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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, 2001
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
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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, 2001 and 2000........................................ 3
Statements of Changes in Net Assets Available for Benefits
Year ended December 31, 2001...................................... 4
Notes to Financial Statements..................................... 5
Supplemental Schedule:
Schedule H, Line 4i - Schedule of Assets (Held at End of Year).... 10
Report of Former Independent Accountants............................... 11
Signatures............................................................. 12
Exhibit 23 - Consent of Independent Accountants........................ 13
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, 2001, and the changes
in net assets available for benefits for the year ended December 31, 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 audit. We conducted our audit 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
audit provides a reasonable basis for our opinion. The financial statements of
the Plan as of December 31, 2000, and for the year then ended were audited by
other independent accountants, whose report dated June 29, 2001, expressed an
unqualified opinion on those financial statements.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule 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 audit 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
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PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
June 28, 2002
2
THE KENNAMETAL THRIFT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2001 AND 2000
December 31, December 31,
2001 2000
---- ----
ASSETS
Receivables:
Participant contributions $ 204,826 $ 224,638
Employer contributions 79,613 87,084
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Total Receivables 284,439 311,722
------------ ------------
Investments:
Mutual funds 136,609,025 171,336,508
Common/collective trusts - Fixed income fund 68,080,085 58,044,892
Kennametal Inc. common stock fund 28,166,405 22,624,057
Participant loans 5,414,549 5,583,346
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Total Investments 238,270,064 257,588,803
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $238,554,503 $257,900,525
============ ============
The accompanying notes are an integral part of these statements.
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THE KENNAMETAL THRIFT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2001
Kennametal Inc. All
Common Other
Stock Fund Funds Total
---------- ----- -----
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Participant contributions $ 933,053 $ 13,194,156 $ 14,127,209
Employer contributions 5,320,825 -- 5,320,825
Dividends and interest 674,632 8,170,664 8,845,296
Net appreciation of investments 8,304,209 -- 8,304,209
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Total additions 15,232,719 21,364,820 36,597,539
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DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Benefits paid to retirees (1,065,889) (14,587,934) (15,653,823)
Loan distributions -- (260,180) (260,180)
Employee withdrawals (226,349) (1,663,325) (1,889,674)
Administrative fees -- (93,684) (93,684)
Net depreciation of investments -- (37,556,289) (37,556,289)
Forfeitures (163,558) (326,353) (489,911)
------------- ------------- -------------
Total deductions (1,455,796) (54,487,765 (55,943,561)
------------- ------------- -------------
NET TRANSFERS BETWEEN FUNDS (8,242,047) 8,242,047 --
NET INCREASE (DECREASE) 5,534,876 (24,880,898) (19,346,022)
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 22,624,057 235,276,468 257,900,525
------------- ------------- -------------
End of year $ 28,158,933 $ 210,395,570 $ 238,554,503
============= ============= =============
The accompanying notes are an integral part of these statements.
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THE KENNAMETAL THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
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.
During Kennametal Inc.'s fiscal years ended June 30, 1998 and 1997, Kennametal
Inc., through a majority-owned subsidiary, acquired six companies, each
sponsoring a defined contribution employee benefit plan. During 2000, the assets
of several of these plans were merged into the Plan.
In 2000, the assets of certain participant accounts in a defined contribution
plan of a wholly-owned subsidiary of Kennametal Inc. were merged into the Plan.
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 eligible employees are entitled to become active participants
of 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 are fully vested after the third anniversary of the participant's
employment date. Forfeitures of employer contributions of $303,072 were utilized
to reduce the employer contributions in 2001.
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.
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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. 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. Effective January 1, 2002, employer contributions were temporarily
suspended until general economic conditions improve.
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. The interest rate is
determined by the plan administrator based on existing market conditions and is
fixed over the life of the loan. At December 31, 2001, interest rates on
participant loans ranged from 6% to 10.5%, with maturity dates ranging from
February 2001 to October 2028.
INVESTMENTS - 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.
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.
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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 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.
MAS Small Cap Value Fund - 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.
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.
2. ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The financial statements of the Plan are maintained on the
accrual basis of accounting.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting Standards
Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS No. 133), as amended. SFAS No. 133 requires that an
entity recognize all derivatives and measure those instruments at fair value.
The Plan was required to adopt SFAS No. 133 effective January 1, 2001.
Management initially was unable to determine the impact of SFAS No. 133 on the
Plan financial statements as a result of the inconsistency in accounting
literature between SFAS No. 133, requiring derivatives to be measured at fair
value, and the AICPA Audit and Accounting Guide on "Audits of Employee Benefit
Plans" and Statement of Position 94-4, "Reporting of Investment Contracts Held
by Health and Welfare Benefit Plans and Defined-Contribution Pension Plans,"
(SOP 94-4) requiring benefit-responsive investment contracts (including
synthetic GICs) to be measured at contract value.
In October 2001, the Derivatives Implementation Group (DIG) of the FASB
tentatively released Implementation Issue C19 (DIG C19), which provides that
fully benefit-responsive investment contracts accounted for under either
paragraph 4 or 5 of SOP 94-4 are not subject to SFAS No. 133. The tentative
guidance included in DIG C19 has been incorporated into an exposure draft of the
Amendment of SFAS No. 133. Although this amendment project has yet to be
finalized, management believes that it provides the most relevant accounting
guidance for fully benefit-responsive investment contracts. Accordingly, the
Plan has measured all fully benefit responsive investment contracts at contract
value at December 31, 2001 and 2000. The SFAS No. 133
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amendment project is expected to be finalized during 2002. The Plan holds no
other material derivative financial instruments at December 31, 2001 or 2000.
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 difference between the contract value and the fair value of all investment
contracts was $2,419,694 and $850,450 at December 31, 2001 and 2000,
respectively. The crediting interest rates on the contracts ranged from 3.94% to
7.12% at December 31, 2001 and from 4.85% to 7.47% at December 31, 2000.
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 for the PRIMCO Stable Value Fund,
other administrative fees and expenses of the Plan are paid from assets and
income of the Plan. Other fund management fees are included as a reduction in
the income of the fund.
REALIZED/UNREALIZED GAINS AND LOSSES - Net appreciation (depreciation) of
investments is comprised of the change in market value compared to the cost of
investments retained in the Plan and realized gains or losses on security
transactions represent the difference between proceeds received and average
cost.
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.
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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, 2001 and 2000 were as
follows:
2001 2000
---- ----
Common/Collective Trusts - Fixed income fund $68,080,085 $58,044,892
Putnam Mutual Funds -
Voyager 56,361,721 79,041,699
New Opportunities 25,039,094 34,703,124
Growth & Income 16,772,450 16,411,185
Asset Allocation - Balanced Portfolio 13,464,532 14,434,751
Kennametal Inc. common stock 28,166,405 22,624,057
4. TAX STATUS
The Internal Revenue Service has determined and informed the Plan sponsor by a
letter dated April 23, 1996, that the Plan and related trust are designed in
accordance with applicable sections of the Code. Although the Plan has been
amended since receiving the determination letter, the Plan administrator and the
Plan's tax counsel believe that the Plan is designed and is currently being
operated in compliance with the applicable requirements 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.
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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, 2001
Identity Current
of Issue Description of Investment Value
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Mutual Funds
*Putnam Putnam Voyager Fund $ 56,361,721
*Putnam Putnam New Opportunities Fund 25,039,094
*Putnam The Putnam Fund for Growth & Income 16,772,450
*Putnam Putnam Asset Allocation: Balanced Portfolio 13,464,532
*Putnam Putnam International Growth Fund 9,450,200
*Putnam Putnam Asset Allocation: Growth Portfolio 5,541,197
*Putnam Putnam Asset Allocation: Conservative Portfolio 4,146,785
Vanguard Vanguard 500 Index Fund 3,560,495
Morgan Stanley MAS Small Cap Value Fund 2,272,551
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Total Mutual Funds 136,609,025
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Collective/Common Trusts
Invesco PRIMCO Stable Value Fund (A) 68,080,085
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Kennametal Inc. Common Stock
*Kennametal Kennametal Inc. Common Stock Fund 28,166,405
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Loans to Participants
*Participants Loans to Participants, Maturities: From February 2001 to October 2028
Interest rates: 6% to 10.5% 5,414,549
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Total Investments $ 238,270,064
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* Party-in-interest.
(A) Fair value of fund is $70,499,779.
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The following report is a copy of a previously issued report by Arthur Andersen
LLP and it has not been reissued by Arthur Andersen LLP. Arthur Andersen LLP has
not consented to its inclusion; therefore, an investor's ability to recover any
potential damages may be limited.
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, 2000 and
1999, and the related statements of changes in net assets available for plan
benefits for the years then ended. These financial statements and the schedule
referred to below are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2000 and 1999, and the changes in net assets available for plan
benefits for the years then ended, in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes 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. The supplemental schedule 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
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Arthur Andersen LLP
Pittsburgh, Pennsylvania
June 29, 2001
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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 28, 2002 By: /s/ AMY DOVERSPIKE
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Amy Doverspike
Plan Administrator
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