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What changed in APPLIED INDUSTRIAL TECHNOLOGIES INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of APPLIED INDUSTRIAL TECHNOLOGIES INC's 2023 and 2024 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 2024 report.

+194 added−192 removedSource: 10-K (2024-08-16) vs 10-K (2023-08-11)

Top changes in APPLIED INDUSTRIAL TECHNOLOGIES INC's 2024 10-K

194 paragraphs added · 192 removed · 168 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

43 edited+9 added−4 removed33 unchanged
Biggest changeWe 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.
Biggest changeSystems investments in recent years including common enterprise resource planning platforms are supporting opportunities in leveraging shared services, refining our sales management process, and standardizing pricing and sourcing functions, while we continue to optimize our shop and distribution network and analytics. We also remain focused on achieving margin synergies across our operations following expansion into flow control and automation.
The following documents are available via hyperlink from the investor relations area of our website: • Applied's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, together with Section 16 insider beneficial stock ownership reports - these documents are posted as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission • Applied's Code of Business Ethics • Applied's Board of Directors Governance Principles and Practices • Applied's Director Independence Standards • Charters for the Audit, Corporate Governance & Sustainability, and Executive Organization & Compensation Committees of Applied's Board of Directors The information available via hyperlink from our website is not incorporated into this annual report on Form 10-K.
The following documents are available via hyperlink from the investor relations area of our website: • Applied's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, together with Section 16 insider beneficial stock ownership reports - these documents are posted as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission • Applied's Code of Business Ethics • Applied's Board of Directors (our "Board" or "Board of Directors") Governance Principles and Practices • Applied's Director Independence Standards • Charters for the Audit, Corporate Governance & Sustainability, and Executive Organization & Compensation Committees of Applied's Board of Directors The information available via hyperlink from our website is not incorporated into this annual report on Form 10-K.
Our service centers resemble local inventory hubs located in close proximity to our customers and focused primarily on MRO related fulfillment and service needs. Our fluid power, flow control, and automation locations support technical and shop-oriented services integral to the more specialized and integrated nature of the products and solutions they provide.
Our service centers resemble local inventory hubs located in close proximity to our customers and focused primarily on technical MRO related fulfillment and service needs. Our fluid power, flow control, and automation locations support technical and shop-oriented services integral to the more specialized and integrated nature of the products and solutions they provide.
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.
Operations are supported by a team of certified fluid power specialists, mechanics, technicians, and engineers that provide technical services ranging from system design and integration, electronic control integration, hydraulic assemblies, repair and rebuild, manifold design and assembly, customized filtration solutions, software programming and repair, hydraulic system retrofits, and integration of autonomous and electrification features.
In the U.S., Applied offers comprehensive benefits with choices to fit our associates’ varied needs, including the following: medical, dental, vision, and prescription drug insurance; short and long-term disability benefits; life insurance plans; Section 401(k) retirement savings plan with company match; paid vacations and holidays; incentive programs in support of our pay for performance culture; an employee assistance program; and an educational reimbursement program.
In the U.S., Applied offers comprehensive benefits with choices to fit our associates’ varied needs, including the following: medical, dental, vision, and prescription drug insurance; short and long-term disability benefits; life insurance plans; a Section 401(k) retirement savings plan with company match; paid vacations and holidays; incentive programs in support of our pay for performance culture; an employee assistance program; and an educational reimbursement program.
Other operations and channels we market through include inventory management services for indirect consumable supplies and digital solutions including our Applied.com website, electronic data interchange (EDI) and other electronic interfaces with customers' technology platforms and plant maintenance systems. Our distribution centers provide daily service to our service centers, helping replenish inventories and shipping products directly to customers where appropriate.
Other operations and channels through which we market include inventory management services for indirect consumable supplies and digital solutions including our Applied.com website, electronic data interchange (EDI) and other electronic interfaces with customers' technology platforms and plant maintenance systems. Our distribution centers provide daily service to our service centers, helping replenish inventories and shipping products directly to customers where appropriate.
Our Service Center Based Distribution segment includes our legacy MRO distribution operations across North America, Australia, and New Zealand. This business operates through local service centers and distribution centers with a focus on providing products and services addressing the maintenance and repair of motion control infrastructure and production equipment.
Our Service Center Based Distribution segment includes our MRO distribution operations across North America, Australia, and New Zealand. This business operates through local service centers and distribution centers with a focus on providing products and services addressing the maintenance and repair of motion control infrastructure and production equipment.
As such, we believe we are integral to our customers’ supply chains considering the critical nature and direct exposure our solutions have on our customers’ core production equipment and plant capabilities.
As such, we believe we are integral to our customers’ supply chains considering the critical nature and direct exposure that our solutions have on our customers’ core production equipment and plant capabilities.
Our customers use our products and services for both MRO (maintenance, repair, and operating) and OEM (original equipment manufacturing) applications across a variety of end markets primarily in North America, as well as Australia, New Zealand, and Singapore. Headquartered in Cleveland, Ohio, Applied and its predecessor companies have engaged in business since 1923. Our internet address is www.applied.com.
Our customers use our products and services for both MRO (maintenance, repair, and operating) and OEM (original equipment manufacturing) applications across a variety of end markets primarily in North America, as well as Australia, New Zealand, Singapore, and Costa Rica. Headquartered in Cleveland, Ohio, Applied and its predecessor companies have engaged in business since 1923. Our internet address is www.applied.com.
We believe our service and engineering capabilities, shop network, and supplier relationships, combined with our software coding and smart technology application knowledge, are key competitive advantages.
Further, we believe our service and engineering capabilities, shop network, and supplier relationships, combined with our software coding and smart technology application knowledge, are key competitive advantages.
While we compete with other distributors and service providers offering products and solutions addressing this area of the industrial supply chain, we believe our industry position and value proposition benefits from relative advantages tied to the following key attributes: 1) Technical expertise in motion control technologies and related service offerings 2) Broad in-stock product offering, inventory availability, and repair capabilities 3) Tenured relationships with industrial customers and leading suppliers 4) Scale and proximity of our service center network relative to customer facilities 5) Leading positions in engineered fluid power and flow control solutions 6) Expanding capabilities in advanced automation solutions and smart technologies 7) Talent acquisition and development of technically-oriented sales associates, engineers, and service personnel 8) Business systems and distribution capabilities 9) Complementary offerings including indirect consumable supply inventory management We focus on helping customers minimize their production downtime, improve machine performance, and reduce overall procurement and maintenance costs, as well as optimize the efficiency and safety of their facilities and equipment.
While we compete with other distributors and service providers offering products and solutions addressing this area of the industrial supply chain, we believe our industry position and value proposition benefits from relative advantages tied to the following key attributes: 1) Technical expertise in motion control technologies and related service offerings 2) Extensive knowledge of customer's facility and production equipment 3) Broad in-stock product offering, inventory availability, and repair capabilities 4) Tenured relationships with industrial customers and leading suppliers 5) Scale and proximity of our service center network relative to customer facilities 6) Leading positions in engineered fluid power and flow control solutions 7) Advanced capabilities in automation solutions and smart technologies 8) Talent acquisition and development of technically-oriented sales associates, engineers, and service personnel 9) Business systems and distribution capabilities 10) Complementary offerings including indirect consumable supply inventory management We focus on helping customers minimize their production downtime, improve machine performance, and reduce overall procurement and maintenance costs, as well as optimize the efficiency and safety of their facilities and equipment.
We view acquisitions as an important growth consideration given high fragmentation, greater operational and technical requirements, and supplier authorizations within the markets we serve. We believe our sourcing strategy, cash generation capabilities, industry relationships, and operational discipline are key to our acquisition success.
We view acquisitions as an important growth opportunity given high fragmentation, greater operational and technical requirements, and supplier authorizations within the markets we serve. We believe our sourcing strategy, cash generation capabilities, industry relationships, and operational discipline are key to our acquisition success.
We believe our products and solutions are increasingly critical within the industrial supply chain given increased manufacturing activity in the U.S., potential reshoring or localization of supply chains across North America, greater supply chain investments following the pandemic, an aging and tighter customer labor force, more sophisticated production equipment and processes, a greater focus on plant floor optimization, and compliance and regulatory requirements.
We believe our products and solutions are increasingly critical within the industrial supply chain given increased manufacturing activity in the U.S., reshoring or localization of supply chains across North America, a greater focus on supply chain resiliency following the pandemic, an aging and tighter customer labor force, more sophisticated production equipment and processes, a greater focus on plant floor optimization, and compliance and regulatory requirements.
An efficient supply chain and timely delivery of our products is vital to our value proposition particularly when customers require products for emergency repairs. We utilize dedicated third-party transportation providers, our own delivery vehicles, as well as surface and air common carrier and courier services. Customers may also pick up items at our service centers.
An efficient supply chain and timely delivery of our products is vital to our value proposition particularly when customers require products for emergency repairs. We utilize dedicated third-party transportation providers and our own delivery vehicles, as well as surface and air common 4 Table of Contents carrier and courier services. Customers may also pick up items at our service centers.
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.
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.
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.
Customers range from very large businesses, with which we may have multiple-location relationships, to very small ones. We are not significantly dependent on a single customer or group of customers, the loss of which would have a material adverse effect on our business as a whole, and no single customer accounts for more than 5% of our fiscal 2024 sales.
ENVIRONMENTAL LAWS We believe that compliance with government regulations relating to the discharge of materials into the environment or otherwise relating to environmental protection will not have a material adverse effect on our capital expenditures, earnings, or competitive position.
ENVIRONMENTAL LAWS We believe that compliance with government regulations relating to the discharge of materials into the environment or otherwise relating to environmental protection will not have a material adverse effect on our capital expenditures, earnings, or competitive position. 7 Table of Contents
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.
MARKETS We purchase from thousands of product manufacturers and resell the products to thousands of customers in a wide variety of industries, including food processing, cement, chemicals and petrochemicals, fabricated metals, forest products, industrial machinery and equipment, life sciences, mining, oil and gas, primary metals, technology, transportation, and utilities, as well as to government entities.
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 maintain product inventory levels at each service center tailored to the local market. These inventories consist of standard items as well as other items specific to local customer demand. Our operations are primarily based in the U.S. where 88% of our fiscal 2024 sales were generated.
A primary focus for our service center network is responding to a critical “break-fix” situation, which requires knowledge of a customer’s facility, localized inventory, timely delivery capabilities, service execution, and accountability.
A primary focus for our service center network is responding to a critical “break-fix” situation, which 2 Table of Contents requires knowledge of a customer’s facility, localized inventory, timely delivery capabilities, service execution, and accountability.
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 .
We see opportunities to leverage these advantages across new and underserved geographies, as well as through new commercial solutions that could drive a greater share gain of this market opportunity in coming years. • Expand automation platform and continue to grow around emerging industrial technologies .
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.
Through our comprehensive network of approximately 6,500 employee associates and approximately 590 facilities including service center, fluid power, flow control, and automation operations, as well as repair shops and distribution centers, we offer a selection of more than 9.1 million stock keeping units with a focus on industrial bearings, power transmission products, fluid power components and systems, specialty flow control, and advanced factory automation solutions.
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.
In addition, our fluid power, flow control, and automation operations design, engineer, and integrate solutions focused on making a customer’s operations and equipment more productive, cost and energy-efficient, and automated.
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.
Our U.S. associates completed almost 5,000 safety training courses during the fiscal year, helping to raise awareness of workplace risks. SEASONALITY Our business has exhibited minor seasonality.
These include investments in analytics, strategic account penetration, sales process optimization, talent development, and digital channel solutions, as well as fully leveraging and cross-selling our expanded product and service platform across fluid power, flow control, automation, and consumables solutions. • Extend our leading fluid power and flow control position as demand for comprehensive solutions grows .
These include investments in analytics, strategic account penetration, sales process optimization, greater shop and conveyance capabilities, talent development, and digital channel solutions, as well as fully leveraging and cross-selling our expanded product and engineered solutions across fluid power, flow control, automation, and consumables solutions. • Extend our leading fluid power and flow control position as demand for comprehensive solutions grows .
VALUE PROPOSITION We serve a segment of the industrial market that requires technical expertise and service given that our products and solutions are directly tied to companies’ production and efficiency initiatives.
VALUE PROPOSITION We serve a segment of the industrial market that requires technical expertise and service given that our products and solutions are directly tied to companies’ production process, efficiency initiatives, and most critical operating assets.
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.
OPERATIONS Our distribution and sales network consists of approximately 440 locations in our Service Center Based Distribution segment and approximately 150 locations in our Engineered Solutions segment. This includes service centers, distribution centers, and facilities tied to our fluid power, flow control, and automation operations.
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.
We also have international operations, the largest of which is in Canada (6% of fiscal 2024 sales) with the balance (6% of fiscal 2024 sales) in Mexico, Australia, New Zealand, Singapore, and Costa Rica.
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 .
REPORTABLE SEGMENTS We report results of operations in two segments: 1) Service Center Based Distribution, and 2) Engineered Solutions. In fiscal 2024, our Service Center Based Distribution segment represented 68% of our total sales, while our Engineered Solutions segment represented 32% of our total sales. Service Center Based Distribution .
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.
Diversity and Inclusion . We are committed to a diverse and inclusive workplace that is respectful to all associates and believe this serves as a cornerstone for a strong company. We employ multiple initiatives to recruit, train, and advance diverse associates. Health and Safety . Applied is also committed to the safety and well-being of our associates.
Growth within our industry is influenced by broader industrial production and capacity utilization, as well as inflation, labor dynamics, capital spending, geopolitical events, factory optimization initiatives, changes in industrial equipment technologies, and supply chain requirements.
Growth within our industry is influenced by broader industrial production and capacity utilization, as well as inflation, labor dynamics, capital spending, geopolitical events, factory optimization initiatives, changes in industrial equipment technologies, and supply chain requirements. The broader industrial distribution market is highly fragmented with participants varying in size, product focus, and capabilities.
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 expect to continue to expand our automation footprint and capabilities in coming years, as well as pursue opportunities tied to the Industrial Internet of Things (IIoT). We believe this market potential could be meaningful as technology continues to converge within traditional industrial supply chains and end-markets. • Leverage portfolio breadth to cross-sell and capture new growth opportunities.
This includes onsite training, product fabrication and repair, and inventory management solutions. We also provide analysis and measurement of productivity improvement and cost savings potential from these services through our Applied Documented Value-Added ® (DVA ® ) reports.
Service centers market product offerings with a suite of services that create additional value for the customer. This includes onsite training, product fabrication and repair, and inventory management solutions. We also provide analysis and measurement of productivity improvement and cost savings potential from these services through our Applied Documented Value-Added ® (DVA ® ) reports.
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 .
At June 30, 2024, we had approximately 6,500 associates across seven countries, with geographic and segment counts as follows: Country Associates Segment Associates United States 4,950 Service Center Based Distribution 4,150 Canada 650 Engineered Solutions 2,050 Other Countries 900 Other 300 Associate Development .
Account managers make onsite calls to customers to provide product information, identify customer requirements, make recommendations, and assist in implementing equipment maintenance and storeroom management programs. Industry specialists assist with product applications in their areas of expertise. Service centers market product offerings with a suite of services that create additional value for the customer.
Customer sales and service representatives receive, process, and expedite customer orders, provide product information, and assist account managers in serving customers. Account managers make onsite calls to customers to provide product information, identify customer requirements, make recommendations, and assist in implementing equipment maintenance and storeroom management programs. Industry specialists assist with product applications in their areas of expertise.
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.
INDUSTRY AND COMPETITION We primarily compete within North America which we believe offers significant growth potential given our industry position, established distribution and sales network, market fragmentation, and customer technical requirements, as well as opportunities tied to greater demand for automation and smart technologies across the industrial sector.
We are expanding our position and capabilities focused on advanced factory automation and smart technologies that optimize and connect customers’ industrial supply chains. We believe we have a favorable position to capture this addressable market given our technical product focus, service capabilities, embedded customer relationships and knowledge across direct production infrastructure and equipment, and existing supplier relationships.
We believe we have a favorable position to capture 3 Table of Contents this addressable market given our technical product focus, service capabilities, embedded customer relationships and knowledge across direct production infrastructure and equipment, and existing supplier relationships.
Products primarily include industrial bearings, motors, belting, drives, couplings, pumps, linear motion products, hydraulic and pneumatic components, filtration supplies, and hoses, as well as other related supplies for general operational needs of customers’ machinery and equipment.
Products primarily include industrial bearings, motors, belting, drives, couplings, pumps, linear motion products, hydraulic and pneumatic components, filtration supplies, and hoses, as well as other related supplies for general operational needs of customers’ machinery and equipment. 5 Table of Contents Service center locations are stocked with product inventory tailored to each local market and staffed with customer sales and service representatives, and account managers, as well as product and industry specialists.
In addition, dedicated corporate teams and related support functions provide strategic oversight of critical work streams and integration execution, which we believe enhances our ability to capture synergistic value. Over the near to intermediate-term, our acquisition priorities are focused on continuing to expand our current offerings, while further enhancing our technical differentiation and value-added service capabilities.
In addition, dedicated corporate teams and related support functions provide strategic oversight of critical work streams and integration execution, which we believe enhances our ability to capture synergistic value.
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. 6 Table of Contents HUMAN CAPITAL We attribute our business success to talented, dedicated employee associates who live our Core Values of integrity, respect, customer focus, commitment to excellence, accountability, innovation, continuous improvement, and teamwork.
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.
During fiscal 2024, we also expanded our efforts to provide managers with the tools they need to help identify and provide resources on associate mental health needs. Compensation and Benefits . We seek to provide competitive compensation and benefits in order to help attract and retain high quality associates.
Our network of service centers located close to industrial companies allows us to respond quickly and effectively to critical MRO situations involving direct production infrastructure and industrial equipment. We believe more sophisticated industrial production processes and customer labor constraints, as well as increased industrial capacity and manufacturing activity across North America could drive greater demand for our products and services.
Our network of service centers located close to industrial companies allows us to respond quickly and effectively to critical MRO situations involving direct production infrastructure and industrial equipment. We believe our technical domain expertise and access to core industrial equipment across our customers' facilities puts us in a leading position to support their technical MRO and production requirements.
We continue to deploy initiatives to further enhance our capabilities across our service center network and gain market share.
These requirements are elevated industry-wide given aged industrial production assets, increased focus on energy efficient equipment, more sophisticated industrial production processes, customer labor constraints, and increased manufacturing activity across North America. In addition, we continue to deploy initiatives to further enhance our capabilities across our service center network and gain market share.
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We also remain focused on achieving margin synergies across our operations following expansion into flow control and automation. This includes enhanced pricing functions, leveraging vendor procurement, freight savings, and refined cost management.
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In addition, we believe reshoring and localization of supply chains, required infrastructure investments, and a greater focus on energy efficiency will be meaningful growth catalysts in years to come.
Removed
Service center locations are stocked with product inventory tailored to each local market and staffed with customer sales and service representatives, account managers, as well as product and industry specialists. Customer sales and service representatives receive, process, and expedite customer orders, provide product information, and assist account managers in serving customers.
Added
In addition, our flow control operations are benefiting from our customers' decarbonization and energy transition efforts in which we see a notable and sustainable long-term opportunity. This includes technical support for the configuration, assembly, and testing of process systems used for carbon capture utilization and storage, as well as producing alternative fuel sources.
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HUMAN CAPITAL We attribute our business success to talented, dedicated employee associates who live our Core Values of integrity, respect, customer focus, commitment to excellence, accountability, innovation, continuous improvement, and teamwork.
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We are expanding our position and capabilities focused on advanced factory automation and smart technologies that optimize and connect customers’ industrial supply chains.
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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.
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Through various acquisitions and internal initiatives, we have expanded the breadth of technical products and solutions we offer to customers. From flow control products supporting process maintenance to emerging robotic technologies addressing labor and safety initiatives at our customers’ facilities, the full suite of technical solutions we offer today is meaningful to our value proposition.
Added
We believe our expanded solutions portfolio, scale, and technical expertise is enhancing our cross-selling opportunity and share gain potential as customers continue to consolidate their spend with more capable distributors.
Added
Considering the embedded customer base across our legacy service center network, and addressable market of approximately $80 billion and growing, we believe our cross-selling initiative represents a significant long-term growth opportunity.
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This includes accelerating our ability to expand with strategic accounts and penetrate faster growing market verticals such as food & beverage, semiconductor, datacenters, life sciences, pharmaceutical, power generation, and alternative energy. • Execute ongoing operational initiatives supporting margin expansion . We have a number of initiatives focused on driving operational improvements throughout the organization.
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This includes enhanced pricing functions, leveraging vendor procurement, freight savings, and refined cost management. In addition, as our growth profile and operating efficiencies have strengthened, we are seeing a greater level of operating leverage through a cycle.
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Over the near to intermediate-term, our acquisition priorities are focused on continuing to expand our current offerings including the ongoing expansion of our Engineered Solutions segment, while further enhancing our technical differentiation and value-added service capabilities.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

31 edited+6 added−4 removed45 unchanged
Biggest changeIn 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.
Biggest changeAs of June 30, 2024, we had remaining $619.4 million of goodwill and $245.9 million of other intangible assets, net. We assess all existing goodwill at least annually for impairment on a reporting unit basis. The techniques used in our qualitative assessment and goodwill impairment tests incorporate a number of estimates and assumptions that are subject to change.
Risks can also change over time. Further, the disclosure of a risk should not be interpreted to imply that the risk has not already materialized. GENERAL ECONOMIC AND INDUSTRY RISKS Our business depends heavily on the operating levels of our customers and the factors that affect them, including general economic conditions.
Risks can also change over time. Further, the disclosure of a risk should not be interpreted to imply that the risk has not already materialized. ECONOMIC AND INDUSTRY RISKS Our business depends heavily on the operating levels of our customers and the factors that affect them, including general economic conditions.
Certain risks are identified below in Item 7 under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operations.” This information is incorporated here by reference. Additional risks not currently known to us, risks that could apply broadly to issuers, or risks that we currently deem immaterial, may also impact our business and operations.
Certain risks are identified below in Item 7 under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operations.” This information is incorporated here by reference. Additional risks not currently known to us, risks that could apply broadly to all issuers, or risks that we currently deem immaterial, may also impact our business and operations.
Our ability to realize anticipated benefits may be affected by a number of factors, including the following: our ability to achieve planned operating results, to reduce duplicative expenses and inventory effectively, and to consolidate facilities; economic and market factors; the incurrence of significant integration costs or charges in order to achieve those benefits; our ability to retain key product supplier authorizations, customer relationships, and employees; our ability to address competitive, distribution, and regulatory challenges arising from entering into new markets (geographic, product, service, end-industry, or otherwise), especially those in which we may have limited or no direct experience; and exposure to unknown or contingent liabilities of the acquired company.
Our ability to realize anticipated benefits may be affected by a number of factors, including the following: our ability to achieve planned operating results, to reduce duplicative expenses and inventory effectively, and to consolidate facilities; economic and market factors; the incurrence of significant integration costs or charges in order to achieve those benefits; our ability to retain key product supplier authorizations, customer relationships, and employees; our ability to address competitive, distribution, and regulatory challenges arising from entering into new markets (geographic, product, service, end-industry, or otherwise), especially those in which we may have limited or no direct experience; and exposure to unknown or contingent liabilities of the acquired 10 Table of Contents company.
Because of our reliance on information systems, we are vulnerable to the growing threat of damage or intrusion from computer viruses or other cyber-attacks, including ransomware and business e-mail compromise, on our systems.
We are vulnerable to the growing threat of damage or intrusion from computer viruses or other cyber-attacks, including ransomware and business e-mail compromise, on our information systems due to our reliance on our information systems.
We can experience downward pressure on sales prices as a result of deflation, pressure from customers to reduce costs, or increased competition. Our ability to transact business is highly reliant on information systems. A disruption or security breach could materially affect our business, financial condition, or results of operation.
We can experience downward pressure on sales prices as a result of deflation, pressure from customers to reduce costs, or increased competition. 9 Table of Contents Our ability to transact business is highly reliant on information systems. A disruption or security breach could materially affect our business, financial condition, or results of operation.
We depend on information systems to, among other things, process customer orders, manage inventory and accounts receivable collections, 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.
We depend on information systems to, among other things, process customer orders, manage inventory and accounts receivable collections, purchase products, manage accounts payable processes, ship products to customers on a timely basis, maintain cost-effective operations, provide superior service to customers, conduct business communications, and compile financial results.
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.
A pandemic, such as COVID-19, or other epidemic, together with preventative measures taken to contain or mitigate such crises, could impact our results of operations and financial condition in a variety of ways, such as: impact our customers such that the demand for our products and services could change; disrupt our supply chain and impact the ability of our suppliers to provide products as required; disrupt or limit our ability to sell and provide our products and services and otherwise limit our ability to operate or otherwise operate effectively; increase incremental costs resulting from the adoption of preventative measures and compliance with regulatory requirements; create financial hardship on customers, including by creating restrictions on their ability to pay for our services and products; result in closures of our facilities or the facilities of our customers or suppliers; and reduce customer demand on purchasing incentives we earn from suppliers.
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.
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.
However, substantial costs, delays, or other difficulties related to integrating acquisitions could adversely affect our business or financial results. For example, we could face significant challenges in consolidating functions, integrating information systems, personnel, and operations, and implementing procedures and controls in a timely and efficient manner.
We seek acquisition opportunities that complement and expand our operations; however, substantial costs, delays, or other difficulties related to integrating acquisitions could adversely affect our business or financial results. For example, we could face significant challenges in consolidating functions, integrating information systems, personnel, and operations, and implementing procedures and controls in a timely and efficient manner.
In addition, existing and future competitors, and private equity firms, increasingly compete with us for acquisitions, which can increase prices and reduce the number of suitable opportunities; the acquisitions they make can also adversely impact our market position. We seek acquisition opportunities that complement and expand our operations.
In addition, existing and future competitors, and private equity firms, increasingly compete with us for acquisitions, which can increase prices and reduce the number of suitable opportunities; the acquisitions they make can also adversely impact our market position.
The defense and ultimate outcome of lawsuits or other legal proceedings or inquiries may result in higher operating expenses, the inability to participate in existing or future government contacts, or other adverse consequences, which could have a material adverse effect on our business, financial condition, or results of operations. 12 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS. Not applicable.
The defense and ultimate outcome of lawsuits or other legal proceedings or inquiries may result in higher operating expenses, the inability to participate in existing or future government contacts, or other adverse consequences, which could have a material adverse effect on our business, financial condition, or results of operations.
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.
In addition, the increase in interest rates has created some tightening in the credit markets. If credit markets continue to tighten, or if it creates credit market volatility, obtaining additional or replacement financing could be more difficult and the cost of issuing new debt or replacing a credit facility could be higher than under our current facilities.
A serious, prolonged interruption due to power or telecommunications outage, security incident, terrorist attack, war, public health emergency, earthquake, extreme weather events, other natural disasters, fire, flood, transportation disruption, or other interruption could have a material adverse effect on our business and financial results.
A serious, prolonged interruption due to power or telecommunications outage, security incident, terrorist attack, war, public 12 Table of Contents health emergency, earthquake, extreme weather events, other natural disasters, fire, flood, transportation disruption, or other interruption could have a material adverse effect on our business and financial results. ITEM 1B. UNRESOLVED STAFF COMMENTS. Not applicable.
In addition, acquisitions could place significant demand on administrative, operational, and financial resources. An interruption of operations at our headquarters or distribution centers, or in our means of transporting product, could adversely impact our business. Our business depends on maintaining operating activity at our headquarters and distribution centers, and being able to receive and deliver product in a timely manner.
An interruption of operations at our headquarters or distribution centers, or in our means of transporting product, could adversely impact our business. Our business depends on maintaining operating activity at our headquarters and distribution centers, and being able to receive and deliver product in a timely manner.
Consolidation 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.
Consolidation continues among both our product suppliers as well as our customers. As customer industries consolidate or customers otherwise aggregate their purchasing power, a greater proportion of our sales could be derived from large volume contracts, which could adversely impact margins.
Despite precautions taken to prevent or mitigate the risks of such incidents, breaches of our systems could not only cause business disruption, but could also result in the theft of funds, the theft, loss, or disclosure of proprietary or confidential information, or the breach of customer, supplier, or employee information.
Breaches of our systems could not only cause business disruption, but could also result in the theft of funds, the theft, loss, or disclosure of proprietary or confidential information, or the breach of customer, supplier, or employee information.
Our success will also be affected by our ability to continue to provide competitive offerings as customer preferences or demands evolve, for example with respect to product and service types, brands, quality, or prices. Technological evolution or other factors can render product and service offerings obsolete, potentially impairing our competitive position and our inventory values.
Our success will also be affected by our ability to continue to provide competitive offerings as customer preferences or demands evolve, for example with respect to product and service types, brands, quality, or prices.
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 addition, acquisitions could place significant demand on administrative, operational, and financial resources. FINANCIAL AND REPORTING RISKS Our indebtedness entails debt service commitments that could adversely affect our ability to fulfill our obligations and could limit or reduce our flexibility. As of June 30, 2024, we had total debt obligations outstanding of $597.4 million.
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.
Global or regional health pandemics or epidemics could negatively impact our business, results of operation and financial condition. The COVID-19 pandemic created significant volatility, uncertainty, and economic disruption, and resulted in lost or delayed sales to us, and we experienced business disruptions as we modified our business practices.
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.
When we can find acceptable alternate sources for certain products, they may cost more. Impairment of our ability to meet customer demand could result in lost sales, increased costs, reduced profitability, and damage to our reputation. Consolidation in our customers' and suppliers' industries could adversely affect our business and financial results.
Consolidation 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.
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.
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.
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.
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 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.
GENERAL RISK FACTORS Our business depends on our ability to attract, develop, motivate, and retain qualified employees. Our success depends on hiring, developing, motivating, and retaining key employees, including executive, managerial, sales, professional, and other personnel. We may have difficulty identifying and hiring qualified personnel.
Our success depends on hiring, developing, motivating, and retaining key employees, including executive, managerial, sales, professional, and other personnel. We may have difficulty identifying and hiring qualified personnel. In addition, we may have difficulty retaining such personnel once hired, and key people may leave and compete against us.
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.
Similarly, continued consolidation among suppliers could reduce our ability to negotiate favorable pricing and other commercial terms for our inventory purchases and we may be unable to take advantage of consolidation trends. An increase in competition could decrease sales or earnings. We operate in a highly competitive industry. The industry remains fragmented, but is consolidating.
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.
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.
Additionally, any failure to comply with covenants in the instruments governing our debt could result in an event of default.
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.
These may, for example, relate to product liability claims, commercial disputes, personal injuries, or employment-related matters.
In addition, from time to time, we are involved in lawsuits or other legal proceedings that arise from our ordinary course business operations. These may, for example, relate to product liability claims, commercial disputes, personal injuries, or employment-related matters.
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.
Technological evolution or other factors can render product and service offerings obsolete, potentially impairing our competitive position and our inventory values. 8 Table of Contents Our operations outside the United States increase our exposure to global economic and political conditions and currency exchange volatility. Foreign operations contributed 12% of our sales in 2024.
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.
Any changes to these assumptions and estimates due to market conditions or otherwise may lead to an outcome where impairment charges would be required in future periods. 11 Table of Contents GENERAL RISK FACTORS Our business depends on our ability to attract, develop, motivate, and retain qualified employees.
Removed
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.
Added
These existing threats continue to grow and evolve, and any compromise of our information systems or those of businesses with which we interact, which results in regulated data or confidential information being accessed, obtained, damaged, disclosed, destroyed, modified, lost, or used by unauthorized persons could harm our reputation and expose us to regulatory actions, supplier or customer attrition, remediation expenses, and claims from customers, suppliers, employees, financial institutions, and other persons, any of which could materially affect our business, financial condition, or results of operations.
Removed
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.
Added
Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage information systems or data on such systems change frequently, and techniques used today may change tomorrow, we may be unable to anticipate these techniques or to implement adequate measures to prevent unauthorized access to our information systems.
Removed
The techniques used in our qualitative assessment and goodwill impairment tests incorporate a number of estimates and assumptions that are subject to change.
Added
Even if we detect a cybersecurity incident, the nature and extent of that cybersecurity incident may not be immediately clear. Based on the sophistication of the threat and the size and complexity of our information system, among other factors, an investigation into a cybersecurity incident could take a significant amount of time to complete.
Removed
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.
Added
In addition, while any investigation is ongoing, we may not know the full extent of the harm caused by the threat, and such harm may spread both internally and externally to other third parties. These factors may inhibit our ability to provide rapid, complete, and reliable information about cybersecurity incidents to third parties, as well as the public.
Added
It may also not be clear how best to contain and remediate any harm caused by a cybersecurity incident. Any or all of these factors could further increase the costs and consequences of a cybersecurity incident to our business, financial condition, and results of operations. Our information technology and enterprise risk management efforts cannot eliminate all systemic risk.
Added
The emergence, severity, magnitude and duration of global or regional pandemics, epidemics, or other health crises are uncertain and difficult to predict.

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, 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.
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, 2024: Location of Principal Owned Real Property Type of Facility Cleveland, Ohio Corporate headquarters Atlanta, Georgia Distribution center, service center, hose shop and reducer assembly shop Florence, Kentucky Distribution center, hose shop and reducer assembly shop Baldwinsville, New York Fluid power shop Carlisle, Pennsylvania Distribution center and hose shop Fort Worth, Texas Distribution center and rubber shop Our principal leased real properties (each of which has more than 50,000 square feet of floor space) at June 30, 2024 were: Location of Principal Leased Real Property Type of Facility Fontana, California Distribution center, rubber shop, fluid power shop, and service center Newark, California Fluid power shop Midland, Michigan Flow control shop Strongsville, Ohio Offices and warehouse Portland, Oregon Distribution center, hose shop and reducer assembly shop Stafford, Texas Offices, warehouse, and flow control shop Longview, Washington Service center, rubber shop, and fluid power shop Austin, Texas Fluid power shop Sherwood, Oregon Automation operation Nisku, Alberta Offices, service center, shop, and distribution center Saskatoon, Saskatchewan Distribution center, service center and shop The properties in Baldwinsville, Newark, Midland, and Stafford are used in our Engineered Solutions segment.
In addition to operating locations, we own or lease certain properties which in the aggregate are not material and are either for sale, lease, or sublease to third parties due to a relocation or closing. We also may lease or sublease to others unused portions of buildings. 13 Table of Contents
In addition to operating locations, we own or lease certain properties which in the aggregate are not material and are either for sale, lease, or sublease to third parties due to a relocation or closing. We also may lease or sublease to others unused portions of buildings. 14 Table of Contents
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.
ITEM 2. PROPERTIES. We believe having a local presence is important to serving our customers, so we maintain service centers and other operations in local markets throughout the countries in which we operate. At June 30, 2024, we owned real properties at 114 locations and leased 424 locations. Certain properties house more than one operation.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAlthough it is not possible to predict the outcome of these proceedings or the range of reasonably possible loss, we do not expect, based on circumstances currently known, that the ultimate resolution of any of these proceedings will have, either individually or in the aggregate, a material adverse effect on Applied's consolidated financial position, results of operations, or cash flows.
Biggest changeAlthough it is not possible to predict the outcome of these proceedings or the range of reasonably possible loss associated with any of them, we do not expect, based on circumstances currently known, that the ultimate resolution of any of these proceedings will have, either individually or in the aggregate, a material adverse effect on Applied's consolidated financial position, results of operations, or cash flows.
ITEM 3. LEGAL PROCEEDINGS. Applied and/or one of its subsidiaries is a party to pending legal proceedings with respect to product liability, commercial, personal injury, employment, and other matters.
ITEM 3. LEGAL PROCEEDINGS. Applied and/or one of its subsidiaries may be a party to pending legal proceedings with respect to product liability, commercial, personal injury, employment, and other matters.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeExcept 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.
Biggest changeExcept as otherwise stated, the positions and offices indicated are with Applied, and the persons were most recently elected to their current positions on October 24, 2023: Name Positions and Experience Age Neil A. Schrimsher President since 2013 and Chief Executive Officer since 2011. 60 Warren E. Hoffner Vice President, General Manager-Engineered Solutions since October 2018.
He served as Vice President, General Manager-Fluid Power from 2003 to October 2018. The Board of Directors designated Mr. Hoffner an executive officer in 2015. 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.
He served as Vice President, General Manager-Fluid Power from 2003 to October 2018. The Board of Directors designated Mr. Hoffner an executive officer in 2015. 64 Kurt W. Loring Vice President-Chief Human Resources Officer since 2014. 55 Jon S. Ploetz Vice President-General Counsel since March 2023. Prior to joining Applied, Mr.
Ploetz was Vice President, Assistant General Counsel & Assistant Corporate Secretary at Harsco Corporation (NYSE: HSC) from 2018 to 2023, and Assistant General Counsel, Corporate & Securities prior to that. 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.
Ploetz was Vice President, Assistant General Counsel & Assistant Corporate Secretary at Harsco Corporation (NYSE: HSC) from 2018 to 2023, and Assistant General Counsel, Corporate & Securities prior to that. 51 Jason W. Vasquez Vice President-Sales & Marketing, U.S. Service Centers since June 2017. 48 David K. Wells Vice President-Chief Financial Officer & Treasurer since September 2017.
He served as Vice President-Finance from May 2017 through August 2017. Prior to joining Applied, Mr. Wells was Vice President & Chief Financial Officer of ESAB, a manufacturer of welding and material cutting products and a division of Colfax Corporation (NYSE: CFX). 60 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). 61 15 Table of Contents PART II

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 ($) (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) April 1, 2023 to April 30, 2023 — — — 1,500,000 May 1, 2023 to May 31, 2023 — — — 1,500,000 June 1, 2023 to June 30, 2023 — — — 1,500,000 Total — — — 1,500,000 (1) On August 9, 2022, the Board of Directors authorized the repurchase of up to 1.5 million shares of the Company's common stock, replacing the prior authorization.
Biggest changePeriod (a) Total Number of Shares (b) Average Price Paid per Share ($) (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, 2024 to April 30, 2024 37,000 195.61 37,000 1,300,000 May 1, 2024 to May 31, 2024 — — — 1,300,000 June 1, 2024 to June 30, 2024 198,000 188.26 198,000 1,102,000 Total 235,000 189.42 235,000 1,102,000 (1) On August 9, 2022, the Board of Directors authorized the repurchase of up to 1.5 million shares of the Company's common stock, replacing the prior authorization.
The following table summarizes Applied's repurchases of its common stock in the quarter ended June 30, 2023.
The following table summarizes Applied's repurchases of its common stock in the quarter ended June 30, 2024.
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.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . Applied's common stock, without par value, is listed for trading on the New York Stock Exchange with the ticker symbol “AIT.” On August 2, 2024, there were 3,096 shareholders of record including 2,058 shareholders in the Applied Industrial Technologies, Inc. Retirement Savings Plan.
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
We publicly announced the new authorization on August 11, 2022. Purchases can be made in the open market or in privately negotiated transactions. The authorization is in effect until all shares have been purchased, or the Board revokes or amends the authorization. ITEM 6. RESERVED. 16 Table of Contents

Item 7. Management's Discussion & Analysis

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

71 edited+11 added−16 removed40 unchanged
Biggest changeBorrowings 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.
Biggest changeBorrowings under this agreement bear interest, at the Company's election, at either the base rate plus a margin that ranges from 0 to 55 basis points based on the net leverage ratio or SOFR plus a margin that ranges from 80 to 155 basis points based on the net leverage ratio. 21 Table of Contents Available borrowing under this facility, without exercising the accordion feature and net of outstanding letters of credit of $0.2 million to secure certain insurance obligations, totaled $515.8 million and $516.2 million at June 30, 2024 and June 30, 2023, respectively, and were available to fund future acquisitions or other capital and operating requirements.
The Business and Accounting Policies note to the consolidated financial statements describes the significant accounting policies and methods used in preparation of the consolidated financial statements. Estimates are used for, but not limited to, determining the net carrying value of trade accounts receivable, inventories, recording self-insurance liabilities and other accrued liabilities.
The Business and Accounting Policies note to the consolidated financial statements describes the significant accounting policies and methods used in preparation of the consolidated financial statements. Estimates are used for, but are not limited to, determining the net carrying value of trade accounts receivable, inventories, recording self-insurance liabilities and other accrued liabilities.
In May 2023, the Company and the administrative agent entered into an amendment to the credit facility to replace LIBOR as a reference rate available for use in the computation of interest and replace it with SOFR.
In May 2023, the Company and the administrative agent entered into an amendment to the credit facility to replace LIBOR with SOFR as a reference rate available for use in the computation of interest.
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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW With approximately 6,500 associates across North America, Australia, New Zealand, and Singapore, Applied Industrial Technologies, Inc. ("Applied," the "Company," "we," "us," or "our") is a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies.
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.
For the comparison of the years ended June 30, 2023 and 2022, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2023 Annual Report on Form 10-K. The following table is included to aid in review of Applied’s statements of consolidated income.
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.
Rates in effect as of June 30, 2024 are used for variable rate debt. Purchase orders for inventory and other goods and services are not included in our estimates as we are unable to aggregate the amount of such purchase orders that represent enforceable and legally binding agreements specifying all significant terms.
The previous table includes the gross liability for unrecognized income tax benefits including interest and penalties in the “Other” column as the Company is unable to make a reasonable estimate regarding the timing of cash settlements, if any, with the respective taxing authorities.
The previous table includes the gross liability for unrecognized income tax benefits including 23 Table of Contents interest and penalties in the “Other” column as the Company is unable to make a reasonable estimate regarding the timing of cash settlements, if any, with the respective taxing authorities.
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.
Goodwill on our consolidated financial statements relates to both the Service Center Based Distribution segment and the Engineered Solutions segment. The Company has eight (8) reporting units for which an annual goodwill impairment assessment was performed as of January 1, 2024.
In May 2023, the Company entered into an amendment to the AR Securitization facility to replace LIBOR as a reference rate available for use in the computation of interest and replace it with SOFR, therefore borrowings under this facility carry variable interest rates tied to SOFR.
In May 2023, the Company entered into an amendment to the AR Securitization facility to replace LIBOR with SOFR as a reference rate available for use in the computation of interest, therefore borrowings under this facility carry variable interest rates tied to SOFR.
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.
Availability is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable being transferred and, therefore, at certain times, we may not be able to fully access the $250.0 million of funding available under the AR Securitization Facility.
The judgments made in determining the estimated fair value assigned to each class of assets acquired, as well as the estimated life of each asset, can materially impact the net income of the periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future.
The judgments made in determining the estimated fair value assigned to each class of assets acquired, as well as the estimated life of each asset, can materially impact the net income of the 24 Table of Contents periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future.
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).
At June 30, 2024, the most restrictive of these covenants required that the Company have net indebtedness less than 3.75 times consolidated income before interest, taxes, depreciation and amortization (as defined). At June 30, 2024, the Company's net indebtedness was less than 0.3 times consolidated income before interest, taxes, depreciation and amortization (as defined).
The 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.
The approximate number of Company employees was 6,500 at June 30, 2024 and 6,200 at June 30, 2023. LIQUIDITY AND CAPITAL RESOURCES Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of debt.
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.
Operating income as a percentage of sales for the Engineered Solutions segment increased to 14.5% in fiscal 2024 from 14.1% in fiscal 2023. 19 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.
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.
Current year income primarily consists of unrealized gains on investments held by non-qualified deferred compensation trusts of $3.3 million, foreign currency transaction gains of $1.1 million and life insurance income of $0.9 million, offset by other periodic post-employment costs of $0.1 million and other expense of $0.1 million.
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”).
Additionally, the Company had letters of credit outstanding with separate banks, not associated with the revolving credit agreement, in the amount of $4.0 million as of June 30, 2024 and June 30, 2023 in order to secure certain insurance obligations. In August 2018, the Company established a trade receivable securitization facility (the “AR Securitization Facility”).
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.
As of June 30, 2024 and 2023, the Company's reserve for slow-moving or obsolete inventories was $41.2 million and $42.6 million, respectively, recorded in inventories in the consolidated balance sheets. Allowances for Doubtful Accounts We evaluate the collectability of trade accounts receivable based on a combination of factors.
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.
As of June 30, 2024 and 2023, our allowance for doubtful accounts was 1.8% and 3.1% of gross receivables, respectively. Our (recoveries of) provision for losses on accounts receivable was $(0.2) million, $5.6 million, and $3.2 million in fiscal 2024, 2023, and 2022, respectively.
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.
Approximately 1.5% of our accounts receivable balances are more than 90 days past due at June 30, 2024 compared to 2.5% at June 30, 2023. On an overall basis, our provision for losses from uncollected receivables represents 0.00% of our sales for the year ended June 30, 2024, compared to 0.13% of sales for the year ended June 30, 2023.
The 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 current ratio was 3.5 to 1 at June 30, 2024 and 3.0 to 1 at June 30, 2023. Net Cash Flows The following table is included to aid in review of Applied’s statements of consolidated cash flows.
Amounts in 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.
Amounts in millions Amount of change due to Year ended June 30, SD&A Increase Acquisitions Foreign Currency Organic Change 2024 2023 SD&A $ 840.8 $ 813.8 $ 27.0 $ 16.7 $ 0.7 $ 9.6 SD&A consists of associate compensation, benefits and other expenses associated with selling, purchasing, warehousing, supply chain management, and marketing and distribution of the Company’s products, as well as costs associated with a variety of administrative functions such as human resources, information technology, treasury, accounting, insurance, legal, facility-related expenses and expenses incurred in acquiring businesses.
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.
The index readings for the months during the most recent quarter, along with the revised indices for previous quarter ends, were as follows: Index Reading Month MCU PMI IP June 2024 78.8 48.5 100.3 May 2024 78.3 48.7 99.9 April 2024 77.7 49.2 98.9 March 2024 77.8 50.3 99.4 December 2023 78.1 47.1 99.2 September 2023 78.9 48.6 99.6 June 2023 78.6 46.4 99.2 17 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, 2024 and 2023.
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.
Management also believes that additional long-term debt and line of credit financing could be obtained on commercially acceptable terms if necessary based on the Company’s credit standing and financial strength. The Company’s working capital at June 30, 2024 was $1,268.8 million compared to $1,106.5 million at June 30, 2023.
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.
Approximately 14.9% of our domestic inventory dollars relate to LIFO layers added in the 1970s. The excess of average cost over LIFO cost is $225.9 million as reflected in our consolidated balance sheet at June 30, 2024.
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.
Borrowing Arrangements A summary of long-term debt, including the current portion, follows (amounts are in thousands): June 30, 2024 2023 Revolving credit facility $ 384,000 $ 383,592 Trade receivable securitization facility 188,300 188,300 Series D Notes — 25,000 Series E Notes 25,000 25,000 Other 105 356 Total debt $ 597,405 $ 622,248 Less: unamortized debt issuance costs 71 152 $ 597,334 $ 622,096 In December 2021, the Company entered into a five-year revolving credit facility with a group of banks to refinance the existing credit facility as well as provide funds for ongoing working capital and other general corporate purposes.
At June 30, 2023, business was conducted in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, and Singapore from approximately 580 facilities.
At June 30, 2024, business was conducted in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, Singapore, and Costa Rica from approximately 590 facilities.
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.
Operating income, as a percentage of sales for the Service Center Based Distribution segment increased to 13.1% in fiscal 2024 from 12.6% in fiscal 2023.
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.
Diluted net income per share was $9.83 per share for fiscal 2024 compared to $8.84 per share for fiscal 2023. At June 30, 2024, we had approximately 590 operating facilities in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, Singapore, and Costa Rica, versus 580 at June 30, 2023.
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%.
Year Ended June 30, As a % of Net Sales Change in $'s Versus Prior Period 2024 2023 % Change Net Sales 100.0 % 100.0 % 1.5 % Gross Profit Margin 29.8 % 29.2 % 3.9 % Selling, Distribution & Administrative Expense 18.8 % 18.4 % 3.3 % Operating Income 11.1 % 10.7 % 4.8 % Net Income 8.6 % 7.9 % 11.3 % Sales in fiscal 2024 were $4.5 billion, which was $66.6 million or 1.5% above the prior year, with sales from acquisitions adding $56.4 million or 1.3% and favorable foreign currency translation accounting for an increase of $6.6 million or 0.2%.
The interest rate on the revolving credit facility was 6.11% and 2.81% as of June 30, 2023 and June 30, 2022, respectively.
The interest rate on the revolving credit facility was 6.24% and 6.11% as of June 30, 2024 and June 30, 2023, respectively.
SD&A increased $64.7 million or 8.6% during fiscal 2023 compared to the prior year, and as a percentage of sales decreased to 18.4% in fiscal 2023 compared to 19.7% in fiscal 2022. Changes in foreign currency exchange rates had the effect of decreasing SD&A by $4.3 million or 0.6% compared to the prior year.
SD&A increased $27.0 million or 3.3% during fiscal 2024 compared to the prior year, and as a percentage of sales increased to 18.8% in fiscal 2024 compared to 18.4% in fiscal 2023. Changes in foreign currency exchange rates had the effect of increasing SD&A by $0.7 million or 0.1% compared to the prior year.
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.
These purchases may be made in open market or through negotiated transactions, from time to time, depending upon market conditions. At June 30, 2024, we had remaining authorization to purchase an additional 1,102,000 shares. In fiscal 2024, we purchased 398,000 shares of the Company's common stock at an average price per share of $184.39.
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.
Capital Expenditures We expect capital expenditures for fiscal 2025 to be in the $28.0 million to $30.0 million range, primarily consisting of capital associated with focused investments for growth and information technology equipment maintenance. Share Repurchases The Board of Directors has authorized the repurchase of shares of the Company’s common stock.
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.
In fiscal 2023, we repurchased 8,000 shares of the Company's common stock at an average price per share of $89.46. In fiscal 2022,we repurchased 148,658 shares of the Company's common stock at an average price per share of $92.72.
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.
SD&A from businesses acquired added $16.7 million or 2.0%, including $1.8 million of intangibles amortization. Excluding the impact of businesses acquired and the unfavorable impact from foreign currency translation, SD&A increased $9.6 million or 1.2% during fiscal 2024 compared to fiscal 2023.
At June 30, 2023 we had total debt obligations outstanding of $622.2 million compared to $689.5 million at June 30, 2022.
At June 30, 2024 we had total debt obligations outstanding of $597.4 million compared to $622.2 million at June 30, 2023.
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.
The current ratio was 3.5 to 1 and 3.0 to 1 at June 30, 2024 and at June 30, 2023, respectively. Applied monitors several economic indices that have been key indicators for industrial economic activity in the United States.
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.
Management monitors accounts receivable by reviewing Days Sales Outstanding (DSO) and the aging of receivables for each of the Company's locations. On a consolidated basis, DSO was 56.2 at June 30, 2024 versus 55.1 at June 30, 2023.
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%.
Amounts in millions Amount of change due to Year ended June 30, Sales Increase (Decrease) Acquisitions Foreign Currency Organic Change Sales by Reportable Segment 2024 2023 Service Center Based Distribution 3,056.5 $ 2,966.8 $ 89.7 $ 36.4 $ 6.6 $ 46.7 Engineered Solutions 1,422.9 1,446.0 (23.1) 20.0 — (43.1) Total $ 4,479.4 $ 4,412.8 $ 66.6 $ 56.4 $ 6.6 $ 3.6 Sales in our Service Center Based Distribution segment, which operates primarily in MRO markets, increased $89.7 million, or 3.0%.
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.
Allowances for Slow-Moving and Obsolete Inventories We evaluate the recoverability of our slow-moving and inactive inventories at least quarterly. We estimate the recoverable cost of such inventory by product type while considering factors such as its age, historic and current demand trends, and the physical condition of the inventory, as well as assumptions regarding future demand.
Fees on this facility range from 0.25% to 1.25% per year based on the Company's leverage ratio at each quarter end. The remaining principal balance on the "Series C" notes of the $40.0 million was paid in July 2022 .
Fees on this facility range from 0.25% to 1.25% per year based on the Company's leverage ratio at each quarter end. The "Series D" notes carried a fixed interest rate of 3.21%, and the remaining principal balance of $25.0 million was paid in October 2023.
The increase in the effective tax rate is due to changes in compensation-related deductions in fiscal 2023 compared to the prior year. As a result of the factors discussed above, net income for fiscal 2023 increased $89.3 million from the prior year.
The effective income tax rate was 22.6% for fiscal 2024 compared to 22.9% for fiscal 2023. The decrease in the effective tax rate is primarily due to changes in compensation-related deductions in fiscal 2024 compared to the prior year. As a result o f the factors discussed above, net income for fiscal 2024 increased $39.0 million from the prior year.
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.
T he Company was in compliance with all financial covenants at June 30, 2024. 22 Table of Contents Accounts Receivable Analysis The following table is included to aid in analysis of accounts receivable and the associated provision for losses on accounts receivable (all dollar amounts are in thousands): June 30, 2024 2023 Accounts receivable, gross $ 737,941 $ 730,729 Allowance for doubtful accounts 13,063 22,334 Accounts receivable, net $ 724,878 $ 708,395 Allowance for doubtful accounts, % of gross receivables 1.8 % 3.1 % Year Ended June 30, 2024 2023 (Recoveries of) provision for losses on accounts receivable $ (205) $ 5,619 Provision as a % of net sales — % 0.13 % Accounts receivable are reported at net realizable value and consist of trade receivables from customers.
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 (Decrease) Acquisitions Foreign Currency Organic Change Sales by Geographic Area 2024 2023 United States $ 3,932.2 $ 3,860.4 $ 71.8 $ 50.0 $ — $ 21.8 Canada 310.2 315.5 (5.3) — (3.7) (1.6) Other Countries 237.0 236.9 0.1 6.4 10.3 (16.6) Total $ 4,479.4 $ 4,412.8 $ 66.6 $ 56.4 $ 6.6 $ 3.6 Sal es in our U.S. operations increased $71.8 million or 1.9%, with acquisitions adding $50.0 million or 1.3%.
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.
The 1.50% fixed interest rate note is held by the State of Ohio Development Services Agency and matures in November 2024. In 2019, the Company entered into an interest rate swap which mitigates variability in forecasted interest payments on $384.0 million of the Company’s U.S. dollar-denominated unsecured variable rate debt.
The Company maintains five LIFO pools based on the following product groupings: bearings, power transmission products, rubber products, fluid power products and other products. LIFO layers and/or liquidations are determined consistently year-to-year.
The Company 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.
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.
Amounts in thousands Year Ended June 30, 2024 2023 Net Cash Provided by (Used in): Operating Activities $ 371,393 $ 343,966 Investing Activities (95,407) (60,833) Financing Activities (156,468) (126,888) Exchange Rate Effect (2,937) 3,317 Increase in Cash and Cash Equivalents $ 116,581 $ 159,562 20 Table of Contents The increase in cash provided by operating activities during fiscal 2024 is driven by changes in working capital for the year and by improved operating results.
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.
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.
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.
The interest rate on the AR Securitization Facility as of June 30, 2024 and June 30, 2023 was 6.35% and 6.16%, respectively. At June 30, 2024 and June 30, 2023, the Company had borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management of $25.0 million and $50.0 million, respectively.
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%.
Excluding the impact of businesses acquired, U.S. sales were up $21.8 million or 0.6%, driven by an increase of 1.0% from operations offset by a 0.4% decrease due to the change in sales days. Sales from our Canadian operations decreased $5.3 million or 1.7%. Unfavorable foreign currency translation decreased Canadian sales by $3.7 million or 1.2%.
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.
Fiscal 2023 expense consisted primarily of foreign currency transaction loss of $3.3 million and other periodic post-employment costs of $1.5 million, offset by unrealized gains on investments held by non-qualified deferred compensation trusts of $2.2 million, life insurance income of $0.7 million and $0.2 million of other income.
The 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.
Based on the assessment performed, the Company concluded that the fair value of all of the reporting units exceeded their carrying amount as of January 1, 2024, therefore no impairment exists. The fair values of the reporting units in accordance with the goodwill impairment test were determined using the income and market approaches.
Operating income increased $115.3 million, or 32.2%, to $473.2 million during fiscal 2023 from $357.9 million during fiscal 2022, and as a percentage of sales, increased to 10.7% from 9.4%, primarily due to gross profit margin expansion, volume leverage, and control of SD&A expense in fiscal 2023.
Operating income increased $22.7 million, or 4.8% , to $495.8 million during fiscal 2024 from $473.2 million during fiscal 2023, and as a percentage of sales, increased to 11.1% from 10.7%, primarily due to gross profit margin expansion, inclusive of lower LIFO expense, volume leverage within our Service Center Based Distribution segment, and control of SD&A expense in f iscal 2024.
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.
Changes in cash flows between years related to working capital were driven by (amounts in thousands): Accounts receivable $ 49,134 Inventory $ 61,364 Accounts payable $ (76,954) Net cash used in investing activities in fiscal 2024 included $72.1 million used for the acquisitions of Kopar, BDI and Cangro and $24.9 million used for capital expenditures.
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.
Our diluted earnings per share was $9.83 in fiscal 2024 versus $8.84 in fiscal 2023. Shareholders’ equity was $1,688.8 million at June 30, 2024 compared to $1,458.4 million at June 30, 2023. Working capital increased $162.3 million from June 30, 2023 to $1,268.8 million at June 30, 2024.
The increase in dividends over the year is the result of regular increases in our dividend payout rates. We paid dividends of $1.38 and $1.34 per share in fiscal 2023 and 2022, respectively.
Further uses of cash in 2023 were $53.4 million for dividend payments and $12.9 million used to pay taxes for shares withheld. The increase in dividends over the year is the result of regular increases in our dividend payout rates. We paid aggregate dividends of $1.44 and $1.38 per share in fiscal 2024 and 2023, respectively.
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.
Other (income) expense, net, represents certain non-operating items of income and expense, and was $5.1 million of income in fiscal 2024 compared to $1.7 million of expense in fiscal 2023.
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.
When manufacturing plants are running at a high rate of capacity, they tend to wear out machinery and require replacement parts. The MCU (total industry) and IP indices increased since June 2023. The ISM PMI registered 48.5 in June 2024, an increase from the June 2023 revised reading of 46.4. A reading above 50 generally indicates expansion.
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.
Inventory Analysis Inventories are valued using the last-in, first-out (LIFO) method for U.S. inventories and the average cost method for foreign inventories. Management uses an inventory turnover ratio to monitor and evaluate inventory. Management calculates this ratio on an annual as well as a quarterly basis and uses inventory valued at average costs.
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, 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.
CONTRACTUAL OBLIGATIONS The following table shows the approximate value of the Company’s contractual obligations and other commitments to make future payments as of June 30, 2024 (in thousands): Total Period Less Than 1 yr Period 2-3 yrs Period 4-5 yrs Period Over 5 yrs Other Operating leases $ 155,947 $ 38,617 $ 60,200 $ 33,674 $ 23,456 $ — Planned funding of post-retirement obligations 4,900 1,340 1,570 400 1,590 — Unrecognized income tax benefit liabilities, including interest and penalties 4,500 — — — — 4,500 Long-term debt obligations 597,405 25,105 572,300 — — — Interest on long-term debt obligations (1) 62,200 21,700 40,500 — — — Acquisition holdback payments 2,855 1,273 1,582 — — — Total Contractual Cash Obligations $ 827,807 $ 88,035 $ 676,152 $ 34,074 $ 25,046 $ 4,500 (1) Amounts represent estimated contractual interest payments on outstanding long-term debt obligations net of receipts under the terms of the interest rate swap.
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%.
The decrease primarily relates to provisions recorded in the prior year for customer credit deterioration and bankruptcies primarily in the U.S. operations of the Service Center Based Distribution segment, as well as improved collections performance. Historically, this percentage is around 0.10% to 0.15%. Management believes the overall receivables aging and provision for losses on uncollected receivables are at reasonable levels.
Further, continued adverse market conditions could result in the recognition of additional impairment if the Company determines that the fair values of its reporting units have fallen below their carrying values.
Further, continued adverse market conditions could result in the recognition of additional impairment if the Company determines that the fair values of its reporting units have fallen below their carrying values. 25 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.
Additionally, excluding the impact of acquisitions, occupancy costs increased $5.3 million during 2023, primarily driven by increased building lease costs. All other expenses within SD&A were up $5.3 million.
Excluding the impact of acquisitions, total compensation increased $4.3 million during fiscal 2024 primarily due to annual calendar year merit increases and benefit costs partially offset by lower incentives and commission expense. All other expenses within SD&A were up $5.3 million.
Our fiscal 2023 consolidated sales were $4.4 billion, an increase of $602.1 million or 15.8% compared to the prior year, with the acquisitions of R.R. Floody Company (Floody), Automation, Inc. and Advanced Motion Systems, Inc. (AMS) increasing sales by $20.0 million or 0.5% and unfavorable foreign currency translation of $16.3 million decreasing sales by 0.4%.
Our fiscal 2024 consolidated sales were $4.5 billion, an increase of $66.6 million or 1.5% compared to the prior year, with the acquisitions of Grupo Kopar (Kopar), Bearing Distributors, Inc. (BDI), Cangro Industries, Inc. (Cangro), Advanced Motion Systems Inc.
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%.
This was partially offset by a 0.4% decrease due to the change in sales days. Sales in our Engineered Solutions segment decreased $23.1 million or 1.6%. Acquisitions within this segment increased sales $20.0 million or 1.4%.
Excluding the impact of 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.
Favorable foreign currency translation increased other countries sales by $10.3 million or 4.4%. Exc luding the impact of businesses acquired and foreign currency translation, other countries sales were down $16.6 million or 7.0%, driven by a decrease from operations, primarily in Mexican sales due to decreased industrial activity.
Consolidated sales from our other countries operations increased $17.5 million or 8.0% compared to the prior year. Unfavorable foreign currency translation decreased other countries sales by $0.3 million or 0.1%.
Excluding the impact of foreign currency translation, Canadian sales were down $1.6 million or 0.5%, driven by a 0.4% decrease due to the change in sales days along with a decrease of 0.1% from operations. Consolidated sales from our other countries operations increased $0.1 million or 0.1%, with acquisitions adding $6.4 million or 2.7%.
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.
Excluding the impact of foreign currency tr anslation, sales increased $46.7 million or 1.6% during the year, driven by an increase of 2.0% from operations reflecting positive demand for technical MRO products and solutions, internal sales initiatives, price increases, cross-selling benefits, and new growth opportunities arising from our industry position.
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.
This was offset by the change in net debt activity, as there was $24.8 million of net debt payments in fiscal 2024 compared to $67.2 million of net debt payments in 2023. Further uses of cash in 2024 were $55.9 million for dividend payments and $16.3 million used to pay taxes for shares withheld.
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.
There were 251.5 selling days in fiscal 2024 and 252.5 selling days in 2023. Excluding the impact of businesses acquired and foreign currency translation, sales we re up $3.6 million durin g the year.
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.
Our gross profit margin increased to 29.8% in fiscal 2024 compared to 29.2% in fiscal 2023. The year over year increase primarily reflects benefits from ongoing margin initiatives, countermeasures in response to inflation dynamics, as well as a $21.2 million decrease in LIFO expense over the prior year, which positively impacted gross margins by 47 basis poi nts.
Removed
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.
Added
(AMS), and Automation, Inc. increasing sales by $56.4 million or 1.3% and favorable foreign currency translation of $6.6 million increasing sales by 0.2%. Gross profit margin increased to 29.8% for fiscal 2024 from 29.2% for fiscal 2023. Operating margin increased to 11.1% in fiscal 2024 from 10.7% in fiscal 2023.
Removed
Excluding the impact of businesses acquired, sales increased $180.9 million or 14.5%, reflecting positive underlying segment demand and driven by expanding technical and engineering capabilities, diverse end-market mix, and cross-selling initiatives, partially offset by slower order activity across the technology sector and ongoing supply chain constraints. 18 Table of Contents The following table shows changes in sales by geographical area.
Added
The modest increase over the prior year was driven by our Service Center Based Distribution segment reflecting positive demand for technical MRO products and solutions, internal sales initiatives, and price increases. This was offset by normalizing end-market demand as the year progressed, sales declines across our Engineered Solutions segment, and a decrease due to the change in sales days.
Removed
Other countries include Mexico, Australia, New Zealand, and Singapore.
Added
Acquisitions within this segment increased sales by $36.4 million or 1.2% and favorable foreign currency translation increased sales by $6.6 million or 0.2%.
Removed
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).
Added
Excluding the impact of businesses acquired, sales decreased $43.1 million or 3.0%, driven by a 2.6% decline from operations primarily reflecting lower fluid power sales and, to a lesser extent, softer sales across our automation operations, as well as a decrease of 0.4% due to the change in sales days.
Removed
Excluding the impact of acquisitions, total compensation increased $47.3 million during fiscal 2023, as a result of annual calendar year merit increases and an increase in employee incentive compensation correlating with the improved company performance.

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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, 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%.
Biggest changeDuring the course of the fiscal year, the Canadian and Mexican currency exchange rates decreased in relation to the U.S. dollar by 3.2% and 6.8%, respectively, while the Australian and New Zealand currency exchange rates increased in relation to the U.S. dollar by 0.6% and 0.2%, respectively.
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.
Transaction gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized in the statements of consolidated income as a component of other (income) expense, net. Applied does not currently hedge the net investments in our foreign operations.
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 January 2019, the Company entered into an interest rate swap on $463.0 million of the Company’s U.S. dollar-denominated unsecured variable rate debt. The notional amount of the interest rate swap was $384.0 million as of June 30, 2024. The interest rate swap effectively converts a portion of the floating rate interest payment into a fixed rate interest payment.
The Company designated the interest rate swap as a pay-fixed, receive-floating interest rate swap instrument and is accounting for this derivative as a cash flow hedge. Fixed interest rate debt facilities include $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.
The Company designated the interest rate swap as a pay-fixed, receive-floating interest rate swap instrument and is accounting for this derivative as a cash flow hedge. Fixed interest rate debt facilities include $25.0 million outstanding under our unsecured shelf facility agreement, as well as $0.1 million of assumed debt from the purchase of our headquarters facility.
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.
Including the impact of the interest rate swap, the impact of a hypothetical 1.0% increase in the variable interest rate would have resulted in a $1.9 million increase in interest expense.
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.
Our variable interest rate debt facilities outstanding include our five-year credit facility, which provides for a revolving credit facility with a capacity of up to $900.0 million in borrowings with $384.0 million outstanding at June 30, 2024, and a $188.3 million trade receivable securitization facility, all of which was outstanding at June 30, 2024.
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.
Foreign Currency Exchange Rate Risk Because we operate throughout North America, Australia and New Zealand and approximately 12% of our fiscal 2024 net sales were generated outside the United States, foreign currency exchange rates can impact our financial position, results of operations, and competitive position.
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.
A 10% strengthening of the U.S. dollar relative to foreign currencies that affect the Company from the levels experienced during the year ended June 30, 2024 would have resulted in a $3.2 million decrease in net income for the year ended June 30, 2024.
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 had total average variable interest rate bank borrowings of $ 572.0 million during fiscal 2024. The impact of a hypothetical 1.0% increase in the interest rates on our average variable interest rate bank borrowings (not considering the impact of the interest rate swap) would have resulted in a $ 5.7 million increase in interest expense.
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.
In the twelve months ended June 30, 2024, we experienced net foreign currency translation losses totaling $12.5 million, which were included in other comprehensive income. We utilize a sensitivity analysis to measure the potential impact on earnings based on a hypothetical 10% change in foreign currency rates.

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