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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, 2003
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
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Report of Independent Registered Public Accounting Firm......................... 2
Financial Statements:
Statements of Net Assets Available for Benefits
December 31, 2003 and 2002................................................. 3
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 2003 and 2002..................................... 4
Notes to Financial Statements.............................................. 5
Supplemental Schedule:
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2003.......................................................... 11
Signatures...................................................................... 12
Exhibit 23 - Consent of Independent Registered Public Accounting Firm........... 13
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 REGISTERED PUBLIC ACCOUNTING FIRM
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 statements 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, 2003 and 2002, and
the changes in net assets available for benefits for the years ended December
31, 2003 and 2002, 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 the standards of the Public
Company Accounting Oversight Board (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, 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
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PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
June 25, 2004
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THE KENNAMETAL THRIFT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2003 AND 2002
December 31, December 31,
2003 2002
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ASSETS
Receivables:
Participant contributions $ 64,449 $ 557,093
Employer contributions 46,049 --
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Total receivables 110,498 557,093
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Investments 239,520,223 204,541,982
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NET ASSETS AVAILABLE FOR BENEFITS $ 239,630,721 $ 205,099,075
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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
YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
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ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Participant contributions $ 12,997,708 $ 13,228,348
Employer contributions, net of forfeitures 4,368,233 20,617
Dividends and interest 4,822,269 5,852,426
Transfers from other Kennametal Plans 441,405 750,953
Net appreciation of investments 31,165,899 --
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Total additions 53,795,514 19,852,344
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DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Benefits paid to retirees (16,437,596) (15,345,973)
Loan distributions (355,748) (281,175)
Employee withdrawals (2,461,124) (2,301,712)
Administrative fees (9,400) (7,800)
Net depreciation of investments -- (35,371,112)
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Total deductions (19,263,868) (53,307,772)
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NET INCREASE (DECREASE) 34,531,646 (33,455,428)
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 205,099,075 238,554,503
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End of year $ 239,630,721 $ 205,099,075
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The accompanying notes are an integral part of these statements.
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THE KENNAMETAL THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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 (the Company) 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.
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, 2003 and 2002, forfeited nonvested accounts
totaled $61,256 and $213,582, respectively. These amounts will be used to reduce
future employer contributions. Also, in 2003 and 2002, employer contributions
were reduced by $214,491 and $95,872, 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 - Effective April 1, 2003, the Plan allows participants to elect a
contribution rate (either before-tax, after-tax, or a combination of both) of 2%
to 20% of the employee's wages, which include base salary, overtime, shift
differential pay and incentive compensation. Prior to April 1, 2003,
participants could elect a contribution rate of 2% to 12% 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 for all employees. These contributions were reinstated January 1,
2003.
In connection with certain changes to Company-sponsored defined benefit plans,
certain employees are no longer eligible to participate in those plans. These
employees are eligible to participate in
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the Plan and receive a fixed contribution equal to 3% of the employee's
compensation and an additional variable contribution from 0% up to 3% depending
on the Company's performance. These changes are effective January 1, 2004.
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, except if the proceeds are used to acquire a participant's principal
residence. 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 5.0% to 10.5% at December 31, 2003 and 5.3% to 10.5% at
December 31, 2002. Participant loans outstanding at December 31, 2003 have
maturity dates ranging from 2004 to 2028.
INVESTMENTS - The following investment options were available to participants at
December 31, 2003:
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), 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.
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 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.
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.
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.
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
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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.
Retirement Ready Funds - Each Retirement Ready Portfolio has a different target
date that relates to expected retirement dates. The dates range from 2010 to
2045 in five-year intervals, with the exception of the Maturity Portfolio, which
is designed for participants who are at or near retirement. All of the
Retirement Ready Portfolios are diversified across an array of Putnam mutual
funds that invest in different styles and include a mix of stocks, bonds, and
capital preservation investments. The portfolios can invest significantly in
foreign securities, which involve certain risks, such as currency fluctuations,
economic instability, and political developments.
Artisan Mid Cap Fund - This fund seeks long-term capital growth through a
diversified portfolio of stocks of midsize companies. The fund invests all or a
portion of its assets in small to midsize companies. Such investments increase
the risk of greater price fluctuations.
MSIF Small Company Growth Portfolio - This fund seeks to maximize long-term
capital appreciation by investing primarily in the equity securities of small
and midsize companies that are in the early stages of their life cycle. The fund
invests all or a portion of its assets in small to midsize companies. Such
investments increase the risk of greater price fluctuations.
Lord Abbett Small Cap Value Fund - This fund seeks long-term capital
appreciation by investing primarily in common stocks of small companies with a
market capitalization of less than $2 billion. Lord Abbett believes in a
low-risk approach to investing in these stocks. 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.
In addition, during the year ended December 31, 2003, participants were able to
direct their contributions to certain other investment options. Amounts held in
the discontinued investment options were converted to available investment
options with similar investment objectives.
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.
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". INVESCO Institutional, Inc. certified that
all the investment contracts held in the Stable Value Fund (see Note 4) are
fully benefit-responsive. Shares of registered investment companies are valued
at the net asset value of shares held by the Plan at year-end. Units of
common/collective trust funds are valued at the net asset value of units held by
the Plan at year-end. Investments in common stock are valued at their quoted
market price at year-end. Participant loans are valued at cost, which
approximates fair value.
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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, 2003 and 2002 were as follows:
2003 2002
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Kennametal Inc. Common Stock Fund $ 3,867,011 $ (3,298,862)
Common/Collective Trusts 2,974,376 --
All Other 24,324,512 (32,072,250)
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Total $ 31,165,899 $(35,371,112)
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USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and changes therein, and disclosure of
contingent assets and liabilities. Actual results could differ from those
estimates.
3. INVESTMENTS EXCEEDING FIVE PERCENT OF NET ASSETS
The values of individual investments that represent five percent or more of the
Plan's total net assets as of December 31, 2003 and 2002 were as follows:
2003 2002
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AT CONTRACT VALUE:
Stable Value Fund $69,180,859 $75,133,338
AT FAIR VALUE, AS DETERMINED BY QUOTED MARKET PRICES:
Putnam Voyager Fund 39,297,924 36,117,568
Artisan Mid Cap Fund 21,714,650 --
Putnam New Opportunities Fund -- 16,760,025
Putnam Fund for Growth & Income 16,223,043 13,250,275
Putnam Asset Allocation - Balanced Portfolio -- 11,109,993
Kennametal Inc. Common Stock Fund 25,845,155 22,901,159
AT ESTIMATED FAIR VALUE:
Putnam Retirementready 2015 14,255,745 --
4. STABLE VALUE FUND
A portion of the Plan's investments are held in a Stable Value Fund which was
established for the investment of assets of the Plan and several other
Company-sponsored retirement plans. Each plan has an undivided interest in the
underlying assets of the Stable Value Fund. The assets of the Stable
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Value Fund are held by Mellon Bank, N.A. (Trustee). At December 31, 2003 and
2002, the Plan's interest in the Stable Value Fund was 62.1 percent and 62.7
percent, respectively. Investment income and administrative expenses relating to
the Stable Value Fund are allocated to the individual plans based upon average
monthly balances invested by each plan. The underlying assets of the Stable
Value Fund include benefit-responsive investment contracts (the contracts). The
crediting interest rates on the contracts ranged from 1.0 percent to 7.1 percent
and 1.4 percent to 7.2 percent at December 31, 2003 and 2002, respectively. The
average yields on the contracts ranged from 1.2 percent to 7.1 percent and 2.2
percent to 7.1 percent for the years ended December 31, 2003 and 2002,
respectively. The fair value of all investment contracts was $115,879,042 and
$126,432,678 at December 31, 2003 and 2002, respectively.
Investments at contract value held by the Stable Value Fund at December 31, 2003
and 2002 are as follows:
December 31,
2003 2002
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Short Term Investments $ 1,253,506 $ 4,055,704
Insurance Investment Contracts 11,861,790 13,088,689
Synthetic Investment Contracts
Underlying Assets:
Common / Collective Trusts 93,307,466 48,955,815
Insurance Separate Account 4,464,219 6,563,123
Asset-Backed Securities 1,003,413 46,488,164
Treasury Obligations 3,367,910 5,590,884
Cash 117,088 777,965
Synthetic Wrapper Agreement (4,007,195) (5,670,635)
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Investments $ 111,368,197 $ 119,849,709
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Total investment income for the Stable Value Fund was $5,061,804 and $6,178,565
for the years ended December 31, 2003 and 2002, respectively.
5. 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.
6. 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.
7. RELATED PARTY TRANSACTIONS
Certain investments of the Plan are mutual funds managed by Putnam Investments.
The trustee of the Plan is Putnam Fiduciary Trust Company and, therefore, these
transactions qualify as party-in-interest transactions.
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One of the investment fund options available to participants contains stock of
Kennametal Inc., the plan sponsor. The Plan held 650,193 and 664,916 shares of
the Company's Common Stock at December 31, 2003 and 2002, respectively. As a
result, transactions related to this investment fund 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, 2003
Fair
(a) (b)Issuer (c)Description (d)Cost (e)Value
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Mutual Funds
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*Putnam Putnam Voyager Fund $ 39,297,924
Artisan Artisan Mid Cap Fund 21,714,650
*Putnam The Putnam Fund for Growth & Income 16,223,043
*Putnam Putnam International Growth Fund 8,595,365
Vanguard Vanguard Institutional Index Fund 6,022,240
Lord Abbett Lord Abbett Small Cap Value Fund 4,646,613
PIMCO PIMCO Renaissance Institutional Fund 4,385,111
Vanguard Vanguard Total Bond Market Index Fund 2,925,252
Morgan Stanley MSIF Small Company Growth Portfolio 2,761,808
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Total Mutual Funds 106,572,006
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Common/Collective Trusts
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*Putnam Putnam Retirementready 2015 14,255,745
*Putnam Putnam Retirementready 2025 6,238,292
*Putnam Putnam Retirementready Income Fund 4,747,467
*Putnam Putnam Retirementready 2010 2,593,330
*Putnam Putnam Retirementready 2020 2,501,242
*Putnam Putnam Retirementready 2030 1,010,140
*Putnam Putnam Retirementready 2035 647,041
*Putnam Putnam Retirementready 2040 192,594
*Putnam Putnam Retirementready 2045 89,883
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Total Common / Collective Trusts 32,275,734
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Master Trust
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Invesco Stable Value Fund 69,180,859
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Kennametal Inc. Common Stock
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*Kennametal Kennametal Inc. Common Stock Fund 25,845,155
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Loans to Participants
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Participants Loans to Participants, Maturities: From 2004 to 2028
Interest rates: 5.0% to 10.5% 5,646,469
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Total Investments $ 239,520,223
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* Party-in-interest, for which a statutory exemption exists.
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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 29, 2004 By: /s/ Veronica McDonough
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Veronica McDonough
Plan Administrator
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