<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 MARCH 31, 2000
------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 1-2299
---------
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0117420
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Applied Plaza, Cleveland, Ohio 44115
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 426-4000
--------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Shares of common stock outstanding on April 30, 2000 20,291,709
-----------------------------------------
(No par value)
<PAGE> 2
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Page No.
Part I: FINANCIAL INFORMATION
<S> <C>
Item 1: Financial Statements
Statements of Consolidated Income - 2
Three Months and Nine Months Ended
March 31, 2000 and 1999
Consolidated Balance Sheets - 3
March 31, 2000 and June 30, 1999
Statements of Consolidated Cash Flows - 4
Nine Months Ended March 31, 2000 and 1999
Statements of Consolidated Shareholders' Equity - 5
Nine Months Ended March 31, 2000 and
Year Ended June 30, 1999
Notes to Consolidated Financial Statements 6 - 8
Item 2: Management's Discussion and Analysis of 9 - 13
Financial Condition and Results of Operations
Part II: OTHER INFORMATION
Item 1: Legal Proceedings 14
Item 6: Exhibits and Reports on Form 8-K 14
Signatures 16
</TABLE>
<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 Nine Months Ended
March 31 March 31
2000 1999 2000 1999
------------------------- -------------------------------
<S> <C> <C> <C> <C>
Net Sales $413,194 $386,616 $ 1,166,491 $ 1,137,185
-------- -------- ----------- -----------
Cost and Expenses
Cost of sales 310,172 292,535 877,017 863,725
Selling, distribution and
administrative 87,424 81,242 249,746 245,422
-------- -------- ----------- -----------
397,596 373,777 1,126,763 1,109,147
-------- -------- ----------- -----------
Operating Income 15,598 12,839 39,728 28,038
-------- -------- ----------- -----------
Interest
Interest expense 1,858 2,182 5,926 7,920
Interest income (212) (143) (479) (474)
-------- -------- ----------- -----------
1,646 2,039 5,447 7,446
-------- -------- ----------- -----------
Income Before Income Taxes 13,952 10,800 34,281 20,592
-------- -------- ----------- -----------
Income Taxes
Federal 5,160 3,996 12,682 7,620
State and local 488 432 1,200 854
-------- -------- ----------- -----------
5,648 4,428 13,882 8,474
-------- -------- ----------- -----------
Net Income $ 8,304 $ 6,372 $ 20,399 $ 12,118
======== ======== =========== ===========
Net Income per share - Basic $ 0.41 $ 0.30 $ 0.99 $ 0.56
======== ======== =========== ===========
Net Income per share - Diluted $ 0.40 $ 0.30 $ 0.98 $ 0.56
======== ======== =========== ===========
Cash dividends per common share
$ 0.12 $ 0.12 $ 0.36 $ 0.36
======== ======== =========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31 June 30
2000 1999
--------- ---------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash and temporary investments $ 15,265 $ 19,186
Accounts receivable, less allowance
of $4,447 and $3,515 203,377 195,736
Inventories (at LIFO) 163,656 169,689
Other current assets 7,399 6,235
--------- ---------
Total current assets 389,697 390,846
--------- ---------
Property - at cost
Land 12,214 12,316
Buildings 66,898 69,329
Equipment 93,598 96,011
--------- ---------
172,710 177,656
Less accumulated depreciation 75,452 70,417
--------- ---------
Property - net 97,258 107,239
--------- ---------
Goodwill 60,507 62,351
Other assets 14,707 13,913
--------- ---------
TOTAL ASSETS $ 562,169 $ 574,349
========= =========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 90,738 $ 78,836
Compensation and related benefits 29,179 19,692
Other accrued liabilities 33,212 33,588
--------- ---------
Total current liabilities 153,129 132,116
Long-term debt 91,646 126,000
Other liabilities 23,035 22,647
--------- ---------
TOTAL LIABILITIES 267,810 280,763
--------- ---------
Shareholders' Equity
Preferred stock - no par value; 2,500
shares authorized; none issued or outstanding
Common stock - no par value; 50,000
shares authorized; 24,095 shares issued 10,000 10,000
Additional paid-in capital 83,100 82,599
Income retained for use in the business 258,926 246,026
Less 3,806 and 2,994 treasury shares - at cost (53,662) (40,140)
Less unearned restricted common
stock compensation (4,005) (4,899)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 294,359 293,586
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 562,169 $ 574,349
========= =========
</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>
Nine Months Ended
March 31
2000 1999
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 20,399 $ 12,118
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 13,361 12,882
Amortization of goodwill and restricted common
stock compensation 4,072 3,828
Provision for losses on accounts receivable 2,286 1,804
Gain on sale of property (564) (2)
Treasury shares contributed to employee benefit plans 2,801 2,725
Changes in current assets and liabilities, net of
effects from acquisition of businesses:
Accounts receivable (9,657) 10,764
Inventories 6,472 2,437
Other current assets (1,164) (444)
Accounts payable and accrued expenses 20,023 28,344
Other - net 278 266
- ------------------------------------------------------------------------------------------------------
Net Cash provided by Operating Activities 58,307 74,722
- ------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Property purchases (6,919) (9,652)
Proceeds from property sales 4,190 3,088
Net cash paid for acquisition of businesses (693) (12,533)
Deposits and other (797) 7,920
- ------------------------------------------------------------------------------------------------------
Net Cash used in Investing Activities (4,219) (11,177)
- ------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net repayments under line-of-credit agreements (42,973)
Borrowings (repayments) under revolving credit agreements - net (28,640) 30,999
Long-term debt repayments (5,714) (13,714)
Dividends paid (7,499) (7,855)
Purchase of treasury shares (16,264) (18,953)
Exercise of stock options 108 752
- ------------------------------------------------------------------------------------------------------
Net Cash used in Financing Activities (58,009) (51,744)
- ------------------------------------------------------------------------------------------------------
Increase (decrease ) in cash and temporary
investments (3,921) 11,801
Cash and temporary investments
at beginning of period 19,186 9,344
- ------------------------------------------------------------------------------------------------------
Cash and Temporary Investments
at End of Period $ 15,265 $ 21,145
====================================================================================================
Supplemental Cash Flow Information Cash paid during the period for:
Income taxes $ 15,926 $ 6,771
Interest $ 5,534 $ 7,877
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
For the Nine Months Ended March 31, 2000 (Unaudited)
and Year Ended June 30, 1999
(Thousands, except per share amounts )
<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, 1998 22,102 $10,000 $82,713 $236,109 $(24,391) $(4,929) $299,502
Net income 19,933 19,933
Cash dividends - $.48 per share (10,397) (10,397)
Purchase of common stock
for treasury (1,450) (21,746) (21,746)
Treasury shares issued for:
Retirement Savings Plan contributions 220 337 2,980 3,317
Exercise of stock options 109 (281) 1,442 1,161
Deferred compensation plans 24 55 309 364
Restricted common stock awards 96 (86) 1,266 (1,180)
Amortization of restricted common
stock compensation 28 1,210 1,238
Other (167) 381 214
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 21,101 10,000 82,599 246,026 (40,140) (4,899) 293,586
Net income 20,399 20,399
Cash dividends - $.36 per share (7,499) (7,499)
Purchase of common stock
for treasury (1,013) (16,264) (16,264)
Treasury shares issued for:
Retirement Savings Plan contributions 175 394 2,407 2,801
Exercise of stock options 8 108 108
Deferred compensation plans 17 51 227 278
Amortization of restricted common
stock compensation 894 894
Other 56 56
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 20,288 $10,000 $83,100 $258,926 $(53,662) $(4,005) $294,359
==================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 7
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial
position as of March 31, 2000 and June 30, 1999, and the results of
operations for the three months and nine months ended March 31, 2000
and 1999 and cash flows for the nine months ended March 31, 2000 and
1999.
The results of operations for the three and nine month periods ended
March 31, 2000 are not necessarily indicative of the results to be
expected for the fiscal year.
Cost of sales for interim financial statements are computed using
estimated gross profit percentages which are adjusted throughout the
year based upon available information. Adjustments to actual cost are
made based on the annual physical inventory and the effect of year-end
inventory quantities on LIFO costs.
Certain reclassifications have been made to the prior year consolidated
financial statements in order to be consistent with the presentation
for the current year.
2. NET INCOME PER SHARE
The following is a computation of the basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
2000 1999 2000 1999
-------------------------------------------
<S> <C> <C> <C> <C>
Net Income
Net income as reported in statements of
consolidated income $ 8,304 $ 6,372 $20,399 $12,118
===========================================
Average Shares Outstanding
Weighted average common shares outstanding for basic
computation 20,305 21,319 20,589 21,530
Dilutive effect of:
Stock options 142 66 141 116
Performance Accelerated
Restricted Stock (PARS) 80 13 86 14
-------------------------------------------
Adjusted average common shares outstanding for
diluted computation 20,527 21,398 20,816 21,660
===========================================
Net Income Per Share
Net income per common share - basic $ 0.41 $ 0.30 $ 0.99 $ 0.56
===========================================
Net income per common share - diluted $ 0.40 $ 0.30 $ 0.98 $ 0.56
===========================================
</TABLE>
6
<PAGE> 8
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
- ------------------------------------------------------------------------------
3. SEGMENT INFORMATION
The Company has identified one reportable segment: Service Center Based
Distribution. The Service Center Based Distribution segment provides
customers with solutions to their immediate maintenance repairs and
original equipment manufacturing needs through the distribution of
industrial products including bearings, power transmission components,
fluid power components, linear motion products, general maintenance and
specialty items; engineered systems consisting of power transmission
and electrical systems; fluid power products including hydraulic and
pneumatic systems; and fabricated rubber products consisting of
conveyor belting and industrial hose. The Company also offers various
levels of technical application support for these products and provides
creative solutions to help customers minimize downtime and reduce
overall procurement costs. The "Other" column consists of the
aggregation of all other non-service center based distribution
operations that sell directly to customers, including fluid power,
electrical shop and fabricated rubber businesses and various electronic
commerce businesses.
The segments were established in fiscal 1999 primarily due to
acquisitions outside our core business segment and the related growth
in these areas. The accounting policies of the segments are the same as
those described in Note 1. Intersegment sales are not significant. All
current segment operations are in the United States and Puerto Rico.
The segment operations in Puerto Rico are not significant.
SEGMENT FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-------------------------------------------------------------------------------------------
Total Service Center Based Distribution Other
------------------------- --------------------------------- -----------------------
2000 1999 2000 1999 2000 1999
------------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total net sales $413,194 $386,616 $396,623 $372,284 $16,571 $14,332
------------- ----------- ------------ ------------ ----------- -----------
Segment operating profit $ 19,145 $ 13,589 $ 18,177 $ 12,844 $ 968 $ 745
============ ============ =========== ===========
Goodwill amortization 1,108 1,060
Corporate/unallocated expense, net 2,439 (310)
------------- -----------
Total operating profit 15,598 12,839
Interest expense, net 1,646 2,039
------------- -----------
Income before taxes $ 13,952 $ 10,800
============= ===========
Depreciation $ 4,344 $ 4,461 $ 4,219 $ 4,340 $ 125 $ 121
============= =========== ============ ============ =========== ===========
Capital Expenditures $ 2,568 $ 2,049 $ 2,380 $ 1,976 $ 188 $ 73
============= =========== ============ ============ =========== ===========
Sales By Product Category: Three Months Ended
March 31
-------------------------
2000 1999
------------ -----------
Industrial Products $289,153 $272,607
Engineered Systems Products 63,236 58,515
Fluid Power Products 43,069 36,667
Fabricated Rubber Products 17,736 18,827
------------ -----------
$413,194 $386,616
============ ===========
</TABLE>
7
<PAGE> 9
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
- ------------------------------------------------------------------------------
SEGMENT FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31
-----------------------------------------------------------------------------------------
Total Service Center Based Distribution Other
------------------------- --------------------------------- -----------------------
2000 1999 2000 1999 2000 1999
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total net sales $1,166,491 $1,137,185 $1,119,241 $1,094,396 $47,250 $42,789
------------ ------------ ------------ ------------ ----------- -----------
Segment operating profit $ 50,282 $ 48,439 $ 47,999 $ 46,612 $ 2,283 $ 1,827
============ ============ =========== ===========
Goodwill amortization 3,178 2,976
Corporate/unallocated expense, net (a) 7,376 17,425
------------ ------------
Total operating profit 39,728 28,038
Interest expense, net 5,447 7,446
------------ ------------
Income before taxes $ 34,281 $ 20,592
============ ============
Assets used in the business $ 562,169 $ 603,243 $ 525,748 $ 568,053 $36,421 $35,190
============ ============ ============ ============ =========== ===========
Depreciation $ 13,361 $ 12,882 $ 12,981 $ 12,522 $ 380 $ 360
============ ============ ============ ============ =========== ===========
Capital Expenditures $ 6,919 $ 9,652 $ 6,610 $ 9,162 $ 309 $ 490
============ ============ ============ ============ =========== ===========
Sales By Product Category: Nine Months Ended
March 31
---------------------------
2000 1999
------------- -------------
Industrial Products $ 818,347 $ 801,886
Engineered Systems Products 175,569 172,545
Fluid Power Products 120,193 107,694
Fabricated Rubber Products 52,382 55,060
------------- -------------
$1,166,491 $1,137,185
============= =============
</TABLE>
a) Beginning in January 1999, certain logistics costs were allocated
to the Service Center Based Distribution segment.
4. BUSINESS COMBINATIONS
In December 1999, the Company acquired certain assets of a distributor
of bearings and power transmission components for a total purchase
price of $2,125, which includes a note payable to the seller of $1,432.
The acquisition was accounted for as a purchase and the results of the
business' operations are included in the accompanying consolidated
financial statements from its acquisition date. Results of operations
for this acquisition are not material for all periods presented.
Goodwill, based on allocations of fair values to the assets and
liabilities acquired, of $600 recognized in connection with this
combination is being amortized over 15 years.
8
<PAGE> 10
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
The following is Management's Discussion and Analysis of certain significant
factors which have affected the Company's: (1) financial condition at March 31,
2000 and June 30, 1999, and (2) results of operations and cash flows during the
periods included in the accompanying Statements of Consolidated Income and
Consolidated Cash Flows.
FINANCIAL CONDITION
Liquidity and Working Capital
Cash provided by operating activities was $58.3 million in the nine months ended
March 31, 2000. This compares to $74.7 million provided by operating activities
in the same period a year ago. The decrease in cash provided by operating
activities was due to an increase in accounts receivable attributable to
increased year to date sales.
Cash flow from operations depends primarily upon generating operating income,
controlling the investment in inventories and receivables, and managing the
timing of payments to suppliers. The Company has continuing programs to monitor
and control these investments. During the nine month period ended March 31,
2000, inventories decreased approximately $6.5 million due to Company efforts to
reduce inventory levels, and accounts receivable increased $9.7 million due to
increased sales for the quarter.
Net cash used in investing activities was $4.2 million in the nine months ended
March 31, 2000 primarily from property purchases net of disposals.
Net cash used in financing activities totaled $58.0 million in the nine months
ended March 31, 2000 as compared to $51.7 million for the period ended March 31,
1999. Cash provided from operations was primarily used for repayments under the
Company's debt agreements of $34.4 million and the purchase of company stock of
$16.3 million.
Working capital at March 31, 2000 was $236.6 million compared to $258.7 million
at June 30, 1999. This decrease is primarily due to Company efforts to control
investments in inventory and receivables.
Capital Resources
Capital resources are obtained from income retained in the business, borrowings
under the Company's credit facilities, and operating lease arrangements. Average
combined borrowings were $95.7 million and $143.5 million for the nine months
ended March 31, 2000 and 1999, respectively. The weighted average interest rate
on borrowings under revolving credit facilities for the nine months ended March
31, 2000 increased to 5.9% from an average rate of 5.7% for the nine months
ended March 31, 1999. The weighted average interest rate on borrowing under
other long-term debt agreements for the nine months ended March 31, 2000
decreased to 7.2% from an average rate of 7.3% for the nine months ended March
31, 1999.
9
<PAGE> 11
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
The Company has a committed revolving credit agreement expiring November, 2003
with a group of lending institutions. This agreement provides for unsecured
borrowings of up to $150.0 million. The Company had $7.4 million of borrowings
outstanding under this facility at March 31, 2000. Unused lines under this
facility totaling $138.1 million are available to fund future acquisitions or
other capital and operating requirements. The Company also has a $15.0 million
short-term uncommitted line of credit with a commercial bank. The Company had no
borrowings outstanding under this facility at March 31, 2000. Unused lines under
this facility are available to fund future acquisitions or other capital and
operating requirements.
The Board of Directors has authorized an ongoing program to purchase shares of
the Company's common stock to fund employee benefit programs, stock option and
award programs, and future acquisitions. These purchases are made in open market
and negotiated transactions, from time to time, depending upon market
conditions. The Company acquired 1,013,000 shares of its common stock for $16.3
million during the nine months ended March 31, 2000. Effective April 20, 2000,
the Company's Board of Directors authorized the Company to acquire up to an
additional 1.0 million shares of company stock.
Management expects that capital resources provided from operations, available
lines of credit, unused amounts under the committed revolving credit facility
and operating leases will be sufficient to finance normal working capital needs,
business acquisitions, enhancement of facilities and equipment, and the purchase
of additional Company common stock. Management also believes that additional
long-term debt and line of credit financing could be obtained if desired.
10
<PAGE> 12
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
A summary of the period-to-period changes in principal items included in the
statements of consolidated income follows:
<TABLE>
<CAPTION>
Increase (Decrease)
(Dollars in Thousands, Except per Share Amounts)
Three Months Ended Nine Months Ended
March 31 March 31
2000 and 1999 2000 and 1999
Amount Change Amount Change
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $ 26,578 6.9% $ 29,306 2.6%
Cost of sales 17,637 6.0% 13,292 1.5%
Selling, distribution and
administrative expenses 6,182 7.6% 4,324 1.8%
Operating income 2,759 21.5% 11,690 41.7%
Interest expense - net (393) (19.3)% (1,999) (26.8)%
Income before income taxes 3,152 29.2% 13,689 66.5%
Income taxes 1,220 27.6% 5,408 63.8%
Net income 1,932 30.3% 8,281 68.3%
Net income per share - diluted $ 0.10 33.3% $ 0.42 75.0%
</TABLE>
11
<PAGE> 13
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Net sales increased from the prior year primarily due to volume and price
increases. Gross profit as a percentage of sales increased to 24.9% from 24.3%.
This increase primarily is due to a change in product mix and higher discounts
and allowances from suppliers.
Selling, distribution and administrative expenses as a percent of sales,
increased slightly to 21.2% from 21.0%. The change primarily relates to an
increase in performance-based incentives.
Interest expense-net for the quarter decreased by 19.3% as compared to the prior
year primarily as a result of a decrease in average borrowings.
Income tax expense as a percentage of income before taxes was 40.5% for the
quarter ended March 31, 2000 and 41.0% for the quarter ended March 31, 1999.
This decrease is due to lower effective state and local tax rates.
As a result of the above factors, net income increased by 30.3% compared to the
same quarter last year. Due to the increase in net income and the effect of the
stock repurchase program, net income per share increased $.10, or 33.3%.
NINE MONTHS ENDED MARCH 31, 2000 AND 1999
Net sales increased from the prior year primarily due to volume and price
increases. Gross profit as a percentage of sales increased to 24.8% from 24.0%.
This increase primarily is due to a change in product mix and higher discounts
and allowances from suppliers.
Selling, distribution and administrative expenses as a percent of sales,
decreased to 21.4% from 21.6%. This change primarily relates to pretax
restructuring and other special charges being recorded in the nine months ended
March 31, 1999 of $5.4 million for costs of consolidation and workforce
reductions. This charge decreased net income by $3.2 million, or $.14 per share
for the nine months ended March 31, 1999. Partially offsetting this decrease was
an increase in performance-based incentives during the current period.
Interest expense-net for the period decreased by 26.8% as compared to the prior
year primarily as a result of a decrease in average borrowings.
Income tax expense as a percentage of income before taxes was 40.5% for the nine
months ended March 31, 2000 and 41.2% for the nine months ended March 31, 1999.
This decrease is due to lower effective state and local tax rates.
As a result of the above factors, net income increased by 68.3% compared to the
same period of last year. Due to the increase in net income and the effect of
the stock repurchase program, net income per share increased $.42, or 75.0%.
12
<PAGE> 14
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
OTHER MATTERS
On January 6, 2000, the Company signed a letter of intent to acquire the assets
of certain distribution businesses of Dynavest Corporation (Dynavest) located in
Canada which would give the Company its first physical presence outside of the
United States. The Company plans on using its currently existing revolving line
of credit to consummate this purchase and is considering replacing the borrowing
with other long term financing shortly after the acquisition is completed.
Dynavest has operations in five Canadian provinces. The Dynavest companies are
distributors of bearings, power transmission systems and fluid power systems.
Annual sales are approximately $72 million U.S. dollars. The transaction is
expected to be completed by June 30, 2000.
CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT
Management's Discussion and Analysis contains statements that are
forward-looking, based on management's current expectations about the future.
The words "expect", "believe", "plan", and similar expressions identify
forward-looking statements. The Company intends that the forward-looking
statements be subject to the safe harbors established in the Private Securities
Litigation Reform Act of 1995 or by the Securities and Exchange Commission in
its rules, regulations and releases. All forward-looking statements are based on
current expectations regarding important risk factors. Accordingly, actual
results may differ materially from those expressed in the forward-looking
statements, and the making of such statements should not be regarded as a
representation by the Company or any other person that the results expressed in
the statements will be achieved. In addition, the Company undertakes no
obligation publicly to update or revise any forward-looking statements, whether
because of new information or events, or otherwise.
Important risk factors include, but are not limited to, the following: changes
in the economy or in specific customer industry sectors; changes in customer
procurement policies and practices; changes in product manufacturer sales
policies and practices; the availability of product and labor; changes in
operating expenses; the effect of price increases or decreases; the variability
and timing of business opportunities including acquisitions, alliances, customer
agreements and supplier authorizations; the Company's ability to realize the
anticipated benefits of acquisitions and other business strategies, including
electronic commerce initiatives; the incurrence of additional debt and
contingent liabilities in connection with acquisitions; changes in accounting
policies and practices; the effect of organizational changes within the Company;
the emergence of new competitors, including firms with greater financial
resources than the Company; adverse results in significant litigation matters;
adverse state and federal regulation and legislation; and the occurrence of
extraordinary events (including prolonged labor disputes, natural events and
acts of God, fires, floods and accidents).
13
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
Applied Industrial Technologies, Inc. and/or one of its subsidiaries is
a defendant in various product- and employment-related lawsuits. Based
on circumstances presently known, the Company believes that these cases
are not material to its business or financial condition.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
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).
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
4(c) Amendment to $80,000,000 Maximum Aggregate
Principal Amount Note Purchase and Private Shelf
Facility dated October 31, 1992 between the
Company and The Prudential Insurance Company of
America (filed as Exhibit 4(g) to the Company's
Form 10-Q for the quarter ended March 31, 1996,
SEC File No. 1-2299, and incorporated here by
reference).
4(d) $50,000,000 Private Shelf Agreement dated as of
November 27, 1996, as amended on January 30, 1998,
between the Company and The Prudential Insurance
Company of America (filed as Exhibit 4(f) to the
Company's Form 10-Q for the quarter ended March
31, 1998, SEC File No. 1-2299, and incorporated
here by reference).
4(e) $150,000,000 Credit Agreement dated as of November
5, 1998 among the Company, KeyBank National
Association as Agent, and various financial
institutions (filed as Exhibit 4(e) to the
Company's Form 10-Q for the quarter ended
September 30, 1998, SEC File No. 1-2299, and
incorporated here by reference).
4(f) Rights Agreement, dated as of February 2, 1998,
between the Company and Harris Trust and Savings
Bank, as Rights Agent, which includes as Exhibit B
thereto the Form of Rights Certificate (filed as
Exhibit No. 1 to the Company's Registration
Statement on Form 8-A filed July 20, 1998, SEC
File No. 1-2299, and incorporated here by
reference).
27 Financial Data Schedule.
</TABLE>
(b) The Company did not file, nor was it required to file, a Report on Form
8-K with the Securities and Exchange Commission during the quarter
ended March 31, 2000.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(Company)
Date: May 12, 2000 By: /s/ David L. Pugh
----------------------------------------
David L. Pugh
President & Chief Executive Officer
Date: May 12, 2000 By: /s/ John R. Whitten
----------------------------------------
John R. Whitten
Vice President-Chief Financial Officer &
Treasurer
16
<PAGE> 18
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
EXHIBIT INDEX
TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
EXHIBIT NO. DESCRIPTION PAGE
3(a) Amended and Restated Articles of Incorporation of
Applied Industrial Technologies, Inc. (filed as Exhibit
3(a) to the Company's Form 10-Q for the quarter ended
September 30, 1998, SEC File No. 1-2299, and
incorporated here by reference).
3(b) Code of Regulations of Applied Industrial Technologies,
Inc., as amended on October 19, 1999 (filed as Exhibit
3(b) to the Company's Form 10-Q for the quarter ended
September 30, 1999, SEC File No. 1-2299, and
incorporated here by reference).
4(a) Certificate of Merger of Bearings, Inc. (Ohio) and
Bearings, Inc. (Delaware) filed with the Ohio Secretary
of State on October 18, 1988, including an Agreement and
Plan of Reorganization dated September 6, 1988 (filed as
Exhibit 4(a) to the Company's Registration Statement on
Form S-4 filed May 23, 1997, Registration No. 333-27801,
and incorporated here by reference).
4(b) $80,000,000 Maximum Aggregate Principal Amount Note
Purchase and Private Shelf Facility dated October 31,
1992 between the Company and The Prudential Insurance
Company of America (filed as Exhibit 4(b) to the
Company's Registration Statement on Form S-4 filed May
23, 1997, Registration No. 333-27801, and incorporated
here by reference).
4(c) Amendment to $80,000,000 Maximum Aggregate Principal
Amount Note Purchase and Private Shelf Facility dated
October 31, 1992 between the Company and The Prudential
Insurance Company of America (filed as Exhibit 4(g) to
the Company's Form 10-Q for the quarter ended March 31,
1996, SEC File No. 1-2299, and incorporated here by
reference).
<PAGE> 19
EXHIBIT NO. DESCRIPTION PAGE
4(d) $50,000,000 Private Shelf Agreement dated as of November
27, 1996, as amended on January 30, 1998, between the
Company and The Prudential Insurance Company of America
(filed as Exhibit 4(f) to the Company's Form 10-Q for
the quarter ended March 31, 1998, SEC File No. 1-2299,
and incorporated here by reference).
4(e) $150,000,000 Credit Agreement dated as of November 5,
1998 among the Company, KeyBank National Association as
Agent, and various financial institutions (filed as
Exhibit 4(e) to the Company's Form 10-Q for the quarter
ended September 30, 1998, SEC File No. 1-2299, and
incorporated here by reference).
4(f) Rights Agreement, dated as of February 2, 1998, between
the Company and Harris Trust and Savings Bank, as Rights
Agent, which includes as Exhibit B thereto the Form of
Rights Certificate (filed as Exhibit No. 1 to the
Company's Registration Statement on Form 8-A filed July
20, 1998, SEC File No. 1-2299, and incorporated here by
reference).
27 Financial Data Schedule. Attached
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
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<RECEIVABLES> 207,824
<ALLOWANCES> 4,447
<INVENTORY> 163,656
<CURRENT-ASSETS> 389,697
<PP&E> 172,710
<DEPRECIATION> 75,452
<TOTAL-ASSETS> 562,169
<CURRENT-LIABILITIES> 153,129
<BONDS> 91,646
0
0
<COMMON> 10,000
<OTHER-SE> 284,359
<TOTAL-LIABILITY-AND-EQUITY> 562,169
<SALES> 1,166,491
<TOTAL-REVENUES> 1,166,491
<CGS> 877,017
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<INTEREST-EXPENSE> 5,447
<INCOME-PRETAX> 34,281
<INCOME-TAX> 13,882
<INCOME-CONTINUING> 20,399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-BASIC> 0.99
<EPS-DILUTED> 0.98
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