<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended June 30, 1999
Commission File No. 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 No.)
One Applied Plaza, Cleveland, Ohio 44115
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 426-4000.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
Common Stock, without par value New York Stock Exchange
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
<PAGE> 2
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, computed by reference to the price at which
the common equity was sold as of the close of business on August 31, 1999:
$286,267,648.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 31, 1999
----- ------------------------------
Common Stock, without par value 20,993,104
DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder are the documents, portions of which are incorporated by
reference, and the Parts of this Form 10-K into which such portions are
incorporated:
(1) Applied Industrial Technologies, Inc. 1999 Annual Report
to shareholders for the fiscal year ended June 30, 1999,
portions of which are incorporated by reference into Parts I,
II and IV of this Form 10-K; and,
(2) Applied Industrial Technologies, Inc. Proxy Statement
dated September 15, 1999, portions of which are incorporated
by reference into Parts III and IV of this Form 10-K.
1
<PAGE> 3
PART I.
-------
ITEM 1. BUSINESS.
---------
Applied Industrial Technologies, Inc. ("Applied"), directly and through
its wholly owned operating subsidiaries, distributes industrial products,
including bearings, power transmission components, hydraulic and pneumatic
(together referred to as fluid power) components, industrial rubber products,
linear motion products, and general maintenance and specialty items manufactured
by others. In addition, Applied provides mechanical, rubber, and fluid power
shop services, including engineering design, and electrical, gearing, material
handling, hose, and fluid power systems. Applied distributes its products to a
wide variety of industrial customers primarily in the United States. Applied and
its predecessor companies have been engaged in this business since 1923. The
company was incorporated in Delaware in 1928 and reincorporated in Ohio in 1988.
Applied, formerly known as Bearings, Inc., adopted its current name as of
January 1, 1997.
(a) GENERAL DEVELOPMENT OF BUSINESS.
In fiscal 1999, Applied acquired the following companies, for purchase
prices totaling $14.8 million, in order to extend its geographic reach and
expertise in targeted product technologies:
- Elect-Air Tool Co. and Fornaciari Company, distributors of
pneumatic power components and hydraulic power components,
respectively, each with two locations in California
- Rafael Benitez Carrillo, Inc., a bearings and power transmission
component distributor with two locations in Puerto Rico
- Nicholson Supply Company, a bearings and power transmission
component distributor with two locations in Nebraska
- BPC Supply Company, a bearings and power transmission component
distributor with three locations in Utah
Applied launched several electronic commerce initiatives during the
year. First, Applied formed an alliance with Datastream Systems, Inc. to be a
supplier to Datastream's new online procurement system. The system, named e-MRO
(a Datastream service mark), is an extension of Datastream's industrial
maintenance procurement software and offers users a direct electronic commerce
link to Applied through the Internet, making it easier to order replacement
parts electronically.
In June, Applied announced the launch of two Internet sites,
AppliedAccess(R) and Farm Warehouse (SM). AppliedAccess (www.applied-access.com)
provides customers a quick and easy method to search for products in Applied's
vast electronic catalog, view prices, place orders, and track order status
online. Farm Warehouse (www.farmwarehouse.com) provides farmers and ranchers the
convenience of locating and ordering replacement parts for their equipment
online.
2
<PAGE> 4
David L. Pugh joined Applied as President & Chief Operating Officer in
January 1999. Mr. Pugh most recently was senior vice president of Rockwell
Automation's Industrial Control Group and brings with him broad marketing,
operations, and general management experience.
Further information regarding developments in Applied's business can be
found in Applied's 1999 Annual Report to shareholders under the caption
"Management's Discussion and Analysis" on pages 10 through 12, which is
incorporated here by reference.
(b) FINANCIAL INFORMATION ABOUT SEGMENTS.
Applied considers its business to involve only one reportable business
segment, service center-based distribution. This business provides customers
with solutions to their maintenance, repair, and original equipment
manufacturing needs by distributing bearings, power transmission components and
systems, fluid power components, industrial rubber products, linear motion
products, general maintenance products, and related specialty items through
Applied's service centers. Applied also offers technical product application
support and provides creative solutions to help customers minimize downtime and
reduce overall procurement costs.
In addition to the service center-based distribution business, Applied
operates several smaller businesses that primarily sell their products and
services directly to customers rather than through the service centers. These
businesses include specialized fluid power operations, certain electrical and
fabricated rubber service operations, and Applied's electronic commerce
businesses.
Financial information on the service center-based distribution segment
and Applied's other businesses can be found in Applied's 1999 Annual Report to
shareholders in note 11 to the financial statements on page 24, and that
information is incorporated here by reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
Overview. Applied's service centers, located in 46 states and Puerto
Rico, serve as the company's primary business channel. The products and services
marketed through the service centers involve varying levels of complexity,
technical skill, and support. As noted in "Financial Information about
Segments," above, Applied also operates other businesses that sell products and
services directly to customers rather than through the service centers. These
businesses include specialized fluid power operations, certain electrical and
fabricated rubber service operations, and Applied's electronic commerce
businesses.
In fiscal 1999, in an effort to provide additional focus to its higher
value-added services and systems, as differentiated from products sold as
components, Applied formed the following marketing divisions related to specific
product and service categories:
- Industrial Products Division. This division provides procurement
and technical support for the service centers with respect to
industrial products sold as components, including bearings, power
transmission components, fluid power components, linear motion
3
<PAGE> 5
products, and general maintenance and specialty items. As noted in
the sales data below, the products supported by this division
represent the bulk of Applied's sales dollars.
- Engineered Systems Division. This division is responsible for
Applied's power transmission and electrical systems business,
including mechanical shop operations. The division provides the
service centers with technical training, and design and
fabrication support. The service centers represent the primary
sales channel for this division. As such, most of this division's
operations are included in the service center-based distribution
segment described above.
- Fabricated Rubber Division. This division's primary operations are
rubber shops, which fabricate heavy and lightweight conveyor belt,
hydraulic hose, and industrial hose to meet customer requirements.
In addition, the division has a field service group that performs
belt installation and repair. Except for the field service group,
the division sells its services primarily through the service
centers. Most of this division's operations are therefore included
in the service center-based distribution segment described above.
- Fluid Power Division. This division includes Applied's specialized
fluid power businesses, which market their products and services
directly to customers rather than through the service centers.
These businesses operate in various geographic areas throughout
the United States under the following names: Air and Hydraulics
Engineering (Southeast), Dees Fluid Power (Mid-Atlantic and
Northeast), Elect-Air (California and Arizona), Engineered Sales
(Midwest), ESI Power Hydraulics (Illinois and Wisconsin), and
Fornaciari (California and Arizona). In addition, the Fluid Power
Division operates several geographically dispersed fluid power
shops in support of the service centers.
Based on Applied's analysis of dollar sales volume for fiscal 1999 (for
Applied's service center-based distribution and other businesses), the
Industrial Products Division represented 70%, the Engineered Systems Division
represented 15%, and the Fluid Power and Fabricated Rubber Divisions together
represented 14% of sales. Although the divisional structure was not created
until fiscal 1999, a pro forma analysis for fiscal 1998 shows the Industrial
Products Division represented 72%, the Engineered Systems Division represented
15%, and the Fluid Power and Fabricated Rubber Divisions together represented
12% of sales. Comparable figures are not available for fiscal 1997. The sum of
percentages shown is less than 100% due to rounding.
Products. Applied engages in the distribution and sale of ball, roller,
mounted, and plane bearings, power transmission components, fluid power
components, industrial rubber products, linear motion products, and general
maintenance and specialty items such as seals, sealants, fluid sealing, "O"
rings, retaining rings, adhesives, lubricants, maintenance tools and equipment,
and safety and cleaning products. Applied does not generally manufacture the
products that it sells.
Applied is a non-exclusive distributor for numerous manufacturers. The
principal product lines distributed by Applied are the following:
- Bearings. American, Barden, Dodge, FAG, INA, Kaydon, Link-Belt,
McGill, MRC, Rexnord, Sealmaster, SKF, Symmco, Timken, and
Torrington/Fafnir.
4
<PAGE> 6
- Power Transmission. Baldor, Boston Gear, Browning, Control
Techniques, Falk, Foote Jones, Jeffrey, Kop-Flex, Lovejoy, Martin,
Morse, Reliance/Dodge, Rexnord/Link-Belt, Saftronics, Sumitomo,
U.S. Electrical Motors, and Winsmith.
- Industrial Rubber. Aeroquip, Dayco, Dixon, Flexco, Fusion, Gates,
Goodyear, Habasit, Scandura, Siegling, and Weatherhead.
- Fluid Power. Bosch, Dana, Denison, Donaldson, Eaton Char-Lynn,
Ingersoll Rand-ARO, and Schrader Bellows.
- Linear Motion. Applied Motion Products, Duff-Norton, INA, Nook,
Thomson, and Star.
- Specialty items. CR Industries, Dow Corning, Garlock, Gojo,
Keystone, Loctite, Lubriplate, National/Federal Mogul, OTC/Power
Team, Parker Hannifin, Rotor Clip, and Skil/Bosch.
Applied believes that its supplier relationships are generally good and
that Applied can continue to represent these suppliers. The loss of certain
suppliers could have an adverse effect on Applied's business.
Services. Applied's service center associates advise and assist
customers with respect to product selection and application. Applied considers
this advice and assistance to be an integral part of its sales efforts. Beyond
acting as a mere distributor, Applied markets itself as a "single-source"
applied technology supplier, offering product and process solutions involving
multiple technologies. These solutions reduce production downtime and overall
procurement and maintenance costs for customers. By providing a high level of
service, product knowledge, and technical support, while at the same time
offering competitive pricing, Applied believes it will continue to develop
closer, longer-lasting, and more profitable customer relationships.
Applied's sales associates consist of customer service representatives
and field account managers assigned to each Applied service center, in addition
to product specialists. Customer service representatives receive, process, and
expedite customer orders, provide product and pricing information, and assist
field account managers in serving customers. Field account managers make on-site
calls to customers and potential customers to provide product and price
information, conduct surveys of customer requirements and make recommendations,
and assist in implementing maintenance programs. Using Applied's proprietary
Documented Value Added(R) software program, account managers can measure and
document the value to the customer, through cost savings and/or increased
productivity, of Applied's services and advice. Product specialists from the
Engineered Systems, Fabricated Rubber, and Fluid Power Divisions assist with
applications in their areas of technical expertise. Applied has also established
Centers of Expertise and technical call centers within those divisions, staffed
by skilled technicians who provide consulting and training services with respect
to particular product technologies.
Applied maintains inventory levels at each service center that are
tailored to meet customers' immediate needs. These inventories consist of
standard items stocked at most service centers as well as other items related to
customers' needs in the particular locale. As a result, each service center's
business is concentrated largely in the geographic area where the service center
is located. Applied also maintains back-up inventory in its eight regional
distribution centers. The inventory
5
<PAGE> 7
maintained at Applied's facilities enables customers to minimize their own
inventories of industrial products.
In addition to the service centers, Applied maintains a network of
mechanical, rubber, and fluid power shops. These shops are operated through the
Engineered Systems, Fabricated Rubber, and Fluid Power Divisions, respectively.
Applied's mechanical shops, within the Engineered Systems Division,
rebuild and assemble speed reducers, provide custom machining, assemble
electrical panels to customer specifications, and perform systems automation
services. These shops are located in the following cities:
- Fontana, California - Detroit, Michigan
- Denver, Colorado - Cleveland, Ohio
- Atlanta, Georgia - Fort Worth, Texas
- Florence, Kentucky - Longview, Washington
Applied's Fabricated Rubber Division operates shops that modify and
repair belts and provide hose assemblies in accordance with customer
requirements. These rubber shops are located in the following cities:
- Tucson, Arizona - Cranbury, New Jersey
- Fontana, California - Clackamas, Oregon
- Tracy, California - Fort Worth, Texas
- Denver, Colorado - Salt Lake City, Utah
- Crestwood, Illinois - Longview, Washington
- Billings, Montana - Appleton, Wisconsin
Besides the services offered by the Fabricated Rubber Division at its
shops, Applied's field crews perform belt installation and repair services and
rubber lining installation services at customer locations in select geographic
areas.
Applied's Fluid Power Division operates shops that assemble fluid power
systems and components and offer technical advice to customers. These shops are
located in the following cities:
- Birmingham, Alabama - Worcester, Massachusetts
- Fontana, California - Maryland Heights, Missouri
- San Jose, California - Fort Worth, Texas
- Atlanta, Georgia - Kent, Washington
- Baltimore, Maryland - Longview, Washington
Timely delivery of products to customers is an integral part of
Applied's service. Service centers and distribution centers use the most
effective method of transportation available to meet customer needs, including
both surface and air common carrier and courier services. Applied also maintains
a fleet of vehicles to deliver products to customers. These transportation
services and
6
<PAGE> 8
delivery vehicles are also used to move products between suppliers, distribution
centers, and service centers to assure availability of merchandise for customer
needs.
Applied's inventory and sales information systems enhance its ability
to serve customers. Applied's point-of-sale OMNEX(R) computer system gives each
Applied location on-line access to inventory and sales information. The system
permits direct access for order entry, pricing, order expediting, and back order
review. Applied's computer systems also support electronic data interchange
(EDI) and electronic funds transfer (EFT) with participating customers and
suppliers. AppliedAccess(R), introduced in June 1999, provides customers an
Internet-based means to search for products in Applied's vast electronic
catalog, view prices, place orders, and track order status.
Applied's operations contrast sharply with those of the manufacturers
whose products Applied sells in that the manufacturers generally confine their
direct sales activities to large-volume transactions with original equipment
manufacturers who incorporate the components purchased into the products they
make. The manufacturers generally do not sell replacement components directly to
the customer but refer the customer to Applied or another distributor. There can
be no assurance that this practice will continue, however, and any
discontinuance of this practice could have an adverse effect on Applied's
business.
There is a trend among large industrial customers towards reducing the
number of suppliers of maintenance and replacement products with whom they deal.
Applied is responding to this trend by continuing to broaden its product
offering and by developing new methods for marketing its products. There can be
no guarantee, however, that this trend will not have an adverse effect on
Applied's business.
Customers have also increasingly demonstrated a desire to order
industrial products by electronic means, including through electronic catalogs
and Internet-based marketing systems. Applied is responding to this trend by
developing new avenues (in addition to EDI) to accommodate current customers and
to reach new customers adopting electronic purchasing methods. AppliedAccess,
Farm Warehouse, and e-MRO (described in greater detail in Item 1, subsection
(a)) were introduced in fiscal 1999 and Applied is planning additional
Internet-based businesses and services targeted at specific market niches.
Patents, trademarks, and licenses do not have a significant effect on
Applied's business.
Markets and Methods of Distribution. Applied purchases from over 2,500
manufacturers of bearings, power transmission components, industrial rubber
products, fluid power products, linear motion products, and general maintenance
and specialty items. Applied then resells the products to a wide variety of
industries, including agriculture and food processing, automotive, chemical
processing, forest products, industrial machinery and equipment, mining, paper
products, primary metals, textiles, transportation, and utilities. Customers
range from the largest industrial concerns in the United States to the smallest.
Applied's business is not significantly dependent on a single customer or group
of customers, the loss of which would have a material adverse effect on
Applied's business as a whole, and no single customer accounts for more than 3%
of Applied's net sales.
7
<PAGE> 9
At June 30, 1999, Applied had 394 service centers in 46 states and
Puerto Rico. Applied has no operations outside the United States.
Applied's export business during the fiscal year ended June 30, 1999
and prior fiscal years was less than 2% of net sales, and is not concentrated in
a specific geographic area.
Competition. Applied considers its overall business to be highly
competitive. In addition, its markets present few economic or technological
barriers to entry, although longstanding supplier and customer relationships may
operate as barriers. Applied's principal competitors are other specialized
bearing, power transmission, industrial rubber, fluid power, linear motion, and
specialty item distributors, and, to a lesser extent, mill supply houses. These
competitors include single and multiple facility operations, some of which are
divisions or subsidiaries of larger organizations. A number of these competitors
may have greater financial resources than Applied. The trend towards industry
consolidation continues, producing larger multiple facility operations.
Applied also competes with the original equipment manufacturers and
their distributors in the sale of maintenance and replacement components. Some
of these manufacturers may have greater financial resources than Applied. The
identity and number of competitors vary throughout the geographic areas in which
Applied does business. Applied continues to develop and implement marketing
strategies to maintain a competitive position.
Applied is one of the leading distributors of replacement bearings,
power transmission components, fluid power components, industrial rubber
products, linear motion products, and specialty items in the United States, but
Applied's market share for those products in any given geographic area may be
relatively small compared to the portion of the market served by original
equipment manufacturers and other distributors.
Backlog and Seasonality. Because of Applied's extensive product
resources and distribution network, Applied does not have a substantial backlog
of orders, nor are backlog orders significant at any given time.
Applied does not consider its business to be seasonal.
Raw Materials and General Business Conditions. Applied's operations are
dependent on general industrial activities and economic conditions and would be
adversely affected by the unavailability of raw materials to its suppliers,
prolonged labor disputes experienced by suppliers or customers, or by any
prolonged recession or depression that has an adverse effect on American
industrial activity generally.
Number of Employees. On June 30, 1999, Applied had 4,558 employees.
Applied considers its relationship with its employees to be generally favorable.
Working Capital. Applied's working capital position is disclosed in the
financial statements referred to at Item 14 on page 16 of this Report and is
discussed in "Management's Discussion and Analysis" in Applied's 1999 Annual
Report to shareholders on pages 10 and 11.
8
<PAGE> 10
Applied requires substantial working capital related to accounts
receivable and inventories. Significant amounts of inventory are carried to meet
rapid delivery requirements of customers. Applied generally requires all
payments for sales on account within 30 days. Returns are not considered to have
a material effect on Applied's working capital requirements. Applied believes
these practices are consistent with prevailing industry practices.
Environmental Laws. Applied believes that compliance with federal,
state and local laws regulating the discharge of materials into the environment
or otherwise relating to environmental protection will not have a material
adverse effect upon Applied's capital expenditures, earnings, or competitive
position.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES.
Applied has no operations outside the United States. Applied's export
business during the fiscal year ended June 30, 1999, and prior fiscal years, was
less than 2% of net sales, and is not concentrated in a specific geographic
area.
(e) CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM
ACT.
This report, including the documents incorporated by reference,
contains 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. Applied intends that
all 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 those
statements should not be regarded as a representation by Applied or any other
person that the results expressed in the statements will be achieved.
Important risk factors include, but are not limited to, those
identified in "Narrative Description of Business," above, and 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; Applied'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 Applied; the
emergence of new competitors, including firms with greater financial resources
than Applied; adverse effects of the Year 2000 issue on the businesses of
Applied and its suppliers and customers; 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).
9
<PAGE> 11
ITEM 2. PROPERTIES.
-----------
Applied owns or leases the properties in which its offices, service
centers, distribution centers, shops, and corporate facilities are located. As
of June 30, 1999, Applied owned real properties at 180 locations and leased 232
locations. Certain locations contain multiple operations, such as a shop and a
distribution center.
Applied's principal owned real properties (each of which has more than
20,000 square feet of floor space) as of June 30, 1999 were:
- the distribution center, fluid power shop, and mechanical shop in
Atlanta, Georgia
- the distribution center and mechanical shop in Florence, Kentucky
- the service center in Monroe, Louisiana
- the service center in Omaha, Nebraska
- the distribution center in Portland, Oregon
- the distribution center in Carlisle, Pennsylvania
Applied's principal leased real properties (each of which has more than
20,000 square feet of floor space) as of June 30, 1999 were:
- the corporate headquarters facility in Cleveland, Ohio
- the distribution center, offices, fluid power shop, mechanical shop,
and rubber shop in Fontana, California
- the service center in Long Beach, California
- the service center in San Jose, California
- the rubber shop in Tracy, California
- the distribution center in Denver, Colorado
- the rubber shop and mechanical shop in Denver, Colorado
- the service center in Grand Rapids, Michigan
- the service center in Iron Mountain, Michigan
- the service center in Kansas City, Missouri
- the mechanical shop in Cleveland, Ohio
- the distribution center, fluid power shop, mechanical shop, and
rubber shop in Fort Worth, Texas
- the service center in Longview, Washington
- the distribution center, fluid power shop, mechanical shop, and
rubber shop in Longview, Washington
- the offices, service center, and rubber shop in Appleton, Wisconsin
- the service center in Milwaukee, Wisconsin
All of the properties listed above are used by Applied's service
center-based distribution segment.
10
<PAGE> 12
Applied considers its properties generally sufficient to meet its
requirements for office space and inventory stocking. A service center's size is
primarily influenced by the amount of inventory the service center requires to
meet its customers' needs. Applied uses in its business all of its owned and
leased properties except for certain properties (several of which have floor
space exceeding 20,000 square feet), which in the aggregate are not material and
are either for sale, lease, or sublease to third parties due to a facility's
relocation or closing. Applied also may lease or sublease to others unused
portions of buildings.
Generally, when opening a new service center, Applied will lease space.
Then, as the business develops, suitable property may be purchased or leased for
relocation of the service center. A new general-purpose office-storeroom
building may be constructed. Although Applied has emphasized leasing real
property in recent years, Applied has no fixed policy in this regard, and in
each instance the final decision is based on availability and cost of suitable
property in the local real estate market, whether leased or purchased. Applied
does not consider any of its service center, distribution center, or shop
properties to be material, because it believes that if it becomes necessary or
desirable to relocate one of those operations, other suitable property could be
found.
ITEM 3. PENDING LEGAL PROCEEDINGS.
--------------------------
Applied and/or one of its subsidiaries is a defendant in several
product and employment-related lawsuits. Based on circumstances currently known
Applied believes these cases are not material to its business or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
No matters were submitted to a vote of Applied's security holders
during the last quarter of fiscal 1999.
11
<PAGE> 13
EXECUTIVE OFFICERS OF THE REGISTRANT.
-------------------------------------
Applied's executive officers are elected for a term of one year, or
until their successors are chosen and qualified, at the organizational meeting
of the Board of Directors held immediately following the annual meeting of
shareholders. The following is a list of the executive officers and a
description of their business experience during the past five years. Except as
otherwise stated, the positions and offices indicated are with Applied, and the
persons were elected to their current positions on October 20, 1998:
John C. Dannemiller. Mr. Dannemiller is Chairman (since 1992)
and Chief Executive Officer (since 1992), and has served as a member of
the Board of Directors since 1985. He was also President (from October
1996 to January 1999). He is 61 years of age.
David L. Pugh. Mr. Pugh was elected President & Chief
Operating Officer in January 1999. Prior to joining Applied, he was
Senior Vice President of the Industrial Control Group (from February
1996 to June 1998) of Rockwell Automation, a division of Rockwell
International Corporation. In that position, he was responsible for a
global manufacturing operation encompassing three business groups,
5,000 employees, and 13 operating locations. He was also Rockwell
Automation's Senior Vice President of Global Operations (from November
1994 to February 1996) and Senior Vice President of Global Market
Development (from June 1994 to November 1994). He is 50 years of age.
Todd A. Barlett. Mr. Barlett is Vice President-Alliance
Systems (since August 1999). He was Vice President-National Accounts &
Alliance Systems (from August 1998 to August 1999), Vice
President-Southeast Area (from January 1995 to August 1998), and
Southeast Area Manager (from 1993 to January 1995). He is 44 years of
age.
Donald L. Chargin. Mr. Chargin is Vice President-Sales and
Field Operations (since August 1998). He was Vice President-Western
Area (from January 1995 to August 1998) and Western Area Manager (from
1993 to January 1995). He is 44 years of age.
Mark O. Eisele. Mr. Eisele is Vice President & Controller
(since October 1997). He was Controller (from 1992 to October 1997). He
is 42 years of age.
James T. Hopper. Mr. Hopper is Vice President-Information
Systems (since January 1995). He was Director of Information Systems
from 1993 to January 1995. He is 56 years of age.
Justin M. Jacobi. Mr. Jacobi is Vice President-Marketing &
Strategic Planning (since August 1998). He was Vice President-Field
Operations (from March 1998 to August 1998), Vice President-Northeast
Area (from January 1997 to March 1998) and Marketing Director for
Bearing Products (from July 1994 to January 1997). He is 39 years of
age.
12
<PAGE> 14
Bill L. Purser. Mr. Purser is Vice President-Chief Marketing
Officer (since February 1999). Prior to that he was Vice
President-Marketing & National Accounts (from July 1996 to February
1999), Vice President-National Accounts (from January 1995 to July
1996), and Director of National Accounts (from December 1994 to January
1995). Before joining Applied, he was Vice President of Business
Development for INVETECH Company (from 1992 to December 1994). He is 56
years of age.
Jeffrey A. Ramras. Mr. Ramras is Vice President-Logistics
(since January 1995). He was Director of Logistics (from September 1994
to January 1995). He is 44 years of age.
Richard C. Shaw. Mr. Shaw is Vice President-Communications,
Organizational Learning & Quality Standards (since July 1996). Prior to
that he was Vice President-Communications & Public Relations (from 1993
to July 1996). He is 50 years of age.
Robert C. Stinson. Mr. Stinson is Vice President-Chief
Administrative Officer, General Counsel & Secretary (since October
1997). He was Vice President-Administration, Human Resources, General
Counsel & Secretary (from October 1994 to October 1997) and has served
as Secretary since 1990. He was Vice President-General Counsel (from
1989 to October 1994). He is 53 years of age.
John R. Whitten. Mr. Whitten is Vice President-Chief Financial
Officer & Treasurer (since October 1997). He was Vice President-Finance
& Treasurer (from 1992 to October 1997). He is 53 years of age.
PART II.
--------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------
STOCKHOLDER MATTERS.
--------------------
Applied's Common Stock, without par value, is listed for trading on the
New York Stock Exchange under the ticker symbol APZ. The information concerning
the principal market for Applied's Common Stock, the quarterly stock prices and
dividends for the fiscal years ended June 30, 1999 and 1998 and the number of
shareholders of record as of August 17, 1999 is set forth in Applied's 1999
Annual Report to shareholders on page 27, under the caption "Quarterly Operating
Results and Market Data," and that information is incorporated here by
reference.
ITEM 6. SELECTED FINANCIAL DATA.
------------------------
The summary of selected financial data for the last five years is set
forth in Applied's 1999 Annual Report to shareholders in the table on pages 28
and 29 under the caption "10 Year Summary" and is incorporated here by
reference.
13
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
------------------------------------
"Management's Discussion and Analysis" is set forth in Applied's 1999
Annual Report to shareholders on pages 10 through 12 and is incorporated here by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
The following consolidated financial statements and supplementary data
of Applied and its subsidiaries and the independent auditors' report listed
below, which are included in Applied's 1999 Annual Report to shareholders at the
pages indicated, are incorporated here by reference and filed with this Report:
Caption Page No.
------- --------
Financial Statements:
Statements of Consolidated 13
Income for the Years Ended
June 30, 1999, 1998, and 1997
Consolidated Balance Sheets 14
June 30, 1999 and 1998
Statements of Consolidated 15
Cash Flows for the Years Ended
June 30, 1999, 1998, and 1997
Statements of Consolidated 16
Shareholders' Equity for the
Years Ended June 30, 1999,
1998, and 1997
Notes to Consolidated 17 - 24
Financial Statements for the
Years Ended June 30, 1999, 1998,
and 1997
Independent Auditors' Report 25
Supplementary Data:
Quarterly Operating Results and 27
Market Data
14
<PAGE> 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
---------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
---------------------------------------
Not applicable.
PART III.
---------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
The information required by this Item as to Applied's directors is set
forth in Applied's Proxy Statement dated September 15, 1999 on pages 4 through 6
under the caption "Election of Directors" and is incorporated here by reference.
The information required by this Item as to Applied's executive officers has
been furnished in this Report on pages 12 and 13 in Part I, after Item 4, under
the caption "Executive Officers of the Registrant." The information required by
this Item as to Forms 3, 4 or 5 reporting delinquencies is set forth in
Applied's Proxy Statement on page 19 under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" and is incorporated here by reference.
ITEM 11. EXECUTIVE COMPENSATION.
-----------------------
The information required by this Item is set forth in Applied's Proxy
Statement dated September 15, 1999, under the captions "Summary Compensation" on
page 8, "Option Grants in Last Fiscal Year" and "Aggregate Option Exercises and
Fiscal Year-End Option Value Table" on page 9, "Estimated Retirement Benefits
Under Supplemental Executive Retirement Benefits Plan" on page 10, "Compensation
of Directors" on pages 14 and 15, "Deferred Compensation Plan for Non-employee
Directors" and "Deferred Compensation Plan" on page 15, "Employment Agreement"
on page 16, and "Change in Control Agreements and Other Related Arrangements" on
pages 16 and 17, and is incorporated here by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
----------------------------------------
OWNERS AND MANAGEMENT.
----------------------
Information concerning the security ownership of certain beneficial
owners and management is set forth under the caption "Beneficial Ownership of
Certain Applied Shareholders and Management" on page 7 of Applied's Proxy
Statement dated September 15, 1999, and is incorporated here by reference.
15
<PAGE> 17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
Information concerning certain relationships and related transactions
is set forth under the caption "Certain Relationships and Related Transactions"
on page 14 of Applied's Proxy Statement dated September 15, 1999 and is
incorporated here by reference.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
---------------------------------------------------
SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------
(a)1. FINANCIAL STATEMENTS.
The following consolidated financial statements of Applied, notes
thereto, the independent auditors' report, and supplemental data are included in
Applied's 1999 Annual Report to shareholders on pages 13 through 25 and page 27,
and are incorporated by reference in Item 8 of this Report.
Caption
-------
Statements of Consolidated Income for the
Years Ended June 30, 1999, 1998, and 1997
Consolidated Balance Sheets
June 30, 1999 and 1998
Statements of Consolidated Cash Flows for
the Years Ended June 30, 1999, 1998, and 1997
Statements of Consolidated Shareholders'
Equity for the Years Ended June 30, 1999,
1998, and 1997
Notes to Consolidated Financial Statements
for the Years Ended June 30, 1999, 1998,
and 1997
Independent Auditors' Report
Supplementary Data:
Quarterly Operating Results and Market Data
16
<PAGE> 18
(a)2. FINANCIAL STATEMENT SCHEDULE.
The following report and schedule are included in this Part IV, and are
found in this Report at the pages indicated:
Caption Page No.
------- --------
Independent Auditors' Report 22
Schedule VIII - Valuation and 23
Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission have been
omitted because they are not required under the related instructions, are not
applicable, or the required information is included in the consolidated
financial statements and notes thereto.
(a)3. EXHIBITS.
* Asterisk indicates an executive compensation plan or
arrangement.
Exhibit
No. Description
--- -----------
3(a) Amended and Restated Articles of
Incorporation of Applied Industrial
Technologies, Inc., as amended on October 8,
1998 (filed as Exhibit 3(a) to Applied'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 adopted
September 6, 1988 (filed as Exhibit 3(b) to
Applied's Registration Statement on Form S-4
filed May 23, 1997, Registration No.
333-27801, 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 Applied'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 Agreement and Private
Shelf Facility dated October 31, 1992
between Applied and The Prudential Insurance
Company of America
17
<PAGE> 19
(as amended and restated) (filed as Exhibit
4(b) to Applied'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 Agreement and
Private Shelf Facility dated October 31,
1992 between Applied and The Prudential
Insurance Company of America (filed as
Exhibit 4(g) to Applied'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 Applied and The Prudential
Insurance Company of America (filed as
Exhibit 4(f) to Applied'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 Applied, KeyBank
National Association as Agent, and various
financial institutions (filed as Exhibit
4(e) to Applied'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 Applied 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 Applied's Registration Statement on Form
8-A filed July 20, 1998, SEC File No.
1-2299, and incorporated here by reference).
*10(a) Form of Amended and Restated Change in
Control Agreement between Applied and each
of its executive officers (filed as Exhibit
10(b) to Applied's Form 10-Q for the quarter
ended March 31, 1998, SEC File No. 1-2299,
and incorporated here by reference).
*10(b) A written description of Applied's director
compensation program is found in Applied's
Proxy Statement dated September 15, 1999,
SEC File No. 1-2299, on pages 14 and 15,
under the caption "Compensation of
Directors," and is incorporated here by
reference.
*10(c) Applied Deferred Compensation Plan for
Non-employee Directors (January 1, 1997
Restatement) (filed as Exhibit 10(d) to
Applied's Registration Statement on Form S-4
filed May 23, 1997, Registration No.
333-27801, and incorporated here by
reference).
18
<PAGE> 20
*10(d) First Amendment to Deferred Compensation
Plan for Non-employee Directors (January 1,
1997 Restatement) dated May 1, 1998 (filed
as Exhibit 10(d) to Applied's Form 10-K for
the year ended June 30, 1998, SEC File No.
1-2299, and incorporated here by reference).
*10(e) A written description of Applied's Life and
Accidental Death and Dismemberment Insurance
for executive officers (filed as Exhibit
10(b) to Applied's Form 10-Q for the quarter
ended December 31, 1997, SEC File No.
1-2299, and incorporated here by reference).
*10(f) A written description of Applied's Long-Term
Disability Insurance for executive officers
(filed as Exhibit 10(c) to Applied's Form
10-Q for the quarter ended December 31,
1997, SEC File No. 1-2299, and incorporated
here by reference).
*10(g) Form of Director and Officer Indemnification
Agreement entered into between Applied and
each of its directors and executive officers
(filed as Exhibit 10(g) to Applied's
Registration Statement on Form S-4 filed May
23, 1997, Registration No. 333-27801, and
incorporated here by reference).
*10(h) Applied Supplemental Executive Retirement
Benefits Plan (July 1, 1997 Restatement) in
which 10 Applied executive officers (as well
as certain former executive officers)
currently participate (filed as Exhibit
10(a) to Applied's Form 10-Q for the quarter
ended September 30, 1997, SEC File No.
1-2299, and incorporated here by reference).
*10(i) First Amendment to Supplemental Executive
Retirement Benefits Plan effective as of
August 5, 1998 (filed as Exhibit 10(a) to
Applied's Form 10-Q for the quarter ended
December 31, 1998, SEC File No. 1-2299, and
incorporated hereby reference).
*10(j) Applied Deferred Compensation Plan (January
1, 1997 Restatement) (filed as Exhibit 10(j)
to Applied's Registration Statement on Form
S-4 filed May 23, 1997, Registration No.
333-27801, and incorporated here by
reference).
*10(k) First Amendment to Deferred Compensation
Plan (January 1, 1997 Restatement) dated May
1, 1998 (filed as Exhibit 10(j) to Applied's
Form 10-K for the year ended June 30, 1998,
SEC File No. 1-2299, and incorporated hereby
reference).
*10(l) 1997 Long-Term Performance Plan adopted by
Shareholders on October 21, 1997 (filed as
Exhibit 10(a) to Applied's Form 10-Q for
19
<PAGE> 21
the quarter ended December 31, 1997, SEC
File No. 1-2299, and incorporated here by
reference).
*10(m) A written description of Applied's
Management Incentive Plan applicable to key
executives, including the five most highly
compensated executive officers, is found in
Applied's Proxy Statement dated September
15, 1999, SEC File No. 1-2299, on pages 11
and 12, in the Report of the Executive
Organization & Compensation Committee of the
Board of Directors on Executive
Compensation, under the subcaption
"Management Incentive Plan," and is
incorporated here by reference.
*10(n) Employment Agreement between Applied and
David L. Pugh dated December 21, 1998 (filed
as Exhibit 10(b) to Applied's Form 10-Q for
the quarter ended December 31, 1998, SEC
File No. 1-2299, and incorporated here by
reference).
*10(o) Applied Supplemental Defined Contribution
Plan (January 1, 1997 Restatement) (filed as
Exhibit 10(m) to Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, and incorporated
here by reference).
10(p) Lease dated as of March 1, 1996 between
Applied and the Cleveland-Cuyahoga County
Port Authority (filed as Exhibit 10(n) to
Applied's Registration Statement on Form S-4
filed May 23, 1997, Registration No.
333-27801, and incorporated here by
reference).
10(q) Plan and Agreement of Merger among Applied,
I. C. Acquisition Corp., and INVETECH
Company dated as of April 29, 1997 (filed as
Exhibit 2(a) to Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, and incorporated
here by reference).
*10(r) Consulting, Non-competition and
Confidentiality Agreement among Applied, Oak
Grove Consulting Group, Inc., and J. Michael
Moore dated July 31, 1997 (filed as Exhibit
10(c) to Applied's Form 10-Q for the quarter
ended September 30, 1997, SEC File No.
1-2299, and incorporated here by reference).
*10(s) Non-qualified Deferred Compensation
Agreement between Applied and J. Michael
Moore effective as of December 31, 1997
(filed as Exhibit 10(a) to Applied's Form
10-Q for the quarter ended March 31, 1998,
SEC File No. 1-2299, and incorporated here
by reference).
20
<PAGE> 22
13 Applied 1999 Annual Report to shareholders
(not deemed "filed" as part of this Form
10-K except for those portions that are
expressly incorporated by reference).
21 Applied's subsidiaries at June 30, 1999.
23 Independent Auditors' Consent.
27 Financial Data Schedule.
Applied will furnish a copy of any exhibit described above and not
contained herein upon payment of a specified reasonable fee which shall be
limited to Applied's reasonable expenses in furnishing the exhibit.
(b) REPORTS ON FORM 8-K.
None during the quarter ended June 30, 1999.
21
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
----------------------------
Shareholders and Board of Directors
Applied Industrial Technologies, Inc.
We have audited the consolidated balance sheets of Applied Industrial
Technologies, Inc. and its subsidiaries (the "Company") as of June 30, 1999 and
1998, and the related statements of consolidated income, shareholders' equity,
and cash flows for each of the years in the three year period ended June 30,
1999 and have issued our report thereon dated August 5, 1999; such consolidated
financial statements and report are included in your 1999 Annual Report to
shareholders and are incorporated herein by reference. Our audits also included
the consolidated financial statement schedule of the Company, listed in Item
14(a)2. This consolidated financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
August 5, 1999
22
<PAGE> 24
APPLIED INDUSTRIAL TECHNOLOGIES, INC. & SUBSIDIARIES
----------------------------------------------------
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- ----------------------------- -------- --------
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE
BEGINNING COSTS AND OTHER FROM AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVE PERIOD
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30 1999:
Reserve deducted from assets to
which it applies - allowance for
doubtful accounts $3,500 $3,014 $100 (B) $3,099 (A) $3,515
YEAR ENDED JUNE 30 1998:
Reserve deducted from assets to
which it applies - allowance for
doubtful accounts $2,400 $2,075 $1,165 (B) $2,140 (A) $3,500
YEAR ENDED JUNE 30 1997:
Reserve deducted from assets to
which it applies - allowance for
doubtful accounts $2,400 $1,743 $1,743 (A) $2,400
</TABLE>
(A) Amounts represent uncollectible accounts charged off.
(B) Represents reserves recorded through purchase accounting for acquisitions
made during the year.
- --------------------------------------------------------------------------------
SCHEDULE VIII
<PAGE> 25
SIGNATURES
----------
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
/s/ John C. Dannemiller /s/ Mark O. Eisele
- -------------------------------------- -----------------------------------
John C. Dannemiller, Chairman & Mark O. Eisele
Chief Executive Officer Vice President & Controller
(Principal Accounting Officer)
/s/ John R. Whitten
- --------------------------------------
John R. Whitten
Vice President-Chief Financial Officer
& Treasurer
Date: September 17, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ William G. Bares /s/ Dr. Roger D. Blackwell
- ------------------------------------- --------------------------------
William G. Bares, Director Dr. Roger D. Blackwell, Director
/s/ William E. Butler /s/Thomas A. Commes
- ------------------------------------- --------------------------------
William E. Butler, Director Thomas A. Commes, Director
/s/ John C. Dannemiller /s/ Russel B. Every
- ------------------------------------- --------------------------------
John C. Dannemiller, Chairman & Russel B. Every, Director
Chief Executive Officer, and Director
/s/ Russell R. Gifford /s/ L. Thomas Hiltz
- ------------------------------------- --------------------------------
Russell R. Gifford, Director L. Thomas Hiltz, Director
/s/ John J. Kahl /s/ J. Michael Moore
- ------------------------------------- --------------------------------
John J. Kahl, Director J. Michael Moore, Director
/s/ Dr. Jerry Sue Thornton
- -------------------------------------
Dr. Jerry Sue Thornton, Director
- -------------------------------------
Robert C. Stinson, as attorney
in fact for persons indicated by "*"
Date: September 17, 1999
<PAGE> 26
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
EXHIBIT INDEX
TO FORM 10-K FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Exhibit
No. Description Reference
- ------- ----------- ---------
<S> <C> <C>
3(a) Amended and Restated Articles of Incorporation
of Applied Industrial Technologies, Inc., as amended
on October 8, 1998. Note (a)
3(b) Code of Regulations of Applied Industrial
Technologies, Inc., adopted September 6, 1988. Note (b)
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. Note (c)
4(b) $80,000,000 Maximum Aggregate Principal
Amount Note Purchase Agreement and Private
Shelf Facility dated October 31, 1992 between
Applied and The Prudential Insurance
Company of America (as amended and
restated). Note (d)
4(c) Amendment to $80,000,000 Maximum
Aggregate Principal Amount Note Purchase
Agreement and Private Shelf Facility dated
October 31, 1992 between Applied and The
Prudential Insurance Company of America. Note (e)
4(d) $50,000,000 Private Shelf Agreement dated as
of November 27, 1996, as amended on January
30, 1998, between Applied and The Prudential
Insurance Company of America. Note (f)
4(e) $150,000,000 Credit Agreement dated as of
November 5, 1998 among Applied, KeyBank
National Association as Agent, and various
financial institutions. Note (g)
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
<S> <C> <C>
4(f) Rights Agreement, dated as of February 2,
1998, between Applied and Harris Trust and
Savings Bank, as Rights Agent, which includes
as Exhibit B thereto the Form of Rights
Certificate. Note (h)
10(a) Form of Amended and Restated Change in
Control Agreement between Applied and
each of its executive officers. Note (i)
10(b) A written description of Applied's director
compensation program. Note (j)
10(c) Applied Deferred Compensation Plan for Non-
employee Directors (January 1, 1997 Restatement). Note (k)
10(d) First Amendment to Deferred Compensation Plan
for Non-employee Directors (January 1, 1997
Restatement) dated May 1, 1998. Note (l)
10(e) A written description of Applied's Life and
Accidental Death and Dismemberment
Insurance for executive officers. Note (m)
10(f) A written description of Applied's Long-Term
Disability Insurance for executive officers. Note (n)
10(g) Form of Director and Officer Indemnification
Agreement entered into between Applied
and each of its directors and executive officers. Note (o)
10(h) Applied Supplemental Executive Retirement
Benefits Plan (July 1, 1997 Restatement)
currently covering 10 Applied executive officers
(as well as certain former executive officers). Note (p)
10(i) First Amendment to Supplemental Executive
Retirement Benefits Plan effective as of August
5, 1998. Note (q)
10(j) Applied Deferred Compensation Plan
(January 1, 1997 Restatement). Note (r)
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
<S> <C> <C>
10(k) First Amendment to Deferred Compensation
Plan (January 1, 1997 Restatement) dated
May 1, 1998. Note (s)
10(l) 1997 Long-Term Performance Plan adopted
by Shareholders on October 21, 1997. Note (t)
10(m) A written description of Applied's
Management Incentive Plan applicable to
key executives, including the five most
highly compensated executive officers. Note (u)
10(n) Employment Agreement between Applied
and David L. Pugh dated December 21, 1998. Note (v)
10(o) Applied Supplemental Defined Contribution Plan
(January 1, 1997 Restatement). Note (w)
10(p) Lease dated as of March 1, 1996 between
Applied and the Cleveland-Cuyahoga County
Port Authority. Note (x)
10(q) Plan and Agreement of Merger among Applied,
I. C. Acquisition Corp. and INVETECH Company
dated as of April 29, 1997. Note (y)
10(r) Consulting, Non-competition and Confidentiality
Agreement among Applied, Oak Grove Consulting
Group, Inc., and J. Michael Moore dated July 31,
1997. Note (z)
10(s) Non-qualified Deferred Compensation Agreement
between Applied and J. Michael Moore effective
as of December 31, 1997. Note (aa)
13 Applied 1999 Annual Report to shareholders
(not deemed "filed" as part of this Form 10-K
except for those portions that are expressly
incorporated by reference). Attached
21 Applied's subsidiaries at June 30, 1999. Attached
23 Independent Auditors' Consent. Attached
27 Financial Data Schedule. Attached
</TABLE>
<PAGE> 29
Notes: (a) Incorporated by reference from Applied's Form 10-Q
for the quarter ended September 30, 1998, SEC File
No. 1-2299, at Exhibit 3(a).
(b) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 3(b).
(c) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 4(a).
(d) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 4(b).
(e) Incorporated by reference from Applied's Form 10-Q
for the quarter ended March 31, 1996, SEC File No.
1-2299, at Exhibit 4(g).
(f) Incorporated by reference from Applied's Form 10-Q
for the quarter ended March 31, 1998, SEC File No.
1-2299, at Exhibit 4(f).
(g) Incorporated by reference from Applied's Form 10-Q
for the quarter ended September 30, 1998, SEC File
No. 1-2299, at Exhibit 4(e).
(h) Incorporated by reference from Applied's Registration
Statement on Form 8-A filed July 20, 1998, SEC File
No. 1-2299, at Exhibit 1.
(i) Incorporated by reference from Applied's Form 10-Q
for the quarter ended March 31, 1998, SEC File No.
1-2299, at Exhibit 10(b).
(j) Incorporated by reference from Applied's Proxy
Statement dated September 15, 1999, SEC File No.
1-2299, at pages 14 and 15, under the caption
"Compensation of Directors."
(k) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 10(d).
(l) Incorporated by reference from Applied's Form 10-K
for the year ended June 30, 1998, SEC File No.
1-2299, at Exhibit 10(d).
(m) Incorporated by reference from Applied's Form 10-Q
for the quarter ended December 31, 1997, SEC File No.
1-2299, at Exhibit 10(b).
<PAGE> 30
(n) Incorporated by reference from Applied's Form 10-Q
for the quarter ended December 31, 1997, SEC File No.
1-2299, at Exhibit 10(c).
(o) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 10(g).
(p) Incorporated by reference from Applied's Form 10-Q
for the quarter ended September 30, 1997, SEC File
No. 1-2299, at Exhibit 10(a).
(q) Incorporated by reference from Applied's Form 10-Q
for the quarter ended December 31, 1998, SEC File No.
1-2299, at Exhibit 10(a).
(r) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 10(j).
(s) Incorporated by reference from Applied's Form 10-K
for the year ended June 30, 1998, SEC File No.
1-2299, at Exhibit 10(j).
(t) Incorporated by reference from Applied's Form 10-Q
for the quarter ended December 31, 1997, SEC File No.
1-2299, at Exhibit 10(a).
(u) Incorporated by reference from Applied's Proxy
Statement dated September 15, 1999, SEC File No.
1-2299, at pages 11 and 12, in the Report of the
Executive Organization & Compensation Committee of
the Board of Directors on Executive Compensation,
under the subcaption, "Management Incentive Plan."
(v) Incorporated by reference from Applied's Form 10-Q
for the quarter ended December 31, 1998, SEC File No.
1-2299, at Exhibit 10(b).
(w) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 10(m).
(x) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 10(n).
(y) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 2(a).
<PAGE> 31
(z) Incorporated by reference from Applied's Form 10-Q
for the quarter ended September 30, 1997, SEC File
No. 1-2299, at Exhibit 10(c).
(aa) Incorporated by reference from Applied's Form 10-Q
for the quarter ended March 31, 1998, SEC File No.
1-2299, at Exhibit 10(a).
<PAGE> 1
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS
--------------------------------------------------
YEAR ENDED JUNE 30, 1999 VS 1998
Net sales in 1999 increased to $1.53 billion or 2.5% greater than the $1.49
billion generated in 1998. This increase was partially due to the acquisition of
five distributors in an effort to expand the technological and geographical
presence of Applied Industrial Technologies, Inc. (Company) and to provide
additional customer support services. The Company will continue to seek to grow
sales by selling additional products and services to customers who have
traditionally relied on the Company for bearing products. The Company does not
expect inflation to have a material impact on future sales.
Although net sales increased from the prior year, the gross margin (net
sales less cost of sales) for the year decreased from 26.3% in 1998 to 25.1% in
1999. The 1999 margin was lower than in the prior year due to lower discounts
and allowances from suppliers, customer mix, higher scrap and obsolete inventory
expense and favorable cost adjustments in the prior year. While still below the
prior year's margin, gross margins have shown a positive trend in the last
quarter. With the implementation of specific marketing programs and cost control
measures during the fourth quarter, management is expecting this trend to
continue.
Selling, distribution and administrative (S,D&A) expenses decreased slightly
in 1999 as a percentage of sales to 22.3% from 22.4% in 1998. Total S,D&A was
approximately $6.9 million higher than in the prior year. The increase is
primarily due to the acquisitions made during fiscal 1999 and late fiscal 1998.
Operating income decreased to $42.5 million in 1999 from $58.5 million in
1998. As a percentage of sales, operating income decreased to 2.8% in 1999 from
3.9% in 1998. The $16.0 million decrease in operating income was primarily due
to the lower gross margins discussed previously.
Net interest expense for 1999 increased $1.2 million or 13.3% as compared to
the prior year primarily as a result of an increase in average borrowings
related to higher working capital balances and the repurchase of Company stock
during the year.
Income tax expense as a percentage of income before income taxes decreased
to 38.9% in 1999 from 39.5% in 1998. The decrease in the effective tax rate
resulted from lower effective state and local income tax rates.
Net income for the fiscal year ended June 30, 1999 declined $10.2 million or
33.8% compared to the prior year. Net income per share decreased 32.6% to $.93
in 1999 from $1.38 in 1998 primarily due to the factors described above.
The number of associates was 4,558 at June 30, 1999 and 5,061 at June 30,
1998.
YEAR ENDED JUNE 30, 1998 VS 1997
The Company acquired Invetech Company (Invetech), a privately held industrial
distributor based in Detroit, Michigan, effective August 1, 1997. Invetech's
operations were consolidated with those of the Company as of the acquisition
date. The increases in net sales, cost of sales and S,D&A expenses from the
prior year relate primarily to Invetech's operations.
The Company's gross margin as a percent of sales of 26.3% in 1998 was
consistent with the 26.4% gross margin in 1997. The 1998 margin was slightly
lower than in prior years due to favorable LIFO cost adjustments of $3.0 million
or .3% of sales in 1997 offset in part by changes in the product mix and lower
merchandise costs. The fourth quarter gross margin of 27.6% was higher than the
comparable prior year quarter of 26.9% primarily due to the annual physical
inventory adjustment.
Selling, distribution and administrative expenses, as a percentage of sales,
increased slightly in 1998 to 22.4% from 22.0% in 1997. This increase was
primarily due to a pre-tax nonrecurring $4.0 million charge for consolidation
expenses and costs associated with the disposal of duplicate property and other
assets related to the Invetech and other acquisitions and to higher goodwill
amortization. These increased costs were partially offset by the benefits from
consolidating certain administrative functions of Invetech and other acquired
companies.
Operating income increased to $58.5 million in 1998 from $50.6 million in
1997. As a percentage of sales, operating income decreased slightly to 3.9% in
1998 from 4.4% in 1997. The $7.9 million increase in operating income was
primarily due to the Invetech and other acquisitions while the percentage
decrease is primarily due to higher S,D&A expenses as a percentage of sales.
Net interest expense for 1998 increased $3.2 million or 58% as compared to
the prior year, primarily as a result of an increase in average borrowings
related to the Invetech and other acquisitions and higher working capital
balances.
Income tax expense as a percentage of income before income taxes decreased
to 39.5% in 1998 from 39.9% in 1997. The decrease in the effective tax rate
resulted from lower effective state and local income tax rates and from the
resolution of certain tax contingencies.
Net income for the fiscal year ended June 30, 1998 improved 11.2% over the
prior year. Net income per share decreased 4.2% to $1.38 in 1998 from $1.44 in
1997 primarily due to the increase of 3.2 million in the average shares
outstanding related to the Invetech acquisition.
The number of associates was 5,061 at June 30, 1998 and 4,101 at June 30,
1997.
LIQUIDITY AND WORKING CAPITAL
The Company generated $83.1 million of cash flow from operating activities in
1999 compared to $1.2 million in 1998. The primary reasons for the improvement
relate to better management of the Company's investments in inventory and
receivables without a corresponding impact on operating liabilities. Inventories
have decreased due to improved controls over the carrying levels of various
products within our logistics
10
<PAGE> 2
system and the consolidation of several service centers during the year. The
receivables decrease is attributable to improved collection rates following
completion of the integration of the prior year's acquisitions, the
implementation of a new receivables software package and the internal
restructuring of the cash applications and collection organization.
Cash used in investing activities decreased approximately $37.2 million in
1999 compared with 1998. The decrease is primarily due to less acquisition
activity in 1999 compared to 1998 and a decrease in property purchases of $20.3
million. The decrease in property investments is attributable to the large
expenditures in 1998 relating to several major projects that did not continue
into 1999. Those projects included building and upgrading service and
distribution center facilities and acquiring vehicles and data processing
equipment.
Cash used in financing activities was $57.4 million in 1999 as compared to
cash provided by financing activities of $38.8 million in 1998. The primary
reason for the change was the net repayments under the Company's debt
arrangements of $26.4 million in 1999 compared to net borrowings of $55.5
million in 1998. Another reason for the change was the stock repurchase program
whereby the Company repurchased $21.7 million of the Company's stock in 1999
compared to prior year stock repurchases of $8.1 million.
The Company is obligated for rental payments under operating leases on 232
of its 415 service center, distribution center and other operating locations.
See Note 10 to the Consolidated Financial Statements for annual rental
commitments.
Working capital at June 30, 1999 was $257.1 million compared to $221.8
million at June 30, 1998. The current ratio was 2.9 and 2.1 at June 30, 1999 and
1998, respectively. These increases are primarily due to the refinancing of
short-term debt under the new revolving credit facility and classification of
the current portion of long-term debt as non-current, as these borrowings are
also intended to be refinanced under the revolving credit facility.
CAPITAL RESOURCES
Capital resources are obtained from income retained in the business, borrowings
under the Company's lines of credit, revolving credit agreement and long-term
debt facilities, and operating lease arrangements.
Average combined short-term and long-term borrowings were $140.9 million in
1999 and $130.1 million in 1998. The weighted average interest rate on
borrowings under revolving credit facilities decreased to 5.6% in 1999 from an
average rate of 6.0% in 1998. The weighted average interest on borrowings under
other long-term debt agreements decreased to 7.1% in 1999 from an average rate
of 7.5% in 1998.
In November 1998, the Company entered into a five-year committed revolving
credit agreement with a group of lending institutions. This agreement provides
for unsecured borrowings of up to $150.0 million. This facility was used to
reduce short-term line of credit borrowings. The Company had $24.5 million of
borrowings outstanding under this facility at June 30, 1999. Unused capacity
under this facility totaling $115.9 million is available to fund future
acquisitions or other capital and operating requirements.
In January 1999, the Company entered into an agreement with a commercial
bank for an unsecured $15.0 million uncommitted line of credit. The Company has
$11.5 million of borrowings outstanding under this facility at June 30, 1999
with remaining unused capacity of $3.5 million.
In January 1998, the Company borrowed $50 million at 6.6% under a shelf
facility agreement with the Prudential Insurance Company of America. The funds
were used to repay short-term debt.
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 other corporate purposes. These purchases can be made in
open market or negotiated transactions, from time to time, depending upon market
conditions. The Company acquired 1.5 million shares of its common stock for
$21.7 million during the year ended June 30, 1999. The Company has remaining
authorization to repurchase 0.9 million shares as of June 30, 1999.
Management expects that capital resources provided from operations,
available lines of credit, long-term debt and operating leases will be
sufficient to finance normal working capital needs, 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.
OTHER MATTERS
Effective August 1, 1997, the Company completed the acquisition of Invetech. The
aggregate purchase price including the issuance of 3.2 million shares of the
Company's common stock was $93.9 million plus the assumption of $8.0 million of
term debt. The cash portion of the purchase price of $23.4 million was financed
through available short-term lines of credit. The Company incurred a pre-tax
nonrecurring charge of approximately $4.0 million in the first quarter of fiscal
1998 for consolidation expenses and costs associated with the disposal of
duplicative capital assets. See Note 2 to the Consolidated Financial Statements.
YEAR 2000 ISSUE
The Company's progress in completing its Year 2000 activities is overseen by an
executive task force made up of representatives from all key management areas.
The task force in turn reports to the audit committee of the Board of Directors.
Additionally, the Company has retained an outside Year 2000 consultant to
provide an independent assessment of the Company's Year 2000 compliance efforts.
The Company's plan for assessment, remediation, replacement and testing of
those of its internal computer systems affected by the Year 2000 issue is
proceeding on schedule. For business reasons, the Company's financial
information systems have been replaced with a new Year 2000 compliant system.
11
<PAGE> 3
The new system is fully operational. In addition, all of the Company's critical
computer systems, including the OMNEX(R) inventory and sales information system,
customer billing system, and corporate information system, have been remedied
and tested, and are now Year 2000 compliant.
The Year 2000 issue also affects certain of the Company's non-critical
computer systems and equipment containing embedded technology. The Company has
largely completed its assessment of these non-critical systems, and remediation
and testing are scheduled to be completed by various dates before the end of
calendar year 1999.
To date, following contacts with product suppliers, the Company has not
identified any products regularly sold by the Company that are susceptible to
the Year 2000 issue.
The Company has sought written assurances from key product and service
suppliers as to their Year 2000 compliance plans. Follow-up interviews are being
conducted with those suppliers with whom the Company has the most significant
relationships. The Company will consider appropriate measures, including
substitution of suppliers, in the event that a supplier provides an inadequate
response.
If the Company's suppliers or customers fail to achieve Year 2000 compliance
in a timely manner, then the Year 2000 issue could have a material adverse
effect on the Company. For example, suppliers' failures to deliver products to
the Company due to the Year 2000 issue could render the Company unable to
fulfill commitments to customers unless those products or adequate substitutes
can be secured elsewhere. Customers affected by the Year 2000 issue could reduce
their volume of purchases from the Company or slow their payments for products
already delivered.
To reduce the risk of business interruption due to the Year 2000 issue, the
Company is preparing contingency plans to address situations that may result
from the failure of the Company or certain third parties (including utilities)
to complete efforts necessary to achieve Year 2000 compliance on a timely basis.
These plans are scheduled to be completed by various dates before the end of
calendar year 1999.
Despite its efforts, the Company will not be able to analyze fully the scope
or nature of the risk represented by the failure of third parties, including
suppliers and customers, to attain Year 2000 compliance. The Company expects,
however, that the actions described in this section will significantly reduce
the likelihood that the Year 2000 issue would have a material adverse effect on
the Company's business, financial condition, results of operations, or cash
flows.
Based on current available information, the total cost of the Company's Year
2000 activities is expected to be under $5 million, with approximately
three-fourths of the total cost already incurred through June 30, 1999. The
total amount spent to date includes a capital expenditure of approximately $1.6
million for the new Year 2000 compliant financial information system, which
would have been acquired in the ordinary course, but whose acquisition was
accelerated to ensure compliance by the end of calendar year 1999. The effort to
bring the Company's internal computer systems into compliance has largely been
accomplished by redirecting internal programming resources, with costs expensed
as incurred. These costs are included in the total cost estimate. Estimates of
the Year 2000 related costs are based on numerous assumptions and there is no
certainty that actual costs will not be significantly different from the
estimates.
To date, the costs of addressing the Year 2000 issue are not considered
material to the Company's financial condition, results of operations or cash
flows, and future costs are not expected to be material in such respects. The
Company further anticipates that its current resources and sources of liquidity
will be adequate to address the capital needs arising from its specific Year
2000 issues.
CAUTIONARY STATEMENT
UNDER PRIVATE SECURITIES LITIGATION REFORM ACT
This Annual Report to shareholders, including management's discussion and
analysis, contains 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 all 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 in the statements will be
achieved.
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 the 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 effects of the Year 2000 issue on the
businesses of the Company and its suppliers and customers; 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).
12
<PAGE> 4
Applied Industrial Technologies, Inc. and Subsidiaries
----------------------------------------------------------
STATEMENTS OF
CONSOLIDATED INCOME
----------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------
Year Ended June 30
-----------------------------------------
1999 1998 1997
-----------------------------------------
(In thousands, except per share amounts)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 1,527,928 $ 1,491,405 $ 1,160,251
- ---------------------------------------------------------------------------------------
COST AND EXPENSES
Cost of sales 1,145,116 1,099,472 854,230
Selling, distribution and administrative 340,324 333,413 255,422
- ---------------------------------------------------------------------------------------
1,485,440 1,432,885 1,109,652
- ---------------------------------------------------------------------------------------
OPERATING INCOME 42,488 58,520 50,599
INTEREST EXPENSE 10,063 9,549 6,463
INTEREST INCOME (208) (854) (956)
- ---------------------------------------------------------------------------------------
9,855 8,695 5,507
- ---------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 32,633 49,825 45,092
- ---------------------------------------------------------------------------------------
INCOME TAX EXPENSE
Federal 11,900 17,400 15,700
State and local 800 2,300 2,300
- ---------------------------------------------------------------------------------------
12,700 19,700 18,000
- ---------------------------------------------------------------------------------------
NET INCOME $ 19,933 $ 30,125 $ 27,092
- ---------------------------------------------------------------------------------------
NET INCOME PER SHARE - BASIC $ 0.93 $ 1.40 $ 1.47
- ---------------------------------------------------------------------------------------
NET INCOME PER SHARE - DILUTED $ 0.93 $ 1.38 $ 1.44
- ---------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 5
Applied Industrial Technologies, Inc. and Subsidiaries
----------------------------------------------------------
CONSOLIDATED
BALANCE SHEETS
----------------------------------------------------------
<TABLE>
<CAPTION>
----------------------
June 30
----------------------
1999 1998
----------------------
(In thousands)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and temporary investments $ 19,186 $ 9,344
Accounts receivable, less allowances of $3,515 and $3,500 195,736 206,313
Inventories 169,689 192,042
Other current assets 4,596 7,214
- ---------------------------------------------------------------------------------------
Total current assets 389,207 414,913
- ---------------------------------------------------------------------------------------
Property - at cost
Land 12,316 12,363
Buildings 69,329 69,103
Equipment 96,011 94,705
- ---------------------------------------------------------------------------------------
177,656 176,171
Less accumulated depreciation 70,417 63,102
- ---------------------------------------------------------------------------------------
Property - net 107,239 113,069
- ---------------------------------------------------------------------------------------
Goodwill - net 62,351 53,243
Other assets 15,552 24,866
- ---------------------------------------------------------------------------------------
TOTAL ASSETS $ 574,349 $ 606,091
=======================================================================================
LIABILITIES
Current liabilities
Notes payable $ 42,973
Current portion of long-term debt 19,429
Accounts payable $ 78,836 79,091
Compensation and related benefits 19,692 22,702
Other current liabilities 33,588 28,952
- ---------------------------------------------------------------------------------------
Total current liabilities 132,116 193,147
Long-term debt 126,000 90,000
Other liabilities 22,647 23,442
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES 280,763 306,589
- ---------------------------------------------------------------------------------------
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 82,599 82,713
Income retained for use in the business 246,026 236,109
Treasury shares - at cost (2,994 and 1,993 shares) (40,140) (24,391)
Unearned restricted common stock compensation (4,899) (4,929)
- ---------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 293,586 299,502
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 574,349 $ 606,091
=======================================================================================
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 6
Applied Industrial Technologies, Inc. and Subsidiaries
----------------------------------------------------------
STATEMENTS OF
CONSOLIDATED CASH FLOWS
----------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------
Year Ended June 30
--------------------------------
1999 1998 1997
--------------------------------
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 19,933 $ 30,125 $ 27,092
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 17,325 16,428 13,574
Deferred income taxes (2,936) 5,065 1,900
Amortization of restricted common stock compensation and goodwill 5,331 4,569 857
Provision for losses on accounts receivable 3,014 2,075 1,743
(Gain) loss on sale of property 187 (1,015) (921)
Treasury shares contributed to employee benefit and deferred
compensation plans 3,681 4,882 4,323
Changes in current assets and liabilities, net of acquisitions and disposition:
Accounts receivable 9,348 (11,280) (2,315)
Inventories 25,367 (34,519) 18,868
Other current assets 2,717 1,193 (4,471)
Accounts payable and accrued expenses (837) (16,320) (18,900)
- ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 83,130 1,203 41,750
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property purchases (13,527) (33,861) (21,579)
Proceeds from property sales 4,123 9,955 6,898
Proceeds from sale of Aircraft Division 9,090
Net cash paid for acquisition of businesses, net of cash
acquired of $597 and $5,307 in 1999 and 1998, respectively (12,533) (32,949)
Deposits and other 6,033 3,744 4,234
- ------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (15,904) (53,111) (1,357)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings (repayments) under line of credit agreements - net (42,973) 17,558 (4,641)
Borrowings under revolving credit agreements - net 36,000
Long-term debt borrowings 50,000
Long-term debt repayments (19,429) (12,075) (11,429)
Exercise of stock options 1,161 1,789 1,089
Dividends paid (10,397) (10,277) (7,682)
Purchases of treasury shares (21,746) (8,148) (4,568)
- ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (57,384) 38,847 (27,231)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and temporary investments 9,842 (13,061) 13,162
Cash and temporary investments at beginning of year 9,344 22,405 9,243
- ------------------------------------------------------------------------------------------------------------------------
CASH AND TEMPORARY INVESTMENTS AT END OF YEAR $ 19,186 $ 9,344 $ 22,405
========================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 11,176 $ 16,953 $ 19,107
Interest $ 10,401 $ 10,043 $ 6,873
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 7
Applied Industrial Technologies, Inc. and Subsidiaries
----------------------------------------------------------
STATEMENTS OF
CONSOLIDATED SHAREHOLDERS' EQUITY
----------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------
For the Years Ended June 30, 1999, 1998, and 1997
----------------------------------------------------------------
Income
Shares of Additional Retained for Treasury
Common Stock Common Paid-in Use in the Shares-at
Outstanding Stock Capital Business Cost
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1996 18,566 $ 10,000 $ 7,492 $ 197,232 $ (21,260)
Net income 27,092
Cash dividends - $.41 per share (7,682)
Purchases of common stock for treasury (249) (4,568)
Treasury shares issued for:
Retirement Savings Plan contributions 164 1,760 1,568
Exercise of stock options 78 342 747
Restricted common stock awards 9 68 67
Deferred compensation plans 53 532 463
Amortization of restricted
common stock compensation 32
Other (61)
- --------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 18,621 10,000 10,165 216,642 (22,983)
Net income 30,125
Cash dividends - $.47 per share (10,277)
Purchases of common stock for treasury (291) (8,148)
Issuance of common stock for the
acquisition of Invetech Company 3,165 63,374
Treasury shares issued for:
Retirement Savings Plan contributions 152 2,367 1,777
Exercise of stock options 103 610 1,179
Restricted common stock awards 201 3,560 2,005
Deferred compensation plans 28 450 288
Acquisition of Associated Bearings Company 123 1,770 1,491
Amortization of restricted
common stock compensation 360
Other 57 (381)
- --------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 22,102 10,000 82,713 236,109 (24,391)
Net income 19,933
Cash dividends - $.48 per share (10,397)
Purchases of common stock for treasury (1,450) (21,746)
Treasury shares issued for:
Retirement Savings Plan contributions 220 337 2,980
Exercise of stock options 109 (281) 1,442
Restricted common stock awards 96 (86) 1,266
Deferred compensation plans 24 55 309
Amortization of restricted
common stock compensation 28
Other (167) 381
- --------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 21,101 $ 10,000 $ 82,599 $ 246,026 $ (40,140)
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
--------------------------
For the Years Ended
June 30, 1999, 1998,
and 1997
--------------------------
Unearned
Restricted
Common Total
Stock Shareholders'
Compensation Equity
(In thousands, except per share amounts)
- ------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT JULY 1, 1996 $ (1,200) $ 192,264
Net income 27,092
Cash dividends - $.41 per share (7,682)
Purchases of common stock for treasury (4,568)
Treasury shares issued for:
Retirement Savings Plan contributions 3,328
Exercise of stock options 1,089
Restricted common stock awards (135)
Deferred compensation plans 995
Amortization of restricted
common stock compensation 385 417
Other (61)
- ------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 (950) 212,874
Net income 30,125
Cash dividends - $.47 per share (10,277)
Purchases of common stock for treasury (8,148)
Issuance of common stock for the
acquisition of Invetech Company 63,374
Treasury shares issued for:
Retirement Savings Plan contributions 4,144
Exercise of stock options 1,789
Restricted common stock awards (5,565)
Deferred compensation plans 738
Acquisition of Associated Bearings Company 3,261
Amortization of restricted
common stock compensation 1,586 1,946
Other (324)
- ------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 (4,929) 299,502
Net income 19,933
Cash dividends - $.48 per share (10,397)
Purchases of common stock for treasury (21,746)
Treasury shares issued for:
Retirement Savings Plan contributions 3,317
Exercise of stock options 1,161
Restricted common stock awards (1,180)
Deferred compensation plans 364
Amortization of restricted
common stock compensation 1,210 1,238
Other 214
- ------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 $ (4,899) $ 293,586
========================================================================
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 8
Applied Industrial Technologies, Inc. and Subsidiaries
----------------------------------------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
----------------------------------------------------------
------------------------------------------------
Years Ended June 30, 1999, 1998 and 1997
------------------------------------------------
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
1. BUSINESS AND ACCOUNTING POLICIES
Business
The Company is one of the nation's leading distributors of industrial products,
including bearings and seals, power transmission and fluid power components, and
general maintenance products and related specialty items. The Company also
provides mechanical, rubber and fluid power shop services, including engineering
design, electrical, gearing, material handling, hose and hydraulic and pneumatic
systems. The Company offers technical application support for these products and
provides creative solutions to help customers minimize downtime and reduce
overall procurement costs. Although the Company does not generally manufacture
the products it sells, it does assemble and repair certain products and systems.
Most of the Company's sales are in the maintenance and replacement markets to
customers in a wide range of industries principally in the United States.
Consolidation
The consolidated financial statements include the accounts of Applied Industrial
Technologies, Inc. and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the period. Actual results
may differ from the estimates and assumptions used in preparing the consolidated
financial statements.
Cash and Temporary Investments
The Company considers all temporary investments with maturities of three months
or less to be cash equivalents for purposes of the statements of consolidated
cash flows.
Goodwill
Goodwill is recorded for the purchase price of acquired operations in excess of
the fair value of identifiable net assets. Goodwill is amortized on a
straight-line basis over 15 to 30 years. The accumulated amortization was $9,596
at June 30, 1999 and $5,474 at June 30, 1998. The Company assesses the
recoverability of goodwill by determining whether the amortization over the
remaining life can be recovered through projected undiscounted cash flows from
future operations.
Inventories
Inventories are valued at the lower of cost or market, using the last-in,
first-out (LIFO) method. See Note 4 for further information regarding
inventories.
Depreciation
Depreciation of buildings and equipment is computed using the straight-line
method over the estimated useful lives of the assets. Buildings and related
improvements are depreciated over 10 to 30 years and equipment over 3 to 8
years.
Revenue Recognition
Revenue is recognized when products are shipped to the customer.
Income Taxes
Income taxes are determined based upon income and expenses recorded for
financial reporting purposes. Deferred income taxes are recorded for estimated
future tax effects of differences between the bases of assets and liabilities
for financial reporting and income tax purposes, giving consideration to enacted
tax laws.
17
<PAGE> 9
Net Income Per Share
The following is a computation of the basic and diluted earnings per share:
<TABLE>
<CAPTION>
----------------------------
Year Ended June 30
----------------------------
1999 1998 1997
-------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME
Net income as reported in statements
of consolidated income $19,933 $30,125 $27,092
-------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING
Weighted average common shares
outstanding for basic computation 21,386 21,466 18,465
Dilutive effect of:
Stock options 120 310 252
Performance Accelerated Restricted Stock (PARS) 40 51 52
-------------------------------------------------------------------------------
Weighted average common shares
outstanding for diluted computation 21,546 21,827 18,769
-------------------------------------------------------------------------------
NET INCOME PER SHARE
Net income per share - basic $ .93 $ 1.40 $ 1.47
-------------------------------------------------------------------------------
Net income per share - diluted $ .93 $ 1.38 $ 1.44
-------------------------------------------------------------------------------
</TABLE>
New Accounting Standard
Effective July 1, 1998, the Company adopted Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Adoption of this SOP did not have a material impact on the
consolidated financial statements.
2. BUSINESS COMBINATIONS
During the year ended June 30, 1999, the Company acquired five distributors
for a total purchase price of $14,800 financed through available credit
facilities (see Note 6). Three of the companies are distributors of bearings,
mechanical and electrical drive systems and industrial products. Two of the
companies are distributors of fluid power products. The acquisitions were
accounted for as purchases and their results of operations are included in the
accompanying consolidated financial statements from their respective acquisition
dates. Results of operations for these acquisitions are not material for all
periods presented. Goodwill of $11,239 recognized in connection with these
combinations is being amortized over periods of 15 to 20 years.
Effective August 1, 1997, the Company acquired the Invetech Company
(Invetech), a distributor of bearings, mechanical and electrical drive system
products, industrial rubber products, linear technologies and specialty
maintenance and repair products. The aggregate purchase price was $93,900
including the issuance of 3.2 million shares of Company common stock, plus the
assumption of $8,000 of term debt. The $23,400 cash portion of the purchase
price was financed through available short-term lines of credit. The Company
accounted for this 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 ended 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 of $36,699, representing the
excess of the purchase price over assets acquired, is being amortized on a
straight-line basis over 30 years.
During the year ended June 30, 1998, the Company also acquired certain
assets of two rubber fabrication and repair shops, the stock of two distributors
of fluid power products, and two distributors of bearings, power transmission
products and industrial supplies for an aggregate purchase price of $18,117
including the issuance of 123,000 shares of Company stock. The $14,856 cash
portion of the aggregate purchase price was financed through available
short-term lines of credit. The acquisitions of these businesses were accounted
for as purchases and their results of operations are included in the
accompanying consolidated financial statements from their respective acquisition
dates. Goodwill of $9,959, recognized in connection with these combinations, is
being amortized over 15 years.
The following table summarizes the unaudited consolidated pro forma results
of operations, as if the fiscal 1998 acquisitions had occurred at the beginning
of the following periods:
<TABLE>
<CAPTION>
---------------------------
Year Ended June 30
---------------------------
1998 1997
(Unaudited)
-------------------------------------------------------------------------------
<S> <C> <C>
Net sales $1,539,890 $1,530,533
Income before income taxes 48,242 48,094
Net income 29,175 29,140
Net income per share-basic 1.34 1.34
Net income per share-diluted 1.32 1.32
</TABLE>
The unaudited pro forma amounts include the pre-tax nonrecurring charge of
$4,000 for the year ended June 30, 1998. This pro forma information is not
necessarily indicative of the results that actually would have been attained if
the operations had been combined during the periods presented and is not
intended to be a projection of future results.
18
<PAGE> 10
3. SALE OF DIVISION
On August 9, 1996, the Company sold the Dixie Bearing Aircraft Division located
in Atlanta, Georgia to Aviation Sales Company for $9,090. The assets were sold
at their approximate net book value. The sale did not have a material effect on
the consolidated financial statements.
4. INVENTORIES
Current Cost
The current cost of inventories exceeds the LIFO cost as follows:
<TABLE>
<CAPTION>
-------------------------
June 30
-------------------------
1999 1998
---------------------------------------------------------------------------------
<S> <C> <C>
LIFO cost $169,689 $192,042
Excess of current cost over LIFO cost 103,671 103,298
---------------------------------------------------------------------------------
Current cost $273,360 $295,340
---------------------------------------------------------------------------------
</TABLE>
LIFO Liquidations
During the years ended June 30, 1999 and 1997, the Company liquidated LIFO
inventory quantities carried at lower costs prevailing in prior years. The
effect of these liquidations reduced cost of sales and increased net income and
net income per share, respectively, by $456, $252, and $.01 per share during
1999 and $3,022, $1,754 and $.09 per share during 1997.
5. OTHER BALANCE SHEET INFORMATION
Other assets consist of the following:
<TABLE>
<CAPTION>
-------------------------
June 30
-------------------------
1999 1998
---------------------------------------------------------------------------------
<S> <C> <C>
Deposits and investments $ 5,158 $13,877
Deferred tax assets 6,161 4,447
Other 4,233 6,542
Total $ 15,552 $24,866
---------------------------------------------------------------------------------
</TABLE>
All investments have fair values approximately equal to their carrying values.
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
-------------------------
June 30
-------------------------
1999 1998
---------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities $ 10,161 $11,242
Accrued income and other taxes 8,669 4,636
Accrued self insurance 5,216 4,756
Other 9,542 8,318
Total $ 33,588 $28,952
---------------------------------------------------------------------------------
</TABLE>
6. DEBT
In November 1998, the Company replaced previously existing short-term lines of
credit, which aggregated $42,973 at June 30, 1998, with a five-year committed
revolving credit agreement with a group of banks. This agreement provides for
unsecured borrowings of up to $150,000 at various interest rate options, none of
which is in excess of the banks' prime rate at interest determination dates.
Borrowings under this agreement totaled $24,500 at June 30, 1999. Fees range
from .12% to .40% per year on the average amount of the total revolving credit
commitments during the year. This facility enables the Company to refinance
short-term debt on a long-term basis. Accordingly, the short-term debt and the
current portion of long-term borrowings intended to be refinanced are classified
as long-term debt. Unused lines under this facility totaling $115,905 are
available to fund future acquisitions or other capital and operating
requirements.
In January 1999, the Company also entered into an agreement with a commercial
bank for a $15,000 short-term uncommitted line of credit. This agreement
provides for payment of interest at various interest rate options, none of which
is in excess of the bank's prime rate at interest determination dates. At June
30, 1999, borrowing under this line
19
<PAGE> 11
of credit totaled $11,500 and is classified as long-term debt in connection with
the refinancing ability of the revolving credit agreement. The remaining amount
available for borrowings under this line at June 30, 1999, was $3,500.
Long-term debt consists of:
<TABLE>
<CAPTION>
-------------------------
June 30
-------------------------
1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit facility, effective rate 5.7% $ 24,500
Uncommitted lines of credit, effective rate 6.22% 11,500
7.82% Senior unsecured term notes, due in
semi-annual installments of $5,714 through 2003 40,000 $51,429
6.6% Senior unsecured term note, due at maturity in December 2007 50,000 50,000
5.97% Bank term loan, due in December 1998 8,000
-----------------------------------------------------------------------------------------------
Total 126,000 109,429
Less current portion 19,429
-----------------------------------------------------------------------------------------------
Noncurrent portion $126,000 $90,000
-----------------------------------------------------------------------------------------------
</TABLE>
The revolving credit facility and senior unsecured term notes contain certain
restrictive covenants regarding liquidity, tangible net worth, financial ratios
and other covenants. At June 30, 1999, the most restrictive of these covenants
required that the Company maintain a minimum consolidated net worth of $245,980.
Based upon current market rates for debt of similar maturities, the Company
estimates that the fair value of its debt is less than its carrying value at
June 30, 1999, by $1,444.
7. INCOME TAXES
Provision
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
------------------------------------------
Year Ended June 30
------------------------------------------
1999 1998 1997
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $15,636 $ 14,635 $16,100
Deferred (2,936) 5,065 1,900
-----------------------------------------------------------------------------------------------
Total $12,700 $ 19,700 $18,000
-----------------------------------------------------------------------------------------------
</TABLE>
The exercise of non-qualified stock options during fiscal 1999, 1998 and 1997
resulted in $199, $645 and $368, respectively, of income tax benefits to the
Company derived from the difference between the market price at the date of
exercise and the option price. Also, the accelerated vesting of Performance
Accelerated Restricted Stock (PARS) in fiscal 1999, 1998 and 1997 resulted in
$28, $360 and $32, respectively, of incremental income tax benefits over the
amounts previously reported for financial reporting purposes. These tax benefits
were credited to additional paid-in capital.
Effective Tax Rates
The following is a reconciliation between the federal statutory income tax rate
and the Company's effective tax rate:
<TABLE>
<CAPTION>
----------------------------------------
Year Ended June 30
----------------------------------------
1999 1998 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Effects of:
State and local income taxes 1.6 3.0 3.3
Non-deductible expenses 2.6 2.1 1.5
Other, net (.3) (.6) .1
---------------------------------------------------------------------------------------------
Effective tax rate 38.9% 39.5% 39.9%
---------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 12
Balance Sheet
The significant components of the Company's deferred tax assets (liabilities)
are as follows:
<TABLE>
<CAPTION>
-------------------------
June 30
-------------------------
1999 1998
------------------------------------------------------------------------------------------------
<S> <C> <C>
Depreciation and differences in property bases $(4,447) $(5,765)
Inventories (15,994) (16,075)
Compensation liabilities not currently deductible 9,164 8,877
Reserves not currently deductible 4,634 3,989
Goodwill 1,013 1,118
Other 1,630 1,061
------------------------------------------------------------------------------------------------
Net deferred tax liability $(4,000) $(6,795)
------------------------------------------------------------------------------------------------
</TABLE>
8. SHAREHOLDERS' EQUITY
Stock Incentive Plans
The 1997 Long-Term Performance Plan (the "1997 Plan") provides for granting of
stock options, stock awards, cash awards, and such other awards or combination
thereof as the Executive Organization and Compensation Committee of the Board of
Directors may determine. The number of shares of common stock which may be
awarded in each fiscal year under the 1997 Plan is two percent (2%) of the total
number of shares of common stock outstanding on the first day of each year for
which the Plan is in effect. Common stock available for distribution under the
1997 Plan, but not distributed, may be carried over to the following year.
Shares available for future grants at June 30, 1999 and 1998 were 46,000 and
327,000, respectively.
Under the 1997 Plan, the Company has awarded PARS and/or stock options to
officers, other key associates and members of the Board of Directors. PARS
recipients are entitled to receive dividends and have voting rights on their
respective shares but are restricted from selling or transferring the shares
prior to vesting. The restricted stock vests after a period of six years, with
accelerated vesting based upon achievement of certain return on asset objectives
or minimum stock price levels. The aggregate fair market value of the restricted
stock is considered unearned compensation at the time of grant and is amortized
over the six year vesting period or until such time as acceleration of vesting
takes place. In fiscal 1999 and 1998 the Company recognized accelerated vesting
of 17,000 and 95,000 shares, respectively, of previously awarded PARS.
At June 30, 1999, the Company has a stock option plan as described above. The
stock options generally vest over a period of 4 years and expire after 10 years.
The Company applies APB Opinion No. 25 and related interpretations in accounting
for options granted under the 1997 Plan; accordingly, no compensation cost is
recognized for stock options granted. Had compensation cost for the Company's
stock options been determined based on fair value at the grant dates for awards
under the Plan consistent with the method of Statement of Financial Accounting
Standards (SFAS) No. 123, the Company's net income and net income per
share-diluted would have been reduced to $19,118 and $.89 in 1999, $29,616 and
$1.36 in 1998, and $26,502 and $1.41 in 1997.
Disclosures under the fair value method are estimated using the Black Scholes
option pricing model. The assumptions used for grants issued in 1999, 1998 and
1997 are:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life 7 years 7 years 7 years
Risk free interest rate 5.2% 5.7% 6.4%
Dividend yield 3.0% 2.0% 2.0%
Volatility 28.0% 25.0% 20.1%
</TABLE>
Information regarding these option plans is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding July 1 1,019,078 $ 14.01 1,116,997 $ 13.36 877,168 $ 10.91
Granted 607,628 14.94 40,950 26.98 334,650 19.19
Exercised (108,547) 8.86 (102,774) 11.13 (77,757) 9.26
Expired/canceled (54,105) 17.48 (36,095) 17.59 (17,064) 14.84
---------------------------------------------------------------------------------------------------------
Outstanding June 30 1,464,054 $ 14.67 1,019,078 $ 14.01 1,116,997 $ 13.36
---------------------------------------------------------------------------------------------------------
Options exercisable June 30 663,259 $ 13.05 614,292 $ 11.23 506,919 $ 9.62
Weighted-average fair value
of options granted
during the year $ 4.13 $ 7.80 $ 5.69
</TABLE>
21
<PAGE> 13
The following table summarizes information about stock options outstanding at
June 30, 1999:
<TABLE>
<CAPTION>
------------------------------------- -----------------------
Options Outstanding Options Exercisable
------------------------------------- -----------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Ranges of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 6 - $ 9 61,314 1.3 Years $ 6.31 61,314 $ 6.31
9 - 13 241,713 3.2 9.40 241,713 9.40
13 - 17 605,187 8.1 13.85 206,803 14.47
17 - 21 516,490 8.0 18.13 143,595 19.00
21 - 28 39,350 8.6 26.98 9,834 26.98
----------------------------------------------------------------------------------------------------
Total 1,464,054 663,259
----------------------------------------------------------------------------------------------------
</TABLE>
At June 30, 1999, option prices related to outstanding options ranged from $6.31
to $27.50 per share.
Shareholders Rights
On January 15, 1998, the Company's Board of Directors adopted a Shareholder's
Rights Plan and declared a dividend distribution of one preferred share purchase
right for each outstanding share of Company common stock held of record as of
February 2, 1998. The rights become exercisable only if a person or group
acquires beneficial ownership or commences a tender or exchange offer for 20% or
more of the Company's common stock, unless the tender or exchange offer is for
all outstanding shares of the Company upon terms determined by Applied's
continuing directors to be in the best interests of the Company and its
shareholders. When exercisable, the Rights would entitle the holders (other than
the acquirer) to buy shares of the Company's common stock having a market value
equal to two times the right's exercise price or, in certain circumstances, to
buy shares of the acquiring company having a market value equal to two times the
right's exercise price.
Treasury Shares
At June 30, 1999, 596,000 shares of the Company's common stock held as treasury
shares are restricted as collateral under escrow arrangements relating to
certain change in control and director and officer indemnification agreements.
9. BENEFIT PLANS
Retirement Savings Plan
Substantially all associates of the Company are eligible to participate in the
Applied Industrial Technologies, Inc. Retirement Savings Plan. The Company makes
a discretionary profit-sharing contribution to the Retirement Savings Plan
generally based upon a percentage of the Company's income before income taxes
and before the amount of the contribution. The Company also partially matches
401(k) contributions by participants, who may elect to contribute up to 15
percent of their compensation. The matching contribution is made with the
Company's common stock and is determined quarterly using rates based on
achieving certain quarterly earnings per share levels.
The Company's expenses for contributions to the above plan were $3,417,
$5,579, and $4,895 for the years ended June 30, 1999, 1998, and 1997,
respectively.
Deferred Compensation Plans
The Company has deferred compensation plans that enable certain associates of
the Company to defer receipt of a portion of their compensation and non-employee
directors to defer receipt of director fees. The Company funds these deferred
compensation liabilities by making contributions to rabbi trusts. Contributions
consist of Company Common Stock and investments in money market and mutual
funds. During the first quarter of fiscal 1999, the Company adopted the Emerging
Issues Task Force (EITF) Issue No. 97-14, "Accounting for Deferred Compensation
Arrangements Where Amounts Earned are Held in a Rabbi Trust and Invested." This
statement requires the deferred compensation obligation for certain plans to be
classified as an equity instrument, with no recognition of changes in the fair
value of the amount owed to the employee. The adoption of this accounting
standard resulted in an increase in shareholders' equity and a decrease in other
liabilities of approximately $5,000. Amounts for prior periods have been
reclassified to conform to the new presentation.
Postemployment Benefit Plans
At June 30 1999, the Company adopted SFAS No. 132, "Employers Disclosures
about Pensions and Other Postretirement Benefits." This statement revises
disclosures about pensions and postretirement benefit plans but does not change
the manner in which obligations or expenses are measured or recognized in the
financial statements.
22
<PAGE> 14
<TABLE>
<CAPTION>
--------------------- ---------------------
Pension Benefits Other Benefits
--------------------- ---------------------
1999 1998 1999 1998
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of the year $ 14,199 $ 12,389 $ 3,132 $ 978
Service cost 465 329 41 42
Interest cost 997 938 216 80
Benefits paid (983) (995) (113) (6)
Prior service cost incurred during year 690 752 229
Actuarial (gain)/loss during year (318) 843 (95) 169
Business combination 1,982
Curtailment (57)
-------------------------------------------------------------------------------------------------
Benefit obligation at June 30 $ 15,050 $ 14,199 $ 3,410 $ 3,245
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year$ 1,825 $ 1,442
Actual return on plan assets 108 284
Employer contribution 933 1,094 $ 113 $ 6
Benefits paid (983) (995) (113) (6)
-------------------------------------------------------------------------------------------------
Fair value of plan assets at June 30 $ 1,883 $ 1,825 $ 0 $ 0
RECONCILIATION OF FUNDED STATUS:
Funded status $(13,168) $(12,373) $ (3,410) $ (3,245)
Unrecognized net (gain)/loss 1,413 1,761 (581) 347
Unrecognized prior service cost 2,400 1,969 226 (6)
-------------------------------------------------------------------------------------------------
Accrued pension cost at June 30 $ (9,355) $ (8,643) $ (3,765) $ (2,904)
AMOUNTS RECOGNIZED IN THE BALANCE SHEET
AT JUNE 30 CONSIST OF:
Accrued benefit liability $(11,728) $(11,226) $ (3,765) $ (2,904)
Intangible asset 2,373 2,583
-------------------------------------------------------------------------------------------------
Net amount recognized, included in other
liabilities on the consolidated balance sheet $ (9,355) $ (8,643) $ (3,765) $ (2,904)
WEIGHTED-AVERAGE ASSUMPTIONS AS OF JUNE 30:
Discount rate 7.0% 7.0% 7.0% 7.0%
Expected return on plan assets 9.0% 9.0% N/A N/A
Rate of compensation increase 5.5% 5.5% N/A N/A
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 465 $ 329 $ 41 $ 42
Interest cost 997 938 216 80
Expected return on plan assets (163) (122)
Amortization of actuarial (gain)/loss 86 45 (15) 27
Amortization of prior service cost 260 194 (3) (3)
-------------------------------------------------------------------------------------------------
Net periodic pension cost $ 1,645 $ 1,384 $ 239 $ 146
</TABLE>
The assumed health care cost trend rates used in measuring the accumulated
benefit obligation for postretirement benefits other than pensions as of June
30, 1999, were 8.0% decreasing to 5.0% by 2006. A one-percentage point change in
the assumed health care cost trend rates would have had the following effects:
<TABLE>
<CAPTION>
---------------- ----------------
One-Percentage One-Percentage
Point Increase Point Increase
---------------- ----------------
<S> <C> <C>
Effect on total service and interest cost
components of periodic expense $ 38 $ (31)
Effect on postretirement benefit obligation $ 485 $(399)
</TABLE>
Supplemental Executive Retirement Benefit Plan (SERP)
The Company has a non-qualified pension plan to provide supplemental retirement
benefits to certain officers. Benefits are payable at retirement based upon a
percentage of the participant's compensation. The plan specifies minimum annual
retirement benefits for certain participants.
Qualified Retirement Plan
The Company has a qualified defined benefit plan that provides benefits to
certain Detroit area associates at retirement. The benefits are based on length
of service and date of retirement.
Salary Continuation Benefits
The Company has agreements with certain retirees of Invetech to pay monthly
retirement benefits for a period not to exceed 15 years.
Retiree Medical Benefits
The Company provides health care benefits to eligible retired associates who
elect to pay the Company a specified monthly premium. Premium payments are based
upon current insurance rates for the type of coverage provided and are adjusted
annually. Certain participants' monthly health care premium payments are
partially subsidized by the Company. Additionally, in conjunction with the
Invetech acquisition, the Company assumed the obligation for the Invetech
post-retirement medical benefit plan. This plan provides health care benefits to
eligible retired associates at no cost to the individual.
23
<PAGE> 15
10. COMMITMENTS, LEASE OBLIGATIONS AND RENT EXPENSES
The Company leases its corporate headquarters facility along with certain
service center and distribution center facilities, vehicles and computer
equipment under non-cancelable lease agreements accounted for as operating
leases. The minimum annual rental commitments under operating leases are $14,420
in 2000; $11,912 in 2001; $8,902 in 2002; $7,965 in 2003; $5,666 in 2004; and
$35,053 after 2004.
In connection with the lease of the corporate headquarters facility, the
Company guaranteed repayment of $5,678 of bonds issued by the Cleveland-Cuyahoga
County Port Authority as lessor and Cuyahoga County to fund construction of the
headquarters facility.
Rental expenses incurred for operating leases, principally from leases for
real property, vehicles and computer equipment, were $19,365 in 1999, $20,004 in
1998, and $12,891 in 1997.
The Company had outstanding letters of credit of $9,595 at June 30, 1999.
These letters of credit secure certain employee benefit and insurance
obligations.
11. SEGMENT INFORMATION
Effective June 30, 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The statement establishes
standards for the manner in which public business enterprises report information
about operating segments in financial statements. The adoption of SFAS No. 131
did not affect results of operations or financial position.
The Company has identified one reportable segment: Service Center Based
Distribution. The Service Center Based Distribution segment provides customers
with solutions to their immediate MRO and OEM needs through the distribution of
bearings, power transmission products and systems, industrial rubber products,
linear motion products, fluid power components, general maintenance products and
related specialty items. 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 other businesses 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 the
acquisitions outside the Company's core business segment and the related growth
in these areas. Prior period information is presented where practicable.
Estimates have been used to determine some of the prior period information based
on the current segment structure. Amounts prior to 1998 are not considered to be
material and therefore not presented. 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 relative to the
Company's overall results of operations.
Segment Financial Information:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Year Ended June 30
------------------------------------------------------------------------------------
Total Service Center Based Distribution Other
----------------------- --------------------------------- -----------------------
1999 1998 1999 1998 1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total net sales $1,527,928 $1,491,405 $1,466,836 $1,454,376 $ 61,092 $ 37,029
Segment operating profit $ 65,246 $ 89,340 $ 62,786 $ 87,226 $ 2,460 $ 2,114
Goodwill amortization 4,122 2,983 ----------------------------------------------------------
Corporate/Unallocated
expense, net 18,636 27,837
-----------------------------------------------------
Total operating profit 42,488 58,520
Interest expense, net 9,855 8,695
Income before taxes $ 32,633 $ 49,825
-----------------------------------------------------
Assets used in the business $ 574,349 $ 606,091 $ 538,723 $ 577,984 $ 35,626 $ 28,107
------------------------------------------------------------------------------------------------------------------
Depreciation $ 17,325 $ 16,428 $ 16,822 $ 16,094 $ 503 $ 334
------------------------------------------------------------------------------------------------------------------
Capital Expenditures $ 13,527 $ 33,861 $ 12,317 $ 33,261 $ 1,210 $ 600
------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------
Year Ended June 30
-----------------------
<S> <C> <C>
Sales By Product and
Service Category: 1999 1998
-----------------------------------------------------
Industrial Products $1,073,924 $1,078,507
Engineered Systems Products 233,407 229,984
Fluid Power Products 146,828 112,718
Fabricated Rubber Products 73,769 70,196
-----------------------------------------------------
$1,527,928 $1,491,405
-----------------------------------------------------
</TABLE>
12. LITIGATION
The Company is a defendant in several lawsuits for product liability and
employment-related matters. The Company is vigorously defending these lawsuits.
Although management cannot predict the outcomes of these lawsuits, they are not
expected to have a material adverse effect on the Company's consolidated
financial position or results of operations.
24
<PAGE> 16
----------------------------------------------------------------------------
INDEPENDENT AUDITORS'
REPORT
----------------------------------------------------------------------------
[LOGO]
DELOITTE&
TOUCHE LLP
Shareholders and Board of Directors
Applied Industrial Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Applied
Industrial Technologies, Inc. and its subsidiaries (the "Company") as of June
30, 1999 and 1998, and the related statements of consolidated income,
shareholders' equity, and cash flows for each of the three years in the period
ended June 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 1999 and
1998, and the results of its operations and its cash flows for each of the three
years in the period ended June 30, 1999, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
August 5, 1999
25
<PAGE> 17
Applied Industrial Technologies, Inc. and Subsidiaries
----------------------------------------------------------
QUARTERLY OPERATING
RESULTS AND MARKETING DATA (UNAUDITED)
----------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------
Per Common Share (C)
--------------------------------------------------
Stock Price Range
----------------------
Net
Net Gross Net Income - Cash
Sales Profit Income Diluted Dividend High Low
(Dollars in thousands,
except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 (A)
FIRST QUARTER (B) $ 379,174 $ 94,497 $ 1,358 $0.06 $0.12 $20.81 $15.75
SECOND QUARTER 371,395 92,235 4,388 0.20 0.12 16.50 12.00
THIRD QUARTER 386,616 97,454 6,372 0.30 0.12 14.50 11.13
FOURTH QUARTER 390,743 98,626 7,815 0.37 0.12 19.00 11.31
- ---------------------------------------------------------------------------------------------------
$ 1,527,928 $ 382,812 $ 19,933 $0.93 $0.48
===================================================================================================
1998 (A)
First Quarter (B) $ 344,726 $ 88,300 $ 4,497 $0.21 $0.11 $34.81 $23.83
Second Quarter 368,623 95,050 7,714 0.35 0.12 34.44 24.94
Third Quarter 393,871 102,491 9,115 0.41 0.12 29.31 23.13
Fourth Quarter 384,185 106,092 8,799 0.40 0.12 27.88 20.50
- ---------------------------------------------------------------------------------------------------
$ 1,491,405 $ 391,933 $ 30,125 $1.38 $0.47
===================================================================================================
1997 (A)
First Quarter $ 282,249 $ 73,474 $ 5,405 $0.29 $0.09 $20.75 $17.09
Second Quarter 274,992 74,967 6,003 0.32 0.11 19.50 17.17
Third Quarter 297,190 75,199 6,755 0.36 0.11 23.92 18.25
Fourth Quarter 305,820 82,381 8,929 0.48 0.11 24.50 19.83
- ---------------------------------------------------------------------------------------------------
$ 1,160,251 $ 306,021 $ 27,092 $1.44 $0.41
===================================================================================================
</TABLE>
(A) 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 primarily made based upon
the annual physical inventory and the effect of year-end inventory quantities on
LIFO costs. These cost adjustments were immaterial in 1999. Adjustments in 1998
and 1997 increased gross profit by $9,707 and $5,624; net income by $5,625 and
$3,259; and diluted net income per share by $.26 and $.17, respectively.
Reductions in inventories during the fiscal years ended June 30, 1999 and 1997
resulted in liquidations of LIFO inventory quantities carried at lower costs
prevailing in prior years. The effect of these liquidations for the years ended
June 30, 1999 and 1997 increased annual gross profit by $456 and $3,022; annual
net income by $252 and $1,754; and diluted net income per share by $.01 and
$.09, respectively. (See Note 4 to Consolidated Financial Statements.)
(B) During the first quarter of fiscal 1999, the Company recorded pretax
restructuring and other special charges of $5,400 to cover certain costs of
consolidation and workforce reductions. Net of income taxes, this charge
decreased net income by $3,186, or $.14 per share. During the first quarter of
fiscal 1998, in connection with the acquisition of Invetech, a pretax
restructuring charge of $4,000 was recorded for consolidation expenses and costs
associated with the disposal of duplicative property and other assets. Net of
income taxes, this charge decreased net income by $2,360, or $.11 per share.
(C) On August 17, 1999, there were 6,815 shareholders of record. Additionally at
August 17, 1999, there were 3,696 shareholders in the Applied Industrial
Technologies, Inc. Retirement Savings Plan. The Company's common stock is listed
on the New York Stock Exchange. The closing price on August 17, 1999, was $14.75
per share.
27
<PAGE> 18
Applied Industrial Technologies, Inc. and Subsidiaries
----------------------------------------------------------
10 YEAR
SUMMARY
----------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996
(Dollars in thousands, except per share amounts)
- ---------------------------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS-
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30
Net sales $1,527,928 $1,491,405 $1,160,251 $1,143,749
Operating income 42,488 58,520 50,599 49,281
Net income 19,933 30,125 27,092 23,334
Per share data
Net income - basic .93 1.40 1.47 1.26
Net income - diluted .93 1.38 1.44 1.25
Cash dividends .48 .47 .41 .36
YEAR-END POSITION - JUNE 30
Working capital $ 257,091 $ 221,766 $ 164,723 $ 151,956
Long-term debt 126,000 90,000 51,428 62,857
Total assets 574,349 606,091 394,114 404,072
Shareholders' equity 293,586 299,502 212,874 192,264
YEAR-END STATISTICS - JUNE 30
Current ratio 2.9 2.1 2.4 2.1
Service Centers 394 400 331 337
Shareholders of record (A) 6,869 6,731 4,676 4,636
</TABLE>
(A)Includes participant-shareholders in the Applied Industrial Technologies,
Inc. Retirement Savings Plan, and since 1998, shareholders in the Automatic
Dividend Reinvestment Plan.
28
<PAGE> 19
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1,054,809 $ 936,254 $ 831,432 $ 817,813 $ 814,000 $ 651,271
36,923 27,817 20,521 4,703 17,115 25,281
16,909 12,687 8,927 (1,666) 4,282 12,201
.97 .75 .55 (.11) .27 .75
.96 .73 .54 (.11) .27 .75
.31 .29 .29 .29 .29 .29
$ 153,555 $ 144,605 $ 130,860 $ 41,967 $ 54,695 $ 64,091
74,286 80,000 80,000
359,231 343,519 315,935 330,619 327,939 380,224
169,760 150,491 134,940 128,830 134,203 135,338
2.4 2.4 2.4 1.2 1.3 1.3
338 339 323 333 341 363
4,379 4,478 4,449 4,354 4,025 3,583
</TABLE>
29
<PAGE> 1
EXHIBIT 21
APPLIED INDUSTRIAL TECHNOLOGIES, INC. FORM 10-K FOR
FISCAL YEAR ENDED JUNE 30, 1999
SUBSIDIARIES
Jurisdiction of
Name* Incorporation or Organization
----- -----------------------------
Air and Hydraulics Engineering, Incorporated Alabama
(d/b/a Air and Hydraulics Engineering)
Applied Industrial Technologies - ABC, Inc. Ohio
Applied Industrial Technologies - DBB, Inc. Ohio
Applied Industrial Technologies - Dixie, Inc. Tennessee
Applied Industrial Technologies - GA LP Delaware
Applied Industrial Technologies - Mainline, Inc. Wisconsin
Applied Industrial Technologies - PA LLC Pennsylvania
Applied Industrial Technologies - TN LP Delaware
Applied Industrial Technologies - TX LP Delaware
Applied - Michigan, Ltd. Ohio
AppliedLink, Inc. (d/b/a AppliedLink) Ohio
Bearings Pan American, Inc. Ohio
Bearing Sales & Service, Inc. Washington
BER International, Inc. Barbados
BER Capital, Inc. Delaware
ESI Acquisition Corporation Ohio
(d/b/a Engineered Sales, Inc.)
Farm Warehouse, Inc. (d/b/a Farm Warehouse) Missouri
Rafael Benitez Carrillo Inc. Puerto Rico
(d/b/a Rafael Benitez Carrillo)
The Ohio Ball Bearing Company Ohio
* Except as noted, operating companies conduct business under Applied Industrial
Technologies name
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Applied Industrial Technologies, Inc.
We consent to the incorporation by reference in Registration Statement Nos.
33-43506, 33-53401, 33-60687, 33-65509, 33-65513, and 333-83809 of Applied
Industrial Technologies, Inc. on Form S-8 of our reports dated August 5, 1999
appearing in and incorporated by reference in this Annual Report on Form 10-K of
Applied Industrial Technologies, Inc. for the year ended June 30, 1999.
/s/Deloitte & Touche LLP
Cleveland, Ohio
September 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 19,186
<SECURITIES> 0
<RECEIVABLES> 199,251
<ALLOWANCES> 3,515
<INVENTORY> 169,689
<CURRENT-ASSETS> 389,207
<PP&E> 177,656
<DEPRECIATION> 70,417
<TOTAL-ASSETS> 574,349
<CURRENT-LIABILITIES> 132,116
<BONDS> 126,000
0
0
<COMMON> 10,000
<OTHER-SE> 283,586
<TOTAL-LIABILITY-AND-EQUITY> 574,349
<SALES> 1,527,928
<TOTAL-REVENUES> 1,527,928
<CGS> 1,145,116
<TOTAL-COSTS> 1,145,116
<OTHER-EXPENSES> 340,324
<LOSS-PROVISION> 3,014
<INTEREST-EXPENSE> 10,063
<INCOME-PRETAX> 32,633
<INCOME-TAX> 12,700
<INCOME-CONTINUING> 19,933
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,933
<EPS-BASIC> .93
<EPS-DILUTED> .93
</TABLE>
