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,~~SEPTEMBER 30, 2022


☐			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)

(216) 426-4000

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


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

Table of Contents


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~~38,571,962 (no par value) shares of common stock outstanding on ~~April 15,~~October 21, 2022.

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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

INDEX

Page
No.

Part I:

FINANCIAL INFORMATION

Item 1:

Financial Statements

Condensed Statements of Consolidated Income - Three ~~and~~ ~~Nine~~Months Ended ~~March~~ ~~31,~~September 30, 202 2 and 20202 211

Condensed Statements of Consolidated Comprehensive Income - Three ~~and~~ ~~Nine~~Months Ended ~~March~~ ~~31,~~September 30, 202 2 and 20202 211

Condensed Consolidated Balance Sheets - ~~March~~ ~~31,~~September 30, 202 2 and June 30, ~~2021~~202 2

Condensed Statements of Consolidated Cash Flows - ~~Nine~~Three Months Ended ~~March~~ ~~31,~~September 30, 202 2 and 20202 211

Condensed Statements of Shareholders' Equity - Three ~~and~~ ~~Nine~~Months Ended ~~March~~ ~~31,~~September 30, 202 2 and 20202 211

Notes to Condensed Consolidated Financial Statements

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2016

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

3023

Item 4:

Controls and Procedures

Part II:

Item 1:

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

3225

Item 4:

Mine Safety Disclosures

Item 6:

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 Ended				Nine Months Ended					Three Months Ended
		March 31,				March 31,					September 30,
		2022		2021		2022		2021			2022		2021
Net sales	Net sales	$	980,662	$	840,937	$	2,749,217	$	2,340,031	Net sales	$	1,062,405	$	891,681
Cost of sales	Cost of sales	693,338		593,712		1,948,928		1,667,491		Cost of sales	755,622		636,341
Gross profit	Gross profit	287,324		247,225		800,289		672,540		Gross profit	306,783		255,340
Selling, distribution and administrative expense, including depreciation	Selling, distribution and administrative expense, including depreciation	191,481		172,758		551,655		498,659		Selling, distribution and administrative expense, including depreciation	200,251		180,726
Impairment expense		—		—		—		49,528

Operating income	Operating income	95,843		74,467		248,634		124,353		Operating income	106,532		74,614
Interest expense, net	Interest expense, net	5,852		7,608		20,249		22,919		Interest expense, net	6,480		7,390
Other expense (income), net	Other expense (income), net	469		(1,657)		(712)		(1,746)		Other expense (income), net	1,008		(312)
Income before income taxes	Income before income taxes	89,522		68,516		229,097		103,180		Income before income taxes	99,044		67,536
Income tax expense	Income tax expense	21,216		12,453		50,796		17,667		Income tax expense	22,164		14,567
Net income	Net income	$	68,306	$	56,063	$	178,301	$	85,513	Net income	$	76,880	$	52,969
Net income per share - basic	Net income per share - basic	$	1.78	$	1.44	$	4.63	$	2.21	Net income per share - basic	$	2.00	$	1.38
Net income per share - diluted	Net income per share - diluted	$	1.75	$	1.42	$	4.56	$	2.18	Net income per share - diluted	$	1.97	$	1.36
Weighted average common shares outstanding for basic computation	Weighted average common shares outstanding for basic computation	38,453		38,835		38,470		38,779		Weighted average common shares outstanding for basic computation	38,526		38,502
Dilutive effect of potential common shares	Dilutive effect of potential common shares	645		577		632		482		Dilutive effect of potential common shares	585		582
Weighted average common shares outstanding for diluted computation	Weighted average common shares outstanding for diluted computation	39,098		39,412		39,102		39,261		Weighted average common shares outstanding for diluted computation	39,111		39,084

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 Ended				Nine Months Ended					Three Months Ended
		March 31,				March 31,					September 30,
		2022		2021		2022		2021			2022		2021
Net income per the condensed statements of consolidated income	Net income per the condensed statements of consolidated income	$	68,306	$	56,063	$	178,301	$	85,513	Net income per the condensed statements of consolidated income	$	76,880	$	52,969

Other comprehensive income, before tax:
Other comprehensive income (loss), before tax:										Other comprehensive income (loss), before tax:
Foreign currency translation adjustments	Foreign currency translation adjustments	6,782		(496)		(1,183)		19,529		Foreign currency translation adjustments	(11,437)		(7,182)
Post-employment benefits:	Post-employment benefits:									Post-employment benefits:
Reclassification of net actuarial losses and prior service cost into other expense (income), net and included in net periodic pension costs	Reclassification of net actuarial losses and prior service cost into other expense (income), net and included in net periodic pension costs	74		68		224		203		Reclassification of net actuarial losses and prior service cost into other expense (income), net and included in net periodic pension costs	8		75

Unrealized gain on cash flow hedge	Unrealized gain on cash flow hedge	17,738		8,758		23,201		6,017		Unrealized gain on cash flow hedge	12,310		596
Reclassification of interest from cash flow hedge into interest expense	Reclassification of interest from cash flow hedge into interest expense	2,462		2,992		7,632		8,504		Reclassification of interest from cash flow hedge into interest expense	796		2,585
Total other comprehensive income, before tax		27,056		11,322		29,874		34,253
Income tax expense related to items of other comprehensive income		4,977		2,829		7,638		3,694
Other comprehensive income, net of tax		22,079		8,493		22,236		30,559
Total other comprehensive income (loss), before tax										Total other comprehensive income (loss), before tax	1,677		(3,926)
Income tax expense related to items of other comprehensive income (loss)										Income tax expense related to items of other comprehensive income (loss)	3,312		805
Other comprehensive loss, net of tax										Other comprehensive loss, net of tax	(1,635)		(4,731)
Comprehensive income, net of tax	Comprehensive income, net of tax	$	90,385	$	64,556	$	200,537	$	116,072	Comprehensive income, net of tax	$	75,245	$	48,238

See notes to condensed consolidated financial statements.

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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)


		March 31, 2022		June 30, 2021			September 30, 2022		June 30, 2022
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	188,084	$	257,745	Cash and cash equivalents	$	147,575	$	184,474
Accounts receivable, net	Accounts receivable, net	618,079		516,322		Accounts receivable, net	674,136		656,429
Inventories	Inventories	425,373		362,547		Inventories	490,099		449,821
Other current assets	Other current assets	63,504		59,961		Other current assets	78,686		68,805
Total current assets	Total current assets	1,295,040		1,196,575		Total current assets	1,390,496		1,359,529
Property, less accumulated depreciation of $212,463 and $204,326		111,166		115,589
Property, less accumulated depreciation of $218,280 and $215,015						Property, less accumulated depreciation of $218,280 and $215,015	110,539		111,896
Operating lease assets, net	Operating lease assets, net	95,049		87,111		Operating lease assets, net	103,037		108,052
Identifiable intangibles, net	Identifiable intangibles, net	258,501		279,628		Identifiable intangibles, net	242,741		250,590
Goodwill	Goodwill	563,751		560,077		Goodwill	561,477		563,205
Other assets	Other assets	60,064		32,827		Other assets	65,884		59,316
TOTAL ASSETS	TOTAL ASSETS	$	2,383,571	$	2,271,807	TOTAL ASSETS	$	2,474,174	$	2,452,588

LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	247,639	$	208,162	Accounts payable	$	277,224	$	259,463
Current portion of long-term debt	Current portion of long-term debt	40,166		43,525		Current portion of long-term debt	181		40,174
Compensation and related benefits	Compensation and related benefits	81,518		77,657		Compensation and related benefits	61,230		91,166
Other current liabilities	Other current liabilities	95,033		98,356		Other current liabilities	112,628		108,824
Total current liabilities	Total current liabilities	464,356		427,700		Total current liabilities	451,263		499,627
Long-term debt	Long-term debt	681,197		784,855		Long-term debt	649,103		649,150
Other liabilities	Other liabilities	139,624		126,706		Other liabilities	152,368		154,456
TOTAL LIABILITIES	TOTAL LIABILITIES	1,285,177		1,339,261		TOTAL LIABILITIES	1,252,734		1,303,233
Shareholders’ equity	Shareholders’ equity					Shareholders’ equity
Preferred stock—no par value; 2,500 shares authorized; none issued or outstanding	Preferred stock—no par value; 2,500 shares authorized; none issued or outstanding	—		—		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	Common stock—no par value; 80,000 shares authorized; 54,213 shares issued	10,000		10,000		Common stock—no par value; 80,000 shares authorized; 54,213 shares issued	10,000		10,000
Additional paid-in capital	Additional paid-in capital	183,100		177,014		Additional paid-in capital	183,348		183,822
Retained earnings	Retained earnings	1,446,847		1,294,413		Retained earnings	1,576,551		1,499,676
Treasury shares—at cost (15,769 and 15,697 shares, respectively)		(470,697)		(455,789)
Treasury shares—at cost (15,642 and 15,714 shares, respectively)						Treasury shares—at cost (15,642 and 15,714 shares, respectively)	(474,529)		(471,848)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(70,856)		(93,092)		Accumulated other comprehensive loss	(73,930)		(72,295)
TOTAL SHAREHOLDERS’ EQUITY	TOTAL SHAREHOLDERS’ EQUITY	1,098,394		932,546		TOTAL SHAREHOLDERS’ EQUITY	1,221,440		1,149,355
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,383,571	$	2,271,807	TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,474,174	$	2,452,588

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)


		Nine Months Ended					Three Months Ended
		March 31,					September 30,
		2022		2021			2022		2021
Cash Flows from Operating Activities	Cash Flows from Operating Activities					Cash Flows from Operating Activities
Net income	Net income	$	178,301	$	85,513	Net income	$	76,880	$	52,969
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property	Depreciation and amortization of property	16,215		15,641		Depreciation and amortization of property	5,481		5,427
Amortization of intangibles	Amortization of intangibles	24,096		26,238		Amortization of intangibles	7,705		8,121
Impairment expense		—		49,528
Amortization of stock options and appreciation rights		2,897		1,930
Provision for losses on accounts receivable						Provision for losses on accounts receivable	3,994		798
Amortization of stock appreciation rights and options						Amortization of stock appreciation rights and options	1,424		1,907

Other share-based compensation expense	Other share-based compensation expense	6,064		4,660		Other share-based compensation expense	1,939		1,563
Changes in operating assets and liabilities, net of acquisitions	Changes in operating assets and liabilities, net of acquisitions	(106,136)		33,574		Changes in operating assets and liabilities, net of acquisitions	(72,071)		(20,404)
Other, net	Other, net	12,386		(13,675)		Other, net	591		(1,739)
Net Cash provided by Operating Activities	Net Cash provided by Operating Activities	133,823		203,409		Net Cash provided by Operating Activities	25,943		48,642
Cash Flows from Investing Activities	Cash Flows from Investing Activities					Cash Flows from Investing Activities
Acquisition of businesses, net of cash acquired		(6,974)		(30,023)
Net cash paid for acquisitions, net of cash acquired						Net cash paid for acquisitions, net of cash acquired	—		(7,094)
Cash payments for loans on company-owned life insurance						Cash payments for loans on company-owned life insurance	—		(14,835)
Capital expenditures	Capital expenditures	(11,674)		(12,177)		Capital expenditures	(5,554)		(3,621)
Proceeds from property sales	Proceeds from property sales	494		691		Proceeds from property sales	56		48
Life insurance proceeds		3,159		—
Cash payments for loans on company-owned life insurance		(14,835)		—

Net Cash used in Investing Activities	Net Cash used in Investing Activities	(29,830)		(41,509)		Net Cash used in Investing Activities	(5,498)		(25,502)
Cash Flows from Financing Activities	Cash Flows from Financing Activities					Cash Flows from Financing Activities
Net borrowings under revolving credit facility		442,592		—

Long-term debt repayments	Long-term debt repayments	(550,432)		(82,070)		Long-term debt repayments	(40,061)		(9,811)
Interest rate swap settlement payments		(4,812)		(2,122)
Payment of debt issuance costs		(1,956)		(399)

Purchases of treasury shares	Purchases of treasury shares	(13,604)		—		Purchases of treasury shares	(716)		(6,537)
Interest rate swap settlement receipts (payments)						Interest rate swap settlement receipts (payments)	294		(1,644)
Dividends paid	Dividends paid	(38,612)		(37,772)		Dividends paid	(13,100)		(12,712)
Acquisition holdback payments	Acquisition holdback payments	(2,361)		(2,344)		Acquisition holdback payments	(660)		(135)
Exercise of stock options and appreciation rights		224		163
Exercise of stock appreciation rights and options						Exercise of stock appreciation rights and options	126		—
Taxes paid for shares withheld for equity awards	Taxes paid for shares withheld for equity awards	(4,405)		(5,990)		Taxes paid for shares withheld for equity awards	(1,401)		(1,141)
Net Cash used in Financing Activities	Net Cash used in Financing Activities	(173,366)		(130,534)		Net Cash used in Financing Activities	(55,518)		(31,980)
Effect of Exchange Rate Changes on Cash	Effect of Exchange Rate Changes on Cash	(288)		4,099		Effect of Exchange Rate Changes on Cash	(1,826)		(1,592)
(Decrease) increase in Cash and Cash Equivalents		(69,661)		35,465
Decrease in Cash and Cash Equivalents						Decrease in Cash and Cash Equivalents	(36,899)		(10,432)
Cash and Cash Equivalents at Beginning of Period	Cash and Cash Equivalents at Beginning of Period	257,745		268,551		Cash and Cash Equivalents at Beginning of Period	184,474		257,745
Cash and Cash Equivalents at End of Period	Cash and Cash Equivalents at End of Period	$	188,084	$	304,016	Cash and Cash Equivalents at End of Period	$	147,575	$	247,313

See notes to condensed consolidated financial statements.

Table of Contents

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, 2021 38,516 $ 10,000 $ 177,014 $ 1,294,413 $ (455,789) $ (93,092) $ 932,546
Net income 52,969 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 options 3 (116) 8 (108)
Performance share awards 5 (222) (73) (295)
Restricted stock units 12 (572) (120) (692)
Compensation expense — stock appreciation rights and options 1,907 1,907
Other share-based compensation expense 1,563 1,563
Other (2) (7) (45) (52)
Balance at September 30, 2021 38,457 $ 10,000 $ 179,574 $ 1,347,375 $ (462,556) $ (97,823) $ 976,570
Net income 57,026 57,026
Other comprehensive income 4,888 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 options 35 (1,639) (832) (2,471)
Compensation expense — stock appreciation rights and options 609 609
Other share-based compensation expense 1,705 1,705
Other (4) (1) 13 (364) (352)
Balance at December 31, 2021 38,453 $ 10,000 $ 180,248 $ 1,391,655 $ (467,279) $ (92,935) $ 1,021,689
Net income 68,306 68,306
Other comprehensive income 22,079 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 options 16 (40) (130) (170)
Restricted stock units — (18) (16) (34)
Compensation expense — stock appreciation rights and options 381 381
Other share-based compensation expense 2,796 2,796
Other 10 (267) 17 268 18
Balance at March 31, 2022 38,444 10,000 183,100 1,446,847 (470,697) (70,856) 1,098,394

~~See notes to condensed consolidated financial statements.~~

~~Table of Contents~~

~~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 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
For the Period Ended September 30, 2022															For the Period Ended September 30, 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, 2022															Balance at June 30, 2022	38,499	$	10,000	$	183,822	$	1,499,676	$	(471,848)	$	(72,295)	$	1,149,355
Net income	Net income						34,784						34,784		Net income						76,880						76,880
Other comprehensive income											7,509		7,509
Other comprehensive loss															Other comprehensive loss										(1,635)		(1,635)

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

Cash dividends — $0.34 per share															Cash dividends — $0.34 per share
Purchases of common stock for treasury															Purchases of common stock for treasury	(8)							(716)				(716)
Treasury shares issued for:	Treasury shares issued for:														Treasury shares issued for:
Exercise of stock appreciation rights and options	Exercise of stock appreciation rights and options	13			(277)				12				(265)		Exercise of stock appreciation rights and options	21			(860)				(366)				(1,226)
Performance share awards	Performance share awards	22			(985)				(20)				(1,005)		Performance share awards	23			(1,290)				(758)				(2,048)
Restricted stock units	Restricted stock units	15			(593)				96				(497)		Restricted stock units	33			(1,668)				(902)				(2,570)
Compensation expense — stock appreciation rights and options	Compensation expense — stock appreciation rights and options				693								693		Compensation expense — stock appreciation rights and options				1,424								1,424
Other share-based compensation expense	Other share-based compensation expense				677								677		Other share-based compensation expense				1,939								1,939
Other	Other	—			—		15		(29)				(14)		Other	3			(19)		(5)		61				37
Balance at September 30, 2020		38,760	$	10,000	$	176,007	$	1,235,351	$	(414,031)	$	(121,921)	$	885,406
Net loss							(5,334)						(5,334)
Other comprehensive income											14,557		14,557

Cash dividends — $0.32 per share							(12,483)						(12,483)

Treasury shares issued for:
Exercise of stock appreciation rights and options		71			(3,116)				(496)				(3,612)

Compensation expense — stock appreciation rights and options					635								635
Other share-based compensation expense					1,490								1,490
Other							48		—				48
Balance at December 31, 2020		38,831	$	10,000	$	175,016	$	1,217,582	$	(414,527)	$	(107,364)	$	880,707
Net income							56,063						56,063
Other comprehensive income											8,493		8,493
Cash dividends — $0.33 per share							(12,878)						(12,878)
Treasury shares issued for:
Exercise of stock appreciation rights and options		11			(379)				(40)				(419)
Restricted stock units		4			(147)				(1)				(148)
Compensation expense — stock appreciation rights and options					602								602
Other share-based compensation expense					2,493								2,493
Other		13			(354)		(6)		354				(6)
Balance at March 31, 2021		38,859	$	10,000	$	177,231	$	1,260,761	$	(414,214)	$	(98,871)	$	934,907
Balance at September 30, 2022															Balance at September 30, 2022	38,571	$	10,000	$	183,348	$	1,576,551	$	(474,529)	$	(73,930)	$	1,221,440

~~See notes to condensed consolidated financial statements.~~


For the Period Ended September 30, 2021	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, 2021	38,516	$	10,000	$	177,014	$	1,294,413	$	(455,789)	$	(93,092)	$	932,546
Net income						52,969						52,969
Other comprehensive income										(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 options	3			(116)				8				(108)
Performance share awards	5			(222)				(73)				(295)
Restricted stock units	12			(572)				(120)				(692)
Compensation expense — stock appreciation rights and options				1,907								1,907
Other share-based compensation expense				1,563								1,563
Other	(2)					(7)		(45)				(52)
Balance at September 30, 2021	38,457	$	10,000	$	179,574	$	1,347,375	$	(462,556)	$	(97,823)	$	976,570

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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 ~~March 31,~~September 30, 2022, and the results of its operations and its cash flows for the ~~nine~~three month periods ended ~~March 31,~~September 30, 2022 and 2021, have been included. The condensed consolidated balance sheet as of June 30, ~~2021~~2022 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.~~2022.

Operating results for the ~~nine~~three month period ended ~~March 31,~~September 30, 2022 are not necessarily indicative of the results that may be expected for the remainder of the fiscal year ending June 30, ~~2022.~~2023.

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~~$9,060 and ~~$781~~$3,571 in the three months ended ~~March 31, 2022 and 2021, respectively, and $15,643 and $2,777 in the nine months ended March 31,~~September 30, 2022 and 2021, respectively, is recorded in cost of sales in the condensed statements of consolidated income.

Reportable Segments

The Company has two reportable segments: Service Center Based Distribution and Engineered Solutions (formerly known as Fluid Power & Flow Control). The Company changed the reportable segment name to Engineered Solutions in the first quarter of fiscal 2023. There was no change in the composition of either reportable segment. These reportable segments contain the Company's various operating segments which have been aggregated based upon similar economic and operating characteristics. The Service Center Based Distribution segment operates through local service centers and distribution centers with a focus on providing products and services addressing the maintenance and repair of motion control infrastructure and production equipment. Products primarily include industrial bearings, motors, belting, drives, couplings, pumps, linear motion products, hydraulic and pneumatic components, filtration supplies, and hoses, as well as other related supplies for general operational needs of customers’ machinery and equipment. The Engineered Solutions segment includes our operations that specialize in distributing, engineering, designing, integrating, and repairing hydraulic and pneumatic fluid power technologies, and engineered flow control products and services. This segment also includes our operations that focus on advanced automation solutions including machine vision, robotics, motion control, industrial networking, and smart technologies.

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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 nine~~ months ended ~~March 31,~~September 30, 2022 and 2021. Other countries consist of Mexico, Australia, New Zealand, and Singapore.

Three Months Ended March 31,
2022 2021
Service Center Based Distribution Fluid Power & Flow Control Total Service Center Based Distribution Fluid Power & Flow Control Total
Geographic Areas:
United States $ 541,622 $ 314,626 $ 856,248 $ 461,945 $ 262,672 $ 724,617
Canada 70,493 — 70,493 66,146 — 66,146
Other countries 46,883 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,													Three Months Ended September 30,
		2022						2021							2022						2021
		Service Center Based Distribution		Fluid Power & Flow Control		Total		Service Center Based Distribution		Fluid Power & Flow Control		Total			Service Center Based Distribution		Engineered Solutions		Total		Service Center Based Distribution		Engineered Solutions		Total
Geographic Areas:	Geographic Areas:													Geographic Areas:
United States	United States	$	1,495,198	$	882,025	$	2,377,223	$	1,294,643	$	721,845	$	2,016,488	United States	$	584,880	$	336,609	$	921,489	$	479,164	$	285,044	$	764,208
Canada	Canada	211,322		—		211,322		180,851		—		180,851		Canada	79,770		—		79,770		74,566		—		74,566
Other countries	Other countries	140,567		20,105		160,672		126,372		16,320		142,692		Other countries	53,338		7,808		61,146		47,141		5,766		52,907
Total	Total	$	1,847,087	$	902,130	$	2,749,217	$	1,601,866	$	738,165	$	2,340,031	Total	$	717,988	$	344,417	$	1,062,405	$	600,871	$	290,810	$	891,681

The following tables present the Company’s percentage of revenue by reportable segment and major customer industry for the three months ended September 30, 2022 and 2021:


	Three Months Ended September 30,
	2022						2021
	Service Center Based Distribution		Engineered Solutions		Total		Service Center Based Distribution		Engineered Solutions		Total
General Industry	34.4	%	39.9	%	36.1	%	34.6	%	38.9	%	35.9	%
Industrial Machinery	9.9	%	27.1	%	15.5	%	10.3	%	29.0	%	16.4	%
Metals	11.0	%	7.9	%	10.0	%	11.0	%	7.4	%	9.9	%
Food	12.8	%	2.8	%	9.6	%	12.5	%	2.5	%	9.3	%
Forest Products	11.4	%	2.6	%	8.6	%	10.4	%	2.5	%	7.8	%
Chem/Petrochem	3.0	%	13.8	%	6.5	%	3.4	%	13.8	%	6.8	%
Cement & Aggregate	7.8	%	1.5	%	5.7	%	8.5	%	1.1	%	6.1	%
Oil & Gas	5.7	%	1.3	%	4.3	%	5.2	%	1.2	%	3.9	%
Transportation	4.0	%	3.1	%	3.7	%	4.1	%	3.6	%	3.9	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

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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,
2022 2021
Service Center Based Distribution Fluid Power & Flow Control Total Service Center Based Distribution Fluid Power & Flow Control Total
General Industry 35.2 % 40.5 % 36.8 % 35.1 % 41.1 % 37.0 %
Industrial Machinery 10.6 % 27.9 % 16.3 % 10.1 % 26.7 % 15.4 %
Metals 11.4 % 7.7 % 10.2 % 10.9 % 6.9 % 9.6 %
Food 12.6 % 2.7 % 9.4 % 13.2 % 2.6 % 9.8 %
Forest Products 10.8 % 2.1 % 7.9 % 10.9 % 2.7 % 8.3 %
Chem/Petrochem 2.9 % 13.3 % 6.3 % 3.2 % 13.5 % 6.5 %
Cement & Aggregate 7.1 % 1.1 % 5.2 % 8.1 % 1.1 % 5.9 %
Oil & Gas 5.5 % 1.1 % 4.1 % 3.8 % 1.1 % 2.9 %
Transportation 3.9 % 3.6 % 3.8 % 4.7 % 4.3 % 4.6 %
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Nine Months Ended March 31,
2022 2021
Service Center Based Distribution Fluid Power & Flow Control Total Service Center Based Distribution Fluid Power & Flow Control Total
General Industry 34.8 % 40.1 % 36.5 % 35.6 % 40.1 % 36.9 %
Industrial Machinery 10.5 % 28.6 % 16.4 % 9.6 % 26.6 % 15.0 %
Metals 11.2 % 7.4 % 10.0 % 10.5 % 6.8 % 9.4 %
Food 12.6 % 2.5 % 9.3 % 13.8 % 2.9 % 10.3 %
Forest Products 10.6 % 2.2 % 7.9 % 10.9 % 2.9 % 8.4 %
Chem/Petrochem 3.2 % 13.6 % 6.6 % 3.4 % 13.7 % 6.6 %
Cement & Aggregate 7.6 % 1.1 % 5.4 % 7.8 % 1.1 % 5.7 %
Oil & Gas 5.4 % 1.2 % 4.0 % 3.7 % 1.1 % 2.9 %
Transportation 4.1 % 3.3 % 3.9 % 4.7 % 4.8 % 4.8 %
Total 100.0 % 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 nine~~ months ended ~~March 31,~~September 30, 2022 and 2021:

Three Months Ended March 31,
2022 2021
Service Center Based Distribution Fluid Power & Flow Control Total Service Center Based Distribution Fluid Power & Flow Control Total
Power Transmission 36.3 % 11.5 % 28.2 % 37.2 % 7.7 % 27.8 %
Fluid Power 12.7 % 36.5 % 20.5 % 13.4 % 38.3 % 21.3 %
General Maintenance: Hose Products & Other 21.1 % 18.8 % 20.4 % 20.5 % 18.8 % 20.0 %
Bearings, Linear & Seals 29.9 % 0.5 % 20.2 % 28.9 % 0.2 % 19.7 %
Specialty Flow Control — % 32.7 % 10.7 % — % 35.0 % 11.2 %
Total 100 % 100 % 100 % 100 % 100 % 100 %

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~~APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Amounts in thousands, except per share amounts) (Unaudited)~~

Nine Months Ended March 31,
2022 2021
Service Center Based Distribution Fluid Power & Flow Control Total Service Center Based Distribution Fluid Power & Flow Control Total
Power Transmission 36.8 % 10.7 % 28.3 % 37.4 % 7.8 % 28.0 %
Fluid Power 12.8 % 37.1 % 20.8 % 13.3 % 38.2 % 21.1 %
General Maintenance; Hose Products & Other 21.1 % 19.2 % 20.4 % 20.4 % 16.0 % 19.1 %
Bearings, Linear & Seals 29.3 % 0.5 % 19.8 % 28.9 % 0.4 % 19.9 %
Specialty Flow Control — % 32.5 % 10.7 % — % 37.6 % 11.9 %
Total 100 % 100 % 100 % 100 % 100 % 100 %


	Three Months Ended September 30,
	2022						2021
	Service Center Based Distribution		Engineered Solutions		Total		Service Center Based Distribution		Engineered Solutions		Total
Power Transmission	37.4	%	10.1	%	28.6	%	37.7	%	10.1	%	28.7	%
Fluid Power	12.9	%	35.5	%	20.2	%	12.7	%	37.6	%	20.8	%
General Maintenance, Hose Products & Other	21.6	%	15.3	%	19.5	%	20.6	%	18.8	%	20.0	%
Bearings, Linear & Seals	28.1	%	0.3	%	19.1	%	29.0	%	0.4	%	19.7	%
Specialty Flow Control	—	%	38.8	%	12.6	%	—	%	33.1	%	10.8	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Contract Assets

The Company’s contract assets consist of un-billed amounts resulting from contracts for which revenue is recognized over time using the cost-to-cost method, and for which revenue recognized exceeds the amount billed to the customer.

Activity related to contract assets, which are included in other current assets on the condensed consolidated balance sheet, is as follows:

March 31, 2022 June 30, 2021 $ Change % Change
Contract assets $ 16,400 $ 15,178 $ 1,222 8.1 %


	September 30, 2022		June 30, 2022		$ Change		% Change
Contract assets	$	17,890	$	18,050	$	(160)	(0.9)	%

The difference between the opening and closing balances of the Company's contract assets primarily results from the timing difference between the Company's performance and when the customer is billed.

3. BUSINESS COMBINATIONS

The operating results of all acquired entities are included within the consolidated operating results of the Company from the date of each respective acquisition.

Fiscal 2022 Acquisitions

On August 18, 2021, the Company acquired substantially all of the net assets of R.R. Floody Company (Floody), a Rockford, Illinois provider of high technology solutions for advanced factory automation. Floody is included in the ~~Fluid Power & Flow Control~~Engineered Solutions segment. The purchase price for the acquisition was ~~$8,049,~~$8,038, net tangible assets acquired were ~~$1,504,~~$1,040, and intangible assets including goodwill were ~~$6,545~~$6,998 based upon ~~preliminary~~ estimated fair values at the acquisition ~~date, which are subject to adjustment.~~date. The purchase price includes $1,000 of acquisition holdback payments, of which ~~are~~$500 was paid during the quarter ended September 30, 2022. The remaining balance of $500 is included in other current ~~liabilities and other~~ liabilities on the condensed consolidated balance sheet as of ~~March 31,~~September 30, 2022, and ~~which~~ will be paid on the ~~first and~~ second ~~anniversaries~~anniversary of the acquisition date with interest at a fixed rate of 2.0% per annum. The Company funded this acquisition using available cash. The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements.

~~Fiscal 2021 Acquisitions~~

~~On December 31, 2020,~~

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

4. GOODWILL AND INTANGIBLES

The changes in the carrying amount of goodwill for both the Service Center Based Distribution segment and the Engineered Solutions segment for the fiscal year ended June 30, 2022 and the three month period ended September 30, 2022 are as follows:


	Service Center Based Distribution		Engineered Solutions		Total
Balance at June 30, 2021	$	212,296	$	347,781	$	560,077
Goodwill acquired during the year	—		3,984		3,984
Other, primarily currency translation	(1,286)		430		(856)
Balance at June 30, 2022	211,010		352,195		563,205


Other, primarily currency translation	(1,728)		—		(1,728)
Balance at September 30, 2022	$	209,282	$	352,195	$	561,477

The Company ~~acquired 100%~~has eight (8) reporting units for which an annual goodwill impairment assessment was performed as of January 1, 2022. The Company concluded that all of the ~~outstanding shares~~reporting units' fair values exceeded their carrying amounts by at least 25% as of ~~Gibson Engineering Company (Gibson), a Norwood, Massachusetts provider~~January 1, 2022.

At September 30, 2022 and June 30, 2022, accumulated goodwill impairment losses subsequent to fiscal year 2002 totaled $64,794 related to the Service Center Based Distribution segment and $167,605 related to the Engineered Solutions segment.

The Company’s identifiable intangible assets resulting from business combinations are amortized over their estimated period of ~~automation products, services,~~benefit and ~~engineered solutions focused~~consist of the following:


September 30, 2022	Amount		Accumulated Amortization		Net Book Value
Finite-Lived Identifiable Intangibles:
Customer relationships	$	352,635	$	171,251	$	181,384
Trade names	105,627		46,388		59,239
Vendor relationships	11,222		10,613		609
Other	2,321		812		1,509
Total Identifiable Intangibles	$	471,805	$	229,064	$	242,741


June 30, 2022	Amount		Accumulated Amortization		Net Book Value
Finite-Lived Identifiable Intangibles:
Customer relationships	$	353,836	$	166,623	$	187,213
Trade names	105,629		44,637		60,992
Vendor relationships	11,320		10,533		787
Other	2,321		723		1,598
Total Identifiable Intangibles	$	473,106	$	222,516	$	250,590

Fully amortized amounts are written off.

Identifiable intangible assets with finite lives are reviewed for impairment when changes in conditions indicate carrying value may not be recoverable.

Estimated future amortization expense by fiscal year (based on ~~machine vision, motion control, mobile and collaborative robotic solutions, intelligent sensors, and other related equipment. Gibson is included in~~ the ~~Fluid Power & Flow Control segment. The purchase price~~Company’s identifiable intangible assets as of September 30, 2022) for the acquisition was $15,341, net tangible assets acquired were $955, and intangible assets including goodwill were $14,386 based upon estimated fair values at the acquisition date. The purchase price includes $1,904 of acquisition holdback payments, of which $935 was paid during the nine months ended March 31, 2022. The remaining balance of $969next five years is ~~included in other current liabilities on the condensed consolidated balance sheet~~ as of March 31, 2022, and will be paid on the second anniversary of the acquisition date with interest at a fixed rate of 1.0% per annum. The Company funded this acquisition using available cash. The acquisition price and the results of operationsfollows: $22,200 for the ~~acquired entity are not material in relation to the Company's consolidated financial statements.~~remainder of 2023, $26,300 for 2024, $24,100 for 2025, $22,300 for 2026, $20,600 for 2027 and $19,100 for 2028.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

On October 5, 2020, the Company acquired substantially all of the net assets of Advanced Control Solutions (ACS), which operates four locations in Georgia, Tennessee, and Alabama. ACS is a provider of automation products, services, and engineered solutions focused on machine vision equipment and software, mobile and collaborative robotic solutions, intelligent sensors, logic controllers, and other related equipment. ACS is included in the Fluid Power & Flow Control segment. The purchase price for the acquisition was $17,867, net tangible assets acquired were $1,210, and intangible assets including goodwill were $16,657 based upon estimated fair values at the acquisition date. The Company funded this acquisition using available cash. The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements.5. DEBT

~~4. GOODWILL AND INTANGIBLES~~

The changes in the carrying amount of goodwill for both the Service Center Based Distribution segment and the Fluid Power & Flow Control segment for the fiscal year ended June 30, 2021 and the nine month period ended March 31, 2022 are as follows:

Service Center Based Distribution Fluid Power & Flow Control Total
Balance at June 30, 2020 $ 208,570 $ 332,024 $ 540,594
Goodwill acquired during the period — 15,757 15,757
Other, primarily currency translation 3,726 — 3,726
Balance at June 30, 2021 $ 212,296 $ 347,781 $ 560,077
Goodwill acquired during the period — 3,531 3,531
Other, primarily currency translation (287) 430 143
Balance at March 31, 2022 $ 212,009 $ 351,742 $ 563,751

The Company has eight (8) reporting units for which an annual goodwill impairment assessment was performed as of January 1, 2022. The Company concluded that all of the the reporting units’ fair values exceeded their carrying amounts by at least 25% as of January 1, 2022.

The fair values of the reporting units in accordance with the goodwill impairment test were determined using the income and market approaches. The income approach employs the discounted cash flow method reflecting projected cash flows expected to be generated by market participants and then adjusted for time value of money factors, and requires management to make significant estimates and assumptions related to forecasts of future revenues, earnings before interest, taxes, depreciation, and amortization (EBITDA), and discount rates. The market approach utilizes an analysis of comparable publicly traded companies and requires management to make significant estimates and assumptions related to the forecasts of future revenues, EBITDA, and multiples that are applied to management’s forecasted revenues and EBITDA estimates.

The techniques used in the Company's impairment test have incorporated a number of assumptions that the Company believes to be reasonable and to reflect known market conditions at the measurement date. Assumptions in estimating future cash flows are subject to a degree of judgment. The Company makes all efforts to forecast future cash flows as accurately as possible with the information available at the measurement date. The Company evaluates the appropriateness of its assumptions and overall forecasts by comparing projected results of upcoming years with actual results of preceding years. Key assumptions (Level 3 in the fair value hierarchy) relate to pricing trends, inventory costs, customer demand, and revenue growth. A number of benchmarks from independent industry and other economic publications were also used.

Changes in future results, assumptions, and estimates after the measurement date may lead to an outcome where impairment charges would be required in future periods. Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions. Further, continued adverse market conditions could result in the recognition of additional impairment if the Company determines that the fair values of its reporting units have fallen below their carrying values. Certain events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the Company’s reporting units may include such items as: (i) a decrease in expected future cash flows, specifically, a

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~~APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Amounts in thousands, except per share amounts) (Unaudited)~~

decrease in sales volume driven by a prolonged weakness in customer demand or other pressures adversely affecting our long-term sales trends; (ii) inability to achieve the sales from our strategic growth initiatives.

At March 31, 2022 and June 30, 2021, accumulated goodwill impairment losses subsequent to fiscal year 2002 totaled $64,794 related to the Service Center Based Distribution segment and $167,605 related to the Fluid Power & Flow Control segment.

~~The Company’s identifiable intangible assets resulting from business combinations are amortized over their estimated period of benefit and consist of the following:~~

March 31, 2022 Amount Accumulated
Amortization Net Book
Value
Finite-Lived Identifiable Intangibles:
Customer relationships $ 354,754 $ 161,686 $ 193,068
Trade names 105,655 42,901 62,754
Vendor relationships 11,464 10,472 992
Other 2,321 634 1,687
Total Identifiable Intangibles $ 474,194 $ 215,693 $ 258,501

June 30, 2021 Amount Accumulated
Amortization Net Book
Value
Finite-Lived Identifiable Intangibles:
Customer relationships $ 353,028 $ 143,862 $ 209,166
Trade names 104,780 37,626 67,154
Vendor relationships 11,469 9,859 1,610
Other 2,070 372 1,698
Total Identifiable Intangibles $ 471,347 $ 191,719 $ 279,628

~~Fully amortized amounts are written off.~~

~~During the nine month period ended March 31, 2022, the Company acquired identifiable intangible assets with a preliminary acquisition cost allocation and weighted-average life as follows:~~

Acquisition Cost Allocation Weighted-Average life
Customer relationships $ 1,884 20.0
Trade names 879 15.0
Other 251 6.5
Total Identifiable Intangibles $ 3,014 17.4

~~Identifiable intangible assets with finite lives are reviewed for impairment when changes in conditions indicate carrying value may not be recoverable.~~

The Company has three asset groups that have significant exposure to oil and gas end markets. Due to the prolonged economic downturn in these end markets, the Company determined during the second quarter of fiscal 2021 that certain carrying values may not be recoverable. The Company determined that an impairment existed in two of the three asset groups as the asset groups' carrying values exceeded the sum of the undiscounted cash flows. The fair values of the long-lived assets were then determined using the income approach, and the analyses resulted in the measurement of an intangible asset impairment loss of $45,033, which was recorded in the nine months ended March 31, 2021, as the fair value of the intangible assets was determined to be zero. The income approach employs the discounted cash flow method reflecting projected cash flows expected to be generated by market participants and then adjusted for time value of money factors, and requires management to make significant estimates and assumptions related to forecasts of future revenues, earnings before interest, taxes, depreciation, and amortization (EBITDA), and discount rates. Key assumptions (Level 3 in the fair value hierarchy) relate to pricing trends, inventory costs, customer demand, and revenue growth. A number of benchmarks from independent industry and other economic publications were also used. The analyses of these asset groups also resulted in a fixed asset impairment loss and leased asset impairment loss of $1,983 and $2,512, respectively, which were recorded in the nine months ended March 31, 2021.

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~~APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Amounts in thousands, except per share amounts) (Unaudited)~~

Estimated future amortization expense by fiscal year (based on the Company’s identifiable intangible assets as of March 31, 2022) for the next five years is as follows: $7,800 for the remainder of 2022, $30,000 for 2023, $26,300 for 2024, $24,100 for 2025, $22,400 for 2026 and $20,600 for 2027.

~~5. DEBT~~

A summary of long-term debt, including the current portion, follows:


		March 31, 2022		June 30, 2021			September 30, 2022		June 30, 2022
Revolving credit facility	Revolving credit facility	$	442,592	$	—	Revolving credit facility	$	410,592	$	410,592
Term Loan		—		550,250
Trade receivable securitization facility	Trade receivable securitization facility	188,300		188,300		Trade receivable securitization facility	188,300		188,300
Series C notes	Series C notes	40,000		40,000		Series C notes	—		40,000
Series D notes	Series D notes	25,000		25,000		Series D notes	25,000		25,000
Series E notes	Series E notes	25,000		25,000		Series E notes	25,000		25,000
Other	Other	664		846		Other	542		603
Total debt	Total debt	$	721,556	$	829,396	Total debt	$	649,434	$	689,495
Less: unamortized debt issuance costs	Less: unamortized debt issuance costs	193		1,016		Less: unamortized debt issuance costs	150		171
		$	721,363	$	828,380		$	649,284	$	689,324

Revolving Credit Facility & Term Loan

In December 2021, the Company entered into a new five-year revolving credit facility with a group of banks to refinance the existing credit facility as well as provide funds for ongoing working capital and other general corporate purposes. This agreement provides a $900,000 unsecured revolving credit facility and an uncommitted accordion feature which allows the Company to request an increase in the borrowing commitments, or incremental term loans, under the credit facility in aggregate principal amounts of up to $500,000. Borrowings under this agreement bear interest, at the Company's election, at either the base rate plus a margin that ranges from 0 to 55 basis points based on net leverage ratio or LIBOR plus a margin that ranges from 80 to 155 basis points based on the net leverage ratio. Unused lines under this facility, net of outstanding letters of credit of $200 to secure certain insurance obligations, totaled ~~$457,208~~$489,208 at ~~March 31,~~September 30, 2022 and June 30, 2022, and were available to fund future acquisitions or other capital and operating requirements. The interest rate on the revolving credit facility was ~~1.3%~~4.04% and 2.81% as of ~~March 31, 2022.~~

The new credit facility replaced the Company's previous credit facility agreement. The Company used its initial borrowings on the new revolving credit facility along with cash on hand of $98,206 to extinguish the term loan balance outstanding under the previous credit facility of $540,500. The Company had no amount outstanding under the revolver atSeptember 30, 2022 and June 30, 2021. Unused lines under the previous facility, net of outstanding letters of credit of $200 to secure certain insurance obligations, totaled $249,800 at June 30, 2021, and were available to fund future acquisitions or other capital and operating requirements. The interest rate on the term loan was 1.88% as of June 30, 2021.

~~The Company paid $1,956 of debt issuance costs related to the new revolving credit facility in the nine months ended March 31,~~ 2022, which are included in other current assets and other assets on the condensed consolidated balance sheet as of March 31, 2022 and will be amortized over the five-year term of the new credit facility. The Company analyzed the unamortized debt issuance costs related to the previous credit facility under Accounting Standards Codification (ASC) Topic 470 - ~~Debt~~. As a result of this analysis, $118 of unamortized debt issuance costs were expensed and included within interest expense, net on the condensed statements of consolidated income in the nine months ended March 31, 2022, and $540 of unamortized debt issuance costs were rolled forward into the new credit facility and were reclassified from the current portion of long-term debt and long-term debt into other current assets and other assets on the condensed consolidated balance sheet as of March 31, 2022, and will be amortized over the five-year term of the new credit facility.respectively.

Additionally, the Company had letters of credit outstanding with separate banks, not associated with the revolving credit agreement, in the amount of ~~$4,798~~$4,694 and ~~$4,540~~$4,735 as of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, respectively, in order to secure certain insurance obligations.

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~~APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Amounts in thousands, except per share amounts) (Unaudited)~~

Trade Receivable Securitization Facility

In August 2018, the Company established a trade receivable securitization facility (the “AR Securitization Facility”). with a termination date of August 31, 2021. On March 26, 2021, the Company amended the AR Securitization Facility to expand the eligible receivables, which increased the maximum availability to $250,000 and increased the drawn fees on the AR Securitization Facility to 0.98% per year. Availability is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable being transferred and, therefore, at certain times, we may not be able to fully access the $250,000 of funding available under the AR Securitization Facility. The AR Securitization Facility effectively increases the Company’s borrowing capacity by collateralizing a portion of the amount of the U.S. operations’ trade accounts receivable. The Company uses the proceeds from the AR Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing costs. Borrowings under this facility carry variable interest rates tied to LIBOR. The interest rate on the AR Securitization Facility as of ~~March 31,~~September 30, 2022 and June 30, ~~2021~~2022 was ~~1.16%~~4.06% and ~~1.20%~~2.60%, respectively. The termination date of the AR Securitization Facility is March 26, 2024.

Unsecured Shelf Facility

At ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, the Company had borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management of ~~$90,000.~~$50,000 and $90,000, respectively. Fees on this facility range from 0.25% to 1.25% per year based on the Company's leverage ratio at each quarter end. The "Series C" notes ~~had an original principal amount of $120,000, carry~~carried a fixed interest rate of 3.19%, and the remaining principal balance ~~is due~~of $40,000 was paid in July 2022. The "Series D" notes ~~had an original~~have a remaining principal amount of ~~$50,000,~~$25,000, carry a fixed interest rate of 3.21%, and ~~the remaining principal balance is~~are due in October 2023. The “Series E” notes have a principal amount of $25,000, carry a fixed interest rate of 3.08%, and are due in October 2024.

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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

Other Long-Term Borrowing

In 2014, the Company assumed $2,359 of debt as a part of the headquarters facility acquisition. The 1.50% fixed interest rate note is held by the State of Ohio Development Services Agency, and matures in May 2024.

6. DERIVATIVES

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive loss and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.

In January 2019, the Company entered into an interest rate swap to mitigate variability in forecasted interest payments on $463,000 of the Company’s U.S. dollar-denominated unsecured variable rate debt. The ~~notional amount declines over time. The~~ interest rate swap effectively converts a portion of the floating rate interest payment into a fixed rate interest payment. The Company designated the interest rate swap as a pay-fixed, receive-floating interest rate swap instrument and is accounting for this derivative as a cash flow hedge. During ~~fiscal 2021,~~the quarter ended December 31, 2020, the Company completed a transaction to amend and extend the interest rate swap agreement which resulted in an extension of the maturity date by an additional three years and a decrease of the weighted average fixed pay rate from 2.61% to 1.63%. The new

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~~APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Amounts in thousands, except per share amounts) (Unaudited)~~

pay-fixed interest rate swap is considered a hybrid instrument with a financing component and an embedded at-market derivative that was designated as a cash flow hedge. The interest rate swap ~~converts~~converted $409,000 of variable rate debt to a rate of ~~2.65%~~2.54% as of ~~March 31, 2022. The interest rate swap converted $420,000 of variable rate debt to~~September 30, 2022 and at a rate of ~~3.38%~~2.75% as of June 30, ~~2021.~~2022. The fair value (Level 2 in the fair value hierarchy) of the interest rate cash flow hedge was ~~$12,441~~$29,569 and $17,827 as of ~~March 31,~~September 30, 2022 and June 30, 2022, respectively, which is included in other current assets and other assets in the condensed consolidated balance sheet. The fair value (Level 2 fair value hierarchy) of the interest rate cash flow hedge was $14,346 as of June 30, 2021, which is included in other current liabilities and other liabilities in the condensed consolidated balance sheet. Amounts reclassified from other comprehensive income (loss), before tax to interest expense, net totaled ~~$2,462~~$796 and ~~$2,992~~$2,585 for the three months ended ~~March 31, 2022 and 2021, respectively, and $7,632 and $8,504 for the nine months ended March 31,~~September 30, 2022 and 2021, respectively.

7. FAIR VALUE MEASUREMENTS

Marketable securities measured at fair value at ~~March 31,~~September 30, 2022 and June 30, ~~2021~~2022 totaled ~~$17,667~~$15,409 and ~~$16,844,~~$15,317, respectively. The majority of these marketable securities are held in a rabbi trust for a non-qualified deferred compensation plan. The marketable securities are included in other assets on the accompanying condensed consolidated balance sheets and their fair values were determined using quoted market prices (Level 1 in the fair value hierarchy).

As of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, the carrying values of the Company's fixed interest rate debt outstanding under its unsecured shelf facility agreement with Prudential Investment Management approximated fair value (Level 2 in the fair value hierarchy).

The revolving credit facility and the AR Securitization Facility contain variable interest rates and their carrying values approximate fair value (Level 2 in the fair value hierarchy).

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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

8. SHAREHOLDERS' EQUITY

Accumulated Other Comprehensive Loss

Changes in the accumulated other comprehensive loss are comprised of the following amounts, shown net of taxes:

Three Months Ended March 31, 2022
Foreign currency translation adjustment Post-employment benefits Cash flow hedge Total Accumulated other comprehensive (loss) income
Balance at December 31, 2021 $ (88,817) $ (3,559) $ (559) $ (92,935)
Other comprehensive income 6,783 — 13,382 20,165
Amounts reclassified from accumulated other comprehensive (loss) income — 56 1,858 1,914
Net current-period other comprehensive income 6,783 56 15,240 22,079
Balance at March 31, 2022 $ (82,034) $ (3,503) $ 14,681 $ (70,856)


	Three Months Ended September 30, 2022
	Foreign currency translation adjustment		Post-employment benefits		Cash flow hedge		Total Accumulated other comprehensive (loss) income
Balance at June 30, 2022	$	(90,738)	$	(1,303)	$	19,746	$	(72,295)
Other comprehensive (loss) income	(11,521)		—		9,280		(2,241)
Amounts reclassified from accumulated other comprehensive (loss) income	—		6		600		606

Net current-period other comprehensive (loss) income	(11,521)		6		9,880		(1,635)
Balance at September 30, 2022	$	(102,259)	$	(1,297)	$	29,626	$	(73,930)


	Three Months Ended September 30, 2021
	Foreign currency translation adjustment		Post-employment benefits		Cash flow hedge		Total Accumulated other comprehensive (loss) income
Balance at June 30, 2021	$	(80,838)	$	(3,673)	$	(8,581)	$	(93,092)
Other comprehensive (loss) income	(7,188)		—		450		(6,738)
Amounts reclassified from accumulated other comprehensive (loss) income	—		57		1,950		2,007
Net current-period other comprehensive (loss) income	(7,188)		57		2,400		(4,731)
Balance at September 30, 2021	$	(88,026)	$	(3,616)	$	(6,181)	$	(97,823)

Other Comprehensive Loss

Details of other comprehensive loss are as follows:


	Three Months Ended September 30,
	2022						2021
	Pre-Tax Amount		Tax Expense		Net Amount		Pre-Tax Amount		Tax Expense		Net Amount
Foreign currency translation adjustments	$	(11,437)	$	84	$	(11,521)	$	(7,182)	$	6	$	(7,188)
Post-employment benefits:
Reclassification of net actuarial losses and prior service cost into other expense (income), net and included in net periodic pension costs	8		2		6		75		18		57
Unrealized gain on cash flow hedge	12,310		3,030		9,280		596		146		450
Reclassification of interest from cash flow hedge into interest expense	796		196		600		2,585		635		1,950


Other comprehensive loss	$	1,677	$	3,312	$	(1,635)	$	(3,926)	$	805	$	(4,731)

1513

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

Three Months Ended March 31, 2021
Foreign currency translation adjustment Post-employment benefits Cash flow hedge Total Accumulated other comprehensive (loss) income
Balance at December 31, 2020 $ (85,222) $ (4,462) $ (17,680) $ (107,364)
Other comprehensive (loss) income (434) — 6,615 6,181
Amounts reclassified from accumulated other comprehensive (loss) income — 52 2,260 2,312
Net current-period other comprehensive (loss) income (434) 52 8,875 8,493
Balance at March 31, 2021 $ (85,656) $ (4,410) $ (8,805) $ (98,871)

Nine Months Ended March 31, 2022
Foreign currency translation adjustment Post-employment benefits Cash flow hedge Total Accumulated other comprehensive (loss) income
Balance at June 30, 2021 $ (80,838) $ (3,673) $ (8,581) $ (93,092)
Other comprehensive (loss) income (1,196) — 17,504 16,308
Amounts reclassified from accumulated other comprehensive (loss) income — 170 5,758 5,928
Net current-period other comprehensive (loss) income (1,196) 170 23,262 22,236
Balance at March 31, 2022 $ (82,034) $ (3,503) $ 14,681 $ (70,856)

Nine Months Ended March 31, 2021
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 19,438 — 4,544 23,982
Amounts reclassified from accumulated other comprehensive (loss) income — 154 6,423 6,577
Net current-period other comprehensive income 19,438 154 10,967 30,559
Balance at March 31, 2021 $ (85,656) $ (4,410) $ (8,805) $ (98,871)

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~~APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Amounts in thousands, except per share amounts) (Unaudited)~~

~~Other Comprehensive Income~~

~~Details of other comprehensive income are as follows:~~

Three Months Ended March 31,
2022 2021
Pre-Tax Amount Tax (Benefit) Expense Net Amount Pre-Tax Amount Tax (Benefit) Expense Net Amount
Foreign currency translation adjustments $ 6,782 $ (1) $ 6,783 $ (496) $ (62) $ (434)
Post-employment benefits:
Reclassification of net actuarial losses and prior service cost into other expense (income), net and included in net periodic pension costs 74 18 56 68 16 52
Unrealized gain on cash flow hedge 17,738 4,356 13,382 8,758 2,143 6,615
Reclassification of interest from cash flow hedge into interest expense 2,462 604 1,858 2,992 732 2,260
Other comprehensive income $ 27,056 $ 4,977 $ 22,079 $ 11,322 $ 2,829 $ 8,493

Nine Months Ended March 31,
2022 2021
Pre-Tax Amount Tax Expense Net Amount Pre-Tax Amount Tax Expense Net Amount
Foreign currency translation adjustments $ (1,183) $ 13 $ (1,196) $ 19,529 $ 91 $ 19,438
Post-employment benefits:
Reclassification of net actuarial losses and prior service cost into other expense (income), net and included in net periodic pension costs 224 54 170 203 49 154
Unrealized gain on cash flow hedge 23,201 5,697 17,504 6,017 1,473 4,544
Reclassification of interest from cash flow hedge into interest expense 7,632 1,874 5,758 8,504 2,081 6,423
Other comprehensive income $ 29,874 $ 7,638 $ 22,236 $ 34,253 $ 3,694 $ 30,559

Anti-dilutive Common Stock Equivalents

In the three month period ended March 31, 2022, stock options and stock appreciation rights related to 77 shares of common stock were not included in the computation of diluted earnings per share for the period then ended as they were anti-dilutive. In the nine month periods ended ~~March 31,~~September 30, 2022 and September 30, 2021, stock options and stock appreciation rights related to ~~107~~185 and ~~291~~109 shares of common stock, respectively, were not included in the computation of diluted earnings per share for the ~~period~~periods then ended as they were anti-dilutive.

9. SEGMENT INFORMATION

The accounting policies of the Company’s reportable segments are generally the same as those used to prepare the condensed consolidated financial statements. LIFO expense of ~~$7,397~~$9,060 and ~~$781~~$3,571 in the three months ended ~~March 31, 2022 and 2021, respectively, and $15,643 and $2,777 in the nine months ended March 31,~~September 30, 2022 and 2021, respectively, is recorded in cost of sales in the condensed statements of ~~consolidated~~ income, and is included in operating income for the related reportable segment, as the Company allocates LIFO expense between the segments. Intercompany sales, primarily from the ~~Fluid Power & Flow Control~~Engineered Solutions segment to the Service Center Based Distribution segment, of ~~$9,951~~$10,518 and ~~$8,835,~~$8,132, in the three months ended ~~March 31, 2022 and 2021, respectively, and $26,942 and $23,773 in the nine months ended March 31,~~September 30, 2022 and 2021, respectively, have been eliminated in the Segment Financial Information tables below.

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~~APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Amounts in thousands, except per share amounts) (Unaudited)~~


Three Months Ended	Three Months Ended	Service Center Based Distribution		Fluid Power & Flow Control		Total		Three Months Ended	Service Center Based Distribution		Engineered Solutions		Total
March 31, 2022
September 30, 2022								September 30, 2022
Net sales	Net sales	$	658,998	$	321,664	$	980,662	Net sales	$	717,988	$	344,417	$	1,062,405
Operating income for reportable segments	Operating income for reportable segments	81,640		40,586		122,226		Operating income for reportable segments	88,809		45,534		134,343

Assets used in business								Assets used in business	1,460,896		1,013,278		2,474,174
Depreciation and amortization of property	Depreciation and amortization of property	4,362		990		5,352		Depreciation and amortization of property	4,449		1,032		5,481
Capital expenditures	Capital expenditures	3,435		729		4,164		Capital expenditures	3,565		1,989		5,554

March 31, 2021
September 30, 2021								September 30, 2021
Net sales	Net sales	$	572,892	$	268,045	$	840,937	Net sales	$	600,871	$	290,810	$	891,681
Operating income for reportable segments	Operating income for reportable segments	65,553		30,829		96,382		Operating income for reportable segments	64,653		34,805		99,458

Assets used in business								Assets used in business	1,349,654		953,526		2,303,180
Depreciation and amortization of property	Depreciation and amortization of property	4,230		850		5,080		Depreciation and amortization of property	4,379		1,048		5,427
Capital expenditures	Capital expenditures	3,150		578		3,728		Capital expenditures	3,097		524		3,621

Nine Months Ended Service Center Based Distribution Fluid Power & Flow Control Total
March 31, 2022
Net sales $ 1,847,087 $ 902,130 $ 2,749,217
Operating income for reportable segments 213,743 111,817 325,560
Assets used in business 1,401,236 982,335 2,383,571
Depreciation and amortization of property 13,112 3,103 16,215
Capital expenditures 9,571 2,103 11,674
March 31, 2021
Net sales $ 1,601,866 $ 738,165 $ 2,340,031
Operating income for reportable segments 158,108 83,337 241,445
Assets used in business 1,385,648 919,740 2,305,388
Depreciation and amortization of property 12,877 2,764 15,641
Capital expenditures 10,680 1,497 12,177

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~~APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Amounts in thousands, except per share amounts) (Unaudited)~~

A reconciliation of operating income for reportable segments to the condensed consolidated income before income taxes is as follows:


		Three Months Ended				Nine Months Ended					Three Months Ended
		March 31,				March 31,					September 30,
		2022		2021		2022		2021			2022		2021
Operating income for reportable segments	Operating income for reportable segments	$	122,226	$	96,382	$	325,560	$	241,445	Operating income for reportable segments	$	134,343	$	99,458
Adjustment for:	Adjustment for:									Adjustment for:
Intangible amortization—Service Center Based Distribution	Intangible amortization—Service Center Based Distribution	848		944		2,621		4,507		Intangible amortization—Service Center Based Distribution	758		892
Intangible amortization—Fluid Power & Flow Control		7,043		7,293		21,475		21,731
Impairment—Service Center Based Distribution		—		—		—		49,528
Intangible amortization—Engineered Solutions										Intangible amortization—Engineered Solutions	6,947		7,229

Corporate and other expense, net	Corporate and other expense, net	18,492		13,678		52,830		41,326		Corporate and other expense, net	20,106		16,723
Total operating income (loss)		95,843		74,467		248,634		124,353
Total operating income										Total operating income	106,532		74,614
Interest expense, net	Interest expense, net	5,852		7,608		20,249		22,919		Interest expense, net	6,480		7,390
Other expense (income), net	Other expense (income), net	469		(1,657)		(712)		(1,746)		Other expense (income), net	1,008		(312)
Income before income taxes	Income before income taxes	$	89,522	$	68,516	$	229,097	$	103,180	Income before income taxes	$	99,044	$	67,536

The change in corporate and other expense, net is due to changes in corporate expenses, as well as in the amounts and levels of certain expenses being allocated to the segments. The expenses being allocated include corporate charges for working capital, logistics support, and other items.

~~10. OTHER EXPENSE (INCOME), NET~~

~~Other expense (income), net consists of the following:~~

Three Months Ended Nine Months Ended
March 31, March 31,
2022 2021 2022 2021
Unrealized loss (gain) on assets held in rabbi trust for a non-qualified deferred compensation plan $ 1,090 $ (642) $ 150 $ (3,104)
Foreign currency transactions loss (gain) 413 (485) 63 1,736
Net other periodic post-employment costs 152 71 457 213
Life insurance income, net (1,157) (543) (1,311) (402)
Other, net (29) (58) (71) (189)
Total other expense (income), net $ 469 $ (1,657) $ (712) $ (1,746)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

10. OTHER EXPENSE (INCOME), NET

Other expense (income), net consists of the following:


	Three Months Ended
	September 30,
	2022		2021
Unrealized loss on assets held in rabbi trust for a non-qualified deferred compensation plan	$	827	$	91
Foreign currency transactions loss (gain)	228		(567)
Net other periodic post-employment costs	143		152
Life insurance income, net	(111)		(41)
Other, net	(79)		53
Total other expense (income), net	$	1,008	$	(312)

11. SUBSEQUENT EVENTS

We have evaluated events and transactions occurring subsequent to September 30, 2022 through the date the financial statements were issued.

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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

With more than 6,000 employees across North America, Australia, New Zealand, and Singapore, Applied Industrial Technologies (“Applied,” the “Company,” “We,” “Us” or “Our”) is a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies. Our leading brands, specialized services, and comprehensive knowledge serve MRO (Maintenance, Repair & Operations) and OEM (Original Equipment Manufacturer) end users in virtually all industrial markets through our multi-channel capabilities that provide choice, convenience, and expertise. We have a long tradition of growth dating back to 1923, the year our business was founded in Cleveland, Ohio. During the ~~third~~first quarter of fiscal ~~2022,~~2023, business was conducted in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, and Singapore from ~~566~~567 facilities.

The following is Management's Discussion and Analysis of significant factors which have affected our financial condition, results of operations and cash flows during the periods included in the accompanying condensed consolidated balance sheets, statements of consolidated income, consolidated comprehensive income and consolidated cash flows. When reviewing the discussion and analysis set forth below, please note that the majority of SKUs (Stock Keeping Units) we sell in any given period were not necessarily sold in the comparable period of the prior year, resulting in the inability to quantify certain commonly used comparative metrics analyzing sales, such as changes in product mix and volume.

Overview

Consolidated sales for the quarter ended ~~March 31,~~September 30, 2022 increased ~~$139.7~~$170.7 million or ~~16.6%~~19.1% compared to the prior year quarter, with acquisitions increasing sales by ~~$3.5~~$1.7 million or ~~0.4%,~~0.2% and unfavorable foreign currency translation of ~~$1.1~~$4.7 million decreasing sales by ~~0.1%~~0.5%. ~~The Company had operating income of $95.8 million, or operating~~Operating margin ~~of 9.8%~~was 10.0% of sales for the quarter ended ~~March 31,~~September 30, 2022 compared to ~~an operating income of $74.5 million, or operating margin of 8.9%~~8.4% of sales for the same quarter in the prior year. ~~The quarter ended March 31, 2022 had net~~Net income of ~~$68.3~~$76.9 million increased 45.1% compared to ~~net income of $56.1 million in~~ the prior year quarter. The current ratio was ~~2.8~~3.1 to 1 at ~~March 31,~~September 30, 2022 and 2.7 to 1 at June 30, ~~2021.~~2022.

Applied monitors several economic indices that have been key indicators for industrial economic activity in the United States. These include the Industrial Production (IP) and Manufacturing Capacity Utilization (MCU) indices published by the Federal Reserve Board and the Purchasing Managers Index (PMI) published by the Institute for Supply Management (ISM). Historically, our performance correlates well with the MCU, which measures productivity and calculates a ratio of actual manufacturing output versus potential full capacity output. When manufacturing plants are running at a high rate of capacity, they tend to wear out machinery and require replacement parts.

The MCU (total industry) and IP indices ~~have~~ increased since June ~~2021. The MCU for March 2022 was 78.3, which is up from the December and June revised readings of 76.3 and 75.7, respectively.~~ 2022. The ISM PMI registered ~~57.1~~50.9 in ~~March,~~September, down from the ~~December and~~ June ~~2021 revised readings~~2022 reading of ~~58.8 and 60.9, respectively.~~53.0. The indices for the months during the current quarter, along with the indices for the prior fiscal year end, ~~and prior quarter end,~~ were as follows:

Index Reading
Month MCU PMI IP
March 2022 78.3 57.1 102.6
February 2022 77.7 58.6 101.7
January 2022 77.0 57.6 100.5
December 2021 76.3 58.8 100.4
June 2021 75.7 60.9 98.2


	Index Reading
Month	MCU	PMI	IP
September 2022	80.3	50.9	102.8
August 2022	80.1	52.8	102.3
July 2022	80.3	52.8	102.0
June 2022	79.8	53.0	101.3

The number of Company employees was ~~6,008~~6,067 at ~~March 31,~~September 30, 2022, ~~5,976~~6,075 at June 30, ~~2021,~~2022, and ~~6,032~~5,998 at ~~March 31,~~September 30, 2021. The number of operating facilities totaled ~~566~~567 at ~~March 31,~~September 30, 2022, 568 at June 30, ~~2021~~2022 and ~~571~~570 at ~~March 31,~~September 30, 2021.

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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Results of Operations

Three Months Ended ~~March 31,~~September 30, 2022 and 2021

The following table is included to aid in review of Applied's condensed statements of consolidated income.





Net sales	Net sales	100.0	%	100.0	%	16.6	%	Net sales	100.0	%	100.0	%	19.1	%
Gross profit	Gross profit	29.3	%	29.4	%	16.2	%	Gross profit	28.9	%	28.6	%	20.1	%
Selling, distribution & administrative expense	Selling, distribution & administrative expense	19.5	%	20.5	%	10.8	%	Selling, distribution & administrative expense	18.8	%	20.3	%	10.8	%
Operating income	Operating income	9.8	%	8.9	%	28.7	%	Operating income	10.0	%	8.4	%	42.8	%
Net income	Net income	7.0	%	6.7	%	21.8	%	Net income	7.2	%	5.9	%	45.1	%

During the quarter ended ~~March 31,~~September 30, 2022, sales increased ~~$139.7~~$170.7 million or ~~16.6%~~19.1% compared to the prior year quarter, with sales from acquisitions adding ~~$3.5~~$1.7 million or ~~0.4%~~0.2% and unfavorable foreign currency translation accounting for a decrease of ~~$1.1~~$4.7 million or ~~0.1%~~0.5%. There were 64 selling days in both the ~~quarter~~quarters ended ~~March 31,~~September 30, 2022 ~~and 63 selling days in the quarter ended March 31,~~and September 30, 2021. Excluding the impact of businesses acquired and foreign currency translation, sales were up ~~$137.3~~$173.7 million or ~~16.3%~~19.4% during the quarter, driven by an increase from operations ~~of 14.7%~~ reflecting ~~positive~~firm underlying demand across both segments, structural and secular tailwinds across U.S. industrial ~~activity, as well as a 1.6% increase due to one additional sales day.~~manufacturing markets, and support from company-specific growth opportunities.

The following table shows changes in sales by reportable segment (~~amounts~~(amounts in ~~millions~~)millions).


Sales by Reportable Segment	Sales by Reportable Segment	Three Months Ended March 31,				Sales Increase		Amount of change due to						Sales by Reportable Segment	Three Months Ended September 30,				Sales Increase		Amount of change due to
										Foreign Currency		Organic Change											Foreign Currency		Organic Change
		2022		2021				Acquisitions							2022		2021				Acquisitions
Service Center Based Distribution	Service Center Based Distribution	$	659.0	$	572.9	$	86.1	$	—	$	(1.1)	$	87.2	Service Center Based Distribution	$	718.0	$	600.9	$	117.1	$	—	$	(4.7)	$	121.8
Fluid Power & Flow Control		321.7		268.0		53.6		3.5		—		50.1
Engineered Solutions														Engineered Solutions	344.4		290.8		53.6		1.7		—		51.9
Total	Total	$	980.7	$	840.9	$	139.7	$	3.5	$	(1.1)	$	137.3	Total	$	1,062.4	$	891.7	$	170.7	$	1.7	$	(4.7)	$	173.7

Sales from our Service Center Based Distribution segment, which operates primarily in MRO markets, increased ~~$86.1~~$117.1 million or ~~15.0%~~19.5%. Unfavorable foreign currency translation decreased sales by ~~$1.1~~$4.7 million or ~~0.2%~~0.8%. Excluding the impact of foreign currency translation, sales increased ~~$87.2~~$121.8 million or ~~15.2%~~20.3%, driven by an increase of 13.6% from operations due to benefits from break-fix MRO activity, stronger local account growth and sales process initiatives, as well as a 1.6% increase due to one additional sales day.

Sales from our Fluid Power & Flow Control segment increased $53.6 million or 20.0%. Acquisitions within this segment increased sales by $3.5 million or 1.3%. Excluding the impact of businesses acquired, sales increased $50.1 million or 18.7%, driven by an increase of 17.1% from operations due to strong demand across the technology, off-highway mobile, life sciences, chemical, metals and machinery industries, and emerging strength across the refinery and petro-chemical end markets, as well as a 1.6% increase due to one additional sales day.

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~~APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES~~

~~ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS~~

~~The following table shows changes in sales by geographic area. Other countries includes Mexico, Australia, New Zealand, and Singapore (amounts in millions~~).

Three Months Ended
March 31, Sales Increase Amount of change due to
Foreign Currency Organic Change
Sales by Geographic Area 2022 2021 Acquisitions
United States $ 856.2 $ 724.6 $ 131.6 $ 3.5 $ — $ 128.1
Canada 70.5 66.1 4.3 — 0.1 4.2
Other countries 54.0 50.2 3.8 — (1.2) 5.0
Total $ 980.7 $ 840.9 $ 139.7 $ 3.5 $ (1.1) $ 137.3

Sales in our U.S. operations were up $131.6 million or 18.2%, as acquisitions added $3.5 million or 0.5%. Excluding the impact of businesses acquired, U.S. sales were up $128.1 million or 17.7%, driven by a 16.1% increase in operations, as well as a 1.6% increase due to one additional sales day. Sales from our Canadian operations increased $4.3 million or 6.6%. Favorable foreign currency translation increased Canadian sales by $0.1 million or 0.1%. Excluding the impact of foreign currency translation, Canadian sales increased $4.2 million or 6.5%. Consolidated sales from our other country operations, which include Mexico, Australia, New Zealand, and Singapore, increased $3.8 million or 7.5% from the prior year. Unfavorable foreign currency translation decreased other country sales by $1.2 million or 2.4%. Excluding the impact of currency translation, other country sales were up $5.0 million, or 9.9% during the quarter.

Our gross profit margin was 29.3% in the quarter ended March 31, 2022 compared to 29.4% in the prior year quarter. The gross profit margin for the current year quarter was negatively impacted by 67 basis points due to a $6.6 million increase in LIFO expense over the prior year quarter driven by inflation. The decrease in gross profit margin from the prior year quarter is offset by price actions, channel execution, effective freight management, and other ongoing margin initiatives providing benefit.

~~The following table shows the changes in selling, distribution and administrative expense (SD&A) (amounts in millions).~~

Three Months Ended
March 31, SD&A Increase Amount of change due to
Foreign Currency Organic Change
2022 2021 Acquisitions
SD&A $ 191.5 $ 172.8 $ 18.7 $ 0.9 $ (0.4) $ 18.2

~~Operating income increased $21.4 million, and as a percent of sales increased to 9.8% from 8.9% during the prior year quarter.~~

Operating income, as a percentage of sales for the Service Center Based Distribution segment increased to 12.4% in the current year quarter from 11.4% in the prior year quarter. Operating income, as a percentage of sales for the Fluid Power & Flow Control segment increased to 12.6% in the current year quarter from 11.5% in the prior year quarter.

Other expense (income), net was expense of $0.5 million for the quarter, which included unrealized losses on investments held by non-qualified deferred compensation trusts of $1.1 million, net unfavorable foreign currency transaction losses of $0.4

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~~ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS~~

million, and $0.2 million of other expense, offset by $1.2 million of life insurance income. During the prior year quarter, other expense (income), net was income of $1.7 million, which included unrealized gains on investments held by non-qualified deferred compensation trusts of $0.6 million, net favorable foreign currency transaction gains of $0.5 million, and $0.6 million of income from other items.

The effective income tax rate was 23.7% for the quarter ended March 31, 2022 compared to 18.2% for the quarter ended March 31, 2021. The increase in the effective tax rate is due to changes in compensation-related deductions and uncertain tax positions during the quarter ended March 31, 2022 compared to the prior year quarter.

~~As a result of the factors addressed above, net income for the quarter ended March 31, 2022 increased~~ ~~$12.2 million~~ ~~compared to the prior year quarter. Net income per share was $1.75 per share for the quarter ended March 31, 2022 compared to $1.42 per share in the prior year quarter.~~

~~Results of Operations~~

~~Nine Months Ended March 31, 2022 and 2021~~

~~The following table is included to aid in review of Applied's condensed statements of consolidated income.~~

Nine Months Ended
March 31, 2022 Change in $'s Versus Prior Period -
% Increase
As a Percent of Net Sales
2022 2021
Net sales 100.0 % 100.0 % 17.5 %
Gross profit 29.1 % 28.7 % 19.0 %
Selling, distribution & administrative expense 20.1 % 21.3 % 10.6 %
Operating income 9.0 % 5.3 % 99.9 %
Net income 6.5 % 3.7 % 108.5 %

~~During the~~ ~~nine~~ months ended March 31, 2022, sales increased $409.2 million or 17.5% compared to the prior year period, with sales from acquisitions adding $31.1 million or 1.3% and favorable foreign currency translation accounting for an increase of $6.9 million or 0.3%. There were 189 selling days in both the nine months ended March 31, 2022 and March 31, 2021. Excluding the impact of businesses acquired ~~and foreign currency translation,~~ ~~sales were up $371.2 million or 15.9% during the period,~~ ~~driven by an increase from operations due to increased demand across key end markets.~~

~~The following table shows changes in sales by reportable segment (amounts in millions).~~

Sales by Reportable Segment Nine Months Ended
March 31, Sales Increase Amount of change due to
Foreign Currency Organic Change
2022 2021 Acquisitions
Service Center Based Distribution $ 1,847.1 $ 1,601.9 $ 245.2 $ — $ 6.9 $ 238.3
Fluid Power & Flow Control 902.1 738.2 164.0 31.1 — 132.9
Total $ 2,749.2 $ 2,340.1 $ 409.2 $ 31.1 $ 6.9 $ 371.2

Sales from our Service Center Based Distribution segment, which operates primarily in MRO markets, increased $245.2 million or 15.3%. Favorable foreign currency translation increased sales by $6.9 million or 0.4%. Excluding the impact of foreign currency translation, sales increased $238.3 million or 14.9%, driven by an increase from operations due to benefits from break-fix MRO activity, ~~stronger local account~~sales process initiatives, and ongoing pricing actions, as well as secular growth and ~~sales process initiatives.~~support from investments across the U.S. manufacturing sector. The strongest growth was experienced across the food & beverage, mining, metals, pulp & paper, energy, aggregates, lumber & wood, and transportation end markets.

Sales from our ~~Fluid Power & Flow Control~~Engineered Solutions segment increased ~~$164.0~~$53.6 million or ~~22.2%~~18.4%. Acquisitions within this segment increased sales by ~~$31.1~~$1.7 million or ~~4.2%~~0.6%. Excluding the impact of businesses acquired, sales increased ~~$132.9~~$51.9 million or ~~18.0%~~17.8%, d~~driven~~riven by an increase from operations due to ~~strong demand~~end market growth especially across ~~the~~mining, metals, agriculture, chemicals, technology, ~~off-highway mobile, life sciences, chemical, metals~~food & beverage, and machinery ~~industries,~~end-markets, partially offset by supply chain bottlenecks and ~~emerging strength across the refinery and petro-chemical end markets.~~extended component lead times.

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AND RESULTS OF OPERATIONS

The following table shows changes in sales by geographic area. Other countries includes Mexico, Australia, New Zealand, and Singapore (amounts in millions).


		Nine Months Ended March 31,				Sales Increase		Amount of change due to							Three Months Ended September 30,				Sales Increase		Amount of change due to
										Foreign Currency		Organic Change											Foreign Currency		Organic Change
Sales by Geographic Area	Sales by Geographic Area	2022		2021				Acquisitions						Sales by Geographic Area	2022		2021				Acquisitions
United States	United States	$	2,377.2	$	2,016.5	$	360.7	$	31.1	$	—	$	329.6	United States	$	921.5	$	764.2	$	157.3	$	1.7	$	—	$	155.6
Canada	Canada	211.3		180.9		30.5		—		5.5		25.0		Canada	79.8		74.6		5.2		—		(2.6)		7.8
Other countries	Other countries	160.7		142.7		18.0		—		1.4		16.6		Other countries	61.1		52.9		8.2		—		(2.1)		10.3
Total	Total	$	2,749.2	$	2,340.1	$	409.2	$	31.1	$	6.9	$	371.2	Total	$	1,062.4	$	891.7	$	170.7	$	1.7	$	(4.7)	$	173.7

Sales in our U.S. operations were up ~~$360.7~~$157.3 million or ~~17.9%~~20.6%, as acquisitions added ~~$31.1~~$1.7 million or ~~1.5%~~0.2%. Excluding the impact of businesses acquired, U.S. sales were up ~~$329.6~~$155.6 million or ~~16.4%~~20.4%. Sales from our Canadian operations increased ~~$30.5~~$5.2 million or ~~16.8%~~7.0%. ~~Favorable~~Unfavorable foreign currency translation ~~increased~~decreased Canadian sales by ~~$5.5~~$2.6 million or ~~3.0%~~3.5%. Excluding the impact of foreign currency translation, Canadian sales were up ~~$25.0~~$7.8 million or ~~13.8%~~10.5%. Consolidated sales from our other country operations, which include Mexico, Australia, New Zealand, and Singapore, increased ~~$18.0~~$8.2 million or ~~12.6%~~15.6% from the prior year. ~~Favorable~~Unfavorable foreign currency translation ~~increased~~decreased other country sales by ~~$1.4~~$2.1 million or ~~1.0%~~3.9%. Excluding the impact of currency translation, other country sales were up ~~$16.6~~$10.3 million, or ~~11.6%,~~19.5% during the ~~period.~~quarter.

Our gross profit margin was ~~29.1%~~28.9% in the ~~nine months~~quarter ended ~~March 31,~~September 30, 2022 compared to ~~28.7%~~28.6% in the prior ~~year period. The gross~~period. Gross profit margin for the prior year period was negatively impacted by 31 basis points due to $7.4 million of non-routine costs from business alignment initiatives and cost actions recorded in the nine months ended March 31, 2021. This was offset by 47 basis points due to a $12.9 million increase in LIFO expense over the prior year period driven by inflation. Gross profit margins expanded year over year ~~and sequentially~~ primarily reflecting broad-based execution across the business and countermeasures in response to ongoing inflation and supply chain dynamics. The gross profit margin for the current quarter was negatively impacted by 52 basis points due to a $5.5 million increase in LIFO expense.

The following table shows the changes in selling, distribution and administrative expense (SD&A) (amounts in millions).

Nine Months Ended
March 31, SD&A Increase Amount of change due to
Foreign Currency Organic Change
2022 2021 Acquisitions
SD&A $ 551.7 $ 498.7 $ 53.0 $ 8.1 $ 1.6 $ 43.3


	Three Months Ended September 30,				SD&A Increase		Amount of change due to
	Three Months Ended September 30,								Foreign Currency		Organic Change
	2022		2021				Acquisitions		Foreign Currency		Organic Change
SD&A	$	200.3	$	180.7	$	19.5	$	0.8	$	(1.1)	$	19.8

SD&A consists of associate compensation, benefits and other expenses associated with selling, purchasing, warehousing, supply chain management and providing marketing and distribution of the Company's products, as well as costs associated with a variety of administrative functions such as human resources, information technology, treasury, accounting, insurance, legal, and facility related expenses. SD&A was ~~20.1%~~18.8% of sales in the ~~nine months~~quarter ended ~~March 31,~~September 30, 2022 compared to ~~21.3%~~20.3% in the prior year ~~period.~~quarter. SD&A increased ~~$53.0~~$19.5 million or ~~10.6%~~10.8% compared to the prior year ~~period.~~quarter. Changes in foreign currency exchange rates had the effect of ~~increasing~~decreasing SD&A during the ~~nine months~~quarter ended ~~March 31,~~September 30, 2022 by ~~$1.6~~$1.1 million or ~~0.3%~~0.6% compared to the prior year ~~period.~~quarter. SD&A from businesses acquired added ~~$8.1~~$0.8 million or ~~1.6%~~0.4% of SD&A ~~expenses, including $0.7 million of intangibles amortization related to acquisitions.~~expenses. Excluding the impact of businesses acquired and the ~~unfavorable~~favorable currency translation impact, SD&A increased ~~$43.3~~$19.8 million or ~~8.7%~~11.0% during the ~~nine months~~quarter ended ~~March 31,~~September 30, 2022 compared to the prior year ~~period. The Company incurred $0.4 million of non-routine expenses related to severance and closed facilities during the nine months ended March 31, 2021.~~quarter. Excluding the impact of acquisitions, ~~and severance,~~ total compensation increased ~~$39.7~~$10.9 million during the ~~nine months~~quarter ended ~~March 31,~~September 30, 2022, ~~as a result of merit increases and~~primarily due to an increase in employee incentive compensation correlating with the improved Company ~~performance, in addition~~performance. Also, excluding acquisitions, travel & entertainment and fleet expenses were up a combined $1.6 million primarily due to ~~cost reduction actions taken by the Company~~reduced travel activity in the prior year ~~in response~~related to lingering effects of the COVID-19 ~~pandemic, including headcount reductions, temporary furloughs and pay reductions, and suspension~~pandemic. Bad debt expense increased $3.2 million due to provisions recorded in the current year for customer credit deterioration primarily in the U.S. operations of the ~~401(k) company match. All of the temporary cost reductions were reinstated in the second half of fiscal 2021.~~Service Center Based Distribution segment. All other expenses within SD&A were up ~~$4.0~~$4.1 million.

~~The Company has three asset groups that have significant exposure~~Operating income increased $31.9 million or 42.8%, and as a percent of sales increased to ~~oil and gas end markets. Due to the prolonged economic downturn in these end markets, the Company determined~~10.0% from 8.4% during the ~~second quarter~~prior year quarter.

Operating income, as a percentage of ~~fiscal 2021 that certain carrying values may not be recoverable. The Company determined that an impairment existed in two of~~sales for the three asset groups as the asset groups' carrying values exceeded the sum of the undiscounted cash flows. The fair values of the long-lived assets were then determined using the income approach, and the analyses resultedService Center Based Distribution segment increased to 12.4% in the ~~measurement~~current year quarter from 10.8% in the prior year quarter. Operating income as a percentage of ~~an intangible asset impairment loss~~sales for the Engineered Solutions segment increased to 13.2% in the current year quarter from 12.0% in the prior year quarter.

Other expense (income), net was expense of $1.0 million for the current year quarter, which included unrealized losses on investments held by non-qualified deferred compensation trusts of $0.8 million and unfavorable foreign currency transaction

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AND RESULTS OF OPERATIONS

~~$45.0 million, which was recorded in the nine months ended March 31, 2021, as the fair value~~losses of the intangible assets was determined to be zero. The income approach employs the discounted cash flow method reflecting projected cash flows expected to be generated by market participants and then adjusted for time value of money factors, and requires management to make significant estimates and assumptions related to forecasts of future revenues, earnings before interest, taxes, depreciation, and amortization (EBITDA), and discount rates. Key assumptions (Level 3 in the fair value hierarchy) relate to pricing trends, inventory costs, customer demand, and revenue growth. A number of benchmarks from independent industry and other economic publications were also used. The analyses of these asset groups also resulted in a fixed asset impairment loss and leased asset impairment loss of $2.0 million and $2.5 million, respectively, which were recorded in the nine months ended March 31, 2021.

~~Operating income increased~~ ~~$124.3 million, and as a percent of sales increased to 9.0% from 5.3% during the prior year period, primarily due to non-cash impairment charges of $49.5 million in the prior year period.~~

Operating income, before impairment charges, as a percentage of sales for the Service Center Based Distribution segment increased to 11.6% in the current year period from 9.9% in the prior year period. Operating income, as a percentage of sales for the Fluid Power & Flow Control segment increased to 12.4% in the current year period from 11.3% in the prior year period.

Other expense (income), net was income of $0.7 million for the nine months ended March 31, 2022, which included $1.3 million of life insurance income, offset by other periodic post-employment costs of $0.5 million and other expense of $0.1$0.2 million. During the prior year ~~period,~~quarter, other expense (income), net was income of ~~$1.7~~$0.3 million, which included favorable foreign currency transaction gains of $0.6 million, offset by net other periodic benefit costs of $0.2 million, and ~~included~~$0.1 million of unrealized ~~gains~~losses on investments held by non-qualified deferred compensation ~~trusts of $3.1 million and $0.3 million of income from other items, offset by net unfavorable foreign currency transaction losses of $1.7 million.~~trusts.

The effective income tax rate was ~~22.2%~~22.4% for the ~~nine months~~quarter ended ~~March 31,~~September 30, 2022 compared to ~~17.1%~~21.6% for the ~~nine months~~quarter ended ~~March 31,~~September 30, 2021. The increase in the effective tax rate ~~is due to changes in compensation-related deductions and uncertain tax positions during the nine months ended March 31, 2022 compared to~~over the prior year ~~period.~~is primarily due to discrete favorable adjustments during the quarter ended September 30, 2021. We expect our full year tax rate for fiscal ~~2022~~2023 to be in ~~the~~the 22.0% to ~~23.0%~~24.0% range.

As a result of the factors addressed above, net income for the ~~nine months~~quarter ended ~~March 31,~~September 30, 2022 increased ~~$92.8~~$23.9 million or 45.1% compared to the prior year ~~period.~~quarter. Net income was ~~$4.56~~$1.97 per share for the ~~nine months~~quarter ended ~~March 31,~~September 30, 2022 compared to ~~$2.18~~$1.36 per share in the prior year ~~period.~~quarter, an increase of 44.9%.

Liquidity and Capital Resources

Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of debt. At ~~March 31,~~September 30, 2022, we had total debt obligations outstanding of ~~$721.6~~$649.4 million compared to ~~$829.4~~$689.5 million at June 30, ~~2021.~~2022. Management expects that our existing cash, cash equivalents, funds available under the revolving credit facility, and cash provided from operations will be sufficient to finance normal working capital needs in each of the countries in which we operate, payment of dividends, acquisitions, investments in properties, facilities and equipment, debt service, and the purchase of additional Company common stock. Management also believes that additional long-term debt and line of credit financing could be obtained based on the Company's credit standing and financial strength.

The Company's working capital at ~~March 31,~~September 30, 2022 was ~~$830.7~~$939.2 million, compared to ~~$768.9~~$859.9 million at June 30, ~~2021.~~2022. The current ratio was ~~2.8~~3.1 to 1 at ~~March 31,~~September 30, 2022 and 2.7 to 1 at June 30, ~~2021.~~2022.

Net Cash Flows

The following table is included to aid in review of Applied's condensed statements of consolidated cash flows (amounts in thousands).

Nine Months Ended March 31,
Net Cash Provided by (Used in): 2022 2021
Operating Activities $ 133,823 $ 203,409
Investing Activities (29,830) (41,509)
Financing Activities (173,366) (130,534)
Exchange Rate Effect (288) 4,099
(Decrease) Increase in Cash and Cash Equivalents $ (69,661) $ 35,465

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~~APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES~~

~~ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS~~


	Three Months Ended September 30,
Net Cash Provided by (Used in):	2022		2021
Operating Activities	$	25,943	$	48,642
Investing Activities	(5,498)		(25,502)
Financing Activities	(55,518)		(31,980)
Exchange Rate Effect	(1,826)		(1,592)
Decrease in Cash and Cash Equivalents	$	(36,899)	$	(10,432)

The decrease in cash provided by operating activities during the ~~nine~~three months ended ~~March 31,~~September 30, 2022 from the prior period is driven by ~~increases~~changes in working capital ~~in this expansionary environment partially~~for the period offset by increased operating results. Changes in cash flows between periods related to working capital were driven by (amounts in thousands):


Accounts receivable	$	~~(50,537)~~(9,242)
~~Inventories~~Inventory	$	~~(106,225)~~(27,474)
Accounts payable	$	~~20,556~~14,582

Net cash used in investing activities during the ~~nine~~three months ended ~~March 31,~~September 30, 2022 decreased from the prior period primarily due to ~~$7.0~~$14.8 million used for payments for loans on company-owned life insurance as well as $7.1 million used for the acquisition of R.R. Floody in the ~~current year compared to $30.0 million used for the acquisitions of Gibson Engineering and Advanced Control Solutions in the~~ prior year ~~period, offset by $14.8 million in cash payments for loans on company-owned life insurance in the current year.~~period.

Net cash used in financing activities during the ~~nine~~three months ended ~~March 31,~~September 30, 2022 increased from the prior ~~year~~ period primarily due to a change in net debt activity, as there was ~~$107.8~~$40.1 million of ~~net~~ debt payments in the current year period compared to ~~$82.1~~$9.8 million of debt payments ~~in the prior year period. Further, the Company used $13.6 million of cash for the purchase of treasury shares during the nine months ended March 31, 2022, while no shares were purchased~~ in the prior year period.

Share Repurchases

The Board of Directors has authorized the repurchase of shares of the Company's common stock. These purchases may be made in open market and negotiated transactions, from time to time, depending upon market conditions. We acquired ~~35,000~~8,000 shares of treasury stock on the open market in the three months ended ~~March 31,~~September 30, 2022 for ~~$3.5~~$0.7 million. During the ~~nine~~ three

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AND RESULTS OF OPERATIONS

months ended ~~March 31, 2022, we acquired 146,658 shares of treasury stock for $13.6 million. During the nine months ended March 31,~~September 30, 2021, the ~~Company did not acquire any~~company acquired 76,658 shares of treasury stock on the open ~~market.~~market for $6.5 million. At ~~March 31,~~September 30, 2022, we had authorization to repurchase ~~317,960~~1,500,000 shares.

Borrowing Arrangements

A summary of long-term debt, including the current portion, follows (amounts in thousands):


		March 31, 2022		March 31, 2021			September 30, 2022		June 30, 2022
Revolving credit facility	Revolving credit facility	$	442,592	$	—	Revolving credit facility	$	410,592	$	410,592
Term Loan		—		550,250
Trade receivable securitization facility	Trade receivable securitization facility	188,300		188,300		Trade receivable securitization facility	188,300		188,300
Series C notes	Series C notes	40,000		40,000		Series C notes	—		40,000
Series D notes	Series D notes	25,000		25,000		Series D notes	25,000		25,000
Series E notes	Series E notes	25,000		25,000		Series E notes	25,000		25,000
Other	Other	664		846		Other	542		603
Total debt	Total debt	$	721,556	$	829,396	Total debt	$	649,434	$	689,495
Less: unamortized debt issuance costs	Less: unamortized debt issuance costs	193		1,016		Less: unamortized debt issuance costs	150		171
		$	721,363	$	828,380		$	649,284	$	689,324

Revolving Credit Facility & Term Loan

In December 2021, the Company entered into a new five-year revolving credit facility with a group of banks to refinance the existing credit facility as well as provide funds for ongoing working capital and other general corporate purposes. This agreement provides a $900.0 million unsecured revolving credit facility and an uncommitted accordion feature which allows the Company to request an increase in the borrowing commitments, or incremental term loans, under the credit facility in aggregate principal amounts of up to $500.0 million. Borrowings under this agreement bear interest, at the Company's election, at either the base rate plus a margin that ranges from 0 to 55 basis points based on net leverage ratio or LIBOR plus a margin that ranges from 80 to 155 basis points based on the net leverage ratio. Unused lines under this facility, net of outstanding letters of credit of $0.2 million to secure certain insurance obligations, totaled ~~$457.2~~$489.2 million at ~~March 31,~~September 30, 2022 and June 30, 2022, and were available to fund future acquisitions or other capital and operating requirements. The interest rate on the revolving credit facility was ~~1.3%~~4.04% and 2.81% as of ~~March 31, 2022.~~

~~Table of Contents~~

~~APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES~~

~~ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS~~

~~The Company paid $2.0 million of debt issuance costs related to the new revolving credit facility in the nine months ended March 31,~~ 2022, which are included in other current assets and other assets on the condensed consolidated balance sheet as of March 31, 2022 and will be amortized over the five-year term of the new credit facility. The Company analyzed the unamortized debt issuance costs related to the previous credit facility under Accounting Standards Codification (ASC) Topic 470 - ~~Debt~~. As a result of this analysis, $0.1 million of unamortized debt issuance costs were expensed and included within interest expense, net on the condensed statements of consolidated income in the nine months ended March 31, 2022, and $0.5 million of unamortized debt issuance costs were rolled forward into the new credit facility and were reclassified from the current portion of long-term debt and long term debt into other current assets and other assets on the condensed consolidated balance sheet as of March 31, 2022, and will be amortized over the five-year term of the new credit facility.respectively.

Additionally, the Company had letters of credit outstanding with separate banks, not associated with the revolving credit agreement, in the amount of ~~$4.8 million and $4.5~~$4.7 million as of ~~March 31,~~September 30, 2022 and June 30, ~~2021, respectively,~~2022, in order to secure certain insurance obligations.

Trade Receivable Securitization Facility

In August 2018, the Company established a trade receivable securitization facility (the “AR Securitization Facility”). with a termination date of August 31, 2021. On March 26, 2021, the Company amended the AR Securitization Facility to expand the eligible receivables, which increased the maximum availability to $250.0 million and increased the drawn fees on the AR Securitization Facility to 0.98% per year. Availability is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable being transferred and, therefore, at certain times, we may not be able to fully access the $250.0 million of funding available under the AR Securitization Facility. The AR Securitization Facility effectively increases the Company’s borrowing capacity by collateralizing a portion of the amount of the U.S. operations’ trade accounts receivable. The Company uses the proceeds from the AR Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing costs. Borrowings under this facility carry variable interest rates tied to LIBOR. The interest rate on the AR Securitization Facility as of ~~March 31,~~September 30, 2022 and June 30, ~~2021~~2022 was ~~1.16%~~4.06% and ~~1.20%~~2.60%, respectively. The termination date of the AR Securitization Facility is March 26, 2024.

Unsecured Shelf Facility

At ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, the Company had borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management of $50.0 million and $90.0 ~~million.~~million, respectively. Fees on this facility range from 0.25% to 1.25% per year based on the Company's leverage ratio at each quarter end. The "Series C" notes ~~had an original principal amount of $120.0 million, carry~~carried a fixed interest rate of 3.19%, and the remaining principal balance ~~is due~~of $40.0 million was paid in July 2022. The "Series D" notes ~~had an original~~have a remaining principal amount of ~~$50.0~~$25.0 million, carry a fixed interest rate of 3.21%, and ~~the remaining principal balance is~~are due in October 2023. The “Series E” notes have a principal amount of $25.0 million, carry a fixed interest rate of 3.08%, and are due in October 2024.

Other Long-Term Borrowing

In 2014, the Company assumed $2.4 million of debt as a part of the headquarters facility acquisition. The 1.50% fixed interest rate note is held by the State of Ohio Development Services Agency, and matures in May 2024.

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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The Company entered into an interest rate swap which mitigates variability in forecasted interest payments on $409.0 million of the Company’s U.S. dollar-denominated unsecured variable rate debt. For more information, see note 6, Derivatives, to the consolidated financial statements, included in Item 1 under the caption “Notes to Condensed Consolidated Financial Statements.”

The credit facility and the unsecured shelf facility contain restrictive covenants regarding liquidity, net worth, financial ratios, and other covenants. At ~~March 31,~~September 30, 2022, the most restrictive of these covenants required that the Company have net indebtedness less than 3.75 times consolidated income before interest, taxes, depreciation and amortization (as defined). At ~~March 31,~~September 30, 2022, the Company's net indebtedness was ~~below 1.5~~less than 1.3 times consolidated income before interest, taxes, depreciation and amortization (as defined). The Company was in compliance with all financial covenants at ~~March 31,~~September 30, 2022.

~~Table of Contents~~

~~APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES~~

~~ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS~~

Accounts Receivable Analysis

The following table is included to aid in analysis of accounts receivable and the associated provision for losses on accounts receivable (amounts in thousands):


								March 31,			June 30,				September 30,			June 30,
								2022			2021				2022
Accounts receivable, gross	Accounts receivable, gross							$	636,177		$	532,777		Accounts receivable, gross	$	695,309		$	673,951
Allowance for doubtful accounts	Allowance for doubtful accounts							18,098			16,455			Allowance for doubtful accounts	21,173			17,522
Accounts receivable, net	Accounts receivable, net							$	618,079		$	516,322		Accounts receivable, net	$	674,136		$	656,429
Allowance for doubtful accounts, % of gross receivables	Allowance for doubtful accounts, % of gross receivables							2.8		%	3.1		%	Allowance for doubtful accounts, % of gross receivables	3.0		%	2.6		%

		Three Months Ended March 31,						Nine Months Ended March 31,							Three Months Ended September 30,
		2022			2021			2022			2021				2022			2021
Provision for losses on accounts receivable	Provision for losses on accounts receivable	$	1,577		$	(200)		$	2,905		$	5,595		Provision for losses on accounts receivable	$	3,994		$	798
Provision as a % of net sales	Provision as a % of net sales	0.16		%	(0.02)		%	0.11		%	0.24		%	Provision as a % of net sales	0.38		%	0.09		%

Accounts receivable are reported at net realizable value and consist of trade receivables from customers. Management monitors accounts receivable by reviewing Days Sales Outstanding (DSO) and the aging of receivables for each of the Company's locations. The Company has continued to experience an increase in accounts receivable during fiscal 2023 commensurate with the increase in sales.

On a consolidated basis, DSO was ~~56.7~~57.1 at ~~March 31,~~September 30, 2022 compared to ~~51.9~~55.7 at June 30, ~~2021.~~

2022. As of ~~March 31,~~September 30, 2022, approximately ~~4.3%~~4.6% of our accounts receivable balances are more than 90 days past due, compared to ~~3.0%~~3.4% at June 30, ~~2021.~~2022. On an overall basis, our provision for losses ~~on accounts receivable~~from uncollected receivables represents ~~0.16%~~0.38% of our sales in the three months ended ~~March 31,~~September 30, 2022, compared to ~~0.02%~~0.09% of sales for the three months ended ~~March 31, 2021, and 0.11% of sales for the nine months ended March 31, 2022 compared to 0.24% of sales for the nine months ended March 31,~~September 30, 2021. The ~~decrease~~increase primarily relates to provisions recorded in the ~~prior~~current year for customer credit deterioration and bankruptcies primarily in the U.S. ~~and Mexican~~ operations of the Service Center Based Distribution segment. Historically, this percentage is around 0.10% to 0.15%. Management believes the overall receivables aging and provision for losses on ~~accounts receivable~~uncollected receivables are at reasonable levels.

Inventory An~~alysis~~Analysis

Inventories are valued using the last-in, first-out (LIFO) method for U.S. inventories and the average cost method for foreign inventories. Management uses an inventory turnover ratio to monitor and evaluate inventory. Management calculates this ratio on an annual as well as a quarterly basis, and believes that using average costs to determine the inventory turnover ratio instead of LIFO costs provides a more useful analysis. The annualized inventory turnover based on average costs ~~was 4.7~~ for the period ended ~~March 31,~~September 30, 2022 ~~and 4.3~~was 4.6 versus 4.7 for the period ended June 30, ~~2021. We believe our inventory turnover ratio at the end of the year will be similar or slightly better than the ratio at March 31,~~ 2022.

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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Cautionary Statement Under Private Securities Litigation Reform Act

Management’s Discussion and Analysis contains statements that are forward-looking based on management’s current expectations about the future. Forward-looking statements are often identified by qualifiers, such as “guidance”, “expect”, “believe”, “plan”, “intend”, “will”, “should”, “could”, “would”, “anticipate”, “estimate”, “forecast”, “may”, "optimistic" and derivative or similar words or expressions. Similarly, descriptions of objectives, strategies, plans, or goals are also forward-looking statements. These statements may discuss, among other things, expected growth, future sales, future cash flows, future capital expenditures, future performance, and the anticipation and expectations of the Company and its management as to future occurrences and trends. The Company intends that the forward-looking statements be subject to the safe harbors established in the Private Securities Litigation Reform Act of 1995 and by the Securities and Exchange Commission in its rules, regulations and releases.

Readers are cautioned not to place undue reliance on any forward-looking statements. All forward-looking statements are based on current expectations regarding important risk factors, many of which are outside the Company’s control. Accordingly, actual results may differ materially from those expressed in the forward-looking statements, and the making of those statements should not be regarded as a representation by the Company or any other person that the results expressed in the statements will be achieved. In addition, the Company assumes no obligation publicly to update or revise any forward-looking statements, whether because of new information or events, or otherwise, except as may be required by law.

Important risk factors include, but are not limited to, the following: risks relating to the operations levels of our customers and the economic factors that affect them; continuing risks relating to the effects of the COVID-19 pandemic; inflationary or deflationary trends in the cost of products, energy, labor and other operating costs, and changes in the prices for products and services relative to the cost of providing them; reduction in supplier inventory purchase incentives; loss of key supplier authorizations, lack of product availability (such as due to supply chain strains), changes in supplier distribution programs, inability of suppliers to perform, and transportation disruptions; ~~inflationary or deflationary trends in the cost of products, energy, labor and other operating costs;~~ changes in customer preferences for products and services of the nature and brands sold by us; changes in customer procurement policies and practices; competitive pressures; our reliance on information systems and risks relating to their proper functioning, the security of those systems, and the data stored in or transmitted through them; the impact of economic conditions on the collectability of trade receivables; reduced demand for our products in targeted markets due to reasons including consolidation in customer industries; our ability to retain and attract qualified sales and customer service personnel and other skilled executives, managers and professionals; our ability to identify and complete acquisitions, integrate them effectively, and realize their anticipated benefits; the variability, timing and nature of new business opportunities including acquisitions, alliances, customer relationships, and supplier authorizations; the incurrence of debt and contingent liabilities in connection with acquisitions; our ability to access capital markets as needed on reasonable terms; disruption of operations at our headquarters or distribution centers; risks and uncertainties associated with our foreign operations, including volatile economic conditions, political instability, cultural and legal differences, and currency exchange fluctuations; the potential for goodwill and intangible asset impairment; changes in accounting policies and practices; our ability to maintain effective internal control over financial reporting; organizational changes within the Company; risks related to legal proceedings to which we are a party; potentially adverse government regulation, legislation, or policies, both enacted and under consideration, including with respect to federal tax policy, international trade, data privacy and security, and government contracting; and the occurrence of extraordinary events (including prolonged labor disputes, power outages, telecommunication outages, terrorist acts, war, public health emergency, earthquakes, extreme weather events, other natural disasters, fires, floods, and accidents). Other factors and unanticipated events could also adversely affect our business, financial condition, or results of operations. Risks can also change over time. Further, the disclosure of a risk should not be interpreted to imply that the risk has not already materialized.

We discuss certain of these matters and other risk factors more fully throughout this Form 10-Q as well as other of our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended June 30, ~~2021.~~2022.

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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures about market risk, see Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended June 30, ~~2021.~~2022.

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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company's management, under the supervision and with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of the Company's disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report. Based on that evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There have not been any changes in internal control over financial reporting during the three months ended ~~March 31,~~September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is a party to pending legal proceedings with respect to various product liability, commercial, personal injury, employment, and other matters. Although it is not possible to predict the outcome of these proceedings or the range of reasonably possible loss, the Company does not expect, based on circumstances currently known, that the ultimate resolution of any of these proceedings will have, either individually or in the aggregate, a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases of common stock in the quarter ended ~~March 31,~~September 30, 2022 were as follows:

Period (a) Total Number of Shares (1) (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 (2)
January 1, 2022 to January 31, 2022 0 $0.00 0 352,960
February 1, 2022 to February 28, 2022 12 $98.77 0 352,960
March 1, 2022 to March 31, 2022 35,000 $101.15 35,000 317,960
Total 35,012 $101.15 35,000 317,960


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) (2)
July 1, 2022 to July 31, 2022	8,518	$89.69	8,000	307,960
August 1, 2022 to August 31, 2022	0	$0.00	0	1,500,000
September 1, 2022 to September 30, 2022	0	$0.00	0	1,500,000
Total	8,518	$89.69	8,000	1,500,000

(1)During the quarter the Company purchased 12518 shares in connection with the Deferred Compensation Plan.

(2)On October 24, 2016, the Board of Directors authorized the repurchase of up to 1.5 million shares of the Company's common stock, replacing the prior authorization. We publicly announced the new authorization on October 26, 2016. Purchases can be made in the open market or in privately negotiated transactions.

On August 9, 2022, the Board of Directors authorized the repurchase of up to 1.5 million shares of the Company's common stock, replacing the prior authorization. We publicly announced the new authorization on August 11, 2022. Purchases can be made in the open market or in privately negotiated transactions. The authorization is in effect until all shares are purchased, or the Board revokes or amends the authorization.

ITEM 4. Mine Safety Disclosures

Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of the SEC Regulation S-K is included in Exhibit 95 to this quarterly report on Form 10-Q.

ITEM 6. Exhibits


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).

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4.2						Amended and Restated Note Purchase and Private Shelf Agreement dated as of October 30, 2019, between Applied ~~Industrial Technologies, Inc.and~~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						Amendment No. 1 to Amended and Restated Note Purchase and Private Shelf Agreement dated as of March 26, 2021 between Applied Industrial Technologies, Inc. and PGIM, Inc. (formerly known as Prudential Investment Management, Inc.), and certain of its affiliates (filed as Exhibit 4.3 to ~~the Company’s~~Applied's Form 10-Q for the quarter ended March 31, 2021, SEC File No. 1-2299, and incorporated here by reference).

~~Table of Contents~~

4.4

Amendment No. 2 to Amended and Restated Note Purchase and Private Shelf Agreement, dated as of December 9, 2021, between Applied and PGIM, Inc., (filed as Exhibit 10.2 to the Company's Form 8-K filed December 14, 2021, SEC File No. 1-2299, and incorporated here by reference).

4.5

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).

~~4.6~~

Credit Agreement dated as of December 9, 2021, 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 December 14, 2021, SEC File No. 1-2299, and incorporated here by reference).

~~4.7~~4.6

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).

~~4.8~~4.7

Amendment No. 1 to Receivables Financing Agreement and Reaffirmation of Performance Guaranty dated as of March 26, 2021 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 10.2 to ~~the Company's~~Applied's Form 8-K filed March 29, 2021, SEC File No. 1-2299, and incorporated here by reference).

~~4.9~~4.8

Purchase and Sale Agreement dated as of August 31, 2018 among various entities listed on Schedule I thereto (including Applied Industrial Technologies, Inc.), as originators, Applied Industrial Technologies, Inc., as servicer, and AIT Receivables LLC, as buyer (filed as Exhibit 10.2 to ~~the Company's~~Applied's Form 8-K filed September 6, 2018, SEC File No. 1-2299, and incorporated here by reference).

~~4.10~~4.9

Amendment No. 1 to Purchase and Sale Agreement dated as of November 19, 2018 among Applied Industrial Technologies, Inc. and various of its affiliates, as originators, Applied Industrial Technologies, Inc., as servicer, and AIT Receivables LLC, as buyer (filed as Exhibit 4.10 to ~~the Company’s~~Applied's Form 10-Q for the quarter ended March 31, 2021, SEC File No. 1-2299, and incorporated here by reference).

~~4.11~~4.10

Amendment No. 2 to Purchase and Sale Agreement dated as of March 26, 2021, among various entities listed on Schedule 1 thereto (including Applied Industrial Technologies, Inc.), as originators, Applied Industrial Technologies, ~~In.c,~~Inc, as servicer, and AIT Receivables LLC, as buyer (filed as Exhibit 10.2 to ~~the Company's~~Applied's Form 8-K filed March 29, 2021, SEC File No. 1-2299, and incorporated here by reference).

10.1

Stock Appreciation Rights Award Terms and Conditions (Officers) (August 2022 revision).

10.2

Restricted Stock Units Terms and Conditions (Officers) (August 2022 revision).

10.3

Performance Shares Terms and Conditions (August 2022 revision).

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

Section 1350 certifications

Mine safety and health disclosures

101

The following financial information from Applied Industrial Technologies Inc.'s Quarterly Report on
Form 10-Q for the quarter ended ~~March 31,~~September 30, 2022 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Condensed Statements of Consolidated Income, (ii) the Condensed Statements of Consolidated Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Statements of Consolidated Cash Flows, (v) the Condensed Statements of Shareholders' Equity, and (vi) the Notes to Condensed Consolidated Financial Statements.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

The Company will furnish a copy of any exhibit described above and not contained herein upon payment of a specified reasonable fee which shall be limited to the Company’s reasonable expenses in furnishing the exhibit.

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Certain instruments with respect to long-term debt have not been filed as exhibits because the total amount of securities authorized under any one of the instruments does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each such instrument.

~~Table of Contents~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


		APPLIED INDUSTRIAL TECHNOLOGIES, INC.
		(Company)

Date:	~~April~~October 28, 2022	By: ~~/s/ Neil A. Schrimsher~~
		Neil A. Schrimsher
		President & Chief Executive Officer


Date:	~~April~~October 28, 2022	By: ~~/s/ David K. Wells~~
		David K. Wells
		Vice President-Chief Financial Officer & Treasurer

3427


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, 2021	38,516	$	10,000	$	177,014	$	1,294,413	$	(455,789)	$	(93,092)	$	932,546
Net income						52,969						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 options	3			(116)				8				(108)
Performance share awards	5			(222)				(73)				(295)
Restricted stock units	12			(572)				(120)				(692)
Compensation expense — stock appreciation rights and options				1,907								1,907
Other share-based compensation expense				1,563								1,563
Other	(2)					(7)		(45)				(52)
Balance at September 30, 2021	38,457	$	10,000	$	179,574	$	1,347,375	$	(462,556)	$	(97,823)	$	976,570
Net income						57,026						57,026
Other comprehensive income										4,888		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 options	35			(1,639)				(832)				(2,471)


Compensation expense — stock appreciation rights and options				609								609
Other share-based compensation expense				1,705								1,705
Other	(4)			(1)		13		(364)				(352)
Balance at December 31, 2021	38,453	$	10,000	$	180,248	$	1,391,655	$	(467,279)	$	(92,935)	$	1,021,689
Net income						68,306						68,306
Other comprehensive income										22,079		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 options	16			(40)				(130)				(170)

Restricted stock units	—			(18)				(16)				(34)
Compensation expense — stock appreciation rights and options				381								381
Other share-based compensation expense				2,796								2,796
Other	10			(267)		17		268				18
Balance at March 31, 2022	38,444	10,000		183,100		1,446,847		(470,697)		(70,856)		1,098,394


	Acquisition Cost Allocation		Weighted-Average life
Customer relationships	$	1,884	20.0
Trade names	879		15.0
Other	251		6.5
Total Identifiable Intangibles	$	3,014	17.4


	Three Months Ended March 31, 2022
	Foreign currency translation adjustment		Post-employment benefits		Cash flow hedge		Total Accumulated other comprehensive (loss) income
Balance at December 31, 2021	$	(88,817)	$	(3,559)	$	(559)	$	(92,935)
Other comprehensive income	6,783		—		13,382		20,165
Amounts reclassified from accumulated other comprehensive (loss) income	—		56		1,858		1,914

Net current-period other comprehensive income	6,783		56		15,240		22,079
Balance at March 31, 2022	$	(82,034)	$	(3,503)	$	14,681	$	(70,856)


	Three Months Ended March 31, 2021
	Foreign currency translation adjustment		Post-employment benefits		Cash flow hedge		Total Accumulated other comprehensive (loss) income
Balance at December 31, 2020	$	(85,222)	$	(4,462)	$	(17,680)	$	(107,364)
Other comprehensive (loss) income	(434)		—		6,615		6,181
Amounts reclassified from accumulated other comprehensive (loss) income	—		52		2,260		2,312
Net current-period other comprehensive (loss) income	(434)		52		8,875		8,493
Balance at March 31, 2021	$	(85,656)	$	(4,410)	$	(8,805)	$	(98,871)


	Nine Months Ended March 31, 2022
	Foreign currency translation adjustment		Post-employment benefits		Cash flow hedge		Total Accumulated other comprehensive (loss) income
Balance at June 30, 2021	$	(80,838)	$	(3,673)	$	(8,581)	$	(93,092)
Other comprehensive (loss) income	(1,196)		—		17,504		16,308
Amounts reclassified from accumulated other comprehensive (loss) income	—		170		5,758		5,928

Net current-period other comprehensive (loss) income	(1,196)		170		23,262		22,236
Balance at March 31, 2022	$	(82,034)	$	(3,503)	$	14,681	$	(70,856)


	Nine Months Ended March 31, 2021
	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	19,438		—		4,544		23,982
Amounts reclassified from accumulated other comprehensive (loss) income	—		154		6,423		6,577

Net current-period other comprehensive income	19,438		154		10,967		30,559
Balance at March 31, 2021	$	(85,656)	$	(4,410)	$	(8,805)	$	(98,871)


	Index Reading
Month	MCU	PMI	IP
March 2022	78.3	57.1	102.6
February 2022	77.7	58.6	101.7
January 2022	77.0	57.6	100.5
December 2021	76.3	58.8	100.4
June 2021	75.7	60.9	98.2


	Nine Months Ended March 31, 2022				Change in $'s Versus Prior Period - % Increase
	As a Percent of Net Sales
	2022		2021
Net sales	100.0	%	100.0	%	17.5	%
Gross profit	29.1	%	28.7	%	19.0	%
Selling, distribution & administrative expense	20.1	%	21.3	%	10.6	%
Operating income	9.0	%	5.3	%	99.9	%
Net income	6.5	%	3.7	%	108.5	%


Period	(a) Total Number of Shares (1)	(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 (2)
January 1, 2022 to January 31, 2022	0	$0.00	0	352,960
February 1, 2022 to February 28, 2022	12	$98.77	0	352,960
March 1, 2022 to March 31, 2022	35,000	$101.15	35,000	317,960
Total	35,012	$101.15	35,000	317,960