[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Ohio | 34-0117420 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
Title of each class | Name of each exchange on which registered |
Common Stock, without par value | New York Stock Exchange |
Large accelerated filer X | Accelerated filer __ |
Non-accelerated filer __ | Smaller reporting company __ |
Class | Outstanding at August |
Common Stock, without par value |
Page | ||
PART I | ||
Business | ||
Risk Factors | ||
Unresolved Staff Comments | ||
Properties | ||
Legal Proceedings | ||
Mine Safety Disclosures | ||
PART II | ||
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | ||
Selected Financial Data | ||
Management's Discussion and Analysis of Financial Condition and Results of Operations | ||
Quantitative and Qualitative Disclosures about Market Risk | ||
Financial Statements and Supplementary Data | ||
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | ||
Controls and Procedures | ||
Other Information | ||
PART III | ||
Directors, Executive Officers and Corporate Governance | ||
Executive Compensation | ||
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | ||
Certain Relationships and Related Transactions, and Director Independence | ||
Principal Accountant Fees and Services | ||
PART IV | ||
Exhibits and Financial Statement Schedules | ||
Ÿ | Service Center-Based Distribution. We distribute a wide range of industrial products through service centers across North America, Australia, and New Zealand. Customers primarily purchase our products for scheduled maintenance of their machinery and equipment and for emergency repairs. |
The service center-based distribution segment includes operations specialized in serving customers in the upstream oil and gas industry; the Applied Maintenance Supplies & Solutions service offering; regional fabricated rubber shops, which modify and repair conveyor belts and make hose assemblies in accordance with customer requirements; and rubber |
Ÿ | Fluid Power Businesses. Our specialized fluid power businesses primarily market products and services to customers within the businesses' geographic regions. In the United States, the businesses also market products and services through our service center network. In addition to distributing fluid power components, the businesses assemble fluid power systems and components, perform equipment repair, and offer technical advice to customers. Customers include firms purchasing for maintenance, repair, and operational needs, as well as for original equipment manufacturing applications. |
Ÿ | changes in customer preferences for products and services of the nature, brands, quality, or cost sold by |
Ÿ | changes in customer procurement policies and practices; |
Ÿ | changes in the market prices for products and services relative to the costs of providing them; |
Ÿ | changes in operating expenses; |
Ÿ | organizational changes within the company; |
Ÿ | adverse regulation and legislation, both enacted and under consideration, including with respect to federal tax policy (e.g., affecting the use of the LIFO inventory accounting method and the taxation of foreign-sourced income); |
Ÿ | the variability and timing of new business opportunities including acquisitions, alliances, customer relationships, and supplier authorizations; |
Ÿ | the incurrence of debt and contingent liabilities in connection with acquisitions; |
Ÿ | volatility of our stock price and the resulting impact on our consolidated financial statements; and |
Ÿ | changes in accounting policies and practices that could impact our financial reporting and increase compliance costs. |
Location of Principal Owned Real Property | Type of Facility |
Cleveland, Ohio | Corporate headquarters |
Atlanta, Georgia | Distribution center and service center |
Florence, Kentucky | Distribution center |
Carlisle, Pennsylvania | Distribution center |
Fort Worth, Texas | Distribution center and rubber shop |
Clairmont, Alberta | Service center |
Location of Principal Leased Real Property | Type of Facility |
Fontana, California | Distribution center, rubber shop, fluid power shop, and service center |
Newark, California | Fluid power shop |
Denver, Colorado | Rubber shop and service center |
Lenexa, Kansas | Fluid power shop |
Chanhassen, Minnesota | Fluid power shop |
Billings, Montana | Fluid power shop |
Cleveland, Ohio | Offices and warehouse |
Elyria, Ohio | Product return center and service center |
Portland, Oregon | Distribution center |
Kent, Washington | Offices, fluid power shop, and service center |
Longview, Washington | Service center, rubber shop, and fluid power shop |
Appleton, Wisconsin | Offices, service center, and rubber shop |
Edmonton, Alberta | Service center and shop |
Winnipeg, Manitoba | Distribution center and service center |
Name | Positions and Experience | Age |
Neil A. Schrimsher | President (since August 2013) and Chief Executive Officer (since October 2011). From February 2010 to August 2011, Mr. Schrimsher was Executive Vice President of Cooper Industries plc (formerly NYSE: CBE), a global electrical products manufacturer, where he led Cooper's Electrical Products Group and headed numerous domestic and international growth initiatives. He was also President of Cooper Lighting, Inc. throughout the period from 2006 to December 2010. | |
Thomas E. Armold | Vice President-Sales since February 2015. Prior to that, he had served as Vice President-Marketing and Strategic Accounts since 2008. | |
Todd A. Barlett | Vice President-Acquisitions and Global Business Development since 2004. | |
Fred D. Bauer | Vice President-General Counsel & Secretary since 2002. | |
Mark O. Eisele | Vice President-Chief Financial Officer & Treasurer since 2004. | |
Kurt W. Loring | Vice President-Chief Human Resources Officer since July 2014. From October 2011 to July 2014 he was Vice President, Human Resources for the Forged Products segment of Precision Castparts Corporation (NYSE: PCP). The $4.3 billion segment, with greater than 5,000 employees, is a world-leading producer of complex forgings and high-performance nickel-based alloys and super alloys for aerospace, power generation, and general industrial applications. Prior to that he served with Danaher Corporation (NYSE: DHR), most recently (from 2008 to September 2011) as the Vice President, Human Resources for its Fluke Corporation subsidiary, a leader in the manufacture, distribution, and service of electronic test tools and software worldwide. | |
Price Range | Price Range | |||||||||||||||||||||||||||
Shares Traded | Average Daily Volume | High | Low | Shares Traded | Average Daily Volume | High | Low | |||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||
First Quarter | 9,932,400 | 155,200 | $ | 52.62 | $ | 45.54 | ||||||||||||||||||||||
Second Quarter | 11,023,400 | 172,200 | 50.00 | 42.92 | ||||||||||||||||||||||||
Third Quarter | 17,181,400 | 281,700 | 46.05 | 39.76 | ||||||||||||||||||||||||
Fourth Quarter | 16,892,300 | 268,100 | 45.22 | 39.54 | ||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||
First Quarter | 9,157,400 | 143,100 | $ | 53.57 | $ | 47.21 | 9,157,400 | 143,100 | $ | 53.57 | $ | 47.21 | ||||||||||||||||
Second Quarter | 12,634,700 | 197,400 | 53.45 | 45.62 | 12,634,700 | 197,400 | 53.45 | 45.62 | ||||||||||||||||||||
Third Quarter | 10,107,300 | 165,700 | 52.27 | 45.74 | 10,107,300 | 165,700 | 52.27 | 45.74 | ||||||||||||||||||||
Fourth Quarter | 12,799,900 | 203,200 | 51.44 | 45.62 | 12,799,900 | 203,200 | 51.44 | 45.62 | ||||||||||||||||||||
2013 | ||||||||||||||||||||||||||||
First Quarter | 12,149,000 | 196,000 | $ | 44.86 | $ | 34.67 | 12,149,000 | 196,000 | $ | 44.86 | $ | 34.67 | ||||||||||||||||
Second Quarter | 12,434,700 | 201,600 | 42.54 | 36.52 | 12,434,700 | 201,600 | 42.54 | 36.52 | ||||||||||||||||||||
Third Quarter | 11,238,700 | 187,300 | 45.67 | 42.02 | 11,238,700 | 187,300 | 45.67 | 42.02 | ||||||||||||||||||||
Fourth Quarter | 11,295,800 | 176,500 | 49.44 | 40.39 | 11,295,800 | 176,500 | 49.44 | 40.39 | ||||||||||||||||||||
2012 | ||||||||||||||||||||||||||||
First Quarter | 26,284,500 | 410,700 | $ | 36.77 | $ | 24.50 | ||||||||||||||||||||||
Second Quarter | 19,521,900 | 309,900 | 36.07 | 25.63 | ||||||||||||||||||||||||
Third Quarter | 15,756,700 | 254,100 | 42.01 | 34.78 | ||||||||||||||||||||||||
Fourth Quarter | 16,697,600 | 265,000 | 41.79 | 34.44 |
Period | (a) Total Number of Shares (1) | (b) Average Price Paid per Share ($) | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2) | |||||
April 1, 2014 to April 30, 2014 | 86,235 | 48.32 | 86,100 | 560,400 | |||||
May 1, 2014 to May 31, 2014 | 107,700 | 47.21 | 107,700 | 452,700 | |||||
June 1, 2014 to June 30, 2014 | 71,100 | 49.15 | 71,100 | 381,600 | |||||
Total | 265,035 | 48.09 | 264,900 | 381,600 |
Period | (a) Total Number of Shares (1) | (b) Average Price Paid per Share ($) | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2) | |||||||
April 1, 2015 to April 30, 2015 | 156,714 | 42.70 | 153,300 | 1,500,000 | |||||||
May 1, 2015 to May 31, 2015 | 127,700 | 42.51 | 127,700 | 1,372,300 | |||||||
June 1, 2015 to June 30, 2015 | 125,000 | 42.44 | 125,000 | 1,247,300 | |||||||
Total | 409,414 | 42.56 | 406,000 | 1,247,300 |
(1) | During the quarter ended June 30, |
(2) | On We publicly announced the authorization |
2014 | 2013 | 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||||||||||||||||||
Consolidated Operations — Year Ended June 30 | ||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 2,459,878 | $ | 2,462,171 | $ | 2,375,445 | $ | 2,212,849 | $ | 1,893,208 | $ | 2,751,561 | $ | 2,459,878 | $ | 2,462,171 | $ | 2,375,445 | $ | 2,212,849 | ||||||||||||||||||||
Depreciation and amortization of property | 13,977 | 12,501 | 11,236 | 11,234 | 11,465 | 16,578 | 13,977 | 12,501 | 11,236 | 11,234 | ||||||||||||||||||||||||||||||
Amortization: | ||||||||||||||||||||||||||||||||||||||||
Intangible assets | 14,023 | 13,233 | 11,465 | 11,382 | 10,151 | 25,797 | 14,023 | 13,233 | 11,465 | 11,382 | ||||||||||||||||||||||||||||||
SARs and stock options | 1,808 | 2,317 | 2,058 | 2,473 | 3,020 | 1,610 | 1,808 | 2,317 | 2,058 | 2,473 | ||||||||||||||||||||||||||||||
Operating income | 164,358 | 176,399 | 168,395 | 150,763 | 110,050 | 184,619 | 164,358 | 176,399 | 168,395 | 150,763 | ||||||||||||||||||||||||||||||
Net income | 112,821 | 118,149 | 108,779 | 96,759 | 65,903 | 115,484 | 112,821 | 118,149 | 108,779 | 96,759 | ||||||||||||||||||||||||||||||
Per share data: | ||||||||||||||||||||||||||||||||||||||||
Net income: | ||||||||||||||||||||||||||||||||||||||||
Basic | 2.69 | 2.81 | 2.58 | 2.28 | 1.56 | 2.82 | 2.69 | 2.81 | 2.58 | 2.28 | ||||||||||||||||||||||||||||||
Diluted | 2.67 | 2.78 | 2.54 | 2.24 | 1.54 | 2.80 | 2.67 | 2.78 | 2.54 | 2.24 | ||||||||||||||||||||||||||||||
Cash dividend | 0.96 | 0.88 | 0.80 | 0.70 | 0.60 | 1.04 | 0.96 | 0.88 | 0.80 | 0.70 | ||||||||||||||||||||||||||||||
Year-End Position — June 30 | ||||||||||||||||||||||||||||||||||||||||
Working capital | $ | 545,193 | $ | 491,380 | $ | 435,593 | $ | 404,226 | $ | 347,528 | $ | 549,233 | $ | 545,193 | $ | 491,380 | $ | 435,593 | $ | 404,226 | ||||||||||||||||||||
Long-term debt (including portion classified as current) | 170,712 | — | — | — | 75,000 | 320,995 | 170,712 | — | — | — | ||||||||||||||||||||||||||||||
Total assets | 1,334,169 | 1,058,706 | 962,183 | 914,931 | 891,520 | 1,434,968 | 1,334,169 | 1,058,706 | 962,183 | 914,931 | ||||||||||||||||||||||||||||||
Shareholders’ equity | 800,308 | 759,615 | 672,131 | 633,563 | 555,039 | 741,328 | 800,308 | 759,615 | 672,131 | 633,563 | ||||||||||||||||||||||||||||||
Year-End Statistics — June 30 | ||||||||||||||||||||||||||||||||||||||||
Current ratio | 2.9 | 3.0 | 2.9 | 2.9 | 2.3 | 2.8 | 2.9 | 3.0 | 2.9 | 2.9 | ||||||||||||||||||||||||||||||
Operating facilities | 538 | 522 | 476 | 474 | 455 | 565 | 538 | 522 | 476 | 474 | ||||||||||||||||||||||||||||||
Shareholders of record | 6,330 | 6,319 | 6,225 | 6,208 | 5,884 | 6,016 | 6,330 | 6,319 | 6,225 | 6,208 | ||||||||||||||||||||||||||||||
Return on assets | 10.2 | % | 11.6 | % | 11.8 | % | 11.1 | % | 7.9 | % | 7.9 | % | 10.2 | % | 11.6 | % | 11.8 | % | 11.1 | % | ||||||||||||||||||||
Return on equity | 14.5 | % | 16.5 | % | 16.7 | % | 16.3 | % | 12.4 | % | 15.0 | % | 14.5 | % | 16.5 | % | 16.7 | % | 16.3 | % | ||||||||||||||||||||
Capital expenditures | $ | 20,190 | $ | 12,214 | $ | 26,021 | $ | 20,431 | $ | 7,216 | $ | 14,933 | $ | 20,190 | $ | 12,214 | $ | 26,021 | $ | 20,431 | ||||||||||||||||||||
Cash Returned to Shareholders During the Year | ||||||||||||||||||||||||||||||||||||||||
Dividends Paid | $ | 40,410 | $ | 37,194 | $ | 33,800 | $ | 29,751 | $ | 25,416 | $ | 42,663 | $ | 40,410 | $ | 37,194 | $ | 33,800 | $ | 29,751 | ||||||||||||||||||||
Purchases of Treasury Shares | 36,732 | 53 | 31,032 | 6,085 | 3,929 | 76,515 | 36,732 | 53 | 31,032 | 6,085 | ||||||||||||||||||||||||||||||
Total | $ | 77,142 | $ | 37,247 | $ | 64,832 | $ | 35,836 | $ | 29,345 | $ | 119,178 | $ | 77,142 | $ | 37,247 | $ | 64,832 | $ | 35,836 |
(a) | Includes participant-shareholders in the Applied Industrial Technologies, Inc. Retirement Savings Plan and shareholders in the Company's direct stock purchase program. |
(b) | Return on assets is calculated as net income divided by monthly average assets. |
Return on equity is calculated as net income divided by the average shareholders’ equity (beginning of the year the year divided by 2). |
Capital expenditures for fiscal 2014 included the purchase of our headquarters facility which used $10.0 million of cash. Capital expenditures for 2013, 2012 and 2011 include $5.6 million, $16.7 million and $12.5 million related to project, respectively. See Item 7 under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operations” for further description of the ERP (SAP) project. |
Year Ended June 30, As a % of Net Sales | Change in Sales in fiscal Sales of our Service Center Based Distribution segment, which operates primarily in MRO markets, Sales of our Fluid Power Businesses segment, which operates primarily in OEM markets, increased Sales in our U.S. operations were up The sales product mix for fiscal Our gross profit margin was Selling, distribution and administrative expenses (SD&A) consist of associate compensation, benefits and other expenses associated with selling, purchasing, warehousing, supply chain management, and providing marketing and distribution of the Company’s products, as well as costs associated with a variety of administrative functions such as human resources, information technology, treasury, accounting, legal, facility related expenses and expenses incurred with acquiring businesses. SD&A increased Operating income increased $20.3 million, or 12.3%, to $184.6 million during fiscal 2015 from $164.4 million during 2014, and as a percent of sales, remained stable at 6.7%. The increase in operating income dollars is primarily attributable to our acquired businesses. Operating income as a percentage of sales for the Service Center Based Distribution segment increased to 6.2% in fiscal 2015 from 6.0% in fiscal 2014. This increase is primarily attributable to an increase in gross profit as a percentage of sales, as a result of our recent acquisitions which operate at higher gross profit margins, representing an increase of 0.1%, along with a decrease in SD&A as a percentage of sales of 0.1%. Operating income as a percentage of sales for the Fluid Power Businesses segment increased to 9.8% in fiscal 2015 from 9.2% in fiscal 2014. This increase is primarily attributable to the leveraging of organic sales growth in our U.S. based Fluid Power Businesses, without a commensurate increase in SD&A expenses. Segment operating income is impacted by changes in the amounts and levels of expenses allocated to the segments. The expense allocations include corporate charges for working capital, logistics support and other items and impact segment gross profit and operating expense. Interest expense, net, increased to $7.9 million in fiscal 2015 entirely due to acquisition related borrowing. Other expense (income), net, represents certain non-operating items of income and expense. This was $0.9 million of expense in fiscal 2015 compared to $2.2 million of income in fiscal 2014. Current year expense primarily consists of foreign currency transaction losses of $1.3 million offset by unrealized gains on investments held by non-qualified 15 deferred compensation trusts of $0.4 million. Fiscal 2014 consisted primarily of unrealized gains on investments held by non-qualified deferred compensation trusts of $1.7 million as well as $1.3 million of income associated with the elimination of the one-month Canadian and Mexican reporting lags (see note 1 in Item 8 under the caption "Financial Statements and Supplementary Data"), offset by foreign currency transaction losses of $0.8 million. Income tax expense as a percent of income before taxes was 34.3% for fiscal 2015 and 32.1% for fiscal 2014. This increase in the effective rate is due to recording of valuation allowances against certain deferred tax assets for foreign jurisdictions in fiscal 2015 as well as the non-recurrence of a one-time favorable tax benefit in fiscal 2014 in accounting for undistributed earnings of non-U.S. subsidiaries. All undistributed earnings of our foreign subsidiaries are considered to be permanently reinvested at June 30, 2015 and 2014. We expect our income tax rate for fiscal 2016 to be in the range of 34.0% to 34.5%. As a result of the factors addressed above, net income for fiscal 2015 increased $2.7 million or 2.4% from the prior year. Net income per share increased at a slightly higher rate of 4.9% due to lower weighted-average shares outstanding in fiscal 2015. At June 30, 2015, we had a total of 565 operating facilities in the United States, Puerto Rico, Canada, Mexico, Australia and New Zealand, versus 538 at June 30, 2014. The number of Company employees was 5,839 at June 30, 2015 and 5,472 at June 30, 2014. YEAR ENDED JUNE 30, 2014 vs. 2013 The following table is included to aid in review of Applied’s statements of consolidated income.
Sales in fiscal 2014 were $2.46 billion, which was $2.3 million or 0.1% below the 2013 fiscal year. We experienced overall declines in sales from our businesses not acquired in fiscal year 2014 of approximately $34.3 million or 1.4%. There was one additional selling day in fiscal 2014 as compared to fiscal 2013. Currency translation decreased fiscal year sales by approximately $26.2 million or 1.1%. Incremental sales from companies acquired since the 2013 fiscal year contributed $58.2 million or 2.4%. Sales of our Service Center Based Distribution segment, which operates primarily in MRO markets, decreased $30.1 million, or 1.5%. This decline was due to decreases in sales from businesses not acquired in fiscal year 2014 of $62.5 million or 3.1% coupled with an unfavorable impact of foreign currency translation of $23.1 million or 1.2%. Offseting these decreases was acquisitions, which added $55.5 million or 2.8%. Sales of our Fluid Power Businesses segment, which operates primarily in OEM markets, increased $27.8 million or 6.1%. We experienced sales growth at several of our Fluid Power businesses which added $29.9 million or 6.6% along with acquisitions within this segment which added $2.8 million or 0.6%, while unfavorable foreign currency translation losses decreased sales by $4.9 million or 1.1%. Sales in our U.S. operations were up $14.0 million or 0.7% with acquisitions adding $32.8 million or 1.6% offsetting declines in sales from our businesses not acquired in fiscal year 2014 of $18.8 million or 0.9%. Sales from our Canadian operations decreased $7.2 million or 2.4%. Acquisitions added $19.3 million or 6.5%, offset by unfavorable foreign currency translation losses which reduced sales by $17.5 million or 5.9% coupled with declines in sales from our businesses not acquired in fiscal year 2014 of $9.0 million or 3.0%, mostly as a result of weakness within the Canadian mining sector. Consolidated sales from our other country operations, which include Mexico, Australia and New Zealand, were $9.1 million or 6.2% below the 2013 fiscal year. This decrease is primarily the result of unfavorable foreign currency translation losses of $8.7 million or 5.9%, coupled with declines in sales of $6.5 million or 4.4%, mostly within the mining sector, from our businesses not acquired in fiscal year 2014, while acquisitions added $6.1 million or 4.2% in fiscal 2014. 16 The sales product mix for fiscal 2014 was 70.7% industrial products and 29.3% fluid power products compared to 72.1% industrial and 27.9% fluid power in fiscal year 2013. The change in our product mix in fiscal year 2014 was due to sales growth within our Fluid Power Businesses segment coupled with sales declines in our Service Center Based Distribution segment. Our gross profit margin was 27.9% in fiscal 2014 versus 27.7% in fiscal 2013. The increased margins wereattributable to the impact of relatively higher gross margins from acquired operations. Selling, distribution and administrative expenses (SD&A) consist of associate compensation, benefits and other expenses associated with selling, purchasing, warehousing, supply chain management, and providing marketing and distribution of the Company’s products, as well as costs associated with a variety of administrative functions such as human resources, information technology, treasury, accounting, legal, facility related expenses and expenses incurred with acquiring businesses. SD&A increased $16.0 million or 3.2% during fiscal 2014 compared to fiscal 2013, and as a percent of sales increased to 21.2% from 20.6% in fiscal 2013. The acquired businesses added $19.3 million of SD&A expenses, which Operating income decreased Operating income as a percentage of sales for the Service Center Based Distribution segment decreased to 6.0% in fiscal 2014 from 6.9% in fiscal 2013. This decrease Operating income as a percentage of sales for the Fluid Power Businesses segment increased to 9.2% in fiscal 2014 from 9.0% in fiscal 2013. This increase Segment operating income Interest expense, net, remained relatively stable as compared to Other expense (income), net, Income tax expense as a percent of income before taxes was 32.1% for fiscal 2014 and 33.5% for fiscal 2013. The impact of lower effective tax rates in foreign jurisdictions favorably reduced our rate when compared to the U.S. federal statutory rate by 2.6%. Further reducing our rate compared to the U.S. federal statutory rate by 1.6% was the reversal of a deferred tax liability recorded in the years prior 17 As a result of the factors addressed above, net income for fiscal 2014 decreased At June 30, 2014, we had a total of 538 operating facilities in the United States, Puerto Rico, Canada, Mexico, Australia and New Zealand, versus 522 at June 30, 2013. The number of Company employees was 5,472 at June 30, 2014 and 5,109 at June 30, 2013.
LIQUIDITY AND CAPITAL RESOURCES Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of debt. At June 30, The Company holds, from time to time, relatively significant cash and cash equivalent balances outside of the United States of America. The following table shows the Company's total cash as of June 30,
To the extent cash in foreign countries is distributed to the U.S., it could become subject to U.S. income taxes. Foreign tax credits may be available to offset all or a portion of such taxes. At June 30, The Company’s working capital at June 30, Net Cash Flows The following table is included to aid in review of Applied’s statements of consolidated cash flows; all amounts are in thousands.
Net cash used in investing activities in fiscal 2015 included $14.9 million for capital expenditures and $160.6 million used for acquisitions. Net cash used in investing activities in fiscal 2014 included $20.2 million for capital expenditures, $10.0 million 18 activities included the use of $12.2 million for capital expenditures Net cash provided by financing activities in fiscal 2015 included $170.0 million from borrowings under long term debt facilities used for the financing of acquisitions, offset by $17.0 million of repayments under our revolving credit facility and dividend payments, $76.5 million used to repurchase 1,740,100 shares of treasury stock and $7.7 million of acquisition holdback payments. Net cash provided by financing activities in fiscal 2014 included $100.0 million from borrowings under long term debt facilities as well as $69.0 million in borrowings under our revolving credit facility, both of which were utilized for the financing of acquisitions. These sources of cash were offset by $40.4 million for dividend payments and $36.7 million used to repurchase 759,900 shares of treasury stock. Net cash used in financing activities in fiscal 2013 included $37.2 million for dividend payments and $3.8 million related to acquisition holdback payments, partially offset by $2.6 million of excess tax benefits from share-based compensation. The increase in dividends over the last three fiscal years is the result of regular increases in our dividend payout rates. We paid dividends of $1.04, $0.96 Capital Expenditures We expect capital expenditures for fiscal ERP Project In fiscal 2011 Applied commenced its ERP (SAP) project to transform the Company's technology platforms and enhance its business information and technology systems for future growth. We have deployed our solution in Share Repurchases The Board of Directors has authorized the repurchase of shares of the Company’s stock. These purchases may be made in open market and negotiated transactions, from time to time, depending upon market conditions. At June 30, In fiscal 2015, 2014 Borrowing Arrangements The Company has a Additionally at June 30, 2015, the Company had letters of credit outstanding with a separate bank, in the amount of $1.8 million, in order to secure certain insurance obligations. In April 2014 the Company entered into a Also in April 2014, the Company assumed $2.4 million of debt as a part of the acquisition of our headquarters facility. The 1.5% fixed interest rate note is held by the State of Ohio Development Services Agency 19 The revolving credit facility and Accounts Receivable Analysis The following table is included to aid in analysis of accounts receivable and the associated provision for losses on accounts receivable (all dollar amounts are in thousands):
Accounts receivable are reported at net realizable value and consist of trade receivables from customers. Management monitors accounts receivable by reviewing Days Sales Outstanding (DSO) and the aging of receivables for each of the Company's locations. On a consolidated basis, DSO was 50.0 at June 30, 2015 versus 51.4 at June 30, 2015. Acquisitions added $29.3 million, or 7.8%, of accounts receivable, changes in foreign currency rates decreased receivables by $15.6 million and improved collections led to a decrease in receivables of $13.1 million. We primarily attribute the Approximately Inventory Analysis Inventories are valued at the was CONTRACTUAL OBLIGATIONS The following table shows the approximate value of the Company’s contractual obligations and other commitments to make future payments as of June 30,
(1) Amounts represent estimated contractual interest payments on outstanding long-term debt obligations. Rates in effect as of June 30, 2015 are used for variable rate debt. Purchase orders for inventory and other goods and services are not included in our estimates as we are unable to aggregate the amount of such purchase orders that represent enforceable and legally binding agreements specifying all significant terms. The previous table includes the gross liability for unrecognized income tax benefits including interest and penalties as well as the balance outstanding under our revolving credit facility in the “Other” column as the Company is unable to make a reasonable estimate regarding the timing of cash settlements, if any, with the respective taxing authorities or lenders. SUBSEQUENT EVENTS On CRITICAL ACCOUNTING POLICIES The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates at a specific point in time that affect the amounts reported in the consolidated financial statements and disclosed in the accompanying notes. The Business and Accounting Policies note to the consolidated financial statements describes the significant accounting policies and methods used in preparation of the consolidated financial statements. Estimates are used for, but not limited to, determining the net carrying value of trade accounts receivable, inventories, recording self-insurance liabilities and other accrued liabilities. Estimates are also used in establishing opening balances in relation to purchase accounting. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements. LIFO Inventory Valuation and Methodology Inventories are valued at the LIFO layers and/or liquidations are determined consistently year-to-year. See the Inventories note to the consolidated financial statements in Item 8 under the caption "Financial Statements and Supplementary Data, for further information. Allowances for Slow-Moving and Obsolete Inventories We evaluate the recoverability of our slow-moving or obsolete inventories at least quarterly. We estimate the recoverable cost of such inventory by product type while considering factors such as its age, historic and current 21 demand trends, the physical condition of the inventory, as well as assumptions regarding future demand. Our ability to recover our cost for slow moving or obsolete inventory can be affected by such factors as general market conditions, future customer demand and relationships with suppliers. Allowances for Doubtful Accounts We evaluate the collectibility of trade accounts receivable based on a combination of factors. Initially, we estimate an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience. This initial estimate is adjusted based on recent trends of certain customers and industries estimated to be a greater credit risk, trends within the entire customer pool and changes in the overall aging of accounts receivable. While we have a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which we operate could result in higher than expected defaults, and therefore, the need to revise estimates for bad debts. Accounts are written off against the allowance when it becomes evident that collection will not occur. As of June 30, Goodwill and Intangibles Goodwill is recognized as the amount by which the cost of an acquired entity exceeds the net amount assigned to assets acquired and liabilities assumed. Goodwill for acquired businesses is accounted for using the acquisition method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of the acquisition at their respective estimated fair values. The judgments made in determining the estimated fair value assigned to each class of assets acquired, as well as the estimated life of each asset, can materially impact the net income of the periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. As part of acquisition accounting, we also recognize acquired identifiable intangible assets such as customer relationships, vendor relationships, trade names, and non-competition agreements apart from goodwill. Finite-lived identifiable intangibles are evaluated for impairment when changes in conditions indicate carrying value may not be recoverable. We evaluate goodwill Goodwill on our consolidated financial statements is related to both the Service Center Based Distribution segment and the Fluid Power Businesses segment. 22 units (Canada service center and Australia / New Zealand) had excess fair value of approximately $39.0 million and $4.0 million, or fifteen and fourteen percent, respectively when compared to the carrying amounts of approximately $258.0 million and $28.0 million, respectively. The techniques used in the Company's impairment test have incorporated a number of assumptions that the Company believes to be reasonable and to reflect market conditions forecast at the assessment date. Assumptions in estimating future cash flows are subject to a high degree of judgment. The Company makes all efforts to forecast future cash flows as accurately as possible with the information available at the time the forecast is made. To this end, the Company evaluates the appropriateness of its assumptions as well as its overall forecasts by comparing projected results of upcoming years with actual results of preceding years and validating that differences therein are reasonable. Key assumptions, all of which are Level 3 inputs, relate to pricing trends, inventory costs, discount rate, customer demand, and the long-term growth and foreign exchange rates. A number of benchmarks from independent industry and other economic publications were also used. Changes in future actual results, assumptions and estimates after the assessment date may lead to an outcome where impairment charges would be required in future periods. Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions. Self-Insurance Liabilities We maintain business insurance programs with significant self-insured retention covering workers’ compensation, business, automobile, general product liability and other claims. We accrue estimated losses using actuarial calculations, models and assumptions based on historical loss experience. We also maintain a partially self-insured health benefits plan, which provides medical benefits to U.S. based employees electing coverage. We maintain a reserve for all unpaid medical claims including those incurred but not reported based on historical experience and other assumptions. Although management believes that the estimated liabilities for self-insurance are adequate, the estimates described above may not be indicative of current and future losses. In addition, the actuarial calculations used to estimate self-insurance liabilities are based on numerous assumptions, some of which are subjective. We will continue to adjust our estimated liabilities for self-insurance, as deemed necessary, in the event that future loss experience differs from historical loss patterns. Pension and Other Post-employment Benefit Plans The measurement of liabilities related to pension plans and other post-employment benefit plans is based on management’s assumptions related to future events including interest rates, return on pension plan assets, and health care cost trend rates. We evaluate these assumptions and adjust them as necessary. Changes to these assumptions could result in a material change to the Company’s pension obligation causing a related increase or decrease in reported net operating results in the period of change in the estimate. At June 30,
A 1% change in the return on assets is not material as most of the plans are non-qualified and unfunded. Income Taxes Deferred income taxes are recorded for estimated future tax effects of differences between the bases of assets and liabilities for financial reporting and income tax purposes, giving consideration to enacted tax laws. As of June 30, is more-likely-than-not of being realized. The realization of these deferred tax assets can be impacted by changes to tax laws, statutory Income taxes on undistributed earnings of non-U.S. subsidiaries are not accrued for the portion of such earnings that management considers to be permanently reinvested. At June 30, CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT This Form 10-K, including Management’s Discussion and Analysis, contains statements that are forward-looking based on management’s current expectations about the future. Forward-looking statements are often identified by qualifiers, such as “guidance”, “expect”, “believe”, “plan”, “intend”, “will”, “should”, “could”, “would”, “anticipate”, “estimate”, “forecast”, “may”, "optimistic" and derivative or similar words or expressions. Similarly, descriptions of objectives, strategies, plans, or goals are also forward-looking statements. These statements may discuss, among other things, expected growth, future sales, future cash flows, future capital expenditures, future performance, and the anticipation and expectations of the Company and its management as to future occurrences and trends. The Company intends that the forward-looking statements be subject to the safe harbors established in the Private Securities Litigation Reform Act of 1995 and by the Securities and Exchange Commission in its rules, regulations and releases. Readers are cautioned not to place undue reliance on any forward-looking statements. All forward-looking statements are based on current expectations regarding important risk factors, many of which are outside the Company’s control. Accordingly, actual results may differ materially from those expressed in the forward-looking statements, and the making of those 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 assumes no obligation publicly to update or revise any forward-looking statements, whether because of new information or events, or otherwise, except as may be required by law. Important risk factors include, but are not limited to, the following: risks relating to the operations levels of our customers and the economic factors that affect them; changes in the prices for products and services relative to the cost of providing them; reduction in supplier inventory purchase incentives; loss of key supplier authorizations, lack of product availability, or changes in supplier distribution programs; the cost of products and energy and other operating costs; changes in customer preferences for products and services of the nature and brands sold by us; changes in customer procurement policies and practices; competitive pressures; our reliance on information systems; We discuss certain of these matters and other risk factors more fully throughout our Form 10-K, as well as other of our filings with the Securities and Exchange Commission. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Our market risk is impacted by changes in foreign currency exchange rates as well as changes in interest rates. We occasionally utilize derivative instruments as part of our overall financial risk management policy, but do not use derivative instruments for speculative or trading purposes. We do not currently have any outstanding derivative instruments. Foreign Currency Exchange Rate Risk Because we operate throughout North America, Australia and New Zealand and approximately During the course of the fiscal year, the Canadian, Australian, Mexican and New Zealand foreign exchange rates decreased in relation to the U.S. dollar by Interest Rate Risk Our primary exposure to interest rate risk results from our outstanding debt Our debt facilities outstanding include our revolving credit facility, with a capacity of up to $150.0 million in borrowings and We monitor depository institutions that hold our cash and cash equivalents, primarily for safety of principal and secondarily for maximizing yield on those funds. We diversify our cash and cash equivalents among counterparties to minimize exposure to any of these entities. For more information relating to borrowing and interest rates, see the “Liquidity and Capital Resources” section of “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and note 5 to the consolidated financial statements in Item 8. That information is also incorporated here by reference. In addition, see Item 1A, “Risk Factors,” for additional risk factors relating to our business. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Applied Industrial Technologies, Inc. Cleveland, Ohio We have audited the accompanying consolidated balance sheets of Applied Industrial Technologies, Inc. and subsidiaries (the "Company") as of June 30, our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of June 30, /s/ Deloitte & Touche LLP Cleveland, Ohio August STATEMENTS OF CONSOLIDATED INCOME (In thousands, except per share amounts)
See notes to consolidated financial statements. STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (In thousands)
See notes to consolidated financial statements. 28 CONSOLIDATED BALANCE SHEETS (In thousands)
See notes to consolidated financial statements. 29 STATEMENTS OF CONSOLIDATED CASH FLOWS (In thousands)
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (In thousands)
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) NOTE 1: BUSINESS AND ACCOUNTING POLICIES Business Applied Industrial Technologies, Inc. and subsidiaries (the “Company” or “Applied”) is a leading industrial distributor serving Maintenance Repair & Operations (MRO) and Original Equipment Manufacturer (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. Although the Company does not generally manufacture the products it sells, it does assemble and repair certain products and systems. Consolidation The consolidated financial statements include the accounts of Applied Industrial Technologies, Inc. and its subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. For the Foreign Currency The financial statements of the Company’s Canadian, Mexican, Australian and New Zealand subsidiaries are measured using local currencies as their functional currencies. Assets and liabilities are translated into U.S. dollars at current exchange rates, while income and expenses are translated at average exchange rates. Translation gains and losses are reported in other comprehensive income (loss) in the statements of consolidated comprehensive income. Gains and losses resulting from transactions denominated in foreign currencies are included in the statements of consolidated income as a component of other expense (income), net. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results may differ from the estimates and assumptions used in preparing the consolidated financial statements. Cash and Cash Equivalents The Company considers all short-term, highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are carried at cost, which approximates fair value. Marketable Securities The primary marketable security investments of the Company include money market and mutual funds held in a rabbi trust for a non-qualified deferred compensation plan. These are included in other assets in the consolidated balance sheets, are classified as trading securities, and reported at fair value based on quoted market prices. Changes in the fair value of the investments during the period are recorded in other expense (income), net in the statements of consolidated income. Concentration of Credit Risk The Company has a broad customer base representing many diverse industries across North America, Australia and New Zealand. As such, the Company does not believe that a significant concentration of credit risk exists in its accounts receivable. The Company’s cash and cash equivalents consist of deposits with commercial banks and regulated non-bank subsidiaries. While Applied monitors the creditworthiness of these institutions, a crisis in the financial systems could limit access to funds and/or result in the loss of principal. The terms of these deposits and investments provide that all monies are available to the Company upon demand. Allowances for Doubtful Accounts The Company evaluates the collectibility of trade accounts receivable based on a combination of factors. Initially, the Company estimates an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience. This initial estimate is adjusted based on recent trends of customers and industries estimated to be greater credit risks, trends within the entire customer pool, and changes in the overall aging of accounts receivable. Accounts are written off against the allowance when it becomes evident collection will not occur. While the Company has a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which the Company operates could result in higher than expected defaults, and therefore, the need to revise estimates for bad debts. Inventories Inventories are valued at the The Company evaluates the recoverability of its slow moving or obsolete inventories at least quarterly. The Company estimates the recoverable cost of such inventory by product type while considering factors such as its age, historic and current demand trends, the physical condition of the inventory, as well as assumptions regarding future demand. The Company’s ability to recover its cost for slow moving or obsolete inventory can be affected by such factors as general market conditions, future customer demand, and relationships with suppliers. Historically, the Company’s inventories have demonstrated long shelf lives, are not highly susceptible to obsolescence, and, in certain instances, can be eligible for return under supplier return programs. Supplier Purchasing Programs The Company enters into agreements with certain suppliers providing inventory purchase incentives. The Company’s inventory purchase incentive arrangements are unique to each supplier and are generally annual programs ending at either the Company’s fiscal year end or the supplier’s year end; however, program length and ending dates can vary. Incentives are received in the form of cash or credits against purchases upon attainment of specified purchase volumes and are received either monthly, quarterly or annually. The incentives are generally a specified percentage of the Company’s net purchases based upon achieving specific purchasing volume levels. These percentages can increase or decrease based on changes in the volume of purchases. The Company accrues for the receipt of these inventory purchase incentives based upon cumulative purchases of inventory. The percentage level utilized is based upon the estimated total volume of purchases expected during the life of the program. Supplier programs are analyzed each quarter to determine the appropriateness of the amount of purchase incentives accrued. Upon program completion, differences between estimates and actual incentives subsequently received have not been material. Benefits under these supplier purchasing programs are recognized under the Company’s LIFO inventory accounting method as a reduction of cost of sales when the inventories representing these purchases are recorded as cost of sales. Accrued incentives expected to be settled as a credit against future purchases are reported on the consolidated balance sheet as an offset to amounts due to the related supplier. Property and Related Depreciation and Amortization Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets and is included in selling, distribution and administrative expenses in the accompanying statements of consolidated income. Buildings, building improvements and leasehold improvements are depreciated over ten to thirty years or the life of the lease if a shorter period, and equipment is depreciated over three to ten years. The Company capitalizes internal use software development costs in accordance with guidance on accounting for costs of computer software developed or obtained for internal use. Amortization of software begins when it is ready for its intended use, and is computed on a straight-line basis over the estimated useful life of the software, generally not to exceed twelve years. Capitalized software and hardware costs are classified as property on the consolidated balance sheets. The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the recorded value cannot be recovered from undiscounted future cash flows. Impairment losses, if any, would be measured based upon the difference between the carrying amount and the fair value of the assets. Goodwill and Intangible Assets Goodwill is recognized as the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed. Goodwill is not amortized. Goodwill is reviewed for impairment annually as of January 1 or whenever changes in conditions indicate an evaluation should be completed. These conditions could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. The Company utilizes discounted cash flow models and market multiples for comparable businesses to determine the fair value of reporting units. Evaluating impairment requires significant judgment by management, including estimated future operating results, estimated future cash flows, the long-term rate of growth of the business, and determination of an appropriate discount rate. While the Company uses available information to prepare the estimates and evaluations, actual results could differ significantly. The Company recognizes acquired identifiable intangible assets such as customer relationships, trade names, vendor relationships, and non-competition agreements apart from goodwill. Customer relationship identifiable intangibles are amortized using the sum-of-the-years-digits method over estimated useful lives consistent with assumptions used in the determination of their value. Amortization of all other finite-lived identifiable intangible assets is computed using the straight-line method over the estimated period of benefit. Amortization of identifiable intangible assets is included in selling, distribution and administrative expenses in the accompanying statements of consolidated income. Identifiable intangible assets with finite lives are reviewed for impairment when changes in conditions indicate carrying value may not be recoverable. Identifiable intangible assets with indefinite lives are reviewed for impairment on an annual basis or whenever changes in conditions indicate an evaluation should be completed. The Company does not currently have any indefinite lived identifiable intangible assets. Self-Insurance Liabilities The Company maintains business insurance programs with significant self-insured retention covering workers’ compensation, business, automobile, general product liability and other claims. The Company accrues estimated losses including those incurred but not reported using actuarial calculations, models and assumptions based on historical loss experience. The Company also maintains a self-insured health benefits plan which provides medical benefits to U.S. based employees electing coverage under the plan. The Company estimates its reserve for all unpaid medical claims, including those incurred but not reported, based on historical experience, adjusted as necessary based upon management’s reasoned judgment. Revenue Recognition Sales are recognized when there is evidence of an arrangement, the sales price is fixed, collectibility is reasonably assured and the product’s title and risk of loss is transferred to the customer. Typically, these conditions are met when the product is shipped to the customer. The Company charges shipping and handling fees when products are shipped or delivered to a customer, and includes such amounts in net sales. The Company reports its sales net of actual sales returns and the amount of reserves established for anticipated sales returns based on historical rates. Sales tax collected from customers is excluded from net sales in the accompanying statements of consolidated income. Shipping and Handling Costs The Company records freight payments to third parties in cost of sales and internal delivery costs in selling, distribution and administrative expenses in the accompanying statements of consolidated income. Internal delivery costs in selling, distribution and administrative expenses were approximately $24,430, $16,230 Income Taxes Income taxes are determined based upon income and expenses recorded for financial reporting purposes. Deferred income taxes are recorded for estimated future tax effects of differences between the bases of assets and liabilities for financial reporting and income tax purposes, giving consideration to enacted tax laws. Uncertain tax positions meeting a more-likely-than-not recognition threshold are recognized in accordance with the Income Taxes topic of the ASC (Accounting Standards Codification). The Company recognizes accrued interest and penalties related to unrecognized income tax benefits in the provision for income taxes. Share-Based Compensation Share-based compensation represents the cost related to share-based awards granted to employees under either the 2011 Long-Term Performance Plan or the 2007 Long-Term Performance Plan. The Company measures share-based compensation cost at the grant date, based on the estimated fair value of the award and recognizes the cost over the requisite service period. Non-qualified stock appreciation rights (SARs) and stock options are granted with an exercise price equal to the closing market price of the Company’s common stock at the date of grant and the fair values are determined using a Black-Scholes option pricing model, which incorporates assumptions regarding the expected volatility, the expected option life, the risk-free interest rate and the expected dividend yield. SARs and stock option awards generally vest over four years of continuous service and have ten-year contractual terms. The fair value of restricted stock awards, restricted stock units (RSUs), and performance shares are based on the closing market price of Company common stock on the grant date. Treasury Shares Shares of common stock repurchased by the Company are recorded at cost as treasury shares and result in a reduction of shareholders’ equity in the consolidated balance sheets. The Company uses the weighted-average cost method for determining the cost of shares reissued. The difference between the cost of the shares and the reissuance price is added to or deducted from additional paid-in capital. U.S. Inventory Costing Methodology From fiscal 2013 through the end of fiscal 2014, the Company implemented SAP as its new enterprise resource planning system (ERP) at its U.S. service centers. As implementation occurred at each service center, the method used to apply the link chain dollar value last-in first-out (LIFO) method of accounting changed for the inventories at that location. The new inventory costing methodology utilizes the weighted-average cost method to determine the current year LIFO indices as well as any new LIFO layers established, whereas previously, current costs were used. Upon completion of the implementation, on July 1, 2014 the Company changed its accounting policy to the new method. Differences between amounts recognized in the financial statements during the implementation period and the previous accounting policy prior to July 1, 2014 were immaterial. The Company believes that this change in accounting principle is preferable under the circumstances because weighted-average cost will provide a better reflection of actual transactions and inventory purchases, resulting in improved matching of actual costs and current revenues. This change will also result in greater consistency in inventory costing across the organization, as certain other U.S. locations were previously using weighted-average cost for similar LIFO calculations in their legacy inventory systems, and the new ERP system will make inventory costing a more efficient process within the U.S. ASC 250, "Accounting Changes and Error Corrections," requires that unless it is impracticable to do so, the voluntary adoption of a new accounting principle should be done retrospectively to all prior periods. Before July 1, 2014, the Company’s former ERP system did not capture weighted-average costs within the U.S. and the data needed to recalculate previous LIFO indices does not exist. Thus, the Company has concluded it is impracticable to recognize a cumulative effect or to retrospectively apply the effect of this change in accounting principle prior to July 1, 2014, but believes that those effects would be immaterial in all periods. Alignment of Canadian Subsidiary Reporting Effective July 1, 2013, the Company aligned the consolidation of the Company’s Canadian subsidiary in the consolidated financial statements, which previously included the results on a one month reporting lag. The Company believes that this change in accounting principle is preferable as it provides contemporaneous reporting within our consolidated financial statements. In accordance with applicable accounting literature, the elimination of a one month reporting lag of a subsidiary is treated as a change in accounting principle and requires retrospective application. The Company 35 Alignment of Mexican Subsidiary Reporting Effective January 1, 2014, the Company aligned the consolidation of the Company’s Mexican subsidiary in the consolidated financial statements, which previously included the results on a one month reporting lag. The Company believes that this change in accounting principle is preferable as it provides contemporaneous reporting within our consolidated financial statements. In accordance with applicable accounting literature, the elimination of a one month reporting lag of a subsidiary is treated as a change in accounting principle and requires retrospective application. The Company New Accounting Pronouncements In May 2014, the FASB issued its final standard on the recognition of revenue from contracts with customers. The standard, issued as Accounting Standards Update (ASU) 2014-09, outlines a single comprehensive model for entities to use in the accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. The core principle of this model is that "an entity recognizes revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services." In June 2014, the FASB issued its final standard on accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The standard, issued as In April 2015, the FASB issued its final standard on simplifying the presentation of debt issue costs. This standard, issued as ASU 2015-03, requires that all costs incurred to issue debt be presented in the balance sheet as a direct reduction from the carrying value of the debt, similar to the presentation of debt discounts. This update is effective for financial statement periods beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. The impact of the adoption of this guidance will result in the reclassification of the unamortized debt issuance costs on the consolidated balance sheets, which were $622 and $703 at June 30, 2015 and 2014, respectively. NOTE 2: BUSINESS COMBINATIONS The operating results of all acquired entities are included within the consolidated operating results of the Company from the date of each respective acquisition. On July 1, 2014, 36 The following table summarizes the consideration transferred, assets acquired, and liabilities assumed in connection with the acquisition of Knox based on their estimated fair values at the acquisition date:
None of the goodwill acquired is expected to be deductible for income tax purposes. The goodwill recognized is attributable primarily to expected synergies and other benefits that the Company believes will result from the acquisition of Knox. Reliance Acquisition On May 1, 2014, the Company acquired 100% of the outstanding stock of Reliance Industrial Products (“Reliance”), headquartered in Nisku, Alberta, Canada, with operations in Western Canada and the Western United States, for a total purchase price in the amount of $188,500. The primary reasons for the acquisition are to provide the Company enhanced capabilities to serve the upstream oil and gas industry in the United States and Canada. A distributor of fluid conveyance and oilfield supplies, this business is included in the Service Center Based Distribution Segment. The Company funded the acquisition by using available cash in Canada in the amount of $31,900, existing revolving credit facilities of $36,600 and a new $100,000 five year term loan facility, with the remainder of $20,000 to be paid in equal amounts as acquisition holdback payments on the first two anniversaries of the acquisition, plus interest at 2% per annum. 37 The following table summarizes the consideration transferred, assets acquired, and liabilities assumed in connection with the acquisition of Reliance based on their
None of the goodwill acquired is expected to be deductible for income tax purposes. The goodwill recognized is attributable primarily to expected synergies and other benefits that the Company believes will result from the acquisition of Reliance. The Company incurred $1,448 in third party costs during fiscal 2014 pertaining to the acquisition of Reliance. These expenses are included in the selling, distribution and administration expense line in the statement of consolidated income for the year ended June 30, 2014. Knox and Reliance Pro Forma Results (Unaudited) The following unaudited pro forma consolidated results of operations have been prepared as if the Reliance acquisition (including the related acquisition costs) had occurred at the beginning of fiscal
These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results to reflect additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment, and amortizable intangible assets had been applied as of July 1, 38 Other Fiscal 2015 Acquisitions Other acquisitions during the year include the acquisition of substantially all of the net assets of Rodamientos y Derivados del Norte S.A. de C.V., a Mexican distributor of bearings and power transmission products and related products, and Great Southern Bearings / Northam Bearings, a Western Australia distributor of bearings and power transmission products on July 1, 2014 as well as Ira Pump and Supply Inc. (Ira Pump) a Texas distributor of oilfield pumps and supplies on November 3, 2014. These companies are included in the Service Center Based Distribution Segment. The total combined consideration for these acquisitions was approximately $54,900. Net tangible assets acquired were $21,200 and intangibles including goodwill were $33,700, based upon estimated fair values at the acquisition date. The estimated fair values related to Ira Pump are preliminary and subject to adjustment. The Company funded these acquisitions from borrowings under our existing debt facilities. Total acquisition holdback payments of $6,900 will be paid at various times through July 2017. The results of operations for the Mexican, Australian and Ira Pump acquisitions are not material for any period presented. Other Fiscal 2014 Acquisitions In December 2013, the Company acquired substantially all of the net assets of Texas Oilpatch Services Corporation, a Texas distributor of bearings, oil seals, power transmission products, and related replacement parts to the oilfield industry. The acquired business is included in the Service Center Based Distribution segment. The purchase price for this acquisition was $17,000, tangible assets acquired was $3,863 and intangibles, including goodwill was $13,137. The purchase price includes $2,550 of acquisition holdback payments which have been paid into an escrow account controlled by a third party. The acquisition price and the results of operations of the acquired entity are not material in relation to the Company’s consolidated financial statements. Fiscal 2013 Acquisitions In December 2012, the Company acquired substantially all of the net assets of Norma Bearings, Inc., a distributor of bearings and power transmission products, located in Laval, Quebec. The acquired business is included in the Service Center Based Distribution segment. In December 2012, the Company acquired substantially all of the net assets of Parts Associates, Inc., a distributor of maintenance supplies and solutions, headquartered in Cleveland, Ohio. The acquired business is included in the Service Center Based Distribution segment. In November 2012, the Company acquired substantially all of the net assets of Hyquip, Inc., a Wisconsin distributor of a broad line of hydraulic, rubber and plastic industrial hose and tubing, plus related accessories. The acquired business is included in the Fluid Power Businesses segment. In September 2012, the Company acquired 100% of the outstanding stock of Bearings & Oil Seals Specialists Inc., a distributor of gaskets, seals, bearing and power transmission products, located in Hamilton, Ontario. The acquired business is included in the Service Center Based Distribution segment. In August 2012, the Company acquired 100% of the outstanding stock of SKF Group's company-owned distribution business in Australia and New Zealand ("Applied Australia"). As one of the largest bearing suppliers in these markets, Applied Australia also distributes seals, lubrication products, and power transmission products. The acquired business is included in the Service Center Based Distribution segment. The following table summarizes the fair values of assets acquired and liabilities assumed for these acquisitions:
39 The purchase price included $1,015 that was deferred, some of which has been paid as acquisition holdback payments in fiscal 2015 and 2014. Additional 2013 pro-forma information has not been included as it is not material. NOTE 3: INVENTORIES Inventories consist of the following:
In fiscal 2013, NOTE 4: GOODWILL AND INTANGIBLES The changes in the carrying amount of goodwill for both the Service Center Based Distribution Segment and the Fluid Power Businesses segment for the years ended June 30,
At June 30, 2015, 2014 The Company has seven reporting units and performed its annual goodwill impairment assessment as of January 1, 2015. The Company concluded that five of the reporting units had material excesses of fair value compared to their carrying amounts. The Company concluded that two reporting units (Canada service center and Australia / New Zealand) had excess fair value of approximately $39,000 and $4,000 or 15% and 14%, respectively when compared to the carrying amounts of approximately $258,000 and $28,000, respectively. The techniques used in the Company's impairment test have incorporated a number of assumptions that the Company believes to be reasonable and to reflect market conditions forecast at the assessment date. Assumptions in estimating future cash flows are subject to a high degree of judgment. The Company makes all efforts to forecast future cash flows as accurately as possible with the information available at the time the forecast is made. To this end, the Company evaluates the appropriateness of its assumptions as well as its overall forecasts by comparing projected results of upcoming years with actual results of preceding years and validating that differences therein are reasonable. Key assumptions, all of which are Level 3 inputs, relate to pricing trends, inventory costs, discount rate, customer demand, and the long-term growth and foreign exchange rates. A number of benchmarks from independent industry and other economic publications were also used. Changes in future actual results, assumptions and estimates after the assessment date may lead to an outcome where impairment charges would be required in future 40 periods. Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions. The Company's identifiable intangible assets resulting from business combinations are amortized over their estimated period of benefit and consist of the following:
Amounts include the impact of foreign currency translation. Fully amortized amounts are written off. During
Amortization of identifiable intangibles totaled $ A significant portion of our intangible assets relate to recent acquisitions that primarily operate in the oil and gas sectors. Considering the recent downturn in the energy market, a prolonged period of low oil and natural gas prices may result in asset impairments, including potential impairment of the carrying value of our goodwill and finite-lived intangible assets. NOTE 5: DEBT Revolving Credit Facility The Company has a revolving credit facility with a group of banks expiring in May 2017. This agreement provides for unsecured borrowings of up to $150,000. Fees on this facility range from 0.09% to 0.175% per year based upon the Company's leverage ratio at each quarter end. Borrowings under this agreement carry variable interest rates tied to either LIBOR, prime, or the bank’s cost of funds at the Company’s discretion. This agreement also enables the Company to refinance this debt on a long-term basis. At June 30, 2015 and 2014, the Company had $52,000 and $69,000, respectively, outstanding under this credit facility. Unused lines under this facility, net of outstanding letters of credit of $ Additionally, the Company had letters of credit outstanding with a separate bank, not associated with the revolving credit agreement, in the amount of $1,841, in order to secure certain insurance obligations. Long-Term Borrowings The Company entered into a In April 2014 the Company assumed $2,359 of debt as a part of the headquarters facility acquisition. The 1.5% fixed interest rate note is held by the State of Ohio Development Services Agency with a remaining term of At June 30, 2015, the Company had borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management of $170,000. The "Series C" notes have a principal amount of $120,000 and carry a fixed interest rate of 3.19%, which is due in equal principal payments in July 2020, 2021 and 2022. The "Series D" notes have a principle amount of $50,000 and carry a fixed interest rate of 3.21% which is due in equal principal payments in October 2019 and 2023. As of June 30, 2015, $50,000 in additional financing was available under this facility. The table below summarizes the aggregate maturities of amounts outstanding under long-term borrowing arrangements for each of the next five years:
Covenants The revolving credit facility, the term loan agreement, and the NOTE 6: FAIR VALUE MEASUREMENTS Marketable securities measured at fair value at June 30, 2015 and June 30, 2014 totaled $9,330 and As of June 30, 2015, the carrying value of the Company's fixed interest rate debt outstanding under its unsecured shelf facility agreement with Prudential Investment Management approximates fair value (Level 2 in the fair value hierarchy). The revolving credit facility and the term loan contain variable interest rates and their carrying values approximate fair value (Level 2 in the fair value hierarchy). NOTE 7: INCOME TAXES Income Before Income Taxes The components of income before income taxes are as follows:
Provision The provision (benefit) for income taxes consists of:
The exercise of non-qualified stock appreciation rights and options during fiscal 2015, 2014 43 Effective Tax Rates The following reconciles the U.S. federal statutory income tax rate to the Company’s effective income tax rate:
Consolidated Balance Sheets Significant components of the Company’s
Valuation allowances are provided against deferred tax assets where it is considered more-likely-than-not that the Company will not realize the benefit of such assets. The remaining net deferred tax asset is the amount management believes is more-likely-than-not of being realized. The realization of these deferred tax assets can be impacted by changes to tax laws, statutory rates and future income levels. U.S. federal income taxes are provided on the portion of non-U.S. subsidiaries' income that is not considered to be permanently reinvested outside the U.S. and may be remitted to the U.S. At June 30, In 2014, the Company recognized a tax benefit of This tax benefit was due to the reversal of taxes previously 44 accrued on a portion of the undistributed earnings of non-U.S. subsidiaries applicable to a change in the permanent reinvestment assertion. In 2015, $17,793 of cash was distributed by one of the Company's non-U.S. subsidiaries as a non-taxable return of capital. All undistributed earnings of non-U.S. subsidiaries are considered to be permanently reinvested outside of the U.S. at June 30, Unrecognized Income Tax Benefits The Company and its subsidiaries file income tax returns in U.S. federal, various state, local and foreign jurisdictions. The following table sets forth the changes in the amount of unrecognized tax benefits for the years ended June 30, 2015, 2014
Included in the balance of unrecognized income tax benefits at June 30, 2015, 2014 During 2015, 2014 The Company is subject to U.S. federal income tax examinations for the tax years The Company’s unrecognized income tax benefits are included in other liabilities in the consolidated balance sheets since payment of cash is not expected within one year. NOTE 8: SHAREHOLDERS’ EQUITY Treasury Shares At June 30, 45 Accumulated Other Comprehensive Income (Loss) Changes in the accumulated other comprehensive income (loss) for the years ended June 30,
Other Comprehensive Income (Loss) Details of other comprehensive income (loss) are as follows:
Net Income Per Share Basic net income per share is based on the weighted-average number of common shares outstanding. Diluted net income per share includes the dilutive effect of potential common shares outstanding. Under the two-class method of computing net income per share, non-vested share-based payment awards that contain rights to receive non-forfeitable dividends are considered participating securities. The 46 stock method and the two-class method. For the years presented there were no material differences in the net income per share amounts calculated using the two methods. Accordingly, the treasury stock method is disclosed below. The following table presents amounts used in computing net income per share and the effect on the weighted-average number of shares of dilutive potential common shares:
Stock appreciation rights and options relating to NOTE 9: SHARE-BASED COMPENSATION Share-Based Incentive Plans The 2011 Plan, which expires in 2016, provides for granting of SARs, stock options, stock awards, cash awards, and such other awards or combination thereof as the Executive Organization and Compensation Committee or, in the case of director awards, the Corporate Governance Committee of the Board of Directors (together referred to as the Committee) may determine to officers, other key employees and members of the Board of Directors. Grants are generally made at regularly scheduled, committee meetings. Compensation costs charged to expense under award programs paid (or to be paid) with shares (including SARs, stock options, performance shares, restricted stock, and RSUs) are summarized in the table below:
Such amounts are included in selling, distribution and administrative expense in the accompanying statements of consolidated income. The total income tax benefit recognized in the statements of consolidated income for share-based compensation plans was $1,749, $1,768 and $2,241 for fiscal years 2015, 2014 and 2013, respectively. It has been the practice of the Company to issue shares from treasury to satisfy requirements of awards paid with shares. The aggregate unrecognized compensation cost for share-based award programs paid (or with the potential to be paid) at June 30,
Cost of these programs will be recognized as expense over the weighted-average remaining vesting period of 47 Stock Appreciation Rights and Stock Options The weighted-average assumptions used for SARs and stock option grants issued in fiscal 2015, 2014 and
The expected life is based upon historical exercise experience of the officers, other key employees and members of the Board of Directors. The risk free interest rate is based upon U.S. Treasury zero-coupon bonds with remaining terms equal to the expected life of the SARs and stock options. The assumed dividend yield has been estimated based upon the Company’s historical results and expectations for changes in dividends and stock prices. The volatility assumption is calculated based upon historical daily price observations of the Company’s common stock for a period equal to the expected life. SARs are redeemable solely in Company common stock. The exercise price of stock option awards may be settled by the holder with cash or by tendering Company common stock. A summary of SARs and stock options activity is presented below:
The weighted-average remaining contractual terms for SARs and stock options outstanding and exercisable at June 30, The total fair value of shares vested during fiscal 2015, 2014 Performance Shares A summary of nonvested performance shares activity at June 30,
48 The Committee set three one-year goals for each of the 2015, 2014 Restricted Stock and Restricted Stock Units Restricted stock award recipients are entitled to receive dividends on, and have voting rights with respect to their respective shares, but are restricted from selling or transferring the shares prior to vesting. Restricted stock awards vest over periods of one to four years. RSUs are grants valued in shares of Applied stock, but shares are not issued until the grants vest A summary of the status of the Company’s non-vested restricted stock and RSUs at June 30, presented below:
NOTE 10: BENEFIT PLANS Retirement Savings Plan Substantially all U.S. employees participate in the Applied Industrial Technologies, Inc. Retirement Savings Plan. Participants may elect 401(k) contributions of up to 50% of their compensation, subject to Internal Revenue Code maximums. The Company partially matches 401(k) contributions by participants. The Company had also made discretionary profit-sharing contributions to the Retirement Savings Plan Deferred Compensation Plans The Company has deferred compensation plans that enable certain employees of the Company to defer receipt of a portion of their Post-employment Benefit Plans The Company provides the following post-employment benefits which, except for the Qualified Defined Benefit Retirement Plan, are unfunded: Supplemental Executive Retirement Benefits Plan The Company has a non-qualified pension plan to provide supplemental retirement benefits to certain officers. Benefits are payable and determinable at retirement based upon a percentage of the participant’s historical compensation. The Executive Organization and Compensation Committee of the Board of Directors froze participant benefits (credited service and final average earnings) and entry into the Supplemental Executive Retirement Benefits Plan (SERP) effective December 31, 2011. Key Executive Restoration Plan In fiscal 2012, the Qualified Defined Benefit Retirement Plan The Company has a qualified defined benefit retirement plan that provides benefits to certain hourly employees at retirement. These employees do not participate in the Retirement Savings Plan. The benefits are based on length of service and date of retirement. 49 Salary Continuation Benefits The Company has agreements with certain retirees of acquired companies to pay monthly retirement benefits through fiscal 2020. Retiree Health Care Benefits The Company provides health care benefits, through third-party policies, to eligible retired employees who pay a specified monthly premium. Premium payments are based upon current insurance rates for the type of coverage provided and are adjusted annually. Certain monthly health care premium payments are partially subsidized by the Company. Additionally, in conjunction with a fiscal 1998 acquisition, the Company assumed the obligation for a post-retirement medical benefit plan which provides health care benefits to eligible retired employees at no cost to the individual. The Company uses a June 30 measurement date for all plans. The following table sets forth the changes in benefit obligations and plan assets during the year and the funded status for the post-employment plans at June 30:
The amounts recognized in the consolidated balance sheets and in accumulated other comprehensive income (loss) for the post-employment plans were as follows:
50 The following table provides information for pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets:
The net periodic costs (benefits) are as follows:
The estimated net actuarial loss and prior service cost for the pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year are $ Assumptions The discount rate is used to determine the present value of future payments. In general, the Company’s liability increases as the discount rate decreases and decreases as the discount rate increases. The Company computes a weighted-average discount rate taking into account anticipated plan payments and the associated interest rates from the Citigroup Pension Discount Yield Curve. The weighted-average actuarial assumptions used to determine benefit obligations and net periodic benefit cost for the plans were as follows:
The assumed health care cost trend rates used in measuring the accumulated benefit obligation for retiree health care benefits were A one-percentage point change in the assumed health care cost trend rates would have had the following effects as of June 30,
51 Plan Assets The fair value of each major class of plan assets for the Company’s Qualified Benefit Retirement Plan are valued using either quoted market prices in active markets for identical instruments; Level 1 in the fair value hierarchy, or other inputs that are observable, either directly or indirectly; Level 2 in the fair value hierarchy. Following are the fair values and target allocation as of June 30:
* Equity securities do not include any Company common stock. The Company has established an investment policy and regularly monitors the performance of the assets of the trust maintained in conjunction with the Qualified Defined Benefit Retirement Plan. The strategy implemented by the trustee of the Qualified Defined Benefit Retirement Plan is to achieve long-term objectives and invest the pension assets in accordance with ERISA and fiduciary standards. The long-term primary objectives are to provide for a reasonable amount of long-term capital, without undue exposure to risk; to protect the Qualified Defined Benefit Retirement Plan assets from erosion of purchasing power; and to provide investment results that meet or exceed the actuarially assumed long-term rate of return. The expected long-term rate of return on assets assumption was developed by considering the historical returns and the future expectations for returns of each asset class as well as the target asset allocation of the pension portfolio. Cash Flows Employer Contributions The Company expects to contribute $ Estimated Future Benefit Payments The following benefit payments, which reflect expected future service, as applicable, are expected to be paid in each of the next five years and in the aggregate for the subsequent five years:
52 NOTE 11: LEASES The Company leases many service center and distribution center facilities, vehicles and equipment under non-cancelable lease agreements accounted for as operating leases. The Company leased its corporate headquarters facility until purchasing it in April 2014. The minimum annual rental commitments under non-cancelable operating leases as of June 30,
Rental expense incurred for operating leases, principally from leases for real property, vehicles and computer equipment was $39,300 in 2015, $36,900 in 2014 The Company maintains lease agreements for many of the operating facilities of businesses it acquires from previous owners. In many cases, the previous owners of the business acquired, become employees of Applied and occupy management positions within those businesses. The payments under lease agreements of this nature totaled $3,100, $2,500 NOTE 12: SEGMENT AND GEOGRAPHIC INFORMATION The Company's reportable segments are: Service Center Based Distribution and Fluid Power Businesses. These reportable segments contain the Company's various operating segments which have been aggregated based upon similar economic and operating characteristics. The Service Center Based Distribution segment provides customers with solutions to their maintenance, repair and original equipment manufacturing needs through the distribution of industrial products including bearings, power transmission components, fluid power components and systems, industrial rubber products, linear motion products, tools, safety products, and other industrial and maintenance supplies. The Fluid Power Businesses segment distributes fluid power components and operates shops that assemble fluid power systems and components, performs equipment repair, and offers technical advice to customers. The accounting policies of the Company’s reportable segments are generally the same as those described in the following table. Segment Financial Information
ERP related assets are included in assets used in the business and capital expenditures within the Service Center Based Distribution segment. Within the geographic disclosures, these assets are included in the United States. Expenses associated with the ERP are included in the Corporate and other income, net, line in the reconciliation of operating income for reportable segments to the consolidated income before income taxes table below. A reconciliation of operating income for reportable segments to the consolidated income before income taxes is as follows:
Fluctuations in corporate and other income, net, are due to changes in the levels and amounts of expenses being allocated to the segments. The expenses being allocated include corporate charges for working capital, logistics support and other items. Product Category Net sales by product category are as follows:
The fluid power product category includes sales of hydraulic, pneumatic, lubrication and filtration components and systems, and repair services through the Company’s Fluid Power Businesses segment as well as the Service Center Based Distribution segment. Geographic Information Net sales are presented in geographic areas based on the location of the facility shipping the product. Long-lived assets are based on physical locations and are comprised of the net book value of property
Other countries NOTE 13: COMMITMENTS AND CONTINGENCIES The Company is a party to various pending judicial and administrative proceedings. Based on circumstances currently known, the Company believes the likelihood is remote that the ultimate resolution of any of these matters will have, either individually or in the aggregate, a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows. NOTE 14: OTHER EXPENSE (INCOME), NET Other expense (income), net, consists of the following:
NOTE 15: SUBSEQUENT EVENTS We have evaluated events and transactions occurring subsequent to June 30, On QUARTERLY OPERATING RESULTS (In thousands, except per share amounts) (UNAUDITED)
On August The sum of the quarterly per share amounts may not equal per share amounts reported for year-to-date. This is due to changes in the number of weighted shares outstanding and the effects of rounding for each period. 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 primarily made based on periodic physical inventory and the effect of year-end inventory quantities on LIFO costs. Fiscal 2015 During the fourth quarter of fiscal 2015, the Company recorded severance of $1.8 million. Also, we sold a building recognizing a gain of $1.5 million. During the fourth quarter of fiscal 2015, income tax expense increased due to recording a valuation allowance against certain deferred tax assets for foreign jurisdictions of $1.0 million. Also, an increase of tax rates in certain foreign jurisdictions at the end of the fiscal period increased tax expense by $1.2 million during the quarter. No LIFO layer liquidations took place during the year ended June 30, 2015. Fiscal 2014 During the first quarter of fiscal 2014, the Company aligned the consolidation of the Company's Canadian subsidiary which previously included results on a month reporting lag. The elimination of this lag resulted in the recognition of $1.2 million of additional income which was included within "Other income, net" on the Condensed Statements of Consolidated Income. During the third quarter of fiscal 2014, the Company aligned the consolidation of the Company's Mexican subsidiary which previously included results on a month reporting lag. The elimination of this lag resulted in the recognition of $0.2 million of additional income which was included within "Other income, net" on the Condensed Statements of Consolidated Income. During the third quarter of fiscal 2014, $2.8 million of tax reserves were reversed. The impact of this reversal was a reduction in income tax expense of $2.8 million and a $0.07 increase in earnings per share. 57 No LIFO layer liquidations took place during the year ended June 30, 2014. Fiscal 2013 During the fourth quarter of fiscal 2013, the Company realized LIFO layer liquidation benefits of $6,300 from certain inventory quantity levels decreasing. Additional scrap expense of $3.0 million above our normal scrap rate was also recorded in the June 30, 2013 quarter. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures The Company's management, under the supervision and with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of the Company's disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report. Based on that evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective. Management's Report on Internal Control over Financial Reporting The Management of Applied Industrial Technologies, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and the Vice President - Chief Financial Officer & Treasurer, and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s Management and Board of Directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements. Because of inherent limitations, internal control over financial reporting can provide only reasonable, not absolute, assurance with respect to the preparation and presentation of the consolidated financial statements and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time. Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of June 30, The Company acquired The effectiveness of the Company’s internal control over financial reporting has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.
August Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Applied Industrial Technologies, Inc. Cleveland, Ohio We have audited the internal control over financial reporting of Applied Industrial Technologies, Inc. and subsidiaries (the "Company") as of June 30, We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended June 30, /s/ Deloitte & Touche LLP Cleveland, Ohio August Changes in Internal Control Over Financial Reporting The Company has undertaken a multi-year ERP (SAP) project to transform the Company's technology platforms and enhance its business information and transaction systems. The Company has completed its SAP implementation in its Western Canadian and U.S. Other than as described above, there have not been any changes in internal control over financial reporting during the ITEM 9B. OTHER INFORMATION. Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The information required by this Item as to Applied's directors is incorporated by reference to Applied's proxy statement relating to the annual meeting of shareholders to be held October The information required by this Item regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to Applied's proxy statement, under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.” Applied has a code of ethics, named the Code of Business Ethics, that applies to our employees, including our principal executive officer, principal financial officer, and principal accounting officer. The Code of Business Ethics is posted via hyperlink at the investor relations area of our www.applied.com website. In addition, amendments to and waivers from the Code of Business Ethics will be disclosed promptly at the same location. Information regarding the composition of Applied’s audit committee and the identification of audit committee financial experts serving on the audit committee is incorporated by reference to Applied's proxy statement, under the caption “Corporate Governance.” ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item is incorporated by reference to Applied's proxy statement for the annual meeting of shareholders to be held October ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Applied's shareholders have approved the following equity compensation plans: the 1997 Long-Term Performance Plan, the 2007 Long-Term Performance Plan, the 2011 Long-Term Performance Plan, the Deferred Compensation Plan, and the Deferred Compensation Plan for Non-Employee Directors. All of these plans are currently in effect. The following table shows information regarding the number of shares of Applied common stock that may be issued pursuant to equity compensation plans or arrangements of Applied as of June 30,
Information concerning the security ownership of certain beneficial owners and management is incorporated by reference to Applied's proxy statement for the annual meeting of shareholders to be held October ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. The information required by this Item is incorporated by reference to Applied's proxy statement for the annual meeting of shareholders to be held October ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The information required by this Item is incorporated by reference to Applied's proxy statement for the annual meeting of shareholders to be held October PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE. (a)1. Financial Statements. The following consolidated financial statements, notes thereto, the reports of independent registered public accounting firm, and supplemental data are included in Item 8 of this report:
(a)2. Financial Statement Schedule. The following schedule is included in this Part IV, and is found in this report at the page indicated:
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission have been omitted because they are not required under the related instructions, are not applicable, or the required information is included in the consolidated financial statements and notes thereto. (a)3. Exhibits.
63
64
Applied will furnish a copy of any exhibit described above and not contained herein upon payment of a specified reasonable fee, which shall be limited to Applied's reasonable expenses in furnishing the exhibit. Certain instruments with respect to long-term debt have not been filed as exhibits because the total amount of securities authorized under any one of the instruments does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each such instrument. APPLIED INDUSTRIAL TECHNOLOGIES, INC. & SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JUNE 30, 2015, 2014, (in thousands)
SIGNATURES Pursuant to the requirements of Section 13 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.
Date: August Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Date: August | Year Ended June 30, As a % of Net Sales | Change in Sales in fiscal Sales of our Service Center Based Distribution segment, which operates primarily in MRO markets, Sales of our Fluid Power Businesses segment, which operates primarily in OEM markets, increased Sales in our U.S. operations were up The sales product mix for fiscal Our gross profit margin was Selling, distribution and administrative expenses (SD&A) consist of associate compensation, benefits and other expenses associated with selling, purchasing, warehousing, supply chain management, and providing marketing and distribution of the Company’s products, as well as costs associated with a variety of administrative functions such as human resources, information technology, treasury, accounting, legal, facility related expenses and expenses incurred with acquiring businesses. SD&A increased Operating income increased $20.3 million, or 12.3%, to $184.6 million during fiscal 2015 from $164.4 million during 2014, and as a percent of sales, remained stable at 6.7%. The increase in operating income dollars is primarily attributable to our acquired businesses. Operating income as a percentage of sales for the Service Center Based Distribution segment increased to 6.2% in fiscal 2015 from 6.0% in fiscal 2014. This increase is primarily attributable to an increase in gross profit as a percentage of sales, as a result of our recent acquisitions which operate at higher gross profit margins, representing an increase of 0.1%, along with a decrease in SD&A as a percentage of sales of 0.1%. Operating income as a percentage of sales for the Fluid Power Businesses segment increased to 9.8% in fiscal 2015 from 9.2% in fiscal 2014. This increase is primarily attributable to the leveraging of organic sales growth in our U.S. based Fluid Power Businesses, without a commensurate increase in SD&A expenses. Segment operating income is impacted by changes in the amounts and levels of expenses allocated to the segments. The expense allocations include corporate charges for working capital, logistics support and other items and impact segment gross profit and operating expense. Interest expense, net, increased to $7.9 million in fiscal 2015 entirely due to acquisition related borrowing. Other expense (income), net, represents certain non-operating items of income and expense. This was $0.9 million of expense in fiscal 2015 compared to $2.2 million of income in fiscal 2014. Current year expense primarily consists of foreign currency transaction losses of $1.3 million offset by unrealized gains on investments held by non-qualified 15 deferred compensation trusts of $0.4 million. Fiscal 2014 consisted primarily of unrealized gains on investments held by non-qualified deferred compensation trusts of $1.7 million as well as $1.3 million of income associated with the elimination of the one-month Canadian and Mexican reporting lags (see note 1 in Item 8 under the caption "Financial Statements and Supplementary Data"), offset by foreign currency transaction losses of $0.8 million. Income tax expense as a percent of income before taxes was 34.3% for fiscal 2015 and 32.1% for fiscal 2014. This increase in the effective rate is due to recording of valuation allowances against certain deferred tax assets for foreign jurisdictions in fiscal 2015 as well as the non-recurrence of a one-time favorable tax benefit in fiscal 2014 in accounting for undistributed earnings of non-U.S. subsidiaries. All undistributed earnings of our foreign subsidiaries are considered to be permanently reinvested at June 30, 2015 and 2014. We expect our income tax rate for fiscal 2016 to be in the range of 34.0% to 34.5%. As a result of the factors addressed above, net income for fiscal 2015 increased $2.7 million or 2.4% from the prior year. Net income per share increased at a slightly higher rate of 4.9% due to lower weighted-average shares outstanding in fiscal 2015. At June 30, 2015, we had a total of 565 operating facilities in the United States, Puerto Rico, Canada, Mexico, Australia and New Zealand, versus 538 at June 30, 2014. The number of Company employees was 5,839 at June 30, 2015 and 5,472 at June 30, 2014. YEAR ENDED JUNE 30, 2014 vs. 2013 The following table is included to aid in review of Applied’s statements of consolidated income.
Sales in fiscal 2014 were $2.46 billion, which was $2.3 million or 0.1% below the 2013 fiscal year. We experienced overall declines in sales from our businesses not acquired in fiscal year 2014 of approximately $34.3 million or 1.4%. There was one additional selling day in fiscal 2014 as compared to fiscal 2013. Currency translation decreased fiscal year sales by approximately $26.2 million or 1.1%. Incremental sales from companies acquired since the 2013 fiscal year contributed $58.2 million or 2.4%. Sales of our Service Center Based Distribution segment, which operates primarily in MRO markets, decreased $30.1 million, or 1.5%. This decline was due to decreases in sales from businesses not acquired in fiscal year 2014 of $62.5 million or 3.1% coupled with an unfavorable impact of foreign currency translation of $23.1 million or 1.2%. Offseting these decreases was acquisitions, which added $55.5 million or 2.8%. Sales of our Fluid Power Businesses segment, which operates primarily in OEM markets, increased $27.8 million or 6.1%. We experienced sales growth at several of our Fluid Power businesses which added $29.9 million or 6.6% along with acquisitions within this segment which added $2.8 million or 0.6%, while unfavorable foreign currency translation losses decreased sales by $4.9 million or 1.1%. Sales in our U.S. operations were up $14.0 million or 0.7% with acquisitions adding $32.8 million or 1.6% offsetting declines in sales from our businesses not acquired in fiscal year 2014 of $18.8 million or 0.9%. Sales from our Canadian operations decreased $7.2 million or 2.4%. Acquisitions added $19.3 million or 6.5%, offset by unfavorable foreign currency translation losses which reduced sales by $17.5 million or 5.9% coupled with declines in sales from our businesses not acquired in fiscal year 2014 of $9.0 million or 3.0%, mostly as a result of weakness within the Canadian mining sector. Consolidated sales from our other country operations, which include Mexico, Australia and New Zealand, were $9.1 million or 6.2% below the 2013 fiscal year. This decrease is primarily the result of unfavorable foreign currency translation losses of $8.7 million or 5.9%, coupled with declines in sales of $6.5 million or 4.4%, mostly within the mining sector, from our businesses not acquired in fiscal year 2014, while acquisitions added $6.1 million or 4.2% in fiscal 2014. 16 The sales product mix for fiscal 2014 was 70.7% industrial products and 29.3% fluid power products compared to 72.1% industrial and 27.9% fluid power in fiscal year 2013. The change in our product mix in fiscal year 2014 was due to sales growth within our Fluid Power Businesses segment coupled with sales declines in our Service Center Based Distribution segment. Our gross profit margin was 27.9% in fiscal 2014 versus 27.7% in fiscal 2013. The increased margins wereattributable to the impact of relatively higher gross margins from acquired operations. Selling, distribution and administrative expenses (SD&A) consist of associate compensation, benefits and other expenses associated with selling, purchasing, warehousing, supply chain management, and providing marketing and distribution of the Company’s products, as well as costs associated with a variety of administrative functions such as human resources, information technology, treasury, accounting, legal, facility related expenses and expenses incurred with acquiring businesses. SD&A increased $16.0 million or 3.2% during fiscal 2014 compared to fiscal 2013, and as a percent of sales increased to 21.2% from 20.6% in fiscal 2013. The acquired businesses added $19.3 million of SD&A expenses, which Operating income decreased Operating income as a percentage of sales for the Service Center Based Distribution segment decreased to 6.0% in fiscal 2014 from 6.9% in fiscal 2013. This decrease Operating income as a percentage of sales for the Fluid Power Businesses segment increased to 9.2% in fiscal 2014 from 9.0% in fiscal 2013. This increase Segment operating income Interest expense, net, remained relatively stable as compared to Other expense (income), net, Income tax expense as a percent of income before taxes was 32.1% for fiscal 2014 and 33.5% for fiscal 2013. The impact of lower effective tax rates in foreign jurisdictions favorably reduced our rate when compared to the U.S. federal statutory rate by 2.6%. Further reducing our rate compared to the U.S. federal statutory rate by 1.6% was the reversal of a deferred tax liability recorded in the years prior 17 As a result of the factors addressed above, net income for fiscal 2014 decreased At June 30, 2014, we had a total of 538 operating facilities in the United States, Puerto Rico, Canada, Mexico, Australia and New Zealand, versus 522 at June 30, 2013. The number of Company employees was 5,472 at June 30, 2014 and 5,109 at June 30, 2013.
LIQUIDITY AND CAPITAL RESOURCES Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of debt. At June 30, The Company holds, from time to time, relatively significant cash and cash equivalent balances outside of the United States of America. The following table shows the Company's total cash as of June 30,
To the extent cash in foreign countries is distributed to the U.S., it could become subject to U.S. income taxes. Foreign tax credits may be available to offset all or a portion of such taxes. At June 30, The Company’s working capital at June 30, Net Cash Flows The following table is included to aid in review of Applied’s statements of consolidated cash flows; all amounts are in thousands.
Net cash used in investing activities in fiscal 2015 included $14.9 million for capital expenditures and $160.6 million used for acquisitions. Net cash used in investing activities in fiscal 2014 included $20.2 million for capital expenditures, $10.0 million 18 activities included the use of $12.2 million for capital expenditures Net cash provided by financing activities in fiscal 2015 included $170.0 million from borrowings under long term debt facilities used for the financing of acquisitions, offset by $17.0 million of repayments under our revolving credit facility and dividend payments, $76.5 million used to repurchase 1,740,100 shares of treasury stock and $7.7 million of acquisition holdback payments. Net cash provided by financing activities in fiscal 2014 included $100.0 million from borrowings under long term debt facilities as well as $69.0 million in borrowings under our revolving credit facility, both of which were utilized for the financing of acquisitions. These sources of cash were offset by $40.4 million for dividend payments and $36.7 million used to repurchase 759,900 shares of treasury stock. Net cash used in financing activities in fiscal 2013 included $37.2 million for dividend payments and $3.8 million related to acquisition holdback payments, partially offset by $2.6 million of excess tax benefits from share-based compensation. The increase in dividends over the last three fiscal years is the result of regular increases in our dividend payout rates. We paid dividends of $1.04, $0.96 Capital Expenditures We expect capital expenditures for fiscal ERP Project In fiscal 2011 Applied commenced its ERP (SAP) project to transform the Company's technology platforms and enhance its business information and technology systems for future growth. We have deployed our solution in Share Repurchases The Board of Directors has authorized the repurchase of shares of the Company’s stock. These purchases may be made in open market and negotiated transactions, from time to time, depending upon market conditions. At June 30, In fiscal 2015, 2014 Borrowing Arrangements The Company has a Additionally at June 30, 2015, the Company had letters of credit outstanding with a separate bank, in the amount of $1.8 million, in order to secure certain insurance obligations. In April 2014 the Company entered into a Also in April 2014, the Company assumed $2.4 million of debt as a part of the acquisition of our headquarters facility. The 1.5% fixed interest rate note is held by the State of Ohio Development Services Agency 19 The revolving credit facility and Accounts Receivable Analysis The following table is included to aid in analysis of accounts receivable and the associated provision for losses on accounts receivable (all dollar amounts are in thousands):
Accounts receivable are reported at net realizable value and consist of trade receivables from customers. Management monitors accounts receivable by reviewing Days Sales Outstanding (DSO) and the aging of receivables for each of the Company's locations. On a consolidated basis, DSO was 50.0 at June 30, 2015 versus 51.4 at June 30, 2015. Acquisitions added $29.3 million, or 7.8%, of accounts receivable, changes in foreign currency rates decreased receivables by $15.6 million and improved collections led to a decrease in receivables of $13.1 million. We primarily attribute the Approximately Inventory Analysis Inventories are valued at the was CONTRACTUAL OBLIGATIONS The following table shows the approximate value of the Company’s contractual obligations and other commitments to make future payments as of June 30,
(1) Amounts represent estimated contractual interest payments on outstanding long-term debt obligations. Rates in effect as of June 30, 2015 are used for variable rate debt. Purchase orders for inventory and other goods and services are not included in our estimates as we are unable to aggregate the amount of such purchase orders that represent enforceable and legally binding agreements specifying all significant terms. The previous table includes the gross liability for unrecognized income tax benefits including interest and penalties as well as the balance outstanding under our revolving credit facility in the “Other” column as the Company is unable to make a reasonable estimate regarding the timing of cash settlements, if any, with the respective taxing authorities or lenders. SUBSEQUENT EVENTS On CRITICAL ACCOUNTING POLICIES The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates at a specific point in time that affect the amounts reported in the consolidated financial statements and disclosed in the accompanying notes. The Business and Accounting Policies note to the consolidated financial statements describes the significant accounting policies and methods used in preparation of the consolidated financial statements. Estimates are used for, but not limited to, determining the net carrying value of trade accounts receivable, inventories, recording self-insurance liabilities and other accrued liabilities. Estimates are also used in establishing opening balances in relation to purchase accounting. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements. LIFO Inventory Valuation and Methodology Inventories are valued at the LIFO layers and/or liquidations are determined consistently year-to-year. See the Inventories note to the consolidated financial statements in Item 8 under the caption "Financial Statements and Supplementary Data, for further information. Allowances for Slow-Moving and Obsolete Inventories We evaluate the recoverability of our slow-moving or obsolete inventories at least quarterly. We estimate the recoverable cost of such inventory by product type while considering factors such as its age, historic and current 21 demand trends, the physical condition of the inventory, as well as assumptions regarding future demand. Our ability to recover our cost for slow moving or obsolete inventory can be affected by such factors as general market conditions, future customer demand and relationships with suppliers. Allowances for Doubtful Accounts We evaluate the collectibility of trade accounts receivable based on a combination of factors. Initially, we estimate an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience. This initial estimate is adjusted based on recent trends of certain customers and industries estimated to be a greater credit risk, trends within the entire customer pool and changes in the overall aging of accounts receivable. While we have a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which we operate could result in higher than expected defaults, and therefore, the need to revise estimates for bad debts. Accounts are written off against the allowance when it becomes evident that collection will not occur. As of June 30, Goodwill and Intangibles Goodwill is recognized as the amount by which the cost of an acquired entity exceeds the net amount assigned to assets acquired and liabilities assumed. Goodwill for acquired businesses is accounted for using the acquisition method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of the acquisition at their respective estimated fair values. The judgments made in determining the estimated fair value assigned to each class of assets acquired, as well as the estimated life of each asset, can materially impact the net income of the periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. As part of acquisition accounting, we also recognize acquired identifiable intangible assets such as customer relationships, vendor relationships, trade names, and non-competition agreements apart from goodwill. Finite-lived identifiable intangibles are evaluated for impairment when changes in conditions indicate carrying value may not be recoverable. We evaluate goodwill Goodwill on our consolidated financial statements is related to both the Service Center Based Distribution segment and the Fluid Power Businesses segment. 22 units (Canada service center and Australia / New Zealand) had excess fair value of approximately $39.0 million and $4.0 million, or fifteen and fourteen percent, respectively when compared to the carrying amounts of approximately $258.0 million and $28.0 million, respectively. The techniques used in the Company's impairment test have incorporated a number of assumptions that the Company believes to be reasonable and to reflect market conditions forecast at the assessment date. Assumptions in estimating future cash flows are subject to a high degree of judgment. The Company makes all efforts to forecast future cash flows as accurately as possible with the information available at the time the forecast is made. To this end, the Company evaluates the appropriateness of its assumptions as well as its overall forecasts by comparing projected results of upcoming years with actual results of preceding years and validating that differences therein are reasonable. Key assumptions, all of which are Level 3 inputs, relate to pricing trends, inventory costs, discount rate, customer demand, and the long-term growth and foreign exchange rates. A number of benchmarks from independent industry and other economic publications were also used. Changes in future actual results, assumptions and estimates after the assessment date may lead to an outcome where impairment charges would be required in future periods. Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions. Self-Insurance Liabilities We maintain business insurance programs with significant self-insured retention covering workers’ compensation, business, automobile, general product liability and other claims. We accrue estimated losses using actuarial calculations, models and assumptions based on historical loss experience. We also maintain a partially self-insured health benefits plan, which provides medical benefits to U.S. based employees electing coverage. We maintain a reserve for all unpaid medical claims including those incurred but not reported based on historical experience and other assumptions. Although management believes that the estimated liabilities for self-insurance are adequate, the estimates described above may not be indicative of current and future losses. In addition, the actuarial calculations used to estimate self-insurance liabilities are based on numerous assumptions, some of which are subjective. We will continue to adjust our estimated liabilities for self-insurance, as deemed necessary, in the event that future loss experience differs from historical loss patterns. Pension and Other Post-employment Benefit Plans The measurement of liabilities related to pension plans and other post-employment benefit plans is based on management’s assumptions related to future events including interest rates, return on pension plan assets, and health care cost trend rates. We evaluate these assumptions and adjust them as necessary. Changes to these assumptions could result in a material change to the Company’s pension obligation causing a related increase or decrease in reported net operating results in the period of change in the estimate. At June 30,
A 1% change in the return on assets is not material as most of the plans are non-qualified and unfunded. Income Taxes Deferred income taxes are recorded for estimated future tax effects of differences between the bases of assets and liabilities for financial reporting and income tax purposes, giving consideration to enacted tax laws. As of June 30, is more-likely-than-not of being realized. The realization of these deferred tax assets can be impacted by changes to tax laws, statutory Income taxes on undistributed earnings of non-U.S. subsidiaries are not accrued for the portion of such earnings that management considers to be permanently reinvested. At June 30, CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT This Form 10-K, including Management’s Discussion and Analysis, contains statements that are forward-looking based on management’s current expectations about the future. Forward-looking statements are often identified by qualifiers, such as “guidance”, “expect”, “believe”, “plan”, “intend”, “will”, “should”, “could”, “would”, “anticipate”, “estimate”, “forecast”, “may”, "optimistic" and derivative or similar words or expressions. Similarly, descriptions of objectives, strategies, plans, or goals are also forward-looking statements. These statements may discuss, among other things, expected growth, future sales, future cash flows, future capital expenditures, future performance, and the anticipation and expectations of the Company and its management as to future occurrences and trends. The Company intends that the forward-looking statements be subject to the safe harbors established in the Private Securities Litigation Reform Act of 1995 and by the Securities and Exchange Commission in its rules, regulations and releases. Readers are cautioned not to place undue reliance on any forward-looking statements. All forward-looking statements are based on current expectations regarding important risk factors, many of which are outside the Company’s control. Accordingly, actual results may differ materially from those expressed in the forward-looking statements, and the making of those 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 assumes no obligation publicly to update or revise any forward-looking statements, whether because of new information or events, or otherwise, except as may be required by law. Important risk factors include, but are not limited to, the following: risks relating to the operations levels of our customers and the economic factors that affect them; changes in the prices for products and services relative to the cost of providing them; reduction in supplier inventory purchase incentives; loss of key supplier authorizations, lack of product availability, or changes in supplier distribution programs; the cost of products and energy and other operating costs; changes in customer preferences for products and services of the nature and brands sold by us; changes in customer procurement policies and practices; competitive pressures; our reliance on information systems; We discuss certain of these matters and other risk factors more fully throughout our Form 10-K, as well as other of our filings with the Securities and Exchange Commission. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Our market risk is impacted by changes in foreign currency exchange rates as well as changes in interest rates. We occasionally utilize derivative instruments as part of our overall financial risk management policy, but do not use derivative instruments for speculative or trading purposes. We do not currently have any outstanding derivative instruments. Foreign Currency Exchange Rate Risk Because we operate throughout North America, Australia and New Zealand and approximately During the course of the fiscal year, the Canadian, Australian, Mexican and New Zealand foreign exchange rates decreased in relation to the U.S. dollar by Interest Rate Risk Our primary exposure to interest rate risk results from our outstanding debt Our debt facilities outstanding include our revolving credit facility, with a capacity of up to $150.0 million in borrowings and We monitor depository institutions that hold our cash and cash equivalents, primarily for safety of principal and secondarily for maximizing yield on those funds. We diversify our cash and cash equivalents among counterparties to minimize exposure to any of these entities. For more information relating to borrowing and interest rates, see the “Liquidity and Capital Resources” section of “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and note 5 to the consolidated financial statements in Item 8. That information is also incorporated here by reference. In addition, see Item 1A, “Risk Factors,” for additional risk factors relating to our business. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Applied Industrial Technologies, Inc. Cleveland, Ohio We have audited the accompanying consolidated balance sheets of Applied Industrial Technologies, Inc. and subsidiaries (the "Company") as of June 30, our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of June 30, /s/ Deloitte & Touche LLP Cleveland, Ohio August STATEMENTS OF CONSOLIDATED INCOME (In thousands, except per share amounts)
See notes to consolidated financial statements. STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (In thousands)
See notes to consolidated financial statements. 28 CONSOLIDATED BALANCE SHEETS (In thousands)
See notes to consolidated financial statements. 29 STATEMENTS OF CONSOLIDATED CASH FLOWS (In thousands)
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (In thousands)
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) NOTE 1: BUSINESS AND ACCOUNTING POLICIES Business Applied Industrial Technologies, Inc. and subsidiaries (the “Company” or “Applied”) is a leading industrial distributor serving Maintenance Repair & Operations (MRO) and Original Equipment Manufacturer (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. Although the Company does not generally manufacture the products it sells, it does assemble and repair certain products and systems. Consolidation The consolidated financial statements include the accounts of Applied Industrial Technologies, Inc. and its subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. For the Foreign Currency The financial statements of the Company’s Canadian, Mexican, Australian and New Zealand subsidiaries are measured using local currencies as their functional currencies. Assets and liabilities are translated into U.S. dollars at current exchange rates, while income and expenses are translated at average exchange rates. Translation gains and losses are reported in other comprehensive income (loss) in the statements of consolidated comprehensive income. Gains and losses resulting from transactions denominated in foreign currencies are included in the statements of consolidated income as a component of other expense (income), net. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results may differ from the estimates and assumptions used in preparing the consolidated financial statements. Cash and Cash Equivalents The Company considers all short-term, highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are carried at cost, which approximates fair value. Marketable Securities The primary marketable security investments of the Company include money market and mutual funds held in a rabbi trust for a non-qualified deferred compensation plan. These are included in other assets in the consolidated balance sheets, are classified as trading securities, and reported at fair value based on quoted market prices. Changes in the fair value of the investments during the period are recorded in other expense (income), net in the statements of consolidated income. Concentration of Credit Risk The Company has a broad customer base representing many diverse industries across North America, Australia and New Zealand. As such, the Company does not believe that a significant concentration of credit risk exists in its accounts receivable. The Company’s cash and cash equivalents consist of deposits with commercial banks and regulated non-bank subsidiaries. While Applied monitors the creditworthiness of these institutions, a crisis in the financial systems could limit access to funds and/or result in the loss of principal. The terms of these deposits and investments provide that all monies are available to the Company upon demand. Allowances for Doubtful Accounts The Company evaluates the collectibility of trade accounts receivable based on a combination of factors. Initially, the Company estimates an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience. This initial estimate is adjusted based on recent trends of customers and industries estimated to be greater credit risks, trends within the entire customer pool, and changes in the overall aging of accounts receivable. Accounts are written off against the allowance when it becomes evident collection will not occur. While the Company has a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which the Company operates could result in higher than expected defaults, and therefore, the need to revise estimates for bad debts. Inventories Inventories are valued at the The Company evaluates the recoverability of its slow moving or obsolete inventories at least quarterly. The Company estimates the recoverable cost of such inventory by product type while considering factors such as its age, historic and current demand trends, the physical condition of the inventory, as well as assumptions regarding future demand. The Company’s ability to recover its cost for slow moving or obsolete inventory can be affected by such factors as general market conditions, future customer demand, and relationships with suppliers. Historically, the Company’s inventories have demonstrated long shelf lives, are not highly susceptible to obsolescence, and, in certain instances, can be eligible for return under supplier return programs. Supplier Purchasing Programs The Company enters into agreements with certain suppliers providing inventory purchase incentives. The Company’s inventory purchase incentive arrangements are unique to each supplier and are generally annual programs ending at either the Company’s fiscal year end or the supplier’s year end; however, program length and ending dates can vary. Incentives are received in the form of cash or credits against purchases upon attainment of specified purchase volumes and are received either monthly, quarterly or annually. The incentives are generally a specified percentage of the Company’s net purchases based upon achieving specific purchasing volume levels. These percentages can increase or decrease based on changes in the volume of purchases. The Company accrues for the receipt of these inventory purchase incentives based upon cumulative purchases of inventory. The percentage level utilized is based upon the estimated total volume of purchases expected during the life of the program. Supplier programs are analyzed each quarter to determine the appropriateness of the amount of purchase incentives accrued. Upon program completion, differences between estimates and actual incentives subsequently received have not been material. Benefits under these supplier purchasing programs are recognized under the Company’s LIFO inventory accounting method as a reduction of cost of sales when the inventories representing these purchases are recorded as cost of sales. Accrued incentives expected to be settled as a credit against future purchases are reported on the consolidated balance sheet as an offset to amounts due to the related supplier. Property and Related Depreciation and Amortization Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets and is included in selling, distribution and administrative expenses in the accompanying statements of consolidated income. Buildings, building improvements and leasehold improvements are depreciated over ten to thirty years or the life of the lease if a shorter period, and equipment is depreciated over three to ten years. The Company capitalizes internal use software development costs in accordance with guidance on accounting for costs of computer software developed or obtained for internal use. Amortization of software begins when it is ready for its intended use, and is computed on a straight-line basis over the estimated useful life of the software, generally not to exceed twelve years. Capitalized software and hardware costs are classified as property on the consolidated balance sheets. The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the recorded value cannot be recovered from undiscounted future cash flows. Impairment losses, if any, would be measured based upon the difference between the carrying amount and the fair value of the assets. Goodwill and Intangible Assets Goodwill is recognized as the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed. Goodwill is not amortized. Goodwill is reviewed for impairment annually as of January 1 or whenever changes in conditions indicate an evaluation should be completed. These conditions could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. The Company utilizes discounted cash flow models and market multiples for comparable businesses to determine the fair value of reporting units. Evaluating impairment requires significant judgment by management, including estimated future operating results, estimated future cash flows, the long-term rate of growth of the business, and determination of an appropriate discount rate. While the Company uses available information to prepare the estimates and evaluations, actual results could differ significantly. The Company recognizes acquired identifiable intangible assets such as customer relationships, trade names, vendor relationships, and non-competition agreements apart from goodwill. Customer relationship identifiable intangibles are amortized using the sum-of-the-years-digits method over estimated useful lives consistent with assumptions used in the determination of their value. Amortization of all other finite-lived identifiable intangible assets is computed using the straight-line method over the estimated period of benefit. Amortization of identifiable intangible assets is included in selling, distribution and administrative expenses in the accompanying statements of consolidated income. Identifiable intangible assets with finite lives are reviewed for impairment when changes in conditions indicate carrying value may not be recoverable. Identifiable intangible assets with indefinite lives are reviewed for impairment on an annual basis or whenever changes in conditions indicate an evaluation should be completed. The Company does not currently have any indefinite lived identifiable intangible assets. Self-Insurance Liabilities The Company maintains business insurance programs with significant self-insured retention covering workers’ compensation, business, automobile, general product liability and other claims. The Company accrues estimated losses including those incurred but not reported using actuarial calculations, models and assumptions based on historical loss experience. The Company also maintains a self-insured health benefits plan which provides medical benefits to U.S. based employees electing coverage under the plan. The Company estimates its reserve for all unpaid medical claims, including those incurred but not reported, based on historical experience, adjusted as necessary based upon management’s reasoned judgment. Revenue Recognition Sales are recognized when there is evidence of an arrangement, the sales price is fixed, collectibility is reasonably assured and the product’s title and risk of loss is transferred to the customer. Typically, these conditions are met when the product is shipped to the customer. The Company charges shipping and handling fees when products are shipped or delivered to a customer, and includes such amounts in net sales. The Company reports its sales net of actual sales returns and the amount of reserves established for anticipated sales returns based on historical rates. Sales tax collected from customers is excluded from net sales in the accompanying statements of consolidated income. Shipping and Handling Costs The Company records freight payments to third parties in cost of sales and internal delivery costs in selling, distribution and administrative expenses in the accompanying statements of consolidated income. Internal delivery costs in selling, distribution and administrative expenses were approximately $24,430, $16,230 Income Taxes Income taxes are determined based upon income and expenses recorded for financial reporting purposes. Deferred income taxes are recorded for estimated future tax effects of differences between the bases of assets and liabilities for financial reporting and income tax purposes, giving consideration to enacted tax laws. Uncertain tax positions meeting a more-likely-than-not recognition threshold are recognized in accordance with the Income Taxes topic of the ASC (Accounting Standards Codification). The Company recognizes accrued interest and penalties related to unrecognized income tax benefits in the provision for income taxes. Share-Based Compensation Share-based compensation represents the cost related to share-based awards granted to employees under either the 2011 Long-Term Performance Plan or the 2007 Long-Term Performance Plan. The Company measures share-based compensation cost at the grant date, based on the estimated fair value of the award and recognizes the cost over the requisite service period. Non-qualified stock appreciation rights (SARs) and stock options are granted with an exercise price equal to the closing market price of the Company’s common stock at the date of grant and the fair values are determined using a Black-Scholes option pricing model, which incorporates assumptions regarding the expected volatility, the expected option life, the risk-free interest rate and the expected dividend yield. SARs and stock option awards generally vest over four years of continuous service and have ten-year contractual terms. The fair value of restricted stock awards, restricted stock units (RSUs), and performance shares are based on the closing market price of Company common stock on the grant date. Treasury Shares Shares of common stock repurchased by the Company are recorded at cost as treasury shares and result in a reduction of shareholders’ equity in the consolidated balance sheets. The Company uses the weighted-average cost method for determining the cost of shares reissued. The difference between the cost of the shares and the reissuance price is added to or deducted from additional paid-in capital. U.S. Inventory Costing Methodology From fiscal 2013 through the end of fiscal 2014, the Company implemented SAP as its new enterprise resource planning system (ERP) at its U.S. service centers. As implementation occurred at each service center, the method used to apply the link chain dollar value last-in first-out (LIFO) method of accounting changed for the inventories at that location. The new inventory costing methodology utilizes the weighted-average cost method to determine the current year LIFO indices as well as any new LIFO layers established, whereas previously, current costs were used. Upon completion of the implementation, on July 1, 2014 the Company changed its accounting policy to the new method. Differences between amounts recognized in the financial statements during the implementation period and the previous accounting policy prior to July 1, 2014 were immaterial. The Company believes that this change in accounting principle is preferable under the circumstances because weighted-average cost will provide a better reflection of actual transactions and inventory purchases, resulting in improved matching of actual costs and current revenues. This change will also result in greater consistency in inventory costing across the organization, as certain other U.S. locations were previously using weighted-average cost for similar LIFO calculations in their legacy inventory systems, and the new ERP system will make inventory costing a more efficient process within the U.S. ASC 250, "Accounting Changes and Error Corrections," requires that unless it is impracticable to do so, the voluntary adoption of a new accounting principle should be done retrospectively to all prior periods. Before July 1, 2014, the Company’s former ERP system did not capture weighted-average costs within the U.S. and the data needed to recalculate previous LIFO indices does not exist. Thus, the Company has concluded it is impracticable to recognize a cumulative effect or to retrospectively apply the effect of this change in accounting principle prior to July 1, 2014, but believes that those effects would be immaterial in all periods. Alignment of Canadian Subsidiary Reporting Effective July 1, 2013, the Company aligned the consolidation of the Company’s Canadian subsidiary in the consolidated financial statements, which previously included the results on a one month reporting lag. The Company believes that this change in accounting principle is preferable as it provides contemporaneous reporting within our consolidated financial statements. In accordance with applicable accounting literature, the elimination of a one month reporting lag of a subsidiary is treated as a change in accounting principle and requires retrospective application. The Company 35 Alignment of Mexican Subsidiary Reporting Effective January 1, 2014, the Company aligned the consolidation of the Company’s Mexican subsidiary in the consolidated financial statements, which previously included the results on a one month reporting lag. The Company believes that this change in accounting principle is preferable as it provides contemporaneous reporting within our consolidated financial statements. In accordance with applicable accounting literature, the elimination of a one month reporting lag of a subsidiary is treated as a change in accounting principle and requires retrospective application. The Company New Accounting Pronouncements In May 2014, the FASB issued its final standard on the recognition of revenue from contracts with customers. The standard, issued as Accounting Standards Update (ASU) 2014-09, outlines a single comprehensive model for entities to use in the accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. The core principle of this model is that "an entity recognizes revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services." In June 2014, the FASB issued its final standard on accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The standard, issued as In April 2015, the FASB issued its final standard on simplifying the presentation of debt issue costs. This standard, issued as ASU 2015-03, requires that all costs incurred to issue debt be presented in the balance sheet as a direct reduction from the carrying value of the debt, similar to the presentation of debt discounts. This update is effective for financial statement periods beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. The impact of the adoption of this guidance will result in the reclassification of the unamortized debt issuance costs on the consolidated balance sheets, which were $622 and $703 at June 30, 2015 and 2014, respectively. NOTE 2: BUSINESS COMBINATIONS The operating results of all acquired entities are included within the consolidated operating results of the Company from the date of each respective acquisition. On July 1, 2014, 36 The following table summarizes the consideration transferred, assets acquired, and liabilities assumed in connection with the acquisition of Knox based on their estimated fair values at the acquisition date:
None of the goodwill acquired is expected to be deductible for income tax purposes. The goodwill recognized is attributable primarily to expected synergies and other benefits that the Company believes will result from the acquisition of Knox. Reliance Acquisition On May 1, 2014, the Company acquired 100% of the outstanding stock of Reliance Industrial Products (“Reliance”), headquartered in Nisku, Alberta, Canada, with operations in Western Canada and the Western United States, for a total purchase price in the amount of $188,500. The primary reasons for the acquisition are to provide the Company enhanced capabilities to serve the upstream oil and gas industry in the United States and Canada. A distributor of fluid conveyance and oilfield supplies, this business is included in the Service Center Based Distribution Segment. The Company funded the acquisition by using available cash in Canada in the amount of $31,900, existing revolving credit facilities of $36,600 and a new $100,000 five year term loan facility, with the remainder of $20,000 to be paid in equal amounts as acquisition holdback payments on the first two anniversaries of the acquisition, plus interest at 2% per annum. 37 The following table summarizes the consideration transferred, assets acquired, and liabilities assumed in connection with the acquisition of Reliance based on their
None of the goodwill acquired is expected to be deductible for income tax purposes. The goodwill recognized is attributable primarily to expected synergies and other benefits that the Company believes will result from the acquisition of Reliance. The Company incurred $1,448 in third party costs during fiscal 2014 pertaining to the acquisition of Reliance. These expenses are included in the selling, distribution and administration expense line in the statement of consolidated income for the year ended June 30, 2014. Knox and Reliance Pro Forma Results (Unaudited) The following unaudited pro forma consolidated results of operations have been prepared as if the Reliance acquisition (including the related acquisition costs) had occurred at the beginning of fiscal
These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results to reflect additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment, and amortizable intangible assets had been applied as of July 1, 38 Other Fiscal 2015 Acquisitions Other acquisitions during the year include the acquisition of substantially all of the net assets of Rodamientos y Derivados del Norte S.A. de C.V., a Mexican distributor of bearings and power transmission products and related products, and Great Southern Bearings / Northam Bearings, a Western Australia distributor of bearings and power transmission products on July 1, 2014 as well as Ira Pump and Supply Inc. (Ira Pump) a Texas distributor of oilfield pumps and supplies on November 3, 2014. These companies are included in the Service Center Based Distribution Segment. The total combined consideration for these acquisitions was approximately $54,900. Net tangible assets acquired were $21,200 and intangibles including goodwill were $33,700, based upon estimated fair values at the acquisition date. The estimated fair values related to Ira Pump are preliminary and subject to adjustment. The Company funded these acquisitions from borrowings under our existing debt facilities. Total acquisition holdback payments of $6,900 will be paid at various times through July 2017. The results of operations for the Mexican, Australian and Ira Pump acquisitions are not material for any period presented. Other Fiscal 2014 Acquisitions In December 2013, the Company acquired substantially all of the net assets of Texas Oilpatch Services Corporation, a Texas distributor of bearings, oil seals, power transmission products, and related replacement parts to the oilfield industry. The acquired business is included in the Service Center Based Distribution segment. The purchase price for this acquisition was $17,000, tangible assets acquired was $3,863 and intangibles, including goodwill was $13,137. The purchase price includes $2,550 of acquisition holdback payments which have been paid into an escrow account controlled by a third party. The acquisition price and the results of operations of the acquired entity are not material in relation to the Company’s consolidated financial statements. Fiscal 2013 Acquisitions In December 2012, the Company acquired substantially all of the net assets of Norma Bearings, Inc., a distributor of bearings and power transmission products, located in Laval, Quebec. The acquired business is included in the Service Center Based Distribution segment. In December 2012, the Company acquired substantially all of the net assets of Parts Associates, Inc., a distributor of maintenance supplies and solutions, headquartered in Cleveland, Ohio. The acquired business is included in the Service Center Based Distribution segment. In November 2012, the Company acquired substantially all of the net assets of Hyquip, Inc., a Wisconsin distributor of a broad line of hydraulic, rubber and plastic industrial hose and tubing, plus related accessories. The acquired business is included in the Fluid Power Businesses segment. In September 2012, the Company acquired 100% of the outstanding stock of Bearings & Oil Seals Specialists Inc., a distributor of gaskets, seals, bearing and power transmission products, located in Hamilton, Ontario. The acquired business is included in the Service Center Based Distribution segment. In August 2012, the Company acquired 100% of the outstanding stock of SKF Group's company-owned distribution business in Australia and New Zealand ("Applied Australia"). As one of the largest bearing suppliers in these markets, Applied Australia also distributes seals, lubrication products, and power transmission products. The acquired business is included in the Service Center Based Distribution segment. The following table summarizes the fair values of assets acquired and liabilities assumed for these acquisitions:
39 The purchase price included $1,015 that was deferred, some of which has been paid as acquisition holdback payments in fiscal 2015 and 2014. Additional 2013 pro-forma information has not been included as it is not material. NOTE 3: INVENTORIES Inventories consist of the following:
In fiscal 2013, NOTE 4: GOODWILL AND INTANGIBLES The changes in the carrying amount of goodwill for both the Service Center Based Distribution Segment and the Fluid Power Businesses segment for the years ended June 30,
At June 30, 2015, 2014 The Company has seven reporting units and performed its annual goodwill impairment assessment as of January 1, 2015. The Company concluded that five of the reporting units had material excesses of fair value compared to their carrying amounts. The Company concluded that two reporting units (Canada service center and Australia / New Zealand) had excess fair value of approximately $39,000 and $4,000 or 15% and 14%, respectively when compared to the carrying amounts of approximately $258,000 and $28,000, respectively. The techniques used in the Company's impairment test have incorporated a number of assumptions that the Company believes to be reasonable and to reflect market conditions forecast at the assessment date. Assumptions in estimating future cash flows are subject to a high degree of judgment. The Company makes all efforts to forecast future cash flows as accurately as possible with the information available at the time the forecast is made. To this end, the Company evaluates the appropriateness of its assumptions as well as its overall forecasts by comparing projected results of upcoming years with actual results of preceding years and validating that differences therein are reasonable. Key assumptions, all of which are Level 3 inputs, relate to pricing trends, inventory costs, discount rate, customer demand, and the long-term growth and foreign exchange rates. A number of benchmarks from independent industry and other economic publications were also used. Changes in future actual results, assumptions and estimates after the assessment date may lead to an outcome where impairment charges would be required in future 40 periods. Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions. The Company's identifiable intangible assets resulting from business combinations are amortized over their estimated period of benefit and consist of the following:
Amounts include the impact of foreign currency translation. Fully amortized amounts are written off. During
Amortization of identifiable intangibles totaled $ A significant portion of our intangible assets relate to recent acquisitions that primarily operate in the oil and gas sectors. Considering the recent downturn in the energy market, a prolonged period of low oil and natural gas prices may result in asset impairments, including potential impairment of the carrying value of our goodwill and finite-lived intangible assets. NOTE 5: DEBT Revolving Credit Facility The Company has a revolving credit facility with a group of banks expiring in May 2017. This agreement provides for unsecured borrowings of up to $150,000. Fees on this facility range from 0.09% to 0.175% per year based upon the Company's leverage ratio at each quarter end. Borrowings under this agreement carry variable interest rates tied to either LIBOR, prime, or the bank’s cost of funds at the Company’s discretion. This agreement also enables the Company to refinance this debt on a long-term basis. At June 30, 2015 and 2014, the Company had $52,000 and $69,000, respectively, outstanding under this credit facility. Unused lines under this facility, net of outstanding letters of credit of $ Additionally, the Company had letters of credit outstanding with a separate bank, not associated with the revolving credit agreement, in the amount of $1,841, in order to secure certain insurance obligations. Long-Term Borrowings The Company entered into a In April 2014 the Company assumed $2,359 of debt as a part of the headquarters facility acquisition. The 1.5% fixed interest rate note is held by the State of Ohio Development Services Agency with a remaining term of At June 30, 2015, the Company had borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management of $170,000. The "Series C" notes have a principal amount of $120,000 and carry a fixed interest rate of 3.19%, which is due in equal principal payments in July 2020, 2021 and 2022. The "Series D" notes have a principle amount of $50,000 and carry a fixed interest rate of 3.21% which is due in equal principal payments in October 2019 and 2023. As of June 30, 2015, $50,000 in additional financing was available under this facility. The table below summarizes the aggregate maturities of amounts outstanding under long-term borrowing arrangements for each of the next five years:
Covenants The revolving credit facility, the term loan agreement, and the NOTE 6: FAIR VALUE MEASUREMENTS Marketable securities measured at fair value at June 30, 2015 and June 30, 2014 totaled $9,330 and As of June 30, 2015, the carrying value of the Company's fixed interest rate debt outstanding under its unsecured shelf facility agreement with Prudential Investment Management approximates fair value (Level 2 in the fair value hierarchy). The revolving credit facility and the term loan contain variable interest rates and their carrying values approximate fair value (Level 2 in the fair value hierarchy). NOTE 7: INCOME TAXES Income Before Income Taxes The components of income before income taxes are as follows:
Provision The provision (benefit) for income taxes consists of:
The exercise of non-qualified stock appreciation rights and options during fiscal 2015, 2014 43 Effective Tax Rates The following reconciles the U.S. federal statutory income tax rate to the Company’s effective income tax rate:
Consolidated Balance Sheets Significant components of the Company’s
Valuation allowances are provided against deferred tax assets where it is considered more-likely-than-not that the Company will not realize the benefit of such assets. The remaining net deferred tax asset is the amount management believes is more-likely-than-not of being realized. The realization of these deferred tax assets can be impacted by changes to tax laws, statutory rates and future income levels. U.S. federal income taxes are provided on the portion of non-U.S. subsidiaries' income that is not considered to be permanently reinvested outside the U.S. and may be remitted to the U.S. At June 30, In 2014, the Company recognized a tax benefit of This tax benefit was due to the reversal of taxes previously 44 accrued on a portion of the undistributed earnings of non-U.S. subsidiaries applicable to a change in the permanent reinvestment assertion. In 2015, $17,793 of cash was distributed by one of the Company's non-U.S. subsidiaries as a non-taxable return of capital. All undistributed earnings of non-U.S. subsidiaries are considered to be permanently reinvested outside of the U.S. at June 30, Unrecognized Income Tax Benefits The Company and its subsidiaries file income tax returns in U.S. federal, various state, local and foreign jurisdictions. The following table sets forth the changes in the amount of unrecognized tax benefits for the years ended June 30, 2015, 2014
Included in the balance of unrecognized income tax benefits at June 30, 2015, 2014 During 2015, 2014 The Company is subject to U.S. federal income tax examinations for the tax years The Company’s unrecognized income tax benefits are included in other liabilities in the consolidated balance sheets since payment of cash is not expected within one year. NOTE 8: SHAREHOLDERS’ EQUITY Treasury Shares At June 30, 45 Accumulated Other Comprehensive Income (Loss) Changes in the accumulated other comprehensive income (loss) for the years ended June 30,
Other Comprehensive Income (Loss) Details of other comprehensive income (loss) are as follows:
Net Income Per Share Basic net income per share is based on the weighted-average number of common shares outstanding. Diluted net income per share includes the dilutive effect of potential common shares outstanding. Under the two-class method of computing net income per share, non-vested share-based payment awards that contain rights to receive non-forfeitable dividends are considered participating securities. The 46 stock method and the two-class method. For the years presented there were no material differences in the net income per share amounts calculated using the two methods. Accordingly, the treasury stock method is disclosed below. The following table presents amounts used in computing net income per share and the effect on the weighted-average number of shares of dilutive potential common shares:
Stock appreciation rights and options relating to NOTE 9: SHARE-BASED COMPENSATION Share-Based Incentive Plans The 2011 Plan, which expires in 2016, provides for granting of SARs, stock options, stock awards, cash awards, and such other awards or combination thereof as the Executive Organization and Compensation Committee or, in the case of director awards, the Corporate Governance Committee of the Board of Directors (together referred to as the Committee) may determine to officers, other key employees and members of the Board of Directors. Grants are generally made at regularly scheduled, committee meetings. Compensation costs charged to expense under award programs paid (or to be paid) with shares (including SARs, stock options, performance shares, restricted stock, and RSUs) are summarized in the table below:
Such amounts are included in selling, distribution and administrative expense in the accompanying statements of consolidated income. The total income tax benefit recognized in the statements of consolidated income for share-based compensation plans was $1,749, $1,768 and $2,241 for fiscal years 2015, 2014 and 2013, respectively. It has been the practice of the Company to issue shares from treasury to satisfy requirements of awards paid with shares. The aggregate unrecognized compensation cost for share-based award programs paid (or with the potential to be paid) at June 30,
Cost of these programs will be recognized as expense over the weighted-average remaining vesting period of 47 Stock Appreciation Rights and Stock Options The weighted-average assumptions used for SARs and stock option grants issued in fiscal 2015, 2014 and
The expected life is based upon historical exercise experience of the officers, other key employees and members of the Board of Directors. The risk free interest rate is based upon U.S. Treasury zero-coupon bonds with remaining terms equal to the expected life of the SARs and stock options. The assumed dividend yield has been estimated based upon the Company’s historical results and expectations for changes in dividends and stock prices. The volatility assumption is calculated based upon historical daily price observations of the Company’s common stock for a period equal to the expected life. SARs are redeemable solely in Company common stock. The exercise price of stock option awards may be settled by the holder with cash or by tendering Company common stock. A summary of SARs and stock options activity is presented below:
The weighted-average remaining contractual terms for SARs and stock options outstanding and exercisable at June 30, The total fair value of shares vested during fiscal 2015, 2014 Performance Shares A summary of nonvested performance shares activity at June 30,
48 The Committee set three one-year goals for each of the 2015, 2014 Restricted Stock and Restricted Stock Units Restricted stock award recipients are entitled to receive dividends on, and have voting rights with respect to their respective shares, but are restricted from selling or transferring the shares prior to vesting. Restricted stock awards vest over periods of one to four years. RSUs are grants valued in shares of Applied stock, but shares are not issued until the grants vest A summary of the status of the Company’s non-vested restricted stock and RSUs at June 30, presented below:
NOTE 10: BENEFIT PLANS Retirement Savings Plan Substantially all U.S. employees participate in the Applied Industrial Technologies, Inc. Retirement Savings Plan. Participants may elect 401(k) contributions of up to 50% of their compensation, subject to Internal Revenue Code maximums. The Company partially matches 401(k) contributions by participants. The Company had also made discretionary profit-sharing contributions to the Retirement Savings Plan Deferred Compensation Plans The Company has deferred compensation plans that enable certain employees of the Company to defer receipt of a portion of their Post-employment Benefit Plans The Company provides the following post-employment benefits which, except for the Qualified Defined Benefit Retirement Plan, are unfunded: Supplemental Executive Retirement Benefits Plan The Company has a non-qualified pension plan to provide supplemental retirement benefits to certain officers. Benefits are payable and determinable at retirement based upon a percentage of the participant’s historical compensation. The Executive Organization and Compensation Committee of the Board of Directors froze participant benefits (credited service and final average earnings) and entry into the Supplemental Executive Retirement Benefits Plan (SERP) effective December 31, 2011. Key Executive Restoration Plan In fiscal 2012, the Qualified Defined Benefit Retirement Plan The Company has a qualified defined benefit retirement plan that provides benefits to certain hourly employees at retirement. These employees do not participate in the Retirement Savings Plan. The benefits are based on length of service and date of retirement. 49 Salary Continuation Benefits The Company has agreements with certain retirees of acquired companies to pay monthly retirement benefits through fiscal 2020. Retiree Health Care Benefits The Company provides health care benefits, through third-party policies, to eligible retired employees who pay a specified monthly premium. Premium payments are based upon current insurance rates for the type of coverage provided and are adjusted annually. Certain monthly health care premium payments are partially subsidized by the Company. Additionally, in conjunction with a fiscal 1998 acquisition, the Company assumed the obligation for a post-retirement medical benefit plan which provides health care benefits to eligible retired employees at no cost to the individual. The Company uses a June 30 measurement date for all plans. The following table sets forth the changes in benefit obligations and plan assets during the year and the funded status for the post-employment plans at June 30:
The amounts recognized in the consolidated balance sheets and in accumulated other comprehensive income (loss) for the post-employment plans were as follows:
50 The following table provides information for pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets:
The net periodic costs (benefits) are as follows:
The estimated net actuarial loss and prior service cost for the pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year are $ Assumptions The discount rate is used to determine the present value of future payments. In general, the Company’s liability increases as the discount rate decreases and decreases as the discount rate increases. The Company computes a weighted-average discount rate taking into account anticipated plan payments and the associated interest rates from the Citigroup Pension Discount Yield Curve. The weighted-average actuarial assumptions used to determine benefit obligations and net periodic benefit cost for the plans were as follows:
The assumed health care cost trend rates used in measuring the accumulated benefit obligation for retiree health care benefits were A one-percentage point change in the assumed health care cost trend rates would have had the following effects as of June 30,
51 Plan Assets The fair value of each major class of plan assets for the Company’s Qualified Benefit Retirement Plan are valued using either quoted market prices in active markets for identical instruments; Level 1 in the fair value hierarchy, or other inputs that are observable, either directly or indirectly; Level 2 in the fair value hierarchy. Following are the fair values and target allocation as of June 30:
* Equity securities do not include any Company common stock. The Company has established an investment policy and regularly monitors the performance of the assets of the trust maintained in conjunction with the Qualified Defined Benefit Retirement Plan. The strategy implemented by the trustee of the Qualified Defined Benefit Retirement Plan is to achieve long-term objectives and invest the pension assets in accordance with ERISA and fiduciary standards. The long-term primary objectives are to provide for a reasonable amount of long-term capital, without undue exposure to risk; to protect the Qualified Defined Benefit Retirement Plan assets from erosion of purchasing power; and to provide investment results that meet or exceed the actuarially assumed long-term rate of return. The expected long-term rate of return on assets assumption was developed by considering the historical returns and the future expectations for returns of each asset class as well as the target asset allocation of the pension portfolio. Cash Flows Employer Contributions The Company expects to contribute $ Estimated Future Benefit Payments The following benefit payments, which reflect expected future service, as applicable, are expected to be paid in each of the next five years and in the aggregate for the subsequent five years:
52 NOTE 11: LEASES The Company leases many service center and distribution center facilities, vehicles and equipment under non-cancelable lease agreements accounted for as operating leases. The Company leased its corporate headquarters facility until purchasing it in April 2014. The minimum annual rental commitments under non-cancelable operating leases as of June 30,
Rental expense incurred for operating leases, principally from leases for real property, vehicles and computer equipment was $39,300 in 2015, $36,900 in 2014 The Company maintains lease agreements for many of the operating facilities of businesses it acquires from previous owners. In many cases, the previous owners of the business acquired, become employees of Applied and occupy management positions within those businesses. The payments under lease agreements of this nature totaled $3,100, $2,500 NOTE 12: SEGMENT AND GEOGRAPHIC INFORMATION The Company's reportable segments are: Service Center Based Distribution and Fluid Power Businesses. These reportable segments contain the Company's various operating segments which have been aggregated based upon similar economic and operating characteristics. The Service Center Based Distribution segment provides customers with solutions to their maintenance, repair and original equipment manufacturing needs through the distribution of industrial products including bearings, power transmission components, fluid power components and systems, industrial rubber products, linear motion products, tools, safety products, and other industrial and maintenance supplies. The Fluid Power Businesses segment distributes fluid power components and operates shops that assemble fluid power systems and components, performs equipment repair, and offers technical advice to customers. The accounting policies of the Company’s reportable segments are generally the same as those described in the following table. Segment Financial Information
ERP related assets are included in assets used in the business and capital expenditures within the Service Center Based Distribution segment. Within the geographic disclosures, these assets are included in the United States. Expenses associated with the ERP are included in the Corporate and other income, net, line in the reconciliation of operating income for reportable segments to the consolidated income before income taxes table below. A reconciliation of operating income for reportable segments to the consolidated income before income taxes is as follows:
Fluctuations in corporate and other income, net, are due to changes in the levels and amounts of expenses being allocated to the segments. The expenses being allocated include corporate charges for working capital, logistics support and other items. Product Category Net sales by product category are as follows:
The fluid power product category includes sales of hydraulic, pneumatic, lubrication and filtration components and systems, and repair services through the Company’s Fluid Power Businesses segment as well as the Service Center Based Distribution segment. Geographic Information Net sales are presented in geographic areas based on the location of the facility shipping the product. Long-lived assets are based on physical locations and are comprised of the net book value of property
Other countries NOTE 13: COMMITMENTS AND CONTINGENCIES The Company is a party to various pending judicial and administrative proceedings. Based on circumstances currently known, the Company believes the likelihood is remote that the ultimate resolution of any of these matters will have, either individually or in the aggregate, a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows. NOTE 14: OTHER EXPENSE (INCOME), NET Other expense (income), net, consists of the following:
NOTE 15: SUBSEQUENT EVENTS We have evaluated events and transactions occurring subsequent to June 30, On QUARTERLY OPERATING RESULTS (In thousands, except per share amounts) (UNAUDITED)
On August The sum of the quarterly per share amounts may not equal per share amounts reported for year-to-date. This is due to changes in the number of weighted shares outstanding and the effects of rounding for each period. 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 primarily made based on periodic physical inventory and the effect of year-end inventory quantities on LIFO costs. Fiscal 2015 During the fourth quarter of fiscal 2015, the Company recorded severance of $1.8 million. Also, we sold a building recognizing a gain of $1.5 million. During the fourth quarter of fiscal 2015, income tax expense increased due to recording a valuation allowance against certain deferred tax assets for foreign jurisdictions of $1.0 million. Also, an increase of tax rates in certain foreign jurisdictions at the end of the fiscal period increased tax expense by $1.2 million during the quarter. No LIFO layer liquidations took place during the year ended June 30, 2015. Fiscal 2014 During the first quarter of fiscal 2014, the Company aligned the consolidation of the Company's Canadian subsidiary which previously included results on a month reporting lag. The elimination of this lag resulted in the recognition of $1.2 million of additional income which was included within "Other income, net" on the Condensed Statements of Consolidated Income. During the third quarter of fiscal 2014, the Company aligned the consolidation of the Company's Mexican subsidiary which previously included results on a month reporting lag. The elimination of this lag resulted in the recognition of $0.2 million of additional income which was included within "Other income, net" on the Condensed Statements of Consolidated Income. During the third quarter of fiscal 2014, $2.8 million of tax reserves were reversed. The impact of this reversal was a reduction in income tax expense of $2.8 million and a $0.07 increase in earnings per share. 57 No LIFO layer liquidations took place during the year ended June 30, 2014. Fiscal 2013 During the fourth quarter of fiscal 2013, the Company realized LIFO layer liquidation benefits of $6,300 from certain inventory quantity levels decreasing. Additional scrap expense of $3.0 million above our normal scrap rate was also recorded in the June 30, 2013 quarter. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures The Company's management, under the supervision and with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of the Company's disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report. Based on that evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective. Management's Report on Internal Control over Financial Reporting The Management of Applied Industrial Technologies, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and the Vice President - Chief Financial Officer & Treasurer, and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s Management and Board of Directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements. Because of inherent limitations, internal control over financial reporting can provide only reasonable, not absolute, assurance with respect to the preparation and presentation of the consolidated financial statements and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time. Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of June 30, The Company acquired The effectiveness of the Company’s internal control over financial reporting has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.
August Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Applied Industrial Technologies, Inc. Cleveland, Ohio We have audited the internal control over financial reporting of Applied Industrial Technologies, Inc. and subsidiaries (the "Company") as of June 30, We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended June 30, /s/ Deloitte & Touche LLP Cleveland, Ohio August Changes in Internal Control Over Financial Reporting The Company has undertaken a multi-year ERP (SAP) project to transform the Company's technology platforms and enhance its business information and transaction systems. The Company has completed its SAP implementation in its Western Canadian and U.S. Other than as described above, there have not been any changes in internal control over financial reporting during the ITEM 9B. OTHER INFORMATION. Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The information required by this Item as to Applied's directors is incorporated by reference to Applied's proxy statement relating to the annual meeting of shareholders to be held October The information required by this Item regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to Applied's proxy statement, under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.” Applied has a code of ethics, named the Code of Business Ethics, that applies to our employees, including our principal executive officer, principal financial officer, and principal accounting officer. The Code of Business Ethics is posted via hyperlink at the investor relations area of our www.applied.com website. In addition, amendments to and waivers from the Code of Business Ethics will be disclosed promptly at the same location. Information regarding the composition of Applied’s audit committee and the identification of audit committee financial experts serving on the audit committee is incorporated by reference to Applied's proxy statement, under the caption “Corporate Governance.” ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item is incorporated by reference to Applied's proxy statement for the annual meeting of shareholders to be held October ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Applied's shareholders have approved the following equity compensation plans: the 1997 Long-Term Performance Plan, the 2007 Long-Term Performance Plan, the 2011 Long-Term Performance Plan, the Deferred Compensation Plan, and the Deferred Compensation Plan for Non-Employee Directors. All of these plans are currently in effect. The following table shows information regarding the number of shares of Applied common stock that may be issued pursuant to equity compensation plans or arrangements of Applied as of June 30,
Information concerning the security ownership of certain beneficial owners and management is incorporated by reference to Applied's proxy statement for the annual meeting of shareholders to be held October ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. The information required by this Item is incorporated by reference to Applied's proxy statement for the annual meeting of shareholders to be held October ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The information required by this Item is incorporated by reference to Applied's proxy statement for the annual meeting of shareholders to be held October PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE. (a)1. Financial Statements. The following consolidated financial statements, notes thereto, the reports of independent registered public accounting firm, and supplemental data are included in Item 8 of this report:
(a)2. Financial Statement Schedule. The following schedule is included in this Part IV, and is found in this report at the page indicated:
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission have been omitted because they are not required under the related instructions, are not applicable, or the required information is included in the consolidated financial statements and notes thereto. (a)3. Exhibits.
63
64
Applied will furnish a copy of any exhibit described above and not contained herein upon payment of a specified reasonable fee, which shall be limited to Applied's reasonable expenses in furnishing the exhibit. Certain instruments with respect to long-term debt have not been filed as exhibits because the total amount of securities authorized under any one of the instruments does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each such instrument. APPLIED INDUSTRIAL TECHNOLOGIES, INC. & SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JUNE 30, 2015, 2014, (in thousands)
SIGNATURES Pursuant to the requirements of Section 13 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.
Date: August Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Date: August | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2014 | 2013 | % Increase | 2015 | 2014 | % Increase | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Sales | 100.0 | % | 100.0 | % | (0.1 | )% | 100.0 | % | 100.0 | % | 11.9 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross Profit Margin | 27.9 | % | 27.7 | % | 0.6 | % | 28.0 | % | 27.9 | % | 12.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Selling, Distribution & Administrative | 21.2 | % | 20.6 | % | 3.2 | % | 21.3 | % | 21.2 | % | 12.0 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Income | 6.7 | % | 7.2 | % | (6.8 | )% | 6.7 | % | 6.7 | % | 12.3 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income | 4.6 | % | 4.8 | % | (4.5 | )% | 4.2 | % | 4.6 | % | 2.4 | % |
Year Ended June 30, As a % of Net Sales | Change in $'s Versus Prior Period | |||||||
2014 | 2013 | % Increase | ||||||
Net Sales | 100.0 | % | 100.0 | % | (0.1 | )% | ||
Gross Profit Margin | 27.9 | % | 27.7 | % | 0.6 | % | ||
Selling, Distribution & Administrative | 21.2 | % | 20.6 | % | 3.2 | % | ||
Operating Income | 6.7 | % | 7.2 | % | (6.8 | )% | ||
Net Income | 4.6 | % | 4.8 | % | (4.5 | )% |
Year Ended June 30, As a % of Net Sales | Change in $'s Versus Prior Period | |||||||
2013 | 2012 | % Increase | ||||||
Net Sales | 100.0 | % | 100.0 | % | 3.7 | % | ||
Gross Profit Margin | 27.7 | % | 27.6 | % | 4.4 | % | ||
Selling, Distribution & Administrative | 20.6 | % | 20.5 | % | 4.2 | % | ||
Operating Income | 7.2 | % | 7.1 | % | 4.8 | % | ||
Net Income | 4.8 | % | 4.6 | % | 8.6 | % |
Country | Amount | ||
United Sates | $ | 14,472 | |
Canada | 33,566 | ||
Other Countries | 23,151 | ||
Total | $ | 71,189 |
Country | Amount | ||
United Sates | $ | 17,256 | |
Canada | 40,325 | ||
Other Countries | 11,889 | ||
Total | $ | 69,470 |
Year Ended June 30, | |||||||||||
2014 | 2013 | 2012 | |||||||||
Net Cash Provided by (Used in): | |||||||||||
Operating Activities | $ | 110,110 | $ | 111,397 | $ | 90,422 | |||||
Investing Activities | (203,637 | ) | (78,825 | ) | (39,434 | ) | |||||
Financing Activities | 92,142 | (38,025 | ) | (60,816 | ) | ||||||
Exchange Rate Effect | (590 | ) | 175 | (2,822 | ) | ||||||
(Decrease) in Cash and Cash Equivalents | $ | (1,975 | ) | $ | (5,278 | ) | $ | (12,650 | ) |
Year Ended June 30, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Net Cash Provided by (Used in): | |||||||||||
Operating Activities | $ | 154,538 | $ | 110,110 | $ | 111,397 | |||||
Investing Activities | (173,621 | ) | (203,637 | ) | (78,825 | ) | |||||
Financing Activities | 24,689 | 92,142 | (38,025 | ) | |||||||
Exchange Rate Effect | (7,325 | ) | (590 | ) | 175 | ||||||
Decrease in Cash and Cash Equivalents | $ | (1,719 | ) | $ | (1,975 | ) | $ | (5,278 | ) |
June 30, | 2014 | 2013 | |||||
Accounts receivable, gross | $ | 386,117 | $ | 337,617 | |||
Allowance for doubtful accounts | 10,385 | 7,737 | |||||
Accounts receivable, net | $ | 375,732 | $ | 329,880 | |||
Allowance for doubtful accounts, % of gross receivables | 2.7 | % | 2.3 | % | |||
Year Ended June 30, | 2014 | 2013 | |||||
Provision for losses on accounts receivable | $ | 3,970 | $ | 2,267 | |||
Provision as a % of net sales | 0.16 | % | 0.09 | % |
June 30, | 2015 | 2014 | |||||
Accounts receivable, gross | $ | 386,926 | $ | 386,117 | |||
Allowance for doubtful accounts | 10,621 | 10,385 | |||||
Accounts receivable, net | $ | 376,305 | $ | 375,732 | |||
Allowance for doubtful accounts, % of gross receivables | 2.7 | % | 2.7 | % | |||
Year Ended June 30, | 2015 | 2014 | |||||
Provision for losses on accounts receivable | $ | 2,597 | $ | 3,970 | |||
Provision as a % of net sales | 0.09 | % | 0.16 | % |
Total | Period Less Than 1 yr | Period 2-3 yrs | Period 4-5 yrs | Period Over 5 yrs | Other | ||||||||||||||||||
Operating leases | $ | 83,700 | $ | 27,100 | $ | 32,400 | $ | 15,800 | $ | 8,400 | |||||||||||||
Planned funding of post-retirement obligations | 32,900 | 6,600 | 7,100 | 5,700 | 13,500 | ||||||||||||||||||
Unrecognized income tax benefit liabilities, including interest and penalties | 2,800 | 2,800 | |||||||||||||||||||||
Long term debt obligations | 170,700 | 2,700 | 8,600 | 89,200 | 1,200 | 69,000 | |||||||||||||||||
Acquisition holdback payments | 21,900 | 11,600 | 10,300 | ||||||||||||||||||||
Total Contractual Cash Obligations | $ | 312,000 | $ | 48,000 | $ | 58,400 | $ | 110,700 | $ | 23,100 | $ | 71,800 |
Total | Period Less Than 1 yr | Period 2-3 yrs | Period 4-5 yrs | Period Over 5 yrs | Other | ||||||||||||||||||
Operating leases | $ | 82,400 | $ | 24,900 | $ | 34,300 | $ | 16,700 | $ | 6,500 | |||||||||||||
Planned funding of post-retirement obligations | 27,200 | 5,400 | 3,800 | 6,700 | 11,300 | ||||||||||||||||||
Unrecognized income tax benefit liabilities, including interest and penalties | 3,100 | 3,100 | |||||||||||||||||||||
Long term debt obligations | 321,000 | 3,300 | 63,100 | 108,600 | 146,000 | ||||||||||||||||||
Interest on long term debt obligations (1) | 37,100 | 6,600 | 13,000 | 11,000 | 6,500 | ||||||||||||||||||
Acquisition holdback payments | 29,600 | 19,200 | 10,400 | ||||||||||||||||||||
Total Contractual Cash Obligations | $ | 500,400 | $ | 59,400 | $ | 124,600 | $ | 143,000 | $ | 170,300 | $ | 3,100 |
One-Percentage Point | |||||||
Effect of change in: | Increase | Decrease | |||||
Discount rate on liability | $ | (1,863 | ) | $ | 2,211 | ||
Discount rate on net periodic benefit cost | (150 | ) | 170 |
One-Percentage Point | |||||||
Effect of change in: | Increase | Decrease | |||||
Discount rate on liability | $ | (1,803 | ) | $ | 2,172 | ||
Discount rate on net periodic benefit cost | (86 | ) | 102 |
Year Ended June 30, | 2014 | 2013 | 2012 | |||||||||
Net Sales | $ | 2,459,878 | $ | 2,462,171 | $ | 2,375,445 | ||||||
Cost of Sales | 1,772,952 | 1,779,209 | 1,720,973 | |||||||||
Gross Profit | 686,926 | 682,962 | 654,472 | |||||||||
Selling, Distribution and Administrative, including depreciation | 522,568 | 506,563 | 486,077 | |||||||||
Operating Income | 164,358 | 176,399 | 168,395 | |||||||||
Interest Expense | 900 | 621 | 457 | |||||||||
Interest Income | (651 | ) | (456 | ) | (466 | ) | ||||||
Other Expense (Income), net | (2,153 | ) | (1,431 | ) | 1,578 | |||||||
Income Before Income Taxes | 166,262 | 177,665 | 166,826 | |||||||||
Income Tax Expense | 53,441 | 59,516 | 58,047 | |||||||||
Net Income | $ | 112,821 | $ | 118,149 | $ | 108,779 | ||||||
Net Income Per Share — Basic | $ | 2.69 | $ | 2.81 | $ | 2.58 | ||||||
Net Income Per Share — Diluted | $ | 2.67 | $ | 2.78 | $ | 2.54 |
Year Ended June 30, | 2015 | 2014 | 2013 | |||||||||
Net Sales | $ | 2,751,561 | $ | 2,459,878 | $ | 2,462,171 | ||||||
Cost of Sales | 1,981,747 | 1,772,952 | 1,779,209 | |||||||||
Gross Profit | 769,814 | 686,926 | 682,962 | |||||||||
Selling, Distribution and Administrative, including depreciation | 585,195 | 522,568 | 506,563 | |||||||||
Operating Income | 184,619 | 164,358 | 176,399 | |||||||||
Interest Expense | 8,121 | 900 | 621 | |||||||||
Interest Income | (252 | ) | (651 | ) | (456 | ) | ||||||
Other Expense (Income), net | 879 | (2,153 | ) | (1,431 | ) | |||||||
Income Before Income Taxes | 175,871 | 166,262 | 177,665 | |||||||||
Income Tax Expense | 60,387 | 53,441 | 59,516 | |||||||||
Net Income | $ | 115,484 | $ | 112,821 | $ | 118,149 | ||||||
Net Income Per Share — Basic | $ | 2.82 | $ | 2.69 | $ | 2.81 | ||||||
Net Income Per Share — Diluted | $ | 2.80 | $ | 2.67 | $ | 2.78 |
Year Ended June 30, | 2014 | 2013 | 2012 | |||||||||
Net income per the statements of consolidated income | $ | 112,821 | $ | 118,149 | $ | 108,779 | ||||||
Other comprehensive income (loss), before tax: | ||||||||||||
Foreign currency translation adjustments | 629 | (1,358 | ) | (14,471 | ) | |||||||
Postemployment benefits: | ||||||||||||
Actuarial gain (loss) on remeasurement | 1,402 | 3,153 | (5,028 | ) | ||||||||
Reclassification of actuarial losses and prior service cost into SD&A expense and included in net periodic pension costs | 382 | 872 | 1,123 | |||||||||
Impact of reduction in postemployment benefit liability (as forecasted salary increases will not be realized) due to plan curtailment | — | — | 8,860 | |||||||||
Reclassification of prior service cost into SD&A expense upon plan curtailment | — | — | 3,117 | |||||||||
Unrealized gain (loss) on investment securities available for sale | 112 | 10 | (220 | ) | ||||||||
Total other comprehensive income (loss), before tax | 2,525 | 2,677 | (6,619 | ) | ||||||||
Income tax expense related to items of other comprehensive income (loss) | 719 | 1,529 | 3,009 | |||||||||
Other comprehensive income (loss), net of tax | 1,806 | 1,148 | (9,628 | ) | ||||||||
Comprehensive income | $ | 114,627 | $ | 119,297 | $ | 99,151 |
June 30, | 2014 | 2013 | ||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 71,189 | $ | 73,164 | ||||
Accounts receivable, less allowances of $10,385 and $7,737 | 375,732 | 329,880 | ||||||
Inventories | 335,747 | 281,417 | ||||||
Other current assets | 53,480 | 52,819 | ||||||
Total current assets | 836,148 | 737,280 | ||||||
Property — at cost | ||||||||
Land | 13,212 | 10,125 | ||||||
Buildings | 89,886 | 75,463 | ||||||
Equipment, including computers and software | 157,370 | 155,161 | ||||||
Total property — at cost | 260,468 | 240,749 | ||||||
Less accumulated depreciation | 156,872 | 157,506 | ||||||
Property — net | 103,596 | 83,243 | ||||||
Identifiable intangibles, net | 159,508 | 91,267 | ||||||
Goodwill | 193,494 | 106,849 | ||||||
Deferred tax assets | 21,166 | 21,026 | ||||||
Other assets | 20,257 | 19,041 | ||||||
Total Assets | $ | 1,334,169 | $ | 1,058,706 | ||||
Liabilities | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 172,401 | $ | 136,575 | ||||
Current portion of long term debt | 2,720 | — | ||||||
Compensation and related benefits | 55,760 | 63,899 | ||||||
Other current liabilities | 60,074 | 45,426 | ||||||
Total current liabilities | 290,955 | 245,900 | ||||||
Long-term debt | 167,992 | — | ||||||
Post-employment benefits | 23,611 | 30,919 | ||||||
Other liabilities | 51,303 | 22,272 | ||||||
Total Liabilities | 533,861 | 299,091 | ||||||
Shareholders’ Equity | ||||||||
Preferred stock — no par value; 2,500 shares authorized; none issued or outstanding | — | — | ||||||
Common stock — no par value; 80,000 shares authorized; 54,213 shares issued | 10,000 | 10,000 | ||||||
Additional paid-in capital | 156,999 | 153,893 | ||||||
Retained earnings | 896,776 | 824,362 | ||||||
Treasury shares — at cost (12,650 and 12,044 shares) | (261,852 | ) | (225,219 | ) | ||||
Accumulated other comprehensive income (loss) | (1,615 | ) | (3,421 | ) | ||||
Total Shareholders’ Equity | 800,308 | 759,615 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 1,334,169 | $ | 1,058,706 |
Year Ended June 30, | 2015 | 2014 | 2013 | |||||||||
Net income per the statements of consolidated income | $ | 115,484 | $ | 112,821 | $ | 118,149 | ||||||
Other comprehensive (loss) income, before tax: | ||||||||||||
Foreign currency translation adjustments | (58,233 | ) | 629 | (1,358 | ) | |||||||
Postemployment benefits: | ||||||||||||
Actuarial (loss) gain on remeasurement | (776 | ) | 1,402 | 3,153 | ||||||||
Reclassification of actuarial losses and prior service cost into SD&A expense and included in net periodic pension costs | 286 | 382 | 872 | |||||||||
Unrealized (loss) gain on investment securities available for sale | (38 | ) | 112 | 10 | ||||||||
Total other comprehensive (loss) income, before tax | (58,761 | ) | 2,525 | 2,677 | ||||||||
Income tax (benefit) expense related to items of other comprehensive income (loss) | (205 | ) | 719 | 1,529 | ||||||||
Other comprehensive (loss) income, net of tax | (58,556 | ) | 1,806 | 1,148 | ||||||||
Comprehensive income | $ | 56,928 | $ | 114,627 | $ | 119,297 |
June 30, | 2015 | 2014 | ||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 69,470 | $ | 71,189 | ||||
Accounts receivable, less allowances of $10,621 and $10,385 | 376,305 | 375,732 | ||||||
Inventories | 362,419 | 335,747 | ||||||
Other current assets | 51,111 | 53,480 | ||||||
Total current assets | 859,305 | 836,148 | ||||||
Property — at cost | ||||||||
Land | 12,950 | 13,212 | ||||||
Buildings | 89,325 | 89,886 | ||||||
Equipment, including computers and software | 166,515 | 157,370 | ||||||
Total property — at cost | 268,790 | 260,468 | ||||||
Less accumulated depreciation | 164,343 | 156,872 | ||||||
Property — net | 104,447 | 103,596 | ||||||
Identifiable intangibles, net | 198,828 | 159,508 | ||||||
Goodwill | 254,406 | 193,494 | ||||||
Deferred tax assets | 97 | 21,166 | ||||||
Other assets | 17,885 | 20,257 | ||||||
Total Assets | $ | 1,434,968 | $ | 1,334,169 | ||||
Liabilities | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 179,825 | $ | 172,401 | ||||
Current portion of long term debt | 3,349 | 2,720 | ||||||
Compensation and related benefits | 63,780 | 55,760 | ||||||
Other current liabilities | 63,118 | 60,074 | ||||||
Total current liabilities | 310,072 | 290,955 | ||||||
Long-term debt | 317,646 | 167,992 | ||||||
Post-employment benefits | 19,627 | 23,611 | ||||||
Other liabilities | 46,295 | 51,303 | ||||||
Total Liabilities | 693,640 | 533,861 | ||||||
Shareholders’ Equity | ||||||||
Preferred stock — no par value; 2,500 shares authorized; none issued or outstanding | — | — | ||||||
Common stock — no par value; 80,000 shares authorized; 54,213 shares issued | 10,000 | 10,000 | ||||||
Additional paid-in capital | 160,072 | 156,999 | ||||||
Retained earnings | 969,548 | 896,776 | ||||||
Treasury shares — at cost (14,308 and 12,650 shares) | (338,121 | ) | (261,852 | ) | ||||
Accumulated other comprehensive income (loss) | (60,171 | ) | (1,615 | ) | ||||
Total Shareholders’ Equity | 741,328 | 800,308 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 1,434,968 | $ | 1,334,169 |
Year Ended June 30, | 2014 | 2013 | 2012 | |||||||||
Cash Flows from Operating Activities | ||||||||||||
Net income | $ | 112,821 | $ | 118,149 | $ | 108,779 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization of property | 13,977 | 12,501 | 11,236 | |||||||||
Amortization of intangibles | 14,023 | 13,233 | 11,465 | |||||||||
Amortization of stock appreciation rights and options | 1,808 | 2,317 | 2,058 | |||||||||
Deferred income taxes | (8,209 | ) | 10,179 | 8,641 | ||||||||
Provision for losses on accounts receivable | 3,970 | 2,267 | 3,915 | |||||||||
Unrealized foreign exchange transaction losses (gains) | 204 | (1,410 | ) | 1,298 | ||||||||
Other share-based compensation expense | 2,703 | 3,444 | 4,308 | |||||||||
Shares issued for deferred compensation plans | 161 | 241 | 284 | |||||||||
Gain on sale of property | (53 | ) | (321 | ) | (627 | ) | ||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||||||
Accounts receivable | (29,089 | ) | (15,721 | ) | (22,748 | ) | ||||||
Inventories | (29,171 | ) | (26,745 | ) | (28,511 | ) | ||||||
Other operating assets | 17,966 | (7,857 | ) | (14,735 | ) | |||||||
Accounts payable | 21,369 | 12,206 | 14,157 | |||||||||
Other operating liabilities | (12,370 | ) | (11,086 | ) | (9,098 | ) | ||||||
Cash provided by Operating Activities | 110,110 | 111,397 | 90,422 | |||||||||
Cash Flows from Investing Activities | ||||||||||||
Property purchases | (20,190 | ) | (12,214 | ) | (26,021 | ) | ||||||
Proceeds from property sales | 877 | 979 | 1,258 | |||||||||
Net cash paid for acquisition of businesses, net of cash acquired of $1,369, $0 and $38 in 2014, 2013 and 2012, respectively | (184,324 | ) | (67,590 | ) | (14,671 | ) | ||||||
Cash (used in) Investing Activities | (203,637 | ) | (78,825 | ) | (39,434 | ) | ||||||
Cash Flows from Financing Activities | ||||||||||||
Net borrowings under revolving credit facility classified as long term | 69,000 | — | — | |||||||||
Borrowings under long term debt facilities | 100,000 | — | — | |||||||||
Long term debt repayment | (647 | ) | — | — | ||||||||
Purchases of treasury shares | (36,732 | ) | (53 | ) | (31,032 | ) | ||||||
Dividends paid | (40,410 | ) | (37,194 | ) | (33,800 | ) | ||||||
Excess tax benefits from share-based compensation | 2,674 | 2,566 | 3,695 | |||||||||
Acquisition holdback payments | (1,839 | ) | (3,843 | ) | — | |||||||
Exercise of stock appreciation rights and options | 96 | 499 | 321 | |||||||||
Cash provided by (used in) Financing Activities | 92,142 | (38,025 | ) | (60,816 | ) | |||||||
Effect of exchange rate changes on cash | (590 | ) | 175 | (2,822 | ) | |||||||
(Decrease) in cash and cash equivalents | (1,975 | ) | (5,278 | ) | (12,650 | ) | ||||||
Cash and cash equivalents at beginning of year | 73,164 | 78,442 | 91,092 | |||||||||
Cash and Cash Equivalents at End of Year | $ | 71,189 | $ | 73,164 | $ | 78,442 | ||||||
Supplemental Cash Flow Information | ||||||||||||
Cash paid during the year for: | ||||||||||||
Income taxes | $ | 51,548 | $ | 51,816 | $ | 53,463 | ||||||
Interest | 1,026 | 501 | 672 |
Year Ended June 30, | 2015 | 2014 | 2013 | |||||||||
Cash Flows from Operating Activities | ||||||||||||
Net income | $ | 115,484 | $ | 112,821 | $ | 118,149 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization of property | 16,578 | 13,977 | 12,501 | |||||||||
Amortization of intangibles | 25,797 | 14,023 | 13,233 | |||||||||
Amortization of stock appreciation rights and options | 1,610 | 1,808 | 2,317 | |||||||||
Deferred income taxes | (4,961 | ) | (8,209 | ) | 10,179 | |||||||
Provision for losses on accounts receivable | 2,597 | 3,970 | 2,267 | |||||||||
Unrealized foreign exchange transaction losses (gains) | (727 | ) | 204 | (1,410 | ) | |||||||
Other share-based compensation expense | 2,851 | 2,703 | 3,444 | |||||||||
Shares issued for deferred compensation plans | 45 | 161 | 241 | |||||||||
Gain on sale of property | (1,291 | ) | (53 | ) | (321 | ) | ||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||||||
Accounts receivable | 13,129 | (29,089 | ) | (15,721 | ) | |||||||
Inventories | (15,704 | ) | (29,171 | ) | (26,745 | ) | ||||||
Other operating assets | 797 | 17,966 | (7,857 | ) | ||||||||
Accounts payable | 1,040 | 21,369 | 12,206 | |||||||||
Other operating liabilities | (2,707 | ) | (12,370 | ) | (11,086 | ) | ||||||
Cash provided by Operating Activities | 154,538 | 110,110 | 111,397 | |||||||||
Cash Flows from Investing Activities | ||||||||||||
Property purchases | (14,933 | ) | (20,190 | ) | (12,214 | ) | ||||||
Proceeds from property sales | 1,932 | 877 | 979 | |||||||||
Net cash paid for acquisition of businesses, net of cash acquired of $0, $1,369, and $0 in 2015, 2014 and 2013, respectively | (160,620 | ) | (184,324 | ) | (67,590 | ) | ||||||
Cash used in Investing Activities | (173,621 | ) | (203,637 | ) | (78,825 | ) | ||||||
Cash Flows from Financing Activities | ||||||||||||
Net (repayments) borrowings under revolving credit facility, classified as long term | (17,000 | ) | 69,000 | — | ||||||||
Borrowings under long term debt facilities | 170,000 | 100,000 | — | |||||||||
Long term debt repayments | (2,717 | ) | (647 | ) | — | |||||||
Purchases of treasury shares | (76,515 | ) | (36,732 | ) | (53 | ) | ||||||
Dividends paid | (42,663 | ) | (40,410 | ) | (37,194 | ) | ||||||
Excess tax benefits from share-based compensation | 1,042 | 2,674 | 2,566 | |||||||||
Acquisition holdback payments | (7,693 | ) | (1,839 | ) | (3,843 | ) | ||||||
Exercise of stock appreciation rights and options | 235 | 96 | 499 | |||||||||
Cash provided by (used in) Financing Activities | 24,689 | 92,142 | (38,025 | ) | ||||||||
Effect of exchange rate changes on cash | (7,325 | ) | (590 | ) | 175 | |||||||
Decrease in cash and cash equivalents | (1,719 | ) | (1,975 | ) | (5,278 | ) | ||||||
Cash and cash equivalents at beginning of year | 71,189 | 73,164 | 78,442 | |||||||||
Cash and Cash Equivalents at End of Year | $ | 69,470 | $ | 71,189 | $ | 73,164 | ||||||
Supplemental Cash Flow Information | ||||||||||||
Cash paid during the year for: | ||||||||||||
Income taxes | $ | 69,272 | $ | 51,548 | $ | 51,816 | ||||||
Interest | 5,851 | 1,026 | 501 |
For the Years Ended June 30, 2014, 2013 and 2012 | Shares of Common Stock Outstanding | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Shares- at Cost | Accumulated Other Comprehensive Income (Loss) | Total Shareholders' Equity | ||||||||||||||||||||
Balance at July 1, 2011 | 42,602 | $ | 10,000 | $ | 148,307 | $ | 668,421 | $ | (198,224 | ) | $ | 5,059 | $ | 633,563 | |||||||||||||
Net income | 108,779 | 108,779 | |||||||||||||||||||||||||
Other comprehensive income (loss) | (9,628 | ) | (9,628 | ) | |||||||||||||||||||||||
Cash dividends — $0.80 per share | (33,800 | ) | (33,800 | ) | |||||||||||||||||||||||
Purchases of common stock for treasury | (997 | ) | (31,032 | ) | (31,032 | ) | |||||||||||||||||||||
Treasury shares issued for: | |||||||||||||||||||||||||||
Exercise of stock appreciation rights and options | 250 | (1,853 | ) | 1,448 | (405 | ) | |||||||||||||||||||||
Performance share awards | 91 | (2,664 | ) | 714 | (1,950 | ) | |||||||||||||||||||||
Deferred compensation plans | 9 | 128 | 156 | 284 | |||||||||||||||||||||||
Compensation expense — stock appreciation rights and options | 2,058 | 2,058 | |||||||||||||||||||||||||
Other share-based compensation expense | 4,308 | 4,308 | |||||||||||||||||||||||||
Other | 12 | (214 | ) | (40 | ) | 208 | (46 | ) | |||||||||||||||||||
Balance at June 30, 2012 | 41,967 | 10,000 | 150,070 | 743,360 | (226,730 | ) | (4,569 | ) | 672,131 | ||||||||||||||||||
Net income | 118,149 | 118,149 | |||||||||||||||||||||||||
Other comprehensive income (loss) | 1,148 | 1,148 | |||||||||||||||||||||||||
Cash dividends — $0.88 per share | (37,194 | ) | (37,194 | ) | |||||||||||||||||||||||
Purchases of common stock for treasury | (1 | ) | (53 | ) | (53 | ) | |||||||||||||||||||||
Treasury shares issued for: | |||||||||||||||||||||||||||
Exercise of stock appreciation rights and options | 129 | (175 | ) | 1,086 | 911 | ||||||||||||||||||||||
Performance share awards | 53 | (1,675 | ) | 74 | (1,601 | ) | |||||||||||||||||||||
Deferred compensation plans | 5 | 131 | 110 | 241 | |||||||||||||||||||||||
Compensation expense — stock appreciation rights and options | 2,317 | 2,317 | |||||||||||||||||||||||||
Other share-based compensation expense | 3,444 | 3,444 | |||||||||||||||||||||||||
Other | 16 | (219 | ) | 47 | 294 | 122 | |||||||||||||||||||||
Balance at June 30, 2013 | 42,169 | 10,000 | 153,893 | 824,362 | (225,219 | ) | (3,421 | ) | 759,615 | ||||||||||||||||||
Net income | 112,821 | 112,821 | |||||||||||||||||||||||||
Other comprehensive income (loss) | 1,806 | 1,806 | |||||||||||||||||||||||||
Cash dividends — $0.96 per share | (40,410 | ) | (40,410 | ) | |||||||||||||||||||||||
Purchases of common stock for treasury | (760 | ) | (36,732 | ) | (36,732 | ) | |||||||||||||||||||||
Treasury shares issued for: | |||||||||||||||||||||||||||
Exercise of stock appreciation rights and options | 76 | 849 | 324 | 1,173 | |||||||||||||||||||||||
Performance share awards | 36 | (1,062 | ) | (21 | ) | (1,083 | ) | ||||||||||||||||||||
Restricted stock units | 31 | (1,110 | ) | (247 | ) | (1,357 | ) | ||||||||||||||||||||
Deferred compensation plans | 3 | 98 | 63 | 161 | |||||||||||||||||||||||
Compensation expense — stock appreciation rights and options | 1,808 | 1,808 | |||||||||||||||||||||||||
Other share-based compensation expense | 2,703 | 2,703 | |||||||||||||||||||||||||
Other | 8 | (180 | ) | 3 | (20 | ) | (197 | ) | |||||||||||||||||||
Balance at June 30, 2014 | 41,563 | $ | 10,000 | $ | 156,999 | $ | 896,776 | $ | (261,852 | ) | $ | (1,615 | ) | $ | 800,308 |
For the Years Ended June 30, 2015, 2014 and 2013 | Shares of Common Stock Outstanding | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Shares- at Cost | Accumulated Other Comprehensive Income (Loss) | Total Shareholders' Equity | ||||||||||||||||||||
Balance at July 1, 2012 | 41,967 | $ | 10,000 | $ | 150,070 | $ | 743,360 | $ | (226,730 | ) | $ | (4,569 | ) | $ | 672,131 | ||||||||||||
Net income | 118,149 | 118,149 | |||||||||||||||||||||||||
Other comprehensive income (loss) | 1,148 | 1,148 | |||||||||||||||||||||||||
Cash dividends — $0.88 per share | (37,194 | ) | (37,194 | ) | |||||||||||||||||||||||
Purchases of common stock for treasury | (1 | ) | (53 | ) | (53 | ) | |||||||||||||||||||||
Treasury shares issued for: | |||||||||||||||||||||||||||
Exercise of stock appreciation rights and options | 129 | (175 | ) | 1,086 | 911 | ||||||||||||||||||||||
Performance share awards | 53 | (1,675 | ) | 74 | (1,601 | ) | |||||||||||||||||||||
Deferred compensation plans | 5 | 131 | 110 | 241 | |||||||||||||||||||||||
Compensation expense — stock appreciation rights and options | 2,317 | 2,317 | |||||||||||||||||||||||||
Other share-based compensation expense | 3,444 | 3,444 | |||||||||||||||||||||||||
Other | 16 | (219 | ) | 47 | 294 | 122 | |||||||||||||||||||||
Balance at June 30, 2013 | 42,169 | 10,000 | 153,893 | 824,362 | (225,219 | ) | (3,421 | ) | 759,615 | ||||||||||||||||||
Net income | 112,821 | 112,821 | |||||||||||||||||||||||||
Other comprehensive income (loss) | 1,806 | 1,806 | |||||||||||||||||||||||||
Cash dividends — $0.96 per share | (40,410 | ) | (40,410 | ) | |||||||||||||||||||||||
Purchases of common stock for treasury | (760 | ) | (36,732 | ) | (36,732 | ) | |||||||||||||||||||||
Treasury shares issued for: | |||||||||||||||||||||||||||
Exercise of stock appreciation rights and options | 76 | 849 | 324 | 1,173 | |||||||||||||||||||||||
Performance share awards | 36 | (1,062 | ) | (21 | ) | (1,083 | ) | ||||||||||||||||||||
Restricted stock units | 31 | (1,110 | ) | (247 | ) | (1,357 | ) | ||||||||||||||||||||
Deferred compensation plans | 3 | 98 | 63 | 161 | |||||||||||||||||||||||
Compensation expense — stock appreciation rights and options | 1,808 | 1,808 | |||||||||||||||||||||||||
Other share-based compensation expense | 2,703 | 2,703 | |||||||||||||||||||||||||
Other | 8 | (180 | ) | 3 | (20 | ) | (197 | ) | |||||||||||||||||||
Balance at June 30, 2014 | 41,563 | 10,000 | 156,999 | 896,776 | (261,852 | ) | (1,615 | ) | 800,308 | ||||||||||||||||||
Net income | 115,484 | 115,484 | |||||||||||||||||||||||||
Other comprehensive income (loss) | (58,556 | ) | (58,556 | ) | |||||||||||||||||||||||
Cash dividends — $1.04 per share | (42,663 | ) | (42,663 | ) | |||||||||||||||||||||||
Purchases of common stock for treasury | (1,740 | ) | (76,515 | ) | (76,515 | ) | |||||||||||||||||||||
Treasury shares issued for: | |||||||||||||||||||||||||||
Exercise of stock appreciation rights and options | 34 | 552 | 415 | 967 | |||||||||||||||||||||||
Performance share awards | 12 | (425 | ) | 52 | (373 | ) | |||||||||||||||||||||
Restricted stock units | 36 | (1,312 | ) | 76 | (1,236 | ) | |||||||||||||||||||||
Deferred compensation plans | 1 | 24 | 21 | 45 | |||||||||||||||||||||||
Compensation expense — stock appreciation rights and options | 1,610 | 1,610 | |||||||||||||||||||||||||
Other share-based compensation expense | 2,851 | 2,851 | |||||||||||||||||||||||||
Other | (1 | ) | (227 | ) | (49 | ) | (318 | ) | (594 | ) | |||||||||||||||||
Balance at June 30, 2015 | 39,905 | $ | 10,000 | $ | 160,072 | $ | 969,548 | $ | (338,121 | ) | $ | (60,171 | ) | $ | 741,328 |
Knox Acquisition | |||
2015 | |||
Accounts receivable | $ | 19,100 | |
Inventories | 18,800 | ||
Property | 3,900 | ||
Identifiable intangible assets | 58,500 | ||
Goodwill | 63,200 | ||
Total assets acquired | 163,500 | ||
Accounts payable and accrued liabilities | 7,200 | ||
Deferred income taxes | 24,300 | ||
Net assets acquired | $ | 132,000 | |
Purchase price | $ | 132,800 | |
Reconciliation of fair value transferred: | |||
Working Capital Adjustments | (800 | ) | |
Total Consideration | $ | 132,000 |
Reliance Acquisition | |||
2014 | |||
Accounts receivable | $ | 20,573 | |
Inventories | 22,932 | ||
Other current assets | 6,731 | ||
Property | 13,294 | ||
Identifiable intangible assets | 73,211 | ||
Goodwill | 79,074 | ||
Total assets acquired | 215,815 | ||
Accounts payable and accrued liabilities | 16,099 | ||
Deferred income taxes | 19,906 | ||
Net assets acquired | $ | 179,810 | |
Purchase price | $ | 188,477 | |
Reconciliation of fair value transferred: | |||
Cash acquired | (1,369 | ) | |
Working capital adjustments | (8,173 | ) | |
Debt assumed | 875 | ||
Total Consideration | $ | 179,810 |
Reliance Acquisition | |||
2014 | |||
Accounts receivable | $ | 20,600 | |
Inventories | 22,900 | ||
Other current assets | 6,000 | ||
Property | 12,900 | ||
Identifiable intangible assets | 73,200 | ||
Goodwill | 79,500 | ||
Total assets acquired | 215,100 | ||
Accounts payable and accrued liabilities | 15,800 | ||
Deferred income taxes | 19,500 | ||
Net assets acquired | $ | 179,800 | |
Purchase price | $ | 188,500 | |
Reconciliation of fair value transferred: | |||
Cash acquired | (1,400 | ) | |
Working capital adjustments | (8,200 | ) | |
Debt assumed | 900 | ||
Total Consideration | $ | 179,800 |
Pro forma, year ended June 30: | 2014 | 2013 | |||||
Sales | $ | 2,576,220 | $ | 2,600,453 | |||
Operating income | $ | 175,462 | $ | 187,419 | |||
Net income | $ | 122,293 | $ | 128,779 | |||
Diluted net income per share | $ | 2.89 | $ | 3.03 |
Pro forma, year ended June 30: | 2014 | 2013 | ||||
Sales | $ | 2,687,903 | $ | 2,600,453 | ||
Operating income | $ | 184,164 | $ | 187,419 | ||
Net income | $ | 121,158 | $ | 128,779 | ||
Diluted net income per share | $ | 2.86 | $ | 3.03 |
2013 | |||
Accounts receivable | $ | 7,514 | |
Inventories | 23,723 | ||
Other current assets | 217 | ||
Property | 1,090 | ||
Identifiable Intangibles assets | 19,814 | ||
Goodwill | 24,324 | ||
Total assets acquired | 76,682 | ||
Accounts payable and accrued liabilities | 1,867 | ||
Other current liabilities | 6,192 | ||
Net assets acquired | $ | 68,623 | |
Purchase price | $ | 68,623 |
2013 | |||
Accounts receivable | $ | 7,500 | |
Inventories | 23,700 | ||
Other current assets | 200 | ||
Property | 1,100 | ||
Identifiable Intangibles assets | 19,800 | ||
Goodwill | 24,400 | ||
Total assets acquired | 76,700 | ||
Accounts payable and accrued liabilities | 1,900 | ||
Other current liabilities | 6,200 | ||
Net assets acquired | $ | 68,600 | |
Purchase price | $ | 68,600 |
June 30, | 2014 | 2013 | ||||||
U.S. inventories at current cost | $ | 363,692 | $ | 323,642 | ||||
Foreign inventories at average cost | 123,468 | 103,483 | ||||||
487,160 | 427,125 | |||||||
Less: Excess of current cost over LIFO cost for U.S. inventories | 151,413 | 145,708 | ||||||
Inventories on consolidated balance sheets | $ | 335,747 | $ | 281,417 |
June 30, | 2015 | 2014 | ||||||
U.S. inventories at average cost | $ | 397,524 | $ | 363,692 | ||||
Foreign inventories at average cost | 116,674 | 123,468 | ||||||
514,198 | 487,160 | |||||||
Less: Excess of average cost over LIFO cost for U.S. inventories | 151,779 | 151,413 | ||||||
Inventories on consolidated balance sheets | $ | 362,419 | $ | 335,747 |
Service Center Based Distribution | Fluid Power Businesses | Total | |||||||||
Balance at July 1, 2012 | $ | 83,080 | $ | — | $ | 83,080 | |||||
Goodwill acquired during the year | 23,395 | 929 | 24,324 | ||||||||
Other, primarily currency translation | (555 | ) | — | (555 | ) | ||||||
Balance at June 30, 2013 | 105,920 | 929 | 106,849 | ||||||||
Goodwill acquired during the year | 84,798 | — | 84,798 | ||||||||
Other, primarily currency translation | 1,847 | — | 1,847 | ||||||||
Balance at June 30, 2014 | $ | 192,565 | $ | 929 | $ | 193,494 |
Service Center Based Distribution | Fluid Power Businesses | Total | |||||||||
Balance at July 1, 2013 | $ | 105,920 | $ | 929 | $ | 106,849 | |||||
Goodwill acquired during the year | 84,798 | — | 84,798 | ||||||||
Other, primarily currency translation | 1,847 | — | 1,847 | ||||||||
Balance at June 30, 2014 | 192,565 | 929 | 193,494 | ||||||||
Goodwill acquired during the year | 77,728 | — | 77,728 | ||||||||
Other, primarily currency translation | (16,816 | ) | — | (16,816 | ) | ||||||
Balance at June 30, 2015 | $ | 253,477 | $ | 929 | $ | 254,406 |
June 30, 2014 | Amount | Accumulated Amortization | Net Book Value | ||||||||
Finite-Lived Intangibles: | |||||||||||
Customer relationships | $ | 170,395 | $ | 48,285 | $ | 122,110 | |||||
Trade names | 36,912 | 10,394 | 26,518 | ||||||||
Vendor relationships | 15,446 | 6,628 | 8,818 | ||||||||
Non-competition agreements | 3,322 | 1,260 | 2,062 | ||||||||
Total Intangibles | $ | 226,075 | $ | 66,567 | $ | 159,508 |
June 30, 2015 | Amount | Accumulated Amortization | Net Book Value | ||||||||
Finite-Lived Intangibles: | |||||||||||
Customer relationships | $ | 225,332 | $ | 65,789 | $ | 159,543 | |||||
Trade names | 42,689 | 13,187 | 29,502 | ||||||||
Vendor relationships | 14,465 | 7,258 | 7,207 | ||||||||
Non-competition agreements | 4,578 | 2,002 | 2,576 | ||||||||
Total Intangibles | $ | 287,064 | $ | 88,236 | $ | 198,828 |
June 30, 2013 | Amount | Accumulated Amortization | Net Book Value | ||||||||
Finite-Lived Intangibles: | |||||||||||
Customer relationships | $ | 100,854 | $ | 38,844 | $ | 62,010 | |||||
Trade names | 26,690 | 8,643 | 18,047 | ||||||||
Vendor relationships | 15,433 | 5,443 | 9,990 | ||||||||
Non-competition agreements | 4,743 | 3,523 | 1,220 | ||||||||
Total Intangibles | $ | 147,720 | $ | 56,453 | $ | 91,267 |
June 30, 2014 | Amount | Accumulated Amortization | Net Book Value | ||||||||
Finite-Lived Intangibles: | |||||||||||
Customer relationships | $ | 170,395 | $ | 48,285 | $ | 122,110 | |||||
Trade names | 36,912 | 10,394 | 26,518 | ||||||||
Vendor relationships | 15,446 | 6,628 | 8,818 | ||||||||
Non-competition agreements | 3,322 | 1,260 | 2,062 | ||||||||
Total Intangibles | $ | 226,075 | $ | 66,567 | $ | 159,508 |
Acquisition Cost Allocation | Weighted-Average Life | ||||
Customer relationships | $ | 70,400 | 18 years | ||
Trade names | 10,741 | 15 years | |||
Non-competition agreements | 1,444 | 3 years | |||
Total Intangibles Acquired | $ | 82,585 | 17 years |
Acquisition Cost Allocation | Weighted-Average Life | ||||
Customer relationships | $ | 68,078 | 19.5 years | ||
Trade names | 7,627 | 14.7 years | |||
Non-competition agreements | 1,664 | 5.0 years | |||
Total Intangibles Acquired | $ | 77,369 | 18.7 years |
Fiscal Year | Aggregate Maturity | ||
2015 | $ | 2,720 | |
2016 | $ | 3,349 | |
2017 | $ | 5,227 | |
2018 | $ | 5,856 | |
2019 | $ | 83,359 |
Fiscal Year | Aggregate Maturity | ||
2016 | $ | 3,349 | |
2017 | $ | 57,227 | |
2018 | $ | 5,856 | |
2019 | $ | 83,359 | |
2020 | $ | 25,238 | |
Thereafter | $ | 145,966 |
Year Ended June 30, | 2014 | 2013 | 2012 | ||||||||
U.S. | $ | 147,980 | $ | 153,546 | $ | 137,667 | |||||
Foreign | 18,282 | 24,119 | 29,159 | ||||||||
Income before income taxes | $ | 166,262 | $ | 177,665 | $ | 166,826 |
Year Ended June 30, | 2015 | 2014 | 2013 | ||||||||
U.S. | $ | 152,618 | $ | 147,980 | $ | 153,546 | |||||
Foreign | 23,253 | 18,282 | 24,119 | ||||||||
Income before income taxes | $ | 175,871 | $ | 166,262 | $ | 177,665 |
Year Ended June 30, | 2014 | 2013 | 2012 | ||||||||
Current: | |||||||||||
Federal | $ | 50,455 | $ | 38,859 | $ | 36,178 | |||||
State and local | 6,576 | 5,736 | 5,522 | ||||||||
Foreign | 4,619 | 4,742 | 7,706 | ||||||||
Total current | 61,650 | 49,337 | 49,406 | ||||||||
Deferred: | |||||||||||
Federal | (5,328 | ) | 10,277 | 8,577 | |||||||
State and local | (267 | ) | 346 | 503 | |||||||
Foreign | (2,614 | ) | (444 | ) | (439 | ) | |||||
Total deferred | (8,209 | ) | 10,179 | 8,641 | |||||||
Total | $ | 53,441 | $ | 59,516 | $ | 58,047 |
Year Ended June 30, | 2015 | 2014 | 2013 | ||||||||
Current: | |||||||||||
Federal | $ | 52,861 | $ | 50,455 | $ | 38,859 | |||||
State and local | 6,884 | 6,576 | 5,736 | ||||||||
Foreign | 5,603 | 4,619 | 4,742 | ||||||||
Total current | 65,348 | 61,650 | 49,337 | ||||||||
Deferred: | |||||||||||
Federal | (3,799 | ) | (5,328 | ) | 10,277 | ||||||
State and local | (153 | ) | (267 | ) | 346 | ||||||
Foreign | (1,009 | ) | (2,614 | ) | (444 | ) | |||||
Total deferred | (4,961 | ) | (8,209 | ) | 10,179 | ||||||
Total | $ | 60,387 | $ | 53,441 | $ | 59,516 |
Year Ended June 30, | 2014 | 2013 | 2012 | |||||
Statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||
Effects of: | ||||||||
State and local taxes | 2.4 | % | 2.3 | % | 2.5 | % | ||
U.S. tax on foreign income, net | (1.6 | )% | — | % | — | % | ||
Foreign income taxes | (2.6 | )% | (2.3 | )% | (1.8 | )% | ||
Deductible dividend | (0.5 | )% | (0.5 | )% | (0.5 | )% | ||
Other, net | (0.6 | )% | (1.0 | )% | (0.4 | )% | ||
Effective income tax rate | 32.1 | % | 33.5 | % | 34.8 | % |
Year Ended June 30, | 2015 | 2014 | 2013 | |||||
Statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||
Effects of: | ||||||||
State and local taxes | 2.5 | % | 2.4 | % | 2.3 | % | ||
U.S. tax on foreign income, net | — | % | (1.6 | )% | — | % | ||
Foreign income taxes | (2.5 | )% | (2.6 | )% | (2.3 | )% | ||
Deductible dividend | (0.5 | )% | (0.5 | )% | (0.5 | )% | ||
Valuation Allowance | 0.5 | % | — | % | — | % | ||
Other, net | (0.7 | )% | (0.6 | )% | (1.0 | )% | ||
Effective income tax rate | 34.3 | % | 32.1 | % | 33.5 | % |
June 30, | 2014 | 2013 | |||||
Deferred tax assets: | |||||||
Compensation liabilities not currently deductible | $ | 30,662 | $ | 33,506 | |||
Expenses and reserves not currently deductible | 8,364 | 6,131 | |||||
Goodwill and intangibles | 8,294 | 3,781 | |||||
Net operating loss carryforwards (expiring in years 2017-2034) | 386 | 432 | |||||
Other | 281 | 607 | |||||
Total deferred tax assets | 47,987 | 44,457 | |||||
Less: Valuation allowance | — | (11 | ) | ||||
Deferred tax assets, net of valuation allowance | 47,987 | 44,446 | |||||
Deferred tax liabilities: | |||||||
Inventories | (6,490 | ) | (9,057 | ) | |||
Goodwill and intangibles | (23,254 | ) | — | ||||
Unremitted foreign earnings | — | (2,804 | ) | ||||
Depreciation and differences in property bases | (10,219 | ) | (11,460 | ) | |||
Total deferred tax liabilities | (39,963 | ) | (23,321 | ) | |||
Net deferred tax assets | $ | 8,024 | $ | 21,125 | |||
The net deferred tax asset is classified as follows: | |||||||
Other current assets | $ | 11,371 | $ | 6,315 | |||
Deferred tax assets (long-term) | 21,166 | 21,026 | |||||
Other liabilities | (24,513 | ) | (6,216 | ) | |||
Net deferred tax assets | $ | 8,024 | $ | 21,125 |
June 30, | 2015 | 2014 | |||||
Deferred tax assets: | |||||||
Compensation liabilities not currently deductible | $ | 28,902 | $ | 30,662 | |||
Expenses and reserves not currently deductible | 9,115 | 8,364 | |||||
Goodwill and intangibles | 7,363 | 8,294 | |||||
Foreign tax credit | 1,155 | — | |||||
Net operating loss carryforwards (expiring in years 2017-2034) | 860 | 386 | |||||
Other | 289 | 281 | |||||
Total deferred tax assets | 47,684 | 47,987 | |||||
Less: Valuation allowance | (917 | ) | — | ||||
Deferred tax assets, net of valuation allowance | 46,767 | 47,987 | |||||
Deferred tax liabilities: | |||||||
Inventories | (5,499 | ) | (6,490 | ) | |||
Goodwill and intangibles | (38,707 | ) | (23,254 | ) | |||
Depreciation and differences in property bases | (9,328 | ) | (10,219 | ) | |||
Total deferred tax liabilities | (53,534 | ) | (39,963 | ) | |||
Net deferred tax (liabilities) assets | $ | (6,767 | ) | $ | 8,024 | ||
Net deferred tax (liabilities) assets are classified as follows: | |||||||
Other current assets | $ | 13,293 | $ | 11,371 | |||
Deferred tax assets (long-term) | 97 | 21,166 | |||||
Other liabilities | (20,157 | ) | (24,513 | ) | |||
Net deferred tax (liabilities) assets | $ | (6,767 | ) | $ | 8,024 |
Year Ended June 30, | 2014 | 2013 | 2012 | ||||||||
Unrecognized Income Tax Benefits at beginning of the year | $ | 2,655 | $ | 1,539 | $ | 1,181 | |||||
Current year tax positions | 730 | 957 | 331 | ||||||||
Prior year tax positions | — | 790 | 398 | ||||||||
Expirations of statutes of limitations | (1,007 | ) | (565 | ) | (371 | ) | |||||
Settlements | (14 | ) | (66 | ) | — | ||||||
Unrecognized Income Tax Benefits at end of year | $ | 2,364 | $ | 2,655 | $ | 1,539 |
Year Ended June 30, | 2015 | 2014 | 2013 | ||||||||
Unrecognized Income Tax Benefits at beginning of the year | $ | 2,364 | $ | 2,655 | $ | 1,539 | |||||
Current year tax positions | 472 | 730 | 957 | ||||||||
Prior year tax positions | — | — | 790 | ||||||||
Expirations of statutes of limitations | (160 | ) | (1,007 | ) | (565 | ) | |||||
Settlements | (72 | ) | (14 | ) | (66 | ) | |||||
Unrecognized Income Tax Benefits at end of year | $ | 2,604 | $ | 2,364 | $ | 2,655 |
Foreign currency translation adjustment | Unrealized gain (loss) on securities available for sale | Postemployment benefits | Total Accumulated other comprehensive income (loss) | ||||||||||||
Balance at July 1, 2012 | $ | 1,718 | $ | (58 | ) | $ | (6,229 | ) | $ | (4,569 | ) | ||||
Other comprehensive income (loss) | (1,358 | ) | 6 | 1,967 | 615 | ||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | 533 | 533 | ||||||||||||
Net current-period other comprehensive income (loss), net of taxes | (1,358 | ) | 6 | 2,500 | 1,148 | ||||||||||
Balance at June 30, 2013 | $ | 360 | $ | (52 | ) | $ | (3,729 | ) | $ | (3,421 | ) | ||||
Other comprehensive income (loss) | 629 | 73 | 871 | 1,573 | |||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | — | 233 | 233 | |||||||||||
Net current-period other comprehensive income (loss), net of taxes | 629 | 73 | 1,104 | 1,806 | |||||||||||
Balance at June 30, 2014 | $ | 989 | $ | 21 | $ | (2,625 | ) | $ | (1,615 | ) |
Foreign currency translation adjustment | Unrealized gain (loss) on securities available for sale | Postemployment benefits | Total Accumulated other comprehensive income (loss) | ||||||||||||
Balance at July 1, 2012 | $ | 1,718 | $ | (58 | ) | $ | (6,229 | ) | $ | (4,569 | ) | ||||
Other comprehensive income (loss) | (1,358 | ) | 6 | 1,967 | 615 | ||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | — | 533 | 533 | |||||||||||
Net current-period other comprehensive income (loss), net of taxes | (1,358 | ) | 6 | 2,500 | 1,148 | ||||||||||
Balance at June 30, 2013 | $ | 360 | $ | (52 | ) | $ | (3,729 | ) | $ | (3,421 | ) | ||||
Other comprehensive income (loss) | 629 | 73 | 871 | 1,573 | |||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | — | 233 | 233 | |||||||||||
Net current-period other comprehensive income (loss), net of taxes | 629 | 73 | 1,104 | 1,806 | |||||||||||
Balance at June 30, 2014 | $ | 989 | $ | 21 | $ | (2,625 | ) | $ | (1,615 | ) | |||||
Other comprehensive income (loss) | (58,233 | ) | (25 | ) | (472 | ) | (58,730 | ) | |||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | — | 174 | 174 | |||||||||||
Net current-period other comprehensive income (loss), net of taxes | (58,233 | ) | (25 | ) | (298 | ) | (58,556 | ) | |||||||
Balance at June 30, 2015 | $ | (57,244 | ) | $ | (4 | ) | $ | (2,923 | ) | $ | (60,171 | ) |
Year Ended June 30, | 2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||
Pre-Tax Amount | Tax Expense (Benefit) | Net Amount | Pre-Tax Amount | Tax Expense (Benefit) | Net Amount | Pre-Tax Amount | Tax Expense (Benefit) | Net Amount | |||||||||||||||||||||||||||
Foreign currency translation adjustments | $ | 629 | $ | — | $ | 629 | $ | (1,358 | ) | $ | — | $ | (1,358 | ) | $ | (14,471 | ) | $ | — | $ | (14,471 | ) | |||||||||||||
Postemployment benefits: | |||||||||||||||||||||||||||||||||||
Actuarial gain (loss) on remeasurement | 1,402 | 531 | 871 | 3,153 | 1,186 | 1,967 | (5,028 | ) | (1,954 | ) | (3,074 | ) | |||||||||||||||||||||||
Reclassification of actuarial losses and prior service cost into SD&A expense and included in net periodic pension costs | 382 | 149 | 233 | 872 | 339 | 533 | 1,123 | 432 | 691 | ||||||||||||||||||||||||||
Impact of reduction in postemployment benefit liability (as forecasted salary increases will not be realized) due to a plan curtailment | — | — | — | — | — | — | 8,860 | 3,411 | 5,449 | ||||||||||||||||||||||||||
Reclassification of prior service cost into SD&A expense upon plan curtailment | — | — | — | — | — | — | 3,117 | 1,200 | 1,917 | ||||||||||||||||||||||||||
Unrealized gain (loss) on investment securities available for sale | 112 | 39 | 73 | 10 | 4 | 6 | (220 | ) | (80 | ) | (140 | ) | |||||||||||||||||||||||
Other comprehensive income (loss) | $ | 2,525 | $ | 719 | $ | 1,806 | $ | 2,677 | $ | 1,529 | $ | 1,148 | $ | (6,619 | ) | $ | 3,009 | $ | (9,628 | ) |
Year Ended June 30, | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
Pre-Tax Amount | Tax Expense (Benefit) | Net Amount | Pre-Tax Amount | Tax Expense (Benefit) | Net Amount | Pre-Tax Amount | Tax Expense (Benefit) | Net Amount | |||||||||||||||||||||||||||
Foreign currency translation adjustments | $ | (58,233 | ) | $ | — | $ | (58,233 | ) | $ | 629 | $ | — | $ | 629 | $ | (1,358 | ) | $ | — | $ | (1,358 | ) | |||||||||||||
Postemployment benefits: | |||||||||||||||||||||||||||||||||||
Actuarial gain (loss) on remeasurement | (776 | ) | (304 | ) | (472 | ) | 1,402 | 531 | 871 | 3,153 | 1,186 | 1,967 | |||||||||||||||||||||||
Reclassification of actuarial losses and prior service cost into SD&A expense and included in net periodic pension costs | 286 | 112 | 174 | 382 | 149 | 233 | 872 | 339 | 533 | ||||||||||||||||||||||||||
Unrealized gain (loss) on investment securities available for sale | (38 | ) | (13 | ) | (25 | ) | 112 | 39 | 73 | 10 | 4 | 6 | |||||||||||||||||||||||
Other comprehensive income (loss) | $ | (58,761 | ) | $ | (205 | ) | $ | (58,556 | ) | $ | 2,525 | $ | 719 | $ | 1,806 | $ | 2,677 | $ | 1,529 | $ | 1,148 |
Year Ended June 30, | 2014 | 2013 | 2012 | ||||||||
Net Income | $ | 112,821 | $ | 118,149 | $ | 108,779 | |||||
Average Shares Outstanding: | |||||||||||
Weighted-average common shares outstanding for basic computation | 41,942 | 42,060 | 42,139 | ||||||||
Dilutive effect of potential common shares | 389 | 482 | 684 | ||||||||
Weighted-average common shares outstanding for dilutive computation | 42,331 | 42,542 | 42,823 | ||||||||
Net Income Per Share — Basic | $ | 2.69 | $ | 2.81 | $ | 2.58 | |||||
Net Income Per Share — Diluted | $ | 2.67 | $ | 2.78 | $ | 2.54 |
Year Ended June 30, | 2015 | 2014 | 2013 | ||||||||
Net Income | $ | 115,484 | $ | 112,821 | $ | 118,149 | |||||
Average Shares Outstanding: | |||||||||||
Weighted-average common shares outstanding for basic computation | 40,892 | 41,942 | 42,060 | ||||||||
Dilutive effect of potential common shares | 295 | 389 | 482 | ||||||||
Weighted-average common shares outstanding for dilutive computation | 41,187 | 42,331 | 42,542 | ||||||||
Net Income Per Share — Basic | $ | 2.82 | $ | 2.69 | $ | 2.81 | |||||
Net Income Per Share — Diluted | $ | 2.80 | $ | 2.67 | $ | 2.78 |
Year Ended June 30, | |||||||||||
(Shares in thousands) | 2014 | 2013 | 2012 | ||||||||
SARs and options | $ | 1,808 | $ | 2,317 | $ | 2,058 | |||||
Performance shares | 309 | 1,074 | 1,983 | ||||||||
Restricted stock and RSUs | 2,394 | 2,370 | 2,325 | ||||||||
Total compensation costs under award programs | $ | 4,511 | $ | 5,761 | $ | 6,366 |
Year Ended June 30, | 2015 | 2014 | 2013 | ||||||||
SARs and options | $ | 1,610 | $ | 1,808 | $ | 2,317 | |||||
Performance shares | 836 | 309 | 1,074 | ||||||||
Restricted stock and RSUs | 2,015 | 2,394 | 2,370 | ||||||||
Total compensation costs under award programs | $ | 4,461 | $ | 4,511 | $ | 5,761 |
June 30, (Shares in thousands) | 2014 | Expected Period of Recognition (Years) | |||
SARs and options | $ | 1,947 | 2.5 | ||
Performance shares | 3,668 | 1.7 | |||
Restricted stock and RSUs | 2,024 | 1.5 | |||
Total unrecognized compensation costs under award programs | $ | 7,639 | 1.9 |
June 30, (Shares in thousands) | 2015 | Expected Period of Recognition (Years) | |||
SARs and options | $ | 1,792 | 2.4 | ||
Performance shares | 3,701 | 1.7 | |||
Restricted stock and RSUs | 1,898 | 2.3 | |||
Total unrecognized compensation costs under award programs | $ | 7,391 | 2.0 |
2014 | 2013 | 2012 | ||||||
Expected life, in years | 4.6 | 5.5 | 5.6 | |||||
Risk free interest rate | 1.3 | % | 0.9 | % | 1.1 | % | ||
Dividend yield | 2.5 | % | 2.5 | % | 2.5 | % | ||
Volatility | 31.8 | % | 43.3 | % | 44.2 | % | ||
Per share fair value of SARs and stock options granted during the year | $11.02 | $13.11 | $9.88 |
2015 | 2014 | 2013 | ||||||
Expected life, in years | 4.7 | 4.6 | 5.5 | |||||
Risk free interest rate | 1.4 | % | 1.3 | % | 0.9 | % | ||
Dividend yield | 2.5 | % | 2.5 | % | 2.5 | % | ||
Volatility | 29.0 | % | 31.8 | % | 43.3 | % | ||
Per share fair value of SARs and stock options granted during the year | $9.53 | $11.02 | $13.11 |
Year Ended June 30, 2014 | Shares | Weighted-Average Exercise Price | ||||
(Share amounts in thousands) | ||||||
Outstanding, beginning of year | 1,080 | $ | 28.79 | |||
Granted | 173 | 50.06 | ||||
Exercised | (186 | ) | 21.34 | |||
Forfeited | (28 | ) | 38.76 | |||
Outstanding, end of year | 1,039 | $ | 33.40 | |||
Exercisable at end of year | 659 | $ | 28.88 |
Shares | Weighted-Average Exercise Price | |||||
Year Ended June 30, 2015 | ||||||
(Shares in thousands) | ||||||
Outstanding, beginning of year | 1,039 | $ | 33.40 | |||
Granted | 208 | 47.69 | ||||
Exercised | (75 | ) | 25.23 | |||
Forfeited | (56 | ) | 48.47 | |||
Outstanding, end of year | 1,116 | $ | 35.86 | |||
Exercisable at end of year | 781 | $ | 31.32 |
Year Ended June 30, 2014 | Shares | Weighted-Average Grant-Date Fair Value | ||||
(Share amounts in thousands) | ||||||
Nonvested, beginning of year | 90 | $ | 30.45 | |||
Awarded | 8 | 50.40 | ||||
Forfeitures | — | — | ||||
Vested | (57 | ) | 29.27 | |||
Nonvested, end of year | 41 | $ | 35.97 |
Shares | Weighted-Average Grant-Date Fair Value | |||||
Year Ended June 30, 2015 | ||||||
(Shares in thousands) | ||||||
Nonvested, beginning of year | 41 | $ | 35.97 | |||
Awarded | 18 | 49.43 | ||||
Forfeitures | (1 | ) | 50.40 | |||
Vested | (20 | ) | 27.28 | |||
Nonvested, end of year | 38 | $ | 46.66 |
Year Ended June 30, 2014 | Shares | Weighted-Average Grant-Date Fair Value | ||||
(Share amounts in thousands) | ||||||
Nonvested, beginning of year | 178 | $ | 32.96 | |||
Granted | 39 | 49.47 | ||||
Forfeitures | (8 | ) | 33.80 | |||
Vested | (76 | ) | 33.13 | |||
Nonvested, end of year | 133 | $ | 37.60 |
Shares | Weighted-Average Grant-Date Fair Value | |||||
Year Ended June 30, 2015 | ||||||
(Share amounts in thousands) | ||||||
Nonvested, beginning of year | 133 | $ | 37.60 | |||
Granted | 48 | 46.48 | ||||
Forfeitures | (7 | ) | 48.81 | |||
Vested | (84 | ) | 32.54 | |||
Nonvested, end of year | 90 | $ | 46.18 |
Pension Benefits | Retiree Health Care Benefits | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Change in benefit obligation: | |||||||||||||||
Benefit obligation at beginning of the year | $ | 40,664 | $ | 47,151 | $ | 3,719 | $ | 5,148 | |||||||
Service cost | 77 | 78 | 48 | 80 | |||||||||||
Interest cost | 1,180 | 1,260 | 139 | 188 | |||||||||||
Plan participants’ contributions | — | — | 63 | 65 | |||||||||||
Benefits paid | (7,251 | ) | (6,183 | ) | (246 | ) | (254 | ) | |||||||
Amendments | 188 | (17 | ) | — | (1,788 | ) | |||||||||
Actuarial (gain) loss during year | (300 | ) | (1,625 | ) | (933 | ) | 280 | ||||||||
Benefit obligation at end of year | $ | 34,558 | $ | 40,664 | $ | 2,790 | $ | 3,719 | |||||||
Change in plan assets: | |||||||||||||||
Fair value of plan assets at beginning of year | $ | 6,697 | $ | 6,439 | $ | — | $ | — | |||||||
Actual gain (loss) on plan assets | 763 | 424 | — | — | |||||||||||
Employer contributions | 7,036 | 6,017 | 183 | 189 | |||||||||||
Plan participants’ contributions | — | — | 63 | 65 | |||||||||||
Benefits paid | (7,251 | ) | (6,183 | ) | (246 | ) | (254 | ) | |||||||
Fair value of plan assets at end of year | $ | 7,245 | $ | 6,697 | $ | — | $ | — | |||||||
Funded status at end of year | $ | (27,313 | ) | $ | (33,967 | ) | $ | (2,790 | ) | $ | (3,719 | ) |
Pension Benefits | Retiree Health Care Benefits | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Change in benefit obligation: | |||||||||||||||
Benefit obligation at beginning of the year | $ | 34,558 | $ | 40,664 | $ | 2,790 | $ | 3,719 | |||||||
Service cost | 97 | 77 | 53 | 48 | |||||||||||
Interest cost | 896 | 1,180 | 95 | 139 | |||||||||||
Plan participants’ contributions | — | — | 64 | 63 | |||||||||||
Benefits paid | (6,697 | ) | (7,251 | ) | (238 | ) | (246 | ) | |||||||
Amendments | (8 | ) | 188 | — | |||||||||||
Actuarial (gain) loss during year | 1,148 | (300 | ) | (620 | ) | (933 | ) | ||||||||
Benefit obligation at end of year | $ | 29,994 | $ | 34,558 | $ | 2,144 | $ | 2,790 | |||||||
Change in plan assets: | |||||||||||||||
Fair value of plan assets at beginning of year | $ | 7,245 | $ | 6,697 | $ | — | $ | — | |||||||
Actual gain (loss) on plan assets | 247 | 763 | — | — | |||||||||||
Employer contributions | 6,390 | 7,036 | 174 | 183 | |||||||||||
Plan participants’ contributions | — | — | 64 | 63 | |||||||||||
Benefits paid | (6,697 | ) | (7,251 | ) | (238 | ) | (246 | ) | |||||||
Fair value of plan assets at end of year | $ | 7,185 | $ | 7,245 | $ | — | $ | — | |||||||
Funded status at end of year | $ | (22,809 | ) | $ | (27,313 | ) | $ | (2,144 | ) | $ | (2,790 | ) |
Pension Benefits | Retiree Health Care Benefits | ||||||||||||||
June 30, | 2014 | 2013 | 2014 | 2013 | |||||||||||
Amounts recognized in the consolidated balance sheets: | |||||||||||||||
Other current liabilities | $ | 6,390 | $ | 6,666 | $ | 220 | $ | 220 | |||||||
Postemployment benefits | 20,923 | 27,301 | 2,570 | 3,499 | |||||||||||
Net amount recognized | $ | 27,313 | $ | 33,967 | $ | 2,790 | $ | 3,719 | |||||||
Amounts recognized in accumulated other comprehensive income (loss): | |||||||||||||||
Net actuarial (loss) gain | $ | (6,474 | ) | $ | (7,732 | ) | $ | 960 | $ | 65 | |||||
Prior service cost | (293 | ) | (196 | ) | 1,490 | 1,760 | |||||||||
Total amounts recognized in accumulated other comprehensive (loss) income | $ | (6,767 | ) | $ | (7,928 | ) | $ | 2,450 | $ | 1,825 |
Pension Benefits | Retiree Health Care Benefits | ||||||||||||||
June 30, | 2015 | 2014 | 2015 | 2014 | |||||||||||
Amounts recognized in the consolidated balance sheets: | |||||||||||||||
Other current liabilities | $ | 5,256 | $ | 6,390 | $ | 220 | $ | 220 | |||||||
Post-employment benefits | 17,553 | 20,923 | 1,924 | 2,570 | |||||||||||
Net amount recognized | $ | 22,809 | $ | 27,313 | $ | 2,144 | $ | 2,790 | |||||||
Amounts recognized in accumulated other comprehensive (loss) income: | |||||||||||||||
Net actuarial (loss) gain | $ | (7,311 | ) | $ | (6,474 | ) | $ | 1,492 | $ | 960 | |||||
Prior service cost | (208 | ) | (293 | ) | 1,219 | 1,490 | |||||||||
Total amounts recognized in accumulated other comprehensive (loss) income | $ | (7,519 | ) | $ | (6,767 | ) | $ | 2,711 | $ | 2,450 |
Pension Benefits | |||||||
June 30, | 2014 | 2013 | |||||
Projected benefit obligations | $ | 34,558 | $ | 40,664 | |||
Accumulated benefit obligations | 34,558 | 40,664 | |||||
Fair value of plan assets | 7,245 | 6,697 |
Pension Benefits | |||||||
June 30, | 2015 | 2014 | |||||
Projected benefit obligations | $ | 29,994 | $ | 34,558 | |||
Accumulated benefit obligations | 29,994 | 34,558 | |||||
Fair value of plan assets | 7,185 | 7,245 |
Pension Benefits | Retiree Health Care Benefits | ||||||||||||||||||||||
Year Ended June 30, | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||||||||
Service cost | $ | 77 | $ | 78 | $ | 289 | $ | 48 | $ | 80 | $ | 30 | |||||||||||
Interest cost | 1,180 | 1,260 | 2,047 | 139 | 188 | 237 | |||||||||||||||||
Expected return on plan assets | (416 | ) | (403 | ) | (396 | ) | — | — | — | ||||||||||||||
Recognized net actuarial loss (gain) | 611 | 735 | 644 | (38 | ) | (53 | ) | (72 | ) | ||||||||||||||
Amortization of prior service cost | 78 | 83 | 412 | (271 | ) | 107 | 139 | ||||||||||||||||
Recognition of prior service cost upon plan curtailment | — | — | 3,117 | — | — | — | |||||||||||||||||
Net periodic cost | $ | 1,530 | $ | 1,753 | $ | 6,113 | $ | (122 | ) | $ | 322 | $ | 334 |
Pension Benefits | Retiree Health Care Benefits | ||||||||||||||||||||||
Year Ended June 30, | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||
Service cost | $ | 97 | $ | 77 | $ | 78 | $ | 53 | $ | 48 | $ | 80 | |||||||||||
Interest cost | 896 | 1,180 | 1,260 | 95 | 139 | 188 | |||||||||||||||||
Expected return on plan assets | (495 | ) | (416 | ) | (403 | ) | — | — | — | ||||||||||||||
Recognized net actuarial loss (gain) | 559 | 611 | 735 | (87 | ) | (38 | ) | (53 | ) | ||||||||||||||
Amortization of prior service cost | 86 | 78 | 83 | (272 | ) | (271 | ) | 107 | |||||||||||||||
Net periodic cost (benefits) | $ | 1,143 | $ | 1,530 | $ | 1,753 | $ | (211 | ) | $ | (122 | ) | $ | 322 |
Pension Benefits | Retiree Health Care Benefits | ||||||||||
June 30, | 2014 | 2013 | 2014 | 2013 | |||||||
Assumptions used to determine benefit obligations at year end: | |||||||||||
Discount rate | 2.8 | % | 3.0 | % | 3.8 | % | 4.0 | % | |||
Assumptions used to determine net periodic benefit cost: | |||||||||||
Discount rate | 3.0 | % | 2.8 | % | 4.0 | % | 4.0 | % | |||
Expected return on plan assets | 7.0 | % | 7.0 | % | N/A | N/A |
Pension Benefits | Retiree Health Care Benefits | ||||||||||
June 30, | 2015 | 2014 | 2015 | 2014 | |||||||
Assumptions used to determine benefit obligations at year end: | |||||||||||
Discount rate | 3.0 | % | 2.8 | % | 4.0 | % | 3.8 | % | |||
Assumptions used to determine net periodic benefit cost: | |||||||||||
Discount rate | 2.8 | % | 3.0 | % | 3.8 | % | 4.0 | % | |||
Expected return on plan assets | 7.0 | % | 7.0 | % | N/A | N/A |
One-Percentage Point | |||||||
Increase | Decrease | ||||||
Effect on total service and interest cost components of periodic expense | $ | 22 | $ | (19 | ) | ||
Effect on post-retirement benefit obligation | 288 | (250 | ) |
One-Percentage Point | |||||||
Increase | Decrease | ||||||
Effect on total service and interest cost components of periodic expense | $ | 20 | $ | (17 | ) | ||
Effect on post-retirement benefit obligation | 209 | (177 | ) |
Target Allocation | Fair Value | |||||||||
2014 | 2013 | |||||||||
Asset Class: | ||||||||||
Equity* securities (Level 1) | 40 – 70% | $ | 3,813 | $ | 3,189 | |||||
Debt securities (Level 2) | 20 – 50% | 3,155 | 3,208 | |||||||
Other (Level 1) | 0 – 20% | 277 | 300 | |||||||
Total | 100 | % | $ | 7,245 | $ | 6,697 |
Target Allocation | Fair Value | ||||||||
2015 | 2014 | ||||||||
Asset Class: | |||||||||
Equity* securities (Level 1) | 40 – 70% | $ | 4,022 | $ | 3,813 | ||||
Debt securities (Level 2) | 20 – 50% | 2,930 | 3,155 | ||||||
Other (Level 1) | 0 – 20% | 233 | 277 | ||||||
Total | 100% | $ | 7,185 | $ | 7,245 |
During Fiscal Years | Pension Benefits | Retiree Health Care Benefits | |||||
2015 | $ | 6,700 | $ | 160 | |||
2016 | 5,600 | 180 | |||||
2017 | 1,800 | 250 | |||||
2018 | 2,300 | 320 | |||||
2019 | 3,800 | 300 | |||||
2020 through 2024 | 9,400 | 870 |
During Fiscal Years | Pension Benefits | Retiree Health Care Benefits | |||||
2016 | $ | 5,600 | $ | 170 | |||
2017 | 1,800 | 180 | |||||
2018 | 2,300 | 190 | |||||
2019 | 4,000 | 180 | |||||
2020 | 3,300 | 170 | |||||
2021 through 2025 | 7,400 | 620 |
During Fiscal Years | |||
2015 | $ | 27,100 | |
2016 | 18,500 | ||
2017 | 13,900 | ||
2018 | 9,500 | ||
2019 | 6,300 | ||
Thereafter | 8,400 | ||
Total minimum lease payments | $ | 83,700 |
During Fiscal Years | |||
2016 | $ | 24,900 | |
2017 | 19,700 | ||
2018 | 14,600 | ||
2019 | 10,900 | ||
2020 | 5,800 | ||
Thereafter | 6,500 | ||
Total minimum lease payments | $ | 82,400 |
Service Center Based Distribution | Fluid Power Businesses | Total | |||||||||
Year Ended June 30, 2014 | |||||||||||
Net sales | $ | 1,973,359 | $ | 486,519 | $ | 2,459,878 | |||||
Operating income for reportable segments | 118,857 | 44,621 | 163,478 | ||||||||
Assets used in the business | 1,116,311 | 217,858 | 1,334,169 | ||||||||
Depreciation and amortization of property | 12,399 | 1,578 | 13,977 | ||||||||
Capital expenditures | 18,744 | 1,446 | 20,190 | ||||||||
Year Ended June 30, 2013 | |||||||||||
Net sales | $ | 2,003,440 | $ | 458,731 | $ | 2,462,171 | |||||
Operating income for reportable segments | 138,484 | 41,083 | 179,567 | ||||||||
Assets used in the business | 859,547 | 199,159 | 1,058,706 | ||||||||
Depreciation and amortization of property | 10,692 | 1,809 | 12,501 | ||||||||
Capital expenditures | 10,415 | 1,799 | 12,214 | ||||||||
Year Ended June 30, 2012 | |||||||||||
Net sales | $ | 1,904,564 | $ | 470,881 | $ | 2,375,445 | |||||
Operating income for reportable segments | 135,240 | 43,236 | 178,476 | ||||||||
Assets used in the business | 731,915 | 230,268 | 962,183 | ||||||||
Depreciation and amortization of property | 9,403 | 1,833 | 11,236 | ||||||||
Capital expenditures | 24,339 | 1,682 | 26,021 |
Service Center Based Distribution | Fluid Power Businesses | Total | |||||||||
Year Ended June 30, 2015 | |||||||||||
Net sales | $ | 2,254,768 | $ | 496,793 | $ | 2,751,561 | |||||
Operating income for reportable segments | 140,421 | 48,535 | 188,956 | ||||||||
Assets used in the business | 1,230,543 | 204,425 | 1,434,968 | ||||||||
Depreciation and amortization of property | 15,196 | 1,382 | 16,578 | ||||||||
Capital expenditures | 13,531 | 1,402 | 14,933 | ||||||||
Year Ended June 30, 2014 | |||||||||||
Net sales | $ | 1,973,359 | $ | 486,519 | $ | 2,459,878 | |||||
Operating income for reportable segments | 118,857 | 44,621 | 163,478 | ||||||||
Assets used in the business | 1,116,311 | 217,858 | 1,334,169 | ||||||||
Depreciation and amortization of property | 12,399 | 1,578 | 13,977 | ||||||||
Capital expenditures | 18,744 | 1,446 | 20,190 | ||||||||
Year Ended June 30, 2013 | |||||||||||
Net sales | $ | 2,003,440 | $ | 458,731 | $ | 2,462,171 | |||||
Operating income for reportable segments | 138,484 | 41,083 | 179,567 | ||||||||
Assets used in the business | 859,547 | 199,159 | 1,058,706 | ||||||||
Depreciation and amortization of property | 10,692 | 1,809 | 12,501 | ||||||||
Capital expenditures | 10,415 | 1,799 | 12,214 |
Year Ended June 30, | 2014 | 2013 | 2012 | ||||||||
Operating income for reportable segments | $ | 163,478 | $ | 179,567 | $ | 178,476 | |||||
Adjustments for: | |||||||||||
Intangible amortization — Service Center Based Distribution | 7,336 | 5,829 | 3,834 | ||||||||
Intangible amortization — Fluid Power Businesses | 6,687 | 7,404 | 7,631 | ||||||||
Corporate and other income, net | (14,903 | ) | (10,065 | ) | (1,384 | ) | |||||
Total operating income | 164,358 | 176,399 | 168,395 | ||||||||
Interest (income) expense, net | 249 | 165 | (9 | ) | |||||||
Other expense (income), net | (2,153 | ) | (1,431 | ) | 1,578 | ||||||
Income before income taxes | $ | 166,262 | $ | 177,665 | $ | 166,826 |
Year Ended June 30, | 2015 | 2014 | 2013 | ||||||||
Operating income for reportable segments | $ | 188,956 | $ | 163,478 | $ | 179,567 | |||||
Adjustments for: | |||||||||||
Intangible amortization — Service Center Based Distribution | 19,561 | 7,336 | 5,829 | ||||||||
Intangible amortization — Fluid Power Businesses | 6,236 | 6,687 | 7,404 | ||||||||
Corporate and other income, net | (21,460 | ) | (14,903 | ) | (10,065 | ) | |||||
Total operating income | 184,619 | 164,358 | 176,399 | ||||||||
Interest expense, net | 7,869 | 249 | 165 | ||||||||
Other expense (income), net | 879 | (2,153 | ) | (1,431 | ) | ||||||
Income before income taxes | $ | 175,871 | $ | 166,262 | $ | 177,665 |
Year Ended June 30, | 2014 | 2013 | 2012 | ||||||||
Industrial | $ | 1,739,496 | $ | 1,776,172 | $ | 1,680,926 | |||||
Fluid power | 720,382 | 685,999 | 694,519 | ||||||||
Net sales | $ | 2,459,878 | $ | 2,462,171 | $ | 2,375,445 |
Year Ended June 30, | 2015 | 2014 | 2013 | ||||||||
Industrial | $ | 2,013,447 | $ | 1,739,496 | $ | 1,776,172 | |||||
Fluid power | 738,114 | 720,382 | 685,999 | ||||||||
Net sales | $ | 2,751,561 | $ | 2,459,878 | $ | 2,462,171 |
Year Ended June 30, | 2014 | 2013 | 2012 | ||||||||
Net Sales: | |||||||||||
United States | $ | 2,031,142 | $ | 2,017,168 | $ | 2,009,317 | |||||
Canada | 291,117 | 298,269 | 292,913 | ||||||||
Other Countries | 137,619 | 146,734 | 73,215 | ||||||||
Total | $ | 2,459,878 | $ | 2,462,171 | $ | 2,375,445 |
Year Ended June 30, | 2015 | 2014 | 2013 | ||||||||
Net Sales: | |||||||||||
United States | $ | 2,238,263 | $ | 2,031,142 | $ | 2,017,168 | |||||
Canada | 358,580 | 291,117 | 298,269 | ||||||||
Other Countries | 154,718 | 137,619 | 146,734 | ||||||||
Total | $ | 2,751,561 | $ | 2,459,878 | $ | 2,462,171 |
June 30, | 2014 | 2013 | 2012 | ||||||||
Long-Lived Assets: | |||||||||||
United States | $ | 228,263 | $ | 210,289 | $ | 198,076 | |||||
Canada | 202,226 | 44,290 | 42,624 | ||||||||
Other Countries | 26,109 | 26,780 | 10,323 | ||||||||
Total | $ | 456,598 | $ | 281,359 | $ | 251,023 |
June 30, | 2015 | 2014 | 2013 | ||||||||
Long-Lived Assets: | |||||||||||
United States | $ | 217,597 | $ | 153,945 | $ | 144,289 | |||||
Canada | 76,565 | 99,161 | 19,038 | ||||||||
Other Countries | 9,113 | 9,998 | 11,183 | ||||||||
Total | $ | 303,275 | $ | 263,104 | $ | 174,510 |
Year Ended June 30, | 2014 | 2013 | 2012 | ||||||||
Unrealized (gain) loss on assets held in rabbi trust for a non-qualified deferred compensation plan | $ | (1,683 | ) | $ | (1,280 | ) | $ | 36 | |||
Elimination of one-month Canadian and Mexican reporting lag, effective July 1, 2013 and January 1, 2014, respectively | (1,342 | ) | — | — | |||||||
Foreign currency transaction (gains) losses | 801 | (143 | ) | 1,592 | |||||||
Other, net | 71 | (8 | ) | (50 | ) | ||||||
Total other expense (income), net | $ | (2,153 | ) | $ | (1,431 | ) | $ | 1,578 |
Year Ended June 30, | 2015 | 2014 | 2013 | ||||||||
Unrealized (gain) loss on assets held in rabbi trust for a non-qualified deferred compensation plan | $ | (442 | ) | $ | (1,683 | ) | $ | (1,280 | ) | ||
Elimination of one-month Canadian and Mexican reporting lag, effective July 1, 2013 and January 1, 2014, respectively | — | (1,342 | ) | — | |||||||
Foreign currency transaction (gains) losses | 1,251 | 801 | (143 | ) | |||||||
Other, net | 70 | 71 | (8 | ) | |||||||
Total other expense (income), net | $ | 879 | $ | (2,153 | ) | $ | (1,431 | ) |
Per Common Share | |||||||||||||||||||||||
Net Sales | Gross Profit | Operating Income | Net Income | Net Income | Cash Dividend | ||||||||||||||||||
2014 | |||||||||||||||||||||||
First Quarter | $ | 605,305 | $ | 169,795 | $ | 39,539 | $ | 26,844 | $ | 0.63 | $ | 0.23 | |||||||||||
Second Quarter | 581,949 | 163,383 | 39,837 | 25,909 | 0.61 | 0.23 | |||||||||||||||||
Third Quarter | 618,006 | 171,220 | 40,173 | 30,394 | 0.72 | 0.25 | |||||||||||||||||
Fourth Quarter | 654,618 | 182,528 | 44,809 | 29,674 | 0.71 | 0.25 | |||||||||||||||||
$ | 2,459,878 | $ | 686,926 | $ | 164,358 | $ | 112,821 | $ | 2.67 | $ | 0.96 | ||||||||||||
2013 | |||||||||||||||||||||||
First Quarter | $ | 610,519 | $ | 164,533 | $ | 44,318 | $ | 29,532 | $ | 0.70 | $ | 0.21 | |||||||||||
Second Quarter | 589,517 | 162,919 | 40,569 | 27,043 | 0.64 | 0.21 | |||||||||||||||||
Third Quarter | 621,654 | 174,400 | 43,477 | 29,302 | 0.69 | 0.23 | |||||||||||||||||
Fourth Quarter | 640,481 | 181,110 | 48,035 | 32,272 | 0.76 | 0.23 | |||||||||||||||||
$ | 2,462,171 | $ | 682,962 | $ | 176,399 | $ | 118,149 | $ | 2.78 | $ | 0.88 | ||||||||||||
2012 | |||||||||||||||||||||||
First Quarter | $ | 579,574 | $ | 158,704 | $ | 43,267 | $ | 26,382 | $ | 0.61 | $ | 0.19 | |||||||||||
Second Quarter | 570,397 | 155,469 | 33,335 | 20,935 | 0.49 | 0.19 | |||||||||||||||||
Third Quarter | 605,461 | 167,613 | 42,019 | 29,418 | 0.69 | 0.21 | |||||||||||||||||
Fourth Quarter | 620,013 | 172,686 | 49,774 | 32,044 | 0.75 | 0.21 | |||||||||||||||||
$ | 2,375,445 | $ | 654,472 | $ | 168,395 | $ | 108,779 | $ | 2.54 | $ | 0.80 |
Per Common Share | |||||||||||||||||||||||
Net Sales | Gross Profit | Operating Income | Net Income | Net Income | Cash Dividend | ||||||||||||||||||
2015 | |||||||||||||||||||||||
First Quarter | $ | 702,325 | $ | 194,932 | $ | 46,165 | $ | 29,122 | $ | 0.70 | $ | 0.25 | |||||||||||
Second Quarter | 691,702 | 195,713 | 46,807 | 29,707 | 0.72 | 0.25 | |||||||||||||||||
Third Quarter | 679,994 | 187,363 | 43,772 | 28,610 | 0.70 | 0.27 | |||||||||||||||||
Fourth Quarter | 677,540 | 191,806 | 47,875 | 28,045 | 0.70 | 0.27 | |||||||||||||||||
$ | 2,751,561 | $ | 769,814 | $ | 184,619 | $ | 115,484 | $ | 2.80 | $ | 1.04 | ||||||||||||
2014 | |||||||||||||||||||||||
First Quarter | $ | 605,305 | $ | 169,795 | $ | 39,539 | $ | 26,844 | $ | 0.63 | $ | 0.23 | |||||||||||
Second Quarter | 581,949 | 163,383 | 39,837 | 25,909 | 0.61 | 0.23 | |||||||||||||||||
Third Quarter | 618,006 | 171,220 | 40,173 | 30,394 | 0.72 | 0.25 | |||||||||||||||||
Fourth Quarter | 654,618 | 182,528 | 44,809 | 29,674 | 0.71 | 0.25 | |||||||||||||||||
$ | 2,459,878 | $ | 686,926 | $ | 164,358 | $ | 112,821 | $ | 2.67 | $ | 0.96 | ||||||||||||
2013 | |||||||||||||||||||||||
First Quarter | $ | 610,519 | $ | 164,533 | $ | 44,318 | $ | 29,532 | $ | 0.70 | $ | 0.21 | |||||||||||
Second Quarter | 589,517 | 162,919 | 40,569 | 27,043 | 0.64 | 0.21 | |||||||||||||||||
Third Quarter | 621,654 | 174,400 | 43,477 | 29,302 | 0.69 | 0.23 | |||||||||||||||||
Fourth Quarter | 640,481 | 181,110 | 48,035 | 32,272 | 0.76 | 0.23 | |||||||||||||||||
$ | 2,462,171 | $ | 682,962 | $ | 176,399 | $ | 118,149 | $ | 2.78 | $ | 0.88 |
/s/ Neil A. Schrimsher | /s/ Mark O. Eisele | |
President & Chief Executive Officer | Vice President - Chief Financial Officer & Treasurer |
Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | ||||
Equity compensation plans approved by security holders | 1,038,885 | $ | 33.40 | * | |||
Equity compensation plans not approved by security holders | 0 | 0 | 0 | ||||
Total | 1,038,885 | $ | 33.40 | * |
Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | |||||
Equity compensation plans approved by security holders | 1,116,188 | $ | 35.86 | * | ||||
Equity compensation plans not approved by security holders | 0 | 0 | 0 | |||||
Total | 1,116,188 | $ | 35.86 | * |
* | The 2011 Long-Term Performance Plan was adopted to replace the 2007 Long-Term Performance Plan, and the 2007 Long-Term Performance Plan replaced the 1997 Long-Term Performance Plan. Stock options and stock appreciation rights remain outstanding under each of the 1997 and 2007 plans, but no new awards are made under those plans. The aggregate number of shares that remained available for awards under the 2011 Long-Term Performance Plan at June 30, |
• | Report of Independent Registered Public Accounting Firm | |
• | Statements of Consolidated Income for the Years Ended June 30, 2015, 2014, | |
• | Statements of Consolidated Comprehensive Income for the Years Ended June 30, 2015, 2014, | |
• | Consolidated Balance Sheets at June 30, | |
• | Statements of Consolidated Cash Flows for the Years Ended June 30, 2015, 2014, | |
• | Statements of Consolidated Shareholders' Equity For the Years Ended June 30, 2015, 2014, | |
• | Notes to Consolidated Financial Statements for the Years Ended June 30, 2015, 2014, | |
• | Supplementary Data: | |
• | Quarterly Operating Results |
Page No. | ||
Schedule II - Valuation and Qualifying Accounts: |
* Asterisk indicates an executive compensation plan or arrangement. | |
Exhibit No. | Description |
3.1 | Amended and Restated Articles of Incorporation of Applied Industrial Technologies, Inc., as amended on October 25, 2005 (filed as Exhibit 3(a) to Applied's Form 10-Q for the quarter ended December 31, 2005, SEC File No. 1-2299, and incorporated here by reference). |
3.2 | Code of Regulations of Applied Industrial Technologies, Inc., as amended on October 19, 1999 (filed as Exhibit 3(b) to Applied's Form 10-Q for the quarter ended September 30, 1999, SEC File No. 1-2299, and incorporated here by reference). |
4.1 | Certificate of Merger of Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) filed with the Ohio Secretary of State on October 18, 1988, including an Agreement and Plan of Reorganization dated September 6, 1988 (filed as Exhibit 4(a) to Applied's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). |
4.2 | Private Shelf Agreement dated as of November 27, 1996, as |
4.3 | Request for Purchase dated May 30, 2014 and 3.19% Series C Notes dated July 1, 2014, under Private Shelf Agreement dated November 27, 1996, as most recently amended on February 4, 2013, between Applied Industrial Technologies, Inc. and Prudential Investment Management, Inc. (filed as Exhibit 10.1 to Applied’s Form 8-K dated July 1, 2014, SEC File No. 1-2299, and incorporated here by reference). |
4.4 | Request for Purchase dated October 22, 2014 and 3.21% Series D Notes dated October 30, 2014, under Private Shelf Agreement dated November 27, 1996, as amended, between Applied Industrial Technologies, Inc. and Prudential Investment Management, Inc. (filed as Exhibit 4.5 to Applied's Form 10-Q dated November 4, 2014, SEC File No. 1-2299, and incorporated here by reference). |
4.5 | Credit Agreement dated as of May 15, 2012, among Applied Industrial Technologies, Inc., KeyBank National Association as Agent, and various financial institutions (filed as Exhibit 4 to Applied's Form 8-K dated May 17, 2012, SEC File No. 1-2299, and incorporated here by reference). |
Credit Agreement dated as of April 25, 2014, among Applied Industrial Technologies, Inc., Key Bank National Association, as Agent, and various financial institutions (filed as Exhibit 10.1 to Applied’s Form 8-K dated May 1, 2014, SEC File No. 1-2299, and incorporated here by reference). | |
*10.1 | A written description of Applied's director compensation program is incorporated by reference to Applied’s proxy statement for the annual meeting of shareholders to be held October |
*10.2 | Deferred Compensation Plan for Non-Employee Directors (September 1, 2003 Restatement), the terms of which govern benefits vested as of December 31, 2004, for certain directors (filed as Exhibit 10(c) to Applied's Form 10-K for the year ended June 30, 2003, SEC File No. 1-2299, and incorporated here by reference). |
*10.3 | Deferred Compensation Plan for Non-Employee Directors (Post-2004 Terms) (filed as Exhibit 10.2 to Applied's Form 10-Q for the quarter ended December 31, 2008, SEC File No. 1-2299, and incorporated here by reference). |
*10.4 | Second Amendment to the Applied Industrial Technologies, Inc. Deferred Compensation Plan for Non-Employee Directors (Post-2004 Terms) (filed as Exhibit 10.1 to Applied’s Form 10-Q for the quarter ended March 31, 2014, SEC File No. 1-2299, and incorporated here by reference). |
*10.5 | Form of Director and Officer Indemnification Agreement entered into between Applied and each of its directors and executive officers (filed as Exhibit 10(g) to Applied's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). |
*10.6 | |
*10.7 | |
*10.8 | |
*10.9 | Section 409A Amendment to the 2007 Long-Term Performance Plan (filed as Exhibit 10.5 to Applied's Form 10-Q for the quarter ended December 31, 2008, SEC File No. 1-2299, and incorporated here by reference). |
* | 2011 Long-Term Performance Plan (filed as Appendix to Applied’s proxy statement for the annual meeting of shareholders held on October 25, 2011, SEC File No. 1-2299, and incorporated here by reference). |
*10.11 | Non-Statutory Stock Option Award Terms and Conditions (Directors) (filed as Exhibit 10 to Applied's Form 8-K dated November 30, 2005, SEC File No. 1-2299, and incorporated here by reference). |
*10.12 | Restricted Stock Award Terms and Conditions (Directors) (filed as Exhibit 10.1 to Applied's Form 10-Q for the quarter ended March 31, 2012, SEC File No. 1-2299, and incorporated here by reference). |
*10.13 | Stock Appreciation Rights Award Terms and Conditions (Officers) (August 2012 revision) (filed as Exhibit 10.02 to Applied's Form 8-K dated August 9, 2012, SEC File No. 1-2299, and incorporated here by reference). |
*10.14 | Performance Shares Terms and Conditions (filed as Exhibit 10.04 to Applied's Form 8-K dated August 9, 2012, SEC File No. 1-2299, and incorporated here by reference). |
*10.15 | Restricted Stock Units Terms and Conditions (filed as Exhibit 10.03 to Applied's Form 8-K dated August 9, 2012, SEC File No. 1-2299, and incorporated here by reference). |
*10.16 | Management Incentive Plan General Terms (filed as Exhibit 10.01 to Applied's Form 8-K dated August 9, 2012, SEC File No. 1-2299, and incorporated here by reference). |
*10.17 | Key Executive Restoration Plan, as amended and restated, for Applied's executive officers |
* | Schedule of participants in the Key Executive Restoration Plan, as amended and restated. |
*10.19 | Supplemental Executive Retirement Benefits Plan (Restated Post-2004 Terms) in which Thomas E. Armold, Todd A. Barlett, Fred D. Bauer, and Mark O. Eisele participate (filed as Exhibit 10.1 to Applied's Form 10-Q for the quarter ended December 31, 2008, SEC File No. 1-2299, and incorporated here by reference). |
* | First Amendment to the Applied Industrial Technologies, Inc. Supplemental Executive Retirement Benefits Plan (Restated Post-2004 Terms) (filed as Exhibit 10.1 to Applied's Form 8-K dated December 22, 2011, SEC File No. 1-2299, and incorporated here by reference). |
* | Second Amendment to the Applied Industrial Technologies, Inc. Supplemental Executive Retirement Benefits Plan (Restated Post-2004 Terms) (filed as Exhibit 10.1 to the Company's Form 8-K dated October 22, 2012, SEC File No. 1-2299, and incorporated here by reference). |
* | Deferred Compensation Plan (September 1, 2003 Restatement), the terms of which govern benefits vested as of December 31, 2004, for Mark O. Eisele (filed as Exhibit 10(h) to Applied's Form 10-K for the year ended June 30, 2003, SEC File No. 1-2299, and incorporated here by reference). |
* | First Amendment to Deferred Compensation Plan (September 1, 2003 Restatement) (filed as Exhibit 10 to Applied's Form 10-Q for the quarter ended December 31, 2003, SEC File No. 1-2299, and incorporated here by reference). |
* | Deferred Compensation Plan (Post-2004 Terms) (filed as Exhibit 10.3 to Applied's Form 10-Q for the quarter ended December 31, 2008, SEC File No. 1-2299, and incorporated here by reference). |
* | |
Supplemental Defined Contribution Plan (January 1, 1997 Restatement) the terms of which govern benefits vested as of December 31, 2004, for certain executive officers (filed as Exhibit 10(m) to Applied’s Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). | |
* | First Amendment to Supplemental Defined Contribution Plan effective as of October 1, 2000 (filed as Exhibit 10(a) to Applied’s Form 10-Q for the quarter ended September 30, 2000, SEC File No. 1-2299, and incorporated here by reference). |
* | Second Amendment to Supplemental Defined Contribution Plan effective as of January 16, 2001 (filed as Exhibit 10(a) to Applied's Form 10-Q for the quarter ended March 31, 2001, SEC File No. 1-2299, and incorporated here by reference). |
* | Supplemental Defined Contribution Plan (Post-2004 Terms) (filed as Exhibit 10.6 to Applied's Form 10-Q for the quarter ended December 31, 2008, SEC File No. 1-2299, and incorporated here by reference). |
* | |
Severance Agreement for Neil A. Schrimsher (filed as Exhibit 10.2 to Applied's Form 8-K dated October 31, 2011, SEC File No. 1-2299, and incorporated here by reference). | |
* | Amendment to Severance Agreement for Neil A. Schrimsher (filed as Exhibit 10.2 to Applied's Form 8-K dated October 22, 2012, SEC File No. 1-2299, and incorporated here by reference). |
* | Change in Control Agreement for Neil A. Schrimsher (filed as Exhibit 10.3 to Applied's Form 8-K dated October 31, 2011, SEC File No. 1-2299, and incorporated here by reference). |
* | |
*10.33 | Form of Change in Control Agreement for executive officers hired since 2012 (filed as Exhibit 10.3 to Applied's Form 10-Q for the quarter ended September 30, 2013, SEC File No. 1-2299, and incorporated here by reference). |
*10.34 | A written description of Applied's Life and Accidental Death and Dismemberment Insurance for executive officers (filed as Exhibit 10(d) to Applied's Form 10-K for the year ended June 30, 2007, SEC File No. 1-2299, and incorporated here by reference). |
*10.35 | |
*10.36 | Non-qualified Deferred Compensation Agreement between Applied and J. Michael Moore effective as of December 31, 1997 (filed as Exhibit 10(a) to Applied's Form 10-Q for the quarter ended March 31, 1998, SEC File No. 1-2299, and incorporated here by reference). |
Share Purchase Agreement dated April 25, 2014, among Applied Industrial Technologies, Inc., Applied Alberta, Inc., Michael Sirois, Sirois Family Trust, Georg Eger, Eger Family Trust, Blair Hetlinger, Christopher Sirois, Kenneth Pacula, Grant Bechtloff, Ryan Farley, Dwayne Letawsky, Douglas Kilbach, Steven Vanderwater, 1562039 Alberta Ltd., 1561902 Alberta Ltd., 1614176 Alberta Ltd., 1814971 Alberta Ltd. and 1814966 Alberta Ltd. (filed as Exhibit 10.1 to Applied’s Form 8-K dated May 1, 2014, SEC File No. 1-2299, and incorporated here by reference). | |
10.38 | Stock Purchase Agreement dated May 23, 2014, among Applied Industrial Technologies, Inc., Alex Dan Knox and Dayton Scott Knox (filed as Exhibit 10.1 to Applied’s Form 8-K dated May 27, 2014, SEC File No. 1-2299, and incorporated here by reference). |
21 | Applied’s subsidiaries at June 30, |
23 | Consent of Independent Registered Public Accounting Firm. |
24 | Powers of attorney. |
31 | Rule 13a-14(a)/15d-14(a) certifications. |
32 | Section 1350 certifications. |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
COLUMN A | COLUMN B | COLUMN C | COLUMN D | COLUMN E | ||||||||||||||||||
DESCRIPTION | Balance at Beginning of Period | Additions Charged to Cost and Expenses | Additions (Deductions) Charged to Other Accounts | Deductions from Reserve | Balance at End of Period | |||||||||||||||||
Year Ended June 30, 2014 | ||||||||||||||||||||||
Reserve deducted from assets to which it applies — accounts receivable allowances | $ | 7,737 | $ | 3,970 | $ | (129 | ) | (A) | $ | 1,193 | (B) | $ | 10,385 | |||||||||
Year Ended June 30, 2013 | ||||||||||||||||||||||
Reserve deducted from assets to which it applies — accounts receivable allowances | $ | 8,332 | $ | 2,267 | $ | (104 | ) | (A) | $ | 2,758 | (B) | $ | 7,737 | |||||||||
Year Ended June 30, 2012 | ||||||||||||||||||||||
Reserve deducted from assets to which it applies — accounts receivable allowances | $ | 7,016 | $ | 3,915 | $ | 122 | (A) | $ | 2,721 | (B) | $ | 8,332 |
COLUMN A | COLUMN B | COLUMN C | COLUMN D | COLUMN E | ||||||||||||||||||
DESCRIPTION | Balance at Beginning of Period | Additions Charged to Cost and Expenses | Additions (Deductions) Charged to Other Accounts | Deductions from Reserve | Balance at End of Period | |||||||||||||||||
Year Ended June 30, 2015 | ||||||||||||||||||||||
Reserve deducted from assets to which it applies — accounts receivable allowances | $ | 10,385 | $ | 2,597 | $ | 231 | (A) | $ | 2,592 | (B) | $ | 10,621 | ||||||||||
Year Ended June 30, 2014 | ||||||||||||||||||||||
Reserve deducted from assets to which it applies — accounts receivable allowances | $ | 7,737 | $ | 3,970 | $ | (129 | ) | (A) | $ | 1,193 | (B) | $ | 10,385 | |||||||||
Year Ended June 30, 2013 | ||||||||||||||||||||||
Reserve deducted from assets to which it applies — accounts receivable allowances | $ | 8,332 | $ | 2,267 | $ | (104 | ) | (A) | $ | 2,758 | (B) | $ | 7,737 |
(A) | Amounts represent reserves for the return of merchandise by customers. |
(B) | Amounts represent uncollectible accounts charged off. |
/s/ Neil A. Schrimsher | /s/ Mark O. Eisele | |
Neil A. Schrimsher President & Chief Executive Officer | Mark O. Eisele Vice President-Chief Financial Officer & Treasurer | |
(Principal financial officer and principal accounting officer) |
* | * | |
* | * | |
* | * | |
* | ||
Vincent K. Petrella, Director | ||
Neil A. Schrimsher, President & Chief Executive Officer and Director | ||
* | * | |
Dr. Jerry Sue Thornton, Director | Peter C. Wallace, Director and Chairman | |
/s/ Fred D. Bauer |
Fred D. Bauer, as attorney in fact |
for persons indicated by “*” |