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, 2002
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
THE KENNAMETAL THRIFT PLAN
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants............................................................. 2
Financial Statements:
Statements of Net Assets Available for Benefits
December 31, 2002 and 2001............................................................... 3
Statements of Changes in Net Assets Available for Benefits
Year ended December 31, 2002 and 2001.................................................... 4
Notes to Financial Statements............................................................ 5
Supplemental Schedule:
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2002........................................................................ 10
Signatures.................................................................................... 11
Exhibit 23 - Consent of Independent Accountants............................................. 12
Exhibit 99.1 - Certification Pursuant to 18 U.S. C. Section 1350.............................. 13
as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 executed by Michael Pepperney,
Plan Administrator.
Note: Other schedules required by Section 2520.103-10 of the Department of
Labor's Rules and Regulations for Reporting and Disclosure under ERISA have been
omitted because they are not applicable.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Administrator of
The Kennametal Thrift Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of The Kennametal Thrift Plan (the "Plan") at December 31, 2002 and 2001, and
the changes in net assets available for benefits for the years ended December
31, 2002 and 2001, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Plan's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets (held
at end of year) is presented for the purpose of additional analysis and is not a
required part of the basic financial statements but is 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. This
supplemental schedule is the responsibility of the Plan's management. The
supplemental schedule has been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ PricewaterhouseCoopers LLP
- -----------------------------------
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
June 6, 2003
2
THE KENNAMETAL THRIFT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND 2001
December 31, December 31,
2002 2001
------------ ------------
ASSETS
Receivables:
Participant contributions $ 557,093 $ 204,826
Employer contributions -- 79,613
------------ ------------
Total Receivables 557,093 284,439
------------ ------------
Investments 204,541,982 238,270,064
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $205,099,075 $238,554,503
============ ============
The accompanying notes are an integral part of these statements.
3
THE KENNAMETAL THRIFT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
---- ----
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Participant contributions $ 13,228,348 $ 14,127,209
Employer contributions, net of forfeitures 20,617 4,830,914
Dividends and interest 5,852,426 8,764,617
Transfers from other Kennametal Plans 750,953 --
------------- -------------
Total additions 19,852,344 27,722,740
------------- -------------
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Benefits paid to retirees (15,345,973) (15,653,823)
Loan distributions (281,175) (260,180)
Employee withdrawals (2,301,712) (1,889,674)
Administrative fees (7,800) (13,005)
Net depreciation of investments (35,371,112) (29,252,080)
------------- -------------
Total deductions (53,307,772) (47,068,762)
------------- -------------
NET DECREASE (33,455,428) (19,346,022)
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 238,554,503 257,900,525
------------- -------------
End of year $ 205,099,075 $ 238,554,503
============= =============
The accompanying notes are an integral part of these statements.
4
THE KENNAMETAL THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
1. DESCRIPTION OF PLAN
The following general description of the Kennametal Thrift Plan, as amended (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 these employees the
opportunity to defer a portion of their annual compensation for federal income
tax purposes in accordance with Section 401(k) of the Internal Revenue Code, as
amended (the Code). The Plan is subject to certain provisions of the Employee
Retirement Income Security Act of 1974, as amended (ERISA). Kennametal Inc. is
the Plan sponsor. Certain amounts were reclassified in the prior years'
consolidated financial statements to conform with the current year presentation.
ADMINISTRATION OF THE PLAN - Putnam Fiduciary Trust Company serves as the
Trustee of the Plan. Putnam Investments functions as the recordkeeper for the
Plan.
ELIGIBILITY - All employees become eligible to participate in the Plan on the
first day of the first payroll period subsequent to their employment date. 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 cliff vest after the third anniversary of the participant's
employment date. At December 31, 2002 and 2001, forfeited nonvested accounts
totaled $213,582 and $139,091, respectively. These amounts will be used to
reduce future employer contributions. Also, in 2002 and 2001, employer
contributions were reduced by $95,872 and $303,072, respectively, from forfeited
nonvested accounts.
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.
CONTRIBUTIONS - The Plan allows participants to elect a contribution rate
(either before-tax, after-tax, or a combination of both) of 2% to 12% of the
employee's wages, which include base salary, overtime, shift differential pay
and incentive compensation. Effective April 1, 2003, participants may elect a
contribution rate of 2% to 20% of their wages. The participants can elect to
have their contributions invested in the different investment funds available
under the Plan. Employer contributions equal 50% of the participant contribution
up to a maximum of 3% of the employee's wages. Employer contributions are made
concurrently with participant contributions and solely in Kennametal Inc. common
stock. These employer contributions can be transferred to other investment
options at any time at the participant's election. Effective January 1, 2002,
employer contributions were temporarily suspended. These contributions were
reinstated January 1, 2003.
5
DISTRIBUTIONS - Distributions to participants due to disability, retirement, 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 - 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. Certain participant loans
that were outstanding at the time of acquisition of a company by Kennametal Inc.
may have different terms. The interest rate is determined by the plan
administrator based on existing market conditions and is fixed over the life of
the loan. Interest rates on participant loans ranged from 6.0% to 10.5% at
December 31, 2001 and 5.3% to 10.5% at December 31, 2002. Participant loans
outstanding at December 31, 2002 have maturity dates ranging from 2003 to 2028.
INVESTMENTS -The following investment options were available to participants for
the years ended December 31, 2002 and 2001:
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 believes offer above-average potential for growth.
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 composed mainly of stocks of companies
located outside the United States.
6
Kennametal Inc. 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.
MSIF US Small Cap Core Portfolio - This fund seeks above average total return
over a three- to five-year period by investing primarily in common stocks and
other equity securities similar to companies included in the Russell 2000 Index.
The fund focuses on stocks that are undervalued based on the advisor's own
measures of value. The name of this fund was changed from MAS Small Cap Value
Fund to MSIF US Small Cap Core Portfolio on August 1, 2001.
Vanguard 500 Index Fund - This fund seeks to provide long-term growth of capital
and income from dividends by holding all the 500 stocks that make up the
Standard & Poor's 500 Composite Stock Price Index in proportion to their
weightings in the index. Assets held in the Vanguard 500 Index Fund were
converted to the Vanguard Institutional Index Fund on October 16, 2002.
Vanguard Institutional Index Fund - This fund seeks long-term growth of capital
and income from dividends. The fund holds all 500 stocks that make up the
Standard & Poor's 500 Index in proportion to their weighting in the index. The
fund attempts to track the performance of the index, a widely recognized
benchmark of U.S. stock market performance, and it remains fully vested in
stocks at all times. Assets held in the Vanguard 500 Index Fund were converted
to the Vanguard Institutional Index Fund on October 16, 2002.
Beginning October 1, 2002, participants are also able to direct their
contributions to the two additional investment options:
PIMCO Renaissance Fund - This fund seeks long-term growth of capital and income.
The fund invests primarily in common stocks of "value" style, midsize companies
with market capitalizations of $1 billion to $10 billion at the time of
investment, although it may invest in companies of any size. The fund invests
all or a portion of its assets in small to midsize companies. Such investments
increase the risk of greater price fluctuations.
Vanguard Total Bond Market Index Fund - This fund invests in a sample of bonds
from the Lehman Aggregate Bond Index, which is an index of U.S. Treasury,
federal agency, mortgage-backed, and high-quality corporate 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.
Investments in mutual funds, common stock and other short-term investments are
stated at fair value as measured by readily available market prices. Participant
loans are valued at cost, which approximates fair value. Benefit-responsive
investment contracts are valued at contract value in accordance with 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". PRIMCO Capital Management, Inc. certified that all the
investment contracts held in the Fixed Income Fund are fully benefit-responsive.
The fair value of all investment contracts exceeded the contract value by
$4,200,639 and $2,419,694 at December 31, 2002 and 2001, respectively. The
crediting interest
7
rates on the contracts ranged from 2.44% to 7.22% at December 31, 2002 and from
3.94% to 7.12% at December 31, 2001.
PAYMENT OF BENEFITS - Benefit payments are recorded as distributed.
INVESTMENT INCOME - Interest and dividend income are recorded in the period
earned.
PLAN EXPENSES - Investment management fees and certain other administrative fees
were paid by the Plan. Investment management fees are included as a reduction in
the income of the fund.
NET APPRECIATION / (DEPRECIATION) - Net appreciation (depreciation) of
investments is comprised of unrealized gains and losses due to the change in
market value compared to the cost of investments retained in the Plan and
realized gains or losses on security transactions which represents the
difference between proceeds received and average cost. Net appreciation
(depreciation) for the years ended December 31, 2002 and 2001 were as follows:
2002 2001
---- ----
Kennametal Inc. Common Stock Fund (3,298,862) 8,304,209
All Other Funds (32,072,250) (37,556,289)
----------- -----------
Total (35,371,112) (29,252,080)
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS - The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires the plan administrator and sponsor 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 net assets as of December 31, 2002 and 2001 were as
follows:
2002 2001
---- ----
Common/Collective Trusts - Fixed income fund $75,133,338 $68,080,085
Putnam Mutual Funds -
Voyager 36,117,568 56,361,721
New Opportunities 16,760,025 25,039,094
Growth & Income 13,250,275 16,772,450
Asset Allocation - Balanced Portfolio 11,109,993 13,464,532
Kennametal Inc. Common Stock Fund 22,901,159 28,166,405
8
4. TAX STATUS
The Internal Revenue Service has determined and informed the plan sponsor by a
letter dated April 22, 2003, that the Plan and related trust are designed in
accordance with applicable sections of the Code.
5. PLAN TERMINATION
Although it has not expressed any intent to do so, Kennametal Inc. has the right
to amend, suspend or terminate the Plan at any time, subject to the provisions
of ERISA. In the event of Plan termination, the accounts of all participants
will become fully vested and non-forfeitable.
6. RELATED PARTY TRANSACTIONS
Certain investments of the Plan are mutual funds managed by Putnam. The trustee
of the Plan is also Putnam and, therefore, these transactions qualify as
party-in-interest transactions.
One of the investment fund options available to participants contains stock of
Kennametal Inc., the plan sponsor. The Plan held 664,916 and 699,439 shares of
the Company's Common Stock at December 31, 2002 and 2001, respectively. As a
result, transactions related to this investment fund qualify as
party-in-interest transactions.
9
THE KENNAMETAL THRIFT PLAN
PLAN NUMBER: 002
KENNAMETAL INC.
EIN: 25-0900168
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
SCHEDULE H, LINE 4I
DECEMBER 31, 2002
Identity Current
of Issue Description of Investment Value
- ----------------------------------------------------------------------------------------------------------------
Mutual Funds
------------
*Putnam Putnam Voyager Fund $ 36,117,568
*Putnam Putnam New Opportunities Fund 16,760,025
*Putnam The Putnam Fund for Growth & Income 13,250,275
*Putnam Putnam Asset Allocation: Balanced Portfolio 11,109,993
*Putnam Putnam International Growth Fund 7,552,701
*Putnam Putnam Asset Allocation: Growth Portfolio 4,703,865
*Putnam Putnam Asset Allocation: Conservative Portfolio 4,555,144
Vanguard Vanguard Institutional Index Fund 3,167,602
Morgan Stanley MSIF US Small Cap Core Portfolio 2,602,922
Vanguard Vanguard Total Bond Market Index Fund 866,128
PIMCO PIMCO Renaissance Institutional Fund 251,079
------------
Total Mutual Funds 100,937,302
------------
Collective/Common Trusts
------------------------
Invesco PRIMCO Stable Value Fund (A) 75,133,338
-----------
Kennametal Inc. Common Stock
----------------------------
*Kennametal Kennametal Inc. Common Stock Fund 22,901,159
------------
Loans to Participants
---------------------
*Participants Loans to Participants, Maturities: From 2003 to 2028
Interest rates: 5.3% to 10.5% 5,570,183
------------
Total Investments $204,541,982
============
* Party-in-interest.
(A) Fair value of fund is $79,333,977.
10
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.
THE KENNAMETAL THRIFT PLAN
Date: June 25, 2003 By: /s/ Michael Pepperney
------------------------------
Michael Pepperney
Plan Administrator
11
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement of Form S-8 (No. 333-18423) of Kennametal Inc. of our report dated
June 6, 2003 relating to the financial statements of the Kennametal Thrift Plan,
which appears in this Form 11-K.
/s/ PricewaterhouseCoopers LLP
---------------------------------
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
June 25, 2003
12
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with The Kennametal Thrift Plan (the "Plan") on Form 11-K for the
period ended December 31, 2002 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), the undersigned, as plan
administrator of the Plan, certifies, pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his
knowledge:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of
operations of the Plan.
/s/ Michael Pepperney
- -------------------------
Michael Pepperney
Plan Administrator
The Kennametal Thrift Plan
June 25, 2003
* This certification is made solely for purposes of 18 U.S.C. Section 1350,
subject to the knowledge standard contained therein, and not for any other
purpose. A signed original of this written statement required by Section 906, or
other document authenticating, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this
written statement required by Section 906, has been provided to the Plan and
will be retained by the Plan and furnished to the Securities and Exchange
Commission or its staff upon request.
13
