APPLIED INDUSTRIAL TECHNOLOGIES INC: DYSKUSJA ZARZĄDU I ANALIZA SYTUACJI FINANSOWEJ I WYNIKÓW DZIAŁALNOŚCI (formularz 10-Q)
With more than 6,100 employees acrossNorth America ,Australia ,New Zealand , andSingapore ,Applied Industrial Technologies ("Applied," the "Company," "We," "Us" or "Our") is a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies. Our leading brands, specialized services, and comprehensive knowledge serve MRO (Maintenance, Repair & Operations) and OEM (Original Equipment Manufacturer) end users in virtually all industrial markets through our multi-channel capabilities that provide choice, convenience, and expertise. We have a long tradition of growth dating back to 1923, the year our business was founded inCleveland, Ohio . During the second quarter of fiscal 2023, business was conducted inthe United States ,Puerto Rico ,Canada ,Mexico ,Australia ,New Zealand , andSingapore from 567 facilities. The following is Management's Discussion and Analysis of significant factors which have affected our financial condition, results of operations and cash flows during the periods included in the accompanying condensed consolidated balance sheets, statements of consolidated income, consolidated comprehensive income and consolidated cash flows. When reviewing the discussion and analysis set forth below, please note that the majority of SKUs (Stock Keeping Units) we sell in any given period were not necessarily 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.
Przegląd
Consolidated sales for the quarter endedDecember 31, 2022 increased$183.4 million or 20.9% compared to the prior year quarter, with acquisitions increasing sales by$4.0 million or 0.5% and unfavorable foreign currency translation of$6.0 million decreasing sales by 0.7%. The Company had operating income of$112.9 million , or operating margin of 10.6% of sales for the quarter endedDecember 31, 2022 compared to an operating income of$78.2 million , or operating margin of 8.9% of sales for the same quarter in the prior year. The quarter endedDecember 31, 2022 had net income of$80.5 million compared to net income of$57.0 million in the prior year quarter. The current ratio was 3.2 to 1 atDecember 31, 2022 and 2.7 to 1 atJune 30, 2022 . Applied monitors several economic indices that have been key indicators for industrial economic activity inthe United States . These include the Industrial Production (IP) and Manufacturing Capacity Utilization (MCU) indices published by theFederal Reserve Board and the Purchasing Managers Index (PMI) published by theInstitute for Supply Management (ISM). Historically, our performance correlates well with the MCU, which measures productivity and calculates a ratio of actual manufacturing output versus potential full capacity output. When manufacturing plants are running at a high rate of capacity, they tend to wear out machinery and require replacement parts. The MCU (total industry) and IP indices have decreased sinceJune 2022 . The MCU forDecember 2022 was 78.8, which is down from the September and June revised readings of 80.1 and 79.7, respectively. The ISM PMI registered 48.4 in December, down from the September andJune 2022 readings of 50.9 and 53.0, respectively. The indices for the months during the current quarter, along with the indices for the prior fiscal year end and prior quarter end, were as follows: Index Reading Month MCU PMI IP December 2022 78.8 48.4 99.8 November 2022 79.4 49.0 101.1 October 2022 80.0 50.2 102.2 September 2022 80.1 50.9 101.9 June 2022 79.7 53.0 101.1
Liczba pracowników Spółki wynosiła 6157 osób
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Table of Contents
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Wyniki operacji
Trzy miesiące zakończone
Poniższa tabela została zamieszczona w celu ułatwienia przeglądu skonsolidowanych sprawozdań finansowych Applied.
Three Months Ended December 31, Change in $'s Versus
As a Percent of Net Sales Prior Period -
2022 2021 % Increase
Net sales 100.0 % 100.0 % 20.9 %
Gross profit 29.1 % 29.4 % 19.7 %
Selling, distribution & administrative expense 18.4 % 20.5 % 9.0 %
Operating income 10.6 % 8.9 % 44.4 %
Net income 7.6 % 6.5 % 41.1 %
During the quarter ended December 31, 2022 , sales increased $183.4 million or
20.9% compared to the prior year quarter, with sales from acquisitions adding
$4.0 million or 0.5%, and unfavorable foreign currency translation accounting
for a decrease of $6.0 million or 0.7%. There were 61 selling days in the
quarters ended December 31, 2022 and December 31, 2021 . Excluding the impact of
businesses acquired and foreign currency translation, sales were up $185.4
million or 21.1% during the quarter, driven by an increase from operations
reflecting resilient underlying demand across both segments, structural and
secular tailwinds across legacy and new markets, and support from
company-specific growth opportunities.
The following table shows changes in sales by reportable segment (amounts in
millions).
Three Months Ended Amount of change due to
December 31, Foreign
Sprzedaż według segmentu raportowanego 2022 2021 Wzrost sprzedaży
Acquisitions Currency Organic Change Service Center Based Distribution$ 705.4 $ 587.2 $ 118.2 $ -$ (6.0) $ 124.2 Engineered Solutions 354.9 289.7 65.2 4.0 - 61.2 Total$ 1,060.3 $ 876.9 $ 183.4 $ 4.0$ (6.0) $ 185.4 Sales from our Service Center Based Distribution segment, which operates primarily in MRO markets, increased$118.2 million or 20.1%. Unfavorable foreign currency translation decreased sales by$6.0 million or 1.0%. Excluding the impact of foreign currency translation, sales increased$124.2 million or 21.1%, driven by an increase from operations due to benefits from break-fix MRO activity, sales process initiatives, ongoing pricing actions, as well as secular growth and support from supply chain investments across theU.S. manufacturing sector. Sales from our Engineered Solutions segment increased$65.2 million or 22.5%. Acquisitions within this segment increased sales by$4.0 million or 1.4%. Excluding the impact of businesses acquired, sales increased$61.2 million or 21.1%, driven by growth related to the segment's diverse end market mix, as well as increased automation demand supported by the Company's technical and engineering capabilities. The following table shows changes in sales by geographic area. Other countries includesMexico ,Australia ,New Zealand , andSingapore (amounts in millions). Three Months Ended Amount of change due to December 31, Foreign Sales by Geographic Area 2022 2021 Sales Increase Acquisitions Currency Organic Change United States$ 929.2 $ 756.8 $ 172.4 $ 4.0 $ -$ 168.4 Canada 74.7 66.3 8.4 - (4.8) 13.2 Other countries 56.4 53.8 2.6 - (1.2) 3.8 Total$ 1,060.3 $ 876.9 $ 183.4 $ 4.0$ (6.0) $ 185.4 20
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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Sales in our U.S. operations were up $172.4 million or 22.8%, as acquisitions
added $4.0 million or 0.5%. Excluding the impact of businesses acquired, U.S.
sales were up $168.4 million or 22.3%. Sales from our Canadian operations
increased $8.4 million or 12.7%. Unfavorable foreign currency translation
decreased Canadian sales by $4.8 million or 7.2%. Excluding the impact of
foreign currency translation, Canadian sales increased $13.2 million or 19.9%.
Consolidated sales from our other country operations, which include Mexico ,
Australia , New Zealand , and Singapore , increased $2.6 million or 4.7% from the
prior year. Unfavorable foreign currency translation decreased other country
sales by $1.2 million or 2.2%. Excluding the impact of currency translation,
other country sales were up $3.8 million , or 6.9% during the quarter.
Our gross profit margin was 29.1% in the quarter ended December 31, 2022
compared to 29.4% in the prior year quarter. The gross profit margin for the
current year quarter was negatively impacted by 39 basis points due to a $4.2
million increase in LIFO expense over the prior year quarter driven by ongoing
inflationary impact.
Poniższa tabela przedstawia zmiany kosztów sprzedaży, dystrybucji i ogólnego zarządu (SD&A) (kwoty w milionach).
Three Months Ended Amount of change due to
December 31, Foreign
2022 2021 SD&A Increase Acquisitions Currency Organic Change
SD&A $ 195.6 $ 179.4 $ 16.2 $ 1.6 $ (1.5) $ 16.1
SD&A consists of associate compensation, benefits and other expenses associated
with selling, purchasing, warehousing, supply chain management and providing
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, and facility
related expenses. SD&A was 18.4% of sales in the quarter ended December 31, 2022
compared to 20.5% in the prior year quarter. SD&A increased $16.2 million or
9.0% compared to the prior year quarter. Changes in foreign currency exchange
rates had the effect of decreasing SD&A during the quarter ended December 31,
2022 by $1.5 million or 0.9% compared to the prior year quarter. SD&A from
businesses acquired added $1.6 million or 0.9% of SD&A expenses, including $0.2
million of intangibles amortization related to acquisitions. Excluding the
impact of businesses acquired and the favorable currency translation impact,
SD&A increased $16.1 million or 9.0% during the quarter ended December 31, 2022
compared to the prior year quarter. Excluding the impact of acquisitions, total
compensation increased $10.9 million during the quarter ended December 31, 2022
primarily due to merit increases and an increase in employee incentive
compensation correlating with the improved company performance. In addition, bad
debt expense increased $5.0 million due to provisions recorded in the current
year for customer credit risk factors related to rising interest rates primarily
in the U.S. operations of the Service Center Based Distribution segment.
Further, excluding acquisitions, travel & entertainment and fleet expenses
increased $1.3 million during the quarter ended December 31, 2022 driven by
higher fuel costs and the return of travel activity in the current quarter,
along with reduced travel activity related to COVID-19 in the prior year
quarter. All other expenses within SD&A were down $1.1 million .
Przychody operacyjne wzrosły
Operating income, as a percentage of sales for the Service Center Based Distribution segment increased to 12.3% in the current year quarter from 11.5% in the prior year quarter. Operating income, as a percentage of sales for the Engineered Solutions segment increased to 14.5% in the current year quarter from 12.6% in the prior year quarter. Other expense (income), net was expense of$0.8 million for the quarter, which included net other periodic benefit costs primarily related to the termination of the qualified defined benefit retirement plan of$1.2 million and net unfavorable foreign currency transaction losses of$0.7 million , offset by unrealized gains on investments held by non-qualified deferred compensation trusts of$1.1 million . During the prior year quarter, other expense (income), net was income of$0.9 million , which included unrealized gains on investments held by non-qualified deferred compensation trusts of$1.0 million and$0.1 million of other income, offset by$0.2 million of net unfavorable foreign currency transaction losses. The effective income tax rate was 24.1% for the quarter endedDecember 31, 2022 compared to 20.8% for the quarter endedDecember 31, 2021 . The increase in the effective tax rate is primarily due to a reduction in discrete favorable adjustments during the quarter endedDecember 31, 2022 compared to the prior year quarter. As a result of the factors addressed above, net income for the quarter endedDecember 31, 2022 increased$23.4 million compared to the prior year quarter. Net income per share was$2.05 per share for the quarter endedDecember 31, 2022 compared to$1.46 per share in the prior year quarter. 21
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Table of Contents
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Wyniki operacji
Sześć miesięcy zakończonych
Poniższa tabela została zamieszczona w celu ułatwienia przeglądu skonsolidowanych sprawozdań finansowych Applied.
Six Months Ended
December 31, 2022 Change in $'s Versus
As a Percent of Net Sales Prior Period -
2022 2021 % Increase
Net sales 100.0 % 100.0 % 20.0 %
Gross profit 29.0 % 29.0 % 19.9 %
Selling, distribution & administrative expense 18.6 % 20.4 % 9.9 %
Operating income 10.3 % 8.6 % 43.6 %
Net income 7.4 % 6.2 % 43.0 %
During the six months ended December 31, 2022 , sales increased $354.1 million or
20.0% compared to the prior year period, with sales from acquisitions adding
$5.7 million or 0.3% and unfavorable foreign currency translation of $10.8
million decreasing sales by 0.6%. There were 125 selling days in both the six
months ended December 31, 2022 and December 31, 2021 . Excluding the impact of
businesses acquired and foreign currency translation, sales were up $359.2
million or 20.3% during the period, driven by an increase from operations
reflecting a productive U.S. manufacturing backdrop, as well as ongoing traction
with growth initiatives and backlog support.
The following table shows changes in sales by reportable segment (amounts in
millions).
Six Months Ended Amount of change due to
December 31, Foreign
Sprzedaż według segmentu raportowanego 2022 2021 Wzrost sprzedaży
Acquisitions Currency Organic Change Service Center Based Distribution$ 1,423.4 $ 1,188.1 $ 235.3 $ -$ (10.8) $ 246.1 Engineered Solutions 699.3 580.5 118.8 5.7 - 113.1 Total$ 2,122.7 $ 1,768.6 $ 354.1 $ 5.7$ (10.8) $ 359.2 Sales from our Service Center Based Distribution segment, which operates primarily in MRO markets, increased$235.3 million or 19.8%. Unfavorable foreign currency translation decreased sales by$10.8 million or 0.9%. Excluding the impact of foreign currency translation, sales increased$246.1 million or 20.7%, driven by an increase from operations due to benefits from break-fix MRO activity, sales process initiatives, ongoing pricing actions, as well as secular growth and support from supply chain investments across theU.S. manufacturing sector. Sales from our Engineered Solutions segment increased$118.8 million or 20.5%. Acquisitions within this segment increased sales by$5.7 million or 1.0%. Excluding the impact of businesses acquired, sales increased$113.1 million or 19.5%, driven by growth related to the segment's diverse end market mix, as well as increased automation demand supported by the Company's technical and engineering capabilities. The following table shows changes in sales by geographic area. Other countries includesMexico ,Australia ,New Zealand , andSingapore (amounts in millions). Six Months Ended Amount of change due to December 31, Foreign Sales by Geographic Area 2022 2021 Sales Increase Acquisitions Currency Organic Change United States$ 1,850.7 $ 1,521.0 $ 329.7 $ 5.7 $ -$ 324.0 Canada 154.5 140.8 13.7 - (7.5) 21.2 Other countries 117.5 106.8 10.7 - (3.3) 14.0 Total$ 2,122.7 $ 1,768.6 $ 354.1 $ 5.7$ (10.8) $ 359.2 22
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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Sales in our U.S. operations were up $329.7 million or 21.7%, as acquisitions
added $5.7 million or 0.4%. Excluding the impact of businesses acquired, U.S.
sales were up $324.0 million or 21.3%. Sales from our Canadian operations
increased $13.7 million or 9.7%. Unfavorable foreign currency translation
decreased Canadian sales by $7.5 million or 5.3%. Excluding the impact of
foreign currency translation, Canadian sales were up $21.2 million or 15.0%.
Consolidated sales from our other country operations, which include Mexico ,
Australia , New Zealand , and Singapore , increased $10.7 million or 10.1% from the
prior year. Unfavorable foreign currency translation decreased other country
sales by $3.3 million or 3.1%. Excluding the impact of currency translation,
other country sales were up $14.0 million , or 13.2%, during the period.
Our gross profit margin was 29.0% in both the six months ended December 31, 2022
and in the prior year period. The gross profit margin for the current year
period was negatively impacted by 46 basis points due to a $9.7 million increase
in LIFO expense over the prior year period driven by inflation offset by
broad-based execution across the business and countermeasures in response to
ongoing inflation and supply chain dynamics.
Poniższa tabela przedstawia zmiany kosztów sprzedaży, dystrybucji i ogólnego zarządu (SD&A) (kwoty w milionach).
Six Months Ended Amount of change due to
December 31, Foreign
2022 2021 SD&A Increase Acquisitions Currency Organic Change
SD&A $ 395.9 $ 360.2 $ 35.7 $ 2.4 $ (2.6) $ 35.9
SD&A consists of associate compensation, benefits and other expenses associated
with selling, purchasing, warehousing, supply chain management and providing
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, and facility
related expenses. SD&A was 18.6% of sales in the six months ended December 31,
2022 compared to 20.4% in the prior year period. SD&A increased $35.7 million or
9.9% compared to the prior year period. Changes in foreign currency exchange
rates had the effect of decreasing SD&A during the six months ended December 31,
2022 by $2.6 million or 0.7% compared to the prior year period. SD&A from
businesses acquired added $2.4 million or 0.7% of SD&A expenses, including $0.2
million of intangibles amortization related to acquisitions. Excluding the
impact of businesses acquired and the unfavorable currency translation impact,
SD&A increased $35.9 million or 9.9% during the six months ended December 31,
2022 compared to the prior year period. Excluding the impact of acquisitions,
total compensation increased $21.8 million during the six months ended December
31, 2022 as a result of merit increases and an increase in employee incentive
compensation correlating with the improved company performance. In addition, bad
debt expense increased $8.2 million due to provisions recorded in the current
year for customer credit risk factors related to rising interest rates primarily
in the U.S. operations of the Service Center Based Distribution segment.
Further, travel & entertainment and fleet expenses increased $2.6 million during
the six months ended December 31, 2022 compared to the prior year period
primarily driven by higher fuel costs in the current year and the return of
travel activity, along with reduced travel activity related to COVID-19 in the
prior year. All other expenses within SD&A were up $3.3 million .
Przychody operacyjne wzrosły
Operating income, as a percentage of sales for the Service Center Based Distribution segment increased to 12.3% in the current year period from 11.1% in the prior year period. Operating income, as a percentage of sales for the Engineered Solutions segment increased to 13.9% in the current year period from 12.3% in the prior year period. Other expense (income), net was expense of$1.8 million for the six months endedDecember 31, 2022 , which included net other periodic benefit costs primarily related to the termination of the qualified defined benefit retirement plan of$1.3 million and net unfavorable foreign currency transaction losses of$0.9 million , offset by unrealized gains on investments held by non-qualified deferred compensation trusts of$0.2 million and$0.2 million of other income. During the prior year period, other expense (income), net was income of$1.2 million , which included unrealized gains on investments held by non-qualified deferred compensation trusts of$0.9 million , net favorable foreign currency transaction gains of$0.4 million , and$0.2 million of other income, offset by other periodic post-employment costs of$0.3 million . The effective income tax rate was 23.2% for the six months endedDecember 31, 2022 compared to 21.2% for the six months endedDecember 31, 2021 . The increase in the effective tax rate is primarily due to a reduction in discrete favorable adjustments during the current year period endedDecember 31, 2022 compared to the prior year period. We expect our full year tax rate for fiscal 2022 to be in the 22.0% to 24.0% range. 23
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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As a result of the factors addressed above, net income for the six months ended
December 31, 2022 increased $47.3 million compared to the prior year period. Net
income was $4.02 per share for the six months ended December 31, 2022 compared
to $2.81 per share in the prior year period.
Płynność i zasoby kapitałowe
Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of debt. AtDecember 31, 2022 , we had total debt obligations outstanding of$649.4 million compared to$689.5 million atJune 30, 2022 . Management expects that our existing cash, cash equivalents, funds available under the revolving credit facility, and cash provided from operations will be sufficient to finance normal working capital needs in each of the countries in which we operate, payment of dividends, acquisitions, investments in properties, facilities and equipment, debt service, and the purchase of additional Company common stock. Management also believes that additional long-term debt and line of credit financing could be obtained based on the Company's credit standing and financial strength.
Kapitał obrotowy Spółki na
Przepływy pieniężne netto
Poniższa tabela została zamieszczona w celu ułatwienia przeglądu skróconego sprawozdania ze skonsolidowanych przepływów pieniężnych Applied (kwoty w tysiącach).
Six Months Ended
Net Cash Provided by (Used in): 2022
2021
Operating Activities $ 88,823 $ 81,264
Investing Activities (38,205) (28,877)
Financing Activities (69,137) (153,443)
Exchange Rate Effect (417) (1,846)
Decrease in Cash and Cash Equivalents $ (18,936)
Przyrost środków pieniężnych z działalności operacyjnej w okresie 6 miesięcy zakończonym
Inventories$ (31,557) Accounts payable$ (7,969) Net cash used in investing activities during the six months endedDecember 31, 2022 increased from the prior period primarily due to$25.5 million used for the acquisition ofAutomation, Inc. in the current year compared to$7.0 million used for the acquisition ofR.R. Floody in the prior year period, offset by$14.8 million in cash payments for loans on company-owned life insurance in the prior year. Net cash used in financing activities during the six months endedDecember 31, 2022 decreased from the prior year period primarily due to a change in net debt activity, as there was$40.1 million of debt payments in the current year period compared to$107.8 million of net debt payments in the prior year period. Further, the Company used$0.7 million of cash for the purchase of treasury shares during the six months endedDecember 31, 2022 compared to$10.1 million in the prior year period. Share Repurchases The Board of Directors has authorized the repurchase of shares of the Company's common stock. These purchases may be made in open market and negotiated transactions, from time to time, depending upon market conditions. During the three months endedDecember 31, 2022 , the Company did not acquire any shares of treasury stock on the open market. We acquired 35,000 shares of treasury stock on the open market in the three months endedDecember 31, 2021 for$3.5 million . During the six months endedDecember 31, 2022 , we acquired 8,000 shares of treasury stock for$0.7 million . During the six months endedDecember 31, 2021 , we acquired 111,658 shares of treasury stock for$10.1 million . AtDecember 31, 2022 , we had authorization to repurchase 1,500,000 shares. 24
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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Pożyczki
A summary of long-term debt, including the current portion, follows (amounts in
thousands):
December 31, 2022 June 30, 2022
Revolving credit facility $ 410,592 $ 410,592
Trade receivable securitization facility 188,300 188,300
Series C notes - 40,000
Series D notes 25,000 25,000
Series E notes 25,000 25,000
Other 480 603
Total debt $ 649,372 $ 689,495
Less: unamortized debt issuance costs 131 171
$ 649,241 $ 689,324
Kredyt odnawialny i kredyt terminowy
InDecember 2021 , the Company entered into a 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. This agreement provides a$900.0 million unsecured revolving credit facility and an uncommitted accordion feature which allows the Company to request an increase in the borrowing commitments, or incremental term loans, under the credit facility in aggregate principal amounts of up to$500.0 million . Borrowings under this agreement bear interest, at the Company's election, at either the base rate plus a margin that ranges from 0 to 55 basis points based on net leverage ratio or LIBOR plus a margin that ranges from 80 to 155 basis points based on the net leverage ratio. Unused lines under this facility, net of outstanding letters of credit of$0.2 million to secure certain insurance obligations, totaled$489.2 million atDecember 31, 2022 andJune 30, 2022 , and were available to fund future acquisitions or other capital and operating requirements. The interest rate on the revolving credit facility was 5.35% and 2.81% as ofDecember 31, 2022 andJune 30, 2022 , respectively.
Dodatkowo Spółka posiadała otwarte akredytywy w odrębnych bankach, niezwiązane z umową kredytu odnawialnego, na kwotę
Instrument sekurytyzacji należności handlowych
InAugust 2018 , the Company established a trade receivable securitization facility (the "AR Securitization Facility"). OnMarch 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. Availability is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable being transferred and, therefore, at certain times, we may not be able to fully access the$250.0 million of funding available under the AR Securitization Facility. The AR Securitization Facility effectively increases the Company's borrowing capacity by collateralizing a portion of the amount of theU.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. Borrowings under this facility carry variable interest rates tied to LIBOR. The interest rate on the AR Securitization Facility as ofDecember 31, 2022 andJune 30, 2022 was 5.36% and 2.60%, respectively. The termination date of the AR Securitization Facility isMarch 26, 2024 .
Niezabezpieczona półka
AtDecember 31, 2022 andJune 30, 2022 , the Company had borrowings outstanding under its unsecured shelf facility agreement withPrudential Investment Management of$50.0 million and$90.0 million , respectively. Fees on this facility range from 0.25% to 1.25% per year based on the Company's leverage ratio at each quarter end. The "Series C" notes carried a fixed interest rate of 3.19%, and the remaining principal balance of$40.0 million was paid inJuly 2022 . The "Series D" notes have a remaining principal amount of$25.0 million , carry a fixed interest rate of 3.21%, and are due inOctober 2023 . The "Series E" notes have a principal amount of$25.0 million , carry a fixed interest rate of 3.08%, and are due inOctober 2024 . 25
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APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Inne pożyczki długoterminowe
In 2014, the Company assumed$2.4 million of debt as a part of the headquarters facility acquisition. The 1.50% fixed interest rate note is held by theState of Ohio Development Services Agency , and matures inMay 2024 . The Company entered into an interest rate swap which mitigates variability in forecasted interest payments on$384.0 million of the Company'sU.S. dollar-denominated unsecured variable rate debt. For more information, see note 6, Derivatives, to the consolidated financial statements, included in Item 1 under the caption "Notes to Condensed Consolidated Financial Statements." The credit facility and the unsecured shelf facility contain restrictive covenants regarding liquidity, net worth, financial ratios, and other covenants. AtDecember 31, 2022 , the most restrictive of these covenants required that the Company have net indebtedness less than 3.75 times consolidated income before interest, taxes, depreciation and amortization (as defined). AtDecember 31, 2022 , the Company's net indebtedness was 1.1 times consolidated income before interest, taxes, depreciation and amortization (as defined). The Company was in compliance with all financial covenants atDecember 31, 2022 .
Analiza należności
The following table is included to aid in analysis of accounts receivable and
the associated provision for losses on accounts receivable (amounts in
thousands):
December 31, June 30,
2022 2022
Accounts receivable, gross $ 680,020 $ 673,951
Allowance for doubtful accounts 25,510 17,522
Accounts receivable, net $ 654,510 $ 656,429
Allowance for doubtful accounts, % of gross receivables 3.8 % 2.6 %
Three Months Ended December 31, Six Months Ended December 31,
2022 2021 2022 2021
Provision for losses on accounts
receivable $ 5,579 $ 531 $ 9,573 $ 1,328
Provision as a % of net sales 0.53 % 0.06 % 0.45 % 0.08 %
Accounts receivable are reported at net realizable value and consist of trade
receivables from customers. Management monitors accounts receivable by reviewing
Days Sales Outstanding (DSO) and the aging of receivables for each of the
Company's locations.
W ujęciu skonsolidowanym OSD wyniósł 55,6 pkt
As ofDecember 31, 2022 , approximately 4.1% of our accounts receivable balances are more than 90 days past due, compared to 3.4% atJune 30, 2022 . On an overall basis, our provision for losses on accounts receivable represents 0.53% of our sales in the three months endedDecember 31, 2022 , compared to 0.06% of sales for the three months endedDecember 31, 2021 , and 0.45% of sales for the six months endedDecember 31, 2022 compared to 0.08% of sales for the six months endedDecember 31, 2021 . The increase primarily relates to provisions recorded in the current year for customer credit deterioration and bankruptcies primarily in the Service Center Based Distribution segment. Historically, this percentage is around 0.10% to 0.15%. Management believes the overall receivables aging and provision for losses on accounts receivable are at reasonable levels. Inventory Analysis Inventories are valued using the last-in, first-out (LIFO) method forU.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 believes that using average costs to determine the inventory turnover ratio instead of LIFO costs provides a more useful analysis. The annualized inventory turnover based on average costs was 4.6 for the period endedDecember 31, 2022 and 4.7 for the period endedJune 30, 2022 . 26
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Table of Contents
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Ostrzeżenie w ramach ustawy o reformie postępowania sądowego dotyczącego prywatnych papierów wartościowych
Management's Discussion and Analysis contains statements that are forward-looking based on management's current expectations about the future. Forward-looking statements are often identified by qualifiers, such as "guidance", "expect", "believe", "plan", "intend", "will", "should", "could", "would", "anticipate", "estimate", "forecast", "may", "optimistic" and derivative or similar words or expressions. Similarly, descriptions of objectives, strategies, plans, or goals are also forward-looking statements. These statements may discuss, among other things, expected growth, future sales, future cash flows, future capital expenditures, future performance, and the anticipation and expectations of the Company and its management as to future occurrences and trends. The Company intends that the forward-looking statements be subject to the safe harbors established in the Private Securities Litigation Reform Act of 1995 and by theSecurities and Exchange Commission in its rules, regulations and releases. Readers are cautioned not to place undue reliance on any forward-looking statements. All forward-looking statements are based on current expectations regarding important risk factors, many of which are outside the Company's control. Accordingly, actual results may differ materially from those expressed in the forward-looking statements, and the making of those statements should not be regarded as a representation by the Company or any other person that the results expressed in the statements will be achieved. In addition, the Company assumes no obligation publicly to update or revise any forward-looking statements, whether because of new information or events, or otherwise, except as may be required by law. Important risk factors include, but are not limited to, the following: risks relating to the operations levels of our customers and the economic factors that affect them; continuing risks relating to the effects of the COVID-19 pandemic; inflationary or deflationary trends in the cost of products, energy, labor and other operating costs, and changes in the prices for products and services relative to the cost of providing them; reduction in supplier inventory purchase incentives; loss of key supplier authorizations, lack of product availability (such as due to supply chain strains), changes in supplier distribution programs, inability of suppliers to perform, and transportation disruptions; changes in customer preferences for products and services of the nature and brands sold by us; changes in customer procurement policies and practices; competitive pressures; our reliance on information systems and risks relating to their proper functioning, the security of those systems, and the data stored in or transmitted through them; the impact of economic conditions on the collectability of trade receivables; reduced demand for our products in targeted markets due to reasons including consolidation in customer industries; our ability to retain and attract qualified sales and customer service personnel and other skilled executives, managers and professionals; our ability to identify and complete acquisitions, integrate them effectively, and realize their anticipated benefits; the variability, timing and nature of new business opportunities including acquisitions, alliances, customer relationships, and supplier authorizations; the incurrence of debt and contingent liabilities in connection with acquisitions; our ability to access capital markets as needed on reasonable terms; disruption of operations at our headquarters or distribution centers; risks and uncertainties associated with our foreign operations, including volatile economic conditions, political instability, cultural and legal differences, and currency exchange fluctuations; the potential for goodwill and intangible asset impairment; changes in accounting policies and practices; our ability to maintain effective internal control over financial reporting; organizational changes within the Company; risks related to legal proceedings to which we are a party; potentially adverse government regulation, legislation, or policies, both enacted and under consideration, including with respect to federal tax policy, labor policy, international trade, data privacy and security, and government contracting; and the occurrence of extraordinary events (including prolonged labor disputes, power outages, telecommunication outages, terrorist acts, war, public health emergency, earthquakes, extreme weather events, other natural disasters, fires, floods, and accidents). Other factors and unanticipated events could also adversely affect our business, financial condition, or results of operations. Risks can also change over time. Further, the disclosure of a risk should not be interpreted to imply that the risk has not already materialized. We discuss certain of these matters and other risk factors more fully throughout this Form 10-Q as well as other of our filings with theSecurities and Exchange Commission , including our Annual Report on Form 10-K for the year endedJune 30, 2022 . 27 --------------------------------------------------------------------------------APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
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