Applied Industrial Technologies - 10-Q quarterly report FY

 

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (216) 426-4000

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 þ 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 o 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.

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

 

 

INDEX

PART I: FINANCIAL INFORMATION

CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
(In thousands, except per share amounts)

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

See notes to condensed consolidated financial statements.

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In thousands)

See notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)

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

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

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

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

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

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

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

The components of comprehensive income are as follows:

The following table provides summary disclosures of the net periodic benefit costs recognized for the Company’s postemployment benefit plans:

The Company contributed $1,086 to its pension benefit plans and $16 to its retiree health care plans in the three months ended September 30, 2009. Expected contributions for all of fiscal 2010 are $1,700 for the pension benefit plans and $200 for retiree health care plans.

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

The accounting policies of the Company’s reportable segments are generally the same as those used to prepare the condensed consolidated financial statements. Sales between the Service Center Based Distribution segment and the Fluid Power Businesses segment have been eliminated.

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

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

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

Net sales by geographic area are based on the location of the company making the sale and are as follows:

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The accompanying condensed consolidated financial statements of the Company have been reviewed by the Company’s independent registered public accounting firm, Deloitte & Touche LLP, whose report covering their reviews of the condensed consolidated financial statements follows.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Applied Industrial Technologies, Inc.
Cleveland, Ohio

We have reviewed the accompanying condensed consolidated balance sheet of Applied Industrial Technologies, Inc. and subsidiaries (the “Company”) as of September 30, 2009, and the related condensed statements of consolidated income and cash flows for the three-month periods ended September 30, 2009 and 2008. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of June 30, 2009, and the related statements of consolidated income, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated August 19, 2009, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 30, 2009 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Deloitte & Touche LLP

Cleveland, Ohio
October 30, 2009

Applied Industrial Technologies (“Applied”, the “Company”, “We”, “Us” or “Our”) is an industrial distributor that offers parts critical to the operations of MRO and OEM customers in a wide range of industries. In addition, Applied provides engineering, design and systems integration for industrial and fluid power applications, as well as customized fluid power shop, mechanical and fabricated rubber services. As an authorized distributor for more than 2,000 manufacturers, we offer access to approximately 3 million stock keeping units (“SKUs”). A large portion of our business is selling replacement parts to manufacturers and other industrial concerns for repair or maintenance of machinery and equipment. We have a long tradition of growth dating back to 1923, the year our business was founded in Cleveland, Ohio. During the first quarter of fiscal 2010, business was conducted in the United States, Canada, Mexico and Puerto Rico from 462 facilities.

The following is Management’s Discussion and Analysis of certain significant factors which have affected our financial condition, results of operations and cash flows during the periods included in the accompanying condensed statements of consolidated income and consolidated cash flows. When reviewing the discussion and analysis set forth below, please note that the majority of SKUs we sell in any given period were not 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.

Consolidated net sales for the quarter ended September 30, 2009 decreased $106.2 million or 19.5% compared to the prior year quarter. Operating margin declined to 4.0% of net sales from 6.9% and net income decreased $11.3 million or 50.4% compared to the prior year quarter. Shareholders’ equity at September 30, 2009 was $512.9 million. The current ratio moved to 2.6 to one from 3.4 to one at June 30, 2009 as $50.0 million of outstanding debt moved to short-term.

Applied monitors several economic indices that have been key indicators for industrial economic activity. These include the Manufacturing Index published by the Institute for Supply Management (“ISM”), and the Manufacturing Capacity Utilization (“MCU”) index published by the Federal Reserve Board. 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. Our sales tend to lag the MCU on the upswing and move with the decline.

These indices tend to support the assertion that the overall economy may have hit bottom. The Industrial Production index hit 98.5 in September, the 3rd monthly increase. The MCU also increased for the 3rd consecutive month in September to 67.5. The ISM Manufacturing Index fell slightly in September to 52.6, and U.S. employment numbers declined by 263,000 jobs.

While there is some encouragement in those numbers, we are mindful that our results tend to lag the indices by three to six months so we need a few more months before we know if this uptick will translate into improved sales. Our sales per day increased 2.1% in the first quarter of fiscal 2010 compared to the fourth quarter of fiscal 2009, again indicating a slight uptick that correlates with these indices.

The number of Company associates was 4,635 at September 30, 2009, and 5,254 at September 30, 2008. The net reduction of 619 associates is attributable to the economic slowdown and reflects the impact of company-wide reductions in workforce and deferral of replacements for normal associate attrition. Our operating facilities totaled 462 at September 30, 2009 compared to 474 at September 30, 2008.

During the quarter ended September 30, 2009, net sales decreased $106.2 million or 19.5% compared to the prior year quarter, reflecting decreased net sales in same-store business. Net sales from acquisitions accounted for additional sales of approximately $24.4 million. The number of selling days for the quarters ended September 30, 2009 and 2008 were 64 days each.

Net sales from our Service Center Based Distribution segment decreased $107.0 million or 22.7% during the quarter ended September 30, 2009 from the same period in the prior year, attributed to declines in our same-store business.

Net sales from our Fluid Power Businesses segment increased $0.8 million or 1.1% during the quarter from the same period in the prior year. Our Fluid Power Resource, LLC (“FPR”) acquisition added $23.1 million in sales as compared to last year while our same-store business declined $22.3 million or 30.3%.

From a geographic perspective, sales from our U.S. operations were down $92.2 million which considering acquisitions translates to a decline of $116.6 million or 24.8%. Sales from our Canadian operations decreased $9.7 million with approximately $4.0 million attributable to foreign currency translation. Our Mexican operations decreased $4.3 million of which approximately $3.3 million is attributable to foreign currency translation.

During the quarter ended September 30, 2009, industrial products and fluid power products accounted for 73.5% and 26.5%, respectively, of net sales as compared to 77.4% and 22.6%, respectively, for the same period in the prior year. Acquisitions since the prior year period have been primarily in our Fluid Power Businesses segment, accounting for the shift in product mix.

Our gross profit margin decreased to 26.4% compared to the prior year’s 26.9%. This decline is primarily related to greater price competitiveness in the marketplace and the on-going challenges of passing on supplier price increases to our large contractual customers.

Given the current reduction in sales and our focus on asset management, we have undertaken an inventory management program which we expect will result in a reduction of over $60.0 million in inventory by June 30, 2010 from the June 30, 2009 level. The program calls for a decreased level of inventory purchases which we expect will result in a significantly lower level of current year purchase incentives from suppliers and a significant decline in inventories. Inventory purchase incentives flow into the income statement as inventory is sold to customers and therefore there was a minimal impact in the first quarter. The current year inventory purchase incentive reductions will negatively impact gross profit margins as we proceed through the remainder of this fiscal year. Additionally, we expect the inventory reductions to result in the liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years. The impact of these liquidations is expected to have a positive impact on our margins for the remainder of the fiscal year. We expect the impact of these items over the full fiscal year will offset, however, no assurance can be given that this will happen. We do not believe the inventory management program will impact our customer service or order fulfillment.

We recorded LIFO income of $0.7 million during the quarter ended September 30, 2009 which reduced the overall LIFO reserve by the same amount. The effect of LIFO layer liquidations during the current quarter increased gross profit by $4.4 million. There were no comparable LIFO layer liquidations recorded for the quarter ended September 30, 2008.

Selling, distribution and administrative expense (“SD&A”) was 22.3% of net sales in the quarter ended September 30, 2009 compared to 20.0% in the prior year quarter. SD&A decreased $10.9 million compared to the prior year quarter. Acquisitions added $6.7 million of SD&A, including additional amortization expense of $1.3 million. Associate compensation and benefits including amounts tied to financial performance were approximately $11.0 million lower in the current quarter as compared to the prior year quarter. Reduced discretionary spending accounts for the majority of the remaining decrease, although foreign currency translation and lower fuel costs were also favorable.

Operating income decreased 52.8% to $17.6 million during the quarter compared to $37.4 million during the prior year quarter. Operating income as a percentage of sales for the Service Center Based Distribution segment declined from 6.3% in the prior year quarter to 4.8% in the current year quarter. The Fluid Power Businesses saw operating margins decline from 8.3% to 4.4% in the comparable periods. These changes reflect the impact of a sales decline at a greater rate than SD&A expense declines.

Interest expense, net for the current quarter increased $0.5 million from the same period in the prior year. Lower invested cash balances and lower interest rates on invested cash contributed to a reduction in interest income of $0.4 million for the quarter. Interest expense increased $0.1 million from the prior year quarter due to higher average borrowings.

Other (income) expense, net for the quarter ended September 30, 2009 increased $1.1 million due to a $2.0 million fluctuation in market values of investments held by non-qualified deferred compensation trusts, partially offset by a $0.9 million unfavorable fluctuation in the fair value of a cross-currency swap.

The effective income tax rate was 33.1% for the quarter ended September 30, 2009 compared to 37.2% for the quarter ended September 30, 2008. During the quarter, we recorded $0.5 million of discrete tax adjustments relating to foreign and state income taxes.

As a result of the factors addressed above, net income decreased $11.3 million or 50.4% compared to the prior year quarter. Net income per share was $0.26 per share for the quarter ended September 30, 2009, compared to $0.52 in the prior year quarter.

Net cash provided by operating activities for the three months ended September 30, 2009 was $50.2 million. This compares to $48.9 million provided by operating activities in the same period a year ago. Cash flows in the current year period were aided by a $28.7 million reduction in inventories. We expect to continue to reduce our inventory for the remainder of fiscal 2010 ending up with a cumulative reduction of at least $60.0 million.

Net cash used in investing activities during the current year of $1.3 million was primarily used for capital expenditures. In the first quarter of fiscal 2009, we used $168.5 million in investing activities, $167.1 million for acquisitions and $1.7 million for capital expenditures.

Net cash used in financing activities was $10.9 million for the three months ended September 30, 2009. Through the first quarter in fiscal 2010, we repaid a net $5.0 million under our revolving credit facility and we paid dividends of $6.4 million. In the prior year, financing activities provided $77.1 million of cash as we borrowed a net $83.0 million on our revolving credit facility associated with the FPR acquisition. This was partially offset by dividend payments of $6.3 million in the first quarter of fiscal 2009. We did not repurchase shares of treasury stock in the first quarter of fiscal 2010 or 2009.

We have a $150.0 million revolving credit facility with a group of banks expiring in June 2012. We had $50.0 million of borrowings outstanding under this facility at September 30, 2009. The weighted average interest rate on the outstanding balance along with the related interest rate swap agreement was 3.33% at September 30, 2009. We intend to maintain a balance of at least $50.0 million outstanding on the revolving credit facility, utilizing the one-month LIBOR borrowing option though September 19, 2010, per the terms of the interest rate swap agreement. At September 30, 2009, unused lines under this facility, net of outstanding letters of credit, total $93.9 million and are available to fund future acquisitions or other capital and operating requirements.

We have an uncommitted shelf facility with Prudential Insurance Company that enables us to borrow up to $100.0 million in additional long-term financing at the Company’s discretion with terms of up to fifteen years. This agreement expires in March 2010. At September 30, 2009, there were no outstanding borrowings under this agreement. We believe in the current borrowing environment, that any funds drawn down under this facility would carry interest rates in the 5.0% to 6.0% range.

Debt classified as long-term is made up of $25.0 million of long-term debt which matures in November 2010.

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 did not acquire shares of common stock in the quarter ended September 30, 2009. At September 30, 2009, we had authorization to repurchase an additional 997,100 shares.

Management expects that our existing cash, cash equivalents, funds available under the revolving credit facility, cash provided from operations, and the use of operating leases will be sufficient to finance normal working capital needs, payment of dividends, acquisitions, investments in properties, facilities and equipment, 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, however any additional debt may be at higher rates than the Company is currently paying.

Management’s Discussion and Analysis and other sections of this report, including documents incorporated by reference, contain statements that are forward-looking, based on management’s current expectations about the future. Forward-looking statements are often identified by qualifiers, such as “expect,” “expected,” “expectation,” “believe,” “plan,” “intend,” “will,” “should,” “could,” “anticipate,” “intention,” “estimated,” “would be,” and similar 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; the impact of current economic conditions on the collectibility of trade receivables; reduced demand for our products in targeted markets due to reasons including consolidation in customer industries and the transfer of manufacturing capacity to foreign countries; changes in customer preferences for products and services of the nature and brands sold by us; changes in customer procurement policies and practices; changes in the prices for products and services relative to the cost of providing them; loss of key supplier authorizations, lack of product availability, or changes in supplier distribution programs; competitive pressures; the cost of products and energy and other operating costs; disruption of our information systems; our ability to retain and attract qualified sales and customer service personnel; our ability to identify and complete acquisitions, integrate them effectively, and realize their anticipated benefits; 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; risks related to legal proceedings to which we are a party; the variability and timing 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; the impact of our inventory management program on order fulfillment and our gross profit margin; the potential for goodwill and intangible asset impairment; changes in accounting policies and practices; organizational changes within the Company; the volatility of our stock price and the resulting impact on our consolidated financial statements; adverse regulation and legislation, including potential changes in tax regulations (e.g., those affecting the use of LIFO inventory accounting method and the taxation of foreign-sourced income); and the occurrence of extraordinary events (including prolonged labor disputes, natural events and acts of God, terrorist acts, fires, floods, and accidents). Other factors and unanticipated events could also adversely affect our business, financial condition or results of operations. We discuss certain of these matters more fully in our Annual Report on Form 10-K for the year ended June 30, 2009.

The Company has evaluated its exposure to various market risk factors, including its primary market risk exposures through the effects of changes in exchange rates and changes in interest rates. We occasionally utilize derivative instruments as part of our overall financial risk management policy, but do not use derivative instruments for speculative or trading purposes. We utilize a sensitivity analysis to measure the potential impact on earnings based on a hypothetical 1% increase in interest rates and a 10% change in foreign currency rates. A summary of our primary market risk exposures follows.

The Company manages interest rate risk through the use of a combination of fixed rate long-term debt, variable rate borrowings under its committed revolving credit agreement and interest rate swaps. At September 30, 2009, the Company had $50.0 million outstanding in variable rate borrowings under its committed revolving credit agreement. In conjunction with this facility, on September 19, 2008, the Company entered into a two-year interest rate swap agreement to effectively convert $50.0 million of variable-rate debt to fixed-rate debt at a fixed rate of 3.33%. At September 30, 2009, there is effectively no variable rate debt outstanding under the revolving credit agreement. In the current borrowing environment, we believe any borrowings beyond the amounts available under the revolving credit agreement would carry interest rates higher than our current borrowing rates.

The Company also has $25.0 million of outstanding long-term debt at fixed interest rates at September 30, 2009 which is scheduled for repayment in November 2010.

The financial statements of foreign subsidiaries are translated into their U.S. dollar equivalents at end-of-period exchange rates for assets and liabilities, while income and expenses are translated at average monthly exchange rates. Translation gains and losses are included as components of accumulated other comprehensive loss in consolidated shareholders’ equity. Transaction gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized in the consolidated statements of income as a component of other (income) expense, net. Since we operate internationally and approximately 13.5% of our year-to-date net sales were generated outside the Unites States, foreign currency exchange rates can impact our financial position, results of operations and competitive position.

The Company mitigates its foreign currency exposure from the Canadian dollar through the use of cross-currency swap agreements as well as foreign-currency denominated debt. Hedging of the U.S. dollar denominated debt, used to fund a substantial portion of the Company’s net investment in its Canadian operations, is accomplished through the use of cross-currency swaps. Any gain or loss on the hedging instrument offsets the gain or loss on the underlying debt. Translation exposures with regard to our Mexican businesses are not currently hedged.

In the three months ended September 30, 2009, we experienced foreign currency translation losses, totaling $1.2 million, net of tax, which were included in accumulated other comprehensive loss. The Canadian and Mexican foreign exchange rates to the U.S. dollar dropped by approximately 0.3% and 0.7% respectively, since the beginning of the fiscal year. A 10% strengthening from the levels at September 30, 2009 of the U.S. dollar relative to foreign currencies that affect the Company would have resulted in a $0.2 million decrease in net income for the three months ended September 30, 2009. A 10% weakening from the levels at September 30, 2009 of the U.S. dollar would have resulted in a $0.2 million increase in net income for the three months ended September 30, 2009.

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.

During the first quarter of fiscal 2010, there were no changes in the Company’s internal controls or in other factors that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings.

The Company is a party to pending legal proceedings with respect to various product liability and other matters. Although it is not possible to predict the outcome of these proceedings or the range of possible loss, the Company believes, based on circumstances currently known, that the likelihood is remote 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 in the quarter ended September 30, 2009 were as follows:

ITEM 6. Exhibits.

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.

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.

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.

EXHIBIT INDEX

TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2009