What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-08-16 compared with 2023-08-11 · 130 added, 128 removed, 906 unchanged (22% of the section changed)

6 unchanged sentences

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2023, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 11, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2024, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 16, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill - A reporting unit within the 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 $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 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.

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

Given the nature of operations for one reporting unit within the Engineered Solutions segment, the sensitivity of this reporting unit to changes in the economy, this 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 this 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 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 tested the design and 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 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.

• 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 at the reporting unit level and/or at a consolidated level, 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.

/s/ Deloitte & Touche LLP

Inventory - Refer to Notes 1 and 4 to the financial statements

Critical Audit Matter Description

As of June 30, 2024, the Company holds inventory across a large number of locations, including distribution centers, service centers, repair shops and engineered solutions operations.

The Company’s processes to track and determine consolidated inventory relies on a perpetual inventory system that varies by location based in part upon the information technology (IT) system relevant to the location.

Auditing the existence of inventory requires significant effort, the involvement of IT specialists due to the integration of IT systems that track physical inventory quantities by location, and auditor judgment in testing due to the disaggregation of inventory across the locations and the processes and controls in place.

Judgment relates to assessing whether we have obtained sufficient audit evidence, including determining the number of locations to visit.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the existence of inventory included the following, among others:

• With the assistance of our IT specialists, we tested the design and effectiveness of controls over management’s process to account for the physical existence of inventory, which included general IT controls as well as automated and manual business process controls.

• We involved senior team members to determine the extent and number of location counts to test.

• As part of our testing of the design and effectiveness of controls and of inventory, we observed management’s count procedures at certain locations and obtained and evaluated management’s audit evidence over counts at certain locations.

• We investigated any identified variations in inventory counts performed and considered the impact in the context of the inventory balance as a whole.

Cleveland, Ohio

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Selling, distribution and administrative expense, including depreciation 840,830 813,814 749,058

Impairment expense — — 49,528

Operating income 495,823 473,151 357,858

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Interest income ( 17,713 ) ( 3,151 ) ( 522 )

Other expense (income), net 1,701 1,805 ( 2,200 )

Other (income) expense, net ( 5,138 ) 1,701 1,805

Income before income taxes 498,130 449,811 329,790

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Net income per the statements of consolidated income $ 385,762 $ 346,739 $ 257,414

Other comprehensive income, before tax:

Other comprehensive (loss) income, before tax:

Foreign currency translation adjustments ( 12,544 ) 7,723 ( 9,862 )

Post-employment benefits:

Actuarial gain on re-measurement 405 2,839 903

Actuarial (loss) gain on re-measurement ( 134 ) 405 2,839

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

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

( 117 ) 36 300

Unrealized gain on cash flow hedge 5,958 18,174 26,204

Reclassification of interest from cash flow hedge into interest expense ( 18,683 ) ( 7,285 ) 11,361

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

Total other comprehensive (loss) income, before tax ( 25,520 ) 20,084 30,842

Income tax (benefit) expense related to items of other comprehensive income ( 3,250 ) 3,085 10,045

Other comprehensive (loss) income, net of tax ( 22,270 ) 16,999 20,797

Comprehensive income $ 363,492 $ 363,738 $ 278,211

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Adjustments to reconcile net income to net cash provided by operating activities:

Impairment Expense — — 49,528

Depreciation and amortization of property 23,431 22,266 21,676

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Deferred income taxes ( 1,074 ) ( 5,716 ) 15,176

Provision for losses on accounts receivable 5,619 3,193 6,540

(Recoveries of) provision for losses on accounts receivable ( 205 ) 5,619 3,193

Other share-based compensation expense 9,496 9,576 8,558

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

Net borrowings under revolving credit facility — 410,592 —

Borrowings under long-term debt facilities — — 26,000

Borrowings under revolving credit facility 408 — 410,592

Long-term debt repayments ( 25,251 ) ( 40,247 ) ( 550,493 )

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Net income 385,762 385,762

Other comprehensive income 16,999 16,999

Other comprehensive loss ( 22,270 ) ( 22,270 )

Cash dividends — $ 1.44 per share

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Applied Industrial Technologies, Inc.

and subsidiaries (the “Company” or “Applied”) is a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies.

and subsidiaries (the “Company,” “Applied,” "us," "we," or "our") is a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies.

Our leading brands, specialized services, and comprehensive knowledge serve MRO (Maintenance, Repair & Operations) and OEM (Original Equipment Manufacturer) end users in virtually all industrial markets through our multi-channel capabilities that provide choice, convenience, and expertise.

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Concentration of Credit Risk

The Company has a broad customer base representing many diverse industries across North America, Australia, New Zealand, and Singapore.

The Company has a broad customer base representing many diverse industries across North America, Australia, New Zealand, Singapore, and Costa Rica.

As such, the Company does not believe that a significant concentration of credit risk exists in its accounts receivable.

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employees participate in the Applied Industrial Technologies, Inc.

Retirement Savings Plan.

Retirement Savings Plan, a 401(k) plan.

Participants may elect 401(k) contributions of up to 50 % of their compensation, subject to Internal Revenue Code maximums.

The Company partially matches 401(k) contributions by participants.

The Company suspended the 401(k) match starting in the fourth quarter of 2020 and restored it in the third quarter of fiscal 2021.

The Company’s expense for matching of employees’ 401(k) contributions was $ 9,670 , $ 9,989 and $ 9,149 during 2024, 2023 and 2022, respectively.

Deferred Compensation Plans

The Company has deferred compensation plans that enable certain employees of the Company to defer receipt of a portion of their compensation.

The Company maintains deferred compensation plans that enable certain employees of the Company to defer receipt of a portion of their compensation.

Rabbi trusts have been established to hold and provide a measure of security for investments that fund benefits payments under these plans.

Assets held in these rabbi trusts consist of investments in money market and mutual funds and Company common stock.

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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.

The Company terminated the defined benefit retirement 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.

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

The Company recorded net periodic costs associated with this plan of $ 282 in fiscal 2022.

Retiree Health Care Benefits

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The Company’s operating lease expense is recognized on a straight-line basis over the lease term and is recorded in selling, distribution, and administrative expense on the statements of consolidated income.

Recently Issued Accounting Guidance

In December 2023, the FASB issued its final standard to improve income tax disclosures.

This standard, issued as ASU 2023-09, requires public business entities to annually disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold.

This update is effective for

annual periods beginning after December 15, 2024.

The Company has not yet determined the impact of this pronouncement on its financial statements and related disclosures.

In November 2023, the FASB issued its final standard to improve reportable segment disclosures.

This standard, issued as ASU 2023-07, requires enhanced disclosures about significant segment expenses, enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements.

This update is effective for all public entities for fiscal years beginning after December 15, 2023, with the interim disclosure requirements being effective for fiscal years beginning after December 15, 2024.

The Company has not yet determined the impact of this pronouncement on its financial statements and related disclosures.

REVENUE RECOGNITION

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The following tables present the Company's net sales by reportable segment and by geographic areas based on the location of the facility shipping the product for the years ended June 30, 2024, 2023, and 2022.

Other countries consist of Mexico, Australia, New Zealand, and Singapore.

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

Year Ended June 30, 2024

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Power Transmission 37.7 % 11.3 % 29.4 %

Fluid Power 14.1 % 36.3 % 21.1 %

General Maintenance;

Hose Products 22.1 % 17.2 % 20.5 %

Fluid Power 13.3 % 34.3 % 20.2 %

Bearings, Linear & Seals 26.1 % 0.4 % 18.0 %

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Power Transmission 37.3 % 10.6 % 28.5 %

Fluid Power 13.3 % 34.3 % 20.2 %

General Maintenance;

Hose Products 21.1 % 19.3 % 20.6 %

Fluid Power 12.8 % 37.2 % 20.8 %

Bearings, Linear & Seals 28.3 % 0.4 % 19.1 %

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Power Transmission 37.1 % 10.6 % 28.4 %

Fluid Power 12.8 % 37.2 % 20.8 %

General Maintenance;

Hose Products 20.9 % 18.9 % 20.3 %

Fluid Power 13.2 % 38.0 % 21.2 %

Bearings, Linear & Seals 29.2 % 0.4 % 19.8 %

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Fiscal 2024 Acquisitions

On May 1, 2024, the Company acquired 100 % of the outstanding shares of Grupo Kopar (Kopar), a Monterrey, Mexico based provider of emerging automation technologies and engineered solutions.

Kopar is included in the Engineered Solutions segm ent.

The purchase price for the acquisition was $ 61,225 , net liabilities assumed were $ 2,529 , and intangible assets including goodwill were $ 63,754 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 September 1, 2023, the Company acquired substantially all of the net assets of Bearing Distributors, Inc.

(BDI), a Columbia, South Carolina based provider of bearings, power transmission, and industrial motion products, and related service and repair capabilities.

BDI is included in the Service Center Based Distribution segment.

The purchase price for the acquisition was $ 17,926 , net tangible assets acquired were $ 4,086 , and intangible assets including goodwill were $ 13,840 based upon preliminary estimated fair values at the acquisition date, which are subject to adjustment.

The purchase price includes $ 1,800 of acquisition holdback payments, which are included in other current liabilities and other liabilities on the consolidated balance sheet as of June 30, 2024, and which will be paid on the first and second anniversaries of the acquisition date with interest at a fixed rate of 3.0 % per annum.

The Company funded this acquisition using available cash.

The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements.

On August 1, 2023, the Company acquired substantially all of the net assets of Cangro Industries, Inc.

(Cangro), a Farmingdale, New York based provider of bearings, power transmission, industrial motion, and related service and repair capabilities.

Cangro is included in the Service Center Based Distribution segment.

The purchase price for the acquisition was $ 6,219 , net tangible assets acquired were $ 2,175 , and intangible assets including goodwill were $ 4,044 based upon preliminary estimated fair values at the acquisition date, which are subject to adjustment.

The purchase price includes $ 930 of acquisition holdback payments, which are included in other current liabilities and other liabilities on the consolidated balance sheet as of June 30, 2024, and which will be paid on the first, second, and third anniversaries of the acquisition date with interest at a fixed rate of 1.0 % per annum.

The Company funded this acquisition using available cash.

The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements.

Fiscal 2023 Acquisitions

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

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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 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 estimated fair values at the acquisition date.

The Company funded this acquisition using available cash.

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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 purchase price for the acquisition was $ 25,617 , net tangible assets acquired were $ 3,639 , and intangible assets including goodwill were $ 21,978 based upon estimated fair values at the acquisition date.

The Company funded this acquisition using available cash.

The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements.

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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, 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.

The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements.

Fiscal 2021 Acquisitions

On December 31, 2020, 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 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.

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 October 5, 2020, the Company acquired substantially all of the net assets of Advanced Control Solutions (ACS), which operates four locations in Georgia, Tennessee and Alabama.

ACS is a provider of automation products, services, and engineered solutions focused on machine vision equipment and software, mobile and collaborative robotic solutions, intelligent sensors, logic controllers, and other related equipment.

ACS is included in the 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.

The Company funded this acquisition using available cash.

The purchase price included $ 1,000 of acquisition holdback payments, of which $ 500 was paid during the year-ended June 30, 2023, and the remaining $ 500 was paid during the year-ended June 30, 2024.

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.

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Balance at June 30, 2024 $ 219,574 $ 399,821 $ 619,395

During the first quarter of fiscal 2024, the Company recorded an adjustment to the preliminary estimated fair value of intangible assets related to the AMS acquisition.

The fair value of the trade name was reduced by $ 1,249 , with a corresponding increase to goodwill of $ 1,249 .

During the second quarter of fiscal 2024, the Company recorded an adjustment to the preliminary estimated fair value of intangible assets related to the BDI acquisition.

The fair value of the trade name was reduced by $ 2,130 , and the fair value of the customer relationship was increased by $ 70 , with a corresponding combined increase to goodwill of $ 2,060 .

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.

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

The income approach employs the discounted cash flow method reflecting projected cash flows expected to be generated by market participants and then adjusted for time value of money factors, and requires management to make significant estimates and assumptions related to forecasts of future revenues, earnings before interest, taxes, depreciation, and amortization (EBITDA), and discount rates.

The market approach utilizes an analysis of comparable publicly traded companies and requires management to make significant estimates and assumptions related to the forecasts of future revenues, EBITDA, and multiples that are applied to management’s forecasted revenues and EBITDA estimates.

The techniques used in the Company's impairment test have incorporated a number of assumptions that the Company believes to be reasonable and to reflect known market conditions at the measurement date.

Assumptions in estimating future cash flows are subject to a degree of judgment.

The Company makes all efforts to forecast future cash flows as accurately as possible with the information available at the measurement date.

The Company evaluates the appropriateness of its assumptions and overall forecasts by comparing projected results of upcoming years with actual results of preceding years.

Key assumptions (Level 3 in the fair value hierarchy) relate to pricing trends, inventory costs, customer demand, and revenue growth.

A number of benchmarks from independent industry and other economic publications were also used.

Changes in future results, assumptions, and estimates after the measurement date may lead to an outcome where additional impairment charges would be required in future periods.

Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions.

Further, continued adverse market conditions could result in the recognition of additional impairment if the Company determines that the fair values of its reporting units have fallen below their carrying values.

Certain events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the Company’s reporting units may include such items as:

(i) a decrease in expected future cash flows, specifically, a decrease in sales volume driven by a prolonged weakness in customer demand or other pressures adversely affecting our long-term sales trends;

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

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.

At June 30, 2024 and 2023, 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.

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Trade names 88,848 34,891 53,957

Vendor relationships 9,861 9,744 117

Other 4,946 1,725 3,221

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Fully amortized amounts are written off.

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.

The fair values of the long-lived assets were then determined using the income approach, and the analyses resulted in the measurement of an intangible asset impairment loss of $ 45,033 , which was recorded during the second quarter of fiscal 2021, as the fair value of the intangible assets was determined to be zero.

Key assumptions (Level 3 in the fair value hierarchy) relate to pricing trends, inventory costs, customer demand, and revenue growth.

A number of benchmarks from independent industry and other economic publications were also used.

The analyses of these asset groups also resulted in a fixed asset impairment loss and leased asset impairment loss of $ 1,983 and $ 2,512 , respectively, which were recorded during the second quarter of fiscal 2021.

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

During fiscal 2024, the Company acquired identifiable intangible assets with an acquisition cost allocation and weighted-average life as follows:

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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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Revolving Credit Facility & Term Loan

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 $ 900,000 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.

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 $ 200 to secure certain insurance obligations, totaled $ 515,800 and $ 516,208 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 $ 4,046 and $ 4,735 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 not associated with the revolving credit agreement, in the amount of $ 4,046 as of June 30, 2024 and June 30, 2023 in order to secure certain insurance obligations.

Trade Receivable Securitization Facility

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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.

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 $ 250,000 of funding available under the AR Securitization Facility.

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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.

Unsecured Shelf Facility

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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 $ 40,000 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.

The "Series D" notes carried a fixed interest rate of 3.21 %, and the remaining principal balance of $ 25,000 was paid in October 2023.

The "Series E" notes have a principal amount of $ 25,000 , carry a fixed interest rate of 3.08 %, and are due in October 2024.

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The Company designated the interest rate swap as a pay-fixed, receive-floating interest rate swap instrument and is accounting for this derivative as a cash flow hedge.

During the quarter ended December 31, 2020, the Company completed a transaction to amend and extend the interest rate swap agreement which resulted in an extension of the maturity date by an additional three years and a decrease of the weighted average fixed pay rate from 2.61 % to 1.63 %.

During fiscal 2021, the Company completed a transaction to amend and extend the interest rate swap agreement which resulted in an extension of the maturity date to January 31, 2026 and a decrease of the weighted average fixed pay rate from 2.61 % to 1.63 %.

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.

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.

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

The interest rate swap converted $ 384,000 of variable rate debt to a rate of 2.48 % as of June 30, 2024 and 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 $ 18,081 and $ 27,044 as of June 30, 2024 and June 30, 2023, 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.

Amounts reclassified from other comprehensive (loss) income, before tax, to interest expense totaled $( 18,683 ), $( 7,285 ), and $ 11,361 for fiscal 2024, 2023, and 2022, respectively.

FAIR VALUE MEASUREMENTS

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These loss carryforwards will expire at various dates beginning in 2036.

Also, as of June 30, 2023 and 2022, the Company had state net operating loss carryforwards, the tax benefit of which is approximately $ 466 and $ 878 , respectively, which will expire at various dates beginning in 2027.

As of June 30, 2024 and 2023, the Company had state net operating loss carryforwards, the tax benefit of which is approximately $ 194 and $ 466 , respectively, which will expire at various dates beginning in 2034.

Valuation allowances are provided against deferred tax assets where it is considered more-likely-than-not that the Company will not realize the benefit of such assets.

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D uring the years ended June 30, 2024 and 2023, the Company recorded a net tax benefit related to the change in valuation allowances of $ 3,283 and $ 2,657 , 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.

The total valuation allowance provided against the deferred tax assets is $ 158 and $ 3,415 as of June 30, 2024 and 2023, respectively.

As of June 30, 2024, the Company had accumulated undistributed earnings of non-U.S.

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The Company had a liability for penalties and interest of $ 1,411 , $ 1,115 , and $ 876 as of June 30, 2024, 2023, and 2022, respectively.

The Company does not anticipate a significant change to the total amount of unrecognized income tax benefits within the next twelve months.

The Company anticipates a decrease to unrecognized income tax benefits within the next twelve months of approximately $ 2,250 , of which all would affect the effective income tax rate.

Included in the balance of unrecognized income tax benefits at June 30, 2024, 2023, and 2022 are $ 2,946 , $ 4,722 , and $ 4,813 respectively, of income tax benefits that, if recognized, would affect the effective income tax rate.

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Accumulated Other Comprehensive Loss

Changes in the accumulated other comprehensive loss for the years ended June 30, 2023, 2022, and 2021, are comprised of the following amounts, shown net of taxes:

Changes in the accumulated other comprehensive loss for the years ended June 30, 2024, 2023, and 2022, are composed of the following amounts, shown net of taxes:

Foreign currency translation adjustment Post-employment benefits Cash flow hedge Total accumulated other comprehensive loss

Balance at July 1, 2021 $ ( 80,838 ) $ ( 3,673 ) $ ( 8,581 ) $ ( 93,092 )

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

Amounts reclassified from accumulated other comprehensive loss — 204 8,711 8,915

Net current-period other comprehensive income 24,256 891 11,191 36,338

Balance at June 30, 2021 ( 80,838 ) ( 3,673 ) ( 8,581 ) ( 93,092 )

Other comprehensive (loss) income ( 9,900 ) 2,142 19,770 12,012

6 unchanged sentences

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

Other Comprehensive Income

Details of other comprehensive income are as follows:

Other comprehensive (loss) income ( 12,467 ) ( 101 ) 4,499 ( 8,069 )

Amounts reclassified from accumulated other comprehensive loss — ( 93 ) ( 14,108 ) ( 14,201 )

Net current-period other comprehensive loss ( 12,467 ) ( 194 ) ( 9,609 ) ( 22,270 )

Balance at June 30, 2024 $ ( 95,566 ) $ ( 391 ) $ 18,391 $ ( 77,566 )

Other Comprehensive (Loss) Income

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

Year Ended June 30, 2024 2023 2022

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

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

Foreign currency translation adjustments

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Post-employment benefits:

Actuarial gain on re-measurement

Actuarial (loss) gain on re-measurement

( 134 ) ( 33 ) ( 101 ) 405 100 305 2,839 697 2,142

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

Reclassification of actuarial losses and prior service cost into other (income) expense, net and included in net periodic pension costs ( 117 ) ( 24 ) ( 93 ) 36 12 24 300 72 228

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

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( 18,683 ) ( 4,575 ) ( 14,108 ) ( 7,285 ) ( 1,780 ) ( 5,505 ) 11,361 2,804 8,557

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

Other comprehensive (loss) income $ ( 25,520 ) $ ( 3,250 ) $ ( 22,270 ) $ 20,084 $ 3,085 $ 16,999 $ 30,842 $ 10,045 $ 20,797

Net Income Per Share

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Such amounts are included in selling, distribution, and administrative expense in the accompanying statements of consolidated income.

The total income tax benefit recognized in the statements of consolidated income for share-based compensation plans was $ 7,886 , $ 5,105 , and $ 6,649 for fiscal years 2023, 2022, and 2021, respectively.

The total income tax benefit recognized in the statements of consolidated income for share-based compensation plans was $ 5,885 , $ 7,886 , and $ 5,105 for fiscal 2024, 2023, and 2022, respectively.

It has been the practice of the Company to issue shares from treasury to satisfy requirements of awards paid with shares.

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Awarded 42 99.79

Forfeitures ( 2 ) 62.43

Vested ( 100 ) 53.50

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The Company maintains lease agreements for many of the operating facilities of businesses it acquires from previous owners.

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 $ 1,500 in 2023, and $ 2,100 in each of 2022 and 2021.

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 $ 2,250 in 2024, $ 1,500 in 2023, and $ 2,100 in 2022.

SEGMENT INFORMATION

The Company's reportable segments are:

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.

Service Center Based Distribution and Engineered Solutions.

These reportable segments contain the Company's various operating segments which have been aggregated based upon similar economic and operating characteristics.

The Service Center Based Distribution segment operates through local service centers and distribution centers with a focus on providing products and services addressing the maintenance and repair of motion control infrastructure and production equipment.

Products primarily include industrial bearings, motors, belting, drives, couplings, pumps, linear motion products, hydraulic and pneumatic components, filtration supplies, and hoses, as well as other related supplies for general operational needs of

customers’ machinery and equipment.

The Engineered Solutions segment includes our operations that specialize in distributing, engineering, designing, integrating, and repairing hydraulic and pneumatic fluid power technologies, and engineered flow control products and services.

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Intangible amortization — Engineered Solutions 25,735 27,948 28,444

Impairment — Service Center Based Distribution — — 49,528

Corporate and other expense, net 82,280 72,887 68,788

1 unchanged sentence

Interest expense, net 2,831 21,639 26,263

Other expense (income), net 1,701 1,805 ( 2,200 )

Other (income) expense, net ( 5,138 ) 1,701 1,805

Income before income taxes $ 498,130 $ 449,811 $ 329,790

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Geographic Information

Long-lived assets are based on physical locations and are comprised of the net book value of property and right of use assets.

Long-lived assets are based on physical locations and are composed of the net book value of property and right of use assets.

Information by geographic area is as follows:

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Based on circumstances currently known, the Company does not expect that the ultimate resolution of any of these matters 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.

OTHER EXPENSE (INCOME), NET

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

OTHER (INCOME) EXPENSE, NET

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

Year Ended June 30, 2024 2023 2022

Unrealized (gain) loss on assets held in rabbi trust for a non-qualified deferred compensation plan $ ( 3,300 ) $ ( 2,223 ) $ 2,612

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

Foreign currency transaction (gains) losses ( 1,099 ) 3,284 ( 65 )

Net other periodic post-employment costs 114 1,470 610

1 unchanged sentence

Other, net 2 ( 162 ) 22

Total other expense (income), net $ 1,701 $ 1,805 $ ( 2,200 )

Total other (income) expense, net $ ( 5,138 ) $ 1,701 $ 1,805

SUBSEQUENT EVENTS

We have evaluated events and transactions occurring subsequent to June 30, 2024 through the date the financial statements were issued.

On August 1, 2024, the Company acquired substantially all of the net assets of Total Machine Solutions (TMS) and 100 % of the outstanding shares of Stanley Proctor.

TMS is a Fairfield, NJ provider of electrical and mechanical power transmission products and solutions including bearings, drives, motors, conveyor components, and related repair services.

The purchase price for TMS was $ 6,500 and it is included in the Service Center Based Distribution segment.

Stanley Proctor, based in Twinsburg, OH, provides hydraulic, pneumatic, measurement, control, and instrumentation components, as well as fluid power engineered systems.

The purchase price for Stanley Proctor was $ 3,200 and it is included in the Engineered Solutions segment.

The Company funded both acquisitions using available cash.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

1 unchanged sentence

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