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<SEC-DOCUMENT>/in/edgar/work/20000920/0000950152-00-006813/0000950152-00-006813.txt : 20000924
<SEC-HEADER>0000950152-00-006813.hdr.sgml : 20000924
ACCESSION NUMBER: 0000950152-00-006813
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20000630
FILED AS OF DATE: 20000920
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: APPLIED INDUSTRIAL TECHNOLOGIES INC
CENTRAL INDEX KEY: 0000109563
STANDARD INDUSTRIAL CLASSIFICATION: [5080
] IRS NUMBER: 340117420
STATE OF INCORPORATION: OH
FISCAL YEAR END: 0630
</COMPANY-DATA>
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-02299
FILM NUMBER: 725559
</FILING-VALUES>
BUSINESS ADDRESS:
STREET 1: 3600 EUCLID AVE
CITY: CLEVELAND
STATE: OH
ZIP: 44115
BUSINESS PHONE: 2168818900
</BUSINESS-ADDRESS>
MAIL ADDRESS:
STREET 1: 3600 EUCLID AVE
CITY: CLEVELAND
STATE: OH
ZIP: 44115
</MAIL-ADDRESS>
FORMER COMPANY:
FORMER CONFORMED NAME: BEARINGS INC /OH/
DATE OF NAME CHANGE: 19920703
</FORMER-COMPANY>
FORMER COMPANY:
FORMER CONFORMED NAME: BROWN JIM STORES INC
DATE OF NAME CHANGE: 19600201
</FORMER-COMPANY>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>l83927ae10-k405.txt
<DESCRIPTION>APPLIED INDUSTRIAL TECHNOLOGIES FORM 10-K405
<TEXT>
<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2000
Commission File No. 1-2299
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-0117420
------------------------------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Applied Plaza, Cleveland, Ohio 44115
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 426-4000.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
Common Stock, without par value New York Stock Exchange
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
<PAGE> 2
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, computed by reference to the price at which
the common equity was sold as of the close of business on August 28, 2000:
$297,515,611.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 28, 2000
----- ------------------------------
Common Stock, without par value 19,812,784
DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder are the documents, portions of which are incorporated by
reference, and the Parts of this Form 10-K into which such portions are
incorporated:
(1) Applied Industrial Technologies, Inc. Annual Report to
shareholders for the fiscal year ended June 30, 2000, portions
of which are incorporated by reference into Parts I, II and IV
of this Form 10-K; and,
(2) Applied Industrial Technologies, Inc. Proxy Statement
dated September 12, 2000, portions of which are incorporated
by reference into Parts III and IV of this Form 10-K.
1
<PAGE> 3
CAUTIONARY STATEMENT
--------------------
UNDER PRIVATE SECURITIES LITIGATION REFORM ACT
----------------------------------------------
THIS REPORT, INCLUDING THE DOCUMENTS INCORPORATED BY REFERENCE,
CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING, BASED ON MANAGEMENT'S CURRENT
EXPECTATIONS ABOUT THE FUTURE. APPLIED 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 THOSE STATEMENTS SHOULD NOT BE REGARDED AS A
REPRESENTATION BY APPLIED OR ANY OTHER PERSON THAT THE RESULTS EXPRESSED IN THE
STATEMENTS WILL BE ACHIEVED. IN ADDITION, APPLIED ASSUMES NO OBLIGATION PUBLICLY
TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER BECAUSE OF NEW
INFORMATION OR EVENTS, OR OTHERWISE.
APPLIED BELIEVES ITS PRIMARY RISK FACTORS INCLUDE, BUT ARE NOT LIMITED
TO, THOSE IDENTIFIED IN "NARRATIVE DESCRIPTION OF BUSINESS," BELOW, AND THE
FOLLOWING: CHANGES IN THE ECONOMY OR IN SPECIFIC CUSTOMER INDUSTRY SECTORS;
CHANGES IN CUSTOMER PROCUREMENT POLICIES AND PRACTICES; CHANGES IN PRODUCT
MANUFACTURER SALES POLICIES AND PRACTICES; THE AVAILABILITY OF PRODUCTS AND
LABOR; CHANGES IN OPERATING EXPENSES; THE EFFECT OF PRICE INCREASES OR
DECREASES; CURRENCY EXCHANGE FLUCTUATIONS; THE VARIABILITY AND TIMING OF
BUSINESS OPPORTUNITIES INCLUDING ACQUISITIONS, ALLIANCES, CUSTOMER AGREEMENTS,
AND SUPPLIER AUTHORIZATIONS; OUR 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 WE HAVE;
ADVERSE RESULTS IN SIGNIFICANT LITIGATION MATTERS; ADVERSE REGULATION AND
LEGISLATION; AND THE OCCURRENCE OF EXTRAORDINARY EVENTS (INCLUDING PROLONGED
LABOR DISPUTES, NATURAL EVENTS AND ACTS OF GOD, FIRES, FLOODS, AND ACCIDENTS).
2
<PAGE> 4
PART I.
-------
ITEM 1. BUSINESS.
---------
In this Annual Report on Form 10-K, "Applied" refers to Applied
Industrial Technologies, Inc. References to "we," "us," "our," and "the company"
refer to Applied and its subsidiaries.
Applied, directly and through its operating subsidiaries, distributes
industrial, fluid power, and fabricated rubber products, and engineered systems.
In addition, we perform rubber and fluid power shop services, as well as
engineering, design, and fabrication services relating to electrical, gearing,
and material handling systems. We offer technical application support for our
products and provide creative solutions to help customers minimize downtime and
reduce overall procurement and maintenance costs. Although we do not generally
manufacture the products we sell, we do assemble and repair certain products and
systems. We distribute our products to a wide variety of customers primarily in
the United States (including Puerto Rico) and Canada.
Applied and its predecessor companies have been engaged in this
business since 1923. Applied was incorporated in Delaware in 1928 and
reincorporated in Ohio in 1988. Formerly known as Bearings, Inc., Applied
adopted its current name as of January 1, 1997.
(a) General Development of Business.
--------------------------------
In June 2000, we acquired from Dynavest Corporation of Saskatoon,
Saskatchewan, the following industrial distribution businesses operating in
western Canada: Bearing & Transmission, with 21 bearing and power transmission
service centers and three rubber fabrication centers (operating as B&T Rubber);
HyPower, with 15 fluid power service centers; and, All Agro Parts, specializing
in components for agricultural markets, with three service centers. In calendar
1999, these businesses generated sales of approximately US$72 million. The
acquisition brings us our first physical presence outside the United States.
We acquired Air Draulics Engineering Co., a fluid power distributor
with locations in Tennessee and Arkansas, in September 2000, and Rice Industrial
Supply, Inc., a bearing and power transmission distributor operating in
Minnesota, in December 1999. In addition, we sold certain of our mechanical and
fluid power shops to Offshore Inland Services of Alabama, Inc. in June 2000;
concurrent with the sale, we entered into an alliance to supply components, and
subcontract mechanical shop services, to Offshore Inland.
In January 2000, we launched our Maintenance America(R) catalog,
containing information on more than 18,000 products used by maintenance
professionals. Products featured in the catalog include adhesives, lubricants,
cleaners, degreasers, hand and power tools, safety equipment, industrial hose
and fittings, power transmission components, pneumatic products, and general
industrial supplies.
3
<PAGE> 5
John C. Dannemiller, Applied's Chairman since 1992 and Chief Executive
Officer from 1992 to January 2000, announced his retirement as an executive
officer and member of the Board of Directors effective following the annual
meeting of shareholders in October 2000. He has served on the Board since 1985.
Upon Mr. Dannemiller's retirement, David L. Pugh, Applied's President & Chief
Executive Officer, will be elected Chairman of the Board of Directors.
Further information regarding developments in our business can be found
in our 2000 Annual Report to shareholders under the caption "Management's
Discussion and Analysis" on pages 10 through 12, which is incorporated here by
reference.
(b) Financial Information about Segments.
-------------------------------------
We consider our business to involve only one reportable business
segment, service center-based distribution. This business provides customers
with solutions to their maintenance, repair, and original equipment
manufacturing needs by distributing, through our service center network,
bearings, power transmission components and systems, fluid power components,
fabricated rubber products, linear motion products, general maintenance
products, and related specialty items. We also offer technical product
application support and provide creative solutions to help customers minimize
downtime and reduce overall procurement costs.
In addition to the service center-based distribution business, we
operate several smaller businesses that primarily sell their products and
services directly to customers rather than through the service centers. These
businesses include specialized fluid power businesses, and certain electrical
and fabricated rubber service operations.
Financial information on the service center-based distribution segment
and our other businesses can be found in the 2000 Annual Report to shareholders
in note 10 to the financial statements on pages 23 and 24, and that information
is incorporated here by reference.
(c) Narrative Description of Business.
----------------------------------
Overview. Our service centers, located in 47 states, five Canadian
provinces, and Puerto Rico, serve as the company's primary business channel. The
products and services marketed through the service centers involve varying
levels of complexity, technical skill, and support. As noted in "Financial
Information about Segments," above, we also operate other businesses that sell
products and services directly to customers rather than through the service
centers. These businesses include specialized fluid power operations, and
certain electrical and fabricated rubber service operations.
In February 2000, we announced a new operating structure focused on the
company's two major product platforms - industrial products and fluid power
products. The new structure divides our domestic field operations into two
primary business units:
4
<PAGE> 6
- Industrial Products Unit. This unit includes all of the company's U.
S. service centers, through which we distribute bearings, power
transmission components and systems, fluid power components,
fabricated rubber products, linear motion products, and general
maintenance and specialty items, primarily for maintenance and
repair applications. In addition, the Industrial Products Unit
includes the company's regional fabricated rubber shops, which
modify and repair conveyor belts and provide hose assemblies in
accordance with customer requirements, and field crews that perform
belt and rubber lining installation and repair services at customer
locations. This business unit accounts for the bulk of our field
operations and sales dollars.
- Fluid Power Unit. This unit includes our specialized fluid power
businesses, which market their products and services directly to
customers rather than through the service center network. In
addition to offering component distribution services to customers,
the fluid power businesses operate shops that assemble fluid power
systems and components and offer technical advice to customers.
Customers include businesses purchasing for maintenance and repair
applications, as well as for original equipment manufacturing
applications. The Fluid Power Unit operates in various geographic
areas throughout the United States under the following names: Air
and Hydraulics Engineering (Southeast), Air Draulics Engineering
(Tennessee and Arkansas), Dees Fluid Power (Mid-Atlantic and
Northeast), Elect-Air (California and Arizona), Engineered Sales
(Midwest), ESI Power Hydraulics (Illinois and Wisconsin), Fornaciari
(California and Arizona), and Kent Fluid Power (Washington).
In addition to our primary business units, we operate other businesses
within separate organizational structures. Among these businesses are the
following:
- Our newly acquired Canadian distribution businesses - Bearing &
Transmission, HyPower, and All Agro Parts - which operate service
center and shop facilities in five western Canadian provinces.
- The Engineered Systems and Automation Division (ESA), which offers
electrical and mechanical design, fabrication, installation, and
support services.
Products. We sell the following products, which are generally
manufactured by other companies for whom we serve as a non-exclusive
distributor:
- Industrial products, including ball, roller, mounted, and plane
bearings, power transmission components, fluid power components,
linear motion products, and general maintenance and specialty items
such as seals, sealants, fluid sealing, "O" rings, retaining rings,
adhesives, lubricants, maintenance tools and equipment, and safety
and cleaning products.
- Engineered systems, including power transmission and electrical
systems.
5
<PAGE> 7
- Fluid power systems, including hydraulic and pneumatic systems.
- Fabricated rubber products, including conveyor belting and
industrial hose.
In addition to providing us a wide variety of products, our supplier
relationships offer access to technical product training and sales and marketing
support. We believe that these relationships are generally good and that we can
continue to represent these companies as a distributor. The loss of certain
suppliers could have an adverse effect on our business.
Our net sales by product category for the past three fiscal years is as
follows:
Fiscal 2000 Fiscal 1999 Fiscal 1998
----------- ----------- -----------
Industrial $1,100,135 $1,073,924 $1,078,507
Engineered Systems 239,165 233,407 229,984
Fluid Power 161,863 146,828 112,718
Fabricated Rubber 70,542 73,769 70,196
Services. Our service center associates advise and assist customers
with respect to product selection and application. We consider this advice and
assistance to be an integral part of our sales efforts. Beyond acting as a mere
distributor, we market the company as an applied technology supplier, offering
product and process solutions involving multiple technologies. These solutions
reduce production downtime and overall procurement and maintenance costs for
customers. By providing high levels of service, product and industry expertise,
and technical support, while at the same time offering competitive pricing, we
believe we will continue to develop closer, longer-lasting, and more profitable
customer relationships.
Our sales associates consist of customer service representatives and
field account managers assigned to each service center, as well as product and
industry specialists. Customer service representatives receive, process, and
expedite customer orders, provide product and pricing information, and assist
field account managers in serving customers. Field account managers make on-site
calls to current and potential customers to provide product and price
information, identify customer requirements and provide recommendations, and
assist in implementing equipment maintenance and storeroom management programs.
Using our proprietary Documented Value Added(R) software program, account
managers can measure and document the value to the customer, through cost
savings and/or increased productivity, of our services and recommendations.
Product and industry specialists assist with applications in their areas of
technical expertise. We also have technical call centers for specific product
technologies, staffed by skilled technicians who provide consulting and training
services.
We maintain inventory levels at each service center that are tailored
to meet customers' immediate needs. These inventories consist of standard items
stocked at most service centers as well as other items related to customers'
needs in the particular locale. We also maintain back-up
6
<PAGE> 8
inventory in nine regional distribution centers. The inventory maintained at our
facilities allows customers to minimize their own inventories of industrial
products.
In addition to product distribution-related services, we offer various
shop services to customers. Our regional fabricated rubber shops modify and
repair conveyor belts and provide hose assemblies (also available at select
service centers) in accordance with customer requirements. Rubber service field
crews perform belt and rubber lining installation and repair services at
customer locations in certain geographic areas. And through our Offshore Inland
alliance, we offer mechanical shop services, including the rebuilding and
assembly of speed reducers, pumps, valves, cylinders, and hydraulic motors, and
custom machining.
Timely delivery of products to customers is an integral part of our
service. Service centers and distribution centers use the most effective method
of transportation available to meet customer needs, including both surface and
air common carrier and courier services. We also maintain a fleet of vehicles to
deliver products to customers. These transportation services and delivery
vehicles also move products between suppliers, distribution centers, and service
centers to assure availability of merchandise for customer needs.
Our inventory and sales information systems enhance our ability to
serve customers. The point-of-sale OMNEX(R) computer system, on which the
domestic service centers operate, gives each service center on-line access to
inventory and sales information. The system permits direct access for order
entry, pricing, order expediting, and back order review. Our systems also
support electronic data interchange (EDI) and electronic funds transfer (EFT)
with participating customers and suppliers. AppliedAccess(R), launched in June
1999, is an Internet site providing customers a convenient method to search for
products in our vast electronic catalog, view prices, check inventory levels,
place orders, and track order status.
The Fluid Power Unit businesses operate independently of the service
centers, but as product distributors, share the same focus on customer service.
Product and application recommendations, inventory availability, and delivery
speed are all key to the fluid power businesses' success. The businesses
distinguish themselves, though, from most component distributors by also
offering fluid power engineering, design, fabrication, and installation
services. Each business has product specialists with extensive technical
knowledge, who handle sophisticated projects for customers primarily within the
business' geographic region.
Our operations contrast sharply with those of our product manufacturers
as the manufacturers generally confine their direct sales activities to
large-volume transactions with original equipment manufacturers, which
incorporate the components purchased into the products they make. The
manufacturers generally do not sell replacement components directly to the
customer but instead refer the customer to us or another distributor. There is
no assurance that this practice will continue, however, and any discontinuance
of this practice could have an adverse effect on our business.
7
<PAGE> 9
Patents, trademarks, and licenses do not have a significant effect on
our business.
Markets and Methods of Distribution. We purchase from over 2,500
manufacturers of bearings, power transmission components, industrial rubber
products, fluid power products, linear motion products, and general maintenance
and specialty items. We then resell the products to a wide variety of
industries, including agriculture and food processing, automotive, chemical
processing, forest products, industrial machinery and equipment, mining, primary
metals, textiles, transportation, and utilities. Customers range from the
largest industrial concerns in the United States and western Canada to the
smallest. Although we have witnessed ongoing consolidation in certain
industries, we are not significantly dependent on a single customer or group of
customers, the loss of which would have a material adverse effect on our
business as a whole, and no single customer accounts for more than 3% of our net
sales.
In recent years, there has been a trend among large industrial
customers towards reducing the number of their suppliers of maintenance and
replacement products. We are responding by continuing to broaden our product
offering and by developing new methods for marketing our products. There can be
no guarantee, however, that this trend will not have an adverse effect on our
business.
Customers have also increasingly demonstrated a desire to order
products through electronic product catalogs and Internet-based procurement
systems. We are responding to this trend by developing avenues, such as the
AppliedAccess(R) website, described above, to accommodate current customers and
reach new customers adopting electronic purchasing methods.
Certain large customers have, in recent months, turned to e-commerce
software providers and Internet marketplaces to facilitate purchases from
multiple suppliers through one electronic interface. At the outset, it remains
to be seen how successfully the multi-supplier electronic systems can be adapted
to handle procurement of the products and services we sell. Assuming this
nascent market trend continues, though, its long-term effects on our industry
are unclear. We believe that our broad product and services offerings position
us to grow our market share through relationships with selected e-commerce
companies. On the other hand, it is possible that the emerging electronic
procurement models may tend to devalue distributor services such as product
selection and application-specific advice, and to narrow product sales margins.
Accordingly, there is no assurance that increased procurement through
multi-supplier electronic systems will not adversely affect our business.
Our export business during the fiscal year ended June 30, 2000 and
prior fiscal years was less than 2% of net sales, and is not concentrated in a
specific geographic area.
Competition. We consider our business to be highly competitive. In
addition, our markets present few economic or technological barriers to entry,
although longstanding supplier and
8
<PAGE> 10
customer relationships may operate as barriers. Competition is based generally
on product and service offerings, product availability, price, and having a
local presence.
Our principal competitors are other specialized bearing, power
transmission, industrial rubber, fluid power, linear motion, and specialty item
distributors, and, to a lesser extent, mill supply houses. These competitors
include single and multiple facility operations, some of which are divisions or
subsidiaries of larger organizations. A number of these competitors may have
greater financial resources than we do. The trend towards industry consolidation
continues, producing larger multiple facility operations.
We also compete with the original equipment manufacturers and their
distributors in the sale of maintenance and replacement components. Some of
these manufacturers may have greater financial resources than we do. The
identity and number of competitors vary throughout the geographic areas in which
we conduct business. We continue to develop and implement marketing strategies
to maintain a competitive position.
We are one of the leading distributors in the United States and western
Canada for the major product categories we carry. Our market share for those
products in any given geographic area may, however, be relatively small compared
to the portion of the market served by original equipment manufacturers and
other distributors.
Backlog and Seasonality. Because of our extensive product resources and
distribution network, we do not have a substantial backlog of orders, nor are
backlog orders significant at any given time. We do not consider our business to
be seasonal.
Raw Materials and General Business Conditions. Our operations are
dependent on general industrial activities and economic conditions and would be
adversely affected by the unavailability of raw materials to our suppliers,
prolonged labor disputes experienced by suppliers or customers, or by any
recession or depression that has an adverse effect on American industrial
activity generally or on key customer industries served by us.
Number of Employees. On June 30, 2000, we had 4,847 employees
(including 392 employees that joined the company with our Canadian acquisition).
We consider our relationship with our employees to be generally favorable.
Working Capital. Our working capital position is disclosed in the
financial statements referred to at Item 14 on page 17 of this Report and is
discussed in "Management's Discussion and Analysis" in the 2000 Annual Report to
shareholders on page 11.
We require substantial working capital related to accounts receivable
and inventories. Significant amounts of inventory are carried to meet rapid
delivery requirements of customers. We generally require all payments for sales
on account within 30 days. Returns are not considered to
9
<PAGE> 11
have a material effect on our working capital requirements. We believe these
practices are consistent with industry practices.
Environmental Laws. We believe that compliance with federal, state and
local laws regulating the discharge of materials into the environment or
otherwise relating to environmental protection will not have a material adverse
effect on our capital expenditures, earnings, or competitive position.
(d) Financial Information about Foreign and Domestic Operations and
---------------------------------------------------------------
Export Sales.
- -------------
We had no operations outside the United States until we acquired our
Canadian operations from Dynavest Corporation in June 2000. Although the
Canadian operations are included in our consolidated balance sheet as of June
30, 2000, set forth in the 2000 Annual Report to shareholders on page 14, they
will only begin to be included in our consolidated operating results in fiscal
2001. Long-lived assets located outside the United States are not material.
Our export business during the fiscal year ended June 30, 2000, and
prior fiscal years, was less than 2% of net sales, and is not concentrated in a
specific geographic area.
ITEM 2. PROPERTIES.
-----------
We own or lease the properties in which our offices, service centers,
distribution centers, and shops are located. At June 30, 2000, we owned real
properties at 178 locations and leased 274 locations. Certain locations contain
multiple operations, such as a shop and a distribution center.
Our principal owned real properties (each of which has more than 20,000
square feet of floor space) at June 30, 2000 were:
- the distribution center in Atlanta, Georgia
- the distribution center in Florence, Kentucky
- the service center in West Monroe, Louisiana
- the service center in Omaha, Nebraska
- the distribution center in Portland, Oregon
- the distribution center in Carlisle, Pennsylvania
Our principal leased real properties (each of which has more than
20,000 square feet of floor space) at June 30, 2000 were:
- the corporate headquarters facility in Cleveland, Ohio
- the distribution center, service center, offices, and rubber shop in
Fontana, California
- the service center in Long Beach, California
10
<PAGE> 12
- the service center in San Jose, California
- the rubber shop in Tracy, California
- the distribution center in Denver, Colorado
- the rubber shop in Denver, Colorado
- the service center in Grand Rapids, Michigan
- the service center and fluid power shop in Iron Mountain, Michigan
- the service center in Kansas City, Missouri
- the distribution center and rubber shop in Fort Worth, Texas
- the service center in Longview, Washington
- the distribution center, fluid power shop, and rubber shop in
Longview, Washington
- the offices, service center, and rubber shop in Appleton, Wisconsin
- the service center in Milwaukee, Wisconsin
- the service centers and distribution center in Winnipeg, Manitoba
- the offices and fluid power shop in Saskatoon, Saskatchewan
Except for the Saskatoon fluid power shop, which is used in our HyPower
fluid power business, all of the properties listed above are used in our service
center-based distribution segment.
We consider our properties generally sufficient to meet our
requirements for office space and inventory stocking. A service center's size is
primarily influenced by the amount of inventory the service center requires to
meet its customers' needs. We use all of our owned and leased properties except
for certain properties (one of which has floor space exceeding 20,000 square
feet), which in the aggregate are not material and are either for sale, lease,
or sublease to third parties due to a relocation or closing. We also may lease
or sublease to others unused portions of buildings.
In recent years, when opening new locations, we have emphasized leasing
rather than owning real property. We do not consider any of our service center,
distribution center, or shop properties to be material, because we believe that
if it becomes necessary or desirable to relocate one of those operations, other
suitable property could be found.
ITEM 3. PENDING LEGAL PROCEEDINGS.
--------------------------
Applied and/or one of its subsidiaries is a party to various litigation
matters incidental to our business. Based on circumstances currently known we do
not believe these cases will have a material adverse effect on our financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
No matters were submitted to a vote of Applied's security holders
during the last quarter of fiscal 2000.
11
<PAGE> 13
EXECUTIVE OFFICERS OF THE REGISTRANT.
-------------------------------------
Applied's executive officers are elected by the Board of Directors for
a term of one year, or until their successors are chosen and qualified, at the
Board's organizational meeting held immediately following the annual meeting of
shareholders. The following is a list of the executive officers and a
description of their business experience during the past five years. Except as
otherwise stated, the positions and offices indicated are with Applied, and the
persons were elected to their current positions on October 19, 1999:
John C. Dannemiller. Mr. Dannemiller is Chairman (since 1992)
and has served as a member of the Board of Directors since 1985. He was
also Chief Executive Officer (from 1992 to January 2000) and President
(from October 1996 to January 1999). He is 62 years of age.
David L. Pugh. Mr. Pugh was elected President & Chief
Executive Officer in January 2000. He was also elected to Applied's
Board at that time. Mr. Pugh had served as President & Chief Operating
Officer since January 1999. Prior to joining Applied, he was Senior
Vice President of the Industrial Control Group (from February 1996 to
June 1998) of Rockwell Automation, a division of Rockwell International
Corporation. In that position, he was responsible for a global
manufacturing operation encompassing three business groups, 5,000
employees, and 13 operating locations. He was also Rockwell
Automation's Senior Vice President of Global Operations (from 1994 to
February 1996). He is 51 years of age.
Todd A. Barlett. Mr. Barlett is Vice President-Alliance
Systems (since August 1999). He was Vice President-National Accounts &
Alliance Systems (from August 1998 to August 1999) and Vice
President-Southeast Area (from January 1995 to August 1998). He is 45
years of age.
Donald L. Chargin. Mr. Chargin is Vice President-Unit
President, Industrial Products (since January 2000). He had served as
Vice President-Sales and Field Operations (from August 1998 to January
2000) and Vice President-Western Area (from January 1995 to August
1998). He is 45 years of age.
Mark O. Eisele. Mr. Eisele is Vice President & Controller
(since October 1997). He was Controller (from 1992 to October 1997). He
is 43 years of age.
James T. Hopper. Mr. Hopper is Vice President-Chief
Information Officer (since January 2000). He had served as Vice
President-Information Systems (since January 1995). He is 57 years of
age.
Justin M. Jacobi. Mr. Jacobi is Vice President-Unit President,
Fluid Power Products (since January 2000). He was Vice
President-Marketing & Strategic Planning (from August 1998 to January
2000), Vice President-Field Operations (from March 1998 to August
1998),
12
<PAGE> 14
Vice President-Northeast Area (from January 1997 to March 1998), and
Marketing Director for Bearing Products (from 1994 to January 1997). He
is 40 years of age.
Bill L. Purser. Mr. Purser is Vice President-Chief Marketing
Officer (since February 1999). Prior to that he was Vice
President-Marketing & National Accounts (from July 1996 to February
1999) and Vice President-National Accounts (from January 1995 to July
1996). He is 57 years of age.
Jeffrey A. Ramras. Mr. Ramras is Vice President-Supply Chain
Management (since January 2000). He had served as Vice
President-Logistics (from January 1995 to January 2000). He is 45 years
of age.
Richard C. Shaw. Mr. Shaw is Vice President-Communications and
Learning (since January 2000). He had served as Vice
President-Communications, Organizational Learning & Quality Standards
(from July 1996 to January 2000) and Vice President-Communications &
Public Relations (from 1993 to July 1996). He is 51 years of age.
Robert C. Stinson. Mr. Stinson is Vice President-Chief
Administrative Officer, General Counsel & Secretary (since October
1997). He was Vice President-Administration, Human Resources, General
Counsel & Secretary (from 1994 to October 1997). He is 54 years of age.
John R. Whitten. Mr. Whitten is Vice President-Chief Financial
Officer & Treasurer (since October 1997). He was Vice President-Finance
& Treasurer (from 1992 to October 1997). He is 54 years of age.
PART II.
--------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------
STOCKHOLDER MATTERS.
--------------------
Applied's Common Stock, without par value, is listed for trading on the
New York Stock Exchange under the ticker symbol AIT. Prior to July 3, 2000, it
traded under the symbol APZ. The information concerning the principal market for
Applied's Common Stock, the quarterly stock prices and dividends for the fiscal
years ended June 30, 2000 and 1999 and the number of shareholders of record as
of August 17, 2000 is set forth in the 2000 Annual Report to shareholders on
page 27, under the caption "Quarterly Operating Results and Market Data," and
that information is incorporated here by reference.
13
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA.
------------------------
The summary of selected financial data for the last five years is set
forth in the 2000 Annual Report to shareholders in the table on pages 28 and 29
under the caption "10 Year Summary" and is incorporated here by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
------------------------------------
"Management's Discussion and Analysis" is set forth in the 2000 Annual
Report to shareholders on pages 10 through 12 and is incorporated here by
reference.
ITEM 7A. 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. At June 30, 2000, there was no material market risk
related to foreign currency translation that would impact our financial
position. We do not currently utilize derivative financial instruments to hedge
against changes in any market risk factors.
The company is affected by market risk exposure primarily through the
effect of changes in interest rates on amounts payable under our committed
revolving credit agreement. Borrowings under this agreement totaled $33.6
million at June 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.
For further information relating to borrowing and interest rates, see
the Capital Resources section of "Management's Discussion and Analysis" and Note
5 to the Consolidated Financial Statements in Applied's 2000 Annual Report to
shareholders on pages 11 and 19, respectively, which information is incorporated
here by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
The following consolidated financial statements and supplementary data
of Applied and its subsidiaries and the independent auditors' report listed
below, which are included in the 2000 Annual Report to shareholders at the pages
indicated, are incorporated here by reference and filed with this Report:
14
<PAGE> 16
Caption Page No.
------- --------
Financial Statements:
Statements of Consolidated 13
Income for the Years Ended
June 30, 2000, 1999, and 1998
Consolidated Balance Sheets 14
June 30, 2000 and 1999
Statements of Consolidated 15
Cash Flows for the Years Ended
June 30, 2000, 1999, and 1998
Statements of Consolidated 16
Shareholders' Equity for the
Years Ended June 30, 2000,
1999, and 1998
Notes to Consolidated 17 - 24
Financial Statements for the
Years Ended June 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report 25
Supplementary Data:
Quarterly Operating Results and 27
Market Data
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
---------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
---------------------------------------
Not applicable.
PART III.
---------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
The information required by this Item as to Applied's directors is set
forth in Applied's Proxy Statement dated September 12, 2000 on pages 4 through 6
under the caption "Election of
15
<PAGE> 17
Directors" and is incorporated here by reference. The information required by
this Item as to Applied's executive officers has been furnished in this Report
on pages 12 and 13 in Part I, after Item 4, under the caption "Executive
Officers of the Registrant." The information required by this Item as to
compliance with Section 16(a) of the Securities Exchange Act of 1934 is set
forth in Applied's Proxy Statement on page 18 under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" and is incorporated here by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
-----------------------
The information required by this Item is set forth in Applied's Proxy
Statement dated September 12, 2000, under the captions "Summary Compensation" on
page 8, "Option Grants in Last Fiscal Year" and "Aggregate Option Exercises and
Fiscal Year-End Option Value Table" on page 9, "Estimated Retirement Benefits
Under Supplemental Executive Retirement Benefits Plan" on page 10, "Compensation
of Directors," "Deferred Compensation Plan for Non-employee Directors,"
"Deferred Compensation Plan," and "Employment Agreement" on pages 14 and 15, and
"Change in Control Agreements and Other Related Arrangements" on page 16, and is
incorporated here by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
----------------------------------------
OWNERS AND MANAGEMENT.
----------------------
Information concerning the security ownership of certain beneficial
owners and management is set forth under the caption "Beneficial Ownership of
Certain Applied Shareholders and Management" on page 7 of Applied's Proxy
Statement dated September 12, 2000, and is incorporated here by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
Information concerning certain relationships and related transactions
is set forth under the caption "Certain Relationships and Related Transactions"
on page 14 of Applied's Proxy Statement dated September 12, 2000 and is
incorporated here by reference.
16
<PAGE> 18
PART IV.
--------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
---------------------------------------------------
SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------
(a)1. Financial Statements.
---------------------
The following consolidated financial statements, notes thereto, the
independent auditors' report, and supplemental data are included in the 2000
Annual Report to shareholders on pages 13 through 25 and page 27, and are
incorporated by reference in Item 8 of this Report.
Caption
-------
Statements of Consolidated Income for the
Years Ended June 30, 2000, 1999, and 1998
Consolidated Balance Sheets
June 30, 2000 and 1999
Statements of Consolidated Cash Flows for
the Years Ended June 30, 2000, 1999, and 1998
Statements of Consolidated Shareholders'
Equity for the Years Ended June 30, 2000,
1999, and 1998
Notes to Consolidated Financial Statements
for the Years Ended June 30, 2000, 1999, and 1998
Independent Auditors' Report
Supplementary Data:
Quarterly Operating Results and Market Data
(a)2. Financial Statement Schedule.
-----------------------------
The following report and schedule are included in this Part IV, and are
found in this Report at the pages indicated:
Caption Page No.
------- --------
Independent Auditors' Report 23
17
<PAGE> 19
Schedule II - Valuation and 24
Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission have been
omitted because they are not required under the related instructions, are not
applicable, or the required information is included in the consolidated
financial statements and notes thereto.
(a)3. Exhibits.
---------
* Asterisk indicates an executive compensation plan or
arrangement.
Exhibit
No. Description
--- -----------
3(a) Amended and Restated Articles of Incorporation of
Applied Industrial Technologies, Inc., as amended on
October 8, 1998 (filed as Exhibit 3(a) to Applied's
Form 10-Q for the quarter ended September 30, 1998,
SEC File No. 1-2299, and incorporated here by
reference).
3(b) Code of Regulations of Applied Industrial
Technologies, Inc., as amended on October 19, 1999
(filed as Exhibit 3(b) to Applied'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 Applied's
Registration Statement on Form S-4 filed May 23,
1997, Registration No. 333-27801, and incorporated
here by reference).
4(b) $80,000,000 Maximum Aggregate Principal Amount Note
Purchase Agreement and Private Shelf Facility dated
October 31, 1992 between Applied and The Prudential
Insurance Company of America (as amended and
restated) (filed as Exhibit 4(b) to Applied's
Registration Statement on Form S-4 filed May 23,
1997, Registration No. 333-27801, and incorporated
here by reference).
4(c) Amendment to $80,000,000 Maximum Aggregate Principal
Amount Note Purchase Agreement and Private Shelf
Facility dated October
18
<PAGE> 20
31, 1992 between Applied and The Prudential Insurance
Company of America (filed as Exhibit 4(g) to
Applied's Form 10-Q for the quarter ended March 31,
1996, SEC file No. 1-2299, and incorporated here by
reference).
4(d) $50,000,000 Private Shelf Agreement dated as of
November 27, 1996, as amended on January 30, 1998,
between Applied and The Prudential Insurance Company
of America (filed as Exhibit 4(f) to Applied's Form
10-Q for the quarter ended March 31, 1998, SEC File
No. 1-2299, and incorporated here by reference).
4(e) $150,000,000 Credit Agreement dated as of November 5,
1998 among Applied, KeyBank National Association as
Agent, and various financial institutions (filed as
Exhibit 4(e) to Applied's Form 10-Q for the quarter
ended September 30, 1998, SEC File No. 1-2299, and
incorporated here by reference).
4(f) Rights Agreement, dated as of February 2, 1998,
between Applied and Harris Trust and Savings Bank, as
Rights Agent, which includes as Exhibit B thereto the
Form of Rights Certificate (filed as Exhibit No. 1 to
Applied's Registration Statement on Form 8-A filed
July 20, 1998, SEC File No. 1-2299, and incorporated
here by reference).
*10(a) Form of Amended and Restated Change in Control
Agreement between Applied and each of its executive
officers (filed as Exhibit 10(b) to Applied's Form
10-Q for the quarter ended March 31, 1998, SEC File
No. 1-2299, and incorporated here by reference).
*10(b) A written description of Applied's director
compensation program is found in Applied's Proxy
Statement dated September 12, 2000, SEC
File No. 1-2299, on page 14, under the caption
"Compensation of Directors," and is incorporated here
by reference.
*10(c) Applied Deferred Compensation Plan for Non-employee
Directors (January 1, 1997 Restatement) (filed as
Exhibit 10(d) to Applied's Registration Statement on
Form S-4 filed May 23, 1997, Registration No.
333-27801, and incorporated here by reference).
*10(d) First Amendment to Deferred Compensation Plan for
Non-employee Directors (January 1, 1997 Restatement)
dated May 1, 1998 (filed as Exhibit 10(d) to
Applied's Form 10-K for the year ended June 30, 1998,
SEC File No. 1-2299, and incorporated here by
reference).
19
<PAGE> 21
*10(e) A written description of Applied's Life and
Accidental Death and Dismemberment Insurance for
executive officers (filed as Exhibit 10(b) to
Applied's Form 10-Q for the quarter ended December
31, 1997, SEC File No. 1-2299, and incorporated here
by reference).
*10(f) A written description of Applied's Long-Term
Disability Insurance for executive officers (filed as
Exhibit 10(c) to Applied's Form 10-Q for the quarter
ended December 31, 1997, SEC File No. 1-2299, and
incorporated here by reference).
*10(g) Form of Director and Officer Indemnification
Agreement entered into between Applied and each of
its directors and executive officers (filed as
Exhibit 10(g) to Applied's Registration Statement on
Form S-4 filed May 23, 1997, Registration No.
333-27801, and incorporated here by reference).
*10(h) Applied Supplemental Executive Retirement Benefits
Plan (July 1, 1997 Restatement) in which 11 Applied
executive officers (as well as certain former
executive officers) currently participate (filed as
Exhibit 10(a) to Applied's Form 10-Q for the quarter
ended September 30, 1997, SEC File No. 1-2299, and
incorporated here by reference).
*10(i) First Amendment to Supplemental Executive Retirement
Benefits Plan effective as of August 5, 1998 (filed
as Exhibit 10(a) to Applied's Form 10-Q for the
quarter ended December 31, 1998, SEC File No. 1-2299,
and incorporated hereby reference).
*10(j) Applied Deferred Compensation Plan (January 1, 1997
Restatement) (filed as Exhibit 10(j) to Applied's
Registration Statement on Form S-4 filed May 23,
1997, Registration No. 333-27801, and incorporated
here by reference).
*10(k) First Amendment to Deferred Compensation Plan
(January 1, 1997 Restatement) dated May 1, 1998
(filed as Exhibit 10(j) to Applied's Form 10-K for
the year ended June 30, 1998, SEC File No. 1-2299,
and incorporated hereby reference).
*10(l) 1997 Long-Term Performance Plan adopted by
Shareholders on October 21, 1997 (filed as Exhibit
10(a) to Applied's Form 10-Q for the quarter ended
December 31, 1997, SEC File No. 1-2299, and
incorporated here by reference).
20
<PAGE> 22
*10(m) A written description of Applied's Management
Incentive Plan applicable to key executives,
including the five most highly compensated executive
officers, is found in Applied's Proxy Statement dated
September 12, 2000, SEC File No. 1-2299, on page 11,
in the Report of the Executive Organization &
Compensation Committee of the Board of Directors on
Executive Compensation, under the subcaption
"Management Incentive Plan," and is incorporated here
by reference.
*10(n) Employment Agreement between Applied and David L.
Pugh dated December 21, 1998 (filed as Exhibit 10(b)
to Applied's Form 10-Q for the quarter ended December
31, 1998, SEC File No. 1-2299, and incorporated here
by reference).
*10(o) Retention Award Program for James T. Hopper, Vice
President-Chief Information Officer, dated March 30,
2000.
*10(p) Applied Supplemental Defined Contribution Plan
(January 1, 1997 Restatement) (filed as Exhibit 10(m)
to Applied's Registration Statement on Form S-4 filed
May 23, 1997, Registration No. 333-27801, and
incorporated here by reference).
10(q) Lease dated as of March 1, 1996 between Applied and
the Cleveland-Cuyahoga County Port Authority (filed
as Exhibit 10(n) to Applied's Registration Statement
on Form S-4 filed May 23, 1997, Registration No.
333-27801, and incorporated here by reference).
*10(r) Consulting, Non-competition and Confidentiality
Agreement among Applied, Oak Grove Consulting Group,
Inc., and J. Michael Moore dated July 31, 1997 (filed
as Exhibit 10(c) to Applied's Form 10-Q for the
quarter ended September 30, 1997, SEC File No.
1-2299, and incorporated here by reference).
*10(s) Non-qualified Deferred Compensation Agreement between
Applied and J. Michael Moore effective as of December
31, 1997 (filed as Exhibit 10(a) to Applied's Form
10-Q for the quarter ended March 31, 1998, SEC File
No. 1-2299, and incorporated here by reference).
13 Applied 2000 Annual Report to shareholders (not
deemed "filed" as part of this Form 10-K except for
those portions that are expressly incorporated by
reference).
21
<PAGE> 23
21 Applied's subsidiaries at June 30, 2000.
23 Independent Auditors' Consent.
27 Financial Data Schedule.
Applied will furnish a copy of any exhibit described above and not
contained herein upon payment of a specified reasonable fee which shall be
limited to Applied's reasonable expenses in furnishing the exhibit.
(b) Reports on Form 8-K.
--------------------
None during the quarter ended June 30, 2000.
22
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Applied Industrial Technologies, Inc.
We have audited the consolidated balance sheets of Applied Industrial
Technologies, Inc. and its subsidiaries (the "Company") as of June 30, 2000 and
1999, and the related statements of consolidated income, shareholders' equity,
and cash flows for each of the years in the three year period ended June 30,
2000 and have issued our report thereon dated August 8, 2000; such consolidated
financial statements and report are included in your 2000 Annual Report to
shareholders and are incorporated herein by reference. Our audits also included
the consolidated financial statement schedule of the Company, listed in Item
14(a)2. This consolidated financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
August 8, 2000
23
<PAGE> 25
APPLIED INDUSTRIAL TECHNOLOGIES, INC. & SUBSIDIARIES
----------------------------------------------------
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
(in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- ----------------------------------------- -------- --------
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE
BEGINNING COSTS AND OTHER FROM AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVE PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30 2000:
Reserve deducted from assets to
which it applies - allowance for
doubtful accounts $3,515 $3,058 $500 (B) $3,273 (A) $3,800
YEAR ENDED JUNE 30 1999:
Reserve deducted from assets to
which it applies - allowance for
doubtful accounts $3,500 $3,014 $100 (C) $3,099 (A) $3,515
YEAR ENDED JUNE 30 1998:
Reserve deducted from assets to
which it applies - allowance for
doubtful accounts $2,400 $2,075 $1,165 (C) $2,140 (A) $3,500
(A) Amounts represent uncollectible accounts charged off.
(B) Amounts represent reserves for the return of merchandise.
(C) Represents reserves recorded through purchase accounting for acquisitions
made during the year.
- -----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE II
</TABLE>
24
<PAGE> 26
SIGNATURES
----------
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
<TABLE>
<S> <C>
/s/ John C. Dannemiller /s/ David L. Pugh
- ------------------------------------------ ---------------------------------------------
John C. Dannemiller, Chairman David L. Pugh, President & Chief Executive
Officer
/s/ John R. Whitten /s/ Mark O. Eisele
- ------------------------------------------ ---------------------------------------------
John R. Whitten Mark O. Eisele
Vice President-Chief Financial Officer Vice President & Controller
& Treasurer (Principal Accounting Officer)
</TABLE>
Date: September 20, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<S> <C>
/s/ William G. Bares /s/ Dr. Roger D. Blackwell
- ------------------------------------------ ---------------------------------------------
William G. Bares, Director Dr. Roger D. Blackwell, Director
/s/ William E. Butler /s/Thomas A. Commes
- ------------------------------------------ ---------------------------------------------
William E. Butler, Director Thomas A. Commes, Director
/s/ John C. Dannemiller /s/ Russel B. Every
- ------------------------------------------ ---------------------------------------------
John C. Dannemiller, Chairman and Director Russel B. Every, Director
/s/ Russell R. Gifford /s/ L. Thomas Hiltz
- ------------------------------------------ ---------------------------------------------
Russell R. Gifford, Director L. Thomas Hiltz, Director
/s/ John J. Kahl /s/ J. Michael Moore
- ------------------------------------------ ---------------------------------------------
John J. Kahl, Director J. Michael Moore, Director
/s/ David L. Pugh /s/ Dr. Jerry Sue Thornton
- ------------------------------------------ ---------------------------------------------
David L. Pugh, President & Chief Executive Dr. Jerry Sue Thornton, Director
Officer and Director
- ------------------------------------------
Robert C. Stinson, as attorney
in fact for persons indicated by "*"
Date: September 20, 2000
</TABLE>
25
<PAGE> 27
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
EXHIBIT INDEX
TO FORM 10-K FOR THE YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Exhibit
No. Description Reference
- -------- ----------- ---------
<S> <C> <C>
3(a) Amended and Restated Articles of Incorporation
of Applied Industrial Technologies, Inc., as amended
on October 8, 1998. Note (a)
3(b) Code of Regulations of Applied Industrial
Technologies, Inc., as amended on October 19, 1999. Note (b)
4(a) Certificate of Merger of Bearings, Inc. (Ohio) and
Bearings, Inc. (Delaware) filed with the Ohio
Secretary of State on October 18, 1988, including
an Agreement and Plan of Reorganization dated
September 6, 1988. Note (c)
4(b) $80,000,000 Maximum Aggregate Principal
Amount Note Purchase Agreement and Private
Shelf Facility dated October 31, 1992 between
Applied and The Prudential Insurance
Company of America (as amended and
restated). Note (d)
4(c) Amendment to $80,000,000 Maximum
Aggregate Principal Amount Note Purchase
Agreement and Private Shelf Facility dated
October 31, 1992 between Applied and The
Prudential Insurance Company of America. Note (e)
4(d) $50,000,000 Private Shelf Agreement dated
as of November 27, 1996, as amended on
January 30, 1998, between Applied and The
Prudential Insurance Company of America. Note (f)
4(e) $150,000,000 Credit Agreement dated as of
November 5, 1998 among Applied, KeyBank
National Association as Agent, and various
financial institutions. Note (g)
</TABLE>
<PAGE> 28
<TABLE>
<S> <C> <C>
4(f) Rights Agreement, dated as of February 2, 1998, between
Applied and Harris Trust and Savings Bank, as Rights Agent,
which includes as Exhibit B thereto the Form of
Rights Certificate. Note (h)
10(a) Form of Amended and Restated Change in
Control Agreement between Applied and
each of its executive officers. Note (i)
10(b) A written description of Applied's director
compensation program. Note (j)
10(c) Applied Deferred Compensation Plan for Non-
employee Directors (January 1, 1997 Restatement). Note (k)
10(d) First Amendment to Deferred Compensation Plan
for Non-employee Directors (January 1, 1997
Restatement) dated May 1, 1998. Note (l)
10(e) A written description of Applied's Life and
Accidental Death and Dismemberment
Insurance for executive officers. Note (m)
10(f) A written description of Applied's Long-Term
Disability Insurance for executive officers. Note (n)
10(g) Form of Director and Officer Indemnification
Agreement entered into between Applied
and each of its directors and executive officers. Note (o)
10(h) Applied Supplemental Executive Retirement
Benefits Plan (July 1, 1997 Restatement) in which
11 Applied executive officers participate
(as well as certain former executive officers). Note (p)
10(i) First Amendment to Supplemental Executive
Retirement Benefits Plan effective as of August
5, 1998. Note (q)
10(j) Applied Deferred Compensation Plan
(January 1, 1997 Restatement). Note (r)
</TABLE>
<PAGE> 29
<TABLE>
<S> <C> <C>
10(k) First Amendment to Deferred Compensation
Plan (January 1, 1997 Restatement) dated
May 1, 1998. Note (s)
10(l) 1997 Long-Term Performance Plan adopted
by Shareholders on October 21, 1997. Note (t)
10(m) A written description of Applied's
Management Incentive Plan applicable to
key executives, including the five most
highly compensated executive officers. Note (u)
10(n) Employment Agreement between Applied
and David L. Pugh dated December 21, 1998. Note (v)
10(o) Retention Award Program for James T. Hopper,
Vice President-Chief Information Officer, dated
March 30, 2000. Attached
10(p) Applied Supplemental Defined Contribution Plan
(January 1, 1997 Restatement). Note (w)
10(q) Lease dated as of March 1, 1996 between
Applied and the Cleveland-Cuyahoga County
Port Authority. Note (x)
10(r) Consulting, Non-competition and Confidentiality
Agreement among Applied, Oak Grove Consulting
Group, Inc., and J. Michael Moore dated July 31,
1997. Note (y)
10(s) Non-qualified Deferred Compensation Agreement
between Applied and J. Michael Moore effective
as of December 31, 1997. Note (z)
13 Applied 2000 Annual Report to shareholders
(not deemed "filed" as part of this Form 10-K
except for those portions that are expressly
incorporated by reference). Attached
21 Applied's subsidiaries at June 30, 2000. Attached
23 Independent Auditors' Consent. Attached
27 Financial Data Schedule. Attached
</TABLE>
<PAGE> 30
Notes: (a) Incorporated by reference from Applied's Form 10-Q
for the quarter ended September 30, 1998, SEC File
No. 1-2299, at Exhibit 3(a).
(b) Incorporated by reference from Applied's Form 10-Q
for the quarter ended September 30, 1999, SEC File
No. 1-2299, at Exhibit 3(b).
(c) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 4(a).
(d) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 4(b).
(e) Incorporated by reference from Applied's Form 10-Q
for the quarter ended March 31, 1996, SEC File No.
1-2299, at Exhibit 4(g).
(f) Incorporated by reference from Applied's Form 10-Q
for the quarter ended March 31, 1998, SEC File No.
1-2299, at Exhibit 4(f).
(g) Incorporated by reference from Applied's Form 10-Q
for the quarter ended September 30, 1998, SEC File
No. 1-2299, at Exhibit 4(e).
(h) Incorporated by reference from Applied's Registration
Statement on Form 8-A filed July 20, 1998, SEC File
No. 1-2299, at Exhibit 1.
(i) Incorporated by reference from Applied's Form 10-Q
for the quarter ended March 31, 1998, SEC File No.
1-2299, at Exhibit 10(b).
(j) Incorporated by reference from Applied's Proxy
Statement dated September 12, 2000, SEC File No.
1-2299, at page 14, under the caption "Compensation
of Directors."
(k) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 10(d).
(l) Incorporated by reference from Applied's Form 10-K
for the year ended June 30, 1998, SEC File No.
1-2299, at Exhibit 10(d).
(m) Incorporated by reference from Applied's Form 10-Q
for the quarter ended December 31, 1997, SEC File No.
1-2299, at Exhibit 10(b).
(n) Incorporated by reference from Applied's Form 10-Q
for the quarter ended December 31, 1997, SEC File No.
1-2299, at Exhibit 10(c).
<PAGE> 31
(o) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 10(g).
(p) Incorporated by reference from Applied's Form 10-Q
for the quarter ended September 30, 1997, SEC File
No. 1-2299, at Exhibit 10(a).
(q) Incorporated by reference from Applied's Form 10-Q
for the quarter ended December 31, 1998, SEC File No.
1-2299, at Exhibit 10(a).
(r) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 10(j).
(s) Incorporated by reference from Applied's Form 10-K
for the year ended June 30, 1998, SEC File No.
1-2299, at Exhibit 10(j).
(t) Incorporated by reference from Applied's Form 10-Q
for the quarter ended December 31, 1997, SEC File No.
1-2299, at Exhibit 10(a).
(u) Incorporated by reference from Applied's Proxy
Statement dated September 12, 2000, SEC File No.
1-2299, at page 11, in the Report of the Executive
Organization & Compensation Committee of the Board of
Directors on Executive Compensation, under the
subcaption, "Management Incentive Plan."
(v) Incorporated by reference from Applied's Form 10-Q
for the quarter ended December 31, 1998, SEC File No.
1-2299, at Exhibit 10(b).
(w) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 10(m).
(x) Incorporated by reference from Applied's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, at Exhibit 10(n).
(y) Incorporated by reference from Applied's Form 10-Q
for the quarter ended September 30, 1997, SEC File
No. 1-2299, at Exhibit 10(c).
(z) Incorporated by reference from Applied's Form 10-Q
for the quarter ended March 31, 1998, SEC File No.
1-2299, at Exhibit 10(a).
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.O
<SEQUENCE>2
<FILENAME>l83927aex10-o.txt
<DESCRIPTION>EXHIBIT 10(O)
<TEXT>
<PAGE> 1
EXHIBIT 10(o)
-------------
[Applied Industrial Technologies, Inc. Letterhead]
March 30, 2000
Mr. James T. Hopper
31525 Schwartz Road
Westlake, Ohio 44145
Re: Special Retention Award Program
--------------------------------
Dear Jim:
In recognition of your importance to Applied Industrial
Technologies, Inc., the Executive Organization & Compensation Committee of our
Board of Directors (the "Committee") approved the following special retention
award program for you on January 20, 2000:
1. Subject to the conditions set forth below, within 10 days
after January 20, 2005, Applied shall pay you a cash award equal to the greater
of:
a. 15,000 multiplied by the difference between
$16.00 and the average closing price of
Applied's common stock on the New York Stock
Exchange for the 20 trading days immediately
prior to January 20, 2005, or
b. $170,000.
2. The award shall only be made if you remain continuously
employed by Applied, a subsidiary, or a successor business from January 20, 2000
until January 20, 2005. You will, however, still be entitled to the award if
your employment is terminated without cause by Applied, a subsidiary, or a
successor entity.
3. In the event (a) of a stock dividend or stock split, or (b)
Applied's common stock is changed into or exchanged for a different number or
kind of securities, or (c) of other changes or events relating to Applied's
common stock that fundamentally change its value, then the share prices and/or
kind of stock described in 1a, above, shall be equitably adjusted by the
Committee.
4. This award program is not a guaranty or commitment by
Applied of continued employment.
<PAGE> 2
5. This award program is provided pursuant to the 1997
Long-Term Performance Plan (the terms of which are controlling, including the
protections it provides to award recipients in the event of a change of control
of the company) and the Committee's policies adopted under the Plan. Enclosed is
a copy of the Plan Information Statement dated February 9, 1998.
Jim, this award program is in special recognition of your
accomplishments and importance to the organization's future.
Congratulations and thanks again for your hard work on
Applied's behalf.
Cordially,
/s/ David L. Pugh
David L. Pugh
Enclosure
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>3
<FILENAME>l83927aex13.txt
<DESCRIPTION>EXHIBIT 13
<TEXT>
<PAGE> 1
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
YEAR ENDED JUNE 30, 2000 VS 1999
Net sales in 2000 increased to $1.57 billion or 2.9% above the $1.53 billion
generated in 1999. This increase was primarily due to marketing programs that
increased sales to national and strategic accounts particularly in the high
tech, machine tool, forest products and food processing industries. These sales
increases were partially offset by consolidation and closure of service centers
in the prior year. The Company continues to seek revenue growth by selling
additional products and services to customers who traditionally relied on the
Company for bearing products. The Company does not expect inflation to have a
material impact on future revenues.
Gross margin (net sales less cost of sales) for the year increased from
24.1% in 1999 to 24.9% in 2000. The 2000 margin was higher than in the prior
year due to improved sales mix and lower product costs.
Selling, distribution and administrative (S,D&A) expenses decreased slightly
in 2000 as a percentage of sales to 21.2% from 21.3% in 1999. Total S,D&A was
approximately $8.2 million higher than in the prior year. The increased amounts
are due to greater overall incentive compensation earned attributable to the
improved overall financial performance in fiscal 2000 compared to fiscal 1999.
Operating income increased to $57.7 million in 2000 from $42.5 million in
1999. As a percent of sales, operating income increased to 3.7% in 2000 from
2.8% in 1999. The $15.2 million improvement in operating income was primarily
due to the higher gross margins and increased sales. Management expects the
trend of improving operating margins to continue due to continued implementation
of its marketing programs and operational efficiencies.
Interest expense, net for 2000, decreased $2.7 million or 27.3% compared
with the prior year primarily as a result of a decrease in average borrowings
related to continued strong cash flows from operations, along with improved
asset utilization which enabled the Company to pay down debt.
Income tax expense as a percentage of income before income taxes decreased
to 38.6% in 2000 from 38.9% in 1999. The decrease in the effective tax rate
resulted from a reduction in the impact of non-deductible items offset somewhat
by higher effective state and local income tax rates.
Net income for the fiscal year ended June 30, 2000 increased $11.1 million
or 55.8% from the prior year. Net income per share increased 61.3% to $1.50 in
2000 from $.93 in 1999 primarily due to the factors described above.
The number of associates was 4,847 at June 30, 2000, which includes 392
associates recently added in June 2000 from the Dynavest acquisition (see Note 2
to the Consolidated Financial Statements), and 4,558 at June 30, 1999.
YEAR ENDED JUNE 30, 1999 VS 1998
Net sales in 1999 increased to $1.53 billion or 2.5% above the $1.49 billion
generated in 1998. This increase was partially due to the acquisition of five
smaller distributors in an effort to expand the Company's technological and
geographical presence and to provide additional customer support services.
Although net sales increased from the prior year, the gross margin for the
year decreased from 25.3% in 1998 to 24.1% in 1999. The 1999 margin was lower
than in the prior year due to lower discounts and allowances from suppliers,
customer mix, higher scrap and obsolete inventory expense and favorable cost
adjustments in the prior year. While still below fiscal 1998, gross margins
demonstrated a positive trend in the last quarter.
Selling, distribution and administrative expenses decreased slightly in 1999
as a percentage of sales to 21.3% from 21.4% in 1998. Total S,D&A was
approximately $6.7 million higher than in the prior year. The increased amounts
are primarily due to acquisitions made during fiscal 1999 and later in fiscal
1998.
Operating income decreased to $42.5 million in 1999 from $58.5 million in
1998. As a percent of sales, operating income decreased to 2.8% in 1999 from
3.9% in 1998. The $16.0 million decrease in operating income was primarily due
to the lower gross margins discussed previously.
Interest expense, net for 1999, increased $1.2 million or 13.3% as compared
to prior year primarily as a result of an increase in average borrowings related
to higher working capital balances and repurchase of Company stock during the
year.
Income tax expense as a percentage of income before income taxes decreased
to 38.9% in 1999 from 39.5% in
(continued inside fold)
<PAGE> 2
1998. The decrease in the effective tax rate resulted from lower effective state
and local income tax rates.
Net income for the fiscal year ended June 30, 1999 declined $10.2 million or
33.8% compared to the prior year. Net income per share decreased 32.6% to $.93
in 1999 from $1.38 in 1998 primarily due to the factors described above.
The number of associates was 4,558 at June 30, 1999 and 5,061 at June 30,
1998.
LIQUIDITY AND WORKING CAPITAL
The Company generated $76.4 million of cash from operating activities in 2000
compared to $83.1 million in 1999. The primary reason for the decrease relates
to the increase in the Company's investment in receivables which is attributable
to the increase in the fourth quarter sales volume.
Cash used by investing activities increased approximately $23.1 million in
2000 compared with 1999. The increase is primarily due to the acquisition of
certain assets of Dynavest Corporation in June 2000 compared to a lower
investment in acquisitions in 1999. There was also a decrease in property
investments primarily attributable to the Company beginning a program to acquire
its new vehicles through operating leases instead of owning.
Cash used in financing activities was $44.3 million in 2000 compared to
$57.4 million in 1999. The primary usage of cash was the stock repurchase
program whereby the Company repurchased $20.8 million of the Company's stock in
2000 and the continued net repayments under the Company's debt arrangements of
$13.8 million in 2000.
The Company is obligated for rental payments for operating leases on 274 of
its 478 operating locations. See Note 9 to the Consolidated Financial Statements
for annual rental commitments.
Working capital at June 30, 2000 was $255.1 million compared to $258.7
million at June 30, 1999. The current ratio was 2.6 and 3.0 at June 30, 2000 and
1999, respectively. These decreases are primarily due to the increased year-end
incentive accruals and the decrease in the Company's year-end cash balance
related to the Dynavest acquisition.
CAPITAL RESOURCES
Capital resources are obtained from income retained in the business, borrowings
under the Company's lines of credit, revolving credit agreement and long-term
debt facilities and from operating lease arrangements.
Average combined short-term and long-term borrowing was $93.8 million in
2000 and $140.9 million in 1999. The weighted average interest rate on
borrowings under revolving credit facilities increased to 6.0% in 2000 from an
average rate of 5.6% in 1999. The weighted average interest on borrowings under
other long-term debt agreements was 7.1% in both 2000 and 1999.
In November 1998, the Company entered into a committed revolving credit
agreement with a five-year term with a group of lending institutions. This
agreement provided for unsecured borrowings of up to $150.0 million. This
facility was used to pay down short-term line of credit borrowings. The Company
has $33.6 million of borrowings outstanding under this facility at June 30,
2000. Unused lines under this facility totaling $106.9 million are available to
fund future acquisitions or other capital and operating requirements.
In January 1999, the Company entered into an agreement with a commercial
bank for an unsecured $15.0 million uncommitted line of credit. The Company has
no outstanding borrowings under this facility at June 30, 2000.
In January 1998, the Company borrowed $50 million at 6.6% under a shelf
facility agreement with the Prudential Insurance Company of America. Proceeds
were used to repay short-term debt.
The Board of Directors has authorized an ongoing program to purchase shares
of the Company's common stock to fund employee benefit programs, stock option
and award programs and other corporate purposes. These purchases can be made in
open market or negotiated transactions, from time to time, depending upon market
conditions. The Company acquired approximately 1.3 million shares of its common
stock for $20.8 million during the year ended June 30, 2000. The Company has
remaining authorization to repurchase 0.8 million shares as of June 30, 2000.
Management expects that capital resources provided from operations,
available lines of credit, long-term debt
<PAGE> 3
and operating leases will be sufficient to finance normal working capital needs,
acquisitions, enhancement of facilities and equipment and the purchase of
additional Company common stock. Management also believes that additional
long-term debt and line of credit financing could be obtained if desired.
OTHER MATTERS
Effective June 1, 2000, the Company acquired certain assets of Dynavest
Corporation, a Canadian distributor of bearings, power transmission, fluid power
and industrial rubber products. The cash portion of the purchase price was
financed through the existing revolving credit facility. During fiscal 2001, the
Company expects to refinance a portion of this debt through a private placement
facility. The acquisition is accounted for as a purchase and is included in the
consolidated balance sheets of the Company. These Canadian operations report on
a May 31 fiscal year-end and will be consolidated on a trailing-month reporting
basis. Therefore, the operating results from these Canadian operations will
begin to be included in the Company's consolidated income statement effective
July 1, 2000.
See Note 2 to the Consolidated Financial Statements.
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 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).
<PAGE> 4
Applied Industrial Technologies, Inc. and Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Year Ended June 30
2000 1999 1998
-----------------------------------
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 1,571,705 $ 1,527,928 $ 1,491,405
- ----------------------------------------------------------------------------------------
COST AND EXPENSES
Cost of sales 1,180,115 1,159,749 1,113,849
Selling, distribution and administrative 333,873 325,691 319,036
- ----------------------------------------------------------------------------------------
1,513,988 1,485,440 1,432,885
- ----------------------------------------------------------------------------------------
OPERATING INCOME 57,717 42,488 58,520
- ----------------------------------------------------------------------------------------
INTEREST EXPENSE 7,774 10,063 9,549
INTEREST INCOME (605) (208) (854)
- ----------------------------------------------------------------------------------------
7,169 9,855 8,695
- ----------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 50,548 32,633 49,825
- ----------------------------------------------------------------------------------------
INCOME TAX EXPENSE
Federal 17,500 11,900 17,400
State and local 2,000 800 2,300
- ----------------------------------------------------------------------------------------
19,500 12,700 19,700
- ----------------------------------------------------------------------------------------
NET INCOME $ 31,048 $ 19,933 $ 30,125
========================================================================================
NET INCOME PER SHARE - BASIC $ 1.52 $ 0.93 $ 1.40
========================================================================================
NET INCOME PER SHARE - DILUTED $ 1.50 $ 0.93 $ 1.38
========================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
Applied Industrial Technologies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30
2000 1999
-----------------
(In thousands)
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and temporary investments $ 12,349 $ 19,186
Accounts receivable, less allowances of $3,800 and $3,515 212,254 195,736
Inventories 182,102 169,689
Other current assets 8,286 6,235
- --------------------------------------------------------------------------------------
Total current assets 414,991 390,846
- --------------------------------------------------------------------------------------
Property - at cost
Land 12,214 12,316
Buildings 67,630 69,329
Equipment 92,656 96,011
- --------------------------------------------------------------------------------------
172,500 177,656
Less accumulated depreciation 75,300 70,417
- --------------------------------------------------------------------------------------
Property - net 97,200 107,239
- --------------------------------------------------------------------------------------
Goodwill - net 67,089 62,351
Other assets 15,387 13,913
- --------------------------------------------------------------------------------------
TOTAL ASSETS $ 594,667 $ 574,349
======================================================================================
LIABILITIES
Current liabilities
Accounts payable $ 93,587 $ 78,836
Compensation and related benefits 32,476 19,692
Other current liabilities 33,796 33,588
- --------------------------------------------------------------------------------------
Total current liabilities 159,859 132,116
Long-term debt 112,168 126,000
Other liabilities 23,309 22,647
- --------------------------------------------------------------------------------------
TOTAL LIABILITIES 295,336 280,763
- --------------------------------------------------------------------------------------
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 83,312 82,599
Income retained for use in the business 267,145 246,026
Treasury shares - at cost (4,017 and 2,994 shares) (57,419) (40,140)
Unearned restricted common stock compensation (3,707) (4,899)
- --------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 299,331 293,586
- --------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 594,667 $ 574,349
======================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
Applied Industrial Technologies, Inc. and
SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30
2000 1999 1998
----------------------------
(In thousands)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 31,048 $ 19,933 $ 30,125
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 17,500 17,325 16,428
Deferred income taxes (2,886) (2,936) 5,065
Amortization of restricted common stock compensation and goodwill 5,488 5,331 4,569
Provision for losses on accounts receivable 3,058 3,014 2,075
(Gain) loss on sale of property (460) 187 (1,015)
Treasury shares contributed to employee benefit and deferred
compensation plans 3,819 3,681 4,882
Changes in current assets and liabilities, net of acquisitions:
Accounts receivable (7,606) 9,348 (11,280)
Inventories 1,138 25,367 (34,519)
Other current assets (944) 2,717 1,193
Accounts payable and accrued expenses 26,289 (837) (16,320)
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 76,444 83,130 1,203
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property purchases (9,510) (13,527) (33,861)
Proceeds from property sales 5,338 4,123 9,955
Net cash paid for acquisition of businesses, net of cash
acquired of $597 and $5,307 in 1999 and 1998, respectively (34,522) (12,533) (32,949)
Deposits and other (294) 6,033 3,744
- ----------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (38,988) (15,904) (53,111)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings (repayments) under line of credit agreements - net (42,973) 17,558
Borrowings (repayments) under revolving credit agreements - net (2,403) 36,000
Long-term debt borrowings 50,000
Long-term debt repayments (11,429) (19,429) (12,075)
Exercise of stock options 301 1,161 1,789
Dividends paid (9,929) (10,397) (10,277)
Purchases of treasury shares (20,833) (21,746) (8,148)
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (44,293) (57,384) 38,847
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and temporary investments (6,837) 9,842 (13,061)
Cash and temporary investments at beginning of year 19,186 9,344 22,405
- ----------------------------------------------------------------------------------------------------------
CASH AND TEMPORARY INVESTMENTS AT END OF YEAR $ 12,349 $ 19,186 $ 9,344
==========================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 21,359 $ 11,176 $ 16,953
Interest $ 7,247 $ 10,401 $ 10,043
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
Applied Industrial Technologies, Inc. and Subsidiaries
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Years Ended June 30, 2000, 1999 and 1998
Income
Shares of Additional Retained for
Common Stock Common Paid-in Use in the
Outstanding Stock Capital Business
(In thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT JULY 1, 1997 18,621 $ 10,000 $ 10,165 $ 216,642
Net income 30,125
Cash dividends - $.47 per share (10,277)
Purchases of common stock for treasury (291)
Issuance of common stock for the
acquisition of Invetech Company 3,165 63,374
Treasury shares issued for:
Retirement Savings Plan contributions 152 2,367
Exercise of stock options 103 610
Restricted common stock awards 201 3,560
Deferred compensation plans 28 450
Acquisition of Associated Bearings Company 123 1,770
Amortization of restricted
common stock compensation 360
Other 57 (381)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 22,102 10,000 82,713 236,109
Net income 19,933
Cash dividends - $.48 per share (10,397)
Purchases of common stock for treasury (1,450)
Treasury shares issued for:
Retirement Savings Plan contributions 220 337
Exercise of stock options 109 (281)
Restricted common stock awards 96 (86)
Deferred compensation plans 24 55
Amortization of restricted
common stock compensation 28
Other (167) 381
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 21,101 10,000 82,599 246,026
Net income 31,048
Cash dividends - $.48 per share (9,929)
Purchases of common stock for treasury (1,280)
Treasury shares issued for:
Retirement Savings Plan contributions 210 493
Exercise of stock options 22 7
Deferred compensation plans 25 66
Amortization of restricted
common stock compensation 62
Other 85
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2000 20,078 $ 10,000 $ 83,312 $ 267,145
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended June 30, 2000, 1999 and 1998
Unearned
Restricted
Treasury Common Total
Shares-at Stock Shareholders'
Cost Compensation Equity
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT JULY 1, 1997 $ (22,983) $ (950) $ 212,874
Net income 30,125
Cash dividends - $.47 per share (10,277)
Purchases of common stock for treasury (8,148) (8,148)
Issuance of common stock for the
acquisition of Invetech Company 63,374
Treasury shares issued for:
Retirement Savings Plan contributions 1,777 4,144
Exercise of stock options 1,179 1,789
Restricted common stock awards 2,005 (5,565)
Deferred compensation plans 288 738
Acquisition of Associated Bearings Company 1,491 3,261
Amortization of restricted
common stock compensation 1,586 1,946
Other (324)
- --------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 (24,391) (4,929) 299,502
Net income 19,933
Cash dividends - $.48 per share (10,397)
Purchases of common stock for treasury (21,746) (21,746)
Treasury shares issued for:
Retirement Savings Plan contributions 2,980 3,317
Exercise of stock options 1,442 1,161
Restricted common stock awards 1,266 (1,180)
Deferred compensation plans 309 364
Amortization of restricted
common stock compensation 1,210 1,238
Other 214
- --------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 (40,140) (4,899) 293,586
Net income 31,048
Cash dividends - $.48 per share (9,929)
Purchases of common stock for treasury (20,833) (20,833)
Treasury shares issued for:
Retirement Savings Plan contributions 2,921 3,414
Exercise of stock options 294 301
Deferred compensation plans 339 405
Amortization of restricted
common stock compensation 1,192 1,254
Other 85
- --------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2000 $ (57,419) $ (3,707) $ 299,331
==================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
Applied Industrial Technologies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2000, 1999 and 1998
(Dollar amounts in thousands, except per share amounts)
1. BUSINESS AND ACCOUNTING POLICIES
Business
The Company is one of the nation's leading distributors of industrial, fluid
power and engineered products and systems. Industrial products include bearings
and seals, linear technologies, power transmission, industrial rubber products,
general maintenance products and related specialty items. Fluid power includes
hydraulic and pneumatic components, systems and repair services. The Company
also provides mechanical and rubber shop services, including engineering,
design, electrical, gearing, and material handling components and systems. The
Company offers technical application support for these products and provides
creative solutions to help customers minimize downtime and reduce overall
procurement costs. Although the Company does not generally manufacture the
products it sells, it does assemble and repair certain products and systems.
Most of the Company's sales are in the maintenance and replacement markets, to
customers in a wide range of industries, principally in North America.
Consolidation
The consolidated financial statements include the accounts of Applied Industrial
Technologies, Inc. and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
The financial statements of the Company's Canadian subsidiary are measured using
local currency as the functional currency. Assets and liabilities of the
Canadian subsidiary are translated at exchange rates as of the balance sheet
date.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the period. Actual results
may differ from the estimates and assumptions used in preparing the consolidated
financial statements.
Cash and Temporary Investments
The Company considers all temporary investments with maturities of three months
or less to be cash equivalents.
Goodwill
Goodwill is recorded for the purchase price of acquired operations in excess of
the fair value of identifiable net assets. Goodwill is amortized on a
straight-line basis over 15 to 30 years. The accumulated amortization was
$13,892 at June 30, 2000 and $9,596 at June 30, 1999. The Company assesses the
recoverability of goodwill by determining whether the unamortized amount can be
recovered through projected undiscounted cash flows from future operations over
the amortization periods.
Inventories
Inventories are valued at the lower of cost or market, using the last-in,
first-out (LIFO) method except for inventories of its Canadian subsidiary, which
uses the average cost method. See Note 3 for further information regarding
inventories.
Depreciation
Depreciation of buildings and equipment is computed using the straight-line
method over the estimated useful lives of the assets. Buildings and related
improvements are depreciated over 10 to 30 years and equipment over 3 to 8
years.
Revenue Recognition
Sales are recognized when products are shipped to the customer.
Income Taxes
Income taxes are determined based upon income and expenses recorded for
financial reporting purposes. Deferred income taxes are recorded for estimated
future tax effects of differences between the bases of assets and liabilities
for financial reporting and income tax purposes giving consideration to enacted
tax laws.
<PAGE> 9
Reclassifications
Certain reclassifications have been made to prior year consolidated financial
statements in order to be consistent with the presentation for the current year.
Net Income Per Share
The following is a computation of the basic and diluted earnings per share:
<TABLE>
<CAPTION>
Year Ended June 30
2000 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME
Net income as reported in statements
of consolidated income $31,048 $ 19,933 $30,125
===============================================================================================
AVERAGE SHARES OUTSTANDING
Weighted average common shares
outstanding for basic computation 20,439 21,386 21,466
Dilutive effect of stock based options and awards 248 160 361
-----------------------------------------------------------------------------------------------
Weighted average common shares
outstanding for diluted computation 20,687 21,546 21,827
===============================================================================================
NET INCOME PER SHARE
Net income per share - basic $ 1.52 $ .93 $ 1.40
===============================================================================================
Net income per share - diluted $ 1.50 $ .93 $ 1.38
===============================================================================================
</TABLE>
2. BUSINESS COMBINATIONS
Effective June 1, 2000, the Company acquired certain assets of Dynavest
Corporation, a Canadian distributor of bearings, power transmission, fluid power
and industrial rubber products. In December 1999, the Company acquired certain
assets of a distributor of bearings and power transmission components. The total
purchase price of these acquisitions was $37,803, including notes payable to the
sellers totaling $3,282. The Company financed the cash portion of the purchase
price related to these acquisitions with its existing revolving credit facility.
The Canadian operations report on a May 31 fiscal year-end and will be
consolidated on a trailing-month reporting basis. The operating results from the
Canadian operations will be included in the Company's consolidated income
statement effective July 1, 2000. The Canadian acquisition is included in the
June 30, 2000 consolidated balance sheet of the Company. Results of operations
for the December 1999 acquisition are not material. Goodwill totaling $9,034
from these acquisitions, representing the excess of the purchase price over
assets acquired, is being amortized over periods of 15 and 20 years.
During the year ended June 30, 1999, the Company acquired five distributors
for a total purchase price of $14,800 financed through available credit
facilities. Three of the companies are distributors of bearings, mechanical and
electrical drive systems and industrial products. Two of the companies are
distributors of fluid power products. Results of operations for these
acquisitions are not material for all periods presented. Goodwill of $11,374
recognized in connection with these combinations is being amortized over periods
of 15 to 20 years.
Effective August 1, 1997, the Company acquired Invetech Company (Invetech),
a distributor of bearings, mechanical and electrical drive system products,
industrial rubber products, linear technologies and specialty maintenance and
repair products. The aggregate purchase price was $93,900 including the issuance
of over 3.1 million shares of Company common stock, plus the assumption of
$8,000 of term debt. The $23,400 cash portion of the purchase price was financed
through available short-term lines of credit. The Company incurred a pre-tax
nonrecurring charge of $4,000 in the quarter ended September 30, 1997 for
consolidation expenses and costs associated with disposal of duplicative
property and other assets. The purchase price was allocated based on estimated
fair values at the date of acquisition. Goodwill representing the excess of the
purchase price over assets acquired of $36,699 is being amortized over 30 years.
During the year ended June 30, 1998 the Company also acquired certain assets
of two rubber fabrication and repair shops, the stock of two distributors of
fluid power products, and two distributors of bearings, power transmission
products and industrial supplies for an aggregate purchase price of $18,117
including the issuance of 123 thousand shares of Company stock. The $14,856 cash
portion of the aggregate purchase price was financed through available
short-term lines of credit. Goodwill of $9,959, representing the excess of the
purchase price over assets acquired is being amortized over 15 years.
All of the above acquisitions were accounted for as purchases and results of
operations are included in the accompanying consolidated financial statements
from their respective acquisition dates.
<PAGE> 10
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30
2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. inventories at current cost $272,847 $273,360
Canadian inventories at average cost 13,115
-----------------------------------------------------------------------------------------------
285,962 273,360
Less: Excess of current cost over LIFO cost for U.S. inventories 103,860 103,671
-----------------------------------------------------------------------------------------------
Inventories on consolidated balance sheet $182,102 $169,689
===============================================================================================
</TABLE>
During the year ended June 30, 1999, the Company liquidated certain LIFO
inventory quantities carried at lower costs prevailing in prior years. These
liquidations reduced cost of sales and increased net income and net income per
share, respectively, by $456, $252, and $.01 per share.
4. OTHER BALANCE SHEET INFORMATION
Other assets consist of the following:
<TABLE>
<CAPTION>
June 30
2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Deposits and investments $ 4,404 $ 3,519
Deferred tax assets - non-current 6,949 6,161
Other 4,034 4,233
-----------------------------------------------------------------------------------------------
Total $ 15,387 $13,913
===============================================================================================
</TABLE>
Substantially all investments have fair values approximately equal to their
carrying values.
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
June 30
2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities - current $ 8,063 $10,161
Accrued income and other taxes 8,668 8,669
Accrued self insurance 5,285 5,216
Other 11,780 9,542
-----------------------------------------------------------------------------------------------
Total $ 33,796 $33,588
===============================================================================================
</TABLE>
5. DEBT
The Company has a five year committed revolving credit agreement expiring
November 2003 with a group of banks. This agreement provides for unsecured
borrowings of up to $150,000 at various interest rate options, none of which is
in excess of the banks' prime rate at interest determination dates. Borrowings
under this agreement totaled $33,596 at June 30, 2000. Fees on this facility
range from .12% to .40% per year on the average amount of the total revolving
credit commitments during the year. This facility enables the Company to
refinance short-term debt on a long-term basis. Accordingly, the short-term debt
and the current portion of long-term borrowings intended to be refinanced are
classified as long-term debt. Unused lines under this facility totaling $106,920
are available to fund future acquisitions or other capital and operating
requirements.
The Company also has a $15,000 short-term uncommitted line of credit with a
commercial bank. This agreement provides for payment of interest at various
interest rate options, none of which is in excess of the bank's prime rate at
<PAGE> 11
interest determination dates. The entire $15,000 is available for borrowings as
the Company had no borrowings outstanding under this facility at June 30, 2000.
Long-term debt consists of:
<TABLE>
<CAPTION>
June 30
2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit facility, effective rate 6.1% and 5.7% $ 33,596 $ 24,500
Uncommitted lines of credit, effective rate 6.22% 11,500
7.82% Senior unsecured term notes, due in
semi-annual installments of $5,714 through 2003 28,572 40,000
6.6% Senior unsecured term note, due at maturity in December 2007 50,000 50,000
-----------------------------------------------------------------------------------------------
Total $ 112,168 $126,000
===============================================================================================
</TABLE>
The revolving credit facility and senior unsecured term notes contain certain
restrictive covenants regarding liquidity, tangible net worth, financial ratios
and other covenants. At June 30, 2000, the most restrictive of these covenants
required that the Company maintain a minimum consolidated net worth of $255,294.
Based upon current market rates for debt of similar maturities, the Company
estimates that the fair value of its debt is less than its carrying value at
June 30, 2000 by approximately $4,980.
6. INCOME TAXES
Provision
The provision for income taxes consists of:
<TABLE>
<CAPTION>
Year Ended June 30
2000 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $22,386 $ 15,636 $14,635
Deferred (2,886) (2,936) 5,065
-----------------------------------------------------------------------------------------------
Total $19,500 $ 12,700 $19,700
===============================================================================================
</TABLE>
The exercise of non-qualified stock options during fiscal 2000, 1999 and 1998
resulted in $33, $199 and $645, respectively, of income tax benefits to the
Company derived from the difference between the market price at the date of
exercise and the option price. Also, the accelerated vesting of Performance
Accelerated Restricted Stock (PARS) and other restricted stock awards in fiscal
2000, 1999 and 1998 resulted in $62, $28 and $360, respectively, of incremental
income tax benefits over the amounts previously reported for financial reporting
purposes. These tax benefits were credited to additional paid-in capital.
Effective Tax Rates
The following is a reconciliation between the federal statutory income tax rate
and the Company's effective tax rate:
<TABLE>
<CAPTION>
Year Ended June 30
2000 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Effects of:
State and local income taxes 2.6 1.6 3.0
Non-deductible expenses 1.8 2.6 2.1
Other, net (.8) (.3) (.6)
-----------------------------------------------------------------------------------------------
Effective tax rate 38.6% 38.9% 39.5%
===============================================================================================
</TABLE>
Balance Sheet
The significant components of the Company's deferred tax assets (liabilities)
are as follows:
<TABLE>
<CAPTION>
June 30
2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Inventories $(13,934) $(15,994)
Depreciation and differences in property bases (5,015) (4,447)
Compensation liabilities not currently deductible 10,594 9,164
Reserves not currently deductible 4,444 4,634
Goodwill 908 1,013
Other 1,889 1,630
-----------------------------------------------------------------------------------------------
Net deferred tax liability $ (1,114) $(4,000)
===============================================================================================
</TABLE>
7. SHAREHOLDERS' EQUITY
Stock Incentive Plans
The 1997 Long-Term Performance Plan (the "1997 Plan") provides for granting of
stock options, stock awards, cash awards, and such other awards or combination
thereof as the Executive Organization and Compensation Committee
<PAGE> 12
of the Board of Directors may determine. The number of shares of common stock
which may be awarded in each fiscal year under the 1997 Plan is two percent (2%)
of the total number of shares of common stock outstanding on the first day of
each year for which the plan is in effect. Common stock available for
distribution under the 1997 Plan, but not distributed, may be carried over to
the following year. Shares available for future grants at June 30, 2000 and 1999
were 25,000 and 46,000, respectively.
Under the 1997 Plan, the Company has awarded PARS, restricted stock and/or
stock options to officers, other key associates and members of the Board of
Directors. PARS and restricted stock award recipients are entitled to receive
dividends and have voting rights on their respective shares but are restricted
from selling or transferring the shares prior to vesting. The PARS vests after a
period of six years, with accelerated vesting based upon achievement of certain
return on asset objectives or minimum stock price levels. Restricted stock
awards vest 25% each year. The aggregate fair market value of the PARS and
restricted stock is considered unearned compensation at the time of grant and is
amortized over the vesting period or until such time as acceleration of vesting
takes place. In fiscal 1999 and 1998 the Company recognized accelerated vesting
of 17,000 and 95,000 shares, respectively, of previously awarded PARS.
At June 30, 2000 the Company had granted stock options under the 1997 Plan
as described above. The stock options generally vest over a period of 4 years
and expire after 10 years. The Company applies APB Opinion No. 25 and related
interpretations in accounting for options granted under the 1997 Plan. Had the
Company accounted for options granted based on fair value at the grant dates for
awards under the 1997 Plan consistent with the method of FASB No. 123, the
Company's net income and net income per share would have been reduced to $30,003
and $1.45 in 2000, $19,118 and $.89 in 1999, and $29,616 and $1.36 in 1998.
Disclosures under the fair value method are estimated using the Black
Scholes option pricing model. The assumptions used for grants issued in 2000,
1999 and 1998 are:
<TABLE>
<CAPTION>
2000 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life 7 years 7 years 7 years
Risk free interest rate 6.6% 5.2% 5.7%
Dividend yield 3.0% 3.0% 2.0%
Volatility 28.8% 28.0% 25.0%
</TABLE>
Information regarding these option plans is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding July 1 1,464 $14.67 1,019 $14.01 1,117 $13.36
Granted 476 16.27 608 14.94 41 26.98
Exercised (21) 12.79 (109) 8.86 (103) 11.13
Expired/canceled (49) 17.27 (54) 17.48 (36) 17.59
-----------------------------------------------------------------------------------------------
Outstanding June 30 1,870 $15.03 1,464 $14.67 1,019 $14.01
===============================================================================================
Options exercisable June 30 928 $14.01 663 $13.05 614 $11.23
Weighted-average fair value
of options granted
during the year $ 5.15 $ 4.13 $ 7.80
</TABLE>
The following table summarizes information about stock options outstanding at
June 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- -----------------------
Weighted Weighted- Weighted-
Average Average Average
Ranges of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Life (in years) Price Exercisable Price
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 6 - $ 9 61 0.3 $ 6.31 61 $ 6.31
9 - 13 234 2.1 9.44 234 9.44
13 - 17 1,054 8.1 14.92 356 14.33
17 - 21 482 6.9 18.13 257 18.57
21 - 28 39 7.6 26.98 20 26.98
-----------------------------------------------------------------------------------------------
Total 1,870 928
===============================================================================================
</TABLE>
At June 30, 2000, option prices related to outstanding options ranged from $6.31
to $27.50 per share.
Shareholders Rights
On January 15, 1998 the Company's Board of Directors adopted a Shareholder
Rights Plan and declared a dividend distribution of one preferred share purchase
right for each outstanding share of Company common stock held of record as of
February 2, 1998. The rights become exercisable only if a person or group
acquires beneficial ownership or commences a tender or exchange offer for 20% or
more of the Company's common stock, unless the tender or exchange offer is for
all outstanding shares of the Company upon terms determined by Applied's
continuing directors to be in the best interests of the Company and its
shareholders. When exercisable, the Rights would entitle the holders (other than
the acquirer) to buy shares of the Company's common stock having a market value
equal to two times the
<PAGE> 13
right's exercise price or, in certain circumstances, to buy shares of the
acquiring company having a market value equal to two times the right's exercise
price.
Treasury Shares
At June 30, 2000, 596,000 shares of the Company's common stock held as treasury
shares are restricted as collateral under escrow arrangements relating to
certain change in control and director and officer indemnification agreements.
8. BENEFIT PLANS
Retirement Savings Plan
Substantially all associates of the Company's domestic subsidiaries are covered
by the Applied Industrial Technologies, Inc. Retirement Savings Plan. The
Company makes a discretionary profit-sharing contribution to the Retirement
Savings Plan generally based upon a percentage of the Company's income before
income taxes and before the amount of the contribution. The Company also
partially matches 401(k) contributions by participants, who may elect to
contribute up to 15 percent of their compensation. The matching contribution is
made with the Company's common stock and is determined quarterly using rates
based on achieving certain quarterly earnings per share levels.
The Company's expense for contributions to the above plan was $4,837, $3,417,
and $5,579 for the years ended June 30, 2000, 1999, and 1998, respectively.
Deferred Compensation Plans
The Company has deferred compensation plans that enable certain associates of
the Company to defer receipt of a portion of their compensation and non-employee
directors to defer receipt of director fees. The Company funds these deferred
compensation liabilities by making contributions to rabbi trusts. Contributions
consist of Company common stock and investments in money market and mutual
funds.
Postemployment Benefit Plans
The following table provides summary disclosure of the Company's Supplemental
Executive Retirement Benefit Plan, Qualified Retirement Plan, Salary
Continuation Benefits and Retiree Medical Benefits:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
--------------------- ------------------
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of the year $ 15,050 $ 14,199 $ 3,410 $ 3,132
Service cost 454 465 71 41
Interest cost 1,096 997 254 216
Benefits paid (968) (983) (168) (113)
Prior service cost incurred during year 690 229
Actuarial gain during year (987) (318) (270) (95)
-----------------------------------------------------------------------------------------------
Benefit obligation at June 30 $ 14,645 $ 15,050 $ 3,297 $ 3,410
===============================================================================================
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of
year $ 1,883 $ 1,825
Actual return on plan assets 33 108
Employer contribution 995 933 $ 168 $ 113
Benefits paid (968) (983) (168) (113)
-----------------------------------------------------------------------------------------------
Fair value of plan assets at June 30 $ 1,943 $ 1,883 $ 0 $ 0
===============================================================================================
RECONCILIATION OF FUNDED STATUS:
Funded status $(12,701) $(13,168) $ (3,297) $(3,410)
Unrecognized net (gain) loss 483 1,413 (836) (581)
Unrecognized prior service cost 2,162 2,400 200 226
-----------------------------------------------------------------------------------------------
Accrued pension cost at year end $(10,056) $ (9,355) $ (3,933) $(3,765)
===============================================================================================
AMOUNTS RECOGNIZED IN THE BALANCE SHEET
AT JUNE 30 CONSIST OF:
Accrued benefit liability $(11,411) $(11,728) $ (3,933) $(3,765)
Intangible asset 1,355 2,373
-----------------------------------------------------------------------------------------------
Net amount recognized, included in other
liabilities on the consolidated balance
sheet $(10,056) $ (9,355) $ (3,933) $(3,765)
===============================================================================================
WEIGHTED-AVERAGE ASSUMPTIONS AS OF JUNE 30:
Discount rate 7.5% 7.0% 7.5% 7.0%
Expected return on plan assets 7.0% 7.0% N/A N/A
Rate of compensation increase 5.5% 5.5% N/A N/A
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 454 $ 465 $ 71 $ 41
Interest cost 1,096 997 254 216
Expected return on plan assets (166) (163)
Amortization of actuarial (gain) loss 77 86 (15) (15)
Amortization of prior service cost 236 260 26 (3)
-----------------------------------------------------------------------------------------------
Net periodic pension cost $ 1,697 $ 1,645 $ 336 $ 239
===============================================================================================
</TABLE>
<PAGE> 14
The assumed health care cost trend rates used in measuring the accumulated
benefit obligation for post-retirement benefits other than pensions as of June
30, 2000 was 7.5% decreasing to 5.0% by 2006. A one-percentage point change in
the assumed health care cost trend rates would have had the following effects:
<TABLE>
<CAPTION>
One-Percentage One-Percentage
Point Increase Point Decrease
-------------- --------------
<S> <C> <C>
Effect on total service and interest cost
components of periodic expense $ 54 $ (43)
Effect on post-retirement benefit obligation $ 424 $(356)
</TABLE>
Supplemental Executive Retirement Benefit Plan
The Company has a non-qualified pension plan to provide supplemental retirement
benefits to certain officers. Benefits are payable at retirement based upon a
percentage of the participant's compensation. The plan specifies minimum annual
retirement benefits for certain participants.
Qualified Retirement Plan
The Company, in conjunction with the Invetech acquisition, is continuing a
qualified defined benefit plan that provides benefits to certain Invetech
employees at retirement. The benefits are based on the length of service and
date of retirement.
Salary Continuation Benefits
The Company has agreements with certain retirees of Invetech to pay monthly
retirement benefits for a period not in excess of 15 years.
Retiree Medical Benefits
The Company provides health care benefits to eligible retired associates who
elect to pay the Company a specified monthly premium. Premium payments are based
upon current insurance rates for the type of coverage provided and are adjusted
annually. Certain monthly health care premium payments are partially subsidized
by the Company. Additionally, in conjunction with the Invetech acquisition, the
Company assumed the obligation for the Invetech post-retirement medical benefit
plan. This plan provides health care benefits to eligible retired associates at
no cost to the individual.
9. COMMITMENTS, LEASE OBLIGATIONS AND RENT EXPENSES
The Company leases its corporate headquarters facility along with certain
service center and distribution center facilities, vehicles and computer
equipment under non-cancelable lease agreements accounted for as operating
leases. The minimum annual rental commitments under operating leases, are
$17,443 in 2001; $12,067 in 2002; $10,465 in 2003; $7,997 in 2004; $6,064 in
2005 and $35,339 after 2005.
In connection with the lease of the corporate headquarters facility, the
Company has agreed to guarantee repayment of $5,678 of bonds issued by the
Cleveland-Cuyahoga County Port Authority as lessor and Cuyahoga County to fund
construction of the headquarters facility.
Rental expenses incurred for operating leases, principally from leases for
real property, vehicles and computer equipment was $20,327 in 2000, $19,365 in
1999, and $20,004 in 1998.
The Company had outstanding letters of credit of $9,484 at June 30, 2000.
These letters of credit secure certain employee benefit and insurance
obligations.
10. 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. 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 certain electronic commerce businesses. In
addition to industrial products, other product categories include engineered
systems, fluid power and fabricated rubber. Engineered systems consist of power
transmission and electrical systems. Fluid power products includes hydraulic and
pneumatic systems. Fabricated rubber products consist 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 segments were established in fiscal 1999 primarily due to the
acquisitions outside the Company's core business segment and the related growth
in these areas. Estimates have been used to determine some of the prior period
information based on the current segment structure. The accounting policies of
the segments are the same as those described in Note 1. Intersegment sales are
not significant. All current segment operating results are in the United States
and Puerto Rico. The segment operations in Puerto Rico are not significant. The
operations acquired from Dynavest (see Note 2) are all in Canada and will begin
to be included in the Company's consolidated operating results in fiscal 2001.
The long-lived assets located outside of the United States are not material.
<PAGE> 15
Segment Financial Information:
<TABLE>
<CAPTION>
Service Center
Based Distribution Other Total
-------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED JUNE 30, 2000
Net sales $1,508,444 $ 63,261 $1,571,705
Operating profit 63,444 3,238 66,682
Assets used in the business 542,125 52,542 594,667
Depreciation 16,989 511 17,500
Capital Expenditures 6,970 2,540 9,510
-------------------------------------------------------
YEAR ENDED JUNE 30, 1999
Net sales $1,466,836 $ 61,092 $1,527,928
Operating profit 59,435 2,460 61,895
Assets used in the business 538,723 35,626 574,349
Depreciation 16,822 503 17,325
Capital Expenditures 12,317 1,210 13,527
-------------------------------------------------------
YEAR ENDED JUNE 30, 1998
Net sales $1,454,376 $ 37,029 $1,491,405
Operating profit 87,226 2,114 89,340
Assets used in the business 577,984 28,107 606,091
Depreciation 16,094 334 16,428
Capital Expenditures 33,261 600 33,861
-------------------------------------------------------
</TABLE>
A reconciliation from the segment operating profit to the consolidated balances
is as follows:
<TABLE>
<CAPTION>
Year Ended June 30
2000 1999 1998
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating profit for reportable segment $63,444 $ 59,435 $87,226
Other operating profit 3,238 2,460 2,114
Less:
Goodwill amortization 4,296 4,122 2,983
Corporate and other expense, net (a) 4,669 15,285 27,837
------------------------------------------------------------------------------------------
Total operating profit 57,717 42,488 58,520
Interest expense, net 7,169 9,855 8,695
------------------------------------------------------------------------------------------
Income before taxes $50,548 $ 32,633 $49,825
==========================================================================================
</TABLE>
(a) Beginning in January, 1999, certain logistics costs were allocated
to the Service Center Based Distribution segment.
Net sales by product category are as follows:
<TABLE>
<CAPTION>
Year Ended June 30
2000 1999 1998
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Industrial $1,100,135 $ 1,073,924 $1,078,507
Engineered systems 239,165 233,407 229,984
Fluid power 161,863 146,828 112,718
Fabricated rubber 70,542 73,769 70,196
------------------------------------------------------------------------------------------
$1,571,705 $ 1,527,928 $1,491,405
==========================================================================================
</TABLE>
11. LITIGATION
The Company is a defendant in various lawsuits incidental to its business. The
Company is vigorously defending these lawsuits. Although management cannot
predict the outcomes of these lawsuits, they are not expected to have a material
adverse effect on the Company's consolidated financial position, results of
operations, or cash flows.
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
DELOITTE
& TOUCHE
Shareholders and Board of Directors
Applied Industrial Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Applied
Industrial Technologies, Inc. and its subsidiaries (the "Company") as of June
30, 2000 and 1999, and the related statements of consolidated income,
shareholders' equity, and cash flows for each of the three years in the period
ended June 30, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 2000 and
1999, and the results of its operations and its cash flows for each of the three
years in the period ended June 30, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
August 8, 2000
<PAGE> 17
Applied Industrial Technologies, Inc. and Subsidiaries
QUARTERLY OPERATING RESULTS AND MARKETING DATA (UNAUDITED)
<TABLE>
<CAPTION>
Per Common Share (C)
----------------------------------------------------
Price Range
-----------------------------
Net
Net Gross Net Income - Cash
Sales Profit (D) Income Diluted Dividend High Low
(Dollars in thousands,
except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2000 (A)
FIRST QUARTER $ 380,671 $ 93,765 $ 5,862 $0.28 $0.12 $19.06 $14.38
SECOND QUARTER 372,626 92,687 6,233 0.30 0.12 17.88 15.06
THIRD QUARTER 413,194 103,022 8,304 0.40 0.12 18.19 15.00
FOURTH QUARTER 405,214 102,116 10,649 0.53 0.12 18.13 14.31
- ------------------------------------------------------------------------------------------------------
$ 1,571,705 $ 391,590 $ 31,048 $1.50 $0.48
======================================================================================================
1999 (A)
First Quarter (B) $ 379,174 $ 90,636 $ 1,358 $0.06 $0.12 $20.81 $15.75
Second Quarter 371,395 88,743 4,388 0.20 0.12 16.50 12.00
Third Quarter 386,616 94,081 6,372 0.30 0.12 14.50 11.13
Fourth Quarter 390,743 94,719 7,815 0.37 0.12 19.00 11.31
- ------------------------------------------------------------------------------------------------------
$ 1,527,928 $ 368,179 $ 19,933 $0.93 $0.48
======================================================================================================
1998 (A)
First Quarter (B) $ 344,726 $ 85,286 $ 4,497 $0.21 $0.11 $34.81 $23.83
Second Quarter 368,623 91,403 7,714 0.35 0.12 34.44 24.94
Third Quarter 393,871 98,361 9,115 0.41 0.12 29.31 23.13
Fourth Quarter 384,185 102,506 8,799 0.40 0.12 27.88 20.50
- ------------------------------------------------------------------------------------------------------
$ 1,491,405 $ 377,556 $ 30,125 $1.38 $0.47
======================================================================================================
</TABLE>
(A) Cost of sales for interim financial statements are computed using estimated
gross profit percentages which are adjusted throughout the year based upon
available information. Adjustments to actual cost are primarily made based upon
the annual physical inventory and the effect of year-end inventory quantities on
LIFO costs. These cost adjustments were immaterial in 1999. Adjustments in 2000
and 1998 increased gross profit by $2,924 and $9,707; net income by $1,708 and
$5,625; and diluted net income per share by $.08 and $.26, respectively.
Reductions in inventories during the fiscal year ended June 30, 1999 resulted in
liquidations of LIFO inventory quantities carried at lower costs prevailing in
prior years. These liquidations increased annual gross profit by $456; annual
net income by $252; and diluted net income per share by $.01. (See Note 3 to
Consolidated Financial Statements.)
(B) During the first quarter of fiscal 1999, the Company recorded pretax
restructuring and other special charges of $5,400 to cover certain costs of
consolidation and workforce reductions. Net of income taxes, this charge
decreased net income by $3,186, or $.14 per share. During the first quarter of
fiscal 1998, in connection with the acquisition of Invetech, a pretax
restructuring charge of $4,000 was recorded for consolidation expenses and costs
associated with the disposal of duplicative property and other assets. Net of
income taxes, this charge decreased net income by $2,360 or $.11 per share.
(C) On August 17, 2000 there were 6,467 shareholders of record including 3,480
shareholders in the Applied Industrial Technologies, Inc. Retirement Savings
Plan. The Company's common stock is listed on the New York Stock Exchange. The
closing price on August 17, 2000 was $17.38 per share.
(D) Certain reclassifications have been made to the prior years' consolidated
financial statements in order to be consistent with the presentation for the
current year.
<PAGE> 18
Applied Industrial Technologies, Inc. and Subsidiaries
10 YEAR SUMMARY
<TABLE>
<CAPTION>
2000 1999 1998 1997
(Dollars in thousands, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS-
YEAR ENDED JUNE 30
Net sales $ 1,571,705 $ 1,527,928 $ 1,491,405 $ 1,160,251
Operating income 57,717 42,488 58,520 50,599
Net income 31,048 19,933 30,125 27,092
Per share data
Net income - basic 1.52 .93 1.40 1.47
Net income - diluted 1.50 .93 1.38 1.44
Cash dividends .48 .48 .47 .41
YEAR-END POSITION - JUNE 30
Working capital $ 255,132 $ 258,730 $ 221,766 $ 164,723
Long-term debt 112,168 126,000 90,000 51,428
Total assets 594,667 574,349 606,091 394,114
Shareholders' equity 299,331 293,586 299,502 212,874
YEAR-END STATISTICS - JUNE 30
Current ratio 2.6 3.0 2.1 2.4
Operating facilities 478 444 449 377
Shareholders of record (A) 6,548 6,869 6,731 4,676
</TABLE>
(A) Includes participant-shareholders in the Applied Industrial Technologies,
Inc. Retirement Savings Plan, and since 1998, shareholders in the Automatic
Dividend Reinvestment Plan.
<PAGE> 19
<TABLE>
<CAPTION>
1996 1995 1994 1993
(Dollars in thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS-
YEAR ENDED JUNE 30
Net sales $ 1,143,749 $ 1,054,809 $ 936,254 $ 831,432
Operating income 49,281 36,923 27,817 20,521
Net income 23,334 16,909 12,687 8,927
Per share data
Net income - basic 1.26 .97 .75 .55
Net income - diluted 1.25 .96 .73 .54
Cash dividends .36 .31 .29 .29
YEAR-END POSITION - JUNE 30
Working capital $ 151,956 $ 153,555 $ 144,605 $ 130,860
Long-term debt 62,857 74,286 80,000 80,000
Total assets 404,072 359,231 343,519 315,935
Shareholders' equity 192,264 169,760 150,491 134,940
YEAR-END STATISTICS - JUNE 30
Current ratio 2.1 2.4 2.4 2.4
Operating facilities 376 374 368 346
Shareholders of record (A) 4,636 4,379 4,478 4,449
</TABLE>
<TABLE>
<CAPTION>
1992 1991
(Dollars in thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CONSOLIDATED OPERATIONS-
YEAR ENDED JUNE 30
Net sales $ 817,813 $ 814,000
Operating income 4,703 17,115
Net income (1,666) 4,282
Per share data
Net income - basic (.11) .27
Net income - diluted (.11) .27
Cash dividends .29 .29
YEAR-END POSITION - JUNE 30
Working capital $ 41,967 $ 54,695
Long-term debt
Total assets 330,619 327,939
Shareholders' equity 128,830 134,203
YEAR-END STATISTICS - JUNE 30
Current ratio 1.2 1.3
Operating facilities 362 370
Shareholders of record (A) 4,354 4,025
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>4
<FILENAME>l83927aex21.txt
<DESCRIPTION>EXHIBIT 21
<TEXT>
<PAGE> 1
EXHIBIT 21
APPLIED INDUSTRIAL TECHNOLOGIES, INC. FORM 10-K FOR
FISCAL YEAR ENDED JUNE 30, 2000
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction of
Name* Incorporation or Organization
---- -----------------------------
<S> <C>
Air and Hydraulics Engineering, Incorporated Alabama
(d/b/a Air and Hydraulics Engineering)
AIT Limited Partnership Ontario, Canada
Applied Industrial Technologies Ltd. Canada (Federal)
Applied Industrial Technologies -- ABC, Inc. Ohio
Applied Industrial Technologies -- DBB, Inc. Ohio
Applied Industrial Technologies -- Dixie, Inc. Tennessee
Applied Industrial Technologies -- GA LP Delaware
Applied Industrial Technologies -- Mainline, Inc. Wisconsin
Applied Industrial Technologies -- PA LLC Pennsylvania
Applied Industrial Technologies -- TX LP Delaware
Applied - Michigan, Ltd. Ohio
AppliedLink, Inc. (d/b/a AppliedLink) Ohio
Applied Nova Scotia Company Nova Scotia, Canada
BER Capital, Inc. Delaware
BER International, Inc. Barbados
Bearing Sales & Service, Inc. Washington
Bearings, Inc. Alabama
Bearings, Inc. Tennessee
Bearings Pan American, Inc. Ohio
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Dynavest Nova Scotia Company Nova Scotia, Canada
ESI Acquisition Corporation Ohio
(d/b/a Engineered Sales, Inc.)
Farm Warehouse, Inc. (d/b/a Farm Warehouse) Missouri
Rafael Benitez Carrillo Inc. Puerto Rico
(d/b/a Rafael Benitez Carrillo)
The Ohio Ball Bearing Company Ohio
</TABLE>
* Except as noted, operating companies conduct business under Applied Industrial
Technologies name
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>5
<FILENAME>l83927aex23.txt
<DESCRIPTION>EXHIBIT 23
<TEXT>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Applied Industrial Technologies, Inc.
We consent to the incorporation by reference in Registration Statement Nos.
33-43506, 33-53401, 33-60687, 33-65509, 33-65513, and 333-53809 of Applied
Industrial Technologies, Inc. on Form S-8 of our reports dated August 8, 2000
appearing in and incorporated by reference in this Annual Report on Form 10-K
of Applied Industrial Technologies, Inc. for the year ended June 30, 2000.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
September 13, 2000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>6
<FILENAME>l83927aex27.txt
<DESCRIPTION>EXHIBIT 27
<TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> JUN-30-2000
<CASH> 12,349
<SECURITIES> 0
<RECEIVABLES> 216,054
<ALLOWANCES> 3,800
<INVENTORY> 182,102
<CURRENT-ASSETS> 414,991
<PP&E> 172,500
<DEPRECIATION> 75,300
<TOTAL-ASSETS> 594,667
<CURRENT-LIABILITIES> 159,859
<BONDS> 112,168
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 10,000
<OTHER-SE> 289,331
<TOTAL-LIABILITY-AND-EQUITY> 594,667
<SALES> 1,571,705
<TOTAL-REVENUES> 1,571,705
<CGS> 1,180,115
<TOTAL-COSTS> 1,180,115
<OTHER-EXPENSES> 333,873
<LOSS-PROVISION> 3,058
<INTEREST-EXPENSE> 7,774
<INCOME-PRETAX> 50,548
<INCOME-TAX> 19,500
<INCOME-CONTINUING> 31,048
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,048
<EPS-BASIC> 1.52
<EPS-DILUTED> 1.50
</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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