What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-08-16 compared with 2023-08-11 · 49 added, 41 removed, 144 unchanged (38% of the section changed)

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We market our products with a set of service solutions including inventory management, engineering, design, assembly, repair, and systems integration, as well as customized mechanical, fabricated rubber, and shop services.

Our customers use our products and services for both MRO (maintenance, repair, and operating) and OEM (original equipment manufacturing) applications across a variety of end markets primarily in North America, as well as Australia, New Zealand, and Singapore.

Headquartered in Cleveland, Ohio, Applied and its predecessor companies have engaged in business since 1923.

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• Applied's Code of Business Ethics

• Applied's Board of Directors Governance Principles and Practices

• Applied's Board of Directors (our "Board" or "Board of Directors") Governance Principles and Practices

• Applied's Director Independence Standards

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VALUE PROPOSITION

We serve a segment of the industrial market that requires technical expertise and service given that our products and solutions are directly tied to companies’ production and efficiency initiatives.

As such, we believe we are integral to our customers’ supply chains considering the critical nature and direct exposure our solutions have on our customers’ core production equipment and plant capabilities.

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.

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.

While we compete with other distributors and service providers offering products and solutions addressing this area of the industrial supply chain, we believe our industry position and value proposition benefits from relative advantages tied to the following key attributes:

1) Technical expertise in motion control technologies and related service offerings

2) Extensive knowledge of customer's facility and production equipment

3) Broad in-stock product offering, inventory availability, and repair capabilities

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6) Leading positions in engineered fluid power and flow control solutions

6) Expanding capabilities in advanced automation solutions and smart technologies

7) Advanced capabilities in automation solutions and smart technologies

8) Talent acquisition and development of technically-oriented sales associates, engineers, and service personnel

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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.

A primary focus for our service center network is responding to a critical “break-fix” situation, which requires knowledge of a customer’s facility, localized inventory, timely delivery capabilities, service execution, and accountability.

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.

We believe our products and solutions are increasingly critical within the industrial supply chain given increased manufacturing activity in the U.S., potential reshoring or localization of supply chains across North America, greater supply chain investments following the pandemic, an aging and tighter customer labor force, more sophisticated production equipment and processes, a greater focus on plant floor optimization, and compliance and regulatory requirements.

A primary focus for our service center network is responding to a critical “break-fix” situation, which

requires knowledge of a customer’s facility, localized inventory, timely delivery capabilities, service execution, and accountability.

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.

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.

INDUSTRY AND COMPETITION

We primarily compete within North America which we believe offers significant growth potential given our industry position, established distribution and sales network, market fragmentation, and customer technical requirements, as well as opportunities tied to automation and smart technologies.

In addition, reshoring and localization of supply chains could be a meaningful growth catalyst in years to come.

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.

Growth within our industry is influenced by broader industrial production and capacity utilization, as well as inflation, labor dynamics, capital spending, geopolitical events, factory optimization initiatives, changes in industrial equipment technologies, and supply chain requirements.

The broader industrial distribution market is highly fragmented with participants varying in size, product focus, and capabilities.

Our principal competitors are specialist and general line distributors of bearings, power transmission products, fluid power components and systems, flow control solutions, industrial rubber products, linear motion components, and automation solutions, and, to a lesser extent, providers of tools, safety products, and other industrial and maintenance supplies.

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Our network of service centers located close to industrial companies allows us to respond quickly and effectively to critical MRO situations involving direct production infrastructure and industrial equipment.

We believe more sophisticated industrial production processes and customer labor constraints, as well as increased industrial capacity and manufacturing activity across North America could drive greater demand for our products and services.

We continue to deploy initiatives to further enhance our capabilities across our service center network and gain market share.

These include investments in analytics, strategic account penetration, sales process optimization, talent development, and digital channel solutions, as well as fully leveraging and cross-selling our expanded product and service platform across fluid power, flow control, automation, and consumables solutions.

We believe our technical domain expertise and access to core industrial equipment across our customers' facilities puts us in a leading position to support their technical MRO and production requirements.

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.

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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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.

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.

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.

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.

We see opportunities to leverage these advantages across new and underserved geographies, as well as through new commercial solutions that could drive a greater share gain of this market opportunity in coming years.

• Expand automation platform and develop growth around emerging industrial technologies .

• Expand automation platform and continue to grow around emerging industrial technologies .

We are expanding our position and capabilities focused on advanced factory automation and smart technologies that optimize and connect customers’ industrial supply chains.

We believe we have a favorable position to capture this addressable market given our technical product focus, service capabilities, embedded customer relationships and knowledge across direct production infrastructure and equipment, and existing supplier relationships.

We believe we have a favorable position to capture

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.

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.

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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.

Through various acquisitions and internal initiatives, we have expanded the breadth of technical products and solutions we offer to customers.

From flow control products supporting process maintenance to emerging robotic technologies addressing labor and safety initiatives at our customers’ facilities, the full suite of technical solutions we offer today is meaningful to our value proposition.

We believe our expanded solutions portfolio, scale, and technical expertise is enhancing our cross-selling opportunity and share gain potential as customers continue to consolidate their spend with more capable distributors.

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.

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.

Systems investments in recent

years including common ERP platforms are supporting opportunities in leveraging shared services, refining our sales management process, and standardizing pricing and sourcing functions, while we continue to optimize our shop and distribution network and analytics.

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.

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.

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.

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We expect to pursue additional acquisitions aligned with our growth strategy and long-term financial targets.

We view acquisitions as an important growth consideration given high fragmentation, greater operational and technical requirements, and supplier authorizations within the markets we serve.

We 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.

In addition, dedicated corporate teams and related support functions provide strategic oversight of critical work streams and integration execution, which we believe enhances our ability to capture synergistic value.

Over the near to intermediate-term, our acquisition priorities are focused on continuing to expand our current offerings, while further enhancing our technical differentiation and value-added service capabilities.

Our distribution and sales network consists of approximately 450 locations in our Service Center Distribution segment and approximately 130 locations in our Engineered Solutions segment.

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.

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.

Our service centers resemble local inventory hubs located in close proximity to our customers and focused primarily on MRO related fulfillment and service needs.

Our 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.

Other operations and channels we market through include inventory management services for indirect consumable supplies and digital solutions including our Applied.com website, electronic data interchange (EDI) and other electronic interfaces with customers' technology platforms and plant maintenance systems.

Other operations and channels through which we market include inventory management services for indirect consumable supplies and digital solutions including our Applied.com website, electronic data interchange (EDI) and other electronic interfaces with customers' technology platforms and plant maintenance systems.

Our distribution centers provide daily service to our service centers, helping replenish inventories and shipping products directly to customers where appropriate.

An efficient supply chain and timely delivery of our products is vital to our value proposition particularly when customers require products for emergency repairs.

We utilize dedicated third-party transportation providers, our own delivery vehicles, as well as surface and air common carrier and courier services.

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.

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where 88% of our fiscal 2024 sales were generated.

We also have international operations, the largest of which is in Canada (7% of fiscal 2023 sales) with the balance (6% of fiscal 2023 sales) in Mexico, Australia, New Zealand, and Singapore.

We also have international operations, the largest of which is in Canada (6% of fiscal 2024 sales) with the balance (6% of fiscal 2024 sales) in Mexico, Australia, New Zealand, Singapore, and Costa Rica.

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.

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The suppliers generally do not sell maintenance and repair products directly to the customer, but instead refer the customer to us or another distributor.

We purchase from thousands of product manufacturers and resell the products to thousands of customers in a wide variety of industries, including agriculture and food processing, cement, chemicals and petrochemicals, fabricated

metals, forest products, industrial machinery and equipment, life sciences, mining, oil and gas, primary metals, technology, transportation, and utilities, as well as to government entities.

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.

Customers range from very large businesses, with which we may have multiple-location relationships, to very small ones.

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Service Center Based Distribution .

Our Service Center Based Distribution segment includes our legacy MRO distribution operations across North America, Australia, and New Zealand.

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.

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.

Service center locations are stocked with product inventory tailored to each local market and staffed with customer sales and service representatives, account managers, as well as product and industry specialists.

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.

Customer sales and service representatives receive, process, and expedite customer orders, provide product information, and assist account managers in serving customers.

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Fluid power products include hydraulic and pneumatic technologies using liquids and gases to transmit power, typically in smaller spaces than other forms of power transmission.

Hydraulic products offer high power to weight ratios, high torque at low speeds, and power reliability, while pneumatic products are focused on

lightweight applications in need of speed and precision.

Hydraulic products offer high power to weight ratios, high torque at low speeds, and power reliability, while pneumatic products are focused on lightweight applications in need of speed and precision.

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.

Operations are supported by a team of certified fluid power specialists, mechanics, technicians, and engineers that provide technical services ranging from system design and integration, electronic control integration, hydraulic assemblies, repair and rebuild, manifold design and assembly, customized filtration solutions, software programming and repair, and hydraulic system retrofits, and integration of autonomous and electrification features.

Operations are supported by a team of certified fluid power specialists, mechanics, technicians, and engineers that provide technical services ranging from system design and integration, electronic control integration, hydraulic assemblies, repair and rebuild, manifold design and assembly, customized filtration solutions, software programming and repair, hydraulic system retrofits, and integration of autonomous and electrification features.

Our specialty flow control operations provide highly engineered process flow control products, solutions, and services.

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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.

At June 30, 2023, we had approximately 6,200 associates across six countries, with geographic and segment counts as follows:

At June 30, 2024, we had approximately 6,500 associates across seven countries, with geographic and segment counts as follows:

United States

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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.

During the fiscal year we implemented manager training on the importance of identifying and providing resources for associate mental health needs.

Approximately 55% of eligible managers have completed this training as of the end of the fiscal year.

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 .

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life insurance plans;

Section 401(k) retirement savings plan with company match;

a Section 401(k) retirement savings plan with company match;

paid vacations and holidays;

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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.

In the area of recruitment, for example, we engage in on-campus events and recruitment strategies that increase our exposure to diverse populations in order to enhance the diversity of our applicant pool.

We employ multiple initiatives to recruit, train, and advance diverse associates.

Health and Safety .

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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.

associates completed over 35,000 safety training courses during the fiscal year, helping to raise awareness of workplace risks.

associates completed almost 5,000 safety training courses during the fiscal year, helping to raise awareness of workplace risks.

Our business has exhibited minor seasonality.

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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 1. Business