized Gains (Losses) (15,560) (35,444) (32,775) (391,253) -- -- Net Unrealized Gains (Losses) 337,210 148,766 486,843 (1,843,643) -- -- Loan Repayments 53,420 27,490 57,526 73,190 -- (906,920) Other -- -- -- 10,487 -- -- ---------- ---------- ---------- ----------- -------- ---------- Total Additions 1,881,064 990,634 2,001,087 (649,379) (359) (906,920) ---------- ---------- ---------- ----------- -------- ---------- Deductions: Benefit Payments (133,291) (322,612) (203,958) (34,674) -- -- Loan Issues (65,673) (40,236) (69,677) (106,762) -- 2,444,779 Loan Distributions -- -- -- -- -- (93,666) Employee Withdrawals (47,733) (33,423) (48,313) (63,933) -- (20,348) Administrative Fees (988) (434) (1,036) (1,120) -- -- Forfeitures (4,380) (919) (2,298) (3,918) -- -- Other -- -- -- (4) -- -- ---------- ---------- ---------- ----------- -------- ---------- Total Deductions (252,065) (397,624) (325,282) (210,411) -- 2,330,765 ---------- ---------- ---------- ----------- -------- ---------- Net Transfers Between Funds (329,410) 849,469 137,913 10,742,996 -- -- ---------- ---------- ---------- ----------- -------- ---------- Net Assets at December 31, 1998 $3,848,375 $3,809,940 $5,006,515 $11,877,634 $274,522 $3,913,407 ========== ========== ========== =========== ======== ========== The accompanying notes are an integral part of these statements. 4

6 THE KENNAMETAL THRIFT PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 Putnam Mutual Funds ---------------------------------------------------------- Asset Primco Allocation Growth & New Totals Fund Voyager Balanced Income Opportunities ------ ---- ------- -------- ------ ------------- Net Assets at June 30, 1997 $158,198,838 $ 78,332,505 $57,532,476 $12,132,867 $2,547,112 $3,047,449 Additions: Participant Contributions 8,362,297 891,866 2,122,804 641,551 1,092,154 2,006,612 Employer Contributions 2,424,093 231,229 705,351 203,155 344,642 622,067 Earnings on Investments (includes interest on loans) 8,584,842 2,109,053 3,717,980 972,553 1,036,397 222,321 Net Realized Gains (Losses) 1,747,936 -- 1,446,404 222,603 (17,282) 61,092 Net Unrealized Gains (Losses) 912,480 -- 2,218,132 (628,797) (671,467) 339,402 Loan Repayments -- 21,987 59,120 12,876 22,012 47,814 Other 67,166 65,438 181 387 -- 270 ------------ ------------ ----------- ----------- ---------- ---------- Total Additions 22,098,814 3,319,573 10,269,972 1,424,328 1,806,456 3,299,578 ------------ ------------ ----------- ----------- ---------- ---------- Deductions: Benefit Payments (10,422,051) (5,011,661) (3,923,488) (720,923) (213,771) (284,915) Loan Issues -- (719,481) (578,003) (134,069) (79,319) (119,572) Loan Distributions (6,469) -- -- -- -- -- Employee Withdrawals (1,498,314) (865,541) (366,918) (50,446) (66,138) (82,816) Administrative Fees (111,497) (96,749) (7,495) (1,703) (1,129) (1,509) Forfeitures (105,755) (72,447) (19,169) (4,987) (1,342) (3,852) ------------ ------------ ----------- ----------- ---------- ---------- Total Deductions (12,144,086) (6,765,879) (4,895,073) (912,128) (361,699) (492,664) ------------ ------------ ----------- ----------- ---------- ---------- Net Transfers Between Funds -- (12,244,517) (710,104) (235,133) 4,612,502 3,578,030 ------------ ------------ ----------- ----------- ---------- ---------- Net Assets at December 31, 1997 $168,153,566 $ 62,641,682 $62,197,271 $12,409,934 $8,604,371 $9,432,393 ============ ============ =========== =========== ========== ========== Putnam Mutual Funds -------------------------------------------- Asset Asset Kennametal Allocation Allocation International Common Contributions Loan Growth Conservative Growth Stock Receivable Fund ------ ------------ ------ ----- ---------- ---- Net Assets at June 30, 1997 $ 744,475 $ 739,612 $1,298,280 $ 285,172 $ 557,073 $ 981,817 Additions: Participant Contributions 504,307 308,750 533,828 335,243 (74,818) -- Employer Contributions 164,823 95,308 150,773 114,119 (207,374) -- Earnings on Investments (includes interest on loans) 189,643 132,472 192,385 12,038 -- -- Net Realized Gains (Losses) 3,743 5,059 (12,298) 38,615 -- -- Net Unrealized Gains (Losses) (135,900) (100,648) (229,200) 120,958 -- -- Loan Repayments 10,408 5,892 14,932 7,113 -- (202,154) Other 585 294 -- 11 -- -- ---------- ---------- ---------- ---------- --------- ---------- Total Additions 737,609 447,127 650,420 628,097 (282,192) (202,154) ---------- ---------- ---------- ---------- --------- ---------- Deductions: Benefit Payments (36,085) (50,990) (161,340) (18,878) -- -- Loan Issues (23,126) (17,931) (28,891) (18,476) -- 1,718,868 Loan Distributions -- -- -- -- -- (6,469) Employee Withdrawals (14,098) (13,554) (18,962) (17,341) -- (2,500) Administrative Fees (383) (258) (451) (1,820) -- -- Forfeitures (1,089) (110) (1,146) (1,613) -- -- ---------- ---------- ---------- ---------- --------- ---------- Total Deductions (74,781) (82,843) (210,790) (58,128) -- 1,709,899 ---------- ---------- ---------- ---------- --------- ---------- Net Transfers Between Funds 1,141,483 1,263,565 1,454,887 1,139,287 -- -- ---------- ---------- ---------- ---------- --------- ---------- Net Assets at December 31, 1997 $2,548,786 $2,367,461 $3,192,797 $1,994,428 $ 274,881 $2,489,562 ========== ========== ========== ========== ========= ========== The accompanying notes are an integral part of these statements. 5

7 THE KENNAMETAL THRIFT PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS FOR THE YEAR ENDED JUNE 30, 1997 Putnam Mutual Funds --------------------------------------- Alliance Alliance Asset Equity Balanced Primco Allocation Growth & Totals Fund Fund Fund Voyager Balanced Income ------ ---- ---- ---- ------- -------- ------ Net Assets at June 30, 1996 $134,650,201 $ 47,290,863 $ 9,573,308 $77,786,030 $ -- $ -- $ -- Additions: Participant Contributions 12,194,394 3,393,808 737,710 3,603,379 1,166,092 327,388 706,136 Employer Contributions 4,322,740 1,205,154 270,120 1,392,078 390,346 119,936 180,582 Earnings on Investments (includes interest on loans) 1,788,518 -- -- 1,669,606 -- 108,826 5,908 Net Realized Gains 9,052,496 4,847,699 811,054 3,073,961 268,869 39,523 1,265 Net Unrealized Gains 6,129,984 -- -- -- 5,029,097 750,884 63,087 Other 10,999 -- -- 10,999 -- -- -- Transfers From RSP 3,673,020 -- -- 3,673,020 -- -- -- ------------ ------------ ----------- ----------- ----------- ----------- ---------- Total Additions 37,172,151 9,446,661 1,818,884 13,423,043 6,854,404 1,346,557 956,978 ------------ ------------ ----------- ----------- ----------- ----------- ---------- Deductions: Benefit Payments (12,534,412) (3,082,379) (545,508) (8,521,140) (324,307) (51,811) (2,592) Loan Issues -- -- -- (501,990) (390,306) (52,439) (7,792) Employee Withdrawals (920,691) -- -- (705,624) (152,110) (27,827) (6,131) Administrative Fees (165,308) (20,058) (4,103) (134,035) (5,869) (1,130) (27) Forfeitures (3,103) -- -- (2,215) (713) (14) (56) ------------ ------------ ----------- ----------- ----------- ----------- ---------- Total Deductions (13,623,514) (3,102,437) (549,611) (9,865,004) (873,305) (133,221) (16,598) ------------ ------------ ----------- ----------- ----------- ----------- ---------- Net Transfers Between Funds -- (53,635,087) (10,842,581) (3,011,564) 51,551,377 10,919,531 1,606,732 ------------ ------------ ----------- ----------- ----------- ----------- ---------- Net Assets at June 30, 1997 $158,198,838 $ -- $ -- $78,332,505 $57,532,476 $12,132,867 $2,547,112 ============ ============ =========== =========== =========== =========== ========== Putnam Mutual Funds -------------------------------------------------------- Asset Asset Kennametal New Allocation Allocation International Common Contributions Loan Opportunities Growth Conservative Growth Stock Receivable Fund ------------- ------ ------------ ------ ----- ---------- ---- Net Assets at June 30, 1996 $ -- $ -- $ -- $ -- $ -- $ -- $ -- Additions: Participant Contributions 1,004,640 297,042 154,829 224,424 168,381 410,565 -- Employer Contributions 340,145 89,385 55,484 74,481 58,521 146,508 -- Earnings on Investments (includes interest on loans) -- -- 3,395 -- 552 -- 231 Net Realized Gains 6,079 926 1,169 1,116 835 -- -- Net Unrealized Gains 178,470 29,764 10,145 41,476 27,061 -- -- Other -- -- -- -- -- -- -- Transfers From RSP -- -- -- -- -- -- -- ---------- -------- -------- ---------- -------- -------- -------- Total Additions 1,529,334 417,117 225,022 341,497 255,350 557,073 231 ---------- -------- -------- ---------- -------- -------- -------- Deductions: Benefit Payments (1,792) (1,715) (2,464) (456) (248) -- -- Loan Issues (14,740) (3,791) (2,438) (4,723) (3,367) -- 981,586 Employee Withdrawals (13,847) (7,170) (2,742) (1,540) (3,700) -- -- Administrative Fees (41) (10) (6) (16) (13) -- -- Forfeitures -- (69) (36) -- -- -- -- ---------- -------- -------- ---------- -------- -------- -------- Total Deductions (30,420) (12,755) (7,686) (6,735) (7,328) -- 981,586 ---------- -------- -------- ---------- -------- -------- -------- Net Transfers Between Funds 1,548,535 340,113 522,276 963,518 37,150 -- -- ---------- -------- -------- ---------- -------- -------- -------- Net Assets at June 30, 1997 $3,047,449 $744,475 $739,612 $1,298,280 $285,172 $557,073 $981,817 ========== ======== ======== ========== ======== ======== ======== The accompanying notes are an integral part of these statements. 6

8 THE KENNAMETAL THRIFT PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997, AND JUNE 30, 1997 1. DESCRIPTION OF PLAN The following general description of the Kennametal Thrift Plan (the Plan) is provided for general information purposes only. Participants should refer to the Plan document for complete information. The Plan is a defined contribution employee benefit plan, established to encourage investment and savings for certain salaried and hourly employees of Kennametal Inc. and certain subsidiaries and to provide a method to supplement their retirement income benefits. The Plan provides a vehicle for employee savings with an added 401(k) tax-deferred feature. Kennametal Inc. is the Plan sponsor. CORPORATE ACTIONS - Effective March 1, 1997, the assets of the Kennametal Inc. Retirement Savings Plan (RSP) were merged into the Plan. Effective January 1, 1998, the Plan year end was changed from a fiscal year end of June 30 to a December 31 year end. ADMINISTRATION OF THE PLAN - Putnam Fiduciary Trust Company serves as the Trustee of the Plan. Prior to March 1, 1997, Kennametal Inc. served as Trustee of the Plan. Putnam Investments functions as the recordkeeper for the Plan. Prior to March 1, 1997, Benefit Services Corporation, a firm providing defined contribution administration services, served as recordkeeper for the Plan. PRIMCO Capital Management, Inc. (PRIMCO) serves as the investment manager for the fixed income fund of the Plan. The Equitable Life Assurance Society of the United States served as the investment manager and custodian for the Alliance Equity Fund and Alliance Balanced Fund (the Alliance Funds) through February 28, 1997. Effective March 1, 1997, the investments held in the Alliance Funds were transferred to certain mutual funds of Putnam Investments. Accordingly, Putnam Fiduciary Trust Company was appointed the investment manager and the custodian. ELIGIBILITY - All eligible employees are entitled to become active participants of the Plan on the first day of the month coinciding with or following the completion of ten (10) days of service. Under present federal income tax law, employer contributions and all earnings of the Plan do not constitute taxable income to the participants until withdrawn from the Plan by the participants. VESTING - Employee contributions are fully vested. Employer matching contributions are fully vested after the third anniversary of the participant's employment date. Forfeitures of employer contributions as a result of withdrawals, terminations, etc., reduce the amount of future contributions required by the employer. PARTICIPANT ACCOUNTS - A separate account is maintained for each participant in the Plan, reflecting contributions, investments, investment gains and losses, distributions, loans, withdrawals and transfers. 7

9 CONTRIBUTIONS - The Plan allows participants to elect a contribution rate (either before-tax, after-tax, or a combination of both) of 2% - 12% of the employee's base salary. Employer contributions equal 50% of the participant contribution up to a maximum of 3% of the participant's salary. Employer contributions are made concurrently with participant contributions. The participants can elect to have their contributions invested in the different investment funds available under the Plan. DISTRIBUTIONS - Distributions to participants due to disability, retirement, hardship or death are payable in either a lump sum, periodic payments for a period not to exceed ten (10) years, or through the purchase of an annuity at the participant's election. PARTICIPANT LOANS - Effective June 2, 1997, a participant may borrow up to the lesser of $50,000 or 50% of his or her vested account balance, with a minimum loan amount of $1,000. Loans are repayable through payroll deductions over a period not to exceed five years. If the proceeds are used to acquire a participant's principal residence, the repayment period shall be no more than 15 years. The interest rate is determined by the Plan Administrator based on existing market conditions and is fixed over the life of the loan. The interest rate at December 31, 1998 was 8.75%. There were no delinquent loans as of December 31, 1998 and 1997, or June 30, 1997. INVESTMENTS - Investment contracts placed by PRIMCO represented investment of combined assets for both the RSP and the Plan until the merger of these plans as of March 1, 1997. Effective March 1, 1997, Kennametal Inc. common stock was added as an investment option to the Plan. A participant may direct contributions to any of the following investment options: PRIMCO Stable Value Fund - Investments of this fixed income fund consist of traditional investment contracts issued by insurance companies, banks and other financial institutions (or corporations), asset-backed investment contracts, synthetic investment contracts and short-term investments. Putnam Voyager Fund - This fund seeks aggressive capital appreciation by investing in a combination of stocks of small companies expected to grow over time as well as in stocks of larger, more established corporations. Putnam Asset Allocation: Balanced Portfolio - For investors who want an investment with moderate risk and the potential for moderate growth, this fund seeks a balance between the relative stability of bonds and the fluctuation of stocks, in efforts to reduce overall risk. The Putnam Fund for Growth & Income - This fund seeks growth and income by investing in attractively priced stocks of companies that offer long-term growth potential while also providing income. Putnam New Opportunities Fund - This fund seeks long-term capital appreciation by investing primarily in common stocks of companies within certain emerging industry groups that Putnam Management believes offer above-average potential for growth. 8

10 Putnam Asset Allocation: Growth Portfolio - For more aggressive investors who will accept more risk in exchange for a higher growth potential, this fund seeks diversification among different types of stocks, with some investments in bonds and money market funds. Putnam Asset Allocation: Conservative Portfolio - For investors who are willing to assume a reduced potential for growth in exchange for less risk, this fund seeks to reduce overall risk through substantial investments in investment-grade bonds, with some investments in stocks to help stay ahead of inflation. Putnam International Growth Fund - This fund seeks capital appreciation by investing in a diversified portfolio of companies located outside the United States. Kennametal Common Stock Fund - This fund consists entirely of Kennametal Inc. common stock, for investors who want to participate in the growth of Kennametal Inc. as part owners of Kennametal Inc. Effective March 1, 1997, the investments of the Alliance Funds were transferred to two mutual funds, the Putnam Voyager Fund and the Putnam Asset Allocation: Balanced Portfolio Fund. Investments of the Alliance Equity Fund consisted solely of common stocks whereas the Alliance Balanced Fund's investments were a combination of stocks, bonds, cash and convertible securities. 2. ACCOUNTING POLICIES BASIS OF ACCOUNTING - The financial statements of the Plan are maintained on the accrual basis of accounting. INVESTMENTS - Investment transactions are recorded on a trade date basis, and revenues are recorded on an accrual basis of accounting. Investments in mutual funds, Kennametal Inc. common stock and other short-term investments are stated at fair value as measured by readily available market prices; benefit-responsive investment contracts are valued at contract value. According to the provisions of AICPA Statement of Position (SOP) 94-4, "Reporting of Investment Contracts Held by Health and Welfare Benefit Plans and Defined-Contribution Pension Plans," guaranteed investment contracts of defined contribution plans are considered to be fully benefit-responsive. As a result, these contracts are accounted for at contract value in the accompanying financial statements. PRIMCO Capital Management, Inc. certified that all the investment contracts held in the Fixed Income Fund are fully benefit-responsive. The difference between the contract value and the fair value of all investment contracts was $1,342,443 and $777,974 at December 31, 1998 and 1997, respectively. The crediting interest rates on the contracts ranged from 4.38% to 7.55% at December 31, 1998, from 5.05% to 7.55% at December 31, 1997, and from 4.88% to 8.15% at June 30, 1997. INVESTMENT INCOME - Interest and dividend income are recorded in the period earned. Gains and losses on securities sold or redeemed are determined on the basis of specific identification. PLAN EXPENSES - Investment management, recordkeeping and other administrative fees and expenses of the Plan are paid from assets and income of the Plan. 9

11 REALIZED/UNREALIZED GAINS AND LOSSES - Realized gains and losses on investments sold or redeemed and unrealized gains and losses are determined using the average cost method based on the beginning market value. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS - The preparation of financial statements in conformity with generally accepted accounting principles requires the plan administrator to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from these estimates. 3. INVESTMENTS EXCEEDING FIVE PERCENT OF NET ASSETS The fair market values of individual investments that represent five percent or more of the Plan's total plan assets as of December 31, 1998 and 1997, were as follows: December 31, December 31, 1998 1997 ---- ---- Common/Collective Trusts - Fixed Income Fund $58,786,939 $62,641,682 Putnam Mutual Funds - Voyager 67,433,093 62,197,271 New Opportunities 17,950,148 9,432,393 Asset Allocation - Balanced Portfolio 12,841,774 12,409,934 Growth & Income 12,266,895 8,604,371 Kennametal Inc. Common Stock 11,877,634 -- 4. COMMON TRUST ASSETS AND INCOME The Plan's interest in the assets of the common trust is included in the accompanying Statements of Net Assets Available for Plan Benefits. During the plan year ended June 30, 1997, all of the assets of the RSP were merged into the Plan. Accordingly, there were no assets held by the RSP as of December 31, 1998, 1997 or June 30, 1997. Common trust income allocated to the participating plans for the year ended December 31, 1998, the six months ended December 31, 1997, and the year ended June 30, 1997, were as follows: Six Months Year Ended Ended Year Ended December 31, December 31, June 30, 1998 1997 1997 ---- ---- ---- Thrift Plan $3,733,483 $2,109,053 $4,866,795 Retirement Savings Plan (as of March 1, 1997) -- -- 140,343 ---------- ---------- ---------- Total Earnings on Investments $3,733,483 $2,109,053 $5,007,138 ========== ========== ========== 10

12 5. QUALIFICATION OF PLAN The Plan has been determined by the Internal Revenue Service to be qualified under the Internal Revenue Code. The Internal Revenue Service issued a favorable determination on April 23, 1996. Plans that are qualified under regulations of the Internal Revenue Service are not subject to federal income taxes. 6. PLAN TERMINATION Although it has not expressed any intent to do so, Kennametal Inc. has the right to terminate the Plan at any time, subject to the provisions of the Employee Retirement Income Security Act of 1974. In the event of Plan termination, the accounts of all participants will become fully vested and non-forfeitable. 7. CONTRIBUTIONS RECEIVABLE As of December 31, 1997, the Plan recorded contributions receivable from the employer and the participants in the amount of $274,881. This amount is recorded as an asset in the accompanying statements in accordance with generally accepted accounting principles. However, this amount is not recorded as an asset in the Plan's Form 5500 as the Trustee prepares this Form using the cash-basis method of accounting. 8. BENEFIT PAYABLE As of June 30, 1996, the Plan was liable for participant benefits due but unpaid in the amount of $2,102,139. This amount is recorded as a liability in the Plan's Form 5500; however, this amount is not recorded as a liability in the accompanying Statements of Net Assets Available for Plan Benefits in accordance with generally accepted accounting principles. It is included in the total benefit payments in the accompanying Statements of Changes in Net Assets Available for Plan Benefits for the year end June 30, 1997. As of December 31, 1998 and 1997, the Plan was not liable for participant benefits due but unpaid. 9. SUBSEQUENT EVENT During fiscal 1997 and 1998, Kennametal Inc., through a majority-owned subsidiary, acquired six companies, each sponsoring a defined contribution employee benefit plan. On February 9, 1999, a resolution was unanimously approved by the Kennametal Inc. ERISA Compliance Committee authorizing Putnam to act as Trustee for the assets of these six plans when these plans are merged into the Plan. These six plans will be merged into the Plan as soon as it is practicable. 11

13 THE KENNAMETAL THRIFT PLAN ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES DECEMBER 31, 1998 Identity Current of Issue Description of Investment Cost Value - ---------------------------------------------------------------------------------------------------------------------- Security Backed Investments --------------------------- Bankers Bankers Trust (Del) Basic, Contract No.: 97-883THT Trust Maturity: 12/30/01, Yield: 7.05% $ 6,172,919 $ 6,503,169 Transamerica Transamerica Life & Annuity, Contract No.: 76543 Life Maturity: 11/15/04, Yield: 5.97% 5,773,840 6,020,426 Allstate Life Allstate Life Ins. Co., Contract No.: 31007 Maturity: 7/1/01, Yield: 5.99% 2,397,724 2,443,646 Allstate Life Ins. Co., Contract No.: 77077 Maturity: 12/30/01, Yield: 4.38% 3,025,831 3,002,970 John Hancock John Hancock Mutual Life, Contract No.: 7562 Maturity: 5/1/07, Yield: 6.35% 4,731,498 4,928,354 Mass Mutual Mass Mutual Life Ins. Co., Contract No.: 10480 Maturity: 7/5/02, Yield: 6.45% 3,102,086 3,136,562 Metropolitan Metropolitan Life Ins. Co., Contract No.: 13708 Life Maturity: 1/2/01, Yield: 6.20% 2,375,150 2,405,386 Metropolitan Life Ins. Co., Contract No.: 24850 Maturity: 12/30/01, Yield: 6.50% 5,322,293 5,458,743 Monumental Monumental Life Ins. Co., Contract No.: 00028TR Life Maturity: 3/30/07, Yield: 6.13% 8,964,905 9,211,650 State Street State Street Bank & Trust, Contract No.: 98206 Bank & Trust Maturity: 4/8/02, Yield: 5.23% 2,402,078 2,416,994 CDC Caisse des Depots, Contract No.: 220-01 Maturity: 12/31/99, Yield: 6.19% 432,142 436,575 ----------- ----------- Total Security Backed Investments 44,700,466 45,964,475 ----------- ----------- General Account Investments --------------------------- Canada Life Canada Life Assurance Co., Contract No.: 45798 Maturity: 1/4/99, Yield: 5.36% 1,401,989 1,402,115 Metropolitan Metropolitan Life Ins. Co., Contract No.: 13678 Life Maturity: 2/4/00, Yield: 5.55% 3,201,839 3,206,390 Metropolitan Life Ins. Co., Contract No.: 13852 Maturity: 10/1/99, Yield: 7.55% 2,721,834 2,765,240 New York New York Life Ins. Co., Contract No.: 30334 Life Maturity: 4/3/00, Yield: 6.45% 3,074,219 3,101,830 ----------- ----------- Total General Account Investments 10,399,881 10,475,575 ----------- ----------- 12

14 THE KENNAMETAL THRIFT PLAN ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES DECEMBER 31, 1998 Identity Current of Issue Description of Investment Cost Value - --------------------------------------------------------------------------------------------------------------------- Cash & Equivalents ------------------ *Putnam Putnam Fiduciary Trust, Contract No.: 522619 Maturity: 1/1/99, Yield: 5.32% $ 3,689,332 $ 3,689,332 ----------- ------------ Putnam Mutual Funds ------------------- *Putnam Putnam Voyager Fund 53,942,552 67,433,093 *Putnam Putnam Asset Allocation - Balanced Portfolio 11,850,753 12,841,774 *Putnam The Putnam Fund for Growth & Income 12,389,725 12,266,895 *Putnam Putnam New Opportunities Fund 15,207,899 17,950,148 *Putnam Putnam Asset Allocation - Growth Portfolio 3,617,301 3,848,375 *Putnam Putnam Asset Allocation - Conservative Portfolio 3,751,678 3,809,940 *Putnam Putnam International Growth Fund 4,707,395 5,006,515 ------------ ------------ Total Putnam Mutual Funds 105,467,303 123,156,740 ------------ ------------ Kennametal Inc. Common Stock ---------------------------- *Putnam Kennametal Inc. Common Stock 13,573,250 11,877,634 ------------ ------------ Loans to Participants --------------------- *Participants Loans to Participants, Maturities: From January 1999 to December 2013, Yield: 9.32% -- 3,913,407 ------------ ------------ Total Investments $177,830,232 $199,077,163 ============ ============ * Party-in-interest. 13

15 THE KENNAMETAL THRIFT PLAN ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS (a) FOR THE YEAR ENDED DECEMBER 31, 1998 Identity of Current Value Party Purchase Selling Cost of Asset on Net Involved Description of Investment Price Price of Asset Transaction Date Gain/(Loss) - ----------------------------------------------------------------------------------------------------------------------------------- *Putnam The Putnam Fund for Growth and Income $ 8,726,912 $ -- $ 8,726,912 $ -- $ -- *Putnam Putnam Voyager Fund 18,168,662 21,404,901 18,168,662 19,176,171 2,228,730 *Putnam PRIMCO Stable Value Fund 22,826,178 26,680,924 22,826,178 26,680,920 4 *Putnam Putnam New Opportunities Fund 11,470,473 -- 11,470,473 -- -- *Putnam Kennametal Inc. Common Stock 14,721,152 17,324,202 14,721,152 17,715,429 (391,227) (a) Represents transactions or a series of transactions in excess of 5% of the fair value of the Plan assets at the beginning of the year. * Party-in-interest. 14

16 SIGNATURES THE PLAN. Pursuant to the requirements of the Securities Exchange Act of 1934, the plan administrator of the Kennametal Thrift Plan has duly caused this annual report to be signed on its behalf by the undersigned, hereunto duly authorized, in Unity Township, Westmoreland County, Commonwealth of Pennsylvania. KENNAMETAL THRIFT PLAN Date: June 28, 1999 By: /s/ AMY DOVERSPIKE ------------------ Amy Doverspike Plan Administrator 15

   1

                                                                      EXHIBIT 23



                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS



As independent public accountants, we hereby consent to the incorporation by
reference of our reports, included in this Form 11-K, into the Company's
previously filed Registration Statement on Form S-8, Registration No. 333-18423,
relating to the Kennametal Thrift Plan.


                                              /s/ ARTHUR ANDERSEN LLP
                                              -----------------------
                                              ARTHUR ANDERSEN LLP



Pittsburgh, Pennsylvania
June 23, 1999




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