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Item 7. Management’s Discussion and Analysis

2022-08-12 compared with 2021-08-17 · 85 added, 101 removed, 290 unchanged (39% of the section changed)

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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.

Our fiscal 2021 consolidated sales were $3.2 billion, a decrease of $9.7 million or 0.3% compared to the prior year, with the acquisitions of Olympus Controls (Olympus), Advanced Control Solutions (ACS) and Gibson Engineering (Gibson) increasing sales by $44.1 million or 1.4% and favorable foreign currency of $16.5 million increasing sales by 0.5%.

Gross profit margin was 28.9% for both fiscal 2021 and 2020.

Our fiscal 2022 consolidated sales were $3.8 billion, an increase of $574.8 million or 17.8% compared to the prior year, with the acquisitions of Advanced Control Solutions (ACS), Gibson Engineering (Gibson) and R.R.

Floody Company (Floody) increasing sales by $34.1 million or 1.1% and favorable foreign currency translation of $2.4 million increasing sales by 0.1%.

Gross profit margin increased to 29.0% for fiscal 2022 from 28.9% for fiscal 2021.

Operating margin increased to 9.4% in fiscal 2022 from 6.3% in fiscal 2021.

Our earnings per share was $6.58 in fiscal 2022 versus $3.68 in fiscal year 2021.

Fiscal 2021 results include a $49.5 million pre-tax non-cash charge related to the impairment of certain intangible, lease, and fixed assets, as well as non-routine costs of $7.8 million pre-tax.

These items are the result of weaker economic conditions and business alignment initiatives across a portion of the Service Center Based Distribution segment operations exposed to oil and gas end markets.

Total non-routine costs of $7.8 million pre-tax include a $7.4 million inventory reserve charge recorded within cost of sales, and $0.4 million related to severance and facility consolidation recorded in selling, distribution and administrative expense.

These charges were offset in the current year by other non-routine income of $2.6 million.

Fiscal 2021 results included a $49.5 million pre-tax non-cash charge related to the impairment of certain intangible, lease, and fixed assets, as well as non-routine costs of $7.8 million pre-tax, which were the result of weaker economic conditions and business alignment initiatives across a portion of the Service Center Based Distribution segment operations exposed to oil and gas end markets.

Total non-routine costs of $7.8 million pre-tax included a $7.4 million inventory reserve charge recorded within cost of sales, and $0.4 million related to severance and facility consolidation recorded in selling, distribution and administrative expense.

These charges were offset in the prior year by non-routine income of $2.6 million.

On a net basis, the fiscal 2021 non-routine items unfavorably impacted operating income by $54.7 million, net income by $41.7 million, and earnings per share by $1.06 per share.

The prior year included a $131.0 million non-cash goodwill impairment charge recorded during fiscal 2020 related to the goodwill associated with the Company's FCX Performance, Inc.

(FCX) operations within the Fluid Power & Flow Control segment.

The non-cash goodwill impairment charge decreased net income by $118.8 million and earnings per share by $3.04 per share for fiscal 2020.

Fiscal 2021 ended on a positive note as underlying demand continued to strengthen across both segments during the fourth quarter reflecting sustained recovery in our core end-markets and momentum across our internal growth initiatives.

We are managing inflation well and controlling costs, while benefiting from productivity enhancements.

Fiscal 2022 is off to a positive start with organic sales through early August up by a high-teens percent over the prior year and customer indications signaling sustained demand momentum.

Shareholders’ equity was $1,149.4 million at June 30, 2022 compared to $932.5 million at June 30, 2021.

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The MCU (total industry) and IP indices increased since June 2021 correlating with an overall increase in the economy in the same period.

The ISM PMI registered 60.6 in June 2021, an increase from the June 2020 revised

reading of 52.2.

The ISM PMI registered 53.0 in June 2022, a decrease from the June 2021 revised reading of 60.9.

A reading above 50 generally indicates expansion.

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Net Income 6.8 % 4.5 % 77.8 %

Sales in fiscal 2021 were $3.2 billion, which was $9.7 million or 0.3% below the prior year, with sales from acquisitions adding $44.1 million or 1.4% and favorable foreign currency translation accounting for an increase of $16.5 million or 0.5%.

There were 252.5 selling days in fiscal 2021 and 253.5 selling days in fiscal 2020.

Excluding the impact of businesses acquired and foreign currency translation, sales were down $70.3 million or 2.2% during the year, driven by a 1.8% decrease from operations and a 0.4% decrease due to one less sales day.

The decrease from operations is due to weak demand across key end markets from the impact of the COVID-19 pandemic, although sales improved as the year progressed.

Sales in fiscal 2022 were $3.8 billion, which was $574.8 million or 17.8% above the prior year, with sales from acquisitions adding $34.1 million or 1.1% and favorable foreign currency translation accounting for an increase of $2.4 million or 0.1%.

There were 252.5 selling days in both fiscal 2022 and 2021.

Excluding the impact of businesses acquired and foreign currency translation, sales were up $538.3 million or 16.6% during the year, driven by an increase from operations reflecting positive growth across core end markets, including heavy industrial verticals, as well as ongoing pricing actions and our internal growth initiatives.

The following table shows changes in sales by reportable segment.

Amounts in millions Amount of change due to

Year ended June 30, Sales (Decrease) Increase Acquisitions Foreign Currency Organic Change

Year ended June 30, Sales Increase Acquisitions Foreign Currency Organic Change

Sales by Reportable Segment 2022 2021

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Total $ 3,810.7 $ 3,235.9 $ 574.8 $ 34.1 $ 2.4 $ 538.3

Sales of our Service Center Based Distribution segment, which operates primarily in MRO markets, decreased $42.4 million, or 1.9%.

Sales in our Service Center Based Distribution segment, which operates primarily in MRO markets, increased $366.1 million, or 16.6%.

Favorable foreign currency translation increased sales by $2.4 million or 0.1%.

Excluding the impact of businesses acquired and the impact of foreign currency translation, sales decreased $58.9 million or 2.6% during the year, driven by a 2.2% decrease from operations and a decrease of 0.4% due to one less sales day.

The decrease from operations reflects weaker industrial end-market demand from the impact of the COVID-19 pandemic, although sales improved as the year progressed.

Sales of our Fluid Power & Flow Control segment increased $32.7 million or 3.3%.

Acquisitions within this segment, primarily ACS and Gibson, increased sales $44.1 million or 4.4%.

Excluding the impact of businesses acquired, sales decreased $11.4 million or 1.1%, driven by a 0.7% decrease from operations and by a decrease of 0.4% due to one less sales day.

The decrease from operations is primarily due to ongoing soft demand across process-related end markets, offset by stronger demand across technology, off-highway mobile, life sciences, and chemical end markets, as well as automation-related sales.

Excluding the impact of businesses acquired and the impact of foreign currency translation, sales increased $363.7 million or 16.5% during the year, driven by an increase from operations due to benefits from break-fix MRO activity, sales process initiatives, as well as incremental growth from heavy industry verticals, with the strongest growth from the metals, machinery, aggregates, mining, pulp & paper, rubber & plastics, energy, and lumber & wood end markets.

Sales in our Fluid Power & Flow Control segment increased $208.7 million or 20.1%.

Acquisitions within this segment, primarily Gibson and Floody, increased sales $34.1 million or 3.3%.

Excluding the impact of businesses acquired, sales increased $174.6 million or 16.8%, driven by an increase from operations due to ongoing demand strength across technology verticals and automation, as well as end market growth across the metals, chemicals, refining, utilities, pulp & paper and mining end-markets, partially offset by supply chain bottlenecks.

The following table shows changes in sales by geographical area.

Other countries includes Mexico, Australia, New Zealand, and Singapore.

Other countries include Mexico, Australia, New Zealand, and Singapore.

Amounts in millions Amount of change due to

Year ended June 30, Sales (Decrease) Increase Acquisitions Foreign Currency Organic Change

Year ended June 30, Sales Increase Acquisitions Foreign Currency Organic Change

Sales by Geographic Area 2022 2021

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Sales in our U.S.

operations decreased $36.5 million or 1.3%, with acquisitions adding $44.1 million or 1.6%.

operations increased $516.9 million or 18.6%, with acquisitions adding $34.1 million or 1.2%.

Excluding the impact of businesses acquired, U.S.

sales were down $80.6 million or 2.9%, driven by a decrease of 2.5% from operations and by a decrease of 0.4% due to one less sales days.

sales were up $482.8 million or 17.4%, driven by an increase from operations.

Sales from our Canadian operations increased $36.2 million or 14.2%, while favorable foreign currency translation increased Canadian sales by $2.8 million or 1.1%.

Excluding the impact of foreign currency translation, Canadian sales were down $4.8 million or 2.0%, driven by a decrease of 1.6% from operations and by a decrease of 0.4% due to one less sales days.

Consolidated sales from our other country operations increased $20.0 million or 11.3% compared to the prior year.

Favorable foreign currency translation increased other country sales by $4.9 million or 2.7%.

Excluding the impact of foreign currency translation, other country sales were up $15.1 million or 8.6% compared to the prior year, driven by an increase of 9.2% from operations, primarily a $10.9 million increase in Australian sales due to increased demand in the mining industry, offset by a decrease of 0.6% due to less sales days.

The gross profit margin was 28.9% in both fiscal 2021 and 2020.

Excluding the impact of foreign currency translation, Canadian sales were up $33.4 million or 13.1%.

Consolidated sales from our other countries operations increased $21.7 million or 11.0% compared to the prior year.

Unfavorable foreign currency translation decreased other countries sales by $0.4 million or 0.2%.

Excluding the impact of foreign currency translation, other countries sales were up $22.1 million or 11.2% compared to the prior year, driven by an increase from operations, primarily a $13.9 million increase in Mexican sales due to increased industrial activity, primarily related to steel operations.

Our gross profit margin increased to 29.0% in fiscal 2022 compared to 28.9% in fiscal 2021.

Gross profit margin expanded year over year and sequentially primarily reflecting broad-based execution across the business and countermeasures in response to ongoing inflation and supply chain dynamics.

This was offset by 72 basis points due to a $27.3 million increase in LIFO expense year over year.

The following table shows the changes in selling, distribution, and administrative expense (SD&A).

Amounts in millions Amount of change due to

Year ended June 30, SD&A Decrease Acquisitions Foreign Currency Organic Change

Year ended June 30, SD&A Increase Acquisitions Foreign Currency Organic Change

SD&A $ 749.1 $ 680.5 $ 68.5 $ 9.3 $ 0.5 $ 58.7

SD&A consists of associate compensation, benefits and other expenses associated with selling, purchasing, warehousing, supply chain management, and marketing and distribution of the Company’s products, as well as costs associated with a variety of administrative functions such as human resources, information technology, treasury, accounting, insurance, legal, facility related expenses and expenses incurred in acquiring businesses.

SD&A decreased $37.2 million or 5.2% during fiscal 2021 compared to the prior year, and as a percentage of sales decreased to 21.0% in fiscal 2021 compared to 22.1% in fiscal 2020.

SD&A increased $68.5 million or 10.1% during fiscal 2022 compared to the prior year, and as a percentage of sales decreased to 19.7% in fiscal 2022 compared to 21.0% in fiscal 2021.

Changes in foreign currency exchange rates had the effect of increasing SD&A by $0.5 million or 0.1% compared to the prior year.

SD&A from businesses acquired added $9.3 million or 1.4%, including $0.8 million of intangibles amortization related to acquisitions.

Excluding the impact of businesses acquired and the favorable impact from foreign currency translation, SD&A decreased $54.0 million or 7.6% during fiscal 2021 compared to fiscal 2020.

The Company incurred $0.4 million of non-routine expenses related to severance and closed facilities during fiscal 2021 compared to $5.1 million non-routine expenses related to severance and facility consolidation during fiscal 2020.

Excluding the impact of acquisitions and severance, total compensation decreased $14.1 million during fiscal 2021, primarily due to cost reduction actions taken by the Company in response to the COVID-19 pandemic, including headcount reductions, temporary furloughs and pay reductions, and suspension of the 401(k) company match.

All of the temporary cost reductions have been reinstated in the second half of fiscal 2021.

Also, excluding the impact of acquisitions, travel & entertainment and fleet expenses decreased $12.2 million during 2021, primarily due to continued reduced travel activity related to COVID-19.

In addition, bad debt expense decreased $7.5 million, primarily due to provisions recorded in the prior year for customer credit deterioration and bankruptcies primarily in the Service Center Based Distribution segment, offset by strong cash collections and an improvement in the overall credit profile of the

accounts receivable portfolio in fiscal 2021.

Further, excluding the impact of acquisitions, intangible amortization expense decreased $8.3 million during fiscal 2021 primarily due to the intangible impairment recorded during the year.

Excluding the impact of businesses acquired and the unfavorable impact from foreign currency translation, SD&A increased $58.7 million or 8.6% during fiscal 2022 compared to fiscal 2021.

The Company incurred $0.4 million of non-routine expenses related to severance and closed facilities during fiscal 2021.

Excluding the impact of acquisitions and severance, total compensation increased $50.3 million during fiscal 2022, primarily due to cost reduction actions taken by the Company in fiscal 2021 in response to the COVID-19 pandemic, including headcount reductions, temporary furloughs and pay reductions, and suspension of the 401(k) plan company match.

Also, excluding the impact of acquisitions, travel & entertainment and fleet expenses increased $9.0 million during 2022, primarily due to reduced travel activity related to COVID-19 in the prior year.

All other expenses within SD&A were down $0.2 million.

During the second quarter of fiscal 2021, the Company determined that an impairment existed in two of its three asset groups within the Service Center Based Distribution segment that have significant exposure to oil and gas end markets as the asset groups' carrying values exceeded the sum of the undiscounted cash flows.

During fiscal 2021, the Company determined that an impairment existed in two of its three asset groups within the Service Center Based Distribution segment that have significant exposure to oil and gas end markets as the asset

groups' carrying values exceeded the sum of the undiscounted cash flows.

The fair values of the long-lived assets were determined using the income approach, and the analyses resulted in the measurement of an intangible asset impairment loss of $45.0 million, as the fair value of the intangible assets was determined to be zero.

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Combined, the non-cash impairment charges decreased net income by $37.8 million and earnings per share by $0.96 per share for fiscal 2021.

As a result of the Company's annual goodwill impairment test in fiscal 2020, the Company recorded a $131.0 million non-cash goodwill impairment charge related to the Company's FCX operations in the Fluid Power & Flow Control segment, primarily due to the overall decline in the industrial economy, specifically slower demand in FCX's end markets.

The non-cash goodwill impairment charge decreased net income by $118.8 million and earnings per share by $3.04 per share for fiscal 2020.

Operating income increased $116.5 million, or 130.9%, to $205.5 million during fiscal 2021 from $89.0 million during fiscal 2020, and as a percentage of sales, increased to 6.3% from 2.7%, primarily as a result of the goodwill impairment expense recorded during fiscal 2020 offset by the intangible impairment recorded in fiscal 2021.

Operating income increased $152.4 million, or 74.2%, to $357.9 million during fiscal 2022 from $205.5 million during fiscal 2021, and as a percentage of sales, increased to 9.4% from 6.3%, primarily due to gross profit margin expansion and control of SD&A expense in fiscal 2022, in addition to the $49.5 million non-cash impairment charges recorded in fiscal 2021.

Operating income, before impairment charges, as a percentage of sales for the Service Center Based Distribution segment increased to 11.8% in fiscal 2022 from 10.2% in fiscal 2021.

Operating income, before impairment charges, as a percentage of sales for the Fluid Power & Flow Control segment increased to 11.8% in fiscal 2021 from 10.9% in fiscal 2020.

Operating income as a percentage of sales for the Fluid Power & Flow Control segment increased to 12.6% in fiscal 2022 from 11.8% in fiscal 2021.

Segment operating income is impacted by changes in the amounts and levels of certain supplier support benefits and expenses allocated to the segments.

The expense allocations include corporate charges for working capital, logistics support and other items and impact segment gross profit and operating expense.

Other income, net, represents certain non-operating items of income and expense, and was $2.2 million of income in fiscal 2021 compared to $2.8 million of income in fiscal 2020.

Current year income primarily consists of unrealized gains on investments held by non-qualified deferred compensation trusts of $4.0 million and other income of $0.3 million, offset by foreign currency transaction losses of $2.1 million.

Fiscal 2020 income consisted primarily of unrealized gains on investments held by non-qualified deferred compensation trusts of $0.5 million and foreign currency transaction gains of $2.5 million offset by other expenses of $0.2 million.

Other expense (income), net, represents certain non-operating items of income and expense, and was $1.8 million of expense in fiscal 2022 compared to $2.2 million of income in fiscal 2021.

Current year expense primarily consists of unrealized loss on investments held by non-qualified deferred compensation trusts of $2.6 million and other expense of $0.6 million, offset by life insurance income of $1.4 million.

Fiscal 2021 income consisted primarily of unrealized gains on investments held by non-qualified deferred compensation trusts of $4.0 million and other income of $0.3 million offset by foreign currency transaction losses of $2.1 million.

The effective income tax rate was 21.9% for fiscal 2022 compared to 18.2% for fiscal 2021.

The decrease in the effective tax rate is primarily due to the FCX goodwill impairment charge in the prior year, which increased the effective tax rate by 31.4% in fiscal 2020.

We expect our income tax rate for fiscal 2022 to be in the range of 22.0% to 23.0%.

The increase in the effective tax rate is due to changes in compensation-related deductions and uncertain tax positions in fiscal 2022 compared to the prior year.

As a result of the factors discussed above, net income for fiscal 2022 increased $112.7 million from the prior year.

Net income per share was $6.58 per share for fiscal 2022 compared to $3.68 per share for fiscal 2021.

At June 30, 2021, we had a total of 568 operating facilities in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, and Singapore, versus 580 at June 30, 2020.

We had a total of 568 operating facilities in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, and Singapore at June 30, 2022 and June 30, 2021.

The approximate number of Company employees was 6,100 at June 30, 2022 and 5,900 at June 30, 2021.

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The following table is included to aid in review of Applied’s statements of consolidated cash flows.

are in thousands.

Year Ended June 30,

Net Cash Provided by:

Amounts in thousands Year Ended June 30,

Net Cash Provided by (Used in):

Operating Activities $ 187,570 $ 241,697

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The decrease in cash provided by operating activities during fiscal 2022 is driven by changes in working capital for the year offset by increased operating results.

Changes in cash flows between years related to working capital were driven by:

Changes in cash flows between years related to working capital were driven by (amounts in thousands):

Accounts receivable $ (86,400)

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Accounts payable $ 42,678

Net cash used in investing activities in fiscal 2021 included $30.2 million used for the acquisitions of ACS and Gibson and $15.9 million used for capital expenditures.

Net cash used in investing activities in fiscal 2020 included $37.2 million used for the acquisitions of Olympus and $20.1 million for capital expenditures.

Net cash used in financing activities included $131.9 million and $49.6 million of long-term debt repayments in 2021 and 2020, respectively, offset by $26.0 million of cash borrowings from the trade receivable securitization facility in 2021 and $25.0 million of cash borrowings under a unsecured shelf facility agreement with Prudential Investment Management in 2020.

Net cash used in investing activities in fiscal 2022 included $7.0 million used for the acquisition of Floody, $14.8 million in cash payments for loans on company-owned life insurance and $18.1 million used for capital expenditures.

Net cash used in investing activities in fiscal 2021 included $30.2 million used for the acquisitions of ACS and Gibson and $15.9 million for capital expenditures.

Net cash used in financing activities increased from the prior year period primarily due to a change in net debt activity, as there was $139.9 million of net debt payments in fiscal 2022 compared to $105.9 million of net debt payments in 2021.

Further uses of cash in 2022 were $51.8 million for dividend payments, $8.1 million used to pay taxes for shares withheld, and $13.8 million used to repurchase 148,658 shares of treasury stock.

Further uses of cash in 2020 were $48.9 million for dividend payments and $2.6 million used to pay taxes for shares withheld.

Further uses of cash in 2021 were $50.7 million for dividend payments, $10.1 million used to pay taxes for shares withheld, and $40.1 million used to repurchase 400,000 shares of treasury stock.

The increase in dividends over the year is the result of regular increases in our dividend payout rates.

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At June 30, 2022, we had authorization to purchase an additional 315,960 shares.

On August 9, 2022 the Board of Directors authorized the repurchase of 1.5 million shares of the Company's stock.

The Company repurchased 148,658 shares in fiscal 2022 at an average price per share of $92.72.

In fiscal 2020 no shares were repurchased and in 2019, we repurchased 192,082 shares of the Company’s common stock at an average price per share of $58.10.

In fiscal 2021, we repurchased 400,000 shares of the Company's common stock at an average price per share of $100.22 and in fiscal 2020, no shares were repurchased.

Borrowing Arrangements

A summary of long-term debt, including the current portion, follows;

all amounts are in thousands:

A summary of long-term debt, including the current portion, follows (amounts are in thousands):

June 30, 2022 2021

Unsecured credit facility $ 550,250 $ 589,250

Revolving credit facility $ 410,592 $ —

Term Loan — 550,250

Trade receivable securitization facility 188,300 188,300

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$ 689,324 $ 828,380

In January 2018, the Company refinanced its existing credit facility and entered into a new five-year credit facility with a group of banks expiring in January 2023.

This agreement provides for a $780.0 million unsecured term loan and a $250.0 million unsecured revolving credit facility.

Fees on this facility range from 0.10% to 0.20% per year based upon the Company's leverage ratio at each quarter end.

Borrowings under this agreement carry variable interest rates tied to either LIBOR or prime at the Company's discretion.

The Company had no amount outstanding under the revolver as of June 30, 2021 and June 30, 2020.

Unused lines under this facility, net of outstanding letters of credit of $0.2 million and $1.9 million, respectively, to secure certain insurance obligations, totaled $249.8 million and $248.1 million at June 30, 2021 and June 30, 2020, respectively, and were available to fund future acquisitions or other capital and operating requirements.

The interest rate on the term loan was 1.88% and 1.94% as of June 30, 2021 and June 30, 2020, respectively.

In December 2021, the Company entered into a new five-year revolving credit facility with a group of banks to refinance the existing credit facility as well as provide funds for ongoing working capital and other general corporate purposes.

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 at June 30, 2022, and were available to fund future acquisitions or other capital and operating requirements.

The interest rate on the revolving credit facility was 2.81% as of June 30, 2022.

The new credit facility replaced the Company's previous credit facility agreement.

The Company used its initial borrowings on the new revolving credit facility along with cash on hand of $98.2 million to extinguish the term loan balance outstanding under the previous credit facility of $540.5 million.

The Company had no amount outstanding under the revolver at June 30, 2021.

Unused lines under the previous facility, net of outstanding letters of credit of $0.2 million to secure certain insurance obligations, totaled $249.8 million at June 30, 2021.

The interest rate on the term loan was 1.88% as of June 30, 2021.

The Company paid $2.0 million of debt issuance costs related to the new revolving credit facility in the year ended June 30, 2022, which are included in other current assets and other assets on the consolidated balance sheet as of June 30, 2022 and will be amortized over the five-year term of the new credit facility.

The Company analyzed the unamortized debt issuance costs related to the previous credit facility under Accounting Standards Codification (ASC) Topic 470 - Debt.

As a result of this analysis, $0.1 million of unamortized debt issuance costs were expensed and included within interest expense on the statements of consolidated income for the year ended June 30, 2022, and $0.5 million of unamortized debt issuance costs were rolled forward into the new credit facility and were reclassified from the current portion of long-term debt and long-term debt into other current assets and other assets on the consolidated balance sheet as of June 30, 2022, and will be amortized over the five-year term of the new credit facility.

Additionally, the Company had letters of credit outstanding not associated with the revolving credit agreement, in the amount of $4.7 million and $4.5 million as of June 30, 2022 and June 30, 2021, respectively, in order to secure certain insurance obligations.

In August 2018, the Company established a trade receivable securitization facility (the “AR Securitization Facility”) with a termination date of August 31, 2021.

In March 2021, the Company amended the AR Securitization Facility to expand the eligible receivables, which increased the maximum availability to $250.0 million and increased the drawn fees on the AR Securitization Facility to 0.98% per year.

On March 26, 2021, the Company amended the AR Securitization Facility to expand the eligible receivables, which increased the maximum availability to $250.0 million and increased the drawn 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.

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The interest rate on the AR Securitization Facility as of June 30, 2022 and June 30, 2021 was 2.60% and 1.20%, respectively.

The termination date of the AR Securitization is now in March 2024.

At June 30, 2021 and June 30, 2020, the Company had borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management of $90.0 million and $170.0 million, respectively.

The new termination date of the AR Securitization Facility is March 26, 2024.

At June 30, 2022 and June 30, 2021, the Company had borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management of $90.0 million.

Fees on this facility range from 0.25% to 1.25% per year based on the Company's leverage ratio at each quarter end.

The "Series C" notes, which had an original principal amount of $120.0 million, carry a fixed interest rate of 3.19%.

During fiscal 2021, two principal payments of $40.0 million each were made on the "Series C" notes and the remaining balance of $40.0 million is due in July 2022.

The "Series C" notes carried a fixed interest rate of 3.19%, and the re maining balance of $40.0 million was paid in July 2022.

The "Series D" notes have a remaining principal amount of $25.0 million, carry a fixed interest rate of 3.21%, and are due in October 2023.

The "Series E" notes have a principal amount of $25.0 million, carry a fixed interest rate of 3.08%, and are due in October 2024.

The Company entered into an interest rate swap which mitigates variability in forecasted interest payments on $420.0 million of the Company’s U.S.

In 2014, the Company assumed $2.4 million of debt as a part of the headquarters facility acquisition.

The 1.50% fixed interest rate note is held by the State of Ohio Development Services Agency and matures in November 2024.

In 2019, the Company entered into an interest rate swap which mitigates variability in forecasted interest payments on $409.0 million of the Company’s U.S.

dollar-denominated unsecured variable rate debt.

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Management monitors accounts receivable by reviewing Days Sales Outstanding (DSO) and the aging of receivables for each of the Company's locations.

The Company experienced a significant increase in accounts receivable during fiscal 2022 commensurate with the increase in sales.

On a consolidated basis, DSO was 55.7 at June 30, 2022 versus 51.9 at June 30, 2021.

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On an overall basis, our provision for losses from uncollected receivables represents 0.08% of our sales for the year ended June 30, 2022, compared to 0.20% of sales for the year ended June 30, 2021.

The decrease primarily relates to strong cash collections and an improvement in the overall credit profile of the accounts receivable portfolio in the current year, compared to provisions recorded in the prior year for customer credit deterioration and bankruptcies primarily in the U.S.

The decrease primarily relates to provisions recorded in the prior year for customer credit deterioration and bankruptcies primarily in the U.S.

and Mexican operations of the Service Center Based Distribution segment.

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inventories and the average cost method for foreign inventories.

Inventory increased throughout fiscal 2022 to meet increasing customer demand.

Management uses an inventory turnover ratio to monitor and evaluate inventory.

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The annualized inventory turnover (using average costs) for the year ended June 30, 2022 was 4.7 versus 4.3 for the year ended June 30, 2021.

We believe our inventory turnover ratio in fiscal 2022 will be slightly better than our fiscal 2021 levels.

CONTRACTUAL OBLIGATIONS

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Unrecognized income tax benefit liabilities, including interest and penalties 5,800 — — — — 5,800

6,500 — — — — 6,500

Long-term debt obligations 689,495 40,247 238,656 410,592 — —

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The Company has three asset groups that have significant exposure to oil and gas end markets.

Due to the prolonged economic downturn in these end markets, the Company determined during the second quarter of fiscal 2021 that certain carrying values may not be recoverable.

Due to the economic downturn in these end markets in the prior year, the Company determined during the second quarter of fiscal 2021 that certain carrying values may not be recoverable.

The Company determined that an impairment existed in two of the three asset groups as the asset groups' carrying values exceeded the sum of the undiscounted cash flows.

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The Company has eight (8) reporting units for which an annual goodwill impairment assessment was performed as of January 1, 2022.

The Company concluded that seven (7) of the reporting units’ fair values exceeded their carrying amounts by at least 25% as of January 1, 2021.

The fair value of the final reporting unit, which is comprised of the FCX Performance Inc.

(FCX) operations, exceeded its carrying value by 14%.

The FCX reporting unit has a goodwill balance of $309.0 million as of June 30, 2021.

The Company had eight (8) reporting units for which an annual goodwill impairment assessment was performed as of January 1, 2020.

The Company concluded that seven (7) of the reporting units’ fair values exceeded their carrying amounts by at least 10% as of January 1, 2020.

Specifically, the Canada reporting unit's fair value exceeded its carrying value by 12%, and the Mexico reporting unit's fair value exceeded its carrying value by 14%.

The carrying value of the final reporting unit, which is comprised of the FCX operations, exceeded the fair value, resulting in goodwill impairment of $131.0 million.

The non-cash impairment charge was the result of the overall decline in the industrial economy, specifically slower demand in FCX's end markets, which led to reduced spending by customers and reduced revenue expectations.

If the Company does not achieve forecasted sales growth and margin improvements goodwill could be further impaired.

The Company concluded that all of the reporting units’ fair values exceeded their carrying amounts by at least 25% as of January 1, 2022.

The fair values of the reporting units in accordance with the goodwill impairment test were determined using the income and market approaches.

6 unchanged sentences

As of June 30, 2022, the Company recognized $38.3 million of net deferred tax liabilities.

Valuation allowances are provided against deferred tax assets where it is considered more-likely-than-not that the Company will not realize the benefit of such assets on a jurisdiction by jurisdiction basis.

Valuation allowances are provided against net deferred tax assets, determined on a jurisdiction by jurisdiction basis, where it is considered more-likely-than-not that the Company will not realize the benefit of such assets.

The remaining net deferred tax asset is the amount management believes is more-likely-than-not of being realized.

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risks relating to the operations levels of our customers and the economic factors that affect them;

risks relating to the effects of the COVID-19 pandemic;

changes in the prices for products and services relative to the cost of providing 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, changes in supplier distribution programs, inability of suppliers to perform, and transportation disruptions;

the cost of products and energy and other operating costs;

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;

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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, public health emergency, earthquakes, extreme weather events, other natural disasters, fires, floods, and accidents).

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.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis