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What changed in APPLIED INDUSTRIAL TECHNOLOGIES INC's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of APPLIED INDUSTRIAL TECHNOLOGIES INC's 2024 and 2025 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 2025 report.

+268 added−247 removedSource: 10-K (2025-08-15) vs 10-K (2024-08-16)

Top changes in APPLIED INDUSTRIAL TECHNOLOGIES INC's 2025 10-K

268 paragraphs added · 247 removed · 211 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

51 edited+25 added−16 removed18 unchanged
Biggest changeWhile 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.
Biggest changeWhile we compete with other distributors and service providers offering products and solutions addressing the industrial supply chain, we believe our industry position and value proposition benefits from relative advantages tied to the following key attributes: 1) Deep technical expertise in providing solutions to critical motion control systems and related service offerings 2) Leading positions in engineered fluid power and flow control solutions 3) Advanced capabilities and an established footprint across advanced automation solutions 4) Broad in-stock product offering, local inventory availability, and repair capabilities 5) Extensive technical knowledge and domain expertise of our customers' facility and production equipment 6) Tenured relationships with industrial customers and leading suppliers 7) Scale and proximity of our operations relative to customer facilities 8) Local entrepreneurial culture and continuous improvement focus 2 Table of Contents 9) Complementary offerings including indirect consumable supply inventory management 10) Talent acquisition and development of technical sales associates, engineers, and service personnel 11) Business systems and distribution capabilities 12) Strong financial liquidity and access to capital Across our Company, 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, equipment, and production processes.
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.
The following documents are available free of charge 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 flow control products and services are focused on MRO related applications; OEMs; and engineering, procurement, and construction (EPC) firms across a variety of industries including chemicals, steel, power, oil and gas, pulp and paper, life sciences, pharmaceuticals, food and beverage, and general industrials.
Our flow control products and services are focused on MRO related applications; OEMs; and engineering, procurement, and construction (EPC) firms across a variety of industries including chemicals, steel, power, oil and gas, pulp and paper, life sciences, pharmaceuticals, food and beverage, technology, and general industrials.
Our specialty flow control operations provide highly engineered process flow control products, solutions, and services. Products include pumps, valves, fittings, hoses, process instrumentation, actuators, and filtration supplies which are used to control the flow of liquids and gases in mission-critical industrial applications.
Our specialty flow control operations provide highly engineered process flow control products, solutions, and services. Products include pumps, valves, fittings, hoses, process instrumentation, actuators, motors, and filtration supplies which are used to control the flow of liquids and gases in mission-critical industrial applications.
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.
Considering the embedded customer base across our legacy service center network, and an addressable market of approximately $80 billion and growing, we believe our cross-selling initiative represents a significant long-term growth opportunity.
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.
Service Center . Our Service Center segment includes our MRO-focused 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 production equipment and motion control infrastructure.
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.
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 carrier and courier services. Customers may also pick up items at our service centers.
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.
MARKETS SERVED We purchase from thousands of product manufacturers and resell the products to thousands of customers in a wide variety of industries, including food processing, aggregates, 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.
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.
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, cylinder rebuilds, hose assembly, customized filtration solutions, software programming and repair, hydraulic system retrofits, and integration of autonomous and electrification features.
Products and solutions are marketed across a variety of industries including technology, medical, life sciences, biotechnology, data centers, food and beverage, logistics, consumer, and general industrial. Our automation business helps customers develop, produce, and integrate machine and facility automation solutions using comprehensive technology and application knowledge.
Products and solutions are marketed across a variety of industries including technology, medical, life sciences, biotechnology, automotive, data centers, food and beverage, logistics, consumer packaging, metalworking, and general industrial. Our automation business helps customers develop, produce, and integrate machine and facility automation solutions using comprehensive technology and application knowledge.
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.
Customers range from very large businesses, with which we may have multiple-location relationships, to small local businesses. 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 2025 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. 7 Table of Contents
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.
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.
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. • Margin Expansion Focus . We have a number of initiatives focused on driving operational improvements throughout the organization.
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.
In the United States, 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.
GENERAL DEVELOPMENT OF BUSINESS Information regarding developments in our business can be found in Item 7 under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operations.” This information is incorporated here by reference.
GENERAL DEVELOPMENT OF BUSINESS Information regarding current developments in our business can be found in Item 7 of this Annual Report under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operations.” This information is incorporated here by reference.
Our fluid power products and solutions are commonly used for off-highway equipment, heavy industrial equipment and machines at factories, marine and offshore equipment, factory automation, food processing equipment, packaging operations, and downstream energy process systems.
Our fluid power products and solutions are commonly used for off-highway mobile equipment, stationary industrial equipment and machines at factories, marine and offshore equipment, factory automation, food processing equipment, packaging operations, and downstream energy process systems.
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.
INDUSTRY POSITION AND VALUE PROPOSITION We serve a segment of the industrial market that requires technical expertise and service as our products and solutions are directly tied to companies’ production process, efficiency initiatives, and most critical operating assets.
In particular, sales per day during the first half of our fiscal year have historically been slightly lower than the second half due, in part, to the impact of customer plant shutdowns, summer vacations and holidays.
Sales per day during the first half of our fiscal year are historically slightly lower than in the second half due, in part, to the impact of customer plant shutdowns, summer vacations and holidays.
We maintain product inventory levels at each service center tailored to the local market. These inventories consist of standard items as well as other items specific to local customer demand. Our operations are primarily based in the U.S. where 88% of our fiscal 2024 sales were generated.
We 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 United States where 88% of our fiscal 2025 sales were generated.
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.
Through our comprehensive network of approximately 6,800 employee associates and approximately 600 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 9.2 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, as well as general maintenance products.
Demand for these solutions is increasing across a variety of industrial, off-highway mobile, technology, and process related applications given a greater focus on power consumption, plant efficiency and automation, emissions control, electrification, remote monitoring, advancements in machining, regulatory and compliance standards, and data analytics.
Demand for these solutions is increasing across a variety of industrial, off-highway mobile, technology, and process 3 Table of Contents related applications as a result of greater focus on power consumption, plant efficiency and automation, emissions control, remote monitoring, advancements in machining, regulatory and compliance standards, and data analytics.
Similar to our fluid power operations, our flow control offering includes technical service capabilities such as flow control systems integration, repair services, valve actuation, process instrumentation, pipe and hose fabrication, and compliance consulting.
Similar to our fluid power operations, our flow control offering includes technical service capabilities such as flow control systems integration, pump repair services, valve actuation, skid-mounted assembly, kitting, process instrumentation, parts fabrication, and compliance consulting.
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 .
At June 30, 2025, we had approximately 6,800 associates across seven countries, with geographic and segment counts as follows: Country Associates Segment Associates United States 5,250 Service Center 4,050 Canada 650 Engineered Solutions 2,450 Other Countries 900 Other 300 Associate Recruitment, Development, and Retention .
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.
Our customers use our products and services for both MRO (maintenance, repair, and operating), OEM (original equipment manufacturing), and new system install applications across a variety of end markets primarily in North America, as well as Australia, New Zealand, and Singapore. Our internet address is www.applied.com.
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.
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.
Systems investments in recent years including common enterprise resource planning platforms are supporting opportunities in leveraging shared services, refining our sales management process, and standardizing pricing and sourcing functions, while we continue to optimize our shop and distribution network and analytics. We also remain focused on achieving margin synergies across our operations following expansion into flow control and automation.
Systems investments in recent years including common enterprise resource planning platforms are supporting opportunities in leveraging shared services, refining our sales management process, and standardizing pricing and sourcing functions, while we continue to optimize our shop and distribution network and analytics.
By providing high levels of service, product and industry expertise, and technical support, while at the same time offering product breadth and competitive pricing, we believe we develop stronger, longer-lasting, and more profitable customer relationships. See the Reportable Segments section below for more detail on the various service solutions we provide to customers.
By providing high levels of service, product and industry expertise, and technical support, while at the same time offering product breadth and competitive pricing, we believe we develop stronger, longer-lasting, and more profitable customer relationships.
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.
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 various secular and structural growth tailwinds developing across the industrial sector.
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.
We believe our products and solutions are increasingly critical within the industrial supply chain given increased manufacturing activity in the United States, reshoring or localization of supply chains across North America, a greater focus on supply chain resiliency, required maintenance and modernization on aged industrial equipment, technical labor constraints across customers' operations, more sophisticated production equipment and processes, a greater focus on plant floor optimization, and compliance and regulatory requirements.
In the U.S., all associates are required to complete specific assigned online training courses annually, which include offerings on workplace safety hazards and vehicle safety. In addition, role-specific training is assigned based on the types of hazards associates may face while carrying out their job function, such as training modules on operating in confined spaces, forklift operation, and lockout/tagout procedures.
In addition, role-specific training is assigned based on the types of hazards associates may face while carrying out their job function, such as training modules on operating in confined spaces, forklift operation, and lockout/tagout procedures.
Our Engineered Solutions segment includes our operations that specialize in distributing, engineering, designing, integrating, and repairing hydraulic and pneumatic fluid power technologies, and engineered flow control products and services. We believe we are the largest distributor and solutions provider of fluid power and industrial flow control products and solutions in the U.S.
Our Engineered Solutions segment includes our operations that specialize in distributing, engineering, designing, integrating, and repairing hydraulic and pneumatic fluid power technologies, engineered flow control products and services, and automation technologies.
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.
Our U.S. associates completed approximately 4,600 safety training courses during the fiscal year, helping to raise awareness of workplace risks. 7 Table of Contents SEASONALITY Our business exhibits minor seasonality.
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.
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.
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.
We also have international operations, the largest of which is in Canada (6% of fiscal 2025 sales) with the balance (6% of fiscal 2025 sales) in Mexico, Australia, New Zealand, Singapore, and Costa Rica. SUPPLIERS Products we distribute are generally supplied to us by manufacturers whom we serve as a non-exclusive distributor.
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.
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.
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.
We believe that a workplace that is respectful to all associates and that includes and fosters a wide range of skills, ideas, capabilities, and experiences serves as a cornerstone for a strong and resilient company. Health and Safety . Applied is also committed to the safety and well-being of our associates.
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.
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.
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.
This includes service centers, distribution centers, and facilities tied to our fluid power, flow control, and automation operations. Our service centers resemble local inventory hubs located in close proximity to our customers and focused primarily on technical MRO related fulfillment and service needs.
We also compete with original equipment manufacturers and integrators. The identity and number of our competitors vary throughout the geographic, industry, and product markets we serve. STRATEGIC GROWTH AND OPERATIONAL OPPORTUNITIES • Optimize operations and capture market share across our core service center network .
We also compete with original equipment manufacturers and integrators. The identity and number of our competitors vary throughout the geographic, industry, and product markets we serve. STRATEGIC GROWTH AND OPERATIONAL OPPORTUNITIES • Exposure to Industrial Mega Trends. We are favorably positioned to benefit from various secular tailwinds developing across the North American industrial market.
ITEM 1. BUSINESS. In this annual report on Form 10-K, “Applied” refers to Applied Industrial Technologies, Inc., an Ohio corporation. References to “we,” “us,” “our,” and “the Company” refer to Applied and its subsidiaries. We are a leading distributor and solutions provider of industrial motion, power, control, and automation technologies.
ITEM 1. BUSINESS. In this Annual Report on Form 10-K for the fiscal year ended June 30, 2025 (this "Annual Report"), “Applied” refers to Applied Industrial Technologies, Inc., an Ohio corporation. References to “we,” “us,” “our,” and “the Company” refer to Applied and its subsidiaries. Headquartered in Cleveland, Ohio, Applied and its predecessor companies have engaged in business since 1923.
Our advanced automation operations provide solutions focused on the design, assembly, integration, and distribution of machine vision, collaborative robots, mobile robots, RFID, industrial networking, and machine learning technologies for OEMs, machine builders, integrators, and other industrial and technology end users.
Our flow control solutions are increasingly used in applications tied to required infrastructure for decarbonization initiatives, including providing technical support for the configuration, assembly, and testing of process systems. 6 Table of Contents Our advanced automation operations provide solutions focused on the design, engineering, assembly, integration, and distribution of machine vision, collaborative robots, mobile robots, RFID (radio-frequency identification), industrial networking, motion control, and machine learning technologies for OEMs, machine builders, integrators, and other industrial and technology end users.
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.
As such, we are integral to our customers’ supply chains considering the direct exposure our solutions have on our customers’ core production equipment and plant capabilities, where high cost of failure, product specification, and system complexity require premier local service and inventory availability, application expertise, and aftermarket support.
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.
Within our Service Center segment, we focus on responding to critical “break-fix” situations, which requires knowledge of a customer’s facility, localized inventory, timely delivery capabilities, service execution, and accountability. In our Engineered Solutions segment, we design, engineer, and integrate solutions focused on making a customer’s operations and equipment more productive, cost and energy-efficient, and automated.
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.
Over the near to intermediate-term, our acquisition priorities are primarily focused on our current offerings including the ongoing expansion of our Engineered Solutions segment, as well as opportunistic acquisitions across our Service Center segment that further enhance our organic growth profile, margin improvement, and value-added service capabilities. 4 Table of Contents OPERATIONS Our distribution and sales network consists of approximately 430 facilities in our Service Center segment and approximately 170 facilities in our Engineered Solutions segment.
We strive to attract, retain, and develop a diverse group of high-performing associates, empowering them to achieve their potential and providing them opportunities to test their skills, increase their responsibilities, and advance their careers.
We strive to attract, develop, and retain high-performing associates with unique skills, ideas, capabilities, and experiences, to empower them to achieve their potential, and provide them opportunities to increase their skills and responsibilities and advance their careers. Applied’s commitment to its associates is reflected in our investments in both development and talent management.
Applied’s commitment to associate development is reflected in our investments in a learning management system (offering a wide array of internal facilitated training courses, supplier product training, and other third-party courses), a modern social learning platform, and in-person training through which associates can continually expand their knowledge base and position themselves to achieve their professional goals.
All associates are encouraged to participate in training to improve existing and learn new skills to further their professional development and achieve their own goals. Training opportunities include a wide array of internally facilitated training courses (both skilled and competency based), supplier product training, and other third-party courses. Training is delivered through a modern social learning platform and in-person training.
The segment also includes our operations that focus on advanced automation solutions, including machine vision, robotics, motion control, and smart technologies. Our fluid power operations offer products and services primarily used within industrial, off-highway mobile, and technology applications.
Within the United States, we believe we are the largest distributor and solutions provider of fluid power and industrial flow control products, as well as one of the largest distributors and solutions providers of advanced automation technologies. Our fluid power operations offer products and services primarily used within industrial, mobile, and technology applications.
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.
We seek to provide competitive compensation and benefits in order to attract and retain high quality associates.
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 .
See the Reportable Segments section below for more detail on the various service solutions we provide to customers. 5 Table of Contents REPORTABLE SEGMENTS We report results of operations in two segments: 1) Service Center (formerly Service Center Based Distribution), and 2) Engineered Solutions.
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 sourcing strategy, industry relationships, and operational discipline are key to our acquisition success.
Combined with growth in more profitable areas of our business and our history of cost accountability, we see ongoing opportunity to optimize our margin profile and cash generation in coming years. • Pursue value-creating acquisitions to supplement growth and strengthen industry position . We expect to pursue additional acquisitions aligned with our growth strategy and long-term financial targets.
Combined with our history of cost accountability and our continuous improvement culture, we see an ongoing opportunity to optimize our margin profile and cash generation in coming years. • Industry Consolidation and Acquisition Opportunities . Our customers’ supply chain focus is intensifying as they manage increasingly complex service requirements.
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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.
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The fiscal year end for Applied is June 30, 2025. We are a leading distributor and technical solutions provider of industrial motion, power, control, and automation technologies.
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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.
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While our business has evolved with a broader portfolio of solutions and entrance into new markets in recent years, our core remains primarily focused on connecting world-class industrial products and technologies from leading suppliers to our customers' most critical operating assets.
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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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This includes localizing and reshoring supply chains to North America, required infrastructure investments, greater equipment maintenance and system modernization on aged industrial assets, and the build-out and maintenance of systems used for decarbonization.
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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 .
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In addition, sustainability initiatives and dynamic energy costs are driving a focus on optimizing equipment efficiency through greater technical maintenance and component upgrades, while our expertise and access to fluid conveyance and robotic solutions are providing new growth opportunities in areas such as datacenter infrastructure and semiconductor manufacturing.
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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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We believe our North America focus and comprehensive portfolio of technical solutions including motion control, fluid power, specialty flow control, and automation solutions will play a critical role in supporting these growth tailwinds. • Service Center Initiatives .
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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.
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This position is strengthening as we fully leverage and cross-sell our expanded portfolio of fluid power, flow control, automation, and consumables solutions. In addition, investments in technology, predictive analytics, talent, and shared service functions have streamlined operating processes while enhancing our business intelligence and sales force productivity.
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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 .
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We are also augmenting our local technical service through greater shop and conveyance capabilities, as well as investing in our digital and e-commerce channel. • Leading Fluid Power and Flow Control Position .
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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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Of note, we expect to play a significant role in helping our OEM customers transition to electric-powered machinery given our leading engineering capabilities and supplier relationships.
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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.
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In addition, the ongoing build out of datacenter and semiconductor infrastructure is expanding the addressable market for fluid conveyance products and solutions, while demand for flow control solutions is benefiting from customers' decarbonization and energy transition efforts.
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Following several business acquisitions made in recent years, we now offer products and solutions focused on the design, assembly, integration, and distribution of machine vision, robotics, digital networking, and motion control technologies. Our emerging growth across these areas is diversifying our end-market exposure with greater penetration into technology, life sciences, logistics, and food and beverage industries.
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Our strategy and teams are aligned to serve the rapid pace of innovation and investment developing across fluid power systems and process infrastructure in the coming years. • Automation Expansion Potential . We have worked extensively in recent years to expand our Automation position through various acquisitions and organic growth initiatives.
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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.
Added
Combined with our legacy capabilities in pneumatic and control applications, today our automation solutions represent a more meaningful part of our sales and growth centered on the design, assembly, integration, and distribution of machine vision, robotics, digital networking, and motion control technologies.
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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.
Added
We see significant potential to further scale our automation operations in coming years given our internal initiatives, M&A pipeline, a growing addressable market, cross-selling opportunities, and a developing long-term aftermarket. We expect various secular tailwinds to positively influence demand including structural labor constraints, a heightened focus on safety and quality, and North American reshoring activity.
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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.
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We believe these dynamics will accelerate the adoption of collaborative and mobile robots, machine vision, and Internet of Things solutions, as well as require strong application and engineering support that aligns well with our market approach and value proposition. • Cross-Selling Opportunity.
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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.
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We also see sustainable mix tailwinds driving margin expansion as we continue to grow our higher-margin Engineered Solutions segment, which today contributes over 40% of our consolidated EBITDA. In addition, as our growth profile and operating efficiencies have strengthened, we are experiencing a greater level of operating leverage.
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SUPPLIERS We are a leading distributor of products including bearings, power transmission products, engineered fluid power components and systems, specialty flow control solutions, advanced automation products, industrial rubber products, linear motion components, tools, safety products, and other industrial and maintenance supplies. These products are generally supplied to us by manufacturers whom we serve as a non-exclusive distributor.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAdditionally, 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.
Biggest changeAny 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. 11 Table of Contents In addition, changes to the credit markets could result in credit markets tightening, or create an instance where obtaining additional or replacement financing could be more difficult and the cost of issuing new debt or replacing a credit facility could increase.
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.
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, and money, to complete.
We require effective internal control over financial reporting in order to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud.
We require effective internal control over financial reporting in order to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, collusion or fraud.
Our debt commitments may (i) require us to dedicate a substantial portion of our cash flows from operations to the payment of debt service, reducing the availability of our cash flow to fund planned capital expenditures, pay dividends, repurchase our shares, complete other acquisitions or strategic initiatives, and other general corporate purposes; (ii) limit our ability to obtain additional financing in the future (either at all or on satisfactory terms) to enable us to react to changes in our business or execute our growth strategies; and (iii) place us at a competitive disadvantage compared to businesses in our industry that have lower levels of indebtedness.
Our debt commitments may (i) require us to dedicate a substantial portion of our cash flows from operations to the payment of debt service, reducing the availability of our cash flow to fund planned capital expenditures, pay dividends, repurchase our shares, complete other acquisitions or strategic initiatives, and other general corporate purposes; (ii) limit our ability to obtain additional financing in the future (either at all or on satisfactory terms) to enable us to react to changes in our business or execute our growth strategies; and (iii) place us at a competitive disadvantage compared to other companies in our industry that may have lower levels of indebtedness.
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.
A similar pandemic, 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.
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.
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 inability to attract and retain other qualified workers could disrupt or adversely affect our business.
STRATEGIC AND OPERATIONAL RISKS Our business could be adversely affected if we do not successfully execute our strategies to grow sales and earnings. We have numerous strategies and initiatives to grow sales, leveraging the breadth of our product offering, supplier relationships, and value-added technical capabilities to differentiate us and improve our competitive position.
STRATEGIC AND OPERATIONAL RISKS Our business could be adversely affected if we do not successfully execute our strategies to grow sales and earnings. We have numerous strategies and initiatives to grow sales, leveraging the breadth of our product offering, supplier relationships, and value-added technical capabilities to differentiate us from our competitors and improve our competitive position.
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.
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 conditions; 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.
In addition to market, customer account-specific, or transaction-specific incentives, certain suppliers pay incentives to the distributor for attaining specific purchase volumes during a program period. In some cases, to earn incentives, we must achieve year-over-year growth in purchases with the supplier.
In addition to market, customer account-specific, or transaction-specific incentives, certain suppliers pay incentives to us for attaining specific purchase volumes during a program period. In some cases, to earn incentives, we must achieve year-over-year growth in purchases with the supplier.
For example, key suppliers could change the following: the prices we must pay for their products relative to other distributors or relative to competing brands; the geographic or product line breadth of distributor authorizations; the number of distributor authorizations; supplier purchasing incentive or other support programs; product purchase or stocking expectations; or the extent to which the suppliers seek to serve end users directly.
For example, key suppliers could change the following: the prices we must pay for their products relative to other distributors or relative to competing brands; the 9 Table of Contents geographic or product line breadth of distributor authorizations; the number of distributor authorizations; supplier purchasing incentive or other support programs; product purchase or stocking expectations; or the extent to which the suppliers seek to serve end users directly.
When demand for our products declines, we may be less inclined to add inventory to take advantage of certain incentive programs, thereby potentially adversely impacting our profitability. Volatility in product, energy, labor, and other costs can affect our profitability.
When customer demand for products declines, we may be less inclined to build inventory to take advantage of certain incentive programs, thereby potentially adversely impacting our profitability. Volatility in product, energy, labor, and other costs can affect our profitability.
We also continually seek to enhance gross margins, manage costs, and otherwise improve earnings. Many of our activities target improvements to the consistency of our operating practices across our hundreds of locations. If we do not implement these initiatives effectively, or if for other reasons they are unsuccessful, our business could be adversely affected.
We also continually seek to enhance gross margins, manage costs, and otherwise improve earnings. Many of our activities target improvements to the consistency of our operating practices across all of our facilities. If we do not implement these initiatives effectively, or if for other reasons they are unsuccessful, our business could be adversely affected.
Our supply chain, including transportation availability, staffing, and cost, could be disrupted by natural or human-induced events or conditions, such as power or telecommunications outage, security incident, terrorist attack, war, other geopolitical events, public health emergency, earthquake, extreme weather events, fire, flood, other natural disasters, transportation disruption, labor actions, including strikes, raw materials shortages, financial problems or insolvency, trade regulations or actions, inadequate manufacturing capacity or utilization to meet demand, or other reasons beyond our control.
Our supply chain, including transportation availability, staffing, and cost, could be disrupted by natural or human-induced events or conditions, such as power or telecommunications outage, security incident, terrorist attack, war, other geopolitical events, public health crisis, earthquake, extreme weather events, fire, flood, other natural disasters, transportation disruption, labor actions, including strikes, raw materials shortages, financial problems or insolvency, trade regulations or actions, inadequate manufacturing capacity or utilization to meet demand, or other reasons 8 Table of Contents beyond our control.
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.
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. GENERAL RISK FACTORS Our business depends on our ability to attract, develop, motivate, and retain qualified employees.
When customers or prospective customers reduce production levels because of lower demand, increased supply, higher costs, supply chain or labor market disruptions, tight credit conditions, unfavorable currency exchange rates, adverse trade policies, foreign competition, other competitive disadvantage, offshoring of production, geopolitical instability, or other reasons, their need for our products and services diminishes.
When customers or prospective customers reduce production levels because of lower demand, increased supply, higher costs, supply chain or labor market disruptions, changes in interest rates, tight credit conditions, unfavorable currency exchange rates, governmental regulations or adverse trade policies, foreign competition, other competitive disadvantage, offshoring of production, geopolitical instability, or other reasons, their need for our products and services diminishes.
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.
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, fragmented industry.
While we wish to continue to acquire businesses, we may not be able to identify and to negotiate suitable acquisitions, to obtain financing for them on satisfactory terms, or otherwise to complete acquisitions.
While we wish to continue to make acquisitions, we may not be able to identify and to negotiate suitable acquisitions, to obtain financing for them on satisfactory terms, or otherwise to complete acquisitions.
In addition, 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.
In addition, while an 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 third parties. 10 Table of Contents These factors may inhibit our ability to provide rapid, complete, and reliable information about cybersecurity incidents to third parties, as well as the public.
We may not be able to identify or to complete future acquisitions, to integrate them effectively into our operations, or to realize their anticipated benefits. Many industries we serve are mature. As a result, acquisitions of businesses have been important to our growth.
We may not be able to identify or to complete future acquisitions, to integrate them effectively into our operations, or to realize their anticipated benefits. Many industries we serve are mature. As a result, acquisitions have been, and will continue to be, important to our growth.
Further, even if we successfully integrate the acquisitions with our operations, we may not be able to realize cost savings, sales, profit levels, or other benefits that we anticipate from these acquisitions, either as to amount or in the time frame we expect.
Further, even if we successfully integrate an acquired business with our operations, we may not be able to realize cost savings, sales, profit levels, or other benefits that we anticipate, either as to amount or in the time frame we expect.
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.
Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage information systems or data on such systems change frequently and are becoming increasingly sophisticated, we may be unable to anticipate these techniques or to implement adequate measures to prevent unauthorized access to our information systems.
If we are not able to maintain the adequacy of our internal control over financial reporting, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business, financial condition, and operating results could be harmed. Any material weakness could affect investor confidence in the accuracy and completeness of our financial statements.
If we are not able to maintain the adequacy of our internal control over financial reporting, including our inability or difficulty in implementing required new or improved controls, our business, financial condition, and operating results could be harmed. Any material weakness could affect investor confidence in the accuracy and completeness of our financial statements.
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.
In addition, existing and future competitors, and private equity firms, increasingly compete with us for acquisitions, which can increase the cost of potential acquisitions and reduce the number of suitable opportunities. Acquisitions made by competitors can also adversely impact our market position.
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.
This presence outside the United States 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.
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.
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 and materially impact our financial condition and results of operations.
The markets for our products and services are subject to conditions or events that affect demand for goods and materials that our customers produce. Consequently, demand for our products and services has been and will continue to be influenced by most of the same factors that affect demand for and production of customers' goods and materials.
Consequently, demand for our products and services has been and will continue to be influenced by most of the same factors that affect demand for and production of customers' goods and materials.
The purchasing incentives we earn from product suppliers can be impacted if we reduce our purchases in response to declining customer demand. Certain product suppliers have historically offered to their distributors, including us, incentives for purchasing their products.
The purchasing incentives we earn from product suppliers can be impacted if we reduce our purchases in response to declining customer demand which may adversely affect our profitability. Certain product suppliers offer to their distributors, including us, incentives for purchasing their products.
We review goodwill, long-lived assets, including property, plant and equipment and identifiable amortizing intangible assets, for impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable.
We review goodwill, long-lived assets, including property, plant and equipment and identifiable amortizing intangible assets, for impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable. In addition, we review goodwill on a reporting unit basis annually for impairment in our third quarter.
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 can experience downward pressure on sales prices because of deflation, pressure from customers to reduce costs, shifts in customer preference to less costly products, 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.
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.
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 damage our relationships and reputation, and have a material adverse effect on our business and financial results.
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 information technology and enterprise risk management efforts cannot eliminate all systemic risk. Breaches of our systems could not only cause business disruption, but could also result in the theft of funds, the theft, loss, or disclosure of proprietary or confidential information, or the breach of customer, supplier, or employee information.
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.
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.
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.
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.
Global or regional health pandemics or epidemics could negatively impact our business, results of operation and financial condition. The COVID-19 pandemic created significant volatility, uncertainty, and economic disruption, and resulted in lost or delayed sales to us, and we experienced business disruptions as we modified our business practices.
The 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.
ITEM 1A. RISK FACTORS. In addition to other information set forth in this report, you should carefully consider the following factors that could materially affect our business, financial condition, or results of operations. The risks described below are not the only risks facing the Company.
ITEM 1A. RISK FACTORS. In addition to other information set forth in this report, you should carefully consider the following risk factors that could materially affect our business, financial condition, or results of operations and that could make an investment in Applied more speculative or risky.
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.
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, 2025, we had total debt obligations outstanding of $572.3 million.
As of June 30, 2024, we had remaining $619.4 million of goodwill and $245.9 million of other intangible assets, net. We assess all existing goodwill at least annually for impairment on a reporting unit basis. The techniques used in our qualitative assessment and goodwill impairment tests incorporate a number of estimates and assumptions that are subject to change.
As of June 30, 2025, we had remaining $699.4 million of goodwill and $348.6 million of other intangible assets, net. The techniques used in our qualitative assessment and goodwill impairment tests incorporate a number of estimates and assumptions that are subject to change.
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.
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.
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.
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 and other commercial terms that could allocate greater risk to us.
The emergence, severity, magnitude and duration of global or regional pandemics, epidemics, or other health crises are uncertain and difficult to predict.
A global or regional health pandemic or epidemic could negatively impact our business, results of operation and financial condition. The emergence, severity, magnitude and duration of global or regional pandemics, epidemics, or other health crises are uncertain and difficult to predict.
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.
Certain risks are discussed in more detail 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.
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.
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 2025.
Labor costs are our largest expense. Our ability to pass along increases in our costs in a timely manner to our customers depends on execution, market conditions, and contractual limitations. Failing to pass along price increases timely in an inflationary environment, such as the current economic climate, or not maintaining sales volume while increasing prices, could significantly reduce our profitability.
Failing to pass along price increases timely in an inflationary environment, or not maintaining sales volume while increasing prices, could significantly reduce our profitability.
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.
These may, for example, relate to product liability claims, commercial disputes, personal injuries, or employment-related matters.
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.
ECONOMIC AND INDUSTRY RISKS Our business depends heavily on the operating levels of our customers and the factors that affect them, including general economic conditions. The markets for our products and services are subject to conditions or events that affect the demand for goods and materials that our customers produce.
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.
We are subject to a wide array of laws and regulations, including with respect to taxes, international trade including import and export requirements, anti-bribery and corruption laws, anti-competition laws, employment laws, and data privacy. We are also subject to governmental audits and inquiries in 12 Table of Contents the normal course of business operations.
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.
These potential impairment to our ability to meet customer demand could result in lost sales, increased costs, reduced profitability, and damage to our reputation.
Our foreign operations' results are reported in the local currency and then translated into U.S. dollars at applicable exchange rates for inclusion in our consolidated financial statements. Fluctuations in currency exchange rates affect our operating results and financial position, as well as the comparability of results between financial periods.
In addition, our foreign operations' results are reported in local currency and then translated into U.S. dollars at applicable exchange rates, which opens us up to risks associated with potential currency exchange fluctuations. Fluctuations in exchange rates, devaluations, and limitations on the conversion of foreign currencies into U.S. dollars may result in decreased revenues or profits.
Removed
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.
Added
Because of the risk factors discussed herein, past financial performance should not be considered a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. For more information, see “Cautionary Statements” in Item 7.
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If our customers become unable or unwilling to pay amounts owed to us under unsecured credit arrangements it could materially and adversely affect our financial condition and results of operations. We extend unsecured trade credit to a broad range of customers across many industries.
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If our customers become financially distressed and experience deterioration in their cash flow or operating and financial performance due to economic downturns, competitive pressures or reduced demand for their products, they may not be able to make scheduled payments, or may delay payment, of amounts due to us.
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These supply chain disruptions may result in increased costs which we may be unable to pass along to customers. In addition, if these disruptions cause us to look for alternative sources of products, when we can find acceptable alternate sources for certain products, they may cost more.
Added
Consolidation in our customers' and suppliers' industries could impede our ability to negotiate favorable commercial terms in our purchase and sale contracts, placing pressure on our prices and lead to volatility in our sales, thereby adversely affecting our business and financial results. Consolidation continues among both our product suppliers as well as our customers.
Added
After the cost of the products we sell, labor costs are our largest expense. Our ability to pass along increases in our costs in a timely manner to our customers depends on execution, market conditions, and contractual limitations.
Added
In addition, acquisitions could place significant demand on our 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.
Added
Additionally, our inability to comply with covenants in the instruments governing our debt could result in an event of default.
Added
We are subject to complex laws, rules, and regulations and any failure to comply could result in the imposition of sanctions or other penalties, or the institution of litigation, which may have a material adverse effect on our business.
Added
Changes in the legal and regulatory environment in which we operate, including any governing body's responses to any legal or regulatory changes enacted by the United States, could adversely and materially affect our operating results. In addition, from time to time, we are involved in lawsuits or other legal proceedings that arise in the normal course of business operations.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeFurther, we have various processes and programs designed to manage cybersecurity risks associated with our use of third-party vendors and suppliers. When we implement significant changes to our information systems, we conduct risk-based security and privacy impact assessments and deploy technical safeguards that are designed to reasonably protect our technology and information systems from cybersecurity threats.
Biggest changeFurther, we have various processes and programs designed to manage cybersecurity risks associated with our use of third-party vendors and suppliers. 13 Table of Contents When we implement significant changes to our information systems, we conduct risk-based security and privacy impact assessments and deploy technical safeguards that are designed to reasonably protect our technology and information systems from cybersecurity threats.
We also engage third party service providers when deemed necessary to both expand our capabilities and capacity as well as evaluate the effectiveness of our cybersecurity program, including hosting regular table-top exercises meant to evaluate and improve the overall effectiveness of our cybersecurity program. Our Incident Response Plan provides a framework for responding to cybersecurity incidents.
We also engage third party service providers when necessary to both expand our capabilities and capacity as well as evaluate the effectiveness of our cybersecurity program, including hosting regular table-top exercises meant to evaluate and improve the overall effectiveness of our cybersecurity program. Our Incident Response Plan provides a framework for responding to cybersecurity incidents.
As indicated above, our management, with oversight from the Board, performs an annual ERA and cybersecurity is among the main risks identified by the ERA for Board-level oversight. Our full Board has oversight of our efforts in cybersecurity and meets regularly with our Vice President – Information Technology (three times during fiscal 2024) on our cybersecurity risks and programs.
As indicated above, our management, with oversight from the Board, performs an annual ERA and cybersecurity is among the main risks identified by the ERA for Board-level oversight. Our full Board has oversight of our efforts in cybersecurity and meets regularly with our Vice President – Information Technology (three times during fiscal 2025) on our cybersecurity risks and programs.
The Board is also updated as needed on cybersecurity threats, incidents, or new developments in our cybersecurity risk profile. 13 Table of Contents
The Board is also updated as needed on cybersecurity threats, incidents, or new developments in our cybersecurity risk profile.

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, 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.
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, 2025: 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 14 Table of Contents Our principal leased real properties (each of which has more than 50,000 square feet of floor space) at June 30, 2025 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 Sherwood, Oregon Automation operation Austin, Texas Fluid power shop Dallas, Texas Fluid power shop Houston, Texas Fluid power shop 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 Distribution center, service center and shop The properties in Baldwinsville, Newark, Midland, Stafford, Austin, Houston and Dallas are used in our Engineered Solutions segment.
The Fontana and Longview properties are used in both the Service Center Based Distribution segment and the Engineered Solutions segment. The remaining properties are used in the Service Center Based Distribution segment. We consider our properties generally sufficient to meet our requirements for office space and inventory stocking.
The Fontana and Longview properties are used in both the Service Center segment and the Engineered Solutions segment. The remaining properties are used in the Service Center segment. We consider our properties generally sufficient to meet our requirements for office space and inventory stocking.
A service center's size is primarily influenced by the amount and types of inventory the service center requires to meet customers' needs. When opening new operations, we have tended to lease rather than purchase real property.
A service center's size is primarily influenced by the amount and types of inventory required to meet customers' needs. When opening new operations, we have tended to lease rather than purchase real property.
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 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, 2025, we owned 113 and leased 438 real properties. Certain properties house more than one operation.
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
In addition to the above operating facilities, 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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 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.
Biggest changeITEM 3. LEGAL PROCEEDINGS. From time to time, 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 routine litigation matters incidental to its business.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changePloetz 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.
Biggest changePloetz was Vice President, Assistant General Counsel & Assistant Corporate Secretary at Harsco Corporation, now Enviri Corporation (NYSE: NVRI) from 2018 to 2023, and Assistant General Counsel, Corporate & Securities prior to that. Enviri is a provider of material processing and environmental services to the global steel and industrial sectors. 52 Jason W. Vasquez Vice President-Sales & Marketing, U.S.
ITEM 4. MINE SAFETY DISCLOSURES. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of SEC Regulation S-K is included in Exhibit 95 to this annual report on Form 10-K. INFORMATION ABOUT OUR EXECUTIVE OFFICERS.
ITEM 4. MINE SAFETY DISCLOSURES. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of SEC Regulation S-K is included in Exhibit 95 to this Annual Report on Form 10-K. 15 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS.
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.
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. 65 Kurt W. Loring Vice President-Chief Human Resources Officer since 2014. 56 Jon S. Ploetz Vice President-General Counsel since March 2023. Prior to joining Applied, Mr.
Except as otherwise stated, the positions and offices indicated are with Applied, and the persons were most recently elected to their current positions on October 24, 2023: Name Positions and Experience Age Neil A. Schrimsher President since 2013 and Chief Executive Officer since 2011. 60 Warren E. Hoffner Vice President, General Manager-Engineered Solutions since October 2018.
Except as otherwise stated, the positions and offices indicated are with Applied, and the persons were most recently elected to their current positions on October 22, 2024: Name Positions and Experience Age Neil A. Schrimsher President since 2013 and Chief Executive Officer since 2011. 61 Warren E. Hoffner Vice President, General Manager-Engineered Solutions since October 2018.
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
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). 62 16 Table of Contents PART II
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Service Centers since June 2017. 49 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.

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 ($) (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) April 1, 2024 to April 30, 2024 37,000 195.61 37,000 1,300,000 May 1, 2024 to May 31, 2024 — — — 1,300,000 June 1, 2024 to June 30, 2024 198,000 188.26 198,000 1,102,000 Total 235,000 189.42 235,000 1,102,000 (1) On August 9, 2022, the Board of Directors authorized the repurchase of up to 1.5 million shares of the Company's common stock, replacing the prior authorization.
Biggest changePeriod (a) Total Number of Shares Purchased (b) Average Price Paid per Share ($) (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, 2025 to April 30, 2025 123,915 215.93 123,915 1,500,000 May 1, 2025 to May 31, 2025 100,000 226.04 100,000 1,400,000 June 1, 2025 to June 30, 2025 100,000 229.59 100,000 1,300,000 Total 323,915 223.27 323,915 1,300,000 (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, 2024.
The following table summarizes Applied's repurchases of its common stock in the fiscal quarter ended June 30, 2025.
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.
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 1, 2025, there were 7,476 shareholders of record including 6,501 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 have been purchased, or the Board revokes or amends the authorization. ITEM 6. RESERVED. 16 Table of Contents
Applied publicly announced the new authorization on May 1, 2025. 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. ITEM 6. RESERVED. 17 Table of Contents
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Applied publicly announced the new authorization on August 11, 2022. Purchases under this authorization were made in the open market or in privately negotiated transactions. On April 29, 2025, the Board of Directors authorized the repurchase of up to 1.5 million shares of the Company's common stock, replacing the August 9, 2022 authorization.

Item 7. Management's Discussion & Analysis

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

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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.
Biggest changeBorrowing capacity under this facility, without exercising the accordion feature, totaled $515.8 million at June 30, 2025 and June 30, 2024, and is available to fund future acquisitions or other capital and operating requirements. These amounts are net of outstanding letters of credit of $0.2 million at June 30, 2025 and June 30, 2024, to secure certain insurance obligations.
These include the Industrial Production (IP) and Manufacturing Capacity Utilization (MCU) indices published by the Federal Reserve Board and the Purchasing Managers Index (PMI) published by the Institute for Supply Management (ISM). Historically, our performance correlates well with the MCU, which measures productivity and calculates a ratio of actual manufacturing output versus potential full capacity output.
These include the manufacturing Industrial Production (IP) and Manufacturing Capacity Utilization (MCU) indices published by the Federal Reserve Board and the Purchasing Managers Index (PMI) published by the Institute for Supply Management (ISM). Historically, our performance correlates well with the MCU, which measures productivity and calculates a ratio of actual manufacturing output versus potential full capacity output.
In addition, the Company assumes no obligation publicly to update or revise any forward-looking statements, whether because of new information or events, or otherwise, except as may be required by law.
In addition, the Company assumes no obligation to update or revise any forward-looking statements, whether because of new information or events, or otherwise, except as may be required by law.
The following is Management's Discussion and Analysis of significant factors that have affected our financial condition, results of operations and cash flows during the periods included in the accompanying consolidated balance sheets, statements of consolidated income, consolidated comprehensive income and consolidated cash flows in Item 8 under the caption "Financial Statements and Supplementary Data." When reviewing the discussion and analysis set forth below, please note that a significant number of SKUs (Stock Keeping Units) we sell in any given year were not sold in the comparable period of the prior year, resulting in the inability to quantify certain commonly used comparative metrics analyzing sales, such as changes in product mix and volume.
The following is Management's Discussion and Analysis of significant factors that have affected our financial condition, results of operations and cash flows during the periods included in the accompanying consolidated balance sheets, statements of consolidated income, consolidated comprehensive income and consolidated cash flows in Item 8 under the caption "Financial Statements and Supplementary Data." When reviewing the discussion and analysis set forth below, please note that a significant number of SKUs we sell in any given year were not sold in the comparable period of the prior year, resulting in the inability to quantify certain commonly used comparative metrics analyzing sales, such as changes in product mix and volume.
Changes in future results, assumptions, and estimates after the measurement date may lead to an outcome where additional impairment charges would be required in future periods.
Changes in future results, assumptions, and estimates after the measurement date may lead to an outcome where impairment charges would be required in future periods.
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.
Rates in effect as of June 30, 2025 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.
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.
Approximately 2.1% of our accounts receivable balances are more than 90 days past due at June 30, 2025 compared to 1.5% at June 30, 2024. On an overall basis, our provision for losses from uncollected receivables represents 0.13% of our sales for the year ended June 30, 2025, compared to 0.00% of sales for the year ended June 30, 2024.
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.
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 Company intends that the forward-looking statements be subject to the safe harbors established in the Private Securities Litigation Reform Act of 1995 and by the Securities and Exchange Commission in its rules, regulations, and releases. Readers are cautioned not to place undue reliance on any forward-looking statements.
The Company intends that the forward-looking statements be subject to the safe harbors established in the Private Securities Litigation Reform Act of 1995, as amended, and by the Securities and Exchange Commission in its rules, regulations, and releases. Readers are cautioned not to place undue reliance on any forward-looking statements.
Important risk factors include, but are not limited to, the following: risks relating to the operations levels of our customers and the economic factors that affect them; continuing risks relating to the effects of the COVID-19 pandemic; inflationary or deflationary trends in the cost of products, energy, labor and other operating costs, and changes in the prices for products and services relative to the cost of providing them; reduction in supplier inventory purchase incentives; loss of key supplier authorizations, lack of product availability (such as due to supply chain strains), changes in supplier distribution programs, inability of suppliers to perform, and transportation disruptions; changes in customer preferences for products and services of the nature and brands sold by us; changes in customer procurement policies and practices; competitive pressures; our reliance on information systems and risks relating to their proper functioning, the security of those systems, and the data stored in or transmitted through them; the impact of economic conditions on the collectability of trade receivables; reduced demand for our products in targeted markets due to reasons including consolidation in customer industries; our ability to retain and attract qualified sales and customer service personnel and other skilled executives, managers and professionals; our ability to identify and complete acquisitions, integrate them effectively, and realize their anticipated benefits; the variability, timing and nature of new business opportunities including acquisitions, alliances, customer relationships, and supplier authorizations; the incurrence of debt and contingent liabilities in connection with acquisitions; our ability to access capital markets as needed on reasonable terms; disruption of operations at our headquarters or distribution centers; risks and uncertainties associated with our foreign operations, including volatile economic conditions, political instability, cultural and legal differences, and currency exchange fluctuations; the potential for goodwill and intangible asset impairment; changes in accounting policies and practices; our ability to maintain effective internal control over financial reporting; organizational changes within the Company; risks related to legal proceedings to which we are a party; potentially adverse government regulation, legislation, or policies, both enacted and under consideration, including with respect to federal tax policy, international trade, data privacy and security, and government contracting; and the occurrence of extraordinary events (including prolonged labor disputes, power outages, telecommunication outages, terrorist acts, war, public health emergency, earthquakes, extreme weather events, other natural disasters, fires, floods, and accidents).
Important risk factors include, but are not limited to, the following: risks relating to the operating levels of our customers and the economic factors that affect them; the impact that widespread illness, health epidemics, or general health concerns could have; inflationary or deflationary trends in the cost of products, energy, labor and other operating costs including tariffs, and changes in the prices for products and services relative to the cost of providing them; reduction in supplier inventory purchase incentives; loss of key supplier authorizations, lack of product availability (such as due to supply chain strains), changes in supplier distribution programs, inability of suppliers to perform, and transportation disruptions; changes in customer preferences for products and services of the nature and brands sold by us; changes in customer procurement policies and practices; competitive pressures; our reliance on information systems and risks relating to their proper functioning, the security of those systems, and the data stored in or transmitted through them; the impact of economic conditions on the collectability of trade receivables; reduced demand for our products in targeted markets due to reasons including consolidation in customer industries; our ability to retain and attract qualified sales and customer service personnel and other skilled executives, managers and professionals; our ability to identify and complete acquisitions, integrate them effectively, and realize their anticipated benefits; the variability, timing and nature of new business opportunities including acquisitions, alliances, customer relationships, and supplier authorizations; the incurrence of debt and contingent liabilities in connection with acquisitions; our ability to access capital markets as needed on reasonable terms; disruption of operations at our headquarters or distribution centers; risks and uncertainties associated with our foreign operations, including volatile economic conditions, political instability, cultural and legal differences, and currency exchange fluctuations; the potential for goodwill and intangible asset impairment; changes in accounting policies and practices; our ability to maintain effective internal control over financial reporting; organizational changes within the Company; risks related to legal proceedings to which we are a party; potentially adverse government regulation, legislation, or policies, both enacted and under consideration, including with respect to federal tax policy, international trade, data privacy and security, and government contracting; and the occurrence of extraordinary events (including prolonged labor disputes, power outages, telecommunication outages, terrorist acts, war, public health emergency, earthquakes, extreme weather events, other natural disasters, fires, floods, and accidents).
The AR Securitization Facility effectively increases the Company’s borrowing capacity by collateralizing a portion of the amount of the U.S. operations’ trade accounts receivable. The Company uses the proceeds from the AR Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing costs.
The AR Securitization Facility effectively increases the Company's borrowing capacity by collateralizing a portion of the amount of the U.S. operations' trade accounts receivable. The Company uses the proceeds from the AR Securitization Facility as an alternative to other forms of debt.
We discuss certain of these matters and other risk factors more fully throughout our Form 10-K, as well as other of our filings with the Securities and Exchange Commission. 26 Table of Contents
We discuss certain of these matters and other risk factors more fully throughout our Form 10-K, as well as other of our filings with the Securities and Exchange Commission. 27 Table of Contents
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.
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 revolving credit facility provides a $900.0 million unsecured revolving credit facility and an uncommitted accordion feature which allows the Company to request an increase in the borrowing commitments, or incremental term loans, under the credit facility in aggregate principal amounts of up to $500.0 million.
The revolving credit facility provides a $900.0 million unsecured revolving credit facility and an uncommitted accordion feature which allows the Company to request an increase in the borrowing commitments, or incremental 22 Table of Contents term loans, under the credit facility in aggregate principal amounts of up to $500.0 million.
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.
As of June 30, 2025 and 2024, our allowance for doubtful accounts was 2.1% and 1.8% of gross receivables, respectively. Our provision for (recoveries of) losses on accounts receivable was $6.0 million, $(0.2) million, and $5.6 million in fiscal 2025, 2024, and 2023, respectively.
Capital Expenditures We expect capital expenditures for fiscal 2025 to be in the $28.0 million to $30.0 million range, primarily consisting of capital associated with focused investments for growth and information technology equipment maintenance. Share Repurchases The Board of Directors has authorized the repurchase of shares of the Company’s common stock.
Capital Expenditures We expect capital expenditures for fiscal 2026 to be in the $30.0 million to $35.0 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.
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.
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, 2025 was $1,221.3 million compared to $1,268.8 million at June 30, 2024.
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).
At June 30, 2025, 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, 2025, the Company's net indebtedness was less than 0.4 times consolidated income before interest, taxes, depreciation and amortization (as defined in these agreements).
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.
Borrowing Arrangements A summary of long-term debt, including the current portion, follows (amounts are in thousands): June 30, 2025 2024 Revolving credit facility $ 384,000 $ 384,000 Trade receivable securitization facility 188,300 188,300 Series E Notes — 25,000 Other — 105 Total debt $ 572,300 $ 597,405 Less: unamortized debt issuance costs — 71 $ 572,300 $ 597,334 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.
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, 2025 and 2024, the Company's reserve for slow-moving or obsolete inventories was $50.5 million and $41.2 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.
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.
Borrowing capacity is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable portfolio and, therefore, at certain times, we may not be able to fully access the $250.0 million of borrowing capacity available under the AR Securitization Facility.
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.
Goodwill on our consolidated financial statements relates to both the Service Center and the Engineered Solutions segments. The Company has eight (8) reporting units for which an annual goodwill impairment assessment was performed as of January 1, 2025.
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.
The current ratio was 3.3 to 1 at June 30, 2025 and 3.5 to 1 at June 30, 2024. 21 Table of Contents 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 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.
Amounts in millions Amount of change due to Year ended June 30, SD&A Increase Acquisitions Foreign Currency Organic Change 2025 2024 SD&A $ 884.6 $ 840.8 $ 43.8 $ 58.1 $ (4.4) $ (9.9) 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.
Current year income primarily consists of unrealized gains on investments held by non-qualified deferred compensation trusts of $3.3 million, foreign currency transaction gains of $1.1 million and life insurance income of $0.9 million, offset by other periodic post-employment costs of $0.1 million and other expense of $0.1 million.
Fiscal 2024 income consisted primarily 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.
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.
Other (income) expense, net, represents certain non-operating items of income and expense, and was $3.1 million of income in fiscal 2025 compared to $5.1 million of income in fiscal 2024.
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.
Management monitors accounts receivable by reviewing Days Sales Outstanding (DSO) and the aging of receivables for each of the Company's operations. On a consolidated basis, DSO was 56.6 at June 30, 2025 versus 56.2 at June 30, 2024.
Based on the assessment performed, the Company concluded that the fair value of all of the reporting units exceeded their carrying amount as of January 1, 2024, therefore no impairment exists. The fair values of the reporting units in accordance with the goodwill impairment test were determined using the income and market approaches.
Based on the assessment performed, we concluded that the fair value of all of the reporting units exceeded their carrying amount as of January 1, 2025, therefore no impairment exists. 25 Table of Contents The fair values of the reporting units in accordance with the annual goodwill impairment assessment were determined using the income and market approaches.
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.
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 2025 76.9 49.0 100.2 May 2025 76.8 48.5 100.1 April 2025 76.7 48.7 99.8 March 2025 77.1 49.0 100.3 December 2024 76.3 49.2 98.9 September 2024 76.7 47.5 99.0 June 2024 77.2 48.3 99.4 18 Table of Contents RESULTS OF OPERATIONS This section provides comparisons of material changes in the consolidated financial statements for the fiscal years ended June 30, 2025 and 2024.
If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired.
The fair value of a reporting unit is compared with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired.
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”).
Additionally, the Company had letters of credit outstanding not associated with the revolving credit agreement, in the amount of $5.3 million and $4.0 million as of June 30, 2025 and June 30, 2024, respectively, in order to secure certain insurance obligations. In August 2018, the Company established a trade receivable securitization facility (AR Securitization Facility).
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%.
Year Ended June 30, As a % of Net Sales Change in $'s Versus Prior Period 2025 2024 % Change Net Sales 100.0 % 100.0 % 1.9 % Gross Profit Margin 30.3 % 29.8 % 3.5 % Selling, Distribution & Administrative Expense 19.4 % 18.8 % 5.2 % Operating Income 10.9 % 11.1 % 0.5 % Net Income 8.6 % 8.6 % 1.9 % Sales in fiscal 2025 were $4.6 billion, which was $84.0 million or 1.9% above the prior year, with sales from acquisitions adding $193.0 million or 4.3% and unfavorable foreign currency translation reducing sales by $23.7 million or 0.5%.
The interest rate on the revolving credit facility was 6.24% and 6.11% as of June 30, 2024 and June 30, 2023, respectively.
The interest rate on the revolving credit facility was 5.23% and 6.24% as of June 30, 2025 and June 30, 2024, respectively.
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.
Working capital decreased $47.5 million from June 30, 2024 to $1,221.3 million at June 30, 2025. The current ratio was 3.3 to 1 and 3.5 to 1 at June 30, 2025 and at June 30, 2024, respectively. Applied monitors several economic indices that have been key indicators for industrial economic activity in the United States.
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.
Further, continued adverse market conditions could result in the recognition of impairment if we determine that the fair value of a reporting unit has fallen below its carrying value. 26 Table of Contents CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT This Annual Report on Form 10-K, including Management’s Discussion and Analysis, contains statements that are forward-looking based on management’s current expectations about the future.
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.
Current year income primarily consists of unrealized gains on investments held by non-qualified deferred compensation trusts of $2.7 million, life insurance income of $0.8 million and other income of $0.2 million, offset by foreign currency transaction losses of $0.5 million and other periodic post-employment costs of $0.1 million.
Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions.
Specifically, actual results may vary from the forecasts used in an annual goodwill impairment assessment and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ due to prevailing market conditions.
At June 30, 2024 we had total debt obligations outstanding of $597.4 million compared to $622.2 million at June 30, 2023.
At June 30, 2025 we had total debt obligations outstanding of $572.3 million compared to $597.4 million at June 30, 2024.
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.
These purchases may be made in open market or through negotiated transactions, from time to time, depending upon market conditions. At June 30, 2025, we had remaining authorization to purchase an additional 1,300,000 shares. Subsequent to June 30, 2025, we repurchased 128,401 shares of the Company's common stock at an average price per share of $258.36.
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.
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.
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.
Accounts Receivable Analysis The following table is included to aid in the analysis of accounts receivable and the associated provision for losses on accounts receivable (all dollar amounts are in thousands): June 30, 2025 2024 Accounts receivable, gross $ 786,161 $ 737,941 Allowance for doubtful accounts 16,462 13,063 Accounts receivable, net $ 769,699 $ 724,878 Allowance for doubtful accounts, % of gross receivables 2.1 % 1.8 % Year Ended June 30, 2025 2024 Provision for (recoveries of) losses on accounts receivable $ 5,978 $ (205) Provision as a % of net sales 0.13 % — % Accounts receivable are reported at net realizable value and consist of trade receivables from customers.
The expense allocations include corporate charges for working capital, logistics support, and other items and impact segment gross profit and operating expense. Interest expense, net decreased $18.8 million during fiscal 2024 primarily due to reduced debt levels and greater interest income from higher cash balances and investment yields.
The expense allocations include corporate charges for working capital, logistics support, and other items and impact segment gross profit and operating expense. Interest expense, net decreased $2.2 million during fiscal 2025 primarily due to interest income received on cash balances.
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.
The effective income tax rate was 21.6% for fiscal 2025 compared to 22.6% for fiscal 2024. The decrease in the effective tax rate is primarily due to more favorable discrete items in fiscal 2025 compared to the prior year. As a result o f the factors discussed above, net income for fiscal 2025 increased $7.2 million from the prior year.
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.
Operating income as a percentage of sales for the Engineered Solutions segment decreased to 12.2% in fiscal 2025 from 12.7% in fiscal 2024, primarily due to the impact of the businesses acquired in fiscal 2025. 20 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.
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.
Further, $63.7 million of cash was used for dividend payments in fiscal 2025 compared to $55.9 million of cash used for dividend payments in fiscal 2024. The increase in dividends over the year is the result of regular increases in our dividend payout rates. We paid aggregate dividends of $1.66 and $1.44 per share in fiscal 2025 and 2024, respectively.
LIFO Inventory Valuation and Methodology Inventories are valued at the average cost method, using the last-in, first-out (LIFO) method for U.S. inventories, and the average cost method for foreign inventories. We adopted the link chain dollar value LIFO method for accounting for U.S. inventories in fiscal 1974.
LIFO Inventory Valuation and Methodology Inventories are valued at the average cost method, using the LIFO method for U.S. inventories, and the average cost method for foreign inventories. We adopted the link chain dollar value LIFO method for accounting for U.S. inventories in fiscal 1974. Approximately 14.1% of our domestic inventory dollars relate to LIFO layers added in the 1970s.
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%.
Amounts in millions Amount of change due to Year ended June 30, Sales Increase (Decrease) Acquisitions Foreign Currency Organic Change Sales by Geographic Area 2025 2024 United States $ 4,001.0 $ 3,932.2 $ 68.8 $ 154.4 $ — $ (85.6) Canada 296.6 310.2 (13.6) — (9.0) (4.6) Other Countries 265.8 237.0 28.8 38.6 (14.7) 4.9 Total $ 4,563.4 $ 4,479.4 $ 84.0 $ 193.0 $ (23.7) $ (85.3) Sal es in our U.S. operations increased $68.8 million or 1.7%, with acquisitions contributing $154.4 million or 3.9%.
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%.
Unfavorable foreign currency translation lowered Canadian sales by $9.0 million or 2.9%. Excluding the impact of foreign currency translation, Canadian sales were down $4.6 million or 1.5%, driven by a 1.9% decrease due to lower demand, offset by an increase of 0.4% due to the change in sales days.
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%.
Amounts in millions Amount of change due to Year ended June 30, Sales (Decrease) Increase Acquisitions Foreign Currency Organic Change Sales by Reportable Segment 2025 2024 Service Center $ 3,014.3 $ 3,056.5 $ (42.2) $ 11.7 $ (23.7) $ (30.2) Engineered Solutions 1,549.1 1,422.9 126.2 181.3 — (55.1) Total $ 4,563.4 $ 4,479.4 $ 84.0 $ 193.0 $ (23.7) $ (85.3) Sales in our Service Center segment, which operates primarily in MRO markets, decreased $42.2 million, or 1.4%.
If impairment is indicated in the qualitative assessment, or, if management elects to initially perform a quantitative assessment of goodwill, the impairment test uses a one-step approach. The fair value of a reporting unit is compared with its carrying amount, including goodwill.
Each year, we may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If impairment is indicated in the qualitative assessment, or, if management elects to initially perform a quantitative assessment of goodwill, the impairment test uses a one-step approach.
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.
In fiscal 2025, we repurchased 655,791 shares of the Company's common stock at an average price per share of $231.20. In fiscal 2024, we repurchased 398,000 shares of the Company's common stock at an average price per share of $184.39. In fiscal 2023, we repurchased 8,000 shares of the Company's common stock at an average price per share of $89.46.
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.
In 2019, the Company entered into an interest rate swap that expires in January 2026 which mitigates variability in forecasted interest payments on $384.0 million of the Company’s U.S. dollar-denominated unsecured variable rate debt.
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%.
Acquisitions within this segment increased sales by $11.7 million or 0.4% and unfavorable foreign currency translation reduced sales by $23.7 million or 0.8%.
N et cash used in financing activities increased from the prior year period primarily due to an increase in treasury purchases as $73.4 million was used to repurchase 398,000 shares of common stock which were taken into treasury in 2024 compared to $0.7 million used to repurchase 8,000 shares of common stock which were taken into treasury in 2023.
N et cash used in financing activities during fiscal 2025 increased from the prior year primarily due to $152.8 million of cash used to repurchase shares of common stock in fiscal 2025 compared to $73.4 million of cash used to repurchase shares of common stock in fiscal 2024.
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.
Operating margin decreased to 10.9% in fiscal 2025 from 11.1% in fiscal 2024. Our diluted earnings per share was $10.12 in fiscal 2025 versus $9.83 in fiscal 2024. Shareholders’ equity was $1,844.5 million at June 30, 2025 compared to $1,688.8 million at June 30, 2024.
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.
For the comparison of the fiscal years ended June 30, 2024 and 2023, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2024 Annual Report on Form 10-K. We disclose segment information that is consistent with the way in which management operates and views Applied.
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.
Management believes the overall receivables aging and provision for losses on uncollected receivables are at reasonable levels. Inventory Analysis Inventories are valued using the 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.
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.
Excluding the impact of businesses acquired, sales decreased $55.1 million or 3.8%, driven by a decrease of 4.2% primarily reflecting ongoing weakness across mobile fluid power OEM customers, as well as softer automation sales, offset by an increase of 0.4% due to the change in sales days. 19 Table of Contents The following table shows changes in sales by geographical area.
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.
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, 2025 (in thousands): Total Period Less Than 1 yr Period 2-3 yrs Period 4-5 yrs Period Over 5 yrs Other Operating leases $ 236,705 $ 48,696 $ 76,339 $ 46,510 $ 65,160 $ — Planned funding of post-retirement obligations 2,600 1,370 370 290 570 — Unrecognized income tax benefit liabilities, including interest and penalties 1,300 — — — — 1,300 Long-term debt obligations 572,300 — 384,000 188,300 — — Interest on long-term debt obligations (1) 54,000 24,000 30,000 — — — Acquisition holdback payments 1,583 1,273 310 — — — Total Contractual Cash Obligations $ 868,488 $ 75,339 $ 491,019 $ 235,100 $ 65,730 $ 1,300 (1) Amounts represent estimated contractual interest payments on outstanding long-term debt obligations net of receipts under the terms of the interest rate swap.
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.
Amounts in thousands Year Ended June 30, 2025 2024 Net Cash Provided by (Used in): Operating Activities $ 492,385 $ 371,393 Investing Activities (318,752) (95,407) Financing Activities (245,607) (156,468) Exchange Rate Effect (226) (2,937) (Decrease) Increase in Cash and Cash Equivalents $ (72,200) $ 116,581 The increase in cash provided by operating activities during fiscal 2025 is driven by improved operating results and changes in working capital for the year of $104.0 million due to improved management of inventory and accounts payable, as well as increases in customer deposits and employee compensation and benefit accruals.
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.
When manufacturing plants are running at a high rate of capacity, they tend to wear out machinery more frequently and require replacement parts. The IP and PMI indices increased since June 2024, while the MCU index remained fairly stable over the fiscal year.
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.
The increase primarily relates 23 Table of Contents to provisions recorded in the current fiscal year for customer credit deterioration and bankruptcies primarily in the U.S. operations of the Service Center segment, compared to recoveries recorded in the same operations in the prior fiscal year. Historically, this percentage is around 0.10% to 0.15%.
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.
S ales in other countries increased $28.8 million or 12.2%, primarily due to acquisitions contributing $38.6 million or 16.3%. Unfavorable foreign currency translation reduced other countries' sales by $14.7 million or 6.2%. Exc luding the impact of businesses acquired and foreign currency translation, other countries' sales were up $4.9 million or 2.1%.
Operating income, as a percentage of sales for the Service Center Based Distribution segment increased to 13.1% in fiscal 2024 from 12.6% in fiscal 2023.
Operating income increased $2.7 million, or 0.5% , to $498.5 million during fiscal 2025 from $495.8 million during fiscal 2024, and as a percentage of sales, decreased to 10.9% from 11.1%. Operating income, as a percentage of sales for the Service Center segment increased to 13.1% in fiscal 2025 from 13.0% in fiscal 2024.
The Company maintains five LIFO pools based on the following product groupings: bearings, power transmission products, rubber products, fluid power products, and other products. LIFO layers and/or liquidations are determined consistently year-to-year. See the Inventories note to the consolidated financial statements in Item 8 under the caption "Financial Statements and Supplementary Data," for further information.
The excess of average cost over LIFO cost is $232.7 million as reflected in our consolidated balance sheet at June 30, 2025. 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.
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%.
Excluding the impact of businesses acquired, sales in the United States were down $85.6 million or 2.2%, driven by a 2.6% decrease due to lower demand across both segments, offset by an increase of 0.4% due to the change in sales days. Sales from our Canadian operations decreased $13.6 million or 4.4%.
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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW We are a leading distributor and technical solutions provider of industrial motion, power, control, and automation technologies.
Forward-looking statements are often identified by qualifiers, such as “guidance”, “expect”, “believe”, “plan”, “intend”, “will”, “should”, “could”, “would”, “anticipate”, “estimate”, “forecast”, “may”, "optimistic" and derivative or similar words or expressions. Similarly, descriptions of objectives, strategies, plans, or goals are also forward-looking statements.
Forward-looking statements are often identified by qualifiers, such as “guidance,” “expect,” “believe,” “plan,” “intend,” “will,” “should,” “could,” “would,” “anticipate,” “estimate,” “forecast,” “may,” “potential,” "optimistic" and derivative or similar words or expressions. Similarly, descriptions of objectives, strategies, plans, or goals are also forward-looking statements.
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.
Diluted net income per share was $10.12 per share for fiscal 2025 compared to $9.83 per share for fiscal 2024 due to higher net income and lower diluted shares outstanding. At June 30, 2025, we had approximately 600 operating facilities versus 590 at June 30, 2024.
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.
Changes in foreign currency exchange rates reduced SD&A by $4.4 million or 0.5% compared to the prior year.
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.
The Company is still evaluating the impact of the OBBBA and the results of such evaluations will be reflected on the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2026. 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.
SD&A from businesses acquired added $16.7 million or 2.0%, including $1.8 million of intangibles amortization. Excluding the impact of businesses acquired and the unfavorable impact from foreign currency translation, SD&A increased $9.6 million or 1.2% during fiscal 2024 compared to fiscal 2023.
Excluding the impact of businesses acquired and the favorable impact from foreign currency translation, SD&A decreased $9.9 million or 1.2% during fiscal 2025 compared to fiscal 2024, as to tal compensation decreased $21.2 million during fiscal 2025 due to cost controls, efficiency gains, and lower incentive compensation based on Company performance.
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.
This reduction in total compensation was offset by a $4.2 million increase in occupancy costs (excluding acquisitions) and a $6.2 million increase in bad debt expense during fiscal 2025 compared to the prior year. All other expenses within SD&A were up $0.9 million.
(AMS), and Automation, Inc. increasing sales by $56.4 million or 1.3% and favorable foreign currency translation of $6.6 million increasing sales by 0.2%. Gross profit margin increased to 29.8% for fiscal 2024 from 29.2% for fiscal 2023. Operating margin increased to 11.1% in fiscal 2024 from 10.7% in fiscal 2023.
Our fiscal 2025 consolidated sales were $4.6 billion, an increase of $84.0 million or 1.9% compared to the prior year, with acquisitions contributing to sales growth by $193.0 million or 4.3% and unfavorable foreign currency translation of $23.7 million reducing sales by 0.5%. Gross profit margin increased to 30.3% for fiscal 2025 from 29.8% for fiscal 2024.
The annualized inventory turnover (using average costs) for the year ended June 30, 2024 was 4.3 versus 4.4 for the year ended June 30, 2023.
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) was 4.3 for both the years ended June 30, 2025 and 2024.
This was partially offset by a 0.4% decrease due to the change in sales days. Sales in our Engineered Solutions segment decreased $23.1 million or 1.6%. Acquisitions within this segment increased sales $20.0 million or 1.4%.
Excluding the impact of businesses acquired and foreign currency tr anslation, sales decreased $30 .2 million or 1.0% during the year, driven by a decrease of 1.4% reflecting softer MRO spending and capital maintenance projects, offset by an increase of 0.4% due to the change in sales days. Sales in our Engineered Solutions segment increased $126.2 million or 8.9%.
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.
Borrowings under the AR Securitization Facility carry variable interest rates tied to SOFR. The interest rate on the AR Securitization Facility as of June 30, 2025 and June 30, 2024 was 5.32% and 6.35%, respectively. On July 10, 2025, the Company amended the AR Securitization Facility and extended the term to July 10, 2028.
This was partially offset by unfavorable mix tied to sales declines across our Engineered Solutions segment and local customer accounts. The following table shows the changes in selling, distribution, and administrative expense (SD&A).
The following table shows the changes in selling, distribution, and administrative expense, including depreciation (SD&A).
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.
Excluding the impact of businesses acquired and foreign currency translation, sales we re down $85.3 million or 1.9% durin g the year, driven by a decrease of 2.3% reflecting continued subdued demand due to economic uncertainty, offset by an increase of 0.4% due to the change in sales days.
On March 26, 2021, the Company amended the AR Securitization Facility to expand the eligible receivables, which increased the maximum availability to $250.0 million and increased the fees on the AR Securitization Facility to 0.98% per year.
The AR Securitization Facility's maximum borrowing capacity is $250.0 million and fees on amounts borrowed are 0.90% per year.

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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 changeThe 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.
Biggest changeWe 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. We had total average variable interest rate bank borrowings of $ 572.3 million during fiscal 2025.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Our market risk is impacted by changes in foreign currency exchange rates as well as changes in interest rates. We occasionally utilize derivative instruments as part of our overall financial risk management policy, but do not use derivative instruments for speculative or trading purposes.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Our market risk is impacted by changes in foreign currency exchange rates as well as changes in interest rates. We occasionally utilize derivative instruments as part of our overall financial risk management policy, and do not use derivative instruments for speculative or trading purposes.
For more information relating to borrowing and interest rates, see the “Liquidity and Capital Resources” section of “Management's Discussion and Analysis of Financial Condition and Results of Operations ” in Item 7 and Notes 6 and 7 to the consolidated financial statements in Item 8. That information is also incorporated here by reference.
For more information relating to borrowing and interest rates, see the “Liquidity and Capital Resources” section of “Management's Discussion and Analysis of Financial Condition and Results of Operations ” in Item 7 and Notes 6 and 7 to the consolidated financial statements in Item 8 of this Annual Report. That information is also incorporated here by reference.
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.
A 10% strengthening of the U.S. dollar relative to foreign currencies that affect the Company from the levels experienced during the fiscal year ended June 30, 2025 would have resulted in a $2.3 million decrease in net income for the fiscal year ended June 30, 2025.
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.
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, 2025, and a $250.0 million trade receivable securitization facility, of which $188.3 million was outstanding at June 30, 2025.
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.
Foreign Currency Exchange Rate Risk As we operate throughout North America, Australia and New Zealand, and approximately 12% of our fiscal 2025 net sales were generated outside the United States, foreign currency exchange rates can impact our financial position, results of operations, and competitive position.
Interest Rate Risk Our primary exposure to interest rate risk results from our outstanding debt obligations with variable interest rates. The levels of fees and interest charged on our various debt facilities are based upon leverage levels and market interest rates. The Company uses interest rate swap instruments to mitigate variability in forecasted interest rates.
Interest Rate Risk Our primary exposure to interest rate risk results from our outstanding debt obligations with variable interest rates. The levels of fees and interest charged on our various debt facilities are based upon our leverage level and market interest rates. We use interest rate swap instruments to mitigate variability in forecasted interest rates.
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.
Transaction gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than any of our subsidiaries' functional currency are recognized in the statements of consolidated income as a component of other (income) expense, net. We do not currently hedge the net investments in our foreign operations.
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.
In the twelve months ended June 30, 2025, we experienced net foreign currency translation losses totaling $1.7 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 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.
In January 2019, we entered into an interest rate swap on $463.0 million of our U.S. dollar-denominated unsecured variable rate debt. The notional amount of the interest rate swap was $384.0 million as of June 30, 2025. The interest rate swap effectively converts a portion of the floating rate interest payment into a fixed rate interest payment.
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.
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 addition, see Item 1A, “Risk Factors,” for additional risk factors relating to our business. 27 Table of Contents
In addition, see Item 1A, “Risk Factors,” of this Annual Report for additional risk factors relating to our business. 28 Table of Contents
During the course of the fiscal year, the Canadian and Mexican currency exchange rates decreased in relation to the U.S. dollar by 3.2% and 6.8%, respectively, while the Australian and New Zealand currency exchange rates increased in relation to the U.S. dollar by 0.6% and 0.2%, respectively.
During the course of the fiscal year, the Mexican, Australian and New Zealand currency exchange rates weakened in relation to the U.S. dollar by 2 .5%, 1.8% and 0.5%, respectively, while the Canadian currency exchange rate strengthened in relation to the U.S. dollar by 0.1%.

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