What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-08-11 compared with 2022-08-12 · 136 added, 140 removed, 898 unchanged (24% of the section changed)

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill - Fluid Power & Flow Control Segment - Refer to Notes 1 and 5 to the financial statements

Goodwill - Engineered Solutions Segment - Refer to Notes 1 and 5 to the financial statements

Critical Audit Matter Description

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The determination of the fair value using the market approach 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 goodwill balance was $563.2 million as of June 30, 2022, of which $352.2 million related to reporting units within the Fluid Power & Flow Control segment.

The goodwill balance was $578.4 million as of June 30, 2023, of which $367.2 million related to reporting units within the Engineered Solutions segment.

The fair value of all reporting units exceeded their carrying value by at least 20% as of the measurement date and, therefore, no impairment was recognized.

Given the nature of one of the reporting unit’s operations within the Fluid Power & Flow Control segment, the sensitivity of the reporting unit to changes in the economy, the reporting unit’s historical performance as compared to projections, and the difference between its fair value and the carrying value, auditing management’s judgments regarding forecasts of future revenues and EBITDA, as well as selection of the discount rate and selection of multiples applied to management’s forecasted revenues and EBITDA estimates for the reporting unit, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists .

Given the nature of one of the reporting unit’s operations within the Engineered Solutions segment, the sensitivity of the reporting unit to changes in the economy, the reporting unit’s historical performance as compared to projections,

and the difference between its fair value and the carrying value, auditing management’s judgments regarding forecasts of future revenues and EBITDA, as well as selection of the discount rate and selection of multiples applied to management’s forecasted revenues and EBITDA estimates for the reporting unit, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasts of future revenues and EBITDA (“forecasts”), and the selection of the discount rate and selection of multiples applied to management’s forecasted revenues and EBITDA estimates (“market multiples”) for this reporting unit within the Fluid Power & Flow Control segment included the following, among others:

Our audit procedures related to the forecasts of future revenues and EBITDA (“forecasts”), and the selection of the discount rate and selection of multiples applied to management’s forecasted revenues and EBITDA estimates (“market multiples”) for this reporting unit within the Engineered Solutions segment included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, such as controls related to management’s forecasts and the selection of the discount rate and market multiples used.

• We evaluated management’s ability to accurately forecast by comparing actual results to management’s historical forecasts.

• We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in industry reports for the various industries the reporting unit operates within.

• We evaluated the reasonableness of management’s forecasts by comparing the current forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in industry reports for the various industries the reporting unit operates within.

• With the assistance of our fair value specialists, we evaluated the discount rate, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rate selected by management.

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We tested the underlying source information and mathematical accuracy of the calculations.

• With the assistance of our fair value specialists, we evaluated the fair value of the reporting unit based upon reconciling the fair value of the reporting unit to the market capitalization of the Company.

/s/ Deloitte & Touche LLP

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Net income per the statements of consolidated income $ 346,739 $ 257,414 $ 144,757

Other comprehensive income (loss), before tax:

Other comprehensive income, before tax:

Foreign currency translation adjustments 7,723 ( 9,862 ) 24,352

Post-employment benefits:

Actuarial gain (loss) on re-measurement 2,839 903 ( 2,192 )

Reclassification of actuarial losses (gains) and prior service cost into other expense (income), net and included in net periodic pension costs 300 270 ( 66 )

Unrealized gain (loss) on cash flow hedge 26,204 3,250 ( 16,615 )

Actuarial gain on re-measurement 405 2,839 903

Termination of pension plan 1,031 — —

Reclassification of net actuarial losses and prior service cost into other expense (income), net and included in net periodic pension costs

Unrealized gain on cash flow hedge 18,174 26,204 3,250

Reclassification of interest from cash flow hedge into interest expense ( 7,285 ) 11,361 11,553

Total other comprehensive income (loss), before tax 30,842 40,328 ( 32,734 )

Income tax expense (benefit) related to items of other comprehensive loss 10,045 3,990 ( 3,190 )

Other comprehensive income (loss), net of tax 20,797 36,338 ( 29,544 )

Comprehensive income (loss) $ 278,211 $ 181,095 $ ( 5,502 )

Total other comprehensive income, before tax 20,084 30,842 40,328

Income tax expense related to items of other comprehensive income 3,085 10,045 3,990

Other comprehensive income, net of tax 16,999 20,797 36,338

Comprehensive income $ 363,738 $ 278,211 $ 181,095

See notes to consolidated financial statements.

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Cash Flows from Financing Activities

Repayments under revolving credit facility ( 27,000 ) — —

Net borrowings under revolving credit facility — 410,592 —

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Long-term debt repayments ( 40,247 ) ( 550,493 ) ( 131,883 )

Interest rate swap settlement payments ( 5,703 ) ( 3,737 ) —

Interest rate swap settlement receipts (payments) 8,800 ( 5,703 ) ( 3,737 )

Payment of debt issuance costs — ( 1,956 ) ( 399 )

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Effect of exchange rate changes on cash 3,317 ( 2,154 ) 5,464

(Decrease) increase in cash and cash equivalents ( 73,271 ) ( 10,806 ) 160,332

Increase (decrease) in cash and cash equivalents 159,562 ( 73,271 ) ( 10,806 )

Cash and cash equivalents at beginning of year 184,474 257,745 268,551

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Income taxes $ 108,084 $ 53,301 $ 64,394

Interest $ 20,164 $ 27,492 $ 36,648

Interest (includes interest rate swap settlements) $ 22,567 $ 20,164 $ 27,492

See notes to consolidated financial statements.

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Net income 144,757 144,757

Other comprehensive income (loss) ( 29,544 ) ( 29,544 )

Cumulative effect of adopting accounting standards ( 3,275 ) ( 3,275 )

Other comprehensive income 36,338 36,338

Cash dividends — $ 1.30 per share

( 50,992 ) ( 50,992 )

Purchases of common stock for treasury ( 400 ) ( 40,089 ) ( 40,089 )

Treasury shares issued for:

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Restricted stock units 19 ( 740 ) 95 ( 645 )

Compensation expense — stock appreciation rights and options

Compensation expense — stock appreciation rights 2,526 2,526

Other share-based compensation expense

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Net income 257,414 257,414

Other comprehensive income (loss) 36,338 36,338

Other comprehensive income 20,797 20,797

Cash dividends — $ 1.34 per share

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Restricted stock units 12 ( 598 ) ( 138 ) ( 736 )

Compensation expense — stock appreciation rights and options

Compensation expense — stock appreciation rights 3,284 3,284

Other share-based compensation expense 8,558 8,558

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Net income 346,739 346,739

Other comprehensive income (loss) 20,797 20,797

Other comprehensive income 16,999 16,999

Cash dividends — $ 1.38 per share

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Restricted stock units 34 ( 1,712 ) ( 932 ) ( 2,644 )

Compensation expense — stock appreciation rights and options 3,284 3,284

Compensation expense — stock appreciation rights 2,785 2,785

Other share-based compensation expense 9,576 9,576

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The Company utilizes the income and market approaches to determine the fair value of reporting units.

Evaluating impairment requires significant judgment by management, including estimated future operating results, estimated future cash flows, the long-term rate of growth of the business, and determination of an appropriate discount rate.

Evaluating impairment requires significant judgment by management,

including estimated future operating results, estimated future cash flows, the long-term rate of growth of the business, and determination of an appropriate discount rate.

While the Company uses available information to prepare the estimates and evaluations, actual results could differ significantly.

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The Company estimates and recognizes variable consideration based on historical experience to determine the expected amount to which the Company will be entitled in exchange for transferring the promised goods or services to a customer.

The Company records variable consideration as an adjustment to the transaction price in the period it

The Company records variable consideration as an adjustment to the transaction price in the period it is incurred.

The realization of variable consideration occurs within a short period of time from product delivery;

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The Company recorded net periodic benefit costs associated with the SERP of $ 399 , $ 450 , and $ 401 in fiscal 2023 , 2022 , and 2021, respectively.

The Company expects to make payments of approximately $ 800 under the SERP in fiscal 2023 and approximately $ 200 in fiscal 2024.

The Company expects to make payments of approximately $ 1,300 under the SERP in fiscal 2024 and 2025, respectively.

Key Executive Restoration Plan

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Qualified Defined Benefit Retirement Plan

The Company has a qualified defined benefit retirement plan that provides benefits to certain hourly employees at retirement.

These employees did not participate in the Retirement Savings Plan.

The benefits are based on length of service and date of retirement.

The plan accruals were frozen as of April 16, 2018, and employees are permitted to participate in the Retirement Savings Plan, following that date.

The Company recorded net periodic cost (benefits) associated with this plan of $ 282 , $ 46 , and $( 116 ) in fiscal 2022 , 2021 , and 2020, respectively.

The Company's qualified defined benefit retirement plan provided benefits to certain hourly employees at retirement based on length of service and date of retirement.

The plan accruals were frozen as of April 16, 2018, and employees were permitted to participate in the Retirement Savings Plan, following that date.

The Company terminated the plan effective February 28, 2022.

Participants elected to receive benefits as either a lump sum payment or through an annuity contract and the settlement of $ 8,895 was paid from plan assets in the second quarter of fiscal 2023.

As a result of the plan termination, the Company recognized a loss of $ 1,184 in the year ended June 30, 2023, which is recorded in other expense (income), net in the statements of consolidated income.

The Company recorded net periodic costs associated with this plan of $ 282 and $ 46 in fiscal 2022 and 2021, respectively.

Retiree Health Care Benefits

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Year Ended June 30, 2023

Service Center Based Distribution Fluid Power & Flow Control Total

Service Center Based Distribution Engineered Solutions Total

Geographic Areas:

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Year Ended June 30, 2022

Service Center Based Distribution Fluid Power & Flow Control Total

Service Center Based Distribution Engineered Solutions Total

Geographic Areas:

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Year Ended June 30, 2021

Service Center Based Distribution Fluid Power & Flow Control Total

Service Center Based Distribution Engineered Solutions Total

Geographic Areas:

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Year Ended June 30, 2023

Service Center Based Distribution Fluid Power & Flow Control Total

Service Center Based Distribution Engineered Solutions Total

General Industry 34.0 % 41.2 % 36.2 %

Industrial Machinery 9.8 % 26.1 % 15.2 %

Metals 11.2 % 7.4 % 9.9 %

Food 13.2 % 2.7 % 9.8 %

Metals 10.6 % 7.5 % 9.6 %

Forest Products 12.1 % 2.8 % 9.1 %

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Year Ended June 30, 2022

Service Center Based Distribution Fluid Power & Flow Control Total

Service Center Based Distribution Engineered Solutions Total

General Industry 34.9 % 40.1 % 36.7 %

Industrial Machinery 10.3 % 28.3 % 16.2 %

Metals 10.5 % 6.8 % 9.3 %

Food 12.6 % 2.5 % 9.3 %

Metals 11.2 % 7.4 % 9.9 %

Forest Products 10.8 % 2.4 % 8.0 %

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Year Ended June 30, 2021

Service Center Based Distribution Fluid Power & Flow Control Total

Service Center Based Distribution Engineered Solutions Total

General Industry 35.8 % 40.0 % 37.2 %

Industrial Machinery 9.8 % 26.8 % 15.2 %

Metals 11.1 % 7.2 % 9.9 %

Food 13.5 % 2.9 % 10.1 %

Metals 10.5 % 6.8 % 9.3 %

Forest Products 10.7 % 2.9 % 8.2 %

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Year Ended June 30, 2023

Service Center Based Distribution Fluid Power & Flow Control Total

Service Center Based Distribution Engineered Solutions Total

Power Transmission 37.3 % 10.6 % 28.5 %

Fluid Power 12.8 % 37.2 % 20.8 %

General Maintenance;

Hose Products 21.1 % 19.3 % 20.6 %

Fluid Power 13.3 % 34.3 % 20.2 %

Bearings, Linear & Seals 28.3 % 0.4 % 19.1 %

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Year Ended June 30, 2022

Service Center Based Distribution Fluid Power & Flow Control Total

Service Center Based Distribution Engineered Solutions Total

Power Transmission 37.1 % 10.6 % 28.4 %

Fluid Power 13.2 % 38.0 % 21.2 %

General Maintenance;

Hose Products 20.9 % 18.9 % 20.3 %

Fluid Power 12.8 % 37.2 % 20.8 %

Bearings, Linear & Seals 29.2 % 0.4 % 19.8 %

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Year Ended June 30, 2021

Service Center Based Distribution Fluid Power & Flow Control Total

Service Center Based Distribution Engineered Solutions Total

Power Transmission 37.3 % 7.5 % 27.8 %

Fluid Power 13.4 % 39.0 % 21.3 %

General Maintenance;

Hose Products 20.5 % 16.9 % 19.3 %

Fluid Power 13.2 % 38.0 % 21.2 %

Bearings, Linear & Seals 29.0 % 0.4 % 19.8 %

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Fiscal 2023 Acquisitions

On March 31, 2023, the Company acquired substantially all of the net assets of Advanced Motion Systems Inc.

(AMS), a western New York based provider of automation products, services, and engineered solutions focused on a full range of machine vision, robotics, and motion control products and technologies.

AMS is included in the Engineered Solutions segment.

The purchase price for the acquisition was $ 10,118 , net tangible assets acquired were $ 1,768 , and intangible assets including goodwill were $ 8,350 based upon preliminary estimated fair values at the acquisition date, which are subject to adjustment.

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.

On November 1, 2022, the Company acquired substantially all of the net assets of Automation, Inc., a Minneapolis, Minnesota based provider of automation products, services, and engineered solutions focused on machine vision, collaborative and mobile robotics, motion control, intelligent sensors, pneumatics, and other related products and solutions.

Automation, Inc.

is included in the Engineered Solutions segment.

The purchase price for the acquisition was $ 25,667 , net tangible assets acquired were $ 3,689 , and intangible assets including goodwill were $ 21,978 based upon preliminary estimated fair values at the acquisition date, which are subject to adjustment.

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 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 segment.

Floody is included in the Engineered Solutions segment.

The purchase price for the acquisition was $ 8,038 , net tangible assets acquired were $ 1,040 , and intangible assets including goodwill were $ 6,998 based upon estimated fair values at the acquisition date.

The purchase price includes $ 1,000 of acquisition holdback payments, which are included in other current liabilities and other liabilities on the consolidated balance sheet as of June 30, 2022, and which will be paid on the first and second anniversaries of the acquisition date with interest at a fixed rate of 2.0 % per annum.

The purchase price includes $ 1,000 of acquisition holdback payments, of which $ 500 was paid during the year-ended June 30, 2023.

The remaining balance of $ 500 is included in other current liabilities on the consolidated balance sheet as of June 30, 2023, and will be paid on the second anniversary of the acquisition date with interest at a fixed rate of 2.0 % per annum.

The Company funded this acquisition using available cash.

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On December 31, 2020, the Company acquired 100 % of the outstanding shares of Gibson Engineering (Gibson), a Norwood, Massachusetts provider of automation products, services, and engineered solutions focused 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 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 year-ended June 30, 2022.

The remaining balance of $ 969 is included in other current liabilities on the consolidated balance sheet as of June 30, 2022, and will be paid on the second anniversary of the acquisition date with interest at a fixed rate of 1.0 % per annum.

Gibson is included in the Engineered Solutions segment.

The purchase price 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 included $ 1,904 of acquisition holdback payments, of which $ 850 was paid during the year-ended June 30, 2023.

The Company funded this acquisition using available cash.

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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.

ACS is included in the Engineered Solutions 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.

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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 2020 Acquisitions

On August 21, 2019, the Company acquired 100 % of the outstanding shares of Olympus Controls (Olympus), a

Portland, Oregon automation solutions provider - including design, assembly, integration, and distribution - of

motion control, machine vision, and robotic technologies.

Olympus is included in the Fluid Power & Flow Control

The purchase price for the acquisition was $ 36,642 , net tangible assets acquired were $ 9,540 , and

intangible assets including goodwill were $ 27,102 based upon estimated fair values at the acquisition date.

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.

Holdback Liabilities for Acquisitions

Acquisition holdback payments of approximately $ 1,469 and $ 500 will be made in fiscal 2023 and 2024, respectively.

The related liabilities for these payments are recorded in the consolidated balance sheets in other current liabilities for the amounts due in fiscal year 2023 and other liabilities for the amounts due in fiscal year 2024.

Inventories consist of the following:

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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 years ended June 30, 2022 and 2021 are as follows:

Service Center Based Distribution Fluid Power & Flow Control Total

The changes in the carrying amount of goodwill for both the Service Center Based Distribution segment and the Engineered Solutions segment for the years ended June 30, 2023 and 2022 are as follows:

Service Center Based Distribution Engineered Solutions Total

Balance at July 1, 2021 $ 212,296 $ 347,781 $ 560,077

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(ii) inability to achieve the sales from our strategic growth initiatives.

At June 30, 2022 and 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.

At June 30, 2023 and 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 benefit and consist of the following:

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Fully amortized amounts are written off.

During fiscal 2022, the Company acquired identifiable intangible assets with an 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 Intangibles Acquired $ 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 economic downturn in these end markets, the Company determined during the second quarter of fiscal 2021 that certain carrying values may not be recoverable.

During fiscal 2021, due to the economic downturn in the oil and gas end markets, the Company determined that certain carrying values may not be recoverable within the Company's three asset groups that have significant exposure to oil and gas end markets.

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.

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Sustained significant softness in certain end market concentrations could result in impairment of certain intangible assets in future periods.

During fiscal 2023, the Company acquired identifiable intangible assets with an acquisition cost allocation and weighted-average life as follows:

Acquisition Cost Allocation Weighted-Average Life

Customer relationships $ 11,176 20.0

Trade names 3,610 15.0

Other 1,025 6.7

Total Intangibles Acquired $ 15,811 18.0

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

Amortization of identifiable intangibles totaled $ 30,805 , $ 31,879 and $ 34,365 in fiscal 2023, 2022 and 2021, respectively, and is included in selling, distribution and administrative expense in the statements of consolidated income.

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Revolving credit facility $ 383,592 $ 410,592

Term Loan — 550,250

Trade receivable securitization facility 188,300 188,300

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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 $ 489,208 at 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 2.81 % as of June 30, 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 at 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.

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 year ended June 30, 2022, which are included in other current assets and other assets on the consolidated balance sheet as of June 30, 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 on the statements of consolidated income for the year ended June 30, 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 consolidated balance sheet as of June 30, 2022, and will be amortized over the five-year term of the new credit facility.

In December 2021, the Company entered into a new 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.

The revolving credit facility 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 .

In May 2023, the Company and the administrative agent entered into an amendment to the credit facility to replace LIBOR as a reference rate available for use in the computation of interest and replace it with SOFR.

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 SOFR 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 $ 516,208 and $ 489,208 at June 30, 2023 and June 30, 2022, respectively, and were available to fund future acquisitions or other capital and operating requirements.

The interest rate on the revolving credit facility was 6.11 % and 2.81 % as of June 30, 2023 and June 30, 2022, respectively.

Additionally, the Company had letters of credit outstanding not associated with the revolving credit agreement, in the amount of $ 4,046 and $ 4,735 as of June 30, 2023 and June 30, 2022, respectively, 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 $ 250,000 and increased the drawn fees on the AR Securitization Facility to 0.98 % per year.

In August 2018, the Company established a trade receivable securitization facility (the “AR Securitization Facility”).

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 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.

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operations’ trade accounts receivable.

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 Company uses the proceeds from the AR Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing costs.

In May 2023, the Company entered into an amendment to the AR Securitization facility to replace LIBOR as a reference rate available for use in the computation of interest and replace it with SOFR, therefore borrowings under this facility carry variable interest rates tied to SOFR.

The interest rate on the AR Securitization Facility as of June 30, 2023 and June 30, 2022 was 6.16 % and 2.60 %, respectively.

The new termination date of the AR Securitization Facility is March 26, 2024.

The Company classified the AR Securitization Facility as long-term debt as it has the ability and intent to extend or refinance this amount on a long-term basis.

On August 4, 2023, the Company amended the AR Securitization Facility and extended the term to August 4, 2026.

Unsecured Shelf Facility

At June 30, 2022 and June 30, 2021, the Company had borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management of $ 90,000 .

At June 30, 2023 and June 30, 2022, the Company had borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management of $ 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 carry a fixed interest rate of 3.19 %, and the re maining balance of $ 40,000 was paid in July 2022.

The remaining principal balance on the "Series C" notes of the $ 40,000 was paid in July 2022 .

The "Series D" notes have a remaining principal amount of $ 25,000 , carry a fixed interest rate of 3.21 %, and are due in October 2023.

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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.

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.

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The 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 $ 409,000 of variable rate debt to a rate of 2.75 % as of June 30, 2022.

In May 2023, the Company entered into bilateral agreements with its swap counterparties to transition its interest rate swap agreements to SOFR, and further decreased the weighted average fixed pay rate to 1.58 %.

made various ASC 848 elections related to changes in critical terms of the hedging relationship due to reference rate reform to not result in a dedesignation of the hedging relationship.

As of May 31, 2023, the Company's interest rate swap agreement was indexed to SOFR.

The interest rate swap converted $ 384,000 of variable rate debt to a rate of 2.59 % as of June 30, 2023.

The fair value (Level 2 in the fair value hierarchy) of the interest rate cash flow hedge was $ 17,827 as of June 30, 2022, which is included in other current assets and other assets in the consolidated balance sheet.

The fair value (Level 2 in the 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 consolidated balance sheet.

Amounts reclassified from other comprehensive income (loss), before tax to interest expense totaled $ 11,361 and $ 11,553 for the years ended June 30, 2022 and 2021, respectively.

The interest rate swap converted $ 409,000 of variable rate debt to a rate of 2.75 % as of June 30, 2022.

The fair value (Level 2 in the fair value hierarchy) of the interest rate cash flow hedge was $ 27,044 and $ 17,827 as of June 30, 2023 and June 30, 2022, respectively, which is included in other current assets and other assets in the consolidated balance sheet.

Amounts reclassified from other comprehensive income, before tax, to interest expense totaled $( 7,285 ), $ 11,361 , and $ 11,553 for fiscal 2023, 2022, and 2021, respectively.

FAIR VALUE MEASUREMENTS

21 unchanged sentences

Total $ 103,072 $ 72,376 $ 32,305

During the third quarter of fiscal 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted in the U.S.

As a result of the CARES Act, the Company recorded a $ 1,000 tax benefit related to the carryback of a tax net operating loss incurred in a year in which the U.S.

federal corporate income tax rate was 21 % to a year in which the U.S.

federal corporate income tax rate was higher.

Effective Tax Rates

4 unchanged sentences

State and local taxes 3.5 3.3 3.2

federal tax reform/CARES Act NOL carryback — — ( 1.8 )

Goodwill impairment — — 31.4

Stock compensation ( 1.0 ) ( 1.5 ) ( 2.5 )

16 unchanged sentences

Net operating loss carryforwards 6,809 7,371

Hedging instrument — 2,794

Capitalization of R&D costs 11,646 —

Other 381 563

21 unchanged sentences

The Company evaluates the realization of its deferred tax assets each quarter throughout the year.

D uring the years ended June 30, 2022 and 2021, the Company released a valuation allowance of $ 2,270 and recorded a valuation allowance of $ 267 , respectively, related to certain deferred tax assets in Canada.

The total valuation allowance provided against the deferred tax assets in Canada is $ 6,228 and $ 8,498 as of June 30, 2022 and 2021, respectively.

D uring the years ended June 30, 2023 and 2022, the Company recorded a net tax benefit related to the change in valuation allowances of $ 2,657 and $ 1,937 , respectively.

The total valuation allowance provided against the deferred tax assets in Canada and Mexico is $ 3,415 and $ 6,228 as of June 30, 2023 and 2022, respectively.

As of June 30, 2023, the Company had accumulated undistributed earnings of non-U.S.

16 unchanged sentences

The Company recognizes interest and penalties related to uncertain tax positions in the provision for income taxes.

During 2022, 2021, and 2020, the Company recognized $( 362 ), $ 144 , and $ 256 of (income) expense, respectively, for interest and penalties related to unrecognized income tax benefits in its statements of consolidated income.

During 2023, 2022, and 2021, the Company recognized $ 239 , $( 362 ), and $ 144 of expense (income), respectively, for interest and penalties related to unrecognized income tax benefits in its statements of consolidated income.

The Company had a liability for penalties and interest of $ 1,115 , $ 876 , and $ 1,238 as of June 30, 2023, 2022, and 2021, respectively.

12 unchanged sentences

Balance at July 1, 2020 $ ( 105,094 ) $ ( 4,564 ) $ ( 19,772 ) $ ( 129,430 )

Other comprehensive loss ( 18,764 ) ( 1,662 ) ( 12,572 ) ( 32,998 )

Amounts reclassified from accumulated other comprehensive loss — ( 50 ) 3,504 3,454

Net current-period other comprehensive loss ( 18,764 ) ( 1,712 ) ( 9,068 ) ( 29,544 )

Balance at June 30, 2020 ( 105,094 ) ( 4,564 ) ( 19,772 ) ( 129,430 )

Other comprehensive income 24,256 687 2,480 27,423

6 unchanged sentences

Balance at June 30, 2022 ( 90,738 ) ( 1,303 ) 19,746 ( 72,295 )

Other Comprehensive Income (Loss)

Details of other comprehensive income (loss) are as follows:

Other comprehensive income 7,639 1,082 13,759 22,480

Amounts reclassified from accumulated other comprehensive loss — 24 ( 5,505 ) ( 5,481 )

Net current-period other comprehensive income 7,639 1,106 8,254 16,999

Balance at June 30, 2023 $ ( 83,099 ) $ ( 197 ) $ 28,000 $ ( 55,296 )

Other Comprehensive Income

Details of other comprehensive income are as follows:

Year Ended June 30, 2023 2022 2021

Pre-Tax Amount Tax Expense Net Amount Pre-Tax Amount Tax Expense Net Amount Pre-Tax Amount Tax Expense (Benefit) Net Amount

Pre-Tax Amount Tax Expense (Benefit) Net Amount Pre-Tax Amount Tax Expense Net Amount Pre-Tax Amount Tax Expense Net Amount

Foreign currency translation adjustments

1 unchanged sentence

Post-employment benefits:

Actuarial gain (loss) on re-measurement 2,839 697 2,142 903 216 687 ( 2,192 ) ( 530 ) ( 1,662 )

Reclassification of actuarial losses (gains) and prior service cost into other expense (income), net and included in net periodic pension costs 300 72 228 270 66 204 ( 66 ) ( 16 ) ( 50 )

Unrealized gain (loss) on cash flow hedge 26,204 6,434 19,770 3,250 770 2,480 ( 16,615 ) ( 4,043 ) ( 12,572 )

Actuarial gain on re-measurement

405 100 305 2,839 697 2,142 903 216 687

Reclassification of actuarial losses and prior service cost into other expense (income), net and included in net periodic pension costs 36 12 24 300 72 228 270 66 204

Termination of pension plan 1,031 254 777 — — — — — —

Unrealized gain on cash flow hedge 18,174 4,415 13,759 26,204 6,434 19,770 3,250 770 2,480

Reclassification of interest from cash flow hedge into interest expense

( 7,285 ) ( 1,780 ) ( 5,505 ) 11,361 2,804 8,557 11,553 2,842 8,711

Other comprehensive income (loss) $ 30,842 $ 10,045 $ 20,797 $ 40,328 $ 3,990 $ 36,338 $ ( 32,734 ) $ ( 3,190 ) $ ( 29,544 )

Other comprehensive income $ 20,084 $ 3,085 $ 16,999 $ 30,842 $ 10,045 $ 20,797 $ 40,328 $ 3,990 $ 36,338

Net Income Per Share

79 unchanged sentences

Awarded 73 74.10

Forfeitures ( 2 ) 62.43

Vested ( 43 ) 53.63

45 unchanged sentences

In many cases, the previous owners of the business acquired become employees of Applied and occupy management positions within those businesses.

The payments under lease agreements of this nature totaled $ 2,100 in 2022, $ 2,100 in 2021, and $ 2,500 in 2020.

The payments under lease agreements of this nature totaled $ 1,500 in 2023, and $ 2,100 in each of 2022 and 2021.

SEGMENT INFORMATION

The Company's reportable segments are:

Service Center Based Distribution and Fluid Power & Flow Control.

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 Fluid Power & Flow Control 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.

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, and smart technologies.

The accounting policies of the Company’s reportable segments are generally the same as those described in note 1.

Intercompany sales, primarily from the Fluid Power & Flow Control segment to the Service Center Based Distribution segment of $ 37,163 , $ 31,615 , and $ 29,582 , in 2022, 2021, and 2020, respectively, have been eliminated in the following table.

Intercompany sales, primarily from the Engineered Solutions segment to the Service Center Based Distribution segment of $ 48,450 , $ 37,163 , and $ 31,615 , in 2023, 2022, and 2021, respectively, have been eliminated in the following table.

Segment Financial Information

Service Center

Based Distribution Fluid Power & Flow Control Total

Based Distribution Engineered Solutions Total

Year Ended June 30, 2023

22 unchanged sentences

Intangible amortization — Service Center Based Distribution 2,857 3,435 5,426

Intangible amortization — Fluid Power & Flow Control 28,444 28,938 29,168

Intangible amortization — Engineered Solutions 27,948 28,444 28,938

Impairment — Service Center Based Distribution — — 49,528

Impairment — Fluid Power & Flow Control — — 131,000

Corporate and other expense, net 72,887 68,788 57,642

20 unchanged sentences

Year Ended June 30, 2023 2022 2021

Unrealized loss (gain) on assets held in rabbi trust for a non-qualified deferred compensation plan $ 2,612 $ ( 4,048 ) $ ( 458 )

Foreign currency transaction (gains) losses ( 65 ) 2,091 ( 2,463 )

Net other periodic post-employment costs (benefits) 610 283 ( 120 )

Life insurance (income) expense, net ( 1,374 ) ( 296 ) 233

Unrealized (gain) loss on assets held in rabbi trust for a non-qualified deferred compensation plan $ ( 2,223 ) $ 2,612 $ ( 4,048 )

Foreign currency transaction losses (gains) 3,284 ( 65 ) 2,091

Net other periodic post-employment costs 1,470 610 283

Life insurance income, net ( 668 ) ( 1,374 ) ( 296 )

Other, net ( 162 ) 22 ( 230 )

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data