1 FORM 10 - Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1997. --------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission File Number 1-2299 ------ APPLIED INDUSTRIAL TECHNOLOGIES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-0117420 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) One Applied Plaza, Cleveland, Ohio 44115 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216) 426-4000 -------------- - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Shares of common stock outstanding on October 31, 1997 21,868,806 ----------------------------------------- (No par Value)
2 APPLIED INDUSTRIAL TECHNOLOGIES, INC. ------------------------------------- INDEX - -------------------------------------------------------------------------- Page No. Part I: FINANCIAL INFORMATION Item 1: Financial Statements Statements of Consolidated Income - 2 Three Months Ended September 30, 1997 and 1996 Consolidated Balance Sheets - 3 September 30, 1997 and June 30, 1997 Statements of Consolidated Cash Flows 4 Three Months Ended September 30, 1997 and 1996 Statements of Consolidated Shareholders' Equity - 5 Three Months Ended September 30, 1997 and Year Ended June 30, 1997 Notes to Consolidated Financial Statements 6 - 8 Item 2: Management's Discussion and Analysis of 9 - 12 Financial Condition and Results of Operations Part II: OTHER INFORMATION 13 Item 1: Legal Proceedings 13 Item 5: Other Information 13 Item 6: Exhibits and Reports on Form 8-K 15 Cautionary Statement Under Private Securities 17 Litigation Reform Act of 1995 Signatures 18
3 PART I: FINANCIAL INFORMATION ITEM I: Financial Statements APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ STATEMENTS OF CONSOLIDATED INCOME (Unaudited) (Thousands, except per share amounts) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Three Months Ended September 30 1997 1996 --------- --------- <S> <C> <C> Net Sales $ 344,726 $ 282,249 --------- --------- Cost and Expenses Cost of sales 256,426 208,775 Selling, distribution and administrative 78,492 62,749 --------- --------- 334,918 271,524 --------- --------- Operating Income 9,808 10,725 --------- --------- Interest Interest expense 2,464 1,561 Interest income (278) (318) --------- --------- 2,186 1,243 --------- --------- Income Before Income Taxes 7,622 9,482 --------- --------- Income Taxes Federal 2,730 3,255 State and local 395 822 --------- --------- 3,125 4,077 --------- --------- Net Income $ 4,497 $ 5,405 ========= ========= Net Income per share $ 0.22 $ 0.29 ========= ========= Cash dividends per common share $ 0.11 $ 0.09 ========= ========= </TABLE> See notes to consolidated financial statements. 2
4 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ CONSOLIDATED BALANCE SHEETS (Amounts in thousands) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> September 30 June 30 1997 1997 --------- --------- (Unaudited) Assets <S> <C> <C> Current assets Cash and temporary investments $ 13,292 $ 22,405 Accounts receivable, less allowance of $3,259 and $2,400 186,622 153,080 Inventories (at LIFO) 167,962 103,069 Other current assets 18,647 6,905 --------- --------- Total current assets 386,523 285,459 --------- --------- Property - at cost Land 13,340 12,281 Buildings 73,158 66,157 Equipment 87,898 81,132 --------- --------- 174,396 159,570 Less accumulated depreciation 70,778 68,809 --------- --------- Property - net 103,618 90,761 --------- --------- Goodwill 46,857 5,604 Other assets 16,727 12,290 --------- --------- TOTAL ASSETS $ 553,725 $ 394,114 ========= ========= Liabilities and Shareholders' Equity Current liabilities Notes payable $ 41,711 $ 25,415 Current portion of long-term debt 11,505 11,429 Accounts payable 92,407 49,469 Compensation and related benefits 26,268 19,025 Other accrued liabilities 27,197 15,398 --------- --------- Total current liabilities 199,088 120,736 Long-term debt 59,999 51,428 Other liabilities 28,790 14,366 --------- --------- TOTAL LIABILITIES 287,877 186,530 --------- --------- Shareholders' Equity Preferred Stock - no par value; 2,500 shares authorized; none issued or outstanding Common stock - no par value; 30,000 shares authorized; 24,095 and 20,931 shares issued 10,000 10,000 Additional paid-in capital 78,926 10,311 Income retained for use in the business 218,782 216,642 Less 2,256 and 2,366 treasury shares - at cost (27,420) (22,983) Less shares held in trust for deferred compensation plans (8,484) (5,436) Less unearned restricted common stock compensation (5,956) (950) --------- --------- TOTAL SHAREHOLDERS' EQUITY 265,848 207,584 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 553,725 $ 394,114 ========= ========= </TABLE> See notes to consolidated financial statements. 3
5 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited) (Amounts in thousands) <TABLE> <CAPTION> Three Months Ended September 30 ---------------------------- 1997 1996 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> Cash Flows from Operating Activities Net income $ 4,497 $ 5,405 Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation 3,995 3,418 Provision for losses on accounts receivable 447 524 Gain on sale of property (99) (113) Amortization of restricted common stock compensation and goodwill 1,289 184 Treasury shares contributed to employee benefit plans 1,898 1,404 Changes in current assets and liabilities, net of effects from acquisition and disposal of businesses: Accounts receivable 6,336 11,301 Inventories (14,768) (8,238) Other current assets 1,644 (192) Accounts payable and accrued expenses 12,782 (2,061) Other - net 506 768 - ------------------------------------------------------------------------------------------------------ Net Cash provided by Operating Activities 18,527 12,400 - ------------------------------------------------------------------------------------------------------ Cash Flows from Investing Activities Property purchases (6,034) (3,736) Proceeds from property sales 180 1,222 Net cash paid for acquisition of businesses (27,815) Proceeds from sale of Aircraft Division 9,090 Deposits and other (494) 1,064 - ------------------------------------------------------------------------------------------------------ Net Cash provided by (used in) Investing Activities (34,163) 7,640 - ------------------------------------------------------------------------------------------------------ Cash Flows from Financing Activities Net borrowings (repayments) under Line-of-credit agreements 16,296 (13,486) Exercise of stock options 374 198 Dividends paid (2,357) (1,734) Purchase of treasury shares (7,790) (120) - ------------------------------------------------------------------------------------------------------ Net Cash provided by (used in) Financing Activities 6,523 (15,142) - ------------------------------------------------------------------------------------------------------ Increase (decrease) in cash and temporary investments (9,113) 4,898 Cash and temporary investments at beginning of period 22,405 9,243 - ------------------------------------------------------------------------------------------------------ Cash and Temporary Investments at End of Period $ 13,292 $ 14,141 ====================================================================================================== Supplemental Cash Flow Information Cash paid during the period for: Income taxes $ 96 $ 701 Interest $ 2,376 $ 1,637 Significant noncash investing activity: Issuance of common stock for the acquisition of Invetech Company $ 63,374 </TABLE> See notes to consolidated financial statements. 4
6 APPLIED INDUSTIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ----------------------------------------------------- STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY For the Three Months Ended September 30, 1997 (Unaudited) and Year Ended June 30, 1997 (Amounts in thousands) <TABLE> <CAPTION> Income Shares of Additional Retained Treasury Common Stock Common Paid-in for Use in Shares Outstanding Stock Capital the Business - at Cost - -------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Balance at July 1, 1996 18,566 $10,000 $7,528 $197,232 ($21,260) Net income 27,092 Cash dividends - $.41 per share (7,682) Purchase of common stock for treasury (249) (4,568) Treasury shares issued for: Retirement Savings Plan contributions 164 1,809 1,568 Exercise of stock options 78 342 747 Deferred compensation plans 53 532 463 Restricted common stock awards 9 68 67 Amortization of restricted common stock compensation 32 Increase in fair value of shares held in trust - ------------------------------------------------------------------------------------------------- Balance at June 30, 1997 18,621 10,000 10,311 216,642 (22,983) Net income 4,497 Cash dividends - $.11 per share (2,357) Purchase of common stock for treasury (276) (7,790) Issuance of common stock for the acquisition of Invetech Company 3,165 63,374 Treasury shares issued for: Retirement Savings Plan contributions 62 1,224 674 Exercise of stock options 35 19 355 Deferred compensation plans 20 322 184 Restricted common stock awards 212 3,676 2,140 Amortization of restricted common stock compensation Increase in fair value of shares held in trust - ------------------------------------------------------------------------------------------------- Balance at September 30, 1997 21,839 $10,000 $78,926 $218,782 ($27,420) ================================================================================================= <CAPTION> Shares Held in Unearned Trust for Restricted Total Deferred Common Stock Shareholders' Compensation Plans Compensation Equity - --------------------------------------------------------------------------------------------- <S> <C> <C> <C> Balance at July 1, 1996 ($3,008) ($1,200) $189,292 Net income 27,092 Cash dividends - $.41 per share (7,682) Purchase of common stock for treasury (4,568) Treasury shares issued for: Retirement Savings Plan contributions 3,377 Exercise of stock options 1,089 Deferred compensation plans (995) Restricted common stock awards (135) Amortization of restricted common stock compensation 385 417 Increase in fair value of shares held in trust (1,433) (1,433) - -------------------------------------------------------------------------------------------- Balance at June 30, 1997 (5,436) (950) 207,584 Net income 4,497 Cash dividends - $.11 per share (2,357) Purchase of common stock for treasury (7,790) Issuance of common stock for the acquisition of Invetech Company 63,374 Treasury shares issued for: Retirement Savings Plan contributions 1,898 Exercise of stock options 374 Deferred compensation plans (506) Restricted common stock awards (5,816) Amortization of restricted common stock compensation 810 810 Increase in fair value of shares held in trust (2,542) (2,542) - -------------------------------------------------------------------------------------------- Balance at September 30, 1997 ($8,484) ($5,956) $265,848 ============================================================================================ </TABLE> See notes to consolidated financial statements. 5
7 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands) (Unaudited) - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of September 30, 1997 and June 30, 1997, and the results of operations for the three months ended September 30, 1997 and 1996, and cash flows for the three months ended September 30, 1997 and 1996. The results of operations for the three month period ended September 30, 1997 are not necessarily indicative of the results to be expected for the fiscal year. Cost of sales for interim financial statements are computed using estimated gross profit percentages which are adjusted throughout the year based upon available information. Adjustments to actual cost are made based on the annual physical inventory and the effect of year-end inventory quantities on LIFO costs. 2. NET INCOME PER SHARE Net income per share was computed using the weighted average number of common shares outstanding for the period. All share and per share data has been restated to reflect a three for two stock split effective September 15, 1997. Average shares outstanding for the computation of net income per share were 20,843 and 18,609 for the three months ended September 30, 1997 and 1996, respectively. 3. BUSINESS COMBINATIONS Effective August 1, 1997, the Company completed the acquisition of Invetech Company (Invetech), a distributor of bearings, mechanical and electrical drive system products, industrial rubber products and specialty maintenance and repair products. The aggregate purchase price including the issuance of 2,110 shares of Company common stock, was $93,900. The cash portion of the purchase price of $23,400 was financed through available short-term lines of credit. 6
8 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands) (Unaudited) - -------------------------------------------------------------------------------- The Company accounted for the acquisition as a purchase and has included Invetech's results of operations from the effective date of the acquisition. The Company incurred a pre-tax nonrecurring charge of $4,000 in the quarter ending September 30, 1997 for consolidation expenses and costs associated with disposal of duplicative property and other assets. The purchase price was allocated based on estimated fair values at the date of acquisition. Goodwill representing the excess of the purchase price over assets acquired of $35,840 is being amortized on a straight-line basis over 30 years. The following table summarizes the unaudited consolidated pro forma results of operations, as if the acquisition had occurred at the beginning of the following periods: <TABLE> <CAPTION> Three Months Ended September 30 1997 1996 ---- ---- (Unaudited) <S> <C> <C> Net sales $369,865 $360,755 Income before income taxes 6,707 11,180 Net income 3,948 6,716 Net income per share .18 .31 </TABLE> The unaudited pro forma amounts include the pre-tax nonrecurring charge of $4,000 for the three months ended September 30, 1997. This pro forma information is not necessarily indicative of the results that actually would have been obtained if the operations had been combined during the periods presented and is not intended to be a projection of future results. On August 29, 1997 the Company acquired certain assets of Midwest Rubber and Supply Company, a rubber fabrication and repair shop for $2,377 in cash. The Company accounted for the acquisition as a purchase and has included their results of operations in the accompanying consolidated financial statements from the acquisition date. Results of operations are not material for all periods presented. Goodwill recognized in connection with the acquisition is being amortized over 15 years. 4. LONG-TERM DEBT In connection with the Invetech acquisition, the Company assumed an $8,000 bank term loan, at an interest rate of 5.97%, payable in December, 1998. 7
9 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands) (Unaudited) - -------------------------------------------------------------------------------- 5. SUBSEQUENT EVENTS On October 21, 1997 the Board of Directors declared a quarterly dividend of $.12 per share payable November 28, 1997 to shareholders of record on November 14, 1997. At the annual meeting on October 21, 1997 the shareholders of the Company voted to increase the number of authorized shares of common stock from 30,000 to 50,000. 8
10 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- The following is Management's discussion and analysis of certain significant factors which have affected the Company's: (1) financial condition at September 30, 1997 and June 30, 1997, and (2) results of operations during the periods included in the accompanying statements of Consolidated Income and Consolidated Cash Flows. FINANCIAL CONDITION Liquidity and Working Capital - ----------------------------- Cash provided by operating activities was $18.5 million in the three months ended September 30, 1997. This compares to $12.4 million provided by operating activities in the same period a year ago. Cash flow from operations depends primarily upon generating operating income and controlling the investment in inventory and receivables, and managing the timing of payments to suppliers. The company has continuing programs to monitor and control these investments. During the three month period ended September 30, 1997 inventories (excluding inventories purchased with the acquisition of Invetech and Midwest Rubber) increased approximately $14.8 million due to timing of purchases. Accounts receivable decreased by $6.3 million due to improved collections. Investments in property totaled $6.0 million and $3.7 million in the three months ended September 30, 1997 and 1996 respectively. These capital expenditures were primarily made for building and upgrading branch and distribution center facilities, and acquiring data processing equipment and vehicles. Working capital at September 30, 1997 was $187.4 million compared to $164.7 million at June 30, 1997. This increase is primarily due to an increase in cash provided from operations, and the integration of the acquisitions of Invetech and Midwest Rubber. Capital Resources - ----------------- Capital resources are obtained from income retained in the business, indebtedness under the Company's lines of credit and long-term debt agreements, and operating lease arrangements. 9
11 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Average combined short-term and long-term borrowing was $100.0 million for the three months ended September 30, 1997 and $89.4 million during the year ended June 30, 1997. The average effective interest rate on the short-term borrowings for the three months ended September 30, 1997 decreased to 6.2% from an average rate of 6.6% for the three months ended September 30, 1996 due to lower interest rates on short-term debt. The Company has $155 million of short-term lines of credit with commercial banks which provide for payment of interest at various interest rate options, none of which are in excess of the banks' prime rate. The Company has an agreement with the Prudential Insurance Company of America for an uncommitted shelf facility to borrow up to $50 million in additional long-term financing, at its sole discretion, with terms ranging from seven to twenty years. The Company had $41.7 million of borrowings outstanding under short-term bank lines of credit and none under the shelf facility agreement at September 30, 1997. Unused lines of credit totaling $113.3 million are available for future short-term financing needs. The Board of Directors has authorized an ongoing program to purchase shares of the Company's common stock to fund employee benefit programs and stock option and award programs. These purchases are made in open market and negotiated transactions, from time to time, depending upon market conditions. The Company acquired 276,000 shares of its common stock for $7.8 million during the three months ended September 30, 1997. Management expects that capital resources provided from operations, available lines of credit and long-term debt and operating leases will be sufficient to finance normal working capital needs, business acquisitions, enhancement of facilities and equipment and the purchase of additional Company common stock. Management also believes that additional long-term debt and line of credit financing could be obtained if desired. 10
12 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS - --------------------- A summary of the period-to-period changes in principal items included in the statements of consolidated income follows: <TABLE> <CAPTION> Increase (Decrease) (Dollars in Thousands) Three Months Ended September 30 1997 and 1996 Amount Change ------ ------ <S> <C> <C> Net sales $ 62,477 22.1% Cost of sales 47,651 22.8% Selling,distribution and administrative expenses 15,743 25.1% Operating income (917) (8.6)% Interest expense - net 943 75.9% Income before income taxes (1,860) (19.6)% Income taxes (952) (23.4)% Net income (908) (16.8)% </TABLE> Three Months Ended September 30, 1997 and 1996 - ---------------------------------------------- The Company acquired Invetech effective August 1, 1997. Invetech's operations were consolidated with those of the Company as of the acquisition date. The increase in net sales, cost of sales and selling, distribution and administrative expenses from the prior year relate primarily to the operations of Invetech. During the quarter ended September 30, 1997, the Company incurred a pre-tax nonrecurring charge of $4,000 included in selling, distribution and administrative expenses for consolidation expenses and costs associated with disposal of duplicative property and other assets related to the Invetech acquisition. 11
13 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Interest expense-net for the quarter increased by 75.9% primarily as a result of an increase in average borrowings related to the Invetech acquisition. Income taxes as a percentage of income before taxes were 41.0% in the three months ended September 30, 1997 and 43.0% in the three months ended September 30, 1996. The decrease is primarily attributed to tax savings from lower effective state and local income tax rates. As a result of the above factors, net income decreased by 16.8% compared to the same quarter of last year. 12
14 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings. ------------------ (a) The Company incorporates by reference herein the description of the case captioned In RE: ROBERT LEE BICKHAM, ET AL. V. METROPOLITAN LIFE INS. CO., ET AL., 22nd Judicial District Court for the Parish of Washington, State of Louisiana, Case No. 70,760-E; and two related cases pending in the same court -- IDA MAE WILLIAMS, ET AL. V. METROPOLITAN LIFE INS. CO., ET AL., Case No. 72,986-F and BENNIE L. ADAMS, ET AL. V. METROPOLITAN LIFE INS. CO., ET AL., Case No. 72,154-B, -- found in Item 3 "Pending Legal Proceedings" contained in the Company's Form 10-K for the fiscal year ended June 30, 1997. In November 1997, the Company was dismissed without prejudice from all of these cases. (b) The Company also incorporates by reference herein the description of the case captioned KING BEARING, INC. V. CARYL EDMUND ORANGES, ET AL., Superior Court of the State of California, County of Orange, Case No. 53-42-31 found in Item 3 "Pending Legal Proceedings" contained in the Company's Form 10-K for the fiscal year ended June 30, 1997. The Company believes that this case will have no material adverse effect on its business or financial condition. (c) Applied Industrial Technologies, Inc. and/or one of its subsidiaries is a defendant in several product-related lawsuits. Based on circumstances presently known, the Company believes that these cases are not material to its business or financial condition. ITEM 5. Other Information. ------------------ (a) Submission of Matters to a Vote of Security Holders. ---------------------------------------------------- At the Annual Meeting of Shareholders of the Company held on October 21, 1997, there were 14,680,016 shares of common stock entitled to vote. The Shareholders voted on the matters submitted to the meeting as follows: 1. Election of four persons to be directors of Class I for a term of three years: For Withheld --- -------- John C. Dannemiller 12,268,090 172,938 J. Michael Moore 12,138,287 302,741 John C. Robinson 12,268,388 172,640 Dr. Jerry Sue Thornton 12,137,306 303,722 13
15 Directors of Class II, consisting of William G. Bares, Roger D. Blackwell, Russel B. Every and John J. Kahl, serve until the expiration of their term of office in 1998 and Directors of Class III, consisting of William E. Butler, Russell R. Gifford and L. Thomas Hiltz, serve until the expiration of their term of office in 1999. The Board of Directors had previously increased the authorized number of Directors constituting the entire Board from 10 to 11. 2. Amendment of the Company's Amended and Restated Articles of Incorporation to increase the number of authorized shares of Common Stock from 30,000,000 to 50,000,000. For Withheld Abstain --- -------- ------- 11,977,740 440,373 22,915 3. Amendment of the 1990 Long-Term Performance Plan to continue to qualify certain awards thereunder as "performance-based" compensation under Section 162(m) of the Internal Revenue Code. For Withheld Abstain --- -------- ------- 11,117,284 1,266,991 56,753 4. Ratification of the appointment by management of Deloitte & Touche LLP as independent auditors of the Company for the fiscal year ending June 30, 1998. For Withheld Abstain --- -------- ------- 12,410,441 8,388 22,199 Discretionary voting was authorized as to all matters submitted. There were no broker non-votes. (b) Election of Officers. --------------------- At its Organizational Meeting held on October 21, 1997, the Board of Directors elected the following officers of the Company: John C. Dannemiller Chairman, Chief Executive Officer & President John C. Robinson Vice Chairman 14
16 Mark O. Eisele Vice President & Controller James T. Hopper Vice President-Information Systems Francis A. Martins Vice President-Sales & Field Operations Bill L. Purser Vice President-Marketing & National Accounts Jeffrey A. Ramras Vice President-Logistics Richard C. Shaw Vice President-Communications, Organizational Learning & Quality Standards Robert C. Stinson Vice President-Chief Administrative Officer, General Counsel & Secretary John R. Whitten Vice President-Chief Financial Officer & Treasurer Fred D. Bauer Assistant Secretary Jody A. Chabowski Assistant Controller Michael L. Coticchia Assistant Secretary Alan M. Krupa Assistant Treasurer (c) 3-for-2 Stock Split. -------------------- On August 15, 1997, the Company's Board of Directors approved a three-for-two stock split payable on September 15, 1997 to shareholders of record on August 29, 1997. (d) Acquisition of INVETECH Company. -------------------------------- As reported in the Company's Form 8-K filed on August 14, 1997, the Company completed the acquisition, through merger, on July 31, 1997, of INVETECH Company ("Invetech"), a Michigan corporation. In connection with the merger, all of the outstanding common stock of Invetech was exchanged for aggregate stock and cash consideration of 2,109,550 shares of Company Common Stock, without par value, and $23,444,996. ITEM 6. Exhibits and Reports on Form 8-K. --------------------------------- (a) Exhibits. Exhibit No. Description 4(a) Amended and Restated Articles of Incorporation of Applied Industrial Technologies, Inc. (filed as Exhibit 3(a) to the Company's Registration Statement on Form S-4 filed May 23, 15
17 1997, Registration No. 333-27801, and incorporated here by reference). 4(b) Code of Regulations of Applied Industrial Technologies, Inc. adopted September 6, 1988 (filed as Exhibit 3(b) to the Company's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). 4(c) Certificate of Merger of Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) filed with the Ohio Secretary of State on October 18, 1988, including an Agreement and Plan of Reorganization dated September 6, 1988 (filed as Exhibit 4(a) to the Company's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). 4(d) $80,000,000 Maximum Aggregate Principal Amount Note Purchase and Private Shelf Facility dated October 31, 1992 between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(b) to the Company's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). 4(e) Amendment to $80,000,000 Maximum Aggregate Principal Amount Note Purchase and Private Shelf Facility dated October 31, 1992 between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(g) to the Company's Form 10-Q for the quarter ended March 31, 1996, SEC File No. 1-2299, and incorporated here by reference). 10(a) Supplemental Executive Retirement Benefits Plan covering all of the Company's executive officers (July 1, 1997 Restatement). 10(b) Salary Continuation Agreement between J. Michael Moore and INVETECH Company dated March 28, 1991. 10(c) Consulting, Noncompetition and Confidentiality Agreement between Oak Grove Consulting Group, Inc., J. Michael Moore and the Company dated July 31, 1997. 16
18 11 Computation of Net Income Per Share. 27 Financial Data Schedule. (b) The Company filed a report on Form 8-K with the Securities and Exchange Commission on August 14, 1997 with respect to the Company's acquisition, through merger, of Invetech. The financial statements filed with the Form 8-K were incorporated by reference from the Company's Registration Statement on Form S-4 (File No. 333-27801), effective July 22, 1997, and are listed therein. Cautionary Statement under Private Securities Litigation Reform Act of 1995 - --------------------------------------------------------------------------- This report, including Part I, Item 2 -- Management's Discussion and Analysis, may contain statements that are forward-looking, as that term is defined by the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules, regulations and releases. The Company intends that such forward-looking statements be subject to the safe harbors created thereby. All forward-looking statements are based on current expectations regarding important risk factors. Accordingly, actual results may differ materially from those expressed in the forward-looking statements, and the making of such statements should not be regarded as a representation by the Company or any other person that the results expressed therein will be achieved. Important risk factors include, but are not limited to, the following: changes in the economy; changes in customer procurement policies and practices; changes in product manufacturer sales policies and practices; the availability of product; changes in operating expenses; the effect of price increases; the variability and timing of business opportunities including acquisitions, customer agreements, supplier authorizations and other business strategies; the Company's ability to realize the anticipated benefits of acquisitions; the incurrence of additional debt and contingent liabilities in connection with acquisitions; changes in accounting policies and practices; the effect of organizational changes within the Company; adverse results in significant litigation matters; adverse state and federal regulation and legislation; and the occurrence of extraordinary events (including prolonged labor disputes, natural events and acts of God, fires, floods and accidents). 17
19 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. APPLIED INDUSTRIAL TECHNOLOGIES, INC. (Company) Date: November 13, 1997 By: /s/ John C. Dannemiller ------------------------------- John C. Dannemiller Chairman, Chief Executive Officer & President Date: November 13, 1997 By: /s/ John R. Whitten ------------------------------- John R. Whitten Vice President-Chief Financial Officer & Treasurer 18
20 APPLIED INDUSTRIAL TECHNOLOGIES, INC. EXHIBIT INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 EXHIBIT NO. DESCRIPTION PAGE 4(a) Amended and Restated Articles of Incorporation of Applied Industrial Technologies, Inc. (filed as Exhibit 3(a) to the Company's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). 4(b) Code of Regulations of Applied Industrial Technologies, Inc., adopted September 6, 1988 (filed as Exhibit 3(b) to the Company's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). 4(c) Certificate of Merger of Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) filed with the Ohio Secretary of State on October 18, 1988, including an Agreement and Plan of Reorganization dated September 6, 1988 (filed as Exhibit 4(a) to the Company's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). 4(d) $80,000,000 Maximum Aggregate Principal Amount Note Purchase and Private Shelf Facility dated October 31, 1992 between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(b) to the Company's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). 4(e) Amendment to $80,000,000 Maximum Aggregate Principal Amount Note Purchase and Private Shelf Facility dated October 31, 1992 between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(g) to the Company's Form 10-Q for the quarter ended March 31, 1996, SEC File No. 1-2299, and incorporated here by reference).
21 10(a) Supplemental Executive Retirement Benefits Plan covering all of the Company's executive officers (July 1, 1997 Restatement). Attached 10(b) Salary Continuation Agreement between J. Michael Moore and INVETECH Company dated March 28, 1991. Attached 10(c) Consulting, Noncompetition and Confidentiality Agreement between Oak Grove Consulting Group, Inc., J. Michael Moore and the Company dated July 31, 1997. Attached 11 Computation of Net Income Per Share. Attached 27 Financial Data Schedule. Attached