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Item 7. Management’s Discussion and Analysis

2024-08-16 compared with 2023-08-11 · 78 added, 84 removed, 269 unchanged (38% of the section changed)

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We have a long tradition of growth dating back to 1923, the year our business was founded in Cleveland, Ohio.

At June 30, 2023, business was conducted in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, and Singapore from approximately 580 facilities.

At June 30, 2024, business was conducted in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, Singapore, and Costa Rica from approximately 590 facilities.

The following is Management's Discussion and Analysis of significant factors that have affected our financial condition, results of operations and cash flows during the periods included in the accompanying consolidated balance sheets, statements of consolidated income, consolidated comprehensive income and consolidated cash flows in Item 8 under the caption "Financial Statements and Supplementary Data." When reviewing the discussion and analysis set forth below, please note that a significant number of SKUs (Stock Keeping Units) we sell in any given year 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.

Our fiscal 2023 consolidated sales were $4.4 billion, an increase of $602.1 million or 15.8% compared to the prior year, with the acquisitions of R.R.

Floody Company (Floody), Automation, Inc.

and Advanced Motion Systems, Inc.

(AMS) increasing sales by $20.0 million or 0.5% and unfavorable foreign currency translation of $16.3 million decreasing sales by 0.4%.

Our fiscal 2024 consolidated sales were $4.5 billion, an increase of $66.6 million or 1.5% compared to the prior year, with the acquisitions of Grupo Kopar (Kopar), Bearing Distributors, Inc.

(BDI), Cangro Industries, Inc.

(Cangro), Advanced Motion Systems Inc.

(AMS), and Automation, Inc.

increasing sales by $56.4 million or 1.3% and favorable foreign currency translation of $6.6 million increasing sales by 0.2%.

Gross profit margin increased to 29.8% for fiscal 2024 from 29.2% for fiscal 2023.

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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 decreased since June 2022 correlating with an overall decrease in the economy in the same period.

The ISM PMI registered 46.0 in June 2023, a decrease from the June 2022 revised reading of 53.1.

The MCU (total industry) and IP indices increased since June 2023.

The ISM PMI registered 48.5 in June 2024, an increase from the June 2023 revised reading of 46.4.

A reading above 50 generally indicates expansion.

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Net Income 8.6 % 7.9 % 11.3 %

Sales in fiscal 2023 were $4.4 billion, which was $602.1 million or 15.8% above the prior year, with sales from acquisitions adding $20.0 million or 0.5% and unfavorable foreign currency translation accounting for a decrease of $16.3 million or 0.4%.

There were 252.5 selling days in both fiscal 2023 and 2022.

Excluding the impact of businesses acquired and foreign currency translation, sales were up $598.4 million or 15.7% during the year, driven by an increase from operations reflecting resilient underlying demand across both segments, structural and secular tailwinds across legacy and new markets, and support from company-specific growth opportunities.

Sales in fiscal 2024 were $4.5 billion, which was $66.6 million or 1.5% above the prior year, with sales from acquisitions adding $56.4 million or 1.3% and favorable foreign currency translation accounting for an increase of $6.6 million or 0.2%.

There were 251.5 selling days in fiscal 2024 and 252.5 selling days in 2023.

Excluding the impact of businesses acquired and foreign currency translation, sales we re up $3.6 million durin g the year.

The modest increase over the prior year was driven by our Service Center Based Distribution segment reflecting positive demand for technical MRO products and solutions, internal sales initiatives, and price increases.

This was offset by normalizing end-market demand as the year progressed, sales declines across our Engineered Solutions segment, and a decrease due to the change in sales days.

The following table shows changes in sales by reportable segment.

Amounts in millions Amount of change due to

Year ended June 30, Sales Increase Acquisitions Foreign Currency Organic Change

Year ended June 30, Sales Increase (Decrease) Acquisitions Foreign Currency Organic Change

Sales by Reportable Segment 2024 2023

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Sales in our Service Center Based Distribution segment, which operates primarily in MRO markets, increased $89.7 million, or 3.0%.

Unfavorable foreign currency translation decreased sales by $16.3 million or 0.6%.

Excluding the impact of foreign currency translation, sales increased $417.5 million or 16.2% during the year, driven by an increase from operations due to ongoing benefits from market position, sales process initiatives, solid growth across national strategic accounts, as well as benefits from cross-selling actions.

Sales in our Engineered Solutions segment increased $200.9 million or 16.1%.

Acquisitions within this segment, primarily Automation, Inc., increased sales $20.0 million or 1.6%.

Excluding the impact of businesses acquired, sales increased $180.9 million or 14.5%, reflecting positive underlying segment demand and driven by expanding technical and engineering capabilities, diverse end-market mix, and cross-selling initiatives, partially offset by slower order activity across the technology sector and ongoing supply chain constraints.

Acquisitions within this segment increased sales by $36.4 million or 1.2% and favorable foreign currency translation increased sales by $6.6 million or 0.2%.

Excluding the impact of foreign currency tr anslation, sales increased $46.7 million or 1.6% during the year, driven by an increase of 2.0% from operations reflecting positive demand for technical MRO products and solutions, internal sales initiatives, price increases, cross-selling benefits, and new growth opportunities arising from our industry position.

This was partially offset by a 0.4% decrease due to the change in sales days.

Sales in our Engineered Solutions segment decreased $23.1 million or 1.6%.

Acquisitions within this segment increased sales $20.0 million or 1.4%.

Excluding the impact of businesses acquired, sales decreased $43.1 million or 3.0%, driven by a 2.6% decline from operations primarily reflecting lower fluid power sales and, to a lesser extent, softer sales across our automation operations, as well as a decrease of 0.4% due to the change in sales days.

The sales decline was partially offset by sales growth across our flow control operations.

The following table shows changes in sales by geographical area.

Other countries include Mexico, Australia, New Zealand, and Singapore.

Other countries include Mexico, Australia, New Zealand, Singapore, and Costa Rica.

Amounts in millions Amount of change due to

Year ended June 30, Sales Increase Acquisitions Foreign Currency Organic Change

Year ended June 30, Sales Increase (Decrease) Acquisitions Foreign Currency Organic Change

Sales by Geographic Area 2024 2023

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Total $ 4,479.4 $ 4,412.8 $ 66.6 $ 56.4 $ 6.6 $ 3.6

Sales in our U.S.

Sal es in our U.S.

operations increased $71.8 million or 1.9%, with acquisitions adding $50.0 million or 1.3%.

Excluding the impact of businesses acquired, U.S.

sales were up $540.6 million or 16.4%.

Sales from our Canadian operations increased $24.0 million or 8.2%.

sales were up $21.8 million or 0.6%, driven by an increase of 1.0% from operations offset by a 0.4% decrease due to the change in sales days.

Sales from our Canadian operations decreased $5.3 million or 1.7%.

Unfavorable foreign currency translation decreased Canadian sales by $3.7 million or 1.2%.

Excluding the impact of foreign currency translation, Canadian sales were up $40.0 million or 13.7%.

Consolidated sales from our other countries operations increased $17.5 million or 8.0% compared to the prior year.

Unfavorable foreign currency translation decreased other countries sales by $0.3 million or 0.1%.

Excluding the impact of foreign currency translation, other countries sales were up $17.8 million or 8.1% compared to the prior year, driven by an increase from operations, primarily an $11.5 million increase in Mexican sales due to increased industrial activity, mainly related to the automotive industry.

Excluding the impact of foreign currency translation, Canadian sales were down $1.6 million or 0.5%, driven by a 0.4% decrease due to the change in sales days along with a decrease of 0.1% from operations.

Consolidated sales from our other countries operations increased $0.1 million or 0.1%, with acquisitions adding $6.4 million or 2.7%.

Favorable foreign currency translation increased other countries sales by $10.3 million or 4.4%.

Exc luding the impact of businesses acquired and foreign currency translation, other countries sales were down $16.6 million or 7.0%, driven by a decrease from operations, primarily in Mexican sales due to decreased industrial activity.

Our gross profit margin increased to 29.8% in fiscal 2024 compared to 29.2% in fiscal 2023.

Gross profit margin expanded year over year 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 year was negatively impacted by 18 basis points due to a $7.7 million increase in LIFO expense over the prior year.

The year over year increase primarily reflects benefits from ongoing margin initiatives, countermeasures in response to inflation dynamics, as well as a $21.2 million decrease in LIFO expense over the prior year, which positively impacted gross margins by 47 basis poi nts.

This was partially offset by unfavorable mix tied to sales declines across our Engineered Solutions segment and local customer accounts.

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

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SD&A consists of associate compensation, benefits and other expenses associated with selling, purchasing, warehousing, supply chain management, and 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, facility-related expenses and expenses incurred in acquiring businesses.

SD&A increased $64.7 million or 8.6% during fiscal 2023 compared to the prior year, and as a percentage of sales decreased to 18.4% in fiscal 2023 compared to 19.7% in fiscal 2022.

Changes in foreign currency exchange rates had the effect of decreasing SD&A by $4.3 million or 0.6% compared to the prior year.

SD&A from businesses acquired added $6.4 million or 0.9%, including $0.9 million of intangibles amortization related to acquisitions.

SD&A increased $27.0 million or 3.3% during fiscal 2024 compared to the prior year, and as a percentage of sales increased to 18.8% in fiscal 2024 compared to 18.4% in fiscal 2023.

Changes in foreign currency exchange rates had the effect of increasing SD&A by $0.7 million or 0.1% compared to the prior year.

SD&A from businesses acquired added $16.7 million or 2.0%, including $1.8 million of intangibles amortization.

Excluding the impact of businesses acquired and the unfavorable impact from foreign currency translation, SD&A increased $9.6 million or 1.2% during fiscal 2024 compared to fiscal 2023.

Excluding the impact of acquisitions, total compensation increased $47.3 million during fiscal 2023, as a result of annual calendar year merit increases and an increase in employee incentive compensation correlating with the improved company performance.

Also, excluding the impact of acquisitions, travel & entertainment and fleet expenses increased $4.7 million during 2023, primarily driven by higher fuel costs and the return of travel activity in the current year after travel constraints in the prior year due to COVID-19.

Additionally, excluding the impact of acquisitions, occupancy costs increased $5.3 million during 2023, primarily driven by increased building lease costs.

Excluding the impact of acquisitions, total compensation increased $4.3 million during fiscal 2024 primarily due to annual calendar year merit increases and benefit costs partially offset by lower incentives and commission expense.

All other expenses within SD&A were up $5.3 million.

Operating income increased $115.3 million, or 32.2%, to $473.2 million during fiscal 2023 from $357.9 million during fiscal 2022, and as a percentage of sales, increased to 10.7% from 9.4%, primarily due to gross profit margin expansion, volume leverage, and control of SD&A expense in fiscal 2023.

Operating income increased $22.7 million, or 4.8% , to $495.8 million during fiscal 2024 from $473.2 million during fiscal 2023, and as a percentage of sales, increased to 11.1% from 10.7%, primarily due to gross profit margin expansion, inclusive of lower LIFO expense, volume leverage within our Service Center Based Distribution segment, and control of SD&A expense in f iscal 2024.

Operating income, as a percentage of sales for the Service Center Based Distribution segment increased to 13.1% in fiscal 2024 from 12.6% in fiscal 2023.

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The expense allocations include corporate charges for working capital, logistics support, and other items and impact segment gross profit and operating expense.

Other expense (income), net, represents certain non-operating items of income and expense, and was $1.7 million of expense in fiscal 2023 compared to $1.8 million of expense in fiscal 2022.

Current year expense primarily consists of foreign currency transaction losses of $3.3 million and other periodic post-employment costs of $1.5 million, offset by unrealized gains on investments held by non-qualified deferred compensation trusts of $2.2 million, life insurance income of $0.7 million and other income of $0.2 million.

Fiscal 2022 expense consisted primarily of unrealized loss on investments held by non-qualified deferred compensation trusts of $2.6 million and other periodic post-employment costs of $0.6 million, offset by life insurance income of $1.4 million.

Interest expense, net decreased $18.8 million during fiscal 2024 primarily due to reduced debt levels and greater interest income from higher cash balances and investment yields.

Other (income) expense, net, represents certain non-operating items of income and expense, and was $5.1 million of income in fiscal 2024 compared to $1.7 million of expense in fiscal 2023.

Current year income primarily consists of unrealized gains on investments held by non-qualified deferred compensation trusts of $3.3 million, foreign currency transaction gains of $1.1 million and life insurance income of $0.9 million, offset by other periodic post-employment costs of $0.1 million and other expense of $0.1 million.

Fiscal 2023 expense consisted primarily of foreign currency transaction loss of $3.3 million and other periodic post-employment costs of $1.5 million, offset by unrealized gains on investments held by non-qualified deferred compensation trusts of $2.2 million, life insurance income of $0.7 million and $0.2 million of other income.

The effective income tax rate was 22.6% for fiscal 2024 compared to 22.9% for fiscal 2023.

The increase in the effective tax rate is due to changes in compensation-related deductions in fiscal 2023 compared to the prior year.

As a result of the factors discussed above, net income for fiscal 2023 increased $89.3 million from the prior year.

The decrease in the effective tax rate is primarily due to changes in compensation-related deductions in fiscal 2024 compared to the prior year.

As a result o f the factors discussed above, net income for fiscal 2024 increased $39.0 million from the prior year.

Diluted net income per share was $9.83 per share for fiscal 2024 compared to $8.84 per share for fiscal 2023.

At June 30, 2023, we had approximately 580 operating facilities in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, and Singapore at June 30, 2023, versus 568 June 30, 2022.

At June 30, 2024, we had approximately 590 operating facilities in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, Singapore, and Costa Rica, versus 580 at June 30, 2023.

The approximate number of Company employees was 6,500 at June 30, 2024 and 6,200 at June 30, 2023.

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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 if necessary based on the Company’s credit standing and financial strength.

Management also believes that additional long-term debt and line of credit financing could be obtained on commercially acceptable terms if necessary based on the Company’s credit standing and financial strength.

The Company’s working capital at June 30, 2024 was $1,268.8 million compared to $1,106.5 million at June 30, 2023.

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Exchange Rate Effect (2,937) 3,317

Increase (Decrease) in Cash and Cash Equivalents $ 159,562 $ (73,271)

The increase in cash provided by operating activities during fiscal 2023 is driven by changes in working capital for the year and by increased operating results.

Increase in Cash and Cash Equivalents $ 116,581 $ 159,562

The increase in cash provided by operating activities during fiscal 2024 is driven by changes in working capital for the year and by improved operating results.

Changes in cash flows between years related to working capital were driven by (amounts in thousands):

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Accounts payable $ (76,954)

Net cash used in investing activities in fiscal 2024 included $72.1 million used for the acquisitions of Kopar, BDI and Cangro and $24.9 million used for capital expenditures.

Net cash used in investing activities in fiscal 2023 included $35.8 million used for the acquisitions of Automation, Inc.

and AMS, and $26.5 million used for capital expenditures.

Net cash used in investing activities in fiscal 2022 included $7.0 million used for the acquisition of Floody, $14.8 million million in cash payments for loans on company-owned life insurance and $18.1 million used for capital expenditures.

Net cash used in financing activities decreased from the prior year period primarily due to a change in net debt activity, as there was $67.2 million of net debt payments in fiscal 2023 compared to $139.9 million of net debt payments in 2022.

N et cash used in financing activities increased from the prior year period primarily due to an increase in treasury purchases as $73.4 million was used to repurchase 398,000 shares of common stock which were taken into treasury in 2024 compared to $0.7 million used to repurchase 8,000 shares of common stock which were taken into treasury in 2023.

This was offset by the change in net debt activity, as there was $24.8 million of net debt payments in fiscal 2024 compared to $67.2 million of net debt payments in 2023.

Further uses of cash in 2024 were $55.9 million for dividend payments and $16.3 million used to pay taxes for shares withheld.

Further uses of cash in 2022 were $51.8 million for dividend payments, $8.1 million used to pay taxes for shares withheld, and $13.8 million used to repurchase 148,658 shares of treasury stock.

Further uses of cash in 2023 were $53.4 million for dividend payments and $12.9 million used to pay taxes for shares withheld.

The increase in dividends over the year is the result of regular increases in our dividend payout rates.

We paid dividends of $1.38 and $1.34 per share in fiscal 2023 and 2022, respectively.

We paid aggregate dividends of $1.44 and $1.38 per share in fiscal 2024 and 2023, respectively.

Capital Expenditures

We expect capital expenditures for fiscal 2024 to be in the $27.0 million to $29.0 million range, primarily consisting of capital associated with additional information technology equipment and infrastructure investments.

We expect capital expenditures for fiscal 2025 to be in the $28.0 million to $30.0 million range, primarily consisting of capital associated with focused investments for growth and information technology equipment maintenance.

Share Repurchases

The Board of Directors has authorized the repurchase of shares of the Company’s stock.

These purchases may

be made in open market and negotiated transactions, from time to time, depending upon market conditions.

At June 30, 2023, we had authorization to purchase an additional 1,500,000 shares.

The Board of Directors has authorized the repurchase of shares of the Company’s common stock.

These purchases may be made in open market or through negotiated transactions, from time to time, depending upon market conditions.

At June 30, 2024, we had remaining authorization to purchase an additional 1,102,000 shares.

In fiscal 2024, we purchased 398,000 shares of the Company's common stock at an average price per share of $184.39.

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Trade receivable securitization facility 188,300 188,300

Series C Notes — 40,000

Series D Notes — 25,000

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$ 597,334 $ 622,096

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.

In December 2021, the Company entered into a 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.

The revolving credit facility 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.

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 $0.2 million to secure certain insurance obligations, totaled $516.2 million and $489.2 million at June 30, 2023 and June 30, 2022, respectively, and were available to fund future acquisitions or other capital and operating requirements.

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

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 the net leverage ratio or SOFR plus a margin that ranges from 80 to 155 basis points based on the net leverage ratio.

Available borrowing under this facility, without exercising the accordion feature and net of outstanding letters of credit of $0.2 million to secure certain insurance obligations, totaled $515.8 million and $516.2 million at June 30, 2024 and June 30, 2023, respectively, and were available to fund future acquisitions or other capital and operating requirements.

The interest rate on the revolving credit facility was 6.24% and 6.11% as of June 30, 2024 and June 30, 2023, respectively.

Additionally, the Company had letters of credit outstanding not associated with the revolving credit agreement, in the amount of $4.0 million and $4.7 million as of June 30, 2023 and June 30, 2022, respectively, in order to secure certain insurance obligations.

Additionally, the Company had letters of credit outstanding with separate banks, not associated with the revolving credit agreement, in the amount of $4.0 million as of June 30, 2024 and June 30, 2023 in order to secure certain insurance obligations.

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 $250.0 million and increased the fees on the AR Securitization Facility to 0.98% per year.

times, we may not be able to fully access the $250.0 million of funding available under the AR Securitization Facility.

On August 4, 2023, the Company amended the AR Securitization Facility, extended the term to August 4, 2026, and reduced drawn fees to 0.90% 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.

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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.

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

The interest rate on the AR Securitization Facility as of June 30, 2024 and June 30, 2023 was 6.35% and 6.16%, respectively.

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.

At June 30, 2024 and June 30, 2023, the Company had borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management of $25.0 million and $50.0 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 remaining principal balance on the "Series C" notes of the $40.0 million was paid in July 2022 .

The "Series D" notes have a remaining principal amount of $25.0 million, carry a fixed interest rate of 3.21%, and are due in October 2023.

The "Series D" notes carried a fixed interest rate of 3.21%, and the remaining principal balance of $25.0 million was paid 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.

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At June 30, 2024, the Company's net indebtedness was less than 0.3 times consolidated income before interest, taxes, depreciation and amortization (as defined).

The Company was in compliance with all financial covenants at June 30, 2023.

T he Company was in compliance with all financial covenants at June 30, 2024.

Accounts Receivable Analysis

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Year Ended June 30, 2024 2023

Provision for losses on accounts receivable

$ 5,619 $ 3,193

(Recoveries of) provision for losses on accounts receivable $ (205) $ 5,619

Provision as a % of net sales

0.13 % 0.08 %

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 experienced a significant increase in accounts receivable during fiscal 2023 commensurate with the increase in sales.

On a consolidated basis, DSO was 56.2 at June 30, 2024 versus 55.1 at June 30, 2023.

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On an overall basis, our provision for losses from uncollected receivables represents 0.00% of our sales for the year ended June 30, 2024, compared to 0.13% of sales for the year ended June 30, 2023.

The increase primarily relates to provisions recorded in the current year for customer credit deterioration and bankruptcies primarily in the Service Center Based Distribution segment.

The decrease primarily relates to provisions recorded in the prior year for customer credit deterioration and bankruptcies primarily in the U.S.

operations of the Service Center Based Distribution segment, as well as improved collections performance.

Historically, this percentage is around 0.10% to 0.15%.

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inventories and the average cost method for foreign inventories.

Inventory increased throughout fiscal 2022 to meet increasing customer demand.

Management uses an inventory turnover ratio to monitor and evaluate inventory.

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Purchase orders for inventory and other goods and services are not included in our estimates as we are unable to aggregate the amount of such purchase orders that represent enforceable and legally binding agreements specifying all significant terms.

The previous table includes the gross liability for unrecognized income tax benefits including interest and penalties in the “Other” column as the Company is unable to make a reasonable estimate regarding the timing of cash settlements, if any, with the respective taxing authorities.

The previous table includes the gross liability for unrecognized income tax benefits including

interest and penalties in the “Other” column as the Company is unable to make a reasonable estimate regarding the timing of cash settlements, if any, with the respective taxing authorities.

CRITICAL ACCOUNTING POLICIES

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The Business and Accounting Policies note to the consolidated financial statements describes the significant accounting policies and methods used in preparation of the consolidated financial statements.

Estimates are used for, but not limited to, determining the net carrying value of trade accounts receivable, inventories, recording self-insurance liabilities and other accrued liabilities.

Estimates are used for, but are not limited to, determining the net carrying value of trade accounts receivable, inventories, recording self-insurance liabilities and other accrued liabilities.

Estimates are also used in establishing opening balances in relation to purchase accounting.

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We evaluate the recoverability of our slow-moving and inactive inventories at least quarterly.

We estimate the recoverable cost of such inventory by product type while considering factors such as its age, historic and current demand trends, the physical condition of the inventory, as well as assumptions regarding future demand.

We estimate the recoverable cost of such inventory by product type while considering factors such as its age, historic and current demand trends, and the physical condition of the inventory, as well as assumptions regarding future demand.

Our ability to recover our cost for slow moving or obsolete inventory can be affected by such factors as general market conditions, future customer demand and relationships with suppliers.

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Allowances for Doubtful Accounts

We evaluate the collectibility of trade accounts receivable based on a combination of factors.

We evaluate the collectability of trade accounts receivable based on a combination of factors.

Initially, we estimate an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience.

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As of June 30, 2024 and 2023, our allowance for doubtful accounts was 1.8% and 3.1% of gross receivables, respectively.

Our provision for losses on accounts receivable was $5.6 million, $3.2 million, and $6.5 million in fiscal 2023, 2022, and 2021, respectively.

Our (recoveries of) provision for losses on accounts receivable was $(0.2) million, $5.6 million, and $3.2 million in fiscal 2024, 2023, and 2022, respectively.

Goodwill and Intangibles

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These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital.

The judgments made in determining the estimated fair value assigned to each class of assets acquired, as well as the estimated life of each asset, can materially impact the net income of the periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future.

The judgments made in determining the estimated fair value assigned to each class of assets acquired, as well as the estimated life of each asset, can materially impact the net income of the

periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future.

As part of acquisition accounting, we recognize acquired identifiable intangible assets such as customer relationships, vendor relationships, trade names, and non-competition agreements apart from goodwill.

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The Company has eight (8) reporting units for which an annual goodwill impairment assessment was performed as of January 1, 2024.

The Company concluded that all of the reporting units’ fair values exceeded their carrying amounts by at least 20% as of January 1, 2023.

Based on the assessment performed, the Company concluded that the fair value of all of the reporting units exceeded their carrying amount as of January 1, 2024, therefore no impairment exists.

The fair values of the reporting units in accordance with the goodwill impairment test were determined using the income and market approaches.

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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.

Deferred income taxes are recorded for estimated future tax effects of differences between the bases of assets and liabilities for financial reporting and income tax purposes, giving consideration to enacted tax laws.

As of June 30, 2023, the Company recognized $35.0 million of net deferred tax liabilities.

Valuation allowances are provided against net deferred tax assets, determined on a jurisdiction by jurisdiction basis, where it is considered more-likely-than-not that the Company will not realize the benefit of such assets.

The remaining net deferred tax asset is the amount management believes is more-likely-than-not of being realized.

The realization of these deferred tax assets can be impacted by changes to tax laws, statutory rates and future taxable income levels.

CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT

39 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 7. Management’s Discussion and Analysis