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Applied Industrial Technologies Reports Fiscal 2010 Second Quarter Results
CLEVELAND, Ohio, January 20, 2010 – Applied Industrial Technologies (NYSE: AIT) today reported sales and earnings for its fiscal 2010 second quarter, ended December 31, 2009. 

Net sales for the second quarter decreased 11% to $446,253,000 compared to $502,412,000 in the same period last year. Net income for the quarter was $10,487,000 or $0.24 per share compared to $16,194,000 or $0.38 per share last year. 

For the six months ended December 31, 2009, sales were $883,996,000 compared to $1,046,318,000 in the same period last year.  Net income was $21,674,000 or $0.51 per share compared to $38,730,000 or $0.90 per share, last year.

Commenting on the Company's performance, Applied Chairman & Chief Executive Officer David L. Pugh said, "The general market continues to be difficult.  While some sectors have shown improvement in activity, there is a concern that it may be a transient response to stimulus initiatives.  Other sectors, especially those impacted by new construction, are still declining.  Overall, demand is low and tight competition has lead to gross margin pressure. Business activity is consistent with our expectations for a slow, protracted economic recovery.

"Remaining nimble in such an environment is essential.  Our efforts remain focused on the underlying fundamentals of our business with an emphasis on tight cost control and conservative asset management.  The Company is stable and our cash position is strong and well-positioned for the long-term.

"For fiscal 2010, we now expect earnings per share to be in the range of $0.95 to $1.25 on sales of $1.75 billion to $1.85 billion."

The Company did not repurchase any shares during the quarter.  At December 31, 2009, the Company had remaining authorization to purchase 997,100 additional shares.

Applied will host its conference call for investors and analysts at 4 p.m. ET today, Wednesday, January 20. The call will be conducted by Chairman & CEO David L. Pugh, President & COO Benjamin J. Mondics and Vice President & CFO Mark O. Eisele. To join the call, dial 1-866-352-2112 (for US/Canada callers) or 1-630-691-2779 (for International callers) prior to the scheduled start using passcode 6506299.  A live audio webcast can be accessed online at www.Applied.com. A replay of the teleconference will be available for two weeks by dialing 1-888-843-8996 using passcode 6506299.

With approximately 460 facilities and 4,600 employee associates across North America, Applied Industrial Technologies is an industrial distributor that offers more than 3 million parts critical to the operations of MRO and OEM customers in virtually every industry.  In addition, Applied provides engineering, design and systems integration for industrial and fluid power applications, as well as customized mechanical, fabricated rubber and fluid power shop services. Applied also offers maintenance training, plus solutions to meet inventory and storeroom management needs that help provide enhanced value to its customers. For its fiscal year ended June 30, 2009, Applied posted sales of $1.9 billion. Applied can be visited on the Internet at http://www.applied.com.

This press release contains statements that are forward-looking, as that term is defined by the Securities and Exchange Commission in its rules, regulations and releases. Forward-looking statements are often identified by qualifiers such as "expect" and similar expressions. Applied intends that such forward-looking statements be subject to the safe harbors created thereby. All forward-looking statements are based on current expectations regarding important risk factors including trends in the industrial sector of the economy, and other risk factors identified in Applied's most recent periodic report and other filings made with the Securities and Exchange Commission. 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 therein will be achieved. Applied assumes no obligation to update publicly or revise any forward-looking statements, whether due to new information, or events, or otherwise, except as required by law.

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For investor relations information, contact Mark O. Eisele, Vice President – Chief Financial Officer, at 216-426-4417.   For corporate information, contact Richard C. Shaw, Vice President – Communications, at 216-426-4343.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Amounts in thousands, except per share data)
 
 
Three Months Ended
December 31,
Six Months Ended
December 31,

 

2009

2008

2009

2008

Net Sales

 $   446,253

 $   502,412

 $   883,996

 $  1,046,318

Cost of sales

    329,348

    366,943

   651,647

    764,791

 

    116,905

 135,469

    232,349

   281,527

Selling, distribution and administrative,
   including depreciation

     98,002

  106,662

    195,805

    215,345

Operating Income

     18,903

     28,807

    36,544

    66,182

Interest expense, net

       1,333

         1,302

       2,547

      1,987

Other expense (income), net

             58

        2,225

        (245)

         3,040

Income Before Income Taxes

        17,512

    25,280

   34,242

   61,155

Income Tax Expense

        7,025

        9,086

      12,568

        22,425

Net Income

 $    10,487

 $   16,194

 $   21,674

 $     38,730

Net Income Per Share - Basic

 $       0.25

 $       0.38

 $      0.51

 $         0.92

Net Income Per Share - Diluted

 $       0.24

 $       0.38

 $      0.51

 $         0.90

Average Shares Outstanding - Basic

       42,298

      42,316

      42,287

        42,316

Average Shares Outstanding - Diluted

       42,830

      42,798

      42,793

        42,873

 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(1) The Company uses the last-in, first-out ("LIFO") method of valuing U.S. inventory.  An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time.  Accordingly, interim LIFO calculations are based on management's estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory determination.  The Company is estimating reductions in certain U.S. inventories during fiscal 2010 which would result in the liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years.
 
The Company recorded LIFO income of $1.8 million and $2.5 million during the quarter and six months ended December 31, 2009, respectively, which reduced the overall LIFO reserve by the same amount.  The effect of LIFO layer liquidations during the current quarter and six months increased gross profit by $5.7 million and $10.0 million, respectively.  There were no comparable LIFO layer liquidations recorded for the quarter and six months ended December 31, 2008.
 
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 

December 31, 2009

June 30, 2009

 
Assets
 Cash and cash equivalents

 $          104,203

 $    27,642

 Accounts receivable, less allowances of $6,264 and $6,464

211,920

    198,792

 Inventories

  201,872

    254,690

 Other current assets

       28,859

        44,470

       Total current assets

   546,854

 525,594

 Property, net

    59,845

  62,735

 Intangibles, net

    91,024

    95,832

 Goodwill 

    63,100

   63,108

 Other assets

    65,317

   62,059

Total Assets

$         826,140

$   809,328

Liabilities
 Accounts payable

 $          82,354

 $     80,655

 Short-term debt 

          75,000

      5,000

 Other accrued liabilities

              85,235

       70,901

       Total current liabilities

         242,589

  156,556

 Long-term debt

  75,000

 Other liabilities

          61,395

    69,670

Total Liabilities

        303,984

  301,226

Shareholders' Equity

          522,156

    508,102

Total Liabilities and Shareholders' Equity

$       826,140

$    809,328

 
 
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands) 
 

Six Months Ended 

 

December 31,

 

2009

2008

Cash Flows from Operating Activities
 Net income

 $    21,674

 $    38,730

 Adjustments to reconcile net income to net cash provided
    by operating activities:
    Depreciation

   5,770

    6,273

    Amortization of intangibles

    5,047

    4,135

    Share-based compensation

    2,898

    2,744

    Gain on sale of property

    (116)

     (209)

    Treasury shares contributed to employee benefit
        and deferred compensation plans

    154

    263

    Changes in assets and liabilities, net of
        acquisitions 

   59,705

   (20,886)

    Other, net

     531

      1,418

Net Cash provided by Operating Activities

 95,663

   32,468

Cash Flows from Investing Activities
 Property purchases

  (2,951)

   (4,265)

 Proceeds from property sales

    421

      323

 Net cash paid for acquisition of businesses, net of 
    cash acquired

    (100)

   (172,019)

Net Cash used in Investing Activities

2,630)

(175,961)

Cash Flows from Financing Activities
 Net short-term (repayments) borrowings under revolving credit facility

(5,000)

61,000

 Borrowings under revolving credit facility classified as long-term

50,000

 Purchase of treasury shares

(1,210)

 Dividends paid (12,699) (12,699)
 Excess tax benefits from share-based compensation 251 261
 Exercise of stock options and appreciation rights

      205

        241

Net Cash (used in) provided by Financing Activities (17,243)  97,593
Effect of Exchange Rate Changes on Cash      771  (9,310)
Increase (decrease) in cash and cash equivalents

  76,561

  (55,210)

Cash and cash equivalents at beginning of period

  27,642

  101,830

Cash and Cash Equivalents at End of Period

 $   104,203

 $    46,620