SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended
DECEMBER 31, 2008
OR
|
|
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission File Number
1-2299
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
|
|
|
Ohio
|
|
34-0117420
|
|
|
|
(State or other jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or organization)
|
|
Identification Number)
|
|
|
|
One Applied Plaza, Cleveland, Ohio
|
|
44115
|
|
|
|
(Address of principal executive offices)
|
|
(Zip Code)
|
Registrants telephone number, including area code:
(216) 426-4000
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. Check One:
|
|
|
|
|
|
|
Large accelerated filer
þ
|
|
Accelerated filer
o
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
o
|
|
|
|
(Do not check if a smaller reporting company)
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
þ
|
|
|
|
|
|
|
Shares of common stock outstanding on
|
|
January 15, 2009
|
|
|
42,210,683
|
|
|
|
|
|
|
|
|
(No par value)
|
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net Sales
|
|
$
|
502,412
|
|
|
$
|
511,008
|
|
|
$
|
1,046,318
|
|
|
$
|
1,029,555
|
|
Cost of Sales
|
|
|
366,943
|
|
|
|
371,517
|
|
|
|
764,791
|
|
|
|
748,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,469
|
|
|
|
139,491
|
|
|
|
281,527
|
|
|
|
281,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, Distribution and Administrative,
including depreciation
|
|
|
106,662
|
|
|
|
102,223
|
|
|
|
215,345
|
|
|
|
205,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
28,807
|
|
|
|
37,268
|
|
|
|
66,182
|
|
|
|
76,484
|
|
Interest Expense, net
|
|
|
1,302
|
|
|
|
1
|
|
|
|
1,987
|
|
|
|
275
|
|
Other Expense, net
|
|
|
2,225
|
|
|
|
161
|
|
|
|
3,040
|
|
|
|
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
25,280
|
|
|
|
37,106
|
|
|
|
61,155
|
|
|
|
75,818
|
|
Income Tax Expense
|
|
|
9,086
|
|
|
|
14,139
|
|
|
|
22,425
|
|
|
|
28,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
16,194
|
|
|
$
|
22,967
|
|
|
$
|
38,730
|
|
|
$
|
47,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Share Basic
|
|
$
|
0.38
|
|
|
$
|
0.53
|
|
|
$
|
0.92
|
|
|
$
|
1.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Share Diluted
|
|
$
|
0.38
|
|
|
$
|
0.52
|
|
|
$
|
0.90
|
|
|
$
|
1.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding for basic computation
|
|
|
42,316
|
|
|
|
43,143
|
|
|
|
42,316
|
|
|
|
43,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common
stock equivalents
|
|
|
482
|
|
|
|
806
|
|
|
|
557
|
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding for diluted computation
|
|
|
42,798
|
|
|
|
43,949
|
|
|
|
42,873
|
|
|
|
43,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
2
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
46,620
|
|
|
$
|
101,830
|
|
Accounts receivable, less allowances of $6,431 and $6,119
|
|
|
221,727
|
|
|
|
245,119
|
|
Inventories
|
|
|
265,659
|
|
|
|
210,723
|
|
Other current assets
|
|
|
40,867
|
|
|
|
48,525
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
574,873
|
|
|
|
606,197
|
|
Property, less accumulated depreciation of $126,193 and $124,946
|
|
|
66,295
|
|
|
|
64,997
|
|
Intangibles, net
|
|
|
101,653
|
|
|
|
19,164
|
|
Goodwill
|
|
|
98,634
|
|
|
|
64,685
|
|
Other assets
|
|
|
46,273
|
|
|
|
43,728
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
887,728
|
|
|
$
|
798,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
106,386
|
|
|
$
|
109,822
|
|
Short-term debt
|
|
|
61,000
|
|
|
|
|
|
Compensation and related benefits
|
|
|
39,619
|
|
|
|
56,172
|
|
Other accrued liabilities
|
|
|
33,099
|
|
|
|
31,017
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
240,104
|
|
|
|
197,011
|
|
Long-term debt
|
|
|
75,000
|
|
|
|
25,000
|
|
Postemployment benefits
|
|
|
39,411
|
|
|
|
37,746
|
|
Other liabilities
|
|
|
28,313
|
|
|
|
36,939
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
382,828
|
|
|
|
296,696
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock no par value; 2,500 shares
authorized; none issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock no par value; 80,000 shares
authorized; 54,213 shares issued
|
|
|
10,000
|
|
|
|
10,000
|
|
Additional paid-in capital
|
|
|
135,916
|
|
|
|
133,078
|
|
Income retained for use in the business
|
|
|
569,723
|
|
|
|
543,692
|
|
Treasury shares at cost (11,944 and 11,923 shares)
|
|
|
(191,517
|
)
|
|
|
(190,944
|
)
|
Accumulated other comprehensive (loss) income
|
|
|
(19,222
|
)
|
|
|
6,249
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
504,900
|
|
|
|
502,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
887,728
|
|
|
$
|
798,771
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
3
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
38,730
|
|
|
$
|
47,424
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,273
|
|
|
|
6,079
|
|
Amortization of intangibles
|
|
|
4,135
|
|
|
|
691
|
|
Share-based compensation
|
|
|
2,744
|
|
|
|
1,846
|
|
Gain on sale of property
|
|
|
(209
|
)
|
|
|
(1,095
|
)
|
Treasury shares contributed to employee benefit and deferred
compensation plans
|
|
|
263
|
|
|
|
541
|
|
Changes in operating assets and liabilities, net of acquisitions
|
|
|
(20,886
|
)
|
|
|
(5,233
|
)
|
Other, net
|
|
|
1,418
|
|
|
|
438
|
|
|
|
|
|
|
|
|
Net Cash provided by Operating Activities
|
|
|
32,468
|
|
|
|
50,691
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Property purchases
|
|
|
(4,265
|
)
|
|
|
(3,749
|
)
|
Proceeds from property sales
|
|
|
323
|
|
|
|
1,613
|
|
Net cash paid for acquisition of businesses, net of cash acquired
|
|
|
(172,019
|
)
|
|
|
(9,674
|
)
|
Other
|
|
|
|
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
Net Cash used in Investing Activities
|
|
|
(175,961
|
)
|
|
|
(11,888
|
)
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Net short-term borrowings under revolving credit facility
|
|
|
61,000
|
|
|
|
|
|
Borrowings under revolving credit facility classified as long-term
|
|
|
50,000
|
|
|
|
|
|
Long-term debt repayments
|
|
|
|
|
|
|
(50,000
|
)
|
Purchases of treasury shares
|
|
|
(1,210
|
)
|
|
|
(21,019
|
)
|
Dividends paid
|
|
|
(12,699
|
)
|
|
|
(12,978
|
)
|
Excess tax benefits from share-based compensation
|
|
|
261
|
|
|
|
2,608
|
|
Exercise of stock options
|
|
|
241
|
|
|
|
1,099
|
|
|
|
|
|
|
|
|
Net Cash provided by (used in) Financing Activities
|
|
|
97,593
|
|
|
|
(80,290
|
)
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash
|
|
|
(9,310
|
)
|
|
|
1,817
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(55,210
|
)
|
|
|
(39,670
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
101,830
|
|
|
|
119,665
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
46,620
|
|
|
$
|
79,995
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
4
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
1.
|
|
BASIS OF PRESENTATION
|
|
|
|
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of the financial position of Applied Industrial
Technologies, Inc. (the Company, or Applied) as of December 31, 2008, and the results of
operations and cash flows for the three and six month periods ended December 31, 2008 and
2007, have been included. The condensed consolidated balance sheet as of June 30, 2008 has
been derived from the audited consolidated financial statements at that date. This
Quarterly Report on Form 10-Q should be read in conjunction with the Companys Annual Report
on Form 10-K for the year ended June 30, 2008.
|
|
|
|
See footnote 7 regarding recent acquisitions and related pro forma results effecting
comparability.
|
|
|
|
Operating results for the three and six month periods ended December 31, 2008 are not
necessarily indicative of the results that may be expected for the remainder of the fiscal
year ending June 30, 2009.
|
|
|
|
Cost of sales for interim financial statements are computed using estimated gross profit
percentages, which are adjusted throughout the year, based upon available information.
Adjustments to actual cost are made based on periodic physical inventories and the effect of
year-end inventory quantities on LIFO costs.
|
|
2.
|
|
ACCOUNTING POLICIES
|
|
|
|
Impairment of Goodwill
|
|
|
|
The Company performs tests of impairment on goodwill annually as of January 1 or whenever
conditions would indicate an evaluation should be completed. These conditions could include
a significant change in the business climate, legal factors, operating performance
indicators, competition, or sale or disposition of a significant portion of a reporting
unit. Application of the goodwill impairment test requires judgment, including
identification of reporting units, assignment of assets, liabilities and goodwill to
reporting units, and determination of the fair value of each reporting unit. The Company
primarily utilizes discounted cash flow models and market multiples for comparable
businesses to determine fair value used in the impairment evaluation. Evaluating for
impairment requires significant judgment by management, including estimated future operating
results, estimated future cash flows, the long-term rate of growth of our business, and
determination of an appropriate discount rate. While Applied uses available information to
prepare the estimates and evaluations, actual results could differ significantly. For
example, a worsening of
economic conditions beyond those assumed in an impairment analysis could impact the
estimates of future growth and result in an impairment charge in a future period. Any
resulting impairment charge could have a material adverse impact on the Companys financial
condition and results of operations.
|
5
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
|
|
As of December 31, 2008, Applied had $98.6 million of goodwill ($60.4 million in the service
center based distribution segment and $38.2 million in the fluid power businesses segment)
representing the costs of acquisitions in excess of fair values assigned to the underlying
net assets of acquired companies. Given the current economic environment, management
performed a goodwill impairment analysis as of December 31, 2008. Based upon current
estimates of fair value, management believes these assets were not impaired as of December
31, 2008.
|
|
|
|
New Accounting Pronouncements
|
|
|
|
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 141(R), Business Combinations, which replaces
SFAS 141. SFAS 141(R) requires most assets acquired and liabilities assumed in a business
combination, contingent consideration and certain acquired contingencies to be measured at
their fair values as of the date of acquisition. SFAS 141(R) also requires that acquisition
related costs and restructuring costs be recognized separately from the business
combination. SFAS 141(R) is effective for business combinations entered into after July 1,
2009.
|
|
|
|
On December 30, 2008, the FASB issued FASB Staff Position (FSP) FAS 132(R)-1 Employers
Disclosures about Postretirement Benefit Plan Assets. This amends SFAS 132(R) Employers
Disclosures about Pensions and Other Postretirement Benefits, FSP FAS 132(R)-1 requires
additional detailed disclosures about employers plan assets, including employers
investment strategies, major categories of plan assets, concentrations of risk within plan
assets, and valuation techniques used to measure the fair value of plan assets. FSP FAS
132(R)-1 is effective for fiscal years ending after December 15, 2009.
|
|
|
|
Antidilutive Common Stock Equivalents
|
|
|
|
During the periods presented, the following common stock equivalents were outstanding but
excluded from the diluted earnings per share computation as their effect was antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
antidilutive common
stock equivalents
|
|
|
1,122
|
|
|
|
209
|
|
|
|
852
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year
presentation.
6
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
3.
|
|
SEGMENT INFORMATION
|
|
|
|
The accounting policies of the Companys reportable segments are the same as those used to
prepare the condensed consolidated financial statements. Sales between the Service Center
Based Distribution segment and the Fluid Power Businesses segment have been eliminated. As
discussed in footnote 7, Business Combinations, on August 29, 2008, Applied acquired Fluid
Power Resource LLC, which is included in the Fluid Power Businesses segment.
|
|
|
|
Segment Financial Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Center
|
|
|
Fluid
|
|
|
|
|
|
|
Based
|
|
|
Power
|
|
|
|
|
|
|
Distribution
|
|
|
Businesses
|
|
|
Total
|
|
Three Months Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
406,729
|
|
|
$
|
95,683
|
|
|
$
|
502,412
|
|
Operating income
|
|
|
19,497
|
|
|
|
6,713
|
|
|
|
26,210
|
|
Depreciation
|
|
|
2,679
|
|
|
|
578
|
|
|
|
3,257
|
|
Capital expenditures
|
|
|
2,244
|
|
|
|
344
|
|
|
|
2,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
459,492
|
|
|
$
|
51,516
|
|
|
$
|
511,008
|
|
Operating income
|
|
|
28,879
|
|
|
|
3,541
|
|
|
|
32,420
|
|
Depreciation
|
|
|
2,689
|
|
|
|
332
|
|
|
|
3,021
|
|
Capital expenditures
|
|
|
1,993
|
|
|
|
100
|
|
|
|
2,093
|
|
Reconciliation from the segment operating profit to the condensed consolidated balances is
as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Operating income for reportable segments
|
|
$
|
26,210
|
|
|
$
|
32,420
|
|
Adjustments for:
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
(2,734
|
)
|
|
|
(353
|
)
|
Corporate and other income, net (a)
|
|
|
5,331
|
|
|
|
5,201
|
|
|
|
|
|
|
|
|
Total operating income
|
|
|
28,807
|
|
|
|
37,268
|
|
Interest expense, net
|
|
|
1,302
|
|
|
|
1
|
|
Other expense, net
|
|
|
2,225
|
|
|
|
161
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
25,280
|
|
|
$
|
37,106
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The change in corporate and other income, net is due to various changes in
the levels and amounts of expenses being allocated to the segments. The expenses
being allocated include charges for working capital and logistics support.
|
7
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Center
|
|
|
Fluid
|
|
|
|
|
|
|
Based
|
|
|
Power
|
|
|
|
|
|
|
Distribution
|
|
|
Businesses
|
|
|
Total
|
|
Six Months Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
877,026
|
|
|
$
|
169,292
|
|
|
$
|
1,046,318
|
|
Operating income
|
|
|
49,129
|
|
|
|
12,803
|
|
|
|
61,932
|
|
Assets used in business
|
|
|
637,265
|
|
|
|
250,463
|
|
|
|
887,728
|
|
Depreciation
|
|
|
5,441
|
|
|
|
832
|
|
|
|
6,273
|
|
Capital expenditures
|
|
|
3,310
|
|
|
|
955
|
|
|
|
4,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
925,080
|
|
|
$
|
104,475
|
|
|
$
|
1,029,555
|
|
Operating income
|
|
|
60,213
|
|
|
|
7,566
|
|
|
|
67,779
|
|
Assets used in business
|
|
|
665,725
|
|
|
|
78,542
|
|
|
|
744,267
|
|
Depreciation
|
|
|
5,416
|
|
|
|
663
|
|
|
|
6,079
|
|
Capital expenditures
|
|
|
3,492
|
|
|
|
257
|
|
|
|
3,749
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Operating income for reportable segments
|
|
$
|
61,932
|
|
|
$
|
67,779
|
|
Adjustments for:
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
(4,135
|
)
|
|
|
(691
|
)
|
Corporate and other income, net (a)
|
|
|
8,385
|
|
|
|
9,396
|
|
|
|
|
|
|
|
|
Total operating income
|
|
|
66,182
|
|
|
|
76,484
|
|
Interest expense, net
|
|
|
1,987
|
|
|
|
275
|
|
Other expense, net
|
|
|
3,040
|
|
|
|
391
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
61,155
|
|
|
$
|
75,818
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The change in corporate and other income, net is due to various changes in the
levels and amounts of expenses being allocated to the segments. The expenses being
allocated include charges for working capital and logistics support.
|
Net sales by geographic location are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Geographic Location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
435,237
|
|
|
$
|
448,294
|
|
|
$
|
906,162
|
|
|
$
|
905,937
|
|
Canada
|
|
|
53,066
|
|
|
|
57,327
|
|
|
|
110,584
|
|
|
|
111,705
|
|
Mexico
|
|
|
14,109
|
|
|
|
5,387
|
|
|
|
29,572
|
|
|
|
11,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
502,412
|
|
|
$
|
511,008
|
|
|
$
|
1,046,318
|
|
|
$
|
1,029,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
4.
|
|
COMPREHENSIVE (LOSS) INCOME
|
|
|
|
The components of comprehensive (loss) income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Net income
|
|
$
|
16,194
|
|
|
$
|
22,967
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on cash flow hedges,
net of income tax of $(917) and $687
|
|
|
(1,520
|
)
|
|
|
1,068
|
|
Foreign currency translation adjustment, net
of income tax of $(1,556) and $575
|
|
|
(18,542
|
)
|
|
|
3,676
|
|
Unrealized loss on investment securities
available for sale, net of income tax of $(68)
and $(3)
|
|
|
(115
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
Total comprehensive (loss) income
|
|
$
|
(3,983
|
)
|
|
$
|
27,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Net income
|
|
$
|
38,730
|
|
|
$
|
47,424
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on cash flow hedges, net
of income tax of $(1,071) and $55
|
|
|
(1,749
|
)
|
|
|
85
|
|
Foreign currency translation adjustment, net of
income tax of $(2,300) and $765
|
|
|
(23,482
|
)
|
|
|
4,164
|
|
Unrealized loss on investment securities
available for sale, net of income tax of $(145)
and $(17)
|
|
|
(240
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
13,259
|
|
|
$
|
51,646
|
|
|
|
|
|
|
|
|
5.
|
|
BENEFIT PLANS
|
|
|
|
The following table provides summary disclosures of the net periodic benefit costs
recognized for the Companys postemployment benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
Three Months Ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
535
|
|
|
$
|
523
|
|
|
$
|
10
|
|
|
$
|
18
|
|
Interest cost
|
|
|
625
|
|
|
|
603
|
|
|
|
57
|
|
|
|
67
|
|
Expected return on plan assets
|
|
|
(109
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss (gain)
|
|
|
228
|
|
|
|
240
|
|
|
|
(31
|
)
|
|
|
(28
|
)
|
Amortization of prior service cost
|
|
|
172
|
|
|
|
159
|
|
|
|
30
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
1,451
|
|
|
$
|
1,408
|
|
|
$
|
66
|
|
|
$
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
Six Months Ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,069
|
|
|
$
|
1,045
|
|
|
$
|
21
|
|
|
$
|
35
|
|
Interest cost
|
|
|
1,250
|
|
|
|
1,206
|
|
|
|
114
|
|
|
|
134
|
|
Expected return on plan assets
|
|
|
(218
|
)
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss (gain)
|
|
|
456
|
|
|
|
481
|
|
|
|
(63
|
)
|
|
|
(55
|
)
|
Amortization of prior service cost
|
|
|
344
|
|
|
|
318
|
|
|
|
59
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
2,901
|
|
|
$
|
2,817
|
|
|
$
|
131
|
|
|
$
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company contributed $1,212 to its pension benefit plans and $30 to its other benefit
plans in the six months ended December 31, 2008. Expected contributions for the full fiscal
year are $3,000 for the pension benefit plans and $200 for other benefit plans.
|
|
6.
|
|
FAIR VALUE MEASUREMENTS
|
|
|
|
In the first quarter of fiscal 2009, Applied adopted the required provisions of SFAS No.
157, Fair Value Measurements, for financial assets and liabilities. This statement
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles in the United States, and expands disclosures about fair value
measurements. The provisions of SFAS 157 apply under other accounting pronouncements that
require or permit fair value measurements; it does not expand the use of fair value in any
new circumstances. This statement defines fair value as the price that would be received to
sell an asset or be paid to transfer a liability in an orderly transaction between market
participants at the measurement date. SFAS 157 classifies the inputs to measure fair value
into three tiers. These tiers include: Level 1, defined as observable inputs such as
quoted prices in active markets; Level 2, defined as inputs other than quoted prices in
active markets that are either directly or indirectly observable; and Level 3, defined as
unobservable inputs in which little or no market data exists, therefore requiring an entity
to develop its own assumptions. The adoption of SFAS 157 had no effect on Applieds
consolidated financial position or results of operations.
|
|
|
|
In February, 2008, the FASB finalized FASB Staff Position 157-2, Effective Date of FASB
Statement No. 157. This Staff Position delays the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at least
annually). The effective date for Applied for items within the scope of this FASB Staff
Position is July 1, 2009.
|
10
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
Financial assets and liabilities measured at fair value on a recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
Total
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
Recorded
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Value at
|
|
|
Instruments
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
December 31, 2008
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
$
|
8,424
|
|
|
$
|
8,424
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swaps
|
|
$
|
7,010
|
|
|
|
|
|
|
$
|
7,010
|
(b)
|
|
|
|
|
Interest rate swap
|
|
|
1,723
|
|
|
|
|
|
|
|
1,723
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
8,733
|
|
|
|
|
|
|
$
|
8,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Primarily comprised of equity and fixed income securities for a non-qualified
deferred compensation plan held in a rabbi trust, the amounts of which are included in
other assets on the condensed consolidated balance sheet. Valued using quoted market
prices multiplied by the number of shares owned.
|
|
(b)
|
|
Fair values are derived using foreign currency exchange rates and inputs
readily available in the public swap markets for similarly termed instruments and then
making adjustments for terms specific to these instruments. Since the inputs used to
value these instruments are observable and the counterparty is credit worthy, the
Company has classified them as level 2 inputs. This liability is included in other
liabilities on the condensed consolidated balance sheet.
|
7.
|
|
BUSINESS COMBINATIONS
|
|
|
|
On August 29, 2008, Applied completed the acquisition of certain of the assets of Fluid
Power Resource, LLC and the following fluid power distribution businesses: Bay Advanced
Technologies, Carolina Fluid Components, DTS Fluid Power, Fluid Tech, Hughes HiTech, Hydro
Air, and Power Systems (collectively FPR). The results of FPRs operations have been
included in the consolidated financial statements since that date. Applied acquired certain
of the assets and assumed certain specified liabilities of FPR for an aggregate cash
purchase price of $166,000 (originally funded with existing cash balances and $104,000 of
borrowings through the Companys committed revolving credit facility).
|
|
|
|
The acquired businesses included 19 locations and are part of the Fluid Power Businesses
segment whose base business is distributing fluid power components, assembling fluid power
systems, performing equipment repair, and offering technical advice to customers. This
acquisition increased the Companys capabilities in the following areas: fluid power system
integration; manifold design, machining, and assembly; and the integration of hydraulics
with electronics.
|
11
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
The purchase price allocation is preliminary pending the finalization of asset valuations.
The excess of the purchase price over the estimated fair values is assigned to goodwill and
is expected to be deductible for tax purposes. Adjustments to goodwill and initial asset
valuations were recorded in the second quarter of fiscal 2009 to reflect updated asset
valuation information. The following table summarizes the current estimated fair values of
assets acquired and liabilities assumed at the date of acquisition:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
100
|
|
Accounts receivable
|
|
|
26,500
|
|
Inventories
|
|
|
27,100
|
|
Other current assets
|
|
|
300
|
|
Property, plant and equipment
|
|
|
5,000
|
|
Intangibles
|
|
|
86,000
|
|
Goodwill
|
|
|
35,600
|
|
Other assets
|
|
|
200
|
|
|
|
|
|
Total assets acquired
|
|
|
180,800
|
|
Accounts payable
|
|
|
10,600
|
|
Other accrued liabilities
|
|
|
3,200
|
|
|
|
|
|
Net assets acquired
|
|
$
|
167,000
|
|
|
|
|
|
|
|
|
|
|
Purchase price
|
|
$
|
166,000
|
|
Direct acquisition costs
|
|
|
1,000
|
|
|
|
|
|
Cost of company acquired
|
|
$
|
167,000
|
|
|
|
|
|
Total intangible assets have a weighted-average useful life of 17 years and include customer
relationships of $51,900 (19-year weighted-average useful life), vendor relationships of
$9,600 (15-year weighted-average useful life), trade names of $22,000 (15-year
weighted-average useful life) and non-competition agreements of $2,500 (5-year
weighted-average useful life).
The table below presents summarized pro forma results of operations as if the acquisition
had been effective at the beginning of the three month and six month periods ended December
31, 2008 and 2007, respectively. No pro forma results are presented for the three months
ended December 31, 2008 as the results of the acquired company are included in the actual
three month results.
12
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net sales
|
|
$
|
572,609
|
|
|
$
|
1,086,052
|
|
|
$
|
1,150,430
|
|
Income before income tax
|
|
|
38,647
|
|
|
|
61,698
|
|
|
|
77,478
|
|
Net earnings
|
|
|
23,921
|
|
|
|
39,071
|
|
|
|
48,453
|
|
Net earnings
per common share diluted
|
|
$
|
0.54
|
|
|
$
|
0.91
|
|
|
$
|
1.10
|
|
|
|
On December 5, 2008, the Company acquired certain assets of Cincinnati Transmission Company,
an industrial distributor, for $5,535 (of which $4,700 was paid during the quarter). The
purchase price allocation is preliminary pending the finalization of asset valuations.
Tangible assets acquired are estimated at $645 and intangibles, including goodwill, are
estimated at $4,890 as of December 31, 2008.
|
|
8.
|
|
DEBT AND RISK MANAGEMENT ACTIVITIES
|
|
|
|
As of December 31, 2008, the Company has $111,000 outstanding on its committed revolving
credit facility, of which $61,000 is classified as current and $50,000 is classified as
long-term. Borrowings under this agreement carry variable interest rates tied to either
LIBOR, prime, or federal funds at the Companys discretion. At December 31, 2008, the
weighted average interest rate for the outstanding borrowings under this agreement along
with the interest rate swap agreement was 2.16%. It is our intention to maintain a balance
of at least $50,000 outstanding for two years (beginning September 19, 2008) per the terms
of the interest rate swap agreement described below, utilizing the one-month LIBOR borrowing
option.
|
|
|
|
Effective September 19, 2008, the Company entered into a two year agreement for a $50,000
fixed interest rate swap to convert $50,000 of its variable rate debt to fixed rate debt.
This instrument has been designated as a cash flow hedge, the objective of which is to
eliminate the variability of cash flows in interest payments attributable to changes in the
benchmark one-month LIBOR interest rates. For the six months ended December 31, 2008, there
was no ineffectiveness of this interest rate swap contract. The derivative liability
recorded in other liabilities on the condensed consolidated balance sheet was $1,723 at
December 31, 2008 with a corresponding amount included in other comprehensive income, net of
deferred income taxes for the period ended December 31, 2008.
|
13
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
9.
|
|
OTHER EXPENSE, NET
|
|
|
|
Other expense, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss (gain) on deferred
compensation trusts
|
|
$
|
1,404
|
|
|
$
|
(3
|
)
|
|
$
|
2,420
|
|
|
$
|
(355
|
)
|
Foreign currency transaction losses
|
|
|
1,592
|
|
|
|
67
|
|
|
|
1,627
|
|
|
|
95
|
|
Unrealized (gain) loss on
cross-currency swap
|
|
|
(884
|
)
|
|
|
(37
|
)
|
|
|
(1,218
|
)
|
|
|
457
|
|
Other, net
|
|
|
113
|
|
|
|
134
|
|
|
|
211
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Expense, net
|
|
$
|
2,225
|
|
|
$
|
161
|
|
|
$
|
3,040
|
|
|
$
|
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The accompanying condensed consolidated financial statements of the Company have been reviewed by
the Companys independent registered public accounting firm, Deloitte & Touche LLP, whose report
covering their review of the financial statements follows.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Applied Industrial Technologies, Inc.
Cleveland, Ohio
We have reviewed the accompanying condensed consolidated balance sheet of Applied Industrial
Technologies, Inc. and subsidiaries (the Company) as of December 31, 2008, and the related
condensed statements of consolidated income for the three-month and six-month periods ended
December 31, 2008 and 2007, and of consolidated cash flows for the six-month periods ended December
31, 2008 and 2007. These interim financial statements are the responsibility of the Companys
management.
We conducted our reviews in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in accordance with
the standards of the Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such
condensed consolidated interim financial statements for them to be in conformity with accounting
principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Applied Industrial Technologies,
Inc. and subsidiaries as of June 30, 2008, and the related statements of consolidated income,
shareholders equity, and cash flows for the year then ended (not presented herein); and in our
report dated August 15, 2008, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of June 30, 2008 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche, LLP
Cleveland, Ohio
February 6, 2009
15
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Applied Industrial Technologies (Applied, the Company, We, or Our) is an industrial
distributor that offers parts critical to the operations of maintenance repair operations and
original equipment manufacturing customers in a wide range of industries. In addition, Applied
provides engineering, design and systems integration for industrial and fluid power applications,
as well as customized fluid power shop, mechanical and fabricated rubber services. We have a long
tradition of growth dating back to 1923, the year our business was founded in Cleveland, Ohio.
During the second quarter of fiscal 2009, business was conducted in the United States, Canada,
Mexico and Puerto Rico from 474 facilities.
The following is Managements Discussion and Analysis of certain significant factors which have
affected our financial condition and results of operations and cash flows during the periods
included in the accompanying condensed statements of consolidated income and consolidated cash
flows. Applied is an authorized distributor for more than 2,000 manufacturers and offers access to
approximately 3 million stock keeping units (SKUs). A large portion of our business is selling
replacement parts to manufacturers for repair or maintenance of machinery and equipment. When
reviewing the discussion and analysis set forth below, please note that the majority of SKUs we
sell in any given period were not sold in the comparable period of the prior year, resulting in the
inability to quantify commonly used comparative metrics such as changes in product mix and volume.
Overview
On August 29, 2008, Applied completed the acquisition of certain of the assets of Fluid Power
Resource, LLC, (FPR); the results of FPRs operations have been included in the condensed
consolidated financial statements since that date.
Consolidated net sales for the quarter ended December 31, 2008 decreased $8.6 million or 1.7%
compared to the prior year quarter as declines in same-store business were only partially offset by
net sales from businesses acquired. Operating income declined to 5.7% from 7.3% and net income
decreased $6.8 million or 29.5% compared to the prior year quarter. Shareholders equity was
$504.9 million. The current ratio moved to 2.4-to-one from 3.1-to-one at June 30, 2008, primarily
reflecting the impact of the FPR acquisition.
Applied monitors the Purchasing Managers Index (PMI) published by the Institute for Supply
Management and the Manufacturers Capacity Utilization (MCU) index published by the Federal Reserve
Board and considers these indices key indicators of potential Company business environment changes.
During the quarter, the PMI and MCU both declined. Historically our performance generally tracks
to these key indicators. When these indicators are increasing, our sales performance has generally
lagged them by up to 6 months. We believe when these indicators are decreasing, our performance
more closely conforms to the downturns without much of a lag. Over the last three quarters we have
experienced sales declines, as these indices have seen declines. For instance, our U.S. service
center same-store sales have declined and the rate of decline has increased during this time
period. U.S. service center same-store sales for each of the last three quarters compared to the
prior year quarters were down as follows: for the
June quarter 2%, for the September quarter 3% and for the December quarter 13%. The PMI and MCU
indices indicate some further softening of sales can be expected. In the current quarter, the
National Bureau of Economic Research declared the economy has been in a recession since December
2007. The effects of this recession are being felt by the industries we serve.
16
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The number of Company associates was 5,203 at December 31, 2008, 4,831 at June 30, 2008, and 4,661
at December 31, 2007. Our operating facilities totaled 474 at December 31, 2008, 459 as of June
30, 2008, and 452 at December 31, 2007. Reflected in both the associate and facility counts from
their respective acquisition dates are the impact of our acquisitions.
Results of Operations
Three Months Ended December 31, 2008 and 2007
During the quarter ended December 31, 2008, net sales decreased $8.6 million or 1.7% compared to
the prior year, reflecting decreased net sales in same-store business which were partially offset
by net sales attributed to acquisitions. Net sales from companies acquired since the prior year
quarter accounted for increases of $53.3 million. The number of selling days for both of the
quarters ended December 31, 2008 and 2007 were 62 days.
Net sales from our Service Center Based Distribution segment decreased $52.8 million or 11.5%
during the quarter ended December 31, 2008 from the same period in the prior year. Net sales from
businesses acquired since the prior year period contributed $5.5 million, while our same-store
business saw a net decline of $58.3 million.
Within the Service Center Based Distribution segment, net sales for our U.S. based service centers
experienced a same-store sales decline of $55.6 million or 13.4%. The Canadian service center net
sales in local currency increased by 5.8%, however, unfavorable foreign currency translation to
U.S. dollars drove net sales down by $5.7 million to an overall decrease of $3.4 million compared
to the prior year quarter. Our Mexican service center locations experienced a net sales increase
of $6.2 million of which approximately 90% is attributable to acquisitions.
Net sales from our Fluid Power Businesses increased $44.2 million or 85.7% during the quarter from
the same period in the prior year. Our recent acquisitions added $47.7 million while our
same-store business declined $3.5 million. Unfavorable foreign currency translation of the
Canadian fluid power businesses accounted for $2.7 million of this decline which saw a 10.7%
increase in local currency. Our net same-store sales at U.S. fluid power locations declined 7.9%.
During the quarter ended December 31, 2008, industrial products and fluid power products accounted
for 72.1% and 27.9%, respectively, of net sales as compared to 80.6% and 19.4%, respectively, for
the same period in the prior year. Acquisitions since the prior year period have concentrated
primarily in our fluid power businesses segment, accounting for a majority of the shift in product
mix.
17
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
From a geographical perspective, net sales from our U.S. operations were down $13.1 million or 2.9%
during the quarter ended December 31, 2008 from the same period in the prior year. While
acquisitions added $45.6 million to net sales, they were unable to offset declines in the
same-store U.S. business. Net sales from our Canadian operations decreased $4.3 million or 7.4%.
Unfavorable foreign currency fluctuations drove net sales down $8.4 million, offsetting the net
sales increase of 7.3% in local currency. Net sales from our Mexican operations increased $8.7
million; primarily due to sales from businesses acquired since the prior year period.
Our gross profit margin decreased to 27.0% compared to the prior years 27.3%. This decline is
primarily related to lower purchasing volume which led to lower supplier purchasing incentives.
Additionally, we continue to experience gross profit margin pressures reflecting the on-going
challenges of passing on supplier price increases to our large contractual customers as well as the
price competitiveness in the market place.
Selling, distribution and administrative expense (SD&A) was 21.2% of net sales in the quarter
ended December 31, 2008 compared to 20.0% in the prior year quarter. In dollars, SD&A increased
$4.4 million compared to the prior year quarter. Acquisitions added $13.7 million of SD&A in the
current quarter which includes $2.4 million in new intangibles amortization expense. Associate
compensation and benefits including amounts tied to financial performance were approximately $12.0
million lower in the current quarter as compared to the prior year quarter, while wages and
benefits including healthcare costs rose approximately $6.0 million. Favorable foreign currency
translation and reduced discretionary spending account for the majority of the remaining decrease.
Interest expense, net for the current quarter increased $1.3 million from the same period in the
prior year. Lower invested cash balances and lower interest rates contributed to a reduction in
interest income of $1.1 million for the quarter. Interest expense increased slightly from the
prior year quarter due to higher average borrowings.
Other expense, net for the quarter ended December 31, 2008 increased $2.1 million. Expenses of
$1.4 million due to declines in market values of investments held by non-qualified deferred
compensation trusts and $1.6 million representing losses on foreign currency transactions were
partially offset by a $0.9 million unrealized gain on the cross-currency swap.
The effective income tax rate was 35.9% for the quarter ended December 31, 2008 compared to 38.1%
for the quarter ended December 31, 2007. The lower effective tax rate relates primarily to lower
effective rates in foreign jurisdictions.
As a result of the above factors, net income decreased $6.8 million or 29.5% compared to the prior
year quarter. Earnings per share were $0.38 per share for the quarter ended December 31, 2008,
compared to $0.52 in the prior year quarter.
18
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Six Months Ended December 31, 2008 and 2007
During the six months ended December 31, 2008, net sales increased $16.8 million or 1.6% compared
to the prior year, reflecting increased net sales in our Fluid Power Businesses segment largely
offset by declines in our Service Center Based Distribution segment. Net sales from companies
acquired since the prior year six month period increased net sales by $79.8 million. The number of
selling days for the six months ended December 31, 2008 and 2007 were 126 and 125 days,
respectively.
Net sales from our Service Center Based Distribution segment decreased $48.1 million or 5.2% during
the six months ended December 31, 2008 from the same period in the prior year. Net sales increases
from businesses acquired since the prior year period contributed $11.4 million while our same-store
business saw a $59.5 million decline.
Within the Service Center Based Distribution segment, net sales for our U.S. based service centers
experienced a same-store sales decline of 7.9%. The Canadian service center business experienced a
decline of 1.1%. Unfavorable foreign currency exchange rates drove net sales down $4.5 million,
offsetting a 4.7% increase in local currency. Our Mexican service centers experienced a $12.5
million increase, largely driven by the impact of an acquisition.
Net sales from our Fluid Power Businesses increased $64.8 million or 62.0% during the six months
ended December 31, 2008. The U.S. and Mexican Fluid Power acquisitions added $68.4 million. On a
year-to-date basis, unfavorable foreign currency translation of the Canadian fluid power businesses
offset net sales increases in local currency of 5.6%. Our same-store U.S. fluid power locations
had slightly lower net sales compared to prior year-to-date.
During the six months ended December 31, 2008, industrial products and fluid power products
accounted for 74.8% and 25.2%, respectively, of net sales as compared to 80.5% and 19.5%,
respectively, for the same period in the prior year. Acquisitions since the prior year period have
concentrated primarily in the fluid power businesses segment accounting for the majority of the
shift in product mix.
From a geographical perspective, overall net sales from our U.S. operations were comparable to the
same period in the prior year. The $63.6 million of net sales from our acquisitions offset the
decline in the same-store U.S. business. Net sales from our Canadian operations increased 4.9% in
local currency, however, due to the impact of unfavorable foreign currency exchange rates,
reported an overall net sales decline of 1.0%. Net sales from our Mexico operations increased
$17.7 million which can be primarily attributed to acquisitions.
Our gross profit margin decreased to 26.9% compared to the prior years 27.3%. This decline is
primarily related to lower purchasing volume which led to lower supplier purchasing incentives. We
continue to experience gross profit margin pressures reflecting the on-going challenges of passing
on supplier price increases to our large contractual customers as well as the price competitiveness
in the market place.
19
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SD&A was 20.6% of net sales in the six months ended December 31, 2008 compared to 19.9% in the
prior year period. In dollars, SD&A increased $10.3 million compared to the prior year period.
Acquisitions added $19.6 million of SD&A in the current period which includes $3.5 million in new
intangibles amortization expense. Associate compensation and benefits including amounts tied to
financial performance were approximately $16.5 million lower in the current period as compared to
the prior year period, while wages and benefits including healthcare costs rose approximately $8.5
million.
Interest expense, net for the current period was up $1.7 million. Lower cash balances and lower
interest rates contributed to a reduction in interest income of
$1.8 million for the period. Interest expense was nearly flat compared to the same period in the prior year.
Other
expense, net for the six months ended December 31, 2008 increased $2.6 million due to a $2.4
million decline in market values of investments held by non-qualified deferred compensation trusts
and $1.6 million of losses on foreign currency transactions partially offset by a $1.2 million
unrealized gain on the cross-currency swap.
The effective income tax rate was 36.7% for the six months ended December 31, 2008 compared to
37.5% for the six months ended December 31, 2007. The lower effective tax rate relates primarily
to lower effective rates in foreign jurisdictions.
As a result of the above factors, net income decreased $8.7 million or 18.3% compared to the same
period last year. Earnings per share were $0.90 per share for the six months ended December 31,
2008, compared to $1.08 in the prior year.
Liquidity and Capital Resources
Cash provided by operating activities for the six months ended December 31, 2008 was $32.5 million.
This compares to approximately $50.7 million provided by operating activities in the same period a
year ago. Cash flows from operations depend primarily upon generating operating income,
controlling the investment in inventories and receivables and managing the timing of payments to
suppliers. The decline in cash flow from operations primarily resulted from increased inventory
investment and lower net income (exclusive of the impact of amortization) of $5.2 million.
Partially offsetting these declines were lower accounts receivable due primarily to lower sales
volume.
Cash used in investing activities during the current year of $176.0 million included $166.0 million
paid to acquire FPR in August 2008 and $4.7 million to acquire Cincinnati Transmission Company in
December 2008. Capital expenditures accounted for an additional $4.3 million, which is $0.5
million below the first half of fiscal 2008.
20
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cash provided by financing activities was $97.6 million. In the first half of fiscal 2009, we
borrowed a net $111.0 million under our revolving credit facility. Borrowings have been used to
fund acquisitions and operations. In the current year, we paid dividends of $12.7 million.
Additionally, we repurchased 68,000 shares of treasury stock in the current quarter for $1.2
million. In the prior year, financing activities utilized $80.3 million of cash, primarily
reflecting (1) repayment of the $50.0 million senior unsecured term notes, (2) purchases of 710,000
treasury shares for $21.0 million and (3) dividend payments of $13.0 million.
We have a $150.0 million revolving credit facility with a group of banks expiring in June 2012. We
had $111.0 million of borrowings outstanding under this facility at December 31, 2008. The average
weighted interest rate on the outstanding balance was 2.2% at December 31, 2008. We entered into a
two year interest rate swap agreement to effectively convert $50.0 million of the outstanding
balance to a fixed rate from a variable rate. This portion of the debt was classified as long-term
as it is our intention to maintain this balance in conjunction with the interest rate swap,
utilizing the one-month LIBOR borrowing option. At December 31, 2008, unused lines under this
facility, net of outstanding letters of credit, total $33.9 million and are available to fund
future acquisitions or other capital and operating requirements.
We have an uncommitted shelf facility with Prudential Insurance Company that enables the Company to
borrow up to $100.0 million in additional long-term financing at the Companys discretion with
terms of up to fifteen years. This agreement expires in March 2010. At December 31, 2008, there
were no outstanding borrowings under this agreement. In the current borrowing environment, funds
drawn down under this facility would carry interest rates significantly higher than our current
borrowing rates.
Debt classified as long-term includes $50.0 million borrowed under our revolving credit facility as
discussed above. The remaining $25.0 million of long-term debt matures in November 2010.
The Board of Directors has authorized the purchase of shares of the Companys common stock. These
purchases may be made in open market and negotiated transactions, from time to time, depending upon
market conditions. We acquired 68,000 shares of common stock in the quarter ended December 31,
2008. At December 31, 2008, the Company had remaining authorization to repurchase 997,100
additional shares.
Management expects to generate positive cash flow from operations over the next two quarters which
is expected to be used to pay down short-term borrowings. Management expects that our existing
cash, cash equivalents, funds available under the revolving credit facility, cash provided from
operations, and the use of operating leases will be sufficient to finance normal working capital
needs, payment of dividends, acquisitions, investments in properties, facilities and equipment, and
the purchase of additional Company common stock. Management also believes that additional
long-term debt and line of credit financing could be obtained based on the Companys credit
standing and financial strength, however at rates significantly higher than the Company is
currently paying.
21
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Under Private Securities Litigation Reform Act
Managements Discussion and Analysis and other sections of this report, including documents
incorporated by reference, contain statements that are forward-looking, based on managements
current expectations about the future. Forward-looking statements are often identified by
qualifiers such as intention, estimated, expected, could be and similar expressions. Similarly,
descriptions of objectives, strategies, plans, or goals are also forward-looking statements. These
statements may discuss, among other things, expected growth, future sales, future cash flows,
future capital expenditures, future performance, and the anticipation and expectations of the
Company and its management as to future occurrences and trends. The Company intends that the
forward-looking statements be subject to the safe harbors established in the Private Securities
Litigation Reform Act of 1995 and by the Securities and Exchange Commission in its rules,
regulations, and releases.
Readers are cautioned not to place undue reliance on any forward-looking statements. All
forward-looking statements are based on current expectations regarding important risk factors, many
of which are outside the Companys control. Accordingly, actual results may differ materially from
those expressed in the forward-looking statements, and the making of those statements should not be
regarded as a representation by the Company or any other person that the results expressed in the
statements will be achieved. In addition, the Company assumes no obligation publicly to update or
revise any forward-looking statements, whether because of new information or events, or otherwise,
except as may be required by law.
Important risk factors include, but are not limited to, the following: risks relating to the
operations levels of customers and the economic factors that affect them; reduced demand for our
products in targeted markets due to reasons including consolidation in customer industries and the
transfer of manufacturing capacity to foreign countries; changes in customer preferences for
products and services of the nature and brands sold by us; changes in customer procurement policies
and practices; changes in the prices for products and services relative to the cost of providing
them; loss of key supplier authorizations, lack of product availability, or changes in supplier
distribution programs; competitive pressures; the cost of products and energy and other operating
costs; disruption of our information systems; our ability to retain and attract qualified sales and
customer service personnel; our ability to identify and complete acquisitions, integrate them
effectively, and realize their anticipated benefits; disruption of operations at our headquarters
or distribution centers; risks and uncertainties associated with our foreign operations, including
more volatile economic conditions, political instability, cultural and legal differences, and
currency exchange fluctuations; risks related to legal proceedings to which we are a party; the
variability and timing of new business opportunities including acquisitions, alliances, customer
relationships, and supplier authorizations; the incurrence of debt and contingent liabilities in
connection with acquisitions; our ability to access capital markets as needed; changes in
accounting policies and practices; organizational changes within the Company; the volatility of our
stock price and the resulting impact on our financial statements;
adverse regulation and legislation; and the occurrence of extraordinary events (including prolonged
labor disputes, natural events and acts of god, terrorist acts, fires, floods, and accidents).
Other factors and unanticipated events could also adversely affect our business, financial
condition or results of operations. We discussed certain of these matters more fully in our Annual
Report on Form 10-K for the year ended June 30, 2008 and elsewhere in this report.
22
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has evaluated its exposure to various market risk factors, including but not limited
to, interest rate and foreign currency exchange risks. We occasionally utilize derivative
instruments as part of our overall financial risk management policy, but do not use derivative
instruments for speculative or trading purposes. We utilize a sensitivity analysis to measure the
potential impact on earnings based on a hypothetical 1% increase in interest rates and a 10% change
in foreign currency rates. A summary of our primary market risk exposures follows.
Interest Rate Risk
The Company manages interest rate risk through the use of a combination of fixed rate long-term
debt, variable rate borrowings under its committed revolving credit agreement and interest rate
swaps. At December 31, 2008, the Company had $111.0 million outstanding in variable rate
borrowings under its committed revolving credit agreement. In conjunction with this facility, on
September 19, 2008, the Company entered into a two year agreement for a $50.0 million fixed
interest rate swap to effectively convert a portion of this variable rate debt to fixed rate debt.
The impact of a 1% change in the interest rate on the remaining $61.0 million of outstanding
variable rate debt would be an annual increase of $0.6 million in interest expense. In the current
borrowing environment, borrowings beyond the amounts available under the revolving credit agreement
would carry interest rates significantly higher than our current borrowing rates.
The Company also has $25.0 million of outstanding long-term debt at fixed interest rates at
December 31, 2008 which is scheduled for repayment in November 2010.
Foreign Currency Risk
The financial statements of foreign subsidiaries are translated into their U.S. dollar equivalents
at end-of-period exchange rates for assets and liabilities, while income and expenses are
translated at average monthly exchange rates. Translation gains and losses are included as
components of accumulated other comprehensive income in shareholders equity. Transaction gains
and losses arising from fluctuations in currency exchange rates on transactions denominated in
currencies other than the functional currency are recognized in the consolidated statements of
income as a component of other expense, net. Since we operate internationally and approximately
13.4% of our year-to-date net sales were generated outside the Unites States, foreign currency
exchange rates can impact our financial position, results of operations and competitive position.
The Company partially mitigates its foreign currency exposure from the Canadian dollar through the
use of cross currency swap agreements as well as foreign-currency denominated debt. Hedging of the
U.S. dollar denominated debt used to fund a substantial portion of the Companys net investment in
its Canadian operations, is accomplished through the use of cross currency swaps. Any gain or loss
on the hedging instrument offsets the gain or loss on the underlying debt. Translation exposures
with regard to our Mexican business are not currently hedged.
23
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the six months ended December 31, 2008, we did experience significant foreign currency
translation losses, totaling $23.5 million, net of tax, which were included in accumulated other
comprehensive (loss) income. The Canadian and Mexican foreign exchange rates to the U.S. dollar
dropped by 18.4% and 24.8% respectively since the beginning of the fiscal year. A 10%
strengthening from the levels at December 31, 2008 of the U.S. dollar relative to foreign
currencies that affect the Company would have resulted in a $0.6 million decrease in net income for
the six months ended December 31, 2008. A 10% weakening from the levels at December 31, 2008 of
the U.S. dollar would have resulted in a $0.6 million increase in net income for the six months
ended December 31, 2008.
24
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 4: CONTROLS AND PROCEDURES
The Companys management, under the supervision and with the participation of the Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of the Companys
disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the
period covered by this report. Based on that evaluation, the CEO and CFO have concluded that the
Companys disclosure controls and procedures are effective.
During the second quarter of fiscal 2009, there were no changes in the Companys internal controls
or in other factors that materially affected, or are reasonably likely to materially affect, the
Companys internal controls over financial reporting. The internal controls of the companies
acquired during the current fiscal year have not yet been evaluated by the Company.
25
PART II. OTHER INFORMATION
ITEM 1.
Legal Proceedings.
The Company is a party to pending legal proceedings with respect to various product
liability and other matters. Although it is not possible to predict the outcome of these
proceedings or the range of possible loss, the Company believes, based on circumstances
currently known, that the likelihood is remote that the ultimate resolution of any of these
proceedings will have, either individually or in the aggregate, a material adverse effect on
the Companys consolidated financial position, results of operations, or cash flows.
ITEM 1A.
Risk Factors
.
Except as set forth below
,
there are no material changes from the risk factors set forth
under Part I, Item 1A, Risk Factors, in our annual report on Form 10-K for the fiscal year
ended June 30, 2008, as supplemented by our quarterly report on Form 10-Q for the quarter
ended September 30, 2008. You should carefully consider these factors in addition to the
other information set forth in this report which could materially affect our business,
financial condition or future results. The risks and uncertainties described in this report,
our annual report on Form 10-K for the year ended June 30, 2008, and our quarterly report on
Form 10-Q for the quarter ended September 30, 2008, are not the only risks and uncertainties
facing us. Additional risks and uncertainties not currently known to us or that we currently
deem to be immaterial may also impact our business and operations.
Our customers may be adversely affected by continued negative macroeconomic conditions and
tight credit markets.
Current negative macroeconomic conditions have caused many of our customers to reduce their
operational activity, which has resulted in lower demand for our products. In addition,
continued tight credit markets could limit the ability of our customers to fund their
financing requirements, thereby further reducing their purchasing volume with us. Further,
the reduction in the availability of credit may increase the risk of customers defaulting on
their payment obligations to us. The continuation or occurrence of these events could have
a material adverse effect on our business, financial condition, or results of operations.
Our results of operations could be adversely affected by goodwill impairment.
The Company evaluates goodwill for possible impairment as of each January 1 or whenever
impairment indicators suggest that an evaluation should be completed. These indicators
could include a significant change in the business climate, legal factors, operating
performance indicators, competition, or sale or disposition of a significant portion of a
reporting unit.
26
Current deteriorating economic conditions could cause us to conclude that impairment
indicators exist and that goodwill is impaired. If we were to determine that impairment has
occurred, we would reflect the reduction in value as an expense, reducing earnings in the
period in which the impairment is identified and reducing our shareholders equity. An
impairment loss could have a material adverse effect on our financial condition and results
of operations.
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
.
Repurchases in the quarter ended December 31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total Number
|
|
|
(d) Maximum
|
|
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Number of Shares
|
|
|
|
|
|
|
|
|
|
|
|
Purchased as Part
|
|
|
that May Yet Be
|
|
|
|
(a) Total
|
|
|
(b) Average
|
|
|
of Publicly
|
|
|
Purchased Under
|
|
|
|
Number of
|
|
|
Price Paid per
|
|
|
Announced Plans
|
|
|
the Plans or
|
|
Period
|
|
Shares
|
|
|
Share ($)
|
|
|
or Programs
|
|
|
Programs
(1)
|
|
October 1, 2008 to
October 31, 2008
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
1,065,100
|
|
November 1, 2008 to
November 30, 2008
|
|
|
18,000
|
|
|
|
16.66
|
|
|
|
18,000
|
|
|
|
1,047,100
|
|
December 1, 2008 to
December 31, 2008
|
|
|
50,000
|
|
|
|
18.21
|
|
|
|
50,000
|
|
|
|
997,100
|
|
Total
|
|
|
68,000
|
|
|
|
17.80
|
|
|
|
68,000
|
|
|
|
997,100
|
|
|
|
|
(1)
|
|
On January 23, 2008, the Board of Directors authorized the purchase of up to 1.5
million shares of the Companys common stock. The Company publicly announced the
authorization that day. These purchases may be made in the open market or in privately
negotiated transactions. This authorization is in effect until all shares are purchased
or the authorization is revoked or amended by the Board of Directors.
|
27
ITEM 4.
Submission of Matters to a Vote of Security Holders.
At the Companys Annual Meeting of Shareholders held on October 21, 2008, there were
42,326,469 shares of common stock entitled to vote. The shareholders voted on the matters
submitted to the meeting as follows:
|
1.
|
|
Election of four persons to be directors of Class III for a term of three years:
|
|
|
|
|
|
|
|
|
|
|
|
For
|
|
|
Withheld
|
|
|
|
|
|
|
|
|
|
|
L. Thomas Hiltz
|
|
|
38,762,891
|
|
|
|
697,575
|
|
John F. Meier
|
|
|
38,861,022
|
|
|
|
599,443
|
|
David L. Pugh
|
|
|
38,641,122
|
|
|
|
819,343
|
|
Peter C. Wallace
|
|
|
39,031,067
|
|
|
|
429,398
|
|
|
|
|
The terms of the Class I directors, including Thomas A. Commes, Peter A. Dorsman, J.
Michael Moore, Dr. Jerry Sue Thornton, and the Class II directors, including William
G. Bares, Edith Kelly-Green and Stephen E. Yates, continued after the meeting.
|
|
|
2.
|
|
Ratification of the Audit Committees appointment of Deloitte & Touche LLP as
the Companys independent auditors for the fiscal year ending June 30, 2009.
|
|
|
|
|
|
For
|
|
Withheld
|
|
Abstain
|
|
|
|
|
|
38,489,731
|
|
810,818
|
|
159,917
|
ITEM 6.
Exhibits
.
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
|
|
|
3.1
|
|
|
Amended and Restated Articles of Incorporation of Applied
Industrial Technologies, Inc., as amended on October 25, 2005 (filed as Exhibit
3(a) to the Companys Form 10-Q for the quarter ended December 31, 2005, SEC
File No. 1-2299, and incorporated here by reference).
|
|
|
|
|
|
|
3.2
|
|
|
Code of Regulations of Applied Industrial Technologies, Inc.,
as amended on October 19, 1999 (filed as Exhibit 3(b) to the Companys Form
10-Q for the quarter ended September 30, 1999, SEC File No. 1-2299, and
incorporated here by reference).
|
|
|
|
|
|
|
4.1
|
|
|
Certificate of Merger of Bearings, Inc. (Ohio) (now named
Applied Industrial Technologies, Inc.) and Bearings, Inc. (Delaware) filed with
the Ohio Secretary of State on October 18, 1988, including an Agreement and
Plan of Reorganization dated September 6, 1988 (filed as Exhibit
4(a) to the Companys Registration Statement on Form S-4
filed May 23, 1997, Registration No. 333-27801, and
incorporated here by reference).
|
28
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
4.2
|
|
Private Shelf Agreement dated as of November 27, 1996, as
amended on January 30, 1998, between the Company and Prudential Investment
Management, Inc. (assignee of The Prudential Insurance Company of America)
(filed as Exhibit 4(f) to the Companys Form 10-Q for the quarter ended March
31, 1998, SEC File No. 1-2299, and incorporated here by reference).
|
|
|
|
4.3
|
|
Amendment dated October 24, 2000 to 1996 Private Shelf
Agreement between the Company and Prudential Investment Management, Inc.
(assignee of The Prudential Insurance Company of America) (filed as Exhibit
4(e) to the Companys Form 10-Q for the quarter ended September 30, 2000, SEC
File No. 1-2299, and incorporated here by reference).
|
|
|
|
4.4
|
|
Amendment dated November 14, 2003 to 1996 Private Shelf
Agreement between the Company and Prudential Investment Management, Inc.
(assignee of The Prudential Insurance Company of America) (filed as Exhibit
4(d) to the Companys Form 10-Q for the quarter ended December 31, 2003, SEC
File No. 1-2299, and incorporated here by reference).
|
|
|
|
4.5
|
|
Amendment dated February 25, 2004 to 1996 Private Shelf
Agreement between the Company and Prudential Investment Management, Inc.
(assignee of The Prudential Insurance Company of America) (filed as Exhibit
4(e) to the Companys Form 10-Q for the quarter ended March 31, 2004, SEC File
No. 1-2299, and incorporated here by reference).
|
|
|
|
4.6
|
|
Amendment dated March 30, 2007 to 1996 Private Shelf
Agreement between the Company and Prudential
Investment Management, Inc. (assignee of The Prudential
Insurance Company of America) (filed as Exhibit 4(f) to the
Companys Form 10-Q for the quarter ended March 31, 2007, SEC
File No. 1-2299, and incorporated here by reference).
|
29
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
4.7
|
|
Credit Agreement dated as of June 3, 2005 among the Company,
KeyBank National Association as Agent, and various financial institutions
(filed as Exhibit 4 to the Companys Form 8-K dated June 9, 2005, SEC File No.
1-2299, and incorporated here by reference).
|
|
|
|
4.8
|
|
First Amendment Agreement dated as of June 6, 2007, among the
Company, KeyBank National Association as Agent, and various financial
institutions, amending June 3, 2005 Credit Agreement (filed as Exhibit 4 to the
Companys Form 8-K dated June 11, 2007, SEC File No. 1-2299, and incorporated
here by reference).
|
|
|
|
10.1
|
|
Supplemental Executive Retirement Benefits Plan (Restated
Post-2004 Terms).
|
|
|
|
10.2
|
|
Deferred Compensation Plan for Non-Employee Directors
(Post-2004 Terms).
|
|
|
|
10.3
|
|
Deferred Compensation Plan (Post-2004 Terms).
|
|
|
|
10.4
|
|
Section 409A Amendment to the 1997 Long-Term Performance Plan
(as amended April 18, 2007).
|
|
|
|
10.5
|
|
Section 409A Amendment to the 2007 Long-Term Performance Plan.
|
|
|
|
10.6
|
|
Supplemental Defined Contribution Plan (Post-2004 Terms).
|
|
|
|
15
|
|
Independent Registered Public Accounting Firms Awareness
Letter.
|
|
|
|
31
|
|
Rule 13a-14(a)/15d-14(a) certifications.
|
|
|
|
32
|
|
Section 1350 certifications.
|
Applied will furnish a copy of any exhibit described above and not contained herein upon
payment of a specified reasonable fee which shall be limited to Applieds reasonable expenses in
furnishing the exhibit.
Certain instruments with respect to long-term debt have not been filed as exhibits because the
total amount of securities authorized under any one of the instruments does not exceed 10 percent
of the total assets of Applied and its subsidiaries on a consolidated basis. Applied agrees to
furnish to the Securities and Exchange Commission, upon request, a copy of each such instrument.
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
|
|
|
|
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(Company)
|
|
Date: February 6, 2009
|
By:
|
/s/ David L. Pugh
|
|
|
|
David L. Pugh
|
|
|
|
Chairman & Chief Executive Officer
|
|
|
|
|
Date: February 6, 2009
|
By:
|
/s/ Mark O. Eisele
|
|
|
|
Mark O. Eisele
|
|
|
|
Vice President-Chief Financial
Officer & Treasurer
|
|
31
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
EXHIBIT INDEX
TO FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2008
|
|
|
|
|
EXHIBIT NO.
|
|
DESCRIPTION
|
|
|
|
|
|
|
|
3.1
|
|
Amended and Restated Articles of Incorporation of Applied
Industrial Technologies, Inc., as amended on October 25, 2005 (filed as
Exhibit 3(a) to the Companys Form 10-Q for the quarter ended December
31, 2005, SEC File No. 1-2299, and incorporated here by reference).
|
|
|
|
|
|
|
|
3.2
|
|
Code of Regulations of Applied Industrial Technologies, Inc.,
as amended on October 19, 1999 (filed as Exhibit 3(b) to the Companys
Form 10-Q for the quarter ended September 30, 1999, SEC File No.
1-2299, and incorporated here by reference).
|
|
|
|
|
|
|
|
4.1
|
|
Certificate of Merger of Bearings, Inc. (Ohio) (now named
Applied Industrial Technologies, Inc.) and Bearings, Inc. (Delaware)
filed with the Ohio Secretary of State on October 18, 1988, including
an Agreement and Plan of Reorganization dated September 6, 1988 (filed
as Exhibit 4(a) to the Companys Registration Statement on Form S-4
filed May 23, 1997, Registration No. 333-27801, and incorporated here
by reference).
|
|
|
|
|
|
|
|
4.2
|
|
Private Shelf Agreement dated as of November 27, 1996, as
amended on January 30, 1998, between the Company and Prudential
Investment Management, Inc. (assignee of The Prudential Insurance
Company of America) (filed as Exhibit 4(f) to the Companys Form 10-Q
for the quarter ended March 31, 1998, SEC File No. 1-2299, and
incorporated here by reference).
|
|
|
|
|
|
|
|
4.3
|
|
Amendment dated October 24, 2000 to 1996 Private Shelf
Agreement between the Company and Prudential Investment Management,
Inc. (assignee of The Prudential Insurance Company of America) (filed
as Exhibit 4(e) to the Companys Form 10-Q for the quarter ended
September 30, 2000, SEC File No. 1-2299, and incorporated here by
reference).
|
|
|
|
|
|
|
|
EXHIBIT NO.
|
|
DESCRIPTION
|
|
|
|
4.4
|
|
Amendment dated November 14, 2003 to 1996 Private Shelf
Agreement between the Company an Prudential Investment Management, Inc.
(assignee of The Prudential Insurance Company of America) (filed as
Exhibit 4(d) to the Companys Form 10-Q for the quarter ended December
31, 2003, SEC File No. 1-2299, and incorporated here by reference).
|
|
|
|
|
|
|
|
4.5
|
|
Amendment dated February 25, 2004 to 1996 Private Shelf
Agreement between the Company and Prudential Investment Management,
Inc. (assignee of The Prudential Insurance Company of America) (filed
as Exhibit 4(e) to the Companys Form 10-Q for the quarter ended March
31, 2004, SEC File No. 1-2299, and incorporated here by reference).
|
|
|
|
|
|
|
|
4.6
|
|
Amendment dated March 30, 2007 to 1996 Private
Shelf Agreement between the Company and
Prudential Investment Management, Inc. (assignee
of The Prudential Insurance Company of America)
(filed as Exhibit 4(f) to the Companys Form 10-Q for
the quarter ended March 31, 2007, SEC File No.
1-2299, and incorporated here by reference).
|
|
|
|
|
|
|
|
4.7
|
|
Credit Agreement dated as of June 3, 2005 among the Company,
KeyBank National Association as Agent, and various financial
institutions (filed as Exhibit 4 to the Companys Form 8-K dated June
9, 2005, SEC File No. 1-2299, and incorporated here by reference).
|
|
|
|
|
|
|
|
4.8
|
|
First Amendment Agreement dated as of June 6, 2007, among the
Company, KeyBank National Association as Agent, and various financial
institutions, amending June 3, 2005 Credit Agreement (filed as Exhibit
4 to the Companys Form 8-K dated June 11, 2007, SEC File No. 1-2299,
and incorporated here by reference).
|
|
|
|
|
|
|
|
10.1
|
|
Supplemental Executive Retirements Benefits Plan
(Restated Post-2004 Terms).
|
|
Attached
|
|
|
|
|
|
10.2
|
|
Deferred Compensation Plan for Non-Employee
Directors (Post-2004 Terms).
|
|
Attached
|
|
|
|
|
|
10.3
|
|
Deferred Compensation Plan (Post-2004 Terms).
|
|
Attached
|
|
|
|
|
|
EXHIBIT NO.
|
|
DESCRIPTION
|
|
|
|
10.4
|
|
Section 409A Amendment to the 1997 Long-Term
Performance Plan (as Amended April 18, 2007).
|
|
Attached
|
|
|
|
|
|
10.5
|
|
Section 409A Amendment to the 2007 Long-Term
Performance Plan.
|
|
Attached
|
|
|
|
|
|
10.6
|
|
Supplemental Defined Contribution Plan
(Post-2004 Terms).
|
|
Attached
|
|
|
|
|
|
15
|
|
Independent Registered Public Accounting
Firms Awareness Letter.
|
|
Attached
|
|
|
|
|
|
31
|
|
Rule 13a-14(a)/15d-14(a) certifications.
|
|
Attached
|
|
|
|
|
|
32
|
|
Section 1350 certifications.
|
|
Attached
|
EXHIBIT 10.1
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS PLAN
(Restated Post-2004 Terms)
WHEREAS
, the Applied Industrial Technologies, Inc. Supplemental Executive Retirement Benefits
Plan (formerly known as the Bearings, Inc. Supplemental Executive Retirement Benefits Plan and
hereinafter referred to as the Plan) was established on January 21, 1988, by Bearings, Inc., the
predecessor to Applied Industrial Technologies, Inc. (hereinafter referred to as the Company) for
the benefit of certain officers and key executives; and
WHEREAS
, the Plan was most recently restated as of January 1, 2002 and amended subsequently on
August 6, 2004; and
WHEREAS,
in order to comply with Section 409A of the Internal Revenue Code of 1986, as amended
(hereinafter referred to as Section 409A) and to facilitate the administration of certain
nonqualified deferrals thereunder, the Plan is hereby bifurcated effective January 1, 2005, into
two parts; namely, one part that consists of the Plan, as in effect on October 3, 2004, which is
hereby frozen and shall not be modified except as permitted under Section 409A so as to preserve
the grandfathered status of vested benefits thereunder (hereinafter referred to as the Frozen
Terms), and the second part that consists of the post-2004 terms of the Plan, as amended effective
January 1, 2005, for compliance with Section 409A (hereinafter referred to as the Post-2004
Terms); and
WHEREAS,
Plan benefits accrued or vested after December 31, 2004, and prior to the Plan
bifurcation, have been administered in good faith in accordance with the requirements of Section
409A; and
WHEREAS,
the Post-2004 Terms were adopted effective as of January 1, 2005; and
WHEREAS,
it has been deemed appropriate to make certain revisions to such Post-2004 Terms;
NOW THEREFORE,
effective as of January 1, 2005, the Post-2004 Terms of the Plan are hereby
restated as hereinafter set forth.
ARTICLE I
DEFINITIONS
1.1
Definitions
.
For purposes of the Plan, each of the following words and phrases
shall have the meaning hereinafter set forth unless a different meaning is clearly required by the
context:
(1) The term
Accrued Portion
of a Participants supplemental normal
retirement benefit determined as of any given date occurring prior to his Normal
Retirement Date shall mean the amount of such Participants supplemental normal
retirement benefit determined pursuant to the provisions of Section 3.2, based upon
his Highest Monthly Final Average Compensation and years of Service on such date.
(2) The term
Affiliate
shall mean any member of a controlled group of
corporations (as determined under Section 414(b) of the Code) of which the Company
is a member; any member of a group of trades or businesses under common control (as
determined under Section 414(c) of the Code) with the Company; any member of an
affiliated service group (as determined under Section 414(m) of the Code) of which
the Company is a member; and any other entity which is required to be aggregated
with the Company pursuant to the provisions of Section 414(o) of the Code.
(3) The term
Affiliated Group
shall mean the group of entities which are
Affiliates.
(4) The term
Beneficiary
shall mean the person or persons designated by a
Participant to receive a death benefit under the Plan pursuant to the provisions of
Article IX.
(5) The term
Board
shall mean the Board of Directors of the Company.
(6) The term
Cause
shall mean (i) the conviction of, or pleading guilty by, a
Participant to a felony or a misdemeanor involving moral turpitude; (ii) the
commission of an act of fraud, dishonesty or theft, or (iii) the commission of any
other intentional act (or failure to act) which is not in the best interests of the
Company, specifically including, but not limited to, those actions (or failures)
which the Company has previously notified the Participant in writing are contrary to
the best interests of the Company.
(7) The term
Change of Control
shall mean a change in the ownership or
effective control of the Company or a change in the ownership of a substantial
portion of the assets of the Company that constitutes a change in control under
Section 409A.
(8) The term
Code
shall mean the Internal Revenue Code of 1986, as amended
from time to time. Reference to a section of the Code shall include such section
and any comparable section or sections of any future legislation that amends,
supplements, or supersedes such section.
(9) The term
Committee
shall mean the Executive Organization & Compensation
Committee of the Board.
(10) The term
Company
shall mean Applied Industrial Technologies, Inc., its
corporate successors, and the surviving corporation resulting from any merger of
Applied Industrial Technologies, Inc. with any other corporation or corporations.
(11) The term
Compensation
shall mean the total wages which are paid to or on
behalf of a Participant during a calendar year by an Affiliate for services rendered
as a common law employee, including base salary, annual incentive compensation,
commissions, bonuses, any base salary and annual incentive amounts deferred under
any non-qualified deferred compensation program of an Affiliate, and any elective
contributions that are made on behalf of such Participant under any plan maintained
by an Affiliate and that are not includible in gross income under Section 125, 129,
or 402(e)(3) of the Code, but excluding moving or educational reimbursement
expenses, amounts realized from the exercise of stock options, any long term
incentive compensation including, but not limited to, restricted stock, performance
grants and stock appreciation rights, severance benefits, and imputed income
attributable to any fringe benefit.
(12) The term
Comprehensive Plan
shall mean the Applied Industrial
Technologies, Inc. Deferred Compensation and Supplemental Benefit Plan (formerly
known as the Bearings, Inc. Comprehensive Deferred Compensation and Supplemental
Benefit Plan).
(13) The term
Disability
or
Disabled
shall mean a condition of a
Participant that meets the requirements of Section 409A Disability or Own Occ
Disability.
(14) The term
Election Form
shall mean the form which may be electronic,
telephonic or hard copy and on which a Participant elects the time and manner of
payment of his Plan benefits in accordance with the provisions of the Post-2004
Terms and Section 409A.
(15) The term
ERISA
shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time. Reference to a section of ERISA shall include
such section and any comparable section or sections of any future legislation that
amends, supplements, or supersedes such action.
(16) The term
Executive Officer
shall mean an officer of the Company as
defined by Rule 3b-7 of the Securities Exchange Act of 1934, as amended.
(17) The term
Former Employer Plan
shall mean any defined benefit plan,
program or arrangement (qualified or non-qualified) maintained by a former employer
of a Participant and pursuant to which a Participant is, or ever was, eligible to
receive retirement income.
(18) The term
Frozen Benefit
shall mean the Accrued Portion of the
supplemental normal retirement benefit of a Participant who had attained age 55 and
was credited with at least ten years of Service as of December 31, 2004, determined
under the provisions of the Frozen Terms on such date.
(19) The term
Frozen Terms
shall mean the terms of the Plan as in effect on
October 3, 2004.
(20) The term
Highest Monthly Final Average Compensation
shall mean 1/12th of
the average of the Compensation of a Participant for any three calendar years during
the last ten calendar years of his employment with the Affiliated Group in which the
Participant had the greatest Compensation; provided, however, that if a Participant
did not receive Compensation for at least three calendar years, his Highest Monthly
Final Average Compensation shall be determined by dividing his average Compensation
for the calendar years in which he was employed by the Affiliated Group by 12.
(21) The term
Normal Retirement Date
shall mean the date on which a
Participant attains 65 years of age.
(22) The term
Own Occ Disability
shall mean the incapacity of a Participant
due to any physical or mental condition that is incurred while an Executive Officer
and that results in the Participant being unable to perform the duties of his most
recent position with the Affiliated Group and thereafter shall mean such continued
incapacity so that the Participant is prevented from resuming the duties and
responsibilities of his most recent position with the Affiliated Group or from
obtaining a comparable position with another employer.
(23) The term
Participant
shall mean, for purposes of the Post-2004 Terms, an
Executive Officer who is designated to participate in the Plan pursuant to the
provisions of Article II of the Plan.
(24) The term
Plan
shall mean the Applied Industrial Technologies, Inc.
Supplemental Executive Retirement Benefits Plan which, effective as of January 1,
2005, shall consist of the Frozen Terms and the Post-2004 Terms, and which is part
of the Comprehensive Plan and listed on Exhibit A attached thereto. The Frozen
Terms shall be determinative solely with respect to Frozen Benefits and the
payment thereof. The Post-2004 Terms shall govern all other provisions of the Plan,
including Plan benefits accrued or vested on and after January 1, 2005.
(25) The term
Post-2004 Terms
shall mean the part of the bifurcated Plan that
contains the provisions of the Plan effective as of January 1, 2005 to comply with
Section 409A as set forth herein and as may be amended after such date from time to
time.
(26) The term
Primary Social Security Benefit
shall mean the monthly benefit
which a Participant would be entitled to receive as a primary insurance amount under
the U.S. Social Security Act, as amended, and in effect (and at the rate in effect)
on the January 1 coincident with or next preceding the date his Service under the
Plan ceases (regardless of any retroactive changes made by legislation enacted after
said January 1) under the assumptions described below (whether he applies for such
benefit or not, and even though he may lose part or all of such benefit for any
reason). The amount of said Primary Social Security Benefit shall be estimated and
computed by the Company for the purposes of the Plan on the assumption that such
Participant shall have no further employment or Compensation after the date his
Service under the Plan ceases and that his benefit commences at the later of his
62nd birthday or the date his Service under the Plan ceases.
(27) The term
Section 409A
shall mean Section 409A of the Code and the
Treasury regulations and rulings thereunder.
(28) The term
Section 409A Disability
shall mean a condition of a Participant
that constitutes a disability under Section 409A, including a determination by the
Social Security Administration that such Participant is totally disabled.
(29) The term
Separation from Service
shall mean the termination of the
employment of a Participant with the Company and all Affiliates for any reason other
than death; provided, however, that a Company-approved leave of absence shall not be
considered a termination of employment if the leave does not exceed six months, or
if longer, so long as the Participants right to reemployment is provided either by
statute or by contract. Notwithstanding the foregoing, whether a Participant has
incurred a Separation from Service shall be determined in accordance with the
provisions of Section 409A.
(30) The term
Service
shall mean the aggregate period of time that a
Participant is employed as a common law employee by the Company and any Affiliate or
for which he is given credit pursuant to the provisions of Section 2.2.
(31) The term
Specified Employee
shall mean a key employee of the Company who
is a specified employee under Section 409A and the Companys Specified Employee
identification policy.
1.2
Construction
.
Where necessary or appropriate to the meaning hereof, the singular
shall be deemed to include the plural, the plural to include the singular, the masculine to include
the feminine, and the feminine to include the masculine.
ARTICLE II
PARTICIPATION
2.1
Participants
.
Each Executive Officer of the Company who was participating in the
Plan under the Frozen Terms as of December 31, 2004, and who continues to be an active Executive
Officer of the Company shall continue to be a Participant in the Plan under the Post-2004 Terms as
of January 1, 2005. Any Executive Officer of the Company who was not participating in the Plan
under the Frozen Terms as of December 31, 2004, and who becomes an Executive Officer of the Company
on or after January 1, 2005, and who is designated as a Participant pursuant to the provisions of
Section 2.2, shall become a Participant in the Plan under the Post-2004 Terms as of the date of
such designation. Each Executive Officer shall be considered a Specified Employee and shall be
subject to the rules relating to Specified Employees under Section 409A.
2.2
Designation of Participants
.
The designation of an Executive Officer of the
Company as a Participant shall be made by action of the Board or the Committee. In addition, the
Board or the Committee may award Service credit, not in excess of five years, to any Executive
Officer of the Company at the time of such designation.
ARTICLE III
SUPPLEMENTAL NORMAL RETIREMENT BENEFITS
3.1
Eligibility
.
Any Participant, who incurs a Separation from Service on or after
his Normal Retirement Date and who is credited with at least five years of Service as an Executive
Officer, shall be eligible to receive a supplemental normal retirement benefit determined in
accordance with the provisions of Section 3.2.
3.2
Amount
.
Subject to the provisions of Article VIII and except as specifically
provided otherwise in this Section 3.2, the supplemental normal retirement benefit of an eligible
Participant shall be equal to 45 percent of his Highest Monthly Final Average Compensation, reduced
by 1/20th for each full year that his years of Service are less than 20 and further reduced by his
Frozen Benefit, if any, as well as the actuarial equivalency of any supplemental awards paid to a
Participant under the Applied Industrial Technologies, Inc. Vice President Supplemental Incentive
Plan, as may be amended, or any successor thereto. Notwithstanding the foregoing, except as
provided in Article VIII, in the event that D. L. Pugh is credited with at least 10 years of
Service under the Plan, including Service credited in the event of a Change of Control under
Article VIII, his supplemental normal retirement benefit shall be equal to 60 percent of his
Highest Monthly Final Average Compensation reduced by the monthly benefit payable to him at age 65
in a single life form under all Former Employer Plans and then reduced further by 50 percent of his
monthly Primary Social Security Benefit.
3.3
Payment
.
Subject to the provisions of Article VIII, the payment of the
supplemental normal retirement benefit determined under the provisions of Section 3.2 to an
eligible Participant shall be made pursuant to the provisions of Article VII.
ARTICLE IV
SUPPLEMENTAL EARLY RETIREMENT BENEFITS
4.1
Eligibility
.
Any Participant, who incurs a Separation from Service prior to his
Normal Retirement Date, but after (i) attaining age 55, (ii) being credited with at least 10 years
of Service and (iii) being credited with at least five years of Service as an Executive Officer,
shall be eligible to receive a supplemental early retirement benefit determined in accordance with
the provisions of Section 4.2.
4.2
Amount
.
The supplemental early retirement benefit payable to an eligible
Participant shall be equal to the Accrued Portion of his monthly supplemental normal retirement
benefit determined in accordance with the provisions of Section 3.2 on the date of his Separation
from Service, reduced by .4166% for each full month that actual commencement of such benefit
precedes his Normal Retirement Date. Therefore, in the event that the payment of any supplemental
early retirement benefit is delayed in order to comply with the six-month delay rule applicable to
a Participant who is a Specified Employee, the amount of such benefit shall be determined hereunder
using the date on which the delayed benefit begins to be paid to such Participant.
4.3
Payment
.
Subject to the provisions of Article VIII, the payment of a supplemental
early retirement benefit determined under the provisions of Section 4.2 shall be made to an
eligible Participant pursuant to the provisions of Article VII.
ARTICLE V
SUPPLEMENTAL DISABILITY BENEFITS
5.1
Eligibility
.
Any Participant who incurs a Separation from Service due to
Disability after being credited with at least five years of Service as an Executive Officer, shall
be eligible to receive a monthly supplemental disability benefit determined in accordance with the
provisions of Section 5.2.
5.2
Amount
.
The monthly supplemental disability benefit of an eligible Disabled
Participant shall be an amount which when added to any long term disability benefits payable to
such Participant under any other plan or program maintained by an Affiliate (regardless of the
source of contributions and converted, if necessary, into a monthly benefit for purposes hereunder)
equals 60% of such Disabled Participants Highest Monthly Final Average Compensation.
5.3
Payment
.
Subject to the provisions of Section 5.4 and Article VIII, a monthly
supplemental disability benefit shall be paid to an eligible Disabled Participant who incurs a
Section 409A Disability commencing 180 days after the onset of a Participants Disability and shall
be payable monthly thereafter until the earlier of (i) the Participants Normal Retirement Date, or
(ii) the Participants death. Subject to the provisions of Section 5.4 and Article VIII, a monthly
supplemental disability benefit shall be paid to an eligible Disabled Participant who incurs an Own
Occ Disability (but not a Section 409A Disability) as of the first day of the seventh month
following such Participants Separation from Service due to Disability; provided, however, that if
any payments to which the Participant would have been entitled during the first six months
following the date of his Separation from Service, if he had a Section 409A Disability shall be
accumulated and paid to such Participant on the first day of the seventh month following his
Separation from Service. Upon attaining Normal Retirement Date, any such Disabled Participant shall
be entitled to receive a supplemental normal retirement benefit determined in accordance with the
provisions of Section 3.2, based upon his years of Service and Highest Monthly Final Average
Compensation as of the time of his Separation from Service due to his Disability, and payable in
accordance with the provisions of Section 3.3.
5.4
Termination and Adjustment of Supplemental Disability Benefits
. Monthly
supplemental disability benefits being paid to a Participant shall terminate, if prior to the
Participants Normal Retirement Date, such Participant no longer has an Own OCC Disability. In
addition, monthly supplemental disability benefits being paid to a Participant shall be reduced in
the manner set forth below, if prior to the Participants Normal Retirement Date, such Participant
engages in regular gainful employment and earns income.
(a) Determine Loss of Income by subtracting the monthly income earned by the Participant from
the Participants Highest Monthly Final Average Compensation used under
Section 5.2.
(b) Determine the percentage of such Loss of Income by dividing the amount calculated in (a)
above by the Participants Highest Monthly Final Average Compensation.
(c) Determine the amount of the reduced supplemental disability benefit as follows:
|
|
|
Percentage of Loss of Income
|
|
Supplemental Disability Benefit
|
[(b) above]
|
|
[(c) above]
|
|
|
|
75% or more
|
|
Section 5.2 Benefit
|
|
|
|
20% 74%
|
|
Section 5.2 Benefit times Percentage of
Loss of Income
|
|
|
|
Under 20%
|
|
$0 No Supplemental Disability Benefit
Payable
|
5.5
Medical Examinations
.
The Company may, in its discretion, require a Participant
who is applying for a monthly supplemental disability benefit or who is receiving a monthly
supplemental disability benefit to submit to such medical examinations as it may deem reasonably
necessary; provided, however, that no Participant shall be required to undergo such examinations
more than once a year. In the event a Participant refuses to submit to any such examination, his
monthly supplemental disability benefit shall be suspended by the Company.
ARTICLE VI
SUPPLEMENTAL DEFERRED RETIREMENT BENEFITS
6.1
Eligibility
.
Any Participant who incurs a Separation from Service prior to
attainment of age 55 for reasons other than Cause or Disability, but after being credited with at
least ten years of Service, five of which were credited while an Executive Officer, shall be
eligible to receive upon attainment of age 65 (or a Change in Control, if earlier) a supplemental
deferred retirement benefit determined in accordance with the provisions of Section 6.2.
6.2
Amount
.
The supplemental deferred retirement benefit of an eligible Participant
shall be equal to 25% of the Accrued Portion of his supplemental normal retirement benefit
determined in accordance with the provisions of Section 3.2 on the date of his Separation from
Service.
6.3
Payment
.
Subject to the provisions of Article VIII, the payment of the
supplemental deferred retirement benefit determined under the provisions of Section 6.2 shall be
made to an eligible Participant pursuant to the provisions of Section 7.2.
ARTICLE VII
PAYMENT OF BENEFITS
7.1
Payment of Supplemental Normal and Early Retirement Benefits
.
The supplemental
normal or early retirement benefit payable to an eligible Participant pursuant to the provisions of
Section 3.3 or 4.3, respectively, shall be determined pursuant to Section 3.2 or 4.2, respectively,
and paid to such eligible Participant pursuant to Option A, B, C or D as set forth below and
indicated on the Election Form of such Participant; provided, however, if a Participant has elected
to receive his supplemental normal or early retirement benefit pursuant to Option E, the present
value of his supplemental normal or early retirement benefit shall be determined under the
provisions of Section 7.6 and shall be paid under the provisions of Option E.
Option A
. A single life annuity for the life of the Participant. Due
to the six-month delay rule applicable to Specified Employees under Section 409A,
the first annuity payment shall be made on the first day of the seventh month
following the date that the Participant incurs a Separation from Service. The
amount of such first payment shall include the accumulated amount of the payments
that would otherwise have been made during the first six months after the
Participants Separation from Service but for the fact that the Participant is a
Specified Employee.
Option B
. A reduced monthly supplemental retirement benefit payable to
such Participant for his lifetime following his Separation from Service with the
continuance of a monthly benefit equal to one-half of such reduced amount after his
death to his Contingent Annuitant during the lifetime of the Contingent Annuitant,
provided that such Contingent Annuitant is living at the time such Participants
benefit commences. Due to the six-month delay rule applicable to Specified
Employees under Section 409A, the first annuity payment shall be made on the first
day of the seventh month following the date that the Participant incurs a Separation
from Service. The amount of such first payment shall include the accumulated amount
of the payments that would otherwise have been made during the first six months
after the Participants Separation from Service but for the fact that the
Participant is a Specified Employee.
Option C
. A reduced monthly supplemental retirement benefit payable to
such Participant for his lifetime following his Separation from Service with the
continuance of a monthly benefit equal to three-quarters of such reduced amount
after his death to his Contingent Annuitant during the lifetime of the Contingent
Annuitant, provided such Contingent Annuitant is living at the time such
Participants benefit commences. Due to the six-month delay rule applicable to
Specified Employees under Section 409A, the first annuity payment shall be made on
the first day of the seventh month following the date that the Participant incurs a
Separation from Service. The amount of such first payment shall include the
accumulated amount of the payments that would otherwise have been made during the
first six months after the Participants Separation from Service but for the fact
that the Participant is a Specified Employee.
Option D
. A reduced monthly supplemental retirement benefit payable to
such Participant for his lifetime following his Separation from Service with the
continuance of a monthly benefit equal to such reduced amount after his death to his
Contingent Annuitant during the lifetime of the Contingent Annuitant, provided such
Contingent Annuitant is living at the time such Participants benefit commences.
Due to the six-month delay rule applicable to Specified Employees under Section
409A, the first annuity payment shall be made on the first day of the seventh month
following the date that the Participant incurs a Separation from Service. The
amount of such first payment shall include the accumulated amount of the payments
that would otherwise have been made during the first six months after the
Participants Separation from Service but for the fact that the Participant is a
Specified Employee.
Option E
. Substantially equal annual installment payments for a
specified number of years on his Election Form, not to exceed ten, but in no event
less than a minimum of three years (five years for any Participant who at the time
of his Separation from Service is or was the Chairman or the Chief Executive Officer
of the Company). Due to the six-month delay rule applicable to Specified Employees
under Section 409A, the initial installment payment shall be made on the first day
of the seventh month following the date that the Participant incurs a Separation
from Service. The remaining installment payments shall be made on the first day of
the succeeding fiscal years of the Company after the fiscal year in which the first
installment payment is made to the Participant. In addition, the portion of a
benefit which is payable after the initial installment payment is made to a
Participant shall accrue interest until paid in accordance with the foregoing
provisions at the applicable interest rate under Section 417(e)(3) of the Code
utilized by the actuary to calculate the present value of such Participants
supplemental normal or early retirement benefit pursuant to the provisions of
Section 7.6.
7.2
Payment of Supplemental Deferred Retirement Benefits
.
The present value of the
supplemental deferred retirement benefits payable to an eligible Participant pursuant to the
provisions of Section 6.3 shall be determined pursuant to Sections 6.2 and 7.6 and paid to such
eligible Participant in three substantially equal payments with the first payment being made on the
first day of the fiscal year of the Company following the Participants attainment of age 65. The
remaining two payments shall be made on the first of the next two succeeding fiscal years of the
Company after the fiscal year in which the first payment is made to such Participant. In addition,
the portion of a benefit which is payable after the initial installment payment is made to a
Participant shall accrue interest until paid in accordance with the foregoing provisions of this
Section 7.2 at the applicable interest rate under Section 417(e)(3) of the Code utilized by the
actuary to calculate the present value of such Participants supplemental deferred retirement
benefits under Section 7.6.
7.3
Changing Time or Form of Payment
.
A Participant may elect to delay payment or to
change the form of payment if all the following conditions are met:
(i) Such election will not take effect until at least twelve months after the
date on which the election is made; and
(ii) The payment with respect to which such election is made is deferred for a
period of not less than five years from the date such payment would otherwise be
made; and
(iii) Any election for a specified time (or pursuant to a fixed schedule)
within the meaning of Section 409A(a)(2)(A)(iv) of the Code, may not be made less
than twelve months prior to the date of the first scheduled payment.
To the extent permitted under Section 409A, installment payments shall be treated as a single
payment.
7.4
Acceleration of Distributions
.
Except as provided in Articles VIII or IX or in
Section 7.3 and as permitted under Section 409A, no acceleration of the time or form of payment of
any supplemental retirement benefit under the Plan shall be permitted.
7.5
Deduction Limitation
.
To the extent allowed under Section 409A, the following
described limitation on a distribution that is otherwise payable pursuant to the provisions of the
Post-2004 Terms shall be applicable. If the Company determines in good faith that there is a
reasonable likelihood that a distribution under the Post-2004 Terms would not be deductible by the
Company when paid solely by reason of the limitation under Section 162(m) of the Code (Section
162), the Company may defer that amount of the distribution to the extent deemed necessary to
ensure deductibility; provided, however, that (i) such deduction limitation shall be applied to all
payments to similarly situated Participants on a reasonably consistent basis; (ii) the payment must
be made by the earliest of (x) during the Companys first taxable year in which the Company
reasonably anticipates, or should reasonably anticipate, that if the payment is made during such
year, the deduction of such payment will not be barred by application of Section 162(m) of the Code
or (y) during the period beginning with the date of the Participants Separation from Service and
ending on the later of the last day of the taxable year of the Company in which the Participant
incurs a Separation from Service or the 15
th
day of the third month following the
Participants Separation from Service; (iii) where any scheduled payment to a particular
Participant in the Companys taxable year is delayed because of Section 162(m), the delay in
payment will be treated as a subsequent deferral election unless all scheduled payments to such
Participant that could be delayed are also delayed; (iv) where a payment is delayed to a date on or
after the Participants Separation from Service, the payment will be considered a payment upon a
Separation from Service for purposes of the six-month delay for Specified Employees; and (v) no
election may be provided to a Participant with respect to the timing of payment hereunder;
provided, further, that such deduction limitation shall not be applied to any distribution made
after a Change in Control; and provided further, that the amounts deferred (and amounts credited
thereon) because of Section 162(m) shall be distributed to the Participant (or Beneficiary in the
event of the Participants death) at the earlier of (i) the earliest possible date that it is
deductible as set forth above, or (ii) a Change in Control. Any amounts deferred pursuant to such
deduction limitation shall continue to be credited with interest at the rate under
Section 417(e)(3) of the Code for the January immediately preceding the month in which the
supplemental retirement benefit of the Participant was to (or actually did) commence.
7.6
Actuarial Factors
.
The present value of the supplemental normal or early
retirement benefits of a Participant that are payable under the Plan pursuant to the provisions of
Section 7.1 shall be determined by using the applicable interest rate and applicable mortality
table specified under Section 417(e)(3) of the Code for the January immediately preceding the month
in which the Participant incurs a Separation from Service. The present value of the supplemental
deferred retirement benefits of a Participant that are payable under the Plan pursuant to the
provisions of Section 7.2 shall be determined by using the applicable interest rate and applicable
mortality table specified under Section 417(e)(3) of the Code for the January immediately preceding
the month in which such supplemental deferred retirement benefit of the Participant is to commence
to be paid. The present value of supplemental normal, early and deferred retirement benefits of
Participants that are payable under Section 8.2 shall be determined by using the applicable
interest rate and applicable mortality table specified under Section 417(e)(3) of the Code for the
January immediately preceding the month in which such present value is to be paid. Actuarial
equivalency under the Plan (except for the calculation of the present value of benefits for
purposes of Sections 7.1, 7.2 and 8.2) shall be determined using the actuarial factors utilized to
determine the Companys projected benefit obligations under FAS 87 for the fiscal year in which
such benefit is to commence to be paid.
7.7
Cessation of Payments Due to Competition
.
Except in the event of a Change of
Control, each payment of supplemental retirement benefits under the Plan to a Participant shall be
subject to the condition that the Participant has not engaged in Competition with the Affiliated
Group, as defined in Section 7.8 below, at any time prior to the date of such payment.
7.8
Competition
.
Competition for purposes of the Plan shall mean assuming an
ownership position or a position as an employee, consultant, agent, or director with a business
engaged in the manufacture, processing, purchase, sale, design, or distribution of the same
products manufactured, sold, designed, or distributed by an Affiliate during the calendar year
prior to the date of termination of the Participants employment; provided, however, that in no
event shall ownership of less than two percent of the outstanding capital stock entitled to vote
for the election of directors of a corporation with a class of equity securities held of record by
more than 500 persons in itself be deemed Competition; and provided further, that all of the
following events shall have taken place:
(i) The Board shall have given written notice to the Participant that,
in the opinion of the Board, the Participant is engaged in Competition
within the meaning of the foregoing provisions of this Section 7.8,
specifying the details thereof;
(ii) The Participant shall have been given a reasonable opportunity,
upon receipt of such notice, to appear before and to be heard by the Board
with respect to his views regarding the opinion of the Board that the
Participant engaged in competition;
(iii) The Board shall have given written notice to the Participant that
the Board determined that the Participant is engaged in Competition; and
(iv) The Participant neither shall have ceased to engage in such
Competition within 30 days from his receipt of notice of such determination
nor shall have taken all reasonable steps to that end during such 30-day
period and thereafter.
7.9
Taxes
.
In the event any taxes are required by law to be withheld or paid from any
payments under the Plan, the Committee shall cause such amounts to be withheld from other income or
from such payments and shall transmit the withheld amounts to the appropriate taxing authority.
ARTICLE VIII
CHANGE IN CONTROL
8.1
Eligibility for Supplemental Retirement Benefit
.
In the event of a Change of
Control and regardless of any Service or age requirement otherwise applicable under the Plan as
well as the provisions of Article VII, each Participant who is employed by an Affiliate or who is
Disabled, or who has separated from service with the Affiliated Group and is eligible for a
supplemental deferred retirement benefit, shall be eligible to receive a supplemental retirement
benefit determined in accordance with the provisions of Section 8.2 and paid pursuant to the
provisions of Section 8.3 in lieu of any other benefit under the Plan.
8.2
Computation of Benefits Upon a Change of Control
.
In the event of a Change of
Control, the supplemental retirement benefit of an eligible Participant who is employed by an
Affiliate or who is Disabled shall be equal to the Accrued Portion of his supplemental normal
retirement benefit determined in accordance with the provisions of Section 3.2; provided, however,
that for purposes of calculating such supplemental retirement benefit, each Participant who has not
yet attained age 65 shall be credited with additional years of Service and age equal to one-half of
the difference between 65 and his age on the date of such Change of Control, but not in excess of
10; and provided further, that notwithstanding the foregoing, in no event shall D. L. Pugh be
credited with less than 10 years of Service for purposes of Section 3.2 or be deemed to be less
than age 60 for purposes of Section 4.2. In addition, in the event of a Change of Control, the
supplemental retirement benefit of a Participant who has separated from service with the Affiliated
Group and who is eligible for a supplemental deferred retirement benefit shall be to his benefit
determined under Section 6.2.
8.3
Payment of Benefits Upon a Change of Control
.
Except as otherwise provided in
this Section 8.3, any supplemental retirement benefit which is calculated under Section 8.2 shall
be paid in a single sum determined using the actuarial factors and interest rate set forth in
Section 7.6. Moreover, in the event of a Change of Control, each Participant and each Contingent
Annuitant of a deceased Participant, who is receiving supplemental retirement benefits under the
Plan, shall receive the actuarial present value of future payments of such benefits in a single sum
determined pursuant to the provisions of Section 7.6. Any such single sum payment payable under
this Section 8.3 shall be made to an eligible Participant or an eligible Contingent Annuitant as
soon as reasonably practicable but in no event later than 30 days after such Change of Control.
ARTICLE IX
DEATH BENEFITS
9.1
Designation of Beneficiary
.
Each Participant may designate a Beneficiary to whom
death benefits determined in accordance with the provisions of Section 9.2 shall be payable. In
the event a Participant does not designate a Beneficiary or the designated Beneficiary of a
Participant does not survive the Participant, then the Beneficiary of such Participant shall be the
estate of such Participant. If any Beneficiary designated hereunder dies after becoming entitled
to receive a distribution from the Plan and before such distribution is made to him in full, and if
no other person or persons have been designated to receive such distribution upon the happening of
such contingency, the estate of such deceased Beneficiary shall become the Beneficiary as to such
distribution.
9.2
Death Benefit
.
Upon the death of a Participant to whom supplemental normal,
early, or deferred retirement benefits under the Plan have not yet commenced to be paid or upon the
death of a Participant to whom supplemental normal, early, or deferred retirement benefits under
the Plan have commenced to be paid, the Beneficiary of such Participant shall receive the present
actuarial equivalent of the Accrued Portion of the Participants supplemental normal, early, or
deferred retirement benefit as of the earlier of the date benefits under the Plan commenced to be
paid to the Participant or his death minus the aggregate benefit payments, if any, made to such
Participant under the Plan. Any such death benefit shall be determined pursuant to the provisions
of Section 7.6 and paid in a single sum as soon as reasonably possible. Notwithstanding the
foregoing provisions of this Article IX, no death benefit shall be reduced due to the payment of
supplemental disability benefits under the Plan.
ARTICLE X
ADMINISTRATION
10.1
Authority of the Company
.
The Company shall be responsible for the general
administration of the Plan, for carrying out the provisions hereof, and for making, or causing a
grantor trust to make, any required supplemental benefit payments under the Plan. The Company
shall have all such powers as may be necessary to carry out the provisions of the Plan, including
the power to determine all questions relating to eligibility for and the amount of any supplemental
retirement benefit and all questions pertaining to claims for benefits and procedures for claim
review; to resolve all other questions arising under the Plan, including any questions of
construction; and to take such further action as the Company shall deem advisable in the
administration of the Plan. The Company may delegate any of its powers, authorities, or
responsibilities for the operation and administration of the Plan to any person or committee so
designated in writing by it and may employ such attorneys, agents, and accountants as it may deem
necessary or advisable to assist it in carrying out its duties hereunder. The actions taken and
the decisions made by the Company hereunder shall be final and binding upon all interested parties.
10.2
Claims Procedure
.
Generally benefits shall be paid under the Post-2004 Terms
without the necessity of filing a claim. A Participant, Beneficiary, or other person who believes
he is entitled to a benefit under the Post-2004 Terms (hereinafter referred to as the Claimant)
may file a written claim with the Company. A claim must state with specificity the determination
desired by the Claimant.
The Company shall consider the Claimants claim within a reasonable time, but no later than 90
days of receipt of the claim. If the Company determines that special circumstances require an
extension of time for processing the claim, the Company shall notify the Claimant in writing of the
extension before the end of the initial 90-day period and the written notice shall indicate the
special circumstances requiring an extension of time and the date by which the Company expects to
make a decision. The extension of time shall not exceed 90 days from the end of the initial 90-day
period.
The Company shall notify the Claimant (in writing or electronically) that a determination has
been made and that the claim is either allowed in full or denied in whole or in part. If the claim
is denied in whole or in part, the Company shall notify (in writing or electronically) such
Claimant or an authorized representative of the Claimant, as applicable, of any adverse benefit
determination within 90 days of receipt of the claim. Any adverse benefit determination notice
shall describe the specific reason or reasons for the denial, refer to the specific Plan provisions
on which the determination was based, describe any additional material or information necessary for
the Claimant to perfect his claim and explain why that material or information is necessary,
describe the Plans review procedures and the time limits applicable to those procedures, including
a statement of the Claimants right to bring a civil action under Section 502(a) of ERISA following
a denial upon review. If the notification is made electronically, it must comply with applicable
Department of Labor Regulations.
Upon receipt of an adverse benefit determination, a Claimant may, within 60 days after
receiving notification of that determination, submit a written request asking the Board to review
the Claimants claim. Each Claimant, when making his request for review of his adverse benefit
determination, shall have the opportunity to submit written comments, documents, records, and any
other information relating to the claim for benefits. Each Claimant shall also be provided, upon
request and free of charge, reasonable access to, and copies of, all documents, records, and other
information relevant to such Claimants claim for benefits. The review shall take into account all
comments, documents, records, and other information submitted by the Claimant relating to the
claim, regardless of whether the information was submitted or considered in the initial benefit
determination. If a Claimant does not submit his request for
review in writing within the 60-day period described above, his claim shall be deemed to have
been conclusively determined for all purposes of the Plan and the adverse benefit determination
will be deemed to be correct.
If the Claimant submits in writing a request for review of the adverse benefit determination
within the 60-day period described above, the Board (or its designee) shall notify (in writing or
electronically) him of its determination on review within a reasonable period of time but not later
than 60 days from the date of receipt of his request for review, unless the Board (or its designee)
determines that special circumstances require an extension of time. If the Board (or its designee)
determines that an extension of time for processing a Claimants request for review is required,
the Board (or its designee) shall notify him in writing before the end of the initial 60-day period
and inform him of the special circumstances requiring an extension of time and the date by which
the Board (or its designee) expects to render its determination on review. The extension of time
will not exceed 60 days from the end of the initial 60-day period.
If the Board (or its designee) confirms the adverse benefit determination upon review, the
notification will describe the specific reason or reasons for the adverse determination, refer to
the specific Plan provisions on which the benefit determination is based, include a statement that
the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and
copies of, all documents, records, and other information relevant to the Claimants claim and
include a statement describing the Claimants right to bring an action under Section 502(a) of
ERISA, and any other required information under applicable Department of Labor Regulations. The
claims procedure described above shall be administered in a manner not inconsistent with Section
503 of ERISA and applicable Department of Labor Regulations.
A Claimants compliance with the foregoing claims procedures shall be a mandatory prerequisite
to the Claimants right to commence any legal action with respect to any claim for benefits under
the Plan.
ARTICLE XI
AMENDMENT AND TERMINATION
The Company reserves the right to amend or terminate the Plan at any time by action of the
Committee; provided, however, that no such action shall adversely affect any Participant who is
receiving supplemental retirement benefits or supplemental disability benefits under the Plan or
who has accrued a supplemental retirement benefit under the Plan, unless an equivalent benefit is
provided under another plan sponsored by the Company.
ARTICLE XII
MISCELLANEOUS
12.1
Non-Alienation of Benefits
.
No benefit under the Plan shall at any time be
subject in any manner to alienation or encumbrance. If any Participant shall attempt to, or shall,
alienate or in any way encumber his rights or benefits under the Plan, or any part thereof, or if
by reason of his bankruptcy or other event happening at any time any such benefits would otherwise
be received by anyone else or would not be enjoyed by him, his interest in all such benefits shall
automatically terminate and the same shall be held or applied to or for the benefit of such person,
his spouse, children, or other dependents as the Company may select.
12.2
Payment of Benefits to Others
.
If any Participant to whom a benefit is payable
under the Plan is unable to care for his affairs because of illness or accident, any payment due
(unless prior claim therefor shall have been made by a duly qualified guardian or other legal
representative) may be paid to the spouse, parent, brother, sister, adult child, or any other
individual deemed by the Company to be maintaining or responsible for the maintenance of such
person. Any payment made in accordance with the provisions of this Section 12.2 shall be a
complete discharge of any liability of the Plan with respect to the benefit so paid.
12.3
Plan Non-Contractual
.
Nothing herein contained shall be construed as a
commitment or agreement on the part of any Participant to continue his employment with the Company,
and nothing herein contained shall be construed as a commitment on the part of the Company to
continue the employment or the annual rate of compensation of any Participant for any period, and
all Participants shall remain subject to discharge to the same extent as if the Plan had never been
established.
12.4
Trust
.
In order to provide a source of payment for its obligations under the
Plan, the Company may establish a grantor trust.
12.5
Interest of a Participant
.
The obligation of the Company under the Plan to
provide a Participant with supplemental retirement benefits or supplemental disability benefits
constitutes the unsecured promise of the Company to make payments as provided herein, and no person
shall have any interest in, or a lien or prior claim upon, any property of the Company.
12.6
Claims of Other Persons
.
The provisions of the Plan shall in no event be
construed as giving any person, firm or corporation any legal or equitable right against the
Company, its officers, employees, or directors, except any such rights as are specifically provided
for in the Plan or are hereafter created in accordance with the terms and provisions of the Plan.
12.7
Section 409A
.
Although the Company shall use its best efforts to avoid the
imposition of taxation, penalties and/or interest under Section 409A, tax treatment of benefits
under the Plan is not warranted or guaranteed. No liability shall attach to the Company, any
Affiliate, the Board, or any delegate thereof, for any tax, penalty, interest or other monetary
amounts owed by any Participant, Beneficiary or other person as a result of the accrual or
payment of a benefit under the Plan (whether the Frozen Terms or the Post-2004 Terms) or as a
result of the administration of amounts subject to the Plan (whether the Frozen Terms or the
Post-2004 Terms).
12.8
Severability
.
The invalidity or unenforceability of any particular provision of
the Plan shall not affect any other provision hereof, and the Plan shall be construed in all
respects as if such invalid or unenforceable provision were omitted herefrom.
12.9
Governing Law
.
The provisions of the Plan shall be governed and construed in
accordance with the laws of the State of Ohio.
Executed at Cleveland, Ohio, this 11 day of December, 2008.
|
|
|
|
|
|
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
|
|
|
By:
|
/s/ David L. Pugh
|
|
|
|
Title: Chairman & CEO
|
|
|
|
|
|
|
EXHIBIT 10.2
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
(Post-2004 Terms)
WHEREAS,
the Applied Industrial Technologies, Inc. Deferred Compensation Plan for Non-Employee
Directors (formerly known as the Bearings, Inc. Deferred Compensation Plan for Non-Employee
Directors and hereinafter referred to as the Plan) was established effective as of July 1, 1991,
by Bearings, Inc., the predecessor to Applied Industrial Technologies, Inc. (hereinafter referred
to as the Company) to provide non-employee members of the Board of Directors of the Company
(hereinafter referred to as Directors) with a means by which to defer receipt of all or a portion
of the compensation payable to them for their services as Directors; and
WHEREAS
, the Plan was most recently restated as of September 1, 2003; and
WHEREAS,
in order to comply with Section 409A of the Internal Revenue Code of 1986, as amended
(hereinafter referred to as Section 409A) and to facilitate administration of certain
nonqualified deferrals thereunder, the Plan is hereby bifurcated effective January 1, 2005, into
two parts; namely, one part consists of the Plan, as in effect on October 3, 2004 (hereinafter
referred to as the Frozen Terms), and which is frozen and shall not be modified except as
permitted under Section 409A so as to preserve the grandfathered status of deferrals and related
earnings thereunder, and the second part which consists of the post-2004 terms of the Plan, as
amended effective January 1, 2005, for compliance with Section 409A (hereinafter referred to as the
Post-2004 Terms); and
WHEREAS,
deferrals earned or vested after December 31, 2004, and before the Plan was
bifurcated and amended have been made and administered in good faith in accordance with the
requirements of Section 409A;
NOW, THEREFORE,
effective January 1, 2005, the Post-2004 Terms of the Plan are hereinafter set
forth.
ARTICLE I
DEFINITIONS
1.1
Definitions
.
As used herein, the following words shall have the meanings
hereinafter set forth unless otherwise specifically provided.
(1) The term
Beneficiary
shall mean the person or persons who, in
accordance with the provisions of Article V, is entitled to distribution
hereunder in the event a Participant dies before his interest under the Plan
has been distributed to him in full.
(2) The term
Board
shall mean the Board of Directors of the Company.
(3) The term
Change in Control
shall mean a change in the ownership
or effective control of the Company or a change in the ownership of a
substantial portion of the assets of the Company that constitutes a change
in control under Section 409A.
(4) The term
Code
shall mean the Internal Revenue Code of 1986, as
amended from time to time. Reference to a section of the Code shall include
such section and any comparable section or sections of any future
legislation that amends, supplements, or supersedes such section.
(5) The term
Committee
shall mean the Corporate Governance Committee
of the Board, or such other committee of the Board that is designated by the
Board to administer the Plan. The Committee shall be constituted so as to
satisfy any applicable legal requirements including the requirements of Rule
16b-3 promulgated under the Securities Exchange Act of 1934 or any similar
rule which may subsequently be in effect. The members shall be appointed
by, and serve at the pleasure of, the Board and any vacancy on the Committee
shall be filled by the Board.
(6) The term
Common Shares
shall mean the common stock of the
Company.
(7) The term
Company
shall mean Applied Industrial Technologies,
Inc., its corporate successors, and any corporation into or with which it is
merged or consolidated.
(8) The term
Compensation
shall mean the retainer and fees paid by
the Company to a Director for his services as a Director.
(9) The term
Deferral
shall mean that portion of the Compensation
which a Participant elects to defer pursuant to the terms of the Post-2004
Terms.
(10) The term
Deferral Account
shall mean the bookkeeping account
established under the Plan in the name of each Participant to reflect the
Deferrals of such Participant.
(11) The term
Director
shall mean any non-employee member of the
Board of Directors of the Company.
(12) The term
Election Form
shall mean the form which may be
electronic, telephonic or hard copy and on which a Director elects to defer
compensation under the Post-2004 Terms as provided in Section 2.1.
(13) The term
ERISA
shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time. Reference to a section
of ERISA shall include such section and any comparable section or sections
of any future legislation that amends, supplements, or supersedes such
section.
(14) The term
Fair Market Value
shall mean the average of the high
and low prices of a Common Share as reported on the composite tape for
securities listed on the New York Stock Exchange for the date in question,
provided that if no sales of Common Shares were made on said exchange on
that date, the average of the high and low prices of a Common Share as
reported on said composite tape for the nearest preceding day on which sales
of Common Shares were made on said Exchange.
(15) The term
Fiscal Year
shall mean the fiscal year of the Company,
which begins on each July 1 and ends on the subsequent June 30.
(16) The term
Frozen Terms
shall mean the terms of the Plan, as in
effect on October 3, 2004.
(17) The term
Fund
shall mean any investment fund designated by the
Committee in which Deferrals are deemed to be invested; provided, however,
that one such Fund shall be deemed to be invested in Common Shares.
(18) The term
Participant
shall mean a Director who elects to defer
all or any portion of his Compensation under the Plan pursuant to the
provisions of Article II.
(19) The term
Plan
shall mean the Applied Industrial Technologies,
Inc. Deferred Compensation Plan for Non-Employee Directors which, effective
as of January 1, 2005, shall consist of the Frozen Terms and the Post-2004
Terms.
(20) The term
Post-2004 Terms
shall mean the portion of the Plan as
set forth herein with respect to Deferrals earned or vested after December
31, 2004, with all amendments, supplements, and modifications hereafter
made.
(21) The term
Section 409A
shall mean Section 409A of the Code, and
the regulations and rulings promulgated thereunder.
(22) The term
Separation from Service
shall mean the termination of
services for the Company by a Participant for any reason other than death.
Notwithstanding the foregoing, whether or not a Participant has incurred a
Separation from Service shall be determined in accordance with the
provisions of Section 409A.
(23) The term
Trust
shall mean the trust maintained pursuant to the
terms of the Applied Industrial Technologies, Inc. Non-Employee Directors
Deferred Compensation Grantor Trust Agreement, with all amendments,
supplements, and modifications.
(24) The term
Unforeseeable Emergency
shall be defined and determined
in accordance with the provisions of Section 409A, which include a severe
financial hardship of a Participant resulting from an illness or accident of
the Participant, the Participants spouse, or the Participants dependent
(as defined in Section 152 of the Code (without regard to Sections
152(b)(1), (b)(2), and (d)(1)(B) of the Code); a loss of the Participants
property due to casualty (including the need to rebuild a home following
damage to the home by natural disaster not otherwise covered by insurance);
or other similar or extraordinary and unforeseeable circumstances arising as
a result of events beyond the control of the Participant.
(25) The term
Valuation Date
shall mean the last day of each Fiscal
Year quarter and any other date as may be designated as such by the
Committee.
1.2
Construction
.
Where necessary or appropriate to the meaning herein, the singular
shall be deemed to include the plural and the masculine pronoun to include the feminine.
ARTICLE II
DEFERRAL ELECTIONS
2.1
Participation and Elections to Defer
.
Each Director who was participating in the
Plan under the Frozen Terms as of December 31, 2004, and who continues to serve as an active
Director shall be eligible to continue to participate in the Plan under the Post-2004 Terms as of
January 1, 2005. Directors who were not participating in the Plan under the Frozen Terms and
Directors who were elected to the Board on or after January 1, 2005, shall be eligible to
participate in the Plan under the Post-2004 Terms for services performed after December 31, 2004.
As a condition of participation in the Plan, a Director must complete, sign, and return to the
Committee an Election Form, within the time permitted under Section 2.2 for making elections. A
Participants Election Form shall specify the amount or percentage of the Compensation being
deferred and the time and form of payment in accordance with Article IV. The election to defer,
including the election of the time and form of payment, shall be irrevocable as of the date
specified in Section 2.2. Pursuant to Article IV, a Participant may make a subsequent election to
delay payment and change the form of payment of a Deferral.
2.2
Time of Elections
.
On or before each December 31 immediately preceding the first
day of the calendar year during which services giving rise to Compensation will be performed, a
Director may elect to defer receipt of all or a portion of such Compensation that he is eligible to
receive from the Company as a Deferral under the Plan for such calendar year. Such election shall
be irrevocable, upon delivery of the Election Form to the Committee, as of the end of such December
31 with respect to the Compensation for which an election has been made. Notwithstanding the
foregoing, a Director who has not previously been eligible to participate in the Plan or in any
other nonqualified account balance plan of the Company that is required to be aggregated with the
Plan pursuant to Section 409A, may file an Election Form with the Committee prior to, or within 30
days of, the date on which he first becomes a Director to participate in the Plan and to defer all
or a portion of his Compensation to be earned for services to be performed subsequent to the filing
of the Election Form and ending on December 31 of the calendar year in which such filing occurs.
2.3
Special Transition Elections
.
(a)
Changes in Payment Elections
.
During 2005, 2006, 2007, and 2008, a Participant
may make elections to receive payment of his Deferrals without complying with the requirements of
Section 4.3; provided that any such election shall only be effective as follows:
(i) If made in 2006, it shall be applicable only with respect to amounts that would
not otherwise be payable in 2006 and shall not cause an amount to be paid in 2006 that
would not otherwise be payable in 2006; and
(ii) If made in 2007, it shall be applicable only with respect to amounts that
would not otherwise be payable in 2007 and shall not cause an amount to be paid in 2007
that would not otherwise be payable in 2007; and
(iii) If made in 2008, it shall be applicable only with respect to amounts that
would not otherwise be payable in 2008 and shall not cause an amount to be paid in 2008
that would not otherwise be payable in 2008.
(b)
2005 Deferral Elections
.
In accordance with Q&A-21 of Notice 2005 1 and Section
3.06 of Notice 2006-79, initial deferral elections for calendar year 2005 were permitted to be made
on or before March 15, 2005, with respect to amounts that were not paid or payable at the time of
such election.
2.4
Other Election Provisions
.
Each Participant shall indicate on his Election Form
the allocation of the Deferral to be deemed invested in the Funds. Subject to the provisions of
Article IV and Section 5.7, amounts deferred pursuant to an election made under the Plan shall be
deemed invested in the Funds and shall be distributed in the manner and at the time set forth on
the applicable Election Form.
ARTICLE III
ACCOUNTS AND INVESTMENTS
3.1
Establishment and Crediting of Accounts
.
The Deferral Account of each Participant
shall have subaccounts that shall reflect the Funds into which Deferrals are deemed invested and
credited pursuant to the applicable Election Form filed by the Participant with the Committee.
3.2
Amount of Deferrals
.
If a Participant elects to have Compensation deferred under
the Plan as a Deferral and invested in a Fund, other than a Fund comprised of Common Shares, 100%
of the amount of such Deferral deemed so invested in such Fund shall be credited to his Deferral
Account and subaccounts in accordance with his duly filed Election Form. If the Participant elects
to have some or all of his compensation deferred under the Plan as a Deferral and invested in a
Fund comprised of Common Shares, prior to January 1, 2009, 125% of the amount of such Deferral, and
on and after January 1, 2009, 100% of the amount of such Deferral, deemed so invested in such Fund
shall be credited to his Deferral Account and subaccounts in accordance with the terms of his duly
filed Election Form. Any such Deferral shall be credited to the Deferral Account of a Participant
as of the last day of the Fiscal Year quarter during which the Deferral would have otherwise been
payable to such Participant.
3.3
Adjustment of Accounts
.
As of each Valuation Date, the value of each Deferral
Account shall be adjusted to reflect deemed earnings, losses, dividends, distributions, and credits
in accordance with procedures adopted by the Committee or the Board. Common Shares of a Fund
credited to any Deferral Account shall be valued at Fair Market Value.
ARTICLE IV
DISTRIBUTION OF ACCOUNTS
4.1
Form of Payments
.
The value of a Participants Deferral deemed invested in a Fund
comprised of Common Shares shall be distributed in Common Shares and the value of a Participants
Deferral deemed otherwise invested shall be distributed in cash. Such value shall be determined as
of the most recent Valuation Date. Subject to the provisions of Section 4.2, a distribution of the
value of a Deferral from a Participants Deferral Account shall be made either in a lump sum or in
substantially equal annual installments over a period of not more than ten years and commencing as
of a date specified in such Participants Election Form with respect to such Deferral.
4.2
Time of Payments
.
In accordance with the provisions of Section 409A, a
Participant shall specify on his Election Form, at the time he defers Compensation, an objectively
determinable payment date, which may include attainment of a specific age, a date certain, or
Separation from Service. Except as otherwise provided in this Article IV, distribution of the
value of a Deferral (and related earnings and losses) from a Participants Deferral Account shall
commence within 60 days of the date specified for commencement on his applicable Election Form;
provided, however, that if such 60-day period begins in one calendar year and ends in another, the
Participant shall not have a right to designate the calendar year of payment.
4.3
Changing Time or Form of Payments
.
A Participant may elect to delay payment or to
change the form of payment of the value of a Deferral, if all the following conditions are met:
(i) Such election will not take effect until at least twelve months after the
date on which the election is made; and
(ii) The payment with respect to which such election is made is deferred for a
period of not less than five years from the date such payment would otherwise be
made; and
(iii) Any election for a specified time (or pursuant to a fixed schedule)
within the meaning of Section 409A(a)(2)(A)(iv) of the Code, may not be made less
than twelve (12) months prior to the date of the first scheduled payment.
To the extent permitted under Section 409A, installment payments shall be treated as a single
payment.
4.4
No Acceleration
.
Except as permitted under Section 409A, no acceleration of the
time or form of payment of a Participants Deferral from his Deferral Account shall be permitted.
4.5
Emergency Distribution
.
Upon the written request of a Participant and the showing
of an Unforeseeable Emergency, the Committee may, upon its determination that such an emergency
exists, direct that an amount of such Participants Deferral Account be paid to him. The amount
that can be paid shall not exceed the amount necessary to satisfy the Unforeseeable Emergency plus
an amount necessary to pay taxes reasonably anticipated because of such distribution, after taking
into account the extent to which such emergency is or may be relieved through reimbursement or
compensation by insurance or otherwise or by liquidation of the Participants assets (to the extent
the liquidation would not itself cause severe financial hardship). Payment shall be made within 30
days of the Committees determination that an Unforeseeable Emergency exists.
4.6
Distribution Upon Death
.
In the event that a Participant dies prior to
commencement of payments or while receiving payments under the Post-2004 Terms, the Company shall
pay his Beneficiary the remainder of his Deferral Account under the Post-2004 Terms in a single sum
within 60 days of the Participants death. The Company shall provide each Participant with the
form for designating his Beneficiary. A Participant may change his Beneficiary designation at any
time (without the prior consent of any prior Beneficiary) by executing a revised Beneficiary
designation form and delivering it to the Company before his death. If no Beneficiary is
designated or if the Beneficiary predeceases the Participant or cannot be located, the
Participants Deferral Account shall be paid to the Participants estate.
4.7
Distribution in the Event of a Change in Control
.
Notwithstanding any other
provision of the Post-2004 Terms to the contrary, to the extent permitted under Section 409A, the
Deferral Account of a Participant under the Post-2004 Terms shall be distributed to such
Participant within ten days following the Change of Control or deferred for payment at a later
specified date pursuant to the election made by the Participant on his Election Form.
4.8
Taxes
.
In the event any taxes are required by law to be withheld or paid from any
Deferrals or payments under the Plan, the Committee shall cause such amounts to be withheld from
other income or from such payments and shall transmit the withheld amounts to the appropriate
taxing authority.
ARTICLE V
MISCELLANEOUS
5.1
Amendment and Termination of Plan
.
The Company reserves the right to amend or
terminate the Plan at any time; provided, however, that no amendment or termination shall affect
the rights of Participants to amounts previously credited to their Deferral Accounts pursuant to
Section 3.2.
5.2
Non-Alienation
.
No benefit under the Plan shall at any time be subject in any
manner to alienation or encumbrance. If any Participant or Beneficiary shall attempt to, or shall,
alienate or in any way encumber his rights or benefits under the Plan, or any part thereof, or if
by
reason of his bankruptcy or other event happening at any time any such benefits would otherwise be
received by anyone else or would not be enjoyed by him, his interest in all such benefits shall
automatically terminate and the same shall be held or applied to or for the benefit of such person,
his spouse, children, or other dependents as the Committee may select.
5.3
Payment of Benefits to Others
.
If any Participant or Beneficiary to whom a
benefit is payable under the Plan is unable to care for his affairs because of illness or accident,
any payment due (unless prior claim therefor shall have been made by a duly qualified guardian or
other legal representative) may be paid to the spouse, parent, brother, sister, adult child, or any
other individual deemed by the Company to be maintaining or responsible for the maintenance of such
person. Any payment made in accordance with the provisions of this Section 5.3 shall be a complete
discharge of any liability of the Plan with respect to the benefit so paid.
5.4
Taxability of Plan Benefits
.
The Plan is intended to be treated as an unfunded
deferred compensation plan under the Code. If, at any time, it is determined that amounts deferred
pursuant to the Plan are currently taxable to a Participant or his Beneficiary under Section 409A,
the amounts credited to such Participants Deferral Account which become so taxable shall be
distributed immediately to him; provided, however, that in no event shall amounts so payable under
the Plan to a Participant exceed the value of his Deferral Account.
5.5
Funding
.
The Company may cause Plan benefits to be paid from the Trust which is a
grantor trust that may provide full funding of the Plan benefits in the event of a potential Change
in Control or Change in Control. Subject to the provisions of the Trust, the obligation of the
Company under the Plan to provide a Participant or Beneficiary with a benefit constitutes the
unsecured promise of the Company to make payments as provided herein, and no person shall have any
interest in, or a lien or prior claim upon, any property of the Company. Notwithstanding any other
provision of the Plan, Plan benefits shall be limited to the balance of a Participants Deferral
Account.
5.6
Section 16b Procedures
.
In conjunction with rules promulgated by the Securities
and Exchange Commission under Section 16 of the Securities Exchange Act of 1934, as amended, the
Company has established Section 16b Procedures which affect certain transactions under the Plan
involving Employer Securities held for the benefit of a Director. Such Procedures, which are
hereby incorporated into the Plan shall constitute for all purposes a part of the Plan. In the
event that the Procedures conflict with any other provision of the Plan, the Procedures shall
override such other provision and shall be controlling. For purposes of this Section, the
following terms shall have the meaning hereinafter set forth.
(a) The term Employer Security shall mean any qualifying employer security as defined
in Section 407(d)(5) of ERISA which is also an equity security as defined under the
Securities Exchange Act of 1934, as amended.
(b) The term Officer shall mean any person who is designated as an Officer of the
Company for purposes of Section 16 of the Securities Exchange Act of 1934, as amended.
(c) The term Section 16b Procedures or Procedures shall mean the Administrative
Procedures Applicable to Officers and Directors Under Employee Benefit Plans Maintained by
Applied Industrial Technologies, Inc., effective as of January 1, 1997, with all amendments,
supplements, and modifications thereafter made.
5.7
Interpretation
.
The Board and the Committee shall have full power and authority
to interpret, construe, and administer the Post-2004 Terms, and the interpretation and construction
thereof and actions thereunder by the Board or the Committee, including any valuation of a
Participants Deferral Account and the amount or recipient of the payments to be made from such
Deferral Account, shall be binding and conclusive on all persons for all purposes. No member of
the Board and no designee shall be liable to any person for any action taken or omitted in
connection with the interpretation and administration of the Plan.
5.8
Claims Procedures
.
Generally, benefits shall be paid under the Post-2004 Terms
without the necessity of filing a claim. Any Director, Participant, Beneficiary, or other person
who believes he is entitled to a benefit under the Post-2004 Terms (hereinafter referred to as the
Claimant) may file a written claim with the Company. A claim must state with specificity the
determination desired by the Claimant.
The Company shall consider the Claimants claim within a reasonable time, but no later than 90
days of receipt of the claim. If the Company determines that special circumstances require an
extension of time for processing the claim, the Company shall notify the Claimant in writing of the
extension before the end of the initial 90-day period and the written notice shall indicate the
special circumstances requiring an extension of time and the date by which the Company expects to
make a decision. The extension of time shall not exceed 90 days from the end of the initial 90-day
period.
The Company shall notify the Claimant (in writing or electronically) that a determination has
been made and that the claim is either allowed in full or denied in whole or in part. If the claim
is denied in whole or in part, the Company shall notify (in writing or electronically) such
Claimant or an authorized representative of the Claimant, as applicable, of any adverse benefit
determination within 90 days of receipt of the claim. Any adverse benefit determination notice
shall describe the specific reason or reasons for the denial, refer to the specific Plan provisions
on which the determination was based, describe any additional material or information necessary for
the Claimant to perfect his claim and explain why that material or information is necessary,
describe the Plans review procedures and the time limits applicable to those procedures, including
a statement of the Claimants right to bring a civil action under Section 502(a) of ERISA following
a denial upon review. If the notification is made electronically, it must comply with applicable
Department of Labor Regulations.
Upon receipt of an adverse benefit determination, a Claimant may, within 60 days after
receiving notification of that determination, submit a written request asking the Board to review
the Claimants claim. Each Claimant, when making his request for review of his adverse benefit
determination, shall have the opportunity to submit written comments, documents, records, and
any other information relating to the claim for benefits. Each Claimant shall also be provided,
upon request and free of charge, reasonable access to, and copies of, all documents, records, and
other information relevant to such Claimants claim for benefits. The review shall take into
account all comments, documents, records, and other information submitted by the Claimant relating
to the claim, regardless of whether the information was submitted or considered in the initial
benefit determination. If a Claimant does not submit his request for review in writing within the
60-day period described above, his claim shall be deemed to have been conclusively determined for
all purposes of the Plan and the adverse benefit determination will be deemed to be correct.
If the Claimant submits in writing a request for review of the adverse benefit determination
within the 60-day period described above, the Company (or its designee) shall notify (in writing or
electronically) him of its determination on review within a reasonable period of time but not later
than 60 days from the date of receipt of his request for review, unless the Company (or its
designee) determines that special circumstances require an extension of time. If the Company (or
its designee) determines that an extension of time for processing a Claimants request for review
is required, the Company (or its designee) shall notify him in writing before the end of the
initial 60-day period and inform him of the special circumstances requiring an extension of time
and the date by which the Company (or its designee) expects to render its determination on review.
The extension of time will not exceed 60 days from the end of the initial 60-day period.
If the Company (or its designee) confirms the adverse benefit determination upon review, the
notification will describe the specific reason or reasons for the adverse determination, refer to
the specific Plan provisions on which the benefit determination is based, include a statement that
the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and
copies of, all documents, records, and other information relevant to the Claimants claim and
include a statement describing the Claimants right to bring an action under Section 502(a) of
ERISA, and any other required information under applicable Department of Labor Regulations. The
claims procedure described above shall be administered in a manner not inconsistent with Section
503 of ERISA and applicable Department of Labor Regulations.
A Claimants compliance with the foregoing claims procedures shall be a mandatory prerequisite
to the Claimants right to commence any legal action with respect to any claim for benefits under
the Plan.
5.9
Section 409A
.
Notwithstanding any provision to the contrary in the Plan, nothing
shall restrict the Companys right to amend the Plan, the Post-2004 Terms, the Frozen Terms, any
deferral agreement, and/or any deferral Election Form, without the consent of Participants and
without additional consideration to affected Participants, to the extent necessary to avoid
taxation, penalties, and/or interest arising under Section 409A, even if such amendments reduce,
restrict, or eliminate rights granted thereunder before such amendments. Although the Company
shall use its best efforts to avoid the imposition of taxation, penalties, and/or interest under
Section 409A, tax treatment of deferrals and other credits under the Plan (whether the Frozen
Terms
or the Post-2004 Terms) is not warranted or guaranteed. If, at any time, it is determined
that amounts deferred pursuant to the Plan are currently taxable to a Participant or his
Beneficiary under Section 409A, the amounts credited to such Participants Deferral Account which
become so taxable shall be distributed immediately to him; provided, however, that in no event
shall amounts so payable under the Plan to a Participant exceed the value of his Deferral Account.
Notwithstanding the foregoing, the Company, the Board, any Affiliate, or any delegatee shall not be
held liable for any taxes, penalties, interest, or other monetary amounts owed by any Participant,
Director, Beneficiary, or other person as a result of the deferral or payment of any amounts under
the Plan (whether the Frozen Terms or the Post-2004 Terms) or as a result of the administration of
amounts subject to the Plan (whether the Frozen Terms or the Post-2004 Terms).
5.10
Severability
.
The invalidity or unenforceability of any particular provision of
the Plan shall not affect any other provision hereof, and the Plan shall be construed in all
respects as if such invalid or unenforceable provision were omitted herefrom.
5.11
Governing Law
.
The provisions of the Plan shall be governed and construed in
accordance with the laws of the State of Ohio, without regard to its conflict or choice of law
principles.
Executed at Cleveland, Ohio, this 11 day of December, 2008.
|
|
|
|
|
|
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
|
|
|
By:
|
/s/ David L. Pugh
|
|
|
|
Title: Chairman & CEO
|
|
|
|
|
|
|
EXHIBIT 10.3
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
DEFERRED COMPENSATION PLAN
(Post-2004 Terms)
WHEREAS,
effective as of July 1, 1993, Bearings, Inc., the predecessor plan sponsor to Applied
Industrial Technologies, Inc. (hereinafter referred to as the Company), established the Bearings,
Inc. Deferred Compensation Plan which is now known as the Applied Industrial Technologies, Inc.
Deferred Compensation Plan (hereinafter referred to as the Plan), to provide key employees of the
Company and its Affiliates with a means by which to defer receipt of all or a portion of their
incentive compensation received from the Company; and
WHEREAS,
in order to comply with Section 409A of the Internal Revenue Code of 1986, as amended
(hereinafter referred to as Section 409A) and to facilitate administration of certain
nonqualified deferrals thereunder, the Plan is hereby bifurcated effective January 1, 2005 into two
parts; namely, one part that consists of the Plan, as in effect on October 3, 2004 (hereinafter
referred to as the Frozen Terms), which is hereby frozen and which shall not be modified except
as permitted under Section 409A so as to preserve the grandfathered status of deferrals and related
earnings thereunder, and the second part that shall consist of the post-2004 terms of the Plan, as
amended effective January 1, 2005, for compliance with Section 409A (hereinafter referred to as the
Post-2004 Terms); and
WHEREAS,
deferrals earned or vested after December 31, 2004, and before the Plan was
bifurcated and amended have been made and administered in good faith in accordance with the
requirements of Section 409A;
NOW, THEREFORE,
effective January 1, 2005, the Post-2004 Terms of the Plan is hereinafter set
forth.
ARTICLE I
DEFINITIONS
1.1
Definitions
.
As used herein, the following words shall have the meanings
hereinafter set forth unless otherwise specifically provided.
(1) The term
Affiliate
shall mean any member of a controlled group of
corporations (as determined under Section 414(b) of the Code) of which the
Company is a member and any member of a group of trades or business under
common control (as determined under Section 414(c) of the Code) with the
Company; any member of an affiliated service group (as determined under
Section 414(m) of the Code) of which the Company is a member; and any other
entity which is required to be aggregated with the Company pursuant to the
provisions of Section 414(o) of the Code.
(2) The term
Award
shall mean the aggregate benefit payable to a Plan
Participant under an Incentive Plan or a Performance Plan for a Fiscal Year.
(3) The term
Beneficiary
shall mean the person or persons who, in
accordance with the provisions of Article V, is entitled to distribution
hereunder in the event a Participant dies before his interest under the Plan
has been distributed to him in full.
(4) The term
Board
shall mean the Board of Directors of the Company.
(5) The term
Change in Control
shall mean a change in the ownership
or effective control of the Company or a change in the ownership of a
substantial portion of the assets of the Company that constitutes a change
in control under Section 409A.
(6) The term
Code
shall mean the Internal Revenue Code of 1986, as
amended from time to time. Reference to a section of the Code shall include
such section and any comparable section or sections of any future
legislation that amends, supplements, or supersedes such section.
(7) The term
Committee
shall mean the Executive Organization and
Compensation Committee of the Board, or such other committee of the Board
that is designated by the Board to administer the Plan. The Committee shall
be constituted so as to satisfy any applicable legal requirements including
the requirements of Rule 16b-3 promulgated under the Securities Exchange Act
of 1934 or any similar rule which may subsequently be in effect. The
members shall be appointed by, and serve at
the pleasure of, the Board and any vacancy on the Committee shall be
filled by the Board.
(8) The term
Common Shares
shall mean the common stock of the
Company.
(9) The term
Company
shall mean Applied Industrial Technologies,
Inc., its corporate successors, and any corporation into or with which it is
merged or consolidated.
(10) The term
Comprehensive Plan
shall mean the Applied Industrial
Technologies, Inc. Comprehensive Deferred Compensation and Supplemental
Benefit Plan (formerly known as the Bearings, Inc. Comprehensive Deferred
Compensation and Supplemental Benefit Plan.)
(11) The term
Deferral
shall mean that portion of an Award which a
Participant elects to defer pursuant to the terms of the Post-2004 Terms.
(12) The term
Deferral Account
shall mean the bookkeeping account
established under the Plan in the name of each Participant to reflect the
Deferrals of such Participant.
(13) The term
Election Form
shall mean the form which may be
electronic, telephonic or hard copy and on which a Director elects to defer
compensation under the Post-2004 Terms as provided in Section 2.1.
(14) The term
Eligible Employee
shall mean any highly compensated or
select management employee of the Company or an Affiliate who is designated
by the Committee to participate in an Incentive Plan or Performance Plan
with respect to a particular Fiscal Year.
(15) The term
ERISA
shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time. Reference to a section
of ERISA shall include such section and any comparable section or sections
of any future legislation that amends, supplements, or supersedes such
section.
(16) The term
Fair Market Value
shall mean the average of the high
and low prices of a Common Share as reported on the composite tape for
securities listed on the New York Stock Exchange for the date in question,
provided that if no sales of Common Shares were made on said exchange on
that date, the average of the high and low prices of a Common Share as
reported on said composite tape for the nearest preceding day on which sales
of Common Shares were made on said Exchange.
(17) The term
Fiscal Year
shall mean the fiscal year of the Company,
which begins on each July 1 and ends on the subsequent June 30.
(18) The term
Frozen Terms
shall mean the terms of the Plan, as in
effect on October 3, 2004.
(19) The term
Fund
shall mean any investment fund designated by the
Committee in which Deferrals are deemed to be invested; provided, however,
that one such Fund shall be deemed to be invested in Common Shares.
(20) The term
Incentive Plan
shall mean any incentive plan adopted by
the Board for key employees.
(21) The term
Participant
shall mean an Eligible Employee who elects
to defer all or any portion of an Award under the Plan pursuant to the
provisions of Article II.
(22) The term
Performance-Based Compensation
shall mean compensation
that is not equity-based compensation and that is contingent on the
satisfaction of pre-established organizational or individual performance
criteria relating to a Fiscal Year performance period of at least twelve
consecutive months in which Participants perform services. Performance
criteria shall be established in writing not later than ninety days after
the commencement of the period of service to which the criteria relate.
Compensation shall not be Performance-Based Compensation if any amount or
portion will be paid regardless of performance or is based upon a level of
performance that is substantially certain to be met at the time the criteria
are established.
(23) The term
Performance Plan
shall mean any long term performance
plan approved by Company shareholders for key employees.
(24) The term
Plan
shall mean the Applied Industrial Technologies,
Inc. Deferred Compensation Plan which, effective as of January 1, 2005,
shall consist of the Frozen Terms and the Post-2004 Terms and which is part
of the Comprehensive Plan and listed on Exhibit A attached thereto.
(25) The term
Post-2004 Terms
shall mean the terms of the Plan with
respect to Deferrals earned or vested after December 31, 2004, which are set
forth herein, with all amendments, supplements, and modifications hereafter
made.
(26) The term
Section 409A
shall mean Section 409A of the Code, and
the regulations and rulings promulgated thereunder.
(27) The term
Separation from Service
shall mean the termination of
employment of a Participant with the Company and all Affiliates for any
reason other than death; provided, however, that a Company-approved leave of
absence shall not be considered a termination of employment if the leave
does not exceed six months or, if longer, so long as the Participants right
to reemployment is provided either by statute or by contract.
Notwithstanding the foregoing, whether or not a Participant has incurred a
Separation from Service shall be determined in accordance with Section 409A.
(28) The term
Specified Employee
shall mean a specified employee
within the meaning of Section 409A and the Companys Specified Employee
identification policy.
(29) The term
Trust
shall mean the trust maintained pursuant to the
terms of the Applied Industrial Technologies, Inc. Supplemental Executive
Retirement Benefits Trust Agreement with all amendments, supplements, and
modifications.
(30) The term
Unforeseeable Emergency
shall be defined and determined
in accordance with the provisions of Section 409A, which include a severe
financial hardship of a Participant resulting from an illness or accident of
the Participant, the Participants spouse, or the Participants dependent
(as defined in Section 152 of the Code (without regard to Sections
152(b)(1), (b)(2), and (d)(1)(B) of the Code); a loss of the Participants
property due to casualty (including the need to rebuild a home following
damage to the home by natural disaster not otherwise covered by insurance);
or other similar or extraordinary and unforeseeable circumstances arising as
a result of events beyond the control of the Participant.
(31) The term
Valuation Date
shall mean the last day of each Fiscal
Year quarter and any other date as may be designated as such by the
Committee.
1.2
Construction
.
Where necessary or appropriate to the meaning herein, the singular
shall be deemed to include the plural and the masculine pronoun to include the feminine.
ARTICLE II
ELECTIONS BY ELIGIBLE EMPLOYEES
2.1
Participation and Elections to Defer
.
Each Eligible Employee who was
participating in the Plan under the Frozen Terms as of December 31, 2004, and who continues to be
an active Eligible Employee shall be eligible to continue to participate in the Plan under the
Post-2004 Terms as of January 1, 2005. Eligible Employees who were participating in the Plan under
the Frozen Terms and Eligible Employees who became Eligible Employees on or after January 1, 2005,
shall be eligible to participate in the Plan under the Post-2004 Terms with respect to services
performed after December 31, 2004 that give rise to Awards. As a condition of participation in the
Plan, an Eligible Employee must complete, sign, and return to the Committee a Deferral Election
Form (including a form in electronic, telephonic, or other format) (an Election Form) within the
times permitted hereunder for making elections. A Participants Election Form shall specify the
amount or percentage of an Award being deferred and the time and form of payment in accordance with
Article IV. The election to defer, including the election of the time and form of payment, shall
be irrevocable as of the dates specified in Section 2.2. Pursuant to Article IV, a Participant may
make a subsequent election to delay payment and change the form of payment of a Deferral. Under no
circumstances may any election to defer be made under the Post-2004 Terms unless the Award to be
deferred is fiscal year compensation. For purposes of the Post-2004 Terms, fiscal year
compensation means compensation relating to a period of service coextensive with one or more
Fiscal Years of the Company, of which no amount is paid or payable during the service period.
2.2
Time of Elections
.
(a)
Non-Performance-Based Compensation
.
On or before each June 30 immediately
preceding the first Fiscal Year during which services giving rise to an Award that is not
Performance-Based Compensation will be performed, an Eligible Employee may elect to defer receipt
of all or a portion of such an Award that he may receive under an Incentive Plan or a Performance
Plan as a Deferral under the Plan. Such election shall be irrevocable, upon delivery of the
Election Form to the Committee, as of the end of such June 30 with respect to the Award for which
an election has been made.
(b)
Performance-Based Compensation
.
On or before each December 31 that is at least
six months before the end of the performance period for an Award that is Performance-Based
Compensation, an Eligible Employee may elect to defer receipt of all or a portion of an Award of
Performance-Based Compensation that he may receive under an Incentive Plan or a Performance Plan as
a Deferral under the Plan; (i) provided that the Eligible Employee has continuously performed
services from a date no later than 90 days after the commencement of the performance period through
a date no earlier than the date on which the deferral election is made, and (ii) provided further
that in no event shall such election be made after such Award has become both substantially certain
to be paid and readily ascertainable. Such election shall be irrevocable as of the end of each
December 31 with respect to the Award for which an election has been made.
(c)
New Hires and Promotions
.
In the first Fiscal Year in which an Eligible Employee
becomes eligible to participate in the Plan (taking into consideration eligibility under all other
nonqualified account balance plans of the Company and any Affiliate that are required to be
aggregated with the Plan under Section 409A in determining whether such Fiscal Year is in fact the
first year of eligibility), such Eligible Employee may make an initial deferral election within 30
days of becoming first eligible with respect to that portion of an Award that relates to services
to be performed subsequent to the election. Such an election shall be irrevocable.
2.3
Special Transition Elections
.
(a)
Changes in Payment Elections
.
During 2005, 2006, 2007, and 2008, a Participant
may make elections to receive payment of his Deferrals without complying with the requirements of
Section 4.3; provided that such election(s) shall only be effective:
|
(i)
|
|
If made in 2006, it shall be applicable only with respect to
amounts that would not otherwise be payable in 2006 and shall not cause an
amount to be paid in 2006 that would not otherwise be payable in 2006; and
|
|
(ii)
|
|
If made in 2007, it shall be applicable only with respect to
amounts that would not otherwise be payable in 2007 and shall not cause an
amount to be paid in 2007 that would not otherwise be payable in 2007; and
|
|
(iii)
|
|
If made in 2008, it shall be applicable only with respect to amounts that
would not otherwise be payable in 2008 and shall not cause an amount to be paid in
2008 that would not otherwise be payable in 2008.
|
(b)
2005 Deferral Elections
.
In accordance with Q&A-21 of Notice 2005 1 and Section
3.06 of Notice 2006-79, initial deferral elections for calendar year 2005 were permitted to be made
on or before March 15, 2005, with respect to amounts that were not paid or payable at the time of
such election.
2.4
Other Election Provisions
.
Each deferral election shall indicate the allocation
of the Deferral to be deemed invested in the Funds. Subject to the provisions of Article IV and
Section 5.7, amounts deferred pursuant to any election hereunder shall be deemed invested and shall
be distributed in the manner and at the time set forth on the applicable Election Form.
ARTICLE III
ACCOUNTS AND INVESTMENTS
3.1
Establishment and Crediting of Accounts
.
The Deferral Account of each Participant
shall have subaccounts, which shall reflect the Funds into which Deferrals are deemed invested and
credited pursuant to the applicable Election Form filed by the Participant with the Committee. The
crediting of any Deferral or portion thereof deemed to be invested in a Fund shall be made to a
Participants Deferral Account within 30 days after the date on which the Deferral would otherwise
have been payable to the Participant under the applicable Incentive Plan or Performance Plan, and
Common Shares of a Fund so credited to a Deferral Account shall be valued at Fair Market Value.
3.2
Amount of Deferrals
.
(a)
Prior to July 1, 2007
.
Effective for Awards related to Fiscal Years beginning
prior to July 1, 2007, if a Participant (i) elects to have less than 50% of any Award from an
Incentive Plan deferred under the Plan as a Deferral, or (ii) elects to have any stock portion of
an Award from a Performance Plan deferred under the Plan as a Deferral, 100% of the amount of such
Deferral shall be credited to his Deferral Account and subaccounts in accordance with his duly
filed Election Form. Effective for Awards related to Fiscal Years beginning prior to July 1, 2007,
if a Participant (i) elects to have at least 50% of an Award from an Incentive Plan deferred under
the Plan as a Deferral and further elects to have at least 50% of such Award deemed to be invested
in a Fund comprised of Common Shares, or (ii) elects to have any cash portion of an Award from a
Performance Plan deferred under the Plan as a Deferral and further elects to have any portion of
such Award deemed to be invested in a Fund comprised of Common Shares, 110% of the amount of such
Deferral deemed so invested in Common Shares shall be credited to his Deferral Account and
subaccounts in accordance with the terms of his duly filed Election Form.
(b)
After June 30, 2007
.
Effective for Awards related to Fiscal Years beginning after
June 30, 2007, 100% of the amount of an Eligible Employees Deferral shall be credited to his
Deferral Account and subaccounts in accordance with his duly filed Election Form.
3.3
Adjustment of Accounts
.
As of each Valuation Date, the value of each Deferral
Account shall be adjusted to reflect deemed earnings, losses, and dividends determined by the
Committee. Common Shares of a Fund credited to any Deferral Account shall be valued at Fair Market
Value. Records shall relate such adjustments to Deferrals based upon common distribution dates
elected by the Participant.
ARTICLE IV
DISTRIBUTION OF ACCOUNTS
4.1
Form of Payments
.
The value of a Participants Deferral Account deemed invested
in a Fund comprised of Common Shares shall be distributed in Common Shares and the value of a
Participants Deferral Account deemed otherwise invested shall be distributed in cash. Such value
shall be determined as of the most recent Valuation Date. Subject to the provisions of Section
4.2, a distribution from a Participants Deferral Account with respect to a particular Award shall
be made either in a lump sum or in substantially equal annual installments over a period of not
more than ten years and commencing as of a date specified in such Participants Election Form.
4.2
Time of Payments
.
In accordance with the provisions of Section 409A, a
Participant shall specify on his Election Form an objectively determinable payment date, which may
include attainment of a specific age or Separation from Service, at the time he defers an Award.
Except as otherwise provided in this Article IV, distribution of the value of a Deferral (and
related earnings and losses) from a Participants Deferral Account with respect to a particular
Award shall commence within 60 days of the date specified for commencement in his applicable
Election Form; provided, however, that if such 60-day period begins in one calendar year and ends
in another, the Participant shall not have a right to designate the calendar year of payment.
Notwithstanding any other provision of the Plan to the contrary, a distribution payable to a
Specified Employee due to a Separation from Service shall not be distributed, or begin to be
distributed, until the first day of the seventh month following his Separation from Service. The
amount of the first payment shall include the accumulated amount of the payments, if any, that
would otherwise have been made during the first six months but for the fact that the Participant is
a Specified Employee.
4.3
Changing Time or Form of Payments
.
A Participant may elect to delay payment or to
change the form of payment if all the following conditions are met:
|
(i)
|
|
Such election will not take effect until at
least twelve months after the date on which the election is made; and
|
|
(ii)
|
|
The payment with respect to which such election
is made is deferred for a period of not less than five years from the
date such payment would otherwise be made; and
|
|
(iii)
|
|
Any election for a specified time (or
pursuant to a fixed schedule) within the meaning of Section
409A(a)(2)(A)(iv) of the Code, may not be made less than twelve months
prior to the date of the first scheduled payment.
|
To the extent permitted under Section 409A, installment payments shall be treated as a single
payment.
4.4
No Acceleration
.
Except as permitted under Section 409A, no acceleration of the
time or form of payment of a Participants Deferral Account shall be permitted.
4.5
Emergency Distribution
.
Upon the written request of a Participant and the showing
of an Unforeseeable Emergency, the Committee may, upon its determination that such an emergency
exists, direct that an amount of such Participants Deferral Account be paid to him. The amount
that can be paid shall not exceed the amount necessary to satisfy the Unforeseeable Emergency, plus
an amount necessary to pay taxes reasonably anticipated because of such distribution, after taking
into account the extent to which such emergency is or may be relieved through reimbursement or
compensation by insurance or otherwise or by liquidation of the Participants assets (to the extent
the liquidation would not itself cause severe financial hardship). Payment shall be made within 30
days of the Committees determination that an Unforeseeable Emergency exists.
4.6
Distribution Upon Death
.
In the event that a Participant dies prior to
commencement of payments or while receiving payments under the Post-2004 Terms, the Company shall
pay his Beneficiary the remainder of his Deferral Account under the Post-2004 Terms in a single sum
within 60 days of the Participants death. The Company shall provide Participants with the form
for designating his Beneficiary. A Participant may change his Beneficiary designation at any time
(without the prior consent of any prior Beneficiary) by executing a revised Beneficiary designation
form and delivering it to the Company before his death. If no Beneficiary is designated or if the
Beneficiary predeceases the Participant or cannot be located, the Participants Deferral Account
shall be paid to the Participants estate.
4.7
Distribution in the Event of a Change of Control
.
Notwithstanding any other
provision of the Post-2004 Terms to the contrary, to the extent permitted under Section 409A, the
Deferral Account of a Participant under the Post-2004 Terms shall be distributed to such
Participant within ten days following the Change of Control or deferred for payment at a later
specified date pursuant to the election made by the Participant on his Election Form.
4.8
Taxes
.
In the event any taxes are required by law to be withheld or paid from any
Deferrals or payments under the Plan, the Committee shall cause such amounts to be withheld from
other income or from such payments and shall transmit the withheld amounts to the appropriate
taxing authority.
ARTICLE V
MISCELLANEOUS
5.1
Amendment and Termination of Plan
.
The Company reserves the right to amend or
terminate the Plan at any time; provided, however, that no amendment or termination shall affect
the rights of Participants to amounts previously credited to their Deferral Accounts.
5.2
Non-Alienation
.
No benefit under the Plan shall at any time be subject in any
manner to alienation or encumbrance. If any Participant or Beneficiary shall attempt to, or shall,
alienate or in any way encumber his rights or benefits under the Plan, or any part thereof, or if
by reason of his bankruptcy or other event happening at any time any such benefits would otherwise
be received by anyone else or would not be enjoyed by him, his interest in all such benefits shall
automatically terminate and the same shall be held or applied to or for the benefit of such person,
his spouse, children, or other dependents as the Committee may select.
5.3
Payment of Benefits to Others
.
If any Participant or Beneficiary to whom a
benefit is payable under the Plan is unable to care for his affairs because of illness or accident,
any payment due (unless prior claim therefor shall have been made by a duly qualified guardian or
other legal representative) may be paid to the spouse, parent, brother, sister, adult child, or any
other individual deemed by the Company to be maintaining or responsible for the maintenance of such
person. Any payment made in accordance with the provisions of this Section 5.3 shall be a complete
discharge of any liability of the Plan with respect to the benefit so paid.
5.4
Plan Non-Contractual
.
Nothing contained herein shall be construed as a commitment
or agreement on the part of any person employed by the Company or an Affiliate to continue his
employment with the Company or Affiliate, and nothing herein contained shall be construed as a
commitment on the part of the Company or Affiliate to continue the employment or the annual rate of
compensation of any such person for any period, and all Participants shall remain subject to
discharge to the same extent as if the Plan had never been established.
5.5
Taxability of Plan Benefits
.
This Plan is intended to be treated as an unfunded
deferred compensation plan under the Code. If, at any time, it is determined that amounts deferred
pursuant to the Plan are currently taxable to a Participant or his Beneficiary under Section 409A,
the amounts credited to such Participants Deferral Account which become so taxable shall be
distributed immediately to him; provided, however, that in no event shall amounts so payable under
the Plan to a Participant exceed the value of his Deferral Account.
5.6
Funding
.
The Company may cause Plan benefits to be paid from the Trust which is a
grantor trust that provides full funding of the Plan benefits in the event of a potential Change in
Control or Change in Control. Subject to the provisions of the Trust, the obligation of the
Company under the Plan to provide a Participant or Beneficiary with a benefit constitutes the
unsecured promise of the Company to make payments as provided herein, and no person shall have any
interest in, or a lien or prior claim upon, any property of the Company. Notwithstanding any other
provision of the Plan, Plan benefits shall be limited to the balance of a Participants Deferral
Account.
5.7
Section 16b Procedures
.
In conjunction with rules promulgated by the Securities
and Exchange Commission under Section 16 of the Securities Exchange Act of 1934, as amended, the
Company has established Section 16b Procedures which affect certain transactions under the Plan
involving Employer Securities held for the benefit of an Officer. Such Procedures, which are
hereby incorporated into the Plan shall constitute for all purposes a part of the Plan. In the
event that the Procedures conflict with any other provision of the Plan, the Procedures shall
override such other provision and shall be controlling. For purposes of this Section, the
following terms shall have the meaning hereinafter set forth.
(a) The term Employer Security shall mean any qualifying employer security as defined
in Section 407(d)(5) of ERISA which is also an equity security as defined under the
Securities Exchange Act of 1934, as amended.
(b) The term Officer shall mean any person who is designated as an Officer of the
Company for purposes of Section 16 of the Securities Exchange Act of 1934, as amended.
(c) The term Section 16b Procedures or Procedures shall mean the Administrative
Procedures Applicable to Officers and Directors Under Employee Benefit Plans Maintained by
Applied Industrial Technologies, Inc., effective as of January 1, 1997, with all amendments,
supplements, and modifications thereafter made.
5.8
Interpretation
.
The Board and the Committee shall have full power and authority
to interpret, construe, and administer the Post-2004 Terms, and the interpretation and construction
thereof and actions thereunder by the Board or the Committee, including any valuation of a
Participants Deferral Account and the amount or recipient of the payments to be made from such
Deferral Account, shall be binding and conclusive on all persons for all purposes. No member of
the Board and no designee shall be liable to any person for any action taken or omitted in
connection with the interpretation and administration of the Plan.
5.9
Claims Procedures
.
Generally benefits shall be paid under the Post-2004 Terms
without the necessity of filing a claim. An Eligible Employee, Participant, Beneficiary, or other
person who believes he is entitled to a benefit under the Post-2004 Terms (hereinafter referred to
as the Claimant) may file a written claim with the Company. A claim must state with specificity
the determination desired by the Claimant.
The Company shall consider the Claimants claim within a reasonable time, but no later than 90
days of receipt of the claim. If the Company determines that special circumstances require an
extension of time for processing the claim, the Company shall notify the Claimant in writing of the
extension before the end of the initial 90-day period and the written notice shall indicate the
special circumstances requiring an extension of time and the date by which the Company expects to
make a decision. The extension of time shall not exceed 90 days from the end of the initial 90-day
period.
The Company shall notify the Claimant (in writing or electronically) that a determination has
been made and that the claim is either allowed in full or denied in whole or in part. If the claim
is denied in whole or in part, the Company shall notify (in writing or electronically) such
Claimant or an authorized representative of the Claimant, as applicable, of any adverse benefit
determination within 90 days of receipt of the claim. Any adverse benefit determination notice
shall describe the specific reason or reasons for the denial, refer to the specific Plan provisions
on which the determination was based, describe any additional material or information necessary for
the Claimant to perfect his claim and explain why that material or information is necessary,
describe the Plans review procedures and the time limits applicable to those procedures, including
a statement of the Claimants right to bring a civil action under Section 502(a) of ERISA following
a denial upon review. If the notification is made electronically, it must comply with applicable
Department of Labor Regulations.
Upon receipt of an adverse benefit determination, a Claimant may, within 60 days after
receiving notification of that determination, submit a written request asking the Board to review
the Claimants claim. Each Claimant, when making his request for review of his adverse benefit
determination, shall have the opportunity to submit written comments, documents, records, and any
other information relating to the claim for benefits. Each Claimant shall also be provided, upon
request and free of charge, reasonable access to, and copies of, all documents, records, and other
information relevant to such Claimants claim for benefits. The review shall take into account all
comments, documents, records, and other information submitted by the Claimant relating to the
claim, regardless of whether the information was submitted or considered in the initial benefit
determination. If a Claimant does not submit his request for review in writing within the 60-day
period described above, his claim shall be deemed to have been conclusively determined for all
purposes of the Plan and the adverse benefit determination will be deemed to be correct.
If the Claimant submits in writing a request for review of the adverse benefit determination
within the 60-day period described above, the Board (or its designee) shall notify (in writing or
electronically) him of its determination on review within a reasonable period of time but not later
than 60 days from the date of receipt of his request for review, unless the Board (or its designee)
determines that special circumstances require an extension of time. If the Board (or its designee)
determines that an extension of time for processing a Claimants request for review is required,
the Board (or its designee) shall notify him in writing before the end of the initial 60-day period
and inform him of the special circumstances requiring an extension of time and the date by which
the Board (or its designee) expects to render its determination on review. The extension of time
will not exceed 60 days from the end of the initial 60-day period.
If the Board (or its designee) confirms the adverse benefit determination upon review, the
notification will describe the specific reason or reasons for the adverse determination, refer to
the specific Plan provisions on which the benefit determination is based, include a statement that
the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and
copies of, all documents, records, and other information relevant to the Claimants claim and
include a statement describing the Claimants right to bring an action under Section 502(a) of
ERISA, and any other required information under applicable Department of Labor Regulations. The
claims
procedure described above shall be administered in a manner not inconsistent with Section 503 of
ERISA and applicable Department of Labor Regulations.
A Claimants compliance with the foregoing claims procedures shall be a mandatory prerequisite
to the Claimants right to commence any legal action with respect to any claim for benefits under
the Plan.
5.10
Section 409A
.
Notwithstanding any provision to the contrary in the Post-2004
Terms, nothing shall restrict the Companys right to amend the Plan, the Post-2004 Terms, the
Frozen Terms, any deferral agreement, and/or any deferral Election Form, without the consent of
Participants and without additional consideration to affected Participants, to the extent necessary
to avoid taxation, penalties, and/or interest arising under Section 409A, even if such amendments
reduce, restrict, or eliminate rights granted thereunder before such amendments. Although the
Company shall use its best efforts to avoid the imposition of taxation, penalties, and/or interest
under Section 409A, tax treatment of deferrals and other credits under the Plan (whether the Frozen
Terms or the Post-2004 Terms) is not warranted or guaranteed. If, at any time, it is determined
that amounts deferred pursuant to the Plan are currently taxable to a Participant or his
Beneficiary under Section 409A, the amounts credited to such Participants Deferral Account which
become so taxable shall be distributed immediately to him; provided, however, that in no event
shall amounts so payable under the Plan to a Participant exceed the value of his Deferral Account.
Notwithstanding the foregoing, the Company, the Board, any Affiliate, or any delegatee shall not be
held liable for any taxes, penalties, interest, or other monetary amounts owed by any Participant,
Eligible Employee, Beneficiary, or other person as a result of the deferral or payment of any
amounts under the Plan (whether the Frozen Terms or the Post-2004 Terms) or as a result of the
administration of amounts subject to the Plan (whether the Frozen Terms or the Post-2004 Terms).
5.11
Severability
.
The invalidity or unenforceability of any particular provision of
the Plan shall not affect any other provision hereof, and the Plan shall be construed in all
respects as if such invalid or unenforceable provision were omitted herefrom.
5.12
Governing Law
.
The provisions of the Plan shall be governed and construed in
accordance with the laws of the State of Ohio, without regard to its conflict or choice of law
principles.
Executed at Cleveland, Ohio, this 11 day of December, 2008.
|
|
|
|
|
|
|
|
|
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ David L. Pugh
Title: Chairman & CEO
|
|
|
EXHIBIT 10.6
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
SUPPLEMENTAL DEFINED CONTRIBUTION PLAN
(Post-2004 Terms
)\
WHEREAS
, effective as of January 1, 1996, Bearings, Inc., the predecessor plan sponsor to
Applied Industrial Technologies, Inc. (hereinafter referred to as the Company), established the
Bearings, Inc. Supplemental Defined Contribution Plan, which is now known as the Applied Industrial
Technologies, Inc. Supplemental Defined Contribution Plan (hereinafter referred to as the Plan),
for a select group of its management employees; and
WHEREAS,
in order to comply with the requirements of Section 409A of the Internal Revenue Code
of 1986, as amended (hereinafter referred to as Section 409A) and to facilitate the
administration of benefits under the Plan, the Plan is hereby bifurcated effective as of January 1,
2005 into two parts; namely, the first part which will consist of the Plan, as in effect on October
3, 2004, and which is hereby frozen and will not be modified except as permitted under Section 409A
so as to preserve the grandfathered status of vested deferrals thereunder (hereinafter referred to
as the Frozen Terms), and the second part which will consist of the post-2004 terms of the Plan,
as amended effective January 1, 2005, for compliance with Section 409A (hereinafter referred to as
the Post-2004 Terms); and
WHEREAS,
Plan benefits earned or vested after December 31, 2004, and before the Plan was
bifurcated, have been made and administered in good faith in accordance with the requirements of
Section 409A;
NOW, THEREFORE,
effective January 1, 2005, the Post-2004 Terms are hereinafter set forth.
ARTICLE I
DEFINITIONS
|
1.1.
|
|
Definitions
.
Except as otherwise required by the context, the terms used
in the Plan shall have the meaning hereinafter set forth.
|
(1) The term
Addendum
shall mean shall mean the overriding provisions that
are applicable to certain Participants in accordance with the provisions of Section
9.7, that constitute for all purposes a part of the Plan, and that in the event of
conflict with any other provision of the Plan, are controlling.
(2) The term
Affiliate
shall mean any member of a controlled group of
corporations (as determined under Section 414(b) of the Code) of which the Company
is a member; any member of a group of trades or businesses under common control (as
determined under Section 414(c) of the Code) with the Company; any member of an
affiliated service group (as determined under
Section 414(m) of the Code) of which the Company is a member; and any other
entity which is required to be aggregated with the Company pursuant to the
provisions of Section 414(o) of the Code.
(3) The term
Beneficiary
shall mean the person or persons who, in accordance
with the provisions of Article VI, shall be entitled to receive distribution
hereunder in the event a Participant dies before his interest under the Plan has
been distributed to him in full.
(4) The term
Board
shall mean the Board of Directors of the Company.
(5) The term
Change in Control
shall mean a change in the ownership or
effective control of the Company or a change in the ownership of a substantial
portion of the assets of the Company that constitutes a change in control under
Section 409A.
(6) The term
Code
shall mean the Internal Revenue Code of 1986, as amended
from time to time. Reference to a section of the Code shall include such section
and any comparable section or sections of any future legislation that amends,
supplements, or supersedes such section.
(7) The term
Company
shall mean Applied Industrial Technologies, Inc., its
corporate successors, and the surviving corporation resulting from any merger of
Applied Industrial Technologies, Inc. with any other corporation or corporations.
(8) The term
Committee
shall mean the Applied Industrial Technologies, Inc.
Supplemental Defined Contribution Plan Committee (formerly the Bearings, Inc.
Supplemental Defined Contribution Plan Committee) which shall be comprised of the
same individuals who serve on the administrative committee for the Retirement
Savings Plan and which shall administer the Plan in accordance with the provisions
of Article VII.
(9) The term
Compensation
shall mean the total wages which are paid to a
Participant during a Plan Year by an Employer for his services as an Employee while
he is a Participant, including incentive compensation, commissions, bonuses, and
elective contributions made on behalf of such Participant under the Plan or any
other plan that are not includible in gross income under Sections 125 and 402(e)(3)
of the Code, but excluding moving or educational reimbursement expenses, amounts
deferred under any non-qualified deferred compensation program, amounts realized
from the exercise of stock options, imputed income attributable to any fringe
benefit, and any amounts received in lieu of benefits under a plan that meets the
requirements of Section 125 of the Code.
(10) The term
Comprehensive Plan
shall mean the Applied Industrial
Technologies, Inc. Deferred Compensation and Supplemental Benefit Plan (formerly
known as the Bearings, Inc. Comprehensive Deferred Compensation and Supplemental
Benefit Plan), as of January 1, 2005, and as may be amended from time to time.
(11) The term
Employee
shall mean an individual carried on and paid through
the payroll of the Company as a common law employee.
(12) The term
Frozen Terms
shall mean the terms of the Plan as in effect on
October 3, 2004, that govern pre-2005 contributions made under the Plan.
(13) The term
Fund
shall mean any of the funds that may be maintained for the
investment of Plan assets as may be authorized by the Committee.
(14) The term
Participant
shall mean any Employee who participates in the
Plan pursuant to Article II of the Plan.
(15) The term
Plan
shall mean the Applied Industrial Technologies, Inc.
Supplemental Defined Contribution Plan which, effective as of January 1, 2005, shall
consist of the Frozen Terms and the Post-2004 Terms and which is part of the
Comprehensive Plan and is listed on Exhibit A attached thereto. References in the
Post-2004 Terms to the Plan shall mean the Post-2004 Terms of the Plan, unless
otherwise required by the context.
(16) The term
Plan Year
shall mean each calendar year beginning January 1 and
ending December 31. The term Plan Year shall not be changed to a period that is
not the calendar year unless appropriate changes are made to the Post-2004 Terms,
including those regarding Participant elections, to conform with the requirements of
Section 409A.
(17) The term
Post-2004 Terms
shall mean the terms of the Applied Industrial
Technologies, Inc. Supplemental Excess Defined Contribution Plan effective January
1, 2005, which (i) govern benefits earned or vested after December 31, 2004, (ii)
comply with the provisions of Section 409A, (iii) are set forth herein, and (iv) may
be amended from time to time.
(18) The term
Retirement Savings Plan
shall mean the Applied Industrial
Technologies, Inc. Retirement Savings Plan as of January 1, 2005, and as may be
amended from time to time.
(19) The term
Section 409A
shall mean Section 409A of the Internal Revenue
Code of 1986, as amended, and the regulations and rulings promulgated thereunder.
(20) The term
Separation from Service
shall mean the termination of
employment of an Employee with the Company and all Affiliates for any reason other
than death; provided, however, that an Employer-approved leave of absence shall not
be considered a termination of employment if the leave does not exceed six (6)
months or, if longer, so long as the Employees right to reemployment is provided
either by statute or by contract. Notwithstanding the foregoing, whether or not an
Employee has incurred a Separation from Service shall be determined in accordance
with Section 409A.
(21) The term
Specified Employee
shall mean a specified employee within the
meaning of Section 409A and pursuant to the specified employee procedure of the
Company.
(22) The term
Supplemental
401(k)
Contribution Account
shall mean the Account
to which Supplemental 401(k) Contributions are credited in accordance with the
provisions of Sections 3.1 and 4.1 of the Plan.
(23) The term
Supplemental
401(k)
Contributions
shall mean the contributions
credited to a Participant under the Plan pursuant to Section 3.1.
(24) The term
Trust
shall mean the trust maintained pursuant to the terms of
the Applied Industrial Technologies, Inc. Supplemental Executive Retirement Benefits
Trust.
(25) The term
Unforeseeable Emergency
shall be defined and determined in
accordance with the provisions of Section 409A, which include a severe financial
hardship of a Participant resulting from an illness or accident of the Participant,
the Participants spouse, or the Participants dependent (as defined in Section 152
of the Code (without regard to Sections 152(b)(1), (b)(2), and (d)(1)(B) of the
Code); a loss of the Participants property due to casualty (including the need to
rebuild a home following damage to the home by natural disaster not otherwise
covered by insurance); or other similar or extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the Participant.
(26) The term
Valuation Date
shall mean each business day of each calendar
month.
(27) The term
Years of Vesting Service
shall mean service credited to a
Participant under the provisions of Section 3.4.
1.2
Construction
.
Where necessary or appropriate to the meaning hereof, the singular
shall be deemed to include the plural, the plural to include the singular, the masculine to include
the feminine, and the feminine to include the masculine.
ARTICLE II
ELIGIBILITY FOR PLAN PARTICIPATION
Any select management and highly compensated Employee of the Company (i) who is determined to
be highly compensated pursuant to procedures established by the Company and whose contributions
under the Retirement Savings Plan are limited by the provisions of Section 401(a)(17), 401(k),
401(m), 402(g), or 415 of the Code, and (ii) who was participating in the Plan on December 31,
2004, shall continue to participate in the Plan under the Post-2004 Terms. The Plan, including the
Post-2004 Terms, is intended to benefit only a select group of executive management and highly
compensated executive employees within the meaning of Sections 201(2) and 301(a)(3) of ERISA.
ARTICLE III
SUPPLEMENTAL 401(k) CONTRIBUTIONS
The Supplemental 401(k) Contribution Account of each Participant shall be credited with
Supplemental 401(k) Contributions equal to the amount deferred from his Compensation in accordance
with a completed Compensation reduction authorization in effect on December 31 of the prior Plan
Year with respect to the Post-2004 Terms pursuant to procedures established by the Company. Such
Compensation reduction authorization may be revised with respect to future Supplemental 401(k)
Contributions as of any December 31 of a Plan Year.
ARTICLE IV
ESTABLISHMENT AND ADMINISTRATION OF SUPPLEMENTAL 401(K) CONTRIBUTION ACCOUNTS
4.1
Establishment of Supplemental
401(k)
Contribution Accounts
. Beginning with the
Plan Year commencing January 1, 2005, each Participant shall have a Supplemental 401(k)
Contribution Account established under the Post-2004 Terms in his name which shall reflect the
Supplemental 401(k) Contributions credited to him pursuant to Article III and any adjustment
thereto pursuant to Section 4.2.
4.2
Adjustment of Supplemental
401(k)
Contribution Accounts
. The Supplemental 401(k)
Contribution Account of a Participant under the Post-2004 Terms shall be adjusted as of each
Valuation Date to reflect the deemed investment of such Supplemental 401(k) Contribution Accounts
in the Funds as determined by the Committee.
4.3
Investment Elections for Supplemental
401(k)
Contributions
. Each Participant,
upon becoming a Participant under the Plan in accordance with the provisions of Article II, shall
make an investment election directing the manner in which his Supplemental 401(k) Contributions
shall be deemed to be invested in the Funds. The investment election of a Participant shall
specify a
combination, which in the aggregate equals 100 percent and conforms with procedures prescribed
by the Company, indicating in which Funds his Supplemental 401(k) Contributions shall be deemed to
be invested. The investment option so elected by a Participant shall remain in effect until he
changes his investment election pursuant to Section 4.4 or receives distribution of his
Supplemental 401(k) Contribution Account.
4.4
Investment Change of Future Supplemental
401(k)
Contributions
. Each Participant
may elect to change the manner in which contributions credited to his Supplemental 401(k)
Contribution Account are to be deemed invested. Any such change in the investment election of a
Participant with respect to his Supplemental 401(k) Contributions shall specify a combination among
the Funds which in the aggregate equals 100 percent. Such election shall be made in the manner
specified by the Company and in accordance with procedures prescribed by the Company. The
investment option so elected by a Participant shall remain in effect until he makes another
election change with respect to future contributions in accordance with the provisions of the Plan.
Any such election which directs a change in an investment election heretofore in effect shall
become effective in accordance with procedures prescribed by the Company. Amounts credited to the
Supplemental 401(k) Contribution Account of such Participant as of any date prior to the date on
which such change is to become effective shall not be affected by any such change.
4.5
Election to Transfer Invested Past Supplemental
401(k)
Contributions
. Subject to
any procedures adopted by the Company, a Participant may elect to have the balance of his
Supplemental 401(k) Contribution Account transferred from the Fund or Funds in which it is deemed
invested to one or more of the other Funds. Any such election shall be made in accordance with
procedures prescribed by the Company. Upon receipt of such election, the Company shall cause the
transfer of such amount as of the effective date of the election of the Participant from the Fund
or Funds in which it is deemed invested to the Fund or Funds so elected and designated by the
Participant.
ARTICLE V
DISTRIBUTION
5.1
Distribution Upon Separation from Service
. Unless elected otherwise as provided
in Sections 5.2, 5.3, and 5.5 the entire balance credited to a Participants Supplemental 401(k)
Contribution Account under the Post-2004 Terms shall be distributed to such Participant or his
Beneficiary in a single cash payment determined as of the most recent Valuation Date within 60 days
after such Participants Separation from Service; provided, however, that in the event a
Participant is a Specified Employee, such Participant shall receive payment of his Supplemental
401(k) Contribution Account under the Post-2004 Terms on the first day of the seventh month
following his Separation from Service.
5.2
Distribution Elections of Participants
. Each Participant shall have the
opportunity to file an election with respect to the form and time of his Supplemental 401(k)
Contributions under the Plan in accordance with the requirements of Section 409A. Subject to the
provisions of Sections 5.3, such election shall specify a lump sum payment or substantially equal
annual installment
payments, not to exceed three years. Except in the case of a Specified Employee whose
distribution shall be subject to the six-month delay rule under Section 5.1 and made on the first
day of the seventh month following his Separation from Service, the initial annual installment
payment shall be made within the 30-day period following the specified payment date and any
remaining annual installment shall be made on the first day of the succeeding calendar years after
the calendar year in which the first installment payment is made to the Participant. The election
of the distribution with respect to a Participants Supplemental 401(k) Account shall be made by
the Participant on a form provided by the Company and filed with the Company on or before the
December 31 that immediately precedes the Plan Year in which he is first eligible to participate in
the Plan or the date permitted under Section 5.5. Such election shall continue in effect unless a
subsequent election is filed pursuant to the provisions of Section 5.3.
5.3
Changes to Distribution Elections
. Subject to the Companys consent, a
Participant may elect to delay payment or to change the form of payment of his Supplemental 401(k)
Contribution Account if all the following conditions are met:
(i) Such election will not take effect until at least twelve (12) months after the date
on which the election is made; and
(ii) The payment with respect to which such election is made is deferred for a period
of not less than five years from the date such payment would otherwise be made;
(iii) Any election for a specified time (or pursuant to a fixed schedule) within the
meaning of Section 409A(a)(2)(A)(iv) of the Code, may not be made less than twelve (12)
months prior to the date of the first scheduled payment; and
(iv) Any change in the form and/or timing of an election must provide for a consistent
time and form of payment with respect to the Participants entire Supplemental 401(k)
Contribution Account.
To the extent permitted under Section 409A, installment payments shall be treated as a single
payment.
5.4
No Acceleration
. Except as permitted under Section 409A, no acceleration of the
time or form of payment of a Participants Supplemental 401(k) Contribution Account under the
Post-2004 Terms shall be permitted.
5.5
Special Transition Elections
. During 2005, 2006, 2007 and 2008, a Participant may
make elections to receive payment of his Supplemental 401(k) Contribution Account without complying
with the requirements of Section 5.2; provided, however, that any such election shall only be
effective if it does not accelerate a payment to be made, or defer a payment from being made, in
the year in which such election is made; and provided further, that the last such election shall
continue in effect for future Plan Years unless subsequent elections pursuant to provisions of
Section 5.2 are made.
5.6
Payment upon Change in Control
. Notwithstanding any provision of the Post-2004
Terms to the contrary, to the extent permitted under Section 409A, upon a Change in Control, the
balance of the Supplemental 401(k) Contribution Accounts of Participants under the Post-2004 Terms
shall be paid to Participants within 15 days following the Change in Control.
5.7
Distributions Upon Death
. Upon the death of a Participant (including a
Participant who is a Specified Employee), the balance of his Supplemental 401(k) Contribution
Accounts shall be paid to his Beneficiary in a single sum pursuant to the provisions of Article VI.
5.8
Emergency Distribution
.
Upon the written request of a Participant and the showing
of an Unforeseeable Emergency, the Committee may, upon its determination that such an emergency
exists, direct that an amount of such Participants Deferral Account be paid to him. The amount
that can be paid shall not exceed the amount necessary to satisfy the Unforeseeable Emergency, plus
an amount necessary to pay taxes reasonably anticipated because of such distribution, after taking
into account the extent to which such emergency is or may be relieved through reimbursement or
compensation by insurance or otherwise or by liquidation of the Participants assets (to the extent
the liquidation would not itself cause severe financial hardship). Payment shall be made within 30
days of the Committees determination that an Unforeseeable Emergency exists.
5.9
Taxes
. In the event any taxes are required by law to be withheld or paid from any
payments made pursuant to the Plan, the Company shall cause the withholding of such amounts from
such payments and shall transmit the withheld amounts to the appropriate taxing authority. In
addition, it is the intention of the Company that benefits credited to a Participant under the Plan
shall not be included in the gross income of the Participants or their Beneficiaries until such
time as benefits are distributed under the provisions of the Plan. If, at any time, it is
determined that benefits under the Plan are currently taxable to a Participant or his Beneficiary,
the amounts credited to the Participants Supplemental 401(k) Account which become so taxable shall
be distributable immediately to him; provided, however, that in no event shall amounts so payable
to a Participant exceed the value of his Supplemental 401(k) Contribution Account. Moreover, if
the Post-2004 Terms fail to meet the requirements of Section 409A with respect to a Participant,
the Company shall distribute the amount required to be included in such Participants gross income
as a result of such failure within 60 days of the Companys determination of such compliance
failure.
5.10
Rules
. Subject to the provisions of Section 409A, the Committee may from time to
time adopt additional policies or rules governing the manner in which distributions are made from
the Plan so that the Plan can be administered and comply with Section 409A.
ARTICLE VI
BENEFICIARIES
In the event a Participant dies before his interest under the Plan in his Supplemental 401(k)
Contribution Account has been distributed in full, any remaining interest shall be distributed in a
single sum pursuant to Article V to his Beneficiary, who shall be the person designated as such
in writing by the Participant in the form and manner specified by the Company. In the event a
Participant does not designate a Beneficiary or his designated Beneficiary does not survive him,
his beneficiary under the Retirement Savings Plan shall be his Beneficiary for Plan purposes.
ARTICLE VII
ADMINISTRATIVE PROVISIONS
7.1
Administration
. The Plan shall be administered by the Company in a manner that is
generally consistent with the administration of the Retirement Savings Plan, as from time to time
amended, except that the Plan shall be administered as an unfunded plan not intended to meet the
qualification requirements of Section 401 of the Code.
7.2
Powers and Authorities of the Committee
. The Company shall have full power and
authority to interpret, construe and administer the Plan and its interpretations and construction
hereof, and actions hereunder, including the timing, form, amount or recipient of any payment to be
made hereunder, shall be binding and conclusive on all persons for all purposes. The Company may
delegate any of its powers, authorities, or responsibilities for the operation and administration
of the Plan to any person or to the Committee so designated in writing by it and may employ such
attorneys, agents, and accountants as it may deem necessary or advisable to assist it in carrying
out its duties hereunder. No member of the Committee shall be liable to any person for any action
taken or omitted in connection with the interpretation and administration of the Plan unless
attributable to his own willful misconduct or lack of good faith. Members of the Committee shall
not participate in any action or determination regarding their own benefits, if any, payable under
the Plan.
7.3
Indemnification
. In addition to whatever rights of indemnification a member of
the Committee, or any other person or persons to whom any power, authority, or responsibility is
delegated pursuant to Section 7.2, may be entitled under the articles of incorporation,
regulations, or by-laws of the Company, under any provision of law, or under any other agreement,
the Company shall satisfy any liability actually and reasonably incurred by any such member or such
other person or persons, including expenses, attorneys fees, judgments, fines, and amounts paid in
settlement, in connection with any threatened, pending, or completed action, suit, or proceeding
which is related to the exercise or failure to exercise by such member or such other person or
persons of any of the powers, authority, responsibilities, or discretion provided under the Plan.
ARTICLE VIII
AMENDMENT AND TERMINATION
The Company may amend, modify, suspend or terminate (individually or in the aggregate, a
Change) the Plan for any purpose or extend the Plan to any Affiliate by action of the Plans
Administration Committee, except that: (i) no Change shall adversely affect any Participant who is
receiving supplemental benefits under the Plan or whose Supplemental 401(k) Contribution Account
are credited with any contributions thereto, unless an equivalent benefit is otherwise provided
under another plan or program sponsored by the Company or any of its subsidiaries; (ii)
following a Change in Control, the terms and conditions of deferrals under the Plan may not be
changed to the detriment of any Participant without such Participants written consent; and (iii)
no distribution of Supplemental 401(k) Contribution Account subject to the Post-2004 Terms shall
occur unless the requirements of Section 409A have been met.
ARTICLE IX
MISCELLANEOUS
9.1
Non-Alienation of Benefits
. No benefit under the Plan shall at any time be
subject in any manner to alienation or encumbrance. If any Participant or Beneficiary shall
attempt to, or shall, alienate or in any way encumber his benefits under the Plan, or any part
thereof, or if by reason of his bankruptcy or other event happening at any time any such benefits
would otherwise be received by anyone else or would not be enjoyed by him, his interest in all such
benefits shall automatically terminate and the same shall be held or applied to or for the benefit
of such person, his spouse, children, or other dependents as the Board may select.
9.2
Payment of Benefits to Others
. If any Participant or Beneficiary to whom a
benefit is payable is unable to care for his affairs because of illness or accident, any payment
due (unless prior claim therefor shall have been made by a duly qualified guardian or other legal
representative) may be paid to the spouse, parent, brother, or sister, or any other individual
deemed by the Board to be maintaining or responsible for the maintenance of such person. Any
payment made in accordance with the provisions of this Section 9.2 shall be a complete discharge of
any liability of the Plan with respect to the benefit so paid.
9.3
Plan Non-Contractual
. Nothing herein contained shall be construed as a commitment
or agreement on the part of any person employed by the Company to continue his employment with the
Company, and nothing herein contained shall be construed as a commitment on the part of the Company
to continue the employment or the annual rate of compensation of any such person for any period,
and all Participants shall remain subject to discharge to the same extent as if the Plan had never
been established.
9.4
Funding
. The Company may cause Plan benefits to be paid from the Trust, which is
a grantor trust that provides for full funding of Plan benefits in the event of a potential change
in control or a change in control. Subject to the provisions of the trust agreement governing such
trust fund, the obligation of the Company under the Plan to provide a Participant or a Beneficiary
with a benefit constitutes the unsecured promise of the Company to make payments as provided
herein, and no person shall have any interest in, or a lien or prior claim upon, any property of
the Company.
9.5
Claims of Other Persons
. The provisions of the Plan shall in no event be
construed as giving any person, firm or corporation any legal or equitable right as against the
Company, its officers, employees, or directors, except any such rights as are specifically provided
for in the Plan or are hereafter created in accordance with the terms and provisions of the Plan.
9.6
Section 409A
. Notwithstanding any provision to the contrary in the Plan, nothing
shall restrict the Companys right to amend the Plan, without the consent of Participants and
without additional consideration to affected Participants, to the extent necessary to avoid
taxation, penalties, and/or interest arising under Section 409A, even if such amendments reduce,
restrict, or eliminate rights granted thereunder before such amendments. Although the Company
shall use its best efforts to avoid the imposition of taxation, penalties, and/or interest under
Section 409A, tax treatment of deferrals and other credits under the Plan is not warranted or
guaranteed. If, at any time, it is determined that amounts deferred pursuant to the Plan are
currently taxable to a Participant or his Beneficiary under Section 409A, the amounts credited to
such Participants Supplemental 401(k) Contribution Account which become so taxable shall be
distributed immediately to him; provided, however, that in no event shall amounts so payable under
the Plan to a Participant exceed the value of his Supplemental 401(k) Contribution Account.
Notwithstanding the foregoing, the Company, any Affiliate, or any delegate shall not be held liable
for any taxes, penalties, interest or other monetary amount owed by any Participant, Beneficiary,
or other person as a result of the deferral or payment of any amounts under the Plan or as a result
of the administration of amounts subject to the Plan.
9.7
Addenda
. Addenda shall for all purposes constitute part of the Plan and, in the
event of conflict with any other provision of the Plan, shall control. Moreover, in the event that
it is deemed necessary to accommodate any transition of coverage under other benefit plans to
coverage under the Plan with respect to certain groups of Employees, an Addendum setting forth
special overriding provisions applicable to such Employees may be added to the Plan.
9.8
Severability
. The invalidity or unenforceability of any particular provision of
the Plan shall not affect any other provision hereof, and the Plan shall be construed in all
respects as if such invalid or unenforceable provision were omitted herefrom.
9.9
Governing Law
. The provisions of the Plan shall be governed and construed in
accordance with the laws of the State of Ohio.
Executed at Cleveland, Ohio, this 2
9
day of December, 2008.
|
|
|
|
|
|
|
|
|
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Michael L. Coticchia
Title: Vice President
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Fred D. Bauer
Title: Vice President
|
|
|
ADDENDUM A
ADDITIONAL DEFERRALS FOR AREA VICE PRESIDENTS
A.1
General
. This Addendum A provides for additional deferrals under the Post-2004
Terms for Area Vice Presidents. All provisions of the Plan, however, shall be applicable to
deferrals made pursuant to this Addendum A.
A.2
Additional Deferrals
.
Each Area Vice President who
becomes a Participant under
the Post-2004 Terms shall be eligible to make a deferral of his incentive pay and/or his base
salary instead of deferrals of his Compensation under the Post-2004 Terms. Any election of such a
deferral and the distribution thereof shall be subject to the provisions of the Post-2004 Terms.