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Applied Industrial Technologies$65.20($.45)(.69%)

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 Applied Industrial Technologies Reports Fiscal 2017 Fourth Quarter and Year-End Results
   Friday, August 11, 2017 6:30:12 AM ET

-- Fourth Quarter Sales Increase of 7.5%

-- Fourth Quarter EPS of $1.34,

Includes One-time Tax Benefit of $0.56 Per Share

-- Provides Fiscal Year 2018 Outlook

Applied Industrial Technologies (AIT ) today reported results for its fourth quarter and fiscal 2017 year ended June 30, 2017.

Net sales for the quarter were $681.5 million, an increase of 7.5% compared with $634.0 million in the same quarter a year ago. The sales increase for the quarter reflects a 0.8% increase from acquisition-related volume and an unfavorable foreign currency translation of 0.4%. Excluding these factors, organic growth was 7.9% in the quarter, modestly offset by 0.8% due to one-half less selling days in the quarter. Net income for the quarter was $53.0 million, or $1.34 per share, compared with $26.1 million, or $0.66 per share, in the fourth quarter of fiscal 2016. Results for the current period include a favorable one-time tax benefit of $22.2 million, or $0.56 per share, related to the write-off of the Company’s investment in one of its Canadian subsidiaries.

For the 12 months ended June 30, 2017, net sales were $2.59 billion, an increase of 2.9% compared with $2.52 billion last year. Net income was $133.9 million, or $3.40 per share, compared with $29.6 million, or $0.75 per share, in the prior year. The current year results include the one-time tax benefit in the fourth quarter mentioned previously, while the prior year results included a third quarter non-cash charge of $1.62 per share for goodwill impairment.

Commenting on the Company’s performance, Applied’s President & Chief Executive Officer Neil A. Schrimsher said, "We are pleased with the positive strides we made throughout fiscal 2017, including continued sequential progress in the fourth quarter. Our results for the year reflect the benefits from serving our customers’ operating needs, driving continuous improvements and enhancing our technical value-added capabilities. We look forward to building on our business momentum for continued growth in fiscal 2018."

Outlook

Today the Company also provided its initial outlook for fiscal year 2018. For the full year, the Company is forecasting a sales increase in the range of 3.0% to 5.0% and expects earnings per share in the range of $3.00 to $3.20 per share.

Mr. Schrimsher concluded, "Across our organization, we remain focused on executing our strategy and serving new and existing customers who want to buy from fewer, more capable suppliers. We are well-positioned to serve these industrial needs through our multiple channels to market, including: 430+ local Service Centers; 70+ Fluid Power sales and service facilities; digital and printed catalog; Maintenance Supplies & Solutions vendor managed inventory specialists; and our Applied.com e-commerce site. Providing choice, convenience and expertise generates success for our customers and value for all of our stakeholders."

Share Repurchases

During fiscal 2017, the Company returned more than $50 million to shareholders via dividends and share repurchases. The Company did not purchase any shares of its common stock in open market transactions during the fourth quarter. For the full fiscal year, the Company purchased 162,500 shares for $8.2 million. At June 30, 2017, the Company had remaining authorization to purchase 1,450,000 additional shares.

Conference Call Information

Applied will host its quarterly conference call for investors and analysts at 10 a.m. ET on August 11, 2017. President & CEO Neil A. Schrimsher, CFO Mark O. Eisele, and Vice President - Finance David K. Wells will discuss the Company’s performance. To join the call, dial 877-311-4351 (toll free) or 614-999-9139 (for International callers) using conference ID 56397200. A live audio webcast can be accessed online through the investor relations portion of the Company’s website at www.applied.com. A replay of the call will be available for two weeks by dialing 855-859-2056 or 800-585-8367 (both toll free), or 404-537-3406 (International) using conference ID 56397200.

About Applied

Founded in 1923, Applied Industrial Technologies is a leading distributor of bearings, power transmission products, fluid power components, and other industrial supplies, serving MRO and OEM customers in virtually every industry. In addition, Applied provides engineering, design and systems integration for industrial and fluid power applications, as well as customized mechanical, fabricated rubber and fluid power shop services. Applied also offers storeroom services and inventory management solutions that provide added value to its customers. For more information, visit www.applied.com.

This press release contains statements that are forward-looking, as that term is defined by the Securities and Exchange Commission in its rules, regulations and releases. Applied intends that such forward-looking statements be subject to the safe harbors created thereby. Forward-looking statements are often identified by qualifiers such as "forecast," "expect," "will" and derivative or similar expressions. All forward-looking statements are based on current expectations regarding important risk factors including trends in the industrial sector of the economy, the performance of acquired businesses, currency exchange movements, and other risk factors identified in Applied’s most recent periodic report and other filings made with the Securities and Exchange Commission. Accordingly, actual results may differ materially from those expressed in the forward-looking statements, and the making of such statements should not be regarded as a representation by Applied or any other person that the results expressed therein will be achieved. Applied assumes no obligation to update publicly or revise any forward-looking statements, whether due to new information, or events, or otherwise.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(In thousands, except per share data)
                                          Three Months Ended                  Year Ended
                                          June 30,                            June 30,
                                               2017              2016              2017                2016
Net Sales                                 $    681,471      $    634,006      $    2,593,746      $    2,519,428
Cost of sales                                  485,364           455,556           1,856,051           1,812,006
Gross Profit                                   196,107           178,450           737,695             707,422
Selling, distribution and administrative,
including depreciation                         147,858           136,005           563,105             553,827
Goodwill impairment                            -                 -                 -                   64,794
Operating Income                               48,249            42,445            174,590             88,801
Interest expense, net                          2,130             2,059             8,541               8,763
Other (income) expense, net                    (261    )         (64     )         (917      )         1,060
Income Before Income Taxes                     46,380            40,450            166,966             78,978
Income Tax (Benefit) Expense                   (6,580  )         14,383            33,056              49,401
Net Income                                $    52,960       $    26,067       $    133,910        $    29,577
Net Income Per Share - Basic              $    1.36         $    0.67         $    3.43           $    0.75
Net Income Per Share - Diluted            $    1.34         $    0.66         $    3.40           $    0.75
Average Shares Outstanding - Basic             39,024            39,030            39,013              39,254
Average Shares Outstanding - Diluted           39,474            39,286            39,404              39,466
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) During the fourth quarter of fiscal 2017, the Company recorded a non-routine tax benefit pertaining to a worthless stock tax deduction of $22.2 million, or $0.56 per share.  This deduction is based on the write-off of its investment in one of its Canadian subsidiaries for U.S. tax purposes.
(2) Applied uses the last-in, first-out (LIFO) method of valuing U.S. inventory.  An actual valuation of inventory under the LIFO method can only be made at the end of each year based on the inventory levels and costs at that time.  Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory determination.
In fiscal 2017 reductions in U.S. inventories in the bearings pool resulted in liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years.  A portion of these reductions resulted from scrapping $6.0 million of bearings inventory which resulted in a similar amount of scrap expense being recognized in the fourth quarter of fiscal 2017.   The overall impact of the fiscal 2017 LIFO layer liquidations increased gross profit by $9.4 million in the fourth quarter of fiscal 2017.  The net benefit of the bearings products LIFO layer liquidation benefit, less the bearing product scrap expense was $3.4 million.  During the fourth quarter of fiscal 2016 LIFO layer liquidation benefits of $2.1 million were recognized.
(3) During the first quarter of fiscal 2017, we early adopted Accounting Standards Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting. As part of this adoption, the condensed statement of consolidated cash flows for the year ended June, 2016 has been restated resulting in an increase in net cash provided by operating activities and net cash used in financing activities of $1.0 million.
(4) During the first quarter of fiscal 2017, we adopted Accounting Standards Update No. 2015-03, simplifying the presentation of debt issue costs. The retrospective adoption of this standard resulted in the reclassification as of June 30, 2016 of unamortized debt issue costs of $0.1 million from other current assets to a reduction of current portion of long-term debt and $0.4 million from other assets to a reduction of long-term debt on the Company’s condensed consolidated balance sheets.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
                                                                   June 30,          June 30,
                                                                   2017              2016
Assets
Cash and cash equivalents                                          $      105,057    $      59,861
Accounts receivable, less allowances of $9,628 and $11,034                390,931           347,857
Inventories                                                               345,145           338,221
Other current assets                                                      41,409            35,582
Total current assets                                                      882,542           781,521
Property, net                                                             108,068           107,765
Goodwill                                                                  206,135           202,700
Intangibles, net                                                          163,562           191,240
Deferred tax assets                                                       8,985             12,277
Other assets                                                              18,303            16,522
Total Assets                                                       $      1,387,595  $      1,312,025
Liabilities
Accounts payable                                                   $      180,614    $      148,543
Current portion of long-term debt                                         4,814             3,247
Other accrued liabilities                                                 124,325           122,493
Total current liabilities                                                 309,753           274,283
Long-term debt                                                            286,769           324,583
Other liabilities                                                         45,817            55,243
Total Liabilities                                                         642,339           654,109
Shareholders’ Equity                                                      745,256           657,916
Total Liabilities and Shareholders’ Equity                         $      1,387,595  $      1,312,025
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
                                                             Year Ended
                                                             June 30,
                                                                    2017          2016
Cash Flows from Operating Activities
Net income                                                   $      133,910     $ 29,577
Adjustments to reconcile net income to net cash provided
by operating activities:
Goodwill impairment                                                 -             64,794
Depreciation and amortization of property                           15,306        15,966
Amortization of intangibles                                         24,371        25,580
Amortization of stock appreciation rights and options               1,891         1,543
(Gain) loss on sale of property                                     (1,541   )    337
Other share-based compensation expense                              3,629         2,524
Changes in assets and liabilities, net of acquisitions              (11,936  )    23,910
Other, net                                                          (1,011   )    (2,217  )
Net Cash provided by Operating Activities                           164,619       162,014
Cash Flows from Investing Activities
Property purchases                                                  (17,045  )    (13,130 )
Proceeds from property sales                                        2,924         603
Acquisition of businesses, net of cash acquired                     (2,773   )    (62,504 )
Net Cash used in Investing Activities                               (16,894  )    (75,031 )
Cash Flows from Financing Activities
Net (repayments) borrowings under revolving credit facility         (33,000  )    (19,000 )
Long-term debt borrowings                                           -             125,000
Long-term debt repayments                                           (3,353   )    (98,662 )
Deferred financing costs                                            -             (719    )
Purchases of treasury shares                                        (8,242   )    (37,465 )
Dividends paid                                                      (44,619  )    (43,330 )
Acquisition holdback payments                                       (11,307  )    (18,913 )
Taxes paid for shares withheld for equity awards                    (3,484   )    (1,022  )
Exercise of stock appreciation rights and options                   656           896
Other, net                                                          -             208
Net Cash used in Financing Activities                               (103,349 )    (93,007 )
Effect of Exchange Rate Changes on Cash                             820           (3,585  )
Increase (decrease) in cash and cash equivalents                    45,196        (9,609  )
Cash and cash equivalents at beginning of year                      59,861        69,470
Cash and Cash Equivalents at End of Year                     $      105,057     $ 59,861
CONTACT INFORMATION

INVESTOR RELATIONS
David K. Wells
Vice President - Finance
216-426-4755
or
Mark O. Eisele
Vice President - Chief Financial Officer & Treasurer
216-426-4417

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

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