
<PAGE>   1

                                   FORM 10 - Q
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE       
      SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended   SEPTEMBER 30, 1997.
                               --------------------- 

                                       OR

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

For the transition period from   ___________ to  ____________

                          Commission File Number 1-2299
                                                 ------ 


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



            Ohio                                           34-0117420
--------------------------------------------------------------------------------
(State or other jurisdiction of                          (I.R.S. Employer
  incorporation or organization)                       Identification Number)


  One Applied Plaza, Cleveland, Ohio                          44115
--------------------------------------------------------------------------------
(Address of principal executive offices)                    (Zip Code)


       Registrant's telephone number, including area code: (216) 426-4000
                                                           -------------- 


--------------------------------------------------------------------------------
   (Former name, former address and former fiscal year, if changed since last
                                    report)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                       Yes  X   No
                           ---     ---

Shares of common stock outstanding on  October 31, 1997              21,868,806
                                       -----------------------------------------
                                                                  (No par Value)



<PAGE>   2


                      APPLIED INDUSTRIAL TECHNOLOGIES, INC.
                      -------------------------------------
                                      INDEX




--------------------------------------------------------------------------
                                                                        Page No.
Part I:    FINANCIAL INFORMATION

         Item 1:     Financial Statements

                     Statements of Consolidated Income -                    2
                     Three Months
                     Ended September 30, 1997 and  1996

                     Consolidated Balance Sheets -                          3
                     September 30, 1997 and June 30, 1997

                     Statements of Consolidated Cash Flows                  4
                     Three Months Ended September 30, 1997 and 1996

                     Statements of Consolidated Shareholders' Equity -      5
                     Three Months Ended September 30, 1997 and
                     Year Ended June 30, 1997

                     Notes to Consolidated Financial Statements           6 - 8


         Item 2:    Management's Discussion and Analysis of               9 - 12
                    Financial Condition and Results of Operations


Part II:    OTHER INFORMATION                                               13

         Item 1:    Legal Proceedings                                       13

         Item 5:    Other Information                                       13

         Item 6:     Exhibits and Reports on  Form 8-K                      15

Cautionary Statement Under Private Securities                               17
Litigation Reform Act of 1995

Signatures                                                                  18


<PAGE>   3

PART I:                  FINANCIAL INFORMATION
ITEM I:                  Financial Statements

             APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
             ------------------------------------------------------
                        STATEMENTS OF CONSOLIDATED INCOME
                                   (Unaudited)
                      (Thousands, except per share amounts)


--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                       Three Months Ended
                                                          September 30
                                                    1997                 1996
                                                 ---------            ---------


<S>                                              <C>                  <C>      
Net Sales                                        $ 344,726            $ 282,249
                                                 ---------            ---------

Cost and Expenses
  Cost of sales                                    256,426              208,775
  Selling, distribution and
    administrative                                  78,492               62,749
                                                 ---------            ---------
                                                   334,918              271,524
                                                 ---------            ---------
Operating Income                                     9,808               10,725
                                                 ---------            ---------

Interest
  Interest expense                                   2,464                1,561
  Interest income                                     (278)                (318)
                                                 ---------            ---------
                                                     2,186                1,243
                                                 ---------            ---------

Income Before Income Taxes                           7,622                9,482
                                                 ---------            ---------

Income Taxes
  Federal                                            2,730                3,255
  State and local                                      395                  822
                                                 ---------            ---------
                                                     3,125                4,077
                                                 ---------            ---------

Net Income                                       $   4,497            $   5,405
                                                 =========            =========

Net Income per share                             $    0.22            $    0.29
                                                 =========            =========

Cash dividends per common
  share                                          $    0.11            $    0.09
                                                 =========            =========
</TABLE>


See notes to consolidated financial statements.



                                       2
<PAGE>   4

             APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
             ------------------------------------------------------
                           CONSOLIDATED BALANCE SHEETS
                             (Amounts in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                    September 30        June 30
                                                                        1997              1997
                                                                     ---------         ---------
                                                                    (Unaudited)
                                         Assets
<S>                                                                  <C>               <C>      
Current assets
    Cash and temporary investments                                   $  13,292         $  22,405
    Accounts receivable, less allowance
     of $3,259 and $2,400                                              186,622           153,080
    Inventories  (at LIFO)                                             167,962           103,069
    Other current assets                                                18,647             6,905
                                                                     ---------         ---------
Total current assets                                                   386,523           285,459
                                                                     ---------         ---------
Property - at cost
    Land                                                                13,340            12,281
    Buildings                                                           73,158            66,157
    Equipment                                                           87,898            81,132
                                                                     ---------         ---------
                                                                       174,396           159,570
    Less accumulated depreciation                                       70,778            68,809
                                                                     ---------         ---------
Property - net                                                         103,618            90,761
                                                                     ---------         ---------
Goodwill                                                                46,857             5,604
Other assets                                                            16,727            12,290
                                                                     ---------         ---------

  TOTAL ASSETS                                                       $ 553,725         $ 394,114
                                                                     =========         =========

                         Liabilities and Shareholders' Equity
Current liabilities
    Notes payable                                                    $  41,711         $  25,415
    Current portion of long-term debt                                   11,505            11,429
    Accounts payable                                                    92,407            49,469
    Compensation and related benefits                                   26,268            19,025
    Other accrued liabilities                                           27,197            15,398
                                                                     ---------         ---------
Total current liabilities                                              199,088           120,736
Long-term debt                                                          59,999            51,428
Other liabilities                                                       28,790            14,366
                                                                     ---------         ---------
    TOTAL LIABILITIES                                                  287,877           186,530
                                                                     ---------         ---------

Shareholders' Equity
Preferred Stock - no par value; 2,500
    shares authorized; none issued or
    outstanding
Common stock - no par value; 30,000
    shares authorized;  24,095 and 20,931 shares issued                 10,000            10,000
Additional paid-in capital                                              78,926            10,311
Income retained for use in the business                                218,782           216,642
Less 2,256 and 2,366 treasury shares -
    at cost                                                            (27,420)          (22,983)
Less shares held in trust for
    deferred compensation plans                                         (8,484)           (5,436)
Less unearned restricted common
    stock compensation                                                  (5,956)             (950)
                                                                     ---------         ---------
    TOTAL SHAREHOLDERS' EQUITY                                         265,848           207,584
                                                                     ---------         ---------

    TOTAL LIABILITIES AND
        SHAREHOLDERS' EQUITY                                         $ 553,725         $ 394,114
                                                                     =========         =========
</TABLE>

See notes to consolidated financial statements.








                                       3
<PAGE>   5

             APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                      STATEMENTS OF CONSOLIDATED CASH FLOWS
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                                                Three Months Ended
                                                                                   September 30
                                                                           ----------------------------
                                                                                1997            1996

-------------------------------------------------------------------------------------------------------

<S>                                                                          <C>              <C>     
Cash Flows from Operating Activities
    Net income                                                               $  4,497         $  5,405
    Adjustments to reconcile net income to cash provided by
      (used in) operating activities:
       Depreciation                                                             3,995            3,418
       Provision for losses on accounts receivable                                447              524
       Gain on sale of property                                                   (99)            (113)
       Amortization of restricted common stock
           compensation and goodwill                                            1,289              184
       Treasury shares contributed to employee
           benefit plans                                                        1,898            1,404
       Changes in current assets and liabilities, net of
         effects from acquisition and disposal of
         businesses:
           Accounts receivable                                                  6,336           11,301
           Inventories                                                        (14,768)          (8,238)
           Other current assets                                                 1,644             (192)
           Accounts payable and accrued expenses                               12,782           (2,061)
       Other - net                                                                506              768
------------------------------------------------------------------------------------------------------
Net Cash provided by Operating Activities                                      18,527           12,400
------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
    Property purchases                                                         (6,034)          (3,736)
    Proceeds from property sales                                                  180            1,222
    Net cash paid for acquisition of businesses                               (27,815)
    Proceeds from sale of Aircraft Division                                                      9,090
    Deposits and other                                                           (494)           1,064
------------------------------------------------------------------------------------------------------
Net Cash provided by (used in) Investing Activities                           (34,163)           7,640
------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
    Net borrowings (repayments) under
       Line-of-credit agreements                                               16,296          (13,486)
    Exercise of stock options                                                     374              198
    Dividends paid                                                             (2,357)          (1,734)
    Purchase of treasury shares                                                (7,790)            (120)
------------------------------------------------------------------------------------------------------
Net Cash provided by (used in) Financing Activities                             6,523          (15,142)
------------------------------------------------------------------------------------------------------
Increase (decrease) in cash
    and temporary investments                                                  (9,113)           4,898
Cash and temporary investments
    at beginning of period                                                     22,405            9,243
------------------------------------------------------------------------------------------------------
Cash and Temporary Investments
    at End of Period                                                         $ 13,292         $ 14,141
======================================================================================================

Supplemental Cash Flow Information 
Cash paid during the period for:
     Income taxes                                                            $     96         $    701
     Interest                                                                $  2,376         $  1,637

Significant noncash investing activity:
     Issuance of common stock for the acquisition of Invetech Company        $ 63,374

</TABLE>

See notes to consolidated financial statements.


                                       4
<PAGE>   6


              APPLIED INDUSTIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
              -----------------------------------------------------
                 STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
            For the Three Months Ended September 30, 1997 (Unaudited)
                          and Year Ended June 30, 1997
                             (Amounts in thousands)

<TABLE>
<CAPTION>


                                                                         Income                  
                                        Shares of            Additional  Retained      Treasury  
                                        Common Stock Common   Paid-in   for Use in      Shares   
                                        Outstanding  Stock    Capital   the Business  - at Cost  
--------------------------------------------------------------------------------------------------
<S>                                       <C>       <C>       <C>       <C>           <C>        
Balance at July 1, 1996                   18,566    $10,000   $7,528    $197,232      ($21,260)  
 Net income                                                               27,092                 
 Cash dividends - $.41 per share                                          (7,682)                
 Purchase of common stock
   for treasury                             (249)                                       (4,568)  
 Treasury shares issued for:
   Retirement Savings Plan contributions     164               1,809                     1,568   
   Exercise of stock options                  78                 342                       747   
   Deferred compensation plans                53                 532                       463   
   Restricted common stock awards              9                  68                        67   
 Amortization of restricted common
   stock compensation                                             32                             
 Increase in fair value of shares
    held in trust                                                                                
-------------------------------------------------------------------------------------------------
Balance at June 30, 1997                  18,621     10,000   10,311     216,642       (22,983)  
 Net income                                                                4,497                 
 Cash dividends - $.11 per share                                          (2,357)                
 Purchase of common stock
   for treasury                             (276)                                       (7,790)  
 Issuance of common stock for the
   acquisition of Invetech Company         3,165              63,374                             
 Treasury shares issued for:
   Retirement Savings Plan contributions      62               1,224                       674   
   Exercise of stock options                  35                  19                       355   
   Deferred compensation plans                20                 322                       184   
   Restricted common stock awards            212               3,676                     2,140   
 Amortization of restricted common
   stock compensation                                                                            
 Increase in fair value of shares
    held in trust                                                                                
-------------------------------------------------------------------------------------------------
Balance at September 30, 1997             21,839    $10,000  $78,926    $218,782      ($27,420)  
=================================================================================================


<CAPTION>


                                              Shares Held in      Unearned                   
                                              Trust for           Restricted    Total        
                                              Deferred            Common Stock  Shareholders'
                                              Compensation Plans  Compensation  Equity       
---------------------------------------------------------------------------------------------
<S>                                                <C>            <C>           <C>          
Balance at July 1, 1996                            ($3,008)       ($1,200)      $189,292     
 Net income                                                                       27,092     
 Cash dividends - $.41 per share                                                  (7,682)    
 Purchase of common stock                                                                    
   for treasury                                                                   (4,568)    
 Treasury shares issued for:                                                                 
   Retirement Savings Plan contributions                                           3,377     
   Exercise of stock options                                                       1,089     
   Deferred compensation plans                        (995)                                  
   Restricted common stock awards                                    (135)                   
 Amortization of restricted common                                                           
   stock compensation                                                 385            417     
 Increase in fair value of shares                                                            
    held in trust                                   (1,433)                       (1,433)    
-------------------------------------------------------------------------------------------- 
Balance at June 30, 1997                            (5,436)          (950)       207,584     
 Net income                                                                        4,497     
 Cash dividends - $.11 per share                                                  (2,357)    
 Purchase of common stock                                                                    
   for treasury                                                                   (7,790)    
 Issuance of common stock for the                                                            
   acquisition of Invetech Company                                                63,374     
 Treasury shares issued for:                                                                 
   Retirement Savings Plan contributions                                           1,898     
   Exercise of stock options                                                         374     
   Deferred compensation plans                        (506)                                  
   Restricted common stock awards                                  (5,816)                   
 Amortization of restricted common                                                           
   stock compensation                                                 810            810     
 Increase in fair value of shares                                                            
    held in trust                                   (2,542)                       (2,542)    
-------------------------------------------------------------------------------------------- 
Balance at September 30, 1997                      ($8,484)       ($5,956)      $265,848     
============================================================================================ 
</TABLE>
                                                                                

See notes to consolidated financial statements.




                                       5
<PAGE>   7

             APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
             ------------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (Amounts in thousands) (Unaudited)
--------------------------------------------------------------------------------


1.       BASIS OF PRESENTATION

         In the opinion of the Company, the accompanying unaudited consolidated
         financial statements contain all adjustments (consisting of only normal
         recurring adjustments) necessary to present fairly the financial
         position as of September 30, 1997 and June 30, 1997, and the results of
         operations for the three months ended September 30, 1997 and 1996, and
         cash flows for the three months ended September 30, 1997 and 1996.

         The results of operations for the three month period ended September
         30, 1997 are not necessarily indicative of the results to be expected
         for the fiscal year.

         Cost of sales for interim financial statements are computed using
         estimated gross profit percentages which are adjusted throughout the
         year based upon available information. Adjustments to actual cost are
         made based on the annual physical inventory and the effect of year-end
         inventory quantities on LIFO costs.


2.       NET INCOME PER SHARE

         Net income per share was computed using the weighted average number of
         common shares outstanding for the period.

         All share and per share data has been restated to reflect a three for
         two stock split effective September 15, 1997.

         Average shares outstanding for the computation of net income per share
         were 20,843 and 18,609 for the three months ended September 30, 1997
         and 1996, respectively.


3.       BUSINESS COMBINATIONS

         Effective August 1, 1997, the Company completed the acquisition of
         Invetech Company (Invetech), a distributor of bearings, mechanical and
         electrical drive system products, industrial rubber products and
         specialty maintenance and repair products. The aggregate purchase price
         including the issuance of 2,110 shares of Company common stock, was
         $93,900. The cash portion of the purchase price of $23,400 was financed
         through available short-term lines of credit.



                                       6
<PAGE>   8

             APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
             ------------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (Amounts in thousands) (Unaudited)
--------------------------------------------------------------------------------

         The Company accounted for the acquisition as a purchase and has
         included Invetech's results of operations from the effective date of
         the acquisition. The Company incurred a pre-tax nonrecurring charge of
         $4,000 in the quarter ending September 30, 1997 for consolidation
         expenses and costs associated with disposal of duplicative property and
         other assets. The purchase price was allocated based on estimated fair
         values at the date of acquisition. Goodwill representing the excess of
         the purchase price over assets acquired of $35,840 is being amortized
         on a straight-line basis over 30 years.

         The following table summarizes the unaudited consolidated pro forma
         results of operations, as if the acquisition had occurred at the
         beginning of the following periods:

<TABLE>
<CAPTION>

                                                  Three Months Ended September 30
                                                     1997                 1996
                                                     ----                 ----
                                                            (Unaudited)
<S>                                                <C>                  <C>     
               Net sales                           $369,865             $360,755
               Income before income taxes             6,707               11,180
               Net income                             3,948                6,716
               Net income per share                     .18                  .31
</TABLE>

         The unaudited pro forma amounts include the pre-tax nonrecurring charge
         of $4,000 for the three months ended September 30, 1997.

         This pro forma information is not necessarily indicative of the results
         that actually would have been obtained if the operations had been
         combined during the periods presented and is not intended to be a
         projection of future results.

         On August 29, 1997 the Company acquired certain assets of Midwest
         Rubber and Supply Company, a rubber fabrication and repair shop for
         $2,377 in cash. The Company accounted for the acquisition as a purchase
         and has included their results of operations in the accompanying
         consolidated financial statements from the acquisition date. Results of
         operations are not material for all periods presented. Goodwill
         recognized in connection with the acquisition is being amortized over
         15 years.


4.       LONG-TERM DEBT

         In connection with the Invetech acquisition, the Company assumed an
         $8,000 bank term loan, at an interest rate of 5.97%, payable in
         December, 1998.


                                       7
<PAGE>   9

             APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (Amounts in thousands) (Unaudited)
--------------------------------------------------------------------------------


5.       SUBSEQUENT EVENTS

         On October 21, 1997 the Board of Directors declared a quarterly
         dividend of $.12 per share payable November 28, 1997 to shareholders of
         record on November 14, 1997.

         At the annual meeting on October 21, 1997 the shareholders of the
         Company voted to increase the number of authorized shares of common
         stock from 30,000 to 50,000.






















                                       8
<PAGE>   10


             APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
             ------------------------------------------------------
            ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

The following is Management's discussion and analysis of certain significant
factors which have affected the Company's: (1) financial condition at September
30, 1997 and June 30, 1997, and (2) results of operations during the periods
included in the accompanying statements of Consolidated Income and Consolidated
Cash Flows.

FINANCIAL CONDITION

Liquidity and Working Capital
-----------------------------

Cash provided by operating activities was $18.5 million in the three months
ended September 30, 1997. This compares to $12.4 million provided by operating
activities in the same period a year ago.

Cash flow from operations depends primarily upon generating operating income and
controlling the investment in inventory and receivables, and managing the timing
of payments to suppliers. The company has continuing programs to monitor and
control these investments. During the three month period ended September 30,
1997 inventories (excluding inventories purchased with the acquisition of
Invetech and Midwest Rubber) increased approximately $14.8 million due to timing
of purchases. Accounts receivable decreased by $6.3 million due to improved
collections.

Investments in property totaled $6.0 million and $3.7 million in the three
months ended September 30, 1997 and 1996 respectively. These capital
expenditures were primarily made for building and upgrading branch and
distribution center facilities, and acquiring data processing equipment and
vehicles.

Working capital at September 30, 1997 was $187.4 million compared to $164.7
million at June 30, 1997. This increase is primarily due to an increase in cash
provided from operations, and the integration of the acquisitions of Invetech
and Midwest Rubber.

Capital Resources
-----------------

Capital resources are obtained from income retained in the business,
indebtedness under the Company's lines of credit and long-term debt agreements,
and operating lease arrangements.





                                       9
<PAGE>   11






             APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
             ------------------------------------------------------
            ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

Average combined short-term and long-term borrowing was $100.0 million for the
three months ended September 30, 1997 and $89.4 million during the year ended
June 30, 1997. The average effective interest rate on the short-term borrowings
for the three months ended September 30, 1997 decreased to 6.2% from an average
rate of 6.6% for the three months ended September 30, 1996 due to lower interest
rates on short-term debt. The Company has $155 million of short-term lines of
credit with commercial banks which provide for payment of interest at various
interest rate options, none of which are in excess of the banks' prime rate. The
Company has an agreement with the Prudential Insurance Company of America for an
uncommitted shelf facility to borrow up to $50 million in additional long-term
financing, at its sole discretion, with terms ranging from seven to twenty
years. The Company had $41.7 million of borrowings outstanding under short-term
bank lines of credit and none under the shelf facility agreement at September
30, 1997. Unused lines of credit totaling $113.3 million are available for
future short-term financing needs.

The Board of Directors has authorized an ongoing program to purchase shares of
the Company's common stock to fund employee benefit programs and stock option
and award programs. These purchases are made in open market and negotiated
transactions, from time to time, depending upon market conditions. The Company
acquired 276,000 shares of its common stock for $7.8 million during the three
months ended September 30, 1997.

Management expects that capital resources provided from operations, available
lines of credit and long-term debt and operating leases will be sufficient to
finance normal working capital needs, business acquisitions, enhancement of
facilities and equipment and the purchase of additional Company common stock.
Management also believes that additional long-term debt and line of credit
financing could be obtained if desired.









                                       10
<PAGE>   12

             APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
             ------------------------------------------------------
            ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

RESULTS OF OPERATIONS
---------------------

A summary of the period-to-period changes in principal items included in the
statements of consolidated income follows:

<TABLE>
<CAPTION>

                                      Increase  (Decrease)
                                     (Dollars in Thousands)

                                       Three Months Ended
                                         September 30
                                        1997 and 1996

                                   Amount            Change
                                   ------            ------
<S>                               <C>                <C>  
Net sales                         $ 62,477           22.1%

Cost of sales                       47,651           22.8%

Selling,distribution and
administrative expenses             15,743           25.1%

Operating income                      (917)          (8.6)%

Interest expense - net                 943           75.9%

Income before income taxes          (1,860)         (19.6)%

Income taxes                          (952)         (23.4)%

Net income                            (908)         (16.8)%

</TABLE>

Three Months Ended September 30, 1997 and 1996
----------------------------------------------

The Company acquired Invetech effective August 1, 1997. Invetech's operations
were consolidated with those of the Company as of the acquisition date. The
increase in net sales, cost of sales and selling, distribution and
administrative expenses from the prior year relate primarily to the operations
of Invetech. During the quarter ended September 30, 1997, the Company incurred a
pre-tax nonrecurring charge of $4,000 included in selling, distribution and
administrative expenses for consolidation expenses and costs associated with
disposal of duplicative property and other assets related to the Invetech
acquisition.


                                       11
<PAGE>   13

             APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
             ------------------------------------------------------
            ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

Interest expense-net for the quarter increased by 75.9% primarily as a result of
an increase in average borrowings related to the Invetech acquisition.

Income taxes as a percentage of income before taxes were 41.0% in the three
months ended September 30, 1997 and 43.0% in the three months ended September
30, 1996. The decrease is primarily attributed to tax savings from lower
effective state and local income tax rates.

As a result of the above factors, net income decreased by 16.8% compared to the
same quarter of last year.




                                       12
<PAGE>   14




PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings.
         ------------------

(a)      The Company incorporates by reference herein the description of the
         case captioned In RE: ROBERT LEE BICKHAM, ET AL. V. METROPOLITAN LIFE
         INS. CO., ET AL., 22nd Judicial District Court for the Parish of
         Washington, State of Louisiana, Case No. 70,760-E; and two related
         cases pending in the same court -- IDA MAE WILLIAMS, ET AL. V.
         METROPOLITAN LIFE INS. CO., ET AL., Case No. 72,986-F and BENNIE L.
         ADAMS, ET AL. V. METROPOLITAN LIFE INS. CO., ET AL., Case No. 72,154-B,
         -- found in Item 3 "Pending Legal Proceedings" contained in the
         Company's Form 10-K for the fiscal year ended June 30, 1997. In
         November 1997, the Company was dismissed without prejudice from all of
         these cases.

(b)      The Company also incorporates by reference herein the description of
         the case captioned KING BEARING, INC. V. CARYL EDMUND ORANGES, ET AL.,
         Superior Court of the State of California, County of Orange, Case No.
         53-42-31 found in Item 3 "Pending Legal Proceedings" contained in the
         Company's Form 10-K for the fiscal year ended June 30, 1997. The
         Company believes that this case will have no material adverse effect on
         its business or financial condition.

(c)      Applied Industrial Technologies, Inc. and/or one of its subsidiaries is
         a defendant in several product-related lawsuits. Based on circumstances
         presently known, the Company believes that these cases are not material
         to its business or financial condition.

ITEM 5.  Other Information.
         ------------------

(a)       Submission of Matters to a Vote of Security Holders.
          ----------------------------------------------------

         At the Annual Meeting of Shareholders of the Company held on October
         21, 1997, there were 14,680,016 shares of common stock entitled to
         vote. The Shareholders voted on the matters submitted to the meeting as
         follows:

                  1.       Election of four persons to be directors of Class I
                           for a term of three years:

                                                      For        Withheld
                                                      ---        --------

                           John C. Dannemiller     12,268,090    172,938
                           J. Michael Moore        12,138,287    302,741        
                           John C. Robinson        12,268,388    172,640
                           Dr. Jerry Sue Thornton  12,137,306    303,722



                                       13
<PAGE>   15

                           Directors of Class II, consisting of William G.
                           Bares, Roger D. Blackwell, Russel B. Every and John
                           J. Kahl, serve until the expiration of their term of
                           office in 1998 and Directors of Class III, consisting
                           of William E. Butler, Russell R. Gifford and L.
                           Thomas Hiltz, serve until the expiration of their
                           term of office in 1999. The Board of Directors had
                           previously increased the authorized number of
                           Directors constituting the entire Board from 10 to
                           11.

                  2.       Amendment of the Company's Amended and Restated
                           Articles of Incorporation to increase the number of
                           authorized shares of Common Stock from 30,000,000 to
                           50,000,000.

                                 For               Withheld         Abstain
                                 ---               --------         -------

                              11,977,740            440,373         22,915

                  3.       Amendment of the 1990 Long-Term Performance Plan to
                           continue to qualify certain awards thereunder as
                           "performance-based" compensation under Section 162(m)
                           of the Internal Revenue Code.

                                 For               Withheld         Abstain
                                 ---               --------         -------

                              11,117,284          1,266,991         56,753

                  4.       Ratification of the appointment by management of
                           Deloitte & Touche LLP as independent auditors of the
                           Company for the fiscal year ending June 30, 1998.

                                 For               Withheld         Abstain
                                 ---               --------         -------

                              12,410,441              8,388         22,199

                  Discretionary voting was authorized as to all matters
                  submitted. There were no broker non-votes.

(b)      Election of Officers. 
         ---------------------

         At its Organizational Meeting held on October 21, 1997, the Board of
         Directors elected the following officers of the Company:

          John C. Dannemiller     Chairman, Chief Executive Officer & President
          John C. Robinson        Vice Chairman

                                       14
<PAGE>   16

          Mark O. Eisele          Vice President & Controller
          James T. Hopper         Vice President-Information Systems
          Francis A. Martins      Vice President-Sales & Field Operations
          Bill L. Purser          Vice President-Marketing &
                                          National Accounts
          Jeffrey A. Ramras       Vice President-Logistics
          Richard C. Shaw         Vice President-Communications,
                                          Organizational Learning &
                                          Quality Standards
          Robert C. Stinson       Vice President-Chief Administrative Officer,
                                          General Counsel & Secretary
          John R. Whitten         Vice President-Chief Financial Officer &
                                          Treasurer
          Fred D. Bauer           Assistant Secretary
          Jody A. Chabowski       Assistant Controller
          Michael L. Coticchia    Assistant Secretary
          Alan M. Krupa           Assistant Treasurer

(c)      3-for-2 Stock Split.
         --------------------

         On August 15, 1997, the Company's Board of Directors approved a
         three-for-two stock split payable on September 15, 1997 to shareholders
         of record on August 29, 1997.

(d)      Acquisition of INVETECH Company.
         --------------------------------

         As reported in the Company's Form 8-K filed on August 14, 1997, the
         Company completed the acquisition, through merger, on July 31, 1997, of
         INVETECH Company ("Invetech"), a Michigan corporation. In connection
         with the merger, all of the outstanding common stock of Invetech was
         exchanged for aggregate stock and cash consideration of 2,109,550
         shares of Company Common Stock, without par value, and $23,444,996.


ITEM 6.  Exhibits and Reports on Form 8-K.
         ---------------------------------

         (a)      Exhibits.

                  Exhibit No.    Description

                     4(a)        Amended and Restated Articles of Incorporation
                                 of Applied Industrial Technologies, Inc. (filed
                                 as Exhibit 3(a) to the Company's Registration
                                 Statement on Form S-4 filed May 23, 

                                       15
<PAGE>   17

                                 1997, Registration No. 333-27801, and
                                 incorporated here by reference).

                     4(b)        Code of Regulations of Applied Industrial
                                 Technologies, Inc. adopted September 6, 1988
                                 (filed as Exhibit 3(b) to the Company's
                                 Registration Statement on Form S-4 filed May
                                 23, 1997, Registration No. 333-27801, and
                                 incorporated here by reference).

                     4(c)        Certificate of Merger of Bearings, Inc. (Ohio)
                                 and Bearings, Inc. (Delaware) filed with the
                                 Ohio Secretary of State on October 18, 1988,
                                 including an Agreement and Plan of
                                 Reorganization dated September 6, 1988 (filed
                                 as Exhibit 4(a) to the Company's Registration
                                 Statement on Form S-4 filed May 23, 1997,
                                 Registration No. 333-27801, and incorporated
                                 here by reference).

                     4(d)        $80,000,000 Maximum Aggregate Principal Amount
                                 Note Purchase and Private Shelf Facility dated
                                 October 31, 1992 between the Company and The
                                 Prudential Insurance Company of America (filed
                                 as Exhibit 4(b) to the Company's Registration
                                 Statement on Form S-4 filed May 23, 1997,
                                 Registration No. 333-27801, and incorporated
                                 here by reference).

                     4(e)        Amendment to $80,000,000 Maximum Aggregate
                                 Principal Amount Note Purchase and Private
                                 Shelf Facility dated October 31, 1992 between
                                 the Company and The Prudential Insurance
                                 Company of America (filed as Exhibit 4(g) to
                                 the Company's Form 10-Q for the quarter ended
                                 March 31, 1996, SEC File No. 1-2299, and
                                 incorporated here by reference).

                     10(a)       Supplemental Executive Retirement Benefits Plan
                                 covering all of the Company's executive
                                 officers (July 1, 1997 Restatement).

                     10(b)       Salary Continuation Agreement between J.
                                 Michael Moore and INVETECH Company dated March
                                 28, 1991.

                     10(c)       Consulting, Noncompetition and Confidentiality
                                 Agreement between Oak Grove Consulting Group,
                                 Inc., J. Michael Moore and the Company dated
                                 July 31, 1997.




                                       16
<PAGE>   18



                     11          Computation of Net Income Per Share.

                     27          Financial Data Schedule.

         (b)      The Company filed a report on Form 8-K with the Securities and
                  Exchange Commission on August 14, 1997 with respect to the
                  Company's acquisition, through merger, of Invetech. The
                  financial statements filed with the Form 8-K were incorporated
                  by reference from the Company's Registration Statement on Form
                  S-4 (File No. 333-27801), effective July 22, 1997, and are
                  listed therein.

Cautionary Statement under Private Securities Litigation Reform Act of 1995
---------------------------------------------------------------------------

                  This report, including Part I, Item 2 -- Management's
Discussion and Analysis, may contain statements that are forward-looking, as
that term is defined by the Private Securities Litigation Reform Act of 1995 or
by the Securities and Exchange Commission in its rules, regulations and
releases. The Company intends that such forward-looking statements be subject to
the safe harbors created thereby. All forward-looking statements are based on
current expectations regarding important risk factors. Accordingly, actual
results may differ materially from those expressed in the forward-looking
statements, and the making of such statements should not be regarded as a
representation by the Company or any other person that the results expressed
therein will be achieved.

                  Important risk factors include, but are not limited to, the
following: changes in the economy; changes in customer procurement policies and
practices; changes in product manufacturer sales policies and practices; the
availability of product; changes in operating expenses; the effect of price
increases; the variability and timing of business opportunities including
acquisitions, customer agreements, supplier authorizations and other business
strategies; the Company's ability to realize the anticipated benefits of
acquisitions; the incurrence of additional debt and contingent liabilities in
connection with acquisitions; changes in accounting policies and practices; the
effect of organizational changes within the Company; adverse results in
significant litigation matters; adverse state and federal regulation and
legislation; and the occurrence of extraordinary events (including prolonged
labor disputes, natural events and acts of God, fires, floods and accidents).



                                       17
<PAGE>   19



                                   SIGNATURES
                                   ----------

                  Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                         APPLIED INDUSTRIAL TECHNOLOGIES, INC.
                                         (Company)


Date:  November 13, 1997                 By:  /s/ John C. Dannemiller
                                              -------------------------------
                                                  John C. Dannemiller
                                                  Chairman, Chief Executive
                                                  Officer & President

Date:  November 13, 1997                 By:  /s/ John R. Whitten
                                              -------------------------------
                                                  John R. Whitten
                                                  Vice President-Chief Financial
                                                  Officer & Treasurer



                                       18
<PAGE>   20







                      APPLIED INDUSTRIAL TECHNOLOGIES, INC.

                                  EXHIBIT INDEX
              TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997

EXHIBIT NO.               DESCRIPTION                                      PAGE

      4(a)      Amended and Restated Articles of Incorporation of
                Applied Industrial Technologies, Inc. (filed as
                Exhibit 3(a) to the Company's Registration Statement
                on Form S-4 filed May 23, 1997, Registration No.
                333-27801, and incorporated here by reference).

      4(b)      Code of Regulations of Applied Industrial
                Technologies, Inc., adopted September 6, 1988 (filed
                as Exhibit 3(b) to the Company's Registration
                Statement on Form S-4 filed May 23, 1997, Registration
                No. 333-27801, and incorporated here by reference).

      4(c)      Certificate of Merger of Bearings, Inc. (Ohio) and
                Bearings, Inc. (Delaware) filed with the Ohio
                Secretary of State on October 18, 1988, including an
                Agreement and Plan of Reorganization dated September
                6, 1988 (filed as Exhibit 4(a) to the Company's
                Registration Statement on Form S-4 filed May 23, 1997,
                Registration No. 333-27801, and incorporated here by
                reference).

      4(d)      $80,000,000 Maximum Aggregate Principal Amount Note
                Purchase and Private Shelf Facility dated October 31,
                1992 between the Company and The Prudential Insurance
                Company of America (filed as Exhibit 4(b) to the
                Company's Registration Statement on Form S-4 filed May
                23, 1997, Registration No. 333-27801, and incorporated
                here by reference).

      4(e)      Amendment to $80,000,000 Maximum Aggregate Principal
                Amount Note Purchase and Private Shelf Facility dated
                October 31, 1992 between the Company and The
                Prudential Insurance Company of America (filed as
                Exhibit 4(g) to the Company's Form 10-Q for the
                quarter ended March 31, 1996, SEC File No. 1-2299, and
                incorporated here by reference).


<PAGE>   21

      10(a)     Supplemental Executive Retirement Benefits Plan
                covering all of the Company's executive officers 
                (July 1, 1997 Restatement).                            Attached

      10(b)     Salary Continuation Agreement between J. Michael 
                Moore and INVETECH Company dated March 28, 1991.       Attached

      10(c)     Consulting, Noncompetition and Confidentiality
                Agreement between Oak Grove Consulting Group, Inc., 
                J. Michael Moore and the Company dated July 31, 
                1997.                                                  Attached
                                                                      

      11        Computation of Net Income Per Share.                   Attached

      27        Financial Data Schedule.                               Attached



