8-K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K/A
(Amendment No. 1)

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 29, 2008

APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

OHIO	1-2299	34-0117420
(State or other Jurisdiction of Incorporation)	(Commission File Number)	(IRS 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.

(Former name or former address if changed since last report.)

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:

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 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.

On September 5, 2008, Applied Industrial Technologies, Inc (“Applied”) filed with the Securities and Exchange Commission a Current Report on Form 8-K (the “Initial Report”), on which Applied reported, under Item 2.01, its acquisition of certain of the assets of Fluid Power Resource, LLC, including the following fluid power distribution businesses: Bay Advanced Technologies, LLC; Carolina Fluid Components, LLC; DTS Fluid Power, LLC; FluidTech, LLC; Hughes HiTech, LLC; Hydro Air, LLC; H.E.B., LLC and Mach V, Inc. (the “Acquisition”). Applied hereby amends the Initial Report in order to provide the financial information required by Items 9.01(a) and (b) of Form 8-K.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements of Businesses Acquired.

The following audited financial statements of the Acquired Entities of Fluid Power Resource, LLC are filed as a part of this amended Current Report and are attached as Exhibit 99.1:

• Report of Independent Auditors;

• Consolidated Balance Sheet as of December 31, 2007;

• Consolidated Statement of Income and Comprehensive Income for the year ended December 31, 2007;

• Consolidated Statement of Members’ Equity for the year ended December 31, 2007;

• Consolidated Statement of Cash Flows for the year ended December 31, 2007;

• Notes to the Consolidated Financial Statements.

The following unaudited interim financial statements of the Acquired Entities of Fluid Power Resource, LLC are filed as a part of this amended Current Report and are attached as Exhibit 99.2:

• Unaudited Consolidated Balance Sheet as of June 30, 2008;

• Unaudited Consolidated Statements of Income and Comprehensive Income for the six months ended June 30, 2008 and 2007;

• Unaudited Consolidated Statements of Members’ Equity for the six months ended June 30, 2008 and 2007;

• Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007;

• Notes to the Unaudited Consolidated Financial Statements.

(b) Unaudited Pro Forma Financial Information.

The following unaudited pro forma financial information of Applied, giving effect to the Acquisition for the twelve months ended June 30, 2008 is filed as a part of this amended Current Report and is attached as Exhibit 99.3:

• Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2008;

• Unaudited Pro Forma Condensed Combined Statement of Income for the year ended June 30, 2008;

• Notes to Unaudited Pro Forma Condensed Combined Financial Statements.

(d) Exhibits.

Number	Exhibits
Exhibit 23.1	Consent of Ernst & Young LLP
Exhibit 99.1	Audited Financial Statements listed in Item 9.01(a)
Exhibit 99.2	Unaudited Interim Financial Statements listed in Item 9.01(a)
Exhibit 99.3	Unaudited Pro Forma Financial Information listed in Item 9.01(b)

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/ Mark O. Eisele                                                          
Mark O. Eisele
Vice President-Chief Financial Officer & Treasurer

Date: November 5, 2008

EXHIBIT INDEX

Exhibit
No.	Description
23.1	Consent of Ernst & Young LLP
99.1	Audited Financial Statements listed in Item 9.01 (a)
99.2	Unaudited Interim Financial Statements listed in Item 9.01 (a)
99.3	Unaudited Pro Forma Financial Information listed in Item 9.01 (b)

EX-23.1

Exhibit 23.1 

Consent of Independent Auditors

We consent to the reference to the use of our report dated October 28, 2008, with respect to the consolidated financial statements of the Acquired Entities of Fluid Power Resource, LLC included in the Form 8-K/A dated November 5, 2008 of Applied Industrial Technologies, Inc.

/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
November 3, 2008

EX-99.1

Exhibit 99.1

Audited Consolidated Financial Statements

The Acquired Entities of Fluid Power Resource, LLC
Year Ended December 31, 2007
With Report of Independent Auditors

The Acquired Entities of Fluid Power Resource, LLC

Audited Consolidated Financial Statements

Year Ended December 31, 2007

Contents

Report of Independent Auditors	1
Audited Consolidated Financial Statements
Consolidated Balance Sheet	2
Consolidated Statement of Income and Comprehensive Income	3
Consolidated Statement of Members’ Equity	4
Consolidated Statement of Cash Flows	5
Notes to Consolidated Financial Statements	6

Report of Independent Auditors

The Board of Directors and Members
The Acquired Entities of Fluid Power Resource, LLC

We have audited the accompanying consolidated balance sheet of The Acquired Entities of Fluid Power Resource, LLC as of December 31, 2007, and the related consolidated statements of income and comprehensive income, members’ equity, and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Acquired Entities of Fluid Power Resource, LLC at December 31, 2007, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

/s/ Ernst & Young LLP
October 28, 2008

The Acquired Entities of Fluid Power Resource, LLC
Consolidated Balance Sheet
(Amounts in thousands)

	December 31, 2007
Assets
Current assets:
Cash and cash equivalents	$	2,503
Accounts receivable, net of allowance for doubtful accounts of $607		26,258
Inventories, net		26,740
Other current assets		635
Total current assets		56,136
Fixed assets, net		3,480
Goodwill		29,678
Intangibles and other assets		1,071
Total Assets	$	90,365
Liabilities and Members’ Equity
Current liabilities:
Accounts payable	$	13,512
Accrued liabilities		8,293
Current maturities of long-term debt		5,000
Total current liabilities		26,805
Long-term debt, net of current portion		79,027
Other accrued liabilities		568
Minority interest		76
Total Liabilities		106,476
Members’ Equity:
Accumulated comprehensive (loss)		(530	)
Members’ equity		(15,581	)
Total Members’ Equity		(16,111	)
Total Liabilities and Members’ Equity	$	90,365

See accompanying notes.

The Acquired Entities of Fluid Power Resource, LLC
Consolidated Statement of Income and Comprehensive Income
(Amounts in thousands)

	Year Ended
	December 31, 2007
Net sales	$	244,282
Cost of sales		183,609
Gross profit		60,673
Commissions		768
Operating profit		61,441
General and administrative expense		41,855
Depreciation		932
Income from operations		18,654
Other (expense) income:
Interest		(3,892	)
Amortization		(771	)
Other		724
Minority interest		(45	)
		(3,984	)
Net Income	$	14,670
Statement of Comprehensive Income
Net income	$	14,670
Other comprehensive income:
Unrealized loss on hedging activities		(530	)
Total comprehensive income	$	14,140

See accompanying notes.

The Acquired Entities of Fluid Power Resource, LLC
Consolidated Statement of Members’ Equity
(Amounts in thousands)

Balance at December 31, 2006	$	23,008
Redemption of minority interest		(1,850	)
Distribution to members		(60,453	)
Contributions from affiliated entities		9,044
Net income		14,670
Balance at December 31, 2007	$	(15,581	)

See accompanying notes.

The Acquired Entities of Fluid Power Resource, LLC
Consolidated Statement of Cash Flows
(Amounts in thousands)

	Year Ended
	December 31, 2007
Operating Activities
Net income	$	14,670
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,703
Write-off of deferred financing costs		613
Minority interest expense		45
Changes in assets and liabilities:
Accounts receivable		(475	)
Inventories		(823	)
Other current assets		(288	)
Other noncurrent assets		(872	)
Accounts payable		(173	)
Accrued liabilities		2,236
Net cash provided by operating activities		16,636
Investing Activities
Purchases of fixed assets		(772	)
Net cash used in investing activities		(772	)
Financing Activities
Redemption of minority interest		(2,304	)
Member distributions		(60,453	)
Contributions from affiliated entities		9,044
Borrowings of long-term debt		55,000
Paydown on term loans		(13,589	)
Revolving credit facilities and other, net		(2,388	)
Net cash used in financing activities		(14,690	)
Net increase in cash and cash equivalents		1,174
Cash and cash equivalents at beginning of year		1,329
Cash and cash equivalents at end of year	$	2,503
Supplemental disclosure of cash flow information
Cash paid for interest	$	3,483

See accompanying notes.

The Acquired Entities of Fluid Power Resource, LLC

Notes to Consolidated Financial Statements

December 31, 2007

1. Organization and Nature of Business

Description

The Acquired Entities of Fluid Power Resource, LLC (the Company) is a group of distributors of hydraulic, pneumatic, electronic, and support hardware, that provides services such as product application expertise, project management, and repair. The Company extends credit to customers, substantially all of whom are located near the Company’s distribution centers and sales offices, throughout the United States.

Principles of Consolidation

The consolidated financial statements of The Acquired Entities of Fluid Power Resource, LLC (the Company or FPR), a Delaware Limited Liability Company, include the accounts of the following wholly owned subsidiaries which were acquired by Applied Industrial Technologies, Inc. on August 29, 2008: Bay Advanced Technologies, LLC (BAT), Carolina Fluid Components, LLC (CFC), DTS Fluid Power, LLC (DTS), FluidTech, LLC (FT), H.E.B., LLC (HEB), Hughes HiTech, LLC (HHT), Mach V, Inc. (MV), Hydro Air, LLC (HA), and FPR Corporate (Holdings). All intercompany transactions have been eliminated.

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157). This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, but does not require any new fair value measurements. The standard covers financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in financial statements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, for financial assets and liabilities, and for fiscal years beginning after November 15, 2008, for other nonfinancial assets and liabilities. The Company does not expect that the adoption of SFAS 157 will have a material impact on its financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of SFAS No. 115 (SFAS 159). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. SFAS 159 is effective for the fiscal year beginning January 1, 2008. The Company is currently evaluating the impact of adopting SFAS 159 but does not expect the adoption to have a material impact on its financial statements.

The Acquired Entities of Fluid Power Resource, LLC

Notes to Consolidated Financial Statements (continued)

1. Organization and Nature of Business (continued)

In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements (SFAS 160). SFAS 160 changes the classification of non-controlling (minority) interests on the balance sheet and the accounting for and reporting of transactions between the reporting entity and holders of such non-controlling interests. Under the new standard, non-controlling interests are considered equity and are to be reported as an element of stockholders’ equity rather than within the mezzanine or liability sections of the balance sheet. In addition, the current practice of reporting minority interest expense or benefit also will change. Under the new standard, net income will encompass the total income before minority interest expense. The income statement will include separate disclosure of the attribution of income between the controlling and non-controlling interests. Increases and decreases in the non-controlling ownership interest amount are to be accounted for as equity transactions. SFAS 160 is effective for fiscal years beginning after December 15, 2008, and earlier application is prohibited. Upon adoption, the balance sheet and the income statement will be recast retrospectively for the presentation of non-controlling interests. The other accounting provisions of the statement are required to be adopted prospectively. The Company is currently evaluating the impact of adopting SFAS 160.

2. Summary of Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits and short-term investments that can be easily converted into cash and that have original maturities of three months or less.

Accounts Receivable

The Company records accounts receivable at the time when the criteria for revenue recognition have been satisfied. Collectibility of receivables is periodically assessed by the Company. This assessment provides the basis for the allowance for doubtful accounts and the related bad debt expense. The Company performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral.

Activity related to the allowance for doubtful accounts is as follows (in thousands):

December 31,		Bad Debt					December 31,
2006		Expense		Write Offs			2007
$	704	$	237	$	(334	)	$	607

Inventories

Inventories are valued at the lower of cost, or market. Cost is determined by the average cost method for substantially all inventory. Market is net realizable value.

Fixed Assets

Machinery and equipment and office furniture are stated at cost less accumulated depreciation. The Company provides for depreciation of machinery and equipment and office furniture using the straight-line method over estimated useful lives ranging from three to seven years for machinery, warehouse and shop equipment, and office equipment and furniture, and three to five years for computer equipment and vehicles.

Leasehold improvements are amortized over the shorter of the useful life of the asset or the term of the lease. Expenses for repairs, maintenance, and renewals are charged to operations as incurred. Expenditures that improve an asset or extend its useful life are capitalized.

The Acquired Entities of Fluid Power Resource, LLC

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in accordance with FASB SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). Goodwill attributable to each of the Company’s operating entities is tested annually for impairment by comparing the fair value of each operating entity with its carrying amount.

In 2007, the Company did not incur any impairment charges.

Recorded goodwill of approximately $29,678,000 relates to excess purchase price over the fair value of net assets, which were acquired during the HEB acquisition.

Intangibles and Other Assets

Intangibles and other assets consist primarily of deferred financing costs and costs associated with employment and non-compete agreements with several former owners of acquired businesses (former owners).

Deferred financing costs relate to the costs of obtaining financing and are amortized using sum-of-the-years digits, which approximates the effective interest rate method. In September 2007 in connection with refinancing its debt obligations, the Company entered into an Amended and Restated Credit Agreement (see Note 6). In accordance with EITF 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments, and EITF 98-14, Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements, the Company capitalized $614,000, of debt issuance costs related to the amendments. These costs are being amortized over the remaining life of the amended and restated revolving credit facility. Unamortized costs related to the previous credit agreement were charged to interest expense in the current year.

Costs associated with the employment and non-compete agreements are being amortized on a straight-line basis from five to ten years — in conjunction with the terms of the agreements.

Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company reviews long-lived assets and related intangibles for impairment when events and circumstances indicate that the carrying amount of such assets may not be recoverable. To date, no such impairment has been indicated. If a review indicates that the carrying amount of these assets would not be recoverable as measured based on estimated undiscounted cash flows over their remaining life, the carrying amount would be adjusted to fair value. The cash flow estimates used contain management’s best estimates, using appropriate and customary assumptions and projections.

Lease Arrangements

The Company conducts its operations from leased facilities and finances certain equipment expenditures through lease agreements. In those cases in which the lease term approximates the useful life of the leased asset or the lease meets certain other prerequisites, the leasing arrangement is classified as a capital lease. The remaining arrangements are treated as operating leases.

The Acquired Entities of Fluid Power Resource, LLC

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Revenue Recognition

Generally, revenues and associated costs are recognized as services are provided, goods are shipped, or when title passes.

Shipping and Handling Costs

All fees billed to the customer for shipping and handling are classified as a component of net sales and were approximately $1,921,000 for the year ended December 31, 2007. All other costs associated with shipping and handling are classified as cost of sales and approximated $3,679,000 for the year ended December 31, 2007.

Significant Vendors and Concentration of Risk

Purchases from two vendors for the year ended December 31, 2007, totaled approximately 23% of consolidated purchases. No other single vendor accounted for more than 10% of purchases in either year. For those vendors that exceeded 10% of purchases, their collective outstanding accounts payable were 22% of total accounts payable as of December 31, 2007.

Financial Instruments

The Company uses a derivative to manage its exposure to changes in interest rates. SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), as amended, defines derivatives, requires that derivatives be carried at fair value on the balance sheet, and provides for hedge accounting when certain conditions are met. In accordance with SFAS 133, the Company’s derivative financial instruments are recognized on the balance sheet at fair value. Changes in the fair value of derivative instruments designated as “cash flow” hedges, to the extent the hedges are highly effective, are recorded in other comprehensive income. Ineffective portions of cash flow hedges, if any, are recognized in current period earnings. Other comprehensive income is reclassified into current period earnings when the hedged transaction affects earnings.

The Company assesses, both at the inception of the hedge and on an ongoing basis, whether the derivative used as the hedging instrument is highly effective in offsetting the changes in the fair value or cash flow of the hedged item. If it is determined that a derivative is not highly effective as a hedge or ceases to be highly effective, the Company discontinues hedge accounting prospectively.

The table below summarizes the outstanding interest rate swap designated as a hedge as of December 31, 2007. The variable component of the interest rate swap outstanding was based on LIBOR (London InterBank Offered Rate) in 2007.

	2007
	Pay Fixed
Notional amount	$	43,000,000
Duration in years		2.80
Variable rate		5.01	%
Fixed rate		4.51	%

The Acquired Entities of Fluid Power Resource, LLC

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Fair Value of Financial Instruments

The carrying amounts of cash, accounts receivable, and accrued expenses approximate fair value due to the short maturity of these instruments. The fair value of the interest rate swap agreement is based on the net present value of the future cash flows using the forward interest rate yield curve in effect at the respective year-ends. This amount also represents the recorded amount at the consolidated balance sheet date. The carrying amounts of the Company’s borrowings under its credit agreement approximate fair value because it is a variable rate instrument.

Income Taxes

The Company consists of limited liability companies and is, therefore, not a taxpaying entity for federal or state income tax purposes, and thus no income tax expense has been recorded in the accompanying financial statements. Income of the Company is taxed to the members in their respective income tax returns.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

3. Inventories

Inventories as of December 31, 2007, consisted of the following:

	2007
	(In Thousands)
Distribution inventory	$	25,872
Work-in-process		1,890
Allowance for slow-moving inventory		(1,022	)
	$	26,740

The allowance for slow-moving inventory is made based on management’s analysis of inventory levels, historical sales activity, and future sales forecasts.

Activity related to the allowance for slow-moving inventory is as follows (in thousands):

December 31,		Allowance					December 31,
2006		Increases		Write Offs			2007
$	924	$	286	$	(188	)	$	1,022

The Acquired Entities of Fluid Power Resource, LLC

Notes to Consolidated Financial Statements (continued)

4. Fixed Assets

Machinery and equipment consisted of the following at December 31, 2007:

	2007
	(In Thousands)
Office furniture, equipment, and leasehold improvements	$	5,712
Machinery and equipment		3,679
Vehicles		157
		9,548
Less accumulated depreciation and amortization		6,068
Net machinery and equipment	$	3,480

Depreciation expense related to fixed assets for the year ended December 31, 2007, approximated $932,000.

5. Intangibles

As of December 31, 2007, the Company’s intangible assets consisted of non-compete agreements, deferred financing costs, and a trade name and are summarized as follows (in thousands):

			Accumulated
	Gross		Amortization		Weighted–
	Amount as of		as of		Average
	December 31,		December 31,		Amortization
	2007		2007		Period (Years)
Non-compete agreements	$	434	$	388		7
Deferred financing costs		614		51		5

Estimated amortization expense related to intangibles for the next five years is summarized as follows (in thousands):

2008	$	241
2009		153
2010		113
2011		72
2012 and thereafter		30
	$	609

The Acquired Entities of Fluid Power Resource, LLC

Notes to Consolidated Financial Statements (continued)

6. Long-Term Debt

Long-term debt at December 31, 2007, consisted of the following:

	2007
	(In Thousands)
Revolving credit facility	$	28,765
Term loans		55,000
Other notes payable and capital lease obligations		262
		84,027
Less current portion		5,000
	$	79,027

On September 21, 2007, the Company refinanced its debt obligations and entered into the Third Amended and Restated Credit Agreement (New Agreement) with a syndication of six banks. The New Agreement provides a $55 million senior secured revolving credit facility and a $55 million senior secured term loan. Revolver credit facility borrowings are limited by applying a formula to accounts receivable and inventory. The New Agreement includes a $10 million sublimit for the issuance of letters of credit, and a $5 million sublimit for swingline advances. The Company is permitted to increase maximum borrowings under the revolving facility by up to $15 million.

The New Agreement contains covenants that require the Company to, among other things, maintain minimum financial ratios and provide certain financial reports to the syndication of six banks.

Under the New Agreement, the term loan and revolving credit facility bear interest at various rate options based on the bank’s prime lending rate, LIBOR, and the ratio of consolidated total indebtedness to annual consolidated EBITDA, as defined. The term loan is secured by substantially all assets of the Company and is payable in quarterly installments of $1,250,000 through 2013, with the remainder due at that time. At December 31, 2007, the interest rate applicable to the outstanding principal amounts was 7.48%.

The revolving credit facility is used by the Company for general working capital purposes as necessary from time to time and to finance acquisitions. The revolving credit facility expires in 2012. The interest rate applicable to amounts outstanding under the revolving credit facility was 7.23% at December 31, 2007. A commitment fee ranging from .25% to .35% of the unused facility is also payable quarterly. At December 31, 2007, approximately $26.2 million was available under the revolving credit facility of which $10.0 million was available for the issuance of letters of credit.

Commitment fees incurred by the Company totaled approximately $76,600 in 2007.

Included in other notes payable and capital lease obligations are certain instruments with terms ranging through April 2011 with interest rates ranging from 6% to 8%.

The New Agreement allows distributions to members necessary to permit the members to make their required quarterly estimated tax payments. Other distributions are permitted after certain leverage and covenant levels are attained as defined in the New Agreement.

The Acquired Entities of Fluid Power Resource, LLC

Notes to Consolidated Financial Statements (continued)

6. Long-Term Debt (continued)

Aggregate maturities of long-term debt instruments over the next five years are as follows (in thousands):

2008	$	5,000
2009		5,000
2010		5,000
2011		5,000
2012 and thereafter		64,027
	$	84,027

7. Lease Commitments

The Company leases various corporate offices and distribution warehouses under non-cancelable operating leases. These leases have initial terms of three to ten years with renewal options for an additional three to five years. Rent expense totaled approximately $1,838,000 for 2007.

Future minimum rental commitments for the aforementioned operating leases, including commitments to affiliated entities, over the next five years are as follows (in thousands):

2008	$	1,715
2009		1,427
2010		881
2011		713
2012 and thereafter		1,313
	$	6,049

8. Incentive Compensation

The Board of Directors has established a deferred compensation plan for Company executives. The ultimate payment of this plan is dependent on an increase in the enterprise value of the Company and is based upon a percentage of the increase in enterprise value. Payments related to this plan are payable upon sale of the Company, death or total disability of the employee, termination of the employee for a reason other than cause, and employee’s attainment of age 65 (however, the Board may specify the attainment of an earlier age). Amounts related to this plan are not significant for 2007.

9. Employee Benefits — 401(k) Plans

The Company maintains various voluntary, contributory 401(k) plans for participating employees. Company contributions to the plans, which are made in accordance with the applicable plans, and are based upon various matching formulas and other factors, amounted to approximately $750,000 for 2007.

10. Related-Party Transactions

The Company has executed employment and non-compete agreements with certain former owners of acquired businesses. The agreements provided for base annual salaries, plus bonuses equal to a percentage of the respective LLC’s operating income, as defined, in excess of specified bases. The agreements also preclude the former owners from engaging in any businesses that directly or indirectly compete with the LLCs.

The Acquired Entities of Fluid Power Resource, LLC

Notes to Consolidated Financial Statements (continued)

10. Related-Party Transactions (continued)

An affiliated entity provided management services to the Company. The Company recognized the related management service expense of $1,000,000 for 2007.

11. Subsequent Events

On April 1, 2008, Bay Advanced Technologies, LLC acquired substantially all of the assets and certain liabilities of an air and vacuum automation components supplier in Mission Viejo, California, for $1.3 million.

On August 29, 2008, Applied Industrial Technologies, Inc. acquired substantially all of the assets of the acquired entities (BAT, CFC, DTS, FT, HEB, MV, HHT, HA, and Holdings) of Fluid Power Resources, LLC for an aggregate purchase price of $166 million, including certain assumed liabilities.

EX-99.2

Exhibit 99.2

Unaudited Consolidated Financial Statements

The Acquired Entities of Fluid Power Resource, LLC
As of June 30, 2008 and for the Six-Months ended
June 30, 2008 and 2007

The Acquired Entities of Fluid Power Resource, LLC

Unaudited Consolidated Financial Statements

As of June 30, 2008 and for the six months ended June 30, 2008 and 2007

Contents

Unaudited Consolidated Financial Statements
Unaudited Consolidated Balance Sheet	2
Unaudited Consolidated Statements of Income and Comprehensive Income	3
Unaudited Consolidated Statements of Members’ Equity	4
Unaudited Consolidated Statements of Cash Flows	5
Notes to Unaudited Consolidated Financial Statements	6

The Acquired Entities of Fluid Power Resource, LLC
Unaudited Consolidated Balance Sheet
(Amounts in thousands)

	June 30, 2008
Assets
Current assets:
Cash and cash equivalents	$	2,503
Accounts receivable, net of allowance for doubtful accounts of $648		28,337
Inventories, net		28,282
Other current assets		791
Total current assets		59,913
Fixed assets, net of accumulated depreciation of $6,495		3,300
Goodwill		30,511
Intangibles and other assets		1,253
Total Assets	$	94,977
Liabilities and Members’ Equity
Current liabilities:
Accounts payable	$	13,585
Accrued liabilities		4,553
Current maturities of long-term debt		5,000
Total current liabilities		23,138
Long-term debt, net of current portion		76,000
Other accrued liabilities		643
Minority interest		76
Total Liabilities		99,857
Members’ Equity:
Accumulated comprehensive (loss)		(643	)
Members’ equity		(4,237	)
Total Members’ Equity		(4,880	)
Total Liabilities and Members’ Equity	$	94,977

See accompanying notes.

The Acquired Entities of Fluid Power Resource, LLC
Unaudited Consolidated Statements of Income and Comprehensive Income
(Amounts in thousands)

	Six Months Ended June 30,
	2008			2007
Net sales	$	124,488		$	124,684
Cost of sales		91,263			92,237
Gross profit		33,225			32,447
Commissions		541			427
Operating profit		33,766			32,874
General and administrative expense		23,742			22,527
Depreciation		416			552
Income from operations		9,608			9,795
Other (expense) income:
Interest		(2,321	)		(1,511	)
Amortization		(182	)		(196	)
Other		122			400
Minority interest		—			(85	)
		(2,381	)		(1,392	)
Net Income	$	7,227		$	8,403
Statements of Comprehensive Income
Net income	$	7,227		$	8,403
Other comprehensive income:
Unrealized loss on hedging activities		(113	)		—
Total comprehensive income	$	7,114		$	8,403

See accompanying notes.

The Acquired Entities of Fluid Power Resource, LLC
Unaudited Consolidated Statements of Members’ Equity
(Amounts in thousands)

Balance at December 31, 2006	$	23,008
Redemption of minority interest		(1,215	)
Distribution to members		(6,047	)
Contributions from affiliated entities		6,329
Net income		8,403
Balance at June 30, 2007	$	30,478
Balance at December 31, 2007	$	(15,581	)
Distribution to members		(219	)
Contributions from affiliated entities		4,336
Net income		7,227
Balance at June 30, 2008	$	(4,237	)

See accompanying notes.

The Acquired Entities of Fluid Power Resource, LLC
Unaudited Consolidated Statements of Cash Flows
(Amounts in thousands)

	Six Months Ended June 30,
	2008			2007
Operating Activities
Net income	$	7,227		$	8,403
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		416			552
Amortization		182			196
Minority interest expense		—			85
Changes in assets and liabilities:
Accounts receivable		(1,662	)		(4,692	)
Inventories		(1,099	)		64
Other current assets		(156	)		118
Other noncurrent assets		(364	)		(707	)
Accounts payable		(295	)		1,470
Accrued liabilities		(3,818	)		(2,091	)
Net cash provided by operating activities		431			3,398
Investing Activities
Acquisition of a business		(1,300	)		—
Purchases of fixed assets		(221	)		(279	)
Net cash used in investing activities		(1,521	)		(279	)
Financing Activities
Redemption of minority interest		—			(1,215	)
Member distributions		(219	)		(6,047	)
Contributions from affiliated entities		4,336			6,329
Paydown on term loans		(2,500	)		—
Revolving credit facilities and other, net		(527	)		(2,370	)
Net cash provided by (used in) financing activities		1,090			(3,303	)
Net decrease in cash and cash equivalents		—			(184	)
Cash and cash equivalents at beginning of year		2,503			1,329
Cash and cash equivalents at end of year	$	2,503		$	1,145
Supplemental disclosure of cash flow information
Cash paid for interest	$	2,587		$	1,510

See accompanying notes.

The Acquired Entities of Fluid Power Resource, LLC

Notes to Unaudited Consolidated Financial Statements

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position of The Acquired Entities of Fluid Power Resource, LLC (“FPR” or the “Company”) as of June 30, 2008 and the results of operations and cash flows for the six months ended June 30, 2008 and 2007, have been included. The unaudited consolidated financial statements should be read in conjunction with FPR’s audited financial statements as of and for the year ended December 31, 2007.

Operating results for the six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for future periods.

2. Organization and Nature of Business

Description

The Company is a group of distributors of hydraulic, pneumatic, electronic, and support hardware, that provides services such as product application expertise, project management, and repair. The Company extends credit to customers, substantially all of whom are located near the Company’s distribution centers and sales offices, throughout the United States.

Principles of Consolidation

The consolidated financial statements of the Acquired Entities of Fluid Power Resource, LLC (the Company or FPR), a Delaware Limited Liability Company, include the accounts of the following wholly owned subsidiaries which were acquired by Applied Industrial Technologies, Inc. on August 29, 2008: Bay Advanced Technologies, LLC (BAT), Carolina Fluid Components, LLC (CFC), DTS Fluid Power, LLC (DTS), FluidTech, LLC (FT), H.E.B., LLC (HEB), Hughes HiTech, LLC (HHT), Hydro Air, LLC (HA), and FPR Corporate (Holdings). All intercompany transactions have been eliminated.

New Accounting Standards Adopted

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157). This Statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, but does not require any new fair value measurements. The Standard covers financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in financial statements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, for financial assets and liabilities, and for fiscal years beginning after November 15, 2008, for other nonfinancial assets and liabilities. The adoption of SFAS 157 for financial assets and liabilities did not have a material impact on the Company’s financial statements.

The Acquired Entities of Fluid Power Resource, LLC

Notes to Unaudited Consolidated Financial Statements

2. Organization and Nature of Business (continued)

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of SFAS No. 115 (SFAS 159). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. SFAS 159 is effective for the fiscal year beginning January 1, 2008. The adoption of SFAS 159 did not have a material impact on the Company’s financial statements.

Pending New Accounting Standards

In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements (SFAS 160). SFAS 160 changes the classification of non-controlling (minority) interests on the balance sheet and the accounting for and reporting of transactions between the reporting entity and holders of such non-controlling interests. Under the new standard, non-controlling interests are considered equity and are to be reported as an element of stockholders’ equity rather than within the mezzanine or liability sections of the balance sheet. In addition, the current practice of reporting minority interest expense or benefit also will change. Under the new standard, net income will encompass the total income before minority interest expense. The income statement will include separate disclosure of the attribution of income between the controlling and non-controlling interests. Increases and decreases in the non-controlling ownership interest amount are to be accounted for as equity transactions. SFAS 160 is effective for fiscal years beginning after December 15, 2008, and earlier application is prohibited. Upon adoption, the balance sheet and the income statement will be recast retrospectively for the presentation of non-controlling interests. The other accounting provisions of the statement are required to be adopted prospectively. The Company is currently evaluating the impact of adopting SFAS 160.

In March 2008, the FASB issued SFAS No. 161 (SFAS 161), Disclosures about Derivative Instruments and Hedging Activities. SFAS 161 amends and expands the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. It requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This statement is effective for fiscal periods beginning after November 15, 2008. The Company is currently evaluating the impact of SFAS 161 on the consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162 (SFAS 162), The Hierarchy of Generally Accepted Accounting Principles. SFAS 162 identifies the sources of accounting principles and the framework for selecting principles to be used in the preparation and presentation of financial statements in accordance with generally accepted accounting principles. This statement will be effective 60 days after the Securities and Exchange Commission approves the Public Company Accounting Oversight Board’s amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not anticipate the adoption of SFAS 162 will have a material effect on the consolidated financial statements.

3. Summary of Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits and short-term investments that can be easily converted into cash and that have original maturities of three months or less.

The Acquired Entities of Fluid Power Resource, LLC

Notes to Unaudited Consolidated Financial Statements

3. Summary of Significant Accounting Policies (continued)

Accounts Receivable

The Company records accounts receivable at the time when the criteria for revenue recognition have been satisfied. Collectibility of receivables is periodically assessed by the Company. This assessment provides the basis for the allowance for doubtful accounts and the related bad debt expense. The Company performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral.

Inventories

Inventories are valued at the lower of cost, or market. Cost is determined by the average cost method for substantially all inventory. Market is net realizable value.

Fixed Assets

Machinery and equipment and office furniture are stated at cost less accumulated depreciation. The Company provides for depreciation of machinery and equipment and office furniture using the straight-line method over estimated useful lives ranging from three to seven years for machinery, warehouse and shop equipment, and office equipment and furniture, and three to five years for computer equipment and vehicles.

Leasehold improvements are amortized over the shorter of the useful life of the asset or the term of the lease. Expenses for repairs, maintenance, and renewals are charged to operations as incurred. Expenditures that improve an asset or extend its useful life are capitalized.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in accordance with FASB SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). Goodwill attributable to each of the Company’s operating entities is tested annually for impairment by comparing the fair value of each operating entity with its carrying amount.

During the six month periods ended June 30, 2008 and 2007, the Company did not incur any impairment charges.

Recorded goodwill of approximately $30.5 million relates to excess purchase price over the fair value of net assets, which were acquired during the HEB and Pacific Air Technology acquisitions.

Intangibles and Other Assets

Intangibles and other assets consist primarily of deferred financing costs and costs associated with employment and non-compete agreements with several former owners of acquired businesses (former owners).

Deferred financing costs relate to the costs of obtaining financing and are amortized using sum-of-the-years digits, which approximates the effective interest rate method. In September 2007 in connection with refinancing its debt obligations, the Company entered into an Amended and Restated Credit Agreement (see Note 6). In accordance with EITF 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments, and EITF 98-14, Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements, the Company capitalized $614,000, of debt issuance costs related to the amendments. These costs are being amortized over the remaining life of the amended and restated revolving credit facility. Unamortized costs related to the previous credit agreement were charged to interest expense in the current year.

The Acquired Entities of Fluid Power Resource, LLC

Notes to Unaudited Consolidated Financial Statements

3. Summary of Significant Accounting Policies (continued)

Costs associated with the employment and non-compete agreements are being amortized on a straight-line basis from five to ten years — in conjunction with the terms of the agreements.

Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company reviews long-lived assets and related intangibles for impairment when events and circumstances indicate that the carrying amount of such assets may not be recoverable. To date, no such impairment has been indicated. If a review indicates that the carrying amount of these assets would not be recoverable as measured based on estimated undiscounted cash flows over their remaining life, the carrying amount would be adjusted to fair value. The cash flow estimates used contain management’s best estimates, using appropriate and customary assumptions and projections.

Lease Arrangements

The Company conducts its operations from leased facilities and finances certain equipment expenditures through lease agreements. In those cases in which the lease term approximates the useful life of the leased asset or the lease meets certain other prerequisites, the leasing arrangement is classified as a capital lease. The remaining arrangements are treated as operating leases.

Revenue Recognition

Generally, revenues and associated costs are recognized as services are provided, goods are shipped, or when title passes.

Income Taxes

The Company consists of limited liability companies and is, therefore, not a taxpaying entity for federal or state income tax purposes, and thus no income tax expense has been recorded in the accompanying financial statements. Income of the Company is taxed to the members in their respective income tax returns.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

The Acquired Entities of Fluid Power Resource, LLC

Notes to Unaudited Consolidated Financial Statements

4. Inventories

Inventories as of June 30, 2008, consisted of the following:

	2008
	(In Thousands)
Distribution inventory	$	28,231
Work-in-process		1,214
Allowance for slow-moving inventory		(1,163	)
	$	28,282

The allowance for slow-moving inventory is made based on management’s analysis of inventory levels, historical sales activity, and future sales forecasts.

5. Long-Term Debt

Long-term debt at June 30, 2008, consisted of the following:

	2008
	(In Thousands)
Revolving credit facility	$	28,500
Term loans		52,500
		81,000
Less current portion		5,000
	$	76,000

On September 21, 2007, the Company refinanced its debt obligations and entered into the Third Amended and Restated Credit Agreement (New Agreement) with a syndication of six banks. The New Agreement provides a $55 million senior secured revolving credit facility and a $55 million senior secured term loan. Revolver credit facility borrowings are limited by applying a formula to accounts receivable and inventory. The New Agreement includes a $10 million sublimit for the issuance of letters of credit, and a $5 million sublimit for swingline advances. The Company is permitted to increase maximum borrowings under the revolving facility by up to $15 million.

The New Agreement contains covenants that require the Company to, among other things, maintain minimum financial ratios and provide certain financial reports to the syndication of six banks.

Under the New Agreement, the term loan and revolving credit facility bear interest at various rate options based on the bank’s prime lending rate, LIBOR, and the ratio of consolidated total indebtedness to annual consolidated EBITDA, as defined. The term loan is secured by substantially all assets of the Company and is payable in quarterly installments of $1,250,000 through 2013, with the remainder due at that time. At June 30, 2008, the interest rate applicable to the outstanding principal amounts was 4.46%.

The revolving credit facility is used by the Company for general working capital purposes as necessary from time to time and to finance acquisitions. The revolving credit facility expires in 2012. The interest rate applicable to amounts outstanding under the revolving credit facility was 4.21% at June 30, 2008. A commitment fee ranging from .25% to .35% of the unused facility is also payable quarterly. At June 30, 2008, approximately $27.0 million was available under the revolving credit facility of which $10.0 million was available for the issuance of letters of credit.

The Acquired Entities of Fluid Power Resource, LLC

Notes to Unaudited Consolidated Financial Statements

5. Long-Term Debt (continued)

The New Agreement allows distributions to members necessary to permit the members to make their required quarterly estimated tax payments. Other distributions are permitted after certain leverage and covenants levels are attained as defined in the New Agreement.

6. Acquisition of a Business

On April 1, 2008, Bay Advanced Technologies, LLC (BAT) purchased substantially all of the assets of Pacific Air Technology (PAT), a division of Pacific Air Engineering, Inc. and assumed certain of its operating liabilities for a total cash purchase price of approximately $1.3 million. The purchase price was funded by borrowings from BAT’s parent company, Fluid Power Resource, LLC. This acquisition was accounted for using the purchase method of accounting, and accordingly, the purchase price has been allocated to assets purchased and the liabilities assumed based upon their fair values at the date of acquisition. The excess of the purchase price over the fair values of the net assets acquired approximated $833,000 and has been recorded as goodwill. PAT distributes pneumatic components and compressors throughout the Southern California marketplace.

7. Subsequent Event

On August 29, 2008, Applied Industrial Technologies, Inc. acquired substantially all of the assets of the acquired entities (BAT, CFC, DTS, FT, HEB, HHT, MV, HA, and Holdings) of Fluid Power Resources, LLC for an aggregate purchase price of $166 million, including certain assumed liabilities.

EX-99.3

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On August 29, 2008, Applied Industrial Technologies, Inc (“Applied”) completed its acquisition of certain of the assets of Fluid Power Resource, LLC (the “Seller” or “FPR”) including the following fluid power distribution businesses: Bay Advanced Technologies, LLC; Carolina Fluid Components, LLC; DTS Fluid Power, LLC; FluidTech, LLC; Hughes HiTech, LLC; Hydro Air, LLC; H.E.B., LLC and Mach V, Inc.

Applied acquired certain of the assets and specified liabilities of the Seller for an aggregate cash purchase price of $166.0 million. The final purchase price was funded with existing cash of $62.0 million and borrowings of $104.0 million through an established revolving credit facility.

The following unaudited pro forma condensed combined financial information is derived from and should be read in conjunction with historical financial statements and related notes of Applied included in its Annual Report on Form 10-K for the year ended June 30, 2008, and the historical financial statements and related notes of FPR filed as Exhibits 99.1 and 99.2 herein.

The unaudited pro forma condensed combined balance sheet as of June 30, 2008 and the unaudited pro forma condensed combined statement of income for the year ended June 30, 2008 are presented herein. The unaudited pro forma condensed combined balance sheet gives effect to the acquisition as if it occurred on June 30, 2008. The unaudited pro forma condensed combined statement of income for the year ended June 30, 2008 gives effect to the acquisition as if it occurred on July 1, 2007 and combines the historical consolidated statement of income of Applied for the year ended June 30, 2008 with the historical consolidated statement of income of FPR for the twelve months ended June 30, 2008. As FPR’s fiscal year end is December 31, we derived the FPR statement of income for the twelve months ended June 30, 2008 by using the available financial information.

The historical financial statements have been adjusted to give effect to pro forma items that are (i) directly attributable to the acquisition and (ii) factually supportable. With respect to the statement of income, the pro forma events must be expected to have a continuing impact on the combined results. The pro forma adjustments described in the accompanying notes have been made based on available information and, in the opinion of management, are reasonable. The unaudited pro forma condensed combined consolidated financial information should not be considered indicative of actual combined results that would have been achieved had the acquisition occurred on the date indicated and do not purport to indicate combined results of operations for any future period.

The acquisition of FPR has been accounted for as a purchase in conformity with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, with intangible assets recorded in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. Accordingly, we have adjusted the historical consolidated financial information to give effect to the cash paid in connection with the acquisition. In the unaudited pro forma condensed combined financial statements, Applied’s cost to acquire FPR has been allocated to the assets acquired and the liabilities assumed based upon management’s preliminary estimate of their respective fair values. Any excess of the fair value of the amount paid over the fair value of the assets acquired and liabilities assumed has been recorded as goodwill. The final purchase price allocation is subject to adjustments based on the final determination of the fair values of assets acquired and liabilities assumed. Therefore, the resulting effect on the combined balance sheet and income from operations may differ from the unaudited pro forma amounts included herein.

The unaudited pro forma condensed combined statement of income does not include any impacts of any revenue, costs or operating synergies that may result from the acquisition or any related restructuring costs.

Based on Applied’s review of FPR’s summary of significant accounting policies disclosed in the latter’s historical financial statements, the nature and amount of any adjustments to the historical financial statements of FPR to conform their accounting policies to those of Applied are not expected to be significant. Upon consummation of the acquisition, further review of FPR’s accounting policies and financial statements may result in required revisions to FPR’s policies and classifications to conform to Applied’s accounting policies.

Pro Forma Adjustments

Pro forma retention adjustments give effect to the exclusion of certain activities included in the historical financial statements of FPR that were not acquired by Applied. Pro forma adjustments for the acquisition, as recorded under the purchase method of accounting, represent the adjustments necessary to give effect to the acquisition of FPR as of June 30, 2008 (condensed combined balance sheet) and as of July 1, 2007 (condensed combined statement of income). The adjustments are based upon a preliminary allocation of the purchase price, which is expected to be finalized within one year of the acquisition date.

The pro forma adjustments included in the unaudited pro forma condensed combined balance sheet and statement of income are as described below.

Applied Industrial Technologie, Inc
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 2008
(Amounts in thousands)

							Pro Forma			Pro Forma
	Applied			FPR			Retention			Transaction			Applied
	Historical (1)			Historical (2)			Adjustments (3)			Adjustments (4)			Pro Forma (5)
Assets
Current assets:
Cash and cash equivalents	$	101,830		$	2,503		$	(2,503	)a	$	(62,000	)f	$	39,830
Accounts receivable, less allowances		245,119			28,337									273,456
Inventories		210,723			28,282						(680	)g		238,325
Other current assets		48,525			791									49,316
Total current assets		606,197			59,913			(2,503	)		(62,680	)		600,927
Property, net		64,997			3,300						1,850	h		70,147
Goodwill		64,685			30,511			(30,511	)b		28,732	i		93,417
Intangibles		19,164									95,100	j		114,264
Other assets		43,728			1,253			(1,108	)c					43,873
Total Assets	$	798,771		$	94,977		$	(34,122	)	$	63,002		$	922,628
Liabilities
Current liabilities:
Accounts payable	$	109,822		$	13,585		$			$			$	123,407
Long-term debt payable within one year					5,000			(5,000	)d		54,000	f		54,000
Compensation and related benefits		56,172			2,963									59,135
Other current liabilities		31,017			1,590						1,000	k		33,607
Total current liabilities		197,011			23,138			(5,000	)		55,000			270,149
Long-term debt		25,000			76,000			(76,000	)d		50,000	f		75,000
Postemployment benefits		37,746			—									37,746
Other liabilities		36,939			719									37,658
Total Liabilities		296,696			99,857			(81,000	)		105,000			420,553
Shareholders’ Equity
Common stock		10,000												10,000
Additional paid-in capital		133,078						41,998	e		(41,998	)l		133,078
Income retained for use in the business		543,692			(4,237	)		4,237	e					543,692
Treasury shares — at cost		(190,944	)											(190,944	)
Accumulated other comprehensive income (loss)		6,249			(643	)		643	e					6,249
Total Shareholders’ Equity		502,075			(4,880	)		46,878			(41,998	)		502,075
Total Liabilities and Shareholders’ Equity	$	798,771		$	94,977		$	(34,122	)	$	63,002		$	922,628

See notes to Unaudited Pro Forma Condensed Combined Financial Statements.

Applied Industrial Technologies, Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
For the Year Ended June 30, 2008
(Amounts in thousands, except for per share data)

					Pro Forma			Pro Forma
	Applied		FPR		Retention			Transaction			Applied
	Historical (1)		Historical (2)		Adjustments (3)			Adjustments (4)			Pro Forma (5)
Net Sales	$	2,089,456	$	244,968	$			$	1,912	q	$	2,336,336
Cost of Sales		1,520,173		182,635					3,810	q		1,706,618
		569,283		62,333		—			(1,898	)		629,718
Selling, Distribution and Administrative, including depreciation		416,459		43,866		(750	)m		(1,898	)q
									265	r
									8,580	s		466,522
Operating Income		152,824		18,467		750			(8,845	)		163,196
Interest Expense, net		882		4,702		(4,702	)n		6,250	t		7,132
Other Expense (Income), net		227		271		(271	)o		—			227
		1,109		4,973		(4,973	)		6,250			7,359
Income Before Income Taxes		151,715		13,494		5,723			(15,095	)		155,837
Income Tax Expense		56,259		—		2,123	p		(5,600	)u
									5,006	v		57,788
Net Income	$	95,456	$	13,494	$	3,600		$	(14,501	)	$	98,049
Net Income Per Share — Basic	$	2.23									$	2.29
Net Income Per Share — Diluted	$	2.19									$	2.25
Weighted Average Shares Outstanding — Basic		42,797										42,797
Dilutive effect of common stock equivalents		755										755
Weighted Average Shares Outstanding — Diluted		43,552										43,552

See notes to Unaudited Pro Forma Condensed Combined Financial Statements.

Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(Amounts in thousands)

1.	Amounts represent the reported results for Applied as of and for the year ended June 30, 2008.
2.	Amounts represent the unaudited results for FPR as of and for the twelve months ended June 30, 2008. To calculate FPR’s statement of income for the twelve months ended June 30, 2008, we subtracted the operating results for the six months ended June 30, 2007 (unaudited) from the audited financial statements for the year ended December 31, 2007 and added the (unaudited) operating results for the six months ended June 30, 2008.
3.	Amounts represent pro forma adjustments necessary to give effect to the exclusion of certain assets, liabilities and operating items included in the historical financial statements of FPR that were not acquired by Applied.
4.	Amounts represent pro forma adjustments necessary to give effect to the acquisition of FPR. The balance sheet pro forma adjustments give effect to the acquisition of FPR as if it occurred on June 30, 2008. The income statement pro forma adjustments give effect to the acquisition of FPR as if it occurred on July 1, 2007. The pro forma adjustments are based on a preliminary allocation of the acquisition purchase price.
5.	Amounts represent the pro forma combined condensed results of Applied including both retention and transaction adjustments as of and for the year ended June 30, 2008.
a.	Elimination of balances in cash and cash equivalents of FPR which were retained by the Seller.
b.	Elimination of goodwill of $30,511 recorded on the historical financial statements of FPR not acquired by Applied.
c.	Elimination of other assets not acquired by Applied.
d.	Elimination of debt not acquired by Applied.
e.	Eliminates FPR’s historical equity and records the equity impact of the retention adjustments.
f.	Reflects the purchase price funding for the assets and liabilities acquired. The $166,000 purchase price was funded with existing cash balances of $62,000 and $104,000 of borrowing through the Company’s committed revolving credit facility. The borrowings were further allocated to short-term and long-term based on management’s intentions.
g.	Adjustment to record inventory acquired at fair value.
h.	Adjustment to record property acquired at fair value.
i.	Recognition of goodwill resulting from a preliminary allocation of the purchase price using the assumed pro forma purchase date of June 30, 2008.
j.	Recording the fair value of intangible assets acquired of $95,100.
k.	Represents the approximate direct costs of the acquisition.
l.	Eliminates FPR’s historical equity as adjusted for retention adjustments.
m.	Eliminates FPR’s historical affiliate management service expenses that will not be incurred by Applied.

n.	Eliminates FPR’s historical interest expense related to debt not acquired by Applied.
o.	Eliminates FPR’s historical amortization expense related to assets not acquired by Applied along with other miscellaneous income that will not be realized by Applied.
p.	Represents the tax effect of the retention adjustments calculated using Applied’s June 30, 2008 effective tax rate of 37.1%. Note that the historical FPR income statement did not include income tax expense as this amount was the responsibility of the individual members of FPR.
q.	Represents reclassification of FPR’s historical reporting of freight expense and shipping revenue to conform to Applied’s classification.
r.	Represents incremental depreciation expense from adjusting FPR property assets to fair value.
s.	Represents amortization expense for the additional intangible assets recorded in connection with the FPR acquisition.
t.	Represents interest expense of $3,650 (at the LIBOR rate) due to the borrowings utilized to fund the acquisition, plus a reduction in interest income of $2,600 due to the utilization of cash to fund the acquisition.
u.	Represents the tax effect of the pro forma transaction adjustments calculated using Applied’s June 30, 2008 effective tax rate of 37.1%.
v.	Represents the recording of income tax expense for FPR for the twelve months ended June 30, 2008 calculated using Applied’s June 30, 2008 effective tax rate of 37.1%. Note that the historical FPR income statement did not include income tax expense as this amount was the responsibility of the individual members of FPR.