-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, QdGF0/wJMqlG8/29NeRYxfRhoaZC/wcxwqvdjfhCJywIV8IN4qL6nGk0KUnInR7B ZPCbQabhzxg5jkCDQR6LUQ== 0000950152-94-000978.txt : 19941005 0000950152-94-000978.hdr.sgml : 19941005 ACCESSION NUMBER: 0000950152-94-000978 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940926 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEARINGS INC /OH/ CENTRAL INDEX KEY: 0000109563 STANDARD INDUSTRIAL CLASSIFICATION: 5080 IRS NUMBER: 340117420 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-02299 FILM NUMBER: 94550279 BUSINESS ADDRESS: STREET 1: 3600 EUCLID AVE CITY: CLEVELAND STATE: OH ZIP: 44115 BUSINESS PHONE: 2168818900 MAIL ADDRESS: STREET 1: 3600 EUCLID AVE CITY: CLEVELAND STATE: OH ZIP: 44115 FORMER COMPANY: FORMER CONFORMED NAME: BROWN JIM STORES INC DATE OF NAME CHANGE: 19600201 10-K 1 BEARUNGS, INC. 10-K 1 FORM 10-K SECUTITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 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, 1994 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, Cleveland, Ohio 44115 (Address of principal executive offices) (Zip Code) 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 New York Stock Exchange par value 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. [ ] 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 September 1, 1994: $229,558,403. 2 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 September 1, 1994 ----- -------------------------------- Common Stock without par value 7,595,947 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. 1994 Annual Report to shareholders for the fiscal year ended June 30, 1994, 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, 1994, portions of which are incorporated by reference into Parts III and IV of this Form 10-K. 3 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, 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 systems, industrial rubber products, fluid power transmission components 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. -------------------------------- During fiscal 1994, the Company established a physical presence in strategic geographic markets in the Upper Midwest. In the summer of 1993, the Company opened two branches in the Chicago area, the largest industrial market in the nation. In March 1994, the Company acquired Mainline Industrial Distributors, Inc. of Appleton, Wisconsin in exchange for 196,000 shares of Company Common Stock. The Mainline acquisition added nine branches to the Company's network, including seven in Wisconsin, one in Minneapolis and one in Chicago. All continue to operate under the Mainline name. Four additional Chicago-area branches were acquired by the Company for cash in May 1994. Also in fiscal 1994, the Company's implementation of Total Quality Management ("TQM") continued on course. TQM is aimed at maximizing customer satisfaction and improving all aspects of the Company's business, while increasing the understanding, involvement and overall teamwork of the Company's employees at all levels. Virtually all Company branches have undergone quality audits by Company management. Since its adoption of TQM, the Company has been honored with quality-supplier awards from dozens of its customers. In July 1993, John R. Cunin, a Director and former Chairman & Chief Executive Officer of the Company, died after 45 years of service to the Company. Dr. Jerry Sue Thornton, president of Cuyahoga Community College, was elected in January 1994 to fill the vacancy on the Board of Directors. Also in July 1993, Richard C. Shaw, previously Director of Corporate Communications, was appointed to serve as Vice President-Communications & Public Relations. 2 4 Further information regarding developments in the Company's business can be found in the Bearings, Inc. 1994 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 and linear type bearings, mechanical, electrical and fluid power transmission components, industrial rubber products and specialty items used in connection with the foregoing such as seals, lubricants, locking devices, sealing compounds, adhesives and tools for use therewith. Although the Company does not generally manufacture the products that it sells, it does assemble filter carts, fluid power units, 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 Bearings, McGill, Rexnord/PTC, Sealmaster, MRC, SKF, Thomson, Timken and Torrington/Fafnir. The principal power transmission components distributed by the Company are: Aeroquip, ARO, Baldor, Browning, Dana, Eaton, Falk, FMC, Gates, Goodyear, Jeffrey, Kop-Flex, Lincoln Electric, Lovejoy, Martin, Morse, Reliance/Dodge, Rexnord/PTC, Schrader Bellows, and U.S. Electrical Motors. Specialty and other items, including bronze, babbit, nylon, rubber, seals, sealants, "O" rings, retaining rings, adhesives, lubricants, maintenance equipment and tools, are purchased from various manufacturers. The principal suppliers of specialty and other items are: CR Industries, Dow Corning, Garlock, Loctite, J.M. Clipper, National/Federal Mogul, OTC, Parker Hannifin, Rotoclip and Symmco. 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, 1994, bearings (including mounted bearings, which in some contexts are categorized as power transmission components) represented 50%, power transmission components (including certain rubber and fluid power products) represented 38%, and specialty and other items represented 12% of sales. For the year ended June 30, 1993, bearings represented 52%, 3 5 power transmission components represented 32%, and specialty and other items represented 16% of sales. For the year ended June 30, 1992, bearings represented 53%, power transmission components 32%, and specialty and other items 15% of sales. The Company rebuilds precision machine spindles and live centers at its Spindle Lab in Cleveland, Ohio. Mechanical shops located in Cleveland, Ohio; Corona, California; Longview, Washington; Modesto, California; Fort Worth, Texas; Carlisle, Pennsylvania; Butte, Montana; and Florence, Kentucky rebuild and assemble speed reducers, provide custom machining and assemble fluid power systems to customer specifications. Fluid power centers located in Kent, Washington, Corona, California and Worcester, Massachusetts, provide customers with technical expertise. The Company also operates rubber shops in Arlington, Texas; Longview, Washington; Corona, California; Modesto, California; Tucson, Arizona; Atlanta, Georgia; Dayton, New Jersey; and Crestwood, Illinois 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 the selection and application of various bearings, related accessories and power transmission components. The Company considers this advice and assistance to be an integral part of its overall sales efforts. 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 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 particular locale. Due to its high percentage of sales in the maintenance and replacement market, the Company believes that service is more important than price in its sales effort, although price is a competitive factor. As a result, the business of each branch is concentrated largely in the geographic area in which it is located. Special products or products for export may be sold from a number of locations. 4 6 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(TM) 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(TM) 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. Nine network-integrated computer sites serve all branches, distribution centers and service facilities. Three additional network-integrated computer systems in Cleveland are tied into a mainframe computer for sales analysis, management information and accounting applications. 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 nearby distributor, although there is no assurance that this practice will continue. Patents, trademarks and licenses do not have a significant effect on the Company's business. MARKETS AND METHODS OF DISTRIBUTION. The Company estimates that approximately 85% of its sales are in the maintenance and replacement market, the balance being sales for original equipment. The Company purchases from over 100 major suppliers of bearings, power transmission components and related 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, schools and universities, hospitals, high technology businesses, contractors, agricultural concerns and other enterprises using any form of machine, vehicle or implement that 5 7 contains bearings, power transmission components or related maintenance items. 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 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 total sales. During fiscal 1994, 5 branches were closed or consolidated with other branches and 21 branches were newly opened or acquired. On June 30, 1994, the Company had 339 branches in 40 states. The Company has no operations outside the continental United States. The Company's export business during the fiscal year ended June 30, 1994 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 and power transmission distributors and industrial parts distributors, and, to a lesser extent, mine and 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. As a distributor, the Company's market continues to be influenced by competitive products of European and Asian manufacturers, which are sold in the United States. 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, power transmission components and related 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, including dealers in distressed and surplus merchandise. 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. 6 8 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, 1994, the Company had 4056 employees (not including the Company's executive officers). 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 Discussion and Analysis" set forth in the Bearings, Inc. 1994 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, 1994, 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, 1994, the real properties at 187 locations were owned by the Company, while 164 locations were leased by the Company. Certain property locations may contain multiple operations, such as a branch and a distribution center. 7 9 The principal real properties owned by the Company (each of which has more than 20,000 square feet of floor space) are: the corporate 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 Fulton Industrial branch and J. L. Lammers Distribution Center in Atlanta, Georgia; the Fort Worth Distribution Center in Fort Worth, Texas; the Long Beach branch in Long Beach, California; the San Jose branch in San Jose, California; the Worcester branch and fluid power center in Worcester, Massachusetts; the Longview branch and Longview Distribution Center in Longview, Washington; the Appleton offices and branch in Appleton, Wisconsin; and the Milwaukee branch in Milwaukee, Wisconsin. 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 lease space for a term not exceeding five years. 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. During the fiscal year ended June 30, 1994, the Company opened or acquired 21 new branches and closed or consolidated 5 branches. 8 10 ITEM 3. PENDING LEGAL PROCEEDINGS. ------------------------- 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. These cases are known generally as the Akron Tireworker Asbestos Cases and allege 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 each case the employee plaintiff has sued for $500,000 compensatory and $500,000 punitive damages. About 40% of the plaintiffs in the cases are spouses of the employees, and the spouse plaintiffs have each sued for $50,000 compensatory and $50,000 punitive damages. Preliminary information made available to the Company indicates that Bearings, Inc. has been named a defendant in these cases only as a supplier of certain products manufactured by others, which products allegedly contained asbestos. Due to the court's case management order, the proceedings as they relate to Bearings, Inc. 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 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 $3 billion at June 30, 9 11 1994) 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 September 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. 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. 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, 1994. 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 19, 1993: 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 January 1990 to January 1992), Chief Operating Officer (from October 1988 to January 1992) and Executive Vice President (from 1988 to January 1990). He is 56 years of age. JOHN C. ROBINSON. Mr. Robinson is President (since January 1992), Chief Operating Officer (since January 1992), and a Director (since 1991). He was Vice President (from October 1989 to January 1992) and Executive Vice President & General Manager of the Corporation's wholly-owned subsidiary, King Bearing, Inc. (from June 1990 to October 1991). He was Director of Development & Strategic Planning from 1987 to October 1989. He is 52 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). Prior to that, Mr. Eisele was a Senior Manager with Deloitte & Touche. He is 37 years of age. 10 12 FRANCIS A. MARTINS. Mr. Martins is Vice President-Marketing (since May 1992). 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 51 years of age. FREDERICK L. MOHR. Mr. Mohr is Vice President-Sales & Marketing (since 1983). He is 64 years of age. RICHARD C. SHAW. Mr. Shaw is Vice President-Communications & Public Relations (since July 1993). He was Director of Corporate Communications from 1989 to July 1993. He is 45 years of age. ROBERT C. STINSON. Mr. Stinson is Vice President-General Counsel (since 1989) and Secretary (since October 1990). He was Assistant Secretary (from 1978 to October 1990). He is 48 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 48 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, 1994 and 1993 and the number of shareholders of record as of September 1, 1994 is set forth in the Bearings, Inc. 1994 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. 1994 Annual Report to shareholders in the table on pages 26 and 27 under the caption "10 Year Summary" and is incorporated here by reference. 11 13 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. 1994 Annual Report to shareholders on pages 10 and 11 and is incorporated here by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. -------------------------------------------- The following consolidated financial statements and supplementary data of Bearings, Inc. and subsidiaries for the 1994, 1993 and 1992 fiscal years and the independent auditors' report listed below, which are included in the Bearings, Inc. 1994 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, 1994, 1993 and 1992 12 Consolidated Balance Sheets June 30, 1994 and 1993 13 Statements of Consolidated Cash Flows for the Years Ended June 30, 1994, 1993 and 1992 14 Statements of Consolidated Shareholders' Equity for the Years Ended June 30, 1994, 1993 and 1992 15 Notes to Consolidated Financial Statements for the Years Ended June 30, 1994, 1993 and 1992 16 - 22 Independent Auditors' Report 23 Supplementary Data: Quarterly Operating Results and Market Data 25
12 14 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, 1994 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". The information required by this Item as to Forms 3, 4 and 5 reporting delinquencies is set forth in the Bearings, Inc. Proxy Statement dated September 16, 1994 on page 18 under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934" and is incorporated here by reference. ITEM 11. EXECUTIVE COMPENSATION. ----------------------- The information required by this Item is set forth in the Bearings, Inc. Proxy Statement dated September 16, 1994, under the captions "Summary Compensation" on pages 8 and 9, "Aggregate Option/SAR Exercises and Fiscal Year-End Option Value Table" on page 9, "Estimated Retirement Benefits Under Supplemental Executive Retirement Benefits Plan" on page 10, "Compensation of Directors" on page 14, "Deferred Compensation Plan for Non-employee Directors" on page 15, "G. L. LaMore Consulting Agreement" on page 16, "Deferred Compensation Plan" on page 16, and "Severance Payment Agreements" on pages 16 and 17, 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, 1994, 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, 1994, and is incorporated here by reference. 13 15 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ---------------------------------------------- Not applicable. 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. 1994 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, 1994, 1993 and 1992 Consolidated Balance Sheets June 30, 1994 and 1993 Statements of Consolidated Cash Flows for the Years Ended June 30, 1994, 1993 and 1992 Statements of Consolidated Shareholders' Equity for the Years Ended June 30, 1994, 1993 and 1992 Notes to Consolidated Financial Statements for the Years Ended June 30, 1994, 1993 and 1992 Independent Auditors' Report Supplementary Data: Quarterly Operating Results and Market Data (a)2. FINANCIAL STATEMENT SCHEDULES. ------------------------------ The following Report and Schedules are included in this Part IV, and are found in this Report at the pages indicated:
Caption Page No. ------- -------- Independent Auditors' Report 20 14 16 Schedule V - Property, Plant and Equipment 21 Schedule VI - Accumulated Depreciation and Depletion of Property, Plant and Equipment 22 Schedule VIII - Valuation and Qualifying Accounts 23 Schedule IX - Short Term Borrowings 24
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 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).
15 17 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). 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). *10(a) Form of Executive Severance Agreement between the Company and 7 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. 16 18 *10(c) A written description of the Directors' compensation program is found in the Bearings, Inc. Proxy Statement dated September 16, 1994, SEC File No. 1-2299, on pages 14 and 15 under the caption "Compensation of Directors", and is incorporated here by reference. *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, providing participants with additional flexibility in electing to defer receipt of compensation, and in amending and terminating such elections (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). 17 19 *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). 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, 1994, SEC File No. 1-2299, on pages 11 and 12, 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) Consulting Agreement effective January 2, 1992 between the Company and George L. LaMore, Director and former Chairman & Chief Executive 18 20 Officer of the Company (filed as Exhibit 28 to the Bearings, Inc. Form 10-Q for the quarter ended December 31, 1991, SEC File No. 1-2299, and incorporated here by reference). 11 Computation of Net Income Per Share. 13 Bearings, Inc. 1994 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. -- This information is set forth at "Item 1. Business" on page 2 of this Report and is incorporated here by reference. 23 Independent Auditors' Consent. 27 Financial Data Schedule. 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, 1994. 19 21 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, 1994 and 1993 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three year period ended June 30, 1994 and have issued our report thereon dated August 5, 1994; such consolidated financial statements and report are included in your 1994 Annual Report to shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedules of the Company, listed in Item 14(a)2. These consolidated financial statement schedules are 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 schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Cleveland, Ohio August 5, 1994 20 22 BEARINGS, INC. & SUBSIDIARIES ----------------------------- PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992 (IN THOUSANDS) - - ----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F -------- -------- -------- -------- ------- -------- BALANCE AT OTHER BALANCE BEGINNING ADDITIONS CHANGES AT END OF PERIOD AT COST RETIREMENTS ADD (DEDUCT) OF PERIOD --------- ----------- ----------- ----------- --------- YEAR ENDED JUNE 30, 1994: Land $ 11,265 $ 760 ($ 383) $ 11,642 Buildings 52,001 3,628 ( 1,407) $ 667 (A) 54,889 Equipment 66,479 12,197 ( 13,623) 1,853 (A) 66,906 -------- ------- ------- ------ -------- Total $129,745 $16,585 ($15,413) $2,520 $133,437 ======== ======= ======= ====== ======== YEAR ENDED JUNE 30, 1993: Land $ 11,477 $ 73 ($ 285) 11,265 Buildings 49,522 4,231 ( 1,752) 52,001 Equipment 76,080 9,296 ( 18,897) 66,479 -------- ------- ------- -------- Total $137,079 $13,600 ($20,934) $129,745 ======== ======= ======= ======== YEAR ENDED JUNE 30, 1992: Land $ 10,476 $ 1,037 ($ 36) $ 11,477 Buildings 48,884 2,314 ( 1,708) $ 32 49,522 Equipment 69,813 17,093 (10,794) ( 32) 76,080 -------- ------- ------- ------ -------- Total $129,173 $20,444 ($12,538) $0 $137,079 ======== ======= ======= == ======== NOTE: For financial reporting purposes, depreciation is primarily computed on the straight-line method over the estimated useful lives of the assets, not exceeding 30 years. (A) Other changes for the year ended June 30, 1994 relate to the pooling of interests with Mainline Industrial Distributors, Inc. and the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". - - ---------------------------------------------------------------------------------------------------------------------------------- SCHEDULE V
21 23 BEARINGS, INC. & SUBSIDIARIES ----------------------------- ACCUMULATED DEPRECIATION AND DEPLETION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992 (IN THOUSANDS) - - ----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F -------- -------- -------- -------- -------- -------- ADDITIONS BALANCE AT CHARGED TO OTHER BALANCE BEGINNING COSTS AND CHARGES AT END AT PERIOD EXPENSES RETIREMENTS ADD (DEDUCT) OF PERIOD ---------- ----------- ----------- ------------- --------- YEAR ENDED JUNE 30, 1994: Buildings $16,345 $ 2,456 ($ 636) $ 154 (A) $18,319 Equipment 33,350 11,130 ( 10,651) 1,170 (A) 34,999 ------- ------- -------- ------ ------- Total $49,695 $13,586 ($11,287) $1,324 $53,318 ======= ======= ======== ====== ======= YEAR ENDED JUNE 30, 1993: Buildings $14,719 $ 2,260 ($ 634) $16,345 Equipment 39,759 10,506 (16,915) 33,350 ------- ------- -------- ------- Total $54,478 $12,766 ($17,549) $49,695 ======= ======= ======== ======= YEAR ENDED JUNE 30, 1992: Buildings $13,442 $ 2,165 ($ 843) ($45) $14,719 Equipment 37,619 10,421 ( 8,326) 45 39,759 ------- ------- -------- ----- ------- Total $51,061 $12,586 ($9,169) $0 $54,478 ======= ======= ======== == ======= (A) Other changes for the year ended June 30, 1994 relate to the pooling of interests with Mainline Industrial Distributors, Inc. - - ---------------------------------------------------------------------------------------------------------------------------------- SCHEDULE VI
22 24 BEARINGS, INC. & SUBSIDIARIES ----------------------------- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992 (IN THOUSANDS) - - -------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- -------- -------- -------- -------- ADDITIONS BALANCE AT CHARGED TO DEDUCTIONS BALANCE OF BEGINNING COSTS AND FROM END OF DESCRIPTION OF PERIOD EXPENSES RESERVE PERIOD ----------- --------- -------- --------- ---------- YEAR ENDED JUNE 30, 1994: Reserve deducted from asset to which it applies - allowance for doubtful accounts $2,000 $1,418 $1,518 (A) $1,900 YEAR ENDED JUNE 30, 1993: Reserve deducted from asset to which it applies - allowance for doubtful accounts $3,000 $2,190 $3,190 (A) $2,000 YEAR ENDED JUNE 30, 1992: Reserve deducted from asset to which it applies - allowance for doubtful accounts $2,100 $2,496 $1,596 (A) $3,000 (A) Amounts represent uncollectible accounts charged off. - - ------------------------------------------------------------------------------------------------------------- SCHEDULE VIII
23 25 BEARINGS, INC. & SUBSIDIARIES ----------------------------- SHORT-TERM BORROWINGS FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992 (IN THOUSANDS) - - ----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F -------- -------- -------- -------- -------- -------- MAXIMUM AVERAGE WEIGHTED CATEGORY OF WEIGHTED AMOUNT AMOUNT AVERAGE AGGREGATE BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE SHORT-TERM AT END OF INTEREST DURING THE DURING THE DURING THE BORROWINGS PERIOD RATE PERIOD PERIOD (A) PERIOD (A) ----------- ---------- --------- ------------ ------------- --------- YEAR ENDED JUNE 30, 1994: Notes payable to banks $ 19,805 5.28% $ 38,415 $ 23,004 3.98% YEAR ENDED JUNE 30, 1993: Notes payable to banks $ 22,678 3.90% $115,395 $ 62,794 3.98% YEAR ENDED JUNE 30, 1992: Notes payable to banks $110,000 4.50% $132,037 $117,612 5.60% NOTE: Notes payable to banks represent unsecured borrowings under line of credit arrangements, which the Company renews annually. The notes bear interest at various interest rate options not in excess of the banks' prime rate at interest determination dates. (A) Average amounts outstanding and weighted average interest rates during the periods were computed based upon daily balances outstanding. - - ---------------------------------------------------------------------------------------------------------------------------------- SCHEDULE IX
24 26 SIGNATURES Pursuant to the requirements of Section 13 of the Securities and 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 Controller & Treasurer (Principal Accounting (Principal Financial Officer) Officer) Date: September 26, 1994 Pursuant to the requirements of the Security 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/ William E. Butler ------------------------------ -------------------------------- William G. Bares, Director William E. Butler, Director /s/ John C. Dannemiller /s/ Russel B. Every ------------------------------ -------------------------------- John C. Dannemiller Russel B. Every, Director Chairman, Chief Executive Officer and Director /s/ Russell R. Gifford /s/ L. Thomas Hiltz ------------------------------ ------------------------------- Russell R. Gifford, Director L. Thomas Hiltz, Director /s/ John J. Kahl /s/ George L. LaMore ------------------------------ ------------------------------- John J. Kahl, Director George L. LaMore, Director /s/ John C. Robinson /s/ Dr. Jerry Sue Thornton ------------------------------ ------------------------------- John C. Robinson, President, Dr. Jerry Sue Thornton, Director Chief Operating Officer and Director ______________________________ William G. Bares, as attorney in fact for persons indicated by "*" Date: September 26, 1994
27 BEARINGS, INC. EXHIBIT INDEX TO FORM 10-K FOR THE YEAR ENDED JUNE 30, 1994 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) 10(a) Form of Executive Severance Agreement between the Company and 7 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 (f) 28 10(c) A written description of the Directors' compensation program. Note (g) 10(d) Deferred Compensation Plan for Non- employee Directors. Note (h) 10(e) First Amendment to Deferred Compensation Plan for Non-employee Directors effective July 1, 1993. Note (i) 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 (j) 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 (i) 10(j) First Amendment to Bearings, Inc. Supplemental Executive Retirement Benefits Plan (July 1, 1993 Restatement). Note (k) 10(k) Bearings, Inc. Deferred Compensation Plan. Note (l) 10(l) Stock Purchase Agreement between Bearings, Inc. and MLS Industries, Inc. dated June 12, 1990. Note (m) 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 (m) 10(n) Bearings, Inc. 1990 Long-Term Performance Plan adopted by Shareholders on October 16, 1990. Note (n) 29 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 (o) 10(p) Consulting Agreement effective January 2, 1992 between the Company and George L. LaMore, Director and former Chairman & Chief Executive Officer of the Company. Note (h) 11 Computation of Net Income Per Share. Attached 13 Bearings, Inc. 1994 Annual Report to shareholders. Attached 21 Subsidiaries of Bearings, Inc.--This information is set forth at "Item 1. Business" on page 2 of this Report. 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 December 31, 1990, SEC File No. 1-2299. 30 (g) Incorporated by reference from the Company's Proxy Statement dated September 16, 1994, SEC File No. 1-2299, on pages 14 and 15 under the caption "Compensation of Directors". (h) Incorporated by reference from the Company's Report on Form 10-Q for the quarter ended December 31, 1991, SEC File No. 1-2299. (i) 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. (j) Incorporated by reference from the Company's Proxy Statement dated September 17, 1992, SEC File No. 1-2299, at Appendix A. (k) Incorporated by reference from the Company's Report on Form 10-Q for the quarter ended December 31, 1993, SEC File No. 1-2299. (l) Incorporated by reference from the Company's Proxy Statement dated September 16, 1993, SEC File No. 1-2299, at Exhibit A. (m) Incorporated by reference from the Company's Report on Form 8-K dated July 12, 1990, SEC File No. 1-2299. (n) 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. (o) Incorporated by reference from the Company's Proxy Statement dated September 16, 1994, SEC File No. 1-2299, on pages 11 and 12 in the Report of the Executive Organization & Compensation Committee of the Board of Directors on Executive Compensation, under the subcaption "Management Incentive Plan". EX-10.A 2 EXHIBIT 10.A 1 EXHIBIT 10(a) BEARINGS, INC. FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 1994 SCHEDULE The Executive Severance Agreements ("Agreements") presently in effect for seven (7) 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 Three (3) Executive Officer J. C. Robinson President & Chief Three (3) Operating Officer F. A. Martins Vice President- Two (2) Marketing F. L. Mohr Vice President- Two (2) Sales & Marketing R. C. Shaw Vice President- One and one-half Communications & (1.5) Public Relations R. C. Stinson Vice President- One and one-half General Counsel (1.5) & Secretary J. R. Whitten Vice President- One and one-half Finance & Treasurer (1.5)
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 all other executive officers. EX-10.F 3 EXHIBIT 10.F 1 EXHIBIT 10(f) BEARINGS, INC. FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 1994 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. EX-10.G 4 EXHIBIT 10.G 1 EXHIBIT 10(g) BEARINGS, INC. FORM 10-K for FISCAL YEAR ENDED JUNE 30, 1994 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, with evidence of insurability required for amounts in excess of $15,000 per month. EX-10.H 5 EXHIBIT 10.H 1 EXHIBIT 10(h) BEARINGS, INC. FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 1994 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 W. E. Butler J. C. Dannemiller R. B. Every R. R. Gifford L. T. Hiltz J. J. Kahl G. L. LaMore 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-Marketing F. L. Mohr - Vice President-Sales & Marketing R. C. Shaw - Vice President-Communications & Public Relations R. C. Stinson - Vice President-General Counsel & Secretary J. R. Whitten - Vice President-Finance & Treasurer M. O. Eisele - Controller
EX-11 6 EXHIBIT 11 1 EXHIBIT 11 BEARINGS, INC. AND SUBSIDIARIES Computation of Net Income (Loss) Per Share (in thousands)
Year Ended June 30, 1994 1993 1992 ---- ---- ---- Average Shares Outstanding -------------------------- 1. Average common shares outstanding 7,546 7,238 7,081 2. Net additional shares outstanding assuming stock options exercised and proceeds used to purchase treasury stock 154 60 68 ------- ------ ------ 3. Adjusted average common shares outstanding for fully diluted computation 7,700 7,298 7,149 ======= ====== ====== Net Income (Loss) ----------------- 4. Net income (loss) as reported in statements of consolidated income $12,687 $8,927 ($1,666) ======= ====== ====== Net Income (Loss) Per Share --------------------------- 5. Net income (loss) per average common share outstanding (4/1) $ 1.68 $ 1.23 ($0.24) ======= ====== ====== 6. Net income (loss) per common share on a fully dilutive basis (4/3) $ 1.65 (A) $ 1.22 (A) ($0.23) (B) ======= ====== ====== (A) Amount is not presented in the statements as the dilutive effect is less than 3%. (B) Amount is not presented in the statements as the effect is antidilutive.
EX-13 7 EXHIBIT 13 1 EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Bearings, Inc. and Subsidiaries YEAR ENDED JUNE 30, 1994 VS 1993 Sales in 1994 increased 13% to a record $936.3 million from 1993 sales of $831.4 million. The increase in sales was principally due to volume increases and the acquisition of Mainline Industrial Distributors, Inc. (Mainline). Further, net income for the fiscal year ended June 30, 1994 improved 42% over the prior year. Gross margin (net sales less cost of sales) as a percent of sales was 26.9% in 1994 and 26.2% in 1993. The gross margin percentage improved in fiscal 1994 due to more focused purchasing strategies and favorable LIFO cost adjustments. During 1994, the Company liquidated LIFO inventory quantities carried at lower costs prevailing in prior years. The effect of the liquidation included the effect of a change in the application of the LIFO method of calculating inventory. This new method determines the Company's LIFO inventory pools by class of product rather than the operating company. (See Note 3 to the Consolidated Financial Statements). Selling, distribution and administrative expenses as a percent of sales were 23.9% in 1994 and 23.8% in 1993. During fiscal 1994, the Company incurred increased expenses due to a new sales commission program for account representatives and a new incentive program for sales management, increased advertising costs due to additional marketing programs, costs associated with the acquisition of Mainline and the accelerated vesting of performance accelerated restricted stock (PARS) based upon the price performance of the Company's common stock during the year. The number of associates rose to 4,066 at June 30, 1994 from 3,986 at June 30, 1993. Interest expense for 1994 increased by 15% as a result of the issuance of $80 million of long-term debt in December of 1992 and repayment of previously existing short-term debt. As long-term interest rates are higher than short-term interest rates, interest expense has increased. The increased expense was partially offset by net interest earned under interest rate swap agreements and lower average borrowings during the year. Income tax expense as a percentage of income before income taxes was 41.4% in 1994. 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, 1993 VS 1992 Results for the fiscal year ended June 30, 1993 were significantly improved over the prior year. The Company returned to profitability after reporting a loss in the previous year which included a restructuring charge of $7.8 million. (See Note 9 to the Consolidated Financial Statements). Sales in 1993 of $831.4 million increased 1.7% from 1992 levels primarily due to price increases. Gross margin (net sales less cost of sales) as a percent of sales was 26.2% in 1993 and 25.7% in 1992. The gross margin percentage in fiscal 1993 was higher due to favorable LIFO cost adjustments resulting from lower inventory levels and a strengthening of selling prices coupled with minimal increases in costs. (See Note 3 to the Consolidated Financial Statements). Selling, distribution and administrative expenses as a percent of sales were 23.8% in 1993 and 24.2% in 1992. During fiscal 1993, the Company incurred increased expenses for incentive programs due to improved performance and for associate training. Salaries and other compensation expense decreased as a result of a reduction in the number of associates to 3,986 at June 30, 1993 from 4,050 at June 30, 1992. Also, during 1993 consulting fees decreased due to completion of data processing enhancements and health care expenses declined due to lower claims and implementation of new managed health care programs. Interest expense for 1993 decreased by 21% due to lower short-term interest rates, lower average indebtedness, and favorable interest rate swap agreements. These were offset in part by higher fixed interest costs incurred - - --------------------------------------10--------------------------------------- 2 Bearings, Inc. and Subsidiaries from borrowings under Senior Unsecured Term Notes. Incomes tax expense as a percentage of income before income taxes was 41.9% in 1993. The effective tax rate was greater than the federal statutory rate primarily due to state and local income taxes and non-deductible expenses. LIQUIDITY AND WORKING CAPITAL The Company continued to provide significant amounts of cash by generating $30.5 million and $18.9 million from operating activities in 1994 and 1993, respectively. Cash flow from operations depends primarily upon generating operating income and controlling the investment in inventory and receivables. The Company's growth in accounts receivable and inventory in 1994 was necessary to service the increased sales volume. Further, in 1994 the Company had a substantial increase in net income. Investments in property totaled $16.6 million and $13.6 million in 1994 and 1993, respectively. These capital expenditures were primarily made for upgrading branch facilities, acquisition of data processing equipment, vehicles and real estate. Working capital at June 30, 1994, was $144.6 million compared to $130.9 million at June 30, 1993. The current ratio was 2.4 at June 30, 1994 and 1993. 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, to a lesser extent, from operating lease arrangements. Average combined short-term and long-term borrowing was $103.0 million in 1994 and $107.7 million in 1993. Effective interest rates on short-term borrowings were 4.0% in both 1994 and 1993. The Company has short-term lines of credit totaling $95 million. The Company had $19.8 million of borrowings under these short-term lines of credit at June 30, 1994. The Company is obligated for rental payments for operating leases on 165 of its 352 branch, distribution center and other operating locations. See Note 8 to the Consolidated Financial Statements for annual rental commmitments. As of June 30, 1994, the Company has Board authorization to acquire up to 263,000 shares of its common stock in open market or negotiated transactions depending on market conditions. Management expects that capital resources provided from operations, available lines of credit, and long-term debt will be sufficient to finance normal working capital needs, capital expenditure programs, and the purchase of additional Bearings, Inc. common stock. Management also believes that additional long-term debt and line of credit financing could be obtained if desired. OTHER MATTERS 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 100 company with stockholders' equity exceeding three billion dollars at June 30, 1994. A $32.4 million judgement 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 effect on the consolidated financial position or results of operations of the Company due to the indemnification and guarantee. - - -------------------------------------11---------------------------------------- 3 STATEMENTS OF CONSOLIDATED INCOME (Thousands, except per share amounts) Bearings, Inc and Subsidiaries
Year Ended June 30 ---------------------------------------- 1994 1993 1992 -------- -------- -------- NET SALES $936,254 $831,432 $817,813 -------- -------- -------- COST AND EXPENSES Cost of Sales 684,213 613,246 607,443 Selling, Distribution and administrative 224,224 197,665 197,835 Restructuring charge 7,832 -------- -------- -------- 908,437 810,911 813,110 -------- -------- -------- OPERATING INCOME 27,817 20,521 4,703 -------- -------- -------- INTEREST EXPENSE 6,385 5,546 6,985 INTEREST INCOME (225) (382) (407) -------- -------- -------- 6,160 5,164 6,578 -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES 21,657 15,357 (1,875) -------- -------- -------- INCOME TAX EXPENSE (BENEFIT) Federal 7,172 5,365 (178) State and Local 1,798 1,065 (31) -------- -------- -------- 8,970 6,430 (209) -------- -------- -------- NET INCOME (LOSS) $ 12,687 $ 8,927 $ (1,666) ======== ======== ======== NET INCOME (LOSS) PER SHARE $ 1.68 $ 1.23 $ (.24) ======== ======== ======== See notes to consolidated Financial Statements.
12 4 CONSOLIDATED BALANCE SHEETS
(Amounts in thousands) Bearings, Inc. and Subsidiaries June 30 --------------------------------------------------- 1994 1993 ------------ ------------- ASSETS Current assets Cash and temporary investments $ 10,935 $ 4,634 Accounts receivable, less allowance of $1,900 and $2,000 129,798 112,971 Inventories 106,233 95,015 Other current assets 2,278 8,613 ---------- ------------ Total current assets 249,244 221,233 ---------- ------------ Property - at cost Land 11,642 11,265 Buildings 54,889 52,001 Equipment 66,906 66,479 ---------- ------------ 133,437 129,745 Less accumulated depreciation 53,318 49,695 ---------- ------------ Property - net 80,119 80,050 ---------- ------------ Other assets 14,156 14,652 ---------- ------------- TOTAL ASSETS $ 343,519 $ 315,935 =========== ============= LIABILITIES Current Liabilities Notes payable $ 19,805 $ 22,678 Accounts payable 50,937 37,678 Compensation and related benefits 21,508 18,770 Other accrued liabilities 12,389 11,247 ----------- ------------- Total current liabilities 104,639 90,373 Long-term debt 80,000 80,000 Deferred income taxes 3,370 5,706 Other liabilities 5,019 4,916 ------------ -------------- TOTAL LIABILITES 193,028 180,995 ------------ -------------- SHAREHOLDERS' EQUITY Preferred stock - no par value; 2,500 shares authorized; none issued or outstanding Common stock - no par value; 30,000 shares authorized; 9,303 shares issued 10,000 10,000 Additional paid-in capital 6,962 6,710 Income retained for use in the business 165,807 155,908 Less 1,757 and 1,984 treasury shares - at cost (32,278) (35,489) Less unearned restricted common stock compensation (2,189) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 150,491 134,940 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 343,519 $ 315,935 ============ ============
See notes to consolidated financial statements. 13 5 STATEMENTS OF CONSOLIDATED CASH FLOWS
(Amounts in thousands) Bearings, Inc. and Subsidiaries Year Ended June 30 ------------------------------------------------------- 1994 1993 1992 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 12,687 $ 8,927 $ (1,666) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 13,586 12,766 12,586 Deferred income taxes 2,448 3,507 (1,504) Provision for losses on accounts receivable 1,418 2,190 2,496 (Gain)/loss on sale of property (775) 225 688 Amortization of restricted common stock compensation and goodwill 2,779 580 267 Treasury shares contributed to employee benefit plans 1,510 856 733 Changes in current assets and liabilities: Accounts receivable (14,344) (5,207) (8,270) Inventories (2,042) 6,676 9,488 Other current assets 885 1,049 609 Accounts payable and accrued expenses 9,810 (14,273) 15,573 Other-net 2,547 1,611 269 -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 30,509 18,907 31,269 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Property purchases (16,585) (13,600) (20,444) Proceeds from property sales 4,901 3,160 2,680 Other (519) (1,170) (3,998) -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (12,203) (11,610) (21,762) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings (repayments) under: Line-of-credit agreements: Maturities three months or less-net (5,321) (87,322) 22,884 Maturities greater than three months: Borrowings 60,000 125,000 Repayments (60,000) (152,000) Long-term debt 80,000 Dividends paid (4,739) (4,640) (4,533) Purchase of treasury shares (1,945) -------- -------- -------- NET CASH USED IN FINANCING ACTIVITIES (12,005) (11,962) (8,649) -------- -------- -------- Increase (decrease) in cash and temporary investments 6,301 (4,665) 858 Cash and temporary investments at beginning of year 4,634 9,299 8,441 -------- -------- -------- CASH AND TEMPORARY INVESTMENTS AT END OF YEAR $ 10,935 $ 4,634 $ 9,299 ======== ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the year for: Income taxes $ 3,697 $ 2,288 $ 539 Interest $ 5,928 $ 4,935 $ 6,988 See notes to consolidated financial statements.
14 6 STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
For the Years Ended June 30, 1994, 1993, and 1992 (Amounts in thousands) Shares of Income Unearned Common Additional Retained Treasury Restricted Total Stock Common Paid-in for Use in Shares- Common Stock Shareholders' Outstanding Stock Capital the Business at Cost Compensation Equity - - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT JULY 1, 1991 7,057 $10,000 $6,483 $157,906 $(40,186) $134,203 Net Loss (1,666) (1,666) Cash dividends- $.64 per share (4,533) (4,533) Treasury shares issued for: 401(k) Savings Plan contribution 34 124 609 733 Exercise of stock options 13 29 241 270 Other (177) (177) - - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT JUNE 30, 1992 7,104 10,000 6,636 151,530 (39,336) 128,830 Net income 8,927 8,927 Cash dividends- $.64 per share (4,640) (4,640) Treasury shares issued for: 401(k) Savings Plan contribution 44 86 770 856 Exercise of stock options 30 (19) 543 524 Restricted common stock awards 140 (2) 2,505 $(2,503) Other 1 9 29 38 Amortization of restricted common stock compensation 314 314 Other 91 91 - - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT JUNE 30, 1993 As previously reported 7,319 10,000 6,710 155,908 (35,489) (2,189) 134,940 Pooling of interests with Mainline Industrial Distributors 196 (1,353) 1,876 3,542 4,065 - - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AS RESTATED 7,515 10,000 5,357 157,784 (31,947) (2,189) 139,005 Net income 12,687 12,687 Cash dividends- $.64 per share (4,739) (4,739) Purchase of common stock for treasury (59) (1,945) (1,945) Treasury shares issued for: 401(k) Savings Plan contribution 56 503 1,007 1,510 Exercise of stock options 13 74 237 311 Restricted common stock awards 13 53 233 (286) Other 8 64 137 201 Amortization of restricted common stock compensation 911 2,475 3,386 Other 75 75 - - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT JUNE 30, 1994 7,546 $10,000 $6,962 $165,807 $(32,278) $ 0 $150,491 ==================================================================================================================================== See notes to consolidated financial statements.
15 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended June 30, 1994, 1993, and 1992 (Dollar amounts in thousands, except per share amounts) Bearings, Inc. and Subsidiaries 1. BUSINESS AND ACCOUNTING POLICIES BUSINESS. The Company's principal business is the sale and distribution of bearings, mechanical and electrical drive systems, industrial rubber products, fluid power transmission components, and specialty maintenance and repair products. The Company does not manufacture the products it sells. 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. 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. and for the year ended June 30, 1994, Mainline Industrial Distributors, Inc. All significant intercompany transactions and balances have been eliminated in consolidation. GOODWILL is recorded for the purchase price of acquired operations in excess of the fair value of identifiable net assets. Goodwill, net of accumulated amortization, of $4,752 and $4,524 at June 30, 1994 and 1993, respectively, is included in other assets in the accompanying consolidated balance sheets and is being amortized on a straight-line basis over periods ranging from 15 to 20 years. INVENTORIES are valued at the lower of cost or market, using the last-in, first-out (LIFO) method. DEPRECIATION of buildings and equipment is computed using the straight-line method over the estimated useful lives of the assets. 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. CONSOLIDATED CASH FLOWS PRESENTATION. The statement of consolidated cash flows for the year ended June 30, 1994 is presented using the indirect method of reporting cash flows from operating activities. The presentation of the statements of consolidated cash flows for fiscal years 1993 and 1992 have been changed to the indirect method to be consistent with fiscal 1994. ACCOUNTING CHANGES. For the year ended June 30, 1994, the Company changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standards (SFAS) No. 109 (see Note 5) and its application of the LIFO method used to determine inventory amounts for financial reporting purposes (see Note 3). 2. BUSINESS COMBINATION On March 10, 1994, the Company exchanged 196,000 shares of Bearings, Inc. common stock for Mainline Industrial Distributors, Inc., a high quality applied technology distributor of drive systems, rubber products and bearings. The business combination was accounted for as a pooling of interests. The Company's 1994 consolidated financial statements include Mainline's results of operations for the entire fiscal year. The prior years' consolidated financial statements have not been restated because the effects are not material. 16 8 Net sales and net income for the separate companies prior to the acquisition are as follows:
Nine Months Ended March 31, 1994 (Unaudited) -------------------------- Bearings Mainline -------- -------- Net Sales $663,841 $24,899 Net Income 7,369 229
Acquisition costs of $700 were charged to expense in 1994 and included legal and accounting fees, consulting fees and benefit-related costs. 3. INVENTORIES For the year ended June 30, 1994, the Company changed its application of the last-in, first-out (LIFO) method used to determine inventory amounts for financial reporting purposes. This change revised the Company's LIFO pools to establish Company-wide inventory pools for each of the major classes of products. Previously, the LIFO inventory pools were established by legal entity, rather than by class of product. Management believes that using inventory pools grouped by product is more consistent with how the Company currently manages its operations and will more accurately measure the effects of changes in inventory levels and costs. The cumulative effect on previous years from this change in LIFO pools is not determinable. This change in LIFO pools reduced cost of sales and increased net income and net income per share by $3,344, $1,894, and $.25, respectively, for the year ended June 30, 1994. These effects are incorporated in the LIFO liquidation effects discussed below. CURRENT COST. At the end of the last two fiscal years, the current cost of inventories exceeded the LIFO cost as follows:
June 30, ------------------------------ 1994 1993 ---- ---- LIFO cost $106,233 $ 95,015 Excess of current cost over LIFO cost 86,429 96,718 -------- -------- Current cost $192,662 $191,733 ======== ========
LIFO LIQUIDATION. During the years ended June 30, 1994 and 1993, the Company liquidated LIFO inventory quantities carried at lower costs prevailing in prior years. The effect of these liquidations, including the effect of the accounting change discussed above, reduced cost of sales and increased net income and net income per share by $6,784, $3,841, and $.51 per share, respectively, during 1994 and $4,714, $2,749 and $.38 per share, respectively, during 1993. The effects of LIFO liquidations during 1992 were not material. 4. NOTES PAYABLE AND LONG-TERM DEBT NOTES PAYABLE. The Company has $95,000 of short-term lines of credit which provide for payment of interest at various interest rate options, none of which are in excess of the banks' prime rate at interest determination dates. Borrowings under these lines of credit totaled $19,805 at June 30, 1994. The remaining unused lines available for short-term borrowings at June 30, 1994 were $75,195. 17 9 LONG-TERM DEBT. The Company has $80,000 of long-term Senior Unsecured Term Notes at a fixed interest rate of 7.82%. Interst is payable quarterly. The principal amount is to be paid in fourteen equal semi-annual installments beginning in June 1996. These notes contain certain restrictive covenants regarding liquidity, tangible net worth, financial ratios and other covenants. At June 30, 1994, the most restrictive of these covenants required that the Company maintain a minimum tangible net worth of $104,646. Based upon current market rates for debt of similar maturities, the Company estimates that the fair value of its long-term debt is less than its carrying value at June 30, 1994 by $1,100. During 1994, the Company received net proceeds from termination of its three year interest rate swap agreements previously held. The Company also entered into a new two year interest rate swap agreement with a major bank that effectively converts $40,000 of its fixed rate borrowings into variable rate obligations. Under this agreement the Company makes payments at variable rates based on LIBOR, as determined at quarterly intervals, and receives payments at fixed interest rates. Net interest earned under these agreements reduced interest expense. The interest rate swap agreement has no carrying value. The Company's estimated cost to terminate the agreement as of June 30, 1994 was $300. 5. INCOME TAXES For the year ended June 30, 1994, the Company changed its method of accounting for income taxes from the deferred method used in prior years to the liability method, as required by SFAS No. 109, "Accounting for Income Taxes." As permitted by SFAS No. 109, the Company has elected not to restate the financial statements of any prior year. There was no significant cumulative effect on the Statements of Consolidated Income for adopting SFAS No. 109. PROVISION. The provision (benefit) for income taxes consists of:
LIABILITY METHOD Deferred Method Deferred Method Year ended June 30 1994 1993 1992 ---------------------------------------------------------------------------- Current $6,522 $2,923 $ 1,295 Deferred 2,448 3,507 (1,504) ------ ------ ------ Total $8,970 $6,430 $ (209) ====== ====== ======
Prior to the change in accounting methods, the net tax effects giving rise to deferred amounts were:
Year Ended June 30, 1993 1992 ----------------------------------- Accrued restructuring charge $1,238 $(1,159) Accrued vacation (146) 44 Inventory obsolescence 1,448 (859) Depreciation 144 222 Allowance for doubtful accounts 343 (304) Other 480 552 ------ ------- Total $3,507 $(1,504) ====== =======
18 10 EFFECTIVE TAX RATES. A reconciliation between the federal statutory income tax rate (benefit) and the Company's effective tax rate is:
LIABILITY METHOD Deferred Method Deferred Method Years ended June 30 1994 1993 1992 ------------------------------------------------------ Statutory tax rate 35.0% 34.0% (34.0)% Effects of: State and local income taxes 5.4 4.6 (1.1) Non-deductible expenses 1.8 2.1 18.2 Alternative minimum tax 0.4 5.6 Other, net (0.8) 0.8 0.2 ----- ----- ----- Effective tax rate 41.4% 41.9% (11.1)% ===== ===== =====
BALANCE SHEET. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred tax assets (liabilities) as of June 30, 1994 are as follows:
June 30, 1994 ------------- Depreciation and differences in property bases $(5,443) Inventory (8,394) Compensation liabilities not currently deductible 3,791 Reserves not currently deductible 1,968 Goodwill 1,389 Tax loss/credit carryforwards 393 Other 686 Valuation allowance (211) ------- Net deferred tax liability $(5,821) =======
Net deferred tax liabilities associated with current items of $2,451 at June 30, 1994 are included in other accrued liabilities in the Consolidated Balance Sheets. The valuation allowance was established due to the Company's estimation that certain state income tax loss carryforwards may expire unused. 6. STOCK INCENTIVE PLANS The Company may grant stock options under the 1990 Long-Term Performance Plan (the "1990 Plan"). Outstanding options issued under the Company's 1982 Stock Option Plan continue to be exercisable until expiration. Options become exercisable at times determined by the Executive Organization and Compensation Committee of the Board of Directors (the "Committee") at the date of grant. Options may include stock appreciation rights that entitle the holder to receive shares of stock or cash, at the discretion of the Committee, equal to the difference between the value of the shares covered by the option on the date of exercise less the option price for such shares. The 1990 Plan also provides for granting of stock awards, cash awards, and such 19 11 other awards or combination thereof as the Committee 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. During fiscal 1994 accelerated vesting occurred for all 153,000 shares of Performance Accelerated Restricted Stock (PARS) awarded to officers and other key associates during fiscal 1994 and 1993 under the 1990 Plan. Pursuant to the PARS agreements, recipients were entitled to receive dividends and have voting rights on their respective shares prior to vesting. The PARS vested either after a period of six years or earlier upon achievement of certain return on asset objectives or minimum stock price levels. The aggregate fair market value of the restricted stock was considered unearned compensation at the time of grant. Unearned common stock compensation reduced consolidated shareholders' equity and was amortized over the vesting period or upon acceleration of vesting. With the accelerated vesting of all outstanding PARS during 1994, all remaining unearned compensation was recorded as an expense. The expense recorded in 1994 exceeded by $2,010 the annual expense which would have been recorded on the basis of six-year amortization. The following is a summary of transactions with respect to the stock incentive plans:
Number of Shares ------------------------------------------------- Available for Option Price Per Share Outstanding Exercisable Future Grants --------------------------------------------------------------------------- Balance at July 1, 1991 482,662 189,082 189,305 Additional available from 1990 Plan 141,132 Became exercisable 112,332 Canceled upon exercise $14.19-$16.89 (75,946) (75,946) Granted $20.56 141,700 (141,700) - - ------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1992 548,416 225,468 188,737 Additional available from 1990 Plan 142,082 Became exercisable 130,030 Canceled upon exercise $14.19-$20.56 (40,828) (40,828) Expired/canceled $20.56-$30.00 (25,634) (24,250) (188,645) PARS common stock awards (140,000) - - ------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1993 481,954 290,420 2,174 Additional available from 1990 Plan 146,382 Became exercisable 115,050 Cancelled upon exercise $14.19-$30.00 (98,795) (98,795) Expired/canceled $14.19-$30.00 (20,325) (16,475) Granted $21.94-$32.31 119,450 (119,450) PARS common stock awards (13,000) - - ------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1994 482,284 290,200 16,106 ======= ======= ======
At June 30, 1994 option prices related to the balance outstanding ranged from $14.19 to $32.31 per share. 20 12 7. BENEFIT PLANS QUALIFIED RETIREMENT PLANS. Substantially all associates of the Company are covered by the following defined contribution retirement plans. The Company makes a discretionary contribution to the Employees' Profit-Sharing Trust generally based upon a percentage of the Company's income before income taxes and before the amount of the contribution. The 401(k) Savings Plan allows participants to contribute up to ten percent of their compensation. The Company partially matches the participants' contributions. The matching contribution is made with the Company's Common Stock and is determined quarterly using rates based on the Company achieving certain quarterly net income amounts. The Company's expense for contributions to the above plans was $2,602, $1,496 and $678 for the years ended June 30, 1994, 1993, and 1992, 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. In fiscal 1993, the Company adopted the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires accrual of such post-retirement benefits over the years the associate provides services and becomes eligible to receive benefits upon retirement. In 1993 the Company accrued an expense of $588 (which, net of income taxes, reduced net income by $352, or $.05 per share) for the accumulated post-retirement benefit obligation. At June 30, 1994 the accumulated post-retirement benefit obligation was $630. The costs recognized for post-retirement benefits under SFAS No. 106 for fiscal 1994 and 1993, and under the previous pay-as-you-go accounting method during 1992, 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 plan is:
June 30 ----------------------------- 1994 1993 --------- --------- Projected benefit obligation $ 4,446 $ 4,376 Unrecognized net transition obligation (536) (980) Unrecognized net loss (801) (893) Unrecognized prior service cost minimum liability 886 1,520 -------- --------- Accrued pension liability, included in other liabilities on the Consolidated Balance Sheets $ 3,727 $ 3,641 ======== ========= Accumulated benefit obligation, fully vested $ 3,727 $ 3,641 ======== =========
21 13 Periodic pension cost for the SERP consists of:
Year ended June 30 --------------------------------------------------- 1994 1993 1992 ---- ---- ---- Service cost - benefits earned $ 91 $ 64 $ 24 Interest cost on projected benefit obligation 347 334 406 Net amortization and deferral 483 388 370 ---- ---- ---- Total $ 921 $ 786 $ 800 ===== ===== =====
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, 1994 there were no assets under the plan. The Company funds the benefits when payments are made to participants. 8. LEASE COMMITMENTS AND RENT EXPENSE The Company leases certain branch and distribution center facilities and computer equipment under non-cancelable lease agreements. The minimum annual rental commitment under operating leases is $7,517 in 1995; $6,056 in 1996; $4,576 in 1997; $3,832 in 1998; $2,071 in 1999, and $2,950 after 2000. Rental cost, principally from leases for real property, vehicles and computer equipment was $10,013 in 1994, $8,527 in 1993, and $11,596 in 1992. 9. RESTRUCTURING CHARGES During the fourth quarter of fiscal 1992, the Company adopted a restructuring plan which critically evaluated the performance of all facilities and administrative functions to enhance the Company's long-term profitability. The actions related to this plan, which were substantially completed in fiscal 1993, included the reorganization and consolidation of certain branch, distribution center, shop facilities and administrative functions. A restructuring charge of $7,832 was recorded in 1992 for the costs of these actions, including lease termination costs, write-off of property and other assets associated with reorganization or consolidation of facilities, relocation costs and separation costs of terminated associates. 10. LITIGATION 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 100 company with stockholders' equity exceeding three billion dollars at June 30, 1994. 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. 22 14 INDEPENDENT AUDITORS' REPORT Bearings, Inc. and Subsidiaries [ DELOITTE & TOUCHE LLP - 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, 1994 and 1993 and the related statements of consolidated income, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 1994. 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, 1994 and 1993 and the results of its operations and its cash flows for each of the three years in the period ended June 30, 1994 in conformity with generally accepted accounting principles. As discussed in Notes 5 and 3 to the consolidated financial statements, in the year ended June 30, 1994, the Company changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109 and its application of the last-in, first-out (LIFO) method for valuing inventories. DELOITTE & TOUCHE LLP Cleveland, Ohio August 5, 1994 23 15 QUARTERLY OPERATING RESULTS AND MARKET DATA Bearings, Inc. and Subsidiaries
(UNAUDITED) (Dollar amounts in thousands, except per share amounts) Per Common Share ----------------------------------------------- Net Net Net Gross Income Income Cash Price Range Sales Profit (Loss) (Loss) Dividend High Low - - --------------------------------------------------------------------------------------------------------------------- 1994 FIRST QUARTER(C) $222,712 $ 56,672 $ 2,398 $ .32 $.16 $25.25 $21.13 SECOND QUARTER(C) 226,285 61,528 2,314 .31 .16 31.13 25.38 THIRD QUARTER 239,743 65,498 2,886 .38 .16 37.50 27.75 FOURTH QUARTER 247,514 68,343 5,089 .68 .16 34.00 30.00 -------- -------- ------- ----- ---- $936,254 $252,041 $12,687 $1.68 $.64 ======== ======== ======= ===== ==== 1993 First Quarter $204,175 $ 50,603 $ 1,505 $ .21 $.16 $18.75 $16.75 Second Quarter 198,535 51,587 1,755 .24 .16 23.25 16.88 Third Quarter 210,789 54,673 2,378 .33 .16 23.50 20.50 Fourth Quarter 217,933 61,323 3,289 .45 .16 24.75 21.38 -------- -------- ------- ----- ---- $831,432 $218,186 $ 8,927 $1.23 $.64 ======== ======== ======= ===== ==== 1992 First Quarter $202,038 $ 51,621 $ 1,037 $ .15 $.16 $23.63 $19.88 Second Quarter 198,639 52,132 381 .05 .16 21.13 18.00 Third Quarter 208,144 52,081 392 .06 .16 23.25 19.38 Fourth Quarter(B) 208,992 54,536 (3,476) (.49) .16 22.63 17.63 -------- -------- ------- ----- ---- $817,813 $210,370 $(1,666) $(.24) $.64 ======== ======== ======= ===== ==== (A) Cost of sales for interim financial statements are computed using estimated gross profit percentages which are adjusted throughout the year based upon avalilable 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 1994 and 1993 were not material. The physical inventory adjustment in 1992 increased gross profit, net income and net income per share by $1,806; $1,084; and $.15, respectively. Reductions in inventories during the fiscal years ended June 30, 1994 and 1993 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, 1994 and 1993 increased annual gross profit by $6,784 and $4,714; annual net income by $3,841 and $2,749 and net income per share by $.51 and $.38, respectively. The effects of LIFO liquidations during 1992 were not material. (See Note 3 of Notes to Consolidated Financial Statements). (B) Includes a restructuring charge of $7,832 for costs of reorganization and consolidation of certain branch, distribution center and other facilities and administrative functions. Net of applicable income taxes, this charge decreased net income by $4,700 or $.66 per share. (See Note 9 of Notes to Consolidated Financial Statements.) (C) The first two quarters of 1994 have been restated to relect the acquisition of Mainline. (See Note 2 of Notes to Consolidated Financial Statements.) (D) On September 1, 1994 there were 1,469 shareholders of record. Additionally at June 30, 1994 there were 2,994 participants in the Bearings, Inc. 401(k) Savings Plan. The Company's common stock is listed on the New York Stock Exchange. The closing price on September 1, 1994 was $32.25 per share.
25 16 10 YEAR SUMMARY
(Thousands, except per share data and statistics) 1994 1993 1992 1991 - - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED OPERATIONS- YEAR ENDED JUNE 30 Net sales $ 936,254 $ 831,432 $ 817,813 $ 814,000 Operating income 27,817 20,521 4,703 17,115 Net income (loss) 12,687 8,927 (1,666) 4,282 Per share data Net income (loss) 1.68 1.23 (.24) 61 Cash dividend .64 .64 .64 .64 YEAR-END POSITION - JUNE 30 Working capital $ 144,605 $ 130,860 $ 41,967 $ 54,695 Long-term debt 80,000 80,000 Total assets 343,519 315,935 330,619 327,939 Shareholders' equity 150,491 134,940 128,830 134,203 YEAR-END STATISTICS - JUNE 30 Current ratio 2.4 2.4 1.2 1.3 Branches 339 323 333 341 Shareholders of record 1,484(A) 1,543 1,617 1,679 (A) In addition there were 2,994 employee participants in the Bearings, Inc. 401(k) Savings Plan.
26 17
Bearings, Inc. and Subsidiaries 1990 1989 1988 1987 1986 1985 - - -------------------------------------------------------------------------------------------------- $ 651,271 $ 630,281 $ 542,883 $ 490,995 $ 490,249 $ 495,529 25,281 33,463 25,000 13,964 7,591 24,934 12,201 18,313 14,948 6,247 2,244 11,011 1.70 2.45 1.89 .71 .25 1.22 .64 .56 .489 .445 .445 .445 $ 64,091 $ 75,134 $ 77,606 $ 121,068 $ 129,288 $ 131,690 44,750 44,750 44,750 380,224 251,376 222,957 223,202 231,894 225,082 135,338 134,848 128,919 125,419 133,912 135,126 1.3 1.7 1.9 3.5 3.7 4.2 363 267 266 269 274 275 1,694 1,358 1,318 1,361 1,476 1,613
27 EX-23 8 EXHIBIT 23 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT - - ----------------------------- Bearings, Inc. We consent to the incorporation by reference in Registration Statements Nos. 2-81660, 33-42623,33-43506, 33-53345, 33-53401 and 33-53405 of Bearings, Inc. on Forms S-3 and S-8 of our reports dated August 5, 1994 appearing in and incorporated by reference in the Annual Report on Form 10-K of Bearings, Inc. for the year ended June 30, 1994. DELOITTE & TOUCHE LLP Cleveland, Ohio September 26, 1994 EX-27 9 EXHIBIT 27
5 1,000 YEAR JUN-30-1994 JUN-30-1994 10,935 0 131,698 1,900 106,233 249,244 133,437 53,318 343,519 104,639 80,000 10,000 0 0 140,491 343,519 936,254 936,254 684,213 684,213 222,806 1,418 6,160 21,657 8,970 12,687 0 0 0 12,687 1.68 1.65
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