Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2002
-------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 1-2299
------------------
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0117420
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Applied Plaza, Cleveland, Ohio 44115
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 426-4000
---------------
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-----
Shares of common stock outstanding on October 31, 2002 19,101,412
------------------------------------------
(No par value)
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
INDEX
- ----------------------------------------------------------------------------
Page No.
Part I: FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Statements of Consolidated Income - 2
Three Months Ended September 30, 2002 and 2001
Condensed Consolidated Balance Sheets - 3
September 30, 2002 and June 30, 2002
Condensed Statements of Consolidated Cash Flows - 4
Three Months Ended September 30, 2002 and 2001
Notes to Condensed Consolidated Financial Statements 5 -7
Item 2: Management's Discussion and Analysis of 8-10
Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About Market Risk 11
Item 4: Controls and Procedures 12
Part II: OTHER INFORMATION
Item 1: Legal Proceedings 13
Item 5: Other Information 13
Item 6: Exhibits and Reports on Form 8-K 14
Signatures 16
Certifications of Disclosure 17-19
PART I: FINANCIAL INFORMATION
ITEM I: Financial Statements
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
(Thousands, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
September 30
2002 2001
-------------------------------
Net Sales $ 368,019 $ 367,990
Cost of sales 278,117 275,559
------------ ------------
Gross Profit 89,902 92,431
Selling, distribution and
administrative expenses 82,058 82,319
------------ ------------
Operating Income 7,844 10,112
Interest expense, net 1,261 1,893
Other, net 288 250
------------ ------------
Income Before Income Taxes 6,295 7,969
Income Taxes 2,390 3,080
------------ ------------
Income before cumulative effective of change in accounting 3,905 4,889
Cumulative effect of change in accounting (12,100)
------------ ------------
Net Income (Loss) $ 3,905 $ (7,211)
============ ============
Earnings Per Share - Basic
Before cumulative effect of change in accounting $ 0.21 $ 0.25
Cumulative effect of change in accounting (0.63)
------------ ------------
Net Income (Loss) $ 0.21 $ (0.38)
============ ============
Earnings Per Share - Diluted
Before cumulative effect of change in accounting $ 0.20 $ 0.25
Cumulative effect of change in accounting (0.63)
------------ ------------
Net Income (Loss) $ 0.20 $ (0.38)
============ ============
Cash dividends per common
share $ 0.12 $ 0.12
============ ============
Weighted average common shares
outstanding for basic computation 19,016 19,355
Dilutive effect of stock options
and awards 273 321
------------ ------------
Adjusted average common shares
outstanding for diluted computation 19,289 19,676
============ ============
See notes to condensed consolidated financial statements.
2
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
- -------------------------------------------------------------------------------------------------------------------
September 30 June 30
2002 2002
--------------- --------------
(Unaudited)
ASSETS
Current assets
Cash and temporary investments $ 44,044 $ 23,060
Accounts receivable, less allowances
of $6,100 and $5,600 174,707 180,904
Inventories (at LIFO) 159,834 166,083
Other current assets 10,857 11,011
------------ ------------
Total current assets 389,442 381,058
Property, less accumulated depreciation
of $81,151 and $81,229 80,664 83,095
Goodwill 46,344 46,410
Other assets 22,338 24,003
------------ ------------
TOTAL ASSETS $ 538,788 $ 534,566
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 85,334 $ 76,316
Other accrued liabilities 45,676 54,098
------------ ------------
Total current liabilities 131,010 130,414
Long-term debt 84,865 83,478
Other liabilities 22,938 22,527
------------ ------------
TOTAL LIABILITIES 238,813 236,419
------------ ------------
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 84,582 84,517
Income retained for use in the business 280,647 279,046
Treasury shares - at cost, 4,941 and 4,893 shares (75,810) (74,900)
Unearned restricted common stock compensation (629) (832)
Accumulated other comprehensive income 1,185 316
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 299,975 298,147
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 538,788 $ 534,566
============ ============
See notes to condensed consolidated financial statements.
3
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(Amounts in thousands)
Three Months Ended
September 30
2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 3,905 $ (7,211)
Adjustments to reconcile net income to cash provided by
operating activities:
Cumulative effect of accounting change 12,100
Depreciation and amortization 4,000 4,721
Gain on sale of property (1,329) (71)
Changes in operating assets and liabilities, net of
effects from acquisition of businesses 13,587 16,724
Other - net 753 900
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash provided by Operating Activities 20,916 27,163
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Property purchases (2,884) (3,583)
Proceeds from property sales 2,931 375
Deposits and other 1,488 191
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash provided by (used in) Investing Activities 1,535 (3,017)
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Borrowings and repayments under revolving credit agreements - net (3,547)
Proceeds from termination of interest rate swap 2,517 2,038
Dividends paid (2,304) (2,363)
Purchases of treasury shares (1,773) (9,334)
Other 93 1,148
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash used in Financing Activities (1,467) (12,058)
- -----------------------------------------------------------------------------------------------------------------------------
Increase in cash and temporary
investments 20,984 12,088
Cash and temporary investments
at beginning of period 23,060 13,981
- -----------------------------------------------------------------------------------------------------------------------------
Cash and Temporary Investments
at End of Period $ 44,044 $ 26,069
=============================================================================================================================
See notes to condensed consolidated financial statements.
4
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary for a
fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles.
However, in the opinion of management, all adjustments (consisting of
only normal recurring adjustments) necessary to a fair statement of
operations of the interim periods have been made. This Quarterly Report
on Form 10-Q should be read in conjunction with the Company's Annual
Report on Form 10-K for year ended June 30, 2002.
The results of operations for the three month period ended September
30, 2002 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 periodic physical inventories and the effect of year-end
inventory quantities on LIFO costs.
2. SEGMENT INFORMATION
The accounting policies of the segments are the same as those used to
prepare the condensed 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 segment operating results are in the
United States, Canada, Mexico and Puerto Rico. Operations in Canada,
Mexico and Puerto Rico represent approximately 6% of the total net
sales of Applied and therefore are not presented separately. In
addition, over 35% 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.
5
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
- --------------------------------------------------------------------------------
SEGMENT FINANCIAL INFORMATION:
SERVICE CENTER
BASED
DISTRIBUTION OTHER TOTAL
-------------------- --------------- ------------------
THREE MONTHS ENDED SEPTEMBER 30, 2002
Net sales $344,634 $23,385 $368,019
Operating profit 9,463 60 9,523
Assets used in the business 513,855 24,933 538,788
Depreciation 3,597 116 3,713
Capital expenditures 2,732 152 2,884
----------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2001
Net sales $342,911 $25,079 $367,990
Operating profit (loss) 6,657 (270) 6,387
Assets used in the business (a) 540,537 25,470 566,007
Depreciation 3,820 151 3,971
Capital expenditures 3,522 61 3,583
----------------------------------------------------------
(a) Adjusted to reflect the SFAS 142 goodwill impairment adjustment
retroactively recorded effective July 1, 2001.
The following is a reconciliation from the segment operating profit to the
condensed consolidated balances:
THREE MONTHS ENDED
SEPTEMBER 30
---------------------------------------
2002 2001
---------------------------------------
Operating income for
reportable segment $9,463 $6,657
Other operating income (loss) 60 (270)
Adjustments for:
Other intangible amortization (243) (462)
Corporate and other income (expense), net of
allocations (b) (1,436) 4,187
---------------------------------------
Total operating income 7,844 10,112
Interest expense, net 1,261 1,893
Other expense 288 250
---------------------------------------
Income before income taxes $6,295 $7,969
=======================================
(b) The change in corporate and other income (expense), net, is due to
various changes in the levels and amounts of expense being allocated to
the segments. The expenses being allocated include corporate charges for
working capital, logistics support and other items.
6
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
- --------------------------------------------------------------------------------
3. DERIVATIVE INSTRUMENTS
In August 2002, the Company terminated its November 2001 interest rate
swap agreement for a favorable settlement of $2,517. This gain will be
amortized as a reduction in interest expense over the remaining life of
the Company's $50,000 6.6% senior unsecured term notes, which mature in
December 2007.
4. GOODWILL AND OTHER INTANGIBLE ASSETS
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") 142, "Goodwill
and Other Intangible Assets." Effective July 1, 2001, the Company
adopted this standard. Under SFAS 142, goodwill is no longer
amortized, but is tested for impairment upon adoption and at least
annually thereafter. The Company's other intangible assets relate to
non-competition agreements and continue to be amortized over the lives
of the agreements which primarily are five years. Upon adoption of
SFAS 142, a non-cash charge totaling $17,600, $12,100 after tax, was
retroactively recorded as a change in accounting principle effective
July 1, 2001 to write-off the remaining goodwill relating to the fluid
power business.
5. SUBSEQUENT EVENT
In October 2002, the Company acquired assets of a Canadian distributor
of industrial products for approximately $12 million. The results of
the acquired business operations will be included in our service center
based distribution segment from the acquisition date. Results of
operations for this acquisition are not material for all periods
presented. The Company is still in the process of completing the
purchase price allocation of fair values to the assets and liabilities
acquired.
6. NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board issued SFAS
144, "Accounting for Impairment or Disposals of Long-Lived Assets". The
Company adopted SFAS 144 as of July 1, 2002. This statement requires a
company to examine the value of its long-lived assets, whether in use
or held for sale, to determine if the current carrying value is greater
than its fair market value. The carrying value is based on the real
estate market in their respective areas. The adoption of SFAS 144 did
not have a material impact on the consolidated statements.
In June 2002, the Financial Accounting Standards Board issued SFAS 146,
"Accounting for Costs Associated with Exit or Disposal Activities".
This statement is effective for exit or disposal activities that are
initiated after December 31, 2002, but earlier adoption is permitted.
The Company adopted SFAS 146 effective July 1, 2002. The adoption of
this statement did not have a material impact on the consolidated
statements.
7
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, 2002 and June 30, 2002, and (2) results of operations and cash flows during
the periods included in the accompanying Condensed Statements of Consolidated
Income and Consolidated Cash Flows.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $20.9 million in the three months
ended September 30, 2002. This compares to $27.2 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 its investments in inventories and receivables. During the three
month period ended September 30, 2002, inventories decreased approximately $6.2
million due to Company efforts to reduce inventory levels, accounts receivable
decreased $5.4 million due to improved collections and lower sales volume, and
accounts payable increased $1.0 million due to timing of trade payments. Cash
flow from operations decreased $6.2 million for the period ended September 30,
2002 compared to the comparable period in the prior year primarily due to the
timing of payments on trade payables.
The Company has a committed revolving credit agreement expiring in November 2003
with a group of banks. This agreement provides for unsecured borrowings of up to
$150.0 million. The Company had no borrowings outstanding under this facility at
September 30, 2002. 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, 2002. Unused lines under these facilities
totaling $159.8 million are available to fund future acquisitions or other
capital and operating requirements.
In August 2002, the Company terminated an interest rate swap agreement for a
favorable settlement of $2.5 million. This gain will be amortized as a reduction
in interest expense over the remaining life of the Company's $50.0 million 6.6%
senior unsecured term notes, which mature in December 2007.
The Board of Directors has authorized the purchase of 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 104,000 shares of its common stock for $1.8 million during the three
months ended September 30, 2002. At September 30, 2002, the Company had
remaining authorization to repurchase up to 435,000 additional shares.
OTHER MATTERS
In October 2002, the Company acquired assets of a Canadian distributor of
industrial products for approximately $12.0 million. The results of the acquired
business operations will be included in our service center based distribution
segment from the acquisition date.
8
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
Net sales were flat compared to the prior year primarily due to the weak U.S.
industrial economy. Gross profit as a percentage of sales decreased to 24.4%
from 25.1%. This decrease is indicative of the tough competitive climate induced
by shrinking demand.
Selling, distribution and administrative expenses were flat compared to the
prior year, although as a percent of sales they decreased slightly to 22.3% from
22.4%. This is primarily due to a $1.5 million gain on the sale of a recently
vacated distribution center located in Portland, Oregon offset by an increase in
medical and general insurance costs and incentive compensation accruals. During
the quarter, the Company opened a new distribution center in Portland, Oregon
financed under an operating lease.
Interest expense-net for the quarter decreased by 33.4% as compared to the prior
year primarily due to a decrease in average borrowings and lower average
interest rates.
Income tax expense as a percentage of income before taxes was 38.0% for the
quarter ended September 30, 2002 and 38.6% for the quarter ended September 30,
2001. This decrease is due to lower effective state, local and Canadian tax
rates.
As a result of the above factors, but primarily due to the gross margin
decline, net income before cumulative effect of change in accounting decreased
by 20.1% compared to the same quarter of last year. This resulted in a lesser
impact on net income per share before cumulative effect of change in
accounting, which decreased $.05 or 18.5%, due to continued stock repurchases.
9
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
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. Forward-looking statements are often identified
by qualifiers such as "expect", "believe", "intend", "will", and similar
expressions. The Company intends that the forward-looking statements be subject
to the safe harbors established in the Private Securities Litigation Reform Act
of 1995 and by the Securities and Exchange Commission in its rules, regulations
and releases.
Readers are cautioned not to place undue reliance on any forward-looking
statements. All forward-looking statements are based on current expectations
regarding important risk factors, many of which are outside the Company's
control. 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 industries; reduction in manufacturing
capacity in the Company's targeted geographic markets due to consolidation in
customer industries or the transfer of manufacturing capacity to foreign
countries; changes in interest rates; 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 in both procuring and selling products and
services; 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
marketing and other business strategies; 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; risks and uncertainties associated with the
Company's expansion into foreign markets, including inflation rates, recessions,
and foreign currency exchange rates; adverse results in significant litigation
matters; adverse regulation and legislation; and the occurrence of extraordinary
events (including prolonged labor disputes, war, natural events and acts of God,
fires, floods and accidents).
10
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 and
interest rate swaps. The Company had no variable rate borrowings outstanding
under its committed revolving credit agreement at September 30, 2002. In August
2002, the Company terminated a November 2001 interest rate swap agreement for a
favorable settlement of $2.5 million. This gain will be amortized as a reduction
in interest expense over the remaining life of the Company's $50.0 million 6.6%
senior unsecured term notes which mature in December 2007.
The Company mitigates its foreign currency exposure from the Canadian dollar
through the use of cross currency swap agreements as well as of foreign-currency
denominated debt. Hedging of the US dollar denominated debt used to fund a
substantial portion of Company's net investment in its Canadian operations is
accomplished through the use of cross currency swaps. Any gain or loss on the
hedging instrument offsets the gain or loss on the underlying debt. Translation
exposures with regard to our Mexican business are not hedged, because the
Mexican activity is not material. The impact on the Company's future earnings
from exposure to changes in foreign currency exchange rates is expected to be
immaterial.
11
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 4: CONTROLS AND PROCEDURES
- --------------------------------------------------------------------------------
Management, under the supervision and with the participation of the Chief
Executive Officer (CEO) and the Chief Financial Officer (CFO), has evaluated the
Company's disclosure controls and procedures within 90 days prior to the filing
date of this report. Based upon that evaluation, the CEO and the CFO have
concluded as of the evaluation date, that such disclosure controls and
procedures are effective in timely alerting them to material information about
the Company required to be included in the Company's Exchange Act reports.
There have not been any significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of management's evaluation of those controls.
12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
------------------
Applied Industrial Technologies, Inc. and/or one of its subsidiaries is
a party to various pending judicial and administrative proceedings.
Based on circumstances currently known, the Company does not believe
that any liabilities that may result from these proceedings are
reasonably likely to have a material adverse effect on the Company's
consolidated financial position, results of operations, or cash flows.
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 22,
2002, there were 19,171,924 shares of common stock entitled to vote.
The shareholders voted on the matters submitted to the meeting as
follows:
1. Election of four persons to be directors of Class III for a
term of three years:
For Withheld
--- --------
William E. Butler 15,515,399 2,013,964
Russell R. Gifford 15,522,560 2,006,803
L. Thomas Hiltz 15,550,570 1,978,793
David L. Pugh 15,765,306 1,764,057
The terms of the Class I directors, including Thomas A.
Commes, Peter A. Dorsman, J. Michael Moore, and Jerry Sue
Thornton, and of the Class II directors, including William G.
Bares, Roger D. Blackwell, Edith Kelly-Green, and Stephen E.
Yates, continued after the meeting.
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, 2003.
For Withheld Abstain
--- -------- -------
16,847,924 655,918 25,521
13
3. Approval of the 1997 Long-Term Performance Plan.
For Withheld Abstain
--- -------- -------
13,451,269 4,002,378 75,716
Discretionary voting was authorized as to the matters submitted. There
were no broker non-votes.
(b) Election of Officers.
---------------------
At its organizational meeting held on October 22, 2002, 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
Fred D. Bauer Vice President-General Counsel & Secretary
Michael L. Coticchia Vice President-Human Resources and Administration
Mark O. Eisele Vice President & Controller
James T. Hopper Vice President-Chief Information Officer
Jeffrey A. Ramras Vice President-Marketing and Supply Chain Management
Richard C. Shaw Vice President-Communications and Learning
John R. Whitten Vice President-Chief Financial Officer &
Treasurer
Jody A. Chabowski Assistant Controller
Joseph D. King Assistant Secretary
Alan M. Krupa Assistant Treasurer
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., as
amended on October 8, 1998 (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).
14
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) 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(c) Amendment dated October 24, 2000 to November
27, 1996 Private Shelf Agreement between the
Company and The Prudential Insurance Company of
America (filed as Exhibit 4(e) to the Company's
Form 10-Q for the quarter ended September 30,
2000, SEC File No. 1-2299, and incorporated
here by reference).
4(d) $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(e) Rights Agreement, dated as of February 2, 1998,
between the Company and Computershare Investor
Services LLP (successor to 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).
15
10 1997 Long-Term Performance Plan, as approved by
shareholders on October 22, 2002.
(b) The Company filed the following Reports on Form 8-K with the Securities
and Exchange Commission during the quarter ended September 30, 2002:
1. Filing on August 16, 2002, reporting under Item 5 that J.
Michael Moore, a Company director, entered into a trading plan
with Allianz Private Client Services, pursuant to SEC Rule
10b5-1, to sell up to 100,000 shares of Company common stock
held by Mr. Moore.
2. Filing on September 23, 2002, reporting under Item 9 that
David L. Pugh, the Company's Chairman & Chief Executive
Officer (Principal Executive Officer), and John R. Whitten,
the Company's Vice President-Chief Financial Officer &
Treasurer (Principal Financial Officer), submitted to the
Securities and Exchange Commission the sworn statements
required by the Commission's Order No. 4-460.
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 12, 2002 By: /s/ David L. Pugh
------------------------------------------
David L. Pugh
Chairman & Chief Executive Officer
Date: November 12, 2002 By: /s/ John R. Whitten
------------------------------------------
John R. Whitten
Vice President-Chief Financial Officer
& Treasurer
16
Certifications of Disclosure in Quarterly Report on Form 10-Q
--------------------------------------------------------------
I, David L. Pugh, Chairman & Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Applied
Industrial Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the period presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent function):
a. All significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
17
b. Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ David L. Pugh
----------------------------------------
David L. Pugh
Chairman & Chief Executive Officer
I, John R. Whitten, Vice President-Chief Financial Officer & Treasurer, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Applied
Industrial Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the period presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
18
c. Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent function):
a. All significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b. Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ John R. Whitten
-----------------------------------------
John R. Whitten
Vice President-Chief Financial Officer &
Treasurer
19
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
EXHIBIT INDEX
TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2002
EXHIBIT NO. DESCRIPTION PAGE
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 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) 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(c) Amendment dated October 24, 2000 to
November 27, 1996 Private Shelf Agreement
between the Company and The Prudential
Insurance Company of America (filed as
Exhibit 4(e) to the Company's Form 10-Q for
the quarter ended September 30, 2000, SEC
File No. 1-2299, and incorporated here by
reference).
4(d) $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(e) Rights Agreement, dated as of February 2,
1998, between the Company and Computershare
Investor Services LLP (successor to 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 1997 Long-Term Performance Plan, as Attached
approved by shareholders on
October 22, 2002.