KENNAMETAL INC.  / AR 2002 47 Included in deferred tax assets at June 30, 2002 are unrealized tax benefits totaling $9.6 million related to net operating loss carryforwards. The realization of these tax benefits is contingent on future taxable income in certain international operations. Of this amount, $2.6 million (net of a $2.1 million valuation allowance) relates to net operating loss carryforwards in the United Kingdom and Germany, which can be carried forward indefinitely. The remaining unrealized tax benefits relate to net operating loss carryforwards in certain other international operations that are fully reserved and the majority of which expire over the next five years. Note 10 Pension and Other Postretirement and Postemployment Benefits We sponsor several pension plans that cover substantially all employees. Pension benefits under defined benefit pension plans are based on years of service and, for certain plans, on average compensation immediately preceding retirement. Pension costs are determined in accordance with SFAS No. 87, “Employers’ Accounting for Pensions.” We fund pension costs in accordance with the funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA), as amended, for U.S. plans and in accordance with local regulations or customs for non-U.S. plans. In 2000, we made a qualified transfer of pension assets of $2.2 million from a U.S. pension plan to pay for medical benefit claims and administrative expenses incurred for postretirement health care benefits. We presently provide varying levels of postretirement health care and life insurance benefits to most U.S. employees. Postretirement health care benefits are available to employees and their spouses retiring on or after age 55 with 10 or more years of service after age 40. Beginning with retirements on or after January 1, 1998, our portion of the costs of postretirement health care benefits are capped at 1996 levels. The funded status of our pension plans and amounts recognized in the consolidated balance sheets were as follows: (in thousands) 2002 2001 Change in benefit obligation: Benefit obligation, beginning of year $ 373,695 $ 354,314 Service cost 10,706 11,317  Interest cost 26,286 26,368  Participant contributions 642 722  Actuarial (gains) losses 1,865 4,562  Benefits paid (19,489) (18,649)  Effect of curtailment and other 489 305  Foreign currency translation adjustments 5,950 (5,244)  Other 516 –  Benefit obligation, end of year $ 400,660 $ 373,695  Change in plan assets:  Fair value of plan assets, beginning of year $ 443,217 $ 472,208  Actual return on plan assets (25,245) (10,433)  Company contributions 1,947 2,501  Participant contributions 642 722  Benefits paid (19,489) (18,649) Other 21 (660)  Foreign currency translation adjustments 2,295 (2,472)  Fair value of plan assets, end of year $ 403,388 $ 443,217  Funded status of plans $ 2,728 $ 69,522  Unrecognized transition obligation 963 (1,268)  Unrecognized prior service cost 4,538 4,451  Unrecognized actuarial losses (gains) 20,379 (55,860)  Minimum pension liability (12,759) (8,906)  Net accrued benefit $ 15,849 $ 7,939  Amounts recognized in the balance sheet consist of:  Prepaid benefit $ 48,665 $ 32,205  Accrued benefit obligation (32,816) (24,266)  Net accrued benefit $ 15,849 $ 7,939 