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Item 7. Management’s Discussion and Analysis

2025-08-15 compared with 2024-08-16 · 107 added, 120 removed, 227 unchanged (50% of the section changed)

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AND RESULTS OF OPERATIONS.

With approximately 6,500 associates across North America, Australia, New Zealand, and Singapore, Applied Industrial Technologies, Inc.

("Applied," the "Company," "we," "us," or "our") is a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies.

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 in Cleveland, Ohio.

At June 30, 2024, business was conducted in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, Singapore, and Costa Rica from approximately 590 facilities.

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 2024 consolidated sales were $4.5 billion, an increase of $66.6 million or 1.5% compared to the prior year, with the acquisitions of Grupo Kopar (Kopar), Bearing Distributors, Inc.

(BDI), Cangro Industries, Inc.

(Cangro), Advanced Motion Systems Inc.

(AMS), and Automation, Inc.

increasing sales by $56.4 million or 1.3% and favorable foreign currency translation of $6.6 million increasing sales by 0.2%.

We are a leading distributor and technical solutions provider of industrial motion, power, control, and automation technologies.

Through our comprehensive network of approximately 6,800 employee associates and approximately 600 facilities including service center, fluid power, flow control, and automation operations, as well as repair shops and distribution centers, we offer a selection of more than 9.2 million stock keeping units (SKUs) with a focus on industrial bearings, power transmission products, fluid power components and systems, specialty flow control, and advanced factory automation solutions, as well as general maintenance products.

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), OEM (original equipment manufacturing), and new system install applications across a variety of end markets primarily in North America, as well as Australia, New Zealand, and Singapore.

The following is Management's Discussion and Analysis of significant factors that have affected our financial condition, results of operations and cash flows during the periods included in the accompanying consolidated balance sheets, statements of consolidated income, consolidated comprehensive income and consolidated cash flows in Item 8 under the caption "Financial Statements and Supplementary Data." When reviewing the discussion and analysis set forth below, please note that a significant number of SKUs we sell in any given year were not sold in the comparable period of the prior year, resulting in the inability to quantify certain commonly used comparative metrics analyzing sales, such as changes in product mix and volume.

Our fiscal 2025 consolidated sales were $4.6 billion, an increase of $84.0 million or 1.9% compared to the prior year, with acquisitions contributing to sales growth by $193.0 million or 4.3% and unfavorable foreign currency translation of $23.7 million reducing sales by 0.5%.

Gross profit margin increased to 30.3% for fiscal 2025 from 29.8% for fiscal 2024.

Operating margin increased to 11.1% in fiscal 2024 from 10.7% in fiscal 2023.

Operating margin decreased to 10.9% in fiscal 2025 from 11.1% in fiscal 2024.

Our diluted earnings per share was $10.12 in fiscal 2025 versus $9.83 in fiscal 2024.

Shareholders’ equity was $1,844.5 million at June 30, 2025 compared to $1,688.8 million at June 30, 2024.

Working capital increased $162.3 million from June 30, 2023 to $1,268.8 million at June 30, 2024.

Working capital decreased $47.5 million from June 30, 2024 to $1,221.3 million at June 30, 2025.

The current ratio was 3.3 to 1 and 3.5 to 1 at June 30, 2025 and at June 30, 2024, respectively.

Applied monitors several economic indices that have been key indicators for industrial economic activity in the United States.

These include the Industrial Production (IP) and Manufacturing Capacity Utilization (MCU) indices published by the Federal Reserve Board and the Purchasing Managers Index (PMI) published by the Institute for Supply Management (ISM).

These include the manufacturing Industrial Production (IP) and Manufacturing Capacity Utilization (MCU) indices published by the Federal Reserve Board and the Purchasing Managers Index (PMI) published by the Institute for Supply Management (ISM).

Historically, our performance correlates well with the MCU, which measures productivity and calculates a ratio of actual manufacturing output versus potential full capacity output.

When manufacturing plants are running at a high rate of capacity, they tend to wear out machinery and require replacement parts.

The MCU (total industry) and IP indices increased since June 2023.

When manufacturing plants are running at a high rate of capacity, they tend to wear out machinery more frequently and require replacement parts.

The IP and PMI indices increased since June 2024, while the MCU index remained fairly stable over the fiscal year.

The ISM PMI registered 49.0 in June 2025, an increase from the June 2024 revised reading of 48.3.

A reading above 50 generally indicates expansion.

A reading above 50 generally indicates expansion in the U.S.

manufacturing sector.

The index readings for the months during the most recent quarter, along with the revised indices for previous quarter ends, were as follows:

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RESULTS OF OPERATIONS

This discussion and analysis deals with comparisons of material changes in the consolidated financial statements for the years ended June 30, 2024 and 2023.

For the comparison of the years ended June 30, 2023 and 2022, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2023 Annual Report on Form 10-K.

This section provides comparisons of material changes in the consolidated financial statements for the fiscal years ended June 30, 2025 and 2024.

For the comparison of the fiscal years ended June 30, 2024 and 2023, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2024 Annual Report on Form 10-K.

We disclose segment information that is consistent with the way in which management operates and views Applied.

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

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Net Income 8.6 % 8.6 % 1.9 %

Sales in fiscal 2024 were $4.5 billion, which was $66.6 million or 1.5% above the prior year, with sales from acquisitions adding $56.4 million or 1.3% and favorable foreign currency translation accounting for an increase of $6.6 million or 0.2%.

Sales in fiscal 2025 were $4.6 billion, which was $84.0 million or 1.9% above the prior year, with sales from acquisitions adding $193.0 million or 4.3% and unfavorable foreign currency translation reducing sales by $23.7 million or 0.5%.

There were 252.5 selling days in fiscal 2025 and 251.5 selling days in 2024.

Excluding the impact of businesses acquired and foreign currency translation, sales we re up $3.6 million durin g the year.

The modest increase over the prior year was driven by our Service Center Based Distribution segment reflecting positive demand for technical MRO products and solutions, internal sales initiatives, and price increases.

This was offset by normalizing end-market demand as the year progressed, sales declines across our Engineered Solutions segment, and a decrease due to the change in sales days.

Excluding the impact of businesses acquired and foreign currency translation, sales we re down $85.3 million or 1.9% durin g the year, driven by a decrease of 2.3% reflecting continued subdued demand due to economic uncertainty, offset by an increase of 0.4% due to the change in sales days.

The Company's reportable segments are:

Service Center (formerly Service Center Based Distribution) and Engineered Solutions.

The Company changed the name of the Service Center Based Distribution reportable segment to Service Center in the fourth quarter of fiscal 2025.

There was no change in the composition of either reportable segment.

The following table shows changes in sales by reportable segment.

Amounts in millions Amount of change due to

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

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

Sales by Reportable Segment 2025 2024

Service Center Based Distribution 3,056.5 $ 2,966.8 $ 89.7 $ 36.4 $ 6.6 $ 46.7

Service Center $ 3,014.3 $ 3,056.5 $ (42.2) $ 11.7 $ (23.7) $ (30.2)

Engineered Solutions 1,549.1 1,422.9 126.2 181.3 — (55.1)

Total $ 4,563.4 $ 4,479.4 $ 84.0 $ 193.0 $ (23.7) $ (85.3)

Sales in our Service Center Based Distribution segment, which operates primarily in MRO markets, increased $89.7 million, or 3.0%.

Acquisitions within this segment increased sales by $36.4 million or 1.2% and favorable foreign currency translation increased sales by $6.6 million or 0.2%.

Excluding the impact of foreign currency tr anslation, sales increased $46.7 million or 1.6% during the year, driven by an increase of 2.0% from operations reflecting positive demand for technical MRO products and solutions, internal sales initiatives, price increases, cross-selling benefits, and new growth opportunities arising from our industry position.

This was partially offset by a 0.4% decrease due to the change in sales days.

Sales in our Engineered Solutions segment decreased $23.1 million or 1.6%.

Sales in our Service Center segment, which operates primarily in MRO markets, decreased $42.2 million, or 1.4%.

Acquisitions within this segment increased sales by $11.7 million or 0.4% and unfavorable foreign currency translation reduced sales by $23.7 million or 0.8%.

Excluding the impact of businesses acquired and foreign currency tr anslation, sales decreased $30 .2 million or 1.0% during the year, driven by a decrease of 1.4% reflecting softer MRO spending and capital maintenance projects, offset by an increase of 0.4% due to the change in sales days.

Sales in our Engineered Solutions segment increased $126.2 million or 8.9%.

Acquisitions within this segment increased sales $181.3 million or 12.7%.

Excluding the impact of businesses acquired, sales decreased $43.1 million or 3.0%, driven by a 2.6% decline from operations primarily reflecting lower fluid power sales and, to a lesser extent, softer sales across our automation operations, as well as a decrease of 0.4% due to the change in sales days.

The sales decline was partially offset by sales growth across our flow control operations.

Excluding the impact of businesses acquired, sales decreased $55.1 million or 3.8%, driven by a decrease of 4.2% primarily reflecting ongoing weakness across mobile fluid power OEM customers, as well as softer automation sales, offset by an increase of 0.4% due to the change in sales days.

The following table shows changes in sales by geographical area.

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Sal es in our U.S.

operations increased $71.8 million or 1.9%, with acquisitions adding $50.0 million or 1.3%.

Excluding the impact of businesses acquired, U.S.

sales were up $21.8 million or 0.6%, driven by an increase of 1.0% from operations offset by a 0.4% decrease due to the change in sales days.

operations increased $68.8 million or 1.7%, with acquisitions contributing $154.4 million or 3.9%.

Excluding the impact of businesses acquired, sales in the United States were down $85.6 million or 2.2%, driven by a 2.6% decrease due to lower demand across both segments, offset by an increase of 0.4% due to the change in sales days.

Sales from our Canadian operations decreased $13.6 million or 4.4%.

Unfavorable foreign currency translation decreased Canadian sales by $3.7 million or 1.2%.

Excluding the impact of foreign currency translation, Canadian sales were down $1.6 million or 0.5%, driven by a 0.4% decrease due to the change in sales days along with a decrease of 0.1% from operations.

Consolidated sales from our other countries operations increased $0.1 million or 0.1%, with acquisitions adding $6.4 million or 2.7%.

Favorable foreign currency translation increased other countries sales by $10.3 million or 4.4%.

Exc luding the impact of businesses acquired and foreign currency translation, other countries sales were down $16.6 million or 7.0%, driven by a decrease from operations, primarily in Mexican sales due to decreased industrial activity.

Unfavorable foreign currency translation lowered Canadian sales by $9.0 million or 2.9%.

Excluding the impact of foreign currency translation, Canadian sales were down $4.6 million or 1.5%, driven by a 1.9% decrease due to lower demand, offset by an increase of 0.4% due to the change in sales days.

S ales in other countries increased $28.8 million or 12.2%, primarily due to acquisitions contributing $38.6 million or 16.3%.

Unfavorable foreign currency translation reduced other countries' sales by $14.7 million or 6.2%.

Exc luding the impact of businesses acquired and foreign currency translation, other countries' sales were up $4.9 million or 2.1%.

Our gross profit margin increased to 30.3% in fiscal 2025 compared to 29.8% in fiscal 2024.

The year over year increase primarily reflects benefits from ongoing margin initiatives, countermeasures in response to inflation dynamics, as well as a $21.2 million decrease in LIFO expense over the prior year, which positively impacted gross margins by 47 basis poi nts.

This was partially offset by unfavorable mix tied to sales declines across our Engineered Solutions segment and local customer accounts.

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

The gross profit margin for the current year period was positively impacted by 23 basis points from recent acquisitions, in addition to a positive impact of 12 basis points due to a $5.3 million decrease in last-in, first-out (LIFO) expense year over year, as well as ongoing margin expansion initiatives.

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

Amounts in millions Amount of change due to

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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 increased $27.0 million or 3.3% during fiscal 2024 compared to the prior year, and as a percentage of sales increased to 18.8% in fiscal 2024 compared to 18.4% in fiscal 2023.

Changes in foreign currency exchange rates had the effect of increasing SD&A by $0.7 million or 0.1% compared to the prior year.

SD&A from businesses acquired added $16.7 million or 2.0%, including $1.8 million of intangibles amortization.

Excluding the impact of businesses acquired and the unfavorable impact from foreign currency translation, SD&A increased $9.6 million or 1.2% during fiscal 2024 compared to fiscal 2023.

Excluding the impact of acquisitions, total compensation increased $4.3 million during fiscal 2024 primarily due to annual calendar year merit increases and benefit costs partially offset by lower incentives and commission expense.

SD&A was 19.4% of sales in fiscal 2025 compared to 18.8% in fiscal 2024, an increase of $43.8 million or 5.2% compared to the prior year.

SD&A from businesses acquired added $58.1 million or 6.9%, inclu ding $8.7 m illion of intangibles amortization related to acquisitions.

Changes in foreign currency exchange rates reduced SD&A by $4.4 million or 0.5% compared to the prior year.

Excluding the impact of businesses acquired and the favorable impact from foreign currency translation, SD&A decreased $9.9 million or 1.2% during fiscal 2025 compared to fiscal 2024, as to tal compensation decreased $21.2 million during fiscal 2025 due to cost controls, efficiency gains, and lower incentive compensation based on Company performance.

This reduction in total compensation was offset by a $4.2 million increase in occupancy costs (excluding acquisitions) and a $6.2 million increase in bad debt expense during fiscal 2025 compared to the prior year.

All other expenses within SD&A were up $0.9 million.

Operating income increased $22.7 million, or 4.8% , to $495.8 million during fiscal 2024 from $473.2 million during fiscal 2023, and as a percentage of sales, increased to 11.1% from 10.7%, primarily due to gross profit margin expansion, inclusive of lower LIFO expense, volume leverage within our Service Center Based Distribution segment, and control of SD&A expense in f iscal 2024.

Operating income, as a percentage of sales for the Service Center Based Distribution segment increased to 13.1% in fiscal 2024 from 12.6% in fiscal 2023.

Operating income as a percentage of sales for the Engineered Solutions segment increased to 14.5% in fiscal 2024 from 14.1% in fiscal 2023.

Operating income increased $2.7 million, or 0.5% , to $498.5 million during fiscal 2025 from $495.8 million during fiscal 2024, and as a percentage of sales, decreased to 10.9% from 11.1%.

Operating income, as a percentage of sales for the Service Center segment increased to 13.1% in fiscal 2025 from 13.0% in fiscal 2024.

Operating income as a percentage of sales for the Engineered Solutions segment decreased to 12.2% in fiscal 2025 from 12.7% in fiscal 2024, primarily due to the impact of the businesses acquired in fiscal 2025.

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.

Interest expense, net decreased $18.8 million during fiscal 2024 primarily due to reduced debt levels and greater interest income from higher cash balances and investment yields.

Other (income) expense, net, represents certain non-operating items of income and expense, and was $5.1 million of income in fiscal 2024 compared to $1.7 million of expense in fiscal 2023.

Current year income primarily consists of unrealized gains on investments held by non-qualified deferred compensation trusts of $3.3 million, foreign currency transaction gains of $1.1 million and life insurance income of $0.9 million, offset by other periodic post-employment costs of $0.1 million and other expense of $0.1 million.

Fiscal 2023 expense consisted primarily of foreign currency transaction loss of $3.3 million and other periodic post-employment costs of $1.5 million, offset by unrealized gains on investments held by non-qualified deferred compensation trusts of $2.2 million, life insurance income of $0.7 million and $0.2 million of other income.

Interest expense, net decreased $2.2 million during fiscal 2025 primarily due to interest income received on cash balances.

Other (income) expense, net, represents certain non-operating items of income and expense, and was $3.1 million of income in fiscal 2025 compared to $5.1 million of income in fiscal 2024.

Current year income primarily consists of unrealized gains on investments held by non-qualified deferred compensation trusts of $2.7 million, life insurance income of $0.8 million and other income of $0.2 million, offset by foreign currency transaction losses of $0.5 million and other periodic post-employment costs of $0.1 million.

Fiscal 2024 income consisted primarily of unrealized gains on investments held by non-qualified deferred compensation trusts of $3.3 million, foreign currency transaction gains of $1.1 million, and life insurance income of $0.9 million, offset by other periodic post-employment costs of $0.1 million and other expense of $0.1 million.

The effective income tax rate was 21.6% for fiscal 2025 compared to 22.6% for fiscal 2024.

The decrease in the effective tax rate is primarily due to changes in compensation-related deductions in fiscal 2024 compared to the prior year.

The decrease in the effective tax rate is primarily due to more favorable discrete items in fiscal 2025 compared to the prior year.

As a result o f the factors discussed above, net income for fiscal 2025 increased $7.2 million from the prior year.

Diluted net income per share was $9.83 per share for fiscal 2024 compared to $8.84 per share for fiscal 2023.

At June 30, 2024, we had approximately 590 operating facilities in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, Singapore, and Costa Rica, versus 580 at June 30, 2023.

Diluted net income per share was $10.12 per share for fiscal 2025 compared to $9.83 per share for fiscal 2024 due to higher net income and lower diluted shares outstanding.

At June 30, 2025, we had approximately 600 operating facilities versus 590 at June 30, 2024.

The approximate number of Company employees was 6,800 at June 30, 2025 and 6,500 at June 30, 2024.

RECENT DEVELOPMENTS

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted into law.

The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act of 2017, as amended, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation.

ASC 740, “Income Taxes”, requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted.

Consequently, as of the date of enactment, and during the three months ended September 30, 2025, the Company will evaluate all deferred tax balances under the newly enacted tax law and identify any other changes required to its financial statements as a result of the OBBBA.

There is no effect on the Company's fiscal 2025 results.

The Company is still evaluating the impact of the OBBBA and the results of such evaluations will be reflected on the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2026.

LIQUIDITY AND CAPITAL RESOURCES

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Exchange Rate Effect (226) (2,937)

Increase in Cash and Cash Equivalents $ 116,581 $ 159,562

The increase in cash provided by operating activities during fiscal 2024 is driven by changes in working capital for the year and by improved operating results.

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

Accounts receivable $ 49,134

Inventory $ 61,364

Accounts payable $ (76,954)

Net cash used in investing activities in fiscal 2024 included $72.1 million used for the acquisitions of Kopar, BDI and Cangro and $24.9 million used for capital expenditures.

Net cash used in investing activities in fiscal 2023 included $35.8 million used for the acquisitions of Automation, Inc.

and AMS, and $26.5 million used for capital expenditures.

N et cash used in financing activities increased from the prior year period primarily due to an increase in treasury purchases as $73.4 million was used to repurchase 398,000 shares of common stock which were taken into treasury in 2024 compared to $0.7 million used to repurchase 8,000 shares of common stock which were taken into treasury in 2023.

This was offset by the change in net debt activity, as there was $24.8 million of net debt payments in fiscal 2024 compared to $67.2 million of net debt payments in 2023.

Further uses of cash in 2024 were $55.9 million for dividend payments and $16.3 million used to pay taxes for shares withheld.

Further uses of cash in 2023 were $53.4 million for dividend payments and $12.9 million used to pay taxes for shares withheld.

(Decrease) Increase in Cash and Cash Equivalents $ (72,200) $ 116,581

The increase in cash provided by operating activities during fiscal 2025 is driven by improved operating results and changes in working capital for the year of $104.0 million due to improved management of inventory and accounts payable, as well as increases in customer deposits and employee compensation and benefit accruals.

Net cash used in investing activities during fiscal 2025 increased from the prior year primarily due to $293.4 million used for acquisitions in fiscal 2025 compared to $72.1 million used for acquisitions during fiscal 2024.

N et cash used in financing activities during fiscal 2025 increased from the prior year primarily due to $152.8 million of cash used to repurchase shares of common stock in fiscal 2025 compared to $73.4 million of cash used to repurchase shares of common stock in fiscal 2024.

Further, $63.7 million of cash was used for dividend payments in fiscal 2025 compared to $55.9 million of cash used for dividend payments in fiscal 2024.

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

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At June 30, 2025, we had remaining authorization to purchase an additional 1,300,000 shares.

In fiscal 2024, we purchased 398,000 shares of the Company's common stock at an average price per share of $184.39.

Subsequent to June 30, 2025, we repurchased 128,401 shares of the Company's common stock at an average price per share of $258.36.

In fiscal 2025, we repurchased 655,791 shares of the Company's common stock at an average price per share of $231.20.

In fiscal 2024, we repurchased 398,000 shares of the Company's common stock at an average price per share of $184.39.

In fiscal 2023, we repurchased 8,000 shares of the Company's common stock at an average price per share of $89.46.

Borrowing Arrangements

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Trade receivable securitization facility 188,300 188,300

Series D Notes — 25,000

Series E Notes — 25,000

Other 105 356

Total debt $ 572,300 $ 597,405

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

The revolving credit facility provides a $900.0 million unsecured revolving credit facility and an uncommitted accordion feature which allows the Company to request an increase in the borrowing commitments, or incremental term loans, under the credit facility in aggregate principal amounts of up to $500.0 million.

In May 2023, the Company and the administrative agent entered into an amendment to the credit facility to replace LIBOR with SOFR as a reference rate available for use in the computation of interest.

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 the net leverage ratio or SOFR plus a margin that ranges from 80 to 155 basis points based on the net leverage ratio.

Available borrowing under this facility, without exercising the accordion feature and net of outstanding letters of credit of $0.2 million to secure certain insurance obligations, totaled $515.8 million and $516.2 million at June 30, 2024 and June 30, 2023, respectively, and were available to fund future acquisitions or other capital and operating requirements.

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 the Company's net leverage ratio or Secured Overnight Financing Rate (SOFR) plus a margin that ranges from 80 to 155 basis points based on the Company's net leverage ratio.

Borrowing capacity under this facility, without exercising the accordion feature, totaled $515.8 million at June 30, 2025 and June 30, 2024, and is available to fund future acquisitions or other capital and operating requirements.

These amounts are net of outstanding letters of credit of $0.2 million at June 30, 2025 and June 30, 2024, to secure certain insurance obligations.

The interest rate on the revolving credit facility was 5.23% and 6.24% as of June 30, 2025 and June 30, 2024, respectively.

Additionally, the Company had letters of credit outstanding with separate banks, not associated with the revolving credit agreement, in the amount of $4.0 million as of June 30, 2024 and June 30, 2023 in order to secure certain insurance obligations.

In August 2018, the Company established a trade receivable securitization facility (the “AR Securitization Facility”).

On March 26, 2021, the Company amended the AR Securitization Facility to expand the eligible receivables, which increased the maximum availability to $250.0 million and increased the fees on the AR Securitization Facility to 0.98% per year.

On August 4, 2023, the Company amended the AR Securitization Facility, extended the term to August 4, 2026, and reduced drawn fees to 0.90% 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.

Additionally, the Company had letters of credit outstanding not associated with the revolving credit agreement, in the amount of $5.3 million and $4.0 million as of June 30, 2025 and June 30, 2024, respectively, in order to secure certain insurance obligations.

In August 2018, the Company established a trade receivable securitization facility (AR Securitization Facility).

The AR Securitization Facility effectively increases the Company's borrowing capacity by collateralizing a portion of the amount of the U.S.

operations' trade accounts receivable.

The Company uses the proceeds from the AR Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing costs.

In May 2023, the Company entered into an amendment to the AR Securitization facility to replace LIBOR with SOFR as a reference rate available for use in the computation of interest, therefore borrowings under this facility carry variable interest rates tied to SOFR.

The Company uses the proceeds from the AR Securitization Facility as an alternative to other forms of debt.

The AR Securitization Facility's maximum borrowing capacity is $250.0 million and fees on amounts borrowed are 0.90% per year.

Borrowing capacity is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable portfolio and, therefore, at certain times, we may not be able to fully access the $250.0 million of borrowing capacity available under the AR Securitization Facility.

Borrowings under the AR Securitization Facility carry variable interest rates tied to SOFR.

The interest rate on the AR Securitization Facility as of June 30, 2025 and June 30, 2024 was 5.32% and 6.35%, respectively.

At June 30, 2024 and June 30, 2023, the Company had borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management of $25.0 million and $50.0 million, respectively.

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

The "Series D" notes carried a fixed interest rate of 3.21%, and the remaining principal balance of $25.0 million was paid in October 2023.

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

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

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

In 2019, the Company entered into an interest rate swap which mitigates variability in forecasted interest payments on $384.0 million of the Company’s U.S.

On July 10, 2025, the Company amended the AR Securitization Facility and extended the term to July 10, 2028.

In 2019, the Company entered into an interest rate swap that expires in January 2026 which mitigates variability in forecasted interest payments on $384.0 million of the Company’s U.S.

dollar-denominated unsecured variable rate debt.

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At June 30, 2025, the most restrictive of these covenants required that the Company have net indebtedness less than 3.75 times consolidated income before interest, taxes, depreciation and amortization (as defined).

At June 30, 2024, the Company's net indebtedness was less than 0.3 times consolidated income before interest, taxes, depreciation and amortization (as defined).

At June 30, 2025, the Company's net indebtedness was less than 0.4 times consolidated income before interest, taxes, depreciation and amortization (as defined in these agreements).

T he Company was in compliance with all financial covenants at June 30, 2025.

Accounts Receivable Analysis

The following table is included to aid in analysis of accounts receivable and the associated provision for losses on accounts receivable (all dollar amounts are in thousands):

The following table is included to aid in the analysis of accounts receivable and the associated provision for losses on accounts receivable (all dollar amounts are in thousands):

June 30, 2025 2024

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Year Ended June 30, 2025 2024

(Recoveries of) provision for losses on accounts receivable $ (205) $ 5,619

Provision for (recoveries of) losses on accounts receivable $ 5,978 $ (205)

Provision as a % of net sales

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.

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

On a consolidated basis, DSO was 56.6 at June 30, 2025 versus 56.2 at June 30, 2024.

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On an overall basis, our provision for losses from uncollected receivables represents 0.13% of our sales for the year ended June 30, 2025, compared to 0.00% of sales for the year ended June 30, 2024.

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

operations of the Service Center Based Distribution segment, as well as improved collections performance.

The increase primarily relates

to provisions recorded in the current fiscal year for customer credit deterioration and bankruptcies primarily in the U.S.

operations of the Service Center segment, compared to recoveries recorded in the same operations in the prior fiscal year.

Historically, this percentage is around 0.10% to 0.15%.

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Inventory Analysis

Inventories are valued using the last-in, first-out (LIFO) method for U.S.

Inventories are valued using the LIFO method for U.S.

inventories and the average cost method for foreign inventories.

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Management calculates this ratio on an annual as well as a quarterly basis and uses inventory valued at average costs.

The annualized inventory turnover (using average costs) for the year ended June 30, 2024 was 4.3 versus 4.4 for the year ended June 30, 2023.

The annualized inventory turnover (using average costs) was 4.3 for both the years ended June 30, 2025 and 2024.

CONTRACTUAL OBLIGATIONS

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Purchase orders for inventory and other goods and services are not included in our estimates as we are unable to aggregate the amount of such purchase orders that represent enforceable and legally binding agreements specifying all significant terms.

The previous table includes the gross liability for unrecognized income tax benefits including

interest and penalties in the “Other” column as the Company is unable to make a reasonable estimate regarding the timing of cash settlements, if any, with the respective taxing authorities.

The previous table includes the gross liability for unrecognized income tax benefits including interest and penalties in the “Other” column as the Company is unable to make a reasonable estimate regarding the timing of cash settlements, if any, with the respective taxing authorities.

CRITICAL ACCOUNTING POLICIES

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LIFO Inventory Valuation and Methodology

Inventories are valued at the average cost method, using the last-in, first-out (LIFO) method for U.S.

Inventories are valued at the average cost method, using the LIFO method for U.S.

inventories, and the average cost method for foreign inventories.

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As of June 30, 2025 and 2024, our allowance for doubtful accounts was 2.1% and 1.8% of gross receivables, respectively.

Our (recoveries of) provision for losses on accounts receivable was $(0.2) million, $5.6 million, and $3.2 million in fiscal 2024, 2023, and 2022, respectively.

Our provision for (recoveries of) losses on accounts receivable was $6.0 million, $(0.2) million, and $5.6 million in fiscal 2025, 2024, and 2023, respectively.

Goodwill and Intangibles

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These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital.

The judgments made in determining the estimated fair value assigned to each class of assets acquired, as well as the estimated life of each asset, can materially impact the net income of the

periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future.

The judgments made in determining the estimated fair value assigned to each class of assets acquired, as well as the estimated life of each asset, can materially impact the net income of the periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future.

As part of acquisition accounting, we recognize acquired identifiable intangible assets such as customer relationships, vendor relationships, trade names, and non-competition agreements apart from goodwill.

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Events or circumstances that may result in an impairment review include changes in macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit or sustained decrease in share price.

Each year, the Company may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

Each year, we may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

If impairment is indicated in the qualitative assessment, or, if management elects to initially perform a quantitative assessment of goodwill, the impairment test uses a one-step approach.

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If the carrying amount of a reporting unit exceeds its fair value, an impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

Goodwill on our consolidated financial statements relates to both the Service Center Based Distribution segment and the Engineered Solutions segment.

Goodwill on our consolidated financial statements relates to both the Service Center and the Engineered Solutions segments.

The Company has eight (8) reporting units for which an annual goodwill impairment assessment was performed as of January 1, 2025.

Based on the assessment performed, the Company concluded that the fair value of all of the reporting units exceeded their carrying amount as of January 1, 2024, therefore no impairment exists.

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

Based on the assessment performed, we concluded that the fair value of all of the reporting units exceeded their carrying amount as of January 1, 2025, therefore no impairment exists.

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

The income approach employs the discounted cash flow method reflecting projected cash flows expected to be generated by market participants and then adjusted for time value of money factors, and requires management to make significant estimates and assumptions related to forecasts of future revenues, operating margins, and discount rates.

The market approach utilizes an analysis of comparable publicly traded companies and requires management to make significant estimates and assumptions related to the forecasts of future revenues, earnings before interest, taxes, depreciation, and amortization (EBITDA) and multiples that are applied to management’s forecasted revenues and EBITDA estimates.

Changes in future results, assumptions, and estimates after the measurement date may lead to an outcome where additional impairment charges would be required in future periods.

Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions.

Further, continued adverse market conditions could result in the recognition of additional impairment if the Company determines that the fair values of its reporting units have fallen below their carrying values.

Changes in future results, assumptions, and estimates after the measurement date may lead to an outcome where impairment charges would be required in future periods.

Specifically, actual results may vary from the forecasts used in an annual goodwill impairment assessment and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ due to prevailing market conditions.

Further, continued adverse market conditions could result in the recognition of impairment if we determine that the fair value of a reporting unit has fallen below its carrying value.

CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT

This Form 10-K, including Management’s Discussion and Analysis, contains statements that are forward-looking based on management’s current expectations about the future.

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.

This Annual Report on Form 10-K, including Management’s Discussion and Analysis, contains statements that are forward-looking based on management’s current expectations about the future.

Forward-looking statements are often identified by qualifiers, such as “guidance,” “expect,” “believe,” “plan,” “intend,” “will,” “should,” “could,” “would,” “anticipate,” “estimate,” “forecast,” “may,” “potential,” "optimistic" and derivative or similar words or expressions.

Similarly, descriptions of objectives, strategies, plans, or goals are also forward-looking statements.

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 the Securities and Exchange Commission in its rules, regulations, and releases.

The Company intends that the forward-looking statements be subject to the safe harbors established in the Private Securities Litigation Reform Act of 1995, as amended, and by the Securities and Exchange Commission in its rules, regulations, and releases.

Readers are cautioned not to place undue reliance on any forward-looking statements.

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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.

In addition, the Company assumes no obligation to update or revise any forward-looking statements, whether because of new information or events, or otherwise, except as may be required by law.

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;

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

the impact that widespread illness, health epidemics, or general health concerns could have;

inflationary or deflationary trends in the cost of products, energy, labor and other operating costs including tariffs, and changes in the prices for products and services relative to the cost of providing them;

reduction in supplier inventory purchase incentives;

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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 7. Management’s Discussion and Analysis