AIT reports Q2 financial results

Applied Industrial Technologies, Cleveland, OH, reported net sales for its second quarter ended Dec. 31, 2001, declined 14.3% to $347.5 million from $405.4 million in the comparable period a year ago. Net income for the quarter was $2.9 million versus $7.4 million for last year's second quarter. For the first six months of fiscal 2002, sales were $715.5 million compared to $826.3 million in the prior year.

The company has taken a retroactive beginning of fiscal year charge of $12.1 million for impaired goodwill associated with its fluid power businesses. This non-cash charge is being recognized on the company's statement of consolidated income as the cumulative effect of a change in accounting principle related to the company's decision to early-adopt SFAS 142, 'Goodwill and Other Intangible Assets.' This impairment within the fluid power businesses is primarily attributed to the downturn in the industrial economy in the years following the company's acquisitions.

Including the effect of the accounting change for the six months ended Dec. 31, 2001, net loss was $4.3 million as compared to net income of $14.6 million in the prior year period.

'We continue to see the ongoing impact of the industrial recession affecting all industries and geographic areas we serve,' said Applied Chairman and CEO David L. Pugh. 'Our lower quarterly sales and net income is a direct result of weak demand throughout the industrial marketplace. While these are difficult economic times, we continue to maintain a strong balance sheet. Our cash flow continues to be strong and our control of expenses has helped us to remain profitable in spite of the downturn.

'We have seen no meaningful signs of improvement in the industrial economy. Most of our manufacturing-based customers continue to experience lower demand. While we are actively managing our business in an effort to maintain profitability, we remain poised to aggressively serve a greater level of business once the economic climate improves.'

Regarding the goodwill impairment charge, Pugh commented, 'The charge was dictated by early adoption of a new accounting principle (SFAS 142), effective Jul. 1, 2001. This new accounting standard requires goodwill and intangible assets with indefinite useful lives to no longer be amortized but instead be tested for impairment. Our evaluation under this standard indicated that only goodwill from acquisitions in our fluid power business unit was impaired. The market for fluid power systems and components has been particularly hard hit by the current economic downturn. We still believe the fluid power business will prove to be successful in adding to profitability and returns in the future.'

Commenting on the remainder of fiscal 2002, Pugh said, 'We have witnessed the severity of this recession through four consecutive quarters of decrease in sales activity. Current order trends lead us to believe sales for our third and fourth quarters will be in the $345 to $370 million range.'

During the second quarter, the company expanded operations in Mexico by completing the acquisition of Baleros Industriales, S.A. de C.V. (BISA), headquartered in Monterrey, Mexico. BISA is a distributor of bearings and power transmission products and operates four service facilities with annual sales of approximately US$6.8 million. The four service centers combined with Applied's Mexico City operation will all operate under the BISA name under local management.