UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
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APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
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CLEVELAND, OHIO 44115
(216) 426-4000
www.applied.com
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Tuesday, October 29, 2013
10:00 a.m. Eastern Time
Dear Shareholder:
We are pleased to invite you to the 20102013 annual meeting of the shareholders of Applied Industrial Technologies, Inc. The meeting will be at our headquarters, 1 Applied Plaza, East 36th Street and Euclid Avenue, Cleveland, Ohio, 44115 on Tuesday, October 26, 2010,29, 2013, at 10:00 a.m., Eastern Time. The meeting will be held for the following purposes:
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| 2. | To approve, through a nonbinding advisory vote, the compensation of Applied’s named executive officers as | |
Shareholders of record at the close of business on August 30, 2010,2013, are entitled to vote at the meeting. The transfer books will not be closed. A list of shareholders as of the record date will be available for examination at the meeting.
The attached proxy statement describes the business of the meeting and provides information about our corporate governance. After the meeting, we will report on our operations and other matters of interest.
Fred D. Bauer
Vice President-General Counsel
& Secretary
September 9, 2010
YOUR VOTE IS IMPORTANT! WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING,
PLEASE PROMPTLY VOTE BY TELEPHONE, VIA THE INTERNET, OR BY EXECUTING AND
RETURNING THE ENCLOSED PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED.
VOTING EARLY WILL HELP AVOID ADDITIONAL SOLICITATION COSTS.
Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to be Held on October 26, 2010.29, 2013.
The Proxy Statement and 20102013 Annual Report to Shareholders are available at
www.applied.com/proxy
TABLE OF CONTENTS
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In this statement, “we,” “our,” “us,” and “Applied” all refer to Applied Industrial Technologies, Inc., an Ohio corporation. Our common stock, without par value, is listed on the New York Stock Exchange with the ticker symbol “AIT.”
What is the proxy statement’s purpose?
The proxy statement summarizes information you need to vote at our 20102013 annual meeting of shareholders to be held on Tuesday, October 26, 2010,29, 2013, at 10:00 a.m., Eastern Time, at our headquarters, and any adjournment of that meeting. We are sending the proxy statement to you because Applied’s Board of Directors is soliciting your proxy to vote your shares at the meeting. The proxy statement and the accompanying proxy card are being sent to record date shareholders of record on or about September 9, 2010.
On what matters are shareholders voting?
| 3. | To ratify the Audit Committee’s appointment of |
Who may vote and what constitutes a quorum at the meeting?
Only shareholders of record at the close of business on August 30, 2010,2013, may vote. As of that date, there were 42,418,16642,196,411 outstanding shares of Applied common stock, without par value. The holders of a majority of those shares will constitute a quorum to hold the meeting.quorum. A quorum is necessary for valid action to be taken.
We have no class or series of shares outstanding other than our common stock.
How many votes do I have?
Each shareholder is entitled to one vote per share.
How do I vote?
The answer depends on whether you hold the shares directly in your name, or through a broker, trustee, or other nominee, such as a bank.
| • | Shareholder of record.If your shares are registered in your name with our registrar, Computershare Trust Company, N.A., you are | ||
| • | Beneficial owner.If your shares are held in a brokerage account, by a trustee, or by another nominee, then that other person is considered the shareholder of record. We sent these proxy materials to that other person, and they have been forwarded to you with a voting instructions card. As the shares’ beneficial owner, you | ||
| • | Beneficial owner of shares held in Applied’s Retirement Savings Plan or Supplemental Defined Contribution |
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If you attend the meeting and vote in person, a ballot will be available when you arrive. If, however, your shares are held in the name of your broker, trustee, or other nominee, you must bring a valid proxy from that party giving you the right to vote the shares.
What if I don’t indicate my voting choices?
If Applied receives your proxy in time to use at the meeting, your shares will be voted according to your instructions. If you have not indicated otherwise on the proxy, you submit, your shares will be voted as the Board of Directors recommends on the two matters identified above. In addition, the proxies will vote your shares according to their judgment on other matters properly brought before the meeting.
What effect do abstentions and broker non-votes have?
Brokers holding shares for beneficial owners must vote the shares according to instructions they receive from the owners.owners’ instructions. If instructions are not received, then brokers may vote the shares at their discretion, except if New York Stock Exchange (“NYSE”) rules preclude brokers from exercising discretion relative to a specific type of proposal —– this is calledresults in a “broker non-vote.”
Abstentions and broker non-votes on Item 1. Broker non-votes will not, however, impactaffect voting at the vote’s outcome because, pursuant to Ohio law, the properly nominated candidates receiving the greatest number of votes will be elected.
| • | Item 1.Broker non-votes will not impact the vote’s outcome because, pursuant to Ohio law, the properly nominated candidates receiving the greatest number of votes will be elected. |
| • | Item 2.Approval of the company’s executive compensation requires that more votes be cast for than against the proposal. Abstentions and broker non-votes will not affect the outcome. |
| • | Item 3.The affirmative vote of a majority of the votes cast at the meeting is required to approve Item 3. In determining votes cast on the item, abstentions will not count as votes cast and, accordingly, will not affect the outcome. Brokers have discretionary authority to vote on Item 3, so there will be no broker non-votes on that item. |
What happens if a director candidate receives less than a majority of the votes cast atcast?
Applied has a majority voting policy applicable to uncontested director elections. If a nominee receives a greater number of votes “withheld” than votes “for” his or her election, then promptly following certification of the meeting is requiredshareholder vote the nominee shall submit, in writing, to approve Item 2. In determining the votes castBoard’s Chairman, his or her resignation as a director. The Chairman shall promptly communicate the submission to the Board’s Corporate Governance Committee. Notwithstanding the resignation, the
Corporate Governance Committee may recommend to the Board that the nominee be asked to serve as a director for his or her term of election and under such arrangements as are approved by the committee. If the committee fails to make such a recommendation within 30 days following certification of the shareholder vote, or if the committee earlier determines to accept the resignation, the director’s resignation shall be effective as of that date. If the Corporate Governance Committee recommends the director be asked to serve his or her term notwithstanding the majority withheld vote, the Board shall act promptly (and in any event, within 90 days following certification of the shareholder vote) on the item, abstentions will not count as votes castrecommendation.
Additional information about the policy is included in Applied’s Board of Directors Governance Principles and accordingly, will not affectPractices, available via hyperlink from the vote’s outcome. Brokers still have discretionary authority to vote on Item 2, so there will be no broker non-votes on that item.
What does it mean if I receive multiple sets of proxy materials?
Receiving multiple sets usually means your shares are held in different names or different accounts. Please respond to all of the proxy solicitation requests to ensure all of your shares are voted.
May I revoke my proxy?
You may revoke your proxy before it is voted at the meeting by notifying Applied’s Secretary in writing, voting a second time by telephone or via the Internet, returning a later-dated proxy card, or voting in person. Your presence at the meeting will not by itself revoke the proxy.
Who pays the costs of soliciting proxies?
Applied pays these costs. We will also pay the standard charges and expenses of brokers or other nominees for forwarding these materials to, and obtaining proxies from, beneficial owners. Directors, officers, and other employees, acting on our behalf, may solicit proxies. We have also retained Morrow & Co., LLC, at an estimated fee of $7,000$7,500 plus expenses, to aid in soliciting proxies from brokers and institutional holders. In addition to using the mail, proxies may be solicited personally and by telephone, facsimile, or other electronic means.
Who counts the votes?
Computershare Trust Company, N.A., will act asbe the inspector of election and tabulate the votes.
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Applied’s Code of Regulations divides our Board of Directors into three classes. The directors in each class are elected for three-year terms so that the term of one class expires at each annual meeting. At the 20102013 annual meeting, the shareholders will elect directors for a three-year term expiring in 20132016 or until their successors have been elected and qualified. Pursuant to Ohio law, the properly nominated candidates receiving the greatest number of votes will be elected.
The Board’s Corporate Governance Committee recommended, and the Board has nominated, three incumbents for election as directors: William G. Bares, L. Thomas Hiltz, and Edith Kelly-Green.
The directors serving for terms expiring in 20112014 and 20122015 will continue in office.
The proxies named on the proxy card accompanying the materials sent to shareholders of record intend to vote for the three nominees unless authority is withheld. If a nominee becomes unavailable to serve, the proxies reserve discretion to vote for any other person or persons who may be properly nominated at the meetingand/or to vote to reduce the number of directors. We are not aware of anyan existing circumstance that would cause a nominee to be unavailable to serve.
The Board of Directors recommends that the shareholdersyou vote FOR the director nominees.
Below we showis background information about the nominees and the directors continuing in office.directors. Unless otherwise stated, the individuals have held the positions indicated for at least the last five years. We also include a summary of reasons our Board concluded, as of the date of this proxy statement, that the respective director or nominee should serve as an Applied director, in light of our business and governance structure. The summaries are not comprehensive, but describe the primary experiences, attributes, and skills that the Board believes qualify the individuals to continue as directors. In addition to the qualifications referred to below, we believe each individual has a reputation for integrity, honesty, and high ethical standards, and has demonstrated strong business judgment.
Nominees for Election as Directors with Terms Expiring in 20132016
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 | L. Thomas Hiltz Director since |
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 | Edith Kelly-Green Director since 2002, member of Audit and Corporate Governance Business Experience. Until her retirement in 2003, Ms. Kelly-Green, age Qualifications. Ms. Kelly-Green has significant procurement and logistics experience from her service with FedEx Express, where she was successful in designing and enhancing the company’s extensive internal supply chain processes. Because Applied is a distributor, the processes of buying, inventorying, and transporting products are critical to our business. In addition, her career began in the field of accounting as a Certified Public Accountant with an international public accounting firm and she served as Vice President-Internal Audit with FedEx Corporation. Ms. Kelly-Green’s skills and |
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 | Dan P. Komnenovich Director since Business Experience. Mr. | |
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 | aviation batteries, wheels, and brakes, as well as hose assembly, kitting, and paint-mixing services, and offers a complete set of supply chain and logistics services, including order processing, stocking and fulfillment, automated inventory management, and reverse logistics to OEMs and customers. From 2000 until January 2010, he was Aviall’s Executive Vice President and Chief Operating Officer. Qualifications. Mr. | |
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 | Thomas A. Commes Director since 1999, member of Audit, Corporate Governance, and Executive Committees Business Experience. Until his retirement in 1999, Mr. Commes, age Other Qualifications. Mr. Commes has an extensive background in finance and accounting through his education and work as a Certified Public Accountant with an international public accounting firm and later as a financial executive for several large retailers, culminating in his role as Sherwin-Williams’ Chief Financial Officer. Mr. Commes then served as President and Chief Operating Officer of Sherwin-Williams, a multi-billion dollar company, for over a decade. From these experiences, he brings to the Board in-depth knowledge of business operations, including the logistics of operating a network of distribution centers and sales outlets, a fundamental characteristic of our business. He also has extensive acquisitions and financing experience. This knowledge and experience, along with his service on other public company boards, make him well-suited for our Board and, in particular, the Audit Committee, which he chairs. |
 | John F. Meier Director since 2005, Board Chairman since 2011, member of Executive Organization & Compensation and Executive Committees Business Experience. Until his retirement in 2011, Mr. Meier, age 65, was Chairman and Chief Executive Officer of Libbey Inc. (NYSE Amex: LBY), a leading supplier of glass tableware products in the U.S., Canada, and Mexico, in addition to supplying to other key international markets. Other Directorships in Previous 5 Years. Cooper Tire & Rubber Company (NYSE: CTB), Libbey Inc. (until 2011) Qualifications. Mr. Meier served as Libbey’s Chairman and Chief Executive Officer for 18 years, leading the company through significant business acquisitions and international expansion. He brings to the Board broad general management and marketing experience, including considerable experience working with distributors in markets throughout the world. He also contributes knowledge and skills acquired through service on other public company boards, making him an effective Chairman of our Board. | |
  | Neil A. Schrimsher Director since 2011, member of Executive Committee Business Experience. Mr. Schrimsher, age 49, joined Applied as our Chief Executive Officer in October 2011 and was also elected President in August 2013. From February 2010 to August 2011, Mr. Schrimsher was Executive Vice President of Cooper Industries plc (formerly NYSE: CBE), a global electrical products manufacturer, where he led Cooper’s Electrical Products Group and headed numerous domestic and international growth initiatives. He was President of Cooper Lighting, Inc. throughout the period from 2006 to December 2010. Prior to joining Cooper in 2006, he was an executive for Siemens Energy & Automation, Inc., part of Siemens AG, the global electronics and electrical engineering company. Qualifications. Mr. Schrimsher is the only Applied executive to serve on the Board. Since joining Applied, he has acquired a deep understanding of the company’s businesses, markets, and competitive landscape. From his prior employment, Mr. Schrimsher brings to Applied and its Board broad leadership experience, including management of worldwide operations, distribution management, strategic planning and analysis, manufacturing, engineering, supply chain management, and sourcing. | |
 | Peter C. Wallace Director since 2005, member of Audit, Executive Organization & Compensation, and Executive Committees Business Experience. Mr. Wallace, age 59, was President and Chief Executive Officer, and a director, of Robbins & Myers, Inc. (formerly NYSE: RBN), until it was acquired in February 2013 by National Oilwell Varco, Inc. Robbins & Myers is a leading designer, manufacturer, and marketer of highly engineered, application-critical equipment and systems for energy, chemical, pharmaceutical, and industrial markets worldwide. Prior to joining Robbins & Myers, Mr. Wallace was President and Chief Executive Officer of IMI Norgren Group, a manufacturer of sophisticated motion and fluid control systems for original equipment manufacturers. Other Directorships in Previous 5 Years. Robbins & Myers, Inc. (until February 2013), Rogers Corporation (NYSE: ROG; since 2010) Qualifications. Mr. Wallace has a wide and varied background as a senior executive in global industrial equipment manufacturing. He brings to the Board the perspective of someone familiar with all facets of worldwide business operations, including the experience of leading a NYSE-listed company. Prior to joining Robbins & Myers, Mr. Wallace had global responsibilities for equipment manufacturers with product lines that Applied (and others) represented as a distributor in the fluid power and power transmission component fields. In those roles, he developed significant knowledge about Applied’s industry, including the dynamics of the relationships between industrial product manufacturers and their distributors. These experiences and knowledge, along with his service on other NYSE-listed company boards, enhance Mr. Wallace’s contributions and value to our Board. |
Continuing Directors with Terms Expiring in 2015
 | Peter A. Dorsman Director since 2002, member of Audit and Corporate Governance Business Experience.Mr. Dorsman, age Qualifications. Mr. Dorsman has broad experience in marketing, sales, strategy, and operations. At NCR, a multi-billion dollar company, he leads 11,000 service professionals serving customers in over 90 countries. In his role as Chief Quality Officer, he is |
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 | J. Michael Moore Director since 1997, member of Audit Business Experience.Mr. Moore, age Qualifications. Mr. Moore was the longtime Chairman and Chief Executive Officer of Invetech, an industrial distributor and direct competitor of Applied’s. After Applied acquired Invetech, Mr. Moore continued to participate in industry trade associations, and served as board chairman of the National Association of Wholesaler-Distributors. His firsthand experience with the operational, financial, and marketplace dynamics of Applied’s industry makes him a key contributor to the Board’s business | |
 | Vincent K. Petrella Director since 2012, member of Audit Committee Business Experience. Mr. Petrella, age 53, is Senior Vice President, Chief Financial Officer and Treasurer of Lincoln Electric Holdings, Inc. (NASDAQ: LECO). Lincoln Electric engages in the design, manufacture, and sale of welding, cutting, and brazing products worldwide. Qualifications. As one of Lincoln Electric’s top executives, Mr. Petrella has helped lead the company’s global expansion over the last decade. His leadership and operating experience, and his knowledge of industrial distribution in North America and abroad, position him to be a key contributor to discussions about Applied’s strategy. In addition, Mr. Petrella’s finance and accounting background (before joining Lincoln Electric he was a Certified Public Accountant with an international public accounting firm) and his current service as Chief Financial Officer for a multi-billion dollar public company make him a valued member of the Board and the Audit Committee. | |
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 | Dr. Jerry Sue Thornton Director since 1994, member of Audit Business Experience. Dr. Thornton, age Other Directorships in Previous 5 Years. Qualifications. Dr. Thornton is a preeminent educator with significant experience in career training. Our workforce is our most important resource, and her background and skills help the Board monitor Applied’s efforts to maximize our associates’ potential. Having served as Cuyahoga Community College’s longtime President, | |
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| Type of Fees | Fiscal 2010 ($) | Fiscal 2009 ($) | ||||||||
Audit Fees | 924,600 | 1,101,000 | ||||||||
Audit-Related Fees | 18,900 | 59,900 | ||||||||
Tax Fees | 363,600 | 403,600 | ||||||||
All Other Fees | 4,300 | 3,600 | ||||||||
Applied’s Internet address iswww.applied.com. The following corporate governance documents are available free of charge via hyperlink from the website’s investor relations area:Corporate Governance Documents
Code of Business Ethics, | ||
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Charters for the Audit, Corporate Governance, and Executive Organization & Compensation Committees of our Board.
Under the NYSE corporate governance listing standards, a majority of Applied’s directors must satisfy the NYSE criteria for “independence.”independence. In addition to having to satisfy stated minimum requirements, no director qualifies under the standards unless the Board affirmatively determines the director has no material relationship with Applied. In assessing a relationship’s materiality, the Board has adopted categorical standards, which may be found via hyperlink from our website’s investor relations area.
The Board has determined that all the directors other than Mr. Pugh,Schrimsher, our President & Chief Executive Officer, meet these independence standards.
During the fiscal year ended June 30, Applied expects its directors to attend the annual meeting of shareholders, just as they are expected to attend Board meetings. All the directors attended last year’s annual meeting.Director Attendance at Meetings2010,2013, the Board had eightfive meetings. Each director attended at least 75% of the total number of meetings of the Board and allthe committees on which he or she served.
At the Board’s regular meetings, the non-management directors meet in executive sessions without Meetings of Non-Management DirectorsApplied’smanagement, typically at every regular Board meeting.management. Mr. Dorsman,Meier, the Corporate Governance Committee chair,Board’s independent Chairman, calls and serves as presiding director ofpresides at the sessions. On the independent directors’ behalf, the presiding non-management directorChairman provides feedback to management from the sessions, collaborates with management in developing Board meeting schedules and agendas, and performs other duties as determined by the Board or itsthe Corporate Governance Committee.
The Board periodically evaluates its leadership In December 2011, the Board elected Mr. Meier its Chairman and he has continued in the role since that time.Board Leadership StructureThe Board is led by a Chairman it elects. Mr. Pugh, our Chief Executive Officer, is also Chairman. All of our other directors are independent.structure. The Board believes that,structure under circumstances existing at this time, havingthe time. In fiscal 2012, our CEO as Chairman is in Applied’s best interests because it promotes unity of vision for the company’s leadership. The Board also believes that Applied and its shareholders are currently best served by having a Chairman who has a wide-ranging, in-depth knowledge of Applied’s operations and the business landscape and who can best identify the strategic issues to be considered by the Board. In addition, the structure promotes the timely flow of information to support Board decision-making.There are benefits and limitations to combining the offices offormer Chairman and Chief Executive Officer butretired after more than a decade in those roles and Applied hired a new Chief Executive Officer from outside the company, Mr. Schrimsher. With this change in executive leadership, the Board believes that,concluded it would be in Applied’s case, the limitations are substantially diminished by existing safeguards. These safeguards include the rolesbest interests of the presiding non-management director and the independent chairs of the key committees, regular meetings of the non-management directors in executive session, and the fact that executive compensation is determined by a committee of independent directors who make extensive use of peer benchmarking. The Board has thus concluded that its leadership structure is optimal for Applied and its shareholders at thisto separate the positions of Chairman of the Board and Chief Executive Officer and to have an independent director serve as Chairman.
The Board’s Audit, Corporate Governance, and Executive Organization & Compensation Committees are composed solely of independent directors, as defined in Committeesthe NYSE listing standards and Applied’s categorical standards, and, in the case of the Audit Committee, under applicable federal securities laws.11
| Committee | Members | |||||||||
| Number of Meetings | ||||||||||
Audit Committee | Thomas A. Commes, chair Peter A. Dorsman Edith Kelly-Green J. Michael Moore | Vincent K. Petrella Dr. Jerry Sue Thornton Peter C. Wallace | 5 | |||||||
Corporate Governance Committee | L. Thomas Hiltz, chair William G. Bares Thomas A. Commes Peter A. Dorsman | Edith Kelly-Green Dan P. Komnenovich Dr. Jerry Sue Thornton | 4 | |||||||
Executive Organization & Compensation Committee | Peter William G. Bares L. Thomas Hiltz | John F. Meier J. Michael Moore | ||||||||
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We briefly describe each committeethe committees below. Each committee’s charter,The committees’ charters, posted via hyperlink from the investor relations area of Applied’s website, contains acontain more complete description.detailed descriptions. The Board also has a standing Executive Committee which, during the intervals between Board meetings and subject to the Board’s control and direction, possesses and may exercise the Board’s powers. The Executive Committee, whose members include the Board’s Chairman, the presiding non-management director,Chief Executive Officer, and the other committee chairs, did not meet in fiscal 2010.
Audit Committee.The Audit Committee assists the Board in fulfilling its oversight responsibility with respect to the integrity of Applied’s accounting, auditing, and reporting processes. The committee appoints, determines the compensation of, evaluates, and oversees the work of the independent auditor, reviews the auditor’s independence, and approves non-audit work to be performed by the auditor. The committee also reviews, with management and the auditor, annual and quarterly financial statements, the scope of the independent and internal audit programs, audit results, and the adequacy of Applied’s internal accounting and financial controls.
The Board has determined that each Audit Committee member is independent for purposes of section 10A of the Securities Exchange Act of 1934 and that Mr. Commes, is anMs. Kelly-Green, and Mr. Petrella are “audit committee financial expert,experts,” as defined in Item 407(d)(5) of Securities and Exchange Commission (“SEC”)Regulation S-K.
The Audit Committee’s report is on page 45 of this proxy statement.
Corporate Governance Committee.The Corporate Governance Committee assists the Board by reviewing and evaluating potential director nominees, Board and Chief Executive OfficerCEO performance, Board governance, matters, director compensation, compliance with laws, public policy matters, and other issues. The committee also administers long-term incentive awards to directors under the 20072011 Long-Term Performance Plan.
Executive Organization & Compensation Committee.The Executive Organization & Compensation Committee monitors and oversees Applied’s management succession planning and leadership development processes, nominates candidates for the slate of officers to be elected by the Board, and reviews, evaluates, and approves the executive officers’ compensation and benefits. The committee also administers incentive awards to executives under the 20072011 Long-Term
Performance Plan, including the annual Management Incentive Plan. Towers Watson & Co.Pay Governance LLC serves as the committee’s independent executive compensation consultant.
In approving theexecutive officers’ compensation and benefits, the committee bases its decisions on a number of factors and considerations, including the following: the committee’s own reasoned judgment; peer group and market survey information andinformation; recommendations provided by the independent consultant; and recommendations from Mr. Pugh, Applied’s Chief Executive Officer as to the other executive officers’ compensation and benefits.
For more information on the committee, please read, beginning on page 18,14, the “Compensation Discussion and Analysis” portion of this proxy statement.
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Risk is inherent in every enterprise, and Applied faces many risks of varying size and intensity. While management is responsible forday-to-day management of those risks, the Board, as a whole and through its committees, oversees and monitors risk management. In this role, the Board is responsible for satisfying itselfdetermining that the risk management processes designed and implemented by management are adequate and functioning as designed.
The Board believes that robust communication with management is essential for risk management oversight. Senior management attends quarterly Board meetings and is available to respondresponds to directors’ questions or concerns about risk management-relatedmanagement and other matters. At these meetings, management regularly presents to the Board on strategic matters involving our operations, and the directors and management engage in dialogue about the company’s strategies, challenges, risks, and opportunities. The non-management directors also meet regularly in executive session without management to discuss a variety of topics, including risk.
While the Board is ultimately responsible for risk oversight, the committees assist the Board in fulfilling its responsibility in the areas described below, with each committee chair presenting reports to the Board regarding the committee’s deliberations and actions.
The Audit Committee assists with respect to risk management in the areas of financial reporting, internal controls, and compliance with legal and regulatory requirements.
The Executive Organization & Compensation Committee assists with respect to management of risks related to executive succession and arising from our executive compensation policies and programs.
The Corporate Governance Committee assists with respect to management of risks associated with Board organization and membership, and other corporate governance matters, as well as company culture and ethical compliance.
We have assessed the risks arising from Applied’s compensation policies and practices for employees, including the executive officers. The findings were reviewed with the Executive Organization & Compensation Committee. Based on the assessment, we believe our compensation policies and practices do not encourage excessive risk-taking and are not reasonably likely to have a material adverse effect on Applied.
Shareholders and other interested parties may communicate with Communications with Board of Directorsanya director by writing to that individualc/o Applied’s Secretary at 1 Applied Plaza, Cleveland, Ohio 44115. In addition, they may contact the non-management directors or key Board committees bye-mail, anonymously if desired, through a form establishedlocated in the investor relations area of Applied’s website atwww.applied.com. The Board has instructed Applied’s Secretary to review these communications and to exercise his judgment not to forward correspondence such as routine business inquiries and complaints, business solicitations, and frivolous communications.
In identifying and evaluating director candidates, the Corporate Governance Committee first considers Applied’s developing needs andDirector Nominations the desired characteristics of a new director, as determined from time to time by the committee. The committee then considers various attributes of candidates, including the following: business, strategic, and financial skills; independence, integrity, and time availability; diversity of gender, race, and other personal characteristics; and overall experience in the context of the Board’s needs.As part of its ongoing efforts From time to strengthen the experience and quality of the Board,time, the committee recently engagedengages a professional search firm, to which it has paidpays a fee, to assist in identifying and evaluating potential nominees to the Board. IfBoard; in 2012, a suitable candidate is identified,search firm assisted with the Board has the authority under Applied’s Codeselection of Regulations to expand the BoardMessrs. Komnenovich and either nominate the candidate for election by shareholders or appoint the candidate to the newly-created vacancy.13Petrella.
Applied’s Code of Business Ethics expresses the principle that situations presenting a conflict of interest must be avoided. In furtherance of this principle, the Board has adopted a written policy, administered by the Corporate Governance Committee, for the review and approval, or ratification, of transactions with related persons. The related party transaction policy applies to Transactions with Related Personsanya proposed transaction in which Applied is a participant, the aggregate amount involved exceeds $50,000 in a fiscal year, and anya director, executive officer or significant shareholder, or anyan immediate family member of such a person, has a direct or indirect material interest. The policy provides that the Corporate Governance Committee will consider, among other things, whether the transaction is on terms no less favorable than those provided to unaffiliated third parties under similar circumstances, and the extent of the related person’s interest. No director may participate in any discussion or approval of a transaction for which he or she is a related person.
Only non-employee directors receive compensation for service as directors. Mr. DIRECTOR COMPENSATIONPugh,Schrimsher, our President & Chief Executive Officer, does not receive additional compensation for serving as a director.
The Corporate Governance Committee reviews our directors’ compensation annually. The committee seeks to provide a competitive compensation program to assist with director retention and recruitment. If the committee believes a change is warranted to remain competitive considering the size and nature of our business, then the committee makes a recommendation to the The committee bases its Management assists the committee by preparing and presenting analyses at Compensation ReviewBoard.In considering changes, theBoard of Directors.decisionsrecommendations on a number of factors and considerations including published market survey data and the committee’s own reasoned judgment. In general, the committee targets the median director compensation levels for comparably sized companies in similar industries, considering also the time commitments required of directors. A majority of the directors must approve anya change.the committee’sits request, but does not play a role in determining or recommending the amount or form of director compensation.As a result of the fiscal 2010 review, effective as of July 1, 2010, the Board approved a new $1,875 quarterly retainer for the presiding non-management director and increased the Corporate Governance Committee chair’s retainer by $625 per quarter.
The primary components of the director compensation program follow:Components of Compensation ProgramRetainers. Directors earn a $10,000 quarterly retainer.Meeting Fees. Directors earn a $1,500 fee for the first Board or committee meeting attended per day, and $500 for each additional meeting attended on the same day, up to a maximum of $2,500 per day. Directors may be similarly compensated if they attend other meetings or telephone conferences at the14
| • | Retainer.Directors earn a $13,750 quarterly retainer ($55,000 annually). |
| • | Meeting Fees.Directors earn a $1,500 fee for the first Board or committee meeting attended per day, and $500 for each additional meeting attended on the same day, up to a maximum of $2,500 per day. Directors may be similarly compensated if they attend other meetings or telephone conferences at the request of the Chairman, the presiding non-management director, or a committee chair. In addition, Applied pays directors $500 for an action taken by unanimous written consent. |
| • | Chairman Retainer.The independent Chairman earns an additional $7,500 quarterly retainer. |
| • | Committee Chair Retainer.The chairs of the Audit Committee, the Corporate Governance Committee, and the Executive Organization & Compensation Committee each earn an additional $1,875 quarterly retainer. |
| • | Long-Term Incentives.Annually, after reviewing survey data, the Corporate Governance Committee considers long-term incentive awards to directors. In 2013, the committee awarded each director 2,641 stock options and 1,320 restricted shares under the 2011 Long-Term Performance Plan (Messrs. Komnenovich and Petrella received additional |
awards upon joining the Board in July 2012). The stock options’ exercise price is the closing market price for Applied stock on the grant date. The options are exercisable immediately and expire on the tenth anniversary of the grant date. The restricted shares vest one year after the grant date, subject to conditions as to forfeiture and acceleration of vesting. |
| • | Deferred Compensation Plan for Non-Employee Directors. Pursuant to the Deferred Compensation Plan for Non-Employee Directors, and subject to Internal Revenue Code (���Code”) section 409A, a director may defer payment of future retainer and meeting fees. Deferred fees are deemed invested, at a director’s option, in Applied stock and/or a money market fund, which earns interest at the prevailing market rate. |
Four directors currently defer all or a portion of their retainer and meeting fees and elect to haveinvest the fees invested in Applied stock.
| • | Other Benefits.In addition to the items described above, Applied reimburses directors for travel expenses for attending meetings, as well as for expenses incurred in attending director education seminars and conferences. The directors also participate in our travel accident insurance plan and may elect to participate in a contributory health care plan, although the latter benefit is not available to directors who joined the Board after 2010. |
Other Benefits. In addition to the items described above, Applied reimburses directors for travel expenses for attending meetings, as well as for expenses incurred in attending director education seminars and conferences. The directors also participate in our travel accident insurance plan and may elect to participate in our contributory health care plan, although the latter benefit will not be available to future new directors.
Applied expects each non-employee director to maintain, within five years of joining the Board, ownership of Applied shares valued at a minimum of threefive times the annual retainer fees. fees, or $275,000.
Directors may hold the shares directly or indirectly, including shares deemed invested in the Deferred Compensation Plan for Non-Employee Directors. AllDirectors, but not including unexercised stock options. Each director, except one who joined the directors currently satisfy thisBoard in July 2012, owns shares valued in excess of the $275,000 guideline.
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The following table shows information about each non-employee director’sdirector compensation in 2010.
| Fees Earned | All Other | ||||||||||||||||||||||
| or Paid in | Stock Awards | Option Awards | Compensation | ||||||||||||||||||||
| Name | Cash ($) | ($) (1) | ($) (2) | ($) (3) | Total ($) | ||||||||||||||||||
William G. Bares | 69,500 | 58,251 | 41,847 | 0 | 169,598 | ||||||||||||||||||
Thomas A. Commes | 62,000 | 58,251 | 41,847 | 0 | 162,098 | ||||||||||||||||||
Peter A. Dorsman | 64,500 | 58,251 | 41,847 | 0 | 164,598 | ||||||||||||||||||
L. Thomas Hiltz | 61,000 | 58,251 | 41,847 | 23,539 | 184,637 | ||||||||||||||||||
Edith Kelly-Green | 58,000 | 58,251 | 41,847 | 0 | 158,098 | ||||||||||||||||||
John F. Meier | 58,500 | 58,251 | 41,847 | 0 | 158,598 | ||||||||||||||||||
J. Michael Moore | 57,500 | 58,251 | 41,847 | 22,373 | 179,971 | ||||||||||||||||||
Dr. Jerry Sue Thornton | 56,000 | 58,251 | 41,847 | 0 | 156,098 | ||||||||||||||||||
Peter C. Wallace | 60,500 | 58,251 | 41,847 | 0 | 160,598 | ||||||||||||||||||
Stephen E. Yates | 57,500 | 58,251 | 41,847 | 0 | 157,598 | ||||||||||||||||||
| Name | Fees Earned or Paid in Cash | Stock Awards ($) (1) | Option Awards ($) (2) | All Other Compensation ($) (3) | Total ($) | |||||||||||||||
William G. Bares | 72,000 | 57,869 | 38,823 | 0 | 168,692 | |||||||||||||||
Thomas A. Commes | 79,000 | 57,869 | 38,823 | 0 | 175,692 | |||||||||||||||
Peter A. Dorsman | 68,000 | 57,869 | 38,823 | 0 | 164,692 | |||||||||||||||
L. Thomas Hiltz | 81,000 | 57,869 | 38,823 | 24,387 | 202,079 | |||||||||||||||
Edith Kelly-Green | 71,500 | 57,869 | 38,823 | 0 | 168,192 | |||||||||||||||
Dan P. Komnenovich | 68,500 | 84,470 | 56,527 | 0 | 209,497 | |||||||||||||||
John F. Meier | 101,500 | 57,869 | 38,823 | 0 | 198,192 | |||||||||||||||
J. Michael Moore | 73,000 | 57,869 | 38,823 | 23,931 | 193,623 | |||||||||||||||
Vincent K. Petrella | 70,000 | 84,470 | 56,527 | 0 | 210,997 | |||||||||||||||
Dr. Jerry Sue Thornton | 71,500 | 57,869 | 38,823 | 0 | 168,192 | |||||||||||||||
Peter C. Wallace | 80,000 | 57,869 | 38,823 | 0 | 176,692 | |||||||||||||||
| (1) | At June 30, |
| (2) | At June 30, |
| (3) | The amounts for Messrs. Hiltz and Moore reflect the value of health care benefits. Aggregate perquisites and other personal benefits provided to each other outside director did not exceed $10,000 in value and are not required to be reported. |
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HOLDINGS OF MAJOR SHAREHOLDERS, OFFICERS, AND DIRECTORS
| Shares | ||||||||||
| Beneficially Owned | Percent of | |||||||||
| Name of Beneficial Owner | on June 30, 2010 (1) | Class (%) (2) | ||||||||
Capital World Investors 333 South Hope Street, 55th Floor Los Angeles, California90071-1447 | 3,888,790 | (3) | 9.2 | |||||||
BlackRock, Inc. 40 East 52nd Street New York, New York 10022 | 3,628,411 | (4) | 8.6 | |||||||
Dimensional Fund Advisors LP Building One, 6300 Bee Cave Road Austin, Texas 78746 | 3,121,475 | (5) | 7.4 | |||||||
Applied Industrial Technologies, Inc. Retirement Savings Plan c/o Wells Fargo Bank, N.A. 901 Marquette Avenue, Suite 500 Minneapolis, Minnesota 55402 | 3,114,063 | (6) | 7.4 | |||||||
William G. Bares | 177,489 | (7) | ||||||||
Fred D. Bauer | 115,090 | |||||||||
Thomas A. Commes | 79,075 | |||||||||
Peter A. Dorsman | 70,426 | |||||||||
Mark O. Eisele | 176,556 | |||||||||
L. Thomas Hiltz | 669,704 | (8) | 1.6 | |||||||
Edith Kelly-Green | 67,567 | |||||||||
John F. Meier | 36,425 | |||||||||
Benjamin J. Mondics | 122,042 | |||||||||
J. Michael Moore | 88,485 | (9) | ||||||||
David L. Pugh | 1,281,524 | 3.0 | ||||||||
Jeffrey A. Ramras | 145,572 | |||||||||
Dr. Jerry Sue Thornton | 105,498 | |||||||||
Peter C. Wallace | 39,404 | |||||||||
Stephen E. Yates | 86,004 | |||||||||
All directors, nominees, and executive officers as a group (19 individuals) | 3,504,317 | (10) | 8.0 | |||||||
| Name of Beneficial Owner | Shares Beneficially Owned on June 30, 2013 (1) | Percent of Class (%) (2) | ||
Royce & Associates, LLC 745 Fifth Avenue New York, New York 10151 | 4,956,737 (3) | 11.8 | ||
BlackRock, Inc. 40 East 52nd Street New York, New York 10022 | 3,241,865 (4) | 7.7 | ||
Neuberger Berman Group LLC 605 Third Avenue New York, New York 10158 | 3,240,806 (5) | 7.7 | ||
Applied Industrial Technologies, Inc. Retirement Savings Plan c/o Wells Fargo Bank, N.A. 901 Marquette Avenue, Suite 500 Minneapolis, Minnesota 55402 | 2,381,942 (6) | 5.6 | ||
The Vanguard Group, Inc. P.O. Box 2600 Valley Forge, Pennsylvania 19482-2600 | 2,208,380 (7) | 5.2 | ||
William G. Bares | 128,951 (8) | |||
Todd A. Barlett | 48,035 (9) | |||
Fred D. Bauer | 107,074 | |||
Thomas A. Commes | 58,446 | |||
Peter A. Dorsman | 50,970 | |||
Mark O. Eisele | 190,772 | |||
L. Thomas Hiltz | 571,861 (10) | 1.4 | ||
Edith Kelly-Green | 81,903 | |||
Dan P. Komnenovich | 11,154 | |||
John F. Meier | 51,549 | |||
Benjamin J. Mondics | 185,070 | |||
J. Michael Moore | 79,311 | |||
Vincent K. Petrella | 6,154 | |||
Neil A. Schrimsher | 28,952 | |||
Dr. Jerry Sue Thornton | 99,538 | |||
Peter C. Wallace | 48,352 | |||
All Directors, Nominees, and Executive Officers as a Group | 1,797,813 (11) | 4.2 | ||
| (1) | We have determined beneficial ownership in accordance with SEC rules; however, the holders may disclaim beneficial ownership. Except as otherwise indicated, the beneficial owner has sole voting and dispositive power over the shares. The directors’ and named executive officers’ totals include the following shares that could be acquired within 60 days after June 30, |
| (2) | Does not show percent of class if less than 1%. |
| (3) | Royce & Associates, LLC, reported its share ownership, including shares beneficially owned by affiliated entities, in a Form 13F filed with the SEC on August 7, 2013. |
| BlackRock, Inc. reported its share ownership, including shares beneficially owned by affiliated entities, in a Schedule 13G filed with the SEC on February 8, 2013. |
| (5) | Neuberger Berman Group LLC reported its share ownership, including shares beneficially owned by affiliated entities, in a Form 13F filed with the SEC on August 13, | |
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| (6) | The trustee of the Applied Industrial Technologies, Inc. Retirement Savings Plan, a tax-qualified defined contribution plan with a Code section 401(k) feature, holds shares for the benefit of plan participants. Participants may vote |
| (7) | The Vanguard Group, Inc. reported its share ownership, including shares beneficially owned by affiliated entities, in a Form 13F filed with the SEC on August 13, 2013, indicating it had sole voting and dispositive power for 1,900 shares, sole voting and shared dispositive power for 56,084 shares, and no voting but sole dispositive power for 2,150,396 shares. |
| (8) | Includes 5,062 shares owned by Mr. Bares’ wife, who has sole voting and dispositive power. |
| (9) | Includes |
| (10) | Includes 500,000 shares held by the H.C.S. Foundation, a charitable trust of which Mr. Hiltz is one of five trustees, with sole voting and dispositive power. Pursuant to a Schedule 13D filed by the H.C.S. Foundation in 1989, the trustees, including Mr. Hiltz, disclaimed beneficial ownership of those shares. |
| (11) | Includes | |
Introduction This Compensation Discussion and Analysis section provides details about the compensation program for Applied’s executive officers. It describes the company’s compensation philosophy and objectives, roles and responsibilities in making compensation decisions, the components of compensation, and the reasons for compensation adjustments, incentive payments, and long-term incentive grants made in fiscal year It focuses in particular on 2013 compensation arrangements for the following executive officers (the “named executive officers”): Neil A. Schrimsher, President & Chief Executive Officer Benjamin J. Mondics, Retired President & Chief Operating Officer (retired in August 2013) Mark O. Eisele, Vice President-Chief Financial Officer & Treasurer Fred D. Bauer, Vice President-General Counsel & Secretary Todd A. Barlett, Vice President-Acquisitions and Global Business Development This discussion and analysis should be read in conjunction with the Summary Compensation Table on page 27, its accompanying footnotes, and the additional tables and narrative disclosure that follow the Summary Compensation Table. Unless otherwise noted, references to years in the “Executive Compensation” section of this proxy statement mean Applied’s fiscal years ending on June 30. Executive Summary of In 2012, the Board’s Executive Organization & Compensation Committee (the “Committee”) took several significant steps to strengthen the relationship between overall compensation and performance, including the following: Freezing participation in Eliminating most executive officer personal benefits and perquisites, including automobile allowances, club memberships, financial planning and tax return preparation services, and annual physical examinations; and Terminating change in control agreements for executives below the executive officer level. With these measures completed, the Committee’s work in 2013 continued to promote alignment of Applied’s executive compensation program with shareholder interests: Direct pay. The Committee left the executive officers’ targeted annual pay largely unchanged, with only three named executive officers receiving modest adjustments in base salaries and annual incentive target values. Long-term incentive plan vehicles. To emphasize performance, the Committee reoriented the mix of long-term incentive vehicles it employs. Rather than an approximately equal mix of performance shares, stock-settled stock appreciation rights (“SARs”), and restricted stock units (“RSUs”), the Committee awarded approximately half of each executive officer’s targeted long-term incentive value in the form of performance shares, tied to key company performance metrics. SARs and RSUs each represented about one-quarter of the targeted long-term incentive value. Retirement benefits. The company made its first annual account credits to the Key Executive Restoration Plan, a defined contribution plan adopted as a replacement for the frozen executive defined benefit plan. The account credits for the named executive officers are shown on page 28. Retiree health care program. The Committee decided Applied would no longer offer retiree health care coverage to newly elected executive officers. Goal-setting is an important element of aligning pay with performance and Applied’s 2013 incentive Improvement 2013 vs. 2012 Sales Earnings Before Interest, Tax, Depreciation, and Amortization (“EBITDA”) Net Income After-Tax Return on Assets (“ROA”) Applied’s 2013 sales, EBITDA, and net income set company records. The accomplishments were notable considering they were achieved while Applied continued to implement a new enterprise resource planning system. In addition, with gains in our stock price, which reached record highs during the Despite the The Committee values shareholder opinion and, in performing its duties, reviews and takes into account the outcome of the annual Compensation Philosophy and Objectives As with our overall business, Applied’s primary goal in compensating our executive officers is maximizing long-term shareholder return. In pursuing this goal, we seek to design and to maintain a program that will accomplish the following: Attract and retain qualified and motivated executives by providing compensation that, at target performance, is competitive with our industry peers, and Motivate executives to achieve goals, and to take appropriate risks, consistent with Applied’s business strategies. Applied is an industrial distributor in a mature market. The business isCompensation Discussion and Analysis2010.2013.2010 CompensationSignificant Compensation-Related DevelopmentsThe approach of2010 to settingthe company’s executive defined benefit plan and stopping the accrual of additional benefits, by virtue of years of service and compensation levels, for existing participants;• • • • target values alignedplan payouts in part reflected the Committee’s disciplined process in this regard. Operating performance continued to improve in 2013, as shown below: 2013 2012 2011 $2.462 billion $2.375 billion $2.213 billion 3.7% $204.5 million $193.2 million $175.9 million 5.8% $118.1 million $108.8 million $96.8 million 8.6% 11.6% 11.8% 11.1% (1.7)% difficult economic environmentyear, and reinvested dividends, our shareholders earned a 33.9% total return in 2013.company’s overall efforts to control expenses. In 2009, amid the recession and its impact on Applied’s business, management had acted to defer considerationimprovements, performance fell short of salary and wage increases for Applied’s workforce until after 2010. Likewise, and after also considering executive pay practices in the broader market,goals set by the Committee did not adjustat the executive officers’ base salaries, annual incentive target values, or long-term incentive target values in 2010; allbeginning of these remained unchanged from 2009.From the standpoint of realized incentive compensation, in 2009, when Applied’s performance declined inyear based on the recession,year’s business plan. As a result, the executive officers did not earnearned annual or three-year incentive payouts. By contrast, during 2010,pay at 77.5% of target values. In addition, shares “banked” for 2013 under performance share programs fell below target values, as described below performance rebounded,at pages 22-23.incentiveadvisory vote to approve the named executive officers’ compensation. This vote is intended to provide an overall assessment of our executive compensation program rather than to focus on specific compensation items. We are pleased to have earned the shareholders’ approval in 2012, with greater than 90% of the shares cast voting in favor. With this affirmation, the Committee will continue its efforts to improve the program to further align executive pay recovered in a like manner. Applied did not, however, achieve its goals for the three-year period ending in 2010, and the executive officers again did not earn three-year incentive payouts.shareholder value.• Attract and retain qualified and motivated executives by providing compensation that is competitive with our industry peers and in the broader marketplace for executive talent, and• Motivate executives to achieve goals, and to take appropriate risks, consistent with Applied’s business strategies. highly competitive, with many other companies offering the same or substantially similar products and services. In this environment, attracting and retaining talented key employees is critical to our success. We compete for talent with other industrial distributors, industrial product manufacturers, and similarly sized companies outside our18
Applied believes it is important for executives to focus on both short-term and long-term performance.performance to maximize shareholder return. Accordingly, we provide annual and long-term incentive plans designed to align executives’ interests with those of shareholders.
Roles and Responsibilities
Executive Organization & Compensation Committee.The Committee is composed of independent directors and is responsible for the executive compensation program’s design and implementation. The Committee’s duties include the following:
Setting compensation components and levels for the Chief Executive Officer and the other executive officers,
Overseeing Applied’s executive compensation and benefit plans, including approving annual and long-term incentive awards, and
Approving incentive plan goals that use performance metrics and evaluating performance at which compensation items arethe end of plan terms to be discussed, thedetermine whether goals have been achieved.
The Committee routinely receives a tally sheet displaying updated data with respect to the material components of each executive’s compensation and benefits. This enables the Committee to make decisions with respect to each component in the context of total compensation.
Independent Compensation Consultant. Towers Watson & Co.Pay Governance LLC serves as the Committee’s independent compensation consultant, assisting the Committee in the following:
Establishing the executive compensation program’s components,
Analyzing the program’s competitiveness, and
Setting executive officers’ annual target compensation levels.
Pay Governance is engaged by and reports directly to the Committee. The firm’s representative directly interacts with the Committee chair between meetings and participates in meetings and performs assignments as requested. He also communicates with management to obtain information for completing assignments for the Committee. The firm submits its invoices to the chair for approval and payment by Applied.
Pay Governance performed no other work for Applied during the year and received no other compensation from Applied outside this engagement. After Hewitt’s lead representative forits engagement by the engagement leftCommittee. The Committee concluded, following a review of existing facts and circumstances, including factors specified in the NYSE’s listing standards, that the firm during the third quarter of fiscal 2010, the Committee interviewed other firms and ultimately selected Towers Watson as its new consultant in May 2010.
Management.While the Committee is responsible for the program’s design and implementation, management assists the Committee in several ways.
Key executives attend portions of Committee meetings at its invitation. They prepare and present analyses at the Committee’s request, offer recommendations about program components and incentive plan goals, and regularly report on Applied’s performance. Mr. PughOur Chief Executive Officer also reports on the other executive officers’ individual performance and makesoffers recommendations regarding their base salaries, incentive awards, and benefits.pay. The Committee sets Mr. Pugh’sthe executive officers’ pay in executive session without management present.
Management assists the Committee’s consultant by providing compensation data and other input and helping the consultant understand Applied’s organizational structure, business plans, goals, and performance, and the competitive landscape. Management does not have its own executive compensation consultant.
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Structure.The compensation program for executive officers includes the following components:
Base salary,
Annual incentives,
Long-term incentives,
Qualified, nonqualified, and welfare plan benefits, and
Change in control and termination benefits.
Base salary, annual incentives, and long-term incentives are the primary components. The Committee sets base salaries to be competitive with market medians for similar positions in companies in the peer group described below.distribution companies. Annual incentive pay rewards the achievement of short-term earnings objectives, and longer-termannual earnings and total shareholder returncash flow goals, and incorporates an assessment of individual performance. Longer-term financial goals (including EBITDA and ROA), stock price appreciation, and executive retention are promoted through long-term incentive awards including performance shares, stock-settled stock appreciation rights (“SARs”),SARs, and restricted stock units (“RSUs”).
Applied’s compensation practices reflect oura pay-for-performance philosophy. The Committee places theA majority of the named executive officers’ compensation provided to the officers named in the Summary Compensation Table on page 30 (the “named executive officers”), including targeted incentive compensation, at riskis “at risk” and tied to company-wide performance. Moreover, incentive compensation generally makes up a greater share of the overall opportunity for executives in more senior positions.
Applied also believes that programs leading to equity ownership ensure thatpromote the alignment of executives’ interests are aligned with those of shareholders.shareholders’. However, to avoid excessive dilution, the Committee manages incentive awards to keep annual share utilization well below 2% of the shares outstanding. The Committee regularly reviews its share utilization in relation to market practices.
The Committee generally determines each executive officer’s base salary, annual incentive target compensation (expressed as a percentage of base salary), and long-term incentive target compensation independently from the other primary elementscomponents of compensation. Notwithstanding this fact,Nevertheless, the Committee also reviews data regarding total target cash compensation (salary plus annual incentive target compensation) and total target compensation (salary plus annual incentive target compensation plus long-term incentive target compensation) and considers suchthe information contextually when evaluating each primarycomponent.
The result is a mix among base salary, annual incentive target compensation, element.
The following table below shows the allocation (rounded) of the opportunityopportunities provided in 20102013 to the named executive officers consideringin the primary componentsforms of compensation — base salary, annual incentive target opportunity, and approximate long-term incentive target opportunity:
| Annual | Long-Term | ||||||||||||||
| Incentive Target | Incentive Target | ||||||||||||||
| Base Salary | Opportunity | Opportunity | |||||||||||||
| Name and Principal Position | (% of Total) | (% of Total) | (% of Total) | ||||||||||||
David L. Pugh Chairman & Chief Executive Officer | 26 | 26 | 48 | ||||||||||||
Benjamin J. Mondics President & Chief Operating Officer | 34 | 22 | 44 | ||||||||||||
Mark O. Eisele Vice President — Chief Financial Officer & Treasurer | 40 | 24 | 36 | ||||||||||||
Fred D. Bauer Vice President — General Counsel & Secretary | 42 | 23 | 35 | ||||||||||||
Jeffrey A. Ramras Vice President — Supply Chain Management | 47 | 23 | 30 | ||||||||||||
20
| Name | Base Salary (% of Total) | Annual Incentive Target (% of Total) | Long-Term Incentive Target Opportunity (% of Total) | |||
N. Schrimsher | 27 | 27 | 46 | |||
B. Mondics | 32 | 21 | 47 | |||
M. Eisele | 38 | 23 | 39 | |||
F. Bauer | 41 | 22 | 37 | |||
T. Barlett | 43 | 20 | 37 |
Competitive BenchmarkingPay Review in 2010.2013. In 2010, Hewitt prepared a targetTo help evaluate Applied’s executive compensation, study from its proprietary Total Compensation Measurement database to assist the Committee with competitive benchmarking. The first step in preparing the study was the Committee’s selection from Hewitt’s database, with the consultant’s input, ofcreated a peer group for evaluating compensation. For 2010,of distribution companies, primarily industrial distributors, believing this group (the “Peer Group”) consisted of 26reflects the company’s principal market for senior executives. Comparisons with other distributors provide the Committee greater insight into executive pay and benefits at companies in similar market environments.
With assistance from Pay Governance, the distribution, manufacturing,Committee selected a group of 18 companies with fiscal 2011 sales ranging from $700 million to $6.1 billion, and industrial machinery and equipment industries.median sales of $2.0 billion, compared with Applied’s 2011 sales of $2.2 billion. The companies’ annual revenues ranged from $1 billion to over $6 billion, with a median of $2.8 billion; Hewitt recommended this range to reflectcompanies were the marketplace within which Applied competessame as those used in the previous year’s peer group. Each peer group company disclosed compensation data for executive talent.its top officers in SEC filings. Management did not participate in selecting the companies.
The Peer Group2013 peer group (the “Peer Group”) included the following members:
AAR Corp. A. M. Castle & Co. Airgas, Inc. Anixter International Inc. Brightpoint, Inc. DXP Enterprises, Inc. | Fastenal Company H&E Equipment Services, Inc. Interline Brands, Inc. Kaman Corporation LKQ Corporation MSC Industrial Direct Co., Inc. | |||
Olympic Steel, Inc. Park-Ohio Holdings Corp. ScanSource, Inc. | WESCO International, Inc. Watsco, Inc. |
After the Peer Group was identified, Hewittselected, Pay Governance prepared a compensation review and assessment, analyzing the competitiveness of Applied’s Chief Executive Officer’s target compensation study. Because ofrelative to comparable Peer Group data, adjusting the prevailing economic distress anddata to reflect Applied’s sales being greater than the resulting volatilityPeer Group median. Pay Governance did not analyze Peer Group data for other executive officer positions in executive pay,2013 (although it did so in 2012), but reported on broader compensation trends in the market to assist the Committee sought to use thein evaluating target pay levels for those other officers.
The study to assist in understanding broader market trends, particularly in regard to incentive target values. With this goal in mind, the Committee directed Hewitt to study four representative executive positions: chief executive officer, chief operating officer, chief financial officer, and general counsel.
Beyond the Peer Group data, Pay Governance presented other CEO pay data from broad surveys of companies across many industries, produced by several leading compensation consulting firms, as well as from a group of select industrial companies that were comparable in size (as measured by revenues) to Applied. The Committee requested this supplemental data as a secondary resource to help confirm the reliability of the Peer Group data.
Pay Governance analyzed CEO base salary, annual incentive target compensation, total short-termcash target compensation (base salary plus annual incentive target compensation), long-term incentive target compensation, and total direct target compensation (total short-termcash target compensation plus long-term incentive target compensation). Hewitt’s study
In most years, Pay Governance also benchmarked companycompares Applied’s business performance, comparing Applied’s total shareholder return, earnings growth, sales growth,over one, three, and other financial metrics, over one-and five-year periods,five years, with the Peer Group companies.
Using the target compensationPay Governance’s study, the Committee benchmarkedevaluated each primary compensation component, by position, against the market.component. In most years, including 2013, the Committee seeks to target total compensation at orcompensate executives near the market median if Applied’s performance targets are met. By design, sustainedSustained performance below target levels should result in realized total compensation below market medians, and performance that exceeds target levels should result in realized total compensation above market medians.
It is important to note, however, that market medians areand the ranges around them only represent beginning reference points; the Committee also uses its subjective judgment to adjust targeted compensation to reflect factors such as individual performance and skills, long-term potential, tenure in the position, internal equity, retention considerations, and the position’s importance in Applied’s organization.
21
Base Salary.The Committee observes a general policy that base salaries for executive officers who have been in their positions for at least three years and are meeting performance expectations should be at or near (generally, within +/- 10%) the market median for comparable positions. As with all components of pay, however, the Committee, using its subjective judgment, sets salaries higher or lower to reward individual performance and skills as well as to reflect factorsand other considerations such as long-term potential, tenure inthose mentioned above.
In 2013, after considering the position, internal equity, andPeer Group data for the position’s importance in Applied’s organization.
Annual Incentives. The Management Incentive Plan rewardsUsing annual incentive plans, the Committee seeks to reward the executive officers, in cash, for achieving fiscal year goals. In general, the Committee seeks to pay total short-termcash compensation at or near the market median when Applied meets its annual performance goals, and to pay substantially above the market median when Applied substantially exceeds its goals. If Applied does not achieve thea threshold performance level, then the executive officers do not earn annual incentive pay and pay would fall substantially below the market median levels.
In 2013, each executive officer participated in the annual Management Incentive Plan. At the beginning of the fiscal year, after the Board reviews Applied’s annual business plan as prepared and presented by management, the Committee reviews and discusses proposeddevelops objective performance goals and targets for the Management Incentive Plan. The Committee considers the market outlook and the business plan, along with the available opportunities and the attendant risks.
For the 20102013 Management Incentive Plan, the Committee set goals tied to Applied’s net income. The Committee adopted netthe following performance measures:
Net income growth as the sole performance— bottom-line profitability; and
Cash flow from operations — a cash-based measure because of its value as a proxy for annual growth in shareholder value.company performance.
The Committee sets goals it believes are attainable, but that require executives to perform at a consistently high level to achieve target award values. As illustrated in the table below, target and maximum incentive objectives represented significant improvements over 2012 results. The Committee set the 2010 goals as follow:
| 2010 Net Income | |||||||||||||||||||||||||
| Equal to or Greater | |||||||||||||||||||||||||
| Less than | than | ||||||||||||||||||||||||
| $38.5 million | $38.5 million | $42.8 million | $49.2 million | $55.6 million | |||||||||||||||||||||
Payout as % of Target Award Value | 0% | 50% | 75% | 100% | 200% | ||||||||||||||||||||
Net Income (weighted 75%) | Under $108.28 million | $108.28 million | $127.39 million | $159.24 million | ||||
% of Prorated Portion of Target Award | 0% | 50% | 100% | 200% | ||||
% Improvement Compared with 2012 Result | — | (0.5)% | 17.1% | 46.4% | ||||
Cash Flow from Operations (weighted 25%) | Under $99.96 million | $99.96 million | $117.60 million | $147.00 million | ||||
% of Prorated Portion of Target Award | 0% | 50% | 100% | 200% | ||||
% Improvement Compared with 2012 Result | — | 10.5% | 30.1% | 62.6% |
As shown above, 2013 payouts for 2010 could have ranged from 0% to 200% of the executive officers’ target award values. The Committee established this range, consistent with prior years, after considering Hewitt’sPay Governance’s guidance as to market practices. Payouts for each performance measure were to be prorated on a straight-line proportional basis for net income results falling between the threshold 50%, 75%, 100%, and maximum 200% payout levels.
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| Name | Base Salary ($) | Incentive Target (%) | Target Award Value ($) | ||||||||||||
D. Pugh | 945,000 | 100 | 945,000 | ||||||||||||
B. Mondics | 450,000 | 65 | 292,500 | ||||||||||||
M. Eisele | 438,000 | 60 | 262,800 | ||||||||||||
F. Bauer | 355,000 | 53 | 188,150 | ||||||||||||
J. Ramras | 350,000 | 50 | 175,000 | ||||||||||||
| Name | Base Salary ($) | Incentive Target (%) | Target Award Value ($) | |||
N. Schrimsher | 770,000 | 100 | 770,000 | |||
B. Mondics | 464,000 | 65 | 301,600 | |||
M. Eisele | 438,000 | 60 | 262,800 | |||
F. Bauer | 365,700 | 53 | 193,821 | |||
T. Barlett | 305,000 | 45 | 137,250 |
As a result of Applied’s 2013 performance, the Management Incentive Plan payout formula was as follows:
| Goal | 2013 Achievement | % Improvement Compared with 2012 Achievement | Payout as % of Prorated Portion of Target Award | ||||||
Net Income(weighted 75%) | $118.15 million | 8.6 | 75.8 | ||||||
Cash Flow from Operations(weighted 25%) | $111.40 million | 23.2 | 82.4 | ||||||
| Overall Payout as % of Target Award: 77.5% | |||||||||
Annual incentive plan payouts in 2013 for the named executive officers are a component ofshown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table at page 30.
Long-Term Incentives. The 2007Committee makes long-term incentive awards to the executive officers annually under the 2011 Long-Term Performance Plan rewardsPlan. The plan seeks to reward executives for achieving long-term goals. The shareholder-approved plangoals and authorizes long-term incentive awards in a variety of forms. The Committee typically makes awards annually,near the beginning of the year, after the release ofreviewing the previous fiscal year’s financial results.
As with the other primary compensation components, the Committee sets the awards’ value after reviewing the independent consultant’s target compensation study. In most years, the Committee seeks to provide awards with a targeted value at or near the market median for equivalent positions, with some variation to reward individual performance and skills, as well as to reflect factors such as long-term potential, responsibility, tenure in the position, internal equity, retention considerations, and the position’s importance in Applied’s organization.
The Committee uses long-term incentive awards for purposes of motivation, alignment with long-term company performance goals, and executive retention. The Committee intends to pay total long-term compensation at or near the market median when Applied meets its performance goals and substantially above when Applied substantially exceeds its goals. If goals are not met, then long-term compensation should fall below the market median.
Pay Governance’s 2012 study had indicated Applied’s long-term incentive target compensation values were generally below market levels, even after increases approved for that fiscal year. Focusing on the CEO position, the 2013 study reported that Mr. Schrimsher’s long-term incentive target compensation value (excluding inducement awards made at the time of hire) remained below market norms. With this background, and after considering the more subjective factors referenced above, the Committee maintained 2010 long-term incentive target values atapproved increases to the same levels as in 2009. When compared with Hewitt’s study data for the four selected positions, thenamed executive officers’ long-term incentive target values were belowranging from 5% to 13%.
Pay Governance also reported on the approximategrowing prominence in the broader market medians.
In determining the numbernumbers of SARs and RSUs to be awarded and performance shares to be targeted, the Committee valued Applied’s shares using a12-month methodology based on the 90-day average closing share price methodology, againprior to the grant date, after
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The following paragraphs describe the three types of long-term incentive awards made in 2010 and also report on2013, as well as performance for the year under the expired2008-2010previously awarded performance grants.
| • | SARs.The |
The Committee intends for SARs to align the interests of management and shareholders in achieving long-term growth in the value of Applied’s stock by using a form of award the value of which is determined primarily by long-term increases in Applied’s stock value.price appreciation. The four-year vesting period, ten-year term, and stock-settled nature of the SARs are consistent with this purpose.
| • | RSUs. RSUs are grants valued in shares of Applied stock, but shares are not issued to |
The Committee considers RSUs to be a good tool for retaining executives. Because their value will increase or decrease over the three-year vesting period along with Applied’s stock, RSUs also promote efforts to maximize long-term shareholder return.
| • | 2013-2015 Performance |
Each year, as a new three-year period begins, the Committee reviews the business plan and market outlook.outlook for the period. Then, after also considering management’s recommendations and the independent consultant’s guidance as to market practices, the Committee determines the performance measures and goal ranges at which payouts can be earned. The Committee sets goals it believes are attainable without inappropriate risk-taking, but that still require officersexecutives to perform on a sustained basis at a consistently high level to achieve the targeted payout.
Payouts can range from 0% to 200% of the target number of shares. The target payout is 100% of the target number.number assigned to the executive. The Grants of Plan-Based Awards table on page 3229 shows the threshold, target, and maximum payouts for the performance shares awarded to the named executive officers in 2010.
Because the payout is measured in number of shares, the award’s value of the award depends on both the company’s operating performance and its stock price, motivating the executives throughout the performance period with regard to both measures.
Performance shares are intended typically to provide incentives to achieve goals over a three-year goals. However, because of volatile market conditions atperiod. For the beginning of 2010 that made long-term forecasting unusually difficult,2013-2015 performance shares, the Committee set the following one-yearseparate goals for each year of the2010-2012
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| 2010 EBITDA | ||||||||||||||||||||
| Less than | Equal to or Greater than | |||||||||||||||||||
| $91.8 million | $91.8 million | $108.0 million | $124.2 million | |||||||||||||||||
Payout, in RSUs, as % of Target Number of Shares | 0% | 50% | 100% | 200% | ||||||||||||||||
The Committee considered these financial metrics to be appropriate measures of management’s impact on the company’s operating performance and efficiency over a three-year period. The metrics also balanced the annual incentive plans’ focus on bottom-line results and cash flow.
Each participant’s targeted number of performance shares reflected prospective improvementsfor the three-year period is, in sales and operating profit percentage based on Applied’s business plan, as well as the unusually difficult and uncertain market environment that prevailed at the beginning of theeffect, divided into one-third for each fiscal year.
The goals for the first year of the performance in August 2010, the performance shares converted into the following numbers of RSUs for the named executive officers:
EBITDA (weighted 75%) | Under $177.92 million | $177.92 million | $222.40 million | $278.00 million | ||||
% of Prorated Portion of Target Share Award for 2013 | 0% | 50% | 100% | 200% | ||||
% Improvement Compared with 2012 Result | — | (7.9)% | 15.1% | 43.9% | ||||
ROA (weighted 25%) | Under 10.2% | 10.2% | 12.8% | 16.0% | ||||
% of Prorated Portion of Target Share Award for 2013 | 0% | 50% | 100% | 200% | ||||
% Improvement Compared with 2012 Result | — | (13.6)% | 8.5% | 35.6% |
As shown above, banked awards could range from 0% to 200% of the targeted levels, with 100% as theexecutive officers’ target payout.
In 2013, as a result of achieving incentive goals, for the2008-2010 performance grants. Two-thirds participants banked awards, to be distributed in shares of Applied stock following the target payout depended on the company’s achievementend of cumulative net income and sales growth goals, providing a balance between profitability and growth. Payout levels were linked in a matrix with multiple ranges of achievement for various combinations of the two goals.
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| 2013 Goal | Achievement | Banked Award as % of Target Performance Shares for 2013 | ||
EBITDA (weighted 75%) | $204.45 million | 79.8 | ||
ROA (weighted 25%) | 11.6% | 76.9 | ||
| Overall: 79.1% |
| • | ||||||||||||||||||
| ||||||||||||||||||
 | ||||||||||||||||||
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EBITDA (weighted 75%) | Under $175.84 million | $175.84 million | $219.80 million | $274.75 million | ||||
% of Prorated Portion of Target Share Award for 2013 | 0% | 50% | 100% | 200% | ||||
ROA (weighted 25%) | Under 9.9% | 9.9% | 12.4% | 15.5% | ||||
% of Prorated Portion of Target Share Award for 2013 | 0% | 50% | 100% | 200% |
| 2013 Goal | Achievement | Banked Award as % of Target Performance Shares for 2013 | ||
EBITDA (weighted 75%) | $204.45 million | 82.5 | ||
ROA (weighted 25%) | 11.6% | 84.0 | ||
| Overall: 82.9% |
| • | ||||
2011-2013 Performance Shares (2013 performance).The |
EBITDA (weighted 75%) | Under $170.32 million | $170.32 million | $212.90 million | $266.125 million | ||||
% of Prorated Portion of Target Share Award for 2013 | 0% | 50% | 100% | 200% | ||||
ROA (weighted 25%) | Under 9.6% | 9.6% | 12.0% | 15.0% | ||||
% of Prorated Portion of Target Share Award for 2013 | 0% | 50% | 100% | 200% |
For the company’s 2013 performance, grantsparticipants were awarded primarily on an industry basis. Unlike the selectionshares of companies for compensation benchmarking, the Committee was not limited by the scope of Hewitt’s proprietary database, nor was revenue sizeApplied stock as important a consideration.
| 2013 Goal | Achievement | Award as % of Target Performance Shares for 2013 | ||
EBITDA (weighted 75%) | $204.45 million | 90.1 | ||
ROA (weighted 25%) | 11.6% | 91.7 | ||
| Overall: 90.5% |
2008-2010 performance grant period. With respect to the matrix, Applied’s cumulative net income for the period was $203.6 million, but sales only reached $5.9 billion, so the threshold targets were not achieved. As calculated under the grants, Applied’s total shareholder return for the period wound up well above the 50th percentile level, but at -3% on an absolute basis. So, despite Applied’s relative outperformance, the negative return meant that no executive earned a payout on this portion of the grants either, again demonstrating the program’s alignment with shareholder interests.
| • | Qualified savings plan. Applied maintains a defined contribution plan with a section 401(k) feature (the Retirement Savings | ||
| • | Supplemental Executive Retirement Benefits Plan. Applied does not have a qualified defined benefit plan for employees generally, but does maintain the Supplemental Executive Retirement Benefits Plan (the “SERP”), a nonqualified defined benefit plan, for executive officers who were designated as participants by the Board or the Committee. |
Effective as of December 31, 2011, the Committee froze participation in the SERP and the accrual of additional plan benefits, by virtue of years of service and compensation levels, to existing participants. The Committee’s action followed a detailed review, with Pay Governance’s assistance, of executive retirement benefit programs prevalent among Peer Group companies and in the broader market.
Normal SERP retirement benefits are payable upon separation from service after attainment of age 65 to participants with at least five years’ credited service as an executive officer. Reduced benefits are available to participants who separate from service with at least 10 years’ credited service with Applied, five as an executive officer.
Each named executive officer, participatesother than Mr. Schrimsher, participated in the SERP.SERP and, subject to the vesting criteria described above, has historical benefits accrued. Their accrued benefits are described in “Pension Plans,” at page 34.
| • | Key Executive Restoration Plan. Despite freezing the SERP, the Committee believes providing competitive supplemental retirement benefits remains important for executive recruitment and retention. There are statutory limits, however, on the value of benefits these executives can receive under the company’s qualified savings plan. |
Accordingly, the Committee adopted the Key Executive Restoration Plan (the “KERP”), an unfunded, nonqualified deferred compensation plan, to replace the SERP. To participate, an executive must be designated by the Committee or the Board. Applied credits a bookkeeping account for each participant with an amount equal to (i) 6.25% (unless the Committee or the Board specifies a different percentage) of the participant’s base salary and annual cash incentive pay, minus (ii) the amount of company contributions credited to the participant under the RSP for the payment period. To be eligible for KERP account credits, participants must be employed on the last day of a payment period or have retired, died, or become disabled during the payment period. Applied uses calendar years for payment periods and made the first KERP account credits in January 2013 based on calendar 2012 pay. Unless otherwise provided by the Committee or the Board, credits to a participant’s account vest based on years of service with Applied, 25% per year.
In addition, a participant will be 100% vested in the event of attainment of age 65, death, disability, or certain separations from service within one year after a change in control (as defined in the KERP). Each participant’s account balance is deemed invested in mutual funds selected by the participant from those available under the KERP.
The Committee has designated each named executive officer as a participant. The Committee set the account credit percentage for Mr. Schrimsher at 10% and provided that he will vest in 50% of his account after three years of service, 75% after four years, and 100% after five years.
| • | Nonqualified deferred compensation plans. Applied also maintains plans that permit highly compensated U.S. employees |
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| • | Welfare plans. Applied maintains a health care plan as well as life and disability insurance plans for full-time U.S. employees. Executive officers may also participate in executive life and disability insurance programs. | ||
| • | Retiree health care program. Applied provides retiree health care coverage, through third-party policies, to executive officers who retire after reaching age |
Perquisites and Other Personal Benefits. Applied providesTwo years ago, with Pay Governance’s assistance, the Committee completed a detailed review of perquisites and personal benefits provided to executive officers withby Applied’s peers and in the broader market. The Committee concluded that providing certain perquisites and other personal benefits that Applied believes are reasonablewas no longer warranted to attract and consistent with the objective of attracting and retainingretain superior employees for key positions. As with other compensation,
Accordingly, effective on January 1, 2012, the Committee periodically reviews and adjusts these benefits after reviewing market practices.
Applied provides executive officers five weeks’ annual vacation (otheron a calendar year basis; other employees get five weeks when they achieve 25 years of service). Applied provides some officers with club memberships for business purposes, which are available for personal use as well;service. Unused vacation time is forfeited at the executive pays for expenses related to personal use. See the “All Other Compensation” columnend of the Summary Compensation Table at page 30.
Change in Control and Termination Benefits. Upon his hire, Applied and Mr. Schrimsher entered into a CEO-level executive severance agreement providing termination benefits as described in “Potential Payments upon Termination or Change in Control,” on page 34. Applied does not have employment contracts with itsthe other named executive officers, nor does it have a formal executive severance policy. The Committee retains discretion to determine the severance benefits, if any, to be offered to the other named executive officers if the company terminates an officer’stheir employment, other than in the circumstance of a change in control.
Applied’s named executive officers do have change in control agreements. These arrangements are designed to retain executives and to promote management continuity if an actual or threatened change in control occurs. The Board approved the agreements primarily for two reasons:because it believes that the executives’ continued attention and dedication to their duties under the adverse circumstances attendant to a change or potential change in control are ultimately in the best interests of Applied and its shareholders, and the agreements are consistent with prevailing market practices.
The agreements provide severance benefits if an executive’s employment is terminated by the officer for “good reason”“Good Reason” or by Applied “without cause”“Without Cause” (each as defined in the agreements), if the termination occurs within three years (two years for Mr. Schrimsher) after a change in control. The executive, in turn, must not compete with Applied for one year following the termination. The Committee has periodically, most recently in 2008, reviewed and adjusted the agreements after considering market practices and outside advisors’ advice.termination (three years for Mr. Schrimsher). We describe the agreements more fully on pages 38 – 3935-36 of this proxy statement.
In 2012, the Committee terminated change in control agreements for employees below the executive officer level. As a result, the only remaining agreements are with the company’s six executive officers. The two agreements entered into most recently (including Mr. Schrimsher’s) do not include a gross-up for excise taxes and it is expected that future agreements will follow suit.
Stock Ownership Guidelines
The Committee believes executives should accumulate meaningful equity stakes in Applied to align their economic interests with shareholders’ interests, thereby promoting the objective of increasing shareholder value. See “Beneficial Ownership of Certain Applied Shareholders and Management” on page 17 for the shares of Applied stock beneficially owned by each named executive officer.
Chief Executive Officer | 5x salary | ||
Chief Operating Officer | 5x salary | ||
Other Executive Officers | 3x salary | ||
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The guidelines are not mandatory in the sense that they do not require an executive immediately to acquire shares if his or her ownership is below the applicable guideline.
Until the guideline is achieved, the executive is expectedexecutives are required to retain the net shares received as a result of the exercise of stock optionsSARs or SARs.the vesting of RSUs or performance shares. “Net shares” are those shares that remain after shares are sold or netted to pay the exercise price (if applicable) and withholding taxes.
At June 30, 2010,2013, the value of the named executive officers’ holdings (determined as described above) of the named executive officers and their individual guidelines were as follow:
| Name | Value of Holdings of Applied Stock ($) | Guideline ($) | ||||||||
D. Pugh | 13,801,147 | 4,725,000 | ||||||||
B. Mondics | 1,079,290 | 2,250,000 | ||||||||
M. Eisele | 2,793,100 | 1,314,000 | ||||||||
F. Bauer | 1,227,741 | 1,065,000 | ||||||||
J. Ramras | 938,739 | 1,050,000 | ||||||||
| Name | Value of Holdings of Applied Stock ($) | Guideline ($) | |||||
N. Schrimsher(hired in October 2011) | 3,765,729 | 3,850,000 | |||||
B. Mondics | 4,783,220 | 2,320,000 | |||||
M. Eisele | 7,532,086 | 1,314,000 | |||||
F. Bauer | 3,457,963 | 1,097,100 | |||||
T. Barlett | 2,006,178 | 915,000 | |||||
The Committee monitors compliance with the guidelines.guidelines, interprets the guidelines, and must approve exceptions. The Committee also periodically reviews the guidelines and compares them with market data reported by the independent consultant and others. With
Consistent with the objectives of the stock ownership guidelines, the company prohibits its insiders from engaging in:
Short sales of Applied’s stock;
Market transactions in force, the Committee has not adopted stock retention policies for equity-based grants.puts, calls, warrants, or other derivative securities based on Applied stock; and
Certain hedging or monetization transactions, such as prepaid variable forward contracts, equity swaps, collars, and exchange funds.
Clawback Provisions
Because incentive awards are intended to motivate executives to act in Applied’s best interests, the Committee includedincludes provisions in the 2010 awardsaward terms to claw back compensation under certain circumstances:
The Committee may terminate or rescind an award and, if applicable, require an executive to repay cash or shares (and dividends, distributions, and dividend equivalents paid thereon) issued pursuant to the award within the previous 12 months (and proceeds thereof), if the Committee determines that, during the executive’s employment with Applied or during the period ending 12 months following separation from service, the executive competed with Applied or in certain other circumstances engaged in acts inimical to Applied’s interests. The Committee adopted the 12 month periods effective beginning with award programs approved in August 2012, an increase from the six month periods used previously.
The Committee may require an executive to repay cash or shares (and dividends, distributions, and dividend equivalents paid thereon) issued pursuant to an award within the previous 36 months (and proceeds thereof) if (i) Applied restates its historical consolidated financial statements and (ii) the Committee determines that (x) the
restatement is a result of the executive’s, or another executive officer’s, willful misconduct that is unethical or illegal, and (y) the executive’s earnings pursuant to the award were based on materially inaccurate financial statements or materially inaccurate performance metrics that were invalidated by the restatement. |
Tax Deductibility and Regulatory Considerations
Code section 162(m) limits the amount of compensation a publicly held corporation may deduct as a business expense for federal income tax purposes. That limit, which applies to the chief executive officer and the three other most highly compensated executive officers (but excluding the chief financial officer), is $1 million per individual per year, subject to certain exceptions. The law provides an exception for compensation that is performance-based.
In general, the Committee seeks to preserve the tax deductibility of compensation without compromising the Committee’s flexibility in designing an effective, competitive compensation program. Applied
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In making long-term incentive grants, in 2010, the Committee soughtconsiders executive retention to place greater emphasis on promoting executive retention.be a key objective. Accordingly, the Committee selectedhas in recent years used RSUs as one of three typesaward vehicles, although RSUs now represent only about one-quarter of awards. Althoughthe target long-term incentive value. RSUs do not qualify as performance-based compensation, but the Committee believes that drawback is outweighed by the awards’ positive influencebeneficial impact on executive retention.
Conclusion
The Committee reviews all the components of Applied’s executive compensation program. When making a decision regarding any component of an executive officer’s compensation, the Committee takes into consideration the other components.
The Committee believes that eachthe executive officer’s totalofficers’ compensation is appropriate and that the program’s components are consistent with market standards. The program takes into account Applied’s performance compared to the Peer Group, and appropriately links executive compensation to Applied’s annual and long-term financial results and to the long-term financial return to shareholders. The Committee believes the foregoing philosophy is consistent with Applied’s culture and objectives and will continue to serve as a reasonable basis for administering Applied’s total compensation program for the foreseeable future.
The following table summarizes information, for the years ended June 30, Summary Compensation Table — Fiscal Years 2010, 2009,2013, 2012, and 200820112010, 20092013, 2012, and 2008,2011, regarding the compensation of Applied’s Chief Executive Officer, Chief Financial Officer, and the three other most highly compensated executive officers at June 30, 2010. Change in Pension Value and Nonqualified Non-Equity Deferred Stock Option Incentive Plan Compensation All Other Name and Principal Salary Awards Awards Compensation Earnings Compensation Total Position Year ($) ($) (1) ($) (1) ($) (2) ($) (3) ($) (4) ($) David L. Pugh 2010 945,000 1,435,480 682,722 1,890,000 754,225 49,498 5,756,925 Chairman & Chief 2009 945,000 0 917,339 0 7,456,328 62,515 9,381,182 Executive Officer 2008 913,400 0 612,359 1,927,866 886,523 58,080 4,398,228 Benjamin J. Mondics 2010 450,000 496,085 235,834 626,393 354,224 56,599 2,219,135 President & Chief 2009 450,000 0 319,907 37,429 357,224 34,737 1,199,297 Operating Officer (5) 2008 375,000 0 189,607 342,519 195,988 49,135 1,152,249 Mark O. Eisele 2010 438,000 333,538 158,077 525,600 574,733 59,596 2,089,544 Vice President — Chief 2009 438,000 0 215,565 0 358,662 35,641 1,047,868 Financial Officer & 2008 415,200 0 173,384 544,460 393,372 62,337 1,588,753 Treasurer Fred D. Bauer 2010 355,000 242,765 115,353 376,300 400,058 34,432 1,523,908 Vice President — 2009 355,000 0 157,087 0 134,065 31,413 677,565 General Counsel & 2008 337,400 0 120,666 364,789 133,532 46,973 1,003,360 Secretary Jeffrey A. Ramras 2010 350,000 183,657 87,156 350,000 316,900 47,126 1,334,839 Vice President — 2009 350,000 0 118,102 0 192,999 42,861 703,962 Supply Chain 2008 338,000 0 97,338 365,201 218,583 61,448 1,080,570 Management
Name and Principal Position | Year | Salary ($) | Bonus ($) (1) | Stock Awards ($) (2) | Option Awards ($) (2) | Non-Equity Incentive Plan Compensation ($) (3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (4) | All Other Compensation ($) (5) | Total ($) | |||||||||||||||||||||||||||
Neil A. Schrimsher President & Chief Executive Officer | 2013 | 770,000 | 0 | 1,190,847 | 440,729 | 596,519 | 0 | 242,148 | 3,240,243 | |||||||||||||||||||||||||||
| 2012 | 501,923 | 500,000 | 2,850,910 | 916,918 | 580,500 | 0 | 132,287 | 5,482,538 | ||||||||||||||||||||||||||||
Benjamin J. Mondics Retired President & Chief Operating Officer | 2013 | 464,000 | 0 | 605,638 | 225,489 | 233,650 | 0 | 72,971 | 1,601,748 | |||||||||||||||||||||||||||
| 2012 | 464,000 | 0 | 454,456 | 155,799 | 302,202 | 1,429,158 | 56,010 | 2,861,625 | ||||||||||||||||||||||||||||
| 2011 | 450,000 | 0 | 480,028 | 185,250 | 748,989 | 517,668 | 64,440 | 2,446,375 | ||||||||||||||||||||||||||||
Mark O. Eisele Vice President – Chief Financial Officer & Treasurer | 2013 | 438,000 | 0 | 396,949 | 147,337 | 203,591 | 241,307 | 54,727 | 1,481,911 | |||||||||||||||||||||||||||
| 2012 | 438,000 | 0 | 331,728 | 104,153 | 263,326 | 1,037,615 | 45,303 | 2,220,125 | ||||||||||||||||||||||||||||
| 2011 | 438,000 | 0 | 321,970 | 123,500 | 594,182 | 294,550 | 61,826 | 1,834,028 | ||||||||||||||||||||||||||||
Fred D. Bauer Vice President – General Counsel & Secretary | 2013 | 365,700 | 0 | 290,567 | 107,620 | 150,152 | 89,117 | 54,786 | 1,057,942 | |||||||||||||||||||||||||||
| 2012 | 355,000 | 0 | 227,284 | 75,748 | 188,526 | 936,064 | 41,168 | 1,823,790 | ||||||||||||||||||||||||||||
| 2011 | 355,000 | 0 | 234,160 | 90,250 | 427,175 | 186,925 | 47,480 | 1,340,990 | ||||||||||||||||||||||||||||
Todd A. Barlett Vice President – Acquisitions and Global Business Development | 2013 | 305,000 | 0 | 229,172 | 84,559 | 106,328 | 143,555 | 38,038 | 906,652 | |||||||||||||||||||||||||||
| 2012 | 288,000 | 0 | 185,916 | 56,802 | 129,859 | 592,526 | 37,918 | 1,291,021 | ||||||||||||||||||||||||||||
| 2011 | 280,000 | 0 | 181,474 | 68,401 | 288,068 | 197,405 | 49,510 | 1,064,858 | ||||||||||||||||||||||||||||
| (1) | Mr. Schrimsher’s 2012 amount was a cash signing bonus paid as part of a package to induce him to join Applied and to compensate him for moving-related expenses not covered by Applied’s standard associate relocation program. |
| (2) | Amounts represent the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions used to determine the awards’ grant date fair values are described in the notes to Applied’s consolidated financial statements, included in our annual reports to shareholders for those years. The |
30
| 2013 awards are described in the Compensation Discussion and Analysis at |
| Name | RSUs ($) | Performance Shares ($) | ||||||||
D. Pugh | 707,185 | 728,295 | ||||||||
B. Mondics | 244,876 | 251,209 | ||||||||
M. Eisele | 164,658 | 168,880 | ||||||||
F. Bauer | 120,327 | 122,438 | ||||||||
J. Ramras | 90,773 | 92,884 | ||||||||
| Name | RSUs ($) | Performance Shares ($) | ||||
N. Schrimsher | 383,997 | 806,850 | ||||
B. Mondics | 194,063 | 411,575 | ||||
M. Eisele | 127,999 | 268,950 | ||||
F. Bauer | 94,967 | 195,600 | ||||
T. Barlett | 74,322 | 154,850 | ||||
The performance shares’ grant date fair values assume performance at the target level of achievement. If instead it was assumed that the highest level of performance would be achieved, then the grant date fair values would be twice the amounts reported for the performance shares.
| (3) | The | |
The 2013 figure is the difference between the number shown in the Pension Benefits table on page 32 for 2013 year-end and the same item calculated for July 1, 2012. See the notes to that table for information regarding how estimated amounts were calculated. The present value of the benefit for Mr. Mondics decreased by $383,205 in 2013 as a result of the announcement of his retirement, but, pursuant to SEC rule, the change in value is shown in the table as $0.
In December 2011, the Committee stopped the accrual of additional plan benefits by virtue of years of service and compensation levels. The increases in accrued benefits for 2013 and 2012 related primarily to reductions in the discount rate and the components of the three-segment interest rate structure, as described below.
The SERP uses interest rates and mortality tables that are imposed on tax-qualified pension plans by Code section 417(e). Values for 2013 reflect a 3.00% discount rate and a three-segment interest rate structure in effect for January 2013, with 1.00% for the first five years, 3.73% for the next 15 years, and 4.89% thereafter.
Values for 2012 reflect a 2.75% discount rate and a three-segment interest rate structure in effect for January 2012, with 1.84% for the first five years, 4.36% for the next 15 years, and 5.19% thereafter. Values for 2011 reflect a 4.50% discount rate and a three-segment interest rate structure in effect for January 2011, with 2.45% for the first five years, 5.10% for the next 15 years, and 6.04% thereafter, including recognition of a 20% permissible transition with the 30-year treasury rate. There is no permissible transition with the 30-year treasury rate for 2012 and later years.
In addition, in each successive year, the mortality table reflected adjustments pursuant to Code section 417(e). Present values were determined assuming no probability of termination, retirement, death, or disability before normal retirement age (age 65).
| (5) | ||
| Amounts in this column for | ||
| Perquisites and | ||||||||||||||||||||
| Retirement Savings Plan | Other Personal | |||||||||||||||||||
| Profit-Sharing Contributions | Gross-up Payments | Life Insurance Benefits | Benefits | |||||||||||||||||
| Name | ($) | ($) | ($) | ($) | ||||||||||||||||
D. Pugh | 6,480 | 1,789 | 1,798 | 39,431 | ||||||||||||||||
B. Mondics | 6,480 | 7,835 | 674 | 41,610 | ||||||||||||||||
M. Eisele | 6,480 | 6,868 | 727 | 45,521 | ||||||||||||||||
F. Bauer | 6,480 | 0 | 328 | 27,624 | ||||||||||||||||
J. Ramras | 6,480 | 2,066 | 858 | 37,722 | ||||||||||||||||
31
Retirement Savings Plan (section 401(k) plan) contributions,
KERP account credits,
Gross-up payments to Mr. Schrimsher to cover income taxes in connection with relocation benefits,
Company contributions for executive life insurance, for a $300,000 benefit, and
Estimated values of perquisites and other personal benefits.
The following perquisites and other personal benefits were made available in 2013 to named executive officers: relocation benefits provided to Mr. Schrimsher under Applied’s standard associate relocation program; the annual expense related to post-retirement health care coverage; and company contributions for officer-level accident insurance benefits. No perquisite or personal benefit exceeded the greater of $25,000 or 10% of the total amount of perquisites and personal benefits for a named executive officer in 2013, except Mr. Schrimsher received benefits under Applied’s standard associate relocation program in the amount of $54,812, and the annual expense incurred relating to his post-retirement health care coverage was $38,300.
| Name | Retirement Savings Plan Contributions ($) | Key Executive Restoration Plan Account Credits ($) | Gross-up ($) | Life Insurance Benefits ($) | Perquisites and Other Personal Benefits ($) | |||||
N. Schrimsher | 15,749 | 123,758 | 9,076 | 403 | 93,162 | |||||
B. Mondics | 15,865 | 32,281 | 0 | 736 | 24,089 | |||||
M. Eisele | 15,982 | 28,163 | 0 | 832 | 9,750 | |||||
F. Bauer | 16,468 | 18,408 | 0 | 360 | 19,550 | |||||
T. Barlett | 16,780 | 10,629 | 0 | 979 | 9,650 |
In Grants of Plan-Based Awards — Fiscal Year 201020132010,2013, the Executive Organization & Compensation Committee provided the following incentive opportunities and grants under the 20072011 Long-Term Performance Plan to the named executive officers: All Other Option Grant Date Estimated Future Payouts Under Estimated Future Payouts Under All Other Awards: Fair Non-Equity Incentive Plan Awards (1) Equity Incentive Plan Awards (2) Stock Number Base Price Value of Awards: of Securities of Option Stock Threshold Target Maximum Threshold Target Maximum Number of Underlying Awards and Option Name Grant Date ($) ($) ($) (#) (#) (#) Units (#) (3) Options (#) ($/Share) (4) Awards ($) D. Pugh 9/10/2009 33,500 707,185 9/10/2009 79,900 21.11 682,722 9/10/2009 (3-Year
Performance
Shares) 17,250 34,500 69,000 9/10/2009 (2010
Management
Incentive Plan) 472,500 945,000 1,890,000 B. Mondics 9/10/2009 11,600 244,876 9/10/2009 27,600 21.11 235,834 9/10/2009 (3-Year
Performance
Shares) 5,950 11,900 23,800 9/10/2009 (2010
Management
Incentive Plan) 146,250 292,500 585,000 M. Eisele 9/10/2009 7,800 164,658 9/10/2009 18,500 21.11 158,077 9/10/2009 (3-Year
Performance
Shares) 4,000 8,000 16,000 9/10/2009 (2010
Management
Incentive Plan) 131,400 262,800 525,600 F. Bauer 9/10/2009 5,700 120,327 9/10/2009 13,500 21.11 115,353 9/10/2009 (3-Year
Performance
Shares) 2,900 5,800 11,600 9/10/2009 (2010
Management
Incentive Plan) 94,075 188,150 376,300 J. Ramras 9/10/2009 4,300 90,773 9/10/2009 10,200 21.11 87,156 9/10/2009 (3-Year
Performance
Shares) 2,200 4,400 8,800 9/10/2009 (2010
Management
Incentive Plan) 87,500 175,000 350,000
| Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Stock Awards: Number | All Other Option Awards: Number of Securities Underlying Options (#) | Base of Awards ($/Share) | Grant Fair Value of Stock and Awards ($) | |||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||||||||
N. Schrimsher | 8/9/2012 | 9,300 | 383,997 | |||||||||||||||||||||||||||||||||||||||
| 8/9/2012 | 34,400 | 41.29 | 440,729 | |||||||||||||||||||||||||||||||||||||||
| 8/9/2012 (3-Year | 9,900 | 19,800 | 39,600 | 806,850 | ||||||||||||||||||||||||||||||||||||||
| 8/9/2012 (2013 | 385,000 | 770,000 | 1,540,000 | |||||||||||||||||||||||||||||||||||||||
B. Mondics | 8/9/2012 | 4,700 | 194,063 | |||||||||||||||||||||||||||||||||||||||
| 8/9/2012 | 17,600 | 41.29 | 225,489 | |||||||||||||||||||||||||||||||||||||||
| 8/9/2012 (3-Year | 5,050 | 10,100 | 20,200 | 411,575 | ||||||||||||||||||||||||||||||||||||||
| 8/9/2012 (2013 Incentive Plan) | 150,800 | 301,600 | 603,200 | |||||||||||||||||||||||||||||||||||||||
M. Eisele | 8/9/2012 | 3,100 | 127,999 | |||||||||||||||||||||||||||||||||||||||
| 8/9/2012 | 11,500 | 41.29 | 147,337 | |||||||||||||||||||||||||||||||||||||||
| 8/9/2012 (3-Year | 3,300 | 6,600 | 13,200 | 268,950 | ||||||||||||||||||||||||||||||||||||||
| 8/9/2012 (2013 | 131,400 | 262,800 | 525,600 | |||||||||||||||||||||||||||||||||||||||
F. Bauer | 8/9/2012 | 2,300 | 94,967 | |||||||||||||||||||||||||||||||||||||||
| 8/9/2012 | 8,400 | 41.29 | 107,620 | |||||||||||||||||||||||||||||||||||||||
| 8/9/2012 (3-Year | 2,400 | 4,800 | 9,600 | 195,600 | ||||||||||||||||||||||||||||||||||||||
| 8/9/2012 (2013 | 96,911 | 193,821 | 387,642 | |||||||||||||||||||||||||||||||||||||||
T. Barlett | 8/9/2012 | 1,800 | 74,322 | |||||||||||||||||||||||||||||||||||||||
| 8/9/2012 | 6,600 | 41.29 | 84,559 | |||||||||||||||||||||||||||||||||||||||
| 8/9/2012 (3-Year | 1,900 | 3,800 | 7,600 | 154,850 | ||||||||||||||||||||||||||||||||||||||
| 8/9/2012 (2013 | 68,625 | 137,250 | 274,500 | |||||||||||||||||||||||||||||||||||||||
| (1) | The | |
| (2) | The |
32
| (3) | ||
| (4) |
The following table Outstanding Equity Awards at Fiscal 20102013 Year-Endshowspresents information regarding the named executive officers’ outstanding stock options, SARs, RSUs, and RSUsperformance shares at June 30, 2010. Option Awards Stock Awards Equity Equity Incentive Incentive Plan Awards: Plan Market or Number of Number of Awards: Payout Securities Securities Number of Market Value Number of Value of Underlying Underlying Option Units of of Units of Unearned Unearned Unexercised Unexercised Exercise Option Stock That Stock That Shares That Shares That Options Options Price Expiration Have Not Have Not Have Not Have Not Name (#) Exercisable (#) Unexercisable ($/Share) Date Vested (#) Vested ($) Vested (#) Vested ($) D. Pugh 112,500 0 6.94 8/6/2012 33,500(6 ) 848,220 69,000(7) 1,747,080(7) 256,005 0 9.46 8/8/2013 144,000 0 12.91 8/6/2014 79,500 0 23.00 8/9/2015 66,600 22,200 (1) 21.94 8/8/2016 32,500 32,500 (2) 25.44 8/9/2017 20,200 60,600 (3) 29.41 8/8/2018 0 79,900 (4) 21.11 9/10/2019 B. Mondics 3,250 0 8.60 1/18/2011 11,600(6 ) 293,712 23,800(7) 602,616(7) 6,750 0 7.92 8/9/2011 9,000 0 6.94 8/6/2012 10,241 0 9.46 8/8/2013 11,250 0 12.91 8/6/2014 6,450 0 23.00 8/9/2015 6,450 2,150 (1) 21.94 8/8/2016 7,500 2,500 (5) 23.78 1/23/2017 9,350 9,350 (2) 25.44 8/9/2017 6,975 20,925 (3) 29.41 8/8/2018 0 27,600 (4) 21.11 9/10/2019 M. Eisele 9,619 0 12.91 8/6/2014 7,800(6 ) 197,496 16,000(7) 405,120(7) 18,900 0 23.00 8/9/2015 17,475 5,825 (1) 21.94 8/8/2016 8,550 8,550 (2) 25.44 8/9/2017 4,700 14,100 (3) 29.41 8/8/2018 0 18,500 (4) 21.11 9/10/2019 F. Bauer 3,701 0 9.46 8/8/2013 5,700(6 ) 144,324 11,600(7) 293,712(7) 24,075 0 12.91 8/6/2014 12,450 0 23.00 8/9/2015 12,225 4,075 (1) 21.94 8/8/2016 5,950 5,950 (2) 25.44 8/9/2017 3,425 10,275 (3) 29.41 8/8/2018 0 13,500 (4) 21.11 9/10/2019 J. Ramras 13,500 0 7.92 8/9/2011 4,300(6 ) 108,876 8,800(7) 222,816(7) 22,500 0 6.94 8/6/2012 17,922 0 9.46 8/8/2013 24,075 0 12.91 8/6/2014 12,450 0 23.00 8/9/2015 7,500 2,500 (1) 21.94 8/8/2016 4,800 4,800 (2) 25.44 8/9/2017 2,575 7,725 (3) 29.41 8/8/2018 0 10,200 (4) 21.11 9/10/2019
| Name | Option Awards | Stock Awards | ||||||||||||||||||||||||||||
Number of Securities Underlying Unexercised Options (#) | Number of Securities Underlying Unexercised Options (#) | Option Exercise Price ($/Share) | Option Expiration Date | Number of Units of Stock That Have Not Vested (#) | Market Value of Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares That Have Not Vested ($) | |||||||||||||||||||||||
N. Schrimsher | 6,900 | 20,700 (1) | 32.30 | 10/25/2021 | ||||||||||||||||||||||||||
| 0 | 60,000 (2) | 32.30 | 10/25/2021 | |||||||||||||||||||||||||||
| 0 | 34,400 (3) | 41.29 | 8/9/2022 | |||||||||||||||||||||||||||
| 9,700 (4) | 468,801 | 10,137 (5) | 489,921 | |||||||||||||||||||||||||||
| 45,467 (6) | 2,197,420 | 18,421 (7) | 890,287 | |||||||||||||||||||||||||||
| 9,300 (8) | 449,469 | |||||||||||||||||||||||||||||
B. Mondics(9) | 8,600 | 0 | 21.94 | 8/8/2016 | ||||||||||||||||||||||||||
| 10,000 | 0 | 23.78 | 1/23/2017 | |||||||||||||||||||||||||||
| 18,700 | 0 | 25.44 | 8/9/2017 | |||||||||||||||||||||||||||
| 27,900 | 0 | 29.41 | 8/8/2018 | |||||||||||||||||||||||||||
| 20,700 | 6,900 (9) | 21.11 | 9/10/2019 | |||||||||||||||||||||||||||
| 9,750 | 9,750 (9) | 29.27 | 9/3/2020 | |||||||||||||||||||||||||||
| 4,525 | 13,575 (9) | 26.96 | 8/9/2021 | |||||||||||||||||||||||||||
| 0 | 17,600 (9) | 41.29 | 8/9/2022 | |||||||||||||||||||||||||||
| 8,200 (9) | 396,306 | 4,361 (9) | 210,767 | |||||||||||||||||||||||||||
| 10,100 (9) | 488,133 | 2,663 (9) | 128,703 | |||||||||||||||||||||||||||
| 4,700 (9) | 227,151 | |||||||||||||||||||||||||||||
M. Eisele | 17,100 | 0 | 25.44 | 8/9/2017 | ||||||||||||||||||||||||||
| 18,800 | 0 | 29.41 | 8/8/2018 | |||||||||||||||||||||||||||
| 0 | 4,625 (10) | 21.11 | 9/10/2019 | |||||||||||||||||||||||||||
| 6,500 | 6,500 (11) | 29.27 | 9/3/2020 | |||||||||||||||||||||||||||
| 3,025 | 9,075 (12) | 26.96 | 8/9/2021 | |||||||||||||||||||||||||||
| 0 | 11,500 (3) | 41.29 | 8/9/2022 | |||||||||||||||||||||||||||
| 5,500 (13) | 265,815 | 4,440 (5) | 214,585 | |||||||||||||||||||||||||||
| 7,800 (14) | 376,974 | 6,140 (7) | 296,746 | |||||||||||||||||||||||||||
| 3,100 (8) | 149,823 | |||||||||||||||||||||||||||||
F. Bauer | 11,900 | 0 | 25.44 | 8/9/2017 | ||||||||||||||||||||||||||
| 13,700 | 0 | 29.41 | 8/8/2018 | |||||||||||||||||||||||||||
| 10,125 | 3,375 (10) | 21.11 | 9/10/2019 | |||||||||||||||||||||||||||
| 4,750 | 4,750 (11) | 29.27 | 9/3/2020 | |||||||||||||||||||||||||||
| 2,200 | 6,600 (12) | 26.96 | 8/9/2021 | |||||||||||||||||||||||||||
| 0 | 8,400 (3) | 41.29 | 8/9/2022 | |||||||||||||||||||||||||||
| 4,000 (13) | 193,320 | 3,234 (5) | 156,299 | |||||||||||||||||||||||||||
| 5,150 (14) | 248,900 | 4,466 (7) | 215,842 | |||||||||||||||||||||||||||
| 2,300 (8) | 111,159 | |||||||||||||||||||||||||||||
T. Barlett | 6,975 | 2,325 (10) | 21.11 | 9/10/2019 | ||||||||||||||||||||||||||
| 3,650 | 3,650 (11) | 29.27 | 9/3/2020 | |||||||||||||||||||||||||||
| 1,700 | 5,100 (12) | 26.96 | 8/9/2021 | |||||||||||||||||||||||||||
| 0 | 6,600 (3) | 41.29 | 8/9/2022 | |||||||||||||||||||||||||||
| 3,100 (13) | 149,823 | 2,510 (5) | 121,308 | |||||||||||||||||||||||||||
| 4,350 (14) | 210,236 | 3,535 (7) | 170,847 | |||||||||||||||||||||||||||
| 1,800 (8) | 86,994 | |||||||||||||||||||||||||||||
| (1) | These SARs | |
| (2) | These SARs vest on October 25, 2014. |
| (3) | ||
33
| (4) | These RSUs vest on |
| (5) | These awards are the 2012-2014 performance shares described in the Compensation Discussion and Analysis at page 22. The performance period ends on June 30, 2014. The amounts shown include performance shares banked for 2012 and 2013, and targeted for 2014. |
| (6) | These RSUs vest in equal increments on October 25, 2013 and 2014. |
| (7) |
| (8) | These RSUs vest on |
| (9) | Mr. Mondics retired from Applied on August 16, 2013. As a result, pursuant to the award terms, his performance shares and |
| (10) | These SARs vested on September 10, 2013. |
| (11) | Half of these SARs vested on September 3, 2013. The remaining SARs vest on September 3, 2014. |
| (12) | One third of these SARs vested on August 9, 2013. The remaining SARs vest in equal increments on August 9, 2014 and 2015. |
| (13) | These RSUs vested on September 3, 2013. |
| (14) | These RSUs vest on August 9, 2014. |
The following table shows the value realized in Option Exercises and Stock Vested — Fiscal Year 2010201320102013 by the named executive officers on the exercise of stock options and SARs and the vesting of stock awards. Option Awards Stock Awards Number of Shares Value Realized Number of Shares Value Realized Name Acquired on Exercise (#) on Exercise ($) Acquired on Vesting (#) on Vesting ($) D. Pugh 0 0 0 0 B. Mondics 8,000 179,204 0 0 M. Eisele 0 0 0 0 F. Bauer 0 0 0 0 J. Ramras 0 0 0 0
| Option Awards | Stock Awards | |||||||
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||
N. Schrimsher | 0 | 0 | 22,733 | 881,813 | ||||
B. Mondics | 6,450 | 281,477 | 11,600 | 504,948 | ||||
M. Eisele | 32,775 | 882,288 | 7,800 | 339,534 | ||||
F. Bauer | 28,750 | 951,743 | 5,700 | 248,121 | ||||
T. Barlett | 39,444 | 856,166 | 3,900 | 169,767 | ||||
The SERP, a nonqualified defined benefit plan, provides supplemental retirement benefits to executive officers designated as participants by the Board or the Executive Organization & Compensation Committee. Each Effective as of December 31, 2011, the Committee froze participation in the SERP The SERP’s principal features follow: Retirement Benefits. Except as described below, the annual normal retirement benefit, calculated in a single life annuity form, is 45% of an eligible participant’s average base salary and annual incentive pay for the highest three calendar years during the last 10 calendar years of service Normal and early retirement benefits are reduced by 5% for each year that a participant’s years of service are less than Mr. Mondics’s benefit is also reduced by the actuarial equivalent of his benefits under a non-officer supplemental plan in which he participated prior to his promotion to an executive officer position. Disability Benefits. If a participant with at least five years of service as an executive officer becomes disabled, as defined in regulations under Code section 409A, the participant will receive a monthly SERP disability benefit until the earlier of age 65 or death. The monthly benefit, when added to 1/12th of 60% of the average of the participant’sPension Plansof the current named executive officers is aofficer, other than Mr. Schrimsher, participated in the SERP.participant. Applied offers a section 401(k) defined contributionand stopped the accrual of additional plan (the Retirement Savings Plan) for employees, but does not maintain a qualified defined benefit plan for employees generally.benefits (by virtue of years of service and compensation levels) to existing participants.with Applied.prior to calendar 2012. To receive a normal retirement benefit, a participant must separate from service at or after age 65, with at least five years’ service as an executive officer. To receive an early retirement benefit prior to attainment of age 65, a participant must separate from service after reaching age 55 and completing at least 10 years’ service with Applied, of which at least five were as an executive officer. Ofofficer; all of the named executive officers, only Messrs. Pugh and Ramras are currentlyparticipants have these requisite years of service. Mr. Mondics retired in August 2013 after becoming eligible for early retirement.Upon completion of 10 Messrs. Barlett and Eisele are also eligible for early retirement but Mr. Bauer is 47 years of service with Applied in 2009, Mr. Pugh’s normal retirement benefit became based on 60% of average base salaryold and, annual incentive pay. His benefit is reduced, however, by the benefit payable at age 65 in a single life form under all former employer plans and then reduced further by 50% of his primary Social Security benefit.The benefit for Mr. Mondics is reduced by the actuarial equivalent of his benefits under a non-officer plan in which he participated prior to his promotion to an executive officer position.therefore, not yet eligible.20, except that this reduction does not apply to Mr. Pugh, who joined Applied in 1999.20. In addition, early retirement benefits are also reduced by 5% for each year that the commencement of benefits precedes age 65.all other long-term disability benefits under Applied programs, will equal34
Deferred Vested Benefits. Deferred vested benefits will be paid at age 65 to anya participant who separates from service for reasons other than cause or disability prior to attainment of age 55 with at least 10 years’ service, of which at least five were as an executive officer. The benefits will equal 25% of the participant’s accrued normal retirement benefitsbenefit at the time of separation.
Payment Forms. Normal and early retirement benefits vestedand/or accrued after 2004 are paid in the form designated by the participant pursuant to the provisions ofCode section 409A. Available forms of payment include a single life annuity, various joint and survivor annuities, and substantially equal annual installment payments for a minimum of three years (five for anya participant who is or was Chairman or Chief Executive Officer) up to a maximum of 10 years. Deferred vested benefits are payable in three substantially equal annual installments following attainment of age 65.
Death Benefits. If a participant dies before receiving anya SERP benefit, the participant’s designated beneficiary will receive the accrued benefit’s present value of the deceased participant’s accrued benefit in a lump sum or a series of installments, as the participant elects in advance.
Change in Control. If a SERP participant incurs a separation from service effected either by Applied without “cause” or by the participant for “good reason” within two years after a change in control, or is receiving, or is eligible to receive, a retirement benefit when the change in control occurs, the participant is entitled to receive the actuarial equivalent of Applied (as definedthe participant’s retirement benefit in a lump sum (unless the participant previously elected a different distribution option). In addition, in the SERP) occurs, eachevent of such a separation following a change in control, a participant will be 100% vested, regardless ofunder age and service, in his accrued normal retirement benefit. In addition, the benefit will be increased because the participant55 will be credited with additional years of service and age for benefit calculation purposes equal to one-half the difference between the participant’s age at the time of the change in control and age 65, up to a maximum of 10 years. The benefit will be paid in a lump sum unless the participant previously elected a different option.
Non-Competition.Noncompetition. Except if a change in control occurs, payment of SERP benefits is subject to the condition thatconditioned on the participant not competecompeting with Applied.
Pension Benefits — Fiscal 20102013 Year-End
The following table shows the present value of accumulated benefits payable to the named executive officers and their years of credited service under the SERP.
| Present Value of | ||||||||||||||||||||
| Number of Years | Accumulated Benefit | Payments during | ||||||||||||||||||
| Name | Plan Name | Credited Service (#) | ($) (1) (2) | Last Fiscal Year ($) | ||||||||||||||||
D. Pugh | SERP | 11.5 | 12,601,182 | 0 | ||||||||||||||||
B. Mondics | SERP | 15.8 | 1,338,887 | 0 | ||||||||||||||||
M. Eisele | SERP | 19.1 | 2,628,573 | 0 | ||||||||||||||||
F. Bauer | SERP | 17.8 | 1,210,933 | 0 | ||||||||||||||||
J. Ramras | SERP | 28.9 | 2,100,643 | 0 | ||||||||||||||||
| Name | Plan Name | Number of Years Credited Service (#) (1) | Present Value of Accumulated Benefit ($) (2) (3) | Payments during Last Fiscal Year ($) | ||||
N. Schrimsher | — | — | — | — | ||||
B. Mondics (4) | SERP | 17.3 | 2,902,508 | 0 | ||||
M. Eisele | SERP | 20.6 | 4,202,046 | 0 | ||||
F. Bauer | SERP | 19.3 | 2,423,039 | 0 | ||||
T. Barlett | SERP | 36.2 | 2,373,775 | 0 |
| (1) | In December 2011, the Committee stopped the accrual of additional plan benefits by virtue of years of service and compensation levels. |
| (2) | This figure reflects the estimated present value of the annual pension benefit accrued through June 30, |
A discount rate of 3.00%, the FASB ASC 715 discount rate as of June 30, 2013,
The Code section 417(e) 2013 Optional Combined Unisex Mortality Table and a three-segment interest rate structure in effect for January 2013 with 1.00% for the first five years, 3.73% for the next 15 years, and 4.89% thereafter, and
No probability of termination, retirement, death, or disability before normal retirement age.
Actual payments after retirement are determined based on the Code section 417(e) interest rate and mortality table in effect at that time, along with the participant’s age.
| (3) | Except as described above under “Retirement Benefits” with respect to |
| (4) | Mr. Mondics |
35
Applied maintains twothree nonqualified, unfunded defined contribution plans available tofor key employees, including executive officers. Eligibility is limited to highly compensated or select management employees whose benefits under the Retirement Savings Plan (“RSP”) are subject to certain Code limitations.
Supplemental Defined Contribution Plan
At the time it froze the SERP, the Committee adopted the KERP, an unfunded, nonqualified deferred compensation plan, as a replacement. To participate, an executive must be designated by the Committee or the Board. Applied credits a bookkeeping account for each participant with an amount equal to defer(i) 6.25% (unless the Committee or the Board specifies a portiondifferent percentage) of their compensation that cannot be deferredthe participant’s base salary and annual cash incentive pay minus (ii) the amount of company contributions credited to the participant under the Retirement Savings Plan dueRSP for the payment period. To be eligible for KERP account credits, participants must elect to make 401(k) contributions under the RSP of either 6% of compensation or the contribution limit applicable under the Code limitations.
Each participant’s account balance is deemed invested in mutual funds selected by the participant from those available under the KERP. With the exception of Applied stock, participants generally have the same diverse equity, fixed income, and money market investment options as they have in the Retirement Savings Plan.
The Committee has designated each named executive officer as a participant. The Committee set the account credit percentage for Mr. Schrimsher at 10% and provided that he will vest in 50% of his account after three years of service, 75% after four years, and 100% after five years. Mr. Schrimsher joined the company in October 2011.
Supplemental Defined Contribution Plan
The Supplemental Defined Contribution Plan permits highly compensated employees to defer a portion of their compensation that cannot be deferred under the RSP due to Code limitations.
Participants are always vested in their Supplemental Defined Contribution Plan deferrals. Applied does not contribute to the plan. With the exception of Applied stock, participants generally have the same diverse equity, fixed income, and money market investment options as they have in the RSP.
Participants may receive distributions in a lump sum or in installments, as specified in the participant’s deferral election form. Acceleration of distributions is prohibited and anya distribution change must comply with Code section 409A. Other than a date specified in a deferral election form, the plan only permits withdrawals, while employed, due to an unforeseeable emergency as allowed under section 409A.
Each named executive officer has a plan account, but only Mr. Ramrasaccount. Messrs. Schrimsher and Barlett made deferrals into the plan in 2010.
Deferred Compensation Plan
The Deferred Compensation Plan permits executive officers to defer a portion or all of the awards payable under an annual incentive plan or performance grantshares program. The plan’s purpose is to promote increased efforts on Applied’s behalf through increased investment in Applied stock.
The plan givesprovides each annual incentive plan participant the opportunity to defer payment of his or her cash award. A participant who elects to makemakes a deferral may have the amounts deemed invested in Applied stockand/or in a money market fund.
Participants may receive distributions in a lump sum or in installments over a period not exceeding 10 years, as specified in a deferral election form. Acceleration of distributions is prohibited and anya distribution change must comply with Code section 409A. Other than a date specified in a deferral election form, the plan only permits withdrawals, while employed, due to an unforeseeable emergency as allowed under section 409A.
Although none of the named executive officers deferred pay into the Deferred Compensation Plan in 2010,2013, Messrs. EiseleBarlett and RamrasEisele have plan accounts due to deferrals in past years.
36deferrals.
The following table presents contribution,contributions, earnings, distributions, and balance information for the named executive officers’ Deferred Compensation Plan, Key Executive Restoration Plan, and Supplemental Defined Contribution Plan accounts for 2010.
| Executive | Registrant | Aggregate Earnings | Aggregate | Aggregate | |||||||||||||||||||||
| Contributions | Contributions | (Losses) | Withdrawals/ | Balance at Last | |||||||||||||||||||||
| Name and Plan | in Last FY ($) | in Last FY ($) | in Last FY ($) | Distributions ($) | FYE ($) | ||||||||||||||||||||
D. Pugh | |||||||||||||||||||||||||
| Supplemental Defined Contribution Plan | 0 | 0 | 151,842 | 0 | 778,733 | ||||||||||||||||||||
B. Mondics | |||||||||||||||||||||||||
| Supplemental Defined Contribution Plan | 0 | 0 | 17,078 | 0 | 147,556 | ||||||||||||||||||||
M. Eisele | |||||||||||||||||||||||||
| Deferred Compensation Plan | 0 | 0 | 40,642 | 0 | 167,725 | ||||||||||||||||||||
| Supplemental Defined Contribution Plan | 0 | 0 | 65,627 | 0 | 461,110 | ||||||||||||||||||||
F. Bauer | |||||||||||||||||||||||||
| Supplemental Defined Contribution Plan | 0 | 0 | 13,388 | 0 | 92,623 | ||||||||||||||||||||
J. Ramras | |||||||||||||||||||||||||
| Deferred Compensation Plan | 0 | 0 | 124,939 | 0 | 515,618 | ||||||||||||||||||||
| Supplemental Defined Contribution Plan | 16,750 | 0 | 71,691 | 0 | 636,727 | ||||||||||||||||||||
| Name and Plan | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($) (1) | Aggregate Earnings (Losses) in Last FY ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) | ||||||||||||||||||||
N. Schrimsher | |||||||||||||||||||||||||
Key Executive Restoration Plan | 0 | 122,690 | 8,830 | 0 | 131,520 | ||||||||||||||||||||
Supplemental Defined Contribution Plan | 211,954 | 0 | 31,136 | 0 | 289,915 | ||||||||||||||||||||
B. Mondics | |||||||||||||||||||||||||
Key Executive Restoration Plan | 0 | 31,167 | 2,460 | 0 | 33,627 | ||||||||||||||||||||
Supplemental Defined Contribution Plan | 0 | 0 | 39,085 | 0 | 240,488 | ||||||||||||||||||||
M. Eisele | |||||||||||||||||||||||||
Deferred Compensation Plan | 0 | 0 | 26,057 | 0 | 342,805 | ||||||||||||||||||||
Key Executive Restoration Plan | 0 | 26,699 | (878 | ) | 0 | 25,851 | |||||||||||||||||||
Supplemental Defined Contribution Plan | 0 | 0 | 92,403 | 0 | 720,033 | ||||||||||||||||||||
F. Bauer | |||||||||||||||||||||||||
Key Executive Restoration Plan | 0 | 17,451 | 758 | 0 | 18,209 | ||||||||||||||||||||
Supplemental Defined Contribution Plan | 0 | 0 | 20,379 | 0 | 151,708A | ||||||||||||||||||||
T. Barlett | |||||||||||||||||||||||||
Deferred Compensation Plan | 0 | 0 | 37,118 | 0 | 488,326 | ||||||||||||||||||||
Key Executive Restoration Plan | 0 | 10,475 | (79 | ) | 0 | 10,396 | |||||||||||||||||||
Supplemental Defined Contribution Plan | 3,050 | 0 | 1,988 | 0 | 266,150 | ||||||||||||||||||||
| (1) | Key Executive Restoration Plan account credits are shown net of withholding for certain taxes. The gross amounts are shown as a component of “All Other Compensation” in note (5) to the Summary Compensation Table on page 28. |
The summaries and tables A termination of the executive’s employment with Applied prior to a change in control, A termination of employment due to death, disability, or retirement, A change in control of Applied, or A termination of employment following a change in control. Compensation and benefits earned or accrued prior to the event, and not contingent on the event’s occurrence, are not included in the summaries or tables. Payments in the Event of a Termination Except for Mr. Schrimsher, Applied does not have a formal severance policy Upon his hire, Applied and Mr. Schrimsher entered into an executive severance agreement providing that, if his service with Applied were terminated within a year of the agreement effective date by Applied “without cause” or by him “for good cause,” he would be entitled to severance in an amount equal to his base salary plus target annual incentive pay for a period running from his termination date to the second anniversary of the agreement effective date. He would not, however, be entitled to payment under the executive severance agreement if he received payment under his change in control agreement. The executive severance agreement automatically renews annually (as it did in October 2012) unless Applied elects not to renew it prior to expiration of the then-current term. Regardless of reason, if Potential Payments upon Termination or Change in Controlbelowin this section describe the compensation and benefits that would have been payable to eachthe named executive officerofficers at June 30, 2010,2013, if, as of that date, there had occurred (a) a (b) a (c) a (d) aor arrangement that provides payments to the named executive officers if termination of employment occurs (other than in the circumstance of a change in control or by reason of death, disability, or retirement). The Board of Directors and its Executive Organization & Compensation Committee retain discretion to determine the severance benefits, if any, to be offered.ana named executive officer’s employment terminates (other than in the circumstance of a change in control or by reason of death, disability or retirement) prior to the end of a vesting or performance period, then the following shall occur:
37Awards under an annual cash incentive plan are forfeited, except as noted above under Mr. Schrimsher’s executive severance agreement.
Accrued SERP benefits are forfeited if the participant separates from service prior to becoming eligible for normal, early, or deferred vested retirement benefits. SERP benefits payable to named executive officers are more fully described on pages 31-32 in “Pension Plans.”
The accrual of other compensation and benefits under Applied’s qualified and nonqualified benefit plans will cease.
Payments in the Event of Death, Disability, or Retirement
If ana named executive officer’s employment terminates by reason of death, disability, or retirement (other than following a change in control), then the following shall occur:
Awards under an annual cash incentive plan are payable on a pro rata basis at the end of the performance period based on the portion of the period during which the executive worked and the actual achievement of performance targets.
Performance shares are payable at the end of the performance period based on the portion of the period during which the executive worked and tied to actual performance.
RSUs are payable on a pro rata basis pegged to the portion of the three-year term during which the executive worked.
SARs that have not yet vested will vest.
SERP benefits payable on death, separation from service, or termination due to disability are more fully described in “Pension Plans.”
Unvested KERP account balances vest in the event of death, disability, or attainment of age 65. Accounts are also credited for the portion of the calendar year worked in the event of death, disability, or retirement after attaining age 55 with at least ten years of service.
Upon retirement or termination due to disability after reaching age 55, the executive may participate in a retiree health care program, through third-party policies, paying the premiums that active employees pay for Applied’s plan. Individuals first elected as executive officers after 2012 are not eligible for this program.
The accrual of other compensation and benefits under Applied’s qualified and nonqualified benefit plans will cease.
In connection with his retirement, Mr. Mondics and Applied entered into an agreement for Mr. Mondics to provide six months of post-retirement consulting services. Mr. Mondics will receive consulting payments totaling $38,667 per month. He also agreed to two-year non-compete and non-solicitation covenants.
Payments in the Event of a Change in Control
Change in Control Agreements. Applied does not have employment agreements with its executive officers. However, Applied has entered into a change in control agreementsagreement with each of them. the named executive officers.
The agreements obligate Applied to provide severance benefits to an executive officer who incurs a separation from service effected either by the officer for “good reason” or by Applied “without cause” if the separation occurs within three years (two years in Mr. Schrimsher’s agreement) after a change in control. The executive officer, in turn, is required not to compete with Applied for one year following the separation (three years for Mr. Schrimsher) and to hold in confidence Applied confidential information and trade secrets.
No compensation or benefits are payable under thean agreement on termination of the executive’s employment prior to a change in control, or following a change in control if the executive’s employment is terminated by Applied for cause or by reason of death, disability, or retirement.
The compensation and principal benefits to be provided under the agreements follow:
A lump sum severance payment equal to three times the aggregate amount of the executive’s annual base salary and target annual incentive pay, reduced proportionately if the officer would reach age 65 within three years after termination (Mr. Schrimsher’s agreement also entitles him to a prorated target annual incentive payment for the year in which termination occurs),
A cash payment for vested, unexercised SARs held on the termination date, equal to the executive officersdifference between the exercise price and the higher of (i) the mean of the high and low trading prices on the NYSE on the termination date, and (ii) the highest price paid for Applied common stock in connection with the change in control,
Continued participation in Applied’s employee benefit plans, programs, and arrangements, or equivalent benefits for three years after termination at the levels in effect immediately before termination,
Outplacement services, and
An additional payment in an amount sufficient, after payment of taxes on the additional payment, to pay any required “parachute” excise tax. This excise tax gross-up is not included in Mr. Schrimsher’s agreement; instead, payments under his agreement are as follow:
38subject to a “best net” reduction provision in the event he would be subject to an excise tax.
A merger of Applied with another entity or a sale of substantially all of Applied’s assets to a third party, following which Applied’s shareholders prior to the transaction hold less than a majority of the combined voting power of the merged entities or asset acquirer,
Acquisition of beneficial ownership by a person of 20% or more (30% or more in Mr. Schrimsher’s agreement) of Applied’s then-outstanding common stock, or
One quarter or more (one half or more in Mr. Schrimsher’s agreement) of the members of the Board of Directors being persons other than (i) directors who were in office on the agreement date, or (ii) directors who are elected after such date and whose nomination or election is approved by two-thirds of directors then in office or their successors approved by that proportion.
“Good reason” means the following:
Diminution of position or assigned duties, excluding an isolated, insubstantial, and inadvertent action not taken in bad faith,
Reduction of compensation, incentive compensation potential, or benefits following a change in control, other than an isolated, insubstantial, and inadvertent failure not occurring in bad faith,
Applied requiring the executive to change principal place of employment or to travel to a greater extent than required immediately prior to a change in control, or
Failure of a successor to Applied to assume Applied’s obligations under the agreement.
Applied may modify or terminate its obligations under the agreements at any time prior to a change in control so long as the modification or termination is not made in anticipation of or in connection with a change in control.
20072011 Long-Term Performance Plan. The 20072011 Long-Term Performance Plan (as well as the 1997 Long-Term Performance Plan it replaced, under which unvested awards remain outstanding) provides that if an executive officer incurs a separation from service effected either by Applied without “cause” or by the officer for “good reason” (as each term is defined in the plan) within three years following a change in control, occurs, then allunvested SARs outstanding become exercisable and awards under a Management Incentive Plancash incentive plan become earned at the target amount. In addition, under the same circumstances, pursuant to the award terms (a)and conditions, RSUs shall be vestedwill vest in full, and (b) performance grants and performance shares shallwill be payable at the target amount on a pro rata basis pegged to the timing of the change in controlseparation in the three-year performance period.
The 2011 Long-Term Performance Plan replaced the 2007 Long-Term Performance Plan, which provided for vesting upon a change in control without conditioning the benefit on a separation from service effected without “cause” or for “good reason.” Certain awards under the 2007 plan remain unvested.
Supplemental Executive Retirement Benefits Plan. If a SERP participant is terminated followingincurs a separation from service effected either by Applied without “cause” or by the participant for “good reason” within two years after a change in control, (as defined in the regulations under Code section 409A), or is receiving, or is eligible to receive, a retirement benefit when the change in control occurs, the executiveparticipant is entitled to receive the actuarial equivalent of the executive’sparticipant’s retirement benefit in a lump sum.sum (unless the participant previously elected a different distribution option). In addition, uponin the event of such a separation following a change in control, the executivea participant under age 55 will be credited with additional years of service and age for benefit calculation purposes equal to half the difference between the executive’sparticipant’s age and age 65, up to55.
Key Executive Restoration Plan. If a maximum of 10 years.
Quantitative Disclosure. The tables assume that a termination or change in control occurred on June 30, 2010,2013, the last day of our fiscal year, and Applied’s stock price for all calculations is $25.32,$48.33, the closing price on the NYSE on that date.the last trading day of the year. The tables include amounts earned through that time and current estimates of the amounts that would be paid on the occurrence of the events shown. The actual payment amounts can be determined only at the time of the event. The amounts shown do not include benefits and payments that are generally available to all salaried employees on a non-discriminatorynondiscriminatory basis. Also, as noted above,compensation and benefits earned by an executive prior to an event shown, and not contingent on the event’s occurrence, are not reflected in the tables.
39
| Termination | ||||||||||||||||||||||||||||||||||||||||
| Without | ||||||||||||||||||||||||||||||||||||||||
| Cause or | ||||||||||||||||||||||||||||||||||||||||
| Termination | for Good | |||||||||||||||||||||||||||||||||||||||
| Termination | for Cause | Reason | Change in | |||||||||||||||||||||||||||||||||||||
| (No Change | Normal | Early | Following | Following | Control (No | Termination | ||||||||||||||||||||||||||||||||||
| Benefits and | in Control) | Retirement | Retirement | Change in | Change in | Termination) | due to | |||||||||||||||||||||||||||||||||
| Payments | ($) | ($) (1) | ($) (2) | Control ($) | Control ($) | ($) | Death ($) | Disability ($) | ||||||||||||||||||||||||||||||||
Base Salary | 0 | 0 | 0 | 0 | 2,835,000 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Management Incentive Plan | 0 | 0 | 0 | 0 | 2,835,000 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Performance Grants/Shares (3) | 0 | 0 | 1,274,360 | 0 | 0 | 1,274,360 | 1,274,360 | 1,274,360 | ||||||||||||||||||||||||||||||||
SARs | 0 | 0 | 411,415 | 0 | 0 | 411,415 | 411,415 | 411,415 | ||||||||||||||||||||||||||||||||
RSUs | 0 | 0 | 282,740 | 0 | 0 | 848,220 | 282,740 | 282,740 | ||||||||||||||||||||||||||||||||
SERP (4) (5) | 387,052 | 0 | 387,052 | 0 | 0 | 1,312,599 | 0 | 0 | * | |||||||||||||||||||||||||||||||
Health Care and Welfare Benefits (6) | 0 | 0 | 0 | 0 | 116,800 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Life/Disability Insurance Proceeds (7) | 0 | 0 | 0 | 0 | 0 | 0 | 300,000 | * | ||||||||||||||||||||||||||||||||
Outplacement Services | 0 | 0 | 0 | 0 | 20,000 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Excise TaxGross-Up | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Total | 387,052 | 0 | 2,355,567 | 0 | 5,806,800 | 3,846,594 | 2,268,515 | * | ||||||||||||||||||||||||||||||||
Benefits and Payments | Termination (No Change in Control) ($) | Normal Retirement ($) (1) | Early Retirement ($) (2) | Termination for Cause Following Change in Control ($) | Termination Without Cause or for Good Reason Following Change in Control ($) | Change in Control (No Termination) ($) | Death ($) | Termination due to Disability ($) | ||||||||||||||||||||||||
Base Salary | 1,002,055 | 0 | 0 | 0 | 2,310,000 | 0 | 0 | 0 | ||||||||||||||||||||||||
Management Incentive Plan | 1,002,055 | 0 | 0 | 0 | 2,310,000 | 0 | 0 | 0 | ||||||||||||||||||||||||
Performance Shares | 0 | 0 | 0 | 0 | 573,097 | 0 | 573,097 | 573,097 | ||||||||||||||||||||||||
SARs | 0 | 0 | 0 | 0 | 1,535,797 | 0 | 1,535,797 | 1,535,797 | ||||||||||||||||||||||||
RSUs | 0 | 0 | 0 | 0 | 3,115,690 | 0 | 1,692,634 | 1,692,634 | ||||||||||||||||||||||||
KERP (3) | 0 | 0 | 0 | 0 | 131,520 | 0 | 193,399 | 193,399 | ||||||||||||||||||||||||
Health Care and Welfare Benefits (4) | 0 | 0 | 0 | 0 | 52,641 | 0 | 0 | 0 | ||||||||||||||||||||||||
Life/Disability Insurance Proceeds (5) | 0 | 0 | 0 | 0 | 0 | 0 | 3,376,250 | * | ||||||||||||||||||||||||
Outplacement Services | 0 | 0 | 0 | 0 | 20,000 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total | 2,004,110 | 0 | 0 | 0 | 10,048,745 | 0 | 7,371,177 | 3,994,927 | * | |||||||||||||||||||||||
| (1) | “Normal retirement” under Applied’s plans is separation from service after attainment of age 65. Mr. | |
| (2) | ||
| (3) | ||
| (4) | ||
| Includes health care benefits and accidental death and dismemberment |
| (5) | Proceeds are payable from third-party insurance | |
| * | Applied’s supplemental long-term disability (“LTD”) insurance, with premiums paid by the executive, provides a monthly disability benefit equal to 60% of monthly total compensation (monthly base salary plus the average of the three most recent years’ annual incentive compensation divided by 12), minus the basic plan benefit of 60% of base salary, up to |
40
| Termination | ||||||||||||||||||||||||||||||||||||||||
| Without | ||||||||||||||||||||||||||||||||||||||||
| Cause or | ||||||||||||||||||||||||||||||||||||||||
| Termination | for Good | |||||||||||||||||||||||||||||||||||||||
| Termination | for Cause | Reason | Change in | |||||||||||||||||||||||||||||||||||||
| (No Change | Normal | Early | Following | Following | Control (No | Termination | ||||||||||||||||||||||||||||||||||
| Benefits and | in Control) | Retirement | Retirement | Change in | Change in | Termination) | due to | |||||||||||||||||||||||||||||||||
| Payments | ($) | ($) (1) | ($) (2) | Control ($) | Control ($) | ($) | Death ($) | Disability ($) | ||||||||||||||||||||||||||||||||
Base Salary | 0 | 0 | 0 | 0 | 1,350,000 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Management Incentive Plan | 0 | 0 | 0 | 0 | 877,500 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Performance Grants/Shares (3) | 0 | 0 | 0 | 0 | 0 | 439,805 | 439,805 | 439,805 | ||||||||||||||||||||||||||||||||
SARs | 0 | 0 | 0 | 0 | 0 | 127,326 | 127,326 | 127,326 | ||||||||||||||||||||||||||||||||
RSUs | 0 | 0 | 0 | 0 | 0 | 293,712 | 97,904 | 97,904 | ||||||||||||||||||||||||||||||||
Non-Officer Incentive Plan (4) | 0 | 0 | 0 | 0 | 0 | 0 | 28,442 | 28,442 | ||||||||||||||||||||||||||||||||
SERP (5) | 0 | 0 | 0 | 0 | 0 | 2,478,822 | 1,043,322 | 0 | * | |||||||||||||||||||||||||||||||
Health Care and Welfare Benefits (6) | 0 | 0 | 0 | 0 | 145,200 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Life/Disability Insurance Proceeds (7) | 0 | 0 | 0 | 0 | 0 | 0 | 1,563,131 | * | ||||||||||||||||||||||||||||||||
Outplacement Services | 0 | 0 | 0 | 0 | 20,000 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Excise TaxGross-Up | 0 | 0 | 0 | 0 | 1,248,789 | 1,274,132 | 0 | 0 | ||||||||||||||||||||||||||||||||
Total | 0 | 0 | 0 | 0 | 3,641,489 | 4,613,797 | 3,299,930 | * | ||||||||||||||||||||||||||||||||
Benefits and Payments | Termination (No Change in Control) ($) | Normal Retirement ($) (1) | Early Retirement ($) (2) | Termination for Cause Following Change in Control ($) (3) | Termination Without Cause or for Good Reason Following Change in Control ($) (3) | Change in Control (No Termination) ($) (3) | Death ($) | Termination due to Disability ($) | ||||||||||||
Base Salary | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||
| Management Incentive Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||
Performance Shares | 0 | 0 | 0 | 0 | 0 | 0 | 339,470 | 339,470 | ||||||||||||
SARs | 0 | 0 | 0 | 0 | 0 | 0 | 787,655 | 787,655 | ||||||||||||
RSUs | 0 | 0 | 0 | 0 | 0 | 0 | 791,135 | 791,135 | ||||||||||||
SERP | 0 | 0 | 0 | 0 | 0 | 0 | 2,176,881 | 3,553,567 | * | |||||||||||
KERP (4) | 0 | 0 | 0 | 0 | 0 | 0 | 16,141 | 16,141 | ||||||||||||
Health Care and Welfare Benefits | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||
Life/Disability Insurance Proceeds (5) | 0 | 0 | 0 | 0 | 0 | 0 | 2,306,642 | * | ||||||||||||
Outplacement Services | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||
Excise Tax Gross-Up | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||
Total | 0 | 0 | 0 | 0 | 0 | 0 | 6,417,924 | 5,487,968 | * | |||||||||||
| (1) | “Normal retirement” under Applied’s plans is separation from service after attainment of age 65. At June 30, 2013, Mr. Mondics | |
| (2) | At June 30, 2013, Mr. Mondics | |
| (3) | In connection with his retirement, but prior to June 30, 2013, Mr. Mondics waived his rights to pre-retirement change in control benefits. |
| (4) | ||
| (5) | ||
| Proceeds are payable from third-party insurance | ||
| * | Applied’s supplemental long-term disability (“LTD”) insurance, with premiums paid by the executive, provides a monthly disability benefit equal to 60% of monthly total compensation (monthly base salary plus the average of the three most recent years’ annual incentive compensation divided by 12), minus the basic plan benefit of 60% of base salary, up to |
41
| Termination | ||||||||||||||||||||||||||||||||||||||||
| without | ||||||||||||||||||||||||||||||||||||||||
| Cause or | ||||||||||||||||||||||||||||||||||||||||
| Termination | for Good | |||||||||||||||||||||||||||||||||||||||
| Termination | for Cause | Reason | Change in | |||||||||||||||||||||||||||||||||||||
| (No Change | Normal | Early | Following | Following | Control (No | Termination | ||||||||||||||||||||||||||||||||||
| Benefits and | in Control) | Retirement | Retirement | Change in | Change in | Termination) | due to | |||||||||||||||||||||||||||||||||
| Payments | ($) | ($) (1) | ($) (2) | Control ($) | Control ($) | ($) | Death ($) | Disability ($) | ||||||||||||||||||||||||||||||||
Base Salary | 0 | 0 | 0 | 0 | 1,314,000 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Management Incentive Plan | 0 | 0 | 0 | 0 | 788,400 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Performance Grants/Shares (3) | 0 | 0 | 0 | 0 | 0 | 295,707 | 295,707 | 295,707 | ||||||||||||||||||||||||||||||||
SARs | 0 | 0 | 0 | 0 | 0 | 97,574 | 97,574 | 97,574 | ||||||||||||||||||||||||||||||||
RSUs | 0 | 0 | 0 | 0 | 0 | 197,496 | 65,832 | 65,832 | ||||||||||||||||||||||||||||||||
SERP (4) | 0 | 0 | 0 | 0 | 0 | 3,084,525 | 1,456,445 | * | ||||||||||||||||||||||||||||||||
Health Care and Welfare Benefits (5) | 0 | 0 | 0 | 0 | 119,400 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Life/Disability Insurance Proceeds (6) | 0 | 0 | 0 | 0 | 0 | 0 | 1,692,328 | * | ||||||||||||||||||||||||||||||||
Outplacement Services | 0 | 0 | 0 | 0 | 20,000 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Excise TaxGross-Up | 0 | 0 | 0 | 0 | 2,356,058 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Total | 0 | 0 | 0 | 0 | 4,597,858 | 3,675,302 | 3,607,886 | * | ||||||||||||||||||||||||||||||||
Benefits and Payments | Termination (No Change in Control) ($) | Normal Retirement ($) (1) | Early Retirement ($) (2) | Termination for Cause Following Change in Control ($) (3) | Termination Without Cause or for Good Reason Following Change in Control ($) (3) | Change in Control (No Termination) ($) | Death ($) | Termination due to Disability ($) | ||||||||||||||||||
Base Salary | 0 | 0 | 0 | 0 | 1,314,000 | 0 | 0 | 0 | ||||||||||||||||||
Management Incentive Plan | 0 | 0 | 0 | 0 | 788,400 | 0 | 0 | 0 | ||||||||||||||||||
Performance Shares | 0 | 0 | 224,590 | 0 | 224,590 | 0 | 224,590 | 224,590 | ||||||||||||||||||
SARs | 0 | 0 | 524,675 | 0 | 274,893 | 249,783 | 524,675 | 524,675 | ||||||||||||||||||
RSUs | 0 | 0 | 562,910 | 0 | 526,797 | 265,815 | 562,910 | 562,910 | ||||||||||||||||||
SERP (4) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 857,543 | * | |||||||||||||||||
KERP (5) | 0 | 0 | 14,082 | 0 | 0 | 0 | 14,082 | 14,082 | ||||||||||||||||||
Welfare Benefits (6) | 0 | 0 | 0 | 0 | 180 | 0 | 0 | 0 | ||||||||||||||||||
Life/Disability Insurance Proceeds (7) | 0 | 0 | 0 | 0 | 0 | 0 | 2,118,388 | * | ||||||||||||||||||
Outplacement Services | 0 | 0 | 0 | 0 | 20,000 | 0 | 0 | 0 | ||||||||||||||||||
Excise Tax Gross-Up | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Total | 0 | 0 | 1,326,257 | 0 | 3,148,860 | 515,598 | 3,444,645 | 2,183,800 | * | |||||||||||||||||
| (1) | “Normal retirement” under Applied’s plans is separation from service after attainment of age 65. Mr. Eisele is age | |
| (2) | “Early retirement” is defined as separation from service after attainment of age 55 with at least 10 years of service, five of which are as an executive officer. |
| (3) | These amounts do not reflect benefits received solely as a result of the change in control. |
| (4) | The RP-2000 Disability Mortality Table for males and a 3.00% interest rate are used in valuing the disability benefits. |
| (5) | KERP estimates are based on value of company account credits for preceding calendar year. |
| (6) | Includes accidental death and dismemberment insurance. |
| (7) | Proceeds are payable from third-party insurance policies and the SERP. |
| * | Applied’s supplemental long-term disability (“LTD”) insurance, with premiums paid by the executive, provides a monthly disability benefit equal to 60% of monthly total compensation (monthly base salary plus the average of the three most recent years’ annual incentive compensation divided by 12), minus the basic plan benefit of 60% of base salary, up to an additional $3,000 per month benefit. The aggregate maximum monthly LTD benefit, under the basic and supplemental programs, is $21,000. In addition, the SERP provides a monthly disability benefit to participants with five years of service as an executive officer which, when added to amounts payable under the basic and supplemental LTD programs, equals 1/12th of 60% of the average of the highest three of the last 10 calendar years of total compensation (base salary plus annual incentive). |
Fred D. Bauer, Vice President - General Counsel & Secretary
Benefits and Payments | Termination (No Change in Control) ($) | Normal Retirement ($) (1) | Early Retirementd ($) (2) | Termination for Cause Following Change in Control ($) (3) | Termination Without Cause or for Good Reason Following Change in Control ($) (3) | Change in Control (No Termination) ($) | Death ($) | Termination due to Disability ($) | ||||||||||||||||
Base Salary | 0 | 0 | 0 | 0 | 1,097,100 | 0 | 0 | 0 | ||||||||||||||||
Management Incentive Plan | 0 | 0 | 0 | 0 | 581,463 | 0 | 0 | 0 | ||||||||||||||||
Performance Shares | 0 | 0 | 0 | 0 | 163,500 | 0 | 163,500 | 163,500 | ||||||||||||||||
SARs | 0 | 0 | 0 | 0 | 200,178 | 182,403 | 382,581 | 382,581 | ||||||||||||||||
RSUs | 0 | 0 | 0 | 0 | 360,059 | 193,320 | 393,218 | 393,218 | ||||||||||||||||
SERP (4) | 0 | 0 | 0 | 0 | 1,136,638 | 0 | 974,375 | 2,575,384 | * | |||||||||||||||
KERP (5) | 0 | 0 | 0 | 0 | 0 | 0 | 9,204 | 9,204 | ||||||||||||||||
Health Care and Welfare Benefits (6) | 0 | 0 | 0 | 0 | 38,226 | 0 | 0 | 0 | ||||||||||||||||
Life/Disability Insurance Proceeds (7) | 0 | 0 | 0 | 0 | 0 | 0 | 1,646,938 | * | ||||||||||||||||
Outplacement Services | 0 | 0 | 0 | 0 | 20,000 | 0 | 0 | 0 | ||||||||||||||||
Excise Tax Gross-Up | 0 | 0 | 0 | 0 | 1,177,318 | 0 | 0 | 0 | ||||||||||||||||
Total | 0 | 0 | 0 | 0 | 4,774,482 | 375,723 | 3,569,816 | 3,523,887 | * | |||||||||||||||
| (1) | “Normal retirement” under Applied’s plans is separation from service after attainment of age 65. Mr. Bauer is age 47 and therefore ineligible for normal retirement. |
| (2) | Mr. |
| (3) | ||
| (4) | Calculation of post-termination SERP benefits assumes the executive would receive benefits in the installment payment form at the earliest date he would be eligible. To calculate the estimated present value of the installments, a | |
| (5) | KERP estimates are based on value of company account credits for preceding calendar year. |
| (6) | Includes health care benefits and accidental death and dismemberment |
| (7) | Proceeds are payable from third-party insurance policies and the SERP. | |
| * | Applied’s supplemental long-term disability (“LTD”) insurance, with premiums paid by the executive, provides a monthly disability benefit equal to 60% of monthly total compensation (monthly base salary plus the average of the three most recent years’ annual incentive compensation divided by 12), minus the basic plan benefit of 60% of base salary, up to |
42
| Termination | ||||||||||||||||||||||||||||||||||||||||
| without | ||||||||||||||||||||||||||||||||||||||||
| Cause or | ||||||||||||||||||||||||||||||||||||||||
| Termination | for Good | |||||||||||||||||||||||||||||||||||||||
| Termination | for Cause | Reason | Change in | |||||||||||||||||||||||||||||||||||||
| (No Change | Normal | Early | Following | Following | Control (No | Termination | ||||||||||||||||||||||||||||||||||
| Benefits and | in Control) | Retirement | Retirement | Change in | Change in | Termination) | due to | |||||||||||||||||||||||||||||||||
| Payments | ($) | ($) (1) | ($) (2) | Control ($) | Control ($) | ($) | Death ($) | Disability ($) | ||||||||||||||||||||||||||||||||
Base Salary | 0 | 0 | 0 | 0 | 1,065,000 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Management Incentive Plan | 0 | 0 | 0 | 0 | 564,450 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Performance Grants/Shares (3) | 0 | 0 | 0 | 0 | 0 | 214,771 | 214,771 | 214,771 | ||||||||||||||||||||||||||||||||
SARs | 0 | 0 | 0 | 0 | 0 | 70,609 | 70,609 | 70,609 | ||||||||||||||||||||||||||||||||
RSUs | 0 | 0 | 0 | 0 | 0 | 144,324 | 48,108 | 48,108 | ||||||||||||||||||||||||||||||||
SERP (4) | 0 | 0 | 0 | 0 | 0 | 660,773 | 512,242 | * | ||||||||||||||||||||||||||||||||
Health Care and Welfare Benefits (5) | 0 | 0 | 0 | 0 | 119,200 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Life/Disability Insurance Proceeds (6) | 0 | 0 | 0 | 0 | 0 | 0 | 1,291,968 | * | ||||||||||||||||||||||||||||||||
Outplacement Services | 0 | 0 | 0 | 0 | 20,000 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Excise TaxGross-Up | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Total | 0 | 0 | 0 | 0 | 1,768,650 | 1,090,477 | 2,137,698 | * | ||||||||||||||||||||||||||||||||
Benefits and Payments | Termination (No Change in Control) ($) | Normal Retirement ($) (1) | Early Retirement ($) (2) | Termination for Cause Following Change in Control ($) (3) | Termination Without Cause or for Good Reason Following Change in Control ($) (3) | Change in Control (No Termination) ($) | Death ($) | Termination due to Disability ($) | ||||||||||||||||||
Base Salary | 0 | 0 | 0 | 0 | 915,000 | 0 | 0 | 0 | ||||||||||||||||||
Management Incentive Plan | 0 | 0 | 0 | 0 | 411,750 | 0 | 0 | 0 | ||||||||||||||||||
Performance Shares | 0 | 0 | 127,833 | 0 | 127,833 | 0 | 127,833 | 127,833 | ||||||||||||||||||
SARs | 0 | 0 | 288,307 | 0 | 155,451 | 132,856 | 288,307 | 288,307 | ||||||||||||||||||
RSUs | 0 | 0 | 316,562 | 0 | 297,230 | 149,823 | 316,562 | 316,562 | ||||||||||||||||||
SERP (4) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 126,939 | * | |||||||||||||||||
KERP (5) | 0 | 0 | 5,315 | 0 | 0 | 0 | 5,315 | 5,315 | ||||||||||||||||||
Health Care and Welfare Benefits (6) | 0 | 0 | 0 | 0 | 180 | 0 | 0 | 0 | ||||||||||||||||||
Life/Disability Insurance Proceeds (7) | 0 | 0 | 0 | 0 | 0 | 0 | 1,256,171 | * | ||||||||||||||||||
Outplacement Services | 0 | 0 | 0 | 0 | 20,000 | 0 | 0 | 0 | ||||||||||||||||||
Excise Tax Gross-Up | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Total | 0 | 0 | 738,017 | 0 | 1,927,444 | 282,679 | 1,994,188 | 864,956 | * | |||||||||||||||||
| (1) | “Normal retirement” under Applied’s plans is separation from service after attainment of age 65. Mr. | |
| (2) | ||
| (3) | ||
| (4) | ||
| (5) | KERP estimates are based on value of company account credits for preceding calendar year. |
| (6) | Includes |
| (7) | Proceeds are payable from third-party insurance policies and the SERP. | |
| * | Applied’s supplemental long-term disability (“LTD”) insurance, with premiums paid by the executive, provides a monthly disability benefit equal to 60% of monthly total compensation (monthly base salary plus the average of the three most recent years’ annual incentive compensation divided by 12), minus the basic plan benefit of 60% of base salary, up to |
43
| Termination | ||||||||||||||||||||||||||||||||||||||||
| without | ||||||||||||||||||||||||||||||||||||||||
| Cause or | ||||||||||||||||||||||||||||||||||||||||
| Termination | for Good | |||||||||||||||||||||||||||||||||||||||
| Termination | for Cause | Reason | Change in | |||||||||||||||||||||||||||||||||||||
| (No Change | Normal | Early | Following | Following | Control (No | Termination | ||||||||||||||||||||||||||||||||||
| Benefits and | in Control) | Retirement | Retirement | Change in | Change in | Termination) | due to | |||||||||||||||||||||||||||||||||
| Payments | ($) | ($) (1) | ($) (2) | Control ($) | Control ($) | ($) | Death ($) | Disability ($) | ||||||||||||||||||||||||||||||||
Base Salary | 0 | 0 | 0 | 0 | 1,050,000 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Management Incentive Plan | 0 | 0 | 0 | 0 | 525,000 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Performance Grants/Shares (3) | 0 | 0 | 162,605 | 0 | 0 | 162,605 | 162,605 | 162,605 | ||||||||||||||||||||||||||||||||
SARs | 0 | 0 | 51,392 | 0 | 0 | 51,392 | 51,392 | 51,392 | ||||||||||||||||||||||||||||||||
RSUs | 0 | 0 | 36,292 | 0 | 0 | 108,876 | 36,292 | 36,292 | ||||||||||||||||||||||||||||||||
SERP (4) | 0 | 0 | 0 | 0 | 0 | 1,303,415 | 413,668 | * | ||||||||||||||||||||||||||||||||
Health Care and Welfare Benefits (5) | 0 | 0 | 0 | 0 | 78,500 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Life/Disability Insurance Proceeds (6) | 0 | 0 | 0 | 0 | 0 | 0 | 1,279,812 | * | ||||||||||||||||||||||||||||||||
Outplacement Services | 0 | 0 | 0 | 0 | 20,000 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Excise TaxGross-Up | 0 | 0 | 0 | 0 | 1,313,399 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Total | 0 | 0 | 250,289 | 0 | 2,986,899 | 1,626,288 | 1,943,769 | * | ||||||||||||||||||||||||||||||||
44
The Executive Organization & Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this proxy statement. Based on the review and discussions, the committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and the annual report onForm 10-K for the fiscal year ended June 30, 2010,2013, filed with the SEC.
EXECUTIVE ORGANIZATION &
COMPENSATION COMMITTEE
Peter C. Wallace, Chair
William G. Bares Chair
L. Thomas Hiltz
John F. Meier
J. Michael Moore
ITEM 2 — ADVISORY (NONBINDING) VOTE TO APPROVE EXECUTIVE COMPENSATION
We believe our corporate governance policies, including our executive compensation program, should be responsive to shareholder concerns. This belief is reflected in a nonbinding, advisory vote that provides shareholders the opportunity to approve the named executive officers’ compensation as disclosed in our proxy statement, including, among other things, our executive compensation objectives, policies, and practices. We hold this vote annually, which was our shareholders’ preference as expressed at the 2011 annual meeting.
This vote is intended to provide an overall assessment of our executive compensation program rather than to focus on specific compensation items. The Board of Directors and its Executive Organization & Compensation Committee value shareholder opinion and intend to take the vote’s outcome into account when considering future executive compensation arrangements. However, because the vote is advisory, it will not directly affect existing compensation awards.
As discussed in the “Compensation Discussion and Analysis” section, above, Applied’s executive compensation program aims to attract, retain, and motivate executives to maximize long-term shareholder return. The program uses a variety of reward elements including base salary, annual incentives, and long-term incentives in the form of performance shares to reward sustained financial results, SARs to reward stock price appreciation, and RSUs tied to service to help retain executives. Overall, the company targets pay in the range of market median levels.
In voting on our compensation program, please consider the following:
Our program has a pay-for-performance orientation.
The program aims to pay above median levels only for results that exceed target goals or because of growth in Applied’s stock price.
Compensation tied to incentives made up the majority of the named executive officers’ targeted pay in 2013.
Approximately half of the value of long-term incentives awarded to named executive officers in 2013 is tied to the achievement of performance goals.
Incentive pay tied to financial results can range from 0% to 200% of target award levels, to motivate executives to exceed target goals and to penalize them for falling short.
With 2013 financial results exceeding 2012 results but falling short of 2013 target goals, annual incentive payouts were at 77.5% of target award levels.
The program is aligned with long-term value creation and shareholders’ interests.
Long-term incentives awarded in 2013 accounted for 37% to 47% of the targeted pay of the named executive officers.
All long-term incentives are equity-based, whose ultimate value depends on the value of our stock.
RSU awards have three-year cliff vesting, which is more demanding than typical market practice.
As of June 30, 2013, except for Mr. Schrimsher (who was hired in October 2011), the named executive officers met their stock ownership guidelines. Until they achieve the guideline, executives are required to retain net shares received as a result of the exercise of SARs or the vesting of RSUs or performance shares.
We prohibit executives from hedging their company shareholdings.
Applied modified its executive benefits program in 2012 to align with shareholders’ interests and best practices.
The Executive Organization & Compensation Committee froze participation in our defined benefit SERP and stopped accruing additional benefits, by virtue of years of service and compensation levels, for existing participants. A more modest defined contribution plan was adopted as a replacement.
The committee eliminated most personal benefits and perquisites, including automobile allowances, club memberships, financial planning and tax return preparation services, and annual physical examinations. In 2013, the committee closed the retiree health care program to newly elected executive officers.
We terminated change in control agreements for executives below the executive officer level. As a result, the only remaining agreements are with the company’s six executive officers. The agreements have “double triggers,” meaning they provide benefits only if the executive’s employment is terminated under certain circumstances following a change in control, as further described in “Potential Payments upon Termination or Change in Control” beginning on page 35. The two agreements entered into most recently, including Mr. Schrimsher’s, do not include a gross-up for excise taxes and it is expected future agreements will follow suit.
Applied has adopted best practices to govern the program and to mitigate risk taking.
The Board holds an annual shareholder advisory vote to approve Applied’s executive compensation, aligned with our shareholders’ preference.
The Executive Organization & Compensation Committee uses an independent outside adviser that provides no other services to Applied. The committee annually assesses the independence of the adviser’s representative.
The committee regularly holds sessions dedicated to updates on current and evolving trends in executive compensation.
Analytical tools such as tally sheets and share retention analyses keep the committee abreast of executives’ total compensation and equity holdings.
The committee maintains consistency in the time of year it grants equity awards.
Applied’s performance plans have limits on payouts or shares that can be earned.
The company has clawback provisions in its incentive award terms.
We believe our program has been effective, consistent with its primary objectives, as demonstrated when one examines Applied’s recent financial results. Applied’s operating performance continued to improve in 2013, maintaining sales and earnings momentum. Sales, EBITDA, and net income reached record levels. The performance was notable considering it was achieved while Applied continued to implement a new enterprise resource planning system. We also maintained a strong balance sheet. With gains in our stock price, which reached record highs during the year, and reinvested dividends, our shareholders earned a total return in 2013 of 33.9%.
Despite the improvements, performance fell short of goals set by the committee at the beginning of the year based on the year’s business plan. As a result, the executive officers earned annual incentive pay at 77.5% of target values. In addition, shares banked for 2013 under the performance share programs fell below target values.
The Board asks that, after considering the information above, the “Compensation Discussion and Analysis,” and the compensation tables and related narrative discussion, you approve the following advisory resolution:
RESOLVED, that Applied’s shareholders hereby approve, on an advisory, nonbinding basis, the compensation paid to Applied’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including in the Compensation Discussion and Analysis, compensation tables, and narrative discussion in this proxy statement.
This advisory vote will be approved if it receives the affirmative vote of a majority of shares of Applied common stock cast on the proposal. Abstentions and broker non-votes will not affect the outcome. Except for broker non-votes, if no voting specification is made on a properly returned and signed proxy card, the proxies named on the proxy card will vote “FOR” this resolution. The Board and its Executive Organization & Compensation Committee will review the voting results and take them into account in making future executive compensation decisions.
The Board of Directors recommends you vote FOR this proposal approving
the compensation paid to Applied’s named executive officers.
ITEM 3 — RATIFICATION OF AUDITORS
Subject to shareholder ratification, the Audit Committee has appointed Deloitte & Touche LLP to serve as independent auditors for the fiscal year ending June 30, 2014. The committee made the appointment after evaluating the firm and its performance. Deloitte & Touche has confirmed it is not aware of any relationship between the firm (and its affiliates) and Applied that may reasonably be thought to bear on its independence.
Deloitte & Touche, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates billed the following fees, including expenses, to Applied for fiscal years 2013 and 2012:
| Type of Fees | Fiscal 2013 ($) | Fiscal 2012 ($) | ||
Audit Fees | 1,979,000 | 1,040,700 | ||
Audit-Related Fees | 159,800 | 88,000 | ||
Tax Fees | 488,600 | 1,212,500 | ||
All Other Fees | 4,300 | 4,300 |
Audit-Related Feesin 2013 included amounts for consultation in connection with the development of internal controls relating to our new enterprise resource planning system, debt compliance letters, and other agreed upon procedures, and in 2012 included amounts for consultation in preparation for the audit of our Canadian operations, debt compliance letters, and other agreed upon procedures.
Tax Feesin 2013 were for tax compliance and return preparation ($91,000) and consulting ($397,600) and in 2012 were for tax compliance and return preparation ($70,000) and consulting ($1,142,500).
All Other Feesin 2013 and in 2012 were for an annual subscription to an accounting research tool.
The Audit Committee pre-approves services performed by the independent auditors to assure that the provision of the services does not impair the auditors’ independence. If a type of service to be provided is not included in the committee’s general pre-approval, then it requires specific pre-approval. In addition, services exceeding pre-approved cost levels require additional committee pre-approval. The committee has delegated pre-approval authority to its chair, provided that the committee reviews the chair’s action at its next regular meeting. The committee also reviews, generally on a quarterly basis, reports summarizing services provided by the independent auditors.
Unless otherwise indicated, the accompanying proxy will be voted in favor of ratifying Deloitte & Touche’s appointment. Ratification requires the affirmative vote of a majority of shares cast at the meeting. If Deloitte & Touche withdraws or otherwise becomes unavailable for reasons not currently known, the proxies will vote for other independent auditors, as they deem appropriate.
We expect one or more Deloitte & Touche representatives to be present at the meeting. They will have the opportunity to make a statement and will be available to respond to appropriate questions.
The Board of Directors recommends you vote FOR ratifying
the appointment of the independent auditors.
The Audit Committee is composed solely of independent directors, as determined by the Board according to applicable laws and SEC and NYSE rules, and operates under a written charter. The charter is posted via hyperlink from the investor relations area of Applied’s website atwww.applied.com.
In performing its responsibilities relating to the audit of Applied’s consolidated financial statements for the fiscal year ended June 30, 2010,2013, the committee reviewed and discussed the audited financial statements with management and Applied’s independent auditors, Deloitte & Touche. The committee also discussed with the independent auditors the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA,Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.
The independent auditors also provided to the committee the letter and written disclosures required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence. The committee discussed with Deloitte & Touche their independence and also considered whether their provision of non-audit services to Applied is compatible with maintaining their independence.
Based on the reviews and discussions described above, the committee recommended to the Board that the audited financial statements be included in Applied’s 20102013 annual report onForm 10-K for filing with the SEC.
AUDIT COMMITTEE
Thomas A. Commes, Chair
Peter A. Dorsman
Edith Kelly-Green
J. Michael Moore
Vincent K. Petrella
Dr. Jerry Sue Thornton
Peter C. Wallace
Applied’s executive officers and directors, and persons who beneficially own more than 10% of Applied’s stock, must file initial reports of ownership and reports of changes in ownership with the SEC and furnish copies to Applied. Based solely on a review of forms furnished to us and written representations from Applied’s executive officers and directors, we believe that during the fiscal year ended June 30, SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE20102013, all filing requirements were satisfied on a timely basis except that, during the year, one of our directors, Dr. Jerry Sue Thornton, identified, and filed a late report for, two fiscal 2009 sales of 1,835 shares and 2,828 shares, respectively.45
Shareholders’ proposals for inclusion in our 20112014 annual meeting proxy statement must be received by Applied’s Secretary at 1 Applied Plaza, Cleveland, Ohio 44115, no later than May 12, 2011.16, 2014. Under Ohio law, only proposals included in the meeting notice may be raised at a meeting of shareholders. Accordingly, if you wish to nominate a director candidate for director or bring other business from the floor of the 20112014 annual meeting, you must notify the Secretary in writing by August 26, 2011.
Only one If a shareholder at a shared address to which a single agent, Computershare Trust Company, N.A., by telephoning1-800-988-5291 or by writing to Computershare at P.O. Box 43078, Providence, Rhode Island02940-3078. The shareholder will be delivered, without charge, a separate copy of the proxy statement or annual report promptly If shareholders at a shared address currently receiving multiple copies of the proxy statement and annual report wish to receive only a single copy of these documents, they should contact Computershare in the manner HOUSEHOLDING INFORMATIONcopyset of this proxy statement and annual report is being delivered to multiple shareholders sharing an address unless Applied received contrary instructions from one or more of the shareholders.copiesset of the proxy statement and annual report werewas delivered wishes to receive a separate copy of the proxy statement or annual report, he or she should contact Applied’s registrar and transferuponon request.provideddescribed above.
The Board of Directors does not know of By order of the Board of Fred D. Bauer Vice President-General Counsel & Secretary September OTHER MATTERS any other matters to be presented at the meeting. If other matters requiring a shareholder vote arise, including the question of adjourning the meeting, the persons named on the accompanying proxy card will vote your shares according to their judgment in the interests of Applied.Directors.Directors,9, 20104613, 2013
| IMPORTANT ANNUAL MEETING INFORMATION |
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| A | ||||||||||||||||||||||
1. | Election of Directors: | For | Withhold | For | Withhold | For | |||||||||||||
| Withhold | |||||||||||||||||||
| 01 | |||||||||||||||||||
| ¨ | ¨ | 03 - Dan P. Komnenovich | ¨ | ¨ | + | ||||||||||||||||||||||||||
| For Against Abstain | For | Against | Abstain | |||||||||||||||||||
2. | Say on Pay - To approve, through a nonbinding advisory vote, the compensation of Applied’s named executive officers.
| ¨ ¨ ¨ | 3. | Ratification of the Audit Committee’s appointment of independent auditors. | ¨ | ¨ | ¨ | |||||||||||||||
In their discretion, the proxies are authorized to vote on such other business as may properly come before the meeting.
| B | Non-Voting Items | |||||
| Change of Address — Please print new address below. | ||||||
| C | ||||||||||||||||||
| Authorized Signatures — This section must be completed for your vote to be | ||||||||||||
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. | ||||||||||||
| Date (mm/dd/yyyy) — Please print date below. | Signature 1 — Please keep signature within the box. | Signature 2 — Please keep signature within the box. | ||||||
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Consider receiving future Applied Industrial Technologies, Inc. proxy notifications in electronic form rather than in print form. While voting via the Internet, just provide your e-mail address where indicated and click the box to give your consent. Electronic delivery saves Applied a significant portion of the costs associated with printing and mailing annual meeting materials. If you consent to electronic delivery of meeting materials, you will receive an e-mail with links to all annual meeting materials and to the online proxy voting site for every annual meeting. If you do not consent to electronic delivery, you will continue to receive the proxy notification in the mail.
Accessing the Applied Industrial Technologies, Inc. annual report and proxy materials via the Internet may result in charges to you from your Internet service provider and/or telephone companies.
DIRECTIONS TO MEETING
You may access directions to attend the meeting at www.investorvote.com/AIT.
▼qIF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.▼q
Proxy/Instruction Card — Applied Industrial Technologies, Inc. |
Proxy Solicited on Behalf of the Board of Directors
The undersigned appoints David L. Pugh, Benjamin J. Mondics,Neil A. Schrimsher and Mark O. Eisele, and each of them, as proxies, with full power of substitution, to attend the Annual Meeting of Shareholders of Applied Industrial Technologies, Inc., on October 26, 2010,29, 2013, and any adjournments, and to represent and vote the shares which the undersigned is entitled to vote on the following matters as directed on the reverse side.
When properly executed, these instructions will be voted in the manner directed on the reverse side of this card; if you do not provide direction, this proxy will be voted FOR Items 1all nominees and 2.
NOTICE TO PARTICIPANTS IN THE RETIREMENT SAVINGS PLAN AND/OR SUPPLEMENTAL DEFINED CONTRIBUTION PLAN This card also constitutes voting instructions for participants in the Applied Industrial Technologies, Inc. Retirement Savings Plan and/or Supplemental Defined Contribution Plan. A participant who signs on the reverse side hereby instructs Wells Fargo Bank, N.A., Trustee, to vote all the shares of Applied’s common stock allocated to the participant’s account(s) in the plan(s) and any shares not otherwise directed under the Retirement Savings Plan, at the Annual Meeting of Shareholders. If no voting instructions are provided on a properly executed card, the shares will be voted FOR all nominees and FOR Proposals 2 and 3. |
If you vote by telephone or the Internet, please DO NOT mail back this proxy card.
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE
OR VOTE BY TELEPHONE OR INTERNET PURSUANT TO THE INSTRUCTIONS ON THE REVERSE.
SEE REVERSE SIDE
| IMPORTANT ANNUAL MEETING INFORMATION |
Using a black ink pen, mark your votes with an X as shown in | x | |||||||
Annual Meeting Proxy Card/Instruction Card |
q PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q
| A | Proposals — The Board of Directors recommends a voteFOR the listed nominees andFOR Proposals 2 and 3. | |||||||||||||||||||||
1. |
Election of Directors: |
For |
Withhold |
For |
Withhold |
For |
Withhold | |||||||||||||||
01 - L. Thomas Hiltz | ¨ | ¨ | 02 - Edith Kelly-Green | ¨ | ¨ | 03 - Dan P. Komnenovich | ¨ | ¨ | + | |||||||||||||
| For Against Abstain | For | Against | Abstain | |||||||||||||||||||
2. | Say on Pay - To approve, through a nonbinding advisory vote, the compensation of Applied’s named executive officers.
| ¨ ¨ ¨ | 3. | Ratification of the Audit Committee’s appointment of independent auditors. | ¨ | ¨ | ¨ | |||||||||||||||
In their discretion, the proxies are authorized to vote on such other business as may properly come before the meeting.
| B | Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below | |||||||||||
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. | ||||||||||||
| Date (mm/dd/yyyy) — Please print date below. | Signature 1 — Please keep signature within the box. | Signature 2 — Please keep signature within the box. |
| / / 2013 |
¢ | 1 U P X | + | ||||||||
| 01OTYA |
CONSIDER RECEIVING FUTURE APPLIED INDUSTRIAL TECHNOLOGIES, INC. PROXY MATERIALS VIA THE INTERNET!
Consider receiving future Applied Industrial Technologies, Inc. proxy notifications in electronic form rather than in print form. While voting via the Internet, just provide your e-mail address where indicated and click the box to give your consent. Electronic delivery saves Applied a significant portion of the costs associated with printing and mailing annual meeting materials. If you consent to electronic delivery of meeting materials, you will receive an e-mail with links to all annual meeting materials and to the online proxy voting site for every annual meeting. If you do not consent to electronic delivery, you will continue to receive the proxy notification in the mail.
Accessing the Applied Industrial Technologies, Inc. annual report and proxy materials via the Internet may result in charges to you from your Internet service provider and/or telephone companies.
DIRECTIONS TO MEETING
You may access directions to attend the meeting at www.investorvote.com/AIT.
qPLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q
Proxy/Instruction Card — Applied Industrial Technologies, Inc. |
Proxy Solicited on Behalf of the Board of Directors
The undersigned appoints Neil A. Schrimsher and Mark O. Eisele, and each of them, as proxies, with full power of substitution, to attend the Annual Meeting of Shareholders of Applied Industrial Technologies, Inc., on October 29, 2013, and any adjournments, and to represent and vote the shares which the undersigned is entitled to vote on the following matters as directed on the reverse side.
When properly executed, these instructions will be voted in the manner directed on the reverse side of this card; if you do not provide direction, this proxy will be voted FOR all nominees and FOR Proposals 2 and 3.
NOTICE TO PARTICIPANTS IN THE RETIREMENT SAVINGS PLAN AND/OR SUPPLEMENTAL DEFINED CONTRIBUTION PLAN This card also constitutes voting instructions for participants in the Applied Industrial Technologies, Inc. Retirement Savings Plan and/or Supplemental Defined Contribution Plan. A participant who signs on the reverse side hereby instructs Wells Fargo Bank, N.A., Trustee, to vote all the shares of Applied’s common stock allocated to the participant’s account(s) in the plan(s) and any shares not otherwise directed under the Retirement Savings Plan, at the Annual Meeting of Shareholders. If no voting instructions are provided on a properly executed card, the shares will be voted FOR all nominees and FOR Proposals 2 and 3. |  |
If you vote by telephone or the Internet, please DO NOT mail back this proxy card.
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE
OR VOTE BY TELEPHONE OR INTERNET PURSUANT TO THE INSTRUCTIONS ON THE REVERSE.
SEE REVERSE SIDE
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| IMPORTANT ANNUAL MEETING INFORMATION |  |
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IMPORTANT SHAREHOLDER MEETING INFORMATION | ||||||||
— YOUR VOTE COUNTS! | | Vote by Internet • Go to www.investorvote.com/AIT • Or scan the QR code with your smartphone • Follow the steps outlined on the secure website. | ||||||
Shareholder Meeting Notice | |
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Important Notice Regarding the Availability of Proxy Materials for the
Applied Industrial Technologies, Inc. Annual Meeting of Shareholders to be Held on October 26, 2010
Under new Securities and Exchange Commission rules, you are receiving this notice that the proxy materials for the annual shareholders’ meeting are available on the Internet. Follow the instructions below to view the materials and vote online or request a copy. The items to be voted on and location of the annual meeting are on the reverse side. Your vote is important!
This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting. The proxy statement and annual report to shareholders are available at:
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 | Easy Online Access — A Convenient Way to View Proxy Materials and Vote | |
When you go online to view materials, you can also vote your shares. | ||
Step1:Go towww.investorvote.com/AIT. | ||
Step2:Click theViewbutton(s) to access the proxy materials. | ||
Step3:Return to the investorvote.com window and follow the instructions on the screen to log in. | ||
Step4:Make your selection as instructed on each screen to select delivery preferences and vote. |
When you go online, you can also help the environment by consenting to receive electronic delivery of future materials.
| ||
 | Obtaining a Copy of the Proxy Materials | |
¢ | + | |||||||||
| 01OTZB |
Shareholder Meeting Notice | ||||
Proposals to be voted on at the meeting, or any adjournments, are listed below along with the recommendations of the Board of Directors.
The Board of Directors recommends that youa voteFOR the listed director nominees andFOR Proposal Proposals 2 and 3.
1. Election of Directors:
01 - L. Thomas Hiltz, 02 - Edith Kelly-Green, 03 - Dan P. Komnenovich
2.
officers.
3. Ratification of the Audit Committee’s appointment of independent auditors.
In their discretion, the proxies are authorized to vote on such other business as may properly come before the meeting.
PLEASE NOTE —– YOU CANNOT VOTE BY RETURNING THIS NOTICE. To vote your shares you must vote online by Thursday, October 21, 2010,24, 2013, or request a paper copy of the proxy materials to receive a proxy card. If you wish to attend and vote at the meeting, please bring this notice with you.
You may access directions to attend the meeting at www.investorvote.com/AIT.
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| Here’s how to order a copy of the proxy materials and select a future delivery preference: | |
Paper copies:Current and future paper delivery requests can be submitted via the telephone, Internet or | ||
E-mail copies:Current and future e-mail delivery requests must be submitted via the Internet following the instructions below. If you request an e-mail copy of current materials you will receive an e-mail with a link to the materials. | ||
PLEASE NOTE:You must use the number in the shaded bar on the reverse side when requesting a set of proxy materials. | ||
g | Internet – | ||||
g | Telephone | ||||
g |
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To facilitate timely delivery, all requests for a paper copy of the proxy materials must be received by October | |||||
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