UNITED STATES 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, 2006 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) <TABLE> <S> <C> Ohio 34-0117420 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) </TABLE> <TABLE> <S> <C> One Applied Plaza, Cleveland, Ohio 44115 (Address of principal executive offices) (Zip Code) </TABLE> 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Check One: Accelerated filer ----- Large accelerated filer X Non-accelerated filer ----- ----- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X ----- ----- Shares of common stock outstanding on April 13, 2006 29,803,467 (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, 2006 and 2005 Condensed Consolidated Balance Sheets - 3 March 31, 2006 and June 30, 2005 Condensed Statements of Consolidated Cash Flows - 4 Nine Months Ended March 31, 2006 and 2005 Notes to Condensed Consolidated Financial Statements 5 - 10 Report of Independent Registered Public Accounting Firm 11 Item 2: Management's Discussion and Analysis of 12 - 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: Unregistered Sales of Equity Securities and Use of Proceeds 21 Item 6: Exhibits 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 ------------------- ----------------------- 2006 2005 2006 2005 -------- -------- ---------- ---------- <S> <C> <C> <C> <C> Net Sales $497,198 $446,470 $1,396,583 $1,263,735 Cost of Sales 360,383 327,177 1,016,067 930,972 -------- -------- ---------- ---------- Gross Profit 136,815 119,293 380,516 332,763 Selling, Distribution and Administrative Expenses 104,730 95,213 295,415 269,957 -------- -------- ---------- ---------- Operating Income 32,085 24,080 85,101 62,806 Interest Expense, net 1,000 1,214 2,736 3,848 Other Income, net (405) (2,640) (569) (2,798) -------- -------- ---------- ---------- Income Before Income Taxes 31,490 25,506 82,934 61,756 Income Taxes 11,500 9,170 30,800 22,400 -------- -------- ---------- ---------- Net Income $ 19,990 $ 16,336 $ 52,134 $ 39,356 ======== ======== ========== ========== Earnings Per Share - Basic $ 0.68 $ 0.55 $ 1.75 $ 1.33 ======== ======== ========== ========== Earnings Per Share - Diluted $ 0.65 $ 0.53 $ 1.69 $ 1.29 ======== ======== ========== ========== Cash dividends per common share $ 0.15 $ 0.12 $ 0.42 $ 0.31 ======== ======== ========== ========== Weighted average common shares outstanding for basic computation 29,596 29,857 29,746 29,556 Dilutive effect of stock options and awards 1,002 1,017 1,112 1,063 -------- -------- ---------- ---------- Adjusted average common shares outstanding for diluted computation 30,598 30,874 30,858 30,619 ======== ======== ========== ========== </TABLE> See notes to condensed consolidated financial statements. 2
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollar amounts in thousands) <TABLE> <CAPTION> March 31, June 30, 2006 2005 --------- -------- <S> <C> <C> ASSETS Current assets Cash and temporary investments $ 76,225 $127,136 Accounts receivable, less allowances of $6,100 and $6,500 235,960 202,226 Inventories (at LIFO) 208,086 175,533 Other current assets 28,404 22,606 --------- -------- Total current assets 548,675 527,501 Property, less accumulated depreciation of $112,816 and $106,619 69,560 71,441 Goodwill 55,507 51,083 Other assets 46,061 40,145 --------- -------- TOTAL ASSETS $ 719,803 $690,170 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 102,859 $ 99,047 Other accrued liabilities 76,124 82,648 --------- -------- Total current liabilities 178,983 181,695 Long-term debt 76,384 76,977 Other liabilities 52,493 38,211 --------- -------- TOTAL LIABILITIES 307,860 296,883 --------- -------- Shareholders' Equity Preferred stock - no par value; 2,500 shares authorized; none issued or outstanding Common stock - no par value; 80,000 and 50,000 shares authorized; 36,143 shares issued 10,000 10,000 Additional paid-in capital 106,314 103,240 Income retained for use in the business 394,115 354,521 Treasury shares - at cost, 6,347 and 6,142 shares (102,090) (72,660) Unearned restricted common stock compensation (825) Accumulated other comprehensive income (loss) 3,604 (989) --------- -------- TOTAL SHAREHOLDERS' EQUITY 411,943 393,287 --------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 719,803 $690,170 ========= ======== </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 ------------------- 2006 2005 -------- -------- <S> <C> <C> Cash Flows from Operating Activities Net income $ 52,134 $ 39,356 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 10,000 10,398 Stock based compensation and amortization of other intangible assets 2,993 2,703 Gain on sale of property (3) (1,121) Changes in operating assets and liabilities, net of effects from acquisition of business (50,411) (27,226) Treasury shares contributed to employee benefit and deferred compensation plans 6,423 7,523 Other - net (593) (593) -------- -------- Net Cash provided by Operating Activities 20,543 31,040 -------- -------- Cash Flows from Investing Activities Property purchases (6,805) (6,283) Proceeds from property sales 330 3,206 Net cash paid for acquisition of businesses (27,024) (5,635) Deposits and other 211 (1,093) -------- -------- Net Cash used in Investing Activities (33,288) (9,805) -------- -------- Cash Flows from Financing Activities Dividends paid (12,540) (9,133) Purchases of treasury shares (28,623) (8,884) Exercise of stock options 1,878 9,961 -------- -------- Net Cash used in Financing Activities (39,285) (8,056) -------- -------- Effect of exchange rate changes on cash 1,119 528 -------- -------- (Decrease) increase in cash and temporary investments (50,911) 13,707 Cash and temporary investments at beginning of period 127,136 69,667 -------- -------- Cash and temporary investments at end of period $ 76,225 $ 83,374 ======== ======== </TABLE> See notes to condensed consolidated financial statements. 4
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollar 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 accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation of the condensed consolidated balance sheet as of March 31, 2006 and the condensed statements of consolidated income for the three-month and nine-month periods ended March 31, 2006 and 2005 and of consolidated cash flows for the nine-month periods ended March 31, 2006 and 2005 have been included. 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, 2005. Operating results for the three-month and nine-month periods ended March 31, 2006 are not necessarily indicative of the results that may be expected for the remainder of the fiscal year ending June 30, 2006. 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. Certain reclassifications have been made to prior year amounts to be consistent with the presentation in the current year. 2. STOCK OPTIONS The Company has been recording expense for stock options and appreciation rights under SFAS No. 123, "Accounting for Stock-Based Compensation", since July 1, 2003. Effective July 1, 2005, the Company adopted SFAS No. 123(R) (revised 2004), "Share-Based Payments", which is a revision of SFAS No. 123. Generally, the approach in SFAS No. 123(R) is similar to the fair value approach described in SFAS No. 123. The adoption of SFAS No. 123(R) did not have a material impact on the Company's consolidated financial statements. 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. Sales between the service center based distribution segment and the other businesses are not significant. 5
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share amounts) (Unaudited) SEGMENT FINANCIAL INFORMATION: <TABLE> <CAPTION> SERVICE CENTER BASED DISTRIBUTION OTHER TOTAL -------------- ------- -------- <S> <C> <C> <C> THREE MONTHS ENDED MARCH 31, 2006 Net sales $452,673 $44,525 $497,198 Operating income 30,972 2,912 33,884 Depreciation 3,056 320 3,376 Capital expenditures 2,478 138 2,616 -------- ------- -------- THREE MONTHS ENDED MARCH 31, 2005 Net sales $418,019 $28,451 $446,470 Operating income 24,636 1,630 26,266 Depreciation 3,270 173 3,443 Capital expenditures 2,212 98 2,310 -------- ------- -------- </TABLE> A reconciliation from the segment operating profit to the condensed consolidated balances is as follows: <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ----------------- 2006 2005 ------- ------- <S> <C> <C> Operating income: Service Center based distribution $30,972 $24,636 Other 2,912 1,630 Adjustments for: Other intangible amortization expense (162) (215) Corporate and other expenses, net of allocations (a) (1,637) (1,971) ------- ------- Total operating income 32,085 24,080 Interest expense, net 1,000 1,214 Other income, net (405) (2,640) ------- ------- Income before income taxes $31,490 $25,506 ======= ======= </TABLE> (a) The change in corporate and other expenses, net, is due to various changes in the levels and amounts of expense being allocated to the segments. The expenses being allocated include corporate charges for working capital, logistics support and other items. 6
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share amounts) (Unaudited) <TABLE> <CAPTION> SERVICE CENTER BASED DISTRIBUTION OTHER TOTAL ------------------ -------- ---------- <S> <C> <C> <C> NINE MONTHS ENDED MARCH 31, 2006 Net sales $1,277,660 $118,923 $1,396,583 Operating income 81,237 7,806 89,043 Assets used in business 653,664 66,139 719,803 Depreciation 9,226 774 10,000 Capital expenditures 6,505 300 6,805 ---------- -------- ---------- NINE MONTHS ENDED MARCH 31, 2005 Net sales $1,179,915 $ 83,820 $1,263,735 Operating income 60,544 5,266 65,810 Assets used in business 637,540 26,433 663,973 Depreciation 9,886 512 10,398 Capital expenditures 6,051 232 6,283 ---------- -------- ---------- </TABLE> A reconciliation from the segment operating profit to the condensed consolidated balances is as follows: <TABLE> <CAPTION> NINE MONTHS ENDED MARCH 31, ----------------- 2006 2005 ------- ------- <S> <C> <C> Operating income: Service Center based distribution $81,237 $60,544 Other 7,806 5,266 Adjustments for: Other intangible amortization expense (429) (579) Corporate and other expenses, net of allocations (a) (3,513) (2,425) ------- ------- Total operating income 85,101 62,806 Interest expense, net 2,736 3,848 Other income, net (569) (2,798) ------- ------- Income before income taxes $82,934 $61,756 ======= ======= </TABLE> (a) The change in corporate and other expenses, 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. 7
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share amounts) (Unaudited) SALES BY GEOGRAPHIC LOCATION ARE AS FOLLOWS: <TABLE> <CAPTION> UNITED STATES CANADA OTHER TOTAL -------- ------- ------ -------- <S> <C> <C> <C> <C> Three Months Ended March 31, 2006 $445,882 $46,382 $4,934 $497,198 Three Months Ended March 31, 2005 $401,694 $40,306 $4,470 $446,470 </TABLE> <TABLE> <CAPTION> UNITED STATES CANADA OTHER TOTAL ---------- -------- ------- ---------- <S> <C> <C> <C> <C> Nine Months Ended March 31, 2006 $1,241,379 $139,731 $15,473 $1,396,583 Nine Months Ended March 31, 2005 $1,136,865 $113,886 $12,984 $1,263,735 </TABLE> 4. COMPREHENSIVE INCOME The components of comprehensive income are as follows: <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------ 2006 2005 ------- ------- <S> <C> <C> Net income $19,990 $16,336 Other comprehensive income: Unrealized gain (loss) on hedge transactions, net of income tax of $324 and $(511) 503 (795) Foreign currency translation adjustment, net of income tax of $258 and $(335) 1,141 (1,089) Unrealized gain on investment securities available for sale, net of income tax of $18 30 280 ------- ------- Total comprehensive income $21,664 $14,732 ======= ======= </TABLE> <TABLE> <CAPTION> NINE MONTHS ENDED MARCH 31, ------------------ 2006 2005 ------- ------- <S> <C> <C> Net income $52,134 $39,356 Other comprehensive income: Unrealized gain (loss) on hedge transactions, net of income tax of $502 and $(544) 780 (860) Foreign currency translation adjustment, net of income tax of $990 and $320 3,755 2,103 Unrealized gain on investment securities available for sale, net of income tax of $35 and $0 58 280 ------- ------- Total comprehensive income $56,727 $40,879 ======= ======= </TABLE> 8
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share amounts) (Unaudited) 5. BENEFIT PLANS 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 ---------------- -------------- THREE MONTHS ENDED MARCH 31 2006 2005 2006 2005 - --------------------------- ------ ---- ---- ---- <S> <C> <C> <C> <C> COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 362 $318 $14 $ 12 Interest cost 396 377 63 73 Expected return on plan assets (95) (88) Recognized net actuarial loss 196 120 7 4 Amortization of prior service cost 157 157 12 12 ------ ---- --- ---- Net periodic pension cost $1,016 $884 $96 $101 ====== ==== === ==== </TABLE> <TABLE> <CAPTION> PENSION BENEFITS OTHER BENEFITS ---------------- -------------- NINE MONTHS ENDED MARCH 31 2006 2005 2006 2005 - -------------------------- ------ ------ ---- ---- <S> <C> <C> <C> <C> COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $1,088 $ 955 $ 42 $ 36 Interest cost 1,189 1,132 189 219 Expected return on plan assets (286) (265) Recognized net actuarial loss 588 360 21 11 Amortization of prior service cost 470 470 37 36 ------ ------ ---- ---- Net periodic pension cost $3,049 $2,652 $289 $302 ====== ====== ==== ==== </TABLE> The Company contributed $564 to its pension benefit plans and $157 to its other benefit plans in the nine months ended March 31, 2006. Expected contributions for the full fiscal year are $740 for the pension benefit plans and $300 for its other benefit plans. 9
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share amounts) (Unaudited) 6. BUSINESS COMBINATIONS On September 30, 2005, the Company acquired certain assets and assumed certain liabilities of Spencer Industries, Inc. ("Spencer Fluid Power"), a distributor of fluid power products, for $16,298. The results of the acquired operations have been included in the Company's condensed statement of consolidated income since October 1, 2005. On March 31, 2006, the Company acquired Minnesota Bearing Company ("MBC"), a distributor of bearings, power transmission, fluid power and related specialty products for $12,228. The results of the acquired operations will be included in the Company's statement of consolidated income beginning April 1, 2006. 7. SHAREHOLDERS' EQUITY In October 2005, the shareholders approved an amendment to the Company's Articles of Incorporation to increase the number of authorized shares of common stock from 50 million shares to 80 million shares. 10
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The accompanying condensed consolidated financial statements of the Company have been reviewed by the Company's independent registered public accounting firm, Deloitte & Touche LLP, whose report covering their review of the financial statements follows. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Applied Industrial Technologies, Inc. Cleveland, Ohio We have reviewed the accompanying condensed consolidated balance sheet of Applied Industrial Technologies, Inc. and subsidiaries (the "Corporation") as of March 31, 2006, and the related condensed statements of consolidated income for the three-month and nine-month periods ended March 31, 2006 and 2005, and of consolidated cash flows for the nine-month periods ended March 31, 2006 and 2005. These interim financial statements are the responsibility of the Corporation's management. We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 the standards of the Public Company Accounting Oversight Board (United States), 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 the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Applied Industrial Technologies, Inc. and subsidiaries as of June 30, 2005, 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 19, 2005, 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, 2005 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Deloitte & Touche LLP Cleveland, OH April 21, 2006 11
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, 2006 and June 30, 2005, 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 For the three months ended March 31, 2006, operating income increased 33.2% and net income increased 22.4% compared to the same quarter in the prior year. The increases in operating margin and net income were realized on an 11.4% increase in sales and a higher gross margin from the same quarter in the prior year. Selling, distribution and administrative expenses increased at a rate less than sales and are down as a percentage of net sales. The balance sheet continued to strengthen as shareholders' equity increased to $411.9 million and our current ratio remained healthy at 3.1 to 1. Overall inventory balances decreased during the quarter as the Company sold inventories accumulated through earlier quarters' advantageous buying opportunities. The Company monitors the Purchasing Managers Index (PMI) as published by the Institute for Supply Management and the Manufacturers Capacity Utilization (MCU) index published by the Federal Reserve Board and considers these indices key indicators of potential Company business environment changes. During the quarter these indicators continued to show relative strength in the economy. The Company's performance traditionally lags these key indicators by approximately 6 months. The Company expects that fiscal 2006 fourth quarter sales will rise between 9% and 11% in comparison to the same quarter in the prior year. Sales for the entire 2006 fiscal year are expected to be in the range of $1.89 billion to $1.90 billion. The Company had 4,643 associates at March 31, 2006, which includes seventy-eight associates of Minnesota Bearing Company ("MBC"). The Company acquired MBC on March 31, 2006. The Company had 4,423 associates at March 31, 2005. The Company had a total of 455 operating facilities at March 31, 2006, which includes fourteen operating locations of MBC. The Company had a total of 440 operating facilities at March 31, 2005. Results Of Operations THREE MONTHS ENDED MARCH 31, 2006 AND 2005 Sales during the three months ended March 31, 2006 increased $50.7 million or 11.4% compared to the prior year, reflecting increased sales in both our service center based distribution segment 12
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and other businesses. The number of selling days during the three months ended March 31, 2006 was 64 days and was 63.5 days during the three months ended March 31, 2005. Sales from our service center based distribution segment increased $34.7 million or 8.3% during the three months ended March 31, 2006 from the same period in the prior year. Approximately 2% to 4% of the sales increase between the two periods was a result of supplier price increases passed on to customers. The remainder of the net sales increase between the two periods was driven by sales mix, favorable currency translation, and some sales generated by an acquired business that was not owned for the entire prior year period. Sales from our other businesses increased $16.1 million or 56.5% during the three months ended March 31, 2006 from the same period in the prior year. The majority of the increase between the two periods was due to sales generated by a business acquired since the prior year period. From a geographical perspective, sales from our Canadian operations increased $6.1 million or 15.1% during the three months ended March 31, 2006 from the same period in the prior year. Approximately one-third of the increase between the two periods represents sales generated by an acquired business that was not owned for the entire prior year period. Favorable currency translation accounted for approximately two-fifths of the increase between the two periods. The remaining net sales increase was due to a combination of sales mix and pricing. During the three months ended March 31, 2006, industrial products and fluid power products accounted for 82.3% and 17.7%, respectively, of sales. In comparison, industrial products and fluid power products accounted for 84.3% and 15.7%, respectively, of sales for the same period in the prior year. The increase in the percentage of sales accounted for by fluid power products was primarily a result of the Company's acquisition of Spencer Fluid Power during the current fiscal year. Gross profit as a percentage of sales during the three months ended March 31, 2006 increased to 27.5% from 26.7% from the same period in the prior year. The increase in the gross profit percentage between the two periods primarily reflects higher levels of supplier rebates and lower net freight costs, partially offset by less favorable customer pricing. The increase in supplier rebates reflects the recording of certain supplier rebates during the current quarter that related to inventory purchases made in prior quarters. The criteria under U.S. generally accepted accounting principles necessary to permit us to record these rebate benefits were not met until the current quarter. Selling, distribution and administrative ("SD&A") expenses increased at a rate less than sales and were down as a percentage of sales. SD&A as a percentage of sales for the three months ended March 31, 2006 decreased to 21.1% from 21.3% during the same period in the prior year while in absolute dollar amounts, SD&A increased by $9.5 million or 10.0%. The increase in dollars primarily relates to the normal SD&A amounts of businesses that were acquired since the prior year period or were not owned for the entire prior year period and increases in associate 13
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS compensation tied to improved performance. To a lesser extent, this increase in SD&A dollars reflects an increase in general wage levels, increases in energy and fuel costs and expenditures in associate training. Interest expense, net for the three months ended March 31, 2006 decreased $0.2 million or 17.6% in comparison to the same period in the prior year, primarily due to an increase in interest income earned on temporary investments. Average rates paid on borrowings were 6.7% for the three months ended March 31, 2006 and 6.5% for the same period in the prior year. The increase in the average interest rate on borrowings between the two periods reflects the impact of the strengthening of the Canadian dollar. Other income, net during the three months ended March 31, 2006 decreased $2.2 million from the same period in the prior year primarily due to the receipt of $2.5 million in life insurance proceeds during the same period in the prior year. Income tax expense as a percentage of income before taxes during the three months ended March 31, 2006 increased to 36.5% from 36.0% for the same period in the prior year. The increase in the effective income tax rate between the two periods is primarily due to the beneficial impact of tax-free life insurance proceeds received during the same period in the prior year. As a result of the above factors, the Company's operating margin increased to 6.5% from 5.4% and net income increased by $3.7 million or 22.4% during the three months ended March 31, 2006 as compared to the same period in the prior year. Earnings per share for the three months ended March 31, 2006 increased to $.65 per share from $.53 per share during the same period in the prior year. NINE MONTHS ENDED MARCH 31, 2006 AND 2005 Sales during the nine months ended March 31, 2006 increased $132.8 million or 10.5% from the same period in the prior year, reflecting increased sales in both our service center based distribution segment and other businesses. The number of selling days during the nine months ended March 31, 2006 was 189 days and was 188.5 days during the nine months ended March 31, 2005. Sales from our service center based distribution segment increased $97.7 million or 8.3% during the nine months ended March 31, 2006 from the same period in the prior year. Approximately 3% to 5% of the sales increase between the two periods was a result of supplier price increases passed on to customers. The remainder of the sales increase between the two periods was driven by sales mix, favorable currency translation and some sales generated by an acquired business that was not owned for the entire prior year period. 14
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Sales from our other businesses increased $35.1 million or 41.9% during the nine months ended March 31, 2006 from the same period in the prior year. The majority of the increase between the two periods was due primarily to sales generated by a business acquired since the prior year period. From a geographical perspective, sales from our Canadian operations increased $25.8 million or 22.7% during the nine months ended March 31, 2006 from the same period in the prior year. Approximately one-half of the increase between the two periods represents sales generated by an acquired business that was not owned for the entire prior year period. Favorable currency translation accounted for approximately one-third of the increase between the two periods. The remaining net sales increase was due to a combination of sales mix and pricing. During the nine months ended March 31, 2006, industrial products and fluid power products accounted for 82.4% and 17.6%, respectively, of sales. In comparison, industrial products and fluid power products accounted for 84.1% and 15.9%, respectively, of sales for the same period in the prior year. The increase in the percentage of sales accounted for by fluid power products was primarily a result of the Company's acquisition of Spencer Fluid Power during the current fiscal year. Gross profit as a percentage of sales increased to 27.2% for the nine months ended March 31, 2006 from 26.3% during the same period in the prior year. The increase in the gross profit percentage between the two periods primarily reflects higher levels of supplier rebates, improved customer pricing and lower net freight costs. This increase in supplier rebates includes the recording of certain supplier rebates during the current period related to inventory purchases made in prior periods. The criteria under U.S. generally accepted accounting principles necessary to permit us to record these rebate benefits were not met until the current period. SD&A expenses increased at a rate less than sales and were down as a percentage of sales. SD&A as a percentage of sales for the nine months ended March 31, 2006 decreased to 21.2% from 21.4% during the same period in the prior year while in absolute dollar amounts, SD&A increased by $25.5 million or 9.4%. The increase in dollars primarily relates to the normal SD&A amounts of businesses that were acquired since the prior year period or were not owned for the entire prior year period and increases in associate compensation tied to improved performance. Interest expense, net for the nine months ended March 31, 2006 decreased $1.1 million or 28.9% in comparison to the same period in the prior year primarily due to an increase in interest income earned on temporary investments. Average rates paid on borrowings were 6.7% for the nine months ended March 31, 2006 and 6.4% for the same period in the prior year. The increase in the average interest rate on borrowings reflects the impact of the strengthening of the Canadian dollar during the current period. 15
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Other income, net during the nine months ended March 31, 2006 decreased $2.2 million from the same period in the prior year primarily due to the receipt of $2.5 million in life insurance proceeds during the same period in the prior year. Income tax expense as a percentage of income before taxes during the nine months ended March 31, 2006 increased to 37.1% from 36.3% during the same period in the prior year. The increase in the effective income tax rate during the current period is primarily due to beneficial impact of tax-free life insurance proceeds received during the same period in the prior year. We expect the effective tax rate to remain at approximately 37.1% for the remainder of the fiscal year. As a result of the above factors, the Company's operating margin increased to 6.1% from 5.0% and net income increased by $12.8 million or 32.5% during the nine months ended March 31, 2006 as compared to the same period in the prior year. Earnings per share for the nine months ended March 31, 2006 increased to $1.69 per share from $1.29 per share during the same period in the prior year. Liquidity and Capital Resources Cash provided by operating activities for the nine months ended March 31, 2006 was $20.5 million in comparison to $31.0 million provided by operating activities during the same period in the prior year. Cash flows from operations depend primarily upon generating operating income, controlling the investment in inventories and receivables, and managing the timing of payments to suppliers and associates. During the nine months ended March 31, 2006, inventories increased $32.6 million, including $9.7 million associated with the Spencer Fluid Power acquisition and $3.4 million associated with the MBC acquisition. Excluding the inventories related to Spencer Fluid Power and MBC, the increase in inventories during the current period reflects advantageous buying opportunities with certain suppliers and the purchase of inventories to meet anticipated demand for our products. Accounts receivable increased $33.7 million during the nine months ended March 31, 2006, including $6.7 million associated with the Spencer Fluid Power acquisition and $4.5 million associated with the MBC acquisition. The remainder of the increase in accounts receivable reflects the overall increase in net sales during the current period. Cash used in investing activities for the nine months ended March 31, 2006 was $33.3 million in comparison to $9.8 million used in investing activities during the same period in the prior year. The increase in the use of cash in investing activities primarily reflects the $16.3 million cash acquisition of Spencer Fluid Power and the $10.7 million of cash used in the acquisition of MBC during the current period as well as a reduction in proceeds from the sale of property due to fewer property sales. The Company expects total capital expenditures to be in the range of $10.0 million to $11.0 million during fiscal 2006. Depreciation expense for fiscal 2006 is expected to be within the range of $13.0 million to $14.0 million. Cash used in financing activities for the nine months ended March 31, 2006 was $39.3 million in comparison to $8.1 million used in financing activities during the same period in the prior year. 16
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The increase in the use of cash in financing activities during the current period primarily reflects the increase in common stock repurchases, the increase in dividends paid due to increases in the dividend rate and a decrease in cash provided by the exercise of stock options. The Company has a $100.0 million committed revolving credit facility with a group of banks expiring in June 2010. The Company had no borrowings outstanding under this facility at March 31, 2006. Unused lines under this facility, net of outstanding letters of credit, total $91.0 million, and are available to fund future acquisitions or other capital and operating requirements. The Company has an agreement with Prudential Investment Management, Inc. 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 discretion with terms of up to twelve years. At March 31, 2006, there was no borrowing under this agreement. The Company's long-term debt matures as follows: $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 for the purpose of funding benefit programs, stock option and award programs, and future business acquisitions. These purchases may be made in open market and negotiated transactions, from time to time, depending upon market conditions. The Company acquired 855,600 shares of its common stock for $28.6 million from the open market during the nine months ended March 31, 2006. In January 2006, the board of directors authorized the purchase of up to 1,000,000 shares of the Company's common stock. At March 31, 2006, the Company had remaining authorization to repurchase 1,000,000 shares of the Company's common stock. Other Matters On September 30, 2005, the Company acquired certain assets and assumed certain liabilities of Spencer Industries, Inc., a distributor of fluid power products, for $16.3 million. The results of the acquired operations have been included in the Company's condensed statement of consolidated income since October 1, 2005. On March 31, 2006, the Company acquired MBC, a distributor of bearings, power transmission, fluid power and related specialty products for $12.2 million. The results of the acquired operations will be included in the Company's statement of consolidated income beginning April 1, 2006. 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," 17
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "intend," "will" and similar expressions. The Company intends that the forward-looking statements be subject to the safe harbors established in the Private Securities Litigation Reform Act of 1995 and by the Securities and Exchange Commission in its rules, regulations and releases. Readers are cautioned not to place undue reliance on any forward-looking statements. All forward-looking statements are based on current expectations regarding important risk factors. 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; reduced demand for our products in targeted markets for reasons including consolidation in customer industries, increased efficiency in customer operations, and the transfer of manufacturing capacity to foreign countries; changes in interest rates and inflation; changes in customer procurement policies and practices; changes in product manufacturer sales policies and practices; the availability of products and labor; changes in operating expenses; price increases or decreases; the variability and timing of business opportunities including acquisitions, alliances, customer relationships and supplier authorizations; the Company's ability to realize the anticipated benefits of acquisitions and other business strategies; the incurrence of debt and contingent liabilities in connection with acquisitions; changes in accounting policies and practices; 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 foreign operations, including inflation, 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, natural events and acts of God, terrorist acts, 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 effects of changes in interest rates and foreign exchange 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, 2006. 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, 2006 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 foreign-currency denominated debt. Hedging of the U.S. dollar denominated debt, used to fund a substantial portion of the 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 exposure with regard to our Mexican business is not hedged because the Mexican activity is not material. For the nine months ended March 31, 2006, a uniform 10% strengthening of the U.S. dollar relative to foreign currencies that affect the Company would have resulted in a $.6 million decrease in net income. A uniform 10% weakening of the U.S. dollar would have resulted in a $.6 million increase in net income. 19
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 4: CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934) designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. An evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, these officers have concluded that the Company's disclosure controls and procedures are effective. During the most recently completed fiscal quarter, there were no material changes in the Company's internal controls or in other factors that materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. 20
PART II. OTHER INFORMATION ITEM 1. Legal Proceedings. The Company has been named a defendant in pending legal proceedings with respect to various product liability, commercial, and other matters. Although it is not possible to predict the outcome of these unresolved actions or the range of possible loss, the Company does not believe, based on circumstances currently known, 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. Unregistered Sales of Equity Securities and Use of Proceeds. Repurchases in the quarter ended March 31, 2006 were as follows: <TABLE> <CAPTION> (c) Total Number (d) Maximum of Shares Number of Shares Purchased as Part that May Yet (a) Total (b) Average of Publicly Be Purchased Under Number of Price Paid Announced Plans the Plans or Period Shares per Share or Programs Programs ------ --------- ----------- ----------------- ------------------ <S> <C> <C> <C> <C> January 1, 2006 to January 31, 2006 15,400 $ 34.22 15,400 1,000,000 February 1, 2006 to February 28, 2006 -0- -0- -0- 1,000,000 March 1, 2006 to March 31, 2006 -0- -0- -0- 1,000,000 ------ ----- ------ --------- Total 15,400 $ 34.22 15,400 1,000,000 ====== ===== ====== ========= </TABLE> (1) On January 18, 2006, the Board of Directors authorized the purchase of up to 1,000,000 shares of the Company's common stock. The authorization was publicly announced that day. The purchases may be made in the open market or in privately negotiated transactions. The amended 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 purchased 8,515 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. <TABLE> <CAPTION> Exhibit No. Description - ----------- ----------- <S> <C> 3(a) Amended and Restated Articles of Incorporation of Applied Industrial Technologies, Inc., as amended on October 25, 2005 (filed as Exhibit 3(a) to the Company's Form 10-Q for the quarter ended December 31, 2005, 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) (now named Applied Industrial Technologies, Inc.) 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 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, 2000, SEC File No. 1-2299, and incorporated here by reference). </TABLE> 22
<TABLE> <S> <C> 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 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 March 31, 2004, SEC File No. 1-2299, and incorporated here by reference). 4(f) $100,000,000 Credit Agreement dated as of June 3, 2005 among the Company, KeyBank National Association as Agent, and various financial institutions (filed as Exhibit 4 to the Company's Form 8-K dated June 9, 2005, 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 Consent of Independent Registered Public Accounting Firm. 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 23
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. 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: April 28, 2006 By: /s/ David L. Pugh ------------------------------------ David L. Pugh Chairman & Chief Executive Officer Date: April 28, 2006 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, 2006 <TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION - ----------- ----------- <S> <C> 3(a) Amended and Restated Articles of Incorporation of Applied Industrial Technologies, Inc., as amended on October 25, 2005 (filed as Exhibit 3(a) to the Company's Form 10-Q for the quarter ended December 31, 2005, 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) (now named Applied Industrial Technologies, Inc.) 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 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 March 31, 2004, SEC File No. 1-2299, and incorporated here by reference). 4(f) $100,000,000 Credit Agreement dated as of June 3, 2005 among the Company, KeyBank National Association as Agent, and various financial institutions (filed as Exhibit 4 to the Company's Form 8-K dated June 9, 2005, 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 Consent of Independent Registered Public Attached Accounting Firm. 31 Rule 13a-14(a)/15d-14(a) certifications. Attached 32 Section 1350 certifications. Attached </TABLE>