10-Q 1 ait-20220331.htm 10-Q ait-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2022

OR        
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___

Commission file number 1-2299

APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Ohio
34-0117420
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
One Applied Plaza
Cleveland
Ohio
44115
(Address of principal executive offices)
(Zip Code)
(216426-4000
Registrant's telephone number, including area code


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, without par valueAITNew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x   No  o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer
x
Accelerated filer
  o
Non-accelerated filer  
o
Smaller reporting company
Emerging growth company

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes       No 

There were 38,444,100 (no par value) shares of common stock outstanding on April 15, 2022.


APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
Page
No.
Part I:
Item 1:
Item 2:
Item 3:
Item 4:
Part II:
Item 1:
Item 2:
Item 6:
1

PART I:     FINANCIAL INFORMATION

ITEM I:    FINANCIAL STATEMENTS

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
(In thousands, except per share amounts)
 Three Months EndedNine Months Ended
March 31,March 31,
 2022202120222021
Net sales$980,662 $840,937 $2,749,217 $2,340,031 
Cost of sales693,338 593,712 1,948,928 1,667,491 
Gross profit287,324 247,225 800,289 672,540 
Selling, distribution and administrative expense, including depreciation
191,481 172,758 551,655 498,659 
Impairment expense   49,528 
Operating income95,843 74,467 248,634 124,353 
Interest expense, net5,852 7,608 20,249 22,919 
Other expense (income), net469 (1,657)(712)(1,746)
Income before income taxes89,522 68,516 229,097 103,180 
Income tax expense21,216 12,453 50,796 17,667 
Net income$68,306 $56,063 $178,301 $85,513 
Net income per share - basic$1.78 $1.44 $4.63 $2.21 
Net income per share - diluted$1.75 $1.42 $4.56 $2.18 
Weighted average common shares outstanding for basic computation38,453 38,835 38,470 38,779 
Dilutive effect of potential common shares645 577 632 482 
Weighted average common shares outstanding for diluted computation39,098 39,412 39,102 39,261 
See notes to condensed consolidated financial statements.

2

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
Three Months EndedNine Months Ended
March 31,March 31,
2022202120222021
Net income per the condensed statements of consolidated income$68,306 $56,063 $178,301 $85,513 
Other comprehensive income, before tax:
Foreign currency translation adjustments6,782 (496)(1,183)19,529 
Post-employment benefits:
Reclassification of net actuarial losses and prior service cost into other expense (income), net and included in net periodic pension costs74 68 224 203 
  Unrealized gain on cash flow hedge17,738 8,758 23,201 6,017 
  Reclassification of interest from cash flow hedge into interest expense2,462 2,992 7,632 8,504 
Total other comprehensive income, before tax27,056 11,322 29,874 34,253 
Income tax expense related to items of other comprehensive income4,977 2,829 7,638 3,694 
Other comprehensive income, net of tax22,079 8,493 22,236 30,559 
Comprehensive income, net of tax$90,385 $64,556 $200,537 $116,072 
See notes to condensed consolidated financial statements.

3


APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 31,
2022
June 30,
2021
ASSETS
Current assets
Cash and cash equivalents$188,084 $257,745 
Accounts receivable, net618,079 516,322 
Inventories425,373 362,547 
Other current assets63,504 59,961 
Total current assets1,295,040 1,196,575 
Property, less accumulated depreciation of $212,463 and $204,326
111,166 115,589 
Operating lease assets, net95,049 87,111 
Identifiable intangibles, net258,501 279,628 
Goodwill563,751 560,077 
Other assets60,064 32,827 
TOTAL ASSETS$2,383,571 $2,271,807 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable$247,639 $208,162 
Current portion of long-term debt40,166 43,525 
Compensation and related benefits81,518 77,657 
Other current liabilities95,033 98,356 
Total current liabilities464,356 427,700 
Long-term debt681,197 784,855 
Other liabilities139,624 126,706 
TOTAL LIABILITIES1,285,177 1,339,261 
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 capital183,100 177,014 
Retained earnings1,446,847 1,294,413 
Treasury shares—at cost (15,769 and 15,697 shares, respectively)
(470,697)(455,789)
Accumulated other comprehensive loss(70,856)(93,092)
TOTAL SHAREHOLDERS’ EQUITY1,098,394 932,546 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$2,383,571 $2,271,807 
See notes to condensed consolidated financial statements.

4

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
March 31,
20222021
Cash Flows from Operating Activities
Net income$178,301 $85,513 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property16,215 15,641 
Amortization of intangibles24,096 26,238 
Impairment expense 49,528 
Amortization of stock options and appreciation rights2,897 1,930 
Other share-based compensation expense6,064 4,660 
Changes in operating assets and liabilities, net of acquisitions(106,136)33,574 
Other, net12,386 (13,675)
Net Cash provided by Operating Activities133,823 203,409 
Cash Flows from Investing Activities
Acquisition of businesses, net of cash acquired(6,974)(30,023)
Capital expenditures(11,674)(12,177)
Proceeds from property sales494 691 
Life insurance proceeds3,159  
Cash payments for loans on company-owned life insurance(14,835) 
Net Cash used in Investing Activities(29,830)(41,509)
Cash Flows from Financing Activities
Net borrowings under revolving credit facility442,592  
Long-term debt repayments(550,432)(82,070)
Interest rate swap settlement payments(4,812)(2,122)
Payment of debt issuance costs(1,956)(399)
Purchases of treasury shares(13,604) 
Dividends paid(38,612)(37,772)
Acquisition holdback payments(2,361)(2,344)
Exercise of stock options and appreciation rights224 163 
Taxes paid for shares withheld for equity awards(4,405)(5,990)
Net Cash used in Financing Activities(173,366)(130,534)
Effect of Exchange Rate Changes on Cash(288)4,099 
(Decrease) increase in Cash and Cash Equivalents(69,661)35,465 
Cash and Cash Equivalents at Beginning of Period257,745 268,551 
Cash and Cash Equivalents at End of Period$188,084 $304,016 
See notes to condensed consolidated financial statements.

5

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
For the Period Ended
March 31, 2022
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 June 30, 202138,516 $10,000 $177,014 $1,294,413 $(455,789)$(93,092)$932,546 
Net income52,969 52,969 
Other comprehensive loss(4,731)(4,731)
Cash dividends — $0.33 per share
  
Purchases of common stock for treasury(77)(6,537)(6,537)
Treasury shares issued for:
Exercise of stock appreciation rights and options3 (116)8 (108)
Performance share awards5 (222)(73)(295)
Restricted stock units12 (572)(120)(692)
Compensation expense — stock appreciation rights and options1,907 1,907 
Other share-based compensation expense1,563 1,563 
Other(2)(7)(45)(52)
Balance at September 30, 202138,457 $10,000 $179,574 $1,347,375 $(462,556)$(97,823)$976,570 
Net income57,026 57,026 
Other comprehensive income4,888 4,888 
Cash dividends — $0.33 per share
(12,759)(12,759)
Purchases of common stock for treasury(35)(3,527)(3,527)
Treasury shares issued for:
Exercise of stock appreciation rights and options35 (1,639)(832)(2,471)
Compensation expense — stock appreciation rights and options609 609 
Other share-based compensation expense1,705 1,705 
Other(4)(1)13 (364)(352)
Balance at December 31, 202138,453 $10,000 $180,248 $1,391,655 $(467,279)$(92,935)$1,021,689 
Net income68,306 68,306 
Other comprehensive income22,079 22,079 
Cash dividends — $0.34 per share
(13,131)(13,131)
Purchases of common stock for treasury(35)(3,540)(3,540)
Treasury shares issued for:— 
Exercise of stock appreciation rights and options16 (40)(130)(170)
Restricted stock units (18)(16)(34)
Compensation expense — stock appreciation rights and options381 381 
Other share-based compensation expense2,796 2,796 
Other10 (267)17 268 18 
Balance at March 31, 202238,444 10,000 183,100 1,446,847 (470,697)(70,856)1,098,394 
See notes to condensed consolidated financial statements.
6

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
For the Period Ended
March 31, 2021
Shares of Common Stock OutstandingCommon StockAdditional Paid-In CapitalRetained EarningsTreasury Shares-
at Cost
Accumulated Other Comprehensive Income (Loss)Total Shareholders' Equity
Balance at June 30, 202038,710 $10,000 $176,492 $1,200,570 $(414,090)$(129,430)$843,542 
Net income34,784 34,784 
Other comprehensive income7,509 7,509 
Cash dividends — $0.32 per share
(18)(18)
Treasury shares issued for:
Exercise of stock appreciation rights and options13 (277)12 (265)
Performance share awards22 (985)(20)(1,005)
Restricted stock units15 (593)96 (497)
Compensation expense — stock appreciation rights and options693 693 
Other share-based compensation expense677 677 
Other— — 15 (29)(14)
Balance at September 30, 202038,760 $10,000 $176,007 $1,235,351 $(414,031)$(121,921)$885,406 
Net loss(5,334)(5,334)
Other comprehensive income14,557 14,557 
Cash dividends — $0.32 per share
(12,483)(12,483)
Treasury shares issued for:
Exercise of stock appreciation rights and options71 (3,116)(496)(3,612)
Compensation expense — stock appreciation rights and options635 635 
Other share-based compensation expense1,490 1,490 
Other48 — 48 
Balance at December 31, 202038,831 $10,000 $175,016 $1,217,582 $(414,527)$(107,364)$880,707 
Net income56,063 56,063 
Other comprehensive income8,493 8,493 
Cash dividends — $0.33 per share
(12,878)(12,878)
Treasury shares issued for:
Exercise of stock appreciation rights and options11 (379)(40)(419)
Restricted stock units4 (147)(1)(148)
Compensation expense — stock appreciation rights and options602 602 
Other share-based compensation expense2,493 2,493 
Other13 (354)(6)354 (6)
Balance at March 31, 202138,859 $10,000 $177,231 $1,260,761 $(414,214)$(98,871)$934,907 

See notes to condensed consolidated financial statements.
7

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)

1.    BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position of Applied Industrial Technologies, Inc. (the “Company”, or “Applied”) as of March 31, 2022, and the results of its operations and its cash flows for the nine month periods ended March 31, 2022 and 2021, have been included. The condensed consolidated balance sheet as of June 30, 2021 has been derived from the audited consolidated financial statements at that date. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2021.
Operating results for the nine month period ended March 31, 2022 are not necessarily indicative of the results that may be expected for the remainder of the fiscal year ending June 30, 2022.
Inventory
The Company uses the LIFO method of valuing U.S. inventories. An actual valuation of inventory under the LIFO method can be made only 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. LIFO expense of $7,397 and $781 in the three months ended March 31, 2022 and 2021, respectively, and $15,643 and $2,777 in the nine months ended March 31, 2022 and 2021, respectively, is recorded in cost of sales in the condensed statements of consolidated income.

2.    REVENUE RECOGNITION
Disaggregation of Revenues
The following tables present the Company's net sales by reportable segment and by geographic areas based on the location of the facility shipping the product for the three and nine months ended March 31, 2022 and 2021. Other countries consist of Mexico, Australia, New Zealand, and Singapore.
Three Months Ended March 31,
20222021
Service Center Based DistributionFluid Power & Flow ControlTotalService Center Based DistributionFluid Power & Flow ControlTotal
Geographic Areas:
United States$541,622 $314,626 $856,248 $461,945 $262,672 $724,617 
Canada70,493  70,493 66,146  66,146 
Other countries46,883 7,038 53,921 44,801 5,373 50,174 
Total$658,998 $321,664 $980,662 $572,892 $268,045 $840,937 
Nine Months Ended March 31,
20222021
Service Center Based DistributionFluid Power & Flow ControlTotalService Center Based DistributionFluid Power & Flow ControlTotal
Geographic Areas:
United States$1,495,198 $882,025 $2,377,223 $1,294,643 $721,845 $2,016,488 
Canada211,322  211,322 180,851  180,851 
Other countries140,567 20,105 160,672 126,372 16,320 142,692 
Total$1,847,087 $902,130 $2,749,217 $1,601,866 $738,165 $2,340,031 


8

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
The following tables present the Company’s percentage of revenue by reportable segment and major customer industry for the three and nine months ended March 31, 2022 and 2021:
Three Months Ended March 31,
 20222021
Service Center Based DistributionFluid Power & Flow ControlTotalService Center Based DistributionFluid Power & Flow ControlTotal
General Industry35.2 %40.5 %36.8 %35.1 %41.1 %37.0 %
Industrial Machinery10.6 %27.9 %16.3 %10.1 %26.7 %15.4 %
Metals11.4 %7.7 %10.2 %10.9 %6.9 %9.6 %
Food12.6 %2.7 %9.4 %13.2 %2.6 %9.8 %
Forest Products10.8 %2.1 %7.9 %10.9 %2.7 %8.3 %
Chem/Petrochem2.9 %13.3 %6.3 %3.2 %13.5 %6.5 %
Cement & Aggregate7.1 %1.1 %5.2 %8.1 %1.1 %5.9 %
Oil & Gas5.5 %1.1 %4.1 %3.8 %1.1 %2.9 %
Transportation3.9 %3.6 %3.8 %4.7 %4.3 %4.6 %
Total100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %
Nine Months Ended March 31,
 20222021
Service Center Based DistributionFluid Power & Flow ControlTotalService Center Based DistributionFluid Power & Flow ControlTotal
General Industry34.8 %40.1 %36.5 %35.6 %40.1 %36.9 %
Industrial Machinery10.5 %28.6 %16.4 %9.6 %26.6 %15.0 %
Metals11.2 %7.4 %10.0 %10.5 %6.8 %9.4 %
Food12.6 %2.5 %9.3 %13.8 %2.9 %10.3 %
Forest Products10.6 %2.2 %7.9 %10.9 %2.9 %