8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): August 8, 2006

APPLIED INDUSTRIAL TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

OHIO	1-2299	34-0117420
(State or Other Jurisdiction of Incorporation or Organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

One Applied Plaza, Cleveland, Ohio 44115

(Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code: (216) 426-4000.

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

     (a) 2007 Management Incentive Plan.

On August 8, 2006, the Executive Organization & Compensation Committee (the “Committee”) of the Board of Directors of Applied Industrial Technologies, Inc. (“Applied”) adopted the fiscal 2007 Management Incentive Plan (the “MIP”) for executive officers under the 1997 Long-Term Performance Plan (the “LTPP”). The MIP is Applied’s program for rewarding officers for achieving annual goals. The size of the incentive payments depends on the level of performance achieved relative to earnings per share goals set by the Committee. MIP payments can range from 0% to 200% (for outstanding achievement) of the target incentive values the Committee established for each officer. A copy of the 2007 MIP General Terms is attached as Exhibit 10(a) to this Form.

     (b) 2007-2009 Performance Grants.

On August 8, 2006, the Committee also adopted the 2007-2009 Performance Grant program under the LTPP. The Committee has made annual awards of three-year performance grants to the executive officers since fiscal 2002. The payout at the end of the three-year performance period is calculated based on Applied’s achievement of performance goals over that period. Goals are based on sales growth, return on sales, and total shareholder return. Payouts can range from 0% to 200% (for outstanding achievement) of the target incentive values the Committee established for each officer, and are made in cash, Applied common stock, or a combination thereof, as determined by the Committee. A copy of the Performance Grant Terms and Conditions is attached as Exhibit 10(b) to this Form.

     (c) Stock Appreciation Rights.

The Committee also awarded non-qualified stock-settled stock appreciation rights to the executive officers under the LTPP on August 8, 2006. A form of the Stock Appreciation Rights Award Terms and Conditions was filed as Exhibit 10(c) to our Form 8-K filed on August 9, 2005.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

     (c) Exhibits.

10(a) 2007 Management Incentive Plan General Terms.

10(b) Performance Grant Terms and Conditions.

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. (Registrant)
By:	/s/ Fred D. Bauer
	Fred D. Bauer
	Vice President-General Counsel & Secretary

Date: August 8, 2006

EXHIBIT INDEX

Exhibit No.	Description
10(a)	2007 Management Incentive Plan General Terms.
10(b)	Performance Grant Terms and Conditions.

EX-10.A

EXHIBIT 10(a)

2007 Management Incentive Plan General Terms

Authority

The Management Incentive Plan is established by the Board’s Executive Organization & Compensation Committee (the “Committee”) under the 1997 Long-Term Performance Plan.

Objective

The plan’s objective is to reward eligible participants for their contributions toward the company’s fiscal year business goals.

Participation

The plan’s participants are those employees of Applied Industrial Technologies, Inc. designated as participants by the Committee.

Eligibility for Awards

To be eligible for an award under the plan, assuming plan goals are met, a participant must comply with the terms and conditions of the 1997 Long-Term Performance Plan. In addition, except as provided in the 1997 Long-Term Performance Plan, the participant must be actively employed by Applied on June 30, 2006, except,

• Participants retiring at age 55 or older under an Applied retirement plan are eligible for a prorated award based on date of retirement (calculated using number of quarters’ and partial quarters’ participation).

• Participants whose employment ceases due to death or permanent and total disability are eligible for a prorated award based on date of termination (calculated using number of quarters’ and partial quarters’ participation).

Goals

The Committee establishes the plan’s goals. In the event of a stock split, then all goals based on per share measures shall be equitably adjusted to give proper effect to the split.

Other

The Committee has the authority, subject to the plan’s express provisions, to construe the plan, to establish, amend, and rescind rules and regulations relating to the plan, and to make all other determinations in the Committee’s judgment necessary or desirable for the plan’s administration.

The Committee may correct any defect or supply any omission or reconcile any inconsistency in the plan in the manner and to the extent it shall deem expedient to carry the plan into effect. All Committee action under these provisions shall be conclusive for all purposes.

EX-10.B

EXHIBIT 10(b)

Performance Grant Terms and Conditions

     Your Performance Grant (the “Award”) is made by Applied Industrial Technologies, Inc., an Ohio corporation (“Applied”). The Award is governed by Applied’s 1997 Long-Term Performance Plan (the “Plan”), including the policies adopted by the Executive Organization & Compensation Committee of the Board of Directors (the “Committee”) under the Plan, and is subject to the following terms and conditions:

     1. Eligibility. Only key senior officers that have broad policy-making functions that directly contribute to Applied’s long-term success and profitability are eligible to receive Performance Award grants.

     2. Vesting; Payment. Your Award will vest, in whole or in part, three years following the effective grant date of your Award (the “Performance Period”) upon the achievement of the performance goals set forth in the Performance Grant Summary enclosed with these Terms and Conditions. Your Award will be payable, at the Committee’s discretion, in cash or shares (“Shares”) of Applied’s common stock (or both). The Committee may determine the form of payment of your Award at any time during or at the conclusion of the Performance Period. Shares used in payment of the Award shall be valued at their Fair Market Value (as defined in the Plan) as of the last day of the Performance Period. Applied shall make payment of any amount due to you under the Award promptly following the availability of audited financial statements for the final year of the Performance Period. Applied may withhold from the amount payable to you under your Award any amounts it deems necessary pursuant to federal, state or local tax laws, including withholding requirements.

     3. Termination of Employment or Executive Officer Status. If, during the Performance Period, your employment with Applied is terminated due to death, permanent disability, or retirement in accordance with an established retirement policy of Applied, then, at the end of the Performance Period, you (or your beneficiary whom you have designated to Applied in writing) shall be entitled to receive a pro rata payment under the Award equal to (i) a fraction the numerator of which is the number of fiscal quarters (including a portion of a quarter) elapsed in the Performance Period prior to the date of your termination and the denominator of which is twelve, multiplied by (ii) what would have been your actual Award based on the achievement of the performance goals set forth in the Performance Grant Summary. If, during the Performance Period, you cease to be an employee of Applied for any reason other than those specifically set forth above or in section 4 hereof, then your Award will be forfeited and no amount shall be due or payable to you pursuant to the Award. Also, if, during the Performance Period, you cease to be a Board-elected executive officer of Applied (but remain an employee), then your Award will be forfeited and no amount shall be due or payable to you pursuant to the Award.

     Notwithstanding anything in these terms and conditions, the Committee may terminate the Award and no amount shall be due or payable to you pursuant to the Award, if the Committee determines, in its sole discretion, that you have committed an act inimical to Applied’s interests, including, without limitation, your unauthorized disclosure of proprietary or confidential information of Applied, your competition with Applied, or your solicitation of Applied associates. The Committee’s determination shall be effective as of the time of your act.

     4. Change in Control. Upon a Change in Control (as defined in the Plan), your Award shall vest and you shall be entitled to receive in full satisfaction of all amounts due or which may become due under the Award, a pro rata payment under the Award equal to (i) a fraction the numerator of which is the number of fiscal quarters (including a portion of a quarter) elapsed in the Performance Period prior to the date of the Change in Control and the denominator of which is twelve, multiplied by (ii) your target award amount.

     5. Limitation on Rights. The Award shall not confer upon you any rights whatsoever other than those expressly set forth herein, in the Plan or in policies adopted by the Committee, including without limitation any right to continued employment with Applied (or its affiliates) or any rights as a shareholder in respect of any of the Shares that may become issuable pursuant to the Award until and unless Applied has issued a certificate or certificates for the Shares.

     6. Restrictions on Shares. Applied may require, as a condition to its issuance and delivery of certificates for Shares issuable under the Award, the delivery to Applied of a commitment in writing by you that (i) at the time of issuance, it is your intention to acquire the Shares for your own account for investment only and not with a view to, or for resale in connection with, the distribution thereof; (ii) you understand that the Shares may be “restricted securities” as defined in Rule 144 issued under the Securities Act of 1933, as amended (the “Act”); and (iii) any resale, transfer or other disposition of the Shares will be accomplished only in compliance with Rule 144, the Act, or other or subsequent rules and regulations thereunder. Applied may place on the certificates a legend reflecting that commitment and Applied may refuse to permit transfer of the certificates until it has been furnished evidence satisfactory to it that no violation of the Act or the rules and regulations thereunder would be involved in the transfer.

     7. Discretionary Adjustment Following Merger, Sale of Assets; Stock Issuance, Etc. In the event that, during the Performance Period, Applied merges, consolidates, sells or acquires a substantial amount of assets, issues a substantial amount of its capital stock, reorganizes, or engages in any other transaction or series of transactions, the Committee, in its sole discretion, may change the performance goals upon which the vesting of your Award is conditioned, in order to prevent diminution or enlargement of the benefits intended to be conferred by the Award in such manner as the Committee may determine is equitably required by the changes or events.

     8. Nonassignability. The Award and the rights granted thereunder are not assignable or transferable, in whole or in part, and may not be otherwise disposed of by you, other than by will or by the laws of descent and distribution.

     9. Committee Authority. The Committee shall have authority, subject to the Plan’s express provisions, to construe these terms and conditions and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the Committee’s judgment necessary or desirable for the Plan’s administration. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or these terms and conditions in the manner and to the extent it shall deem expedient to carry the Plan into effect. All Committee action under this Section’s provisions shall be conclusive for all purposes.

     10. Relationship to the Plan. In the event of any inconsistency between these terms and conditions and the Plan or the Committee’s policies, the Plan or the policies shall govern. Terms not otherwise defined in these terms and conditions have the meaning ascribed them in the Plan.

Notwithstanding any provisions hereof, these terms and conditions and the Award shall be subject to all of the Plan’s provisions in effect from time to time, which are incorporated herein by reference.

(January 2002)