1 FORM 10Q 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 DECEMBER 31, 1996 ---------------------------- 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) 3600 Euclid Avenue, Cleveland, Ohio 44115 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216) 881-2838 ------------------------- BEARINGS, INC. - -------------------------------------------------------------------------------- (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 January 31, 1997 12,348,869 ----------------------------------------- (No par Value)
2 APPLIED INDUSTRIAL TECHNOLOGIES, INC. ------------------------------------- (formerly BEARINGS, INC.) INDEX <TABLE> <CAPTION> - ------------------------------------------------------------------------------- Page No. <S> <C> Part I: FINANCIAL INFORMATION Item 1: Financial Statements Statements of Consolidated Income - Three Months and Six Months Ended December 31, 1996 and 1995 2 Consolidated Balance Sheets - December 31, 1996 and June 30, 1996 3 Statements of Consolidated Cash Flows Six Months Ended December 31, 1996 and 1995 4 Statements of Consolidated Shareholders' Equity - Six Months Ended December 31, 1996 and Year Ended June 30, 1996 5 Notes to Consolidated Financial Statements 6 - 8 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 12 Part II: OTHER INFORMATION Item 1: Legal Proceedings 13 - 14 Item 4: Other Information 14 Item 6: Exhibits and Reports on Form 8-K 14 - 15 Cautionary Statement under Private Securities Litigation Reform Act of 1995 15 - 16 Signatures 16 </TABLE>
3 PART I: FINANCIAL INFORMATION ITEM I: Financial Statements APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ (formerly BEARINGS, INC.) STATEMENTS OF CONSOLIDATED INCOME (Unaudited) (Thousands, except per share amounts) <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------ Three Months Ended Six Months Ended December 31 December 31 1996 1995 1996 1995 ------------------------- -------------------------- <S> <C> <C> <C> <C> Net Sales $274,992 $275,140 $557,241 $552,199 --------- --------- --------- --------- Cost and Expenses Cost of sales 200,025 203,246 408,800 410,089 Selling, distribution and administrative 63,265 60,526 126,014 120,831 --------- --------- --------- --------- 263,290 263,772 534,814 530,920 --------- --------- --------- --------- Operating Income 11,702 11,368 22,427 21,279 --------- --------- --------- --------- Interest Interest expense 1,595 2,394 3,156 4,453 Interest income (253) (106) (571) (177) --------- --------- --------- --------- 1,342 2,288 2,585 4,276 --------- --------- --------- --------- Income Before Income Taxes 10,360 9,080 19,842 17,003 --------- --------- --------- --------- Income Taxes Federal 3,704 3,145 6,959 5,899 State and local 653 759 1,475 1,399 --------- --------- --------- --------- 4,357 3,904 8,434 7,298 --------- --------- --------- --------- Net Income $ 6,003 $ 5,176 $ 11,408 $ 9,705 ========= ========= ========= ========= Net Income per share $ 0.48 $ 0.42 $ 0.92 $ 0.79 ========= ========= ========= ========= Cash dividends per common share $ 0.16 $ 0.14 $ 0.30 $ 0.26 ========= ========= ========= ========= </TABLE> See notes to consolidated financial statements. 2
4 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ (formerly BEARINGS, INC.) CONSOLIDATED BALANCE SHEETS (Amounts in thousands) <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------- December 31 June 30 1996 1996 -------------------- ------------------- (Unaudited) <S> <C> <C> Assets ------ Current assets Cash and temporary investments $ 6,882 $ 9,243 Accounts receivable, less allowance of $2,892 and $2,400 136,465 155,524 Inventories (at LIFO) 133,113 127,937 Other current assets 4,363 2,434 -------------------- ------------------- Total current assets 280,823 295,138 -------------------- ------------------- Property - at cost Land 13,028 13,529 Buildings 65,194 64,441 Equipment 74,115 71,938 -------------------- ------------------- 152,337 149,908 Less accumulated depreciation 67,810 63,574 -------------------- ------------------- Property - net 84,527 86,334 -------------------- ------------------- Other assets 18,618 22,600 -------------------- ------------------- TOTAL ASSETS $ 383,968 $ 404,072 ==================== =================== Liabilities and Shareholders' Equity ------------------------------------ Current liabilities Notes payable $ 25,106 $ 30,056 Current portion of long-term debt 11,429 11,429 Accounts payable 52,735 67,652 Compensation and related benefits 18,700 19,081 Other accrued liabilities 13,730 14,964 -------------------- ------------------- Total current liabilities 121,700 143,182 Long-term debt 57,143 62,857 Other liabilities 10,232 8,741 -------------------- ------------------- TOTAL LIABILITIES 189,075 214,780 -------------------- ------------------- Shareholders' Equity Preferred Stock - no par value; 2,500 shares authorized; none issued or outstanding Common stock - no par value; 30,000 shares authorized; 13,954 shares issued 10,000 10,000 Additional paid-in capital 9,012 7,528 Income retained for use in the business 204,916 197,232 Less 1,611 and 1,577 treasury shares - at cost (23,853) (21,260) Less shares held in trust for deferred compensation plans (4,014) (3,008) Less unearned restricted common stock compensation (1,168) (1,200) -------------------- ------------------- TOTAL SHAREHOLDERS' EQUITY 194,893 189,292 -------------------- ------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 383,968 $ 404,072 ==================== =================== </TABLE> See notes to consolidated financial statements. 3
5 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ (Formerly Bearings, Inc.) STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited) (Amounts in thousands) <TABLE> <CAPTION> Six Months Ended December 31 ---------------------------------------- 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> Cash Flows from Operating Activities Net income $ 11,408 $ 9,705 Adjustments to reconcile net income to cash provided by (used in)operating activities: Depreciation 6,829 6,885 Provision for losses on accounts receivable 1,048 1,477 Gain on sale of property (143) (629) Amortization of restricted common stock compensation and goodwill 383 455 Treasury shares contributed to employee benefit plans 1,914 1,821 Changes in current assets and liabilities, net of effects from acquisition and disposal of businesses: Accounts receivable 14,995 4,560 Inventories (11,176) (25,920) Other current assets (1,929) (156) Accounts payable and accrued expenses (16,021) (4,687) Other - net 868 622 - ------------------------------------------------------------------------------------------------------------------------ Net Cash provided by (used in) Operating Activities 8,176 (5,867) - ------------------------------------------------------------------------------------------------------------------------ Cash Flows from Investing Activities Property purchases (6,636) (7,768) Proceeds from property sales 1,657 1,787 Proceeds from sale of Aircraft Division 9,090 Acquisition of businesses, less cash acquired (4,253) Deposits and other 3,745 (4,917) - ------------------------------------------------------------------------------------------------------------------------ Net Cash provided by (used in) Investing Activities 7,856 (15,151) - ------------------------------------------------------------------------------------------------------------------------ Cash Flows from Financing Activities Net borrowings (repayments) under Line-of-credit agreements (4,950) 26,520 Long-term debt repayments (5,714) Exercise of stock options 264 1,112 Dividends paid (3,724) (3,071) Purchase of treasury shares (4,269) (1,307) - ------------------------------------------------------------------------------------------------------------------------ Net Cash provided by (used in) Financing Activities (18,393) 23,254 - ------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in cash and temporary investments (2,361) 2,236 Cash and temporary investments at beginning of period 9,243 4,789 - ------------------------------------------------------------------------------------------------------------------------ Cash and Temporary Investments at End of Period $ 6,882 $ 7,025 ======================================================================================================================== Supplemental Cash Flow Information Cash paid during the period for: Income taxes $ 9,425 $ 8,766 Interest $ 3,418 $ 3,998 </TABLE> See notes to consolidated financial statements. 4
6 APPLIED INDUSTIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ----------------------------------------------------- (formerly BEARINGS, INC.) STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY For the Six Months Ended December 31, 1996 (Unaudited) and Year Ended June 30, 1996 (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, 1995 12,174 $10,000 $4,812 $180,426 ($22,845) Net income 23,334 Cash dividends - $.54 per share (6,528) Purchase of common stock for treasury (86) (2,212) Treasury shares issued for: Retirement Savings Plan contributions 138 1,692 1,805 Exercise of stock options 107 391 1,390 Deferred compensation plans 43 416 583 Restricted common stock awards 1 13 19 Amortization of restricted common stock compensation 204 Other - ---------------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1996 12,377 10,000 7,528 197,232 (21,260) Net income 11,408 Cash dividends - $.30 per share (3,724) Purchase of common stock for treasury (157) (4,269) Treasury shares issued for: Retirement Savings Plan contributions 67 980 934 Exercise of stock options 22 (20) 284 Deferred compensation plans 30 466 402 Restricted common stock awards 4 58 56 Amortization of restricted common stock compensation Other - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1996 12,343 $10,000 $9,012 $204,916 ($23,853) ================================================================================================================================== <CAPTION> Shares Held in Unearned Trust for Restricted Total Deferred Common Stock Shareholders' Compensation Plans Compensation Equity ====================================================================== <S> <C> <C> <C> ($1,426) ($2,633) $168,334 23,334 (6,528) (2,212) 3,497 1,781 (999) (32) 1,465 1,669 (583) (583) - ------------------------------------------------------------------- (3,008) (1,200) 189,292 11,408 (3,724) (4,269) 1,914 264 (868) (114) 146 146 (138) (138) - ------------------------------------------------------------------- ($4,014) ($1,168) $194,893 =================================================================== </TABLE> See notes to consolidated financial statements.
7 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ (formerly BEARINGS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands) (Unaudited) - ----------------------------------------------------------------------------- 1. NAME CHANGE Effective January 1, 1997, the Company changed its name from Bearings, Inc. to Applied Industrial Technologies, Inc. 2. 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 December 31, 1996 and June 30, 1996, and the results of operations for the three months and six months ended December 31, 1996 and 1995, and cash flows for the six months ended December 31, 1996 and 1995. The results of operations for the three and six months ended December 31, 1996 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. 3. NET INCOME PER SHARE Net income per share was computed using the weighted average number of common shares outstanding for the period. Average shares outstanding for the computation of net income per share were as follows: <TABLE> <CAPTION> Three Months Ended Six Months Ended December 31 December 31 1996 1995 1996 1995 ------------------ ---------------- <S> <C> <C> <C> 12,410 12,307 12,408 12,257 </TABLE> 6
8 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ (formerly BEARINGS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands) (Unaudited) ----------------------------------------------------------------------------- 4. BUSINESS COMBINATIONS On February 9, 1996 the Company exchanged 486 shares of Bearings, Inc. common stock for all of the outstanding shares of Engineered Sales, Inc., a distributor of hydraulic, pneumatic and electro-hydraulic components, systems and related fluid power engineering services. This business combination is accounted for as a pooling of interests. The Company's reported statements of consolidated income for the three months and six months ended December 31, 1995 and shareholders equity at July 1, 1995 have been restated to reflect the Engineered Sales acquisition. 5. SALE OF DIVISION On August 9, 1996 the Company sold the Dixie Bearings Aircraft Division located in Atlanta, GA to Aviation Sales Company for $9,090. The assets were sold at their approximate net book value. The sale did not have a material effect on the consolidated financial statements. 6. RECENTLY ISSUED ACCOUNTING STANDARD In October 1995, the Financial Accounting Standards Board issued Statement of Financial Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", which the Company will be required to adopt for the fiscal year ending June 30, 1997. As permitted by SFAS 123, the Company does not intend to change its method of accounting for stock-based compensation. The Company has not yet determined the pro forma disclosures for employee awards granted in the six months ended December 31, 1996 and the fiscal year ending June 30, 1996, which will be presented in the notes to financial statements for the year ending June 30, 1997. 7. LONG-TERM DEBT The Company has entered into an agreement with Prudential Insurance Company of America for an uncommitted shelf facility enabling the Company to borrow up to $50,000 in additional long-term financing. The Company may make long-term borrowings at its sole discretion, with terms ranging anywhere from seven to twenty years under this agreement. At December 31, 1996 there were no borrowings under this agreement. 7
9 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ (formerly BEARINGS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands) (Unaudited) ----------------------------------------------------------------------------- 8. LITIGATION As reported in the Notes to the Consolidated Financial Statements contained in the 1996 Annual Report to shareholders, a $32,400 judgment was rendered against King Bearing, Inc. (King) in June 1992 in a lawsuit pending in the Superior Court of Orange County, California. The 1990 agreement for the acquisition of King included specific indemnification of the Company for any financial damages or losses related to the lawsuit. The indemnification was also guaranteed by the ultimate parent of King's former owner, a Fortune 500 company with stockholders' equity exceeding five billion dollars at June 30, 1996. The judgment was strongly contested by counsel retained by the indemnitor on behalf of King, and in September 1992 the trial court granted King's motion for a new trial as to all but $219 in damages returned by the jury. In September 1996 the California Court of Appeals, Fourth Appellate District, affirmed the trial court's grant of King's motion for a new trial and reversed its exclusion of the $219 in damages from the new trial order. As a result, a new trial will be scheduled. Due to the indemnification and guarantee, management believes that the outcome of this matter will not have a material adverse effect on the consolidated financial position or results of operations of the Company. 8
10 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES (formerly BEARINGS, INC.) 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 December 31, 1996 and June 30, 1996 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 $8.2 million in the six months ended December 31, 1996. This compares to $5.9 million used in 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 six month period ended December 31, 1996 inventories (excluding inventories sold with the Aircraft Division) increased approximately $11.2 million. Inventory increased for purchases made in anticipation of the January 1997 price increases by certain suppliers. Accounts receivable decreased by $15.0 million due to improved timing of collections and traditionally lower sales in the first six months of the fiscal year. Investments in property totaled $6.6 million and $7.8 million in the six months ended December 31, 1996 and 1995 respectively. These capital expenditures were primarily made for building and upgrading branch and distribution center facilities, acquisition of data processing equipment, and vehicles. The new company owned distribution center in Atlanta was opened during the quarter ended September 30, 1996. Construction was started on a new distribution center in Ft. Worth, TX. This build-to-suit facility will be financed under an operating lease and is expected to open in late-Spring of 1997. Working capital at December 31, 1996 was $159.1 million compared to $152.0 million at June 30, 1996. The current ratio was 2.3 at December 31, 1996 and 2.1 at June 30, 1996. This increase is primarily due to a decrease in short-term notes payable, from cash provided from operations, the receipt of proceeds from the sale of the Aircraft Division, and the refund of insurance deposits included in other assets. 9
11 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES (formerly BEARINGS, INC.) ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------------------------------------ Capital Resources - ----------------- Capital resources are obtained from income retained in the business, indebtedness under the Company's lines of credit and long-term debt and from operating lease arrangements. Average combined short-term and long-term borrowing was $91.8 million for the six months ended December 31, 1996 and $111.8 million during the year ended June 30, 1996. The average effective interest rate on the short-term borrowings for the six months ended December 31, 1996 decreased to 6.4% from an average rate of 6.6% for the six months ended December 31, 1995 due to lower interest rates on short-term debt. The Company has $110 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 had $20.0 million of borrowings under these short-term bank lines of credit at December 31, 1996. Unused bank lines of credit of $90.0 million are available for future short-term financing needs. In addition, the Company also had $5.1 million of other short-term notes payable outstanding outside of these bank line of credit arrangements. The Board of Directors has authorized the purchase of up to 420,000 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 150,500 shares of its common stock for $4.1 million during the quarter. 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 (formerly BEARINGS, INC.) 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 Six Months Ended December 31 December 31 1996 and 1995 1996 and 1995 Percent Percent Amount Change Amount Change ------ ------ ------ ------ <S> <C> <C> <C> <C> Net sales $ (148) (.1)% $ 5,042 .9% Cost of sales (3,221) (1.6)% (1,289) (.3)% Selling, distribution and administrative expenses 2,739 4.5% 5,183 4.3% Operating income 334 2.9% 1,148 5.4% Interest expense -net (946) (41.3)% (1,691) (39.5)% Income before income taxes 1,280 14.1% 2,839 16.7% Income taxes 453 11.6% 1,136 15.6% Net income 827 16.0% 1,703 17.5% </TABLE> Three Months Ended December 31, 1996 and 1995 - --------------------------------------------- The sales decrease of .1% for the quarter was due to an overall slowing in the industrial economy, particularly in the machine tool, steel and forest products industry and the sale of the Dixie Bearings Aircraft Division during the quarter ended September 30, 1996. Gross profit, as a percentage of sales, increased from 26.1% to 27.3% primarily due to changes in the product mix, as sales of lower margin bearing products declined and sales of non-bearing products continued to grow. Additionally, lower freight costs also favorably impacted the gross profit percentage. 11
13 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES (formerly BEARINGS, INC.) ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------------------------------------ Selling, distribution and administrative expenses increased by 4.5% from higher compensation and health care costs and higher advertising and other expense related to the Company's name change. Interest expense-net for the quarter decreased by 41.3% primarily from a decrease in average borrowing. Income taxes as a percentage of income before taxes was 42.1% in the three months ended December 31, 1996 and 43.0% in the three months ended December 31, 1995. As a result of the above factors, net income increased by 16.0% compared to the same quarter of last year. Income per share increased by 14.3% due to the increase in net income and offset by an increase in the average number of shares outstanding. Six Months Ended December 31, 1996 and 1995 - ------------------------------------------- The sales increase of .9% for the period was lower than in prior six month period-to-period comparisons. The slowing in sales growth occurred from an overall slowing in the industrial economy, particularly in the machine tool, steel and forest products industry. The decline in sales growth was also affected by the sale of Dixie Aircraft division during the quarter ended September 30, 1996. Gross profit, as a percentage of sales, increased from 25.7% to 26.6% primarily due to changes in the product mix as sales of lower margin bearing products declined and sales in non-bearing products continue to grow. In addition, lower freight costs also favorably impacted the gross profit percentage. Selling, distribution and administrative expenses increased by 4.3% from higher compensation expense and health care costs. Interest expense-net for the period decreased by 39.5% primarily from a decrease in average borrowing. Income taxes as a percentage of income before taxes was 42.5% in the six months ended December 31, 1996 and 42.9% in the six months ended December 31, 1995. As a result of the above factors, net income increased by 17.5% compared to the same period last year. Income per share increased by 16.5% due to an increase in income and an increase in the average number of shares outstanding. 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, 1996. Notwithstanding potential indemnification from suppliers and insurance, the Company believes, based on circumstances presently known, that these cases are not material to its business or financial condition. (b) The Company also incorporates by reference herein the descriptions 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, 1996, and in Part II, Item 1 of the Form 10-Q for the quarter ended September 30, 1996. On September 30, 1996, the California Court of Appeal, Fourth Appellate District, affirmed the trial court's grant of King Bearing's motion for a new trial; reversed the trial court's exclusion of the $219,000 in damages from the new trial order; and affirmed the judgment in favor of Bearings, Inc. The cross-complainants' petition for rehearing by the Court of Appeal and petition for review by the California Supreme Court were both denied. As a result, the matter will be remanded to the trial court for a new trial. Under the 1990 Stock Purchase Agreement relative to the acquisition of King Bearing, the Company is specifically indemnified by the ultimate parent of the former owner of King Bearing (whose stockholders' equity exceeded $5 billion at June 30, 1996) for any damages or loss relating to this action. The Company believes that this case will have no material adverse effect on its business or financial condition. (c) The Company and/or one of its subsidiaries is a defendant in several employment- and product-related 13
15 lawsuits. Based on circumstances presently known, the Company believes that these cases are not material to its business or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. At the Annual Meeting of Shareholders of the Company held on October 22, 1996, the Shareholders (i) reelected William E. Butler, Russell R. Gifford and L. Thomas Hiltz as Directors of Class III for a term expiring in 1999, (ii) approved an amendment to the Company's Amended and Restated Articles of Incorporation to change the name of the Company to Applied Industrial Technologies, Inc., and (iii) ratified the appointment of Deloitte & Touche LLP as independent auditors of the Company for the fiscal year ending June 30, 1997. Substantially the same information was previously reported in Part II, Item 5 "Other Information" of the Company's Form 10-Q for the quarter ended September 30, 1996. 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. 4(b) Code of Regulations of Applied Industrial Technologies, Inc., adopted September 6, 1988 (filed as Exhibit 4(b) to the Applied Industrial Technologies, Inc. Form 8-K dated October 21, 1988, SEC File No. 1-2299, 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 (filed as Exhibit 4 to the Applied Industrial Technologies, Inc. Form 10-K for the fiscal year ended June 30, 1989, SEC File No. 1-2299, and incorporated here by reference). 14
16 4(d) 80,000,000 Maximum Aggregate Principal Amount Note Purchase and Private Shelf Facility dated October 31, 1992 between Applied Industrial Technologies, Inc. and The Prudential Insurance Company of America (as amended and restated). 10(a) Applied Industrial Technologies, Inc. Supplemental Defined Contribution Plan (January 1, 1997 Restatement). 10(b) Applied Industrial Technologies, Inc. Deferred Compensation Plan (January 1, 1997 Restatement). 10(c) Applied Industrial Technologies, Inc. Deferred Compensation Plan for Non-Employee Directors (January 1, 1997 Restatement). 11 Computation of Net Income Per Share. 27 Financial Data Schedule. (b) The Company did not file, nor was it required to file, a Report on Form 8-K with the Securities and Exchange Commission during the quarter ended December 31, 1996. 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 operating expenses; changes in the economy; the availability of product; the effect of price increases; the variability and timing of business opportunities including acquisitions, customer agreements, supplier 15
17 authorizations and other business strategies; 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 natural events and acts of God, fires, floods and accidents). SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. APPLIED INDUSTRIAL TECHNOLOGIES, INC. (Company) Date: February 14, 1997 By:/S/ John C. Dannemiller ----------------------- John C. Dannemiller Chairman, Chief Executive Officer & President Date: February 14, 1997 By:/S/ John R. Whitten ------------------- John R. Whitten Vice President-Finance & Treasurer 16
18 APPLIED INDUSTRIAL TECHNOLOGIES, INC. EXHIBIT INDEX TO FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1996 <TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION PAGE <S> <C> <C> 4(a) Amended and Restated Articles of Attached Incorporation of Applied Industrial Technologies, Inc. 4(b) Code of Regulations of Applied Industrial Technologies, Inc., adopted September 6, 1988 (filed as Exhibit 4(b) to the Applied Industrial Technologies, Inc. Form 8-K dated October 21, 1988, SEC File No. 1-2299, 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 (filed as Exhibit 4 to the Applied Industrial Technologies, Inc. Form 10-K for the fiscal year ended June 30, 1989, SEC File No. 1-2299, and incorporated here by reference). 4(d) $80,000,000 Maximum Aggregate Attached Principal Amount Note Purchase and Private Shelf Facility dated October 31, 1992 between Applied Industrial Technologies, Inc. and The Prudential Insurance Company of America (as amended and restated). 10(a) Applied Industrial Technologies, Inc. Supplemental Attached Defined Contribution Plan (January 1, 1997 Restatement). 10(b) Applied Industrial Technologies, Attached Inc. Deferred Compensation Plan (January 1, 1997 Restatement). </TABLE>
19 10(c) Applied Industrial Technologies, Inc. Attached Deferred Compensation Plan for Non-Employee Directors (January 1, 1997 Restatement). 11 Computation of Net Income Per Share. Attached 27 Financial Data Schedule. Attached