1 FORM 10 - Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended DECEMBER 31, 2000 ------------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission File Number 1-2299 ------ APPLIED INDUSTRIAL TECHNOLOGIES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-0117420 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) One Applied Plaza, Cleveland, Ohio 44115 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216) 426-4000 -------------- - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- Shares of common stock outstanding on January 31, 2001 19,805,130 ---------------------------------------- (No par value)
2 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ INDEX <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------ Page No. Part I: FINANCIAL INFORMATION <S> <C> Item 1: Financial Statements Condensed Statements of Consolidated Income - 2 Three Months and Six Months Ended December 31, 2000 and 1999 Condensed Consolidated Balance Sheets - 3 December 31, 2000 and June 30, 2000 Condensed Statements of Consolidated Cash Flows - 4 Six Months Ended December 31, 2000 and 1999 Notes to Condensed Consolidated Financial Statements 5 - 8 Item 2: Management's Discussion and Analysis of 9 - 11 Financial Condition and Results of Operations Item 3: Quantitative and Qualitative Disclosures About Market Risk 12 Part II: OTHER INFORMATION Item 1: Legal Proceedings 13 Item 4: Submission of Matters to a Vote of Security Holders 13 Item 5: Other Information 13 Item 6: Exhibits and Reports on Form 8-K 13 Signatures 15 </TABLE>
3 PART I: FINANCIAL INFORMATION ITEM 1: Financial Statements APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ CONDENSED STATEMENTS OF CONSOLIDATED INCOME (Unaudited) (Thousands, except per share amounts) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Three Months Ended Six Months Ended December 31 December 31 2000 1999 2000 1999 ----------------------- ----------------------- <S> <C> <C> <C> <C> Net Sales $ 405,438 $ 379,670 $ 826,314 $ 767,574 Cost of sales 301,536 286,983 617,958 581,122 ---------- ---------- ---------- ---------- 103,902 92,687 208,356 186,452 Selling, distribution and administrative 89,217 80,642 179,438 162,322 ---------- ---------- ---------- ---------- Operating Income 14,685 12,045 28,918 24,130 Interest expense, net 2,523 1,566 4,725 3,801 ---------- ---------- ---------- ---------- Income Before Income Taxes 12,162 10,479 24,193 20,329 Income Taxes 4,800 4,246 9,600 8,234 ---------- ---------- ---------- ---------- Net Income $ 7,362 $ 6,233 $ 14,593 $ 12,095 ========== ========== ========== ========== Net Income per share - Basic $ 0.37 $ 0.30 $ 0.74 $ 0.58 ========== ========== ========== ========== Net Income per share - Diluted $ 0.37 $ 0.30 $ 0.73 $ 0.58 ========== ========== ========== ========== Cash dividends per common share $ 0.12 $ 0.12 $ 0.24 $ 0.24 ========== ========== ========== ========== Weighted average common shares outstanding for basic computation 19,659 20,659 19,697 20,729 Dilutive effect of stock options and awards 322 225 311 212 ---------- ---------- ---------- ---------- Adjusted average common shares outstanding for diluted computation 19,981 20,884 20,008 20,941 ========== ========== ========== ========== </TABLE> See notes to condensed consolidated financial statements. 2
4 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> December 31 June 30 2000 2000 ------------ ------------ (Unaudited) <S> <C> <C> Assets Current assets Cash and temporary investments $ 14,415 $ 12,349 Accounts receivable, less allowance of $4,500 and $3,800 198,162 212,254 Inventories (at LIFO) 212,673 182,102 Other current assets 6,904 8,286 ------------ ------------ Total current assets 432,154 414,991 Property, less accumulated depreciation of $78,507 and $75,300 92,080 97,200 Goodwill 68,242 67,089 Other assets 16,085 15,387 ------------ ------------ TOTAL ASSETS $ 608,561 $ 594,667 ============ ============ Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 104,982 $ 93,587 Other accrued liabilities 55,200 66,272 ------------ ------------ Total current liabilities 160,182 159,859 Long-term debt 118,920 112,168 Other liabilities 25,556 23,309 ------------ ------------ TOTAL LIABILITIES 304,658 295,336 ------------ ------------ Shareholders' Equity Preferred stock - no par value; 2,500 shares authorized; none issued or outstanding Common stock - no par value; 50,000 shares authorized; 24,096 shares issued 10,000 10,000 Additional paid-in capital 80,905 83,312 Income retained for use in the business 276,937 267,145 Treasury shares - at cost, 4,197 and 4,017 shares (61,409) (57,419) Unearned restricted common stock compensation (2,530) (3,707) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 303,903 299,331 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 608,561 $ 594,667 ============ ============ </TABLE> See notes to condensed consolidated financial statements. 3
5 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited) (Amounts in thousands) <TABLE> <CAPTION> Six Months Ended December 31 2000 1999 - ----------------------------------------------------------------------------------------------- <S> <C> <C> Cash Flows from Operating Activities Net income $ 14,593 $ 12,095 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 11,572 11,683 Changes in operating assets and liabilities, net of effects from acquisition of businesses (16,314) 10,680 Other - net 5,565 2,995 - ----------------------------------------------------------------------------------------------- Net Cash provided by Operating Activities 15,416 37,453 - ----------------------------------------------------------------------------------------------- Cash Flows from Investing Activities Property purchases (4,422) (4,351) Proceeds from property sales 2,487 2,915 Net cash paid for acquisition of businesses (5,491) (686) Deposits and other 229 (849) - ----------------------------------------------------------------------------------------------- Net Cash used in Investing Activities (7,197) (2,971) - ----------------------------------------------------------------------------------------------- Cash Flows from Financing Activities Borrowings (repayments) under revolving credit agreements - net (12,534) (22,700) Long-term debt repayments (5,714) (5,714) Long-term debt borrowings 25,000 Dividends paid (4,801) (5,035) Purchases of treasury shares (8,662) (7,331) Other 558 84 - ----------------------------------------------------------------------------------------------- Net Cash used in Financing Activities (6,153) (40,696) - ----------------------------------------------------------------------------------------------- Increase (decrease ) in cash and temporary investments 2,066 (6,214) Cash and temporary investments at beginning of period 12,349 19,186 - ----------------------------------------------------------------------------------------------- Cash and Temporary Investments at End of Period $ 14,415 $ 12,972 =============================================================================================== </TABLE> See notes to condensed consolidated financial statements. 5
6 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts) (Unaudited) - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary to a fair statement of operations of the interim period have been made. The results of operations for the three and six month periods ended December 31, 2000 are not necessarily indicative of the results to be expected for the fiscal year. Cost of sales for interim financial statements are computed using estimated gross profit percentages which are adjusted throughout the year based upon available information. Adjustments to actual cost are made based on the annual physical inventory and the effect of year-end inventory quantities on LIFO costs. The financial statements of the Company's Canadian subsidiaries are measured using local currency as the functional currency. Assets and liabilities of the Canadian subsidiaries are translated at exchange rates as of the balance sheet date. Sales, cost of sales and expenses are translated at average exchange rates during each reporting period. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars were immaterial. Effective July 1, 2000, the Company adopted Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs." Accordingly, freight charged to customers is now classified as sales, whereas previously it was classified as an offset to cost of sales. All prior amounts have been restated to conform to the current presentation.
7 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts) (Unaudited) - -------------------------------------------------------------------------------- 2. SEGMENT INFORMATION The accounting policies of the segments are the same as those used to prepare the condensed consolidated financial statements. Certain reclassifications have been made to prior year amounts to be consistent with the presentation in the current year. Intersegment sales are not significant. All current segment operating results are in the United States, Canada and Puerto Rico. The segment operations in Canada and Puerto Rico represent approximately 5.5% of the total net sales of Applied and therefore are not presented separately. In addition, over 38% of the Canadian operations' net sales are included in the "Other" segment relating to the fluid power business. The long-lived assets located outside of the United States are not material. SEGMENT FINANCIAL INFORMATION: <TABLE> <CAPTION> SERVICE CENTER BASED DISTRIBUTION OTHER TOTAL -------------------- ------------ -------------- <S> <C> <C> <C> THREE MONTHS ENDED DECEMBER 31, 2000 Net sales $380,217 $25,221 $405,438 Operating profit (loss) 10,392 (471) 9,921 Depreciation 4,255 186 4,441 Capital expenditures 1,284 856 2,140 -------------------- ------------ -------------- THREE MONTHS ENDED DECEMBER 31, 1999 Net sales $364,570 $15,100 $379,670 Operating profit (loss) 15,069 (239) 14,830 Depreciation 4,355 100 4,455 Capital expenditures 1,459 91 1,550 -------------------- ------------ -------------- </TABLE> A reconciliation from the segment operating profit to the condensed consolidated balances is as follows: <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 31 --------------------------------------- 2000 1999 --------------------------------------- <S> <C> <C> Operating profit for reportable segment $10,392 $15,069 Other operating loss (471) (239) Adjustments for: Goodwill amortization (1,316) (1,048) Corporate and other income (expense), net of allocations (a) 6,080 (1,737) --------------------------------------- Total operating profit 14,685 12,045 Interest expense, net 2,523 1,566 --------------------------------------- Income before income taxes $12,162 $10,479 ======================================= </TABLE> 6
8 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts) (Unaudited) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> SERVICE CENTER BASED DISTRIBUTION OTHER TOTAL --------------------------------------------------------- <S> <C> <C> <C> SIX MONTHS ENDED DECEMBER 31, 2000 Net sales $777,065 $49,249 $826,314 Operating profit (loss) 22,308 (484) 21,824 Assets used in the business 554,778 53,783 608,561 Depreciation 8,172 386 8,558 Capital expenditures 3,460 962 4,422 --------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, 1999 Net sales $738,930 $28,644 $767,574 Operating profit (loss) 31,978 (572) 31,406 Assets used in the business 513,340 38,740 552,080 Depreciation 8,762 255 9,017 Capital expenditures 4,230 121 4,351 --------------------------------------------------------- </TABLE> A reconciliation from the segment operating profit to the condensed consolidated balances is as follows: <TABLE> <CAPTION> SIX MONTHS ENDED DECEMBER 31 --------------------------------------- 2000 1999 --------------------------------------- <S> <C> <C> Operating profit for reportable segment $22,308 $31,978 Other operating profit (loss) (484) (572) Adjustments for: Goodwill amortization (2,501) (2,070) Corporate and other income (expense), net of allocations (a) 9,595 (5,206) --------------------------------------- Total operating profit 28,918 24,130 Interest expense, net 4,725 3,801 --------------------------------------- Income before income taxes $24,193 $20,329 ======================================= </TABLE> (a) The change in the amounts of corporate and other income (expense), net of allocations, is due to various changes in the levels and amounts of expenses being allocated to the segments. Such expenses include miscellaneous corporate charges for working capital, logistics support and other items. 7
9 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts) (Unaudited) - -------------------------------------------------------------------------------- 3. BUSINESS COMBINATIONS During the quarter ended September 30, 2000, the Company acquired the stock of a distributor of fluid power products for a total purchase price of $7,300. The acquisition was accounted for as a purchase and the results of the business' operations are included in the accompanying condensed consolidated financial statements from its acquisition date. Results of operations for this acquisition are immaterial for all periods presented. Goodwill, based on preliminary allocations of fair values to assets and liabilities acquired, of $3,700 recognized in connection with this combination, is being amortized over 15 years. 4. DEBT During the quarter ended December 31, 2000, the Company refinanced $25,000 of its Canadian debt, previously financed under its revolving credit facility, through a private issuance of senior notes. Fixed interest of 7.98% is paid quarterly and principal is due at maturity in November 2010. During the quarter ended December 31, 2000, the Company entered into two fixed 10 year cross currency swap agreements with a Canadian bank. The swaps were entered into in connection with the private placement borrowings effectively converting private placement debt from U.S. dollars to Canadian dollars, and from a fixed rate of 7.98% on the U.S. denominated debt to a fixed rate of 7.75% on the Canadian cross currency swaps. Terms and settlement dates mirror the terms of the private placement. In applying Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," one swap is designated as a cash flow hedge. The other swap is not considered a hedge. The fair value of the swap designated as a cash flow hedge was $232. This fair value of the cash flow hedge is completely offset by the translation loss of the underlying debt obligation. The fair value of the swap not designated as a cash flow hedge was $59 and recorded in the income statement. 8
10 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- The following is Management's Discussion and Analysis of certain significant factors which have affected the Company's: (1) financial condition at December 31, 2000 and June 30, 2000, and (2) results of operations and cash flows during the periods included in the accompanying Condensed Statements of Consolidated Income and Consolidated Cash Flows. Liquidity and Working Capital - ----------------------------- Cash provided by operating activities was $15.4 million in the six months ended December 31, 2000. This compares to $37.5 million provided by operating activities in the same period a year ago. Cash flow from operations depends primarily upon generating operating income, controlling the investment in inventories and receivables, and managing the timing of payments to suppliers. The Company has continuing programs to monitor and control these investments. During the six month period ended December 31, 2000, inventories increased approximately $29.4 million from seasonal buying in advance of supplier price increases, and accounts receivable decreased $13.6 million due to improved collection experience. Capital Resources - ----------------- During the quarter ended December 31, 2000, the Company refinanced $25.0 million of its Canadian debt, previously financed under its revolving credit facility, through a private issuance of senior notes. Fixed interest of 7.98% is paid quarterly and principal is due at maturity in November 2010. In connection with the refinancing and to minimize currency translation exposure risks, the Company entered into fixed 10 year cross currency swap agreements with a Canadian bank. These agreements swapped the private placement borrowings from U.S. dollars to Canadian dollars, effectively converting from a fixed rate of 7.98% on the U.S. denominated debt to a fixed rate of 7.75% on the Canadian cross currency swaps. The Company has a committed revolving credit agreement expiring November, 2003 with a group of lending institutions. This agreement provides for unsecured borrowings of up to $150.0 million. The Company had $21.1 million of borrowings outstanding under this facility at December 31, 2000. Unused lines under this facility totaling $124.4 million are available to fund future acquisitions or other capital and operating requirements. The Company also has a $15.0 million short-term uncommitted line of credit with a commercial bank. The Company had no borrowings outstanding under this facility at December 31, 2000. Unused lines under this facility are available to fund future acquisitions or other capital and operating requirements. In October 2000, the Company entered into an agreement with the Prudential Insurance Company of America for an uncommitted shelf facility to borrow up to $100 million in additional long-term financing, at its sole discretion, with terms of up to twelve years. 9
11 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- The Board of Directors has authorized the purchase of shares of the Company's common stock to fund employee benefit programs, stock option and award programs, and future acquisitions. These purchases are made in open market and negotiated transactions, from time to time, depending upon market conditions. The Company acquired 503,000 shares of its common stock for $8.7 million during the six months ended December 31, 2000. RESULTS OF OPERATIONS - --------------------- THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 Net sales increased from the prior year primarily due to acquisitions during fiscal 2000. Gross profit as a percentage of sales increased to 25.6% from 24.4%. This increase primarily is due to a change in customer mix and higher discounts and allowances from suppliers. Selling, distribution and administrative expenses as a percent of sales increased to 22.0% from 21.2%. This change primarily relates to an increase in auto lease expense partially offset by lower auto depreciation expense due to a change in emphasis from owning to leasing vehicles. Also contributing to the increase were higher hospitalization, other benefit costs and bad debt expense. Interest expense-net for the quarter increased by 61.1% as compared to the prior year primarily due to an increase in average borrowings and average interest rates. Income tax expense as a percentage of income before taxes was 39.5% for the quarter ended December 31, 2000 and 40.5% for the quarter ended December 31, 1999. This decrease is due to lower effective state and local tax rates. As a result of the above factors, net income increased by 18.1% compared to the same quarter of last year. As a result of the impact of continued stock repurchases, net income per share - diluted increased $.07, or 23.3%. SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999 Net sales increased from the prior year primarily due to acquisitions during fiscal 2000. Gross profit as a percentage of sales increased to 25.2% from 24.3%. This increase primarily is due to a change in customer mix and higher discounts and allowances from suppliers. Selling, distribution and administrative expenses as a percent of sales increased to 21.7% from 21.1%. This change primarily relates to an increase in auto lease expense partially offset by lower auto depreciation expense due to a change in emphasis from owning to leasing vehicles. Also contributing to the increase were higher hospitalization, bad debt expenses and other benefit costs. 10
12 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Interest expense-net for the six months ended December 31, 2000 increased by 24.3% as compared to the prior year primarily due to an increase in average borrowings and average interest rates. Income tax expense as a percentage of income before taxes was 39.7% for the six months ended December 31, 2000 and 40.5% for the six months ended December 31, 1999. This decrease is due to lower effective state and local tax rates. As a result of the above factors, net income increased by 20.7% compared to the same period of last year. As a result of the impact of continued stock repurchases, net income per share - diluted increased $.15, or 25.9%. CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT - ------------------------------------------------------------------- Management's Discussion and Analysis and other sections of this Form 10-Q contain statements that are forward-looking, based on management's current expectations about the future. Forward-looking statements are often identified by qualifiers such as "expect," "believe," "intend," and similar expressions. The Company intends that the forward-looking statements be subject to the safe harbors established in the Private Securities Litigation Reform Act of 1995 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). 11
13 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------------------------------------------ ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------------------- We have evaluated the Company's exposure to various market risk factors, including but not limited to, interest rate, foreign currency exchange and commodity price risks. The Company is primarily affected by market risk exposure through the effect of changes in interest rates. The Company manages interest rate risk through the use of a combination of fixed rate long-term debt and variable rate borrowings under its committed revolving credit agreement. Variable rate borrowings under its committed revolving credit agreement totaled $21.1 million at December 31, 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. The Company protects its foreign currency exposure from the Canadian dollar, through the use cross currency swap agreements as well as of foreign-currency denominated debt. Hedging of the US dollar denominated debt used to fund a substantial portion of Company's net investment in its Canadian operations is accomplished through the use of cross currency swaps. Any gain or loss on the hedging instrument offsets the gain or loss on the underlying debt. The impact on the Company's future earnings from exposure to changes in foreign currency exchange rates is expected to be immaterial. 12
14 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings. ------------------ Applied Industrial Technologies, Inc. and/or one of its subsidiaries is a defendant in various product- and employment-related lawsuits. Based on circumstances presently known, the Company believes that these cases are not material to its business or financial condition. ITEM 4. Submission of Matters to a Vote of Security Holders. ---------------------------------------------------- At the Company's Annual Meeting of Shareholders held on October 17, 2000, the Shareholders (i) elected Thomas A. Commes, J. Michael Moore, and Dr. Jerry Sue Thornton as Directors of Class I for a term expiring in 2003, and (ii) ratified the appointment of Deloitte & Touche LLP as the Company's independent auditors for the fiscal year ending June 30, 2001. Substantially the same information was previously reported in Part II, Item 5 "Other Information" of the Company's Form 10-Q for the quarter ended September 30, 2000. ITEM 5. Other Information. ------------------ On January 12, 2001, Stephen E. Yates, President & Chief Executive Officer of USAA Information Technology Company, was elected to the Company's Board of Directors as a member of Class II. ITEM 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits. -------- Exhibit No. Description ----------- ----------- 3(a) Amended and Restated Articles of Incorporation of Applied Industrial Technologies, Inc. (filed as Exhibit 3(a) to the Company's Form 10-Q for the quarter ended September 30, 1998, SEC File No. 1-2299, and incorporated here by reference). 3(b) Code of Regulations of Applied Industrial Technologies, Inc., as amended on October 19, 1999 (filed as Exhibit 3(b) to the Company's Form 10-Q for the quarter ended 13
15 September 30, 1999, SEC File No. 1-2299, and incorporated here by reference). 4(a) Certificate of Merger of Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) filed with the Ohio Secretary of State on October 18, 1988, including an Agreement and Plan of Reorganization dated September 6, 1988 (filed as Exhibit 4(a) to the Company's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). 4(b) $80,000,000 Maximum Aggregate Principal Amount Note Purchase and Private Shelf Facility dated October 31, 1992 between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(b) to the Company's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). 4(c) Amendment to $80,000,000 Maximum Aggregate Principal Amount Note Purchase and Private Shelf Facility dated October 31, 1992 between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(g) to the Company's Form 10-Q for the quarter ended March 31, 1996, SEC File No. 1-2299, and incorporated here by reference). 4(d) Private Shelf Agreement dated as of November 27, 1996, as amended on January 30, 1998, between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(f) to the Company's Form 10-Q for the quarter ended March 31, 1998, SEC File No. 1-2299, and incorporated here by reference). 4(e) Amendment dated October 24, 2000 to 1996 Private Shelf Agreement between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(e) to the Company's Form 10-Q for the quarter ended September 30, 2000, SEC File No. 1-2299, and incorporated here by reference). 4(f) $150,000,000 Credit Agreement dated as of November 5, 1998 among the Company, KeyBank National Association 14
16 as Agent, and various financial institutions (filed as Exhibit 4(e) to the Company's Form 10-Q for the quarter ended September 30, 1998, SEC File No. 1-2299, and incorporated here by reference). 4(g) Rights Agreement, dated as of February 2, 1998, between the Company and Harris Trust and Savings Bank, as Rights Agent, which includes as Exhibit B thereto the Form of Rights Certificate (filed as Exhibit No. 1 to the Company's Registration Statement on Form 8-A filed July 20, 1998, SEC File No. 1-2299, and incorporated here by reference). 10 Third Amendment to the Applied Industrial Technologies, Inc. Supplement Executive Retirement Benefits Plan (July 1, 1997 Restatement), effective as of October 1, 2000. Certain instruments with respect to long-term debt have not been filed as exhibits as the total amount of securities authorized under any one of such instruments does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish to the Commission a copy of each such instrument upon request. (b) The Company did not file, nor was it required to file, a Report on Form 8-K with the Securities and Exchange Commission during the quarter ended December 31, 2000. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. APPLIED INDUSTRIAL TECHNOLOGIES, INC. (Company) Date: February 13, 2001 By: /s/ John R. Whitten ---------------------------------------- John R. Whitten Vice President-Chief Financial Officer & Treasurer Date: February 13, 2001 By: /s/ Mark O. Eisele ---------------------------------------- Mark O. Eisele Vice President & Controller 15
17 APPLIED INDUSTRIAL TECHNOLOGIES, INC. EXHIBIT INDEX TO FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2000 <TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION PAGE <S> <C> <C> 3(a) Amended and Restated Articles of Incorporation of Applied Industrial Technologies, Inc. (filed as Exhibit 3(a) to the Company's Form 10-Q for the quarter ended September 30, 1998, SEC File No. 1-2299, and incorporated here by reference). 3(b) Code of Regulations of Applied Industrial Technologies, Inc., as amended on October 19, 1999 (filed as Exhibit 3(b) to the Company's Form 10-Q for the quarter ended September 30, 1999, SEC File No. 1-2299, and incorporated here by reference). 4(a) Certificate of Merger of Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) filed with the Ohio Secretary of State on October 18, 1988, including an Agreement and Plan of Reorganization dated September 6, 1988 (filed as Exhibit 4(a) to the Company's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). 4(b) $80,000,000 Maximum Aggregate Principal Amount Note Purchase and Private Shelf Facility dated October 31, 1992 between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(b) to the Company's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). 4(c) Amendment to $80,000,000 Maximum Aggregate Principal Amount Note Purchase and Private Shelf Facility dated October 31, 1992 between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(g) to the Company's Form 10-Q for the quarter ended March 31, 1996, </TABLE>
18 <TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION PAGE <S> <C> <C> SEC File No. 1-2299, and incorporated here by reference). 4(d) Private Shelf Agreement dated as of November 27, 1996, as amended on January 30, 1998, between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(f) to the Company's Form 10-Q for the quarter ended March 31, 1998, SEC File No. 1-2299, and incorporated here by reference). 4(e) Amendment dated October 24, 2000 to 1996 Private Shelf Agreement between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(e) to the Company's Form 10-Q for the quarter ended September 30, 2000, SEC File No. 1-2299, and incorporated here by reference). 4(f) $150,000,000 Credit Agreement dated as of November 5, 1998 among the Company, KeyBank National Association as Agent, and various financial institutions (filed as Exhibit 4(e) to the Company's Form 10-Q for the quarter ended September 30, 1998, SEC File No. 1-2299, and incorporated here by reference). 4(g) Rights Agreement, dated as of February 2, 1998, between the Company and Harris Trust and Savings Bank, as Rights Agent, which includes as Exhibit B thereto the Form of Rights Certificate (filed as Exhibit No. 1 to the Company's Registration Statement on Form 8-A filed July 20, 1998, SEC File No. 1-2299, and incorporated here by reference). 10 Third Amendment to the Applied Industrial Technologies, Inc. Supplement Executive Retirement Benefits Plan (July 1, 1997 Restatement), effective as of October 1, 2000. Attached Certain instruments with respect to long-term debt have not been filed as exhibits as the total amount of securities authorized under any one of such instruments does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish to the Commission a copy of each such instrument upon request. </TABLE>