UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003.
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ______.
Commission file number 1-2299
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
Applied Industrial Technologies, Inc.
Retirement Savings Plan
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Applied Industrial Technologies, Inc.
One Applied Plaza
Cleveland, Ohio 44115-5056
Financial Statements and Exhibit(s)
Page No.
(a) Financial Statements (in this Report)
-------------------- ----------------
Independent Auditors' Report 5
Statement of Net Assets Available 6
for Benefits --
December 31, 2003 and 2002
Statement of Changes in Net Assets 7
Available for Benefits --
Years Ended December 31, 2003
and 2002
Notes to Financial Statements -- 8 - 12
Years Ended December 31,
2003 and 2002
Supplemental Schedule 13
(b) Exhibit(s)
Independent Auditors' Consent 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Plan has duly caused this annual report to be signed on its behalf by the
undersigned, hereunto duly authorized.
APPLIED INDUSTRIAL TECHNOLOGIES,
INC. RETIREMENT SAVINGS PLAN
By: Applied Industrial
Technologies, Inc., as Plan
Administrator
By: /s/ Mark O. Eisele
--------------------------------------
Signature
Mark O. Eisele
--------------------------------------
Printed Name
Vice President
--------------------------------------
Title
Date: June 25, 2004
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
RETIREMENT SAVINGS PLAN
Financial Statements
For the Years Ended December 31, 2003 and 2002,
Supplemental Schedule as of
December 31, 2003,
and Report of Independent Registered Public Accounting Firm
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
RETIREMENT SAVINGS PLAN
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits
As of December 31, 2003 and 2002 2
Statements of Changes in Net Assets Available for Benefits
For the Years Ended December 31, 2003 and 2002 3
Notes to Financial Statements 4 - 8
SUPPLEMENTAL SCHEDULE:
Schedule H, Line 4(i) - Schedule of Assets (Held at End of Year)
As of December 31, 2003 9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Applied Industrial Technologies, Inc. Retirement Savings Plan
We have audited the accompanying statements of net assets available for benefits
of the Applied Industrial Technologies, Inc. Retirement Savings Plan (the
"Plan") as of December 31, 2003 and 2002, and the related statements of changes
in net assets available for benefits for the years then ended. 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 in accordance with 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. 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, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31,
2003 and 2002, and the changes in net assets available for benefits for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed in the
table of contents 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 schedule is the responsibility of the Plan's management. Such
schedule has been subjected to the auditing procedures applied in our audit of
the basic 2003 financial statements and, in our opinion, is fairly stated in all
material respects when considered in relation to the basic financial statements
taken as a whole.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
June 14, 2004
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2003 AND 2002
2003 2002
ASSETS:
Investments at fair value:
Applied Industrial Technologies, Inc. common stock $ 44,931,151 $ 33,409,430
Mutual funds 124,896,351 87,809,727
Common/collective trust funds 42,405,383 49,847,375
Loans to participants 7,697,277 7,870,779
------------ ------------
Total investments 219,930,162 178,937,311
Investment income receivable -- 58,949
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $219,930,162 $178,996,260
============ ============
See notes to financial statements.
2
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
RETIREMENT SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
ADDITIONS:
Contributions:
Participants $ 8,630,098 $ 9,155,088
Employer:
Applied Industrial Technologies, Inc. common stock 3,433,420 1,927,441
Cash 1,495,593 1,144,298
------------- -------------
Total contributions 13,559,111 12,226,827
Investment income/(loss):
Dividends, interest and other:
Common stock 990,053 841,236
Mutual funds 2,093,525 2,767,759
Common/collective trust funds -- 655,808
------------- -------------
Total dividends 3,083,578 4,264,803
Net appreciation/(depreciation) in fair value of investments:
Common stock 9,274,008 515,304
Mutual funds 20,287,331 (21,226,868)
Common/collective trust funds 7,096,213 (283,644)
------------- -------------
Total net appreciation/(depreciation) in fair value of investments: 36,657,552 (20,995,208)
------------- -------------
Total investment income/(loss) 39,741,130 (16,730,405)
------------- -------------
Total additions 53,300,241 (4,503,578)
DEDUCTIONS:
Distributions to participants 12,104,037 11,224,785
Administrative expenses 262,302 563,347
------------- -------------
Total deductions 12,366,339 11,788,132
------------- -------------
INCREASE/(DECREASE) IN NET ASSETS FOR THE YEAR 40,933,902 (16,291,710)
NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING OF THE YEAR 178,996,260 195,287,970
------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS, END OF THE YEAR $ 219,930,162 $ 178,996,260
============= =============
See notes to financial statements.
3
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003 AND 2002
1. DESCRIPTION OF THE PLAN
The following description of the Applied Industrial Technologies, Inc.
Retirement Savings Plan (the "Plan") is provided for general purposes
only. Participants and users of the financial statements should refer to
the Plan document for more complete information.
GENERAL - The Plan was established for the purpose of encouraging and
assisting employees of Applied Industrial Technologies, Inc. and its
subsidiaries (the "Company") to provide long-term, tax-deferred savings
for retirement. The Plan is subject to the reporting and disclosure
requirements, the minimum participation and vesting standards, and the
fiduciary responsibility requirements of the Employee Retirement Income
Security Act of 1974.
ADMINISTRATION - The Plan is administered by the Company. The Company's
powers and duties relate to making participant and employer contributions
to the Trust, establishing investment objectives, authorizing
disbursements from the Trust, and resolving any questions of Plan
interpretation.
The assets of the Plan are maintained and administered by American Express
Trust Company and American Express Retirement Services, acting as Trustee
and record keeper. The Trustee is responsible for the custody of assets.
Effective March 1, 2003, American Express Trust Company and American
Express Retirement Services, became the new trustee and record keeper,
respectively, for the Applied Industrial Technologies, Inc. Retirement
Savings Plan. The transfer of the assets from Key Trust Co. of Ohio, N.A.
to American Express Trust Company took place on March 3, 2003. There was a
"blackout period" from March 3, 2003 to March 20, 2003 during which time
participants were unable to exercise their rights related to the Plan.
PARTICIPANT ACCOUNTS - Each participant's account is credited with the
participant's contributions and allocations of (a) the Company's
contributions and, (b) Plan earnings, and charged with an allocation of
administrative expenses. Allocated expenses are based on participant
contributions, account balances, or can be per capita, as defined. The
benefit to which a participant is entitled is the benefit that can be
provided from the participant's vested portion of their account.
PARTICIPATION AND CONTRIBUTIONS - All eligible employees may participate
in the Plan on the first day of the month following their hire when one
hour of service is performed during the first fifteen days of a calendar
month. Each employee who first completes an hour of service after the
first fifteen days of a calendar month shall become eligible as of the
first payroll period in the second month following the month in which the
first hour of service was completed.
Eligible employees may elect to make pretax contributions to the Plan
ranging from 1% to 50% of compensation. For those eligible employees who
do not make a contribution election, their compensation shall be
automatically reduced by two percent and such shall be contributed on
their behalf to the Plan as contributions until superseded by a subsequent
4
contribution election. The Company may make additional contributions to
the Plan, including, but not limited to, matching contributions equal to a
percentage of participant pretax contributions not in excess of 6% of the
participant's compensation, and discretionary profit-sharing contributions
as determined annually. Matching employer contributions are determined
based upon the Company's earnings per share for the immediately preceding
calendar year quarter and the participant's investment elections. Except
in the case of death, disability, or retirement, a participant must be
employed through the last payroll period of the quarter to receive the
Plan's quarter match. The matching employer contribution is updated
annually based on the Company's June 30 fiscal year end and is currently
determined using the following schedule:
SUBSEQUENT QUARTER MATCHING CONTRIBUTION
-----------------------------------------
$.25 $.35 $.50 $.75 $1.00
---- ---- ---- ---- -----
QUARTERLY EPS
-----------------------------------------
Quarter Ended 9/30/03 .25 .28 .31 .33
Quarter Ended 12/31/03 Minimum .25 .28 .31 .33
Quarter Ended 3/31/04 Match .26 .29 .31 .33
Quarter Ended 6/30/04 .34 .35 .37 .41
The employer match on participant contributions to investment funds other
than the Company Stock fund was $.35, $.25, $1.00, and $.35 for the four
2003 quarters, and $.25, $.35, $.25, and $.50 for the four 2002 quarters,
respectively.
Matching employer contributions are made primarily in shares of Applied
Industrial Technologies, Inc. common stock to the Company Stock Fund.
Participants that elect to contribute to the Company Stock Fund, receive
an additional 10% Bonus Match on the participant's pretax contributions
not in excess of 6% of the participant's compensation. The Bonus Match is
also made primarily in shares of Applied Industrial Technologies, Inc.
common stock to the Company Stock Fund. Matching employer contributions
and Bonus Match are invested in the Employer Match Fund and cannot be
transferred until age 55.
The Company may also make a Profit-Sharing Contribution to the Plan
annually. Participants must be employed on June 30 of such Plan year and
have completed at least one year of service, as defined in the Plan
agreement, as of June 30 to be eligible to receive an allocation of the
Profit-Sharing Contribution. Additionally, the Company may contribute a
special Profit-Sharing Contribution to individuals who retire after
attaining age 55 and completing ten years of service. Profit-Sharing
Contributions are allocated to each participant's Profit-Sharing
Contribution Account based upon the ratio of each participant's total
compensation to the aggregate compensation of all participants eligible to
receive a Profit-Sharing Contribution. The Profit-Sharing Contributions
for the years ended December 31, 2003 and 2002 were composed of $1,495,431
and $1,143,945 in cash, and $132,569 and $106,055 in Applied Industrial
Technologies, Inc. common stock, respectively.
Contributions are excluded from participants' taxable income until such
amounts are received by them as a distribution from the Plan.
The Plan permits catch-up contributions for participants who are age 50 or
older and defer the maximum amount allowed under the Plan. Maximum
catch-up contributions are $1,000 in 2002, $2,000 in 2003, $3,000 in 2004,
$4,000 in 2005 and $5,000 in 2006.
The Plan provides for Rollover Contributions (amounts previously
distributed to the participants from certain other tax-qualified plans)
and Transfer Contributions (assets
5
transferred from certain other tax-qualified plans) by or on behalf of an
employee in accordance with procedures established by the Company.
INVESTMENT OF CONTRIBUTIONS - Participants elect investment of
profit-sharing and pretax contributions in 1% increments in the Plan's
Company Stock, AET Income II Fund, American Fundamental Investors Fund,
American EuroPacific Growth Fund, Pimco Total Return Fund, Franklin
Small-Cap Growth II Fund, T Rowe Price Mid-Cap Growth Fund, Vanguard Asset
Allocation Fund, AIT Large-Cap Growth Funds consisting of (Vanguard Growth
Index Fund, Harbor Appreciation Fund and Wilshire Target Fund), AXP S&P
500 Index Fund, Royce Total Return Fund, Lord Abbett Mid-Cap Value Fund,
Alliance Growth & Income Fund, or the Calamos Growth Fund. The portion of
the Plan that is invested in the Company Stock Fund is intended to be an
Employee Stock Ownership Plan (ESOP) under code section 4975 (e)(7) and
ERISA section 407 (d)(6). Participants may elect to change their
investment elections as to future contributions and may also elect to
reallocate a portion or all of their account balances among the investment
choices in increments of 1% of the total amount to be reallocated. All
such elections are filed with the Trustee and become effective daily.
In connection with the change to the new trustee and record keeper
effective March 1, 2003, the AET Income II Fund, the AXP S&P 500 Index
Fund, and the Calamos Growth Fund were added to the Plan, while the EB
MaGIC Fund, EB Equity Index Fund, EB Money Market and MFS Mid-Cap Growth
Fund were removed from the Plan.
The value of the Company's common stock and funds and the interest of
individual participants under each investment, are calculated daily (daily
valuation).
VESTING AND DISTRIBUTIONS - Each participant is immediately and fully
vested in their participant contributions and earnings thereon.
Participants vest in Matching Employer Contributions and Profit-Sharing
Contributions at a rate of 25% for each year of eligible service, becoming
completely vested after four years, or at death, termination of employment
due to physical or mental disability determined by the Company upon the
basis of a written certificate of a physician selected by it, or normal
early retirement as defined in the Plan.
Upon termination of employment, participants may receive lump sum or
installment distributions of their vested account balances as soon as
administratively possible. The Plan permits hardship withdrawals, if the
hardship criteria is met, or in-service distributions at age 59-1/2. These
distributions are limited to participant rollovers, salary deferral and
catch-up contributions.
Forfeitures of nonvested amounts are applied to reduce future Matching
Employer Contributions. Total forfeitures were $58,930 in 2003 and $95,180
in 2002.
LOANS - Participants may borrow from their 401(k) Contributions, 401(k)
Catch-up Contributions, Rollover Contributions and Transferred
Contributions a minimum of $1,000 up to a maximum equal to the lesser of
$50,000 or 50 percent of the aggregate sum of the participants' accounts.
Loan terms range from 1-5 years or up to ten years, if for the purchase of
a primary residence. Loans that originated from merged plans are also
reflected in loans to participants in the Plan's financial statements.
These loans are to be repaid to the Plan in accordance with their original
terms. The loans are secured by the balance in the participants' accounts
and bear interest at rates prevailing at the time the loans were made.
Principal and interest are paid ratably through bi-weekly payroll
deductions. Loans cannot be borrowed from the Profit-Sharing Contributions
or from the Company match.
6
PLAN TERMINATION - The Plan was adopted with the expectation that it will
continue indefinitely. The Company may, however, terminate the Plan at any
time and may amend the Plan from time to time. In the event of termination
of the Plan, all participants will immediately become fully vested in
their accounts.
TAX STATUS OF THE PLAN - The Plan obtained its latest determination letter
dated July 12, 2003, in which the Internal Revenue Service stated that the
Plan, as then designed, was in compliance with the applicable requirements
of the Internal Revenue Code. The Plan has not been amended since
receiving this 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 Internal
Revenue Code. Therefore, no provision for income taxes has been included
in the Plan's financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The accompanying financial statements have been
prepared on the accrual basis of accounting.
USE OF ESTIMATES - The preparation of the financial statements in
conformity with accounting principles generally accepted in the United
States of America 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.
VALUATION OF INVESTMENTS - Investments are accounted for at cost on the
trade-date and are reported in the statement of net assets available for
benefits at fair value. The investment in Applied Industrial Technologies,
Inc. common stock is valued using the year-end closing price listed by the
New York Stock Exchange. Investment funds are stated at values using
year-end closing prices for each of the funds or quoted market prices.
Participant loans are stated at cost, which approximates fair value.
RISK AND UNCERTAINTIES - In general, investment securities are exposed to
various risks, such as interest rate, credit and overall market volatility
risks. Due to the level of risk associated with certain investment
securities, it is reasonably possible that changes in the values of
investment securities could occur in the near term, and such changes could
materially affect the amounts reported in the statements of net assets
available for benefits and statement of changes in net assets available
for benefits.
BENEFIT PAYMENTS - Distributions to participants are recorded by the Plan
when payments are made.
ADMINISTRATIVE EXPENSES - Administrative expenses of the Plan are paid by
the Plan or the Company, as determined by the Company.
3. INVESTMENTS
The Plan provides that, in accordance with the investment objectives
established by the Company, the Trustee of the Plan shall hold, invest,
reinvest, manage and administer all assets of the Plan as a trust fund for
the exclusive benefit of participants and their beneficiaries.
7
Plan investments exceeding 5% of net assets available for benefits as of
December 31, 2003 and 2002 were as follows:
Description of
Investment 2003 2002
----------- -----------
Applied Industrial Technologies,
Inc. Common Stock $44,931,151 $33,409,430
AET Income II Fund 42,405,383 --
American Fundamental Investors Fund 28,187,146 21,746,878
AIT Large-Cap Growth Fund 20,821,969 --
American EuroPacific Growth Fund 15,460,396 11,408,636
Pimco Total Return Fund 13,059,375 12,220,016
Franklin Small-Cap Growth II Fund 11,389,171 --
EB MaGIC Fund -- 44,174,805
4. NONPARTICIPANT-DIRECTED INVESTMENTS
The Plan's only non-participant directed transactions are contained within
the Company Stock Fund, which includes both participant and
non-participant directed transactions. Information about the net assets
and the significant components of the changes in net assets relating to
the Company Stock Fund is as follows:
2003 2002
------------ ------------
Net Assets:
Common stock $ 44,931,151 $ 33,409,430
Money market funds -- 507,458
------------ ------------
$ 44,931,151 $ 33,916,888
============ ============
Change in Net Assets:
Contributions $ 5,006,273 $ 2,727,718
Dividends 990,053 841,236
Net appreciation in fair value 9,274,008 515,304
Benefits paid to participants (360,345) (1,897,652)
Transfers to participant-directed investments, net (3,895,726) (616,230)
------------ ------------
$ 11,014,263 $ 1,570,376
============ ============
******
8
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
RETIREMENT SAVINGS PLAN
EMPLOYER ID NUMBER: 34-0117420
PLAN NUMBER: 003
SCHEDULE H LINE 4I - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2003
( A ) ( B ) ( C ) ( D ) ( E )
Identity of Issuer, Borrower, Current
Lessor or Similar Party Description of Investment Cost Value
* Applied Industrial Tech., Inc. Common Stock - 1,843,732 shares $32,543,900 $ 44,931,151
* American Express Trust Company AET Income II Fund - 1,783,487 units ** 42,405,383
The American Funds Group American Fundamental Investors Fund - 977,024 shares ** 28,187,146
The American Funds Group American EuroPacific Growth Fund - 511,764 shares ** 15,460,396
Pimco Fund Pimco Total Return Fund - 1,217,218 units ** 13,059,375
Franklin Templeton Franklin Small-Cap Growth II Fund - 1,054,536 shares ** 11,389,171
T. Rowe Price T Rowe Price Mid-Cap Growth Fund - 222,696 shares ** 9,553,643
The Vanguard Group Vanguard Asset Allocation Fund - 401,007 shares ** 9,046,726
* Participant Loans Participant Loans (with interest rates ** 7,697,277
ranging from 7.00% to 11.50% and
maturity dates ranging from January
2004 to July 2027)
The Vanguard Group Index Fund Vanguard Growth Index Fund - 283,713 shares ** 7,073,615
Harbor Fund Harbor Capital Appreciation Fund - 261,297 shares ** 6,880,824
Wilshire Target Fund Wilshire Target Large Growth Fund - 230,105 shares ** 6,867,530
* American Express Trust Company AXP S&P 500 Index Fund - 1,556,279 units ** 6,729,234
Royce Total Return Royce Total Return Fund - 284,006 shares ** 3,073,406
Lord Abbett Mid-Cap Value Lord Abbett Mid-Cap Value Fund - 145,337 shares ** 2,729,436
Alliance Growth & Income Alliance Growth & Income Fund - 731,847 shares ** 2,480,963
Calamos Fund Calamos Growth Fund - 52,730 shares ** 2,364,887
------------
Total $219,930,162
============
* Represents a party-in-interest
** Indicates a participant-directed fund. The cost disclosure not
required.
9
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos.
33-65513, 33-42623, and 333-83809 of Applied Industrial Technologies, Inc. on
Form S-8 of our report dated June 14, 2004, appearing in this Annual Report on
Form 11-K of Applied Industrial Technologies, Inc. Retirement Savings Plan for
the year ended December 31, 2003.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
June 25, 2004