Applied Industrial Technologies Inc 10-Q for FY2021 Q1

Applied Industrial Technologies Inc (AIT)

10-Q 2020-10-29 For: 2020-09-30

Added on April 10, 2026

About this 10-Q

Applied Industrial Technologies Inc filed this 10-Q on October 29, 2020, covering the quarter ended September 30, 2020 (FY2021 Q1).

Headline figures

Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $747.81M; down 12.7% from $856.4M a year earlier
Net income: $34.78M; down 10.3% from net income of $38.8M a year earlier
Diluted EPS: $0.89; down 11.0% from $1.00 a year earlier

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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)


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, without par value	AIT	New York Stock Exchange


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


	Three Months Ended
	September 30,
	2020		2019
Net sales	$	747,807	$	856,404
Cost of sales	532,026		604,944
Gross profit	215,781		251,460
Selling, distribution and administrative expense, including depreciation	163,473		190,294

Operating income	52,308		61,166
Interest expense, net	7,653		10,059
Other income, net	(177)		—
Income before income taxes	44,832		51,107
Income tax expense	10,048		12,308
Net income	$	34,784	$	38,799
Net income per share - basic	$	0.90	$	1.00
Net income per share - diluted	$	0.89	$	1.00
Weighted average common shares outstanding for basic computation	38,722		38,611
Dilutive effect of potential common shares	366		350
Weighted average common shares outstanding for diluted computation	39,088		38,961


	Three Months Ended
	September 30,
	2020		2019
Net income per the condensed statements of consolidated income	$	34,784	$	38,799

Other comprehensive income (loss), before tax:
Foreign currency translation adjustments	5,554		(4,034)
Post-employment benefits:
Reclassification of net actuarial losses (gains) and prior service cost into other income, net and included in net periodic pension costs	68		(17)


Unrealized loss on cash flow hedge	(17)		(2,180)
Reclassification of interest from cash flow hedge into interest expense	2,690		427
Total other comprehensive income ( loss), before tax	8,295		(5,804)
Income tax expense (benefit) related to items of other comprehensive loss	786		(557)
Other comprehensive income (loss), net of tax	7,509		(5,247)
Comprehensive income, net of tax	$	42,293	$	33,552


☒			QUARTERLY 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


	September 30, 2020		June 30, 2020
ASSETS
Current assets
Cash and cash equivalents	$	271,060	$	268,551
Accounts receivable, net	447,032		449,998
Inventories	365,355		389,150
Other current assets	52,887		52,070
Total current assets	1,136,334		1,159,769
Property, less accumulated depreciation of $197,143 and $192,054	120,285		121,901
Operating lease assets, net	89,622		90,636
Identifiable intangibles, net	333,613		343,215
Goodwill	541,357		540,594
Other assets	28,042		27,436
TOTAL ASSETS	$	2,249,253	$	2,283,551

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	181,627	$	186,270
Current portion of long-term debt	78,651		78,646
Compensation and related benefits	65,168		61,887
Other current liabilities	88,605		99,280
Total current liabilities	414,051		426,083
Long-term debt	792,827		855,143
Other liabilities	156,969		158,783
TOTAL LIABILITIES	1,363,847		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 capital	176,007		176,492
Retained earnings	1,235,351		1,200,570
Treasury shares—at cost (15,453 and 15,503 shares, respectively)	(414,031)		(414,090)
Accumulated other comprehensive loss	(121,921)		(129,430)
TOTAL SHAREHOLDERS’ EQUITY	885,406		843,542
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,249,253	$	2,283,551


For the Period Ended September 30, 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, 2020	38,710	$	10,000	$	176,492	$	1,200,570	$	(414,090)	$	(129,430)	$	843,542
Net income						34,784						34,784
Other comprehensive income										7,509		7,509

Cash dividends — $0.32 per share						(18)						(18)

Treasury shares issued for:
Exercise of stock appreciation rights and options	13			(277)				12				(265)
Performance share awards	22			(985)				(20)				(1,005)
Restricted stock units	15			(593)				96				(497)
Compensation expense — stock appreciation rights and options				693								693
Other share-based compensation expense				677								677
Other						15		(29)				(14)
Balance at September 30, 2020	38,760	$	10,000	$	176,007	$	1,235,351	$	(414,031)	$	(121,921)	$	885,406


For the Period Ended September 30, 2019	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, 2019	38,597	$	10,000	$	172,931	$	1,229,148	$	(415,159)	$	(99,886)	$	897,034
Net income						38,799						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 options	5			(177)				61				(116)
Performance share awards	36			(1,540)				362				(1,178)
Restricted stock units	16			(631)				200				(431)
Compensation expense — stock appreciation rights and options				773								773
Other share-based compensation expense				919								919
Other	2			(52)		(4)		23				(33)
Balance at September 30, 2019	38,656	$	10,000	$	172,223	$	1,264,648	$	(414,513)	$	(105,133)	$	927,225


	Three Months Ended September 30,
	2020						2019
	Service Center Based Distribution		Fluid Power & Flow Control		Total		Service Center Based Distribution		Fluid Power & Flow Control		Total
Geographic Areas:
United States	$	415,242	$	228,815	$	644,057	$	492,873	$	250,113	$	742,986
Canada	56,896		—		56,896		65,946		—		65,946
Other countries	41,146		5,708		46,854		44,341		3,131		47,472
Total	$	513,284	$	234,523	$	747,807	$	603,160	$	253,244	$	856,404


	September 30, 2020		June 30, 2020		$ Change		% Change
Contract assets	$	9,536	$	8,435	$	1,101	13.1	%


September 30, 2020	Amount		Accumulated Amortization		Net Book Value
Finite-Lived Identifiable Intangibles:
Customer relationships	$	426,471	$	170,805	$	255,666
Trade names	111,488		36,794		74,694
Vendor relationships	11,376		9,170		2,206
Other	2,078		1,031		1,047
Total Identifiable Intangibles	$	551,413	$	217,800	$	333,613


	September 30, 2020		June 30, 2020
Term Loan	$	579,500	$	589,250
Trade receivable securitization facility	162,300		175,000
Series C notes	80,000		120,000
Series D notes	25,000		25,000
Series E notes	25,000		25,000
Other	1,026		1,026
Total debt	$	872,826	$	935,276
Less: unamortized debt issuance costs	1,348		1,487
	$	871,478	$	933,789


	Three Months Ended September 30, 2020
	Foreign currency translation adjustment		Post-employment benefits		Cash flow hedge		Total Accumulated other comprehensive (loss) income
Balance at June 30, 2020	$	(105,094)	$	(4,564)	$	(19,772)	$	(129,430)
Other comprehensive income (loss)	5,439		—		(13)		5,426
Amounts reclassified from accumulated other comprehensive (loss) income	—		51		2,032		2,083

Net current-period other comprehensive income	5,439		51		2,019		7,509
Balance at September 30 2020	$	(99,655)	$	(4,513)	$	(17,753)	$	(121,921)


	Three Months Ended
	September 30,
	2020		2019
Cash Flows from Operating Activities
Net income	$	34,784	$	38,799
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property	5,352		5,223
Amortization of intangibles	9,726		10,374


Amortization of stock options and appreciation rights	693		773

Other share-based compensation expense	677		919
Changes in operating assets and liabilities, net of acquisitions	24,559		(8,682)
Other, net	6,051		2,612
Net Cash provided by Operating Activities	81,842		50,018
Cash Flows from Investing Activities
Acquisition of businesses, net of cash acquired	—		(35,703)
Property purchases	(3,597)		(4,946)
Proceeds from property sales	193		88

Net Cash used in Investing Activities	(3,404)		(40,561)
Cash Flows from Financing Activities


Long-term debt repayments	(62,450)		(4,934)


Dividends paid	(12,415)		(11,985)
Acquisition holdback payments	(521)		(201)

Taxes paid for shares withheld for equity awards	(1,797)		(1,754)
Net Cash used in Financing Activities	(77,183)		(18,874)
Effect of Exchange Rate Changes on Cash	1,254		(598)
Increase (decrease) in Cash and Cash Equivalents	2,509		(10,015)
Cash and Cash Equivalents at Beginning of Period	268,551		108,219
Cash and Cash Equivalents at End of Period	$	271,060	$	98,204


	Three Months Ended September 30,
	2020						2019
	Service Center Based Distribution		Fluid Power & Flow Control		Total		Service Center Based Distribution		Fluid Power & Flow Control		Total
General Industry	36.0	%	39.4	%	37.0	%	34.8	%	43.7	%	37.5	%
Industrial Machinery	9.4	%	26.7	%	14.9	%	10.2	%	22.1	%	13.7	%
Food	14.1	%	3.0	%	10.7	%	11.1	%	2.7	%	8.6	%
Metals	10.2	%	7.0	%	9.2	%	12.4	%	8.2	%	11.1	%
Forest Products	10.8	%	2.9	%	8.3	%	7.7	%	3.1	%	6.4	%
Chem/Petrochem	3.5	%	13.3	%	6.6	%	2.8	%	12.7	%	5.7	%
Cement & Aggregate	7.7	%	1.1	%	5.6	%	6.8	%	1.0	%	5.1	%
Transportation	4.7	%	5.4	%	4.9	%	4.9	%	4.6	%	4.8	%
Oil & Gas	3.6	%	1.2	%	2.8	%	9.3	%	1.9	%	7.1	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%


	Three Months Ended September 30,
	2020						2019
	Service Center Based Distribution		Fluid Power & Flow Control		Total		Service Center Based Distribution		Fluid Power & Flow Control		Total
Power Transmission	37.7	%	7.6	%	28.3	%	34.5	%	9.3	%	27.1	%
Fluid Power	13.1	%	39.1	%	21.3	%	13.3	%	39.7	%	21.1	%
Bearings, Linear & Seals	29.0	%	0.4	%	20.0	%	25.9	%	0.3	%	18.3	%
General Maintenance; Hose Products	20.2	%	13.8	%	18.1	%	26.3	%	8.0	%	20.9	%
Specialty Flow Control	—	%	39.1	%	12.3	%	—	%	42.7	%	12.6	%
Total	100	%	100	%	100	%	100	%	100	%	100	%


Three Months Ended	Service Center Based Distribution		Fluid Power & Flow Control		Total
September 30, 2020
Net sales	$	513,284	$	234,523	$	747,807
Operating income for reportable segments	49,901		25,861		75,762
Assets used in business	1,283,031		966,222		2,249,253
Depreciation and amortization of property	4,395		957		5,352
Capital expenditures	3,088		509		3,597

September 30, 2019
Net sales	$	603,160	$	253,244	$	856,404
Operating income for reportable segments	60,360		26,857		87,217
Assets used in business	1,289,592		1,140,140		2,429,732
Depreciation and amortization of property	4,178		1,045		5,223
Capital expenditures	4,195		751		4,946


	Three Months Ended September 30, 2019
	Foreign currency translation adjustment		Post-employment benefits		Cash flow hedge		Total Accumulated other comprehensive (loss) income
Balance at June 30, 2019	$	(86,330)	$	(2,852)	$	(10,704)	$	(99,886)
Other comprehensive loss	(3,913)		—		(1,643)		(5,556)
Amounts reclassified from accumulated other comprehensive (loss) income	—		(13)		322		309
Net current-period other comprehensive loss	(3,913)		(13)		(1,321)		(5,247)
Balance at September 30, 2019	$	(90,243)	$	(2,865)	$	(12,025)	$	(105,133)


	Index Reading
Month	MCU	PMI	IP
September 2020	71.5	55.4	98.3
August 2020	72.0	56.0	98.5
July 2020	71.6	54.2	97.4


	Three Months Ended September 30,				Change in $'s Versus Prior Period - % Decrease
	As a Percent of Net Sales
	2020		2019
Net sales	100.0	%	100.0	%	(12.7)	%
Gross profit	28.9	%	29.4	%	(14.2)	%
Selling, distribution & administrative expense	21.9	%	22.2	%	(14.1)	%
Operating income	7.0	%	7.1	%	(14.5)	%
Net income	4.7	%	4.5	%	(10.3)	%


Sales by Reportable Segment	Three Months Ended September 30,				Sales Decrease		Amount of change due to
	Three Months Ended September 30,								Foreign Currency		Organic Change
	2020		2019				Acquisitions		Foreign Currency		Organic Change
Service Center Based Distribution	$	513.3	$	603.2	$	(89.9)	$	—	$	(3.1)	$	(86.8)
Fluid Power & Flow Control	234.5		253.2		(18.7)		9.7		—		(28.4)
Total	$	747.8	$	856.4	$	(108.6)	$	9.7	$	(3.1)	$	(115.2)


	Three Months Ended September 30,				SD&A Decrease		Amount of change due to
	Three Months Ended September 30,								Foreign Currency		Organic Change
	2020		2019				Acquisitions		Foreign Currency		Organic Change
SD&A	$	163.5	$	190.3	$	(26.8)	$	2.2	$	(0.4)	$	(28.6)


	Three Months Ended September 30,
Net Cash Provided by (Used in):	2020		2019
Operating Activities	$	81,842	$	50,018
Investing Activities	(3,404)		(40,561)
Financing Activities	(77,183)		(18,874)
Exchange Rate Effect	1,254		(598)
Increase in Cash and Cash Equivalents	$	2,509	$	(10,015)


	September 30, 2020		June 30, 2020
Unsecured credit facility	$	579,500	$	589,250
Trade receivable securitization facility	162,300		175,000
Series C notes	80,000		120,000
Series D notes	25,000		25,000
Series E notes	25,000		25,000
Other	1,026		1,026
Total debt	$	872,826	$	935,276
Less: unamortized debt issuance costs	1,348		1,487
	$	871,478	$	933,789


	September 30,			June 30,
	2020			2020
Accounts receivable, gross	$	463,540		$	463,659
Allowance for doubtful accounts	16,508			13,661
Accounts receivable, net	$	447,032		$	449,998
Allowance for doubtful accounts, % of gross receivables	3.6		%	2.9		%

	Three Months Ended September 30,
	2020			2019
Provision for losses on accounts receivable	$	5,098		$	2,175
Provision as a % of net sales	0.68		%	0.25		%


Period	(a) Total Number of Shares	(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 (1)
July 1, 2020 to July 31, 2020	502	$59.73	0	864,618
August 1, 2020 to August 31, 2020	0	$0.00	0	864,618
September 1, 2020 to September 30, 2020	0	$0.00	0	864,618
Total	0	$0.00	0	864,618


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 the Company’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 the Company’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) (now named Applied Industrial Technologies, Inc.) 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 the Company’s Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference).

4.2						Amended and Restated Note Purchase and Private Shelf Agreement dated as of October 30, 2019, between Applied and PGIM, Inc. (formerly known as Prudential Investment Management, Inc.), and certain of its affiliates (filed as Exhibit 10.1 to the Company's Form 8-K filed November 5, 2019, SEC File No. 1-2299, and incorporated here by reference).

4.3						Request for Purchase dated May 30, 2014 and 3.19% Series C Notes dated July 1, 2014, under Amended and Restated Note Purchase and Private Shelf Agreement, between Applied Industrial Technologies, Inc. and PGIM, Inc. (filed as Exhibit 10.1 to the Company's Form 8-K filed July 2, 2014, SEC File No. 1-2299, and incorporated here by reference).

4.4						Credit Agreement dated as of January 31, 2018, among Applied Industrial Technologies, Inc., KeyBank National Association as Agent, and various financial institutions (filed as Exhibit 10.1 to the Company's Form 8-K filed February 6, 2018, SEC File No. 1-2299, and incorporated here by reference).

4.5						Receivables Financing Agreement dated as of August 31, 2018 among AIT Receivables LLC, as borrower, PNC Bank, National Association, as administrative agent, Applied Industrial Technologies, Inc., as initial servicer, PNC Capital Markets LLC, as structuring agent and the additional persons from time to time party thereto, as lenders (filed as Exhibit 10.1 to the Company's Form 8-K filed September 6, 2018, SEC File No. 1-2299, and incorporated here by reference).

10.1						Management Incentive Plan General Terms

10.2						Performance Shares Terms and Conditions

10.3						R estricted Stock Units Terms and Condit ions

10.4						Stock Appreciation Rights Award Terms and Conditions

10.5						First Amendment to Supplemental Defined Contribution Plan (Post - 2004 Terms )

31						Rule 13a-14(a)/15d-14(a) certifications

32						Section 1350 certifications


101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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


		APPLIED INDUSTRIAL TECHNOLOGIES, INC.
		(Company)

Date:	October 29, 2020	By: /s/ Neil A. Schrimsher
		Neil A. Schrimsher
		President & Chief Executive Officer


Date:	October 29, 2020	By: /s/ David K. Wells
		David K. Wells
		Vice President-Chief Financial Officer & Treasurer