<PAGE> 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 MARCH 31, 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)
3600 Euclid Avenue, Cleveland, Ohio 44115
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 881-2838
------------------
- --------------------------------------------------------------------------------
(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 April 30, 1997 12,379,761
----------------------------------------
(No par Value)
<PAGE> 2
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
-------------------------------------
INDEX
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Page No.
<S> <C>
Part I: FINANCIAL INFORMATION
Item 1: Financial Statements
Statements of Consolidated Income -
Three Months and Nine Months
Ended March 31, 1997 and 1996 2
Consolidated Balance Sheets -
March 31, 1997 and June 30, 1996 3
Statements of Consolidated Cash Flows
Nine Months Ended March 31, 1997 and 1996 4
Statements of Consolidated Shareholders' Equity -
Nine Months Ended March 31, 1997 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
Item 5: Other Information 13 - 14
Item 6: Exhibits and Reports on Form 8-K 14
Cautionary Statement Under Private Securities
Litigation Reform Act of 1995 15
Signatures 15
</TABLE>
<PAGE> 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 Nine Months Ended
March 31 March 31
1997 1996 1997 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
Net Sales $ 297,190 $ 296,064 $ 854,431 $ 848,263
--------- --------- --------- ---------
Cost and Expenses
Cost of sales 221,991 220,454 630,791 630,544
Selling, distribution and
administrative 62,752 62,663 188,766 183,494
--------- --------- --------- ---------
284,743 283,117 819,557 814,038
--------- --------- --------- ---------
Operating Income 12,447 12,947 34,874 34,225
--------- --------- --------- ---------
Interest
Interest expense 1,673 2,426 4,829 6,879
Interest income (124) (199) (695) (375)
--------- --------- --------- ---------
1,549 2,227 4,134 6,504
--------- --------- --------- ---------
Income Before Income Taxes 10,898 10,720 30,740 27,721
--------- --------- --------- ---------
Income Taxes
Federal 3,379 3,665 10,338 9,563
State and local 764 933 2,239 2,332
--------- --------- --------- ---------
4,143 4,598 12,577 11,895
--------- --------- --------- ---------
Net Income $ 6,755 $ 6,122 $ 18,163 $ 15,826
========= ========= ========= =========
Net Income per share $ 0.55 $ 0.50 $ 1.47 $ 1.29
========= ========= ========= =========
Cash dividends per common
share $ 0.16 $ 0.14 $ 0.46 $ 0.40
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31 June 30
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and temporary investments $ 15,521 $ 9,243
Accounts receivable, less allowance
of $2,002 and $2,400 152,335 155,524
Inventories (at LIFO) 118,172 127,937
Other current assets 7,226 2,434
--------- ---------
Total current assets 293,254 295,138
--------- ---------
Property - at cost
Land 12,972 13,529
Buildings 64,798 64,441
Equipment 75,493 71,938
--------- ---------
153,263 149,908
Less accumulated depreciation 69,021 63,574
--------- ---------
Property - net 84,242 86,334
--------- ---------
Other assets 20,283 22,600
--------- ---------
TOTAL ASSETS $ 397,779 $ 404,072
========= =========
Liabilities and Shareholders' Equity
Current liabilities
Notes payable $ 20,897 $ 30,056
Current portion of long-term debt 11,429 11,429
Accounts payable 62,860 67,652
Compensation and related benefits 20,424 19,081
Other accrued liabilities 14,108 14,964
--------- ---------
Total current liabilities 129,718 143,182
Long-term debt 57,143 62,857
Other liabilities 11,577 8,741
--------- ---------
TOTAL LIABILITIES 198,438 214,780
--------- ---------
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 9,365 7,528
Income retained for use in the business 209,694 197,232
Less 1,579 and 1,577 treasury shares -
at cost (23,467) (21,260)
Less shares held in trust for
deferred compensation plans (5,202) (3,008)
Less unearned restricted common
stock compensation (1,049) (1,200)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 199,341 189,292
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 397,779 $ 404,072
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
----------------------
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 18,163 $ 15,826
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation 10,178 10,193
Provision for losses on accounts receivable 599 1,966
Gain on sale of property (399) (889)
Amortization of restricted common stock
compensation and goodwill 606 723
Treasury shares contributed to employee
benefit plans 2,502 2,402
Changes in current assets and liabilities, net of
effects from acquisition and disposal of
businesses:
Accounts receivable (426) (9,539)
Inventories 3,765 (17,329)
Other current assets (4,792) 1,537
Accounts payable and accrued expenses (3,637) (1,583)
Other - net 938 956
- ------------------------------------------------------------------------------------------
Net Cash provided by Operating Activities 27,497 4,263
- ------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Property purchases (10,855) (13,210)
Proceeds from property sales 3,068 3,667
Proceeds from sale of Aircraft Division 9,090
Acquisition of businesses, less cash acquired (4,328)
Deposits and other 1,976 (8,451)
- ------------------------------------------------------------------------------------------
Net Cash provided by (used in) Investing Activities 3,279 (22,322)
- ------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net borrowings (repayments) under
Line-of-credit agreements (9,159) 31,450
Long-term debt repayments (5,714)
Exercise of stock options 510 1,219
Dividends paid (5,701) (4,799)
Purchase of treasury shares (4,434) (1,362)
- ------------------------------------------------------------------------------------------
Net Cash provided by (used in) Financing Activities (24,498) 26,508
- ------------------------------------------------------------------------------------------
Increase in cash
and temporary investments 6,278 8,449
Cash and temporary investments
at beginning of period 9,243 4,789
- ------------------------------------------------------------------------------------------
Cash and Temporary Investments
at End of Period $ 15,521 $ 13,238
==========================================================================================
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes $ 16,740 $ 12,933
Interest $ 5,161 $ 6,297
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
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STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
For the Nine Months Ended March 31, 1997 (Unaudited)
and Year Ended June 30, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Income
Shares of Additional Retained
Common Stock Common Paid-in for Use in
Outstanding Stock Capital the Business
===============================================================================================
<S> <C> <C> <C> <C>
Balance at July 1, 1995 12,174 $10,000 $4,812 $180,426
Net income 23,334
Cash dividends - $.54 per share (6,528)
Purchase of common stock
for treasury (86)
Treasury shares issued for:
Retirement Savings Plan contributions 138 1,692
Exercise of stock options 107 391
Deferred compensation plans 43 416
Restricted common stock awards 1 13
Amortization of restricted common
stock compensation 204
Other
- -----------------------------------------------------------------------------------------------
Balance at June 30, 1996 12,377 10,000 7,528 197,232
Net income 18,163
Cash dividends - $.46 per share (5,701)
Purchase of common stock
for treasury (162)
Treasury shares issued for:
Retirement Savings Plan contributions 84 1,307
Exercise of stock options 39 (28)
Deferred compensation plans 33 500
Restricted common stock awards 4 58
Amortization of restricted common
stock compensation
Other
- -----------------------------------------------------------------------------------------------
Balance at March 31, 1997 12,375 $10,000 $9,365 $209,694
===============================================================================================
<CAPTION>
Shares Held in Unearned
Treasury Trust for Restricted Total
Shares Deferred Common Stock Shareholders'
- at Cost Compensation Plans Compensation Equity
============================================================================================================
<S> <C> <C> <C> <C>
Balance at July 1, 1995 ($22,845) ($1,426) ($2,633) $168,334
Net income 23,334
Cash dividends - $.54 per share (6,528)
Purchase of common stock
for treasury (2,212) (2,212)
Treasury shares issued for:
Retirement Savings Plan contributions 1,805 3,497
Exercise of stock options 1,390 1,781
Deferred compensation plans 583 (999)
Restricted common stock awards 19 (32)
Amortization of restricted common
stock compensation 1,465 1,669
Other (583) (583)
- ---------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 (21,260) (3,008) (1,200) 189,292
Net income 18,163
Cash dividends - $.46 per share (5,701)
Purchase of common stock
for treasury (4,434) (4,434)
Treasury shares issued for:
Retirement Savings Plan contributions 1,195 2,502
Exercise of stock options 538 510
Deferred compensation plans 438 (938)
Restricted common stock awards 56 (114)
Amortization of restricted common
stock compensation 265 265
Other (1,256) (1,256)
- ---------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 ($23,467) ($5,202) ($1,049) $199,341
=========================================================================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 7
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
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 March 31, 1997 and June 30, 1996, and the results of
operations for the three months and nine months ended March 31, 1997
and 1996, and cash flows for the nine months ended March 31, 1997 and
1996.
The results of operations for the three and nine month periods ended
March 31, 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.
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 follow:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1997 1996 1997 1996
------------------------- --------------------
<S> <C> <C> <C>
12,354 12,341 12,390 12,285
</TABLE>
4. SALE OF DIVISION
On August 9, 1996 the Company sold the Dixie Bearings Aircraft Division
located in Atlanta, Georgia 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
<PAGE> 8
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands) (Unaudited)
- --------------------------------------------------------------------------------
5. RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board (FASB) 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 No. 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 disclosure for employee awards granted in the nine months ended
March 31, 1997 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.
In February 1997 the FASB issued SFAS No. 128, Earnings Per Share. This
statement simplifies the current standard for computing earnings per
share (EPS). At March 31, 1997 the Company has stock options
outstanding, which would currently have a less than 3% dilution effect
for reporting Diluted EPS under SFAS No. 128. SFAS No. 128 becomes
effective for interim and annual financial statements issued after
December 15, 1997 and earlier application is not permitted.
6. 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 March 31, 1997 there were no borrowings under this agreement.
7. 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 Company's 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
7
<PAGE> 9
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands) (Unaudited)
- --------------------------------------------------------------------------------
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. SUBSEQUENT EVENT
In April, 1997 the Company signed a definitive agreement to acquire
Invetech Company, a distributor of industrial components, for a
combination of cash and stock valued at $83 million. The acquisition is
expected to close near the end of the fourth quarter. This business
combination is anticipated to be accounted for as a purchase.
8
<PAGE> 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 March 31,
1997 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 $27.5 million in the nine months ended
March 31, 1997. This compares to $4.3 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 nine month period ended March 31, 1997,
inventories (excluding inventories sold with the Dixie Bearings Aircraft
Division) decreased approximately $3.8 million. Accounts receivable increased
by $0.4 million.
Investments in property totaled $10.9 million and $13.2 million in the nine
months ended March 31, 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. A 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
Fort Worth, Texas. This build-to-suit facility will be financed under an
operating lease and is expected to open in May of 1997.
Working capital at March 31, 1997 was $163.5 million compared to $152.0 million
at June 30, 1996. This increase is primarily due to an increase in cash provided
from operations, the receipt of proceeds from the sale of the Aircraft Division,
and the refund of insurance deposits.
9
<PAGE> 11
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
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 agreements,
and operating lease arrangements.
Average combined short-term and long-term borrowing was $90.7 million for the
nine months ended March 31, 1997 and $111.8 million during the year ended June
30, 1996. The average effective interest rate on the short-term borrowings for
the nine months ended March 31, 1997 increased to 6.5% from an average rate of
6.1% for the nine months ended March 31, 1996 due to higher interest rates on
short-term debt. The Company has $105 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 $18.9 million of borrowings outstanding under short-term bank lines of
credit and none under the shelf facility agreement at March 31, 1997. Unused
lines of credit of totaling $136.1 million are available for future short-term
financing needs. In addition, the Company also has $2.0 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 nine
months ended March 31, 1997.
The acquisition of Invetech Company will be financed by a combination of cash
and stock valued at $83 million. At least 51% but not more than 79% of the price
for all outstanding shares of Invetech will be paid with Company common stock.
The remainder will be financed through available lines of credit. It is
anticipated that a charge to record restructuring of operations, and
consolidation expenses will be recorded at the consummation of the acquisition.
That charge has not yet been determined at this time.
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
<PAGE> 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 Nine Months Ended
March 31 March 31
1997 and 1996 1997 and 1996
Amount Change Amount Change
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $ 1,126 .4% $ 6,168 .7%
Cost of sales 1,537 .7% 247 0%
Selling, distribution and
administrative expenses 89 .1% 5,272 2.9%
Operating income (500) (3.9)% 649 1.9%
Interest expense - net (678) (30.4)% (2,370) (36.4)%
Income before income taxes 178 1.7% 3,019 10.9%
Income taxes (455) (9.9)% 682 5.7%
Net income 633 10.3% 2,337 14.8%
</TABLE>
Three Months Ended March 31, 1997 and 1996
- ------------------------------------------
The sales increase of 0.4% for the quarter was lower than in previous quarter to
quarter comparisons due to an overall slowing in certain industries that
exhibited strength in the prior year, particularly in the paper and machine
tools industries. These decreases were offset in part by increases in sales to
the aluminum, wood products, construction and food products industries. Our
comparative sales amounts were also negatively impacted by the sale of the Dixie
Bearings Aircraft Division earlier this year and by having fewer business days
than in the same quarter last year.
11
<PAGE> 13
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Selling, distribution and administrative expenses remained constant with a
modest increase of 0.1%.
Interest expense-net for the quarter decreased by 30.4% primarily as a result of
a decrease in average borrowings.
Income taxes as a percentage of income before taxes was 38.0% in the three
months ended March 31, 1997 and 42.9% in the three months ended March 31, 1996.
The decrease is primarily attributed to tax savings from lower effective state
and local income tax rates and from Federal income tax credits.
As a result of the above factors, net income increased by 10.3% compared to the
same quarter of last year.
Nine Months Ended March 31, 1997 and 1996
- -----------------------------------------
The sales increase of 0.7% for the period was lower than in the prior nine month
comparison due to an overall slowing in certain industries that exhibited
strength in the prior year, particularly in the paper and machine tools
industries. These decreases were offset in part by increases in sales to the
aluminum, wood products, construction and food products industries. The decline
in sales growth was also affected by the sale of Dixie Bearings Aircraft
Division during the quarter ended September 30, 1996. Gross profit, as a
percentage of sales, increased from 25.7% to 26.2% 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 2.9%, primarily
from higher compensation expense and health care costs.
Interest expense-net for the period decreased by 36.4% primarily from a decrease
in average borrowings.
Income taxes as a percentage of income before taxes was 40.9% in the nine months
ended March 31, 1997 and 42.9% in the nine months ended March 31,1996. The
decrease is primarily attributed to tax savings from lower effective state and
local income tax rates and from Federal income tax credits.
As a result of the above factors, net income increased by 14.8% compared to the
same period last year. Income per share increased by 14.0% due to an increase in
income and an increase in the average number of shares outstanding.
12
<PAGE> 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 December 31,
1996. The Company believes, based on circumstances presently
known, that this case is not material to its business or
financial condition.
(c) The Company and/or one of its subsidiaries is a defendant in
several employment- and product-related lawsuits. The Company
believes, based on circumstances presently known, that these
cases are not material to its business or financial condition.
ITEM 5. Other Information.
------------------
(a) Agreement to Acquire Invetech Company.
--------------------------------------
In April 1997 the Company reached an agreement to acquire
Invetech Company, a privately-held industrial distributor, for
stock and cash valued at $83 million. Invetech had calendar
1996 sales of $314 million. Both parties are working towards
closing the acquisition in a timely manner.
(b) Appointment of New Transfer Agent and Registrar.
------------------------------------------------
Effective April 28, 1997, the Company appointed Harris Trust
and Savings Bank as its transfer agent, registrar, dividend
disbursement agent and dividend
13
<PAGE> 15
reinvestment plan administrator, replacing KeyCorp Shareholder
Services, Inc., which has exited the business.
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 4(a) to the Applied Industrial
Technologies, Inc. Form 10-Q for the quarter
ended December 31, 1996, SEC File No. 1-2299,
and incorporated here by reference).
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 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
(filed as Exhibit 4(d) to the Applied Industrial
Technologies, Inc. Form 10-Q for the quarter
ended December 31, 1996, SEC File No. 1-2299,
and incorporated here by reference).
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 March 31, 1997.
14
<PAGE> 16
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; changes in
customer procurement practices; the availability of product; the effect of price
increases; the variability and timing of business opportunities including
acquisitions, customer agreements, supplier 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: May 15, 1997 By: /s/ John C. Robinson
--------------------
John C. Robinson
Vice Chairman
Date: May 15, 1997 By: /s/ John R. Whitten
-------------------
John R. Whitten
Vice President-Finance & Treasurer
15
<PAGE> 17
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
EXHIBIT INDEX
TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
<S> <C> <C>
4(a) Amended and Restated Articles of Incorporation of
Applied Industrial Technologies, Inc. (filed as Exhibit
4(a) to the Applied Industrial Technologies, Inc. Form
10-Q for the quarter ended December 31, 1996, SEC File
No. 1-2299, and incorporated here by reference).
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 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 (filed as Exhibit 4(d) to the Applied
Industrial Technologies, Inc. Form 10-Q for the quarter
ended December 31, 1996, SEC File No. 1-2299, and
incorporated here by reference).
11 Computation of Net Income Per Share. Attached
27 Financial Data Schedule. Attached
</TABLE>
<PAGE> 1
EXHIBIT 11
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
Computation of Net Income Per Share
(Unaudited)
(Thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Average Shares Outstanding
1. Average common shares
outstanding 12,354 12,341 12,390 12,285
2. Net additional shares
outstanding assuming stock
options exercised and
proceeds used to purchase
treasury stock 330 255 337 274
------- ------- ------- -------
3. Adjusted average common
shares outstanding for
fully diluted computation 12,684 12,596 12,727 12,559
======= ======= ======= =======
Net Income
4. Net income as reported in
statements of consolidated
income $ 6,755 $ 6,122 $18,163 $15,826
======= ======= ======= =======
Net Income Per Share
5. Net income per average
common share outstanding
(4/1) $ 0.55 $ 0.50 $ 1.47 $ 1.29
======= ======= ======= =======
6. Net income per common
share on a fully
dilutive basis (4/3) $ 0.53(A) $ 0.49(A) $ 1.43(A) $ 1.26(A)
======= ======= ======= =======
<FN>
(A) Fully diluted net income per share is not presented as the dilutive
effect is less than 3%.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,521
<SECURITIES> 0
<RECEIVABLES> 154,337
<ALLOWANCES> 2,002
<INVENTORY> 118,172
<CURRENT-ASSETS> 7,226
<PP&E> 153,263
<DEPRECIATION> 69,021
<TOTAL-ASSETS> 397,779
<CURRENT-LIABILITIES> 129,718
<BONDS> 0
<COMMON> 10,000
0
0
<OTHER-SE> 189,341
<TOTAL-LIABILITY-AND-EQUITY> 397,779
<SALES> 854,431
<TOTAL-REVENUES> 854,431
<CGS> 630,791
<TOTAL-COSTS> 630,791
<OTHER-EXPENSES> 188,167
<LOSS-PROVISION> 599
<INTEREST-EXPENSE> 4,134
<INCOME-PRETAX> 30,740
<INCOME-TAX> 12,577
<INCOME-CONTINUING> 18,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,163
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.43
</TABLE>
