-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A+k3XAVjx4wQql4mktKvVuBmCv9Figcmhg5gzoko3IJE3lZH4bwfEvVRaBQSgRCk QwiZhgTygOYl47fmoGEtsA== 0000950152-00-004007.txt : 20000515 0000950152-00-004007.hdr.sgml : 20000515 ACCESSION NUMBER: 0000950152-00-004007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLIED INDUSTRIAL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000109563 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MACHINERY, EQUIPMENT & SUPPLIES [5080] IRS NUMBER: 340117420 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02299 FILM NUMBER: 629319 BUSINESS ADDRESS: STREET 1: 3600 EUCLID AVE CITY: CLEVELAND STATE: OH ZIP: 44115 BUSINESS PHONE: 2168818900 MAIL ADDRESS: STREET 1: 3600 EUCLID AVE CITY: CLEVELAND STATE: OH ZIP: 44115 FORMER COMPANY: FORMER CONFORMED NAME: BEARINGS INC /OH/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BROWN JIM STORES INC DATE OF NAME CHANGE: 19600201 10-Q 1 APPLIED INDUSTRIAL TECHNOLOGIES, INC. 10-Q 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 MARCH 31, 2000 ------------------------------ 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 April 30, 2000 20,291,709 ----------------------------------------- (No par value) 2 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES INDEX
- -------------------------------------------------------------------------- Page No. Part I: FINANCIAL INFORMATION Item 1: Financial Statements Statements of Consolidated Income - 2 Three Months and Nine Months Ended March 31, 2000 and 1999 Consolidated Balance Sheets - 3 March 31, 2000 and June 30, 1999 Statements of Consolidated Cash Flows - 4 Nine Months Ended March 31, 2000 and 1999 Statements of Consolidated Shareholders' Equity - 5 Nine Months Ended March 31, 2000 and Year Ended June 30, 1999 Notes to Consolidated Financial Statements 6 - 8 Item 2: Management's Discussion and Analysis of 9 - 13 Financial Condition and Results of Operations Part II: OTHER INFORMATION Item 1: Legal Proceedings 14 Item 6: Exhibits and Reports on Form 8-K 14 Signatures 16
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) - -------------------------------------------------------------------------------
Three Months Ended Nine Months Ended March 31 March 31 2000 1999 2000 1999 ------------------------- ------------------------------- Net Sales $413,194 $386,616 $ 1,166,491 $ 1,137,185 -------- -------- ----------- ----------- Cost and Expenses Cost of sales 310,172 292,535 877,017 863,725 Selling, distribution and administrative 87,424 81,242 249,746 245,422 -------- -------- ----------- ----------- 397,596 373,777 1,126,763 1,109,147 -------- -------- ----------- ----------- Operating Income 15,598 12,839 39,728 28,038 -------- -------- ----------- ----------- Interest Interest expense 1,858 2,182 5,926 7,920 Interest income (212) (143) (479) (474) -------- -------- ----------- ----------- 1,646 2,039 5,447 7,446 -------- -------- ----------- ----------- Income Before Income Taxes 13,952 10,800 34,281 20,592 -------- -------- ----------- ----------- Income Taxes Federal 5,160 3,996 12,682 7,620 State and local 488 432 1,200 854 -------- -------- ----------- ----------- 5,648 4,428 13,882 8,474 -------- -------- ----------- ----------- Net Income $ 8,304 $ 6,372 $ 20,399 $ 12,118 ======== ======== =========== =========== Net Income per share - Basic $ 0.41 $ 0.30 $ 0.99 $ 0.56 ======== ======== =========== =========== Net Income per share - Diluted $ 0.40 $ 0.30 $ 0.98 $ 0.56 ======== ======== =========== =========== Cash dividends per common share $ 0.12 $ 0.12 $ 0.36 $ 0.36 ======== ======== =========== ===========
See notes to consolidated financial statements. 2 4 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ CONSOLIDATED BALANCE SHEETS (Amounts in thousands) - ------------------------------------------------------------------------------
March 31 June 30 2000 1999 --------- --------- (Unaudited) Assets Current assets Cash and temporary investments $ 15,265 $ 19,186 Accounts receivable, less allowance of $4,447 and $3,515 203,377 195,736 Inventories (at LIFO) 163,656 169,689 Other current assets 7,399 6,235 --------- --------- Total current assets 389,697 390,846 --------- --------- Property - at cost Land 12,214 12,316 Buildings 66,898 69,329 Equipment 93,598 96,011 --------- --------- 172,710 177,656 Less accumulated depreciation 75,452 70,417 --------- --------- Property - net 97,258 107,239 --------- --------- Goodwill 60,507 62,351 Other assets 14,707 13,913 --------- --------- TOTAL ASSETS $ 562,169 $ 574,349 ========= ========= Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 90,738 $ 78,836 Compensation and related benefits 29,179 19,692 Other accrued liabilities 33,212 33,588 --------- --------- Total current liabilities 153,129 132,116 Long-term debt 91,646 126,000 Other liabilities 23,035 22,647 --------- --------- TOTAL LIABILITIES 267,810 280,763 --------- --------- Shareholders' Equity Preferred stock - no par value; 2,500 shares authorized; none issued or outstanding Common stock - no par value; 50,000 shares authorized; 24,095 shares issued 10,000 10,000 Additional paid-in capital 83,100 82,599 Income retained for use in the business 258,926 246,026 Less 3,806 and 2,994 treasury shares - at cost (53,662) (40,140) Less unearned restricted common stock compensation (4,005) (4,899) --------- --------- TOTAL SHAREHOLDERS' EQUITY 294,359 293,586 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 562,169 $ 574,349 ========= =========
See notes to consolidated financial statements. 3 5 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited) (Amounts in thousands)
Nine Months Ended March 31 2000 1999 - ------------------------------------------------------------------------------------------------------ Cash Flows from Operating Activities Net income $ 20,399 $ 12,118 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 13,361 12,882 Amortization of goodwill and restricted common stock compensation 4,072 3,828 Provision for losses on accounts receivable 2,286 1,804 Gain on sale of property (564) (2) Treasury shares contributed to employee benefit plans 2,801 2,725 Changes in current assets and liabilities, net of effects from acquisition of businesses: Accounts receivable (9,657) 10,764 Inventories 6,472 2,437 Other current assets (1,164) (444) Accounts payable and accrued expenses 20,023 28,344 Other - net 278 266 - ------------------------------------------------------------------------------------------------------ Net Cash provided by Operating Activities 58,307 74,722 - ------------------------------------------------------------------------------------------------------ Cash Flows from Investing Activities Property purchases (6,919) (9,652) Proceeds from property sales 4,190 3,088 Net cash paid for acquisition of businesses (693) (12,533) Deposits and other (797) 7,920 - ------------------------------------------------------------------------------------------------------ Net Cash used in Investing Activities (4,219) (11,177) - ------------------------------------------------------------------------------------------------------ Cash Flows from Financing Activities Net repayments under line-of-credit agreements (42,973) Borrowings (repayments) under revolving credit agreements - net (28,640) 30,999 Long-term debt repayments (5,714) (13,714) Dividends paid (7,499) (7,855) Purchase of treasury shares (16,264) (18,953) Exercise of stock options 108 752 - ------------------------------------------------------------------------------------------------------ Net Cash used in Financing Activities (58,009) (51,744) - ------------------------------------------------------------------------------------------------------ Increase (decrease ) in cash and temporary investments (3,921) 11,801 Cash and temporary investments at beginning of period 19,186 9,344 - ------------------------------------------------------------------------------------------------------ Cash and Temporary Investments at End of Period $ 15,265 $ 21,145 ==================================================================================================== Supplemental Cash Flow Information Cash paid during the period for: Income taxes $ 15,926 $ 6,771 Interest $ 5,534 $ 7,877
See notes to consolidated financial statements. 4 6 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY For the Nine Months Ended March 31, 2000 (Unaudited) and Year Ended June 30, 1999 (Thousands, except per share amounts )
Income Unearned Shares of Additional Retained Treasury Restricted Total Common Stock Common Paid-in for Use in Shares Common Stock Shareholders' Outstanding Stock Capital the Business - at Cost Compensation Equity - ---------------------------------------------------------------------------------------------------------------------------------- Balance at July 1, 1998 22,102 $10,000 $82,713 $236,109 $(24,391) $(4,929) $299,502 Net income 19,933 19,933 Cash dividends - $.48 per share (10,397) (10,397) Purchase of common stock for treasury (1,450) (21,746) (21,746) Treasury shares issued for: Retirement Savings Plan contributions 220 337 2,980 3,317 Exercise of stock options 109 (281) 1,442 1,161 Deferred compensation plans 24 55 309 364 Restricted common stock awards 96 (86) 1,266 (1,180) Amortization of restricted common stock compensation 28 1,210 1,238 Other (167) 381 214 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1999 21,101 10,000 82,599 246,026 (40,140) (4,899) 293,586 Net income 20,399 20,399 Cash dividends - $.36 per share (7,499) (7,499) Purchase of common stock for treasury (1,013) (16,264) (16,264) Treasury shares issued for: Retirement Savings Plan contributions 175 394 2,407 2,801 Exercise of stock options 8 108 108 Deferred compensation plans 17 51 227 278 Amortization of restricted common stock compensation 894 894 Other 56 56 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 2000 20,288 $10,000 $83,100 $258,926 $(53,662) $(4,005) $294,359 ==================================================================================================================================
See notes to consolidated financial statements. 5 7 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts) (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 March 31, 2000 and June 30, 1999, and the results of operations for the three months and nine months ended March 31, 2000 and 1999 and cash flows for the nine months ended March 31, 2000 and 1999. The results of operations for the three and nine month periods ended March 31, 2000 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. Certain reclassifications have been made to the prior year consolidated financial statements in order to be consistent with the presentation for the current year. 2. NET INCOME PER SHARE The following is a computation of the basic and diluted earnings per share:
Three Months Ended Nine Months Ended March 31 March 31 2000 1999 2000 1999 ------------------------------------------- Net Income Net income as reported in statements of consolidated income $ 8,304 $ 6,372 $20,399 $12,118 =========================================== Average Shares Outstanding Weighted average common shares outstanding for basic computation 20,305 21,319 20,589 21,530 Dilutive effect of: Stock options 142 66 141 116 Performance Accelerated Restricted Stock (PARS) 80 13 86 14 ------------------------------------------- Adjusted average common shares outstanding for diluted computation 20,527 21,398 20,816 21,660 =========================================== Net Income Per Share Net income per common share - basic $ 0.41 $ 0.30 $ 0.99 $ 0.56 =========================================== Net income per common share - diluted $ 0.40 $ 0.30 $ 0.98 $ 0.56 ===========================================
6 8 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts) (Unaudited) - ------------------------------------------------------------------------------ 3. SEGMENT INFORMATION The Company has identified one reportable segment: Service Center Based Distribution. The Service Center Based Distribution segment provides customers with solutions to their immediate maintenance repairs and original equipment manufacturing needs through the distribution of industrial products including bearings, power transmission components, fluid power components, linear motion products, general maintenance and specialty items; engineered systems consisting of power transmission and electrical systems; fluid power products including hydraulic and pneumatic systems; and fabricated rubber products consisting of conveyor belting and industrial hose. The Company also offers various levels of technical application support for these products and provides creative solutions to help customers minimize downtime and reduce overall procurement costs. The "Other" column consists of the aggregation of all other non-service center based distribution operations that sell directly to customers, including fluid power, electrical shop and fabricated rubber businesses and various electronic commerce businesses. The segments were established in fiscal 1999 primarily due to acquisitions outside our core business segment and the related growth in these areas. The accounting policies of the segments are the same as those described in Note 1. Intersegment sales are not significant. All current segment operations are in the United States and Puerto Rico. The segment operations in Puerto Rico are not significant. SEGMENT FINANCIAL INFORMATION:
THREE MONTHS ENDED MARCH 31 ------------------------------------------------------------------------------------------- Total Service Center Based Distribution Other ------------------------- --------------------------------- ----------------------- 2000 1999 2000 1999 2000 1999 ------------- ----------- ------------ ------------ ----------- ----------- Total net sales $413,194 $386,616 $396,623 $372,284 $16,571 $14,332 ------------- ----------- ------------ ------------ ----------- ----------- Segment operating profit $ 19,145 $ 13,589 $ 18,177 $ 12,844 $ 968 $ 745 ============ ============ =========== =========== Goodwill amortization 1,108 1,060 Corporate/unallocated expense, net 2,439 (310) ------------- ----------- Total operating profit 15,598 12,839 Interest expense, net 1,646 2,039 ------------- ----------- Income before taxes $ 13,952 $ 10,800 ============= =========== Depreciation $ 4,344 $ 4,461 $ 4,219 $ 4,340 $ 125 $ 121 ============= =========== ============ ============ =========== =========== Capital Expenditures $ 2,568 $ 2,049 $ 2,380 $ 1,976 $ 188 $ 73 ============= =========== ============ ============ =========== =========== Sales By Product Category: Three Months Ended March 31 ------------------------- 2000 1999 ------------ ----------- Industrial Products $289,153 $272,607 Engineered Systems Products 63,236 58,515 Fluid Power Products 43,069 36,667 Fabricated Rubber Products 17,736 18,827 ------------ ----------- $413,194 $386,616 ============ ===========
7 9 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts) (Unaudited) - ------------------------------------------------------------------------------ SEGMENT FINANCIAL INFORMATION:
NINE MONTHS ENDED MARCH 31 ----------------------------------------------------------------------------------------- Total Service Center Based Distribution Other ------------------------- --------------------------------- ----------------------- 2000 1999 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ----------- ----------- Total net sales $1,166,491 $1,137,185 $1,119,241 $1,094,396 $47,250 $42,789 ------------ ------------ ------------ ------------ ----------- ----------- Segment operating profit $ 50,282 $ 48,439 $ 47,999 $ 46,612 $ 2,283 $ 1,827 ============ ============ =========== =========== Goodwill amortization 3,178 2,976 Corporate/unallocated expense, net (a) 7,376 17,425 ------------ ------------ Total operating profit 39,728 28,038 Interest expense, net 5,447 7,446 ------------ ------------ Income before taxes $ 34,281 $ 20,592 ============ ============ Assets used in the business $ 562,169 $ 603,243 $ 525,748 $ 568,053 $36,421 $35,190 ============ ============ ============ ============ =========== =========== Depreciation $ 13,361 $ 12,882 $ 12,981 $ 12,522 $ 380 $ 360 ============ ============ ============ ============ =========== =========== Capital Expenditures $ 6,919 $ 9,652 $ 6,610 $ 9,162 $ 309 $ 490 ============ ============ ============ ============ =========== =========== Sales By Product Category: Nine Months Ended March 31 --------------------------- 2000 1999 ------------- ------------- Industrial Products $ 818,347 $ 801,886 Engineered Systems Products 175,569 172,545 Fluid Power Products 120,193 107,694 Fabricated Rubber Products 52,382 55,060 ------------- ------------- $1,166,491 $1,137,185 ============= =============
a) Beginning in January 1999, certain logistics costs were allocated to the Service Center Based Distribution segment. 4. BUSINESS COMBINATIONS In December 1999, the Company acquired certain assets of a distributor of bearings and power transmission components for a total purchase price of $2,125, which includes a note payable to the seller of $1,432. The acquisition was accounted for as a purchase and the results of the business' operations are included in the accompanying consolidated financial statements from its acquisition date. Results of operations for this acquisition are not material for all periods presented. Goodwill, based on allocations of fair values to the assets and liabilities acquired, of $600 recognized in connection with this combination is being amortized over 15 years. 8 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 March 31, 2000 and June 30, 1999, and (2) results of operations and cash flows 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 $58.3 million in the nine months ended March 31, 2000. This compares to $74.7 million provided by operating activities in the same period a year ago. The decrease in cash provided by operating activities was due to an increase in accounts receivable attributable to increased year to date sales. Cash flow from operations depends primarily upon generating operating income, controlling the investment in inventories and receivables, and managing the timing of payments to suppliers. The Company has continuing programs to monitor and control these investments. During the nine month period ended March 31, 2000, inventories decreased approximately $6.5 million due to Company efforts to reduce inventory levels, and accounts receivable increased $9.7 million due to increased sales for the quarter. Net cash used in investing activities was $4.2 million in the nine months ended March 31, 2000 primarily from property purchases net of disposals. Net cash used in financing activities totaled $58.0 million in the nine months ended March 31, 2000 as compared to $51.7 million for the period ended March 31, 1999. Cash provided from operations was primarily used for repayments under the Company's debt agreements of $34.4 million and the purchase of company stock of $16.3 million. Working capital at March 31, 2000 was $236.6 million compared to $258.7 million at June 30, 1999. This decrease is primarily due to Company efforts to control investments in inventory and receivables. Capital Resources Capital resources are obtained from income retained in the business, borrowings under the Company's credit facilities, and operating lease arrangements. Average combined borrowings were $95.7 million and $143.5 million for the nine months ended March 31, 2000 and 1999, respectively. The weighted average interest rate on borrowings under revolving credit facilities for the nine months ended March 31, 2000 increased to 5.9% from an average rate of 5.7% for the nine months ended March 31, 1999. The weighted average interest rate on borrowing under other long-term debt agreements for the nine months ended March 31, 2000 decreased to 7.2% from an average rate of 7.3% for the nine months ended March 31, 1999. 9 11 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------- The Company has a committed revolving credit agreement expiring November, 2003 with a group of lending institutions. This agreement provides for unsecured borrowings of up to $150.0 million. The Company had $7.4 million of borrowings outstanding under this facility at March 31, 2000. Unused lines under this facility totaling $138.1 million are available to fund future acquisitions or other capital and operating requirements. The Company also has a $15.0 million short-term uncommitted line of credit with a commercial bank. The Company had no borrowings outstanding under this facility at March 31, 2000. Unused lines under this facility are available to fund future acquisitions or other capital and operating requirements. The Board of Directors has authorized an ongoing program to purchase shares of the Company's common stock to fund employee benefit programs, stock option and award programs, and future acquisitions. These purchases are made in open market and negotiated transactions, from time to time, depending upon market conditions. The Company acquired 1,013,000 shares of its common stock for $16.3 million during the nine months ended March 31, 2000. Effective April 20, 2000, the Company's Board of Directors authorized the Company to acquire up to an additional 1.0 million shares of company stock. Management expects that capital resources provided from operations, available lines of credit, unused amounts under the committed revolving credit facility 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 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:
Increase (Decrease) (Dollars in Thousands, Except per Share Amounts) Three Months Ended Nine Months Ended March 31 March 31 2000 and 1999 2000 and 1999 Amount Change Amount Change ------ ------ ------ ------ Net sales $ 26,578 6.9% $ 29,306 2.6% Cost of sales 17,637 6.0% 13,292 1.5% Selling, distribution and administrative expenses 6,182 7.6% 4,324 1.8% Operating income 2,759 21.5% 11,690 41.7% Interest expense - net (393) (19.3)% (1,999) (26.8)% Income before income taxes 3,152 29.2% 13,689 66.5% Income taxes 1,220 27.6% 5,408 63.8% Net income 1,932 30.3% 8,281 68.3% Net income per share - diluted $ 0.10 33.3% $ 0.42 75.0%
11 13 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, 2000 AND 1999 Net sales increased from the prior year primarily due to volume and price increases. Gross profit as a percentage of sales increased to 24.9% from 24.3%. This increase primarily is due to a change in product mix and higher discounts and allowances from suppliers. Selling, distribution and administrative expenses as a percent of sales, increased slightly to 21.2% from 21.0%. The change primarily relates to an increase in performance-based incentives. Interest expense-net for the quarter decreased by 19.3% as compared to the prior year primarily as a result of a decrease in average borrowings. Income tax expense as a percentage of income before taxes was 40.5% for the quarter ended March 31, 2000 and 41.0% for the quarter ended March 31, 1999. This decrease is due to lower effective state and local tax rates. As a result of the above factors, net income increased by 30.3% compared to the same quarter last year. Due to the increase in net income and the effect of the stock repurchase program, net income per share increased $.10, or 33.3%. NINE MONTHS ENDED MARCH 31, 2000 AND 1999 Net sales increased from the prior year primarily due to volume and price increases. Gross profit as a percentage of sales increased to 24.8% from 24.0%. This increase primarily is due to a change in product mix and higher discounts and allowances from suppliers. Selling, distribution and administrative expenses as a percent of sales, decreased to 21.4% from 21.6%. This change primarily relates to pretax restructuring and other special charges being recorded in the nine months ended March 31, 1999 of $5.4 million for costs of consolidation and workforce reductions. This charge decreased net income by $3.2 million, or $.14 per share for the nine months ended March 31, 1999. Partially offsetting this decrease was an increase in performance-based incentives during the current period. Interest expense-net for the period decreased by 26.8% as compared to the prior year primarily as a result of a decrease in average borrowings. Income tax expense as a percentage of income before taxes was 40.5% for the nine months ended March 31, 2000 and 41.2% for the nine months ended March 31, 1999. This decrease is due to lower effective state and local tax rates. As a result of the above factors, net income increased by 68.3% compared to the same period of last year. Due to the increase in net income and the effect of the stock repurchase program, net income per share increased $.42, or 75.0%. 12 14 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------- OTHER MATTERS On January 6, 2000, the Company signed a letter of intent to acquire the assets of certain distribution businesses of Dynavest Corporation (Dynavest) located in Canada which would give the Company its first physical presence outside of the United States. The Company plans on using its currently existing revolving line of credit to consummate this purchase and is considering replacing the borrowing with other long term financing shortly after the acquisition is completed. Dynavest has operations in five Canadian provinces. The Dynavest companies are distributors of bearings, power transmission systems and fluid power systems. Annual sales are approximately $72 million U.S. dollars. The transaction is expected to be completed by June 30, 2000. CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT Management's Discussion and Analysis contains statements that are forward-looking, based on management's current expectations about the future. The words "expect", "believe", "plan", and similar expressions identify forward-looking statements. The Company intends that the forward-looking statements be subject to the safe harbors established in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules, regulations and releases. 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 in the statements will be achieved. In addition, the Company undertakes no obligation publicly to update or revise any forward-looking statements, whether because of new information or events, or otherwise. Important risk factors include, but are not limited to, the following: changes in the economy or in specific customer industry sectors; changes in customer procurement policies and practices; changes in product manufacturer sales policies and practices; the availability of product and labor; changes in operating expenses; the effect of price increases or decreases; the variability and timing of business opportunities including acquisitions, alliances, customer agreements and supplier authorizations; the Company's ability to realize the anticipated benefits of acquisitions and other business strategies, including electronic commerce initiatives; 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; the emergence of new competitors, including firms with greater financial resources than 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). 13 15 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings. Applied Industrial Technologies, Inc. and/or one of its subsidiaries is a defendant in various product- and employment-related lawsuits. Based on circumstances presently known, the Company believes that these cases are not material to its business or financial condition. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits.
Exhibit No. Description ----------- ----------- 3(a) Amended and Restated Articles of Incorporation of Applied Industrial Technologies, Inc. (filed as Exhibit 3(a) to the Company's Form 10-Q for the quarter ended September 30, 1998, SEC File No. 1-2299, and incorporated here by reference). 3(b) Code of Regulations of Applied Industrial Technologies, Inc., as amended on October 19, 1999 (filed as Exhibit 3(b) to the Company's Form 10-Q for the quarter ended September 30, 1999, SEC File No. 1-2299, and incorporated here by reference). 4(a) Certificate of Merger of Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) filed with the Ohio Secretary of State on October 18, 1988, 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(b) $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).
14 16
Exhibit No. Description ----------- ----------- 4(c) 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). 4(d) $50,000,000 Private Shelf Agreement dated as of November 27, 1996, as amended on January 30, 1998, between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(f) to the Company's Form 10-Q for the quarter ended March 31, 1998, SEC File No. 1-2299, and incorporated here by reference). 4(e) $150,000,000 Credit Agreement dated as of November 5, 1998 among the Company, KeyBank National Association as Agent, and various financial institutions (filed as Exhibit 4(e) to the Company's Form 10-Q for the quarter ended September 30, 1998, SEC File No. 1-2299, and incorporated here by reference). 4(f) Rights Agreement, dated as of February 2, 1998, between the Company and Harris Trust and Savings Bank, as Rights Agent, which includes as Exhibit B thereto the Form of Rights Certificate (filed as Exhibit No. 1 to the Company's Registration Statement on Form 8-A filed July 20, 1998, SEC File No. 1-2299, and incorporated here by reference). 27 Financial Data Schedule.
(b) The Company did not file, nor was it required to file, a Report on Form 8-K with the Securities and Exchange Commission during the quarter ended March 31, 2000. 15 17 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: May 12, 2000 By: /s/ David L. Pugh ---------------------------------------- David L. Pugh President & Chief Executive Officer Date: May 12, 2000 By: /s/ John R. Whitten ---------------------------------------- John R. Whitten Vice President-Chief Financial Officer & Treasurer 16 18 APPLIED INDUSTRIAL TECHNOLOGIES, INC. EXHIBIT INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 EXHIBIT NO. DESCRIPTION PAGE 3(a) Amended and Restated Articles of Incorporation of Applied Industrial Technologies, Inc. (filed as Exhibit 3(a) to the Company's Form 10-Q for the quarter ended September 30, 1998, SEC File No. 1-2299, and incorporated here by reference). 3(b) Code of Regulations of Applied Industrial Technologies, Inc., as amended on October 19, 1999 (filed as Exhibit 3(b) to the Company's Form 10-Q for the quarter ended September 30, 1999, SEC File No. 1-2299, and incorporated here by reference). 4(a) Certificate of Merger of Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) filed with the Ohio Secretary of State on October 18, 1988, 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(b) $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(c) 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). 19 EXHIBIT NO. DESCRIPTION PAGE 4(d) $50,000,000 Private Shelf Agreement dated as of November 27, 1996, as amended on January 30, 1998, between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(f) to the Company's Form 10-Q for the quarter ended March 31, 1998, SEC File No. 1-2299, and incorporated here by reference). 4(e) $150,000,000 Credit Agreement dated as of November 5, 1998 among the Company, KeyBank National Association as Agent, and various financial institutions (filed as Exhibit 4(e) to the Company's Form 10-Q for the quarter ended September 30, 1998, SEC File No. 1-2299, and incorporated here by reference). 4(f) Rights Agreement, dated as of February 2, 1998, between the Company and Harris Trust and Savings Bank, as Rights Agent, which includes as Exhibit B thereto the Form of Rights Certificate (filed as Exhibit No. 1 to the Company's Registration Statement on Form 8-A filed July 20, 1998, SEC File No. 1-2299, and incorporated here by reference). 27 Financial Data Schedule. Attached EX-27 2 EXHIBIT 27
5 1,000 9-MOS JUN-30-2000 JUL-01-1999 MAR-31-2000 15,265 0 207,824 4,447 163,656 389,697 172,710 75,452 562,169 153,129 91,646 0 0 10,000 284,359 562,169 1,166,491 1,166,491 877,017 877,017 249,746 2,286 5,447 34,281 13,882 20,399 0 0 0 20,399 0.99 0.98
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