UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002.
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to ______.
Commission file number 1-2299
A. Full title of the plan and the address of the plan, if
different from that of the issuer named below:
Applied Industrial Technologies, Inc.
Retirement Savings Plan
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
Applied Industrial Technologies, Inc.
One Applied Plaza
Cleveland, Ohio 44115-5056
Financial Statements and Exhibit(s)
Page No.
(a) Financial Statements (in this Report)
-------------------- ----------------
Independent Auditors' Report 5
Statement of Net Assets Available
for Benefits --
December 31, 2002 and 2001 6
Statement of Changes in Net Assets
Available for Benefits --
Years Ended December 31, 2002
and 2001 7
Notes to Financial Statements --
Years Ended December 31,
2002 and 2001 8 - 12
Supplemental Schedules 13 - 14
(b) Exhibit(s)
----------
Independent Auditors' Consent 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Plan has duly caused this annual report to be signed on its behalf by
the undersigned, hereunto duly authorized.
APPLIED INDUSTRIAL TECHNOLOGIES,
INC. RETIREMENT SAVINGS PLAN
By: Applied Industrial
Technologies, Inc., as Plan
Administrator
By: /s/ John R. Whitten
-----------------------------------
Signature
John R. Whitten
-----------------------------------
Printed Name
Vice President
-----------------------------------
Title
Date: June 26, 2003
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
RETIREMENT SAVINGS PLAN
Financial Statements
For the Years Ended
December 31, 2002 and 2001,
Supplemental Schedules as of
December 31, 2002,
and Independent Auditors' Report
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
RETIREMENT SAVINGS PLAN
TABLE OF CONTENTS
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PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits
As of December 31, 2002 and 2001 2
Statements of Changes in Net Assets Available for Benefits
For the Years Ended December 31, 2002 and 2001 3
Notes to Financial Statements 4 - 8
SUPPLEMENTAL SCHEDULES:
Schedule H, Line 4(i) - Schedule of Assets (Held at End of Year)
As of December 31, 2002 9
Schedule of Reportable Transactions
For the Year Ended December 31, 2002 10
INDEPENDENT AUDITORS' REPORT
Applied Industrial Technologies, Inc. Retirement Savings Plan
We have audited the accompanying statements of net assets available for benefits
of the Applied Industrial Technologies, Inc. Retirement Savings Plan (the
"Plan") as of December 31, 2002 and 2001, and the related statements of changes
in net assets available for benefits for the years then ended. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31,
2002 and 2001, and the changes in net assets available for benefits for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in the
table of contents are presented for the purpose of additional analysis and are
not a required part of the basic financial statements, but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. These schedules are the responsibility of the Plan's management. Such
schedules have been subjected to the auditing procedures applied in our audit of
the basic 2002 financial statements and, in our opinion, are fairly stated in
all material respects when considered in relation to the basic financial
statements taken as a whole.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
June 23, 2003
APPLIED INDUSTRIAL TECHNOLOGIES, INC. RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND 2001
-------------------------------------------------------------------------------
2002 2001
ASSETS:
Investments at fair value:
Applied Industrial Technologies, Inc. common stock $ 33,409,430 $ 32,044,275
Mutual funds 87,809,727 108,965,665
Common/collective fixed income funds 49,847,375 46,876,474
Loans to participants 7,870,779 7,379,531
------------ ------------
Total investments 178,937,311 195,265,945
Investment income receivable 58,949 22,025
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $178,996,260 $195,287,970
============ ============
See notes to financial statements.
2
APPLIED INDUSTRIAL TECHNOLOGIES, INC. RETIREMENT SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 2002 AND 2001
-------------------------------------------------------------------------------
2002 2001
ADDITIONS:
Contributions:
Participant $ 9,155,088 $ 9,927,450
Employer:
Applied Industrial Technologies, Inc. common stock 1,927,441 2,274,280
Cash 1,144,298 2,170,074
------------- -------------
Total contributions 12,226,827 14,371,804
Investment income(loss):
Dividends, interest and other:
Common stock 841,236 840,057
Mutual funds 2,767,759 3,059,229
Common/collective fixed income funds 655,808 645,219
------------- -------------
Total dividends 4,264,803 4,544,505
Net (depreciation)/appreciation in fair value of investments:
Common stock 515,304 (3,203,343)
Mutual funds (21,226,868) (10,005,547)
Common/collective fixed income funds (283,644) (4,400,325)
------------- -------------
Total net depreciation in fair value of investments: (20,995,208) (17,609,215)
------------- -------------
Total investment loss (16,730,405) (13,064,710)
------------- -------------
Total additions (4,503,578) 1,307,094
DEDUCTIONS:
Distributions to participants 11,224,785 12,860,270
Administrative expenses 563,347 406,585
------------- -------------
Total deductions 11,788,132 13,266,855
------------- -------------
DECREASE IN NET ASSETS FOR THE YEAR (16,291,710) (11,959,761)
NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING OF THE YEAR 195,287,970 207,247,731
------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS, END OF THE YEAR $ 178,996,260 $ 195,287,970
============= =============
See notes to financial statements.
3
APPLIED INDUSTRIAL TECHNOLOGIES, INC. RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
-------------------------------------------------------------------------------
1. DESCRIPTION OF THE PLAN
The following description of the Applied Industrial Technologies, Inc.
Retirement Savings Plan (the "Plan") is provided for general purposes
only. Participants and users of the financial statements should refer
to the Plan document for more complete information.
GENERAL - The Plan was established for the purpose of encouraging and
assisting employees of Applied Industrial Technologies, Inc. and its
subsidiaries (the "Company") to provide long-term, tax-deferred savings
for retirement. The Plan is subject to the reporting and disclosure
requirements, the minimum participation and vesting standards, and the
fiduciary responsibility requirements of the Employee Retirement Income
Security Act of 1974.
ADMINISTRATION - The Plan is administered by the Company. The Company's
powers and duties relate to making participant and employer
contributions to the Trust, establishing investment objectives,
authorizing disbursements from the Trust, and resolving any questions
of Plan interpretation.
The assets of the Plan are maintained and administered by Key Trust Co.
of Ohio, N.A. acting as Trustee. The Trustee is responsible for the
custody of assets.
PARTICIPANT ACCOUNTS - Each participant's account is credited with the
participant's contributions and allocations of (a) the Company's
contributions and, (b) Plan earnings, and charged with an allocation of
administrative expenses. Allocations are based on participant
contributions, account balances, or can be per capita, as defined. The
benefit to which a participant is entitled is the benefit that can be
provided from the participant's vested account
PARTICIPATION AND CONTRIBUTIONS - All eligible employees may
participate in the Plan on the first day of the month following their
hire when one hour of service is performed during the first fifteen
days of a calendar month. Each employee who first completes an hour of
service after the first fifteen days of a calendar month shall become
eligible as of the first payroll period in the second month following
the month in which the first hour of service was completed.
Eligible employees may elect to make pretax contributions to the Plan
ranging from 1% to 50% of compensation. For those eligible employees
who do not make a compensation reduction election, their compensation
shall be automatically reduced by two percent and such shall be
contributed on their behalf to the Plan as contributions until
superseded by a subsequent contribution election. The Company may make
additional contributions to the Plan, including, but not limited to,
matching contributions equal to a percentage of participant pretax
contributions not in excess of 6% of the participant's compensation,
and discretionary profit-sharing contributions as determined annually.
Matching employer contributions are determined based upon the Company's
earnings per share for the immediately preceding calendar year quarter
and the participant's investment elections. Except in the case of
death, disability, or retirement, a participant must be employed as of
the last day of the quarter to receive the Plan's quarter match. The
matching employer
4
contribution is updated annually based on the Company's June 30 fiscal
year end and is currently determined using the following schedule:
SUBSEQUENT QUARTER MATCHING CONTRIBUTION
------------------------------------------------------------------
$.25 $.35 $.50 $.75 $1.00
------------------------------------------------------------------
QUARTERLY EPS
--------------------------------- ------------------------------------------------------------------
Quarter Ended 9/30/02 .17 .20 .22 .24
--------------------------------- ----------------- ----------- ----------- ------------ -----------
Quarter Ended 12/31/02 Minimum .18 .21 .24 .27
--------------------------------- ----------------- ----------- ----------- ------------ -----------
Quarter Ended 3/31/03 Match .25 .27 .30 .33
--------------------------------- ----------------- ----------- ----------- ------------ -----------
Quarter Ended 6/30/03 .30 .32 .34 .36
--------------------------------- ----------------- ----------- ----------- ------------ -----------
The employer match on participant contributions to investment funds
other than the Company Stock fund was $.25, $.35, $.25, and $.50 for
the four 2002 quarters, and $.50, $.25, $.25, and $.35 for the four
2001 quarters, respectively.
Matching Employer Contributions are made primarily in shares of Applied
Industrial Technologies, Inc. common stock to the Company Stock Fund.
Participants that elect to contribute to the Company Stock Fund receive
an additional 10% Bonus Match on participant's pretax contributions not
in excess of 6% of the participant's compensation. The Bonus Match is
also made primarily in shares of Applied Industrial Technologies, Inc.
common stock to the Company Stock Fund.
The Company may also make a Profit-Sharing Contribution to the Plan
annually. Participants must be employed on June 30 of such Plan year
and have completed at least one year of service, as defined in the Plan
agreement, as of June 30 to be eligible to receive an allocation of the
Profit-Sharing Contribution. Additionally, the Company may contribute a
special Profit-Sharing Contribution to individuals who terminate
employment after attaining age 55 and completing ten years of service.
Profit-Sharing Contributions are allocated to each participant's
Profit-Sharing Contribution Account based upon the ratio of each
participant's total compensation to the aggregate compensation of all
participants eligible to receive a Profit-Sharing Contribution. The
Profit-Sharing Contributions for the years ended December 31, 2002 and
2001 were composed of $1,143,945 and $2,169,911 in cash, and $106,055
and $217,089 in Applied Industrial Technologies, Inc. common stock,
respectively.
Contributions are excluded from participants' taxable income until such
amounts are received by them as a distribution from the Plan.
The Plan provides for Rollover Contributions (amounts previously
distributed to the participants from certain other tax-qualified plans)
and Transfer Contributions (assets transferred from certain other
tax-qualified plans) by or on behalf of an employee in accordance with
procedures established by the Company.
INVESTMENT OF CONTRIBUTIONS - Participants elect investment of
profit-sharing and pretax contributions in 1% increments in the Plan's
Company Stock Fund, American Fundamental Investors Fund, American
EuroPacific Growth Fund, Vanguard Asset Allocation Fund, EB MaGIC Fund,
Pimco Total Return Fund, Growth Fund Portfolio consisting of: (Harbor
Capital Appreciation Fund, Wilshire Target Fund and Vanguard Growth
Index Fund), Franklin Small-Cap Growth II Fund, Royce Total Return
Fund, Lord Abbett Mid-Cap Value Fund, T Rowe Price Mid-Cap Growth Fund,
Alliance Growth & Income Fund, EB Equity Index Fund or the MFS Mid-Cap
Growth Fund. The portion of the Plan that is invested in the Company
Stock Fund is intended to be an Employee Stock Ownership Plan (ESOP)
5
under code section 4975 (e)(7) and ERISA section 407 (d)(6).
Participants may elect to change their investment elections as to
future contributions and may also elect to reallocate a portion or all
of their account balances among the investment funds in increments of
1% of the total amount to be reallocated. All such elections are filed
with the Trustee and become effective daily.
The value of the funds and the interest of individual participants
under each fund, are calculated daily (daily valuation).
VESTING AND DISTRIBUTIONS - Each participant is immediately and fully
vested in their participant contributions and earnings thereon.
Participants vest in Matching Employer Contributions and Profit-Sharing
Contributions at a rate of 25% for each year of eligible service,
becoming completely vested after four years, or at death, termination
of employment due to permanent and total disability, or normal early
retirement as defined in the Plan.
Upon termination of employment, participants may receive lump sum or
installment distributions of their vested account balances as soon as
administratively possible. The Plan permits hardship withdrawals and
in-service distributions upon attainment of age 59-1/2.
Forfeitures of nonvested amounts are applied to reduce future Matching
Employer Contributions. Total forfeitures were $95,180 in 2002 and
$105,299 in 2001.
LOANS - Participants may borrow from their 401(k) Contribution
Accounts, Rollover Contributions and Transferred Contributions a
minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50
percent of the aggregate sum of the participants' accounts. Loan terms
range from 1-5 years or up to ten years, if for the purchase of a
primary residence. Loans that originated from merged plans are also
reflected in loans to participants in the Plan's financial statements.
These loans are to be repaid to the Plan in accordance with their
original terms. The loans are secured by the balance in the
participants' accounts and bear interest at rates prevailing at the
time the loans were made. Principal and interest are paid ratably
through bi-weekly payroll deductions.
PLAN TERMINATION - The Plan was adopted with the expectation that it
will continue indefinitely. The Company may, however, terminate the
Plan at any time and may amend the Plan from time to time. In the event
of termination of the Plan, all participants will immediately become
fully vested in their accounts.
TAX STATUS OF THE PLAN - The Plan obtained its latest determination
letter dated June 27, 1996, in which the Internal Revenue Service
stated that the Plan, as then designed, was in compliance with the
applicable requirements of the Internal Revenue Code. The Plan has been
amended since receiving this determination letter. The Plan
administrator and the Plan's tax counsel believe that the Plan is
designed and is currently being operated in compliance with the
applicable requirements of the Internal Revenue Code and submitted a
request for a new determination letter on February 28, 2002. Therefore,
no provision for income taxes has been included in the Plan's financial
statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The accompanying financial statements have been
prepared on the accrual basis of accounting.
6
USE OF ESTIMATES - The preparation of the financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and changes
therein, and disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
VALUATION OF INVESTMENTS - Investments are accounted for at cost on the
trade-date and are reported in the statement of net assets available
for benefits at fair value. The investment in Applied Industrial
Technologies, Inc. common stock is valued using the year-end closing
price listed by the New York Stock Exchange. Investment funds are
stated at values using year-end closing prices for each of the funds or
quoted market prices. Participant loans are stated at cost, which
approximates fair value.
BENEFIT PAYMENTS - Distributions to participants are recorded by the
Plan when payments are made.
ADMINISTRATIVE EXPENSES - Administrative expenses of the Plan are paid
by the Plan or the Company, as determined by the Company.
RECLASSIFICATION - Certain reclassifications have been made to the 2001
financial statements to conform with 2002.
3. INVESTMENTS
The Plan provides that, in accordance with the investment objectives
established by the Company, the Trustee of the Plan shall hold, invest,
reinvest, manage and administer all assets of the Plan as a trust fund
for the exclusive benefit of participants and their beneficiaries.
Plan investments exceeding 5% of net assets available for benefits as
of December 31, 2002 and 2001 were as follows:
Description of
Investment 2002 2001
----------- -------------
EB MaGIC Fund $44,174,805 $ 38,968,727
Applied Industrial Technologies, Inc. Common Stock 33,409,430 32,044,275
American Fundamental Investors Fund 21,746,878 28,786,421
Pimco Total Return Fund 12,220,016 --
American EuroPacific Growth Fund 11,408,636 14,205,889
Bond Fund of America -- 11,801,309
Franklin Small Cap Growth II Fund -- 10,907,527
7
4. NONPARTICIPANT-DIRECTED INVESTMENTS
Information about the net assets and the significant components of the
changes in net assets relating to nonparticipant-directed investments
is as follows as of and for the years ended December 31:
2002 2001
------------ ------------
Net Assets:
-----------
Common stock $ 33,409,430 $ 32,044,275
Money market funds 507,458 302,918
------------ ------------
$ 33,916,888 $ 32,347,193
============ ============
Change in Net Assets:
---------------------
Contributions $ 2,727,718 $ 3,188,859
Dividends 841,236 840,057
Net appreciation/(depreciation) in fair value 515,304 (3,203,343)
Benefits paid to participants (1,897,652) (1,970,224)
Transfers to participant-directed investments (616,230) (1,987,102)
------------ ------------
$ 1,570,376 $ (3,131,753)
============ ============
5. SUBSEQUENT EVENT
Effective March 1, 2003, American Express Trust Company and American
Express Retirement Services is the new trustee and record keeper,
respectively, for the Applied Industrial Technologies, Inc. Retirement
Savings Plan. The transfer of the assets from Key Trust Co. of Ohio,
N.A. to American Express Trust Company took place on March 3, 2003.
There was a "blackout period" until April 1, 2003, during which time
participants were unable to exercise their rights related to the Plan.
******
8
APPLIED INDUSTRIAL TECHNOLOGIES, INC. RETIREMENT SAVINGS PLAN
SCHEDULE H LINE 4(I) - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2002
----------------------------------------------------------------------------------------------------------------------------------
IDENTITY OF ISSUER, BORROWER, DESCRIPTION OF INVESTMENT COST CURRENT
Lessor or Similar Party Value
* Key Trust Company of Ohio, NA EB MaGIC Fund - 2,755,363 units $ 38,740,876 $ 44,174,805
* Applied Industrial Tech., Inc. Common Stock - 1,770,250 shares 29,363,710 33,409,430
The American Funds Group American Fundamental Investors Fund - 978,433 shares 26,091,592 21,746,878
Pimco Fund Pimco Total Return Fund - 1,149,161 units 12,405,150 12,220,016
The American Funds Group American EuroPacific Growth Fund - 496,760 shares 13,958,468 11,408,636
* Participant Loans Participant Loans (with interest rates 7,870,779 7,870,779
ranging from 7.00% to 11.50% and
maturity dates ranging from January
2003 to July 2027)
The Vanguard Group Vanguard Asset Allocation Fund - 390,649 shares 9,042,721 7,056,571
Franklin Templeton Franklin Small Cap Growth II Fund - 950,155 shares 9,540,578 6,887,452
T. Rowe Price T Rowe Price Mid-Cap Growth Fund - 203,539 shares 8,048,050 6,316,791
Harbor Fund Harbor Capital Appreciation Fund - 244,995 shares 8,002,924 4,948,612
Wilshire Target Fund Wilshire Target Fund - 238,261 shares 9,841,429 5,620,571
Vanguard Growth Index Fund Vanguard Growth Index Fund - 280,785 shares 9,708,133 5,582,847
* Key Trust Company of Ohio, NA EB Equity Index Fund - 84,626 units 6,229,454 5,164,968
Royce Total Return Royce Total Return - 263,858 shares 2,314,208 2,208,119
Lord Abbett Mid-Cap Value Lord Abbett Mid-Cap Value Fund - 127,481 shares 2,106,197 1,960,332
Alliance Growth & Income Alliance Growth & Income Fund - 588,051 shares 1,945,226 1,534,552
* Key Trust Company of Ohio, NA EB Money Market - 507,458 units 507,458 507,458
Mfs Mid-Cap Growth MFS Mid-Cap Growth Fund - 56,281 shares 485,431 318,494
-------------
Total $ 178,937,311
=============
* Represents a party-in-interest
9
APPLIED INDUSTRIAL TECHNOLOGIES RETIREMENT SAVINGS PLAN
SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
------------------------------------------------------------------------------
EXPENSE CURRENT VALUE OF
IDENTITY OF PURCHASE SELLING LEASE INCURRED WITH COST OF ASSET ON NET GAIN
PARTY INVOLVED DESCRIPTION OF ASSET PRICE PRICE RENTAL TRANSACTION ASSETS TRANSACTION DATE OR (LOSS)
SINGLE TRANSACTIONS:
None
SERIES OF
TRANSACTIONS:
Key Trust Company
of Ohio, NA EB Money Market Fund $8,777,799.78 None $8,777,799.78 $8,777,799.78 N/A
Key Trust Company
of Ohio, NA EB Money Market Fund $8,573,821.70 None 8,573,821.70 8,573,821.70 None
NOTE - Reportable transactions are single transactions or a
series of transactions in the same issue that, when aggregated,
are in excess of 5% of the current value of plan assets at the
beginning of the plan year.
EXHIBIT
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-65513, 33-42623, and 333-83809 of Applied Industrial Technologies, Inc. on
Form S-8 of our report dated June 23, 2003, appearing in this Annual Report on
Form 11-K of the Applied Industrial Technologies, Inc. Retirement Savings Plan
for the year ended December 31, 2002.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
June 23, 2003