<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 DECEMBER 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)
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 January 31, 1998 22,047,962
---------------------------------------
(No par value)
<PAGE> 2
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
-------------------------------------
INDEX
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Page No.
Part I: FINANCIAL INFORMATION
<S> <C> <C>
Item 1: Financial Statements
Statements of Consolidated Income - 2
Three Months and Six Months
Ended December 31, 1997 and 1996
Consolidated Balance Sheets - 3
December 31, 1997 and June 30, 1997
Statements of Consolidated Cash Flows 4
Six Months Ended December 31, 1997 and 1996
Statements of Consolidated Shareholders' Equity - 5
Six Months Ended December 31, 1997 and
Year Ended June 30, 1997
Notes to Consolidated Financial Statements 6 - 10
Item 2: Management's Discussion and Analysis of 11 - 15
Financial Condition and Results of Operations
Part II: OTHER INFORMATION 16
Item 1: Legal Proceedings 16
Item 4: Submission of Matters to a Vote of Security Holders 16
Item 5: Other Information 16
Item 6: Exhibits and Reports on Form 8-K 16
Signatures 18
</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 Six Months Ended
December 31 December 31
1997 1996 1997 1996
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net Sales $ 368,623 $ 274,992 $ 713,349 $ 557,241
--------- --------- --------- ---------
Cost and Expenses
Cost of sales 273,573 200,025 529,999 408,800
Selling, distribution and
administrative 80,786 63,265 159,278 126,014
--------- --------- --------- ---------
354,359 263,290 689,277 534,814
--------- --------- --------- ---------
Operating Income 14,264 11,702 24,072 22,427
--------- --------- --------- ---------
Interest
Interest expense 2,365 1,595 4,829 3,156
Interest income (200) (253) (478) (571)
--------- --------- --------- ---------
2,165 1,342 4,351 2,585
--------- --------- --------- ---------
Income Before Income Taxes 12,099 10,360 19,721 19,842
--------- --------- --------- ---------
Income Taxes
Federal 3,767 3,704 6,497 6,959
State and local 618 653 1,013 1,475
--------- --------- --------- ---------
4,385 4,357 7,510 8,434
--------- --------- --------- ---------
Net Income $ 7,714 $ 6,003 $ 12,211 $ 11,408
========= ========= ========= =========
Net Income per share - Basic $ 0.36 $ 0.32 $ 0.58 $ 0.62
========= ========= ========= =========
Net Income per share - Diluted $ 0.35 $ 0.32 $ 0.57 $ 0.61
========= ========= ========= =========
Cash dividends per common
share $ 0.12 $ 0.11 $ 0.23 $ 0.20
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31 June 30
1997 1997
------------ ---------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash and temporary investments $ 14,284 $ 22,405
Accounts receivable, less allowance
of $3,714 and $2,400 174,686 153,080
Inventories (at LIFO) 189,469 103,069
Other current assets 15,269 6,905
--------- ---------
Total current assets 393,708 285,459
--------- ---------
Property - at cost
Land 13,346 12,281
Buildings 73,545 66,157
Equipment 78,909 81,132
--------- ---------
165,800 159,570
Less accumulated depreciation 62,854 68,809
--------- ---------
Property - net 102,946 90,761
--------- ---------
Goodwill 52,170 5,604
Other assets 17,867 12,290
--------- ---------
TOTAL ASSETS $ 566,691 $ 394,114
========= =========
Liabilities and Shareholders' Equity
Current liabilities
Notes payable $ 78,712 $ 25,415
Current portion of long-term debt 19,429 11,429
Accounts payable 77,804 49,469
Compensation and related benefits 20,725 19,025
Other accrued liabilities 22,579 15,398
--------- ---------
Total current liabilities 219,249 120,736
Long-term debt 45,714 51,428
Other liabilities 27,321 14,366
--------- ---------
TOTAL LIABILITIES 292,284 186,530
--------- ---------
Shareholders' Equity
Preferred Stock - no par value; 2,500
shares authorized; none issued or
outstanding
Common stock - no par value; 50,000
shares authorized; 24,095 and 20,931 shares issued 10,000 10,000
Additional paid-in capital 79,548 10,311
Income retained for use in the business 223,871 216,642
Less 2,183 and 2,310 treasury shares -
at cost (26,532) (22,983)
Less shares held in trust for
deferred compensation plans (6,552) (5,436)
Less unearned restricted common
stock compensation (5,928) (950)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 274,407 207,584
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 566,691 $ 394,114
========= =========
</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>
Six Months Ended
December 31
------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 12,211 $ 11,408
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation 7,692 6,829
Provision for losses on accounts receivable 989 1,048
Gain on sale of property (250) (143)
Amortization of restricted common stock
compensation and goodwill 2,310 383
Treasury shares contributed to employee
benefit plans 2,597 1,914
Changes in current assets and liabilities, net of
effects from acquisition and disposal of
businesses:
Accounts receivable 18,791 14,995
Inventories (35,475) (11,176)
Other current assets 5,025 (1,929)
Accounts payable and accrued expenses (13,169) (16,021)
Other - net 576 868
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash provided by Operating Activities 1,297 8,176
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Property purchases (11,008) (6,636)
Proceeds from property sales 2,373 1,657
Net cash paid for acquisition of businesses (33,809)
Proceeds from sale of Aircraft Division 9,090
Deposits and other (1,928) 3,745
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash (used in) provided by Investing Activities (44,372) 7,856
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net borrowings (repayments) under
Line-of-credit agreements 53,297 (4,950)
Long-term debt repayments (6,361) (5,714)
Exercise of stock options 791 264
Dividends paid (4,982) (3,724)
Purchase of treasury shares (7,791) (4,269)
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash provided by (used in) Financing Activities 34,954 (18,393)
- ---------------------------------------------------------------------------------------------------------------------------
Decrease in cash and temporary
investments (8,121) (2,361)
Cash and temporary investments
at beginning of period 22,405 9,243
- ---------------------------------------------------------------------------------------------------------------------------
Cash and Temporary Investments
at End of Period $ 14,284 $ 6,882
===========================================================================================================================
Supplemental Cash Flow Information Cash paid during the period for:
Income taxes $ 6,098 $ 9,425
Interest $ 4,607 $ 3,418
Significant noncash investing activity:
Issuance of common stock for the
acquisition of Invetech Company $ 63,374
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
For the Six Months Ended December 31, 1997 (Unaudited)
and Year Ended June 30, 1997
(Thousands, except per share amounts )
<TABLE>
<CAPTION>
Shares of Income Shares Held in
Common Additional Retained Treasury Trust for
Stock Common Paid-in for Use in Shares Deferred
Outstanding Stock Capital the Business - at Cost Compensation Plans
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1996 18,566 $ 10,000 $ 7,528 $ 197,232 $ (21,260) $ (3,008)
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 (995)
Restricted common stock awards 9 68 67
Amortization of restricted common
stock compensation 32
Increase in fair value of shares
held in trust (1,433)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 18,621 10,000 10,311 216,642 (22,983) (5,436)
Net income 12,211
Cash dividends - $.23 per share (4,982)
Purchase of common stock
for treasury (276) (7,791)
Issuance of common stock for the
acquisition of Invetech Company 3,165 63,374
Treasury shares issued for:
Retirement Savings Plan contributions 88 1,613 984
Exercise of stock options 70 5 786
Deferred compensation plans 22 364 212 (576)
Restricted common stock awards 222 3,881 2,260
Amortization of restricted common
stock compensation
Increase in fair value of shares
held in trust (540)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 21,912 $ 10,000 $ 79,548 $223,871 $ (26,532) $ (6,552)
===========================================================================================================================
<CAPTION>
Unearned
Restricted Total
Common Stock Shareholders'
Compensation Equity
- ------------------------------------------------------------------------
<S> <C> <C>
Balance at July 1, 1996 $ (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
Restricted common stock awards (135)
Amortization of restricted common
stock compensation 385 417
Increase in fair value of shares
held in trust (1,433)
- --------------------------------------------------------------------
Balance at June 30, 1997 (950) 207,584
Net income 12,211
Cash dividends - $.23 per share (4,982)
Purchase of common stock
for treasury (7,791)
Issuance of common stock for the
acquisition of Invetech Company 63,374
Treasury shares issued for:
Retirement Savings Plan contributions 2,597
Exercise of stock options 791
Deferred compensation plans
Restricted common stock awards (6,141)
Amortization of restricted common
stock compensation 1,163 1,163
Increase in fair value of shares
held in trust (540)
- --------------------------------------------------------------------
Balance at December 31, 1997 $ (5,928) $ 274,407
====================================================================
</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. 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, 1997 and June 30, 1997, and the results of
operations for the three months and six months ended December 31, 1997
and 1996, and cash flows for the six months ended December 31, 1997 and
1996.
The results of operations for the three and six-month periods ended
December 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.
2. NET INCOME PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings per Share. All prior amounts
have been restated to conform to the basic and diluted presentation.
The impact to previously reported earnings per share amounts is not
significant.
All share and per share data have also been restated to reflect a three
for two stock split effective September 15, 1997.
6
<PAGE> 8
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
- --------------------------------------------------------------------------------
The following is a computation of the basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
1997 1996 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Net Income
- ----------
Net income as reported in statements of
consolidated income $7,714 $6,003 $12,211 $11,408
===================================================
Average Shares Outstanding
- --------------------------
Weighted average common shares outstanding for basic
computation 21,604 18,496 21,130 18,494
Dilutive effect of:
Stock options 357 209 353 211
Performance Accelerated
Restricted Stock (PARS) 55 47 51 47
---------------------------------------------------
Adjusted average common shares outstanding for
diluted computation 22,016 18,752 21,534 18,752
===================================================
Net Income Per Share
- --------------------
Net income per common share - basic $0.36 $0.32 $0.58 $0.62
===================================================
Net income per common share - diluted $0.35 $0.32 $0.57 $0.61
===================================================
</TABLE>
7
<PAGE> 9
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
- --------------------------------------------------------------------------------
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.
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 December 31, 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>
Six Months Ended December 31
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Net sales $738,488 $711,743
Income before income taxes 18,806 22,028
Net income 11,662 13,185
Net income per share-basic .54 .61
Net income per share-diluted .53 .60
</TABLE>
The unaudited pro forma amounts include the pre-tax nonrecurring charge
of $4,000 for the six months ended December 31, 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.
8
<PAGE> 10
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands) (Unaudited)
- --------------------------------------------------------------------------------
On August 29, 1997 the Company acquired certain assets of Midwest
Rubber and Supply Company, a rubber fabrication and repair shop for
$2,383 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.
During the quarter ended December 31, 1997 the Company acquired the
stock of Air and Hydraulics Engineering, Inc. and Power Hydraulics,
Inc., distributors of hydraulic, pneumatic and electro-hydraulic
components, systems and related fluid power engineering services, for a
total of $8,486. The acquisitions of these businesses were accounted
for as purchases and their results of operations are included in the
accompanying consolidated financial statements from their respective
acquisition dates. Results of operations for these acquisitions are not
material for all periods presented. Goodwill recognized in connection
with these combinations 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.
9
<PAGE> 11
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands) (Unaudited)
- --------------------------------------------------------------------------------
5. SUBSEQUENT EVENTS
In January 1998 the Company borrowed $50,000 of long-term debt under a
shelf facility agreement with The Prudential Insurance Company of
America. Proceeds from these 6.6% Senior Unsecured Term Notes were used
to repay short-term debt. Interest is payable quarterly. The principal
amount is to be paid in December 2007.
In January 1998 the Company acquired the stock of Associated Bearings
Company, a distributor of bearings, power transmission products and
industrial supplies, for 123 shares of stock and $1,409 in cash. The
Company will account for the acquisition as a purchase.
On January 15, 1998 the Company's Board of Directors adopted a
Shareholder Rights Plan and declared a dividend distribution of one
preferred share purchase Right for each outstanding share of Company
common stock held of record as of February 2, 1998. The rights become
exercisable only if a person or group acquires beneficial ownership of
20% or more of the Company's common stock or commences a tender or
exchange offer for 20% or more of the Company's common stock, unless
the tender or exchange offer is for all outstanding shares of the
Company upon terms determined by the Company's continuing directors to
be in the best interests of the Company and its shareholders. When
exercisable, the Rights would entitle the holders (other than the
acquirer) to buy shares of the Company's common stock having a market
value equal to two times the Right's exercise price or, in certain
circumstances, to buy shares of the acquiring company having a market
value equal to two times the Right's exercise price.
10
<PAGE> 12
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For Quarter and Six Months Ended December 31, 1997
- --------------------------------------------------------------------------------
The following is Management's discussion and analysis of certain significant
factors which have affected the Company's: (1) financial condition at December
31, 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 $1.3 million in the six months ended
December 31, 1997. This compares to $8.2 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 inventories 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,
1997 inventories (excluding inventories purchased in the Invetech transaction
and other acquisitions) increased approximately $35.5 million due to timing of
purchases relating to the calendar year end. Accounts receivable, exclusive of
receivables acquired in the Invetech transaction and other acquisitions,
decreased by $18.8 million due to improved collections and traditionally lower
sales during the first six-month period of our fiscal year as compared to the
last six months of the year.
Investments in property totaled $11.0 million and $6.6 million in the six months
ended December 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.
In January 1998 the Company entered into an agreement to build a new
distribution center in the city of Corona, California, in the greater Los
Angeles area. Construction on this 160,000 square foot facility is expected to
begin shortly and be completed by December 1998. This build-to-suit facility
will be leased by the Company under a 10 year lease which is expected to be
accounted for as an operating lease. The Company is planning to move out of its
current Corona Distribution Center and into the new facility upon expiration of
its current lease at the end of November 1998.
Working capital at December 31, 1997 was $174.5 million compared to $164.7
million at June 30, 1997. This increase is primarily due to the acquisition of
Invetech and other companies.
11
<PAGE> 13
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 $107.9 million for the six months ended December 31, 1997 and
$89.4 million during the year ended June 30, 1997. The average effective
interest rate on the short-term borrowings for the six months ended December 31,
1997 decreased to 6.0% from an average rate of 6.4% for the six months ended
December 31, 1996 due to lower interest rates on short-term debt. The Company
has $155 million of short-term lines of credit with commercial banks that
provide for payment of interest at various interest rate options, none of which
are in excess of the banks' prime rate. The Company had $78.7 million of
borrowings outstanding under short-term bank lines of credit on December 31,
1997. Unused lines of credit totaling $76.3 million are available for future
short-term financing needs. In January 1998 the Company borrowed $50 million at
a 6.6% interest rate with a ten-year term under a previously unused $50 million
shelf facility agreement in place with The Prudential Insurance Company of
America.
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 six
months ended December 31, 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.
Year 2000 Issue
- ---------------
The Company has constituted a Year 2000 executive task force.
This task force will meet monthly and report directly to the Audit Committee of
the Board of Directors. The executive task force is made up of representatives
from all key management areas of the Company and will review not only activities
relative to its own internal operating systems, but also Year 2000 issues as
they relate to suppliers and customers. A program office has been set up to
monitor the detailed written plans submitted by the management areas relative to
actions, time schedules, resources and costs. Additionally, the Company is in
the process of retaining an outside Year 2000 consultant to provide the
executive task force and the Audit Committee with an independent assessment of
the Company's Year 2000 efforts. The Company expects that the initial draft of
the detailed plan will be prepared by the end of its third quarter ending March
31, 1998. Thereafter, the Company will be in a position to make a reasonable
estimate of the costs and uncertainties associated with Year 2000 issues. The
Company expects that the actions outlined above will significantly reduce the
likelihood that Year 2000 issues would have a material adverse effect on the
Company's business, financial condition or results of operations.
12
<PAGE> 14
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 Except per Share Amounts)
Three Months Ended Six Months Ended
December 31 December 31
1997 and 1996 1997 and 1996
Amount Change Amount Change
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $93,631 34.0% $156,108 28.0%
Cost of sales 73,548 36.8% 121,199 29.6%
Selling,distribution and
administrative expenses 17,521 27.7% 33,264 26.4%
Operating income 2,562 21.9% 1,645 7.3%
Interest expense - net 823 61.3% 1,766 68.3%
Income before income taxes 1,739 16.8% (121) (.6%)
Income taxes 28 .6% (924) (11.0%)
Net income 1,711 28.5% 803 7.0%
Net income per share - diluted .03 9.4% (.04) (6.6%)
</TABLE>
13
<PAGE> 15
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Three Months Ended December 31, 1997 and 1996
- ---------------------------------------------
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. Gross profit as a percentage of sales decreased to 25.8% from
27.3%. These decreases primarily relate to higher freight costs, lower purchase
allowances and changes in the product mix due to the Invetech acquisition.
Selling, distribution and administrative expenses as a percent of sales,
decreased to 21.9% from 23.0% The decrease was primarily from lower compensation
costs and data processing expense and additional gains on the sale of assets
offset by increases in employee benefits and additional outsourcing expenses as
a percent of sales.
Interest expense-net for the quarter increased by 61.3% 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 36.2% in the quarter
ended December 31, 1997 and 42.0% in the quarter ended December 31, 1996. The
decrease is primarily attributed to tax savings from lower effective state and
local income tax rates and adjustment of the tax liability accounts from a
change in estimates. As a result of the above factors, net income increased by
28.5% compared to the same quarter of last year.
Net income per share - diluted increased by 9.4% due to the impact of increased
net income and increases in the number of shares outstanding primarily from the
acquisition of Invetech in August 1997.
Six Months Ended December 31, 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 period ended December 31, 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.
Gross profit as a percent of sales was 25.7% compared to 26.6%. These decreases
primarily relate to higher freight costs, lower purchase allowances and changes
in the product mix due to the Invetech acquisition.
14
<PAGE> 16
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, as a percent of sales,
decreased to 22.3% compared to 22.6%. The decrease was primarily due to lower
compensation costs, data processing expenses and capitalized warehousing costs
offset by the restructuring charge.
Interest expense-net for the period increased by 68.3% 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 38.1% in the six months
ended December 31, 1997 and 42.5% in the six months ended December 31, 1996. The
decrease is primarily attributed to tax savings from lower effective state and
local income tax rates and adjustments to the tax liability accounts from a
change in estimate.
As a result of the above factors, net income increased by 7.0% compared to the
same period last year.
Net income per share - diluted decreased by 6.6% due to the impact of the 7.0%
increase in net income and primarily from the issuance of 3.2 million shares for
the acquisition of Invetech in August 1997.
CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT
- -------------------------------------------------------------------
Management's discussion and analysis contains 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 or in specific customer industry sectors; 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 Company's ability to complete, in
a timely manner and within cost estimates, its Year 2000 project; 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).
15
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
-----------------
(a) The Company 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.
(b) 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 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
At the Annual Meeting of Shareholders of the Company held on October
21, 1997, the Shareholders (i) elected John C. Dannemiller, J. Michael
Moore, John C. Robinson and Dr. Jerry Sue Thornton as Directors of
Class I for a term expiring in 2000, (ii) adopted an amendment to the
Company's Amended and Restated Articles of Incorporation increasing the
number of authorized shares of Common Stock, without par value, to
50,000,000, (iii) adopted an amendment to the Company's 1990 Long-Term
Performance Plan, and (iv) ratified the appointment of Deloitte &
Touche LLP as independent auditors of the Company for the fiscal year
ending June 30, 1998. 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, 1997.
ITEM 5. Other Information.
------------------
On February 2, 1998, John C. Robinson, Vice Chairman of the Company,
died of cancer at the age of 55 after over 30 years of service to the
Company.
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., as amended on
November 5, 1997.
16
<PAGE> 18
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) 1997 Long-Term Performance Plan.
10(b) Description of Life Insurance and
Accidental Death and Dismemberment
Insurance programs for executive
officers.
10(c) Description of Long-Term Disability
Insurance program for executive
officers.
10(d) Schedule pursuant to Instruction 2
of Item 601(a) of Regulation S-K
identifying the directors and
executive officers executing
Director and Officer Indemnification
Agreements.
17
<PAGE> 19
10(e) Schedule pursuant to Instruction 2
of Item 601(a) of Regulation S-K
identifying the executive officers
who have signed an Executive
Severance Agreement and setting
forth the material details in which
the agreements differ from the form
of agreement filed as Exhibit 4(b)
to the Company's Registration
Statement on Form S-4 filed May 23,
1997, Registration No. 333-27801.
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, 1997.
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 16, 1998 By: /s/ John R. Whitten
---------------------------------------
John R. Whitten
Vice President-Chief Financial Officer &
Treasurer
Date: February 16, 1998 By: /s/ Mark O. Eisele
---------------------------------------
Mark O. Eisele
Vice President & Controller
18
<PAGE> 20
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
EXHIBIT INDEX
TO FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
<S> <C> <C>
4(a) Amended and Restated Articles of Incorporation of
Applied Industrial Technologies, Inc., as amended on
November 5, 1997. Attached
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).
</TABLE>
19
<PAGE> 21
<TABLE>
<S> <C> <C>
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) 1997 Long-Term Performance Plan. Attached
10(b) Description of Life Insurance and Accidental Death
and Dismemberment Insurance programs for executive
officers. Attached
10(c) Description of Long-Term Disability Insurance
program for executive officers. Attached
10(d) Schedule pursuant to Instruction 2 of Item 601(a) of
Regulation S-K identifying the directors and
executive officers executing director and officer
indemnification agreements. Attached
10(e) Schedule pursuant to Instruction 2 of Item 601(a) of
Regulation S-K identifying the executive officers who
have signed an Executive Severance Agreement and
setting forth the material details in which the
agreements differ from the form of agreement filed as
Exhibit 4(b) to the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No.
333-27801. Attached
11 Computation of Net Income Per Share. Attached
27 Financial Data Schedule. Attached
</TABLE>
<PAGE> 1
Exhibit 4(a)
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
FIRST: The name of the Corporation shall be Applied Industrial
Technologies, Inc.
SECOND: The place in the State of Ohio where the principal office of
the Corporation will be located is 3600 Euclid Avenue, Cleveland, Ohio 44115, in
Cuyahoga County, or such other location as the Board of Directors shall from
time to time determine.
THIRD: The purpose for which the Corporation is formed is to engage in
any lawful act or activity for which corporations may be formed under Sections
1701.01 to 1701.98, inclusive, of the Revised Code of Ohio, as now in effect or
hereinafter amended.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Fifty Million (50,000,000) shares of Common Stock,
without par value, and Two Million Five Hundred Thousand (2,500,000) shares of
Preferred Stock, without par value.
No holder of shares of stock of any class of the Corporation shall, as
such holder, have any rights to subscribe for or purchase (a) any shares of
stock of any class, any warrants, options or other instruments that shall confer
upon the holder thereof the right to subscribe for or purchase or receive from
the Corporation any shares of stock of any class which the Corporation may issue
or sell, whether or not such shares shall be exchangeable for any shares of
stock of the Corporation of any class or classes and whether or not such shares
shall be unissued shares, now or hereafter authorized, or shares acquired by the
Corporation after the issue thereof, and whether or not such shares of stock,
warrants, options or other instruments are issued for cash or services or
property or by way of dividend or otherwise, or (b) any other security of the
Corporation which shall be convertible into, or exchangeable for, any shares of
stock of the Corporation or any class or classes, or to which shall be attached
or appurtenant to any warrant, option or other instrument that shall confer upon
the holder of such security the right to subscribe for or purchase or receive
from the Corporation any shares of its stock or any class or classes, whether or
not such shares shall be unissued shares, now or hereafter authorized, or shares
acquired by the Corporation after the issue thereof, and whether or not such
securities are issued for cash or services or property or by way of dividend or
otherwise, other than such right, if any, as the Board of Directors, in its sole
discretion, may from time to time determine. If the Board of Directors shall
offer to the holders of shares of stock of any class of the Corporation, or any
of them, any such shares of stock, options, warrants, instruments or other
securities of the Corporation, such offer shall not, in any way, constitute a
waiver or release of the right of the Board of Directors subsequently to dispose
of other securities of the Corporation without offering the same to said
holders.
<PAGE> 2
The shares of such classes shall have the following express terms:
DIVISION A
EXPRESS TERMS OF THE PREFERRED STOCK
(1) The Preferred Stock may be issued from time to time in one or more
series. All shares of Preferred Stock shall be of equal rank and shall be
identical with all other shares except in respect of the matters that may be
fixed by the Board of Directors as hereinafter provided, and each share of each
series shall be identical with all other shares of such series, except, if
dividends are to be cumulative, as to the date from which dividends are
cumulative. Subject to the provisions of Sections 2 and 3 of this Division,
which provisions shall apply to all Preferred Stock, the Board of Directors
hereby is authorized to cause such shares to be issued in one or more series and
with respect to each such series prior to the issuance thereof to fix:
(a) The number of shares constituting such series, including
the authority to increase or decrease such number, and the distinctive
designation of such series.
(b) The dividend rate of the shares of such series, whether
the dividends shall be cumulative and, if so, the date from which they
shall be cumulative, and the relative rights of priority, if any, of
payment of dividends on shares of such series.
(c) The right, if any, of the Corporation to redeem shares of
such series and the terms and conditions of such redemption including
the redemption price.
(d) The rights of the shares in case of a voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation,
and the relative rights of priority, if any, of payment of shares of
such series.
(e) The obligation, if any, of the Corporation to retire
shares of such series pursuant to a retirement or sinking fund or fund
of a similar nature and the terms and conditions of such obligation.
(f) The terms and conditions, if any, upon which shares of
such series shall be convertible into or exchangeable for shares of
stock of any other class or classes of stock of the Corporation or
other entity or of any other series of Preferred Stock, including the
price or prices or the rate or rates of conversion or exchange and the
terms of adjustment, if any.
(g) Any other rights, preferences or limitations of the shares
of such series as may be permitted by law.
The Board of Directors is authorized to adopt from time to time
amendments to the Articles of Incorporation fixing, with respect to each such
series, the matters described in clauses (a) through (g), inclusive, of this
Section 1.
2
<PAGE> 3
(2) The Preferred Stock shall be senior to the Common Stock in payment
of dividends and payment in respect of liquidation or dissolution.
(3) The holders of Preferred Stock shall be entitled to one vote for
each share of such stock upon all matters presented to the shareholders; and,
except as otherwise required by law, the holders of Preferred Stock and the
holders of Common Stock shall vote together as one class on all matters.
DIVISION B
EXPRESS TERMS OF THE COMMON STOCK
The Common Stock shall be subject to the express terms of the Preferred
Stock and any series thereof and to the terms of Article EIGHTH. Each share of
Common Stock shall be equal to every other share of Common Stock and the holders
thereof shall be entitled to one vote for each share of such stock on all
questions presented to the shareholders.
FIFTH: Except as otherwise provided in these Articles of Incorporation
or in the Regulations, the holders of a majority of the outstanding shares are
authorized to take any action which, but for this provision, would require the
vote or other action of the holders of more than a majority of such shares.
SIXTH: Except as otherwise provided in these Articles of Incorporation,
the Corporation, by its Board of Directors, may purchase issued shares, to the
extent permitted by law.
SEVENTH: The affirmative vote of the holders of not less than eighty
percent (80%) of the voting power of the Corporation in the election of
directors shall be required for the approval or authorization of any Business
Combination; provided, however, that the eighty percent voting requirement shall
not be applicable if the Business Combination is a merger or consolidation and
the cash or fair market value of the property, securities or other consideration
to be received per share by holders of the Common Stock of the Corporation in
the Business Combination (a) is not less than the highest per share price (with
appropriate adjustments for recapitalizations and for stock splits, stock
dividends and like distributions), paid by the Related Person in acquiring any
of its holdings of the Corporation's Common Stock and (b) if the Related Person
has acquired Common Stock with varying forms of consideration, the form of
consideration to be received by the holders of the Common Stock in the Business
Combination is cash or the form used to acquire the largest percentage of the
voting power of the Corporation in the election of directors owned by the
Related Person.
For the purpose of this Article SEVENTH:
(1) The term "Business Combination" shall mean (i) any merger or
consolidation of the Corporation or a subsidiary with or into a Related Person,
(ii) any sale, lease, exchange, transfer
3
<PAGE> 4
or other disposition, including, without limitation, a mortgage or any other
security device, of all or any "Substantial Part" (as hereinafter defined) of
the assets, either of the Corporation (including, without limitation, of any
voting securities of a subsidiary) or of a subsidiary, to a Related Person,
(iii) any merger or consolidation of a Related Person with or into the
Corporation or a subsidiary of the Corporation, (iv) any sale, lease, exchange,
transfer or other disposition of all or any Substantial Part of the assets of a
Related Person to the Corporation or a subsidiary of the Corporation, (v) the
issuance of any securities of the Corporation or a subsidiary of the Corporation
to a Related Person, (vi) any reclassification of securities (including any
reverse stock split) or recapitalization what would have the effect of
increasing the voting power of a Related Person, (vii) the adoption of any plan
or proposal for the liquidation or dissolution of the Corporation proposed by or
on behalf of a Related Person, and (viii) any agreement, contract or other
arrangement providing for any of the transactions described in this definition
of Business Combination.
(2) The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with its
"Affiliates" and "Associates" (as defined on October 18, 1988 in Rule 12b-2
under the Securities Exchange Act of 1934), "Beneficially Owns" (as defined on
October 18, 1988 in Rule 13d-3 under the Securities Exchange Act of 1934) Common
Stock or Preferred Stock of the Corporation consisting in the aggregate of 20
percent or more of the outstanding voting power of the Corporation in the
election of directors, and any Affiliate or Associate of any such individual,
corporation, partnership or other person or entity.
(3) The term "Substantial Part" shall mean more than thirty percent
(30%) of the fair market value of the total assets of the corporation in
question, as of the end of its most recent fiscal year ending prior to the time
the determination is being made.
(4) Without limitation, any Common Stock of the Corporation, or
Preferred Stock of the Corporation that has voting power in the election of
directors, that any Related Person has the right to acquire pursuant to any
agreement, or upon exercise of conversion rights, warrants or options, or
otherwise shall be deemed beneficially owned by the Related Person.
(5) For the purposes of this Article SEVENTH, the term "other
consideration to be received" shall include, without limitation, Common Stock of
the Corporation retained by its existing public stockholders in the event of a
Business Combination in which the Corporation is the surviving corporation.
Notwithstanding any other provisions of these Articles of Incorporation
or the Regulations of the Corporation or any provision of law which might
otherwise permit a lesser vote, but in addition to any affirmative vote of the
holders of any particular class or series of stock required by law or these
Articles of Incorporation or the Regulations of the Corporation, the affirmative
vote of the holders of at least eighty percent (80%) of the Corporation's voting
power in the election of directors, voting as a single class, shall be required
to alter, amend or repeal this Article SEVENTH or to adopt any provisions in
these Articles of Incorporation or the Regulations of the Corporation which are
inconsistent with the provisions of this Article SEVENTH.
4
<PAGE> 5
EIGHTH: No person shall make a Control Share Acquisition without first
obtaining the prior authorization of the Corporation's shareholders at a special
meeting of shareholders called by the Board of Directors in accordance with this
Article EIGHTH.
(1) Procedure. Any Person who proposes to make a Control Share
Acquisition shall deliver a notice ("Notice") to the Corporation at its
principal place of business that sets forth all of the following information:
a) The identity of the Person who is giving the Notice;
b) A statement that the Notice is given pursuant to this Article
EIGHTH;
c) The number and class of shares of the Corporation owned,
directly or indirectly, by the Person who gives the Notice;
d) The range of voting power (as specified in Section (6)(b)(1)
of this Article EIGHTH) under which the proposed Control Share
Acquisition would, if consummated, fall;
e) A description in reasonable detail of the terms of the
proposed Control Share Acquisition; and
f) Representations, supported by reasonable information, that the
proposed Control Share Acquisition would be consummated if
shareholder approval is obtained and, if consummated, would
not be contrary to law and that the Person who is giving the
Notice has the financial capacity to make the proposed Control
Share Acquisition.
(2) Call of Special Meeting of Shareholders. The Board of Directors of
the Corporation shall, within ten (10) days after receipt by the Corporation of
a Notice that complies with Section (1), call a special meeting of shareholders
to be held not later than fifty (50) days after receipt of the Notice by the
Corporation, unless the Person who delivered the Notice agrees to a later date,
to consider the proposed Control Share Acquisition; provided that the Board of
Directors shall have no obligation to call such a meeting if they make a
determination within ten (10) days after receipt of the Notice that (i) the
Notice was not given in good faith; (ii) the proposed Control Share Acquisition
would not be in the best interests of the Corporation and its shareholders or
(iii) the proposed Control Share Acquisition could not be consummated for
financial or legal reasons. Notwithstanding anything to the contrary contained
in clause (ii) of the immediately preceding sentence, the Board of Directors
shall call such special meeting of shareholders if the Control Share Acquisition
described in the Notice is for any and all shares of the Corporation, for cash,
at a price higher than the highest price at which shares of Common Stock have
been traded during the ninety (90) day period prior to the date on which the
Corporation receives the Notice.
5
<PAGE> 6
The Board of Directors may adjourn such special meeting of shareholders
if prior to such meeting the Corporation has received a Notice from any other
Person and the Board of Directors has determined that the Control Share
Acquisition proposed by such other Person, or a merger, consolidation or sale of
assets of the Corporation, should be presented to shareholders at an adjourned
meeting or at a special meeting held at a later date.
For purposes of making a determination that a special meeting of
shareholders should not be called pursuant to this Section (2), no such
determination shall be deemed void or voidable with respect to the Corporation
merely because one or more of its directors or officers who participated in
deliberations regarding such determination may be deemed to be other than
disinterested, if in any such case the material facts of the relationship giving
rise to a basis for self-interest are known to the directors and the directors,
in good faith reasonably justified by the facts, make such determination by the
affirmative vote of a majority of the disinterested directors, even though the
disinterested directors constitute less than a quorum. For purposes of this
paragraph, "disinterested directors" shall mean directors whose material
contacts with the Corporation are limited principally to activities as a
director or shareholder. Persons who have material and recurring business or
professional contacts with the Corporation shall not be deemed to be
"disinterested directors" for purposes of this provision. A director shall not
be deemed to be other than a "disinterested director" merely because he would no
longer be a director if the proposed Control Share Acquisition were approved and
consummated.
(3) Notice of Special Meeting. The Corporation shall, as promptly as
practicable, give notice of the special meeting of shareholders called pursuant
to Section (2) to all shareholders of record as of the record date set for such
meeting. Such notice shall include or be accompanied by a copy of the Notice and
by a statement of the Corporation, authorized by the Board of Directors, of its
position or recommendation, or that it is taking no position or making no
recommendation, with respect to the proposed Control Share Acquisition.
(4) Requirements for Approval. The Person who delivered the Notice may
make the proposed Control Share Acquisition if both of the following occur:
(a) The shareholders of the Corporation authorize such
acquisition at the special meeting of shareholders called pursuant to
Section (2), at which meeting a quorum is present, by the affirmative
vote of a majority of the Voting Stock represented at such meeting in
person or by proxy and by a majority of the portion of such Voting
Stock represented at such meeting in person or by proxy excluding the
votes of Interested Shares. A quorum shall be deemed to be present at
such special meeting if at least a majority of the issued and
outstanding Voting Stock, and a majority of such Voting Stock excluding
Interested Shares, are represented at such meeting in person or by
proxy.
(b) Such acquisition is consummated, in accordance with the
terms so authorized, not later than three hundred sixty (360) days
following shareholder authorization of the Control Share Acquisition.
6
<PAGE> 7
(5) Violations of Restriction. Any Voting Stock issued or transferred
to any Person in violation of this Article EIGHTH shall hereinafter be called
"Excess Shares." In the event that any Person acquires Excess Shares, then, in
addition to any other remedies which the Corporation may have at law or in
equity as a result of such acquisition, the Corporation shall have the right to
treat the issuance or transfer of any such Excess Shares as null and void. In
the event the Corporation is not permitted to treat an issuance or transfer of
Excess Shares as null and void, such Excess Shares will be treated as the
equivalent of treasury shares of the Corporation and, as such, holders of Excess
Shares will hold such Excess Shares as agent of the Corporation and shall have
no right to exercise or receive the benefits of shareholder rights appurtenant
to such Excess Shares. In such event, the Corporation may redeem any or all
Excess Shares, arrange a sale to one or more purchasers who could acquire such
Excess Shares without violating this Article EIGHTH, or seek other appropriate
remedies. In addition, any Person who receives dividends, interest or any other
distribution with respect to Excess Shares shall hold the same as agent for the
Corporation and, following a permitted transfer, for the transferee thereof.
Notwithstanding the foregoing, any person who holds Excess Shares may transfer
the same (together with any distributions thereon) to any Person who, following
such transfer, would not own shares in violation of this Article EIGHTH. Upon
such permitted transfer, the Corporation shall pay or distribute to the
transferee any distributions on the Excess Shares not previously paid or
distributed.
(6) Definitions. As used in this Article EIGHTH:
(a) "Person" includes, without limitation, an individual, a
corporation (whether nonprofit or for profit), a partnership, an
unincorporated society or association, and two or more persons having a
joint or common interest.
(b)(1) "Control Share Acquisition" means the acquisition,
directly or indirectly, by any Person, of shares of the Corporation
that, when added to all other shares of the corporation in respect of
which such Person, directly or indirectly, may exercise or direct the
exercise of voting power as provided in this paragraph, would entitle
such Person, immediately after such acquisition, directly or
indirectly, to exercise or direct the exercise of voting power of the
Corporation in the election of directors within any of the following
ranges of such voting power:
(i) One-fifth or more but less than one-third of such
voting power;
(ii) One-third or more but less than a majority of
such voting power; or
(iii) A majority of such voting power.
A bank, broker, nominee, trustee, or other Person who acquires
shares in the ordinary course of business for the benefit of others in
good faith and not for the purpose of circumventing this Article EIGHTH
shall, however, be deemed to have voting power only of shares in
respect of which such Person would be able to exercise or direct the
exercise of votes at a special meeting of shareholders called pursuant
to Section (2) of this
7
<PAGE> 8
Article EIGHTH without further instruction from others. For purposes of
this Article EIGHTH, the acquisition of securities immediately
convertible into shares of the Corporation with voting power in the
election of directors shall be treated as an acquisition of such
shares.
(b)(2) The acquisition of any shares of the Corporation does
not constitute a Control Share Acquisition for the purposes of this
Article EIGHTH if the acquisition is consummated in any of the
following circumstances:
(i) By underwriters in good faith and not for the
purpose of circumventing this Article EIGHTH in connection
with any offering to the public of securities of the
Corporation;
(ii) By bequest or inheritance, by operation of law
upon the death of any individual, or by any other transfer
without valuable consideration, including a gift, that is made
in good faith and not for the purpose of circumventing this
Article EIGHTH;
(iii) Pursuant to the satisfaction of a pledge or
other security interest created in good faith and not for the
purpose of circumventing this Article EIGHTH;
(iv) Pursuant to a merger, consolidation, combination
or majority share acquisition adopted or authorized by
shareholder vote in compliance with the provisions of Article
SEVENTH of these Articles of Incorporation and Sections
1701.78, 1701.79 or 1701.83 of the Ohio Revised Code if the
Corporation is a party to the agreement of merger,
consolidation or acquisition, as the case may be;
(v) Under such circumstances that the acquisition
does not result in the Person acquiring shares of the
Corporation being entitled, immediately thereafter and for the
first time, directly or indirectly, to exercise or direct the
exercise of voting power of the Corporation in the election of
directors within the range of one-fifth or more but less than
one-third of such voting power, or within any of the ranges of
voting power specified in Section (6)(b)(1)(i), (ii) or (iii)
which is higher than the range of voting power applicable to
such Person immediately prior to such acquisition;
(vi) Prior to October 18, 1988; or
(vii) Pursuant to a contract existing prior to
October 18, 1988.
The acquisition by any Person of shares of the Corporation in
a manner described under this Section (6)(b)(2) shall be deemed to be a
Control Share Acquisition authorized pursuant to this Article EIGHTH
within the range of voting power specified in Section (6)(b)(1)(i),
(ii) or (iii) that such Person is entitled to exercise after such
acquisition,
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provided that, in the case of an acquisition in a manner described
under Section (6)(b)(1)(i), (ii) or (iii), the transferor of shares to
such Person had previously obtained any authorization of shareholders
required under this Article EIGHTH in connection with such transferor's
acquisition of shares of the Corporation.
(b)(3) The acquisition of shares of the Corporation in good
faith and not for the purpose of circumventing this Article EIGHTH from
any Person whose Control Share Acquisition had previously been
authorized by shareholders in compliance with this Article EIGHTH, or
from any Person whose previous acquisition of shares would have
constituted a Control Share Acquisition but for Section (6)(b)(2), does
not constitute a Control Share Acquisition for the purpose of this
Article EIGHTH unless such acquisition entitles any Person, directly or
indirectly, alone or with others, to exercise or direct the exercise of
voting power of the Corporation in the election of directors in excess
of the range of such voting power authorized pursuant to this Article
EIGHTH, or deemed to be so authorized under Section (6)(b)(2).
(c) "Interested Shares" means Voting Stock with respect to
which any of the following persons may exercise or direct the exercise
of the voting power:
(1) any Person whose Notice prompted the calling of a
special meeting of shareholders pursuant to Section (2);
(2) any officer of the Corporation elected or
appointed by the directors of the Corporation; and
(3) any employee of the Corporation who is also a
director of the corporation.
(d) "Voting Stock" means all securities of the Corporation
entitled to vote generally in the election of directors, and, for
purposes of Sections (5) and (10) of this Article EIGHTH, shall mean
securities of the Corporation immediately convertible into securities
entitled to vote generally in the election of the directors.
(7) Proxies. No proxy appointed for or in connection with the
shareholder authorization of a Control Share Acquisition pursuant to this
Article EIGHTH is valid if it provides that it is irrevocable. No such proxy is
valid unless it is sought, appointed, and received both:
(a) In accordance with all applicable requirements of law; and
(b) Separate and apart from the sale or purchase, contract or
tender for sale or purchase, or request or invitation for tender for
sale or purchase, of shares of the Corporation.
(8) Revocability of Proxies. Proxies appointed for or in connection
with the shareholder authorization of a Control Share Acquisition pursuant to
this Article EIGHTH shall be revocable
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at all times prior to the obtaining of such shareholder authorization, whether
or not coupled with an interest.
(9) Amendments. Notwithstanding any other provisions of these Articles
of Incorporation or the Regulations of the Corporation or any provision of law
that might otherwise permit a lesser vote, but in addition to any affirmative
vote of the holders of any particular class or series of stock required by law,
the Articles of Incorporation or the Regulations of the Corporation, the
affirmative vote of the holders of at least eighty percent (80%) of the Voting
Stock, voting as a single class, shall be required to alter, amend or repeal
this Article EIGHTH or adopt any provisions in these Articles of Incorporation
or the Regulations of the Corporation which are inconsistent with the provisions
of this Article EIGHTH.
(10) Legend on Share Certificates. Each certificate representing Voting
Stock of the Corporation shall contain the following legend:
Transfer of the securities represented by this Certificate is
subject to the provisions of Article EIGHTH of the Corporation's
Articles of Incorporation as the same may be in effect from time to
time. Upon written request delivered to the Secretary of the
Corporation at its principal place of business, the Corporation will
mail to the holder of this Certificate a copy of such provisions
without charge within five (5) days after receipt of written request
therefor. By accepting this Certificate the holder hereof acknowledges
that it is accepting same subject to the provisions of said Article
EIGHTH as the same may be in effect from time to time and covenants
with the Corporation and each holder thereof from time to time to
comply with the provisions of said Article EIGHTH as the same may be in
effect from time to time.
NINTH: The provisions of Section 1701.831 of the Ohio Revised Code, as
amended from time to time, or any successor provision or provisions to said
Section, shall not apply with respect to any particular Control Share
Acquisition, as such is defined in said Section, regarding this Corporation so
long as Article NINTH of these Articles of Incorporation, as such Articles of
Incorporation may be amended from time to time, remains an Article of these
Articles of Incorporation and remains substantially in full force and effect,
disregarding any renumbering of such Article NINTH resulting from any amendment
of these Articles of Incorporation.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation which may be
contained in these articles of incorporation of a corporation organized under
the laws of the State of Ohio, in the manner now or hereafter prescribed by
statute or these Articles of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
<PAGE> 1
EXHIBIT 10(a)
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
1997 LONG-TERM PERFORMANCE PLAN
1. OBJECTIVES
The Applied Industrial Technologies, Inc. 1997 Long-Term Performance
Plan (the "Plan") is designed to foster and promote the long-term growth and
performance of the Company by: (a) strengthening the Company's ability to
develop and retain an outstanding management team, (b) motivating superior
performance by means of long-term performance related incentives and (c)
enabling key management employees and outside directors to participate in the
long-term growth and financial success of the Company. These objectives will be
promoted by awarding to such persons performance-based stock awards, restricted
stock, stock options, stock appreciation rights and/or other performance or
stock-based awards.
2. DEFINITIONS
(a) "Award" -- The grant of stock or any form of stock option, stock
appreciation right, performance share, restricted stock, other stock-based award
or cash whether granted singly, in combination or in tandem, to a Plan
Participant pursuant to such terms, conditions and limitations as the Committee
may establish in order to fulfill the objectives of the Plan.
(b) "Award Agreement" -- An agreement between the Company and a
Participant that sets forth the terms, conditions and limitations applicable to
an Award.
(c) "Board" -- The Board of Directors of the Company.
(d) "Common Shares" or "shares" -- Authorized and issued or unissued
shares of common stock without par value of the Company.
(e) "Code" -- The Internal Revenue Code of 1986, as amended from time
to time.
(f) "Committee" -- The Executive Organization and Compensation
Committee of the Company's Board, or such other committee of the Board that is
designated by the Board to administer the Plan. The Committee shall be
constituted so as to satisfy any applicable legal requirements including the
requirements of Rule 16b-3 promulgated under the Securities Exchange Act of 1934
(the "Exchange Act") or any similar rule which may subsequently be in effect
("Rule 16b-3"). The members shall be appointed by, and serve at the pleasure of,
the Board and any vacancy on the Committee shall be filled by the Board.
<PAGE> 2
(g) "Company" -- Applied Industrial Technologies, Inc., an Ohio
corporation, and its direct and indirect subsidiaries.
(h) "Fair Market Value" -- The average of the high and low prices of
Common Shares as reported on the composite tape for securities listed on the New
York Stock Exchange for the date in question, provided that if no sales of
Common Shares were made on said exchange on that date, the average of the high
and low prices of Common Shares as reported on said composite tape for the
preceding day on which sales of Common Shares were made on said Exchange.
(i) "Participant" -- Any employee of the Company, or other person whose
selection the Committee determines to be in the best interests of the Company,
to whom an Award has been made under the Plan.
(j) "Section 162(m) Employee" -- Any employee with respect to which
compensation paid is subject to the restrictions imposed by Section 162(m) of
the Code, or any similar or successor restrictions.
3. ELIGIBILITY
Persons eligible to be selected as Participants shall include employees
of the Company who hold responsible managerial or professional positions and
outside directors whose performance, in the judgment of the Committee, can
contribute to the continued growth and success of the Company. The selection of
Participants shall be within the sole discretion of the Committee. Grants may be
made to the same Participant on more than one occasion.
4. COMMON SHARES AVAILABLE FOR AWARDS
The aggregate number of Common Shares which may be awarded under the
Plan in each fiscal year of the Company, subject to adjustment as provided in
Section 15 hereof, shall be two percent (2%) of the total outstanding Common
Shares as of the first day of such year for which the Plan is in effect;
provided that such number shall be increased in any year by the number of Common
Shares available for grant hereunder in previous years but not the subject of
Awards granted hereunder in such year; and provided further, that no more than
two hundred thousand (200,000) Common Shares shall be cumulatively available for
the grant of incentive stock options under the Plan and that no more than three
hundred thousand (300,000) Common Shares will be available for the grant of
Stock Options, Stock Appreciation Rights, and Stock Awards to any individual
Participant in any one calendar year. In addition, any Common Shares issued by
the Company through the assumption or substitution of outstanding grants from an
acquired corporation or entity shall not reduce the Common Shares available for
grants under the Plan. Such Shares may consist, in whole or in part, of
authorized and unissued shares or treasury shares.
From time to time, the Board and appropriate officers of the Company
shall take whatever actions are necessary to file required documents with
governmental authorities and stock exchanges to
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<PAGE> 3
make Common Shares available for issuance pursuant to Awards. Any Common Shares
subject to an Option which for any reason is canceled (excluding shares subject
to an Option canceled upon the exercise of a related stock appreciation right
("SAR") to the extent shares are issued upon exercise of such SAR) or terminated
without having been exercised, or any shares of Restricted Stock or Performance
Shares which are forfeited, shall again be available for Awards under the Plan.
No fractional shares shall be issued, and the Committee shall determine the
manner in which fractional share value shall be treated.
5. ADMINISTRATION
The Plan shall be administered by the Committee which shall have full
and exclusive power and authority to interpret the Plan, to grant waivers of
Plan restrictions and to adopt such rules, regulations and guidelines for
carrying out the Plan as it may deem necessary or proper, all of which powers
shall be executed in the best interests of the Company and in keeping with the
objectives of the Plan. In particular, the Committee shall have the authority
to: (i) select eligible Participants as recipients of Awards; (ii) determine the
number and type of Awards to be granted; (iii) determine the terms and
conditions, not inconsistent with the terms hereof, of any Award granted; (iv)
adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall, from time to time, deem advisable; (v) interpret
the terms and provisions of the Plan and any Award granted; (vi) prescribe the
form of any agreement or instrument executed in connection with any Award; and
(vii) otherwise supervise the administration of the Plan. In addition, the Board
shall have authority, without amending the Plan, to grant Awards hereunder to
Participants who are foreign nationals or employed outside the United States or
both, on terms and conditions different from those specified herein as may in
the sole judgment and discretion of the Board, be necessary or desirable to
further the purpose of the Plan. All decisions made by the Committee pursuant to
the provisions hereof shall be made in the Committee's sole discretion and shall
be final and binding on all persons.
6. DELEGATION OF AUTHORITY
The Committee may to the extent that any such action will not prevent
the Plan from complying with Rule 16b-3, delegate any of its authority hereunder
to such persons as it deems appropriate.
7. AWARDS
The Committee shall determine the type or types of Award(s) to be made
to each Participant and shall set forth in the related Award Agreement the
terms, conditions and limitations applicable to each Award. Awards may include
but are not limited to those listed in this Section 7. Awards may be granted
singly, in combination or in tandem or in exchange for a previously granted
Award; provided that the exercise price for stock options shall not be less than
the Fair Market Value on the date of grant of the new Award. Awards may also be
made in combination or in tandem with, in replacement of, or as alternatives to,
grants or rights under any other employee plan of the Company, including the
plan of any acquired entity.
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<PAGE> 4
(a) Stock Option -- A grant of a right to purchase a specified number
of Common Shares during a specified period and at a specified price not less
than the Fair Market Value on the date of grant, as determined by the Committee.
A stock option may be in the form of an incentive stock option ("ISO") which, in
addition to being subject to applicable terms, conditions and limitations
established by the Committee, complies with Section 422A of the Code which,
among other limitations, currently provides that the aggregate Fair Market Value
(determined at the time the option is granted) of Common Shares exercisable for
the first time by a Participant during any calendar year shall not exceed
$100,000 (or such other limit as may be required by the Code); that the exercise
price shall be not less than 100% of Fair Market Value on the date of the grant;
that such options shall be exercisable for a period of not more than ten years
and may be granted no later than ten years after the effective date of this
Plan.
(b) Stock Appreciation Right or SAR -- A right to receive a payment, in
cash and/or Common Shares, equal to the excess of the Fair Market Value or other
specified valuation of a specified number of Common Shares on the date the SAR
is exercised over the Fair Market Value or other specified valuation on the date
of grant of the SAR as set forth in the applicable Award Agreement, except that
where the SAR is granted in tandem with a stock option, the grant and exercise
valuations must be no less than Fair Market Value.
(c) Stock Award -- An Award made in Common Shares and other Awards that
are valued in whole or in part by reference to, or are otherwise based on,
Common Shares. All or part of any stock award may be subject to conditions
established by the Committee, and set forth in the Award Agreement.
(d) Cash Award -- An Award denominated in cash with the eventual
payment amount subject to future service and such other restrictions and
conditions as may be established by the Committee, and as set forth in the Award
Agreement. The maximum amount of any Cash Award payable to any Participant in
any one calendar year shall be two million dollars ($2,000,000).
(e)(1) With respect to grants of Awards to any Section 162(m) Employee,
the Stock Awards and Cash Awards made pursuant to paragraphs (c) and (d) shall
be based on the satisfaction of performance goals established by the Committee
at the time an Award is granted, which goals shall include one or more of the
following: sales, costs and expenses, cash flow, pre-tax income, net income,
operating profit and margin, earnings per share, retained earnings, return on
equity, return on assets, return on investment, asset turnover, liquidity,
capitalization, value created, stock price, total shareholder return, price
measures, market share, sales to targeted customers, customer satisfaction,
employee satisfaction, safety measures, quality measures, productivity, process
improvement, educational and technical skills of employees, changes in one or
more of the preceding, development of criteria for and programs related to
hiring and promotion, creation and acquisition of new business units,
development and implementation of business plans and programs relating to
product lines or business units, integration of acquired businesses, development
and implementation of employee training and development programs, implementation
of tax and accounting elections, and development
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and implementation of communications and investor relations programs; provided
however, that all performance goals shall be objective performance goals
satisfying the requirements for "performance-based compensation" within the
meaning of section 162(m)(4) of the Code. Such performance goals may also be
based on the attainment of levels of performance of the Company and/or any of
its affiliates under one or more of the measures described above relative to the
performance of other businesses.
(2) With respect to grants of Awards to any Participant who is
not a Section 162(m) Employee, the Awards may be based on any of the goals
described in paragraph (1) and on such other conditions as may be established by
the Committee.
8. PAYMENT OF AWARDS
Payment of Awards may be made in the form of cash, Common Shares or
combinations thereof and may include such restrictions as the Committee shall
determine, including in the case of Common Shares, restrictions on transfer and
forfeiture provisions. When transfer of shares is so restricted or subject to
forfeiture provisions, such shares are referred to as "Restricted Stock."
Further, with Committee approval, payments may be deferred, either in the form
of installments or a future lump sum payment. The Committee may permit selected
Participants to elect to defer payments of some or all types of Awards in
accordance with procedures established by the Committee to assure that such
deferrals comply with applicable requirements of the Code including, at the
choice of Participants, the capability to make further deferrals for payment
after retirement. Any deferred payment, whether elected by the Participant or
specified by the Award Agreement or by the Committee, may require the payment to
be forfeited in accordance with the provisions of Section 13 of the Plan.
Dividends or dividend equivalent rights may be extended to and made part of any
Award denominated in shares or units of Shares, subject to such terms,
conditions and restrictions as the Committee may establish. The Committee may
also establish rules and procedures for the crediting of interest on deferred
cash payments and dividend equivalents for deferred payments denominated in
shares or units of shares. At the discretion of the Committee, a Participant may
be offered an election to substitute an Award for another Award or Awards of the
same or different type; provided that Awards may not be made to substitute for
previously granted stock options having higher exercise prices.
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9. STOCK OPTION EXERCISE
The price at which shares may be purchased under a stock option shall
be paid in full at the time of the exercise in cash or, if permitted by the
Committee, by means of tendering Common Shares or surrendering another Award,
including Restricted Stock, valued at Fair Market Value on the date of exercise,
or by any other means which the Committee determines to be consistent with the
Plan's objectives and applicable law and regulations. The Committee shall
determine acceptable methods for tendering Common Shares or other Awards and may
impose such conditions on the use of Common Shares or other Awards to exercise a
stock option as it deems appropriate. In the event shares of Restricted Stock
are tendered as consideration for the exercise of a stock option, a number of
the shares issued upon the exercise of the stock option, equal to the number of
shares of Restricted Stock used as consideration therefor, shall be subject to
the same restrictions as the Restricted Stock so submitted plus any additional
restrictions that may be imposed by the Committee.
10. TAX WITHHOLDING
The Corporation shall have the authority to withhold, or to require a
Participant to remit to the Corporation, prior to issuance or delivery of any
shares or cash hereunder, an amount sufficient to satisfy federal, state and
local tax withholding requirements associated with any Award. In addition, the
Corporation may, in its sole discretion, permit a Participant to satisfy any tax
withholding requirements, in whole or in part, by (i) delivering to the
Corporation shares of common stock held by such Participant having a Fair Market
Value equal to the amount of the tax or (ii) directing the Corporation to retain
Common Shares otherwise issuable to the Participant under the Plan. If Common
Shares are used to satisfy tax withholding, such shares shall be valued based on
the Fair Market Value when the tax withholding is required to be made.
11. AMENDMENT, MODIFICATION, SUSPENSION OR DISCONTINUANCE OF THIS PLAN
The Board may amend, modify, suspend or terminate the Plan for the
purpose of meeting or addressing any changes in legal requirements or for any
other purpose permitted by law. Subject to changes in law or other legal
requirements which would permit otherwise, the Plan may not be amended without
consent of the holders of the majority of the Common Shares then outstanding, to
(i) increase the aggregate number of Common Shares that may be issued under the
Plan (except for adjustments pursuant to the Plan), (ii) materially modify the
requirements as to eligibility for participation in the Plan, or (iii) withdraw
administration of the Plan from the Committee.
The Board may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without his consent and no such amendment shall have the effect,
with respect to any Section 162(m) Employee, of increasing the amount of any
Award from the amount that would otherwise be payable pursuant to the formula
and/or goals previously established for such Participant. The Board may also
make Awards hereunder
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in replacement of, or as alternatives to, Awards previously granted to
Participants, except for previously granted options having higher exercise
prices, but including without limitation grants or rights under any other plan
of the Company or of any acquired entity.
12. TERMINATION OF EMPLOYMENT
If the employment of a Participant terminates for any reason, all
unexercised, deferred and unpaid Awards shall be exercisable or paid in
accordance with the applicable Award Agreement, which may provide that the
Committee may authorize, as it deems appropriate, the acceleration and/or
continuation of all or any part of Awards granted prior to such termination.
13. CANCELLATION AND RESCISSION OF AWARDS
Unless the Award Agreement specifies otherwise, the Committee may
cancel any unexpired, unpaid, or deferred Awards at any time if the Participant
is not in compliance with all other applicable provisions of the Award
Agreement, the Plan and with the following conditions:
(a) A Participant shall not render services for any
organization or engage directly or indirectly in any business which, in
the judgment of the Chief Executive Officer of the Company or other
senior officer designated by the Committee, is or becomes competitive
with the Company, or which organization or business, or the rendering
of services to such organization or business, is or becomes otherwise
prejudicial to or in conflict with the interests of the Company. For
Participants whose employment has terminated, the judgment of the Chief
Executive Officer shall be based on the Participant's position and
responsibilities while employed by the Company, the Participant's
post-employment responsibilities and position with the other
organization or business, the extent of past, current and potential
competition or conflict between the Company and the other organization
or business, the effect on the Company's customers, suppliers and
competitors of the Participant's assuming the post-employment position,
and such other considerations as are deemed relevant given the
applicable facts and circumstances. A Participant who has retired shall
be free, however, to purchase as an investment or otherwise, stock or
other securities of such organization or business so long as they are
listed upon a recognized securities exchange or traded
over-the-counter, and such investment does not represent a substantial
investment to the Participant or a greater than one percent (1%) equity
interest in the organization or business.
(b) A Participant shall not, without prior written
authorization from the Company, disclose to anyone outside the Company,
or use in other than the Company's business, any confidential
information or material relating to the business of the Company,
acquired by the Participant either during or after employment with the
Company.
(c) Upon exercise, payment or delivery pursuant to an Award,
the Participant shall certify on a form acceptable to the Committee
that he or she is in compliance with the terms and conditions of the
Plan. Failure to comply with the provisions of paragraph (a), (b) or
(c) of
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this Section 13 prior to, or during the six months after, any exercise,
payment or delivery pursuant to an Award (except in the event of an
intervening Change in Control as defined below) shall cause such
exercise, payment or delivery to be rescinded. The Company shall notify
the Participant in writing of any such rescission within two years
after such exercise, payment or delivery. Within ten days after
receiving such a notice from the Company, the Participant shall pay to
the Company the amount of any gain realized or payment received as a
result of the rescinded exercise, payment or delivery pursuant to an
Award. Such payment shall be made either in cash or by returning to the
Company the number of Common Shares that the Participant received in
connection with the rescinded exercise, payment or delivery.
14. NONASSIGNABILITY
Except as may be otherwise provided in the relevant Award Agreement, no
Award or any benefit under the Plan shall be assignable or transferable, or
payable to or exercisable by, anyone other than the Participant to whom it was
granted.
15. ADJUSTMENTS; WAIVER OF RESTRICTIONS
(a) In the event of any change in capitalization of the Company by
reason of a stock split, stock dividend, combination, reclassification of
shares, recapitalization,merger,consolidation, exchange of shares, spin-off,
spin-out or other distribution of assets to shareholders, or similar event, the
Committee may adjust proportionally (i) the Common Shares (1) reserved under the
Plan, (2) available for ISOs and (3) covered by outstanding Awards denominated
in stock or units of stock; (ii) the stock prices related to outstanding Awards;
and (iii) the appropriate Fair Market Value and other price determinations for
such Awards. In the event of any other change affecting the Common Shares or any
distribution (other than normal cash dividends) to holders of capital stock,
such adjustments as may be deemed equitable by the Committee, shall be made to
give proper effect to such event. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Committee shall be authorized to issue or assume stock options,
whether or not in a transaction to which Section 425(a) of the Code applies, by
means of substitution of new options for previously issued options or an
assumption of previously issued options.
(b) The Board may, in its sole discretion, based on such factors as the
Board or the Award Agreement may deem appropriate, waive in whole or in part,
any remaining restrictions or vesting requirements in connection with any Award
hereunder.
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16. CHANGE IN CONTROL
(a) In the event of a Change in Control (as defined below) of the
Company, and except as the Board may expressly provide otherwise, (i) all Stock
Options or Stock Appreciation Rights then outstanding shall become fully
exercisable as of the date of the Change in Control, whether or not then
exercisable, (ii) all restrictions and conditions of all Stock Awards then
outstanding shall be deemed satisfied as of the date of the Change in Control,
and (iii) all Cash Awards shall be deemed to have been fully earned as of the
date of the Change in Control.
(b) A "Change in Control" of the Company shall have occurred when any
of the following events shall occur:
(i) The Company is merged, consolidated or reorganized into or with
another corporation or other legal person, and immediately after such
merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such
corporation or person immediately after such transaction are held in
the aggregate by the holders of Voting Stock (as that term is hereafter
defined) of the Company immediately prior to such transaction;
(ii) The Company sells all or substantially all of its assets to any
other corporation or other legal person, less than a majority of the
combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale are held in the
aggregate by the holders of Voting Stock of the Company immediately
prior to such sale;
(iii) There is a report filed or required to be filed on Schedule 13D
on Schedule 14D-1 (or any successor schedule, form or report), each as
promulgated pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), disclosing that any person (as the term "person"
is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act)
has become the beneficial owner (as the term "beneficial owner, is
defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing 20% or
more of the combined voting power of the then-outstanding securities
entitled to vote generally in the election of directors of the Company
("Voting Stock");
(iv) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form
or report or item therein) that a change in control of the Company has
or may have occurred or will or may occur in the future pursuant to any
then-existing contract or transaction; or
(v) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the Directors of the
Company cease for any reason to constitute at least a majority thereof,
provided, however, that for purposes of this clause (v), each Director
who is first elected, or first nominated for election by the Company's
stockholders by a vote of at least two-thirds of the Directors of the
Company (or a committee thereof) then still in office who
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were Directors of the Company at the beginning of any such period will
be deemed to have been a Director of the Company at the beginning of
such period.
Notwithstanding the foregoing provisions of Section 16(b)(iii) or (iv)
hereof, unless otherwise determined in a specific case by majority vote of the
Board, a "Change in Control" shall not be deemed to have occurred for purposes
of the Plan solely because (i) the Company, (ii) an entity in which the Company
directly or indirectly beneficially owns 50% or more of the voting securities or
interest, or (iii) any Company-sponsored employee stock ownership plan or any
other employee benefit plan of the Company, either files or becomes obligated to
file a report or a proxy statement under or in response to Schedule 13D,
Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) under the Exchange Act, disclosing beneficial ownership
by it of shares of Voting Stock, whether in excess of 20% or otherwise, or
because the Company reports that a change in control of the Company has or may
have occurred or will or may occur in the future by reason of such beneficial
ownership.
17. NOTICE
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Chief Financial Officer or to the Chief
Executive Officer of the Company, and shall become effective when it is received
by the office of the Chief Financial Officer or the Chief Executive Officer.
18. UNFUNDED PLAN
Insofar as it provides for Awards of cash and Common Shares, the Plan
shall be unfunded. Although bookkeeping accounts may be established with respect
to Participants who are entitled to cash, Common Shares or rights thereto under
the Plan, any such accounts shall be used merely as a bookkeeping convenience.
The Company shall not be required to segregate any assets that may at any time
be represented by cash, Common Shares or rights thereto, nor shall the Plan be
construed as providing for such segregation, nor shall the Company nor the Board
nor the Committee be deemed to be a trustee of any cash, Common Shares or rights
thereto to be granted under the Plan. Any liability of the Company to any
Participant with respect to a grant of cash, Common Shares or rights thereto
under the Plan shall be based solely upon any contractual obligations that may
be created by the Plan and any Award Agreement; no such obligation of the
Company shall be deemed to be secured by any pledge or other encumbrance on any
property of the Company. Neither the Company nor the Board nor the Committee
shall be required to give any security or bond for the performance of any
obligation that may be created by the Plan.
19. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto,
to the extent not otherwise governed by the Code or the securities laws of the
United States, shall be governed by the law of the State of Ohio and construed
accordingly.
10
<PAGE> 11
20. RIGHTS OF EMPLOYEES
Nothing in the Plan shall interfere with or limit in any way the right
of the Company or any subsidiary to terminate any Participant's employment at
any time, nor confer upon any Participant any right to continued employment with
the Company or any subsidiary.
21. STATUS OF AWARDS
Awards hereunder shall not be deemed compensation for purposes of
computing benefits under any retirement plan of the Company and shall not affect
any benefits under any other benefit plan now or hereafter in effect under which
the availability or amount of benefits is related to the level of compensation.
22. EFFECTIVE AND TERMINATION DATES
The Plan shall become effective on the date it is approved by the
holders of a majority of the Common Shares then outstanding. The Plan shall
continue in effect until terminated by the Board pursuant to Section 11.
11
<PAGE> 1
EXHIBIT 10(b)
LIFE AND ACCIDENTAL DEATH AND DISMEMBERMENT INSURANCE
The Company maintains ongoing life insurance for its executive
officers, which coverage was revised effective November 1, 1997. The insurance
provides benefits equal to two and one-half times the officer's total
compensation (base salary plus the average of the most recent three years'
incentive awards) through individual flexible premium variable life insurance
policies, with the officer paying the economic value of the death benefits
provided at alternate term rates under such policies and the Company paying the
remainder of the premiums.
The Company maintains accidental death and dismemberment
insurance for its executive officers, which provides benefits equal to two and
one-half times the officer's annual base salary, but in no event more than
$250,000. The Company also provides its executive officers with travel accident
insurance in the amount of $500,000.
<PAGE> 1
EXHIBIT 10(c)
LONG-TERM DISABILITY INSURANCE
The Company's long-term disability insurance plan provides for
long-term disability coverage to all Company employees who become eligible after
a one-year waiting period based on plan requirements. Under the plan, eligible
employees who become totally disabled as defined in the plan receive 60% of
monthly base earnings, subject to a maximum schedule amount of $5,000 per month,
without evidence of insurability. The Company's executive officers are covered
under the plan, subject to a maximum schedule amount of $18,000 per month.
Effective November 1, 1997, executive officers became covered by a supplemental
long-term disability program. Under this program, participants are provided with
additional disability insurance with respect to 60% of their total compensation
(base salary plus average of their most recent three years' incentive awards)
minus the basic benefit (60% of base salary), up to $3,000 per month, and are
charged for the cost of any supplemental insurance relating to incentive awards.
<PAGE> 1
EXHIBIT 10(d)
SCHEDULE
The Director and Officer Indemnification Agreements presently in effect for the
Company's directors and executive officers are identical in all material
respects. The Directors having executed such form of Agreement are:
W. G. Bares
R. D. Blackwell
W. E. Butler
J. C. Dannemiller
R. B. Every
R. R. Gifford
L. T. Hiltz
J. J. Kahl
J. M. Moore
J. S. Thornton
The Officers having executed such form of Agreement are (in addition to Mr.
Dannemiller):
M. O. Eisele - Vice President & Controller
J. T. Hopper - Vice President-Information Systems
F. A. Martins - Vice President-Sales & Field Operations
B. L. Purser - Vice President-Marketing & National Accounts
J. A. Ramras - Vice President-Logistics
R. C. Shaw - Vice President-Communications, Organizational
Learning & Quality Standards
R. C. Stinson - Vice President-Chief Administrative Officer,
General Counsel & Secretary
J. R. Whitten - Vice President-Chief Financial Officer & Treasurer
<PAGE> 1
EXHIBIT 10(e)
SCHEDULE
The Executive Severance Agreements ("Agreements") in effect
for the executive officers during the quarter ended December 31, 1997 were
substantially identical in all material respects. This revised schedule is
included pursuant to Instruction 2 of Item 601(a) of Regulation S-K for the
purpose of setting forth the material details in which the specific Agreements
differ from the form of Agreement filed as Exhibit 10(a) to Applied's
Registration Statement on Form S-4 dated July 22, 1997:
<TABLE>
<CAPTION>
"Base Compensation"
Multiple Pursuant
Name Title to Paragraph 3(b)
- ---- ----- -----------------
<S> <C> <C>
J. C. Dannemiller Chairman, Chief Executive Officer Three (3)
& President
M. O. Eisele Vice President & Controller Two (2)
J. T. Hopper Vice President-Information Systems Two (2)
F. A. Martins Vice President-Sales & Field Operations Two (2)
B. L. Purser Vice President-Marketing & National Accounts Two (2)
J. A. Ramras Vice President-Logistics Two (2)
R. C. Shaw Vice President-Communications, Two (2)
Organizational Learning &
Quality Standards
R. C. Stinson Vice President-Chief Administrative Officer, Two (2)
General Counsel & Secretary
J. R. Whitten Vice President-Chief Financial Officer & Treasurer Two (2)
</TABLE>
The continuation of employee benefit plans, programs and
arrangements set forth in Paragraph 4 was three (3) years for Mr. Dannemiller
and two (2) years for the other executive officers listed.
<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 Six Months Ended
December 31 December 31
1997 1996 1997 1996
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Average Shares Outstanding
--------------------------
1. Average common shares
outstanding 21,604 18,496 21,130 18,494
2. Net additional shares
outstanding assuming stock
options exercised and
proceeds used to purchase
treasury stock 357 209 353 211
3. Net additional shares
outstanding for the effect of
Performance Accelerated Restriced
Stock (PARS) 55 47 51 47
--------- ---------- ---------- ----------
4. Adjusted average common
shares outstanding for
fully diluted computation 22,016 18,752 21,534 18,752
========= ========== ========== ==========
Net Income
----------
5. Net income as reported in
statements of consolidated
income $ 7,714 $ 6,003 $ 12,211 $ 11,408
========= ========== ========== ==========
Net Income Per Share
--------------------
6. Net income per average
common share outstanding -
basic (5/1) $ 0.36 $ 0.32 $ 0.58 $ 0.62
========= ========== ========== ==========
7. Net income per common
share - diluted
(5/3) $ 0.35 $ 0.32 $ 0.57 $ 0.61
========= ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 14,284
<SECURITIES> 0
<RECEIVABLES> 178,400
<ALLOWANCES> 3,714
<INVENTORY> 189,469
<CURRENT-ASSETS> 15,269
<PP&E> 165,800
<DEPRECIATION> 62,854
<TOTAL-ASSETS> 566,691
<CURRENT-LIABILITIES> 219,249
<BONDS> 45,714
0
0
<COMMON> 10,000
<OTHER-SE> 264,407
<TOTAL-LIABILITY-AND-EQUITY> 566,691
<SALES> 713,349
<TOTAL-REVENUES> 713,349
<CGS> 529,999
<TOTAL-COSTS> 529,999
<OTHER-EXPENSES> 159,278
<LOSS-PROVISION> 989
<INTEREST-EXPENSE> 2,165
<INCOME-PRETAX> 12,099
<INCOME-TAX> 4,385
<INCOME-CONTINUING> 7,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,714
<EPS-PRIMARY> .36
<EPS-DILUTED> .35
</TABLE>
