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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1996 COMMISSION FILE NO. 1-2299
BEARINGS, 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 NO.)
3600 EUCLID AVENUE 44115
CLEVELAND, OHIO ---------
---------------------------------- (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (216) 881-8900.
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
Common Stock without par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _X_
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the price at which the stock was sold as of
the close of business on August 30, 1996: $326,728,190.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 30, 1996
Common Stock without par value 12,417,951
DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder are the documents, portions of which are incorporated by
reference, and the Parts of this Form 10-K into which such portions are
incorporated:
(1)
Bearings, Inc. 1996 Annual Report to shareholders for the fiscal year
ended June 30, 1996, portions of which are incorporated by reference
into Parts I, II and IV of this Form 10-K; and,
(2)
Bearings, Inc. Proxy Statement dated September 16, 1996, portions of
which are incorporated by reference into Parts III and IV of this Form
10-K.
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PART I.
ITEM 1. BUSINESS.
BEARINGS, INC., an Ohio corporation, and its wholly-owned operating
subsidiaries, BRUENING BEARINGS, INC., a Kentucky corporation, DIXIE BEARINGS,
INCORPORATED, a Tennessee corporation, ESI ACQUISITION CORPORATION (doing
business as Engineered Sales, Inc.), an Ohio corporation, KING BEARING, INC., a
California corporation, and MAINLINE INDUSTRIAL DISTRIBUTORS, INC., a Wisconsin
corporation, are in the business of selling and distributing bearings,
mechanical and electrical drive system products, industrial rubber products,
fluid power products and specialty maintenance and repair products manufactured
by others. Bearings, Inc. and its wholly-owned operating subsidiaries are
hereafter referred to in this Report as the "Company", unless the context
indicates otherwise. The Company's executive offices are located at 3600 Euclid
Avenue, Cleveland, Ohio. The Company and predecessor companies have been
engaged in this business since 1923. Bearings, Inc. was incorporated under the
laws of Delaware in 1928 and reincorporated from Delaware to Ohio in 1988.
(a) GENERAL DEVELOPMENT OF BUSINESS.
In fiscal 1996, the Company continued to enter into strategic business
combinations to improve its market position in non-bearing products and
services. The Company exchanged 486,000 shares of Company Common Stock for all
of the outstanding shares of Engineered Sales, Inc., an applied-technology
distributor of hydraulic, pneumatic and electro-hydraulic systems and components
based in St. Louis, in February 1996. Earlier in the year, the Company
purchased the assets of Flood Industries, Inc. a two-branch distributor in the
Upper Peninsula of Michigan, and the Power Transmission Equipment Division of
Hines Motor Supply, Inc., located in Billings, Montana. In addition, in August
1996 the Company sold its aircraft bearing distribution business, located in
Atlanta, in order to concentrate further on the core business of distribution
to industrial markets.
The Company signed a 10-year master marketing and procurement agreement
with Electronic Data Systems Corp. in August 1996 to become the primary supplier
of the Company's product offerings to EDS' SupplySource, a new integrated supply
service marketed to major companies. SupplySource will perform procurement
activities for its customers on an outsourced basis. Both SupplySource and
International Supply Consortium, a strategic alliance formed in fiscal 1995,
provide the Company new marketing vehicles for reaching the increasing number of
customers who wish to reduce the number of their suppliers of maintenance,
repair and operations products.
The Company substantially completed construction of a new 155,000 square
foot distribution center in Douglas County, Georgia, replacing the current
facility in that area. The center, scheduled to open in the fall of 1996, will
be the Company's largest distribution center. Also, the Company began
construction of its new 145,000 square foot headquarters facility in Cleveland's
Midtown Corridor in fiscal 1996. The complex is expected to be opened in mid-
1997 and will replace the Company's current headquarters complex of five
unconnected buildings spread over three blocks in the Midtown Corridor.
2
The Board of Directors voted in July 1996 to change the name of the Company
to Applied Industrial Technologies, Inc., subject to shareholder approval at the
Annual Meeting in October. The new name reflects the widening range of products
and services offered by the Company.
Further information regarding developments in the Company's business can be
found in the Bearings, Inc. 1996 Annual Report to shareholders under the caption
"Management's Discussion and Analysis" on pages 10 and 11, which is incorporated
herein by reference.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company considers its business to involve only one industry segment.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
PRODUCTS. The Company engages in the distribution and sale of ball,
roller, thrust, plane and linear type bearings, mechanical and electrical drive
system products, industrial rubber products, fluid power products and specialty
items used in connection with the foregoing such as seals, lubricants, locking
devices, sealing compounds, adhesives and maintenance tools for use therewith.
Although the Company does not generally manufacture the products that it sells,
it does assemble filter carts, fluid power components, hydraulic power units,
hydraulic and pneumatic cylinders, speed reducers and electrical panels.
The Company is a non-exclusive distributor for numerous manufacturers of
the products which it sells. The principal bearing lines distributed by the
Company are: American, Barden, Cooper, FAG, INA, Kaydon, MB Manufacturing,
McGill, MRC, Sealmaster, SKF, Symmco, Thomson, Timken and Torrington/Fafnir.
The principal drive system product lines distributed by the Company are: Baldor,
Browning, Electron, Falk, FMC, Foote Jones, Jeffrey, Kop-Flex, Lincoln Electric,
Lovejoy, Martin, Morse, Reliance/Dodge, Rexnord/Link-Belt, Saftronics, Stephens
Adamson, U.S. Electrical Motors, and Winsmith. The principal industrial rubber
product lines distributed by the Company are: Aeroquip, Boston, Dixon, Flexco,
Gates, Globe, Goodyear, Habasit and Weatherhead. The principal fluid power
product lines distributed by the Company are: Ingersoll Rand-ARO, Dana, Denison,
Donaldson, Eaton Char-Lynn and Schrader Bellows. Specialty items, including
seals, sealants, fluid sealing, "O" rings, retaining rings, adhesives,
lubricants, maintenance equipment, skin care products and tools, are purchased
from various manufacturers. The principal suppliers of specialty items are: CR
Industries, Dow Corning, Garlock, Gojo, Keystone, Loctite, Lubriplate,
National/Federal Mogul, OTC/Power Team, Parker Hannifin, Rotor Clip and
Skil/Bosch. The Company believes that its relationships with its suppliers are
generally good and that the Company can continue to represent these suppliers.
The loss of certain of these suppliers could have an adverse effect on the
Company's business.
Based upon the Company's analysis of product dollar sales volume for the
fiscal year ended June 30, 1996, bearings represented 43%, drive system products
represented 30%, specialty items represented 11%, and other items, including
industrial rubber and fluid power products, represented 15% of sales. For the
year ended June 30, 1995, bearings represented 45%, drive system products
3
represented 30%, specialty items represented 12%, and other items, including
industrial rubber and fluid power products, represented 13% of sales. For the
year ended June 30, 1994, bearings represented 50%, drive system products
represented 27%, specialty items represented 12%, and other items, including
industrial rubber and fluid power products, represented 12% of sales.
The Company rebuilds precision machine tool spindles at its Spindle Lab in
Cleveland, Ohio. Mechanical shops located in Corona, California; Tracy,
California; Atlanta, Georgia; Florence, Kentucky; Worcester, Massachusetts; Iron
Mountain, Michigan; Butte, Montana; Charlotte, North Carolina; Cleveland, Ohio;
Carlisle, Pennsylvania; Ft. Worth, Texas; and Longview, Washington rebuild and
assemble speed reducers, pumps, valves, cylinders and hydraulic motors, provide
custom machining and assemble electrical panels and fluid power systems to
customer specifications. Fluid power centers located in Corona, California;
Baltimore, Maryland; Worcester, Massachusetts; Maryland Heights, Missouri;
Philadelphia, Pennsylvania; Richmond, Virginia; and Kent, Washington assemble
fluid power systems and components and provide customers with technical
expertise. The Company also operates rubber shops in Tucson, Arizona; Corona,
California; Tracy, California; Atlanta, Georgia; Crestwood, Illinois; Billings,
Montana; Dayton, New Jersey; Arlington, Texas; Longview, Washington; and
Appleton, Wisconsin to modify conveyor belts and provide hose assemblies in
accordance with customer requirements.
SERVICES. The Company's sales personnel advise and assist customers with
respect to product selection and application. The Company considers this
advice and assistance to be an integral part of its overall sales efforts.
Beyond acting as a mere distributor, the Company markets itself as a "single-
source" applied technology supplier, offering product and process solutions
involving multiple product technologies, which solutions reduce production
downtime and overall procurement and maintenance costs for customers. By
providing a high level of service, product knowledge and technical support,
while at the same time offering competitive pricing, the Company believes it
will develop closer, longer-lasting and more profitable relationships with its
customers.
Company sales personnel consist of inside customer service and field
account representatives assigned to each branch, in addition to representatives
assigned as industry and product specialists. Inside customer service
representatives receive, process and expedite customer orders, provide pricing
and product information, and provide assistance to field account representatives
in servicing customers. Field account representatives make on-site calls to
customers and potential customers to provide product and pricing information,
make surveys of customer requirements and recommendations, and assist in the
implementation of maintenance programs. The representatives will measure and
document for a customer the value to the customer of the services and advice the
Company provides, through cost savings or increased productivity. Specialists
assist with applications particular to their areas of technical expertise.
The Company maintains inventory levels in each branch that are tailored to
meet the immediate needs of its customers and maintains back-up inventory in its
distribution centers, thereby enabling customers to minimize their own
inventories. Such inventories consist of certain standard items stocked at most
branches as well as other items related to the specific needs of customers in
the
4
particular locale. As a result, the business of each branch is concentrated
largely in the geographic area in which it is located.
Timely delivery of products to customers is an integral part of the service
that the Company provides. Branches and distribution centers utilize the most
effective method of transportation available to meet customer needs including
both surface and air common carrier and courier services. The Company also
maintains a fleet of delivery vehicles to provide for delivery to customers.
These transportation services and delivery vehicles are also utilized for
movement of products between suppliers, distribution centers and branches to
assure availability of merchandise for customer needs.
The Company's ability to service its customers is enhanced by its
computerized inventory and sales information systems. The Company's point-of-
sale OMNEX -Registered Trademark- 2.0 computer system gives all Company
locations on-line access to inventory, sales analysis and data. Inventory and
sales information is updated as transactions are entered. The OMNEX -Registered
Trademark- 2.0 system permits direct access for order entry, pricing and price-
auditing, order expediting and back order review. The Company's computer system
also permits Electronic Data Interchange (EDI) with participating customers and
suppliers.
The Company's operations contrast sharply with those of manufacturers whose
products it sells in that the manufacturers generally confine their direct sales
activities to large-volume transactions with original equipment manufacturers
who incorporate the components purchased into the products they make. The
manufacturers generally do not sell replacement components directly to the
customer but refer the customer to the Company or another distributor, although
there is no assurance that this practice will continue.
There is a trend among large industrial customers towards reducing the
number of suppliers of maintenance and replacement products with whom they deal.
The Company is responding to this trend by, among other things, continuing to
broaden its product offering and developing new methods for marketing its
products, such as through EDS SupplySource and International Supply Consortium.
The Company continues to develop marketing strategies to anticipate and address
evolving customer needs and concerns.
Patents, trademarks and licenses do not have a significant effect on the
Company's business.
MARKETS AND METHODS OF DISTRIBUTION. The Company purchases from over 100
major suppliers of bearings, drive system products, industrial rubber products,
fluid power products and specialty items and resells to a wide range of
customers, which include industrial plants of all kinds, machine shops, mines,
paper mills, public utilities, all modes of transportation, defense
establishments and other government agencies, garages, textile mills, food
processing plants, hospitals, high technology businesses, contractors,
agricultural concerns and other enterprises using any form of machine, vehicle
or implement that contains the products sold by the Company. Its customers
range from the largest industrial concerns in the country to the smallest. The
Company's business is not significantly dependent upon a single customer or
group of customers, the loss of which would have a material
5
adverse effect upon the Company's business as a whole, and no single customer of
the Company accounts for more than 2% of the Company's net sales.
On June 30, 1996, the Company had 337 branches in 42 states. The Company
has no operations outside the continental United States.
The Company's export business during the fiscal year ended June 30, 1996
and prior fiscal years was less than 2% of net sales, and is not concentrated in
any one geographic area.
COMPETITION. The Company considers its overall business to be highly
competitive. The Company's principal competitors are other specialized bearing,
drive system product, industrial rubber product, fluid power and specialty item
distributors, and, to a lesser extent, mill supply houses. These competitors
include single and multiple branch operations, some of which are divisions or
subsidiaries of larger organizations that may have greater financial resources
than the Company. There is a trend in the industry toward larger multiple
branch operations. The Company also competes with the manufacturers of original
equipment and their distributors in the sale of maintenance and replacement
bearings, power transmission components and related items. Some of these
manufacturers may have greater financial resources than the Company. The
competitors and the number of competitors vary throughout the geographic areas
in which the Company does business. The Company continues to develop and
implement marketing strategies to maintain a competitive position.
The Company is one of the leading distributors of replacement bearings,
drive system products, industrial rubber products, fluid power products and
specialty items in the United States, but the Company's share of the market for
those products is relatively small compared to the portion of that market
serviced by original equipment manufacturers and other distributors. The
Company may not be the largest distributor in each of the geographic areas in
which a branch is located.
BACKLOG AND SEASONALITY. The Company does not have a substantial backlog
of orders and backlog is not significant in the business of the Company since
prompt delivery of the majority of the Company's products is essential to the
Company's business. The Company does not consider its business to be seasonal.
RAW MATERIALS AND GENERAL BUSINESS CONDITIONS. The Company's operations
are dependent upon general industrial activities and economic conditions and
would be adversely affected by the unavailability of raw materials to its
suppliers or by any prolonged recession or depression that has an adverse effect
on American industrial activity generally.
NUMBER OF EMPLOYEES. On June 30, 1996, the Company had 4133 employees.
None of the Company's employees are covered by collective bargaining. The
Company considers its relationship with its employees to be generally favorable.
WORKING CAPITAL. The Company's working capital position is disclosed in
the financial statements referred to at Item 8 on page 12 of this Report and is
discussed in "Management's
6
Discussion and Analysis" set forth in the Bearings, Inc. 1996 Annual Report to
shareholders on pages 10 and 11.
The Company requires substantial working capital related to accounts
receivable and inventories. Significant amounts of inventory are required to be
carried to meet rapid delivery requirements of customers. The Company generally
requires all payments for sales on account within 30 days and generally
customers have no right to return merchandise. Returns are not considered to
have a material effect on the Company's working capital requirements. The
Company believes that such practices are consistent with prevailing industry
practices in these areas.
ENVIRONMENTAL LAWS. The Company believes that compliance with federal,
state and local provisions regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment will not
have a material adverse effect upon capital expenditures, earnings or
competitive position of the Company.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
The Company has no operations outside the continental United States. The
Company's export business during the fiscal year ended June 30, 1996, and prior
fiscal years, was less than 2% of net sales, and is not concentrated in any one
geographic area.
ITEM 2. PROPERTIES.
The Company owns or leases the properties in which its offices, branches,
distribution centers, shops and corporate facilities are located. As of June
30, 1996, the real properties at 178 locations were owned by the Company, while
176 locations were leased by the Company. Certain property locations may
contain multiple operations, such as a branch and a distribution center.
The principal real properties owned by the Company (each of which has more
than 20,000 square feet of floor space) are: the corporate headquarters office
building in Cleveland, Ohio; the corporate finance and information services
office building in Cleveland, Ohio; the Cleveland East branch in Cleveland,
Ohio; the Prospect mechanical shop in Cleveland, Ohio; the Midwest Distribution
Center in Florence, Kentucky; the John R. Cunin Distribution Center in Carlisle,
Pennsylvania; and the Portland branch and Portland Distribution Center in
Portland, Oregon. The principal real properties leased by the Company (each of
which has more than 20,000 square feet of floor space) are: the Corona offices
and Corona Distribution Center in Corona, California; the Long Beach branch in
Long Beach, California; the San Jose branch in San Jose, California; the J. L.
Lammers Distribution Center in Atlanta, Georgia; the Atlanta mechanical and
rubber shops in Atlanta, Georgia; the Worcester branch and fluid power center in
Worcester, Massachusetts; the Fort Worth Distribution Center in Fort Worth,
Texas; the Longview branch and Longview Distribution Center in Longview,
Washington; the Appleton offices, branch and rubber shop in Appleton, Wisconsin;
and the Milwaukee branch and distribution center in Milwaukee, Wisconsin.
7
Three additional properties scheduled to be occupied in fiscal 1997 are as
follows: a 145,000 square foot headquarters facility in Cleveland's Midtown
Corridor, opening in mid-1997; a 155,000 square foot distribution center opening
in Douglas County, Georgia in the fall of 1996 and replacing the current Atlanta
center; and a 127,000 square foot distribution center in Fort Worth, Texas,
opening in the spring of 1997 and replacing the current Fort Worth center. The
Company intends to sell its current corporate buildings in Cleveland following
the completion of the new headquarters facility.
The Company considers the properties owned or leased to be generally
sufficient to meet its requirements for office space and inventory stocking.
The size of the buildings in which the Company's branches are located is
primarily influenced by the amount of inventory required to be carried to meet
the needs of the customers of the branch. All of the real properties owned or
leased by the Company are being utilized by the Company in its business except
for certain properties, which in the aggregate are not material and are either
for sale or lease to third parties due to relocation or closing of a facility.
Unused portions of buildings may be leased or subleased to others.
Generally, when opening a new branch, the Company will initially lease
space. Then, as the business develops, suitable property may be purchased or
leased for relocation of the branch. A new general purpose office-storeroom
building may be constructed. However, the Company has no fixed policy in this
regard, and in each instance the final decision is made on the basis of
availability and cost of suitable property in the local real estate market,
whether purchased or leased. The Company does not consider any one of its
properties to be material, because it believes that if it becomes necessary or
desirable to relocate any of its branches and distribution centers, other
suitable properties could be found.
ITEM 3. PENDING LEGAL PROCEEDINGS.
In 1994, Dixie Bearings, Incorporated, a wholly-owned subsidiary of
Bearings, Inc. was served with a First Amending and Supplemental Petition in a
case captioned IN RE: ROBERT LEE BICKHAM, ET AL. V. METROPOLITAN LIFE INSURANCE
COMPANY, ET AL., 22nd Judicial District Court for the Parish of Washington,
Louisiana, Case No. 70,760-E, naming it as an additional defendant, along with
over 50 other defendants. The action was initially filed in 1993. The petition
claims to have been filed on behalf of 1,117 persons or heirs of persons who
were allegedly exposed to asbestos-containing products while employed at the
Bogalusa, Louisiana, Paper Mill and/or Box Factory, currently operated by
Gaylord Container, Inc. Exposure is claimed to have occurred until
approximately 1989. Compensatory and punitive damages are sought, but no amount
is specified. In July 1995 and March 1996, respectively, the Company was served
with Petitions in two related cases pending in the same court as the BICKHAM
case: IDA MAE WILLIAMS, ET AL. V. METROPOLITAN LIFE INSURANCE COMPANY, ET AL.,
Case No. 72,986-F; and BENNIE L. ADAMS, ET AL. V. METROPOLITAN LIFE INSURANCE
COMPANY, ET AL., Case No. 72,154-B. These cases, involving a total of 123
persons or heirs of persons who worked at the same Bogalusa facility, are
essentially identical to the BICKHAM case.
Preliminary information made available to the Company indicates that the
Company has been named a defendant in the foregoing cases only as a supplier of
certain products manufactured by
8
others, which products allegedly contained a small percentage of encapsulated
asbestos fiber. In each of the cases, the proceedings as they relate to the
Company are in the preliminary stages; the Company believes, however, based upon
circumstances presently known that such cases are not material to its business
or its financial condition. The Company intends to defend these cases
vigorously. Even if liability were assessed, the Company would seek
indemnification from its suppliers and its insurance carriers.
In 1989, Bearings, Inc. was served with a Second Amended Complaint in a
case captioned SAMMIE ADKINS, ET AL. V. A. P. GREEN INDUSTRIES, INC., ET AL.,
Summit County Court of Common Pleas Case No. ACV 88-7-2398, naming it as an
additional defendant, along with over 200 other defendants. Subsequently, 17
additional cases were filed in the same court naming Bearings, Inc. as a
defendant and setting forth virtually the same allegations against many of the
same defendants on behalf of different plaintiffs. The cases alleged that the
plaintiffs (including spouses in some cases) were injured due to exposure to
asbestos while working for various tire and rubber companies in the greater
Akron, Ohio area. In June 1996, Bearings, Inc. was dismissed without prejudice
from all of these cases.
In 1992, a jury in a case captioned KING BEARING, INC., ET AL. V. CARYL
EDMUND ORANGES, ET AL., Superior Court of the State of California, County of
Orange, Case No. 53-42-31, awarded a $32.4 million judgment against King
Bearing, Inc., a wholly-owned subsidiary of Bearings, Inc.; however, as
explained below, the Company believes that this judgment will have no material
adverse effect on its business or financial condition. The verdict was based on
contractual and other claims asserted by various cross-complainants against King
Bearing in a breach of contract and unfair competition case initially filed by
King Bearing in 1987. The suit, which involved a former owner of King Bearing,
was pending at the time Bearings, Inc. acquired King Bearing in June 1990. All
events relative to the judgment occurred prior to the Company's purchase of King
Bearing. Although Bearings, Inc. was subsequently named as a party to the
lawsuit in 1991, the jury found no liability on the part of Bearings, Inc.
Under the 1990 Stock Purchase Agreement relative to the acquisition of King
Bearing, both Bearings, Inc. and King Bearing were specifically indemnified by
the ultimate parent of the former owner of King Bearing (whose stockholders'
equity exceeded $5 billion at June 30, 1996) for any damages or loss related to
the judgment. The judgment is being strongly contested by counsel retained by
the indemnitor on behalf of King Bearing, and in 1992, the trial court granted
the motion of King Bearing for a new trial as to all but $219,000 in damages
returned by the jury. The case is now pending in the California Court of
Appeal, Fourth Appellate District.
The Company is a defendant in several employment-related lawsuits. The
Company is vigorously defending these lawsuits, which it believes are without
merit. Although the Company cannot predict the outcome of these actions, the
Company believes, based upon circumstances presently known, that such cases are
not material to its business or its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of Bearings, Inc.
during the last quarter of the fiscal year ended June 30, 1996.
9
EXECUTIVE OFFICERS OF THE REGISTRANT.
The Executive Officers are elected for a term of one year, or until their
successors are chosen and qualified, at the organizational meeting of the Board
of Directors held immediately following the annual meeting of shareholders. The
following is a listing of the Executive Officers of Bearings, Inc. and a
description of their business experience during the past five years. Except as
otherwise stated, the positions and offices indicated are with Bearings, Inc.
and the persons were elected to their present positions on October 17, 1995:
JOHN C. DANNEMILLER. Mr. Dannemiller is Chairman (since January
1992), Chief Executive Officer (since January 1992) and a Director
(since 1985). He was President (from 1990 to January 1992) and Chief
Operating Officer (from 1988 to January 1992). He is 58 years of age.
JOHN C. ROBINSON. Mr. Robinson is President (since January
1992), Chief Operating Officer (since January 1992), and a Director
(since October 1991). He was Vice President (from 1989 to January
1992) and Executive Vice President & General Manager of the
Corporation's wholly-owned subsidiary, King Bearing, Inc. (from 1990
to October 1991). He is 54 years of age.
MARK O. EISELE. Mr. Eisele is Controller (since October 1992).
He was Manager of Internal Audit (from June 1991 to October 1992). He
is 39 years of age.
FRANCIS A. MARTINS. Mr. Martins is Vice President-Sales & Field
Operations (since July 1996). Prior to that he was Vice President-
Sales & Marketing (October 1994 to July 1996); and Vice President-
Marketing (from May 1992 to October 1994). Before joining the
Company, he was Vice President, Industrial Aftermarket Operations for
SKF USA Inc., a manufacturer of bearings and related products (from
1985 to May 1992). He is 53 years of age.
BILL L. PURSER. Mr. Purser is Vice President-Marketing &
National Accounts (since July 1996). Prior to that he was Vice
President-National Accounts (from January 1995 to July 1996); and
Director of National Accounts (from December 1994 to January 1995).
Before joining the Company, he was Vice President of Business
Development for Invetech, Inc., a distributor of industrial parts
(from December 1992 to December 1994); and Vice President of Sales for
that company (from 1990 to December 1992). He is 53 years of age.
RICHARD C. SHAW. Mr. Shaw is Vice President-Communications,
Organizational Learning & Quality Standards (since July 1996). Prior
to that he was Vice President-Communications & Public Relations (from
July 1993 to July 1996); and
10
Director of Corporate Communications (from 1989 to July 1993). He is
47 years of age.
ROBERT C. STINSON. Mr. Stinson is Vice President-Administration,
Human Resources, General Counsel & Secretary (since October 1994) and
has served as Secretary since 1990. He was Vice President-General
Counsel (from 1989 to October 1994). He is 50 years of age.
JOHN R. WHITTEN. Mr. Whitten is Vice President-Finance &
Treasurer (since October 1992). He was Vice President (since 1985)
and Controller (from 1981 to October 1992). He is 50 years of age.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock, without par value, is listed for trading on the
New York Stock Exchange. The information concerning the principal market for
the Company's Common Stock, the quarterly stock prices and dividends for the
fiscal years ended June 30, 1996 and 1995 and the number of shareholders of
record as of August 15, 1996 is set forth in the Bearings, Inc. 1996 Annual
Report to shareholders on page 25, under the caption "Quarterly Operating
Results and Market Data", and such information is incorporated here by
reference.
ITEM 6. SELECTED FINANCIAL DATA.
The summary of selected financial data for each of the last five years is
set forth in the Bearings, Inc. 1996 Annual Report to shareholders in the table
on pages 26 and 27 under the caption "10 Year Summary" and is incorporated here
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The "Management's Discussion and Analysis" is set forth in the Bearings,
Inc. 1996 Annual Report to shareholders on pages 10 and 11 and is incorporated
here by reference.
11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements and supplementary data of
Bearings, Inc. and subsidiaries and the independent auditors' report listed
below, which are included in the Bearings, Inc. 1996 Annual Report to
shareholders at the pages indicated, are incorporated here by reference and
filed herewith:
Caption Page No.
------- --------
Financial Statements:
Statements of Consolidated
Income for the Years Ended
June 30, 1996, 1995 and 1994 12
Consolidated Balance Sheets
June 30, 1996 and 1995 13
Statements of Consolidated
Cash Flows for the Years Ended
June 30, 1996, 1995 and 1994 14
Statements of Consolidated
Shareholders' Equity for the
Years Ended June 30, 1996,
1995 and 1994 15
Notes to Consolidated
Financial Statements for the
Years Ended June 30, 1996, 1995
and 1994 16 - 22
Independent Auditors' Report 23
Supplementary Data:
Quarterly Operating Results and
Market Data 25
12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item as to the Directors is set forth in
the Bearings, Inc. Proxy Statement dated September 16, 1996 on pages 3 through 5
under the caption "Election of Directors" and is incorporated here by reference.
The information required by this Item as to the Executive Officers has been
furnished in this Report on pages 10 and 11 in Part I, after Item 4, under the
caption "Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is set forth in the Bearings, Inc.
Proxy Statement dated September 16, 1996, under the captions "Summary
Compensation" on page 8, "Aggregate Option Exercises and Fiscal Year-End Option
Value Table" on page 9, "Estimated Retirement Benefits Under Supplemental
Executive Retirement Benefits Plan" on page 9, "Compensation of Directors" on
page 14, "Deferred Compensation Plan for Non-employee Directors" on pages 14 and
15, "Deferred Compensation Plan" on page 15, and "Severance Payment Agreements"
on pages 15 and 16, and is incorporated here by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
(a) Information concerning the security ownership of certain beneficial
owners is set forth under the caption "Security Ownership of Certain Beneficial
Owners" on page 6 of the Bearings, Inc. Proxy Statement dated September 16,
1996, and is incorporated here by reference.
(b) Information concerning security ownership of management is set forth
under the caption "Security Ownership of Management" on page 7 of the Bearings,
Inc. Proxy Statement dated September 16, 1996, and is incorporated here by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
13
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K.
(a)1. FINANCIAL STATEMENTS.
The following consolidated financial statements of the Company, notes
thereto, the independent auditors' report and supplemental data are included in
the Bearings, Inc. 1996 Annual Report to shareholders on pages 12 through 23 and
page 25, and are incorporated by reference in Item 8 of this Report.
Caption
-------
Statements of Consolidated Income for the
Years Ended June 30, 1996, 1995 and 1994
Consolidated Balance Sheets
June 30, 1996 and 1995
Statements of Consolidated Cash Flows for
the Years Ended June 30, 1996, 1995 and 1994
Statements of Consolidated Shareholders'
Equity for the Years Ended June 30, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
for the Years Ended June 30, 1996, 1995
and 1994
Independent Auditors' Report
Supplementary Data:
Quarterly Operating Results and Market Data
(a)2. FINANCIAL STATEMENT SCHEDULE.
The following Report and Schedule are included in this Part IV, and are
found in this Report at the pages indicated:
14
Caption Page No.
------- ----
Independent Auditors' Report 20
Schedule VIII - Valuation and
Qualifying Accounts 21
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission have been
omitted because they are not required under the related instructions, are not
applicable, or the required information is included in the consolidated
financial statements and notes thereto.
(a)3. EXHIBITS.
* Asterisk indicates an executive compensation plan or arrangement.
Exhibit
No. Description
------- -----------
3(a) Amended and Restated Articles of Incorporation of Bearings,
Inc., an Ohio corporation, filed with the Ohio Secretary
of State on October 18, 1988 (filed as Exhibit 4(a) to the
Bearings, Inc. Form 8-K dated October 21, 1988, SEC File
No. 1-2299, and incorporated here by reference).
3(b) Code of Regulations of Bearings, Inc., an Ohio corporation,
adopted September 6, 1988 (filed as Exhibit 4(b) to the
Bearings, Inc. Form 8-K dated October 21, 1988, SEC File
No. 1-2299, and incorporated here by reference).
3(c) Certificate of Amendment of Amended and Restated Articles of
Incorporation of Bearings, Inc., an Ohio corporation, filed
with the Ohio Secretary of State on October 27, 1988
(filed as Exhibit 4(c) to the Bearings, Inc. Form 10-Q for
the quarter ended September 30, 1988, SEC File No. 1-2299,
and incorporated here by reference).
3(d) Certificate of Amendment of Amended and Restated Articles of
Incorporation of Bearings, Inc. filed with the Ohio
Secretary of State on October 17, 1990 (filed as
Exhibit 4(e) to the Bearings, Inc. Form 10-Q for the quarter
ended September 30, 1990, SEC File No. 1-2299, and
incorporated here by reference).
15
4(a) Certificate of Merger of Bearings, Inc. (Ohio) and Bearings,
Inc. (Delaware) filed with the Ohio Secretary of State on
October 18, 1988 (filed as Exhibit 4 to the Bearings, Inc.
Annual Report on Form 10-K for the fiscal year ended
June 30, 1989, SEC File No. 1-2299, and incorporated here by
reference).
4(b) $80,000,000 Maximum Aggregate Principal Amount Note Purchase
and Private Shelf Facility dated October 31, 1992 between
Bearings, Inc. and The Prudential Insurance Company of
America (filed as Exhibit 4(f) to the Bearings, Inc.
Form 10-Q for the quarter ended September 30, 1992, SEC File
No. 1-2299, and incorporated here by reference).
4(c) Amendment to $80,000,000 Maximum Aggregate Principal Amount
Note Purchase and Private Shelf Facility dated October 31,
1992 between Bearings, Inc. and The Prudential Insurance
Company of America (filed as Exhibit 4(g) to the Bearings,
Inc. Form 10-Q for the quarter ended March 31, 1996, SEC
File No. 1-2299, and incorporated here by reference).
*10(a) Form of Executive Severance Agreement between the Company
and each of its executive officers (filed as Exhibit 10(b)
to the Bearings, Inc. Annual Report on Form 10-K for the
fiscal year ended June 30, 1989, SEC File No. 1-2299, and
incorporated here by reference), together with schedule
pursuant to Instruction 2 of Item 601(a) of Regulation S-K
identifying the officers and setting forth the material
details in which the agreements differ from the form of
agreement that is filed.
*10(b) Form of amendment dated January 17, 1991 amending the
Executive Severance Agreements filed as Exhibit 10(b) to the
Bearings, Inc. Annual Report on Form 10-K for the fiscal
year ended June 30, 1989 (filed as Exhibit 19(a) to the
Bearings, Inc. Form 10-Q for the quarter ended December 31,
1990, SEC File No. 1-2299, and incorporated here by
reference). The amendment is applicable to all executive
officers named in the schedule filed as part of
Exhibit 10(a) of this Report and that schedule is
incorporated here by reference.
*10(c) A written description of the Directors' compensation program
is found in the Bearings, Inc. Proxy Statement dated
September 16, 1996, SEC File No. 1-2299, on page 14, under
the caption "Compensation of Directors", and is incorporated
here by reference.
16
*10(d) Deferred Compensation Plan for Non-employee Directors (filed
as Exhibit 19 to the Bearings, Inc. Form 10-Q for the
quarter ended December 31, 1991, SEC File No. 1-2299, and
incorporated here by reference).
*10(e) First Amendment to Deferred Compensation Plan for Non-
Employee Directors effective July 1, 1993 (filed as
Exhibit 10(e) to the Bearings, Inc. Form 10-K for the fiscal
year ended June 30, 1993, SEC File No. 1-2299, and
incorporated here by reference).
*10(f) A written description of the Company's Non-Contributory Life
and Accidental Death and Dismemberment Insurance for
executive officers.
*10(g) A written description of the Company's Long-Term Disability
Insurance for executive officers.
*10(h) Form of Director and Officer Indemnification Agreement
entered into between the Company and its directors and its
executive officers (filed as Appendix A to the Bearings,
Inc. Proxy Statement dated September 17, 1992, SEC File
No. 1-2299, and incorporated here by reference), together
with a schedule pursuant to Instruction 2 of Item 601(a) of
Regulation S-K identifying the directors and executive
officers executing such Agreements.
*10(i) Bearings, Inc. Supplemental Executive Retirement Benefits
Plan (July 1, 1993 Restatement) presently covering 7
executive officers of Bearings, Inc. (as well as certain
retired executive officers) (filed as Exhibit 10(j) to the
Bearings, Inc. Form 10-K for the fiscal year ended June 30,
1993, SEC File No. 1-2299, and incorporated here by
reference).
*10(j) First Amendment to Bearings, Inc. Supplemental Executive
Retirement Benefits Plan (July 1, 1993 Restatement) (filed
as Exhibit 10(a) to the Bearings, Inc. Form 10-Q for the
quarter ended December 31, 1993, SEC File No. 1-2299, and
incorporated here by reference).
*10(k) Bearings, Inc. Deferred Compensation Plan (filed as Exhibit A
to the Bearings, Inc. Proxy Statement dated September 16,
1993, SEC File No. 1-2299, and incorporated here by
reference).
10(l) Stock Purchase Agreement between Bearings, Inc. and MLS
Industries, Inc. dated June 12, 1990 (filed as Exhibit 2 to
the Bearings, Inc. Form 8-K dated July 12, 1990, SEC File
No. 1-2299, and incorporated here by reference).
17
10(m) Amendment to Stock Purchase Agreement and Related Guarantee
and Agreement among Bearings, Inc., MLS Industries, Inc. and
Emerson Electric Co., dated as of June 29, 1990 (filed as
Exhibit 2(a) to the Bearings, Inc. Form 8-K dated July 12,
1990, SEC File No. 1-2299, and incorporated here by
reference).
*10(n) Bearings, Inc. 1990 Long-Term Performance Plan adopted by
Shareholders on October 16, 1990 (filed as Exhibit 10(t) to
the Bearings, Inc. Form 10-K for the fiscal year ended
June 30, 1991, SEC File No. 1-2299, and incorporated here by
reference).
*10(o) A written description of the Company's Management Incentive
Plan applicable to key executives, including the five most
highly compensated executive officers, is found in the
Bearings, Inc. Proxy Statement dated September 16, 1996, SEC
File No. 1-2299, on pages 10 and 11, in the Report of the
Executive Organization & Compensation Committee of the Board
of Directors on Executive Compensation, under the subcaption
"Management Incentive Plan", and is incorporated here by
reference.
*10(p) Bearings, Inc. Supplemental Defined Contribution Plan (filed
as Exhibit 99 to the Company's Registration Statement on
Form S-8, Registration No. 33-66509, filed on December 29,
1995, and incorporated here by reference).
10(q) Lease dated as of March 1, 1996 between Bearings, Inc. and
the Cleveland-Cuyahoga County Port Authority (filed as
Exhibit 10 to the Bearings, Inc. Form 10-Q for the quarter
ended March 31, 1996, SEC File No. 1-2299, and incorporated
here by reference).
11 Computation of Net Income Per Share.
13 Bearings, Inc. 1996 Annual Report to shareholders (not
deemed "filed" as part of this Form 10-K except for those
portions that are expressly incorporated by reference).
21 Subsidiaries of Bearings, Inc.
23 Independent Auditors' Consent.
27 Financial Data Schedule.
18
The Company will furnish a copy of any exhibit described above
and not contained herein upon payment of a specified reasonable fee which fee
shall be limited to the Company's reasonable expenses in furnishing such
exhibit.
(b) REPORTS ON FORM 8-K.
None during the quarter ended June 30, 1996.
19
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Bearings, Inc.
We have audited the consolidated balance sheets of Bearings, Inc. and its
subsidiaries (the "Company") as of June 30, 1996 and 1995 and the related
statements of consolidated income, shareholders' equity, and cash flows for each
of the years in the three year period ended June 30, 1996 and have issued our
report thereon dated August 6, 1996; such consolidated financial statements and
report are included in your 1996 Annual Report to shareholders and are
incorporated herein by reference. Our audits also included the consolidated
financial statement schedule of the Company, listed in Item 14(a)2. This
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
August 6, 1996
20
BEARINGS, INC. & SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(in thousands)
--------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS
BEGINNING COSTS AND FROM
DESCRIPTION OF PERIOD EXPENSES RESERVE
--------------------------------------------------------------------------------
YEAR ENDED JUNE 30 1996:
Reserve deducted from assets to
which it applies - allowance for
doubtful accounts $2,300 $2,123 $2,023 (A)
YEAR ENDED JUNE 30 1995:
Reserve deducted from assets to
which it applies - allowance for
doubtful accounts $1,900 $1,710 $1,310 (A)
YEAR ENDED JUNE 30 1994:
Reserve deducted from assets to
which it applies - allowance for
doubtful accounts $2,000 $1,418 $1,518 (A)
----------------------------------------------
COLUMN A COLUMN E
BALANCE
AT END OF
DESCRIPTION PERIOD
--------------------------------------------------------------------------------
YEAR ENDED JUNE 30 1996:
Reserve deducted from assets to
which it applies - allowance for
doubtful accounts $2,400
YEAR ENDED JUNE 30 1995:
Reserve deducted from assets to
which it applies - allowance for
doubtful accounts $2,300
YEAR ENDED JUNE 30 1994:
Reserve deducted from assets to
which it applies - allowance for
doubtful accounts $1,900
(A) Amounts represent uncollectible accounts charged off.
--------------------------------------------------------------------------------
SCHEDULE VIII
21
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BEARINGS, INC.
/s/ John C. Dannemiller /s/ John C. Robinson
------------------------------ -------------------------------
John C. Dannemiller, Chairman John C. Robinson, President
& Chief Executive Officer & Chief Operating Officer
/s/ John R. Whitten /s/ Mark O. Eisele
------------------------------ -------------------------------
John R. Whitten Mark O. Eisele
Vice President-Finance & Treasurer Controller
(Principal Financial Officer) (Principal Accounting Officer)
Date: September 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ William G. Bares /s/ Roger D. Blackwell
------------------------------ -------------------------------
William G. Bares, Director Dr. Roger D. Blackwell, Director
/s/ William E. Butler /s/ John C. Dannemiller
------------------------------ -------------------------------
William E. Butler, Director John C. Dannemiller, Chairman,
Chief Executive Officer and
Director
/s/ Russel B. Every /s/ Russell R. Gifford
------------------------------ -------------------------------
Russel B. Every, Director Russell R. Gifford, Director
/s/ L. Thomas Hiltz /s/ John J. Kahl
------------------------------ -------------------------------
L. Thomas Hiltz, Director John J. Kahl, Director
/s/ John C. Robinson /s/ Dr. Jerry Sue Thornton
------------------------------ -------------------------------
John C. Robinson, President, Dr. Jerry Sue Thornton, Director
Chief Operating Officer and Director
-------------------------------------
Russel B. Every, as attorney
in fact for persons indicated by "*"
Date: September 26, 1996
22
BEARINGS, INC.
EXHIBIT INDEX
TO FORM 10-K FOR THE YEAR ENDED JUNE 30, 1996
Exhibit
No. Description Reference
------- ----------- ---------
3(a) Amended and Restated Articles of
Incorporation of Bearings, Inc., an
Ohio corporation, filed with the Ohio
Secretary of State on October 18, 1988. Note (a)
3(b) Code of Regulations of Bearings, Inc.,
an Ohio corporation, adopted
September 6, 1988. Note (a)
3(c) Certificate of Amendment of Amended and
Restated Articles of Incorporation of
Bearings, Inc., an Ohio corporation,
filed with the Ohio Secretary of State
on October 27, 1988. Note (b)
3(d) Certificate of Amendment of Amended and
Restated Articles of Incorporation of
Bearings, Inc., filed with the Ohio
Secretary of State on October 17, 1990. Note (c)
4(a) Certificate of Merger of Bearings, Inc.
(Ohio) and Bearings, Inc. (Delaware)
filed with the Ohio Secretary of State
on October 18, 1988. Note (d)
4(b) $80,000,000 Maximum Aggregate Principal
Amount Note Purchase and Private Shelf
Facility dated October 31, 1992 between
Bearings, Inc. and The Prudential
Insurance Company of America. Note (e)
4(c) Amendment to $80,000,000 Maximum Aggregate
Principal Amount Note Purchase and Private
Shelf Facility dated October 31, 1992 between
Bearings, Inc. and The Prudential Insurance Company
of America. Note (f)
10(a) Form of Executive Severance Agreement
between the Company and each of its executive
officers. Note (d)
Schedule pursuant to Instruction 2 of
Item 601(a) of Regulation S-K identifying
the officers and setting forth material
details in which the agreements differ
from the form of agreement filed. Attached
10(b) Form of amendment amending the Executive
Severance Agreements referenced in
Exhibit 10(a) hereto. Note (g)
10(c) A written description of the Directors'
compensation program. Note (h)
10(d) Deferred Compensation Plan for Non-
employee Directors. Note (i)
10(e) First Amendment to Deferred Compensation
Plan for Non-employee Directors effective
July 1, 1993. Note (j)
10(f) A written description of the Company's
Non-Contributory Life and Accidental Death
and Dismemberment Insurance for executive
officers. Attached
10(g) A written description of the Company's
Long-Term Disability Insurance for
executive officers. Attached
10(h) Form of Director and Officer Indemnifi-
cation Agreement entered into between
the Company and its directors and
executive officers. Note (k)
Schedule pursuant to Instruction 2 of
Item 601(a) of Regulation S-K identifying
the directors and executive officers
executing such agreements. Attached
10(i) Bearings, Inc. Supplemental Executive
Retirement Benefits Plan (July 1, 1993
Restatement) presently covering 7
executive officers of Bearings, Inc. Note (j)
10(j) First Amendment to Bearings, Inc.
Supplemental Executive Retirement
Benefits Plan (July 1, 1993 Restatement). Note (l)
10(k) Bearings, Inc. Deferred Compensation
Plan. Note (m)
10(l) Stock Purchase Agreement between Bearings,
Inc. and MLS Industries, Inc. dated
June 12, 1990. Note (n)
10(m) Amendment to Stock Purchase Agreement
and Related Guarantee and Agreement among
Bearings, Inc., MLS Industries, Inc. and
Emerson Electric Co., dated as of June 29,
1990. Note (n)
10(n) Bearings, Inc. 1990 Long-Term Performance
Plan adopted by Shareholders on
October 16, 1990. Note (o)
10(o) A written description of the Company's
Management Incentive Plan applicable to
key executives of the Company, including
the five most highly compensated executive
officers. Note (p)
10(p) Bearings, Inc. Supplemental Defined Contribution Plan Note (q)
10(q) Lease dated as of March 1, 1996 between
Bearings, Inc. and the Cleveland-Cuyahoga County
Port Authority Note (r)
11 Computation of Net Income Per Share. Attached
13 Bearings, Inc. 1996 Annual Report to
shareholders (not deemed "filed" as
part of this Form 10-K except for
those portions that are expressly
incorporated by reference). Attached
21 Subsidiaries of Bearings, Inc. Attached
23 Independent Auditors' Consent. Attached
27 Financial Data Schedule. Attached
Notes: (a) Incorporated by reference from the Company's Report on
Form 8-K dated October 21, 1988, SEC File No. 1-2299.
(b) Incorporated by reference from the Company's Report on
Form 10-Q for the quarter ended September 30, 1988, SEC File
No. 1-2299.
(c) Incorporated by reference from the Company's Report on
Form 10-Q for the quarter ended September 30, 1990, SEC File
No. 1-2299.
(d) Incorporated by reference from the Company's Report on
Form 10-K for the fiscal year ended June 30, 1989, SEC File
No. 1-2299.
(e) Incorporated by reference from the Company's Report on
Form 10-Q for the quarter ended September 30, 1992, SEC File
No. 1-2299.
(f) Incorporated by reference from the Company's Report on
Form 10-Q for the quarter ended March 31, 1996, SEC File
No. 1-2299.
(g) Incorporated by reference from the Company's Report on
Form 10-Q for the quarter ended December 31, 1990, SEC File
No. 1-2299.
(h) Incorporated by reference from the Company's Proxy Statement
dated September 16, 1996, SEC File No. 1-2299, on page 14
under the caption "Compensation of Directors".
(i) Incorporated by reference from the Company's Report on
Form 10-Q for the quarter ended December 31, 1991, SEC File
No. 1-2299.
(j) Incorporated by reference from the Company's Report on
Form 10-K for the fiscal year ended June 30, 1993, SEC File
No. 1-2299.
(k) Incorporated by reference from the Company's Proxy Statement
dated September 17, 1992, SEC File No. 1-2299, at Appendix A.
(l) Incorporated by reference from the Company's Report on
Form 10-Q for the quarter ended December 31, 1993, SEC File
No. 1-2299.
(m) Incorporated by reference from the Company's Proxy
Statement dated September 16, 1993, SEC File No. 1-2299, at
Exhibit A.
(n) Incorporated by reference from the Company's Report on
Form 8-K dated July 12, 1990, SEC File No. 1-2299.
(o) Incorporated by reference from the Company's Report on
Form 10-K for the fiscal year ended June 30, 1991, SEC File
No. 1-2299.
(p) Incorporated by reference from the Company's Proxy Statement
dated September 16, 1996, SEC File No. 1-2299, on pages 10
and 11 in the Report of the Executive Organization &
Compensation Committee of the Board of Directors on
Executive Compensation, under the subcaption "Management
Incentive Plan".
(q) Incorporated by reference from the Company's Registration
Statement on Form S-8, Registration No. 33-66509, filed on
December 29, 1995.
(r) Incorporated by reference from the Company's Report on
Form 10-Q for the quarter ended March 31, 1996, SEC File
No. 1-2299.
EXHIBIT 10(a)
BEARINGS, INC. FORM 10-K FOR
FISCAL YEAR ENDED JUNE 30, 1996
SCHEDULE
The Executive Severance Agreements ("Agreements") presently in effect
for eight (8) executive officers are 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(b) to the Bearings, Inc. Form 10-K for the fiscal year ended
June 30, 1989:
"Base Compensation"
Multiple Pursuant
Name Title to Paragraph 3(b)
---- ----- -------------------
J. C. Dannemiller Chairman & Chief Executive Officer Three (3)
J. C. Robinson President & Chief Operating Officer Three (3)
F. A. Martins Vice President-Sales & Field Operations Two (2)
B. L. Purser Vice President-Marketing & National
Accounts Two (2)
R. C. Shaw Vice President-Communications, Two (2)
Organizational Learning &
Quality Standards
R. C. Stinson Vice President-Administration, Two (2)
Human Resources,
General Counsel & Secretary
J. R. Whitten Vice President-Finance & Treasurer Two (2)
M. O. Eisele Controller Two (2)
The continuation of employee benefit plans, programs and arrangements
set forth in Paragraph 4 is three (3) years for Messrs. Dannemiller and
Robinson, and two (2) years for the other executive officers listed.
EXHIBIT 10(f)
BEARINGS, INC.
FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 1996
NON-CONTRIBUTORY LIFE & ACCIDENTAL
DEATH & DISMEMBERMENT INSURANCE
The Company maintains ongoing Non-Contributory Life & Accidental Death
& Dismemberment Insurance for its executive officers, which provides benefits
equal to two and one-half (2-1/2) times annual compensation, but in no event
more than $250,000. The Company also provides its executive officers with
travel and accident insurance in the amount of $500,000. All such insurance has
certain reductions after age 65.
EXHIBIT 10(g)
BEARINGS, INC. FORM 10-K for
FISCAL YEAR ENDED JUNE 30, 1996
LONG-TERM DISABILITY INSURANCE
The Company's long-term disability insurance plan provides for long-
term disability coverage to all employees of the Company 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 would
receive 60% of monthly earnings, subject to a maximum schedule amount of $5,000
per month without evidence of insurability. The Corporation's executive
officers, including its five most highly compensated officers, are covered under
the plan, subject to a maximum schedule amount of $18,000 per month.
EXHIBIT 10(h)
BEARINGS, INC. FORM 10-K FOR
FISCAL YEAR ENDED JUNE 30, 1996
SCHEDULE
PURSUANT TO INSTRUCTION 2
ITEM 601(a) OF REGULATION S-K
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. C. Robinson
J. S. Thornton
The Officers having executed such form of Agreement are (in addition to
Messrs. Dannemiller and Robinson):
F. A. Martins - Vice President-Sales & Field Operations
B. L. Purser - Vice President-Marketing & National Accounts
R. C. Shaw - Vice President-Communications, Organizational
Learning & Quality Standards
R. C. Stinson - Vice President-Administration, Human
Resources, General Counsel & Secretary
J. R. Whitten - Vice President-Finance & Treasurer
M. O. Eisele - Controller
EXHIBIT 11
BEARINGS, INC. AND SUBSIDIARIES
Computation of Net Income Per Share
(Thousands, except per share amounts)
--------------------------------------------------------------------------------
Year Ended June 30,
1996 1995 1994
------------ ----------- ------------
AVERAGE SHARES OUTSTANDING
1. Average common shares
outstanding 12,303 11,551 11,319
2. Net additional shares
outstanding assuming stock
options exercised and
proceeds used to purchase
treasury stock 264 197 231
------------ ----------- ------------
3. Adjusted average common
shares outstanding for
fully diluted computation 12,567 11,747 11,550
------------ ----------- ------------
------------ ----------- ------------
NET INCOME
4. Net income as reported in
statements of consolidated
income $23,334 $16,909 $12,687
------------ ----------- ------------
------------ ----------- ------------
NET INCOME PER SHARE
5. Net income per average
common share outstanding
(4/1) $1.90 $1.46 $1.12
------------ ----------- ------------
------------ ----------- ------------
6. Net income per common
share on a fully
dilutive basis (4/3) $1.86 (A) $1.44 (A) $1.10 (A)
------------ ----------- ------------
------------ ----------- ------------
(A) Amount is not presented in the statements as the dilutive effect is less
than 3%.
(B) All per share data have been restated to reflect a three for two stock
split effective December 4, 1995.
YEAR ENDED JUNE 30, 1996 VS 1995
Sales in 1996 increased 8% to $1,143.7 million from 1995 sales of $1,054.8
million. The sales increased approximately 4% due to price increases and 4% due
to volume increases. Net income for the fiscal year ended June 30, 1996
improved 38% over the prior year. In 1996, the Company continued to implement
its strategy, which began in 1992, of selling additional products to its
existing customers, as well as better penetration of the market with products
beyond the traditional bearing product lines. The Company expects to continue
expanding its business through acquisitions of other distributors.
Gross margin (net sales less cost of sales) as a percent of sales was 25.8% in
1996 and 1995. Margins remained constant, even though the benefits from
favorable LIFO cost adjustments were significantly lower in 1996 than 1995 (see
Note 3 to the Consolidated Financial Statements). The lower LIFO benefits were
offset by a change in product mix.
Selling, distribution and administrative expenses as a percent of sales were
21.5% in 1996 and 22.3% in 1995. The decrease in expenses as a percent of
sales was the result of a continued effort to control expenses and improved
productivity. While these expenses decreased as a percent of sales, they did
increase 5% in absolute dollars primarily due to higher compensation costs from
an increase in the number of associates, costs associated with acquisitions and
the accelerated vesting of performance accelerated restricted stock (PARS) based
upon the price performance of the Company's common stock during the year.
Operating income increased to $49.3 million in 1996 from $36.9 million in 1995.
As a percent of sales, operating income increased to 4.3% in 1996 from 3.5% in
1995. This improved operating margin resulted from higher sales volume and
improved productivity.
The number of associates was 4,133 at June 30, 1996 and 4,080 at June 30, 1995.
Interest expense for 1996 increased $1.3 million as a result of increased
borrowing and higher interest rates on short-term debt.
Income tax expense as a percentage of income before income taxes was 42.9% in
1996. The effective tax rate was greater than the federal statutory rate
primarily due to state and local income taxes and non-deductible expenses.
YEAR ENDED JUNE 30, 1995 VS 1994
Sales increased to $1,054.8 million from 1994 sales of $936.3 million, an
increase of 13%. The increase in sales was mainly due to additional volume.
Price increases averaged 4% for most product lines over the course of the fiscal
year. Results for the fiscal year ended June 30, 1995, continued to improve
with net income improving 33% over the prior year.
Gross margin as a percent of sales was 25.8% in 1995 and 26.9% in 1994. The
gross margin percentage decreased in fiscal 1995 due to a reduction in favorable
LIFO cost adjustments and delays in passing along certain price increases due to
contract timing and the competitive environment.
Selling, distribution and administrative expenses as a percent of sales were
22.3% in 1995 and 23.9% in 1994. The decrease in expenses as a percent of sales
was the result of an active effort to control expenses and the rise in sales
volume. In fiscal 1995, the Company incurred higher expenses for
hospitalization, and sales commissions paid to account representatives.
Expenses decreased due to accelerated vesting in the prior year of performance
accelerated restricted stock (PARS).
The number of associates was 4,080 at June 30, 1995 and 4,066 at June 30, 1994.
Interest expense for 1995 increased $1.3 million over the prior year. This
increase was due, in part, to higher average interest rates on short-term
borrowings. Further, the Company in fiscal 1994 partially offset interest
expense by net interest income earned under interest rate swap agreements. In
1995, the Company incurred additional interest expense from the termination of
an interest rate swap agreement. (See Note 5 to the Consolidated Financial
Statements).
Income tax expense as a percent of income before income taxes was 43.0% in 1995.
The effective tax rate was greater than the federal statutory rate primarily due
to state and local income taxes and non-deductible expenses.
10
LIQUIDITY AND WORKING CAPITAL
The Company generated cash from operating activities in the amounts of $36.4
million and $13.4 million in 1996 and 1995, respectively.
Cash flow from operations depends primarily upon generating operating income,
controlling the investment in inventory and receivables, and managing the timing
of payments to suppliers. The Company's growth in accounts receivable and
inventory in 1996 was necessary to service the increased sales volume, including
greater sales of non-bearing products.
Investments in property totaled $23.5 million and $15.1 million in 1996 and
1995, respectively. These capital expenditures were primarily made for building
and upgrading branch facilities, construction of a new distribution center in
Atlanta scheduled to open in the fall of 1996, acquisition of data processing
equipment, and vehicles.
Working capital at June 30, 1996, was $152.0 million compared to $153.6 million
at June 30, 1995. The current ratio was 2.1 at June 30, 1996 and 2.4 at June 30,
1995.
CAPITAL RESOURCES
Capital resources are obtained from income retained in the business,
indebtedness under the Company's lines of credit and long-term debt and from
operating lease arrangements. Average combined short-term and long-term
borrowing was $111.8 million in 1996 and $97.9 million in 1995. Effective
interest rates on short-term borrowings were 6.2% in 1996 and 5.9% in 1995. The
Company has short-term lines of credit totaling $110 million. The Company had
$30.1 million of borrowings under these short-term lines of credit at June 30,
1996.
The Company sold its Aircraft Distribution business early in fiscal 1997. The
initial proceeds from the sale of $9.1 million were used to reduce short-term
borrowings. This transaction is not anticipated to have a material effect on the
Consolidated Financial Statements.
The Company is obligated for rental payments for operating leases on 176 of its
354 branch, distribution center and other operating locations. See Note 9 to the
Consolidated Financial Statements for annual rental commitments.
Management expects that capital resources provided from operations, available
lines of credit, long-term debt and operating leases will be sufficient to
finance normal working capital needs, business acquisitions and enhancement of
facilities and equipment. Management also believes that additional long-term
debt and line of credit financing could be obtained if desired.
OTHER MATTERS
The Board of Directors has authorized, subject to shareholder approval, a change
in the Company's name to Applied Industrial Technologies, Inc., effective
January 1, 1997. The Bearings, Inc. name no longer reflects the full scope of
the Company's diverse business. Anticipated expenses to promote, communicate and
market the new corporate identity are not expected to have a material impact on
the fiscal 1997 results of operations.
The 1990 agreement for the acquisition of King Bearing included specific
indemnification of Bearings, Inc. and King for any financial damages or losses
related to a lawsuit pending against King in the Superior Court of Orange
County, California. The indemnification was also guaranteed by the ultimate
parent of King's former owner, a Fortune 500 company with stockholders' equity
exceeding five billion dollars at June 30, 1996. A $32.4 million judgment
relating to this lawsuit was rendered against King in June 1992. As further
explained in Note 10 to the Consolidated Financial Statements, management
believes that the outcome of this matter will not have a material adverse affect
on the consolidated financial position or results of operations of the Company
due to the indemnification and guarantee.
STATEMENTS OF CONSOLIDATED INCOME
BEARINGS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended June 30
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 1,143,749 $ 1,054,809 $ 936,254
----------------------------------------------------------------------------------------------
COST AND EXPENSES
Cost of sales 848,682 783,105 684,213
Selling, distribution and administrative 245,786 234,781 224,224
----------------------------------------------------------------------------------------------
1,094,468 1,017,886 908,437
----------------------------------------------------------------------------------------------
OPERATING INCOME 49,281 36,923 27,817
----------------------------------------------------------------------------------------------
INTEREST EXPENSE 8,975 7,650 6,385
INTEREST INCOME (528) (386) (225)
----------------------------------------------------------------------------------------------
8,447 7,264 6,160
----------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 40,834 29,659 21,657
----------------------------------------------------------------------------------------------
INCOME TAX EXPENSE
Federal 14,250 10,630 7,172
State and local 3,250 2,120 1,798
----------------------------------------------------------------------------------------------
17,500 12,750 8,970
----------------------------------------------------------------------------------------------
NET INCOME $ 23,334 $ 16,909 $ 12,687
----------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 1.90 $ 1.46 $ 1.12
----------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
12
13
CONSOLIDATED BALANCE SHEETS
BEARINGS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
June 30
(AMOUNTS IN THOUSANDS)
1996 1995
----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and temporary investments $ 9,243 $ 4,789
Accounts receivable, less allowance of $2,400 and $2,300 155,524 145,680
Inventories 127,937 112,596
Other current assets 2,434 2,307
----------------------------------------------------------------------------------------------
Total current assets 295,138 265,372
----------------------------------------------------------------------------------------------
Property - at cost
Land 13,529 11,783
Buildings 64,441 57,365
Equipment 71,938 68,926
----------------------------------------------------------------------------------------------
149,908 138,074
Less accumulated depreciation 63,574 58,802
----------------------------------------------------------------------------------------------
Property - net 86,334 79,272
----------------------------------------------------------------------------------------------
Other assets 22,600 14,587
----------------------------------------------------------------------------------------------
TOTAL ASSETS $ 404,072 $ 359,231
----------------------------------------------------------------------------------------------
LIABILITIES
Current liabilities
Notes payable $ 30,056 $ 18,575
Current portion of long-term debt 11,429 5,714
Accounts payable 67,652 53,722
Compensation and related benefits 19,081 18,248
Other current liabilities 14,964 15,558
----------------------------------------------------------------------------------------------
Total current liabilities 143,182 111,817
Long-term debt 62,857 74,286
Deferred income taxes 918
Other liabilities 8,741 6,809
----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 214,780 193,830
----------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock - no par value; 2,500
shares authorized; none issued or outstanding
Common stock - no par value; 30,000 shares
authorized; 13,954 shares issued 10,000 10,000
Additional paid-in capital 7,528 11,311
Income retained for use in the business 197,232 177,402
Treasury shares - at cost (1,577 and 2,266 shares) (21,260) (29,253)
Shares held in trust for deferred compensation plans (3,008) (1,426)
Unearned restricted common stock compensation (1,200) (2,633)
----------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 189,292 165,401
----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 404,072 $ 359,231
----------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
STATEMENTS OF CONSOLIDATED CASH FLOWS
BEARINGS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended June 30
(AMOUNTS IN THOUSANDS)
1996 1995 1994
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 23,334 $ 16,909 $ 12,687
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation 13,478 13,275 13,586
Deferred income taxes (1,444) (3,345) 2,448
Provision for losses on accounts receivable 2,123 1,710 1,418
(Gain) loss on sale of property (1,119) (1,412) (775)
Amortization of restricted common stock
compensation and goodwill 1,959 680 2,779
Treasury shares contributed to employee
benefit and deferred compensation plans 4,496 3,935 1,510
Changes in current assets and liabilities:
Accounts receivable (9,132) (16,313) (14,344)
Inventories (12,889) (5,075) (2,042)
Other currents assets 1,722 (4) 885
Accounts payable and accrued expenses 13,908 2,548 9,810
Other - net 513 2,547
-------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 36,436 13,421 30,509
-------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property purchases (23,536) (15,055) (16,585)
Proceeds from property sales 4,803 4,081 4,901
Acquisition of businesses, less cash acquired (4,328) (1,852)
Deposits and other (7,729) (164) (519)
-------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (30,790) (12,990) (12,203)
-------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings (repayments) under:
Line-of-credit agreements - net 11,481 (1,230) (5,321)
Long-term debt (5,714)
Exercise of stock options 1,781 3,924
Dividends paid (6,528) (5,397) (4,739)
Purchases of treasury shares (2,212) (3,874) (1,945)
-------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (1,192) (6,577) (12,005)
-------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash
and temporary investments 4,454 (6,146) 6,301
Cash and temporary investments
at beginning of year 4,789 10,935 4,634
CASH AND TEMPORARY INVESTMENTS
AT END OF YEAR $ 9,243 $ 4,789 $ 10,935
-------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 17,842 $ 14,827 $ 3,697
Interest $ 8,291 $ 8,411 $ 5,928
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
14
15
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
BEARINGS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
For the Years Ended June 30, 1996, 1995 and 1994
(AMOUNTS IN THOUSANDS)
SHARES OF INCOME
COMMON ADDITIONAL RETAINED FOR
STOCK COMMON PAID-IN USE IN THE
OUTSTANDING STOCK CAPITAL BUSINESS
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT JULY 1, 1993 11,273 $10,000 $5,357 $157,784
Net income 12,687
Cash dividends - $.43 per share (4,739)
Purchases of common stock for treasury (88)
Treasury shares issued for:
401(k) Savings Plan contributions 84 503
Exercise of stock options 19 74
Restricted common stock awards 19 53
Other 12 64
Amortization of restricted
common stock compensation 911
Other 75
--------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1994 11,319 10,000 6,962 165,807
Net income 16,909
Cash dividends - $.47 per share (5,397)
Purchases of common stock for treasury (180)
Treasury shares issued for:
401(k) Savings Plan contributions 140 1,124
Exercise of stock options 225 1,565
Restricted common stock awards 138 1,232
Deferred compensation plans 46 428
Amortization of restricted
common stock compensation
Other 83
--------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995
As previously reported 11,688 10,000 11,311 177,402
Pooling of interests with Engineered Sales 486 (6,499) 3,024
--------------------------------------------------------------------------------------------------------
BALANCE AS RESTATED 12,174 10,000 4,812 180,426
Net income 23,334
Cash dividends - $.54 per share (6,528)
Purchases of common stock for treasury (86)
Treasury shares issued for:
Retirement Savings Plan contributions 138 1,692
Exercise of stock options 107 391
Restricted common stock awards 1 13
Deferred compensation plans 43 416
Amortization of restricted
common stock compensation 204
Other
--------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 12,377 $10,000 $7,528 $197,232
<CAPTION>
SHARES HELD UNEARNED
IN TRUST FOR RESTRICTED
TREASURY DEFERRED COMMON TOTAL
SHARES--AT COMPENSATION STOCK SHAREHOLDERS'
COST PLANS COMPENSATION EQUITY
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------
BALANCE AT JULY 1, 1993 ($31,947) ($2,189) $139,005
Net income 12,687
Cash dividends - $.43 per share (4,739)
Purchases of common stock for treasury (1,945) (1,945)
Treasury shares issued for:
401(k) Savings Plan contributions 1,007 1,510
Exercise of stock options 237 311
Restricted common stock awards 233 (286)
Other 137 201
Amortization of restricted
common stock compensation 2,475 3,386
Other 75
--------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1994 (32,278) 150,491
Net income 16,909
Cash dividends - $.47 per share (5,397)
Purchases of common stock for treasury (3,874) (3,874)
Treasury shares issued for:
401(k) Savings Plan contributions 1,788 2,912
Exercise of stock options 2,789 4,354
Restricted common stock awards 1,727 (2,959)
Deferred compensation plans 595 ($1,023)
Amortization of restricted
common stock compensation 326 326
Other (403) (320)
--------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995
As previously reported (29,253) (1,426) (2,633) 165,401
Pooling of interests with Engineered Sales 6,408 2,933
--------------------------------------------------------------------------------------------------------
BALANCE AS RESTATED (22,845) (1,426) (2,633) 168,334
Net income 23,334
Cash dividends - $.54 per share (6,528)
Purchases of common stock for treasury (2,212) (2,212)
Treasury shares issued for:
Retirement Savings Plan contributions 1,805 3,497
Exercise of stock options 1,390 1,781
Restricted common stock awards 19 (32)
Deferred compensation plans 583 (999)
Amortization of restricted
common stock compensation 1,465 1,669
Other (583) (583)
--------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 ($21,260) ($3,008) ($1,200) $189,292
--------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996, 1995, AND 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BEARINGS, INC. AND SUBSIDIARIES
1 BUSINESS AND ACCOUNTING POLICIES
BUSINESS
The Company distributes bearings, electrical and mechanical drive systems
products, fluid power products and systems, industrial rubber products, general
maintenance products and related specialty items. The Company offers technical
application support for these products and provides creative solutions to help
customers minimize downtime and reduce overall procurement costs. Although the
Company does not generally manufacture the products it sells, it does assemble
and repair certain products and systems. Most of the Company's sales are in the
maintenance and replacement markets, to customers in a wide range of industries
principally in the United States.
CONSOLIDATION
The consolidated financial statements include the accounts of Bearings, Inc. and
its wholly-owned subsidiaries Bruening Bearings, Inc., Dixie Bearings,
Incorporated, King Bearing, Inc., Mainline Industrial Distributors, Inc., and
for the year ended June 30, 1996, Engineered Sales, Inc. (see Note 2). All
significant intercompany transactions and balances have been eliminated in
consolidation.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses during the
period. Actual results may differ from the estimates and assumptions used in
preparing the consolidated financial statements.
CASH EQUIVALENTS
The Company considers all temporary investments with maturities of three months
or less to be cash equivalents for
purposes of the statements of consolidated cash flows.
GOODWILL
Goodwill is recorded for the purchase price of acquired operations in excess of
the fair value of identifiable net assets. Goodwill is amortized on a
straight-line basis over 15 to 20 years.
INVENTORIES
Inventories are valued at the lower of cost or market, using the last-in, first-
out (LIFO) method. See Note 3 for further information regarding inventories.
DEPRECIATION
Depreciation of buildings and equipment is computed using the straight-line
method over the estimated useful lives of the assets. Buildings are depreciated
over 30 years and equipment over 3.75 to 8 years.
INCOME TAXES
Income taxes are determined based upon income and expenses recorded for
financial reporting purposes. Deferred income taxes are recorded for estimated
future tax effects of differences between the bases of assets and liabilities
for financial reporting and income tax purposes giving consideration to enacted
tax laws.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
shares outstanding for the period. Net income per share has not been adjusted
for the effect of stock options as the dilutive effect would be less than 3% for
each year. All shares and per-share data have been restated to reflect a three-
for-two stock split effective December 4, 1995.
16
17
2 BUSINESS COMBINATIONS
On February 9, 1996 the Company exchanged 486,000 shares of Bearings, Inc.
common stock for all of the outstanding shares of Engineered Sales, Inc., a
distributor of hydraulic, pneumatic and electro-hydraulic components, systems
and related fluid power engineering services. This business combination was
accounted for as a pooling of interests. The fiscal 1996 consolidated financial
statements include results of operations of Engineered Sales for the entire
fiscal year. The prior years' consolidated financial statements have not been
restated as the effects are not material. Separate 1996 results of operations
for Engineered Sales prior to the acquisition are not presented as the amounts
are not material.
In addition, during fiscal 1996 the Company acquired the assets of a distributor
of drive products and a distributor of rubber products, for a total of $4,328.
During fiscal 1995, the Company acquired the assets of a distributor of fluid
power products, and of a distributor of bearings and drive systems products, for
a total of $3,255. 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.
In fiscal 1994, the Company exchanged 294,000 shares of Bearings, Inc. common
stock for Mainline Industrial Distributors, Inc., an applied technology
distributor of drive systems, rubber products and bearings. The business
combination was accounted for as a pooling of interests and the consolidated
financial statements include Mainline's results of operations for each of the
three years ended June 30, 1996.
3 INVENTORIES
CURRENT COST
The current cost of inventories exceeded the LIFO cost as follows:
June 30
1996 1995
-------------------------------------------------------------------------
LIFO cost $127,937 $112,596
Excess of current cost over LIFO cost 100,835 94,670
-------------------------------------------------------------------------
Current cost $228,772 $207,266
-------------------------------------------------------------------------
LIFO LIQUIDATIONS
During the years ended June 30, 1996, 1995 and 1994, the Company liquidated LIFO
inventory quantities carried at lower costs prevailing in prior years. The
effect of these liquidations reduced cost of sales and increased net income and
net income per share, respectively, by $946, $515, and $.04 per share during
1996, $3,127, $1,692, and $.15 per share during 1995 and $6,784, $3,841 and $.34
per share during 1994.
4 OTHER ASSETS
Other assets consist of the following:
June 30
1996 1995
-------------------------------------------------------------------------
Deposits and investments $12,024 $ 5,495
Goodwill -- net of amortization 5,281 4,554
Other 5,295 4,538
-------------------------------------------------------------------------
Total $22,600 $14,587
-------------------------------------------------------------------------
Substantially all investments are restricted and consist of money-market or
similar liquid investments which have fair values approximately equal to their
carrying values.
5 NOTES PAYABLE AND LONG--TERM DEBT
NOTES PAYABLE
The Company has $110,000 of short-term lines of credit which require payment of
interest at various interest rate options, none of which is in excess of the
banks' prime rate at interest determination dates. Borrowings under these lines
of credit totaled $30,056 at June 30, 1996. The remaining unused lines available
for short-term borrowings at June 30, 1996 totaled $79,944.
LONG-TERM DEBT
The Company has $74,286 of long-term Senior Unsecured Term Notes, including
$11,429 due during fiscal 1997. Interest is payable quarterly at a fixed
interest rate of 7.82%. The principal amount is to be paid in semi-annual
installments of $5,714 through 2003. These notes contain certain restrictive
covenants regarding liquidity, tangible net worth, financial ratios and other
covenants. At June 30, 1996, the most restrictive of these covenants required
that the Company maintain a minimum tangible net worth of $122,000. Based upon
current market rates for debt of similar maturities, the Company estimates that
the fair value of its long-term debt is more than its carrying value at June
30, 1996 by $1,000.
INTEREST RATE SWAPS
Effective March 1, 1996 the Company entered into a two year interest rate swap
agreement with a major bank that effectively converts $15,000 of variable rate
borrowings to a fixed rate. Under this agreement, the Company receives payments
at variable rates based on LIBOR as determined at monthly intervals and makes
payments at a fixed interest rate of 5.29%. Net interest earned under this
agreement reduces interest expense. The interest rate swap agreement has a
nominal fair value at June 30, 1996.
During fiscal 1995, the Company terminated a two year interest rate swap
agreement initiated in fiscal 1994. Costs to terminate were amortized to
interest expense over the original term of the swap agreement.
6 INCOME TAXES
PROVISION
The provision (benefit) for income taxes consists of:
Year Ended June 30
1996 1995 1994
--------------------------------------------------------------------
Current $18,944 $16,095 $6,522
Deferred (1,444) (3,345) 2,448
--------------------------------------------------------------------
Total $17,500 $12,750 $8,970
--------------------------------------------------------------------
The exercise of non-qualified stock options during fiscal 1996 and 1995
resulted in $501 and $431, respectively, of income tax benefits to the Company
derived from the difference between the market price at the date of exercise and
the option price. Also, the accelerated vesting of Performance Accelerated
Restricted Stock (PARS) in fiscal 1996 and 1994 resulted in $204 and $911,
respectively, of income tax benefits. These tax benefits were credited to
additional paid-in capital.
18
19
EFFECTIVE TAX RATES
The following is a reconciliation between the federal statutory income tax rate
and the Company's effective tax rate:
Year Ended June 30
1996 1995 1994
--------------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
Effects of:
State and local income taxes 5.2 4.7 5.4
Non-deductible expenses 2.0 2.3 1.8
Other, net .7 1.0 (0.8)
--------------------------------------------------------------------
Effective tax rate 42.9% 43.0% 41.4%
--------------------------------------------------------------------
BALANCE SHEET
The significant components of the Company's deferred tax assets (liabilities) as
of June 30, 1996 and 1995 are as follows:
June 30
1996 1995
-------------------------------------------------------------------------
Depreciation and differences in property bases $(4,526) $(4,771)
Inventory (8,301) (8,180)
Compensation liabilities not currently deductible 5,121 4,298
Reserves not currently deductible 4,226 3,474
Goodwill 1,393 1,502
Tax loss carryforwards 94 526
Other 1,427 1,086
Valuation allowance (266) (404)
-------------------------------------------------------------------------
Net deferred tax liability $ (832) $(2,469)
-------------------------------------------------------------------------
7 STOCK INCENTIVE PLANS
The 1990 Long-Term Performance Plan (the "1990 Plan") provides for granting of
stock options, stock awards, cash awards, and such other awards or combination
thereof as the Executive Organization and Compensation Committee of the Board of
Directors may determine. The number of shares of Common Stock which may be
awarded in each fiscal year under the 1990 Plan is two percent (2%) of the total
number of shares of Common Stock outstanding on the first day of each year for
which the plan is in effect. Common Stock available for distribution under the
1990 Plan, but not distributed, may be carried over to the following year.
Under the 1990 Plan, the Company had awarded PARS and stock options to officers
and other key associates. PARS recipients are entitled to receive dividends and
have voting rights on their respective shares but are restricted from selling or
transferring the shares prior to vesting. The restricted stock vests after a
period of six years, with accelerated vesting based upon achievement of certain
return on asset objectives or minimum stock price levels. The aggregate fair
market value of the restricted stock is considered unearned compensation at the
time of grant and is amortized over the six year vesting period or until such
time as acceleration of vesting takes place. In fiscal 1996 and 1994 the Company
recognized accelerated vesting of 64,000 and 230,000 shares, respectively, of
previously awarded PARS.
The following is a summary of transactions with respect to the stock incentive
plans:
<TABLE>
<CAPTION>
N u m b e r o f S h a r e s
-----------------------------------------
Available
Option Price for future
Per Share Outstanding Exercisable Grants
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at
July 1, 1993 722,931 435,630 3,261
Additional available 219,573
Became exercisable 172,575
Canceled upon
exercise $9.46--$20.00 (148,192) (148,192)
Expired/canceled $9.46--$20.00 (30,488) (24,713)
Options granted $14.62--$21.54 179,175 (179,175)
PARS common
stock awards (19,500)
----------------------------------------------------------------------------------------------
Balance at
June 30, 1994 723,426 435,300 24,159
Additional available 226,383
Became exercisable 124,429
Canceled upon
exercise $9.46--$20.00 (224,581) (224,581)
Expired/canceled $9.46--$20.00 (9,673) (3,039)
Options granted $22.29 2,400 (2,400)
PARS common
stock awards (138,000)
----------------------------------------------------------------------------------------------
Balance at
June 30, 1995 491,572 332,109 110,142
Additional available 233,762
Became exercisable 72,005
Canceled upon
exercise $9.46--$21.54 (107,597) (107,597)
Expired/canceled $9.46--$21.54 (16,500) (375)
Options granted $21.71--$22.88 217,275 (217,275)
PARS common
stock awards (1,500)
----------------------------------------------------------------------------------------------
Balance at June 30, 1996 584,750 296,142 125,129
----------------------------------------------------------------------------------------------
</TABLE>
At June 30, 1996 option prices related to outstanding options ranged from $9.46
to $22.88 per share.
The Financial Accounting Standards Board has issued Statement of Financial
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", which the
Company will be required to adopt for the fiscal year ending June 30, 1997.
As permitted by SFAS 123, the Company does not intend to change its method of
accounting for stock-based compensation. The Company has not yet determined the
pro forma disclosures for employee awards granted in the fiscal year ending June
30, 1996, which will be presented in the notes to financial statements for the
year ending June 30, 1997.
20
21
8 BENEFIT PLANS
QUALIFIED RETIREMENT PLANS
Substantially all associates of the Company are covered by the Bearings, Inc.
Retirement Savings Plan. This plan is the result of a combination, effective
July 1, 1995, of the Employees' Profit-Sharing Trust and the Bearings, Inc.
401(k) Savings Plan. The Company makes a discretionary profit-sharing
contribution to the Retirement Savings Plan generally based upon a percentage of
the Company's income before income taxes and before the amount of the
contribution. The Company also partially matches contributions by participants,
who may elect to contribute up to 15 percent of their compensation. The matching
contribution is made with the Company's Common Stock and is determined quarterly
using rates based on achieving certain quarterly earnings per share levels.
The Company's expense for contributions to the above plans were $4,953, $3,958,
and $2,602 for the years ended June 30, 1996, 1995, and 1994, respectively.
RETIREE MEDICAL BENEFITS
The Company provides health care benefits to eligible retired associates who
elect to pay the Company a specified monthly premium. Premium payments are based
upon current insurance rates for the type of coverage provided and are adjusted
annually. Certain monthly health care premium payments are partially subsidized
by the Company. At June 30, 1996 and 1995 the accumulated post-retirement
benefit obligation was $830 and $685, respectively. The costs recognized for
post-retirement benefits for fiscal 1996, 1995, and 1994 were not material.
SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFIT PLAN (SERP)
The Company has a non-qualified pension plan to provide supplemental retirement
benefits to certain officers. Benefits are payable at retirement based upon a
percentage of the participant's compensation. The plan specifies minimum
annual retirement benefits for certain participants.
THE FUNDED STATUS OF THE SERP IS:
June 30
1996 1995
--------------------------------------------------------------------------
Projected benefit obligation $4,852 $4,629
Unrecognized net transition obligation (262)
Unrecognized net loss (802) (796)
Unrecognized prior service cost (145) (207)
Adjustment required to recognize
minimum liability 418
--------------------------------------------------------------------------
Accrued pension liability, included in
other liabilities on the Consolidated
Balance Sheets $3,905 $3,782
--------------------------------------------------------------------------
Accumulated benefit obligation, fully vested $3,905 $3,782
--------------------------------------------------------------------------
Periodic pension cost for the SERP consists of:
Year Ended June 30
1996 1995 1994
--------------------------------------------------------------------------
Service cost - benefits earned $132 $115 $ 91
Interest cost on projected benefit
obligation 368 350 347
Net amortization and deferral 349 361 483
--------------------------------------------------------------------------
Total $849 $826 $921
--------------------------------------------------------------------------
Pension cost and benefit obligations shown above were determined using a
discount rate of 8.0% and a rate of increase in compensation levels of 5.5%. At
June 30, 1996 there were no assets under the plan. The Company funds the
benefits when payments are made to participants.
DEFERRED COMPENSATION PLANS
The Company has deferred compensation plans that enable certain associates of
the Company to defer receipt of a portion of their compensation and
non-employee directors to defer receipt of director fees. The Company funds
these deferred compensation liabilities by contributing to rabbi trusts common
stock of the Company and investments in money market and mutual funds. While
held in trust, the common stock is reported as a contra-equity account and the
money market and mutual fund investments are included in other assets in the
accompanying consolidated balance sheets. The deferred compensation liabilities
of $3,286 and $1,461 at June 30, 1996 and 1995, respectively, are
recorded in other liabilities in the consolidated balance sheets.
9 COMMITMENTS, LEASE OBLIGATIONS AND RENT EXPENSES
The Company leases certain branch and distribution center facilities and
computer equipment under non-cancelable lease agreements. The minimum annual
rental commitments under operating leases, including the lease commitment
described below, are $8,779 in 1997; $9,035 in 1998; $6,129 in 1999; $4,430 in
2000; $3,157 in 2001 and $41,549 after 2001.
During fiscal 1996 the Company entered into a twenty year lease agreement with
the Cleveland-Cuyahoga County Port Authority (the Port) in connection with the
construction of a new corporate headquarters facility. Lease payments are to
begin upon completion of construction in July 1997 and the facility portion of
the lease will be accounted for as an operating lease. The Company will also
have a capital lease for $2,000 of furniture, fixtures and equipment as part of
the agreement. In connection with the lease agreement the Company has also
agreed to guarantee repayment of $5,678 of bonds issued by the Port and Cuyahoga
County to fund construction of the new headquarters facility.
Rental costs, principally from leases for real property, vehicles and computer
equipment were $12,077 in 1996, $10,756 in 1995, and $10,013 in 1994.
10 LITIGATION
The 1990 agreement for the acquisition of King Bearing, Inc. (King) included
specific indemnification of Bearings, Inc. and King for any financial damages or
losses related to a lawsuit pending against King in the Superior Court of Orange
County, California. The indemnification was also guaranteed by the ultimate
parent of King's former owner, a Fortune 500 company with stockholders' equity
exceeding five billion dollars at June 30, 1996. A $32,400 judgment relating to
this lawsuit was rendered against King in June 1992. The judgment is being
strongly contested by counsel retained by the indemnitor on behalf of King, and
in September 1992 the trial court granted the motion of King for a new trial as
to all but $219 in damages returned by the jury. A notice of appeal was filed by
the cross-complainants, and the case is now pending in the California Court of
Appeal, Fourth Appellate District. All alleged events relevant to the judgment
occurred prior to the Company's purchase of King, and the jury found no
liability on the part of Bearings, Inc. Due to the indemnification and
guarantee, management believes that the outcome of this matter will not have a
material adverse effect on the consolidated financial position or results of
operations of the Company.
The Company is a defendant in several lawsuits for product and employment
related matters. The Company is vigorously defending these lawsuits, which
management believes are without merit. Although management cannot predict the
outcomes of these lawsuits, they are not expected to have a material adverse
affect on the Company's consolidated financial position.
22
23
INDEPENDENT AUDITORS' REPORT
[LOGO]
Shareholders and Board of Directors
Bearings, Inc.
We have audited the accompanying consolidated balance sheets of Bearings, Inc.
and its subsidiaries (the "Company") as of June 30, 1996 and 1995 and the
related statements of consolidated income, shareholders' equity, and cash flows
for each of the three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 1996 and
1995 and the results of its operations and its cash flows for each of the three
years in the period ended June 30, 1996 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
August 6, 1996
REPORT OF MANAGEMENT
Responsibility for the integrity and objectivity of the financial information
presented in this Annual Report rests with the management of Bearings, Inc. The
accompanying financial statements were prepared in conformity with generally
accepted accounting principles and where appropriate, certain estimates and
judgement were applied with consideration to materiality.
Bearings, Inc. maintains accounting systems and related controls which, in the
opinion of management, provide reasonable assurance that transactions are
executed in accordance with management's authorization, that financial
statements are prepared in accordance with generally accepted accounting
principles, and that assets are properly accounted for and safeguarded. An
important element of the control environment is the Company's ongoing
utilization of an internal audit program.
To assure the effective administration of internal control, we carefully select
and train our employee associates, develop and disseminate written policies and
procedures, provide appropriate communication channels, and foster an
environment conducive to the effective functioning of controls and continuous
improvement. We believe that it is essential for the Company to conduct its
business affairs in accordance with the highest ethical standards, as set forth
in the Bearings, Inc. written policies and procedures guidelines. These
guidelines are distributed to employee associates to assure that they are
understood and followed.
Deloitte & Touche LLP, independent auditors, are retained to audit the
consolidated financial statements of the Company. Their accompanying report is
based on an audit conducted in accordance with generally accepted auditing
standards, including a review of the internal control structure and tests of
accounting procedures and records.
The Board of Directors, through its audit committee composed solely of non-
employee directors, is responsible for overseeing the integrity and reliability
of the Company's accounting and financial reporting practices and the
effectiveness of its system of internal controls. Deloitte & Touche LLP and the
Company's internal auditors meet regularly with, and have access to, this
committee, with and without management present, to discuss the results of their
audit work.
/s/ John C. Dannemiller
John C. Dannemiller
Chairman and Chief Executive Officer
/s/ John R. Whitten
John R. Whitten
Vice President - Finance & Treasurer
/s/ Mark O. Eisele
Mark O. Eisele
Controller
24
25
QUARTERLY OPERATING RESULTS AND MARKET DATA [UNAUDITED] (A)
BEARINGS, INC. AND SUBSIDIARIES
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Per Common Share (C) (D)
------------------------
Net Gross Net Net Cash Price Range
Sales Profit Income Income Dividend High Low
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996
First Quarter (B) $277,059 $70,215 $4,528 $0.37 $0.12 $22.67 $20.08
Second Quarter (B) 275,140 71,894 5,176 0.42 0.14 29.63 22.50
Third Quarter 296,064 75,610 6,122 0.50 0.14 29.38 24.00
Fourth Quarter 295,486 77,348 7,508 0.61 0.14 33.75 26.75
----------------------------------------------------------------------------------------------------------------------------
$1,143,749 $295,067 $23,334 $1.90 $0.54
----------------------------------------------------------------------------------------------------------------------------
1995
First Quarter $247,605 $63,611 $3,019 $0.27 $0.11 $22.17 $20.17
Second Quarter 249,906 63,183 3,353 0.29 0.12 23.09 20.42
Third Quarter 277,029 70,241 4,349 0.37 0.12 22.67 18.83
Fourth Quarter 280,269 74,669 6,188 0.53 0.12 21.50 18.33
----------------------------------------------------------------------------------------------------------------------------
$1,054,809 $271,704 $16,909 $1.46 $0.47
----------------------------------------------------------------------------------------------------------------------------
1994
First Quarter(B) $222,712 $56,672 $2,398 $0.21 $0.11 $16.83 $14.09
Second Quarter(B) 226,285 61,528 2,314 0.21 0.11 20.75 16.92
Third Quarter 239,743 65,498 2,886 0.25 0.11 25.00 18.50
Fourth Quarter 247,514 68,343 5,089 0.45 0.11 22.67 20.00
----------------------------------------------------------------------------------------------------------------------------
$936,254 $252,041 $12,687 $1.12 $0.43
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Cost of sales for interim financial statements is computed using estimated
gross profit percentages which are adjusted throughout the year based upon
available information. Adjustments to actual cost are made based upon the annual
physical inventory and the effect of year-end inventory quantities on LIFO
costs. The physical inventory adjustments in 1996 increased gross profit, net
income and net income per share by $1,591, $862 and $.07, respectively. The
physical inventory adjustments in 1995 and 1994 were not material. Reductions in
inventories during the fiscal years ended June 30, 1996, 1995 and 1994 resulted
in liquidations of LIFO inventory quantities carried at lower costs prevailing
in prior years. The effect of these liquidations for the years ended June 30,
1996, 1995 and 1994 increased annual gross profit by $946, $3,127 and $6,784;
annual net income by $515, $1,692 and $3,841; and net income per share by $.04,
$.15 and $.34, respectively. (See Note 3 to Consolidated Financial Statements.)
(B) The first two quarters of 1996 have been restated to reflect the pooling of
interests with Engineered Sales, Inc. and the first two quarters of 1994 have
been restated to reflect the pooling of interests with Mainline Industrial
Distributors, Inc. (See Note 2 to Consolidated Financial Statements.)
(C) On August 15, 1996 there were 1,361 shareholders of record. Additionally at
June 30, 1996 there were 3,266 shareholders in the Bearings, Inc. Retirement
Savings Plan. The Company's common stock is listed on the New York Stock
Exchange. The closing price on August 15, 1996 was $28.63 per share.
(D) All per share data have been restated to reflect a three for two stock
split effective December 4, 1995.
10 YEAR SUMMARY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994 1993
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS-
YEAR ENDED JUNE 30
Net sales $1,143,749 $1,054,809 $936,254 $831,432
Operating income 49,281 36,923 27,817 20,521
Net income 23,334 16,909 12,687 8,927
Per share data (B)
Net income 1.90 1.46 1.12 .82
Cash dividend .54 .47 .43 .43
YEAR-END POSITION - JUNE 30
Working capital $151,956 $153,555 $144,605 $130,860
Long-term debt 62,857 74,286 80,000 80,000
Total assets 404,072 359,231 343,519 315,935
Shareholders' equity 189,292 165,401 150,491 134,940
YEAR-END STATISTICS - JUNE 30
Current ratio 2.1 2.4 2.4 2.4
Branches 337 338 339 323
Shareholders of record 1,370(A) 1,396 1,484 1,543
-----------------------------------------------------------------------------------------
</TABLE>
(A) In addition there were 3,266 employee shareholders in the Bearings, Inc.
Retirement Savings Plan.
(B) All per share data have been restated to reflect a three-for-two stock
split effective December 4, 1995.
[Graphs]
26
27
BEARINGS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988 1987
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS-
YEAR ENDED JUNE 30
Net sales $817,813 $814,000 $651,271 $630,281 $542,883 $490,995
Operating income 4,703 17,115 25,281 33,463 25,000 13,964
Net income (1,666) 4,282 12,201 18,313 14,948 6,247
Per share data (B)
Net income (.16) .41 1.13 1.63 1.26 .47
Cash dividend .43 .43 .43 .37 .33 .30
YEAR-END POSITION - JUNE 30
Working capital $41,967 $54,695 $64,091 $75,134 $77,606 $121,068
Long-term debt 44,750
Total assets 330,619 327,939 380,224 251,376 222,957 223,202
Shareholders' equity 128,830 134,203 135,338 134,848 128,919 125,419
YEAR-END STATISTICS - JUNE 30
Current ratio 1.2 1.3 1.3 1.7 1.9 3.5
Branches 333 341 363 267 266 269
Shareholders of record 1,617 1,679 1,694 1,358 1,318 1,361
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
[Graphs]
EXHIBIT 21
BEARINGS, INC. FORM 10-K FOR
FISCAL YEAR ENDED JUNE 30, 1996
SUBSIDIARIES
Name State of Incorporation
---- ----------------------
BER Capital, Inc. Delaware
Bruening Bearings, Inc. Kentucky
Dixie Bearings, Incorporated Tennessee
ESI Acquisition Corporation Ohio
(dba Engineered Sales, Inc.)
King Bearing, Inc. California
Mainline Industrial Distributors, Inc. Wisconsin
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Bearings, Inc.
We consent to the incorporation by reference in Registration Statement
Nos. 33-43506, 33-53345, 33-53401, 33-60687, 33-65509, 33-65513 and 333-10139 of
Bearings, Inc. on Forms S-3 and S-8 of our reports dated August 6, 1996
appearing in and incorporated by reference in this Annual Report on Form 10-K of
Bearings, Inc. for the year ended June 30, 1996.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
September 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,243
<SECURITIES> 0
<RECEIVABLES> 157,924
<ALLOWANCES> 2,400
<INVENTORY> 127,937
<CURRENT-ASSETS> 295,138
<PP&E> 149,908
<DEPRECIATION> 63,574
<TOTAL-ASSETS> 404,072
<CURRENT-LIABILITIES> 143,182
<BONDS> 62,857
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 10,000
<OTHER-SE> 179,292
<TOTAL-LIABILITY-AND-EQUITY> 404,072
<SALES> 1,143,749
<TOTAL-REVENUES> 1,143,749
<CGS> 848,682
<TOTAL-COSTS> 848,682
<OTHER-EXPENSES> 243,663
<LOSS-PROVISION> 2,123
<INTEREST-EXPENSE> 8,447
<INCOME-PRETAX> 40,834
<INCOME-TAX> 17,500
<INCOME-CONTINUING> 23,334
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,334
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.86
</TABLE>