ANNUAL REPORT
2024
A P P L I E D I N D U S T R I A L T E C H N O L O G I E S
INDUSTRIAL MOTION • FLUID POWER • FLOW CONTROL • AUTOMATION • MAINTENANCE SUPPLIES
Board of Directors*
Peter C. Wallace (2, 3, 4)
Chairman of the Board of Directors
Former Chief Executive Officer
Gardner Denver, Inc.
(Equipment Manufacturer)
Former President and Chief Executive Officer
Robbins & Myers, Inc.
(Equipment Manufacturer)
Madhuri A. Andrews (1, 2)
Executive Vice President
and Chief Information Officer
MKS Instruments, Inc.
(Technology Solutions Provider)
Shelly M. Chadwick (1, 2)
Vice President, Finance and
Chief Financial Officer
Materion Corporation
(High-Performance Engineered Materials)
Mary Dean Hall (1, 2)
Executive Vice President and
Chief Financial Officer
Ingevity Corporation
(Specialty Chemicals, High-Performance
Carbon Materials, and Engineered Polymers)
Dan P. Komnenovich (1, 2)**
Former President and Chief Executive Officer
Aviall, Inc.
(Aviation Parts, Related Aftermarket Operations)
Robert J. Pagano, Jr. (1, 2, 4)
President and Chief Executive Officer
Watts Water Technologies, Inc.
(Plumbing, Heating, and Water Quality Solutions)
Vincent K. Petrella (1, 2, 3, 4)
Former Executive Vice President
Lincoln Electric Holdings, Inc.
(Welding, Brazing Products Manufacturer)
Joe A. Raver (2, 3, 4)
Former President and Chief Executive Officer
Hillenbrand, Inc.
(Diversified Industrial Company)
Neil A. Schrimsher (3)
President & Chief Executive Officer
Applied Industrial Technologies, Inc.
Richard J. Simoncic***
Chief Operating Officer
Microchip Technology Inc.
(Smart, Connected, and Secure Embedded
Control Solutions)
Committees of the Board
(1) Audit Committee
Chair: Vincent K. Petrella
(2) Corporate Governance &
Sustainability Committee
Chair: Peter C. Wallace
(3) Executive Committee
Chair: Peter C. Wallace
(4) Executive Organization &
Compensation Committee
Chair: Joe A. Raver
Officers*
Neil A. Schrimsher
President & Chief Executive Officer
David K. Wells
Vice President – Chief Financial Officer,
Treasurer, & Principal Accounting Officer
Jon S. Ploetz
Vice President – General Counsel & Secretary
Warren E. “Bud” Hoffner
Vice President, General Manager –
Fluid Power & Flow Control
Kurt W. Loring
Vice President – Chief Human Resources Officer
Jason W. Vasquez
Vice President – Sales & Marketing,
U.S. Service Centers
Ryan D. Cieslak
Assistant Treasurer
Senior Management*
Mike R. Allen
President – Applied Industrial
Technologies, LP (Canada)
Ivan J. Batista
General Director – Rafael Benitez Carrillo, Inc.
(Puerto Rico)
Barbara D. Emery
Vice President – Human Resources
David S. Green
Vice President – North Atlantic Area
Thomas R. Hayes
Vice President – Southeast Area
James A. Jeffiers
Vice President – Central States Area
Lonny D. Lawrence
Vice President – Information Technology
Tracie M. Longpre
Vice President – Supply Chain
Joe Mangiapane
Managing Director – Australia & New Zealand
Jeremy S. Moorman
Vice President – Operational Excellence
Sergio H. Nevárez
President – Applied Mexico
Darren B. “Ben” Padd
Vice President – Midwest Area
William P. Rozier
Vice President – Western Area
D I R E C T O R S A N D L E A D E R S H I P T E A M
This report contains statements that are forward-looking, as that term is defined by the Securities and Exchange
Commission in its rules, regulations and releases. Applied® intends that such forward-looking statements be
subject to the safe harbors created thereby. All forward-looking statements are based on current expectations
regarding important risk factors, including those identified on pages 1, 8-13 and 26 of Applied’s Form 10-K
for the fiscal year ended June 30, 2024 included herein. Accordingly, actual results may differ materially from
those expressed in the forward-looking statements, and the making of such statements should not be regarded
as a representation by Applied or any other person that results expressed will be achieved.
* Except as indicated, as of June 30, 2024.
** Mr. Komnenovich is retiring from the Board of
Directors on October 22, 2024 in accordance
with Applied’s director retirement policy.
*** Mr. Simoncic was appointed to the Board
of Directors on August 13, 2024.
1
Fiscal 2024 was another meaningful year for Applied®. We executed well given an increasingly softer
demand backdrop, while positioning the Company for long-term success through several acquisitions
and internal growth investments. Of note, EBITDA and adjusted EPS grew by a respective 6% and 11%,
gross margins and EBITDA margins expanded to new highs, and we generated record Free Cash Flow.
These are encouraging results when considering demand headwinds emerged as the year
progressed, as well as difficult prior-year comparisons.
Softer industrial demand was evident in macro indicators
during the year, including sub-50 ISM PMI readings
and declines in industrial production. Headwinds were
most acute in technology and off-highway mobile
OEM verticals, as well as other machinery and heavy
industry segments. Despite these crosscurrents, sales
grew slightly on an organic basis as we sustained
growth within our MRO-focused Service Center and
Flow Control operations, which combined represent
more than 70% of our business.
Further, we made several bolt-on acquisitions within our
Service Center operations that strengthened our local
position along the Eastern U.S., as well as expanded
our Automation footprint in Mexico with the acquisition
of Grupo Kopar. We also advanced our commitment
around ESG through more robust reporting, solutions
that support our customers’ energy efficiency and
sustainability initiatives, and an ongoing focus on safety.
Overall, I am extremely proud of the unwavering
commitment and execution the Applied team continues
to demonstrate as we focus on creating value for all
our stakeholders.
This is evident when looking at our performance over
the past five years, which includes compounded annual
growth for sales, EBITDA, and adjusted EPS of 5%,
11%, and 17%, respectively. We also generated more
than $1.3 billion in Free Cash Flow during this period,
while meaningfully increasing our returns on capital.
These results have strengthened our Company’s value
and operational profile, as reflected in our market
capitalization now approaching $8 billion compared
to $5.5 billion entering fiscal 2024 and $2 billion in
fiscal 2020.
Lastly, we are increasingly confident in the opportunity
developing beyond our intermediate-term annual
objectives of $5.5 billion in sales and 13% EBITDA
margins considering fiscal 2024 margin performance,
nearly $2 billion of current balance sheet capacity, and
the increasing critical role we are playing across the
North American industrial sector.
T O O U R S T A K E H O L D E R S
I am extremely proud of the unwavering commitment and
execution the Applied team continues to demonstrate as
we focus on creating value for all our stakeholders.
Continued on next page
“
”
Achieved record sales, gross margin, EBITDA, EBITDA margin,
EPS, and Free Cash Flow
–
Sales of $4.5 billion, up 1.5% YoY including 0.4% on an
organic daily basis
–
EPS of $9.83; Non-GAAP adjusted EPS of $9.75,
up 11.4% YoY(a)
–
EBITDA margin of 12.4%, up 47 bps YoY;
inclusive of lower LIFO expense YoY(b)
Generated $371.4 million of operating cash, and $346.5 million
of free cash (c)
Deployed $251 million toward capex, M&A, debt reduction,
dividends, and share buybacks
Completed three acquisitions within Service Center and
Automation operations
Raised quarterly dividend to $0.37 per share, our 15th dividend
increase since 2010
F I S C A L 2 0 2 4 F I N A N C I A L H I G H L I G H T S
Refer to the inside back cover for:
(a) Reconciliation of Net Income and Net Income Per Share to
Adjusted Net Income and Adjusted Net Income Per Share
(b) Reconciliation of EBITDA
(c) Reconciliation of Free Cash Flow
3
We have seen significant positive transformation across Applied® in recent years. As I reflect on this, I believe it’s important
to highlight key enablers of our recent track record and the distinctive opportunity we see ahead. At the foundation, our
progress and future potential come from the power of the Applied team, and their commitment to our strategy and various
internal initiatives aimed at strengthening our competitive position, growing faster organically, and driving greater operating
efficiencies. This includes investments in technology, analytics, and talent, as well as the build-out of full system solutions
across new market verticals.
These initiatives have made Applied a more technical and comprehensive solutions provider across our customers’ most valuable
production equipment. They are also enhancing our ability to identify and serve growth opportunities more quickly, while increasing
strategic relationships with existing and new customers.
Equally important is our ability to consistently execute and unlock our potential from our strategy and initiatives, particularly
within today’s increasingly dynamic and evolving industrial economy. Our We Are AppliedSM business positioning and marketing
campaign comes to mind when reflecting on this. In addition to highlighting our broad portfolio of technical offerings and solutions,
We Are AppliedSM is synonymous for the attributes of our operational culture and value creation model, which provide the operating
framework to consistently “Win” in the market today and adapt toward the future. Some of these attributes include the following:
Commitment to Our Core
For more than 100 years, we have provided critical support for our customers’ motion control applications and related production
equipment. While our business has evolved with a broader portfolio of solutions and new markets, the core of our focus remains
unchanged – connecting world-class industrial products and technologies from leading suppliers to our customers’ most
critical supply-chain and production assets through premier local service, application expertise, and aftermarket support.
Our unparalleled domain knowledge across industrial facilities combined with our extensive network of local inventory, shops,
technicians, and engineers provide a compelling value proposition for both our customers and suppliers. It also enables
competitive fortitude and strategic flexibility while mitigating operational risks and miscues as industrial cycles oscillate and
market landscapes evolve.
Local Entrepreneurial Culture
We operate through a network of approximately 590 locations, including more than 550 within North America. These locations
span across our various business units that provide critical technical support at a local level. Our associates at these locations
develop deep relationships with customers, suppliers, and other business partners, as well as make key operating decisions
and manage against financial responsibilities tied to their location’s growth, margin, and working capital performance.
We believe this operating approach empowers our associates while also driving customer focus, operational accountability, and
a sense of productive urgency to execute and adapt in any environment. We balance this with centralized oversight, functions,
and leadership that instill proper controls, efficiencies, economies of scale, and strategic alignment.
Operational Focus & Capital Discipline
We focus on demonstrating productive cost control and operating rigor across all parts of an industrial cycle. This is partially
accomplished by committing to operational excellence through investments in talent management and technology, as well as
a continuous improvement culture focused on optimizing processes, safety, benchmarking, and market positioning. In addition,
we demand a returns-based approach to capital investment decision-making across the entire Company. Whether investments
for inventory, capital expenditures, or acquisitions, our associates understand the return requirements as custodians of our
shareholders’ capital and our long-term competitive position. We supplement these disciplines with rigorous financial analysis
and communication to drive transparency and proactive actions aimed at consistently achieving our commitments.
O U R P R O G R E S S & F U T U R E P O T E N T I A L
Continued on next page
4
Exposure to Industrial Mega Trends
We believe we are favorably positioned to benefit from various secular tailwinds developing across the North American
industrial market. This includes localizing and reshoring supply chains to North America, required infrastructure investments,
greater equipment maintenance and system modernization on aged industrial assets, and the build-out and maintenance
of systems used for decarbonization. In addition, sustainability initiatives, higher energy costs, and stricter environmental
standards are driving a focus on optimizing equipment efficiency and production processes through greater technical
maintenance and component upgrades. We believe our North America focus and comprehensive portfolio of technical
solutions including motion control, fluid power, specialty flow control, and automation solutions will play a critical role in
supporting these growth tailwinds.
Service Center Strategic Initiatives
Our Service Center operations remain in a strong position to drive above-market growth and margin expansion through
ongoing strategic initiatives. Of note, investments in technology, predictive analytics, talent, and shared service functions have
streamlined operating processes while enhancing our business intelligence and sales force productivity. We are also enhancing
our local market position through accretive bolt-on acquisitions that quickly assimilate into our network and help accelerate
vertical market growth and margin improvement. In addition, we are augmenting our local technical approach with investments
in digital and e-commerce channel capabilities, including recent updates to Applied.com.
Ongoing Industry Consolidation
Our customers’ supply chain focus is intensifying as they manage increasingly complex service requirements. This includes
technology advancements, structurally higher inflation, geopolitics, an increased focus on supply chain and operational
continuity, and greater U.S. manufacturing activity. We believe these considerations are accelerating consolidation across our
sector both organically and through M&A as customers increase business with larger, more capable distributors while smaller
providers face rising operational requirements. We are in a strong position to benefit from industry consolidation over the next
several years considering the high fragmentation and technical requirements associated with our industry segment, combined
with our available balance sheet capacity, acquisition experience, and service capabilities.
Cross-Selling Opportunity
We believe our expanded engineered solutions portfolio, increased scale, and technical expertise are enhancing our
cross-selling opportunity and share gain potential. From flow control products supporting process maintenance to
emerging robotic technologies addressing labor and safety initiatives at our customers’ facilities, the full suite of
technical solutions we offer today is meaningful to our value proposition. Considering the embedded customer base
across our legacy Service Center network, and a total addressable market of approximately $80 billion and growing,
we believe our cross-selling initiative represents a significant growth opportunity long term.
When taken together with our Core Values, we believe we have a strong operational foundation and strategy to sustain
above-market performance moving forward. This includes greater organic sales growth relative to our history, and
sustainable expansion in our margin and return profile as we leverage our industry position, exposure to secular
tailwinds, and ongoing self-help opportunities.
The following provides an overview of some distinctive tailwinds our business is leveraging that we believe will be central to our
performance both near term and long term:
Continued from previous page
5
Vertical Market Expansion
Our industry position and growing portfolio of technical solutions have increased our success of expanding into
new vertical markets. Many of these verticals offer attractive organic growth potential and can further diversify our
end-market mix moving forward. We are positioning teams and initiatives to capitalize on these market opportunities
and drive faster more durable organic growth long term. This includes greater cross-functional business collaboration,
supplier development, strategic M&A, and operating facility investments. Several related market verticals and examples of
our solution applications include:
—
Semiconductors: Fluid conveyance and robotics used in wafer fab equipment manufacturing
—
Datacenters: Flow control, fluid conveyance, and robotic solutions used in cooling applications and material handling
—
Life Sciences: Pneumatics, machine vision, and instrumentation used for precision motion and inspection
—
Food & Beverage: Power transmission, machine vision, and robotics used for motion control and material handling
—
Power Generation & Renewables: Valves, burners, and pumps used for new plant new builds and retrofits
Automation Expansion Potential
We have worked extensively over the past five years to establish our Automation platform with leading engineering and
application expertise across next generation technologies. Today, our Automation operations generate annualized sales of more
than $250 million with the potential to scale meaningfully higher in coming years given our internal initiatives, M&A pipeline, a
growing addressable market, cross-selling opportunities, and a developing aftermarket long term. We expect various secular
tailwinds to positively influence demand, including structural labor constraints, a heightened focus on safety and quality, and
North American reshoring activity. We believe these dynamics will accelerate the adoption of collaborative and mobile robots,
machine vision, and IoT solutions, as well as require strong application and engineering support that aligns well with our
market approach and value proposition.
Expanding Service & Solution Capabilities
Through our ongoing growth development initiatives, we are actively evaluating new business opportunities focused on
expanding our solution and service capabilities. While we remain focused on serving markets with products and solutions
close to our “Core,” we believe greater scale in certain existing capabilities and/or investments in near adjacencies could
meaningfully strengthen our competitive position, organic growth, and margin profile. This includes ongoing investments in our
digital channel, shop and belting services, and IIoT offering across our Service Center network. In addition, we are developing
new business opportunities in Fluid Power tied to machinery automation, power management, electronic control integration,
connectivity, and electrification. We also continue to evaluate service and support offerings in Automation as customer
requirements expand and aftermarket opportunities begin to emerge across our technology focus areas.
Through our ongoing growth development initiatives, we
are actively evaluating new business opportunities focused
on expanding our solution and service capabilities.
Continued on next page
“
”
6
F O C U S E D & P R U D E N T E N T E R I N G F I S C A L 2 0 2 5
Continued from previous page
Considering the various tailwinds discussed herein, we enter fiscal 2025 with strong conviction in our potential but with a
focus on executing in a slower demand environment. Of note, we believe end-market demand could remain muted near term as
customers conservatively manage operational and capital spending amid business uncertainty tied to higher interest rates and
the upcoming U.S. Election. That said, we see several potential catalysts on the horizon, including a possible re-acceleration in
U.S. industrial production following subdued activity the past 18 months. This appears reasonable when considering structural
tailwinds facing U.S. manufacturing activity, aged industrial production assets requiring maintenance and modernization,
and potential interest rate cuts as the year evolves.
In addition, demand across our technology vertical is poised
to rebound following notable contraction over the past year.
Our exposure to this vertical has increased in recent cycles,
including representing approximately 15% of our Engineered
Solutions segment on prior peak sales. We provide various
fluid conveyance, pneumatic, process control, and automation
solutions to production supply chains and infrastructure
across semiconductor and electronics manufacturing. Recent
indicators suggest demand for semiconductors and related
fabrication equipment could begin to recover in fiscal 2025.
We are also positioned to benefit from ongoing growth across
datacenter infrastructure, including providing various flow
control and robotics solutions for server cooling, material
handling, and technical maintenance.
Further, we believe sales and margin contribution from our
Automation platform could inflect positively in fiscal 2025 following
recent weaker performance across the discrete automation
space industry wide. Of note, our Automation sales funnel and
pre-sales engineering work remain high, including cross-selling
opportunities developing at top national Service Center accounts.
We should also benefit from our expanding Automation footprint
and network capacity. This includes progress with greenfield
initiatives, a recent facility expansion in the Pacific Northwest,
and ongoing M&A. We expect our acquisition of Grupo Kopar in
May 2024 to further supplement this positive momentum through
the expansion into Mexico and accretive margin contributions.
Our Flow Control business funnel also remains active reflecting
our customers’ decarbonization initiatives and energy transition
efforts. This includes technical support for the configuration,
assembly, and testing of process systems used for carbon capture
utilization and storage, as well as producing alternative fuel
sources. Recurring MRO activity on critical process infrastructure
and backlog conversion should provide additional support for this
higher margin area of our business. Today, overall Flow Control
sales represent approximately 15% of our total business.
Combined with easing comparisons and our M&A pipeline, we
see a path for year-over-year sales trends to gradually improve
through fiscal 2025. That said, we remain prudent with our initial
outlook pending more definitive signs of a rebound in end-market
demand. As our track record shows, we know how to execute in
any environment given numerous self-help opportunities and our
operational discipline, which will provide support if the period of
softer demand prolongs.
Lastly, we have a substantial opportunity to grow and enhance
stakeholder returns by continuing to deploy capital in a disciplined
approach with balance sheet net leverage at 0.2x, more than
$400 million of cash on hand, and available debt capacity. Our
priorities remain focused on optimizing our growth and operating
capabilities through both organic investments and inorganic
acquisitions. Secondarily, we will look to return excess cash
through opportunistic share buybacks, as well as ongoing growth
in our ordinary dividend. Over the past five years, we have
deployed more than $1 billion in capital toward these areas and
ongoing debt reduction.
Overall, I remain excited about our potential, particularly when broader
end-market demand begins to re-accelerate. Our Company is in great
shape financially and positioned as a leading beneficiary of various
secular tailwinds facing the industrial economy for many years.
Thank you for your continued trust and support alongside our
journey. I remain honored and humbled to serve this incredible
organization and look forward to expanding on our progress in
fiscal 2025 and years to come.
Neil A. Schrimsher
President & Chief Executive Officer
August 16, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ___ to ___
Commission file number 1-2299
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Ohio
34-0117420
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
1 Applied Plaza Cleveland Ohio
44115
(Address of Principal Executive Offices)
(Zip Code)
(216) 426-4000
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, without par value
AIT
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-
based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to
§240.1D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference
to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant's most recently completed second fiscal quarter (December 31, 2023): $6,623,721,000.
The registrant had outstanding 38,358,730 shares of common stock as of August 2, 2024.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual meeting of shareholders of Applied Industrial Technologies, Inc., to be held
October 22, 2024, are incorporated by reference into Parts II, III, and IV of this Form 10-K.
TABLE OF CONTENTS
Page
CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT
1
PART I
Item 1.
Business
2
Item 1A.
Risk Factors
8
Item 1B.
Unresolved Staff Comments
13
Item 1C.
Cybersecurity
13
Item 2.
Properties
13
Item 3.
Legal Proceedings
15
Item 4.
Mine Safety Disclosures
15
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
15
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
16
Item 6.
Selected Financial Data
16
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
17
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
27
Item 8.
Financial Statements and Supplementary Data
28
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
58
Item 9A.
Controls and Procedures
58
Item 9B.
Other Information
60
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
60
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
60
Item 11.
Executive Compensation
60
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
61
Item 13.
Certain Relationships and Related Transactions, and Director Independence
61
Item 14.
Principal Accountant Fees and Services
61
PART IV
Item 15.
Exhibits and Financial Statement Schedules
62
Item 16.
Form 10-K Summary
65
66
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SIGNATURES
67
CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT
This report, including the documents incorporated by reference, contains statements that are forward-
looking, based on management's current expectations about the future. Forward-looking statements are
often identified by qualifiers such as “guidance,” “expect,” “believe,” “plan,” “intend,” “will,” “should,”
“could,” “would,” “anticipate,” “estimate,” “forecast,” “may,” "optimistic" and derivative or similar
words or expressions. Similarly, descriptions of our objectives, strategies, plans, or goals are also forward-
looking statements. These statements may discuss, among other things, expected growth, future sales,
future cash flows, future capital expenditures, future performance, and the anticipation and expectations
of Applied Industrial Technologies, Inc. ("Applied") and its management as to future occurrences and
trends. Applied intends that the forward-looking statements be subject to the safe harbors established in
the Private Securities Litigation Reform Act of 1995 and by the Securities and Exchange Commission in its
rules, regulations, and releases.
Readers are cautioned not to place undue reliance on forward-looking statements. All forward-looking
statements are based on current expectations regarding important risk factors, many of which are outside
Applied's control. Accordingly, actual results may differ materially from those expressed in the forward-
looking statements, and the making of those statements should not be regarded as a representation by
Applied or another person that the results expressed in the statements will be achieved. In addition,
Applied assumes no obligation publicly to update or revise forward-looking statements, whether because
of new information or events, or otherwise, except as may be required by law.
Applied believes its primary risk factors include, but are not limited to, those identified in the following
sections of this annual report on Form 10-K: “Risk Factors” in Item 1A; “Narrative Description of Business,”
in Item 1, section (c); and “Management's Discussion and Analysis of Financial Condition and Results of
Operations” in Item 7. PLEASE READ THOSE DISCLOSURES CAREFULLY.
1
PART I
ITEM 1. BUSINESS.
In this annual report on Form 10-K, “Applied” refers to Applied Industrial Technologies, Inc., an Ohio corporation.
References to “we,” “us,” “our,” and “the Company” refer to Applied and its subsidiaries.
We are a leading distributor and solutions provider of industrial motion, power, control, and automation
technologies. Through our comprehensive network of approximately 6,500 employee associates and approximately
590 facilities including service center, fluid power, flow control, and automation operations, as well as repair shops
and distribution centers, we offer a selection of more than 9.1 million stock keeping units with a focus on industrial
bearings, power transmission products, fluid power components and systems, specialty flow control, and advanced
factory automation solutions. We market our products with a set of service solutions including inventory
management, engineering, design, assembly, repair, and systems integration, as well as customized mechanical,
fabricated rubber, and shop services. Our customers use our products and services for both MRO (maintenance,
repair, and operating) and OEM (original equipment manufacturing) applications across a variety of end markets
primarily in North America, as well as Australia, New Zealand, Singapore, and Costa Rica. Headquartered in
Cleveland, Ohio, Applied and its predecessor companies have engaged in business since 1923.
Our internet address is www.applied.com. The following documents are available via hyperlink from the investor
relations area of our website:
•
Applied's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports, together with Section 16 insider beneficial stock ownership reports - these
documents are posted as soon as reasonably practicable after they are electronically filed with, or furnished to,
the Securities and Exchange Commission
•
Applied's Code of Business Ethics
•
Applied's Board of Directors (our "Board" or "Board of Directors") Governance Principles and Practices
•
Applied's Director Independence Standards
•
Charters for the Audit, Corporate Governance & Sustainability, and Executive Organization & Compensation
Committees of Applied's Board of Directors
The information available via hyperlink from our website is not incorporated into this annual report on Form 10-K.
GENERAL DEVELOPMENT OF BUSINESS
Information regarding developments in our business can be found in Item 7 under the caption “Management's
Discussion and Analysis of Financial Condition and Results of Operations.” This information is incorporated here by
reference.
VALUE PROPOSITION
We serve a segment of the industrial market that requires technical expertise and service given that our products and
solutions are directly tied to companies’ production process, efficiency initiatives, and most critical operating assets.
As such, we believe we are integral to our customers’ supply chains considering the critical nature and direct
exposure that our solutions have on our customers’ core production equipment and plant capabilities. While we
compete with other distributors and service providers offering products and solutions addressing this area of the
industrial supply chain, we believe our industry position and value proposition benefits from relative advantages tied
to the following key attributes:
1) Technical expertise in motion control technologies and related service offerings
2) Extensive knowledge of customer's facility and production equipment
3) Broad in-stock product offering, inventory availability, and repair capabilities
4) Tenured relationships with industrial customers and leading suppliers
5) Scale and proximity of our service center network relative to customer facilities
6) Leading positions in engineered fluid power and flow control solutions
7) Advanced capabilities in automation solutions and smart technologies
8) Talent acquisition and development of technically-oriented sales associates, engineers, and service personnel
9) Business systems and distribution capabilities
10) Complementary offerings including indirect consumable supply inventory management
We focus on helping customers minimize their production downtime, improve machine performance, and reduce
overall procurement and maintenance costs, as well as optimize the efficiency and safety of their facilities and
equipment. A primary focus for our service center network is responding to a critical “break-fix” situation, which
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requires knowledge of a customer’s facility, localized inventory, timely delivery capabilities, service execution, and
accountability. In addition, our fluid power, flow control, and automation operations design, engineer, and
integrate solutions focused on making a customer’s operations and equipment more productive, cost and energy-
efficient, and automated. We believe our products and solutions are increasingly critical within the industrial supply
chain given increased manufacturing activity in the U.S., reshoring or localization of supply chains across North
America, a greater focus on supply chain resiliency following the pandemic, an aging and tighter customer labor
force, more sophisticated production equipment and processes, a greater focus on plant floor optimization, and
compliance and regulatory requirements.
INDUSTRY AND COMPETITION
We primarily compete within North America which we believe offers significant growth potential given our industry
position, established distribution and sales network, market fragmentation, and customer technical requirements, as
well as opportunities tied to greater demand for automation and smart technologies across the industrial sector. In
addition, we believe reshoring and localization of supply chains, required infrastructure investments, and a greater
focus on energy efficiency will be meaningful growth catalysts in years to come. Growth within our industry is
influenced by broader industrial production and capacity utilization, as well as inflation, labor dynamics, capital
spending, geopolitical events, factory optimization initiatives, changes in industrial equipment technologies, and
supply chain requirements.
The broader industrial distribution market is highly fragmented with participants varying in size, product focus, and
capabilities. Our principal competitors are specialist and general line distributors of bearings, power transmission
products, fluid power components and systems, flow control solutions, industrial rubber products, linear motion
components, and automation solutions, and, to a lesser extent, providers of tools, safety products, and other
industrial and maintenance supplies. These competitors include local, regional, national, and multinational
operations. We also compete with original equipment manufacturers and integrators. The identity and number of
our competitors vary throughout the geographic, industry, and product markets we serve.
STRATEGIC GROWTH AND OPERATIONAL OPPORTUNITIES
•
Optimize operations and capture market share across our core service center network. Our network
of service centers located close to industrial companies allows us to respond quickly and effectively to critical
MRO situations involving direct production infrastructure and industrial equipment. We believe our technical
domain expertise and access to core industrial equipment across our customers' facilities puts us in a leading
position to support their technical MRO and production requirements. These requirements are elevated
industry-wide given aged industrial production assets, increased focus on energy efficient equipment, more
sophisticated industrial production processes, customer labor constraints, and increased manufacturing activity
across North America. In addition, we continue to deploy initiatives to further enhance our capabilities across
our service center network and gain market share. These include investments in analytics, strategic account
penetration, sales process optimization, greater shop and conveyance capabilities, talent development, and
digital channel solutions, as well as fully leveraging and cross-selling our expanded product and engineered
solutions across fluid power, flow control, automation, and consumables solutions.
•
Extend our leading fluid power and flow control position as demand for comprehensive solutions
grows. We provide innovative fluid power and flow control solutions including systems design and
engineering, electronic control integration, software programming, valve actuation, compliance consulting,
fabrication and assembly, and dedicated service and repair. Demand for these solutions is increasing across a
variety of industrial, off-highway mobile, technology, and process related applications given a greater focus on
power consumption, plant efficiency and automation, emissions control, electrification, remote monitoring,
advancements in machining, regulatory and compliance standards, and data analytics. In addition, our flow
control operations are benefiting from our customers' decarbonization and energy transition efforts in which
we see a notable and sustainable long-term opportunity. This includes technical support for the configuration,
assembly, and testing of process systems used for carbon capture utilization and storage, as well as producing
alternative fuel sources. Further, we believe our service and engineering capabilities, shop network, and
supplier relationships, combined with our software coding and smart technology application knowledge, are
key competitive advantages. We see opportunities to leverage these advantages across new and underserved
geographies, as well as through new commercial solutions that could drive a greater share gain of this market
opportunity in coming years.
•
Expand automation platform and continue to grow around emerging industrial technologies. We are
expanding our position and capabilities focused on advanced factory automation and smart technologies that
optimize and connect customers’ industrial supply chains. We believe we have a favorable position to capture
3
this addressable market given our technical product focus, service capabilities, embedded customer
relationships and knowledge across direct production infrastructure and equipment, and existing supplier
relationships. Following several business acquisitions made in recent years, we now offer products and
solutions focused on the design, assembly, integration, and distribution of machine vision, robotics, digital
networking, and motion control technologies. Our emerging growth across these areas is diversifying our end-
market exposure with greater penetration into technology, life sciences, logistics, and food and beverage
industries. We expect to continue to expand our automation footprint and capabilities in coming years, as well
as pursue opportunities tied to the Industrial Internet of Things (IIoT). We believe this market potential could be
meaningful as technology continues to converge within traditional industrial supply chains and end-markets.
•
Leverage portfolio breadth to cross-sell and capture new growth opportunities. Through various
acquisitions and internal initiatives, we have expanded the breadth of technical products and solutions we offer
to customers. From flow control products supporting process maintenance to emerging robotic technologies
addressing labor and safety initiatives at our customers’ facilities, the full suite of technical solutions we offer
today is meaningful to our value proposition. We believe our expanded solutions portfolio, scale, and technical
expertise is enhancing our cross-selling opportunity and share gain potential as customers continue to
consolidate their spend with more capable distributors. Considering the embedded customer base across our
legacy service center network, and addressable market of approximately $80 billion and growing, we believe
our cross-selling initiative represents a significant long-term growth opportunity. This includes accelerating our
ability to expand with strategic accounts and penetrate faster growing market verticals such as food &
beverage, semiconductor, datacenters, life sciences, pharmaceutical, power generation, and alternative energy.
•
Execute ongoing operational initiatives supporting margin expansion. We have a number of initiatives
focused on driving operational improvements throughout the organization. Systems investments in recent
years including common enterprise resource planning platforms are supporting opportunities in leveraging
shared services, refining our sales management process, and standardizing pricing and sourcing functions,
while we continue to optimize our shop and distribution network and analytics. We also remain focused on
achieving margin synergies across our operations following expansion into flow control and automation. This
includes enhanced pricing functions, leveraging vendor procurement, freight savings, and refined cost
management. In addition, as our growth profile and operating efficiencies have strengthened, we are seeing a
greater level of operating leverage through a cycle. Combined with growth in more profitable areas of our
business and our history of cost accountability, we see ongoing opportunity to optimize our margin profile and
cash generation in coming years.
•
Pursue value-creating acquisitions to supplement growth and strengthen industry position.
We expect to pursue additional acquisitions aligned with our growth strategy and long-term financial targets.
We view acquisitions as an important growth opportunity given high fragmentation, greater operational and
technical requirements, and supplier authorizations within the markets we serve. We believe our sourcing
strategy, cash generation capabilities, industry relationships, and operational discipline are key to our
acquisition success. In addition, dedicated corporate teams and related support functions provide strategic
oversight of critical work streams and integration execution, which we believe enhances our ability to capture
synergistic value. Over the near to intermediate-term, our acquisition priorities are focused on continuing to
expand our current offerings including the ongoing expansion of our Engineered Solutions segment, while
further enhancing our technical differentiation and value-added service capabilities.
OPERATIONS
Our distribution and sales network consists of approximately 440 locations in our Service Center Based Distribution
segment and approximately 150 locations in our Engineered Solutions segment. This includes service centers,
distribution centers, and facilities tied to our fluid power, flow control, and automation operations. Our service
centers resemble local inventory hubs located in close proximity to our customers and focused primarily on technical
MRO related fulfillment and service needs. Our fluid power, flow control, and automation locations support
technical and shop-oriented services integral to the more specialized and integrated nature of the products and
solutions they provide. Other operations and channels through which we market include inventory management
services for indirect consumable supplies and digital solutions including our Applied.com website, electronic data
interchange (EDI) and other electronic interfaces with customers' technology platforms and plant maintenance
systems.
Our distribution centers provide daily service to our service centers, helping replenish inventories and shipping
products directly to customers where appropriate. An efficient supply chain and timely delivery of our products is
vital to our value proposition particularly when customers require products for emergency repairs. We utilize
dedicated third-party transportation providers and our own delivery vehicles, as well as surface and air common
4
carrier and courier services. Customers may also pick up items at our service centers. We maintain product
inventory levels at each service center tailored to the local market. These inventories consist of standard items as
well as other items specific to local customer demand.
Our operations are primarily based in the U.S. where 88% of our fiscal 2024 sales were generated. We also have
international operations, the largest of which is in Canada (6% of fiscal 2024 sales) with the balance (6% of fiscal
2024 sales) in Mexico, Australia, New Zealand, Singapore, and Costa Rica.
SUPPLIERS
We are a leading distributor of products including bearings, power transmission products, engineered fluid power
components and systems, specialty flow control solutions, advanced automation products, industrial rubber
products, linear motion components, tools, safety products, and other industrial and maintenance supplies.
These products are generally supplied to us by manufacturers whom we serve as a non-exclusive distributor. The
suppliers also may provide us product training, as well as sales and marketing support. Authorizations to represent
particular suppliers and product lines vary by geographic region, particularly for our fluid power, flow control, and
automation businesses. We believe our supplier relationships are generally good, and many have existed for
decades. The disruption of relationships with certain suppliers, or the disruption of their operations, could adversely
affect our business.
Our product suppliers typically confine their direct sales activities to large-volume transactions, mainly with large
original equipment manufacturers. The suppliers generally do not sell maintenance and repair products directly to
the customer, but instead refer the customer to us or another distributor.
MARKETS
We purchase from thousands of product manufacturers and resell the products to thousands of customers in a wide
variety of industries, including food processing, cement, chemicals and petrochemicals, fabricated metals, forest
products, industrial machinery and equipment, life sciences, mining, oil and gas, primary metals, technology,
transportation, and utilities, as well as to government entities. Customers range from very large businesses, with
which we may have multiple-location relationships, to very small ones. We are not significantly dependent on a
single customer or group of customers, the loss of which would have a material adverse effect on our business as a
whole, and no single customer accounts for more than 5% of our fiscal 2024 sales.
SERVICES
We believe part of our success, differentiation, and competitive advantage is attributable to the comprehensive set of
services and solutions we provide, which we view as critical given the technical nature and application of our core
product offering of motion, power, control, and automation technologies. The foundation of our service capabilities
lies with our technically-oriented associate team, which includes engineers, industry segment specialists, mechanics,
technicians, fluid power specialists, as well as our systems, shop network, and supplier relationships. We believe
knowledge and service capabilities relating to our core product offering are increasingly needed across our customer
base given skilled labor constraints within their operations, maintenance requirements, and more sophisticated plant
equipment and processes. Our services and solutions help customers minimize production downtime, improve
machine performance, expand their engineering capabilities, and reduce overall procurement and maintenance
costs. By providing high levels of service, product and industry expertise, and technical support, while at the same
time offering product breadth and competitive pricing, we believe we develop stronger, longer-lasting, and more
profitable customer relationships. See the Reportable Segments section below for more detail on the various service
solutions we provide to customers.
REPORTABLE SEGMENTS
We report results of operations in two segments: 1) Service Center Based Distribution, and 2) Engineered Solutions.
In fiscal 2024, our Service Center Based Distribution segment represented 68% of our total sales, while our
Engineered Solutions segment represented 32% of our total sales.
Service Center Based Distribution. Our Service Center Based Distribution segment includes our MRO distribution
operations across North America, Australia, and New Zealand. This business 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.
5
Service center locations are stocked with product inventory tailored to each local market and staffed with customer
sales and service representatives, and account managers, as well as product and industry specialists. Customer sales
and service representatives receive, process, and expedite customer orders, provide product information, and assist
account managers in serving customers. Account managers make onsite calls to customers to provide product
information, identify customer requirements, make recommendations, and assist in implementing equipment
maintenance and storeroom management programs. Industry specialists assist with product applications in their
areas of expertise. Service centers market product offerings with a suite of services that create additional value for
the customer. This includes onsite training, product fabrication and repair, and inventory management solutions.
We also provide analysis and measurement of productivity improvement and cost savings potential from these
services through our Applied Documented Value-Added® (DVA®) reports.
The segment includes operations focused on certain end markets and indirect consumable supplies through vendor
managed inventory solutions, as well as regional fabricated rubber shops and service field crews, which install,
modify, and repair conveyor belts and rubber linings, and make hose assemblies in accordance with customer
requirements.
Engineered Solutions. Our 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. We believe we are the largest distributor and solutions provider of
fluid power and industrial flow control products and solutions in the U.S. The segment also includes our operations
that focus on advanced automation solutions, including machine vision, robotics, motion control, and smart
technologies.
Our fluid power operations offer products and services primarily used within industrial, off-highway mobile, and
technology applications. Fluid power products include hydraulic and pneumatic technologies using liquids and gases
to transmit power, typically in smaller spaces than other forms of power transmission. Hydraulic products offer high
power to weight ratios, high torque at low speeds, and power reliability, while pneumatic products are focused on
lightweight applications in need of speed and precision. Our fluid power products and solutions are commonly used
for off-highway equipment, heavy industrial equipment and machines at factories, marine and offshore equipment,
factory automation, food processing equipment, packaging operations, and downstream energy process systems.
Operations are supported by a team of certified fluid power specialists, mechanics, technicians, and engineers that
provide technical services ranging from system design and integration, electronic control integration, hydraulic
assemblies, repair and rebuild, manifold design and assembly, customized filtration solutions, software programming
and repair, hydraulic system retrofits, and integration of autonomous and electrification features.
Our specialty flow control operations provide highly engineered process flow control products, solutions, and
services. Products include pumps, valves, fittings, hoses, process instrumentation, actuators, and filtration supplies
which are used to control the flow of liquids and gases in mission-critical industrial applications. Our flow control
products and services are focused on MRO related applications; OEMs; and engineering, procurement, and
construction (EPC) firms across a variety of industries including chemicals, steel, power, oil and gas, pulp and paper,
life sciences, pharmaceuticals, food and beverage, and general industrials. Similar to our fluid power operations, our
flow control offering includes technical service capabilities such as flow control systems integration, repair services,
valve actuation, process instrumentation, pipe and hose fabrication, and compliance consulting. Our flow control
solutions are increasingly used in applications tied to required infrastructure for decarbonization initiatives, including
providing technical support for the configuration, assembly, and testing of process systems.
Our advanced automation operations provide solutions focused on the design, assembly, integration, and
distribution of machine vision, collaborative robots, mobile robots, RFID, industrial networking, and machine learning
technologies for OEMs, machine builders, integrators, and other industrial and technology end users. Products and
solutions are marketed across a variety of industries including technology, medical, life sciences, biotechnology, data
centers, food and beverage, logistics, consumer, and general industrial. Our automation business helps customers
develop, produce, and integrate machine and facility automation solutions using comprehensive technology and
application knowledge. A core element of our strategy and value proposition within automation is our value-added
and engineered solution capabilities, enabling us to provide in-depth consultative, design, engineering, assembly,
testing, and support services for various customer requirements.
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HUMAN CAPITAL
We attribute our business success to talented, dedicated employee associates who live our Core Values of integrity,
respect, customer focus, commitment to excellence, accountability, innovation, continuous improvement, and
teamwork.
At June 30, 2024, we had approximately 6,500 associates across seven countries, with geographic and segment
counts as follows:
Country
Associates
Segment
Associates
United States
4,950
Service Center Based Distribution
4,150
Canada
650
Engineered Solutions
2,050
Other Countries
900
Other
300
Associate Development. We strive to attract, retain, and develop a diverse group of high-performing associates,
empowering them to achieve their potential and providing them opportunities to test their skills, increase their
responsibilities, and advance their careers. Applied’s commitment to associate development is reflected in our
investments in a learning management system (offering a wide array of internal facilitated training courses, supplier
product training, and other third-party courses), a modern social learning platform, and in-person training through
which associates can continually expand their knowledge base and position themselves to achieve their professional
goals. During fiscal 2024, we also expanded our efforts to provide managers with the tools they need to help
identify and provide resources on associate mental health needs.
Compensation and Benefits. We seek to provide competitive compensation and benefits in order to help attract
and retain high quality associates. In the U.S., Applied offers comprehensive benefits with choices to fit our
associates’ varied needs, including the following: medical, dental, vision, and prescription drug insurance; short and
long-term disability benefits; life insurance plans; a Section 401(k) retirement savings plan with company match; paid
vacations and holidays; incentive programs in support of our pay for performance culture; an employee assistance
program; and an educational reimbursement program.
Diversity and Inclusion. We are committed to a diverse and inclusive workplace that is respectful to all associates
and believe this serves as a cornerstone for a strong company. We employ multiple initiatives to recruit, train, and
advance diverse associates.
Health and Safety. Applied is also committed to the safety and well-being of our associates. In the U.S., all
associates are required to complete specific assigned online training courses annually, which include offerings on
workplace safety hazards and vehicle safety. In addition, role-specific training is assigned based on the types of
hazards associates may face while carrying out their job function, such as training modules on operating in confined
spaces, forklift operation, and lockout/tagout procedures. Our U.S. associates completed almost 5,000 safety
training courses during the fiscal year, helping to raise awareness of workplace risks.
SEASONALITY
Our business has exhibited minor seasonality. In particular, sales per day during the first half of our fiscal year have
historically been slightly lower than the second half due, in part, to the impact of customer plant shutdowns,
summer vacations and holidays.
PATENTS, TRADEMARKS, TRADE NAMES, AND LICENSES
Customer recognition of our service marks and trade names, including Applied Industrial Technologies®, Applied®,
and AIT®, is an important contributing factor to our sales. Patents and licenses are not of material importance to our
business.
RAW MATERIALS AND GENERAL BUSINESS CONDITIONS
Our operations are dependent on general industrial and economic conditions. We would be adversely affected by
the unavailability of raw materials to our suppliers, prolonged labor disputes experienced by suppliers or customers,
or by events or conditions that have an adverse effect on industrial activity generally in the markets we serve or on
key customer industries.
ENVIRONMENTAL LAWS
We believe that compliance with government regulations relating to the discharge of materials into the environment
or otherwise relating to environmental protection will not have a material adverse effect on our capital expenditures,
earnings, or competitive position.
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ITEM 1A. RISK FACTORS.
In addition to other information set forth in this report, you should carefully consider the following factors that could
materially affect our business, financial condition, or results of operations. The risks described below are not the
only risks facing the Company. Certain risks are identified below in Item 7 under the caption “Management's
Discussion and Analysis of Financial Condition and Results of Operations.” This information is incorporated here by
reference. Additional risks not currently known to us, risks that could apply broadly to all issuers, or risks that we
currently deem immaterial, may also impact our business and operations. Risks can also change over time. Further,
the disclosure of a risk should not be interpreted to imply that the risk has not already materialized.
ECONOMIC AND INDUSTRY RISKS
Our business depends heavily on the operating levels of our customers and the factors that affect them,
including general economic conditions. The markets for our products and services are subject to conditions or
events that affect demand for goods and materials that our customers produce. Consequently, demand for our
products and services has been and will continue to be influenced by most of the same factors that affect demand
for and production of customers' goods and materials.
When customers or prospective customers reduce production levels because of lower demand, increased supply,
higher costs, supply chain or labor market disruptions, tight credit conditions, unfavorable currency exchange rates,
adverse trade policies, foreign competition, other competitive disadvantage, offshoring of production, geopolitical
instability, or other reasons, their need for our products and services diminishes. Selling prices and terms of sale
come under pressure, adversely affecting the profitability and the durability of customer relationships, and credit
losses may increase. Inventory management becomes more difficult in times of economic uncertainty. Volatile
economic and credit conditions also make it more difficult for us, as well as our customers and suppliers, to forecast
and plan future business activities.
Supply chain disruptions could adversely affect our results of operations and financial condition. Our
supply chain, including transportation availability, staffing, and cost, could be disrupted by natural or human-induced
events or conditions, such as power or telecommunications outage, security incident, terrorist attack, war, other
geopolitical events, public health emergency, earthquake, extreme weather events, fire, flood, other natural
disasters, transportation disruption, labor actions, including strikes, raw materials shortages, financial problems or
insolvency, trade regulations or actions, inadequate manufacturing capacity or utilization to meet demand, or other
reasons beyond our control. When we can find acceptable alternate sources for certain products, they may cost
more. Impairment of our ability to meet customer demand could result in lost sales, increased costs, reduced
profitability, and damage to our reputation.
Consolidation in our customers' and suppliers' industries could adversely affect our business and financial
results. Consolidation continues among both our product suppliers as well as our customers. As customer
industries consolidate or customers otherwise aggregate their purchasing power, a greater proportion of our sales
could be derived from large volume contracts, which could adversely impact margins. Consolidation among
customers can produce changes in their purchasing strategies, potentially shifting blocks of business among
competing distributors and contributing to volatility in our sales and pressure on prices.
Similarly, continued consolidation among suppliers could reduce our ability to negotiate favorable pricing and other
commercial terms for our inventory purchases and we may be unable to take advantage of consolidation trends.
An increase in competition could decrease sales or earnings. We operate in a highly competitive industry.
The industry remains fragmented, but is consolidating. Our principal competitors are specialist and general line
distributors of bearings, power transmission products, fluid power components and systems, flow control solutions,
automation technologies, industrial rubber products, linear motion components, tools, safety products, oilfield
supplies, and other industrial and maintenance supplies. These competitors include local, regional, national, and
multinational operations, and can include catalog and e-commerce companies. Competition is largely focused in the
local service area and is generally based on product line breadth, product availability, service capabilities, and price.
Existing competitors have, and future competitors may have, greater financial or other resources than we do,
broader or more appealing product or service offerings, greater market presence, stronger relationships with key
suppliers or customers, or better name recognition. If existing or future competitors seek to gain or to retain market
share by aggressive pricing strategies or sales methods, business acquisition, or otherwise through competitive
advantage, our sales and profitability could be adversely affected. Our success will also be affected by our ability to
continue to provide competitive offerings as customer preferences or demands evolve, for example with respect to
product and service types, brands, quality, or prices. Technological evolution or other factors can render product
and service offerings obsolete, potentially impairing our competitive position and our inventory values.
8
Our operations outside the United States increase our exposure to global economic and political
conditions and currency exchange volatility. Foreign operations contributed 12% of our sales in 2024. This
presence outside the U.S. increases risks associated with exposure to more volatile economic conditions, political
instability, cultural and legal differences in conducting business (including corrupt practices), economic and trade
policy actions, and currency exchange fluctuations.
Our foreign operations' results are reported in the local currency and then translated into U.S. dollars at applicable
exchange rates for inclusion in our consolidated financial statements. Fluctuations in currency exchange rates affect
our operating results and financial position, as well as the comparability of results between financial periods.
STRATEGIC AND OPERATIONAL RISKS
Our business could be adversely affected if we do not successfully execute our strategies to grow sales and
earnings. We have numerous strategies and initiatives to grow sales, leveraging the breadth of our product
offering, supplier relationships, and value-added technical capabilities to differentiate us and improve our
competitive position. We also continually seek to enhance gross margins, manage costs, and otherwise improve
earnings. Many of our activities target improvements to the consistency of our operating practices across our
hundreds of locations. If we do not implement these initiatives effectively, or if for other reasons they are
unsuccessful, our business could be adversely affected.
Loss of key supplier authorizations, lack of product availability, or changes in distribution programs could
adversely affect our sales and earnings. Our business depends on maintaining an immediately available supply of
various products to meet customer demand. Many of our relationships with key product suppliers are longstanding,
but are terminable by either party. The loss of key supplier authorizations, or a substantial decrease in the availability
of their products (including due to supply chain disruptions, as noted above), could put us at a competitive
disadvantage and have a material adverse effect on our business.
In addition, as a distributor, we face the risk of key product suppliers changing their relationships with distributors
generally, or us in particular, in a manner that adversely impacts us. For example, key suppliers could change the
following: the prices we must pay for their products relative to other distributors or relative to competing brands; the
geographic or product line breadth of distributor authorizations; the number of distributor authorizations; supplier
purchasing incentive or other support programs; product purchase or stocking expectations; or the extent to which
the suppliers seek to serve end users directly.
The purchasing incentives we earn from product suppliers can be impacted if we reduce our purchases in
response to declining customer demand. Certain product suppliers have historically offered to their distributors,
including us, incentives for purchasing their products. In addition to market, customer account-specific, or
transaction-specific incentives, certain suppliers pay incentives to the distributor for attaining specific purchase
volumes during a program period. In some cases, to earn incentives, we must achieve year-over-year growth in
purchases with the supplier. When demand for our products declines, we may be less inclined to add inventory to
take advantage of certain incentive programs, thereby potentially adversely impacting our profitability.
Volatility in product, energy, labor, and other costs can affect our profitability. Product manufacturers may
adjust the prices of products we distribute for many reasons, including changes in their costs for raw materials,
components, energy, labor, and tariffs and taxes on imports. In addition, a portion of our own distribution costs is
composed of fuel for our sales and delivery vehicles, freight, and utility expenses for our facilities. Labor costs are
our largest expense. Our ability to pass along increases in our costs in a timely manner to our customers depends on
execution, market conditions, and contractual limitations. Failing to pass along price increases timely in an
inflationary environment, such as the current economic climate, or not maintaining sales volume while increasing
prices, could significantly reduce our profitability.
While increases in the cost of products, labor, or energy could be damaging to us, decreases in those costs,
particularly if severe, could also adversely impact us by creating deflation in selling prices, which could cause our
gross profit margin to deteriorate. Changes in energy or raw materials costs can also adversely affect customers; for
example, declines in oil, gas, and coal prices may negatively impact customers operating in those industries and,
consequently, our sales to those customers.
Changes in customer or product mix and downward pressure on sales prices could cause our gross profit
percentage to fluctuate or decline. Because we serve thousands of customers in many end markets, and offer
millions of products, with varying profitability levels, changes in our customer or product mix could cause our gross
profit percentage to fluctuate or decline. Downward pressure on sales prices could also cause our gross profit
percentage to fluctuate or decline. We can experience downward pressure on sales prices as a result of deflation,
pressure from customers to reduce costs, or increased competition.
9
Our ability to transact business is highly reliant on information systems. A disruption or security breach
could materially affect our business, financial condition, or results of operation. We depend on information
systems to, among other things, process customer orders, manage inventory and accounts receivable collections,
purchase products, manage accounts payable processes, ship products to customers on a timely basis, maintain cost-
effective operations, provide superior service to customers, conduct business communications, and compile financial
results. A serious, prolonged disruption of our information systems, due to man-made or natural causes, including
power or telecommunications outage, or breach in security, could materially impair fundamental business processes
and increase expenses, decrease sales, or otherwise reduce earnings.
We are vulnerable to the growing threat of damage or intrusion from computer viruses or other cyber-attacks,
including ransomware and business e-mail compromise, on our information systems due to our reliance on our
information systems. These existing threats continue to grow and evolve, and any compromise of our information
systems or those of businesses with which we interact, which results in regulated data or confidential information
being accessed, obtained, damaged, disclosed, destroyed, modified, lost, or used by unauthorized persons could
harm our reputation and expose us to regulatory actions, supplier or customer attrition, remediation expenses, and
claims from customers, suppliers, employees, financial institutions, and other persons, any of which could materially
affect our business, financial condition, or results of operations.
Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage information
systems or data on such systems change frequently, and techniques used today may change tomorrow, we may be
unable to anticipate these techniques or to implement adequate measures to prevent unauthorized access to our
information systems. Even if we detect a cybersecurity incident, the nature and extent of that cybersecurity incident
may not be immediately clear. Based on the sophistication of the threat and the size and complexity of our
information system, among other factors, an investigation into a cybersecurity incident could take a significant
amount of time to complete. In addition, while any investigation is ongoing, we may not know the full extent of the
harm caused by the threat, and such harm may spread both internally and externally to other third parties. These
factors may inhibit our ability to provide rapid, complete, and reliable information about cybersecurity incidents to
third parties, as well as the public. It may also not be clear how best to contain and remediate any harm caused by a
cybersecurity incident. Any or all of these factors could further increase the costs and consequences of a
cybersecurity incident to our business, financial condition, and results of operations.
Our information technology and enterprise risk management efforts cannot eliminate all systemic risk. Breaches of
our systems could not only cause business disruption, but could also result in the theft of funds, the theft, loss, or
disclosure of proprietary or confidential information, or the breach of customer, supplier, or employee information.
A security incident involving our systems, or even an inadvertent failure to comply with data privacy and security laws
and regulations, could negatively impact our sales, damage our reputation, and cause us to incur unanticipated legal
liability, remediation costs, and other losses and expenses.
Acquisitions are a key component of our anticipated growth. We may not be able to identify or to
complete future acquisitions, to integrate them effectively into our operations, or to realize their
anticipated benefits. Many industries we serve are mature. As a result, acquisitions of businesses have been
important to our growth. While we wish to continue to acquire businesses, we may not be able to identify and to
negotiate suitable acquisitions, to obtain financing for them on satisfactory terms, or otherwise to complete
acquisitions. In addition, existing and future competitors, and private equity firms, increasingly compete with us for
acquisitions, which can increase prices and reduce the number of suitable opportunities; the acquisitions they make
can also adversely impact our market position.
We seek acquisition opportunities that complement and expand our operations; however, substantial costs, delays,
or other difficulties related to integrating acquisitions could adversely affect our business or financial results. For
example, we could face significant challenges in consolidating functions, integrating information systems, personnel,
and operations, and implementing procedures and controls in a timely and efficient manner.
Further, even if we successfully integrate the acquisitions with our operations, we may not be able to realize cost
savings, sales, profit levels, or other benefits that we anticipate from these acquisitions, either as to amount or in the
time frame we expect. Our ability to realize anticipated benefits may be affected by a number of factors, including
the following: our ability to achieve planned operating results, to reduce duplicative expenses and inventory
effectively, and to consolidate facilities; economic and market factors; the incurrence of significant integration costs
or charges in order to achieve those benefits; our ability to retain key product supplier authorizations, customer
relationships, and employees; our ability to address competitive, distribution, and regulatory challenges arising from
entering into new markets (geographic, product, service, end-industry, or otherwise), especially those in which we
may have limited or no direct experience; and exposure to unknown or contingent liabilities of the acquired
10
company. In addition, acquisitions could place significant demand on administrative, operational, and financial
resources.
FINANCIAL AND REPORTING RISKS
Our indebtedness entails debt service commitments that could adversely affect our ability to fulfill our
obligations and could limit or reduce our flexibility. As of June 30, 2024, we had total debt obligations
outstanding of $597.4 million. Our ability to service our debt and fund our other liquidity needs will depend on our
ability to generate cash in the future. Our debt commitments may (i) require us to dedicate a substantial portion of
our cash flows from operations to the payment of debt service, reducing the availability of our cash flow to fund
planned capital expenditures, pay dividends, repurchase our shares, complete other acquisitions or strategic
initiatives, and other general corporate purposes; (ii) limit our ability to obtain additional financing in the future
(either at all or on satisfactory terms) to enable us to react to changes in our business or execute our growth
strategies; and (iii) place us at a competitive disadvantage compared to businesses in our industry that have lower
levels of indebtedness. Additionally, any failure to comply with covenants in the instruments governing our debt
could result in an event of default. Any of the foregoing events or circumstances relating to our indebtedness may
adversely affect our business, financial position, or results of operations and may cause our stock price to decline.
In addition, the increase in interest rates has created some tightening in the credit markets. If credit markets
continue to tighten, or if it creates credit market volatility, obtaining additional or replacement financing could be
more difficult and the cost of issuing new debt or replacing a credit facility could be higher than under our current
facilities.
For more information regarding borrowing and interest rates, see the following sections below: “Liquidity and
Capital Resources” in Item 7 under the caption “Management's Discussion and Analysis of Financial Condition and
Results of Operations;” Item 7A under the caption “Quantitative and Qualitative Disclosures about Market Risk;”
and notes 6 and 7 to the consolidated financial statements, included below in Item 8 under the caption “Financial
Statements and Supplementary Data.” That information is incorporated here by reference.
Our ability to maintain effective internal control over financial reporting may be insufficient to allow us to
accurately report our financial results or prevent fraud, and this could cause our financial statements to
become materially misleading and adversely affect the trading price of our common stock. We require
effective internal control over financial reporting in order to provide reasonable assurance with respect to our
financial reports and to effectively prevent fraud. Internal control over financial reporting may not prevent or detect
misstatements because of its inherent limitations, including the possibility of human error, the circumvention or
overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance
with respect to the preparation and fair presentation of financial statements. If we cannot provide reasonable
assurance with respect to our financial statements and effectively prevent fraud, our financial statements could be
materially misstated, which could adversely affect the trading price of our common stock.
If we are not able to maintain the adequacy of our internal control over financial reporting, including any failure to
implement required new or improved controls, or if we experience difficulties in their implementation, our business,
financial condition, and operating results could be harmed. Any material weakness could affect investor confidence
in the accuracy and completeness of our financial statements. As a result, our ability to obtain any additional
financing, or additional financing on favorable terms, could be materially and adversely affected. This, in turn, could
materially and adversely affect our business, financial condition, and the market value of our stock and require us to
incur additional costs to improve our internal control systems and procedures. In addition, perceptions of the
Company among customers, suppliers, lenders, investors, securities analysts, and others could also be adversely
affected.
Goodwill, long-lived, and other intangible assets recorded as a result of our acquisitions could become
impaired. We review goodwill, long-lived assets, including property, plant and equipment and identifiable
amortizing intangible assets, for impairment whenever changes in circumstances or events may indicate that the
carrying amounts are not recoverable. Factors which may cause an impairment of long-lived assets include
significant changes in the manner of use of these assets, negative industry or market trends, significant
underperformance relative to historical or projected future operating results, or a likely sale or disposal of the asset
before the end of its estimated useful life.
As of June 30, 2024, we had remaining $619.4 million of goodwill and $245.9 million of other intangible assets,
net. We assess all existing goodwill at least annually for impairment on a reporting unit basis. The techniques used
in our qualitative assessment and goodwill impairment tests incorporate a number of estimates and assumptions that
are subject to change. Any changes to these assumptions and estimates due to market conditions or otherwise may
lead to an outcome where impairment charges would be required in future periods.
11
GENERAL RISK FACTORS
Our business depends on our ability to attract, develop, motivate, and retain qualified employees. Our
success depends on hiring, developing, motivating, and retaining key employees, including executive, managerial,
sales, professional, and other personnel. We may have difficulty identifying and hiring qualified personnel. In
addition, we may have difficulty retaining such personnel once hired, and key people may leave and compete against
us. With respect to sales and customer service positions in particular, we greatly benefit from having employees who
are familiar with the products and services we sell, and their applications, as well as with our customer and supplier
relationships. The loss of key employees or our failure to attract and retain other qualified workers could disrupt or
adversely affect our business. In addition, our operating results could be adversely affected by increased competition
for employees, shortages of qualified workers, higher employee turnover (including through retirement as the
workforce ages), or increased employee compensation or benefit costs.
We are subject to legal, regulatory, and litigation risks, which may have a material adverse effect on our
business. We are subject to a wide array of laws and regulations. Changes in the legal and regulatory environment
in which we operate, including with respect to taxes, international trade, employment laws, and data privacy, could
adversely and materially affect the Company.
In addition, from time to time, we are involved in lawsuits or other legal proceedings that arise from our ordinary
course business operations. These may, for example, relate to product liability claims, commercial disputes, personal
injuries, or employment-related matters. In addition, we could face claims or additional costs arising from our
compliance with regulatory requirements, including those relating to the following: our status as a public company;
our government contracts; tax compliance; our engagement in international trade; and our collection, storage, or
transmission of personal data.
We maintain insurance policies that provide limited coverage for some, but not all, of the potential risks and liabilities
associated with our business. The policies are subject to limits, deductibles, and exclusions that result in our
retention of a level of risk on a self-insured basis.
The defense and ultimate outcome of lawsuits or other legal proceedings or inquiries may result in higher operating
expenses, the inability to participate in existing or future government contacts, or other adverse consequences,
which could have a material adverse effect on our business, financial condition, or results of operations.
Global or regional health pandemics or epidemics could negatively impact our business, results of
operation and financial condition. The COVID-19 pandemic created significant volatility, uncertainty, and
economic disruption, and resulted in lost or delayed sales to us, and we experienced business disruptions as we
modified our business practices. The emergence, severity, magnitude and duration of global or regional pandemics,
epidemics, or other health crises are uncertain and difficult to predict. A pandemic, such as COVID-19, or other
epidemic, together with preventative measures taken to contain or mitigate such crises, could impact our results of
operations and financial condition in a variety of ways, such as: impact our customers such that the demand for our
products and services could change; disrupt our supply chain and impact the ability of our suppliers to provide
products as required; disrupt or limit our ability to sell and provide our products and services and otherwise limit our
ability to operate or otherwise operate effectively; increase incremental costs resulting from the adoption of
preventative measures and compliance with regulatory requirements; create financial hardship on customers,
including by creating restrictions on their ability to pay for our services and products; result in closures of our facilities
or the facilities of our customers or suppliers; and reduce customer demand on purchasing incentives we earn from
suppliers.
In addition, a pandemic or other public health emergency could impact the proper functioning of financial and
capital markets, foreign currency exchange rates, product and energy costs, labor supply and costs, and interest
rates. Any pandemic or other public health emergency could also amplify the other risks and uncertainties described
in this Annual Report on Form 10-K.
We cannot reasonably predict the ultimate impact of any pandemic or other public health emergency, including the
extent of any adverse impact on our business, results of operations and financial condition, which will depend on,
among other things, the duration and spread, the impact of governmental regulations that may be imposed in
response, the effectiveness of actions taken to contain or mitigate the outbreak, the availability, safety and efficacy
of vaccines, including against emerging variants of the infectious disease, and global economic conditions.
An interruption of operations at our headquarters or distribution centers, or in our means of transporting
product, could adversely impact our business. Our business depends on maintaining operating activity at our
headquarters and distribution centers, and being able to receive and deliver product in a timely manner. A serious,
prolonged interruption due to power or telecommunications outage, security incident, terrorist attack, war, public
12
health emergency, earthquake, extreme weather events, other natural disasters, fire, flood, transportation disruption,
or other interruption could have a material adverse effect on our business and financial results.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 1C. CYBERSECURITY.
Risk Management and Strategy
Our cybersecurity program is informed by various industry frameworks, including the National Institute of Standards
and Technology (NIST) Cybersecurity Framework, and our security management is ISO/IEC 27001:2022 certified. Our
management, with oversight from our Board, performs an annual enterprise-wide risk assessment (ERA) to identify
key existing and emerging risks. One of the main risks identified and assessed annually through this process is
cybersecurity and data privacy, which remains a key focus for the Company, management, and our Board.
We maintain multiple layers of security designed to detect and block cybersecurity events, as well as employ a
dedicated team of cybersecurity personnel and professionals, who assist our Vice President – Information Technology
in helping to assess, identify, monitor, detect and manage cybersecurity risks, threats, vulnerabilities and incidents.
Further, we have various processes and programs designed to manage cybersecurity risks associated with our use of
third-party vendors and suppliers.
When we implement significant changes to our information systems, we conduct risk-based security and privacy
impact assessments and deploy technical safeguards that are designed to reasonably protect our technology and
information systems from cybersecurity threats. We actively monitor and proactively research potential cybersecurity
threats to our information systems, and we use what we learned to evolve our security controls over time to mitigate
risks posed by such threats.
We also engage third party service providers when deemed necessary to both expand our capabilities and capacity as
well as evaluate the effectiveness of our cybersecurity program, including hosting regular table-top exercises meant
to evaluate and improve the overall effectiveness of our cybersecurity program.
Our Incident Response Plan provides a framework for responding to cybersecurity incidents. The plan governs
activities such as preparation, detection, coordination, eradication, and recovery, as well as appropriate escalations to
the Company’s senior management and Board and disclosure under applicable rules and regulations. The Incident
Response Plan is routinely reviewed and updated as appropriate by our Vice President – Information Technology and
other senior management members.
We provide recurring mandatory information security training (which includes cybersecurity training) to our
associates based on access, risk, roles, and behaviors.
Overall, we implement, develop, and maintain systems and operate programs that seek to mitigate the impact of
cybersecurity incidents. Because the techniques used to obtain unauthorized access, disable or degrade service, or
sabotage information systems or data on such systems, change frequently, we must continually monitor and update
these systems and programs. See “Risk Factors” in Item 1A of Part I above for additional information on risks related
to our business, including risks related to cybersecurity incidents and privacy and data protection.
Governance
Our Vice President – Information Technology leads management’s assessment and management of cybersecurity risk.
He reports directly to our President & Chief Executive Officer and is a member of our senior management team,
providing cybersecurity updates to that group monthly, with more frequent updates as needed. Our Vice President –
Information Technology has more than 35 years of experience within industrial distribution, spending the majority of
which managing and maintaining information systems. In addition, our Vice President – Information Technology
leads a team of individuals that focus on monitoring our information systems and data for intentional and
unintentional actions that could cause harm to our information systems or the data on such systems.
As indicated above, our management, with oversight from the Board, performs an annual ERA and cybersecurity is
among the main risks identified by the ERA for Board-level oversight. Our full Board has oversight of our efforts in
cybersecurity and meets regularly with our Vice President – Information Technology (three times during fiscal 2024)
on our cybersecurity risks and programs. The Board is also updated as needed on cybersecurity threats, incidents, or
new developments in our cybersecurity risk profile.
13
ITEM 2. PROPERTIES.
We believe having a local presence is important to serving our customers, so we maintain service centers and other
operations in local markets throughout the countries in which we operate. At June 30, 2024, we owned real
properties at 114 locations and leased 424 locations. Certain properties house more than one operation.
The following were our principal owned real properties (each of which has more than 50,000 square feet of floor
space) at June 30, 2024:
Location of Principal Owned
Real Property
Type of Facility
Cleveland, Ohio
Corporate headquarters
Atlanta, Georgia
Distribution center, service center, hose shop and
reducer assembly shop
Florence, Kentucky
Distribution center, hose shop and reducer assembly
shop
Baldwinsville, New York
Fluid power shop
Carlisle, Pennsylvania
Distribution center and hose shop
Fort Worth, Texas
Distribution center and rubber shop
Our principal leased real properties (each of which has more than 50,000 square feet of floor space) at June 30,
2024 were:
Location of Principal Leased
Real Property
Type of Facility
Fontana, California
Distribution center, rubber shop, fluid power shop, and
service center
Newark, California
Fluid power shop
Midland, Michigan
Flow control shop
Strongsville, Ohio
Offices and warehouse
Portland, Oregon
Distribution center, hose shop and reducer assembly
shop
Stafford, Texas
Offices, warehouse, and flow control shop
Longview, Washington
Service center, rubber shop, and fluid power shop
Austin, Texas
Fluid power shop
Sherwood, Oregon
Automation operation
Nisku, Alberta
Offices, service center, shop, and distribution center
Saskatoon, Saskatchewan
Distribution center, service center and shop
The properties in Baldwinsville, Newark, Midland, and Stafford are used in our Engineered Solutions segment. The
Fontana and Longview properties are used in both the Service Center Based Distribution segment and the
Engineered Solutions segment. The remaining properties are used in the Service Center Based Distribution segment.
We consider our properties generally sufficient to meet our requirements for office space and inventory stocking.
A service center's size is primarily influenced by the amount and types of inventory the service center requires to
meet customers' needs.
When opening new operations, we have tended to lease rather than purchase real property. We do not consider
any service center, distribution center, or shop property to be material, because we believe that, if it becomes
necessary or desirable to relocate an operation, other suitable property could be found.
In addition to operating locations, we own or lease certain properties which in the aggregate are not material and
are either for sale, lease, or sublease to third parties due to a relocation or closing. We also may lease or sublease to
others unused portions of buildings.
14
ITEM 3. LEGAL PROCEEDINGS.
Applied and/or one of its subsidiaries may be a party to pending legal proceedings with respect to product liability,
commercial, personal injury, employment, and other matters. Although it is not possible to predict the outcome of
these proceedings or the range of reasonably possible loss associated with any of them, we do not expect, based on
circumstances currently known, that the ultimate resolution of any of these proceedings will have, either individually
or in the aggregate, a material adverse effect on Applied's consolidated financial position, results of operations, or
cash flows.
ITEM 4. MINE SAFETY DISCLOSURES.
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act and Item 104 of SEC Regulation S-K is included in Exhibit 95
to this annual report on Form 10-K.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS.
Applied's executive officers are elected by the Board of Directors for a term of one year, or until their successors are
chosen and qualified, at the Board's organization meeting held following the annual meeting of shareholders.
The following is a list of the executive officers and a description of their business experience during the past five
years. Except as otherwise stated, the positions and offices indicated are with Applied, and the persons were most
recently elected to their current positions on October 24, 2023:
Name
Positions and Experience
Age
Neil A. Schrimsher
President since 2013 and Chief Executive Officer since 2011.
60
Warren E. Hoffner
Vice President, General Manager-Engineered Solutions since October 2018.
He served as Vice President, General Manager-Fluid Power from 2003 to
October 2018. The Board of Directors designated Mr. Hoffner an executive
officer in 2015.
64
Kurt W. Loring
Vice President-Chief Human Resources Officer since 2014.
55
Jon S. Ploetz
Vice President-General Counsel since March 2023. Prior to joining Applied,
Mr. Ploetz was Vice President, Assistant General Counsel & Assistant
Corporate Secretary at Harsco Corporation (NYSE: HSC) from 2018 to 2023,
and Assistant General Counsel, Corporate & Securities prior to that.
51
Jason W. Vasquez
Vice President-Sales & Marketing, U.S. Service Centers since June 2017.
48
David K. Wells
Vice President-Chief Financial Officer & Treasurer since September 2017. He
served as Vice President-Finance from May 2017 through August 2017. Prior
to joining Applied, Mr. Wells was Vice President & Chief Financial Officer of
ESAB, a manufacturer of welding and material cutting products and a
division of Colfax Corporation (NYSE: CFX).
61
15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
Applied's common stock, without par value, is listed for trading on the New York Stock Exchange with the ticker
symbol “AIT.” On August 2, 2024, there were 3,096 shareholders of record including 2,058 shareholders in the
Applied Industrial Technologies, Inc. Retirement Savings Plan.
The following table summarizes Applied's repurchases of its common stock in the quarter ended June 30, 2024.
Period
(a) Total
Number of
Shares
(b) Average
Price Paid per
Share ($)
(c) Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
(d) Maximum Number of Shares
that May Yet Be Purchased Under
the Plans or Programs (1)
April 1, 2024 to April 30, 2024
37,000
195.61
37,000
1,300,000
May 1, 2024 to May 31, 2024
—
—
—
1,300,000
June 1, 2024 to June 30, 2024
198,000
188.26
198,000
1,102,000
Total
235,000
189.42
235,000
1,102,000
(1) On August 9, 2022, the Board of Directors authorized the repurchase of up to 1.5 million shares of the Company's common stock,
replacing the prior authorization. We publicly announced the new authorization on August 11, 2022. Purchases can be made in
the open market or in privately negotiated transactions. The authorization is in effect until all shares have been purchased, or the
Board revokes or amends the authorization.
ITEM 6. RESERVED.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
With approximately 6,500 associates across North America, Australia, New Zealand, and Singapore, Applied
Industrial Technologies, Inc. ("Applied," the "Company," "we," "us," or "our") is a leading value-added distributor
and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related
maintenance supplies. Our leading brands, specialized services, and comprehensive knowledge serve MRO
(Maintenance, Repair & Operations) and OEM (Original Equipment Manufacturer) end users in virtually all industrial
markets through our multi-channel capabilities that provide choice, convenience, and expertise. We have a long
tradition of growth dating back to 1923, the year our business was founded in Cleveland, Ohio. 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 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. Operating margin increased to 11.1% in fiscal 2024 from 10.7% in fiscal
2023.
Our diluted earnings per share was $9.83 in fiscal 2024 versus $8.84 in fiscal 2023.
Shareholders’ equity was $1,688.8 million at June 30, 2024 compared to $1,458.4 million at June 30, 2023.
Working capital increased $162.3 million from June 30, 2023 to $1,268.8 million at June 30, 2024. The current
ratio was 3.5 to 1 and 3.0 to 1 at June 30, 2024 and at June 30, 2023, respectively.
Applied monitors several economic indices that have been key indicators for industrial economic activity in the United
States. These include the Industrial Production (IP) and Manufacturing Capacity Utilization (MCU) indices published
by the Federal Reserve Board and the Purchasing Managers Index (PMI) published by the Institute for Supply
Management (ISM). Historically, our performance correlates well with the MCU, which measures productivity and
calculates a ratio of actual manufacturing output versus potential full capacity output. When manufacturing plants
are running at a high rate of capacity, they tend to wear out machinery and require replacement parts.
The MCU (total industry) and IP indices 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. The index
readings for the months during the most recent quarter, along with the revised indices for previous quarter ends,
were as follows:
Index Reading
Month
MCU
PMI
IP
June 2024
78.8
48.5
100.3
May 2024
78.3
48.7
99.9
April 2024
77.7
49.2
98.9
March 2024
77.8
50.3
99.4
December 2023
78.1
47.1
99.2
September 2023
78.9
48.6
99.6
June 2023
78.6
46.4
99.2
17
RESULTS OF OPERATIONS
This discussion and analysis deals with comparisons of material changes in the consolidated financial statements for
the years ended June 30, 2024 and 2023. For the comparison of the years ended June 30, 2023 and 2022, see the
Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2023
Annual Report on Form 10-K.
The following table is included to aid in review of Applied’s statements of consolidated income.
Year Ended June 30,
As a % of Net Sales
Change in
$'s Versus
Prior Period
2024
2023
% Change
Net Sales
100.0 %
100.0 %
1.5 %
Gross Profit Margin
29.8 %
29.2 %
3.9 %
Selling, Distribution & Administrative Expense
18.8 %
18.4 %
3.3 %
Operating Income
11.1 %
10.7 %
4.8 %
Net Income
8.6 %
7.9 %
11.3 %
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 were up $3.6 million during 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
(Decrease) Acquisitions
Foreign
Currency
Organic
Change
Sales by Reportable Segment
2024
2023
Service Center Based Distribution
3,056.5 $ 2,966.8 $
89.7 $
36.4 $
6.6 $
46.7
Engineered Solutions
1,422.9
1,446.0
(23.1)
20.0
—
(43.1)
Total
$ 4,479.4 $ 4,412.8 $
66.6 $
56.4 $
6.6 $
3.6
Sales in our Service Center Based Distribution segment, which operates primarily in MRO markets, increased $89.7
million, or 3.0%. 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 translation,
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.
18
The following table shows changes in sales by geographical area. 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
(Decrease) Acquisitions
Foreign
Currency
Organic
Change
Sales by Geographic Area
2024
2023
United States
$ 3,932.2 $ 3,860.4 $
71.8 $
50.0 $
— $
21.8
Canada
310.2
315.5
(5.3)
—
(3.7)
(1.6)
Other Countries
237.0
236.9
0.1
6.4
10.3
(16.6)
Total
$ 4,479.4 $ 4,412.8 $
66.6 $
56.4 $
6.6 $
3.6
Sales 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 $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 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%. Excluding 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. 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 points. 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).
Amounts in millions
Amount of change due to
Year ended June 30,
SD&A
Increase Acquisitions
Foreign
Currency
Organic
Change
2024
2023
SD&A
$
840.8 $
813.8 $
27.0 $
16.7 $
0.7 $
9.6
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 $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 $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 $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 fiscal 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. Operating income as a percentage of sales for the Engineered Solutions
segment increased to 14.5% in fiscal 2024 from 14.1% in fiscal 2023.
19
Segment operating income is impacted by changes in the amounts and levels of certain supplier support benefits
and expenses allocated to the segments. The expense allocations include corporate charges for working capital,
logistics support, and other items and impact segment gross profit and operating expense.
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 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 of 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, 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.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other
sources of debt. At June 30, 2024 we had total debt obligations outstanding of $597.4 million compared to $622.2
million at June 30, 2023. 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 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. The current ratio was 3.5 to 1 at June 30, 2024 and 3.0 to 1 at June 30, 2023.
Net Cash Flows
The following table is included to aid in review of Applied’s statements of consolidated cash flows.
Amounts in thousands
Year Ended June 30,
2024
2023
Net Cash Provided by (Used in):
Operating Activities
$ 371,393 $ 343,966
Investing Activities
(95,407)
(60,833)
Financing Activities
(156,468)
(126,888)
Exchange Rate Effect
(2,937)
3,317
Increase in Cash and Cash Equivalents
$ 116,581 $ 159,562
20
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):
Accounts receivable
$
49,134
Inventory
$
61,364
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 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 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
aggregate dividends of $1.44 and $1.38 per share in fiscal 2024 and 2023, respectively.
Capital Expenditures
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 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. In fiscal 2023, we repurchased 8,000 shares of the Company's common stock at an average price per
share of $89.46. In fiscal 2022,we repurchased 148,658 shares of the Company's common stock at an average
price per share of $92.72.
Borrowing Arrangements
A summary of long-term debt, including the current portion, follows (amounts are in thousands):
June 30,
2024
2023
Revolving credit facility
$
384,000 $
383,592
Trade receivable securitization facility
188,300
188,300
Series D Notes
—
25,000
Series E Notes
25,000
25,000
Other
105
356
Total debt
$
597,405 $
622,248
Less: unamortized debt issuance costs
71
152
$
597,334 $
622,096
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 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.
21
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 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. 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. operations’ trade accounts receivable. The
Company uses the proceeds from the AR Securitization Facility as an alternative to other forms of debt, effectively
reducing borrowing costs. 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.
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
"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.
In 2014, the Company assumed $2.4 million of debt as a part of the headquarters facility acquisition. The 1.50%
fixed interest rate note is held by the State of Ohio Development Services Agency and matures in November 2024.
In 2019, the Company entered into an interest rate swap which mitigates variability in forecasted interest payments
on $384.0 million of the Company’s U.S. dollar-denominated unsecured variable rate debt. For more information,
see note 7, Derivatives, to the consolidated financial statements, included in Item 8 under the caption “Financial
Statements and Supplementary Data.”
The credit facility and the unsecured shelf facility contain restrictive covenants regarding liquidity, net worth, financial
ratios, and other covenants. At June 30, 2024, the most restrictive of these covenants required that the Company
have net indebtedness less than 3.75 times consolidated income before interest, taxes, depreciation and
amortization (as defined). At 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, 2024.
22
Accounts Receivable Analysis
The following table is included to aid in analysis of accounts receivable and the associated provision for losses on
accounts receivable (all dollar amounts are in thousands):
June 30,
2024
2023
Accounts receivable, gross
$ 737,941
$ 730,729
Allowance for doubtful accounts
13,063
22,334
Accounts receivable, net
$ 724,878
$ 708,395
Allowance for doubtful accounts, % of gross receivables
1.8 %
3.1 %
Year Ended June 30,
2024
2023
(Recoveries of) provision for losses on accounts receivable
$
(205)
$ 5,619
Provision as a % of net sales
— %
0.13 %
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.
On a consolidated basis, DSO was 56.2 at June 30, 2024 versus 55.1 at June 30, 2023. Approximately 1.5% of our
accounts receivable balances are more than 90 days past due at June 30, 2024 compared to 2.5% at June 30, 2023.
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 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%. Management believes the overall receivables aging and
provision for losses on uncollected receivables are at reasonable levels.
Inventory Analysis
Inventories are valued using the last-in, first-out (LIFO) method for U.S. inventories and the average cost method for
foreign inventories. Management uses an inventory turnover ratio to monitor and evaluate inventory. Management
calculates this ratio on an annual as well as a quarterly basis and uses inventory valued at average costs. The
annualized inventory turnover (using average costs) for the year ended June 30, 2024 was 4.3 versus 4.4 for the year
ended June 30, 2023.
CONTRACTUAL OBLIGATIONS
The following table shows the approximate value of the Company’s contractual obligations and other commitments
to make future payments as of June 30, 2024 (in thousands):
Total
Period Less
Than 1 yr
Period
2-3 yrs
Period
4-5 yrs
Period
Over 5 yrs
Other
Operating leases
$ 155,947 $ 38,617 $ 60,200 $ 33,674 $ 23,456 $
—
Planned funding of post-retirement obligations
4,900
1,340
1,570
400
1,590
—
Unrecognized income tax benefit liabilities, including
interest and penalties
4,500
—
—
—
—
4,500
Long-term debt obligations
597,405
25,105
572,300
—
—
—
Interest on long-term debt obligations (1)
62,200
21,700
40,500
—
—
—
Acquisition holdback payments
2,855
1,273
1,582
—
—
—
Total Contractual Cash Obligations
$ 827,807 $ 88,035 $ 676,152 $ 34,074 $ 25,046 $
4,500
(1) Amounts represent estimated contractual interest payments on outstanding long-term debt obligations net of
receipts under the terms of the interest rate swap. Rates in effect as of June 30, 2024 are used for variable rate
debt.
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
23
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
The preparation of financial statements and related disclosures in conformity with accounting principles generally
accepted in the United States of America requires management to make judgments, assumptions and estimates at a
specific point in time that affect the amounts reported in the consolidated financial statements and disclosed in the
accompanying notes. 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 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. Actual results could differ from these estimates. The following
critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the
preparation of the consolidated financial statements.
LIFO Inventory Valuation and Methodology
Inventories are valued at the average cost method, using the last-in, first-out (LIFO) method for U.S. inventories, and
the average cost method for foreign inventories. We adopted the link chain dollar value LIFO method for accounting
for U.S. inventories in fiscal 1974. Approximately 14.9% of our domestic inventory dollars relate to LIFO layers
added in the 1970s. The excess of average cost over LIFO cost is $225.9 million as reflected in our consolidated
balance sheet at June 30, 2024. The Company maintains five LIFO pools based on the following product groupings:
bearings, power transmission products, rubber products, fluid power products, and other products.
LIFO layers and/or liquidations are determined consistently year-to-year. See the Inventories note to the
consolidated financial statements in Item 8 under the caption "Financial Statements and Supplementary Data,"
for further information.
Allowances for Slow-Moving and Obsolete Inventories
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, 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. A significant portion of the products we hold
in inventory have long shelf lives and are not highly susceptible to obsolescence.
As of June 30, 2024 and 2023, the Company's reserve for slow-moving or obsolete inventories was $41.2 million
and $42.6 million, respectively, recorded in inventories in the consolidated balance sheets.
Allowances for Doubtful Accounts
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. This initial
estimate is adjusted based on recent trends of certain customers and industries estimated to be a greater credit risk,
trends within the entire customer pool and changes in the overall aging of accounts receivable. While we have a
large customer base that is geographically dispersed, a general economic downturn in any of the industry segments
in which we operate could result in higher than expected defaults, and therefore, the need to revise estimates for
bad debts. Accounts are written off against the allowance when it becomes evident that collection will not occur.
As of June 30, 2024 and 2023, our allowance for doubtful accounts was 1.8% and 3.1% of gross receivables,
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
The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the
acquired business with the residual of the purchase price recorded as goodwill. Goodwill for acquired businesses is
accounted for using the acquisition method of accounting which requires that the assets acquired and liabilities
assumed be recorded at the date of the acquisition at their respective estimated fair values. The determination of
the value of the intangible assets acquired involves certain judgments and estimates. 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
24
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. Finite-lived identifiable intangibles are evaluated for impairment when
changes in conditions indicate carrying value may not be recoverable. If circumstances require a finite-lived
intangible asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to
be generated by the asset to the carrying value of the asset. If the carrying value of the finite-lived intangible asset is
not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value
exceeds its fair value determined through a discounted cash flow model.
We evaluate goodwill for impairment at the reporting unit level annually as of January 1, and whenever an event
occurs or circumstances change that would indicate that it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. Events or circumstances that may result in an impairment review include
changes in macroeconomic conditions, industry and market considerations, cost factors, overall financial
performance, other relevant entity-specific events, specific events affecting the reporting unit or sustained decrease
in share price. Each year, the Company may elect to perform a qualitative assessment to determine whether it is
more likely than not that the fair value of a reporting unit is less than its carrying value. If impairment is indicated in
the qualitative assessment, or, if management elects to initially perform a quantitative assessment of goodwill, the
impairment test uses a one-step approach. The fair value of a reporting unit is compared with its carrying amount,
including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit
is not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment charge would be
recognized for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the
total amount of goodwill allocated to that reporting unit.
Goodwill on our consolidated financial statements relates to both the Service Center Based Distribution segment and
the Engineered Solutions segment. The Company has eight (8) reporting units for which an annual goodwill
impairment assessment was performed as of January 1, 2024. 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. 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, operating margins, 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, earnings before interest, taxes, depreciation, and amortization (EBITDA) and multiples that are
applied to management’s forecasted revenues and EBITDA estimates.
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.
25
CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT
This Form 10-K, including Management’s Discussion and Analysis, contains statements that are forward-looking
based on management’s current expectations about the future. Forward-looking statements are often identified by
qualifiers, such as “guidance”, “expect”, “believe”, “plan”, “intend”, “will”, “should”, “could”, “would”,
“anticipate”, “estimate”, “forecast”, “may”, "optimistic" and derivative or similar words or expressions. Similarly,
descriptions of objectives, strategies, plans, or goals are also forward-looking statements. These statements may
discuss, among other things, expected growth, future sales, future cash flows, future capital expenditures, future
performance, and the anticipation and expectations of the Company and its management as to future occurrences
and trends. The Company intends that the forward-looking statements be subject to the safe harbors established in
the Private Securities Litigation Reform Act of 1995 and by the Securities and Exchange Commission in its rules,
regulations, and releases.
Readers are cautioned not to place undue reliance on any forward-looking statements. All forward-looking
statements are based on current expectations regarding important risk factors, many of which are outside the
Company’s control. Accordingly, actual results may differ materially from those expressed in the forward-looking
statements, and the making of those statements should not be regarded as a representation by the Company or any
other person that the results expressed in the statements will be achieved. In addition, the Company assumes no
obligation publicly to update or revise any forward-looking statements, whether because of new information or
events, or otherwise, except as may be required by law.
Important risk factors include, but are not limited to, the following: risks relating to the operations levels of our
customers and the economic factors that affect them; continuing risks relating to the effects of the COVID-19
pandemic; inflationary or deflationary trends in the cost of products, energy, labor and other operating costs, and
changes in the prices for products and services relative to the cost of providing them; reduction in supplier inventory
purchase incentives; loss of key supplier authorizations, lack of product availability (such as due to supply chain
strains), changes in supplier distribution programs, inability of suppliers to perform, and transportation disruptions;
changes in customer preferences for products and services of the nature and brands sold by us; changes in customer
procurement policies and practices; competitive pressures; our reliance on information systems and risks relating to
their proper functioning, the security of those systems, and the data stored in or transmitted through them; the
impact of economic conditions on the collectability of trade receivables; reduced demand for our products in
targeted markets due to reasons including consolidation in customer industries; our ability to retain and attract
qualified sales and customer service personnel and other skilled executives, managers and professionals; our ability to
identify and complete acquisitions, integrate them effectively, and realize their anticipated benefits; the variability,
timing and nature of new business opportunities including acquisitions, alliances, customer relationships, and
supplier authorizations; the incurrence of debt and contingent liabilities in connection with acquisitions; our ability to
access capital markets as needed on reasonable terms; disruption of operations at our headquarters or distribution
centers; risks and uncertainties associated with our foreign operations, including volatile economic conditions,
political instability, cultural and legal differences, and currency exchange fluctuations; the potential for goodwill and
intangible asset impairment; changes in accounting policies and practices; our ability to maintain effective internal
control over financial reporting; organizational changes within the Company; risks related to legal proceedings to
which we are a party; potentially adverse government regulation, legislation, or policies, both enacted and under
consideration, including with respect to federal tax policy, international trade, data privacy and security, and
government contracting; and the occurrence of extraordinary events (including prolonged labor disputes, power
outages, telecommunication outages, terrorist acts, war, public health emergency, earthquakes, extreme weather
events, other natural disasters, fires, floods, and accidents). Other factors and unanticipated events could also
adversely affect our business, financial condition, or results of operations. Risks can also change over time. Further,
the disclosure of a risk should not be interpreted to imply that the risk has not already materialized.
We discuss certain of these matters and other risk factors more fully throughout our Form 10-K, as well as other of
our filings with the Securities and Exchange Commission.
26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our market risk is impacted by changes in foreign currency exchange rates as well as changes in interest rates.
We occasionally utilize derivative instruments as part of our overall financial risk management policy, but do not use
derivative instruments for speculative or trading purposes.
Foreign Currency Exchange Rate Risk
Because we operate throughout North America, Australia and New Zealand and approximately 12% of our fiscal
2024 net sales were generated outside the United States, foreign currency exchange rates can impact our financial
position, results of operations, and competitive position. The financial statements of foreign subsidiaries are
translated into their U.S. dollar equivalents at end-of-period exchange rates for assets and liabilities, while income
and expenses are translated at average monthly exchange rates. Translation gains and losses are components of
other comprehensive income as reported in the statements of consolidated comprehensive income. Transaction
gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies
other than the functional currency are recognized in the statements of consolidated income as a component of other
(income) expense, net. Applied does not currently hedge the net investments in our foreign operations.
During the course of the fiscal year, the Canadian and Mexican currency exchange rates decreased in relation to the
U.S. dollar by 3.2% and 6.8%, respectively, while the Australian and New Zealand currency exchange rates
increased in relation to the U.S. dollar by 0.6% and 0.2%, respectively. In the twelve months ended June 30, 2024,
we experienced net foreign currency translation losses totaling $12.5 million, which were included in other
comprehensive income. We utilize a sensitivity analysis to measure the potential impact on earnings based on a
hypothetical 10% change in foreign currency rates. A 10% strengthening of the U.S. dollar relative to foreign
currencies that affect the Company from the levels experienced during the year ended June 30, 2024 would have
resulted in a $3.2 million decrease in net income for the year ended June 30, 2024.
Interest Rate Risk
Our primary exposure to interest rate risk results from our outstanding debt obligations with variable interest rates.
The levels of fees and interest charged on our various debt facilities are based upon leverage levels and market
interest rates. The Company uses interest rate swap instruments to mitigate variability in forecasted interest rates.
Our variable interest rate debt facilities outstanding include our five-year credit facility, which provides for a revolving
credit facility with a capacity of up to $900.0 million in borrowings with $384.0 million outstanding at June 30,
2024, and a $188.3 million trade receivable securitization facility, all of which was outstanding at June 30, 2024.
In January 2019, the Company entered into an interest rate swap on $463.0 million of the Company’s U.S. dollar-
denominated unsecured variable rate debt. The notional amount of the interest rate swap was $384.0 million as of
June 30, 2024. The interest rate swap effectively converts a portion of the floating rate interest payment into a fixed
rate interest payment. The Company designated the interest rate swap as a pay-fixed, receive-floating interest rate
swap instrument and is accounting for this derivative as a cash flow hedge. Fixed interest rate debt facilities include
$25.0 million outstanding under our unsecured shelf facility agreement, as well as $0.1 million of assumed debt
from the purchase of our headquarters facility. We had total average variable interest rate bank borrowings of
$572.0 million during fiscal 2024. The impact of a hypothetical 1.0% increase in the interest rates on our average
variable interest rate bank borrowings (not considering the impact of the interest rate swap) would have resulted in a
$5.7 million increase in interest expense. Including the impact of the interest rate swap, the impact of a hypothetical
1.0% increase in the variable interest rate would have resulted in a $1.9 million increase in interest expense.
For more information relating to borrowing and interest rates, see the “Liquidity and Capital Resources” section of
“Management's Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and Notes 6
and 7 to the consolidated financial statements in Item 8. That information is also incorporated here by reference.
In addition, see Item 1A, “Risk Factors,” for additional risk factors relating to our business.
27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Applied Industrial Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Applied Industrial Technologies, Inc. and subsidiaries
(the “Company”) as of June 30, 2024 and 2023, the related statements of consolidated income, comprehensive
income, shareholders' equity, and cash flows, for each of the three years in the period ended June 30, 2024, and the
related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). 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, 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
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
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
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit
to its carrying value. The Company determines the fair value of its reporting units using the income and market
approaches. The determination of the fair value using the income approach 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 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 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
28
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 included the following, among others:
•
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 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.
•
With the assistance of our fair value specialists, we evaluated the market multiples by evaluating the selected
comparable publicly traded companies and the adjustments made for differences in growth prospects and risk
profiles between the reporting unit and the comparable publicly traded companies. We tested the underlying
source information and mathematical accuracy of the calculations.
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
August 16, 2024
We have served as the Company's auditor since 1966.
29
/s/ Deloitte & Touche LLP
STATEMENTS OF CONSOLIDATED INCOME
(In thousands, except per share amounts)
Year Ended June 30,
2024
2023
2022
Net sales
$ 4,479,406 $ 4,412,794 $ 3,810,676
Cost of sales
3,142,753
3,125,829
2,703,760
Gross profit
1,336,653
1,286,965
1,106,916
Selling, distribution and administrative expense, including depreciation
840,830
813,814
749,058
Operating income
495,823
473,151
357,858
Interest expense
20,544
24,790
26,785
Interest income
(17,713)
(3,151)
(522)
Other (income) expense, net
(5,138)
1,701
1,805
Income before income taxes
498,130
449,811
329,790
Income tax expense
112,368
103,072
72,376
Net income
$
385,762 $
346,739 $
257,414
Net income per share — basic
$
9.98 $
8.98 $
6.69
Net income per share — diluted
$
9.83 $
8.84 $
6.58
See notes to consolidated financial statements.
30
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(In thousands)
Year Ended June 30,
2024
2023
2022
Net income per the statements of consolidated income
$ 385,762 $ 346,739 $ 257,414
Other comprehensive (loss) income, before tax:
Foreign currency translation adjustments
(12,544)
7,723
(9,862)
Post-employment benefits:
Actuarial (loss) gain on re-measurement
(134)
405
2,839
Termination of pension plan
—
1,031
—
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 (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
See notes to consolidated financial statements.
31
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30,
2024
2023
Assets
Current assets
Cash and cash equivalents
$ 460,617 $ 344,036
Accounts receivable, net
724,878
708,395
Inventories
488,258
501,184
Other current assets
96,148
93,192
Total current assets
1,769,901
1,646,807
Property — at cost
Land
14,160
14,219
Buildings
115,262
109,884
Equipment, including computers and software
233,745
219,979
Total property — at cost
363,167
344,082
Less accumulated depreciation
244,640
229,041
Property — net
118,527
115,041
Operating lease assets, net
133,289
100,677
Identifiable intangibles, net
245,870
235,549
Goodwill
619,395
578,418
Other assets
64,928
66,840
Total Assets
$ 2,951,910 $ 2,743,332
Liabilities
Current liabilities
Accounts payable
$ 266,949 $ 301,685
Current portion of long-term debt
25,055
25,170
Compensation and related benefits
93,204
98,740
Other current liabilities
115,892
114,749
Total current liabilities
501,100
540,344
Long-term debt
572,279
596,926
Other liabilities
189,750
147,625
Total Liabilities
1,263,129
1,284,895
Shareholders’ Equity
Preferred stock — no par value; 2,500 shares authorized; none issued or outstanding
—
—
Common stock — no par value; 80,000 shares authorized; 54,213 shares issued;
38,409 and 38,657 shares outstanding, respectively
10,000
10,000
Additional paid-in capital
193,778
188,646
Retained earnings
2,121,838
1,792,632
Treasury shares — at cost (15,804 and 15,556 shares, respectively)
(559,269)
(477,545)
Accumulated other comprehensive loss
(77,566)
(55,296)
Total Shareholders’ Equity
1,688,781
1,458,437
Total Liabilities and Shareholders’ Equity
$ 2,951,910 $ 2,743,332
See notes to consolidated financial statements.
32
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
Year Ended June 30,
2024
2023
2022
Cash Flows from Operating Activities
Net income
$ 385,762 $ 346,739 $ 257,414
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property
23,431
22,266
21,676
Amortization of intangibles
28,923
30,805
31,879
Amortization of stock appreciation rights and options
3,448
2,785
3,284
Deferred income taxes
(1,074)
(5,716)
15,176
(Recoveries of) provision for losses on accounts receivable
(205)
5,619
3,193
Other share-based compensation expense
9,496
9,576
8,558
Other
(1,309)
1,145
(1,752)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(1,925)
(51,059)
(145,519)
Inventories
18,387
(42,977)
(92,425)
Other operating assets
(25,897)
(25,254)
(4,982)
Accounts payable
(39,272)
37,682
53,597
Other operating liabilities
(28,372)
12,355
37,471
Cash provided by Operating Activities
371,393
343,966
187,570
Cash Flows from Investing Activities
Cash paid for acquisition of businesses, net of cash acquired
(72,090)
(35,785)
(6,964)
Capital expenditures
(24,864)
(26,476)
(18,124)
Proceeds from property sales
576
1,428
1,107
Life insurance proceeds
971
—
3,158
Cash payments for loans on company-owned life insurance
—
—
(14,835)
Cash used in Investing Activities
(95,407)
(60,833)
(35,658)
Cash Flows from Financing Activities
Repayments under revolving credit facility
—
(27,000)
—
Borrowings under revolving credit facility
408
—
410,592
Long-term debt repayments
(25,251)
(40,247)
(550,493)
Interest rate swap settlement receipts (payments)
14,470
8,800
(5,703)
Payment of debt issuance costs
—
—
(1,956)
Purchases of treasury shares
(73,388)
(716)
(13,784)
Dividends paid
(55,879)
(53,446)
(51,805)
Acquisition holdback payments
(681)
(1,510)
(2,361)
Exercise of stock appreciation rights and options
127
127
555
Taxes paid for shares withheld
(16,274)
(12,896)
(8,074)
Cash used in Financing Activities
(156,468)
(126,888)
(223,029)
Effect of exchange rate changes on cash
(2,937)
3,317
(2,154)
Increase (decrease) in cash and cash equivalents
116,581
159,562
(73,271)
Cash and cash equivalents at beginning of year
344,036
184,474
257,745
Cash and Cash Equivalents at End of Year
$ 460,617 $ 344,036 $ 184,474
Supplemental Cash Flow Information
Cash paid during the year for:
Income taxes
$ 116,311 $ 108,084 $ 53,301
Interest (includes interest rate swap settlements)
$ 23,978 $ 22,567 $ 20,164
See notes to consolidated financial statements.
33
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In thousands)
For the Years Ended June 30, 2024, 2023 and 2022
Shares of
Common
Stock
Outstanding
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Shares-
at Cost
Accumulated
Other
Comprehensive
Loss
Total
Shareholders'
Equity
Balance at June 30, 2021
38,516 $ 10,000 $ 177,014 $ 1,294,413 $ (455,789) $
(93,092) $
932,546
Net income
257,414
257,414
Other comprehensive income
20,797
20,797
Cash dividends — $1.34 per share
(52,175)
(52,175)
Purchases of common stock for treasury
(149)
(13,784)
(13,784)
Treasury shares issued for:
Exercise of stock appreciation rights and options
104
(3,945)
(2,132)
(6,077)
Performance share awards
5
(222)
(73)
(295)
Restricted stock units
12
(598)
(138)
(736)
Compensation expense — stock appreciation rights
3,284
3,284
Other share-based compensation expense
8,558
8,558
Other
11
(269)
24
68
(177)
Balance at June 30, 2022
38,499
10,000 183,822 1,499,676 (471,848)
(72,295)
1,149,355
Net income
346,739
346,739
Other comprehensive income
16,999
16,999
Cash dividends — $1.38 per share
(53,887)
(53,887)
Purchases of common stock for treasury
(8)
(716)
(716)
Treasury shares issued for:
Exercise of stock appreciation rights and options
92
(4,256)
(3,773)
(8,029)
Performance share awards
23
(1,290)
(758)
(2,048)
Restricted stock units
34
(1,712)
(932)
(2,644)
Compensation expense — stock appreciation rights
2,785
2,785
Other share-based compensation expense
9,576
9,576
Other
17
(279)
104
482
307
Balance at June 30, 2023
38,657
10,000
188,646 1,792,632
(477,545)
(55,296)
1,458,437
Net income
385,762
385,762
Other comprehensive loss
(22,270)
(22,270)
Cash dividends — $1.44 per share
(56,560)
(56,560)
Purchases of common stock for treasury
(398)
(73,388)
(73,388)
Treasury shares issued for:
Exercise of stock appreciation rights and options
73
(3,611)
(3,886)
(7,497)
Performance share awards
54
(3,072)
(3,487)
(6,559)
Restricted stock units
16
(905)
(1,108)
(2,013)
Compensation expense — stock appreciation rights
3,448
3,448
Other share-based compensation expense
9,496
9,496
Other
7
(224)
4
145
(75)
Balance at June 30, 2024
38,409 $ 10,000 $ 193,778 $ 2,121,838 $ (559,269) $
(77,566) $ 1,688,781
See notes to consolidated financial statements.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
NOTE 1: BUSINESS AND ACCOUNTING POLICIES
Business
Applied Industrial Technologies, Inc. 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. Although the Company does not generally manufacture the products it sells, it does assemble and repair
certain products and systems.
Consolidation
The consolidated financial statements include the accounts of Applied Industrial Technologies, Inc. and its
subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
Foreign Currency
The financial statements of the Company’s Canadian, Mexican, Australian, and New Zealand subsidiaries are
measured using local currencies as their functional currencies. Assets and liabilities are translated into U.S. dollars at
current exchange rates, while income and expenses are translated at average exchange rates. Translation gains and
losses are reported in other comprehensive income (loss) in the statements of consolidated comprehensive income.
Gains and losses resulting from transactions denominated in foreign currencies are included in the statements of
consolidated income as a component of other expense (income), net.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the period. Actual results may differ from the estimates and
assumptions used in preparing the consolidated financial statements.
Cash and Cash Equivalents
The Company considers all short-term, highly liquid investments with maturities of three months or less at the date
of purchase to be cash equivalents. Cash and cash equivalents are carried at cost, which approximates fair value.
Marketable Securities
The primary marketable security investments of the Company include money market and mutual funds held in a
rabbi trust for a non-qualified deferred compensation plan. These are included in other assets in the consolidated
balance sheets, are classified as trading securities, and are reported at fair value based on quoted market prices.
Changes in the fair value of the investments during the period are recorded in other expense (income), net in the
statements of consolidated income.
Concentration of Credit Risk
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. The Company’s cash and cash equivalents consist of deposits with
commercial banks and regulated non-bank subsidiaries. While the Company monitors the creditworthiness of these
institutions, a crisis in the financial systems could limit access to funds and/or result in the loss of principal. The terms
of these deposits and investments provide that all monies are available to the Company upon demand.
Accounts Receivable
Accounts receivable are stated at their estimated net realizable value and consist of amounts billed or billable and
currently due from customers.
Allowances for Doubtful Accounts
The Company maintains an allowance for doubtful accounts, which reflects management’s best estimate of
probable losses based on an analysis of customer accounts, known troubled accounts, historical experience with
write-offs, and other currently available evidence. Initially, the Company estimates an allowance for doubtful
accounts as a percentage of net sales based on historical bad debt experience. This initial estimate is adjusted based
on recent trends of customers and industries estimated to be greater credit risks, trends within the entire customer
35
pool, and changes in the overall aging of accounts receivable. Accounts are written off against the allowance when
it becomes evident collection will not occur. While the Company has a large customer base that is geographically
dispersed, a general economic downturn in any of the industry segments in which the Company operates could
result in higher than expected defaults, and therefore, the need to revise estimates for bad debts. The allowance for
doubtful accounts was $13,063 and $22,334 at June 30, 2024 and June 30, 2023, respectively.
Inventories
Inventories are valued at average cost, using the last-in, first-out (LIFO) method for U.S. inventories and the average
cost method for foreign inventories. The Company adopted the link chain dollar value LIFO method of accounting
for U.S. inventories in fiscal 1974. At June 30, 2024, approximately 14.9% of the Company’s domestic inventory
dollars relate to LIFO layers added in the 1970s. The Company maintains five LIFO pools based on the following
product groupings: bearings, power transmission products, rubber products, fluid power products, and other
products. LIFO layers and/or liquidations are determined consistently year-to-year.
The Company evaluates the recoverability of its slow moving and inactive inventories at least quarterly. The
Company estimates 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. The Company’s ability to recover its cost for slow moving or obsolete inventory can be affected by such
factors as general market conditions, future customer demand, and relationships with suppliers. Historically, the
Company’s inventories have demonstrated long shelf lives, are not highly susceptible to obsolescence, and, in certain
instances, can be eligible for return under supplier return programs.
Supplier Purchasing Programs
The Company enters into agreements with certain suppliers providing inventory purchase incentives. The Company’s
inventory purchase incentive arrangements are unique to each supplier and are generally annual programs ending at
either the Company’s fiscal year end or the supplier’s year end; however, program length and ending dates can vary.
Incentives are received in the form of cash or credits against purchases upon attainment of specified purchase
volumes and are received either monthly, quarterly, or annually. The incentives are generally a specified percentage
of the Company’s net purchases based upon achieving specific purchasing volume levels. These percentages can
increase or decrease based on changes in the volume of purchases. The Company accrues for the receipt of these
inventory purchase incentives based upon cumulative purchases of inventory. The percentage level utilized is based
upon the estimated total volume of purchases expected during the life of the program. Supplier programs are
analyzed each quarter to determine the appropriateness of the amount of purchase incentives accrued. Upon
program completion, differences between estimates and actual incentives subsequently received have not been
material. Benefits under these supplier purchasing programs are recognized under the Company’s inventory
accounting methods as a reduction of cost of sales when the inventories representing these purchases are recorded
as cost of sales. Accrued incentives expected to be settled as a credit against future purchases are reported on the
consolidated balance sheets as an offset to amounts due to the related supplier.
Property and Related Depreciation and Amortization
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets and is included in selling, distribution, and administrative expense in the
accompanying statements of consolidated income. Buildings, building improvements and leasehold improvements
are depreciated over ten to thirty years or the life of the lease if a shorter period, and equipment is depreciated over
three to ten years. The Company capitalizes internal use software development costs in accordance with guidance
on accounting for costs of computer software developed or obtained for internal use. Amortization of software
begins when it is ready for its intended use, and is computed on a straight-line basis over the estimated useful life of
the software, generally not to exceed twelve years. Capitalized software and hardware costs are classified as
property on the consolidated balance sheets. The carrying values of property and equipment are reviewed for
impairment when events or changes in circumstances indicate that the asset group's recorded value cannot be
recovered from undiscounted future cash flows. Impairment losses, if any, would be measured based upon the
difference between the carrying amount of an asset group and its fair value.
Goodwill and Intangible Assets
Goodwill is recognized as the excess cost of an acquired entity over the net amount assigned to assets acquired and
liabilities assumed. Goodwill is not amortized. Goodwill is reviewed for impairment annually as of January 1 or
whenever changes in conditions indicate an evaluation should be completed. These conditions could include a
significant change in the business climate, legal factors, operating performance indicators, competition, or sale or
disposition of a significant portion of a reporting unit. The Company utilizes the income and market approaches to
determine the fair value of reporting units. Evaluating impairment requires significant judgment by management,
36
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.
The Company recognizes acquired identifiable intangible assets such as customer relationships, trade names, vendor
relationships, and non-competition agreements apart from goodwill. Customer relationship identifiable intangibles
are amortized using the sum-of-the-years-digits method or the expected cash flow method over estimated useful
lives consistent with assumptions used in the determination of their value. Amortization of all other finite-lived
identifiable intangible assets is computed using the straight-line method over the estimated period of benefit.
Amortization of identifiable intangible assets is included in selling, distribution and administrative expense in the
accompanying statements of consolidated income. Identifiable intangible assets with finite lives are reviewed for
impairment when changes in conditions indicate carrying value may not be recoverable. If circumstances require a
finite-lived intangible asset be tested for possible impairment, the Company first compares undiscounted cash flows
expected to be generated by the asset to the carrying value of the asset. If the carrying value of the finite-lived
intangible asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that
the carrying value exceeds its fair value determined through a discounted cash flow model. Identifiable intangible
assets with indefinite lives are reviewed for impairment on an annual basis or whenever changes in conditions
indicate an evaluation should be completed. The Company does not currently have any indefinite-lived identifiable
intangible assets.
Self-Insurance Liabilities
The Company maintains business insurance programs with significant self-insured retention covering workers’
compensation, business, automobile, general product liability and other claims. The Company accrues estimated
losses including those incurred but not reported using actuarial calculations, models and assumptions based on
historical loss experience. The Company also maintains a self-insured health benefits plan which provides medical
benefits to U.S. based employees electing coverage under the plan. The Company estimates its reserve for all unpaid
medical claims, including those incurred but not reported, based on historical experience, adjusted as necessary
based upon management’s reasoned judgment.
Revenue Recognition
The Company primarily sells purchased products distributed through its network of service centers and recognizes
revenue at a point in time when control of the product transfers to the customer, typically upon shipment from an
Applied facility or directly from a supplier. For products that ship directly from suppliers to customers, Applied
generally acts as the principal in the transaction and recognizes revenue on a gross basis. Revenue recognized over
time is not significant. Revenue is measured as the amount of consideration expected to be received in exchange for
the products and services provided, net of allowances for product returns, variable consideration, and any taxes
collected from customers that will be remitted to governmental authorities. Shipping and handling costs are
recognized in net sales when they are billed to the customer. The Company has elected to account for shipping and
handling activities as fulfillment costs. There are no significant costs associated with obtaining customer contracts.
Payment terms with customers vary by the type and location of the customer and the products or services offered.
The Company does not adjust the promised amount of consideration for the effects of significant financing
components based on the expectation that the period between when the Company transfers a promised good or
service to a customer and when the customer pays for that good or service will be one year or less. Arrangements
with customers that include payment terms extending beyond one year are not significant.
The Company’s products are generally sold with a right of return and may include variable consideration in the form
of incentives, discounts, credits, or rebates. Product returns are estimated based on historical return rates. The
returns reserve was $10,815 and $12,635 at June 30, 2024 and June 30, 2023, respectively.
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
is incurred. The realization of variable consideration occurs within a short period of time from product delivery;
therefore, the time value of money effect is not significant.
Shipping and Handling Costs
The Company records freight payments to third parties in cost of sales and internal delivery costs in selling,
distribution and administrative expense in the accompanying statements of consolidated income. Internal delivery
costs in selling, distribution and administrative expense were approximately $24,620, $22,170, and $17,890 for the
fiscal years ended June 30, 2024, 2023, and 2022, respectively.
37
Income Taxes
Income taxes are determined based upon income and expenses recorded for financial reporting purposes. 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. Uncertain tax positions
meeting a more-likely-than-not recognition threshold are recognized in accordance with Accounting Standards
Codification (ASC) Topic 740 - Income Taxes. The Company recognizes accrued interest and penalties related to
unrecognized income tax benefits in the provision for income taxes.
Share-Based Compensation
Share-based compensation represents the cost related to share-based awards granted to employees under the 2023
Long-Term Performance Plan, the 2019 Long-Term Performance Plan, or the 2015 Long-Term Performance Plan.
The Company measures share-based compensation cost at the grant date, based on the estimated fair value of the
award and recognizes the cost over the requisite service period. Non-qualified stock appreciation rights (SARs) and
stock options are granted with an exercise price equal to the closing market price of the Company’s common stock
at the date of grant and the fair values are determined using a Black-Scholes option pricing model, which
incorporates assumptions regarding the expected volatility, the expected option life, the risk-free interest rate and
the expected dividend yield. SARs and stock option awards generally vest over four years of continuous service and
have ten-year contractual terms. The fair value of restricted stock awards, restricted stock units (RSUs), and
performance shares are based on the closing market price of Company common stock on the grant date.
Treasury Shares
Shares of common stock repurchased by the Company are recorded at cost as treasury shares and result in a
reduction of shareholders’ equity in the consolidated balance sheets. The Company uses the weighted-average cost
method for determining the cost of shares reissued. The difference between the cost of the shares and the
reissuance price is added to or deducted from additional paid-in capital.
Derivatives
The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value
of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a
derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied
the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure
to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest
rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to
variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign
operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the
hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a
cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain
risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
In accordance with the FASB’s fair value measurement guidance, the Company made an accounting policy election
to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a
net basis by counterparty portfolio.
Retirement Savings Plan
Substantially all U.S. employees participate in the Applied Industrial Technologies, Inc. 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’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 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.
38
Post-employment Benefit Plans
The Company provides the following post-employment benefits which, except for the Qualified Defined Benefit
Retirement Plan and Key Executive Restoration Plan, are unfunded:
Supplemental Executive Retirement Benefits Plan
The Company has a non-qualified pension plan to provide supplemental retirement benefits to certain officers.
Benefits are payable and determinable at retirement based upon a percentage of the participant’s historical
compensation. The Executive Organization and Compensation Committee of the Board of Directors froze
participant benefits (credited service and final average earnings) and entry into the Supplemental Executive
Retirement Benefits Plan (SERP) effective December 31, 2011. The Company recorded net periodic benefit costs
associated with the SERP of $289, $399, and $450 in fiscal 2024, 2023, and 2022, respectively. The Company
expects to make payments of approximately $1,300 under the SERP in fiscal 2025 and 2026, respectively.
Key Executive Restoration Plan
In fiscal 2012, the Company adopted the Key Executive Restoration Plan (KERP), a funded, non-qualified
deferred compensation plan, to replace the SERP. The Company recorded $446, $456, and $514 of expense
associated with this plan in fiscal 2024, 2023, and 2022, respectively.
Qualified Defined Benefit Retirement Plan
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 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 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
The Company provides health care benefits, through third-party policies, to eligible retired employees who pay a
specified monthly premium. Premium payments are based upon current insurance rates for the type of coverage
provided and are adjusted annually. Certain monthly health care premium payments are partially subsidized by
the Company. Additionally, in conjunction with a fiscal 1998 acquisition, the Company assumed the obligation
for a post-retirement medical benefit plan which provides health care benefits to eligible retired employees at no
cost to the individual. The Company recorded net periodic benefits associated with these plans of $186, $113,
and $123 in fiscal 2024, 2023, and 2022, respectively.
The Company has determined that the related disclosures under ASC Topic 715 - Compensation, Retirement
Benefits, for these post-employment benefit plans are not material to the consolidated financial statements.
Leases
The Company leases facilities for certain service centers, warehouses, distribution centers, and office space. The
Company also leases office equipment and vehicles. All leases are classified as operating. The Company’s leases
expire at various dates through 2036, with terms ranging from 1 year to 15 years. Many of the Company’s real
estate leases contain renewal provisions to extend lease terms up to 5 years. The exercise of renewal options is
solely at the Company’s discretion. The Company’s lease agreements do not contain material variable lease
payments, residual value guarantees, or restrictive covenants. The Company does not recognize right-of-use assets
or lease liabilities for short-term leases with initial terms of 12 months or less. Leased vehicles comprise the majority
of the Company’s short-term leases. All other leases are recorded on the balance sheet with right-of-use assets
representing the right to use the underlying asset for the lease term and lease liabilities representing lease payment
obligations. The Company’s leases do not provide implicit rates; therefore the Company uses its incremental
borrowing rate as the discount rate for measuring lease liabilities. Non-lease components are accounted for
separately from lease components. 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
39
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.
NOTE 2: REVENUE RECOGNITION
Disaggregation of Revenues
The following tables present the Company's net sales by reportable segment and by geographic areas based on the
location of the facility shipping the product for the years ended June 30, 2024, 2023, and 2022. Other countries
consist of Mexico, Australia, New Zealand, Singapore, and Costa Rica.
Year Ended June 30, 2024
Service Center
Based
Distribution
Engineered
Solutions
Total
Geographic Areas:
United States
$
2,540,427 $
1,391,762 $
3,932,189
Canada
310,210
—
310,210
Other Countries
205,918
31,089
237,007
Total
$
3,056,555 $
1,422,851 $
4,479,406
Year Ended June 30, 2023
Service Center
Based
Distribution
Engineered
Solutions
Total
Geographic Areas:
United States
$
2,441,281 $
1,419,140 $
3,860,421
Canada
315,499
—
315,499
Other Countries
210,062
26,812
236,874
Total
$
2,966,842 $
1,445,952 $
4,412,794
Year Ended June 30, 2022
Service Center
Based
Distribution
Engineered
Solutions
Total
Geographic Areas:
United States
$
2,081,566 $
1,218,184 $
3,299,750
Canada
291,530
—
291,530
Other Countries
192,508
26,888
219,396
Total
$
2,565,604 $
1,245,072 $
3,810,676
40
The following tables present the Company’s percentage of revenue by reportable segment and major customer
industry for the years ended June 30, 2024, 2023, and 2022:
Year Ended June 30, 2024
Service Center
Based
Distribution
Engineered
Solutions
Total
General Industry
35.0 %
38.7 %
36.2 %
Industrial Machinery
8.2 %
24.2 %
13.3 %
Food
15.0 %
2.8 %
11.1 %
Metals
10.9 %
7.9 %
10.0 %
Forest Products
12.0 %
3.2 %
9.2 %
Chem/Petrochem
2.7 %
16.0 %
6.9 %
Cement & Aggregate
7.4 %
1.3 %
5.5 %
Oil & Gas
5.1 %
1.7 %
4.0 %
Transportation
3.7 %
4.2 %
3.8 %
Total
100.0 %
100.0 %
100.0 %
Year Ended June 30, 2023
Service Center
Based
Distribution
Engineered
Solutions
Total
General Industry
34.0 %
41.2 %
36.2 %
Industrial Machinery
9.8 %
26.1 %
15.2 %
Food
13.2 %
2.7 %
9.8 %
Metals
10.6 %
7.5 %
9.6 %
Forest Products
12.1 %
2.8 %
9.1 %
Chem/Petrochem
2.8 %
13.9 %
6.4 %
Cement & Aggregate
7.8 %
1.3 %
5.7 %
Oil & Gas
6.0 %
1.4 %
4.5 %
Transportation
3.7 %
3.1 %
3.5 %
Total
100.0 %
100.0 %
100.0 %
Year Ended June 30, 2022
Service Center
Based
Distribution
Engineered
Solutions
Total
General Industry
34.9 %
40.1 %
36.7 %
Industrial Machinery
10.3 %
28.3 %
16.2 %
Food
12.6 %
2.5 %
9.3 %
Metals
11.2 %
7.4 %
9.9 %
Forest Products
10.8 %
2.4 %
8.0 %
Chem/Petrochem
3.1 %
13.8 %
6.6 %
Cement & Aggregate
7.6 %
1.0 %
5.5 %
Oil & Gas
5.4 %
1.2 %
4.0 %
Transportation
4.1 %
3.3 %
3.8 %
Total
100.0 %
100.0 %
100.0 %
41
The following tables present the Company’s percentage of revenue by reportable segment and product line for the
years ended June 30, 2024, 2023, and 2022:
Year Ended June 30, 2024
Service Center
Based
Distribution
Engineered
Solutions
Total
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 %
Bearings, Linear & Seals
26.1 %
0.4 %
18.0 %
Specialty Flow Control
— %
34.8 %
11.0 %
Total
100.0 %
100.0 %
100.0 %
Year Ended June 30, 2023
Service Center
Based
Distribution
Engineered
Solutions
Total
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 %
Bearings, Linear & Seals
28.3 %
0.4 %
19.1 %
Specialty Flow Control
— %
35.4 %
11.6 %
Total
100.0 %
100.0 %
100.0 %
Year Ended June 30, 2022
Service Center
Based
Distribution
Engineered
Solutions
Total
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 %
Bearings, Linear & Seals
29.2 %
0.4 %
19.8 %
Specialty Flow Control
— %
32.9 %
10.7 %
Total
100.0 %
100.0 %
100.0 %
Contract Assets
The Company’s contract assets consist of un-billed amounts resulting from contracts for which revenue is recognized
over time using the cost-to-cost method, and for which revenue recognized exceeds the amount billed to the
customer.
Activity related to contract assets, which are included in other current assets on the consolidated balance sheet, is as
follows:
June 30, 2024
June 30, 2023
$ Change
% Change
Contract assets
$
12,648 $
17,911 $
(5,263)
(29.4) %
The difference between the opening and closing balances of the Company's contract assets primarily results from
the timing difference between the Company's performance and when the customer is billed.
42
NOTE 3: BUSINESS COMBINATIONS
The operating results of all acquired entities are included within the consolidated operating results of the Company
from the date of each respective acquisition.
Fiscal 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 segment. 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.
(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 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.
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 $25,617, 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.
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
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 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. The Company
43
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.
NOTE 4: INVENTORIES
Inventories consist of the following:
June 30,
2024
2023
U.S. inventories at average cost
$
557,313 $
558,299
Foreign inventories at average cost
156,873
158,165
714,186
716,464
Less: Excess of average cost over LIFO cost for U.S. inventories
225,928
215,280
Inventories on consolidated balance sheets
$
488,258 $
501,184
The overall impact of LIFO layer liquidations increased gross profit by $1,160, $127, and $501 in fiscal 2024, fiscal
2023, and fiscal 2022, respectively.
NOTE 5: GOODWILL AND INTANGIBLES
The changes in the carrying amount of goodwill for both the Service Center Based Distribution segment and the
Engineered Solutions segment for the years ended June 30, 2024 and 2023 are as follows:
Service Center
Based
Distribution
Engineered
Solutions
Total
Balance at July 1, 2022
$
211,010 $
352,195 $
563,205
Goodwill acquired during the year
—
14,517
14,517
Other, primarily currency translation
221
475
696
Balance at June 30, 2023
211,231
367,187
578,418
Goodwill acquired during the year
9,712
32,634
42,346
Other, primarily currency translation
(1,369)
—
(1,369)
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. 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.
The Company's identifiable intangible assets resulting from business combinations are amortized over their estimated
period of benefit and consist of the following:
June 30, 2024
Amount
Accumulated
Amortization
Net
Book Value
Finite-Lived Intangibles:
Customer relationships
$
394,114 $
205,422 $
188,692
Trade names
88,848
34,891
53,957
Other
4,946
1,725
3,221
Total Intangibles
$
487,908 $
242,038 $
245,870
44
June 30, 2023
Amount
Accumulated
Amortization
Net
Book Value
Finite-Lived Intangibles:
Customer relationships
$
364,572 $
188,804 $
175,768
Trade names
108,301
50,823
57,478
Vendor relationships
9,861
9,744
117
Other
3,347
1,161
2,186
Total Intangibles
$
486,081 $
250,532 $
235,549
Amounts include the impact of foreign currency translation. Fully amortized amounts are written off.
During fiscal 2024, 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
$
35,131
20.0
Trade names
3,810
13.3
Other
1,600
6.7
Total Intangibles Acquired
$
40,541
18.9
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 $28,923, $30,805, and $31,879 in fiscal 2024, 2023, and 2022,
respectively, and is included in selling, distribution and administrative expense in the statements of consolidated
income. Future amortization expense based on the Company’s identifiable intangible assets as of June 30, 2024 is
estimated to be $29,300 for 2025, $27,300 for 2026, $25,200 for 2027, $23,400 for 2028, and $21,800 for 2029.
NOTE 6: DEBT
A summary of long-term debt, including the current portion, follows:
June 30,
2024
2023
Revolving credit facility
$
384,000 $
383,592
Trade receivable securitization facility
188,300
188,300
Series D Notes
—
25,000
Series E Notes
25,000
25,000
Other
105
356
Total debt
$
597,405 $
622,248
Less: unamortized debt issuance costs
71
152
$
597,334 $
622,096
Revolving Credit Facility & Term Loan
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 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 as of June 30, 2024 and June 30, 2023 in order to secure certain insurance obligations.
45
Trade Receivable Securitization Facility
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. 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. The AR Securitization Facility effectively increases the Company’s borrowing capacity by
collateralizing a portion of the amount of the U.S. operations’ trade accounts receivable. The Company uses the
proceeds from the AR Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing
costs. 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.
Unsecured Shelf Facility
At June 30, 2024 and June 30, 2023, the Company had borrowings outstanding under its unsecured shelf facility
agreement with Prudential Investment Management of $25,000 and $50,000, 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 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.
Other Long-Term Borrowing
In 2014, the Company assumed $2,359 of debt as a part of the headquarters facility acquisition. The 1.50% fixed
interest rate note is held by the State of Ohio Development Services Agency and matures in November 2024.
The table below summarizes the aggregate maturities of amounts outstanding under long-term borrowing
arrangements for each of the next five years:
Fiscal Year
Aggregate
Maturity
2025
$
25,105
2026
—
2027
572,300
2028
—
2029
—
Covenants
The credit facility and the unsecured shelf facility contain restrictive covenants regarding liquidity, net worth, financial
ratios, and other covenants. At June 30, 2024, the most restrictive of these covenants required that the Company
have net indebtedness less than 3.75 times consolidated income before interest, taxes, depreciation and
amortization (as defined). At 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, 2024.
NOTE 7: DERIVATIVES
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions.
The Company principally manages its exposures to a wide variety of business and operational risks through
management of its core business activities. The Company manages economic risks, including interest rate, liquidity,
and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of
derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage
exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash
amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are
used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts
and its known or expected cash payments principally related to the Company’s borrowings.
46
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its
exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps
as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the
receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the
life of the agreements without exchange of the underlying notional amount.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative
is recorded in accumulated other comprehensive loss and subsequently reclassified into interest expense in the same
period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other
comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the
Company’s variable-rate debt.
In January 2019, the Company entered into an interest rate swap to mitigate variability in forecasted interest
payments on $463,000 of the Company’s U.S. dollar-denominated unsecured variable rate debt. The notional
amount declines over time. The interest rate swap effectively converts a portion of the floating rate interest payment
into a fixed rate interest payment. The Company designated the interest rate swap as a pay-fixed, receive-floating
interest rate swap instrument and is accounting for this derivative as a cash flow hedge. During fiscal 2021, the
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%. 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 2.48% 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
(loss) income, before tax, to interest expense totaled $(18,683), $(7,285), and $11,361 for fiscal 2024, 2023, and
2022, respectively.
NOTE 8: FAIR VALUE MEASUREMENTS
Marketable securities measured at fair value at June 30, 2024 and June 30, 2023 totaled $22,519 and $18,637,
respectively. The majority of these marketable securities are held in a rabbi trust for a non-qualified deferred
compensation plan. The marketable securities are included in other assets on the consolidated balance sheets and
their fair values were valued using quoted market prices (Level 1 in the fair value hierarchy).
As of June 30, 2024, the carrying value of the Company's fixed interest rate debt outstanding under its unsecured
shelf facility agreement with Prudential Investment Management approximates fair value (Level 2 in the fair value
hierarchy).
The revolving credit facility contains variable interest rates and its carrying value approximates fair value (Level 2 in the
fair value hierarchy).
47
NOTE 9: INCOME TAXES
Income Before Income Taxes
The components of income before income taxes are as follows:
Year Ended June 30,
2024
2023
2022
U.S.
$ 467,785 $ 423,316 $ 287,367
Foreign
30,345
26,495
42,423
Income before income taxes
$ 498,130 $ 449,811 $ 329,790
Provision
The provision for income taxes consists of:
Year Ended June 30,
2024
2023
2022
Current:
Federal
$
86,501 $
84,294 $
40,608
State and local
23,016
19,026
10,188
Foreign
3,925
5,468
6,404
Total current
113,442
108,788
57,200
Deferred:
Federal
(791)
(1,881)
12,467
State and local
1,159
(84)
2,659
Foreign
(1,442)
(3,751)
50
Total deferred
(1,074)
(5,716)
15,176
Total
$ 112,368 $ 103,072 $
72,376
Effective Tax Rates
The following reconciles the U.S. federal statutory income tax rate to the Company’s effective income tax rate:
Year Ended June 30,
2024
2023
2022
Statutory income tax rate
21.0 %
21.0 %
21.0 %
Effects of:
State and local taxes
4.0
3.5
3.3
Stock compensation
(1.2)
(1.0)
(1.5)
GILTI/FDII
(0.4)
(0.2)
0.2
R & D credit
(0.4)
(0.4)
(0.4)
U.S. tax on foreign income, net
(0.1)
—
(0.4)
Impact of foreign operations
0.3
0.2
0.4
Non-deductibles/Deductible dividend
0.9
0.6
0.2
Interest deduction
(0.4)
(0.4)
(0.6)
Valuation allowance
(0.7)
(0.6)
(0.6)
Other, net
(0.4)
0.2
0.3
Effective income tax rate
22.6 %
22.9 %
21.9 %
48
Consolidated Balance Sheets
Significant components of the Company’s deferred tax assets and liabilities are as follows:
June 30,
2024
2023
Deferred tax assets:
Compensation liabilities not currently deductible
$
18,646 $
17,726
Other expenses and reserves not currently deductible
15,008
18,215
Leases
34,771
26,345
Net operating loss carryforwards
6,340
6,809
Capitalization of R&D costs
17,584
11,646
Other
300
381
Total deferred tax assets
$
92,649 $
81,122
Less: Valuation allowance
(158)
(3,459)
Deferred tax assets, net of valuation allowance
$
92,491 $
77,663
Deferred tax liabilities:
Inventories
$
(18,086) $
(15,174)
Goodwill and intangibles
(63,733)
(52,463)
Leases
(34,473)
(26,179)
Hedging instrument
(5,965)
(9,081)
Depreciation and differences in property bases
(10,506)
(9,757)
Total deferred tax liabilities
(132,763)
(112,654)
Net deferred tax liabilities
$
(40,272) $
(34,991)
Net deferred tax liabilities are classified as follows:
Other assets
$
11,306 $
9,990
Other liabilities
(51,578)
(44,981)
Net deferred tax liabilities
$
(40,272) $
(34,991)
As of June 30, 2024 and 2023, the Company had foreign net operating loss carryforwards of approximately $24,627
and $29,374, respectively, the tax benefit of which is approximately $6,146 and $6,440, respectively. These loss
carryforwards will expire at various dates beginning in 2036. 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. 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 tax rates and future income levels. The Company evaluates the
realization of its deferred tax assets each quarter throughout the year. During 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 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. subsidiaries of
approximately $186,420. The vast majority of such earnings have previously been subjected to the one-time
transition tax or the Global Intangible Low Taxed Income (GILTI) inclusion. Therefore, any additional taxes due with
respect to such earnings or the excess of the amount for financial reporting over the tax basis of our foreign
investments would generally be limited to foreign withholding and state income taxes. In addition, we expect
foreign tax credits would be available to either offset or partially reduce the tax cost in the event of a distribution.
We intend, however, to indefinitely reinvest these earnings and expect future U.S. cash generation to be sufficient to
meet future U.S. cash needs.
49
Unrecognized Income Tax Benefits
The Company and its subsidiaries file income tax returns in U.S. federal, various state, local, and foreign jurisdictions.
The following table sets forth the changes in the amount of unrecognized tax benefits for the years ended June 30,
2024, 2023, and 2022:
Year Ended June 30,
2024
2023
2022
Unrecognized Income Tax Benefits at beginning of the year
$
4,821 $
4,926 $
5,230
Current year tax positions
105
622
505
Prior year tax positions
(412)
(86)
(83)
Expirations of statutes of limitations
(1,466)
(641)
(726)
Unrecognized Income Tax Benefits at end of year
$
3,048 $
4,821 $
4,926
The Company recognizes interest and penalties related to uncertain tax positions in the provision for income taxes.
During 2024, 2023, and 2022, the Company recognized $296, $239, and $(362) 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 $1,411, $1,115, and $876 as of June 30, 2024, 2023, and
2022, respectively. 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.
The Company is subject to U.S. federal income tax examinations for the tax years 2019 through 2024 and to state
and local income tax examinations for the tax years 2018 through 2024. In addition, the Company is subject to
foreign income tax examinations for the tax years 2017 through 2024.
The Company’s unrecognized income tax benefits are included in other liabilities in the consolidated balance sheets
since payment of cash is not expected within one year, or as a reduction of a deferred tax asset.
NOTE 10: SHAREHOLDERS’ EQUITY
Treasury Shares
At June 30, 2024, 128 shares of the Company’s common stock held as treasury shares were restricted as collateral
under escrow arrangements relating to change in control and director and officer indemnification agreements.
Accumulated Other Comprehensive Loss
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 (loss) income
(9,900)
2,142
19,770
12,012
Amounts reclassified from accumulated other comprehensive loss
—
228
8,557
8,785
Net current-period other comprehensive (loss) income
(9,900)
2,370
28,327
20,797
Balance at June 30, 2022
(90,738)
(1,303)
19,746
(72,295)
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 (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)
50
Other Comprehensive (Loss) Income
Details of other comprehensive (loss) income are as follows:
Year Ended June 30,
2024
2023
2022
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
$ (12,544) $
(77) $ (12,467) $ 7,723 $
84 $ 7,639 $ (9,862) $
38 $ (9,900)
Post-employment benefits:
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 (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
—
—
—
Unrealized gain on cash
flow hedge
5,958
1,459
4,499
18,174
4,415
13,759
26,204
6,434
19,770
Reclassification of interest
from cash flow hedge into
interest expense
(18,683)
(4,575)
(14,108)
(7,285)
(1,780)
(5,505)
11,361
2,804
8,557
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
Basic net income per share is based on the weighted-average number of common shares outstanding. Diluted net
income per share includes the dilutive effect of potential common shares outstanding. Under the two-class method
of computing net income per share, non-vested share-based payment awards that contain rights to receive non-
forfeitable dividends are considered participating securities. The Company’s participating securities include Restricted
Stock Units ("RSUs") and restricted stock awards. The Company calculated basic and diluted net income per share
under both the treasury stock method and the two-class method. For the years presented there were no material
differences in the net income per share amounts calculated using the two methods. Accordingly, the treasury stock
method is disclosed below.
The following table presents amounts used in computing net income per share and the effect on the weighted-
average number of shares of dilutive potential common shares:
Year Ended June 30,
2024
2023
2022
Net Income
$ 385,762 $ 346,739 $ 257,414
Average Shares Outstanding:
Weighted-average common shares outstanding for basic computation
38,672
38,592
38,471
Dilutive effect of potential common shares
585
628
634
Weighted-average common shares outstanding for dilutive computation
39,257
39,220
39,105
Net Income Per Share — Basic
$
9.98 $
8.98 $
6.69
Net Income Per Share — Diluted
$
9.83 $
8.84 $
6.58
Stock awards relating to 99, 84 and 106 shares of common stock were outstanding at June 30, 2024, 2023 and
2022, respectively, but were not included in the computation of diluted earnings per share for the fiscal years then
ended as they were anti-dilutive.
51
NOTE 11: SHARE-BASED COMPENSATION
Share-Based Incentive Plans
Following approval by the Company's shareholders in October 2023, the 2023 Long-Term Performance Plan (the
"2023 Plan") replaced the 2019 Long-Term Performance Plan. The 2023 Plan, which expires in 2028, provides for
granting of SARs, stock options, stock awards, cash awards, and such other awards or combination thereof as the
Executive Organization and Compensation Committee or, in the case of director awards, the Corporate Governance
& Sustainability Committee of the Board of Directors (together referred to as the "Committee") may determine to
officers, other key employees and members of the Board of Directors. Grants are generally made at regularly
scheduled committee meetings. Compensation costs charged to expense under award programs paid (or to be paid)
with shares (including SARs, performance shares, restricted stock, and RSUs) are summarized in the table below:
Year Ended June 30,
2024
2023
2022
SARs
$ 3,448 $ 2,785 $ 3,284
Performance shares
4,232
5,302
4,549
Restricted stock and RSUs
5,264
4,274
4,009
Total compensation costs under award programs
$ 12,944 $ 12,361 $ 11,842
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 $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.
The aggregate unrecognized compensation cost for share-based award programs with the potential to be paid at
June 30, 2024 is summarized in the table below:
June 30,
2024
Average Expected
Period of Expected
Recognition (Years)
SARs
$ 5,113
2.6
Performance shares
6,415
1.7
Restricted stock and RSUs
3,050
2.1
Total unrecognized compensation costs under award programs
$ 14,578
2.1
Cost of these programs will be recognized as expense over the weighted-average remaining vesting period of
2.1 years. The aggregate number of shares of common stock which may be awarded under the 2023 Plan is 1,600;
shares available for future grants at June 30, 2024 were 1,584.
Stock Appreciation Rights and Stock Options
The weighted-average assumptions used for SARs grants issued in fiscal 2024, 2023, and 2022 are:
2024
2023
2022
Expected life, in years
6.0
6.2
6.4
Risk free interest rate
4.1 %
2.9 %
1.0 %
Dividend yield
1.0 %
1.3 %
1.5 %
Volatility
37.0 %
35.5 %
34.3 %
Per share fair value of SARs granted during the year
$55.65
$35.98
$26.18
The expected life is based upon historical exercise experience of the officers, other key employees, and
members of the Board of Directors. The risk free interest rate is based upon U.S. Treasury zero-coupon bonds
with remaining terms equal to the expected life of the SARs. The assumed dividend yield has been estimated
based upon the Company’s historical results and expectations for changes in dividends and stock prices. The
volatility assumption is calculated based upon historical daily price observations of the Company’s common
stock for a period equal to the expected life.
SARs are redeemable solely in Company common stock. The exercise price of stock option awards may be
settled by the holder with cash or by tendering Company common stock.
52
A summary of SARs and stock options activity is presented below:
Shares
Weighted-
Average
Exercise
Price
Year Ended June 30, 2024
(Shares in thousands)
Outstanding, beginning of year
816 $
70.11
Granted
102
143.72
Exercised
(188)
61.25
Forfeited
(18)
83.67
Outstanding, end of year
712 $
82.65
Exercisable at end of year
472 $
65.93
Expected to vest at end of year
706 $
82.29
The weighted-average remaining contractual terms for SARs and stock options outstanding, exercisable, and
expected to vest at June 30, 2024 were 5.8, 4.6, and 5.8 years, respectively. The aggregate intrinsic values of
SARs and stock options outstanding, exercisable, and expected to vest at June 30, 2024 were $79,326
$60,488, and $78,921, respectively. The aggregate intrinsic value of the SARs and stock options exercised
during fiscal 2024, 2023, and 2022 was $19,700, $20,170, and $17,015, respectively.
The total fair value of shares vested during fiscal 2024, 2023, and 2022 was $2,550, $2,691, and $2,341,
respectively.
Performance Shares
Performance shares are paid in shares of Applied stock at the end of a three-year period provided the
Company achieves goals established by the Committee. The number of Applied shares payable will vary
depending on the level of the goals achieved.
A summary of non-vested performance shares activity at June 30, 2024 is presented below:
Shares
Weighted-
Average
Grant-Date
Fair Value
Year Ended June 30, 2024
(Shares in thousands)
Non-vested, beginning of year
159 $
66.74
Awarded
42
99.79
Vested
(100)
53.50
Non-vested, end of year
101 $
93.73
The Committee set three one-year goals for each of the 2024, 2023, and 2022 grants. Each fiscal year
during the three-year term has its own separate goals, tied to the Company’s earnings before interest, tax,
depreciation, and amortization (EBITDA) and after-tax return on assets (ROA). Achievement during any
particular fiscal year is awarded and “banked” for payout at the end of the three-year term. For the
outstanding grants as of June 30, 2024, the maximum number of shares that could be earned in future
periods was 53.
Restricted Stock and Restricted Stock Units
Under the 2023 Plan, restricted stock award recipients have voting rights with respect to their shares, but are
restricted from selling or transferring the shares prior to vesting; dividends are accrued and paid upon vesting.
Restricted stock awards vest over periods of one to four years. RSUs are grants valued in shares of Applied
stock, but shares are not issued until the grants vest three to five years from the award date, assuming
continued employment with Applied; dividend equivalents on RSUs are accrued and paid upon vesting.
53
A summary of the status of the Company’s non-vested restricted stock and RSUs at June 30, 2024 is
presented below:
Shares
Weighted-
Average
Grant-Date
Fair Value
Year Ended June 30, 2024
(Share amounts in thousands)
Non-vested, beginning of year
143 $
83.35
Granted
29
151.53
Forfeitures
(4)
84.96
Vested
(38)
81.50
Non-vested, end of year
130 $
99.05
NOTE 12: LEASES
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. Operating lease costs and
short-term lease costs were $38,905 and $12,683, respectively, for the year ended June 30, 2024 and $35,982 and
$9,153, respectively, for the year ended June 30, 2023. Variable lease costs and sublease income were not material.
Information related to operating leases is as follows:
June 30,
2024
2023
Operating lease assets, net
$
133,289 $
100,677
Operating lease liabilities
Other current liabilities
$
33,466 $
31,173
Other liabilities
104,143
72,704
Total operating lease liabilities
$
137,609 $
103,877
June 30,
2024
2023
Weighted average remaining lease term (years)
5.5
4.9
Weighted average incremental borrowing rate
4.51 %
3.67 %
Year Ended June 30,
2024
2023
Cash paid for operating leases
$
38,130 $
35,545
Right of use assets obtained in exchange for new operating lease liabilities
$
67,535 $
30,605
The table below summarizes the aggregate maturities of liabilities pertaining to operating leases with terms greater
than one year for each of the next five years:
Fiscal Year
Maturity of Operating
Lease Liabilities
2025
$
38,617
2026
33,357
2027
26,843
2028
19,466
2029
14,208
Thereafter
23,456
Total lease payments
155,947
Less interest
18,338
Present value of lease liabilities
$
137,609
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
54
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.
NOTE 13: SEGMENT INFORMATION
The Company's reportable segments are: 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. 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 Engineered Solutions segment to the Service Center Based Distribution
segment of $52,574, $48,450, and $37,163, in 2024, 2023, and 2022, respectively, have been eliminated in the
following table.
Segment Financial Information
Service Center
Based
Distribution
Engineered
Solutions
Total
Year Ended June 30, 2024
Net sales
$
3,056,555 $
1,422,851 $
4,479,406
Operating income for reportable segments
400,182
206,844
607,026
Assets used in the business
1,865,269
1,086,641
2,951,910
Depreciation and amortization of property
17,700
5,731
23,431
Capital expenditures
18,040
6,824
24,864
Year Ended June 30, 2023
Net sales
$
2,966,842 $
1,445,952 $
4,412,794
Operating income for reportable segments
373,439
203,404
576,843
Assets used in the business
1,736,393
1,006,939
2,743,332
Depreciation and amortization of property
17,932
4,334
22,266
Capital expenditures
15,390
11,086
26,476
Year Ended June 30, 2022
Net sales
$
2,565,604 $
1,245,072 $
3,810,676
Operating income for reportable segments
301,881
156,644
458,525
Assets used in the business
1,455,293
997,295
2,452,588
Depreciation and amortization of property
17,509
4,167
21,676
Capital expenditures
14,486
3,638
18,124
55
A reconciliation of operating income for reportable segments to the consolidated income before income taxes
is as follows:
Year Ended June 30,
2024
2023
2022
Operating income for reportable segments
$
607,026 $
576,843 $
458,525
Adjustments for:
Intangible amortization — Service Center Based Distribution
3,188
2,857
3,435
Intangible amortization — Engineered Solutions
25,735
27,948
28,444
Corporate and other expense, net
82,280
72,887
68,788
Total operating income
495,823
473,151
357,858
Interest expense, net
2,831
21,639
26,263
Other (income) expense, net
(5,138)
1,701
1,805
Income before income taxes
$
498,130 $
449,811 $
329,790
Fluctuations in corporate and other expense, net, are due to changes in corporate expenses, as well as in the
amounts and levels of certain expenses being allocated to the segments. The expenses being allocated include
corporate charges for working capital, logistics support, and other items.
Geographic Information
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:
June 30,
2024
2023
Long-Lived Assets:
United States
$
209,987 $
176,025
Canada
26,436
29,817
Other Countries
15,393
9,876
Total
$
251,816 $
215,718
NOTE 14: COMMITMENTS AND CONTINGENCIES
The Company is a party to various pending judicial and administrative proceedings. 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.
NOTE 15: 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 (gains) losses
(1,099)
3,284
(65)
Net other periodic post-employment costs
114
1,470
610
Life insurance income, net
(855)
(668)
(1,374)
Other, net
2
(162)
22
Total other (income) expense, net
$ (5,138) $
1,701 $
1,805
56
NOTE 16: 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.
57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
The Company's management, under the supervision and with the participation of the Chief Executive Officer (CEO)
and Chief Financial Officer (CFO), evaluated the effectiveness of the Company's disclosure controls and procedures,
as defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report. Based on that
evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective.
Management's Report on Internal Control over Financial Reporting
The Management of Applied Industrial Technologies, Inc. is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial reporting is a process designed by, or under
the supervision of, the President & Chief Executive Officer and the Vice President - Chief Financial Officer, Treasurer,
& Principal Accounting Officer, and effected by the Company’s Board of Directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in accordance with accounting principles generally accepted
in the United States of America.
The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of consolidated financial statements in accordance with accounting principles generally accepted in the
United States of America and that receipts and expenditures of the Company are being made only in accordance
with authorizations of the Company’s Management and Board of Directors; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets
that could have a material effect on the consolidated financial statements.
Because of inherent limitations, internal control over financial reporting can provide only reasonable, not absolute,
assurance with respect to the preparation and presentation of the consolidated financial statements and may not
prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal control over
financial reporting may vary over time.
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting
as of June 30, 2024. This evaluation was based on the criteria set forth in the framework "Internal Control -
Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, Management determined that the Company’s internal control over financial reporting was
effective as of June 30, 2024.
The effectiveness of the Company’s internal control over financial reporting has been audited by Deloitte & Touche
LLP, an independent registered public accounting firm, as stated in their report which is included herein.
/s/ Neil A. Schrimsher
/s/ David K. Wells
President & Chief Executive Officer
Vice President - Chief Financial Officer, Treasurer,
& Principal Accounting Officer
August 16, 2024
Changes in Internal Control Over Financial Reporting
There have not been any changes in internal control over financial reporting during the quarter ended June 30, 2024
that have materially affected, or are reasonably likely to materially affect, the Company's internal control over
financial reporting.
58
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Applied Industrial Technologies, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Applied Industrial Technologies, Inc. and subsidiaries
(the “Company”) 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 (COSO). In our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2024,
based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2024, of the Company
and our report dated August 16, 2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Cleveland, Ohio
August 16, 2024
59
/s/ Deloitte & Touche LLP
ITEM 9B. OTHER INFORMATION.
During the fiscal quarter ended June 30, 2024, no director or officer of the Company adopted, modified, or
terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" (in each case, as
defined in Item 408 of Regulation S-K).
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this Item as to Applied's directors is incorporated by reference to Applied's proxy
statement relating to the annual meeting of shareholders to be held October 22, 2024, under the caption “Item 1 -
Election of Directors.” The information required by this Item as to Applied's executive officers has been furnished in
this report in Part I, after Item 4, under the caption “Information about our Executive Officers.”
The information required by this Item regarding compliance with Section 16(a) of the Securities Exchange Act of
1934 is incorporated by reference to Applied's proxy statement, under the caption “Delinquent Section 16(a)
Reports."
Applied’s Code of Business Ethics applies to our employees, including our principal executive officer, principal
financial officer, and principal accounting officer. The Code of Business Ethics is posted via hyperlink at the investor
relations area of our www.applied.com website. In addition, amendments to and waivers from the Code of Business
Ethics will be disclosed promptly at the same location.
Applied has adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions
of Applied's securities by directors, officers, and employees.
Information regarding the composition of Applied’s audit committee and the identification of audit committee
financial experts serving on the audit committee is incorporated by reference to Applied's proxy statement, under the
caption “Corporate Governance.”
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to Applied's proxy statement for the annual
meeting of shareholders to be held October 22, 2024, under the captions “Director Compensation,” “Executive
Compensation,” ”Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee
Report.”
60
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
Equity compensation plan information is incorporated herein by reference to Applied's proxy statement for the
annual meeting of shareholders to be held October 22, 2024, under the caption "Equity Compensation Plan
Information (as of June 30, 2024)".
Information concerning the security ownership of certain beneficial owners and management is incorporated by
reference to Applied's proxy statement for the annual meeting of shareholders to be held October 22, 2024, under
the caption “Holdings of Major Shareholders, Officers, and Directors.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this Item is incorporated herein by reference to Applied's proxy statement for the annual
meeting of shareholders to be held October 22, 2024, under the caption “Corporate Governance.”
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Principal accountant, Deloitte & Touche LLP (PCAOB ID No. 34), fees and services required by this Item is
incorporated herein by reference to Applied's proxy statement for the annual meeting of shareholders to be held
October 22, 2024, under the caption “Item 3 - Vote to Ratify Appointment of Independent Auditors.”
61
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(a)1. Financial Statements.
The following consolidated financial statements, notes thereto, the reports of independent registered public
accounting firm, and supplemental data are included in Item 8 of this report:
•
Report of Independent Registered Public Accounting Firm
•
Statements of Consolidated Income for the Years Ended June 30, 2024, 2023, and 2022
•
Statements of Consolidated Comprehensive Income for the Years Ended June 30, 2024, 2023, and 2022
•
Consolidated Balance Sheets at June 30, 2024 and 2023
•
Statements of Consolidated Cash Flows for the Years Ended June 30, 2024, 2023, and 2022
•
Statements of Consolidated Shareholders' Equity For the Years Ended June 30, 2024, 2023, and 2022
•
Notes to Consolidated Financial Statements for the Years Ended June 30, 2024, 2023, and 2022
•
Supplementary Data:
(a)2. Financial Statement Schedule.
The following schedule is included in this Part IV, and is found in this report at the page indicated:
Page No.
Schedule II - Valuation and Qualifying Accounts: Pg. 66
All other schedules for which provision is made in the applicable accounting regulation of the Securities and
Exchange Commission have been omitted because they are not required under the related instructions, are not
applicable, or the required information is included in the consolidated financial statements and notes thereto.
(a)3. Exhibits.
* Asterisk indicates an executive compensation plan or arrangement.
Exhibit No.
Description
3.1
3.2
4.1
4.2
4.3
4.4
Amended and Restated Articles of Incorporation of Applied Industrial Technologies, Inc., as amended on October 25,
2005 (filed as Exhibit 3(a) to Applied's Form 10-Q for the quarter ended December 31, 2005, SEC File No. 1-2299, and
incorporated here by reference).
Code of Regulations of Applied Industrial Technologies, Inc., as amended on October 19, 1999 (filed as Exhibit 3(b) to
Applied's Form 10-Q for the quarter ended September 30, 1999, SEC File No. 1-2299, and incorporated here by
reference).
Certificate of Merger of Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) filed with the Ohio Secretary of State on
October 18, 1988, including an Agreement and Plan of Reorganization dated September 6, 1988 (filed as Exhibit 4(a) to
Applied's Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by
reference).
Amended and Restated Note Purchase and Private Shelf Agreement dated as of October 30, 2019, between Applied
Industrial Technologies, Inc. and PGIM, Inc. (formerly known as Prudential Investment Management, Inc.), and certain
of its affiliates (filed as Exhibit 10.1 to Applied’s Form 8-K filed November 5, 2019, SEC File No. 1-2299, and
incorporated here by reference).
Amendment No. 1 to Amended and Restated Note Purchase and Private Shelf Agreement dated as of March 26, 2021
between Applied Industrial Technologies, Inc. and PGIM, Inc. (formerly known as Prudential Investment Management,
Inc.), and certain of its affiliates (filed as Exhibit 4.3 to Applied's Form 10-Q for the quarter ended March 31, 2021, SEC
File No. 1-2299, and incorporated here by reference).
Amendment No. 2 to Amended and Restated Note Purchase and Private Shelf Agreement, dated as of December 9,
2021, between Applied and PGIM, Inc. (filed as Exhibit 10.2 to the Company's Form 8-K filed December 14, 2021, SEC
File No. 1-2299, and incorporated here by reference).
62
4.5
Amendment No. 3 to Amended and Restated Note Purchase and Private Shelf Agreement, dated as of October 28,
2022, between Applied and PGIM, Inc. (filed as Exhibit 10.1 to the Company's Form 8-K filed November 1, 2022, SEC
File No. 1-2299, and incorporated here by reference).
4.6
4.7
4.8
4.9
Credit Agreement dated as of December 9, 2021, among Applied Industrial Technologies, Inc., KeyBank National
Association as Agent, and various financial institutions (filed as Exhibit 10.1 to the Company's Form 8-K filed December
14, 2021, SEC File No. 1-2299, and incorporated here by reference).
First Amendment Agreement, dated as of May 12, 2023, among Applied Industrial Technologies, Inc., KeyBank National
Association as Agent, and the Lenders set forth therein (filed as Exhibit 4.7 to the Company's Form 10-K for the fiscal
year ended June 30, 2023 filed August 11, 2023, SEC File No. 1-2299, and incorporated here by reference).
Receivables Financing Agreement dated as of August 31, 2018, among AIT Receivables LLC, as borrower, PNC Bank,
National Association, as administrative agent, Applied Industrial Technologies, Inc., as initial servicer, PNC Capital
Markets LLC, as structuring agent and the additional persons from time to time party thereto, as lenders (filed as Exhibit
10.1 to Applied's Form 8-K filed September 6, 2018, SEC File No. 1-2299, and incorporated here by reference).
Amendment No. 1 to Receivables Financing Agreement and Reaffirmation of Performance Guaranty dated as of March
26, 2021 among AIT Receivables LLC, as borrower, PNC Bank, National Association, as administrative agent, Applied
Industrial Technologies, Inc., as initial servicer, PNC Capital Markets LLC, as structuring agent and the additional
persons from time to time party thereto, as lenders (filed as Exhibit 10.2 to Applied's Form 8-K filed March 29, 2021, SEC
File No. 1-2299, and incorporated here by reference).
4.10
4.11
4.12
4.13
4.14
4.15
4.16
*10.1
*10.2
*10.3
Amendment No. 2 to Receivables Financing Agreement and Reaffirmation of Performance Guaranty, dated as of May 12,
2023, by and among AIT Receivables, LLC, Applied Industrial Technologies, Inc., PNC Bank, National Association,
Regions Bank, and PNC Capital Markets LLC (filed as Exhibit 4.10 to the Company's Form 10-K for the fiscal year ended
June 30, 2023 filed August 11, 2023, SEC File No. 1-2299, and incorporated here by reference).
Purchase and Sale Agreement dated as of August 31, 2018 among various entities listed on Schedule I thereto (including
Applied Industrial Technologies, Inc.), as originators, Applied Industrial Technologies, Inc., as servicer, and AIT
Receivables LLC, as buyer (filed as Exhibit 10.2 to Applied's Form 8-K filed September 6, 2018, SEC File No. 1-2299,
and incorporated here by reference).
Amendment No. 1 to Purchase and Sale Agreement dated as of November 19, 2018 among Applied Industrial
Technologies, Inc. and various of its affiliates, as originators, Applied Industrial Technologies, Inc., as servicer, and AIT
Receivables LLC, as buyer(filed as Exhibit 4.10 to Applied's Form 10-Q for the quarter ended March 31, 2021, SEC File
No. 1-2299, and incorporated here by reference).
Amendment No. 2 to Purchase and Sale Agreement dated as of March 26, 2021, among various entities listed on
Schedule 1 thereto (including Applied Industrial Technologies, Inc.), as originators, Applied Industrial Technologies, Inc,
as servicer, and AIT Receivables LLC, as buyer (filed as Exhibit 10.2 to Applied's Form 8-K filed March 29, 2021, SEC
File No. 1-2299, and incorporated here by reference).
Description of Applied's securities (filed as Exhibit 4.7 to Applied's Form 10-K for the year ended June 30, 2020, SEC File
No. 1-2299, and incorporated here by reference).
Amendment No. 3 to Receivables Financing Agreement and Reaffirmation of Performance Guaranty dated as of August
6, 2023 among AIT Receivables LLC, as borrower, PNC Bank, National Association, as administrative agent, Applied
Industrial Technologies, Inc., as initial servicer, PNC Capital Markets LLC, as structuring agent, and the additional
persons from time to time party thereto, as lenders (filed as Exhibit 10.1 to Applied’s Form 8-K filed August 9, 2023, SEC
File No. 1-2299, and incorporated here by reference).
Amendment No. 3 to Purchase and Sale Agreement dated as of August 4, 2023 among various entities listed on
Schedule I thereto (including Applied Industrial Technologies, Inc.), as originators, Applied Industrial Technologies, Inc.,
as servicer, and AIT Receivables LLC, as buyer (filed as Exhibit 10.2 to Applied’s Form 8-K filed August 9, 2023, SEC File
No. 1-2299, and incorporated here by reference).
A written description of Applied's director compensation program is incorporated by reference to Applied’s proxy
statement for the annual meeting of shareholders to be held October 22, 2024 under the caption “Director Compensation.”
Deferred Compensation Plan for Non-Employee Directors (Post-2004 Terms), in which Peter C. Wallace participates (filed
as Exhibit 10.2 to Applied's Form 10-Q for the quarter ended December 31, 2008, SEC File No. 1-2299, and incorporated
here by reference).
Amendment to the Applied Industrial Technologies, Inc. Deferred Compensation Plan for Non-Employee Directors
(Post-2004 Terms) (filed as Exhibit 10.1 to Applied’s Form 10-Q for the quarter ended March 31, 2014, SEC File No.
1-2299, and incorporated here by reference).
*10.4
Form of Director and Officer Indemnification Agreement entered into between Applied and each of its directors and
executive officers (filed as Exhibit 10(g) to Applied's Registration Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, and incorporated here by reference).
63
*10.5
*10.6
*10.7
*10.8
*10.9
*10.10
*10.11
*10.12
*10.13
*10.14
*10.15
*10.16
2011 Long-Term Performance Plan (filed as Appendix to Applied’s proxy statement for the annual meeting of
shareholders held on October 25, 2011, SEC File No. 1-2299, and incorporated here by reference).
2015 Long-Term Performance Plan (filed as Appendix to Applied's proxy statement for the annual meeting of
shareholders held on October 27, 2015, SEC File No. 1-2299, and incorporated here by reference).
2019 Long-Term Performance Plan, amended and restated (filed as Exhibit 10.3 to Applied's Form 10-Q for the quarter
ended September 30, 2019, SEC File No. 1-2299, and incorporated here by reference).
2023 Long-Term Performance Plan (filed as Exhibit 10.1 to Applied's Form 10-Q for the quarter ended September 30,
2023, SEC File No. 1-2299, and incorporated here by reference).
Non-Statutory Stock Option Award Terms and Conditions (Directors) (filed as Exhibit 10 to Applied's Form 8-K filed
November 30, 2005, SEC File No. 1-2299, and incorporated here by reference).
Restricted Stock Award Terms and Conditions (Directors) (filed as Exhibit 10.1 to Applied's Form 10-Q for the quarter
ended March 31, 2020, SEC File No. 1-2299, and incorporated here by reference).
Stock Appreciation Rights Award Terms and Conditions (Officers) (August 2020 revision) (filed as Exhibit 10.4 to
Applied's Form 10-Q for the quarter ended September 30, 2020, SEC File No. 1-2299, and incorporated here by
reference).
Restricted Stock Units Terms and Conditions (filed as Exhibit 10.3 to Applied's Form 10-Q for the quarter ended
September 30, 2020, SEC File No. 1-2299, and incorporated here by reference).
Performance Shares Terms and Conditions (filed as Exhibit 10.2 to Applied's Form 10-Q for the quarter ended
September 30, 2020, SEC File No. 1-2299, and incorporated here by reference).
Stock Appreciation Rights Award Terms and Conditions (Officers) (August 2022 revision) (filed as Exhibit 10.1 to Applied
Form 10-Q for the quarter ended September 30, 2022, SEC File No. 1-2299, and incorporated here by reference).
Restricted Stock Units Terms and Conditions (Officers) (August 2022 revision) (filed as Exhibit 10.2 to Applied Form 10-Q
for the quarter ended September 30, 2022, SEC File No. 1-2299, and incorporated here by reference).
Performance Shares Terms and Conditions (August 2022 revision) (filed as Exhibit 10.3 to Applied Form 10-Q for the
quarter ended September 30, 2022, SEC File No. 1-2299, and incorporated here by reference).
*10.17
*10.18
*10.19
*10.20
Management Incentive Plan General Terms.
Restricted Stock Units Terms and Conditions (August 2024 revision).
Performance Shares Terms and Conditions (August 2024 revision).
Stock Appreciation Rights Award Terms and Conditions (August 2024 revision).
*10.21
*10.22
Key Executive Restoration Plan, as amended and restated (filed as Exhibit 10.1 to Applied's Form 8-K filed August 16,
2013, SEC File No. 1-2299, and incorporated here by reference).
Schedule of executive officer participants in the Key Executive Restoration Plan, as amended and restated (filed as
Exhibit 10.18 to the Company's Form 10-K for the fiscal year ended June 30, 2023 filed August 11, 2023, SEC File No.
1-2299, and incorporated here by reference).
*10.23
*10.24
*10.25
*10.26
*10.27
*10.28
Supplemental Defined Contribution Plan (Post-2004 Terms), restated effective as of January 1, 2017 (filed as Exhibit
10.27 to Applied's Form 10-K for the year ended June 30, 2017, SEC File No. 1-2299, and incorporated here by
reference.)
First Amendment to Supplemental Defined Contribution Plan (Post-2004 Terms) (filed as Exhibit 10.5 to Applied's 10-Q
for the quarter ended September 30, 2020 SEC File No. 1-2299, and incorporated here by reference.)
Severance Agreement for Neil A. Schrimsher (filed as Exhibit 10.2 to Applied's Form 8-K filed October 31, 2011, SEC
File No. 1-2299, and incorporated here by reference).
Amendment to Severance Agreement for Neil A. Schrimsher (filed as Exhibit 10.2 to Applied's Form 8-K filed October 26,
2012, SEC File No. 1-2299, and incorporated here by reference).
Change in Control Agreement for Neil A. Schrimsher (filed as Exhibit 10.3 to Applied's Form 8-K filed October 31, 2011,
SEC File No. 1-2299, and incorporated here by reference).
Form of Change in Control Agreement for Kurt W. Loring, Jon S. Ploetz and David K. Wells (filed as Exhibit 10.3 to
Applied's Form 10-Q for the quarter ended September 30, 2013, SEC File No. 1-2299, and incorporated here by
reference).
64
*10.29
*10.30
*10.31
19
A written description of Applied's Life and Accidental Death and Dismemberment Insurance for executive officers (filed
as Exhibit 10.33 to Applied's Form 10-K for the year ended June 30, 2017, SEC File No. 1-2299, and incorporated here
by reference).
A written description of Applied's Long-Term Disability Insurance for executive officers (filed as Exhibit 10.34 to Applied's
Form 10-K for the year ended June 30, 2017, SEC File No. 1-2299, and incorporated here by reference).
A written description of Applied's Retiree Health Care Coverage for Neil A. Schrimsher (filed as Exhibit 10.35 to Applied's
Form 10-K for the year ended June 30, 2017, SEC File No. 1-2299, and incorporated here by reference).
Applied's Insider Trading Policy (filed as Exhibit 19 to the Company's Form 10-K for the fiscal year ended June 30, 2023
filed August 11, 2023, SEC File No. 1-2299, and incorporated here by reference).
21
23
24
31
32
95
97
Applied’s subsidiaries at June 30, 2024.
Consent of Independent Registered Public Accounting Firm.
Powers of attorney.
Rule 13a-14(a)/15d-14(a) certifications.
Section 1350 certifications.
Mine safety and health disclosure.
Policy for the Recovery of Erroneously Awarded Compensation.
101
The following financial information from Applied Industrial Technologies, Inc.'s Annual Report on Form 10-K for the year
ended June 30, 2024, formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Statements of
Consolidated Income, (ii) the Statements of Consolidated Comprehensive Income, (iii) the Consolidated Balance Sheets,
(iv) the Statements of Consolidated Cash Flows, (v) the Statements of Consolidated Shareholders' Equity, and (vi) the
Notes to the Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
Applied will furnish a copy of any exhibit described above and not contained herein upon payment of a specified
reasonable fee, which shall be limited to Applied's reasonable expenses in furnishing the exhibit.
Certain instruments with respect to long-term debt have not been filed as exhibits because the total amount of
securities authorized under any one of the instruments does not exceed 10 percent of the total assets of the Company
and its subsidiaries on a consolidated basis. The Company agrees to furnish to the Securities and Exchange
Commission, upon request, a copy of each such instrument.
ITEM 16. FORM 10-K SUMMARY.
Not applicable.
65
APPLIED INDUSTRIAL TECHNOLOGIES, INC. & SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 2024, 2023, AND 2022
(in thousands)
COLUMN A
COLUMN B
COLUMN C
COLUMN D
COLUMN E
DESCRIPTION
Balance at
Beginning of
Period
(Deductions)
Additions
Charged to
Cost and
Expenses
(Deductions)
Additions
Charged to
Other
Accounts
Deductions
from
Reserve
Balance at
End of
Period
Year Ended June 30, 2024
Reserve deducted from assets to which it applies —
Accounts receivable:
Allowance for doubtful accounts
$
22,334 $
(205) $
—
$
9,066 (B)
$
13,063
Returns reserve
12,635
—
(1,820) (A)
—
10,815
$
34,969 $
(205) $
(1,820)
$
9,066
$
23,878
Year Ended June 30, 2023
Reserve deducted from assets to which it applies —
Accounts receivable:
Allowance for doubtful accounts
$
17,522 $
5,619 $
—
$
807 (B)
$
22,334
Returns reserve
10,522
—
2,113 (A)
—
12,635
$
28,044 $
5,619 $
2,113
$
807
$
34,969
Year Ended June 30, 2022
Reserve deducted from assets to which it applies —
Accounts receivable:
Allowance for doubtful accounts
$
16,455 $
3,193 $
—
$
2,126 (B)
$
17,522
Returns reserve
9,772
—
750 (A)
—
10,522
$
26,227 $
3,193 $
750
$
2,126
$
28,044
(A) Amounts in the years ending June 30, 2024, 2023 and 2022 represent reserves recorded for the return of merchandise by
customers. The Company adopted ASC 606 - Revenue from Contracts with Customers effective July 1, 2018 which requires the
Company's sales returns reserve to be established at the gross sales value with an asset established for the value of the expected
product to be returned.
(B) Amounts represent uncollectible accounts charged off.
66
SIGNATURES.
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
/s/ Neil A. Schrimsher
/s/ David K. Wells
Neil A. Schrimsher
President & Chief Executive Officer
David K. Wells
Vice President-Chief Financial Officer, Treasurer,
& Principal Accounting Officer
Date: August 16, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the date indicated.
*
*
Madhuri A. Andrews, Director
Shelly M. Chadwick, Director
*
*
Mary Dean Hall, Director
Dan P. Komnenovich, Director
*
*
Robert J. Pagano, Jr., Director
Vincent K. Petrella, Director
*
/s/ Neil A. Schrimsher
Joe A. Raver, Director
Neil A. Schrimsher, President & Chief Executive Officer
and Director
*
*
Peter C. Wallace, Director and Chairman
Richard J. Simoncic, Director
/s/ Jon S. Ploetz
Jon S. Ploetz, as attorney in fact
for persons indicated by “*”
Date: August 16, 2024
67
7
Shareholder Information
Applied Industrial Technologies, Inc. common stock is listed on the
New York Stock Exchange under the symbol AIT. The Company is
identified in most financial listings as “AppliedIndlTch.”
Research on Applied Industrial Technologies is available through:
Baird
David Manthey
813/288-8503
Keybanc Capital
Markets
Ken Newman
216/689-3184
Loop Capital
Chris Dankert
310/439-5591
Northcoast Research
Aaron Reed
216/468-6947
Oppenheimer & Co.
Chris Glynn
617/428-5663
Shareholder Inquiries
Requests to transfer Applied Industrial
Technologies, Inc. shares and all
correspondence regarding address
change information, duplicate mailings,
missing certificates, failure to receive
dividend checks in a timely manner
or to participate in the Company’s
direct stock purchase program
should be directed to the Company’s
transfer agent and registrar:
Computershare
P.O. Box 43006
Providence, RI 02940-3006
800/988-5291
Investor Relations Inquiries
Should be Directed to:
Ryan D. Cieslak
Director – Investor Relations
& Treasury
Applied Industrial Technologies
1 Applied Plaza
Cleveland, OH 44115
Telephone: 216/426-4887
E-mail: rcieslak@applied.com
Annual Report on Form 10-K
The Applied Industrial
Technologies, Inc. Annual Report
on Form 10-K for the fiscal year
ended June 30, 2024, including the
financial statements and schedules
thereto, is available at our website
Applied.com. It is also available
without charge upon written request
to the Director – Investor Relations
& Treasury at the address shown.
Annual Meeting
The Annual Meeting of Shareholders will be
held at 9:00 a.m., Tuesday, October 22, 2024,
at the Corporate Headquarters of
Applied Industrial Technologies:
1 Applied Plaza
East 36th and Euclid Avenue
Cleveland, Ohio 44115
Comparison of Five-Year Cumulative Total Return
Applied Industrial Technologies, Inc., Standard & Poor’s 500, and Dow Jones US Industrial Suppliers Index
(Performance Results from 7/1/2019 through 6/30/2024)
2019
2020
2021
2022
2023
2024
Applied Industrial Technologies, Inc.
100.00
103.63
153.81
164.66
250.64
338.46
Standard & Poor’s 500
100.00
107.51
151.36
135.29
161.80
201.53
Dow Jones US Industrial
Suppliers Index
100.00
121.49
162.84
157.89
224.76
267.74
Assumes $100 invested at the close of trading 6/30/2019 in Applied Industrial Technologies, Inc.
common stock, Standard & Poor’s 500, and Dow Jones US Industrial Suppliers Index.
Cumulative total return assumes reinvestment of dividends.
Source: Zacks Investment Research, Inc.
$0.00
$40.00
$80.00
$120.00
$160.00
$200.00
$240.00
$280.00
$320.00
$360.00
$400.00
2019
2020
2021
2022
2023
2024
Applied Industrial Technologies, Inc.
Standard & Poor's 500
Dow Jones US Industrial Suppliers Index
Reconciliation of Net Income and Net Income
Per Share to Adjusted Net Income and
Adjusted Net Income Per Share
FY2024
FY2023
In thousands, except per
share amounts
Net
Income
Per
Share
Diluted
Impact
Net
Income
Per
Share
Diluted
Impact
Net Income and Net Income Per Share
$385,762
$9.83 $346,739
$8.84
Adjustments
Tax valuation allowance
adjustment, net
(3,046)
(0.08)
(3,657)
(0.09)
Adjusted Net Income
and Net Income Per Share
$382,716
$9.75 $343,082
$8.75
Reconciliation of EBITDA
In thousands
FY2024
FY2023
Net Income
$385,762
$346,739
Adjustments
Interest expense, net
2,831
21,639
Income tax expense
112,368
103,072
Depreciation and amortization of property
23,431
22,266
Amortization of intangibles
28,923
30,805
EBITDA
$553,315
$524,521
Reconciliation of Free Cash Flow
In thousands
FY2024
FY2023
Cash provided by operating activities
$371,393
$343,966
Capital expenditures
(24,864)
(26,476)
Free Cash Flow
$346,529
$317,490
8
APPLIED.COM
CORPORATE HEADQUARTERS
1 APPLIED PLAZA
CLEVELAND, OHIO 44115
216/426-4000