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Form 8-K APPLIED INDUSTRIAL TECHN For: Apr 26

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April 26, 2018 8:40 AM EDT


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): April 26, 2018

APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

OHIO
1-2299
34-0117420
(State or Other Jurisdiction of
(Commission File
(I.R.S. Employer
Incorporation or Organization)
Number)
Identification No.)

One Applied Plaza, Cleveland, Ohio 44115
(Address of Principal Executive Officers) (Zip Code)

Registrant's Telephone Number, Including Area Code: (216) 426-4000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).     

Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]






ITEM 2.02.     RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On April 26, 2018, Applied Industrial Technologies, Inc. (“Applied”) issued a press release related to its earnings for the third quarter ended March 31, 2018, and the declaration of a quarterly cash dividend. The release is attached as Exhibit 99.1 to this Report on Form 8-K.

The information in this Report on Form 8-K, including the Exhibit, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act.

ITEM 9.01.    FINANCIAL STATEMENTS AND EXHIBITS.    

(d)    Exhibits.    
            
Exhibit 99.1 - Press release of Applied Industrial Technologies, Inc. dated April 26, 2018.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
 
(Registrant)
 
 
 
 
 
 
 
By:  /s/ Fred D. Bauer          
 
Fred D. Bauer, Vice President-General Counsel & Secretary
Date: April 26, 2018
 






Exhibit No.    Description

99.1





Exhibit 99.1

Applied Industrial Technologies Reports Fiscal 2018 Third Quarter Results

•
Net Sales of $827.7 Million Up 21.8%; 6.7% Organic Sales Growth
•
Net Income of $36.6 Million Up 24.1%; EPS of $0.93 Up 24.0%
•
Results include ($0.12) one-time transaction-related expenses related to acquisition of FCX Performance
•
Raises full-year guidance to reflect strong performance and favorable
industrial markets

CLEVELAND, OHIO (April 26, 2018) - Applied Industrial Technologies (NYSE: AIT) today reported third quarter fiscal 2018 sales and earnings for the three months ended March 31, 2018.
Net sales for the quarter grew 21.8% to $827.7 million from $679.3 million in the same quarter a year ago. The overall sales increase for the quarter reflects a 15.3% increase from acquisition-related volume and favorable foreign currency translation of 0.8%. Excluding these factors, organic growth was up 6.7% in the quarter, which was partially offset by a 1.0% impact from one-half less sales day in the quarter. Net income for the quarter increased 24.1% to $36.6 million from $29.5 million, and earnings per share rose 24.0% to $0.93 per share, compared with $0.75 per share in the prior year quarter. EBITDA for the quarter of $72.2 million increased 30.3% versus the prior year quarter.
For the nine months ended March 31, 2018, net sales were $2.18 billion, an increase of 13.8% compared with $1.91 billion in the same period last year. Net income increased to $101.3 million from $80.9 million, and earnings per share increased 25.2% to $2.58 per share from $2.06 per share, last year.
Commenting on the results, Applied’s President & Chief Executive Officer Neil A. Schrimsher said, “Our solid third quarter results reflect broad-based execution across our business groups, along with the expected two-month contributions from the recent acquisition of FCX Performance. We are excited about the significant opportunities for growth and our expanding value-added capabilities that further enhance our differentiation and provide benefits for all Applied stakeholders.”

Outlook
Mr. Schrimsher added, “Given our performance year to date, and continued favorable industrial markets, we are raising our full-year earnings per share guidance to a range between $3.51 and $3.61 per share, on sales which are anticipated to be 17.5% to 18.5% higher year over year.” Updated EPS guidance includes ($0.03) to ($0.07) net impact of the FCX Performance acquisition, inclusive of the ($0.12) one-time transaction-related expense.

Dividend
Today the Company also announced that its Board of Directors declared a quarterly cash dividend of $0.30 per common share, payable on May 31, 2018, to shareholders of record on May 15, 2018.

Share Repurchases
The Company did not repurchase any shares during the quarter. Fiscal year to date, the Company has purchased 393,300 shares for a total of $22.8 million. At March 31, 2018, the Company had remaining authorization to purchase 1,056,700 additional shares.








Conference Call Information
Applied will host its quarterly conference call for investors and analysts at 10 a.m. ET on April 26. Neil A. Schrimsher - President & CEO, and David K. Wells - CFO will discuss the Company's performance. A supplemental investor deck detailing latest quarter results is available for reference on the investor relations portion of the Company’s website at www.applied.com. To join the call, dial 877-311-4351 (toll free) or 614-999-9139 (International) using conference ID 1958607. A live audio webcast can also be accessed online through the investor relations portion of the Company's website at www.applied.com. A replay of the call will be available for two weeks by dialing 855-859-2056 or 800-585-8367 (both toll free), or 404-537-3406 (International) using conference ID 1958607.

About Applied® 
Founded in 1923, Applied Industrial Technologies is a leading distributor of bearings, power transmission products, engineered fluid power, specialty flow control solutions, and other industrial supplies, serving 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, fluid power, and flow control shop services. Applied also offers storeroom services and inventory management solutions that provide added value to its customers. For more information, visit 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. Applied intends that such forward-looking statements be subject to the safe harbors created thereby. Forward-looking statements are often identified by qualifiers such as “expect,” “guidance,” “anticipate,” “will” and derivative or similar expressions. 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 Applied 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.

#####

CONTACT INFORMATION

INVESTOR RELATIONS
David K. Wells
Vice President - Chief Financial Officer & Treasurer
216-426-4755

CORPORATE & MEDIA RELATIONS
Julie A. Kho
Manager, Public Relations
216-426-4483







APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(In thousands, except per share data)
 
 Three Months Ended
March 31,
Nine Months Ended
March 31,
 
2018
2017
2018
2017
Net Sales
 $ 827,665
 $ 679,304
 $ 2,175,553
 $ 1,912,275
Cost of sales
         588,141
         488,502
      1,555,245
      1,370,687
Gross Profit
         239,524
         190,802
         620,308
         541,588
Selling, distribution and administrative,
 
 
 
 
   including depreciation
         183,080
         145,134
         465,312
         414,645
Operating Income
           56,444
           45,668
         154,996
         126,943
Interest expense, net
              8,216
              2,165
           12,521
              6,411
Other (income) expense, net
            (1,291)
                 154
            (2,022)
                  (54)
Income Before Income Taxes
           49,519
           43,349
         144,497
         120,586
Income Tax Expense
           12,927
           13,855
           43,234
           39,636
Net Income
 $ 36,592
 $ 29,494
 $ 101,263
 $ 80,950
Net Income Per Share - Basic
 $ 0.95
 $ 0.76
 $ 2.61
 $ 2.08
Net Income Per Share - Diluted
 $ 0.93
 $ 0.75
 $ 2.58
 $ 2.06
Average Shares Outstanding - Basic
           38,674
           38,999
           38,775
           39,009
Average Shares Outstanding - Diluted
           39,286
           39,462
           39,272
           39,384

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Applied uses the last-in, first-out (LIFO) method of valuing U.S. inventory. An actual valuation of inventory under the LIFO method can only be made 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.

(2) During the first quarter of fiscal 2018, we early adopted Accounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. As a result of this adoption, the condensed statement of consolidated income for the three months and nine months ended March 31, 2017 has been restated resulting in a decrease in selling, distribution and administrative expenses and increasing other (income) expense, net of $0.2 million and $0.6 million respectively; resulting in an increase to operating income for the same amount.

(3) On December 22, 2017, the Tax Cuts and Jobs Act was enacted in the U.S., making significant changes to U.S. tax law. In the nine months ended March 31, 2018, the Company revised its estimated annual effective tax rate to reflect the change in the federal statutory rate to a blended statutory rate for the annual period of 28.1%. We recognized a provisional amount for the one-time transition tax of $3.9 million, which is included as a component of income tax expense in the condensed statements of consolidated income for the nine months ended March 31, 2018. We also remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the current fiscal year and the future. The provisional amount recorded related to the remeasurement of our deferred tax balance was not material to the Company's condensed consolidated financial statements.

(4) On January 31, 2018, the Company completed the acquisition via merger of all of the outstanding shares of FCX Performance, Inc. (“FCX”), a Columbus, Ohio based distributor of specialty process flow control products and services. FCX operates 68 locations with approximately 1,000 employees. The total consideration transferred for the acquisition was approximately $784 million, which was financed by cash-on-hand and a new credit facility comprised of a $780 million Term Loan A and $250 million revolver (the “Credit Facility”), effective with the transaction closing. This Credit Facility was used to finance the transaction, as well as to repay the Company's existing term loan outstanding prior to the acquisition date.






APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

 
 
 
 
March 31,
2018
 
June 30,
2017
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
  Cash and cash equivalents
 
 $ 43,523
 
 $ 105,057
  Accounts receivable, less allowances of $11,540 and $9,628
           533,533
 
           390,931
  Inventories
 
 
           432,449
 
           345,145
  Other current assets
 
 
             41,735
 
             41,409
       Total current assets
 
        1,051,240
 
           882,542
  Property, net
 
 
           121,858
 
           108,068
  Goodwill
 
 
 
           629,783
 
           206,135
  Intangibles, net
 
 
           448,089
 
           163,562
  Other assets
 
 
             21,353
 
             27,288
Total Assets
 
 
 $ 2,272,323
 
 $ 1,387,595
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
  Accounts payable
 
 
 $ 217,852
 
 $ 180,614
  Current portion of long-term debt
 
             19,182
 
               4,814
  Other accrued liabilities
 
           132,930
 
           124,325
       Total current liabilities
 
           369,964
 
           309,753
  Long-term debt
 
 
        1,017,327
 
           286,769
  Other liabilities
 
 
             79,004
 
             45,817
Total Liabilities
 
 
        1,466,295
 
           642,339
Shareholders' Equity
 
           806,028
 
           745,256
Total Liabilities and Shareholders' Equity
 $ 2,272,323
 
 $ 1,387,595






APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
 (In thousands)
 
 
Nine Months Ended
  March 31,
 
 
 
 
2018
 
2017
 
 
 
 
 
Cash Flows from Operating Activities
 
 
 
 
Net income
 
 $ 101,263
 
 $ 80,950
Adjustments to reconcile net income to net cash provided
 
 
 
 
   by operating activities:
 
 
 
 
   Depreciation and amortization of property
 
              12,721
 
            11,364
   Amortization of intangibles
 
              21,326
 
            18,387
   Amortization of stock appreciation rights and options
 
                1,479
 
              1,533
   Gain on sale of property
 
                  (246)
 
            (1,540)
   Other share-based compensation expense
 
                3,481
 
              2,836
   Changes in assets and liabilities, net of acquisitions
 
            (91,642)
 
          (36,375)
   Other, net
 
                  (504)
 
              1,351
Net Cash provided by Operating Activities
 
              47,878
 
            78,506
Cash Flows from Investing Activities
 
 
 
 
   Property purchases
 
            (17,898)
 
          (11,787)
   Proceeds from property sales
 
                   714
 
              2,724
   Acquisition of businesses, net of cash acquired
 
          (778,149)
 
            (2,778)
Net Cash used in Investing Activities
 
(795,333)
 
(11,841)
Cash Flows from Financing Activities
 
 
 
 
   Net borrowings under revolving credit facility
 
87,500
 
(4,000)
   Long-term debt borrowings
 
            780,000
 
0
   Long-term debt repayments
 
(120,488)
 
(2,514)
   Debt issuance costs
 
(3,298)
 
0
   Purchases of treasury shares
 
(22,778)
 
(8,242)
   Dividends paid
 
(34,190)
 
(33,236)
   Acquisition holdback payments
 
                  (318)
 
            (7,694)
   Taxes paid for shares withheld for equity awards
 
               (1,498)
 
            (3,373)
   Exercise of stock appreciation rights and options
 
                        5
 
                 306
Net Cash provided by (used in) Financing Activities
 
684,935
 
(58,753)
Effect of Exchange Rate Changes on Cash
 
986
 
(460)
(Decrease) increase in cash and cash equivalents
 
            (61,534)
 
              7,452
Cash and cash equivalents at beginning of period
 
            105,057
 
            59,861
Cash and Cash Equivalents at End of Period
 
 $ 43,523
 
 $ 67,313






APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
 (In thousands)

 
 Three Months Ended
March 31,
Nine Months Ended
March 31,
 
2018
2017
2018
2017
Net Income
 $ 36,592
 $ 29,494
 $ 101,263
 $ 80,950
Interest expense, net
              8,216
              2,165
           12,521
              6,411
Income Tax Expense
           12,927
           13,855
           43,234
           39,636
Depreciation and amortization of property
              4,713
              3,877
           12,721
           11,364
Amortization of intangibles
              9,800
              6,056
           21,326
           18,387
EBITDA
 $ 72,248
 $ 55,447
 $ 191,065
 $ 156,748

SUPPLEMENTAL INFORMATION - RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

The company supplemented the reporting of financial information determined under U.S. generally accepted accounting principles (GAAP) with reporting EBITDA (Earnings from operations before Interest, Taxes, Depreciation, and Amortization), a non-GAAP financial measure. EBITDA excludes items that may not be indicative of core operating results.  The company believes that this non-GAAP measure provides meaningful information to assist shareholders in understanding financial results, assessing prospects for future performance, and provides a better baseline for analyzing trends in our underlying businesses.  Because non-GAAP financial measures are not standardized, it may not be possible to compare this financial measure with other companies' non-GAAP financial measures having the same or similar names.  EBITDA should not be considered in isolation or as a substitute for reported results.  This non-GAAP financial measure reflects an additional way of viewing aspects of operations that, when viewed with GAAP results, provide a more complete understanding of the business.  The company strongly encourages investors and shareholders to review company financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

The reconciliation provided above reconciles EBITDA , a non-GAAP financial measure, with net income, a GAAP financial measure.





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