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Table of Contents
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 DECEMBER 31, 2020

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 



Table of Contents
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 38,832,046 (no par value) shares of common stock outstanding on January 15, 2021.


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

Table of Contents
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 EndedSix Months Ended
December 31,December 31,
 2020201920202019
Net sales$751,287 $833,375 $1,499,094 $1,689,779 
Cost of sales541,753 592,141 1,073,779 1,197,085 
Gross profit209,534 241,234 425,315 492,694 
Selling, distribution and administrative expense, including depreciation
162,428 182,489 325,901 372,783 
Intangible and other impairment49,528  49,528  
Operating (loss) income(2,422)58,745 49,886 119,911 
Interest expense, net7,658 9,583 15,311 19,642 
Other expense (income), net88 (215)(89)(215)
(Loss) income before income taxes(10,168)49,377 34,664 100,484 
Income tax (benefit) expense(4,834)11,346 5,214 23,654 
Net (loss) income$(5,334)$38,031 $29,450 $76,830 
Net (loss) income per share - basic$(0.14)$0.98 $0.76 $1.99 
Net (loss) income per share - diluted$(0.14)$0.97 $0.75 $1.97 
Weighted average common shares outstanding for basic computation38,781 38,649 38,751 38,630 
Dilutive effect of potential common shares 398 414 370 
Weighted average common shares outstanding for diluted computation38,781 39,047 39,165 39,000 
See notes to condensed consolidated financial statements.

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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
Three Months EndedSix Months Ended
December 31,December 31,
2020201920202019
Net (loss) income per the condensed statements of consolidated income$(5,334)$38,031 $29,450 $76,830 
Other comprehensive income, before tax:
Foreign currency translation adjustments14,471 5,445 20,025 1,411 
Post-employment benefits:
Reclassification of net actuarial losses (gains) and prior service cost into other income, net and included in net periodic pension costs67 (16)135 (33)
  Unrealized (loss) gain on cash flow hedge(2,724)1,822 (2,741)(358)
  Reclassification of interest from cash flow hedge into interest expense2,822 906 5,512 1,333 
Total other comprehensive income, before tax14,636 8,157 22,931 2,353 
Income tax expense related to items of other comprehensive income79 584 865 27 
Other comprehensive income, net of tax14,557 7,573 22,066 2,326 
Comprehensive income, net of tax$9,223 $45,604 $51,516 $79,156 
See notes to condensed consolidated financial statements.

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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
December 31,
2020
June 30,
2020
ASSETS
Current assets
Cash and cash equivalents$288,775 $268,551 
Accounts receivable, net444,200 449,998 
Inventories363,757 389,150 
Other current assets54,864 52,070 
Total current assets1,151,596 1,159,769 
Property, less accumulated depreciation of $198,572 and $192,054
120,530 121,901 
Operating lease assets, net86,977 90,636 
Identifiable intangibles, net294,581 343,215 
Goodwill557,257 540,594 
Other assets30,076 27,436 
TOTAL ASSETS$2,241,017 $2,283,551 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable$196,468 $186,270 
Current portion of long-term debt78,638 78,646 
Compensation and related benefits67,253 61,887 
Other current liabilities83,508 99,280 
Total current liabilities425,867 426,083 
Long-term debt783,076 855,143 
Other liabilities151,367 158,783 
TOTAL LIABILITIES1,360,310 1,440,009 
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 capital175,016 176,492 
Retained earnings1,217,582 1,200,570 
Treasury shares—at cost (15,382 and 15,503 shares, respectively)
(414,527)(414,090)
Accumulated other comprehensive loss(107,364)(129,430)
TOTAL SHAREHOLDERS’ EQUITY880,707 843,542 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$2,241,017 $2,283,551 
See notes to condensed consolidated financial statements.

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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
December 31,
20202019
Cash Flows from Operating Activities
Net income$29,450 $76,830 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property10,561 10,617 
Amortization of intangibles18,002 20,569 
Intangible and other impairment49,528  
Amortization of stock options and appreciation rights1,328 1,494 
Other share-based compensation expense2,167 1,837 
Changes in operating assets and liabilities, net of acquisitions52,005 (11,660)
Other, net(3,685)5,212 
Net Cash provided by Operating Activities159,356 104,899 
Cash Flows from Investing Activities
Acquisition of businesses, net of cash acquired(31,078)(36,390)
Capital expenditures(8,449)(11,965)
Proceeds from property sales292 325 
Net Cash used in Investing Activities(39,235)(48,030)
Cash Flows from Financing Activities
Long-term debt borrowings 25,000 
Long-term debt repayments(72,260)(34,868)
Interest rate swap settlement payments(549) 
Payment of debt issuance costs (16)
Dividends paid(24,899)(24,002)
Acquisition holdback payments(1,138)(777)
Exercise of stock options and appreciation rights163 330 
Taxes paid for shares withheld for equity awards(5,571)(1,988)
Net Cash used in Financing Activities(104,254)(36,321)
Effect of Exchange Rate Changes on Cash4,357 (618)
Increase in Cash and Cash Equivalents20,224 19,930 
Cash and Cash Equivalents at Beginning of Period268,551 108,219 
Cash and Cash Equivalents at End of Period$288,775 $128,149 
See notes to condensed consolidated financial statements.

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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
For the Period Ended
December 31, 2020
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, 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 
Other15 (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 





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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
For the Period Ended
December 31, 2019
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, 201938,597 $10,000 $172,931 $1,229,148 $(415,159)$(99,886)$897,034 
Net income38,799 38,799 
Other comprehensive loss(5,247)(5,247)
Cumulative effect of adopting accounting standards(3,275)(3,275)
Cash dividends — $0.31 per share
(20)(20)
Treasury shares issued for:
Exercise of stock appreciation rights and options5 (177)61 (116)
Performance share awards36 (1,540)362 (1,178)
Restricted stock units16 (631)200 (431)
Compensation expense — stock appreciation rights and options773 773 
Other share-based compensation expense919 919 
Other2 (52)(4)23 (33)
Balance at September 30, 201938,656 $10,000 $172,223 $1,264,648 $(414,513)$(105,133)$927,225 
Net income38,031 38,031 
Other comprehensive income7,573 7,573 
Cash dividends — $0.31 per share
(12,017)(12,017)
Treasury shares issued for:
Exercise of stock appreciation rights and options22 (185)(47)(232)
Compensation expense — stock appreciation rights and options721 721 
Other share-based compensation expense918 918 
Other23 (1)22 
Balance at December 31, 201938,678 $10,000 $173,677 $1,290,685 $(414,561)$(97,560)$962,241 
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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 December 31, 2020, and the results of its operations and its cash flows for the six month periods ended December 31, 2020 and 2019, have been included. The condensed consolidated balance sheet as of June 30, 2020 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, 2020.
Operating results for the six month period ended December 31, 2020 are not necessarily indicative of the results that may be expected for the remainder of the fiscal year ending June 30, 2021.
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.
Recently Adopted Accounting Guidance
Accounting for current expected credit losses
In June 2016, the FASB issued its final standard on measurement of credit losses on financial instruments. This standard, issued as ASU 2016-13, requires that an entity measure impairment of certain financial instruments, including trade receivables, based on expected losses rather than incurred losses. This update is effective for annual and interim financial statement periods beginning after December 15, 2019, with early adoption permitted for financial statement periods beginning after December 15, 2018. In November 2018, April 2019, May 2019, November 2019, and February 2020, the FASB issued ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11 and ASU 2020-02, respectively, which clarify the guidance in ASU 2016-13. The Company adopted the new guidance in the first quarter of fiscal 2021. The adoption of this guidance did not have a material impact on the Company's financial statements or related disclosures.
Recently Issued Accounting Guidance
In December 2019, the FASB issued its final standard on simplifying the accounting for income taxes. This standard, issued as ASU 2019-12, makes a number of changes meant to add or clarify guidance on accounting for income taxes. This update is effective for annual and interim financial statement periods beginning after December 15, 2020, with early adoption permitted in any interim period for which financial statements have not yet been filed. The Company has not yet determined the impact of this pronouncement on its financial statements and related disclosures.

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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
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 six months ended December 31, 2020 and 2019. Other countries consist of Mexico, Australia, New Zealand, and Singapore.
Three Months Ended December 31,
20202019
Service Center Based DistributionFluid Power & Flow ControlTotalService Center Based DistributionFluid Power & Flow ControlTotal
Geographic Areas:
United States$417,456 $230,358 $647,814 $467,191 $253,149 $720,340 
Canada57,809  57,809 67,897  67,897 
Other countries40,425 5,239 45,664 40,700 4,438 45,138 
Total$515,690 $235,597 $751,287 $575,788 $257,587 $833,375 

Six Months Ended December 31,
20202019
Service Center Based DistributionFluid Power & Flow ControlTotalService Center Based DistributionFluid Power & Flow ControlTotal
Geographic Areas:
United States$832,698 $459,173 $1,291,871 $960,064 $503,262 $1,463,326 
Canada114,705  114,705 133,843  133,843 
Other countries81,571 10,947 92,518 85,041 7,569 92,610 
Total$1,028,974 $470,120 $1,499,094 $1,178,948 $510,831 $1,689,779 

The following tables present the Company’s percentage of revenue by reportable segment and major customer industry for the three and six months ended December 31, 2020 and 2019:
Three Months Ended December 31,
 20202019
Service Center Based DistributionFluid Power & Flow ControlTotalService Center Based DistributionFluid Power & Flow ControlTotal
General Industry35.8 %39.8 %37.1 %34.4 %41.0 %36.4 %
Industrial Machinery9.3 %26.3 %14.6 %9.1 %24.2 %13.8 %
Food14.1 %3.0 %10.6 %12.0 %3.0 %9.2 %
Metals10.5 %6.6 %9.3 %10.7 %7.6 %9.8 %
Forest Products10.8 %3.1 %8.4 %9.5 %2.9 %7.5 %
Chem/Petrochem3.3 %14.5 %6.8 %3.6 %14.4 %6.9 %
Cement & Aggregate7.6 %1.0 %5.5 %7.8 %1.0 %5.7 %
Transportation4.9 %4.6 %4.8 %4.8 %4.1 %4.6 %
Oil & Gas3.7 %1.1 %2.9 %8.1 %1.8 %6.1 %
Total100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %
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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
Six Months Ended December 31,
 20202019
Service Center Based DistributionFluid Power & Flow ControlTotalService Center Based DistributionFluid Power & Flow ControlTotal
General Industry36.0 %39.6 %37.1 %34.6 %42.4 %37.0 %
Industrial Machinery9.3 %26.5 %14.7 %9.7 %23.2 %13.8 %
Food14.1 %3.0 %10.6 %11.5 %2.8 %8.9 %
Metals10.3 %6.8 %9.2 %11.5 %7.9 %10.4 %
Forest Products10.8 %3.0 %8.4 %8.6 %3.0 %6.9 %
Chem/Petrochem3.4 %13.9 %6.7 %3.2 %13.5 %6.3 %
Cement & Aggregate7.7 %1.1 %5.6 %7.3 %1.0 %5.4 %
Transportation4.8 %5.0 %4.8 %4.9 %4.3 %4.7 %
Oil & Gas3.6 %1.1 %2.9 %8.7 %1.9 %6.6 %
Total100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %
The following tables present the Company’s percentage of revenue by reportable segment and product line for the three and six months ended December 31, 2020 and 2019:
Three Months Ended December 31, 2020
 20202019
Service Center Based DistributionFluid Power & Flow ControlTotalService Center Based DistributionFluid Power & Flow ControlTotal
Power Transmission37.3 %8.0 %28.1 %35.4 %11.8 %28.1 %
Fluid Power13.3 %37.1 %20.8 %13.4 %35.8 %20.3 %
Bearings, Linear & Seals28.9 %0.5 %20.0 %26.2 %0.4 %18.2 %
General Maintenance; Hose Products20.5 %15.4 %18.9 %25.0 %13.3 %21.4 %
Specialty Flow Control %39.0 %12.2 % %38.7 %12.0 %
Total100 %100 %100 %100 %100 %100 %
Six Months Ended December 31,
 20202019
Service Center Based DistributionFluid Power & Flow ControlTotalService Center Based DistributionFluid Power & Flow ControlTotal
Power Transmission37.5 %7.8 %28.2 %34.9 %10.5 %27.6 %
Fluid Power13.2 %38.1 %21.0 %13.4 %37.5 %20.7 %
Bearings, Linear & Seals28.9 %0.4 %20.0 %26.0 %0.3 %18.3 %
General Maintenance; Hose Products20.4 %14.7 %18.6 %25.7 %10.7 %21.0 %
Specialty Flow Control %39.0 %12.2 % %41.0 %12.4 %
Total100 %100 %100 %100 %100 %100 %