Performance Grants  NOTE 10: BENEFIT PLANS  Retirement Savings Plan  Deferred Compensation Plans  Postemployment Benefit Plans  Supplemental ExecutiveRetirementBenefitsPlan  KeyExecutiveRestorationPlan  QualifiedDefinedBenefitRetirementPlan  The Company has a qualified defined benefit retirement plan that provides benefits to certain hourly associates at retirement. These associates do not participate in the Retirement Savings Plan. The benefits are based on length of service and date of  retirement.  In fiscal 2012, the Executive Organization & Compensation Committee of the Board of Directors adopted the Key Executive  Restoration Plan (KERP), an unfunded, non-qualified deferred compensation plan, to replace the SERP. The Company recorded  $128 of expense associated with this plan in fiscal 2012.  The curtailment is reflected in the Company's consolidated balance sheets as: 1) a reduction to the overall SERP liability  (included in postemployment benefits) of $8,860, 2) a reduction to deferred tax assets of $3,411 and 3) an increase in  accumulated other comprehensive income (loss) of $5,449. Prior service costs previously recorded through accumulated other  comprehensive income (loss) were reclassified into the statements of consolidated income ($3,117 gross expense, net of income  tax of $1,200). The gross expense is recorded in selling, distribution and administrative expense in fiscal 2012.  The Company has a non-qualified pension plan to provide supplemental retirement benefits to certain officers. Benefits are  payable beginning at retirement and determinable at retirement based upon a percentage of the participant’s historical  compensation. On December 19, 2011, the Executive Organization and Compensation Committee of the Board of Directors  froze participant benefits (credited service and final average earnings) and entry into the Supplemental Executive Retirement  Benefits Plan (SERP) effective December 31, 2011. This action constituted a plan curtailment. The plan liability was remeasured  in conjunction with the curtailment using a 3.5% discount rate and participant final average earnings through the curtailment  date. The remeasurement in conjunction with the curtailment resulted in an actuarial loss (recorded in other comprehensive  income (loss)) of $302 ($492 loss, net of income tax of $190). The Company provides the following postemployment benefits which, except for the Qualified Defined Benefit Retirement Plan, are unfunded:  The Company has deferred compensation plans that enable certain associates of the Company to defer receipt of a portion of their  compensation and non-employee directors to defer receipt of director fees. The Company funds these deferred compensation  liabilities by making contributions to rabbi trusts. Assets held in these rabbi trusts consist of investments in money market and  mutual funds and Company common stock.  Substantially all U.S. associates participate in the Applied Industrial Technologies, Inc. Retirement Savings Plan. Participants may elect  to contribute up to 50% of their compensation, subject to Internal Revenue Code maximums. The Company makes a discretionary  profit-sharing contribution to the Retirement Savings Plan generally based upon a percentage of the Company’s U.S. income before  income taxes and before the amount of the contribution (5% for fiscal 2012, 2011 and 2010). The Company partially matches  401(k) contributions by participants; this match was suspended from January 1, 2009 to June 30, 2010. The Company’s expense for  profit sharing and matching of associates’ 401(k) contributions was $10,866, $11,251 and $4,891 during fiscal 2012, 2011 and  2010, respectively.  In fiscal 2009 and 2008, the Executive Organization and Compensation Committee made annual awards of three-year performance  grants to key officers. A target payout was established at the beginning of each three-year performance period. The actual payout  at the end of the period is calculated based upon the Company’s achievement of sales growth, return on sales, and total shareholder  return targets. All performance periods had expired by June 30, 2011. During fiscal 2011 and 2010, the Company recorded $1,020  and $(231), respectively, of compensation expense (income) for achievement relative to the total shareholder return-based goals of  the Company’s performance grants. The liability at June 30, 2011 was $1,558; this was paid in fiscal 2012. 31 Applied Industrial Technologies, Inc. and Subsidiaries