10-Q 1 ait-20240331.htm 10-Q ait-20240331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 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 Number)
One Applied Plaza
Cleveland
Ohio
44115
(Address of principal executive offices)
(Zip Code)
(216426-4000
Registrant's telephone number, including area code


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, without par valueAITNew York Stock Exchange

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  o 

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  o 

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 is a shell company (as defined in Rule 12b-2 of the Act).     Yes       No 

There were 38,602,617 (no par value) shares of common stock outstanding on April 19, 2024.


APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
Page
No.
Part I:
Item 1:
Item 2:
Item 3:
Item 4:
Part II:
Item 1:
Item 2:
Item 5:
Item 6:
1

PART I:     FINANCIAL INFORMATION

ITEM I:    FINANCIAL STATEMENTS

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
(In thousands, except per share amounts)
 Three Months EndedNine Months Ended
March 31,March 31,
 2024202320242023
Net sales$1,146,390 $1,132,035 $3,318,731 $3,254,720 
Cost of sales808,144 798,917 2,338,313 2,306,314 
Gross profit338,246 333,118 980,418 948,406 
Selling, distribution and administrative expense, including depreciation
217,040 206,207 623,938 602,070 
Operating income121,206 126,911 356,480 346,336 
Interest expense, net265 4,773 3,502 17,438 
Other (income) expense, net(1,724)(142)(4,217)1,624 
Income before income taxes122,665 122,280 357,195 327,274 
Income tax expense25,448 25,093 74,924 72,750 
Net income$97,217 $97,187 $282,271 $254,524 
Net income per share - basic$2.51 $2.52 $7.29 $6.60 
Net income per share - diluted$2.48 $2.47 $7.18 $6.49 
Weighted average common shares outstanding for basic computation38,675 38,617 38,707 38,574 
Dilutive effect of potential common shares577 651 584 629 
Weighted average common shares outstanding for diluted computation39,252 39,268 39,291 39,203 
See notes to condensed consolidated financial statements.

2

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
Three Months EndedNine Months Ended
March 31,March 31,
2024202320242023
Net income per the condensed statements of consolidated income$97,217 $97,187 $282,271 $254,524 
Other comprehensive income, before tax:
Foreign currency translation adjustments(5,112)5,763 (1,685)255 
Post-employment benefits:
Reclassification of net actuarial losses and prior service cost into other (income) expense, net and included in net periodic pension costs(30)9 (90)27 
Termination of pension plan   1,031 
  Unrealized gain (loss) on cash flow hedge5,105 (2,309)4,203 10,549 
  Reclassification of interest from cash flow hedge into interest expense, net(4,671)(3,036)(14,024)(2,955)
Total other comprehensive (loss) income, before tax(4,708)427 (11,596)8,907 
Income tax expense (benefit) related to items of other comprehensive income135 (1,315)(2,403)2,256 
Other comprehensive (loss) income, net of tax(4,843)1,742 (9,193)6,651 
Comprehensive income, net of tax$92,374 $98,929 $273,078 $261,175 
See notes to condensed consolidated financial statements.

3

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 31,
2024
June 30,
2023
ASSETS
Current assets
Cash and cash equivalents$456,533 $344,036 
Accounts receivable, net710,195 708,395 
Inventories503,910 501,184 
Other current assets97,044 93,192 
Total current assets1,767,682 1,646,807 
Property, less accumulated depreciation of $242,620 and $229,041
115,325 115,041 
Operating lease assets, net95,569 100,677 
Identifiable intangibles, net220,840 235,549 
Goodwill588,713 578,418 
Other assets66,814 66,840 
TOTAL ASSETS$2,854,943 $2,743,332 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable$271,185 $301,685 
Current portion of long-term debt25,107 25,170 
Compensation and related benefits75,443 98,740 
Other current liabilities96,671 114,749 
Total current liabilities468,406 540,344 
Long-term debt571,862 596,926 
Other liabilities145,651 147,625 
TOTAL LIABILITIES1,185,919 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
10,000 10,000 
Additional paid-in capital191,133 188,646 
Retained earnings2,046,956 1,792,632 
Treasury shares—at cost (15,573 and 15,556 shares, respectively)
(514,576)(477,545)
Accumulated other comprehensive loss(64,489)(55,296)
TOTAL SHAREHOLDERS’ EQUITY1,669,024 1,458,437 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$2,854,943 $2,743,332 
See notes to condensed consolidated financial statements.

4

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
March 31,
20242023
Cash Flows from Operating Activities
Net income$282,271 $254,524 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property17,567 16,598 
Amortization of intangibles21,601 23,189 
Provision for losses on accounts receivable    1,001 4,676 
Amortization of stock appreciation rights and options2,570 2,322 
Other share-based compensation expense7,508 7,419 
Changes in operating assets and liabilities, net of acquisitions(77,403)(142,092)
Other, net(2,956)(2,609)
Net Cash provided by Operating Activities252,159 164,027 
Cash Flows from Investing Activities
Acquisition of businesses, net of cash acquired(21,440)(35,667)
Capital expenditures(17,354)(20,809)
Proceeds from property sales514 226 
Net Cash used in Investing Activities(38,280)(56,250)
Cash Flows from Financing Activities
Net repayments under revolving credit facility (27,000)
Long-term debt repayments(25,188)(40,185)
Interest rate swap settlement receipts10,839 5,501 
Purchases of treasury shares(28,875)(716)
Dividends paid(41,524)(39,829)
Acquisition holdback payments(681)(1,510)
Exercise of stock appreciation rights and options127 127 
Taxes paid for shares withheld for equity awards(15,874)(7,914)
Net Cash used in Financing Activities(101,176)(111,526)
Effect of Exchange Rate Changes on Cash(206)1,402 
Increase (Decrease) in Cash and Cash Equivalents112,497 (2,347)
Cash and Cash Equivalents at Beginning of Period344,036 184,474 
Cash and Cash Equivalents at End of Period$456,533 $182,127 
See notes to condensed consolidated financial statements.

5

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
For the Period Ended
March 31, 2024
Shares of
Common
Stock
Outstanding
Common
Stock
Additional
Paid-In
Capital

Retained
Earnings
Treasury
Shares-
at Cost
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders'
Equity
Balance at June 30, 202338,657 $10,000 $188,646 $1,792,632 $(477,545)$(55,296)$1,458,437 
Net income93,826 93,826 
Other comprehensive loss(7,074)(7,074)
Cash dividends — $0.35 per share
(23)(23)
Treasury shares issued for:
Exercise of stock appreciation rights and options32 (1,681)(1,912)(3,593)
Performance share awards54 (3,072)(3,487)(6,559)
Restricted stock units13 (726)(910)(1,636)
Compensation expense — stock appreciation rights and options844 844 
Other share-based compensation expense1,976 1,976 
Other(1)(1)(3)(78)(82)
Balance at September 30, 202338,755 $10,000 $185,986 $1,886,432 $(483,932)$(62,370)$1,536,116 
Net income91,228 91,228 
Other comprehensive income2,724 2,724 
Cash dividends — $0.35 per share
(13,607)(13,607)
Purchases of common stock for treasury(63)(10,677)(10,677)
Treasury shares issued for:
Exercise of stock appreciation rights and options11 (391)(335)(726)
Restricted stock units1 (86)(108)(194)
Compensation expense — stock appreciation rights and options866 866 
Other share-based compensation expense2,261 2,261 
Other1 37 37 
Balance at December 31, 202338,705 $10,000 $188,636 $1,964,090 $(495,052)$(59,646)$1,608,028 
Net income97,217 97,217 
Other comprehensive loss(4,843)(4,843)
Cash dividends — $0.37 per share
(14,360)(14,360)
Purchases of common stock for treasury(100)(18,198)(18,198)
Treasury shares issued for:
Exercise of stock appreciation rights and options27 (1,365)(1,495)(2,860)
Restricted stock units1 (47)(53)(100)
Compensation expense — stock appreciation rights and options860 860 
Other share-based compensation expense3,271 3,271 
Other7 (222)9 222 9 
Balance at March 31, 202438,640 $10,000 $191,133 $2,046,956 $(514,576)$(64,489)$1,669,024 

See notes to condensed consolidated financial statements.
6

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
For the Period Ended
March 31, 2023
Shares of Common Stock OutstandingCommon StockAdditional Paid-In CapitalRetained EarningsTreasury Shares-
at Cost
Accumulated Other Comprehensive Income (Loss)Total Shareholders' Equity
Balance at June 30, 202238,499 $10,000 $183,822 $1,499,676 $(471,848)$(72,295)$1,149,355 
Net income76,880 76,880 
Other comprehensive loss(1,635)(1,635)
Cash dividends — $0.34 per share
Purchases of common stock for treasury(8)(716)(716)
Treasury shares issued for:
Exercise of stock appreciation rights and options21 (860)(366)(1,226)
Performance share awards23 (1,290)(758)(2,048)
Restricted stock units33 (1,668)(902)(2,570)
Compensation expense — stock appreciation rights and options1,424 1,424 
Other share-based compensation expense1,939 1,939 
Other3 (19)(5)61 37 
Balance at September 30, 202238,571 $10,000 $183,348 $1,576,551 $(474,529)$(73,930)$1,221,440 
Net income80,457 80,457 
Other comprehensive income6,544 6,544 
Cash dividends — $0.34 per share
(13,175)(13,175)
Treasury shares issued for:
Exercise of stock appreciation rights and options28 (1,061)(878)(1,939)
Compensation expense — stock appreciation rights and options447 447 
Other share-based compensation expense2,062 2,062 
Other(1)41 40 
Balance at December 31, 202238,599 $10,000 $184,795 $1,643,874 $(475,407)$(67,386)$1,295,876 
Net income97,187 97,187 
Other comprehensive income1,742 1,742 
Cash dividends — $0.35 per share
(13,562)(13,562)
Treasury shares issued for:
Exercise of stock appreciation rights and options40 (2,173)(2,401)(4,574)
Restricted stock units1 (44)(30)(74)
Compensation expense — stock appreciation rights and options451 451 
Other share-based compensation expense3,418 3,418 
Other14 (260)35 421 196 
Balance at March 31, 202338,654 $10,000 $186,187 $1,727,534 $(477,417)$(65,644)$1,380,660 

See notes to condensed consolidated financial statements.
7

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

1.    BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position of Applied Industrial Technologies, Inc. (the “Company”, or “Applied”) as of March 31, 2024, and the results of its operations and its cash flows for the nine month periods ended March 31, 2024 and 2023, have been included. The condensed consolidated balance sheet as of June 30, 2023 has been derived from the audited consolidated financial statements at that date. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2023.
Operating results for the nine month period ended March 31, 2024 are not necessarily indicative of the results that may be expected for the remainder of the fiscal year ending June 30, 2024.
Inventory
The Company uses the LIFO method of valuing U.S. inventories. An actual valuation of inventory under the LIFO method can be made only at the end of each fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory determination. LIFO expense of $4,758 and $8,205 in the three months ended March 31, 2024 and 2023, respectively, and $12,726 and $26,118 in the nine months ended March 31, 2024 and 2023, respectively, is recorded in cost of sales in the condensed statements of consolidated income.
Recently Issued Accounting Guidance
In December 2023, the FASB issued its final standard to improve income tax disclosures. This standard, issued as ASU 2023-09, requires public business entities to annually disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. This update is effective for annual periods beginning after December 15, 2024. The Company has not yet determined the impact of this pronouncement on its financial statements and related disclosures.
In November 2023, the FASB issued its final standard to improve reportable segment disclosures. This standard, issued as ASU 2023-07, requires enhanced disclosures about significant segment expenses, enhanced 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.
In July 2023, the SEC issued a final rule to require registrants to provide enhanced and standardized disclosures regarding cybersecurity risk management, strategy, governance, and incidents. The final rule establishes new requirements related to material cybersecurity incidents, which would need to be disclosed on Form 8-K within four business days of their being deemed material, and annual disclosures in Form 10-K pertaining to (1) cybersecurity risk management and strategy, (2) management's role in assessing and managing material risks from cybersecurity threats, and (3) the board of directors' oversight of cybersecurity risks. The Form 10-K disclosures are due beginning with annual reports for fiscal years ending on or after December 15, 2023, and the Form 8-K disclosures were due beginning December 18, 2023. The Company is complying with the disclosure requirements set forth in the final rule as each becomes effective.


8

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
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 three and nine months ended March 31, 2024 and 2023. Other countries consist of Mexico, Australia, New Zealand, and Singapore.
Three Months Ended March 31,
20242023
Service Center Based DistributionEngineered SolutionsTotalService Center Based DistributionEngineered SolutionsTotal
Geographic Areas:
United States$666,170 $350,997 $1,017,167 $628,816 $363,945 $992,761 
Canada73,388  73,388 80,133  80,133 
Other countries49,798 6,037 55,835 52,650 6,491 59,141 
Total$789,356 $357,034 $1,146,390 $761,599 $370,436 $1,132,035 
Nine Months Ended March 31,
20242023
Service Center Based DistributionEngineered SolutionsTotalService Center Based DistributionEngineered SolutionsTotal
Geographic Areas:
United States$1,885,915 $1,035,262 $2,921,177 $1,795,148 $1,048,299 $2,843,447 
Canada225,858  225,858 234,605  234,605 
Other countries153,389 18,307 171,696 155,226 21,442 176,668 
Total$2,265,162 $1,053,569 $3,318,731 $2,184,979 $1,069,741 $3,254,720 

The following tables present the Company’s percentage of revenue by reportable segment and major customer industry for the three and nine months ended March 31, 2024 and 2023:
Three Months Ended March 31,
 20242023
Service Center Based DistributionEngineered SolutionsTotalService Center Based DistributionEngineered SolutionsTotal
General Industry35.6 %40.7 %37.2 %33.9 %39.9 %35.8 %
Food17.3 %2.5 %12.7 %13.1 %2.7 %9.7 %
Industrial Machinery6.8 %24.3 %12.2 %9.7 %25.9 %15.0 %
Metals11.4 %7.4 %10.2 %10.6 %7.8 %9.7 %
Forest Products11.7 %3.1 %9.0 %12.5 %3.6 %9.6 %
Chem/Petrochem2.6 %15.4 %6.6 %2.9 %14.3 %6.6 %
Cement & Aggregate6.7 %1.1 %5.0 %7.9 %1.2 %5.7 %
Oil & Gas4.4 %1.9 %3.6 %5.8 %1.4 %4.4 %
Transportation3.5 %3.6 %3.5 %3.6 %3.2 %3.5 %
Total100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %
9

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
Nine Months Ended March 31,
 20242023
Service Center Based DistributionEngineered SolutionsTotalService Center Based DistributionEngineered SolutionsTotal
General Industry34.9 %39.5 %36.3 %33.8 %40.6 %36.1 %
Food15.0 %2.6 %11.1 %13.0 %2.6 %9.6 %
Industrial Machinery8.2 %24.8 %13.5 %10.0 %26.8 %15.5 %
Metals11.0 %7.7 %10.0 %10.7 %7.7 %9.7 %
Forest Products12.0 %3.2 %9.2 %12.0 %2.9 %9.0 %
Chem/Petrochem2.7 %15.7 %6.8 %3.0 %13.7 %6.5 %
Cement & Aggregate7.3 %1.2 %5.4 %7.9 %1.3 %5.7 %
Oil & Gas5.3 %1.7 %4.1 %5.9 %1.3 %4.4 %
Transportation3.6 %3.6 %3.6 %3.7 %3.1 %3.5 %
Total100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %
The following tables present the Company’s percentage of revenue by reportable segment and product line for the three and nine months ended March 31, 2024 and 2023:
Three Months Ended March 31,
 20242023
Service Center Based DistributionEngineered SolutionsTotalService Center Based DistributionEngineered SolutionsTotal
Power Transmission37.3 %11.6 %29.3 %37.2 %10.9 %28.6 %
Fluid Power14.2 %36.0 %21.0 %13.2 %34.3 %20.1 %
General Maintenance; Hose Products & Other22.0 %17.1 %20.4 %20.6 %19.1 %20.1 %
Bearings, Linear & Seals26.5 %0.4 %18.4 %29.0 %0.4 %19.6 %
Specialty Flow Control %34.9 %10.9 % %35.3 %11.6 %
Total100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %
Nine Months Ended March 31,
 20242023
Service Center Based DistributionEngineered SolutionsTotalService Center Based DistributionEngineered SolutionsTotal
Power Transmission37.8 %11.4 %29.4 %37.4 %10.4 %28.5 %
Fluid Power14.1 %36.8 %21.3 %13.1 %34.9 %20.3 %
General Maintenance; Hose Products & Other21.9 %17.1 %20.4 %21.1 %19.3 %20.5 %
Bearings, Linear & Seals26.2 %0.4 %18.0 %28.4 %0.4 %19.2 %
Specialty Flow Control %34.3 %10.9 % %35.0 %11.5 %
Total100.0 %100.0 %100.0 %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.
10

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
Activity related to contract assets, which are included in other current assets on the condensed consolidated balance sheet, is as follows:
March 31, 2024June 30, 2023$ Change% Change
Contract assets$15,125 $17,911 $(2,786)(15.6)%
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.

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 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, industrial motion, and related service and repair capabilities. BDI is included in the Service Center Based Distribution segment. The purchase price for the acquisition was $18,000, net tangible assets acquired were $4,384, and intangible assets including goodwill were $13,616 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 condensed consolidated balance sheet as of March 31, 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 condensed consolidated balance sheet as of March 31, 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.





11

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
4.    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 fiscal year ended June 30, 2023 and the nine month period ended March 31, 2024 are as follows:
Service Center Based DistributionEngineered SolutionsTotal
Balance at June 30, 2022$211,010 $352,195 $563,205 
Goodwill acquired during the period 14,517 14,517 
Other, primarily currency translation221 475 696 
Balance at June 30, 2023$211,231 $367,187 $578,418 
Goodwill acquired during the period9,489 1,249 10,738 
Other, primarily currency translation(443) (443)
Balance at March 31, 2024$220,277 $368,436 $588,713 
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 March 31, 2024 and June 30, 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:
March 31, 2024AmountAccumulated
Amortization
Net Book
Value
Finite-Lived Identifiable Intangibles:
Customer relationships$366,617 $199,849 $166,768 
Trade names85,587 33,406 52,181 
Other3,446 1,555 1,891 
Total Identifiable Intangibles$455,650 $234,810 $220,840 

June 30, 2023AmountAccumulated
Amortization
Net Book
Value
Finite-Lived Identifiable Intangibles:
Customer relationships$364,572 $188,804 $175,768 
Trade names108,301 50,823 57,478 
Vendor relationships9,861 9,744 117 
Other3,347 1,161 2,186 
Total Identifiable Intangibles$486,081 $250,532 $235,549 
Fully amortized amounts are written off.
12

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
During the nine month period ended March 31, 2024, the Company acquired identifiable intangible assets with a preliminary acquisition cost allocation and weighted-average life as follows:
Acquisition Cost AllocationWeighted-Average life
Customer relationships$7,541 20.0
Trade names530 3.0
Other100 5.0
Total Identifiable Intangibles$8,171 18.7
Identifiable intangible assets with finite lives are reviewed for impairment when changes in conditions indicate carrying value may not be recoverable.
Estimated future amortization expense by fiscal year (based on the Company’s identifiable intangible assets as of March 31, 2024) for the next five years is as follows: $6,700 for the remainder of 2024, $26,200 for 2025, $24,400 for 2026, $22,500 for 2027, $20,800 for 2028 and $19,300 for 2029.

5.     DEBT
A summary of long-term debt, including the current portion, follows:
March 31, 2024June 30, 2023
Revolving credit facility$383,592 383,592 
Trade receivable securitization facility188,300 188,300 
Series D notes 25,000 
Series E notes25,000 25,000 
Other169 356 
Total debt$597,061 $622,248 
Less: unamortized debt issuance costs92 152 
$596,969 $622,096 
Revolving Credit Facility & Term Loan
In December 2021, the Company entered into a new revolving credit facility with a group of banks to refinance the existing credit facility as well as provide funds for ongoing working capital and other general corporate purposes. The revolving credit facility provides a $900,000 unsecured revolving credit facility and an uncommitted accordion feature which allows the Company to request an increase in the borrowing commitments, or incremental term loans, under the credit facility in aggregate principal amounts of up to $500,000. In May 2023, the Company and the administrative agent entered into an amendment to the credit facility to replace LIBOR as a reference rate available for use in the computation of interest and replace it with SOFR. Borrowings under this agreement bear interest, at the Company's election, at either the base rate plus a margin that ranges from 0 to 55 basis points based on net leverage ratio or SOFR plus a margin that ranges from 80 to 155 basis points based on the net leverage ratio. Unused lines under this facility, net of outstanding letters of credit of $200 to secure certain insurance obligations, totaled $516,208 at March 31, 2024 and June 30, 2023, and were available to fund future acquisitions or other capital and operating requirements. The interest rate on the revolving credit facility was 6.23% and 6.11% as of March 31, 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 $4,046 as of March 31, 2024 and June 30, 2023 in order to secure certain insurance obligations.
Trade Receivable Securitization Facility
In August 2018, the Company established a trade receivable securitization facility (the “AR Securitization Facility”). 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 the drawn fees to 0.90% per year. Availability is further subject to changes in the credit ratings of our
13

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
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 as a reference rate available for use in the computation of interest and replace it with SOFR, therefore borrowings under this facility carry variable interest rates tied to SOFR. The interest rate on the AR Securitization Facility as of March 31, 2024 and June 30, 2023 was 6.33% and 6.16%, respectively.
Unsecured Shelf Facility
At March 31, 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.

6.     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.
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 these objectives, 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, net 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 the quarter ended December 31, 2020, the Company completed a transaction to amend and extend the interest rate swap agreement which resulted in an extension of the maturity date by an additional three years and a decrease of the weighted average fixed pay rate from 2.61% to 1.63%. 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 bilaterial 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 Accounting Standards Codification Topic 848 elections related to changes in critical terms of the hedging relationship due to reference rate
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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
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 approximately $384,000 of variable rate debt to a rate of 2.48% as of March 31, 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 $20,035 and $27,044 as of March 31, 2024 and June 30, 2023, respectively, which is included in other current assets and other assets in the condensed consolidated balance sheet. Amounts reclassified from other comprehensive (loss) income, before tax, to interest expense, net totaled $(4,671) and $(3,036) for the three months ended March 31, 2024 and 2023, respectively, and $(14,024) and $(2,955) for the nine months ended March 31, 2024 and 2023, respectively.

7.    FAIR VALUE MEASUREMENTS
Marketable securities measured at fair value at March 31, 2024 and June 30, 2023 totaled $22,405 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 accompanying condensed consolidated balance sheets and their fair values were determined using quoted market prices (Level 1 in the fair value hierarchy).
As of March 31, 2024 and June 30, 2023, the carrying values of the Company's fixed interest rate debt outstanding under its unsecured shelf facility agreement with Prudential Investment Management approximated fair value (Level 2 in the fair value hierarchy). The revolving credit facility and the AR Securitization Facility contain variable interest rates and their carrying values approximate fair value (Level 2 in the fair value hierarchy).

8.    SHAREHOLDERS' EQUITY
Accumulated Other Comprehensive Loss
Changes in the accumulated other comprehensive loss are comprised of the following amounts, shown net of taxes:
Three Months Ended March 31, 2024
Foreign currency translation adjustment Post-employment benefitsCash flow hedgeTotal Accumulated other comprehensive (loss) income
Balance at December 31, 2023$(79,667)$(244)$20,265 $(59,646)
Other comprehensive (loss) income(5,147) 3,856 (1,291)
Amounts reclassified from accumulated other comprehensive (loss) income (24)(3,528)(3,552)
Net current-period other comprehensive (loss) income(5,147)(24)328 (4,843)
Balance at March 31, 2024$(84,814)$(268)$20,593 $(64,489)

Three Months Ended March 31, 2023
Foreign currency translation adjustment Post-employment benefitsCash flow hedgeTotal Accumulated other comprehensive (loss) income
Balance at December 31, 2022$(96,374)$(513)$29,501 $(67,386)
Other comprehensive income (loss)5,766  (1,741)4,025 
Amounts reclassified from accumulated other comprehensive (loss) income 6 (2,289)(2,283)
Net current-period other comprehensive income (loss)5,766 6 (4,030)1,742 
Balance at March 31, 2023$(90,608)$(507)$25,471 $(65,644)

15

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) (Unaudited)
Nine Months Ended March 31, 2024
Foreign currency translation adjustment Post-employment benefitsCash flow hedgeTotal Accumulated other comprehensive (loss) income