<PAGE> 1
FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000 .
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 1-2299
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APPLIED INDUSTRIAL TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0117420
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Applied Plaza, Cleveland, Ohio 44115
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 426-4000
--------------
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-----
Shares of common stock outstanding on OCTOBER 31, 2000 19,880,320
----------------------------------------
(No par value)
<PAGE> 2
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
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INDEX
---------------------------------------------------------------------
Page No.
Part I: FINANCIAL INFORMATION
Item 1: Financial Statements
Statements of Consolidated Income - 2
Three Months Ended September 30, 2000 and 1999
Consolidated Balance Sheets - 3
September 30, 2000 and June 30, 2000
Statements of Consolidated Cash Flows 4
Three Months Ended September 30, 2000 and 1999
Statements of Consolidated Shareholders' Equity - 5
Three Months Ended September 30, 2000 and
Year Ended June 30, 2000
Notes to Consolidated Financial Statements 6 - 9
Item 2: Management's Discussion and Analysis of 10 - 14
Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures about
Market Risk 15
Part II: OTHER INFORMATION
Item 1: Legal Proceedings 16
Item 5: Other Information 16
Item 6: Exhibits and Reports on Form 8-K 18
Signatures 20
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM I: Financial Statements
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
Three Months Ended
September 30
2000 1999
------------------------------------------------------
<S> <C> <C>
Net Sales $ 420,876 $ 387,904
----------------------- -----------------------
Cost and Expenses
Cost of sales 316,422 294,139
Selling, distribution and
administrative 90,221 81,680
----------------------- -----------------------
406,643 375,819
----------------------- -----------------------
Operating Income 14,233 12,085
----------------------- -----------------------
Interest expense, net 2,202 2,235
----------------------- -----------------------
Income Before Income Taxes 12,031 9,850
----------------------- -----------------------
Income Taxes
Federal 4,400 3,600
State and local 400 388
----------------------- -----------------------
4,800 3,988
----------------------- -----------------------
Net Income $ 7,231 $ 5,862
======================= =======================
Net Income Per Share - Basic $ 0.37 $ 0.28
======================= =======================
Net Income Per Share - Diluted $ 0.36 $ 0.28
======================= =======================
Cash dividends per common
share $ 0.12 $ 0.12
======================= =======================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
September 30 June 30
2000 2000
-------------------- --------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and temporary investments $ 12,986 $ 12,349
Accounts receivable, less allowance
of $4,166 and $3,800 213,283 212,254
Inventories (at LIFO) 172,412 182,102
Other current assets 7,071 8,286
-------------------- --------------------
Total current assets 405,752 414,991
-------------------- --------------------
Property - at cost
Land 12,193 12,214
Buildings 67,761 67,630
Equipment 93,199 92,656
-------------------- --------------------
173,153 172,500
Less accumulated depreciation 78,212 75,300
-------------------- --------------------
Property - net 94,941 97,200
-------------------- --------------------
Goodwill 69,676 67,089
Other assets 15,369 15,387
-------------------- --------------------
TOTAL ASSETS $ 585,738 $ 594,667
==================== ====================
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 84,456 $ 93,587
Compensation and related benefits 20,672 32,476
Other accrued liabilities 37,339 33,796
-------------------- --------------------
Total current liabilities 142,467 159,859
Long-term debt 119,557 112,168
Other liabilities 23,150 23,309
-------------------- --------------------
TOTAL LIABILITIES 285,174 295,336
-------------------- --------------------
Shareholders' Equity
Preferred stock - no par value; 2,500
shares authorized; none issued or
outstanding
Common stock - no par value; 50,000
shares authorized; 24,096 shares issued 10,000 10,000
Additional paid-in capital 83,401 83,312
Income retained for use in the business 271,957 267,145
Treasury shares - at cost 4,203 and 4,017 (61,423) (57,419)
Unearned restricted common stock compensation (3,371) (3,707)
-------------------- --------------------
TOTAL SHAREHOLDERS' EQUITY 300,564 299,331
-------------------- --------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 585,738 $ 594,667
==================== ====================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30
2000 1999
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 7,231 $ 5,862
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 4,117 4,562
Amortization of goodwill and restricted common
stock compensation 1,480 1,320
Provision for losses on accounts receivable 657 568
Gain on sale of property (1,016) (481)
Treasury shares contributed to employee
benefit plans 2,905 1,009
Changes in current assets and liabilities, net of
effects from acquisition of businesses:
Accounts receivable (149) 551
Inventories 10,930 11,360
Other current assets 1,331 190
Accounts payable and accrued expenses (19,275) 2,610
Other - net 921 96
--------------------------------------------------------------------------------------------------------------------------------
Net Cash provided by Operating Activities 9,132 27,647
--------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Property purchases (2,282) (2,801)
Proceeds from property sales 1,441 2,201
Net cash paid for acquisition of businesses (5,491)
Deposits and other 567 70
--------------------------------------------------------------------------------------------------------------------------------
Net Cash used in Investing Activities (5,765) (530)
--------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Borrowings (repayments) under revolving credit agreements - net 7,389 (25,500)
Dividends paid (2,419) (2,528)
Purchase of treasury shares (8,100) (3,061)
Exercise of stock options 400 40
--------------------------------------------------------------------------------------------------------------------------------
Net Cash used in Financing Activities (2,730) (31,049)
--------------------------------------------------------------------------------------------------------------------------------
Increase (decrease ) in cash and temporary
investments 637 (3,932)
Cash and temporary investments
at beginning of period 12,349 19,186
--------------------------------------------------------------------------------------------------------------------------------
Cash and Temporary Investments
at End of Period $ 12,986 $ 15,254
================================================================================================================================
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes $ 2,815 $ 2,882
Interest $ 1,954 $ 1,945
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
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STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
For the Three Months Ended September 30, 2000 (Unaudited)
and Year Ended June 30, 2000
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
Income Unearned
Shares of Additional Retained Treasury Restricted Total
Common Stock Common Paid-in for Use in Shares Common Stock Shareholders'
Outstanding Stock Capital the Business - at Cost Compensation Equity
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1999 21,101 $ 10,000 $ 82,599 $ 246,026 $ (40,140) $ (4,899) $ 293,586
Net income 31,048 31,048
Cash dividends - $.48 per share (9,929) (9,929)
Purchase of common stock
for treasury (1,280) (20,833) (20,833)
Treasury shares issued for:
Retirement Savings Plan contributions 210 493 2,921 3,414
Exercise of stock options 22 7 294 301
Deferred compensation plans 25 66 339 405
Amortization of restricted common
stock compensation 62 1,192 1,254
Other 85 85
----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 20,078 10,000 83,312 267,145 (57,419) (3,707) 299,331
Net income 7,231 7,231
Cash dividends - $.12 per share (2,419) (2,419)
Purchase of common stock
for treasury (470) (8,100) (8,100)
Treasury shares issued for:
Retirement Savings Plan contributions 171 445 2,460 2,905
Exercise of stock options 61 (480) 880 400
Deferred compensation plans 55 143 778 921
Forfeiture of restricted common stock awards (2) (19) (22) 41
Amortization of restricted common
stock compensation 295 295
Other
----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2000 19,893 $ 10,000 $ 83,401 $ 271,957 $ (61,423) $ (3,371) $ 300,564
==================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 7
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial
position as of September 30, 2000 and June 30, 2000, and the results of
operations and cash flows for the three months ended September 30, 2000
and 1999.
The results of operations for the three month period ended September
30, 2000 are not necessarily indicative of the results to be expected
for the fiscal year.
Cost of sales for interim financial statements are computed using
estimated gross profit percentages which are adjusted throughout the
year based upon available information. Adjustments to actual cost are
made based on the annual physical inventory and the effect of year-end
inventory quantities on LIFO costs.
The financial statements of the Company's Canadian subsidiaries are
measured using local currency as the functional currency. Assets and
liabilities of the Canadian subsidiaries are translated at exchange
rates as of the balance sheet date. Sales, costs and expenses are
translated at average exchange rates during each reporting period.
Adjustments resulting from translating foreign functional currency
financial statements into U.S. dollars were immaterial.
Effective July 1, 2000, the Company adopted Emerging Issues Task Force
Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs."
Accordingly, freight charged to customers is now classified as sales,
whereas previously it was classified as an offset to cost of sales. All
prior amounts have been restated to conform to the current
presentation.
6
<PAGE> 8
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
--------------------------------------------------------------------------------
2. NET INCOME PER SHARE
The following is a computation of the basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended
September 30
2000 1999
-------------------------------------------------
<S> <C> <C>
NET INCOME
Net income as reported in statements of
consolidated income $7,231 $5,862
=================================================
AVERAGE SHARES OUTSTANDING
Weighted average common shares outstanding for basic
computation 19,734 20,798
Dilutive effect of stock options and awards 282 184
-------------------------------------------------
Adjusted average common shares outstanding for
diluted computation 20,016 20,982
=================================================
NET INCOME PER SHARE
Net income per common share - basic $0.37 $0.28
=================================================
Net income per common share - diluted $0.36 $0.28
=================================================
</TABLE>
3. SEGMENT INFORMATION
The Company has identified one reportable segment: Service Center Based
Distribution. The Service Center Based Distribution segment provides customers
with solutions to their immediate maintenance repairs and original equipment
manufacturing needs through the distribution of industrial products including
bearings, power transmission components, fluid power components, linear motion
products, general maintenance and specialty items; engineered systems consisting
of power transmission and electrical systems; fluid power products including
hydraulic and pneumatic systems; and fabricated rubber products consisting of
conveyor belting and industrial hose. The Company also offers various levels of
technical application support for these products and provides creative solutions
to help customers minimize downtime and reduce overall procurement costs. The
"Other" column consists of all other non-service center based distribution
operations that sell directly to customers, including fluid power, electrical
shop and various electronic commerce businesses.
7
<PAGE> 9
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
--------------------------------------------------------------------------------
The segments were established in fiscal 1999 primarily due to the acquisitions
outside our core business segment and the related growth in these areas. The
accounting policies of the segments are the same as those used to prepare the
consolidated financial statements. Certain reclassifications have been made to
prior year amounts to be consistent with the presentation in the current year.
Intersegment sales are not significant. All current segment operating results
are in the United States, Canada and Puerto Rico. The segment operations in
Canada and Puerto Rico represent approximately 5.6% of the total net sales of
Applied and therefore are not presented separately. In addition, over 37% of the
Canadian operations' net sales are included in the "Other" segment relating to
the fluid power business. The long-lived assets located outside of the United
States are not material.
SEGMENT FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
SERVICE CENTER
BASED DISTRIBUTION OTHER TOTAL
--------------------------------------------------------
<S> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 2000
Total net sales $396,848 $24,028 $420,876
Operating profit (loss) 11,916 (13) 11,903
Assets used in the business 545,707 40,031 585,738
Depreciation 3,917 200 4,117
Capital Expenditures 2,176 106 2,282
--------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999
Total net sales $374,360 $13,544 $387,904
Operating profit (loss) 16,909 (333) 16,576
Assets used in the business 515,903 37,271 553,174
Depreciation 4,407 155 4,562
Capital Expenditures 2,771 30 2,801
--------------------------------------------------------
</TABLE>
A reconciliaion from the segment operating profit to the consolidated balances
is as follows:
THREE MONTHS ENDED
SEPTEMBER 30
-----------------------------
2000 1999
--------------- -------------
Operating profit for
Reportable segment $11,916 $16,909
Other operating profit (loss) (13) (333)
Adjustments for:
Goodwill amortization (1,185) (1,022)
Corporate and other income (expense), net of
allocations (a) 3,515 (3,469)
--------------- -------------
Total operating profit 14,233 12,085
Interest expense, net 2,202 2,235
--------------- -------------
Income before taxes $12,031 $9,850
=============== =============
8
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
--------------------------------------------------------------------------------
(a) The change in the amounts of corporate and other income (expense), net of
allocations, is due to various changes in the levels and amounts of
expenses being allocated to segments. The Company's general guidelines
are to fully allocate these corporate items.
Net sales by product category are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
-------------------------------------------
2000 1999
-------------------------------------------
<S> <C> <C>
Industrial Products $287,619 $273,217
Engineered Systems and Automation 64,849 58,253
Fluid Power 50,106 38,341
Fabricated Rubber Products 18,302 18,093
-------------------------------------------
$420,876 $387,904
===========================================
</TABLE>
4. BUSINESS COMBINATIONS
During the quarter ended September 30, 2000, the Company acquired the
stock of a distributor of fluid power products for a total purchase
price of $7,300. The acquisition was accounted for as a purchase and
the results of the business' operations are included in the
accompanying consolidated financial statements from its acquisition
date. Results of operations for this acquisition are not material for
all periods presented. Goodwill, based on preliminary allocations of
fair values to assets and liabilities acquired of $3,700 recognized in
connection with this combination, is being amortized over 15 years.
9
<PAGE> 11
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
The following is Management's Discussion and Analysis of certain significant
factors which have affected the Company's: (1) financial condition at September
30, 2000 and June 30, 2000, and (2) results of operations and cash flows during
the periods included in the accompanying Statements of Consolidated Income and
Consolidated Cash Flows.
FINANCIAL CONDITION
LIQUIDITY AND WORKING CAPITAL
Cash provided by operating activities was $9.1 million in the three months ended
September 30, 2000. This compares to $27.6 million provided by operating
activities in the same period a year ago.
Cash flow from operations depends primarily upon generating operating income,
controlling the investment in inventories and receivables, and managing the
timing of payments to suppliers. The Company has continuing programs to monitor
and control these investments. During the three month period ended September 30,
2000, inventories decreased approximately $10.9 million due to Company efforts
to reduce inventory levels, and accounts receivable remained relatively stable.
Accounts payable and accrued expenses decreased $19.3 million primarily due to
payments of compensation related liabilities.
Net cash used in investing activities was $5.8 million in the three months ended
September 30, 2000, primarily attributable to the acquisition of a fluid power
distributor.
Net cash used in financing activities totaled $2.7 million in the three months
ended September 30, 2000 as compared to $31.0 million for the period ended
September 30, 1999. During the period ended September 30, 1999, cash provided
from operations was used for net repayments under the Company's revolving credit
agreements of $25.5 million.
Working capital at September 30, 2000 was $263.3 million compared to $255.1
million at June 30, 2000. This increase is primarily due to the use of long-term
debt to finance operations and acquisitions.
CAPITAL RESOURCES
Capital resources are obtained from income retained in the business, borrowings
under the Company's credit facilities, and operating lease arrangements. Average
combined borrowings were $111.4 million and $104.3 million for the three months
ended September 30, 2000 and 1999, respectively. The weighted average interest
rate on borrowings under revolving credit facilities for the three months ended
September 30, 2000 increased to 6.6% from an average rate of 5.6% for the three
months ended September 30, 1999 due to the general overall increase in
short-term interest rates in the U.S. economy. The weighted average interest on
borrowing under other long-term debt agreements for the three months ended
September 30, 2000 and 1999 was 7.0% and 7.1%, respectively.
10
<PAGE> 12
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
The Company has a committed revolving credit agreement expiring November, 2003
with a group of lending institutions. This agreement provides for unsecured
borrowings of up to $150.0 million. The Company had $41.0 million of borrowings
outstanding under this facility at September 30, 2000. Unused lines under this
facility totaling $99.5 million are available to fund future acquisitions or
other capital and operating requirements. The Company also has a $15.0 million
short-term uncommitted line of credit with a commercial bank. The Company had no
borrowings outstanding under this facility at September 30, 2000. Unused lines
under this facility are available to fund future acquisitions or other capital
and operating requirements.
In October 2000, the Company entered into an agreement with the Prudential
Insurance Company of America for an uncommitted shelf facility to borrow up to
$100 million in additional long-term financing, at its sole discretion, with
terms of up to twelve years.
During the quarter ending December 31, 2000, the Company expects to refinance a
portion of its debt under its revolving credit facility through an institutional
private placement of long-term notes.
The Board of Directors has authorized an ongoing program to purchase shares of
the Company's common stock to fund employee benefit programs, stock option and
award programs, and future acquisitions. These purchases are made in open market
and negotiated transactions, from time to time, depending upon market
conditions. The Company acquired 470,000 shares of its common stock for $8.1
million during the three months ended September 30, 2000. Effective October 17,
2000, the Company's Board of Directors authorized the Company to acquire up to
an additional 1.0 million shares of company stock.
Management expects that capital resources provided from operations, available
lines of credit, unused amounts under the committed revolving credit facility
and operating leases will be sufficient to finance normal working capital needs,
business acquisitions, enhancement of facilities and equipment, and the purchase
of additional Company common stock. Management also believes that additional
long-term debt and line of credit financing could be obtained if desired.
11
<PAGE> 13
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
A summary of the period-to-period changes in principal items included in the
statements of consolidated income follows:
Increase (Decrease)
(Dollars in Thousands, Except per Share Amounts)
Three Months Ended
September 30
2000 and 1999
Amount Change
------ ------
Net sales $32,972 8.5%
Cost of sales 22,283 7.6%
Selling, distribution and
administrative expenses 8,541 10.5%
Operating income 2,148 17.8%
Interest expense - net (33) (1.5)%
Income before income taxes 2,181 22.1%
Income taxes 812 20.4%
Net income 1,369 23.4%
Net income per share - diluted .08 28.6%
12
<PAGE> 14
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Three Months Ended September 30, 2000 and 1999
Net sales increased from the prior year primarily due to acquisitions during
fiscal 2000. Gross profit as a percentage of sales increased to 24.8% from
24.2%. This increase primarily is due to a change in product mix and higher
discounts and allowances from suppliers.
Selling, distribution and administrative expenses as a percent of sales,
increased to 21.4% from 21.1%. This change primarily relates to an increase in
hospitalization expenses and 401K company match.
Interest expense-net for the quarter decreased by 1.5% as compared to the prior
year primarily due to a decrease in long-term debt.
Income tax expense as a percentage of income before taxes was 39.9% for the
quarter ended September 30, 2000 and 40.5% for the quarter ended September 30,
1999. This decrease is due to lower effective state and local tax rates.
As a result of the above factors, net income increased by 23.4% compared to the
same quarter of last year. As a result of the impact of continued stock
repurchases, net income per share - diluted increased $.08, or 28.6%.
CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT
Management's Discussion and Analysis and other sections of this Form 10-Q
contain statements that are forward-looking, based on management's current
expectations about the future. The words "expect", "believe", and similar
expressions identify forward-looking statements. The Company intends that the
forward-looking statements be subject to the safe harbors established in the
Private Securities Litigation Reform Act of 1995 or by the Securities and
Exchange Commission in its rules, regulations and releases. All forward-looking
statements are based on current expectations regarding important risk factors.
Accordingly, actual results may differ materially from those expressed in the
forward-looking statements, and the making of such statements should not be
regarded as a representation by the Company or any other person that the results
expressed in the statements will be achieved. In addition, the Company
undertakes no obligation publicly to update or revise any forward-looking
statements, whether because of new information or events, or otherwise.
13
<PAGE> 15
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Important risk factors include, but are not limited to, the following: changes
in the economy or in specific customer industry sectors; changes in customer
procurement policies and practices; changes in product manufacturer sales
policies and practices; the availability of product and labor; changes in
operating expenses; the effect of price increases or decreases; the variability
and timing of business opportunities including acquisitions, alliances, customer
agreements and supplier authorizations; the Company's ability to realize the
anticipated benefits of acquisitions and other business strategies, including
electronic commerce initiatives; the incurrence of additional debt and
contingent liabilities in connection with acquisitions; changes in accounting
policies and practices; the effect of organizational changes within the Company;
the emergence of new competitors, including firms with greater financial
resources than the Company; adverse results in significant litigation matters;
adverse state and federal regulation and legislation; and the occurrence of
extraordinary events (including prolonged labor disputes, natural events and
acts of God, fires, floods and accidents).
14
<PAGE> 16
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------------------
We have evaluated the Company's exposure to various market risk factors,
including but not limited to, interest rate, foreign currency exchange and
commodity price risks. The Company is primarily affected by market risk exposure
through the effect of changes in interest rates. The Company manages interest
rate risk through the use of a combination of fixed rate long-term debt and
variable rate borrowings under its committed revolving credit agreement.
Variable rate borrowings under its committed revolving credit agreement totaled
$41.0 million at September 30, 2000. A 1% increase or decrease in interest rates
under this agreement would not have a material impact on our operations,
financial position, or cash flows. During the quarter ending December 31, 2000,
the Company expects to refinance a portion of this debt through an institutional
placement of long-term notes.
The Company's Canadian subsidiaries are measured using local currency as the
functional currency. The impact on the Company's future earnings from exposure
to changes in foreign currency exchange rates is immaterial.
We do not currently utilize derivative financial instruments to hedge against
changes in any market risk factors. During the quarter ending December 31, 2000,
the Company expects to enter into foreign currency hedges in conjunction with
private placement of debt.
15
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Applied Industrial Technologies, Inc. and/or one of its subsidiaries is
a defendant in various product- and employment-related lawsuits. Based
on circumstances presently known, the Company believes that these cases
are not material to its business or financial condition.
ITEM 5. OTHER INFORMATION.
(a) SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Shareholders held on October 17,
2000, there were 19,812,784 shares of common stock entitled to vote.
The Shareholders voted on the matters submitted to the meeting as
follows:
1. Election of three persons to be directors of Class I for a
term of three years:
For Withheld
--- --------
Thomas A. Commes 17,573,416 203,388
J. Michael Moore 17,556,880 219,924
Dr. Jerry S. Thornton 17,397,952 378,852
In August 2000, the Board had reduced the size of Class I from
four to three directors.
The terms of the Class II directors, including William G.
Bares, Dr. Roger D. Blackwell, Russel B. Every and John J.
Kahl, and of the Class III directors, including William E.
Butler, Russell R. Gifford, L. Thomas Hiltz, and David L.
Pugh, continued after the meeting.
Subsequently, in November 2000, John J. Kahl, a Class II
director, resigned from the Board.
16
<PAGE> 18
2. Ratification of the Board of Directors' appointment of
Deloitte & Touche LLP as the Company's independent auditors
for the fiscal year ending June 30, 2001.
For Withheld Abstain
--- -------- -------
17,731,228 12,946 32,630
Discretionary voting was authorized as to the two matters submitted.
There were no broker non-votes.
(b) ELECTION OF OFFICERS.
At its Organizational Meeting held on October 17, 2000, the Board of
Directors elected the following officers of the Company:
David L. Pugh Chairman & Chief Executive Officer
Bill L. Purser President & Chief Operating Officer
Todd A. Barlett Vice President-Global Business Development
Donald L. Chargin Vice President-Unit President, Industrial
Products
Mark O. Eisele Vice President & Controller
James T. Hopper Vice President-Chief Information Officer
Justin M. Jacobi Vice President-Unit President, Fluid Power
Products (resigned on October 30, 2000)
Jeffrey A. Ramras Vice President-Supply Chain Management
Richard C. Shaw Vice President-Communications & Learning
Robert C. Stinson Vice President-Chief Administrative Officer,
General Counsel & Secretary
John R. Whitten Vice President-Chief Financial Officer &
Treasurer
Fred D. Bauer Assistant Secretary
Jody A. Chabowski Assistant Controller
Michael L. Coticchia Assistant Secretary
Alan M. Krupa Assistant Treasurer
17
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
EXHIBIT NO. DESCRIPTION
3(a) Amended and Restated Articles of Incorporation of Applied
Industrial Technologies, Inc. (filed as Exhibit 3(a) to the
Company's Form 10-Q for the quarter ended September 30, 1998,
SEC File No. 1-2299, and incorporated here by reference).
3(b) Code of Regulations of Applied Industrial Technologies, Inc.,
as amended on October 19, 1999 (filed as Exhibit 3(b) to the
Company's Form 10-Q for the quarter ended September 30, 1999,
SEC File No. 1-2299, and incorporated here by reference).
4(a) Certificate of Merger of Bearings, Inc. (Ohio) and Bearings,
Inc. (Delaware) filed with the Ohio Secretary of State on
October 18, 1988, including an Agreement and Plan of
Reorganization dated September 6, 1988 (filed as Exhibit 4(a)
to the Company's Registration Statement on Form S-4 filed May
23, 1997, Registration No. 333-27801, and incorporated here by
reference).
4(b) $80,000,000 Maximum Aggregate Principal Amount Note Purchase
and Private Shelf Facility dated October 31, 1992 between the
Company and The Prudential Insurance Company of America (filed
as Exhibit 4(b) to the Company's Registration Statement on
Form S-4 filed May 23, 1997, Registration No. 333-27801, and
incorporated here by reference).
4(c) Amendment to $80,000,000 Maximum Aggregate Principal Amount
Note Purchase and Private Shelf Facility dated October 31,
1992 between the Company and The Prudential Insurance Company
of America (filed as Exhibit 4(g) to the Company's Form 10-Q
for the quarter ended March 31, 1996, SEC File No. 1-2299, and
incorporated here by reference).
18
<PAGE> 20
4(d) Private Shelf Agreement dated as of November 27, 1996, as
amended on January 30, 1998, between the Company and The
Prudential Insurance Company of America (filed as Exhibit 4(f)
to the Company's Form 10-Q for the quarter ended March 31,
1998, SEC File No. 1-2299, and incorporated here by
reference).
4(e) Amendment dated October 24, 2000 to November 27, 1996 Private
Shelf Agreement between the Company and The Prudential
Insurance Company of America.
4(f) $150,000,000 Credit Agreement dated as of November 5, 1998
among the Company, KeyBank National Association as Agent, and
various financial institutions (filed as Exhibit 4(e) to the
Company's Form 10-Q for the quarter ended September 30, 1998,
SEC File No. 1-2299, and incorporated here by reference).
4(g) Rights Agreement, dated as of February 2, 1998, between the
Company and Harris Trust and Savings Bank, as Rights Agent,
which includes as Exhibit B thereto the Form of Rights
Certificate (filed as Exhibit No. 1 to the Company's
Registration Statement on Form 8-A filed July 20, 1998, SEC
File No. 1-2299, and incorporated here by reference).
10(a) First Amendment to the Applied Industrial Technologies, Inc.
Supplemental Defined Contribution Plan (January 1, 1997
Restatement), effective as of October 1, 2000.
10(b) Second Amendment to the Applied Industrial Technologies, Inc.
Deferred Compensation Plan (January 1, 1997 Restatement),
effective as of October 1, 2000.
10(c) Second Amendment to the Applied Industrial Technologies, Inc.
Supplement Executive Retirement Benefits Plan (July 1, 1997
Restatement), effective as of October 1, 2000.
10(d) Non-Competition and Confidentiality Agreement between Applied
Industrial Technologies, Inc. and John C. Dannemiller,
effective as of October 31, 2000.
27 Financial Data Schedule.
19
<PAGE> 21
(b) The Company did not file, nor was it required to file, a Report on Form
8-K with the Securities and Exchange Commission during the quarter
ended September 30, 2000.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(Company)
Date: November 13, 2000 By: /s/ DAVID L. PUGH
-----------------------
David L. Pugh
Chairman & Chief Executive Officer
Date: November 13, 2000 By: /s/ JOHN R. WHITTEN
-------------------------
John R. Whitten
Vice President-Chief Financial Officer
& Treasurer
20
<PAGE> 22
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
EXHIBIT INDEX
TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000
EXHIBIT NO. DESCRIPTION PAGE
3(a) Amended and Restated Articles of Incorporation of
Applied Industrial Technologies, Inc. (filed as
Exhibit 3(a) to the Company's Form 10-Q for the
quarter ended September 30, 1998, SEC File No.
1-2299, and incorporated here by reference).
3(b) Code of Regulations of Applied Industrial
Technologies, Inc., as amended on October 19, 1999
(filed as Exhibit 3(b) to the Company's Form 10-Q for
the quarter ended September 30, 1999, SEC File No.
1-2299, and incorporated here by reference).
4(a) Certificate of Merger of Bearings, Inc. (Ohio) and
Bearings, Inc. (Delaware) filed with the Ohio
Secretary of State on October 18, 1988, including an
Agreement and Plan of Reorganization dated September
6, 1988 (filed as Exhibit 4(a) to the Company's
Registration Statement on Form S-4 filed May 23,
1997, Registration No. 333-27801, and incorporated
here by reference).
4(b) $80,000,000 Maximum Aggregate Principal Amount Note
Purchase and Private Shelf Facility dated October 31,
1992 between the Company and The Prudential Insurance
Company of America (filed as Exhibit 4(b) to the
Company's Registration Statement on Form S-4 filed
May 23, 1997, Registration No. 333-27801, and
incorporated here by reference).
4(c) Amendment to $80,000,000 Maximum Aggregate Principal
Amount Note Purchase and Private Shelf Facility dated
October 31, 1992 between the Company and The
Prudential Insurance Company of America (filed as
Exhibit 4(g) to the Company's Form 10-Q for the
quarter ended March 31, 1996, SEC File No. 1-2299,
and incorporated here by reference).
<PAGE> 23
4(d) Private Shelf Agreement dated as of November 27,
1996, as amended on January 30, 1998, between the
Company and The Prudential Insurance Company of
America (filed as Exhibit 4(f) to the Company's Form
10-Q for the quarter ended March 31, 1998, SEC File
No. 1-2299, and incorporated here by reference).
4(e) Amendment dated October 24, 2000 to November 27, 1996
Private Shelf Agreement between the Company and The
Prudential Insurance Company of America. Attached
4(f) $150,000,000 Credit Agreement dated as of November 5,
1998 among the Company, KeyBank National Association
as Agent, and various financial institutions (filed
as Exhibit 4(e) to the Company's Form 10-Q for the
quarter ended September 30, 1998, SEC File No.
1-2299, and incorporated here by reference).
4(g) Rights Agreement, dated as of February 2, 1998,
between the Company and Harris Trust and Savings
Bank, as Rights Agent, which includes as Exhibit B
thereto the Form of Rights Certificate (filed as
Exhibit No. 1 to the Company's Registration Statement
on Form 8-A filed July 20, 1998, SEC File No. 1-2299,
and incorporated here by reference).
10(a) First Amendment to the Applied Industrial
Technologies, Inc. Supplemental Defined Contribution
Plan (January 1, 1997 Restatement), effective as of
October 1, 2000. Attached
10(b) Second Amendment to the Applied Industrial
Technologies, Inc. Deferred Compensation Plan
(January 1, 1997 Restatement), effective as of
October 1, 2000. Attached
10(c) Second Amendment to the Applied Industrial
Technologies, Inc. Supplement Executive Retirement
Benefits Plan (July 1, 1997 Restatement), effective
as of October 1, 2000. Attached
<PAGE> 24
10(d) Non-Competition and Confidentiality Agreement between
Applied Industrial Technologies, Inc. and John C.
Dannemiller, effective as of October 31, 2000. Attached
27 Financial Data Schedule. Attached
