SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10 - Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 2004 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] Shares of common stock outstanding on April 30, 2004 19,384,970 (No par value)
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES INDEX <TABLE> <CAPTION> Page No. -------- <S> <C> Part I: FINANCIAL INFORMATION Item 1: Financial Statements Condensed Statements of Consolidated Income - 2 Three Months and Nine Months Ended March 31, 2004 and 2003 Condensed Consolidated Balance Sheets - 3 March 31, 2004 and June 30, 2003 Condensed Statements of Consolidated Cash Flows - 4 Nine Months Ended March 31, 2004 and 2003 Notes to Condensed Consolidated Financial Statements 5 - 11 Review By Independent Public Accountants 12 Item 2: Management's Discussion and Analysis of 13 - 18 Financial Condition and Results of Operations Item 3: Quantitative and Qualitative Disclosures About Market Risk 19 Item 4: Controls and Procedures 20 Part II: OTHER INFORMATION Item 1: Legal Proceedings 21 Item 2: Changes in Securities 21 Item 6: Exhibits and Reports on Form 8-K 22 Signatures 24 Exhibit Index Exhibits </TABLE>
PART I: FINANCIAL INFORMATION ITEM I: Financial Statements APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED INCOME (Unaudited) (Thousands, except per share amounts) <TABLE> <CAPTION> Three Months Ended Nine Months Ended March 31 March 31 2004 2003 2004 2003 -------------------------- -------------------------- <S> <C> <C> <C> <C> Net Sales $ 391,053 $ 368,203 $ 1,111,910 $ 1,091,929 Cost of sales 286,630 270,471 818,844 813,104 ----------- ----------- ----------- ----------- Gross Profit 104,423 97,732 293,066 278,825 Selling, distribution and administrative expenses 89,543 87,578 259,940 253,507 ----------- ----------- ----------- ----------- Operating Income 14,880 10,154 33,126 25,318 Interest expense, net 1,397 1,295 4,120 3,898 Other, net (458) 1,966 (400) 2,292 ----------- ----------- ----------- ----------- Income Before Income Taxes 13,941 6,893 29,406 19,128 Income Taxes 3,330 2,510 8,830 6,980 ----------- ----------- ----------- ----------- Net Income $ 10,611 $ 4,383 $ 20,576 $ 12,148 =========== =========== =========== =========== Net Income Per Share - Basic $ 0.55 $ 0.23 $ 1.07 $ 0.64 =========== =========== =========== =========== Net Income Per Share - Diluted $ 0.54 $ 0.23 $ 1.05 $ 0.63 =========== =========== =========== =========== Cash dividends per common share $ 0.12 $ 0.12 $ 0.36 $ 0.36 =========== =========== =========== =========== Weighted average common shares outstanding for basic computation 19,296 18,833 19,176 18,935 Dilutive effect of stock options and awards 360 257 395 287 ----------- ----------- ----------- ----------- Adjusted average common shares outstanding for diluted computation 19,656 19,090 19,571 19,222 =========== =========== =========== =========== </TABLE> See notes to condensed consolidated financial statements. 2
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in thousands) <TABLE> <CAPTION> March 31 June 30 2004 2003 ---------- ----------- <S> <C> <C> ASSETS Current assets Cash and temporary investments $ 33,386 $ 55,079 Accounts receivable, less allowances of $6,600 and $6,100 190,932 173,915 Inventories (at LIFO) 178,209 159,798 Other current assets 15,751 11,702 ---------- ----------- Total current assets 418,278 400,494 Property, less accumulated depreciation of $95,369 and $85,836 78,662 77,942 Goodwill 49,934 49,687 Other assets 26,486 25,281 ---------- ----------- TOTAL ASSETS $ 573,360 $ 553,404 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 80,714 $ 75,411 Other accrued liabilities 62,579 65,724 ---------- ----------- Total current liabilities 143,293 141,135 Long-term debt 77,965 78,558 Other liabilities 26,464 25,855 ---------- ----------- TOTAL LIABILITIES 247,722 245,548 ---------- ----------- 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 87,884 84,898 Income retained for use in the business 303,355 289,724 Treasury shares - at cost, 4,761 and 5,076 shares (75,554) (78,706) Unearned restricted common stock compensation (1,249) (114) Accumulated other comprehensive income 1,202 2,054 ---------- ----------- TOTAL SHAREHOLDERS' EQUITY 325,638 307,856 ---------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 573,360 $ 553,404 ========== =========== </TABLE> See notes to condensed consolidated financial statements. 3
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited) (Amounts in thousands) <TABLE> <CAPTION> Nine Months Ended March 31 2004 2003 -------- -------- <S> <C> <C> Cash Flows from Operating Activities Net income $ 20,576 $ 12,148 Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation and amortization 12,882 11,925 Gain on sale of property (102) (2,702) Treasury shares contributed to employee benefit and deferred compensation plans 4,702 2,514 Changes in operating assets and liabilities, net of effects from acquisition of businesses (35,077) 7,546 Other - net (593) (554) -------- -------- Net Cash provided by Operating Activities 2,388 30,877 -------- -------- Cash Flows from Investing Activities Property purchases (11,916) (9,348) Proceeds from property sales 1,004 5,947 Net cash paid for acquisition of businesses, net of cash (1,285) (10,255) Deposits and other (966) 1,579 -------- -------- Net Cash used in Investing Activities (13,163) (12,077) -------- -------- Cash Flows from Financing Activities Borrowings (repayments) of notes payable - net (2,850) Long-term debt repayments (5,714) Proceeds from termination of interest rate swap 2,517 Dividends paid (6,945) (6,877) Purchases of treasury shares (6,258) (9,872) Exercise of stock options 5,135 2,011 -------- -------- Net Cash used in Financing Activities (10,918) (17,935) -------- -------- Increase (decrease) in cash and temporary investments (21,693) 865 Cash and temporary investments at beginning of period 55,079 23,060 -------- -------- Cash and Temporary Investments at End of Period $ 33,386 $ 23,925 ======== ======== </TABLE> See notes to condensed consolidated financial statements. 4
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts)(Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary to a fair statement of operations of the interim periods have been made. This Quarterly Report on Form 10-Q should be read in conjunction with the Applied Industrial Technologies, Inc. (the Company) Annual Report on Form 10-K for the year ended June 30, 2003. The results of operations for the three and nine month periods ended March 31, 2004 are not necessarily indicative of the results to be expected for the fiscal year. Cost of sales for interim financial statements are computed using estimated gross profit percentages, which are adjusted throughout the year based upon available information. Adjustments to actual cost are made based on periodic physical inventories and the effect of year-end inventory quantities on LIFO costs. The Company recognizes shipping and handling fees billed when products are shipped or delivered to a customer and includes such amounts in net sales. Third party freight payments are recorded in cost of sales in the accompanying condensed consolidated statements of income. 2. STOCK OPTIONS Effective July 1, 2003, the Company adopted the fair value recognition provisions of SFAS 123, "Accounting for Stock-Based Compensation" as amended by SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," using the modified prospective method for the transition. Under the modified prospective method, stock-based compensation cost recognized during this fiscal year is the same as that which would have been recognized had the fair value recognition provisions been applied to all awards granted after July 1, 1995. Results for prior years have not been restated. The compensation expense recorded during the quarter and nine months ended March 31, 2004 was $629, $449 net of tax, or $0.02 per share and $1,315, $874 net of tax, or $0.04 per share, respectively. The following table discloses the compensation expense and net income as if the fair value based method had been applied in each period: 5
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts) (Unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended March 31 March 31 ----------------------- ------------------------ 2004 2003 2004 2003 ---------- --------- ---------- ---------- <S> <C> <C> <C> <C> Net income, as reported $ 10,611 $ 4,383 $ 20,576 $ 12,148 Plus: Stock-based employee compensation expense included in reported net income, net of related tax effects 449 874 Less: Total stock-based employee compensation expense determined under fair value based method, net of tax (449) (335) (874) (978) ========== ========= ========== ========== Pro forma net income $ 10,611 $ 4,048 $ 20,576 $ 11,170 ========== ========= ========== ========== Earnings per share: Basic - as reported $ 0.55 $ 0.23 $ 1.07 $ 0.64 ========== ========= ========== ========== Basic - pro forma $ 0.55 $ 0.21 $ 1.07 $ 0.59 ========== ========= ========== ========== Diluted - as reported $ 0.54 $ 0.23 $ 1.05 $ 0.63 ========== ========= ========== ========== Diluted - pro forma $ 0.54 $ 0.21 $ 1.05 $ 0.58 ========== ========= ========== ========== </TABLE> Compensation expense has been determined using the Black-Scholes option-pricing model. The assumptions used for grants issued during the nine months ended March 31, 2004 and 2003 are: <TABLE> <CAPTION> NINE MONTHS ENDED MARCH 31 ----------------------- 2004 2003 --------- --------- <S> <C> <C> Expected life 7.3 years 7.0 years Risk free interest rate 3.8% 3.9% Dividend yield 3.0% 3.0% Volatility 31.7% 30.9% </TABLE> 3. SEGMENT INFORMATION The accounting policies of the Company's reportable segment and its other businesses 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. Sales between the service center based distribution segment and the other businesses are not significant. The Company has operations in the United States, Canada, Mexico and Puerto Rico. Operations in Canada, Mexico and 6
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts) (Unaudited) Puerto Rico represent approximately 9.0% of the total net sales of Applied for the nine months ended March 31, 2004 and therefore are not presented separately. Approximately 30.0% of the net sales in Canada, Mexico and Puerto Rico relate to our fluid power business and are included as part of the "Other" column in the segment disclosures that follow. 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 MARCH 31, 2004 Net sales $ 368,130 $22,923 $391,053 Operating income 16,497 832 17,329 Depreciation 3,356 170 3,526 Capital expenditures 1,439 160 1,599 ------------------------------------- THREE MONTHS ENDED MARCH 31, 2003 Net sales $ 348,141 $20,062 $368,203 Operating income 10,528 (699) 9,829 Depreciation 3,442 151 3,593 Capital expenditures 4,202 97 4,299 ------------------------------------- </TABLE> A reconciliation from the segment operating profit to the condensed consolidated balances is as follows: <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31 ------------------- 2004 2003 ------- ------- <S> <C> <C> Operating income for reportable segment $16,497 $10,528 Other operating income 832 (699) Adjustments for: Other intangible amortization (170) (184) Corporate and other income (expense), net of allocations (a) (2,279) 509 ------- ------- Total operating income 14,880 10,154 Interest expense, net 1,397 1,295 Other expense, net (458) 1,966 ------- ------- Income before income taxes $13,941 $ 6,893 ======= ======= </TABLE> 7
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts) (Unaudited) SEGMENT FINANCIAL INFORMATION: <TABLE> <CAPTION> SERVICE CENTER BASED DISTRIBUTION OTHER TOTAL --------------------------------------- <S> <C> <C> <C> NINE MONTHS ENDED MARCH 31, 2004 Net sales $ 1,041,666 $70,244 $1,111,910 Operating income 37,144 2,843 39,987 Assets used in the business 553,928 19,432 573,360 Depreciation 10,364 507 10,871 Capital expenditures 11,693 223 11,916 -------------- ------- ---------- NINE MONTHS ENDED MARCH 31, 2003 Net sales $ 1,027,075 $64,854 $1,091,929 Operating income 28,414 (626) 27,788 Assets used in the business 512,827 23,301 536,128 Depreciation 10,234 517 10,751 Capital expenditures 8,922 426 9,348 -------------- ------- ---------- </TABLE> A reconciliation from the segment operating profit to the condensed consolidated balances is as follows: <TABLE> <CAPTION> NINE MONTHS ENDED MARCH 31 ------------------- 2004 2003 ------------------- <S> <C> <C> Operating income for reportable segment $37,144 $28,414 Other operating income 2,843 (626) Adjustments for: Other intangible amortization (547) (601) Corporate and other income (expense), net of allocations (a) (6,314) (1,869) ------- ------- Total operating income 33,126 25,318 Interest expense, net 4,120 3,898 Other expense, net (400) 2,292 ------- ------- Income before income taxes $29,406 $19,128 ------- ------- </TABLE> (a) The change in corporate and other income (expense), net, is due to various changes in the levels and amounts of expense being allocated to the segments. The expenses being allocated include corporate charges for working capital, logistics support and other items. 8
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts) (Unaudited) 4. COMPREHENSIVE INCOME The components of comprehensive income are as follows: <TABLE> <CAPTION> Three Months Ended Nine Months Ended March 31 March 31 ---------------------- ---------------------- 2004 2003 2004 2003 -------- -------- -------- -------- <S> <C> <C> <C> <C> Net income $ 10,611 $ 4,383 $ 20,576 $ 12,148 Other comprehensive income (loss): Unrealized loss on cross currency swap (582) (728) (230) (200) Foreign currency translation (109) 1,392 (622) 1,473 adjustment -------- -------- -------- -------- Total comprehensive income $ 9,920 $ 5,047 $ 19,724 $ 13,421 ======== ======== ======== ======== </TABLE> 5. GUARANTEES The Company had a construction and lease facility under which a distribution center and three service centers were constructed by the lessor and leased to the Company under operating lease arrangements. At the end of the lease term in September 2003, the Company purchased the properties for $7,500. The residual value guarantee provisions of this lease arrangement expired with the purchase of the properties. In December 2003, the Company paid the $2,990 outstanding balance of bank debt for iSource Performance Materials, L.L.C. (iSource) and assumed the bank's rights under the loan agreement. Prior to assuming the loan, the Company had guaranteed the bank debt of iSource. 6. CONSOLIDATION OF VARIABLE INTEREST ENTITIES In January 2003, the Financial Accounting Standards Board issued FIN 46, "Consolidation of Variable Interest Entities" which the Company adopted as of July 1, 2003. The Company is a minority owner in iSource. iSource has assets of $2,800 and accounts payable of $2,200 at March 31, 2004. In December 2003, the Company paid the outstanding amount of $2,990 of bank debt and assumed the bank's rights under the loan agreement. The Company's purchases currently account for more than 90% of iSource's sales and the Company is considered the primary beneficiary of iSource's operations. In accordance with FIN 46, iSource's financial statements were consolidated with the Company's beginning in July 2003. The effect of the consolidation was not material to the Company's consolidated financial statements. 9
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts) (Unaudited) 7. BUSINESS COMBINATION In November 2003, the Company acquired the stock of a Mexican distributor of industrial products for approximately $2,800. The results of the acquired operations are included in our service center based distribution segment from the acquisition date. Results of operations for this acquisition are not material for all periods presented. Other intangibles of $880, consisting of customer relationships and non-competition agreements, were recognized in connection with this combination and will be amortized over a period of seven to ten years. The preliminary fair values of the acquired assets and liabilities assumed at the date of acquisition are as follows: <TABLE> <S> <C> Cash $ 815 Accounts receivable 2,313 Inventory 1,815 Other current assets 90 Property 238 Other assets 7 Goodwill 138 Other intangibles 880 ------ Total assets acquired 6,296 Liabilities assumed 3,496 ------ Net assets acquired $2,800 ====== </TABLE> 8. DEBT During the quarter ended March 31, 2004, the Company entered into an agreement with Prudential Insurance Company, expiring in February 2007, for an uncommitted shelf facility that enables the Company to borrow up to $100,000 in additional long-term financing at the Company's sole discretion with terms of up to twelve years. At March 31, 2004, there was no borrowing under this agreement. In November 2003, the Company replaced its existing revolving credit facility with a five year revolving credit facility with a group of banks. This agreement provides for unsecured borrowings of up to $100,000 at various interest rate options, none of which is in excess of the banks' prime rate at interest determination dates. The Company had no borrowings outstanding under this facility at March 31, 2004. Fees on this facility range from .15% to .30% per year on the average amount of the total revolving credit commitments during the year. Unused lines under this facility, net of outstanding letters of credit, totaled $92,114 and is available to fund future acquisitions or other capital and operating requirements. 10
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts) (Unaudited) 9. BENEFIT PLANS During December 2003, the FASB issued a revision to Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106," which expands the disclosure requirements regarding plan assets, benefit costs and benefit obligations for the Company's benefit and pension plans. Certain provisions of this statement are effective for the quarter ended March 31, 2004, while the remaining provisions relating to the annual financial statement disclosures are effective for the fiscal year ending June 30, 2004. The following table provides summary disclosures of the net periodic benefit costs recognized for the Company's Supplemental Executive Retirement Benefits Plan, qualified retirement plan, salary continuation benefits and retiree medical benefits: <TABLE> <CAPTION> Pension Benefits Other Benefits -------------------- ------------------- 2004 2003 2004 2003 ------- ------- ------- ------- <S> <C> <C> <C> <C> THREE MONTHS ENDED MARCH 31 COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 263 $ 178 $ 14 $ 16 Interest cost 314 281 76 72 Expected return on plan assets (79) (64) Recognized net actuarial (gain) loss 55 18 5 (2) Amortization of prior service cost 148 119 12 12 ------- ------- ------- ------- Net periodic pension cost $ 701 $ 532 $ 107 $ 98 ======= ======= ======= ======= NINE MONTHS ENDED MARCH 31 COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 788 $ 534 $ 43 $ 47 Interest cost 943 843 228 215 Expected return on plan assets (236) (193) Recognized net actuarial (gain) loss 165 55 14 (4) Amortization of prior service cost 442 356 37 37 ------- ------- ------- ------- Net periodic pension cost $ 2,102 $ 1,595 $ 322 $ 295 ======= ======= ======= ======= </TABLE> During the nine months ended March 31, 2004, the Company contributed $2,025 to its pension benefit plans. The Company expects to contribute an additional $126 by June 30, 2004. 11
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES The accompanying condensed consolidated financial statements of the Company have been reviewed by the Company's independent accountants, Deloitte & Touche LLP, whose report covering their review of the financial statements follows. INDEPENDENT ACCOUNTANTS' REPORT Applied Industrial Technologies, Inc. We have reviewed the accompanying condensed consolidated balance sheet of Applied Industrial Technologies, Inc. and subsidiaries (the "Company") as of March 31, 2004, and the related condensed statements of consolidated income for the three-month and nine-month periods ended March 31, 2004 and 2003, and of consolidated cash flows for the nine-month periods ended March 31, 2004 and 2003. These interim financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Applied Industrial Technologies, Inc. and subsidiaries as of June 30, 2003, and the related statements of consolidated income, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated August 8, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 30, 2003 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. As discussed in Note 2 to the condensed consolidated interim financial statements, effective July 1, 2003, the Company changed its method of accounting for stock-based compensation and adopted the fair value recognition provisions of SFAS 123 "Accounting for Stock-Based Compensation," as amended by SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." /s/Deloitte & Touche LLP Cleveland, Ohio May 12, 2004 12
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is Management's Discussion and Analysis of certain significant factors which have affected the Company's (1) financial condition at March 31, 2004 and June 30, 2003, and (2) results of operations and cash flows during the periods included in the accompanying Condensed Statements of Consolidated Income and Consolidated Cash Flows. Overview During the quarter, net income increased 142.1% compared to the same quarter in the prior year. Sales increased 6.2%. Significant factors in the increase were the improving U.S. economy and the continued strength of the Canadian currency and Canadian operations. Gross margin improved as our initiatives in the areas of product pricing, freight recovery, cost controls and asset management continue to show progress. During the quarter ended March 31, 2004, the Company recorded unusual tax benefits primarily from a settlement with the Internal Revenue Service related to audits of our 1997 and 1998 tax returns and the acceptance by the IRS of tax refund claims for 1999, 2000 and 2001. These items added approximately $1.6 million, or $0.08 per share to net income. We expect the effective tax rate to be approximately 35.5% for the fourth quarter. Inventories decreased $13.0 million from the December 31 balances as the calendar year-end buys were sold off through the normal course of business. We expect an additional inventory decrease of approximately $15.0 million by June 30, 2004. The Company monitors the ISM Purchasing Managers Index (ISM) and the government's Manufacturers Capacity Utilization (MCU) index and considers these indexes key indicators of potential Company business environment changes. The ISM began to show improvement in the quarter ended December 31, 2003, while improvement in the MCU began late in the quarter ended September 30, 2003. The indicators continue to show signs of economic recovery. The Company's performance traditionally lags these key indicators by approximately 6 months. Given the recent improvement in sales and the improvement in these indicators, we expect the fourth quarter of fiscal 2004 sales to improve over the same period in fiscal 2003. The Company expects to sustain our improvements in profitability. We anticipate fiscal fourth quarter sales to increase 3.4% to 7.4% and gross profit levels to be in the range of 26.2% to 26.7%. We anticipate that a decline in supplier rebates during the remainder of the year will continue to be offset by improvements in freight recovery, pricing and asset management. We expect selling, distribution and administrative expenses for the fourth quarter to be relatively flat compared to the prior year. Liquidity and Capital Resources Cash provided by operating activities was $2.4 million in the nine months ended March 31, 2004. This compares to $30.9 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. In 13
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS the area of inventory, the Company has negotiated with key suppliers to effect mutually beneficial cost advantages by buying product through special purchasing programs. In addition, the Company has made system enhancements in recent quarters to improve inventory tracking and receivables collection efforts. During the nine month period ended March 31, 2004, inventories increased approximately $18.4 million primarily due to purchases made under special calendar year-end programs offered by certain suppliers. Inventories decreased $13.0 million from December 31, 2003 balances, as a portion of the calendar year-end buys worked through our system. The inventory increase also includes $2.3 million from the consolidation of iSource resulting from the adoption of FIN 46 and $1.8 million from the acquisition of a Mexican distributor (see notes to the condensed consolidated financial statements). Accounts receivable increased $17.0 million during the nine months ended March 31, 2004 due to the increase in sales and the acquisition of a Mexican distributor (see notes to the condensed consolidated financial statements). Capital expenditures were $11.9 million for the nine months ended March 31, 2004 compared to $9.3 million in the prior year. In September 2003, the Company purchased, for $7.5 million, four operating facilities which had previously been leased (see notes to the condensed consolidated financial statements). For the entire year we expect our total capital expenditures to be approximately $15.0 million. Our depreciation and amortization for the entire year is expected to be within the range of $17.0 million to $17.5 million. In November 2003, the Company replaced its existing revolving credit facility with a $100.0 million revolving credit facility with a group of banks expiring in November 2008. The Company had no borrowings outstanding under this facility at March 31, 2004. Unused lines under this facility, net of outstanding letters of credit, totaled $92.1 million, and is available to fund future acquisitions or other capital and operating requirements. During the quarter ended March 31, 2004, the Company entered into an agreement with Prudential Insurance Company expiring in February 2007, for an uncommitted shelf facility that enables the Company to borrow up to $100.0 million in additional long-term financing at the Company's sole discretion with terms up to twelve years. At March 31, 2004, there was no borrowing under this agreement. The aggregate annual maturities of long-term debt includes $50.0 million due in fiscal 2008 and $25.0 million due in fiscal 2011. 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 business acquisitions. These purchases are made in open market and negotiated transactions, from time to time, depending upon market conditions. The Company acquired 287,000 shares of its common stock for $6.3 million during the nine months ended March 31, 2004 compared to 577,000 shares for $9.9 million during the nine months ended March 31, 2003. At March 31, 2004, the Company had remaining authorization to repurchase up to 841,000 additional shares. 14
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Other Matters In November 2003, the Company acquired the stock of a Mexican distributor of industrial products for approximately $2.8 million. The acquisition was paid for from our cash balances. The acquired operations are reported in our service center based distribution segment from the acquisition date (see notes to the condensed consolidated financial statements). In January 2003, the Financial Accounting Standards Board issued FIN 46, "Consolidation of Variable Interest Entities." The Company is a minority owner in iSource Performance Materials L.L.C. (iSource). iSource has assets of $2.8 million and accounts payable of $2.2 million at March 31, 2004. In December 2003, the Company paid the outstanding amount of $3.0 million of bank debt and assumed the bank's rights under the loan agreement. The Company's purchases currently account for more than 90% of iSource's sales and the Company is considered the primary beneficiary of iSource's operations. In accordance with FIN 46, iSource's financial statements were consolidated with the Company's beginning in July 2003 (see notes to the condensed consolidated financial statements). Effective July 1, 2003, the Company adopted the fair value recognition provisions of SFAS 123, "Accounting for Stock-Based Compensation," using the modified prospective method for the transition. Under the modified prospective method, stock-based compensation cost recognized during this fiscal year for stock options is the same as that which would have been recognized had the fair value recognition provisions been applied to all stock option awards granted after July 1, 1995. The compensation expense recorded during the quarter and nine months ended March 31, 2004 related to stock options was $.6 million or $.02 per share after tax and $1.3 million or $.04 per share after tax, respectively. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2004 AND 2003 Net sales increased 6.2% compared to the prior year primarily due to the improvement of the performance of our U.S. service centers and fluid power subsidiaries, along with the continued strength of the Canadian currency and our Canadian operations. U.S. service centers and the U.S. fluid power subsidiaries both experienced increases of 2.6% in same store sales per day as compared to the same quarter last year. We expect this positive trend to continue through our fiscal fourth quarter. Gross profit as a percentage of sales increased to 26.7% from 26.5%. This increase is primarily due to higher recovery of our shipping expenses, lower freight costs and improvements from product pricing initiatives. In addition, we recorded cost adjustments during the quarter related to inventory cycle counting programs and interim inventory reconciliations. In the prior year, adjustments were primarily reflected in the fourth quarter annual physical inventory results. 15
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS These positive developments were offset somewhat by lower purchase rebates from our product suppliers. Selling, distribution and administrative expenses increased 2.2% compared to the prior year, however, as a percentage of sales, they decreased to 22.9% compared to 23.8% in the prior year. The increase in expense was primarily due to the acquisition of a Mexican distributor and the increase in employee benefit expenses, including the expensing of stock options which began during the quarter ended September 30, 2003. Interest expense-net for the quarter increased $.1 million or 7.9% as compared to the prior year. Average outstanding borrowings and rates paid on borrowings were comparable for the quarters ended March 31, 2004 and 2003. The net increase in interest expense was due to the impact of Canadian currency translation. Other expenses decreased $2.4 million compared to the prior year. During the quarter ended March 31, 2003, the Company recorded a liability of $1.7 million to provide for potential losses on investments and advances for iSource. In accordance with FIN 46, iSource's financial statements were consolidated with the Company's beginning in July 2003. The effect of the consolidation was not material to the Company's consolidated financial statements. Income tax expense as a percentage of income before taxes was 23.9% for the quarter ended March 31, 2004 compared to 36.4% for the quarter ended March 31, 2003. During the quarter ended March 31, 2004, the Company recorded unusual tax benefits primarily from a settlement with the Internal Revenue Service related to audits of our 1997 and 1998 tax returns and the acceptance by the IRS of tax refund claims for 1999, 2000 and 2001. These items added approximately $1.6 million or $0.08 per share to net income. We expect the effective tax rate to be approximately 35.5% in the fourth quarter. As a result of the above factors, net income increased by 142.1% compared to the same quarter of last year and net income per share increased 134.8%. NINE MONTHS ENDED MARCH 31, 2004 AND 2003 Net sales increased 1.8% compared to the prior year primarily due to the continued strength of the Canadian currency and our Canadian operations. U.S. service centers and fluid power sales remained flat compared to the same period last year. Same store sales per day for our U.S. service centers decreased 1.3% compared to those in the same period last year. Gross profit as a percentage of sales increased to 26.4% from 25.5%. This increase is primarily due to higher recovery of our shipping expenses, lower freight costs and improvements from product pricing initiatives. In addition, we have recorded, throughout the year, cost adjustments related to inventory cycle counting programs and interim inventory reconciliations. In the prior year, these adjustments were primarily reflected in the fourth quarter annual physical inventory 16
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS results. These positive developments were offset somewhat by lower purchase rebates from our product suppliers. Selling, distribution and administrative expenses increased 2.5% compared to the prior year. The difference primarily relates to a relatively high level of gains on the sales of unneeded real estate and other property in the prior year. Employee benefit expenses increased versus last year and the Company also began to expense stock options during the quarter ended September 30, 2003. Also contributing to the increase was the consolidation of iSource and the acquisition of a Mexican distributor. Interest expense-net for the period ended March 31, 2004 increased by $.2 million or 5.7% as compared to the prior year due to the impact of Canadian currency translation. Other expenses decreased $2.7 million compared to the prior year. During the quarter ended March 31, 2003, the Company recorded a liability of $1.7 million to provide for potential losses on investments and advances for iSource. In accordance with FIN 46, iSource's financial statements were consolidated with the Company's beginning in July 2003. The effect of the consolidation was not material to the Company's consolidated financial statements. Income tax expense as a percentage of income before taxes was 30.0% for the period ended March 31, 2004 compared to 36.5% for the period ended March 31, 2003. During the quarter ended March 31, 2004, the Company recorded unusual tax benefits primarily from a settlement with the Internal Revenue Service related to audits of our 1997 and 1998 tax returns and the acceptance by the IRS of tax refund claims for 1999, 2000 and 2001. These items added approximately $1.6 million or $0.08 per share to net income. We expect the effective tax rate to be approximately 35.5% for the fourth quarter. As a result of the above factors, net income increased by 69.4% compared to the same period of last year and net income per share increased 66.7%. 17
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT Management's Discussion and Analysis and other sections of this Form 10-Q contain statements that are forward-looking, based on management's current expectations about the future. Forward-looking statements are often identified by qualifiers such as "expect", "believe", "anticipate", "should", "project", "forecast", "will", and similar expressions. The Company intends that the forward-looking statements be subject to the safe harbors established in the Private Securities Litigation Reform Act of 1995 and by the Securities and Exchange Commission in its rules, regulations and releases. Readers are cautioned not to place undue reliance on any forward-looking statements. All forward-looking statements are based on current expectations regarding important risk factors, many of which are outside the Company's control. Accordingly, actual results may differ materially from those expressed in the forward-looking statements, and the making of such statements should not be regarded as a representation by the Company or any other person that the results expressed in the statements will be achieved. In addition, the Company undertakes no obligation publicly to update or revise any forward-looking statements, whether because of new information or events, or otherwise. Important risk factors include, but are not limited to, the following: changes in the economy or in specific customer industries; changes in manufacturing capacity in the Company's targeted geographic markets; changes in interest rates; changes in customer procurement policies and practices; changes in product manufacturer sales policies and practices; the availability of product and labor; changes in operating expenses; the effect of price increases or decreases in both procuring and selling products and services; the variability and timing of business opportunities including acquisitions, alliances, customer agreements and supplier authorizations; the Company's ability to realize the anticipated benefits of acquisitions and marketing and other business strategies; the incurrence of additional debt and contingent liabilities in connection with acquisitions; changes in accounting policies and practices; the effect of organizational changes within the Company; the emergence of new competitors, including firms with greater financial resources than the Company; risks and uncertainties associated with the Company's expansion into foreign markets, including inflation rates, recessions, and foreign currency exchange rates; adverse results in significant litigation matters; adverse regulation and legislation; and the occurrence of extraordinary events (including prolonged labor disputes, war, natural events and acts of God, fires, floods and accidents). 18
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has evaluated its exposure to various market risk factors, including but not limited to, interest rate, foreign currency exchange and commodity price risks. The Company is primarily affected by market risk exposure through the effect of changes in interest rates. The Company manages interest rate risk through the use of a combination of fixed rate long-term debt and variable rate borrowings under its committed revolving credit agreement and interest rate swaps. The Company had no variable rate borrowings outstanding under its committed revolving credit agreement at March 31, 2004. The Company has no interest rate swap agreements outstanding. All of the Company's outstanding long-term debt is currently at fixed interest rates at March 31, 2004 and scheduled for repayment in December 2007 and beyond. The Company mitigates its foreign currency exposure from the Canadian dollar through the use of cross currency swap agreements as well as of foreign-currency denominated debt. Hedging of the U.S. dollar denominated debt, used to fund a substantial portion of Company's net investment in its Canadian operations, is accomplished through the use of cross currency swaps. Any gain or loss on the hedging instrument offsets the gain or loss on the underlying debt. Translation exposures with regard to our Mexican business are not hedged because the Mexican activity is not material. For the nine months ended March 31, 2004, a uniform 10% strengthening of the U.S. dollar relative to foreign currencies that affect the Company would have resulted in a $.1 million decrease in net income. A uniform 10% weakening of the U.S. dollar would have resulted in a $.1 million increase in net income. 19
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDARIES ITEM 4: CONTROLS AND PROCEDURES Management, under the supervision and with the participation of the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), has evaluated the Company's disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the CEO and the CFO have concluded that the disclosure controls and procedures are effective in timely alerting them to material information about the Company required to be included in the Company's Exchange Act reports. Management has not identified any change in internal control over financial reporting occurring during the quarter ended March 31, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 20
PART II. OTHER INFORMATION ITEM 1. Legal Proceedings. Applied Industrial Technologies, Inc. and/or one of its subsidiaries is a party to various pending judicial and administrative proceedings. Based on circumstances currently known, the Company does not believe that any liabilities that may result from these proceedings are reasonably likely to have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows. ITEM 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities. Repurchases in the quarter ended March 31, 2004 were as follows: <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------- (c) Total Number (d) Maximum of Shares Number of Shares Purchased as Part that May Yet Be (a) Total (b) Average of Publicly Purchased Under Number of Price Paid per Announced Plans the Plans or Period Shares Share or Programs Programs - --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> January 1, 2004 to January 31, 2004 -0- -0- 1,000,000 February 1, 2004 to 24,200 $20.78 24,200 975,800 February 29, 2004 March 1, 2004 to March 134,425 $21.24 134,425 841,375 31, 2004 Total 158,625 $21.17 158,625 841,375 </TABLE> (1) On July 16, 2003, the Board of Directors authorized the purchase of up to one million shares of the Company's common stock. The Company announced the authorization on July 16, 2003. These purchases may be made in the open market or in privately negotiated transactions. This authorization is in effect until all shares are purchased or the authorization is revoked or amended by the Board of Directors. (2) During the quarter the Company also purchased 32,512 shares in connection with the exercise of stock options and other employee benefit programs. These purchases are not counted within the aforementioned Board authorization. 21
ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits. <TABLE> <CAPTION> Exhibit No. Description - ---------- ----------- <S> <C> 3(a) Amended and Restated Articles of Incorporation of Applied Industrial Technologies, Inc., as amended on October 8, 1998 (filed as Exhibit 3(a) to the Company's Form 10-Q for the quarter ended September 30, 1998, SEC File No. 1-2299, and incorporated here by reference). 3(b) Code of Regulations of Applied Industrial Technologies, Inc., as amended on October 19, 1999 (filed as Exhibit 3(b) to the Company's Form 10-Q for the quarter ended September 30, 1999, SEC File No. 1-2299, and incorporated here by reference). 4(a) Certificate of Merger of Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) filed with the Ohio Secretary of State on October 18, 1988, including an Agreement and Plan of Reorganization dated September 6, 1988 (filed as Exhibit 4(a) to the Company's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). 4(b) Private Shelf Agreement dated as of November 27, 1996, as amended on January 30, 1998, between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(f) to the Company's Form 10-Q for the quarter ended March 31, 1998, SEC File No. 1-2299, and incorporated here by reference). 4(c) Amendment dated October 24, 2000 to 1996 Private Shelf Agreement between the Company and The Prudential Insurance Company of America (filed as Exhibit 4(e) to the Company's Form 10-Q for the quarter ended September 30, 2000, SEC File No. 1-2299, and incorporated here by reference). 4(d) Amendment dated November 14, 2003 to 1996 Private Shelf Agreement between the Company and The Prudential </TABLE> 22
<TABLE> <S> <C> Insurance Company of America (filed as Exhibit 4(d) to the Company's Form 10-Q for the quarter ended December 31, 2003, SEC File No. 1-2299, and incorporated here by reference). 4(e) Amendment dated February 25, 2004 to 1996 Private Shelf Agreement between the Company and The Prudential Insurance Company of America. 4(f) $100,000,000 Credit Agreement dated as of October 31, 2003 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 December 31, 2003, SEC File No. 1-2299, and incorporated here by reference). 4(g) Rights Agreement, dated as of February 2, 1998, between the Company and Computershare Investor Services LLP (successor to Harris Trust and Savings Bank), as Rights Agent, which includes as Exhibit B thereto the Form of Rights Certificate (filed as Exhibit No. 1 to the Company's Registration Statement on Form 8-A filed July 20, 1998, SEC File No. 1-2299, and incorporated here by reference). 15 Letter from independent accountants regarding unaudited interim financial information. 31 Rule 13a-14(a)/15d-14(a) certifications. 32 Section 1350 certifications. </TABLE> 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. Certain instruments with respect to long-term debt have not been filed as exhibits because the total amount of securities authorized under any one of the instruments does not exceed 10 percent of the total assets of Applied and its subsidiaries on a consolidated basis. Applied agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each such instrument. 23
(b) Reports on Form 8-K. The Company filed the following Reports on Form 8-K with the Securities and Exchange Commission during the quarter ended March 31, 2004: 1. Filing on January 13, 2004 - the Company attached its press release of January 13, 2004, regarding second quarter earnings. 2. Filing on March 11,2004 - the Company attached its press release of March 11,2004, regarding earnings guidance for third quarter. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. APPLIED INDUSTRIAL TECHNOLOGIES, INC. (Company) Date: May 13, 2004 By: /s/ David L. Pugh ---------------------------------------- David L. Pugh Chairman & Chief Executive Officer Date: May 13, 2004 By: /s/ Mark O. Eisele ----------------------------------------- Mark O. Eisele Vice President-Chief Financial Officer & Treasurer 24
APPLIED INDUSTRIAL TECHNOLOGIES, INC. EXHIBIT INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2004 <TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION - ---------- ----------- <S> <C> 3(a) Amended and Restated Articles of Incorporation of Applied Industrial Technologies, Inc., as amended on October 8, 1998 (filed as Exhibit 3(a) to the Company's Form 10-Q for the quarter ended September 30, 1998, SEC File No. 1-2299, and incorporated here by reference). 3(b) Code of Regulations of Applied Industrial Technologies, Inc., as amended on October 19, 1999 (filed as Exhibit 3(b) to the Company's Form 10-Q for the quarter ended September 30, 1999, SEC File No. 1-2299, and incorporated here by reference). 4(a) Certificate of Merger of Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) filed with the Ohio Secretary of State on October 18, 1988, including an Agreement and Plan of Reorganization dated September 6, 1988 (filed as Exhibit 4(a) to the Company's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). 4(b) Private Shelf Agreement dated as of November 27, 1996, as amended on January 30, 1998, between the Company and Prudential Investment Management, Inc. (assignee of The Prudential Insurance Company of America) (filed as Exhibit 4(f) to the Company's Form 10-Q for the quarter ended March 31, 1998, SEC File No. 1-2299, and incorporated here by reference). 4(c) Amendment dated October 24, 2000 to November 27, 1996 Private Shelf Agreement between the Company and Prudential Investment Management, Inc. (assignee of The Prudential Insurance Company of America) (filed as Exhibit 4(e) to the Company's Form 10-Q for the quarter ended September 30, </TABLE>
<TABLE> <S> <C> 2000, SEC File No. 1-2299, and incorporated here by reference). 4(d) Amendment dated November 14, 2003 to 1996 Private Shelf Agreement between the Company and Prudential Investment Management, Inc. (assignee of The Prudential Insurance Company of America) (filed as Exhibit 4(d) to the Company's Form 10-Q for the quarter ended December 31, 2003, SEC File No. 1-2299, and incorporated here by reference). 4(e) Amendment dated February 25, 2004 to 1996 Attached Private Shelf Agreement between the Company and Prudential Investment Management, Inc. 4(f) $100,000,000 Credit Agreement dated as of October 31, 2003 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 December 31, 2003, SEC File No. 1-2299, and incorporated here by reference). 4(g) Rights Agreement, dated as of February 2, 1998, between the Company and Computershare Investor Services LLP (successor to Harris Trust and Savings Bank), as Rights Agent, which includes as Exhibit B thereto the Form of Rights Certificate (filed as Exhibit No. 1 to the Company's Registration Statement on Form 8-A filed July 20, 1998, SEC File No. 1-2299, and incorporated here by reference). 15 Letter from independent accountants regarding Attached unaudited interim financial information. 31 Rule 13a-14(a)/15d-14(a) certifications. Attached 32 Section 1350 certifications. Attached </TABLE>