Applied Industrial Technologies Reports Fiscal 2016 Third Quarter Results
April 28 2016 - 6:30AM
Applied Industrial Technologies (NYSE:AIT) today reported sales and
earnings for the third quarter and nine months ended March 31,
2016.
Net sales for the quarter were $633.2 million, a decrease of
6.9% compared with $680.0 million in the same quarter a year ago.
Net loss for the quarter was $44.7 million, or $1.14 per share,
compared to net income of $28.6 million, or $0.70 per share, in the
third quarter of fiscal 2015. For the nine months ended March 31,
2016, sales decreased 9.1% to $1.88 billion from $2.07 billion in
the same period last year. Net income was $3.5 million, or $0.09
per share, compared with $87.4 million, or $2.11 per share, last
year. The current year results for both the quarter and year to
date include negative earnings per share impacts of $1.62 per share
for a goodwill impairment charge and $0.13 per share for
restructuring expenses.
The overall sales decrease for the quarter reflects a 2.3%
increase from acquisition-related volume offset by a negative 1.8%
foreign currency translation impact and a 7.4% decrease in core
underlying operations. This 7.4% decrease consists of a 2.7%
decline attributable to sales in traditional core operations with
the remainder associated with sales in our operations serving the
upstream oil and gas markets.
Commenting on the results, Applied’s President & Chief
Executive Officer Neil A. Schrimsher said, “Results for the third
quarter and year to date were impacted by a $64.8 million ($63.8
million after tax) non-cash goodwill impairment charge. This total
consists of two components, the first being an $8.8 million charge
for our Australian operations, primarily due to the continued
decline in the Australian industrial economy, namely mining. The
remaining amount pertains to a goodwill impairment of $56.0 million
for our Canadian operations and is predominantly the result of the
sustained decline in oil and gas drilling activity.
“We continue to respond to the energy market challenges by
decreasing ongoing operating expenses and positioning Applied for
future value creation. We have implemented restructuring activities
within our upstream oil and gas focused operations to reduce our
operating expenses and de-risk our balance sheet.
“As a result of these actions, we recorded restructuring
expenses in the March quarter totaling $7.0 million, or $0.13 per
share. Approximately $3.6 million of these charges are included in
cost of sales and pertain to inventory reserves for potential
excess and obsolete inventory; the remaining $3.4 million of
charges are included within SD&A and are severance and facility
consolidation related. The restructuring is expected to yield
annual SD&A savings of $7.8 million and will further strengthen
our competitive position going forward.
“As we head into the final quarter of our fiscal year, we are
providing fourth quarter guidance of earnings per share of $0.62 to
$0.70 per share on sales of $640.0 million to $650.0 million.
Throughout Applied, we are focused on serving our customers,
delivering a strong close to the fiscal year and generating
shareholder value.”
During the quarter, the Company purchased 250,000 shares of its
common stock in open market transactions for $9.7 million. Fiscal
year to date, the Company has purchased 951,100 shares for a total
of $37.5 million. At March 31, 2016, the Company had remaining
authorization to purchase 296,200 additional shares.
In addition, Mr. Schrimsher announced that the Company’s Board
of Directors declared a quarterly cash dividend of $0.28 per common
share. The dividend is payable on May 31, 2016, to shareholders of
record on May 16, 2016.
Applied will host its quarterly conference call for investors
and analysts at 10 a.m. ET on April 28. Neil A. Schrimsher –
President & CEO, and Mark O. Eisele – CFO will discuss the
Company's performance. To join the call, dial 1-800-920-5541 or
1-212-231-2918 (for International callers). A live audio webcast
can 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 1-800-633-8284 or
1-402-977-9140 (International) using passcode 21809012.
Founded in 1923, Applied Industrial Technologies is a leading
industrial distributor that offers more than five million parts to
serve the needs 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 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,” “will,” and derivative or
similar expressions. All forward-looking statements are based on
current expectations regarding important risk factors including
trends in various industry sectors and geographies, 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.
For investor relations information, contact Mark O. Eisele, Vice
President – Chief Financial Officer, at 216-426-4417. For corporate
information, contact Julie A. Kho, Manager – Public Relations, at
216-426-4483.
|
|
|
|
|
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND
SUBSIDIARIES |
CONDENSED STATEMENTS OF CONSOLIDATED
OPERATIONS |
(In thousands, except per share data) |
|
|
|
|
|
Three Months Ended March 31, |
Nine Months Ended March 31, |
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
Net
Sales |
$ |
633,172 |
|
$ |
679,994 |
|
$ |
1,885,422 |
|
$ |
2,074,021 |
|
Cost of
sales |
|
458,379 |
|
|
492,631 |
|
|
1,356,450 |
|
|
1,496,013 |
|
Gross
Profit |
|
174,793 |
|
|
187,363 |
|
|
528,972 |
|
|
578,008 |
|
Selling, distribution
and administrative, |
|
|
|
|
including depreciation |
|
143,031 |
|
|
143,591 |
|
|
417,822 |
|
|
441,264 |
|
Goodwill
impairment |
|
64,794 |
|
|
- |
|
|
64,794 |
|
|
- |
|
Operating
Income (Loss) |
|
(33,032 |
) |
|
43,772 |
|
|
46,356 |
|
|
136,744 |
|
Interest expense,
net |
|
2,359 |
|
|
2,121 |
|
|
6,704 |
|
|
5,738 |
|
Other
expense (income), net |
|
65 |
|
|
(887 |
) |
|
1,124 |
|
|
(263 |
) |
Income (Loss)
Before Income Taxes |
|
(35,456 |
) |
|
42,538 |
|
|
38,528 |
|
|
131,269 |
|
Income Tax
Expense |
|
9,272 |
|
|
13,928 |
|
|
35,018 |
|
|
43,830 |
|
Net Income (Loss) |
$ |
(44,728 |
) |
$ |
28,610 |
|
$ |
3,510 |
|
$ |
87,439 |
|
Net Income (Loss) Per Share - Basic |
$ |
(1.14 |
) |
$ |
0.70 |
|
$ |
0.09 |
|
$ |
2.12 |
|
Net Income (Loss) Per Share - Diluted |
$ |
(1.14 |
) |
$ |
0.70 |
|
$ |
0.09 |
|
$ |
2.11 |
|
Average Shares Outstanding - Basic |
|
39,107 |
|
|
40,800 |
|
|
39,328 |
|
|
41,168 |
|
Average Shares Outstanding - Diluted |
|
39,107 |
|
|
41,067 |
|
|
39,548 |
|
|
41,477 |
|
|
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 third quarter of fiscal 2016, the
Company performed its annual goodwill impairment test. As a
result of the test, the Company determined that all of the goodwill
associated with the Australia/New Zealand Service Center Based
Distribution reporting unit was impaired as of January 1,
2016. This impairment is the result of the decline in the
mining and extraction industries in Asia and the resulting reduced
customer spending due to a decline in demand throughout Asia.
Further, due to sustained declines in oil prices and reduced
customer spending in Canada, the Company determined that the
goodwill associated with the Canada Service Center Based
Distribution reporting unit was also impaired as of January 1,
2016. Accordingly, the Company recognized a gross combined
impairment charge of $64.8 million for goodwill in the third
quarter of fiscal 2016, which after taxes had a negative impact on
earnings of $63.8 million and reduced earnings per share by $1.62
per share. |
|
(3) In the quarter ending March 31, 2016, the Company
incurred certain restructuring charges. A reserve of $3.6
million was recorded within cost of sales for the quarter ending
March 31, 2016, for potential non-salable, non-returnable and
excess inventory due to declining demand, primarily for Canada oil
and gas operations. SD&A included expenses of $3.4
million during the quarter related to severance and facility
consolidations, primarily for oil and gas operations. Total
restructuring charges reduced gross profit for the quarter by $3.6
million, operating income by $7.0 million, net income by $4.9
million and earnings per share by $0.13. |
|
(4) On January 4, 2016, the Company acquired
substantially all of the net assets of HUB Industrial Supply, a
distributor of consumable industrial products operating from three
locations - Lake City, FL, Indianapolis, IN and Las Vegas, NV for a
purchase price of $32,900. The financial results of the
operations acquired have been included in the Service Center Based
Distribution Segment as of the acquisition date. |
|
(5) In November 2015, the FASB issued its final
standard for the balance sheet classification of deferred
taxes. The amendments in this standard require that deferred
tax assets and liabilities be classified as noncurrent in the
balance sheet. This update is effective for financial
statements issued for annual periods beginning after December 15,
2016, with early adoption permitted. The Company has early
adopted this standard in the second quarter of fiscal 2016 and has
applied the new standard retrospectively to the prior period
presented in the Condensed Consolidated Balance Sheets. The
impact of this change in accounting principle on balances
previously reported as of June 30, 2015 was to decrease other
current assets $13.3 million, increase other assets $10.9 million
and decrease other liabilities $2.4 million. |
|
|
|
|
|
|
|
|
|
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND
SUBSIDIARIES |
|
CONDENSED CONSOLIDATED BALANCE
SHEETS |
|
(Amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016 |
|
June 30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
Cash and cash
equivalents |
|
$ |
62,932 |
|
|
$ |
69,470 |
|
|
Accounts receivable,
less allowances of $11,479 and $10,621 |
|
354,553 |
|
|
|
376,305 |
|
|
Inventories |
|
|
346,979 |
|
|
|
362,419 |
|
|
Other current assets |
|
|
|
39,377 |
|
|
|
37,816 |
|
|
Total current
assets |
|
|
803,841 |
|
|
|
846,010 |
|
|
Property, net |
|
|
108,132 |
|
|
|
104,447 |
|
|
Goodwill |
|
|
199,236 |
|
|
|
254,406 |
|
|
Intangibles, net |
|
|
195,726 |
|
|
|
198,828 |
|
|
Other assets |
|
|
|
27,404 |
|
|
|
28,865 |
|
|
Total Assets |
|
|
$ |
1,334,339 |
|
|
$ |
1,432,556 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Accounts payable |
|
$ |
134,871 |
|
|
$ |
179,825 |
|
|
Current portion of
long-term debt |
|
|
3,351 |
|
|
|
3,349 |
|
|
Other accrued liabilities |
|
|
114,253 |
|
|
|
126,898 |
|
|
Total current
liabilities |
|
|
|
252,475 |
|
|
|
310,072 |
|
|
Long-term debt |
|
|
|
367,820 |
|
|
|
317,646 |
|
|
Other liabilities |
|
|
|
57,202 |
|
|
|
63,510 |
|
|
Total Liabilities |
|
|
|
677,497 |
|
|
|
691,228 |
|
|
Shareholders' Equity |
|
|
656,842 |
|
|
|
741,328 |
|
|
Total Liabilities and Shareholders'
Equity |
$ |
1,334,339 |
|
|
$ |
1,432,556 |
|
|
|
|
|
|
|
|
|
|
|
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND
SUBSIDIARIES |
|
CONDENSED STATEMENTS OF CONSOLIDATED CASH
FLOWS |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, |
|
|
|
|
|
|
2016 |
|
|
|
2015 |
|
|
|
Cash Flows from
Operating Activities |
|
Net income |
|
$ |
3,510 |
|
|
$ |
87,439 |
|
|
Adjustments to
reconcile net income to net cash provided |
|
by operating activities: |
|
Goodwill impairment |
|
|
64,794 |
|
|
|
- |
|
|
Depreciation and amortization of
property |
|
|
12,041 |
|
|
|
12,792 |
|
|
Amortization of intangibles |
|
|
19,065 |
|
|
|
19,412 |
|
|
Amortization of stock appreciation
rights and options |
|
|
1,241 |
|
|
|
1,381 |
|
|
Loss on sale of property |
|
|
275 |
|
|
|
45 |
|
|
Other share-based compensation
expense |
|
|
2,073 |
|
|
|
1,123 |
|
|
Changes in assets and liabilities,
net of acquisitions |
|
|
(16,231 |
) |
|
|
(83,601 |
) |
|
Other, net |
|
|
3,591 |
|
|
|
721 |
|
|
Net Cash provided by Operating Activities |
|
|
90,359 |
|
|
|
39,312 |
|
|
Cash Flows from
Investing Activities |
|
Property purchases |
|
|
(9,441 |
) |
|
|
(11,009 |
) |
|
Proceeds from property sales |
|
|
372 |
|
|
|
451 |
|
|
Acquisition of businesses, net of cash acquired |
|
|
(56,142 |
) |
|
|
(166,479 |
) |
|
Net Cash used in Investing Activities |
|
|
(65,211 |
) |
|
|
(177,037 |
) |
|
Cash Flows from
Financing Activities |
|
Net borrowings under revolving
credit facility |
|
|
23,000 |
|
|
|
51,000 |
|
|
Long-term debt borrowings |
|
|
125,000 |
|
|
|
170,238 |
|
|
Long-term debt repayments |
|
|
(97,826 |
) |
|
|
(2,274 |
) |
|
Purchases of treasury shares |
|
|
(37,464 |
) |
|
|
(59,235 |
) |
|
Dividends paid |
|
|
(32,342 |
) |
|
|
(31,807 |
) |
|
Acquisition holdback payments |
|
|
(10,658 |
) |
|
|
(995 |
) |
|
Other, net |
|
|
1,191 |
|
|
|
770 |
|
|
Net Cash (used in) provided by Financing
Activities |
|
|
(29,099 |
) |
|
|
127,697 |
|
|
Effect of
Exchange Rate Changes on Cash |
|
|
(2,587 |
) |
|
|
(5,996 |
) |
|
Decrease in cash and cash equivalents |
|
|
(6,538 |
) |
|
|
(16,024 |
) |
|
Cash and cash equivalents at beginning of
period |
|
|
69,470 |
|
|
|
71,189 |
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
62,932 |
|
|
$ |
55,165 |
|
|
|
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