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, 2004.
[ ] 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.
(in this Report)
(a) Financial Statements
Independent Auditors' Report 5
Statement of Net Assets Available 6
for Benefits --
December 31, 2004 and 2003
Statement of Changes in Net Assets 7
Available for Benefits --
Years Ended December 31, 2004
and 2003
Notes to Financial Statements -- 8 - 12
Years Ended December 31,
2004 and 2003
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/ Daniel T. Brezovec
---------------------------------------
Signature
Daniel T. Brezovec
---------------------------------------
Printed Name
Corporate Controller
---------------------------------------
Title
Date: June 28, 2005
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
RETIREMENT SAVINGS PLAN
Financial Statements
For the Years Ended December 31, 2004 and 2003,
Supplemental Schedule as of
December 31, 2004,
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, 2004 and 2003 2
Statements of Changes in Net Assets Available for Benefits
For the Years Ended December 31, 2004 and 2003 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, 2004 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 Applied Industrial Technologies, Inc. Retirement Savings Plan (the "Plan") as
of December 31, 2004 and 2003, 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. The Plan is not required to have,
nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Plan's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 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,
2004 and 2003, 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 of assets as of
December 31, 2004 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 2004 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 10, 2005
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2004 AND 2003
2004 2003
ASSETS:
Investments at fair value:
Applied Industrial Technologies, Inc. common stock $ 80,646,055 $ 44,931,151
Mutual funds 144,064,605 124,896,351
Common/collective trust funds 41,434,628 42,405,383
Loans to participants 7,423,278 7,697,277
------------- -------------
Total investments 273,568,566 219,930,162
------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS $ 273,568,566 $ 219,930,162
============= =============
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, 2004 AND 2003
2004 2003
ADDITIONS:
Contributions:
Participants $ 9,664,763 $ 8,630,098
Employer:
Applied Industrial Technologies, Inc. common stock 5,752,242 3,433,420
Cash 2,020,515 1,495,593
------------ ------------
Total contributions 17,437,520 13,559,111
Investment income:
Dividends, interest and other:
Applied Industrial Technologies, Inc. common stock 976,828 990,053
Mutual funds 2,814,004 2,093,525
Common/collective trust funds 55,664 -
------------ ------------
Total dividends 3,846,496 3,083,578
Net appreciation in fair value of investments:
Applied Industrial Technologies, Inc. common stock 32,637,365 9,274,008
Mutual funds 14,029,296 20,287,331
Common/collective trust funds 1,358,865 7,096,213
------------ ------------
Total net appreciation in fair value of investments: 48,025,526 36,657,552
------------ ------------
Total investment income 51,872,022 39,741,130
------------ ------------
Total additions 69,309,542 53,300,241
DEDUCTIONS:
Distributions to participants 15,446,855 12,104,037
Administrative expenses 224,283 262,302
------------ ------------
Total deductions 15,671,138 12,366,339
------------ ------------
INCREASE IN NET ASSETS FOR THE YEAR 53,638,404 40,933,902
NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING OF THE YEAR 219,930,162 178,996,260
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS, END OF THE YEAR $273,568,566 $219,930,162
============ ============
See notes to financial statements.
3
APPLIED INDUSTRIAL TECHNOLOGIES, INC. RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
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 payroll period following 30 days of employment.
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
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
4
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 9/30/04 .25 .29 .35 .38
Quarter Ended 12/31/04 Minimum .19 .23 .29 .33
Quarter Ended 3/31/05 Match .31 .35 .41 .44
Quarter Ended 6/30/05 .34 .39 .45 .49
The employer match on participant contributions to investment funds other
than the Company Stock fund was $.35, $1.00, $1.00, and $1.00 for the four
2004 quarters, and $.35, $.25, $1.00 and $.35 for the four 2003 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, 2004 and 2003 were composed of $2,020,515
and $1,495,431 in cash, and $173,524 and $132,569 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 $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 transferred from certain other
tax-qualified plans) by or on behalf of an employee in accordance with
procedures established by the Company.
5
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 Capital Appreciation Fund and Wilshire Target Large
Growth Fund), AXP S&P 500 Index Fund, Royce Total Return Fund, Lord Abbett
Mid-Cap Value Fund, Washington Mutual Investors 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, 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. During 2004, the Washington Mutual investor's
Fund was added to the Plan and the Alliance Growth & Income Fund was
removed.
The value of the Company's common stock and other 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 $72,687 in 2004 and $58,930
in 2003.
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, 2004 and 2003 were as follows:
Description of
Investment 2004 2003
------------ -----------
Applied Industrial Technologies, Inc. Common Stock $ 80,646,055 $44,931,151
AET Income II Fund 41,434,628 42,405,383
American Fundamental Investors Fund 31,747,877 28,187,146
AIT Large-Cap Growth Fund 21,882,065 20,821,969
American EuroPacific Growth Fund 19,393,286 15,460,396
Pimco Total Return Fund - 13,059,375
Franklin Small-Cap Growth II Fund - 11,389,171
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:
2004 2003
------------ ------------
Net Assets:
Common stock $ 80,646,055 $ 44,931,151
------------ ------------
$ 80,646,055 $ 44,931,151
============ ============
Change in Net Assets:
Contributions $ 6,585,238 $ 5,006,273
Dividends 976,828 990,053
Net appreciation in fair value 32,637,365 9,274,008
Benefits paid to participants (2,685,235) (360,345)
Transfers to participant-directed investments, net (1,799,292) (3,895,726)
------------ ------------
$ 35,714,904 $ 11,014,263
============ ============
******
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, 2004
(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 - 3,251,988 shares $ 38,567,016 $ 80,646,055
* American Express Trust Company AET Income II Fund - 1,682,693 units ** 41,434,628
The American Funds Group American Fundamental Investors Fund - 984,430 shares ** 31,747,877
The American Funds Group American EuroPacific Growth Fund - 544,297 shares ** 19,393,286
Franklin Templeton Franklin Small-Cap Growth II Fund - 1,049,892 shares ** 12,619,697
Pimco Fund Pimco Total Return Fund - 1,177,827 units ** 12,567,413
T. Rowe Price T Rowe Price Mid-Cap Growth Fund - 244,590 shares ** 12,200,173
The Vanguard Group Vanguard Asset Allocation Fund - 374,305 shares ** 9,192,920
The Vanguard Group Index Fund Vanguard Growth Index Fund - 523,936 shares ** 7,439,902
* Participant Loans Participant Loans (with interest rates ** 7,423,278
ranging from 7.00% to 11.50% and
maturity dates ranging from January
2005 to July 2027)
Harbor Fund Harbor Capital Appreciation Fund - 508,527 shares ** 7,221,081
Wilshire Target Fund Wilshire Target Large Growth Fund - 508,527 shares ** 7,221,081
* American Express Trust Company AXP S&P 500 Index Fund - 1,498,411 units ** 7,012,562
Lord Abbett Mid-Cap Value Lord Abbett Mid-Cap Value Fund - 222,292 shares ** 5,021,584
Calamos Fund Calamos Growth Fund - 81,538 shares ** 4,319,909
Royce Total Return Royce Total Return Fund - 349,545 shares ** 4,285,424
Washington Mutual Washington Mutual Investors Fund - 124,162 shares ** 3,821,696
------------
Total $273,568,566
============
* 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, 333-83809, and 333-124574 of Applied Industrial
Technologies, Inc. on Form S-8 of our report dated June 10, 2005, appearing in
this annual report on Form 11-K of Applied Industrial Technologies, Inc.
Retirement Savings Plan for the year ended December 31, 2004.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
June 28, 2005