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What changed in APPLIED INDUSTRIAL TECHNOLOGIES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of APPLIED INDUSTRIAL TECHNOLOGIES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+171 added−188 removedSource: 10-K (2023-08-11) vs 10-K (2022-08-12)

Top changes in APPLIED INDUSTRIAL TECHNOLOGIES INC's 2023 10-K

171 paragraphs added · 188 removed · 149 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

27 edited+3 added−3 removed50 unchanged
Biggest changeIn 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 complete over 10,000 such safety training courses annually, helping to raise awareness of workplace risks.
Biggest changeIn 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.
We have a number of initiatives focused on driving operational improvements throughout the organization. Systems investments in recent years including common ERP platforms are supporting opportunities in leveraging shared services, refining our 3 Table of Contents sales management process, and standardizing pricing and sourcing functions, while we continue to optimize our shop and distribution network and analytics.
We have a number of initiatives focused on driving operational improvements throughout the organization. Systems investments in recent 3 Table of Contents years including common ERP 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.
MARKETS We purchase from thousands of product manufacturers and resell the products to thousands of customers in a wide variety of industries, including agriculture and food processing, cement, chemicals and petrochemicals, fabricated metals, forest products, industrial machinery and equipment, life sciences, mining, oil and gas, primary metals, 4 Table of Contents technology, transportation, and utilities, as well as to government entities.
MARKETS We purchase from thousands of product manufacturers and resell the products to thousands of customers in a wide variety of industries, including agriculture and food processing, cement, chemicals and petrochemicals, fabricated 4 Table of Contents 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.
Our Fluid Power & Flow Control segment includes our operations that specialize in distributing, engineering, designing, integrating, and repairing hydraulic and pneumatic fluid power technologies, and engineered flow control products and services. We believe we are the largest distributor and solutions provider of fluid power and industrial flow control products and solutions in the U.S.
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.
In addition, our fluid power, flow control, and automation operations design, engineer, and 2 Table of Contents integrate solutions focused on making a customer’s operations and equipment more productive, cost-efficient, and automated.
In addition, our fluid power, flow control, and automation operations design, engineer, and 2 Table of Contents integrate solutions focused on making a customer’s operations and equipment more productive, cost and energy-efficient, and automated.
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 4% of our fiscal 2022 sales.
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 4% of our fiscal 2023 sales.
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. • Execute ongoing operational initiatives supporting margin profile .
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. • Execute ongoing operational initiatives supporting margin expansion .
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, and reduce overall procurement and maintenance costs.
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.
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. Compensation and Benefits .
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.
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 87% of our fiscal 2022 sales were generated.
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 87% of our fiscal 2023 sales were generated.
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 • Capture market share across our core service center network .
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 .
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.
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 5 Table of Contents lightweight applications in need of speed and precision.
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, and hydraulic system retrofits.
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, and hydraulic system retrofits, and integration of autonomous and electrification features.
We also have international operations, the largest of which is in Canada (7% of fiscal 2022 sales) with the balance (6% of fiscal 2022 sales) in Mexico, Australia, New Zealand, and Singapore.
We also have international operations, the largest of which is in Canada (7% of fiscal 2023 sales) with the balance (6% of fiscal 2023 sales) in Mexico, Australia, New Zealand, and Singapore.
Through our comprehensive network of approximately 6,100 employee associates and 568 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 8.5 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.
Through our comprehensive network of approximately 6,200 employee associates and approximately 580 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 8.8 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.
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. Fluid Power & Flow Control .
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 fluid power products and solutions are commonly used for off-highway equipment, heavy industrial equipment and machines at factories, marine and offshore equipment, 5 Table of Contents factory automation, food processing equipment, packaging operations, and downstream energy process systems.
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.
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.
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 6 Table of Contents advance diverse associates.
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. • Leverage technical industry position in developing growth around emerging industrial technologies .
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 develop growth around emerging industrial technologies .
OPERATIONS Our distribution and sales network consists of approximately 446 locations in our Service Center Distribution segment and 122 locations in our Fluid Power & Flow Control segment. This includes service centers, distribution centers, and facilities tied to our fluid power, flow control, and automation operations.
OPERATIONS Our distribution and sales network consists of approximately 450 locations in our Service Center Distribution segment and approximately 130 locations in our Engineered Solutions segment. This includes service centers, distribution centers, and facilities tied to our fluid power, flow control, and automation operations.
REPORTABLE SEGMENTS We report results of operations in two segments: 1) Service Center Based Distribution, and 2) Fluid Power & Flow Control. In fiscal 2022, our Service Center Based Distribution segment represented 67% of our total sales, while our Fluid Power & Flow Control segment represented 33% of our total sales. Service Center Based Distribution .
REPORTABLE SEGMENTS We report results of operations in two segments: 1) Service Center Based Distribution, and 2) Engineered Solutions. In fiscal 2023, our Service Center Based Distribution segment represented 67% of our total sales, while our Engineered Solutions segment represented 33% of our total sales. Service Center Based Distribution .
In the area of recruitment, for example, we engage in on-campus events and targeted recruitment strategies, including networking with diverse professional groups, that increase our exposure to diverse populations in order to promote enhanced diversity in our hiring. Health and Safety . Applied is also committed to the safety and well-being of our associates.
In the area of recruitment, for example, we engage in on-campus events and recruitment strategies that increase our exposure to diverse populations in order to enhance the diversity of our applicant pool. Health and Safety . Applied is also committed to the safety and well-being of our associates.
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 automation and smart technologies.
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 automation and smart technologies. In addition, reshoring and localization of supply chains could be a meaningful growth catalyst in years to come.
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, logistics, consumer, and general industrial.
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.
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.
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.
At June 30, 2022, we had approximately 6,100 associates across six countries, with geographic and segment counts as follows: Country Associates Segment Associates United States 4,700 Service Center Based Distribution 3,900 Canada 700 Fluid Power & Flow Control 1,800 Other Countries 700 Other 400 Associate Development .
At June 30, 2023, we had approximately 6,200 associates across six countries, with geographic and segment counts as follows: Country Associates Segment Associates United States 4,800 Service Center Based Distribution 4,050 Canada 650 Engineered Solutions 1,850 Other Countries 750 Other 300 Associate Development .
We seek to provide competitive compensation and benefits in order to help attract and retain high quality associates.
During the fiscal year we implemented manager training on the importance of identifying and providing resources for associate mental health needs. Approximately 55% of eligible managers have completed this training as of the end of the fiscal year. Compensation and Benefits . We seek to provide competitive compensation and benefits in order to help attract and retain high quality associates.
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In the U.S., all associates are required to complete specific assigned online training courses annually, which include offerings on 6 Table of Contents workplace safety hazards and vehicle safety.
Added
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.
Removed
From the onset of the COVID-19 pandemic, we focused on protecting our associates’ health and safety, while ensuring our continued capability to serve our customers. As a provider of critical parts, services, and solutions to essential industries, Applied remained open for business.
Added
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.
Removed
We implemented significant changes to ensure a safe operating environment for our associates and to protect our customers and communities, including remote work as feasible, social distancing protocols, heightened sanitation procedures, and masking policies. SEASONALITY Our business has exhibited minor seasonality.
Added
Our U.S. associates completed over 35,000 safety training courses during the fiscal year, helping to raise awareness of workplace risks. SEASONALITY Our business has exhibited minor seasonality.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAs 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.
Biggest changeConsolidation in our customers' and suppliers' industries could adversely affect our business and financial results. Consolidation continues among our product suppliers and 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.
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 9 Table of Contents results.
We depend on information systems to, among other things, process customer orders, manage inventory and accounts receivable collections, 9 Table of Contents 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.
Our operations outside the United States increase our exposure to global economic and political conditions and currency exchange volatility. Foreign operations contributed 13% of our sales in 2022.
Our operations outside the United States increase our exposure to global economic and political conditions and currency exchange volatility. Foreign operations contributed 13% of our sales in 2023.
Our supply chain 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, 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.
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.
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, 2022, we had total debt obligations outstanding of $689.5 million.
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, 2023, we had total debt obligations outstanding of $622.2 million.
In 2021, we recorded a $49.5 million non-cash charge for the impairment of certain intangible, lease, and fixed assets. As of June 30, 2022, we had remaining $563.2 million of goodwill and $250.6 million of other intangible assets, net. We assess all existing goodwill at least annually for impairment on a reporting unit basis.
In 2021, we recorded a $49.5 million non-cash charge for the impairment of certain intangible, lease, and fixed assets. As of June 30, 2023, we had remaining $578.4 million of goodwill and $235.5 million of other intangible assets, net. We assess all existing goodwill at least annually for impairment on a reporting unit basis.
Although we believe these estimates and assumptions are reasonable and reflect market conditions forecasted at the assessment date, 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. We may be adversely affected by changes to interest rates on our borrowings. The U.K.
Although we believe these estimates and assumptions are reasonable and reflect market conditions forecasted at the assessment date, 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.
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.
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.
For example, the COVID-19 pandemic has disrupted certain suppliers’ operations and our ability to procure product to meet customer demand fully and timely, and may continue to do so in the future. When we can find acceptable alternate sources for certain products, they may cost more.
For example, the COVID-19 pandemic disrupted certain suppliers’ operations and our ability to procure product to meet customer demand fully and timely. 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.
Similarly, continued consolidation among suppliers could reduce our ability to negotiate favorable pricing and other commercial terms for our inventory purchases. There can be no assurance we will be able 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.
There can be no assurance we will be able 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.
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. 8 Table of Contents 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.
This presence outside the U.S. increases risks associated with exposure to more volatile economic conditions, political 8 Table of Contents instability, cultural and legal differences in conducting business (including corrupt practices), economic and trade policy actions, and currency exchange fluctuations.
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.
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.
If credit market 10 Table of Contents volatility were to return, 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. Tight credit conditions could limit our ability to finance acquisitions on terms acceptable to us.
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.
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.
Changes in the legal and regulatory environment 11 Table of Contents 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 business.
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.
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.
In addition, from time to time, we are involved in lawsuits or other legal proceedings that arise from our business. These may, for example, relate to product liability claims, commercial disputes, personal injuries, or employment-related matters.
These may, for example, relate to product liability claims, commercial disputes, personal injuries, or employment-related matters.
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, 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.
In addition, the pandemic’s impact on the economy could affect the proper functioning of financial and capital markets, foreign currency exchange rates, product and energy costs, labor supply and costs, and interest rates.
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.
The effects of the pandemic resulted in lost or delayed sales to us, and we experienced business disruptions as we modified our business practices (including travel, work locations, and cancellation of physical participation in meetings).
The COVID-19 pandemic created significant volatility, uncertainty, and economic disruption, and resulted in lost or delayed sales to us, and we 7 Table of Contents experienced business disruptions as we modified our business practices.
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.
Additionally, any failure to comply with covenants in the instruments governing our debt could result in an event of default.
The pandemic’s effects may also amplify the other risks and uncertainties described in this Annual Report on Form 10-K, and may continue to adversely affect our business, financial condition, results of operations, and/or stock price. Supply chain disruptions could adversely affect our results of operations and financial condition.
Supply chain disruptions could adversely affect our results of operations and financial condition.
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The extent to which the COVID-19 pandemic and measures taken in response thereto continue to impact our results of operations and financial condition will depend on future developments, which are uncertain and cannot be predicted. The COVID-19 pandemic created significant volatility, uncertainty, and economic 7 Table of Contents disruption.
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Our business, results of operation and financial condition have been, and could in the future be, adversely affected by a pandemic, epidemic or other public health emergency.
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While the pandemic’s impact on social and economic conditions in the U.S. has subsided, the extent to which it will continue to impact our results of operations and financial condition will depend on evolving factors that are uncertain and cannot be predicted, including the following: the duration, spread, and severity of the pandemic, particularly due to virus variants, in the countries in which we operate or otherwise in our supply chain; responsive measures taken by governmental authorities, businesses, and individuals; the effect on our customers and their demand for our products and services; the effect on our suppliers and disruptions to the global supply chain; disruptions to our ability to sell and provide our products and services and otherwise operate effectively, including as a result of travel restrictions and associates working from home; disruptions to our operations resulting from associate illness; restrictions or disruptions to, or reduced availability of, transportation; customers’ ability to pay for our services and products; closures of our facilities or those of our customers or suppliers; the impact of reduced customer demand on purchasing incentives we earn from suppliers; and how quickly and to what extent normal economic and operating conditions can resume.
Added
Another pandemic, including a new COVID-19 variant, or other public health emergency, 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 our ability to sell and provide our products and services and 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.
Removed
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 our product suppliers and customers.
Added
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.
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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.
Added
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.
Removed
Although the credit market turmoil of a decade ago did not have a significant adverse impact on our liquidity or borrowing costs, the availability of funds tightened and credit spreads on corporate debt increased.
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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.
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Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced in 2017 that it will no longer persuade or require banks to submit rates for LIBOR after 2021.
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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. 10 Table of Contents In addition, the increase in interest rates has created some tightening in the credit markets.
Removed
At the end of 2021, the ICE Benchmark Administration, the administrator for LIBOR, ceased publishing one-week and two-month U.S. dollar LIBOR and will cease publishing all remaining U.S. dollar LIBOR tenors after June 30, 2023. Any of our LIBOR-based borrowings that extend beyond June 30, 2023 will need to be converted to a replacement rate prior to that date.
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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.
Removed
Possible replacement rates include the Secured Overnight Financing Rate (SOFR). Uncertainty as to the nature of such phase out and selection of an alternative reference rate, together with disruption in the financial markets, could increase the cost of our indebtedness that is currently tied to LIBOR.
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In addition, we may have difficulty retaining such personnel once hired, and key people may leave and compete against 11 Table of Contents us.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following were our principal owned real properties (each of which has more than 50,000 square feet of floor space) at June 30, 2022: Location of Principal Owned Real Property Type of Facility Cleveland, Ohio Corporate headquarters Atlanta, Georgia Distribution center, service center, hose shop Florence, Kentucky Distribution center Baldwinsville, New York Offices, warehouse, and fluid power shop Carlisle, Pennsylvania Distribution center 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, 2022 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 Stafford, Texas Offices, warehouse, and flow control shop Longview, Washington Service center, rubber shop, and fluid power shop Nisku, Alberta Offices, service center, and shops Saskatoon, Saskatchewan Service center and shop The properties in Baldwinsville, Newark, Midland, and Stafford are used in our Fluid Power & Flow Control segment.
Biggest changeThe following were our principal owned real properties (each of which has more than 50,000 square feet of floor space) at June 30, 2023: Location of Principal Owned Real Property Type of Facility Cleveland, Ohio Corporate headquarters Atlanta, Georgia Distribution center, service center, hose shop Florence, Kentucky Distribution center Baldwinsville, New York Offices, warehouse, and fluid power shop Carlisle, Pennsylvania Distribution center 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, 2023 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 Stafford, Texas Offices, warehouse, and flow control shop Longview, Washington Service center, rubber shop, and fluid power shop Nisku, Alberta Offices, service center, shop, and distribution center Saskatoon, Saskatchewan Service center and shop The properties in Baldwinsville, Newark, Midland, and Stafford are used in our Engineered Solutions segment.
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, 2022, we owned real properties at 113 locations and leased 411 locations. Certain properties house more than one operation.
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, 2023, we owned real properties at 113 locations and leased 409 locations. Certain properties house more than one operation.
The Fontana and Longview properties are used in both the Service Center Based Distribution segment and the Fluid Power & Flow Control 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.
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.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeBauer Vice President-General Counsel since 2002 and Secretary since 2001. 56 Warren E. Hoffner Vice President, General Manager-Fluid Power & Flow Control 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. 62 Kurt W.
Biggest changeHe 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. 63 Kurt W. Loring Vice President-Chief Human Resources Officer since 2014. 54 Jon S. Ploetz Vice President-General Counsel since March 2023. Prior to joining Applied, Mr.
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). 59 14 Table of Contents PART II
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). 60 14 Table of Contents PART II
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 26, 2021: : Name Positions and Experience Age Neil A. Schrimsher President since 2013 and Chief Executive Officer since 2011. 58 Fred D.
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 25, 2022: Name Positions and Experience Age Neil A. Schrimsher President since 2013 and Chief Executive Officer since 2011. 59 Warren E. Hoffner Vice President, General Manager-Engineered Solutions since October 2018.
Removed
Loring Vice President-Chief Human Resources Officer since 2014. 53 Jason W. Vasquez Vice President-Sales & Marketing, U.S. Service Centers since June 2017. The Board of Directors designated Mr. Vasquez an executive officer in September 2021. 46 David K. Wells Vice President-Chief Financial Officer & Treasurer since September 2017. He served as Vice President-Finance from May 2017 through August 2017.
Added
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. 50 Jason W. Vasquez Vice President-Sales & Marketing, U.S. Service Centers since June 2017. 47 David K. Wells Vice President-Chief Financial Officer & Treasurer since September 2017.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePeriod (a) Total Number of Shares (b) Average Price Paid per Share ($) (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) April 1, 2022 to April 30, 2022 — — — 317,960 May 1, 2022 to May 31, 2022 — — — 317,960 June 1, 2022 to June 30, 2022 2,000 89.87 2,000 315,960 Total 2,000 89.87 2,000 315,960 (1) On October 24, 2016, the Board of Directors authorized the repurchase of up to 1.5 million shares of the Company's common stock, replacing the prior authorization.
Biggest changePeriod (a) Total Number of Shares (b) Average Price Paid per Share ($) (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, 2023 to April 30, 2023 — — — 1,500,000 May 1, 2023 to May 31, 2023 — — — 1,500,000 June 1, 2023 to June 30, 2023 — — — 1,500,000 Total — — — 1,500,000 (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.
The following table summarizes Applied's repurchases of its common stock in the quarter ended June 30, 2022.
The following table summarizes Applied's repurchases of its common stock in the quarter ended June 30, 2023.
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 5, 2022, there were 3,326 shareholders of record including 2,222 shareholders in the Applied Industrial Technologies, Inc. Retirement Savings Plan.
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 4, 2023, there were 3,205 shareholders of record including 2,132 shareholders in the Applied Industrial Technologies, Inc. Retirement Savings Plan.
Purchases can be made in the open market or in privately negotiated transactions. The authorization is in effect until all shares are purchased, or the Board revokes or amends the authorization. 15 Table of Contents
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 are purchased, or the Board revokes or amends the authorization. 15 Table of Contents
Removed
We publicly announced the new authorization on October 26, 2016. Purchases could be made in the open market or in privately negotiated transactions. 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.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest change(In thousands, except per share amounts and statistical data) 2022 2021 2020 2019 2018 (d) Consolidated Operations — Year Ended June 30 Net sales $ 3,810,676 $ 3,235,919 $ 3,245,652 $ 3,472,739 $ 3,073,274 Depreciation and amortization of property 21,676 20,780 21,196 20,236 17,798 Amortization: Intangible assets 31,879 34,365 41,553 41,883 32,065 SARs and stock options 3,284 2,526 2,954 2,437 1,961 Operating income (a) (b) (c) 357,858 205,454 88,989 233,788 225,827 Net income (a) (b) (c) 257,414 144,757 24,042 143,993 141,625 Per share data: Net income: Basic 6.69 3.73 0.62 3.72 3.65 Diluted (a) (b) (c) 6.58 3.68 0.62 3.68 3.61 Cash dividend 1.34 1.30 1.26 1.22 1.18 Year-End Position — June 30 Working capital $ 859,902 $ 768,875 $ 733,686 $ 724,344 $ 625,469 Long-term debt (including portion classified as current) 689,495 829,396 935,276 959,829 966,063 Total assets 2,452,588 2,271,807 2,283,551 2,331,697 2,285,741 Shareholders’ equity 1,149,355 932,546 843,542 897,034 814,963 Year-End Statistics — June 30 Current ratio 2.7 2.8 2.7 2.7 2.4 Operating facilities 568 568 580 600 610 Shareholders of record 3,344 3,535 3,772 4,165 4,323 Return on assets (a) (b) (c) (e) 11.1 % 6.4 % 1.0 % 6.3 % 8.0 % Return on equity (a) (b) (c) (f) 24.7 % 16.3 % 2.8 % 16.8 % 18.2 % Capital expenditures $ 18,124 $ 15,852 $ 20,115 $ 18,970 $ 23,230 Cash Returned to Shareholders During the Year Dividends paid $ 51,805 $ 50,664 $ 48,873 $ 47,266 $ 45,858 Purchases of treasury shares 13,784 40,089 — 11,158 22,778 Total $ 65,589 $ 90,753 $ 48,873 $ 58,424 $ 68,636 (a) In fiscal 2021, the Company recognized a non-cash impairment charge of $49.5 million as a result of reduced economic conditions and business alignment initiatives related to a portion of the Service Center Based Distribution segment exposed to oil and gas end markets .
Biggest change(In thousands, except per share amounts and statistical data) 2023 2022 2021 2020 2019 Consolidated Operations — Year Ended June 30 Net sales $ 4,412,794 $ 3,810,676 $ 3,235,919 $ 3,245,652 $ 3,472,739 Depreciation and amortization of property 22,266 21,676 20,780 21,196 20,236 Amortization: Intangible assets 30,805 31,879 34,365 41,553 41,883 SARs and stock options 2,785 3,284 2,526 2,954 2,437 Operating income (a) (b) (c) 473,151 357,858 205,454 88,989 233,788 Net income (a) (b) (c) 346,739 257,414 144,757 24,042 143,993 Per share data: Net income: Basic 8.98 6.69 3.73 0.62 3.72 Diluted (a) (b) (c) 8.84 6.58 3.68 0.62 3.68 Cash dividend 1.38 1.34 1.30 1.26 1.22 Year-End Position — June 30 Working capital $ 1,106,463 $ 859,902 $ 768,875 $ 733,686 $ 724,344 Total debt 622,248 689,495 829,396 935,276 959,829 Total assets 2,743,332 2,452,588 2,271,807 2,283,551 2,331,697 Shareholders’ equity 1,458,437 1,149,355 932,546 843,542 897,034 Year-End Statistics — June 30 Current ratio 3.0 2.7 2.8 2.7 2.7 Operating facilities 580 568 568 580 600 Shareholders of record 3,227 3,344 3,535 3,772 4,165 Return on assets (a) (b) (c) (d) 13.7 % 11.1 % 6.4 % 1.0 % 6.3 % Return on equity (a) (b) (c) (e) 26.6 % 24.7 % 16.3 % 2.8 % 16.8 % Capital expenditures $ 26,476 $ 18,124 $ 15,852 $ 20,115 $ 18,970 Cash Returned to Shareholders During the Year Dividends paid $ 53,446 $ 51,805 $ 50,664 $ 48,873 $ 47,266 Purchases of treasury shares 716 13,784 40,089 — 11,158 Total $ 54,162 $ 65,589 $ 90,753 $ 48,873 $ 58,424 (a) In fiscal 2021, the Company recognized a non-cash impairment charge of $49.5 million as a result of reduced economic conditions and business alignment initiatives related to a portion of the Service Center Based Distribution segment exposed to oil and gas end markets .
(f) Return on equity is calculated as net income divided by the average shareholders’ equity (beginning of the year plus end of the year divided by 2). 16 Table of Contents
(e) Return on equity is calculated as net income divided by the average shareholders’ equity (beginning of the year plus end of the year divided by 2). 16 Table of Contents
Excluding the long-lived intangible asset impairment charge, the fiscal 2019 return on assets would be 7.5% and return on equity would be 20.0%. (d) FY 2018 includes the acquisition of FCX Performance, Inc. from the acquisition date of 1/31/2018. (e) Return on assets is calculated as net income divided by monthly average assets.
Excluding the long-lived intangible asset impairment charge, the fiscal 2019 return on assets would be 7.5% and return on equity would be 20.0% (d) Return on assets is calculated as net income divided by monthly average assets.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe annualized inventory turnover (using average costs) for the year ended June 30, 2022 was 4.7 versus 4.3 for the year ended June 30, 2021. 23 Table of Contents 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, 2022 (in thousands): Total Period Less Than 1 yr Period 2-3 yrs Period 4-5 yrs Period Over 5 yrs Other Operating leases $ 119,834 $ 32,759 $ 46,514 $ 23,807 $ 16,754 — Planned funding of post-retirement obligations 8,830 900 500 530 6,900 — Unrecognized income tax benefit liabilities, including interest and penalties 5,800 — — — — 5,800 Long-term debt obligations 689,495 40,247 238,656 410,592 — — Interest on long-term debt obligations (1) 74,300 19,700 32,800 21,800 — — Acquisition holdback payments 1,969 1,469 500 — — — Total Contractual Cash Obligations $ 900,228 $ 95,075 $ 318,970 $ 456,729 $ 23,654 $ 5,800 (1) Amounts represent estimated contractual interest payments on outstanding long-term debt obligations and net payments under the terms of the interest rate swap.
Biggest changeCONTRACTUAL 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, 2023 (in thousands): Total Period Less Than 1 yr Period 2-3 yrs Period 4-5 yrs Period Over 5 yrs Other Operating leases $ 113,251 $ 34,235 $ 44,995 $ 22,646 $ 11,375 $ — Planned funding of post-retirement obligations 6,561 1,360 2,770 460 1,971 — Unrecognized income tax benefit liabilities, including interest and penalties 5,900 — — — — 5,900 Long-term debt obligations 622,248 25,251 25,105 571,892 — — Interest on long-term debt obligations (1) 68,000 22,300 34,000 11,700 — — Acquisition holdback payments 810 684 126 — — — Total Contractual Cash Obligations $ 816,770 $ 83,830 $ 106,996 $ 606,698 $ 13,346 $ 5,900 (1) Amounts represent estimated contractual interest payments on outstanding long-term debt obligations net of receipts under the terms of the interest rate swap.
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 drawn fees on the AR Securitization Facility to 0.98% per year.
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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW With approximately 6,100 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW With approximately 6,200 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.
The realization of these deferred tax assets can be impacted by changes to tax laws, statutory rates and future taxable income levels. 26 Table of Contents 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.
The realization of these deferred tax assets can be impacted by changes to tax laws, statutory rates and future taxable income levels. 25 Table of Contents 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.
For the comparison of the years ended June 30, 2021 and 2020, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2021 Annual Report on Form 10-K. The following table is included to aid in review of Applied’s statements of consolidated income.
For the comparison of the years ended June 30, 2022 and 2021, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2022 Annual Report on Form 10-K. The following table is included to aid in review of Applied’s statements of consolidated income.
Rates in effect as of June 30, 2022 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.
Rates in effect as of June 30, 2023 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.
This agreement 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.
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.
Borrowings under this agreement bear interest, at the Company's election, at either the base rate plus a margin that ranges from 0 to 55 basis points based on net leverage ratio or LIBOR plus a margin that ranges from 80 to 155 basis points based on the net leverage ratio.
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.
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.
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 21 Table of Contents times, we may not be able to fully access the $250.0 million of funding available under the AR Securitization Facility.
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. 27 Table of Contents
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 Table of Contents
Management expects that our existing cash, cash equivalents, funds available under our debt facilities, and cash provided from operations, will be sufficient to finance normal working capital needs in each of the countries we operate in, payment of dividends, acquisitions, investments in properties, facilities and equipment, debt service, and the purchase of additional Company common stock.
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.
If the carrying amount of a reporting unit exceeds its fair value, an impairment charge would be 25 Table of Contents 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.
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.
As of June 30, 2022 and 2021, our allowance for doubtful accounts was 2.6% and 3.1% of gross receivables, respectively. Our provision for losses on accounts receivable was $3.2 million, $6.5 million, and $14.1 million in fiscal 2022, 2021, and 2020, respectively.
As of June 30, 2023 and 2022, our allowance for doubtful accounts was 3.1% and 2.6% of gross receivables, respectively. Our provision for losses on accounts receivable was $5.6 million, $3.2 million, and $6.5 million in fiscal 2023, 2022, and 2021, respectively.
Management monitors accounts receivable by reviewing Days Sales Outstanding (DSO) and the aging of receivables for each of the Company's locations. The Company experienced a significant increase in accounts receivable during fiscal 2022 commensurate with the increase in sales. On a consolidated basis, DSO was 55.7 at June 30, 2022 versus 51.9 at June 30, 2021.
Management monitors accounts receivable by reviewing Days Sales Outstanding (DSO) and the aging of receivables for each of the Company's locations. The Company experienced a significant increase in accounts receivable during fiscal 2023 commensurate with the increase in sales. On a consolidated basis, DSO was 55.1 at June 30, 2023 versus 55.7 at June 30, 2022.
The approximate number of Company employees was 6,100 at June 30, 2022 and 5,900 at June 30, 2021. 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.
The approximate number of Company employees was 6,200 at June 30, 2023 and 6,100 at June 30, 2022. 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, 2022, 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, 2022, the Company's net indebtedness was less than 1.3 times consolidated income before interest, taxes, depreciation and amortization (as defined).
At June 30, 2023, 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, 2023, the Company's net indebtedness was less than 0.7 times consolidated income before interest, taxes, depreciation and amortization (as defined).
Approximately 3.4% of our accounts receivable balances are more than 90 days past due at June 30, 2022 compared to 3.0% at June 30, 2021. On an overall basis, our provision for losses from uncollected receivables represents 0.08% of our sales for the year ended June 30, 2022, compared to 0.20% of sales for the year ended June 30, 2021.
Approximately 2.5% of our accounts receivable balances are more than 90 days past due at June 30, 2023 compared to 3.4% at June 30, 2022. On an overall basis, our provision for losses from uncollected receivables represents 0.13% of our sales for the year ended June 30, 2023, compared to 0.08% of sales for the year ended June 30, 2022.
The Company was in compliance with all financial covenants at June 30, 2022.
The Company was in compliance with all financial covenants at June 30, 2023.
SD&A from businesses acquired added $9.3 million or 1.4%, including $0.8 million of intangibles amortization related to acquisitions. Excluding the impact of businesses acquired and the unfavorable impact from foreign currency translation, SD&A increased $58.7 million or 8.6% during fiscal 2022 compared to fiscal 2021.
SD&A from businesses acquired added $6.4 million or 0.9%, including $0.9 million of intangibles amortization related to acquisitions. Excluding the impact of businesses acquired and the unfavorable impact from foreign currency translation, SD&A increased $62.6 million or 8.3% during fiscal 2023 compared to fiscal 2022.
At June 30, 2022, business was conducted in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, and Singapore from approximately 568 facilities.
At June 30, 2023, business was conducted in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, and Singapore from approximately 580 facilities.
Income Taxes Deferred income taxes are recorded for estimated future tax effects of differences between the bases of assets and liabilities for financial reporting and income tax purposes, giving consideration to enacted tax laws. As of June 30, 2022, the Company recognized $38.3 million of net deferred tax liabilities.
Income Taxes Deferred income taxes are recorded for estimated future tax effects of differences between the bases of assets and liabilities for financial reporting and income tax purposes, giving consideration to enacted tax laws. As of June 30, 2023, the Company recognized $35.0 million of net deferred tax liabilities.
Further uses of cash in 2022 were $51.8 million for dividend payments, $8.1 million used to pay taxes for shares withheld, and $13.8 million used to repurchase 148,658 shares of treasury stock.
Further uses of cash in 2023 were $53.4 million for dividend payments and $12.9 million used to pay taxes for shares withheld. Further uses of cash in 2022 were $51.8 million for dividend payments, $8.1 million used to pay taxes for shares withheld, and $13.8 million used to repurchase 148,658 shares of treasury stock.
Our gross profit margin increased to 29.0% in fiscal 2022 compared to 28.9% in fiscal 2021. Gross profit margin expanded year over year and sequentially primarily reflecting broad-based execution across the business and countermeasures in response to ongoing inflation and supply chain dynamics.
Our gross profit margin increased to 29.2% in fiscal 2023 compared to 29.0% in fiscal 2022. Gross profit margin expanded year over year primarily reflecting broad-based execution across the business and countermeasures in response to ongoing inflation and supply chain dynamics.
The Company concluded that all of the reporting units’ fair values exceeded their carrying amounts by at least 25% as of January 1, 2022. The fair values of the reporting units in accordance with the goodwill impairment test were determined using the income and market approaches.
The Company concluded that all of the reporting units’ fair values exceeded their carrying amounts by at least 20% as of January 1, 2023. 24 Table of Contents The fair values of the reporting units in accordance with the goodwill impairment test were determined using the income and market approaches.
Amounts in millions Amount of change due to Year ended June 30, SD&A Increase Acquisitions Foreign Currency Organic Change 2022 2021 SD&A $ 749.1 $ 680.5 $ 68.5 $ 9.3 $ 0.5 $ 58.7 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.
Amounts in millions Amount of change due to Year ended June 30, SD&A Increase Acquisitions Foreign Currency Organic Change 2023 2022 SD&A $ 813.8 $ 749.1 $ 64.7 $ 6.4 $ (4.3) $ 62.6 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.
Management also believes that additional long-term debt and line of credit financing could be obtained based on the Company’s credit standing and financial strength. The Company’s working capital at June 30, 2022 was $859.9 million compared to $768.9 million at June 30, 2021.
Management also believes that additional long-term debt and line of credit financing could be obtained if necessary based on the Company’s credit standing and financial strength. The Company’s working capital at June 30, 2023 was $1,106.5 million compared to $859.9 million at June 30, 2022.
Goodwill on our consolidated financial statements relates to both the Service Center Based Distribution segment and the Fluid Power & Flow Control segment. The Company has eight (8) reporting units for which an annual goodwill impairment assessment was performed as of January 1, 2022.
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, 2023.
As of June 30, 2022 and 2021, the Company's reserve for slow-moving or obsolete inventories was $39.2 million and $43.5 million, respectively, recorded in inventories in the consolidated balance sheets. 24 Table of Contents Allowances for Doubtful Accounts We evaluate the collectibility of trade accounts receivable based on a combination of factors.
As of June 30, 2023 and 2022, the Company's reserve for slow-moving or obsolete inventories was $42.6 million and $39.2 million, respectively, recorded in inventories in the consolidated balance sheets. Allowances for Doubtful Accounts We evaluate the collectibility of trade accounts receivable based on a combination of factors.
When manufacturing plants are running at a high rate of capacity, they tend to wear out machinery and require replacement parts. 17 Table of Contents The MCU (total industry) and IP indices increased since June 2021 correlating with an overall increase in the economy in the same period.
When manufacturing plants are running at a high rate of capacity, they tend to wear out machinery and require replacement parts. The MCU (total industry) and IP indices decreased since June 2022 correlating with an overall decrease in the economy in the same period.
The current ratio was 2.7 to 1 at June 30, 2022 and 2.8 to 1 at June 30, 2021. 20 Table of Contents Net Cash Flows The following table is included to aid in review of Applied’s statements of consolidated cash flows.
The current ratio was 3.0 to 1 at June 30, 2023 and 2.7 to 1 at June 30, 2022. Net Cash Flows The following table is included to aid in review of Applied’s statements of consolidated cash flows.
The ISM PMI registered 53.0 in June 2022, a decrease from the June 2021 revised reading of 60.9. A reading above 50 generally indicates expansion.
The ISM PMI registered 46.0 in June 2023, a decrease from the June 2022 revised reading of 53.1. A reading above 50 generally indicates expansion.
Year Ended June 30, As a % of Net Sales Change in $'s Versus Prior Period 2022 2021 % Change Net Sales 100.0 % 100.0 % 17.8 % Gross Profit Margin 29.0 % 28.9 % 18.3 % Selling, Distribution & Administrative Expense 19.7 % 21.0 % 10.1 % Operating Income 9.4 % 6.3 % 74.2 % Net Income 6.8 % 4.5 % 77.8 % Sales in fiscal 2022 were $3.8 billion, which was $574.8 million or 17.8% above the prior year, with sales from acquisitions adding $34.1 million or 1.1% and favorable foreign currency translation accounting for an increase of $2.4 million or 0.1%.
Year Ended June 30, As a % of Net Sales Change in $'s Versus Prior Period 2023 2022 % Change Net Sales 100.0 % 100.0 % 15.8 % Gross Profit Margin 29.2 % 29.0 % 16.3 % Selling, Distribution & Administrative Expense 18.4 % 19.7 % 8.6 % Operating Income 10.7 % 9.4 % 32.2 % Net Income 7.9 % 6.8 % 34.7 % Sales in fiscal 2023 were $4.4 billion, which was $602.1 million or 15.8% above the prior year, with sales from acquisitions adding $20.0 million or 0.5% and unfavorable foreign currency translation accounting for a decrease of $16.3 million or 0.4%.
The increase in the effective tax rate is due to changes in compensation-related deductions and uncertain tax positions in fiscal 2022 compared to the prior year. As a result of the factors discussed above, net income for fiscal 2022 increased $112.7 million from the prior year.
The increase in the effective tax rate is due to changes in compensation-related deductions in fiscal 2023 compared to the prior year. As a result of the factors discussed above, net income for fiscal 2023 increased $89.3 million from the prior year.
Working capital increased $91.0 million from June 30, 2021 to $859.9 million at June 30, 2022. The current ratio was 2.7 to 1 and 2.8 to 1 at June 30, 2022 and at June 30, 2021, respectively. Applied monitors several economic indices that have been key indicators for industrial economic activity in the United States.
Working capital increased $246.6 million from June 30, 2022 to $1,106.5 million at June 30, 2023. The current ratio was 3.0 to 1 and 2.7 to 1 at June 30, 2023 and at June 30, 2022, respectively. Applied monitors several economic indices that have been key indicators for industrial economic activity in the United States.
Unused lines under this facility, net of outstanding letters of credit of $0.2 million to secure certain insurance obligations, totaled $489.2 million at June 30, 2022, and were available to fund future acquisitions or other capital and operating requirements. The interest rate on the revolving credit facility was 2.81% as of June 30, 2022.
Unused lines under this facility, net of outstanding letters of credit of $0.2 million to secure certain insurance obligations, totaled $516.2 million and $489.2 million at June 30, 2023 and June 30, 2022, respectively, and were available to fund future acquisitions or other capital and operating requirements.
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, 2022 2021 Accounts receivable, gross $ 673,951 $ 532,777 Allowance for doubtful accounts 17,522 16,455 Accounts receivable, net $ 656,429 $ 516,322 Allowance for doubtful accounts, % of gross receivables 2.6 % 3.1 % Year Ended June 30, 2022 2021 Provision for losses on accounts receivable $ 3,193 $ 6,540 Provision as a % of net sales 0.08 % 0.20 % Accounts receivable are reported at net realizable value and consist of trade receivables from customers.
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, 2023 2022 Accounts receivable, gross $ 730,729 $ 673,951 Allowance for doubtful accounts 22,334 17,522 Accounts receivable, net $ 708,395 $ 656,429 Allowance for doubtful accounts, % of gross receivables 3.1 % 2.6 % Year Ended June 30, 2023 2022 Provision for losses on accounts receivable $ 5,619 $ 3,193 Provision as a % of net sales 0.13 % 0.08 % Accounts receivable are reported at net realizable value and consist of trade receivables from customers.
Excluding the impact of foreign currency translation, other countries sales were up $22.1 million or 11.2% compared to the prior year, driven by an increase from operations, primarily a $13.9 million increase in Mexican sales due to increased industrial activity, primarily related to steel operations.
Excluding the impact of foreign currency translation, other countries sales were up $17.8 million or 8.1% compared to the prior year, driven by an increase from operations, primarily an $11.5 million increase in Mexican sales due to increased industrial activity, mainly related to the automotive industry.
Approximately 15.7% of our domestic inventory dollars relate to LIFO layers added in the 1970s. The excess of average cost over LIFO cost is $178.9 million as reflected in our consolidated balance sheet at June 30, 2022.
Approximately 14.2% of our domestic inventory dollars relate to LIFO layers added in the 1970s. The excess of average cost over LIFO cost is $215.3 million as reflected in our consolidated balance sheet at June 30, 2023.
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 2022 80.0 53.0 101.6 May 2022 80.3 56.1 102.2 April 2022 80.4 55.4 102.7 March 2022 79.9 57.1 102.1 December 2021 78.7 58.8 100.3 September 2021 77.4 60.5 98.2 June 2021 77.7 60.9 98.1 RESULTS OF OPERATIONS This discussion and analysis deals with comparisons of material changes in the consolidated financial statements for the years ended June 30, 2022 and 2021.
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 2023 78.9 46.0 99.6 May 2023 79.4 46.9 99.9 April 2023 79.9 47.1 100.1 March 2023 79.5 46.3 99.1 December 2022 78.9 48.4 97.9 September 2022 80.8 51.0 100.6 June 2022 80.5 53.1 100.0 17 Table of Contents RESULTS OF OPERATIONS This discussion and analysis deals with comparisons of material changes in the consolidated financial statements for the years ended June 30, 2023 and 2022.
At June 30, 2022 we had total debt obligations outstanding of $689.5 million compared to $829.4 million at June 30, 2021.
At June 30, 2023 we had total debt obligations outstanding of $622.2 million compared to $689.5 million at June 30, 2022.
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. The Company has three asset groups that have significant exposure to oil and gas end markets.
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.
Net income per share was $6.58 per share for fiscal 2022 compared to $3.68 per share for fiscal 2021. We had a total of 568 operating facilities in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, and Singapore at June 30, 2022 and June 30, 2021.
Diluted net income per share was $8.84 per share for fiscal 2023 compared to $6.58 per share for fiscal 2022. At June 30, 2023, we had approximately 580 operating facilities in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, and Singapore at June 30, 2023, versus 568 June 30, 2022.
Consolidated sales from our other countries operations increased $21.7 million or 11.0% compared to the prior year. Unfavorable foreign currency translation decreased other countries sales by $0.4 million or 0.2%.
Consolidated sales from our other countries operations increased $17.5 million or 8.0% compared to the prior year. Unfavorable foreign currency translation decreased other countries sales by $0.3 million or 0.1%.
Operating income, before impairment charges, as a percentage of sales for the Service Center Based Distribution segment increased to 11.8% in fiscal 2022 from 10.2% in fiscal 2021. Operating income as a percentage of sales for the Fluid Power & Flow Control segment increased to 12.6% in fiscal 2022 from 11.8% in fiscal 2021.
Operating income, as a percentage of sales for the Service Center Based Distribution segment increased to 12.6% in fiscal 2023 from 11.8% in fiscal 2022.
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, the physical condition of the inventory, as well as assumptions regarding future demand.
We estimate the recoverable cost of such inventory by product type while considering factors such as its age, historic and current demand trends, the physical condition of the inventory, as well as assumptions regarding future demand.
Additionally, the Company had letters of credit outstanding not associated with the revolving credit agreement, in the amount of $4.7 million and $4.5 million as of June 30, 2022 and June 30, 2021, respectively, in order to secure certain insurance obligations.
Additionally, the Company had letters of credit outstanding not associated with the revolving credit agreement, in the amount of $4.0 million and $4.7 million as of June 30, 2023 and June 30, 2022, respectively, in order to secure certain insurance obligations. In August 2018, the Company established a trade receivable securitization facility (the “AR Securitization Facility”).
SD&A increased $68.5 million or 10.1% during fiscal 2022 compared to the prior year, and as a percentage of sales decreased to 19.7% in fiscal 2022 compared to 21.0% in fiscal 2021. Changes in foreign currency exchange rates had the effect of increasing SD&A by $0.5 million or 0.1% compared to the prior year.
SD&A increased $64.7 million or 8.6% during fiscal 2023 compared to the prior year, and as a percentage of sales decreased to 18.4% in fiscal 2023 compared to 19.7% in fiscal 2022. Changes in foreign currency exchange rates had the effect of decreasing SD&A by $4.3 million or 0.6% compared to the prior year.
Amounts in thousands Year Ended June 30, 2022 2021 Net Cash Provided by (Used in): Operating Activities $ 187,570 $ 241,697 Investing Activities (35,658) (44,930) Financing Activities (223,029) (213,037) Exchange Rate Effect (2,154) 5,464 (Decrease) Increase in Cash and Cash Equivalents $ (73,271) $ (10,806) The decrease in cash provided by operating activities during fiscal 2022 is driven by changes in working capital for the year offset by increased operating results.
Amounts in thousands Year Ended June 30, 2023 2022 Net Cash Provided by (Used in): Operating Activities $ 343,966 $ 187,570 Investing Activities (60,833) (35,658) Financing Activities (126,888) (223,029) Exchange Rate Effect 3,317 (2,154) Increase (Decrease) in Cash and Cash Equivalents $ 159,562 $ (73,271) The increase in cash provided by operating activities during fiscal 2023 is driven by changes in working capital for the year and by increased operating results.
Fiscal 2021 income consisted primarily of unrealized gains on investments held by non-qualified deferred compensation trusts of $4.0 million and other income of $0.3 million offset by foreign currency transaction losses of $2.1 million. The effective income tax rate was 21.9% for fiscal 2022 compared to 18.2% for fiscal 2021.
Fiscal 2022 expense consisted primarily of unrealized loss on investments held by non-qualified deferred compensation trusts of $2.6 million and other periodic post-employment costs of $0.6 million, offset by life insurance income of $1.4 million. The effective income tax rate was 22.9% for fiscal 2023 compared to 21.9% for fiscal 2022.
The "Series C" notes carried a fixed interest rate of 3.19%, and the re maining balance of $40.0 million was paid in July 2022. The "Series D" notes have a remaining principal amount of $25.0 million, carry a fixed interest rate of 3.21%, and are due in October 2023.
The "Series D" notes have a remaining principal amount of $25.0 million, carry a fixed interest rate of 3.21%, and are due in October 2023. The "Series 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 fiscal 2021, we repurchased 400,000 shares of the Company's common stock at an average price per share of $100.22 and in fiscal 2020, no shares were repurchased. 21 Table of Contents Borrowing Arrangements A summary of long-term debt, including the current portion, follows (amounts are in thousands): June 30, 2022 2021 Revolving credit facility $ 410,592 $ — Term Loan — 550,250 Trade receivable securitization facility 188,300 188,300 Series C Notes 40,000 40,000 Series D Notes 25,000 25,000 Series E Notes 25,000 25,000 Other 603 846 Total debt $ 689,495 $ 829,396 Less: unamortized debt issuance costs 171 1,016 $ 689,324 $ 828,380 In December 2021, the Company entered into a new five-year revolving credit facility with a group of banks to refinance the existing credit facility as well as provide funds for ongoing working capital and other general corporate purposes.
Borrowing Arrangements A summary of long-term debt, including the current portion, follows (amounts are in thousands): June 30, 2023 2022 Revolving credit facility $ 383,592 $ 410,592 Trade receivable securitization facility 188,300 188,300 Series C Notes — 40,000 Series D Notes 25,000 25,000 Series E Notes 25,000 25,000 Other 356 603 Total debt $ 622,248 $ 689,495 Less: unamortized debt issuance costs 152 171 $ 622,096 $ 689,324 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.
Current year expense primarily consists of unrealized loss on investments held by non-qualified deferred compensation trusts of $2.6 million and other expense of $0.6 million, offset by life insurance income of $1.4 million.
Current year expense primarily consists of foreign currency transaction losses of $3.3 million and other periodic post-employment costs of $1.5 million, offset by unrealized gains on investments held by non-qualified deferred compensation trusts of $2.2 million, life insurance income of $0.7 million and other income of $0.2 million.
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.
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.
Amounts in millions Amount of change due to Year ended June 30, Sales Increase Acquisitions Foreign Currency Organic Change Sales by Geographic Area 2022 2021 United States $ 3,299.8 $ 2,782.9 $ 516.9 $ 34.1 $ — $ 482.8 Canada 291.5 255.4 36.2 — 2.8 33.4 Other Countries 219.4 197.7 21.7 — (0.4) 22.1 Total $ 3,810.7 $ 3,235.9 $ 574.8 $ 34.1 $ 2.4 $ 538.3 Sales in our U.S. operations increased $516.9 million or 18.6%, with acquisitions adding $34.1 million or 1.2%.
Amounts in millions Amount of change due to Year ended June 30, Sales Increase Acquisitions Foreign Currency Organic Change Sales by Geographic Area 2023 2022 United States $ 3,860.4 $ 3,299.8 $ 560.6 $ 20.0 $ — $ 540.6 Canada 315.5 291.5 24.0 — (16.0) 40.0 Other Countries 236.9 219.4 17.5 — (0.3) 17.8 Total $ 4,412.8 $ 3,810.7 $ 602.1 $ 20.0 $ (16.3) $ 598.4 Sales in our U.S. operations increased $560.6 million or 17.0%, with acquisitions adding $20.0 million or 0.6%.
Amounts in millions Amount of change due to Year ended June 30, Sales Increase Acquisitions Foreign Currency Organic Change Sales by Reportable Segment 2022 2021 Service Center Based Distribution $ 2,565.6 $ 2,199.5 $ 366.1 $ — $ 2.4 $ 363.7 Fluid Power & Flow Control 1,245.1 1,036.4 208.7 34.1 — 174.6 Total $ 3,810.7 $ 3,235.9 $ 574.8 $ 34.1 $ 2.4 $ 538.3 Sales in our Service Center Based Distribution segment, which operates primarily in MRO markets, increased $366.1 million, or 16.6%.
Amounts in millions Amount of change due to Year ended June 30, Sales Increase Acquisitions Foreign Currency Organic Change Sales by Reportable Segment 2023 2022 Service Center Based Distribution $ 2,966.8 $ 2,565.6 $ 401.2 $ — $ (16.3) $ 417.5 Engineered Solutions 1,446.0 1,245.1 200.9 20.0 — 180.9 Total $ 4,412.8 $ 3,810.7 $ 602.1 $ 20.0 $ (16.3) $ 598.4 Sales in our Service Center Based Distribution segment, which operates primarily in MRO markets, increased $401.2 million, or 15.6%.
This was offset by 72 basis points due to a $27.3 million increase in LIFO expense year over year. The following table shows the changes in selling, distribution, and administrative expense (SD&A).
The gross profit margin for the current year was negatively impacted by 18 basis points due to a $7.7 million increase in LIFO expense over the prior year. The following table shows the changes in selling, distribution, and administrative expense (SD&A).
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 $409.0 million of the Company’s U.S. dollar-denominated unsecured variable rate debt.
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.
Share Repurchases The Board of Directors has authorized the repurchase of shares of the Company’s stock. These purchases may be made in open market and negotiated transactions, from time to time, depending upon market conditions. At June 30, 2022, we had authorization to purchase an additional 315,960 shares.
These purchases may be made in open market and negotiated transactions, from time to time, depending upon market conditions. At June 30, 2023, we had authorization to purchase an additional 1,500,000 shares. In fiscal 2023, we purchased 8,000 shares of the Company's common stock at an average price per share of $89.46.
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. Inventory increased throughout fiscal 2022 to meet increasing customer demand. Management uses an inventory turnover ratio to monitor and evaluate inventory.
Management believes the overall receivables aging and provision for losses on uncollected receivables are at reasonable levels. 22 Table of Contents 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. Inventory increased throughout fiscal 2022 to meet increasing customer demand.
Operating income increased $152.4 million, or 74.2%, to $357.9 million during fiscal 2022 from $205.5 million during fiscal 2021, and as a percentage of sales, increased to 9.4% from 6.3%, primarily due to gross profit margin expansion and control of SD&A expense in fiscal 2022, in addition to the $49.5 million non-cash impairment charges recorded in fiscal 2021.
Operating income increased $115.3 million, or 32.2%, to $473.2 million during fiscal 2023 from $357.9 million during fiscal 2022, and as a percentage of sales, increased to 10.7% from 9.4%, primarily due to gross profit margin expansion, volume leverage, and control of SD&A expense in fiscal 2023.
Our fiscal 2022 consolidated sales were $3.8 billion, an increase of $574.8 million or 17.8% compared to the prior year, with the acquisitions of Advanced Control Solutions (ACS), Gibson Engineering (Gibson) and R.R. Floody Company (Floody) increasing sales by $34.1 million or 1.1% and favorable foreign currency translation of $2.4 million increasing sales by 0.1%.
Our fiscal 2023 consolidated sales were $4.4 billion, an increase of $602.1 million or 15.8% compared to the prior year, with the acquisitions of R.R. Floody Company (Floody), Automation, Inc. and Advanced Motion Systems, Inc. (AMS) increasing sales by $20.0 million or 0.5% and unfavorable foreign currency translation of $16.3 million decreasing sales by 0.4%.
Excluding the impact of businesses acquired, U.S. sales were up $482.8 million or 17.4%, driven by an increase from operations. Sales from our Canadian operations increased $36.2 million or 14.2%, while favorable foreign currency translation increased Canadian sales by $2.8 million or 1.1%. Excluding the impact of foreign currency translation, Canadian sales were up $33.4 million or 13.1%.
Excluding the impact of businesses acquired, U.S. sales were up $540.6 million or 16.4%. Sales from our Canadian operations increased $24.0 million or 8.2%. Unfavorable foreign currency translation decreased Canadian sales by $16.0 million or 5.5%. Excluding the impact of foreign currency translation, Canadian sales were up $40.0 million or 13.7%.
The decrease primarily relates to provisions recorded in the prior year for customer credit deterioration and bankruptcies primarily in the U.S. and Mexican operations of the Service Center Based Distribution segment. 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.
The increase primarily relates to provisions recorded in the current year for customer credit deterioration and bankruptcies primarily in the Service Center Based Distribution segment. Historically, this percentage is around 0.10% to 0.15%.
Other expense (income), net, represents certain non-operating items of income and expense, and was $1.8 million of expense in fiscal 2022 compared to $2.2 million of income in fiscal 2021.
The expense allocations include corporate charges for working capital, logistics support and other items and impact segment gross profit and operating expense. Other expense (income), net, represents certain non-operating items of income and expense, and was $1.7 million of expense in fiscal 2023 compared to $1.8 million of expense in fiscal 2022.
We paid dividends of $1.34 and $1.30 per share in fiscal 2022 and 2021, respectively. Capital Expenditures We expect capital expenditures for fiscal 2023 to be in the $23.0 million to $25.0 million range, primarily consisting of capital associated with additional information technology equipment and infrastructure investments.
Capital Expenditures We expect capital expenditures for fiscal 2024 to be in the $27.0 million to $29.0 million range, primarily consisting of capital associated with additional information technology equipment and infrastructure investments. Share Repurchases The Board of Directors has authorized the repurchase of shares of the Company’s stock.
On August 9, 2022 the Board of Directors authorized the repurchase of 1.5 million shares of the Company's stock. The Company repurchased 148,658 shares in fiscal 2022 at an average price per share of $92.72.
In fiscal 2022, we repurchased 148,658 shares of the Company's common stock at an average price per share of $92.72. In fiscal 2021,we repurchased 400,000 shares of the Company's common stock at an average price per share of $100.22.
Management calculates this ratio on an annual as well as a quarterly basis and uses inventory valued at average costs.
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, 2023 was 4.4 versus 4.7 for the year ended June 30, 2022.
Gross profit margin increased to 29.0% for fiscal 2022 from 28.9% for fiscal 2021. Operating margin increased to 9.4% in fiscal 2022 from 6.3% in fiscal 2021. Our earnings per share was $6.58 in fiscal 2022 versus $3.68 in fiscal year 2021.
Gross profit margin increased to 29.2% for fiscal 2023 from 29.0% for fiscal 2022. Operating margin increased to 10.7% in fiscal 2023 from 9.4% in fiscal 2022. Our diluted earnings per share was $8.84 in fiscal 2023 versus $6.58 in fiscal 2022. Shareholders’ equity was $1,458.4 million at June 30, 2023 compared to $1,149.4 million at June 30, 2022.
Net cash used in financing activities increased from the prior year period primarily due to a change in net debt activity, as there was $139.9 million of net debt payments in fiscal 2022 compared to $105.9 million of net debt payments in 2021.
Net cash used in investing activities in fiscal 2022 included $7.0 million used for the acquisition of Floody, $14.8 million million in cash payments for loans on company-owned life insurance and $18.1 million used for capital expenditures. 20 Table of Contents Net cash used in financing activities decreased from the prior year period primarily due to a change in net debt activity, as there was $67.2 million of net debt payments in fiscal 2023 compared to $139.9 million of net debt payments in 2022.
At June 30, 2022 and June 30, 2021, the Company had borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management of $90.0 million. Fees on this facility range from 0.25% to 1.25% per year based on the Company's leverage ratio at each quarter end.
On August 4, 2023, the Company amended the AR Securitization Facility and extended the term to August 4, 2026. At June 30, 2023 and June 30, 2022, the Company had borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management of $50.0 million and $90.0 million, respectively.
There were 252.5 selling days in both fiscal 2022 and 2021. Excluding the impact of businesses acquired and foreign currency translation, sales were up $538.3 million or 16.6% during the year, driven by an increase from operations reflecting positive growth across core end markets, including heavy industrial verticals, as well as ongoing pricing actions and our internal growth initiatives.
There were 252.5 selling days in both fiscal 2023 and 2022. Excluding the impact of businesses acquired and foreign currency translation, sales were up $598.4 million or 15.7% during the year, driven by an increase from operations reflecting resilient underlying demand across both segments, structural and secular tailwinds across legacy and new markets, and support from company-specific growth opportunities.
Also, excluding the impact of acquisitions, travel & entertainment and fleet expenses increased $9.0 million during 2022, primarily due to reduced travel activity related to COVID-19 in the prior year. All other expenses within SD&A were down $0.2 million.
Also, excluding the impact of acquisitions, travel & entertainment and fleet expenses increased $4.7 million during 2023, primarily driven by higher fuel costs and the return of travel activity in the current year after travel constraints in the prior year due to COVID-19.
Changes in cash flows between years related to working capital were driven by (amounts in thousands): Accounts receivable $ (86,400) Inventory $ (133,743) Accounts payable $ 42,678 Net cash used in investing activities in fiscal 2022 included $7.0 million used for the acquisition of Floody, $14.8 million in cash payments for loans on company-owned life insurance and $18.1 million used for capital expenditures.
Changes in cash flows between years related to working capital were driven by (amounts in thousands): Accounts receivable $ 94,460 Inventory $ 49,448 Accounts payable $ (15,915) 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.
The following table shows changes in sales by geographical area. Other countries include Mexico, Australia, New Zealand, and Singapore.
Other countries include Mexico, Australia, New Zealand, and Singapore.
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.
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.
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.
Operating income as a percentage of sales for the Engineered Solutions segment increased to 14.1% in fiscal 2023 from 12.6% in fiscal 2022. 19 Table of Contents Segment operating income is impacted by changes in the amounts and levels of certain supplier support benefits and expenses allocated to the segments.
Acquisitions within this segment, primarily Gibson and Floody, increased sales $34.1 million or 3.3%.
Sales in our Engineered Solutions segment increased $200.9 million or 16.1%. Acquisitions within this segment, primarily Automation, Inc., increased sales $20.0 million or 1.6%.
Removed
Fiscal 2021 results included a $49.5 million pre-tax non-cash charge related to the impairment of certain intangible, lease, and fixed assets, as well as non-routine costs of $7.8 million pre-tax, which were the result of weaker economic conditions and business alignment initiatives across a portion of the Service Center Based Distribution segment operations exposed to oil and gas end markets.
Added
Unfavorable foreign currency translation decreased sales by $16.3 million or 0.6%. Excluding the impact of foreign currency translation, sales increased $417.5 million or 16.2% during the year, driven by an increase from operations due to ongoing benefits from market position, sales process initiatives, solid growth across national strategic accounts, as well as benefits from cross-selling actions.
Removed
Total non-routine costs of $7.8 million pre-tax included a $7.4 million inventory reserve charge recorded within cost of sales, and $0.4 million related to severance and facility consolidation recorded in selling, distribution and administrative expense. These charges were offset in the prior year by non-routine income of $2.6 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeDuring the course of the fiscal year, the Canadian, Mexican, Australian and New Zealand currency exchange rates decreased in relation to the U.S. dollar by 3.9%, 1.6%, 8.5% and 11.1%, respectively. In the twelve months ended June 30, 2022, we experienced net foreign currency translation losses totaling $9.9 million, which were included in other comprehensive income.
Biggest changeDuring the course of the fiscal year, the Canadian, Australian and New Zealand currency exchange rates decreased in relation to the U.S. dollar by 2.9%, 3.9%, and 2.5%, respectively, while the Mexican currency exchange rate increased in relation to the U.S. dollar by 17.7%.
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, net. Applied does not currently hedge the net investments in our foreign operations.
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 expense (income), net. Applied does not currently hedge the net investments in our foreign operations.
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 $2.6 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 $2.0 million increase in interest expense.
Foreign Currency Exchange Rate Risk Because we operate throughout North America, Australia and New Zealand and approximately 13.4% of our fiscal year 2022 net sales were generated outside the United States, foreign currency exchange rates can impact our financial position, results of operations and competitive position.
Foreign Currency Exchange Rate Risk Because we operate throughout North America, Australia and New Zealand and approximately 13% of our fiscal year 2023 net sales were generated outside the United States, foreign currency exchange rates can impact our financial position, results of operations and competitive position.
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 $90.0 million outstanding under our unsecured shelf facility agreement, as well as $0.6 million of assumed debt from the purchase of our headquarters facility.
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 $50.0 million outstanding under our unsecured shelf facility agreement, as well as $0.4 million of assumed debt from the purchase of our headquarters facility.
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 $410.6 million outstanding at June 30, 2022, and a $188.3 million trade receivable securitization facility, all of which was outstanding at June 30, 2022.
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 $383.6 million outstanding at June 30, 2023, and a $188.3 million trade receivable securitization facility, all of which was outstanding at June 30, 2023.
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 $409.0 million as of June 30, 2022. The interest rate swap effectively converts a portion of the floating rate interest payment into a fixed rate interest payment.
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, 2023. The interest rate swap effectively converts a portion of the floating rate interest payment into a fixed rate interest payment.
In addition, see Item 1A, “Risk Factors,” for additional risk factors relating to our business. 28 Table of Contents
In addition, see Item 1A, “Risk Factors,” for additional risk factors relating to our business. 27 Table of Contents
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, 2022 would have resulted in a $2.8 million decrease in net income for the year ended June 30, 2022.
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, 2023 would have resulted in a $1.7 million decrease in net income for the year ended June 30, 2023.
We had total average variable interest rate bank borrowings of $670.6 million during fiscal 2022. 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 $6.7 million increase in interest expense.
We had total average variable interest rate bank borrowings of $587.1 million during fiscal 2023. 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 $5.9 million increase in interest expense.
We utilize a sensitivity analysis to measure the potential impact on earnings based on a hypothetical 10% change in foreign currency rates.
In the twelve months ended June 30, 2023, we experienced net foreign currency translation gains totaling $7.7 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.

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