APPLIED INDUSTRIAL TECHNOLOGIES INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Applied Industrial Technologies, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Applied Industrial Technologies, Inc. and subsidiaries (the "Company") as of June 30, 2025 and 2024, the related statements of consolidated income, comprehensive income, shareholders' equity, and cash flows, for each of the three years in the period ended June 30, 2025, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2025, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 15, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Goodwill - A reporting unit within the Engineered Solutions segment - Refer to Notes 1 and 5 to the financial statements Critical Audit Matter Description The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company determines the fair value of its reporting units using the income and market approaches. The determination of the fair value using the income approach requires management to make significant estimates and assumptions related to forecasts of future revenues, earnings before interest, taxes, depreciation, and amortization (EBITDA), and discount rates. The determination of the fair value using the market approach requires management to make significant estimates and assumptions related to the forecasts of future revenues, EBITDA and multiples that are applied to management’s forecasted revenues and EBITDA estimates. The fair value of all reporting units exceeded their carrying value as of the measurement date and, therefore, no impairment was recognized. Given the nature of operations for one reporting unit within the Engineered Solutions segment, the sensitivity of this reporting unit to changes in the economy, this reporting unit’s historical performance as compared to projections, and the difference between its fair value and the carrying value, auditing management’s judgments regarding forecasts of future revenues and EBITDA, as well as selection of the discount rate, and selection of multiples applied to 29 Table of Contents management’s forecasted revenues and EBITDA estimates for this reporting unit, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the forecasts of future revenues and EBITDA (“forecasts”), and the selection of the discount rate and selection of multiples applied to management’s forecasted revenues and EBITDA estimates (“market multiples”) for this reporting unit included the following, among others: • We tested the design and effectiveness of controls over management’s goodwill impairment evaluation, such as controls related to management’s forecasts and the selection of the discount rate and market multiples used. • We evaluated management’s ability to accurately forecast by comparing actual results to management’s historical forecasts. • We evaluated the reasonableness of management’s forecasts by comparing the current forecasts to (1) historical results, (2) internal communications to management and the Board of Directors at the reporting unit level and/or at a consolidated level, and (3) forecasted information included in industry reports for the various industries the reporting unit operates within. • With the assistance of our fair value specialists, we evaluated the discount rate, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rate selected by management. • With the assistance of our fair value specialists, we evaluated the market multiples by evaluating the selected comparable publicly traded companies and the adjustments made for differences in growth prospects and risk profiles between the reporting unit and the comparable publicly traded companies. We tested the underlying source information and mathematical accuracy of the calculations. Inventory - Refer to Notes 1 and 4 to the financial statements Critical Audit Matter Description As of June 30, 2025 , the Company holds inventory across a large number of locations, including distribution centers, service centers, repair shops and engineered solutions operations. The Company’s processes to track and determine consolidated inventory relies on a perpetual inventory system that varies by location based in part upon the information technology (IT) system relevant to the location. Auditing the existence of inventory requires significant effort and auditor judgment in testing due to the disaggregation of inventory across the locations and the processes and controls in place. Judgment relates to assessing whether we have obtained sufficient audit evidence, including determining the number of locations to visit. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the existence of inventory included the following, among others: • With the assistance of our IT specialists, we tested the design and effectiveness of controls over management’s process to account for the physical existence of inventory, which included general IT controls as well as automated and manual business process controls. • We involved senior team members to determine the extent and number of location counts to test. • As part of our testing of the design and effectiveness of controls and of inventory, we observed management’s count procedures at certain locations and obtained and evaluated management’s audit evidence over counts at certain locations. • We investigated any identified variations in inventory counts performed and considered the impact in the context of the inventory balance as a whole. /s/ DELOITTE & TOUCHE LLP Cleveland, Ohio August 15, 2025 We have served as the Company's auditor since 1966. 30 Table of Contents STATEMENTS OF CONSOLIDATED INCOME (In thousands, except per share amounts) Year Ended June 30, 2025 2024 2023 Net sales $ 4,563,424 $ 4,479,406 $ 4,412,794 Cost of sales 3,180,265 3,142,753 3,125,829 Gross profit 1,383,159 1,336,653 1,286,965 Selling, distribution, and administrative expense, including depreciation 884,630 840,830 813,814 Operating income 498,529 495,823 473,151 Interest expense 18,214 20,544 24,790 Interest income ( 17,602 ) ( 17,713 ) ( 3,151 ) Other (income) expense, net ( 3,050 ) ( 5,138 ) 1,701 Income before income taxes 500,967 498,130 449,811 Income tax expense 107,979 112,368 103,072 Net income $ 392,988 $ 385,762 $ 346,739 Net income per share — basic $ 10.26 $ 9.98 $ 8.98 Net income per share — diluted $ 10.12 $ 9.83 $ 8.84 See notes to consolidated financial statements. 31 Table of Contents STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (In thousands) Year Ended June 30, 2025 2024 2023 Net income per the statements of consolidated income $ 392,988 $ 385,762 $ 346,739 Other comprehensive (loss) income, before tax: Foreign currency translation adjustments ( 1,655 ) ( 12,544 ) 7,723 Post-employment benefits: Actuarial (loss) gain on re-measurement ( 42 ) ( 134 ) 405 Termination of pension plan — — 1,031 Reclassification of net actuarial (gains) losses and prior service cost into other (income) expense, net and included in net periodic pension costs ( 25 ) ( 117 ) 36 Unrealized (loss) gain on cash flow hedge ( 357 ) 5,958 18,174 Reclassification of interest from cash flow hedge into interest expense ( 16,124 ) ( 18,683 ) ( 7,285 ) Total other comprehensive (loss) income, before tax ( 18,203 ) ( 25,520 ) 20,084 Income tax (benefit) expense related to items of other comprehensive income ( 4,083 ) ( 3,250 ) 3,085 Other comprehensive (loss) income, net of tax ( 14,120 ) ( 22,270 ) 16,999 Comprehensive income $ 378,868 $ 363,492 $ 363,738 See notes to consolidated financial statements. 32 Table of Contents CONSOLIDATED BALANCE SHEETS (In thousands) June 30, 2025 2024 Assets Current assets Cash and cash equivalents $ 388,417 $ 460,617 Accounts receivable — net 769,699 724,878 Inventories 505,337 488,258 Other current assets 84,020 96,148 Total current assets 1,747,473 1,769,901 Property — at cost Land 14,083 14,160 Buildings 116,733 115,262 Equipment, including computers and software 253,354 233,745 Total property — at cost 384,170 363,167 Less accumulated depreciation 256,016 244,640 Property — net 128,154 118,527 Operating lease assets — net 188,654 133,289 Identifiable intangibles — net 348,600 245,870 Goodwill 699,374 619,395 Other assets 63,289 64,928 Total Assets $ 3,175,544 $ 2,951,910 Liabilities Current liabilities Accounts payable $ 280,124 $ 266,949 Current portion of long-term debt — 25,055 Compensation and related benefits 99,630 93,204 Other current liabilities 146,397 115,892 Total current liabilities 526,151 501,100 Long-term debt 572,300 572,279 Other liabilities 232,573 189,750 Total Liabilities 1,331,024 1,263,129 Shareholders’ Equity Preferred stock — no par value; 2,500 shares authorized; none issued or outstanding — — Common stock — no par value; 80,000 shares authorized; 54,213 shares issued; 37,868 and 38,409 shares outstanding, respectively 10,000 10,000 Additional paid-in capital 198,970 193,778 Retained earnings 2,447,931 2,121,838 Treasury shares — at cost ( 16,345 and 15,804 shares, respectively) ( 720,695 ) ( 559,269 ) Accumulated other comprehensive loss ( 91,686 ) ( 77,566 ) Total Shareholders’ Equity 1,844,520 1,688,781 Total Liabilities and Shareholders’ Equity $ 3,175,544 $ 2,951,910 See notes to consolidated financial statements. 33 Table of Contents STATEMENTS OF CONSOLIDATED CASH FLOWS (In thousands) Year Ended June 30, 2025 2024 2023 Cash Flows from Operating Activities Net income $ 392,988 $ 385,762 $ 346,739 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property 24,899 23,431 22,266 Amortization of intangibles 35,581 28,923 30,805 Deferred income taxes ( 6,362 ) ( 1,074 ) ( 5,716 ) Provision for (recoveries of) losses on accounts receivable 5,978 ( 205 ) 5,619 Amortization of stock appreciation rights 4,713 3,448 2,785 Other share-based compensation expense 7,289 9,496 9,576 Other 373 ( 1,309 ) 1,145 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 4,918 ) ( 1,925 ) ( 51,059 ) Inventories 29,181 18,387 ( 42,977 ) Other operating assets ( 11,448 ) ( 25,897 ) ( 25,254 ) Accounts payable 2,169 ( 39,272 ) 37,682 Other operating liabilities 11,942 ( 28,372 ) 12,355 Cash provided by Operating Activities 492,385 371,393 343,966 Cash Flows from Investing Activities Cash paid for acquisition of businesses, net of cash acquired ( 293,406 ) ( 72,090 ) ( 35,785 ) Capital expenditures ( 27,187 ) ( 24,864 ) ( 26,476 ) Proceeds from property sales 1,841 576 1,428 Life insurance proceeds — 971 — Cash used in Investing Activities ( 318,752 ) ( 95,407 ) ( 60,833 ) Cash Flows from Financing Activities Repayments under revolving credit facility — — ( 27,000 ) Borrowings under revolving credit facility — 408 — Long-term debt repayments ( 25,106 ) ( 25,251 ) ( 40,247 ) Interest rate swap settlement receipts 12,095 14,470 8,800 Purchases of treasury shares ( 152,837 ) ( 73,388 ) ( 716 ) Dividends paid ( 63,702 ) ( 55,879 ) ( 53,446 ) Acquisition holdback payments ( 1,210 ) ( 681 ) ( 1,510 ) Exercise of stock appreciation rights and options — 127 127 Taxes paid for shares withheld ( 14,847 ) ( 16,274 ) ( 12,896 ) Cash used in Financing Activities ( 245,607 ) ( 156,468 ) ( 126,888 ) Effect of exchange rate changes on cash ( 226 ) ( 2,937 ) 3,317 (Decrease) increase in cash and cash equivalents ( 72,200 ) 116,581 159,562 Cash and cash equivalents at beginning of year 460,617 344,036 184,474 Cash and Cash Equivalents at End of Year $ 388,417 $ 460,617 $ 344,036 Supplemental Cash Flow Information Cash paid during the year for: Income taxes $ 107,721 $ 116,311 $ 108,084 Interest (includes interest rate swap settlements) 21,826 23,978 22,567 See notes to consolidated financial statements. 34 Table of Contents STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (In thousands) For the Years Ended June 30, 2025, 2024 and 2023 Shares of Common Stock Outstanding Common Stock Additional Paid-In Capital Retained Earnings Treasury Shares- at Cost Accumulated Other Comprehensive Loss Total Shareholders' Equity Balance at June 30, 2022 38,499 $ 10,000 $ 183,822 $ 1,499,676 $ ( 471,848 ) $ ( 72,295 ) $ 1,149,355 Net income 346,739 346,739 Other comprehensive income 16,999 16,999 Cash dividends — $ 1.38 per share ( 53,887 ) ( 53,887 ) Purchases of common stock for treasury ( 8 ) ( 716 ) ( 716 ) Treasury shares issued for: Exercise of stock appreciation rights and options 92 ( 4,256 ) ( 3,773 ) ( 8,029 ) Performance share awards 23 ( 1,290 ) ( 758 ) ( 2,048 ) Restricted stock units 34 ( 1,712 ) ( 932 ) ( 2,644 ) Compensation expense — stock appreciation rights 2,785 2,785 Other share-based compensation expense 9,576 9,576 Other 17 ( 279 ) 104 482 307 Balance at June 30, 2023 38,657 10,000 188,646 1,792,632 ( 477,545 ) ( 55,296 ) 1,458,437 Net income 385,762 385,762 Other comprehensive loss ( 22,270 ) ( 22,270 ) Cash dividends — $ 1.44 per share ( 56,560 ) ( 56,560 ) Purchases of common stock for treasury ( 398 ) ( 73,388 ) ( 73,388 ) Treasury shares issued for: Exercise of stock appreciation rights and options 73 ( 3,611 ) ( 3,886 ) ( 7,497 ) Performance share awards 54 ( 3,072 ) ( 3,487 ) ( 6,559 ) Restricted stock units 16 ( 905 ) ( 1,108 ) ( 2,013 ) Compensation expense — stock appreciation rights 3,448 3,448 Other share-based compensation expense 9,496 9,496 Other 7 ( 224 ) 4 145 ( 75 ) Balance at June 30, 2024 38,409 10,000 193,778 2,121,838 ( 559,269 ) ( 77,566 ) 1,688,781 Net income 392,988 392,988 Other comprehensive loss ( 14,120 ) ( 14,120 ) Cash dividends — $ 1.66 per share ( 66,910 ) ( 66,910 ) Purchases of common stock for treasury ( 656 ) ( 153,390 ) ( 153,390 ) Treasury shares issued for: Exercise of stock appreciation rights and options 36 ( 2,110 ) ( 2,710 ) ( 4,820 ) Performance share awards 34 ( 2,213 ) ( 3,294 ) ( 5,507 ) Restricted stock units 41 ( 2,301 ) ( 2,116 ) ( 4,417 ) Compensation expense — stock appreciation rights 4,713 4,713 Other share-based compensation expense 7,289 7,289 Other 4 ( 186 ) 15 84 ( 87 ) Balance at June 30, 2025 37,868 $ 10,000 $ 198,970 $ 2,447,931 $ ( 720,695 ) $ ( 91,686 ) $ 1,844,520 See notes to consolidated financial statements. 35 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) NOTE 1: BUSINESS AND ACCOUNTING POLICIES Business Applied Industrial Technologies, Inc. and subsidiaries (the “Company,” “Applied,” "us," "we," or "our") is a leading distributor and technical solutions provider of industrial motion, power, control, and automation technologies. 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. Consolidation The consolidated financial statements include the accounts of Applied and its subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. Foreign Currency The financial statements of the Company’s Canadian, Mexican, Australian, and New Zealand subsidiaries are measured using local currencies as their functional currencies. Assets and liabilities are translated into U.S. dollars at current exchange rates, while income and expenses are translated at average exchange rates. Translation gains and losses are reported in other comprehensive (loss) income in the statements of consolidated comprehensive income. Gains and losses resulting from transactions denominated in foreign currencies are included in the statements of consolidated income as a component of other (income) expense, net. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results may differ from the estimates and assumptions used in preparing the consolidated financial statements. Cash and Cash Equivalents The Company considers all short-term, highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are carried at cost, which approximates fair value. Marketable Securities The primary marketable security investments of the Company include money market and mutual funds held in a rabbi trust for a non-qualified deferred compensation plan. These are included in other assets in the consolidated balance sheets, are classified as trading securities, and are reported at fair value based on quoted market prices. Changes in the fair value of the investments during the period are recorded in other (income) expense, net in the statements of consolidated income. Concentration of Credit Risk The Company has a broad customer base representing many diverse industries across North America, Australia, New Zealand, and Singapore. As such, the Company does not believe that a significant concentration of credit risk exists in its accounts receivable. The Company’s cash and cash equivalents consist of deposits with commercial banks and regulated non-bank subsidiaries. While the Company monitors the creditworthiness of these institutions, a crisis in the financial systems could limit access to funds and/or result in the loss of principal. The terms of these deposits and investments provide that all monies are available to the Company upon demand. Accounts Receivable Accounts receivable are stated at their estimated net realizable value and consist of amounts billed or billable and currently due from customers. Allowances for Doubtful Accounts The Company maintains an allowance for doubtful accounts, which reflects management’s best estimate of probable losses based on an analysis of customer accounts, known troubled accounts, historical experience with write-offs, and other currently available evidence. Initially, the Company estimates an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience. This initial estimate is adjusted based on recent trends of customers and industries estimated to be greater credit risks, trends within the entire customer 36 Table of Contents pool, and changes in the overall aging of accounts receivable. Accounts are written off against the allowance when it becomes evident collection will not occur. While the Company has a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which the Company operates could result in higher than expected defaults, and therefore, the need to revise estimates for bad debts. The allowance for doubtful accounts was $ 16,462 and $ 13,063 at June 30, 2025 and June 30, 2024, respectively. Inventories Inventories are valued at average cost, using the last-in, first-out (LIFO) method for U.S. inventories and the average cost method for foreign inventories. At June 30, 2025, approximately 14.1 % of the Company’s domestic inventory dollars relate to LIFO layers added in the 1970s. The Company maintains five LIFO pools based on the following product groupings: bearings, power transmission products, rubber products, fluid power products, and other products. LIFO layers and/or liquidations are determined consistently year-to-year. The Company evaluates the recoverability of its slow moving and inactive inventories at least quarterly. The Company estimates the recoverable cost of such inventory by product type while considering factors such as its age, historic and current demand trends, the physical condition of the inventory, as well as assumptions regarding future demand. The Company’s ability to recover its cost for slow moving or obsolete inventory can be affected by such factors as general market conditions, future customer demand, and relationships with suppliers. Historically, the Company’s inventories have demonstrated long shelf lives, are not highly susceptible to obsolescence, and, in certain instances, can be eligible for return under supplier return programs. Supplier Purchasing Programs The Company enters into agreements with certain suppliers providing inventory purchase incentives. The Company’s inventory purchase incentive arrangements are unique to each supplier and are generally annual programs ending at either the Company’s fiscal year end or the supplier’s year end; however, program length and ending dates can vary. Incentives are received in the form of cash or credits against purchases upon attainment of specified purchase volumes and are received either monthly, quarterly, or annually. The incentives are generally a specified percentage of the Company’s net purchases based upon achieving specific purchasing volume levels. These percentages can increase or decrease based on changes in the volume of purchases. The Company accrues for the receipt of these inventory purchase incentives based upon cumulative purchases of inventory. The percentage level utilized is based upon the estimated total volume of purchases expected during the life of the program. Supplier programs are analyzed each quarter to determine the appropriateness of the amount of purchase incentives accrued. Upon program completion, differences between estimates and actual incentives subsequently received have not been material. Benefits under these supplier purchasing programs are recognized under the Company’s inventory accounting methods as a reduction of cost of sales when the inventories representing these purchases are recorded as cost of sales. Accrued incentives expected to be settled as a credit against future purchases are reported on the consolidated balance sheets as an offset to amounts due to the related supplier. Property and Related Depreciation and Amortization Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets and is included in selling, distribution, and administrative expense in the accompanying statements of consolidated income. Buildings, building improvements and leasehold improvements are depreciated over ten to thirty years or the life of the lease if a shorter period, and equipment is depreciated over three to ten years . The Company capitalizes internal use software development costs in accordance with guidance on accounting for costs of computer software developed or obtained for internal use. Amortization of software begins when it is ready for its intended use, and is computed on a straight-line basis over the estimated useful life of the software, generally not to exceed twelve years . Capitalized software and hardware costs are classified as property on the consolidated balance sheets. The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the asset group's recorded value cannot be recovered from undiscounted future cash flows. Impairment losses, if any, would be measured based upon the difference between the carrying amount of an asset group and its fair value. Goodwill and Intangible Assets Goodwill is recognized as the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed. Goodwill is not amortized. Goodwill is reviewed for impairment annually as of January 1 or whenever changes in conditions indicate an evaluation should be completed. These conditions could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. The Company utilizes the income and market approaches to determine the fair value of reporting units. Evaluating impairment requires significant judgment by management, including estimated future operating results, estimated future cash flows, the long-term rate of growth of the 37 Table of Contents business, and determination of an appropriate discount rate. While the Company uses available information to prepare the estimates and evaluations, actual results could differ significantly. The Company recognizes acquired identifiable intangible assets such as customer relationships, trade names, vendor relationships, and non-competition agreements apart from goodwill. Customer relationship identifiable intangibles are amortized using the sum-of-the-years-digits method or the expected cash flow method over estimated useful lives consistent with assumptions used in the determination of their value. Amortization of all other finite-lived identifiable intangible assets is computed using the straight-line method over the estimated period of benefit. Amortization of identifiable intangible assets is included in selling, distribution, and administrative expense in the accompanying statements of consolidated income. Identifiable intangible assets with finite lives are reviewed for impairment when changes in conditions indicate carrying value may not be recoverable. If circumstances require a finite-lived intangible asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by the asset to the carrying value of the asset. If the carrying value of the finite-lived intangible asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value determined through a discounted cash flow model. Identifiable intangible assets with indefinite lives are reviewed for impairment on an annual basis or whenever changes in conditions indicate an evaluation should be completed. The Company does not currently have any indefinite-lived identifiable intangible assets. Self-Insurance Liabilities The Company maintains business insurance programs with significant self-insured retention covering workers’ compensation, business, automobile, general product liability and other claims. The Company accrues estimated losses including those incurred but not reported using actuarial calculations, models and assumptions based on historical loss experience. The Company also maintains a self-insured health benefits plan which provides medical benefits to U.S. based employees electing coverage under the plan. The Company estimates its reserve for all unpaid medical claims, including those incurred but not reported, based on historical experience, adjusted as necessary based upon management’s reasoned judgment. Revenue Recognition The Company primarily sells purchased products distributed through its network of service centers and other facilities, and recognizes revenue at a point in time when control of the product transfers to the customer, typically upon shipment from an Applied facility or directly from a supplier. For products that ship directly from suppliers to customers, Applied generally acts as the principal in the transaction and recognizes revenue on a gross basis. Revenue recognized over time is not significant. Revenue is measured as the amount of consideration expected to be received in exchange for the products and services provided, net of allowances for product returns, variable consideration, and any taxes collected from customers that will be remitted to governmental authorities. Shipping and handling costs are recognized in net sales when they are billed to the customer. The Company has elected to account for shipping and handling activities as fulfillment costs. There are no significant costs associated with obtaining customer contracts. Payment terms with customers vary by the type and location of the customer and the products or services offered. The Company does not adjust the promised amount of consideration for the effects of significant financing components based on the expectation that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Arrangements with customers that include payment terms extending beyond one year are not significant. Depending on the terms of the contracts with certain customers, the Company may receive payments from customers before the goods or services are delivered, typically as down payments for products to be delivered in the future. These amounts are recorded as contract liabilities (deferred revenue), included in other current liabilities on the consolidated balance sheet as the performance obligations have not yet been satisfied. Revenue is recognized when the Company satisfies its performance obligation by delivering the products to the customer. The Company’s contract assets consist of unbilled amounts resulting from contracts for which revenue is recognized over time using the cost-to-cost method, and for which revenue recognized exceeds the amount billed to the customer. Contract assets are included in other current assets on the consolidated balance sheet. The Company’s products are generally sold with a right of return and may include variable consideration in the form of incentives, discounts, credits, or rebates. Product returns are estimated based on historical return rates. The product returns reserve was $ 10,869 and $ 10,815 at June 30, 2025 and June 30, 2024, respectively. The Company estimates and recognizes variable consideration based on historical experience to determine the expected amount to which the Company will be entitled in exchange for transferring the promised goods or services to a customer. The Company records variable consideration as an adjustment to the transaction price in the period it 38 Table of Contents is incurred. The realization of variable consideration occurs within a short period of time from product delivery; therefore, the time value of money effect is not significant. Shipping and Handling Costs The Company records freight payments to third parties in cost of sales and internal delivery costs in selling, distribution, and administrative expense in the accompanying statements of consolidated income. Internal delivery costs in selling, distribution, and administrative expense were approximately $ 26,440 , $ 24,620 , and $ 22,170 for the fiscal years ended June 30, 2025, 2024, and 2023, respectively. Income Taxes Income taxes are determined based upon income and expenses recorded for financial reporting purposes. Deferred income taxes are recorded for estimated future tax effects of differences between the bases of assets and liabilities for financial reporting and income tax purposes, giving consideration to enacted tax laws. Uncertain tax positions meeting a more-likely-than-not recognition threshold are recognized in accordance with Accounting Standards Codification (ASC) Topic 740 - Income Taxes. The Company recognizes accrued interest and penalties related to unrecognized income tax benefits in the provision for income taxes. Share-Based Compensation Share-based compensation represents the cost related to share-based awards granted to employees under the 2023 Long-Term Performance Plan or the 2019 Long-Term Performance Plan. The Company measures share-based compensation cost at the grant date, based on the estimated fair value of the award and recognizes the cost over the requisite service period. Stock appreciation rights (SARs) are granted with an exercise price equal to the closing market price of the Company’s common stock at the date of grant and the fair values are determined using a Black-Scholes-Merton option pricing model, which incorporates assumptions regarding the expected volatility, the expected option life, the risk-free interest rate and the expected dividend yield. SARs vest ratably over four years of continuous service and have ten-year contractual terms. The fair value of restricted stock awards, restricted stock units (RSUs), and performance shares are based on the closing market price of Company common stock on the grant date. Treasury Shares Shares of common stock repurchased by the Company are recorded at cost as treasury shares and result in a reduction of shareholders’ equity in the consolidated balance sheets. The Company uses the weighted-average cost method for determining the cost of shares reissued. The difference between the cost of the shares and the reissuance price is added to or deducted from additional paid-in capital. In accordance with the Inflation Reduction Act, as amended, the Company is subject to a 1% excise tax on the net repurchase of its stock, which is recorded as a direct cost of the transaction in the period of repurchase. Derivatives The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. In accordance with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Retirement Savings Plan Substantially all U.S. employees participate in the Applied Industrial Technologies, Inc. Retirement Savings Plan, a 401(k) plan. Participants may elect 401(k) contributions of up to 50 % of their compensation, subject to maximums set forth in the Internal Revenue Code of 1986, as amended. The Company partially matches 401(k) contributions 39 Table of Contents by participants. The Company’s expense for matching of employees’ 401(k) contributions was $ 6,177 , $ 9,670 and $ 9,989 during 2025, 2024 and 2023, respectively. Deferred Compensation Plans The Company maintains deferred compensation plans that enable certain employees of the Company to defer receipt of a portion of their compensation. Rabbi trusts have been established to hold and provide a measure of security for investments that fund benefits payments under these plans. Assets held in these rabbi trusts consist of investments in money market and mutual funds and Company common stock. Post-employment Benefit Plans The Company provides the following post-employment benefits which, except for the Qualified Defined Benefit Retirement Plan and Key Executive Restoration Plan, are unfunded: Supplemental Executive Retirement Benefits Plan The Company has a non-qualified pension plan to provide supplemental retirement benefits to certain officers. Benefits are payable and determinable at retirement based upon a percentage of the participant’s historical compensation. The Executive Organization and Compensation Committee of the Board of Directors froze participant benefits (credited service and final average earnings) and entry into the Supplemental Executive Retirement Benefits Plan (SERP) effective December 31, 2011. The Company recorded net periodic benefit costs associated with the SERP of $ 260 , $ 289 , and $ 399 in fiscal 2025 , 2024 , and 2023, respectively. The Company expects to make payments of approximately $ 1,300 under the SERP in fiscal 2026. Key Executive Restoration Plan In fiscal 2012, the Company adopted the Key Executive Restoration Plan (KERP), a funded, non-qualified deferred compensation plan, to replace the SERP. The Company recorded $ 820 , $ 446 , and $ 456 of expense associated with this plan in fiscal 2025 , 2024 , and 2023, respectively. Qualified Defined Benefit Retirement Plan The Company's qualified defined benefit retirement plan provided benefits to certain hourly employees at retirement based on length of service and date of retirement. The plan accruals were frozen as of April 16, 2018, and employees were permitted to participate in the Retirement Savings Plan, following that date. The Company terminated the defined benefit retirement plan effective February 28, 2022. Participants elected to receive benefits as either a lump sum payment or through an annuity contract and the settlement of $ 8,895 was paid from plan assets in the second quarter of fiscal 2023. As a result of the plan termination, the Company recognized a loss of $ 1,184 in fiscal 2023, which was recorded in other (income) expense, net in the statements of consolidated income. Retiree Health Care Benefits The Company provides health care benefits, through third-party policies, to eligible retired employees who pay a specified monthly premium. Premium payments are based upon current insurance rates for the type of coverage provided and are adjusted annually. Certain monthly health care premium payments are subsidized by the Company. The Company recorded net periodic benefits associated with these plans of $ 115 , $ 186 , and $ 113 in fiscal 2025 , 2024 , and 2023, respectively. The Company has determined that the related disclosures under ASC Topic 715 - Compensation, Retirement Benefits, for these post-employment benefit plans are not material to the consolidated financial statements. Leases The Company leases facilities for certain service centers, warehouses, distribution centers, and office space. The Company also leases office equipment and vehicles. All leases are considered to be operating leases. The Company’s leases expire at various dates through 2039, with terms ranging from 1 year to 15 years. Many of the Company’s real estate leases contain renewal provisions to extend lease terms for up to 5 years. The exercise of renewal options is solely at the Company’s discretion. The Company’s lease agreements do not contain material variable lease payments, residual value guarantees, or restrictive covenants. The Company does not recognize right-of-use assets or lease liabilities for short-term leases with initial terms of 12 months or less. Leased vehicles comprise the majority of the Company’s short-term leases. All other leases are recorded on the balance sheet with right-of-use assets representing the right to use the underlying asset for the lease term and lease liabilities representing lease payment obligations. The Company’s leases do not provide implicit rates; therefore the Company uses its incremental borrowing rate as the discount rate for measuring lease liabilities. Non-lease components are accounted for separately from lease components. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and is recorded in selling, distribution, and administrative expense in the statements of consolidated income. 40 Table of Contents Recently Adopted Accounting Guidance In November 2023, the Financial Accounting Standards Board (FASB) issued its final standard to improve reportable segment disclosures. This standard, issued as ASU 2023-07, requires enhanced disclosures about significant segment expenses, enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements. This update is effective for all public business entities for fiscal years beginning after December 15, 2023 for annual disclosure requirements, with the interim disclosure requirements being effective for fiscal years beginning after December 15, 2024. The adoption of the ASU only affected the Company's segment disclosures and did not affect the consolidated financial statements. 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. These reportable segments contain the Company's various operating segments which have been aggregated based upon similar economic and operating characteristics. The Service Center segment 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. The Engineered Solutions segment includes our operations that specialize in distributing, engineering, designing, integrating, and repairing hydraulic and pneumatic fluid power technologies; engineered flow control products and services; and advanced automation solutions including machine vision, robotics, motion control, and smart technologies. See Note 13 for further details. Recently Issued Accounting Guidance In November 2024, the FASB issued its final standard on the Disaggregation of Income Statement Expenses (DISE). This standard, issued as ASU 2024-03, requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. This update is effective for annual periods beginning after December 15, 2026, and interim periods within annual periods beginning after December 15, 2027. The requirements can be applied prospectively with the option for retrospective application. The Company is currently evaluating the impacts of this guidance on its financial statements and related disclosures. In December 2023, the FASB issued its final standard to improve income tax disclosures. This standard, issued as ASU 2023-09, requires public business entities to annually disclose specific categories in the income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. This update is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impacts of this guidance on its financial statements and related disclosures, and expects the standard will only impact its income taxes disclosures with no material impact to the consolidated financial statements. NOTE 2: REVENUE RECOGNITION Disaggregation of Revenues The following tables present the Company's net sales by reportable segment and by geographic areas based on the location of the facility shipping the product for the years ended June 30, 2025, 2024, and 2023. Other countries consist of Mexico, Australia, New Zealand, Singapore, and Costa Rica. Year Ended June 30, 2025 Service Center Engineered Solutions Total Geographic Areas: United States $ 2,524,036 $ 1,476,918 $ 4,000,954 Canada 296,661 — 296,661 Other Countries 193,651 72,158 265,809 Total $ 3,014,348 $ 1,549,076 $ 4,563,424 41 Table of Contents Year Ended June 30, 2024 Service Center Engineered Solutions Total Geographic Areas: United States $ 2,540,427 $ 1,391,762 $ 3,932,189 Canada 310,210 — 310,210 Other Countries 205,918 31,089 237,007 Total $ 3,056,555 $ 1,422,851 $ 4,479,406 Year Ended June 30, 2023 Service Center Engineered Solutions Total Geographic Areas: United States $ 2,441,281 $ 1,419,140 $ 3,860,421 Canada 315,499 — 315,499 Other Countries 210,062 26,812 236,874 Total $ 2,966,842 $ 1,445,952 $ 4,412,794 The following tables present the Company’s percentage of revenue by reportable segment and major customer industry for the years ended June 30, 2025, 2024, and 2023: Year Ended June 30, 2025 Service Center Engineered Solutions Total General Industry 34.5 % 40.0 % 36.4 % Industrial Machinery 8.3 % 23.3 % 13.3 % Food 15.4 % 3.2 % 11.3 % Metals 11.0 % 7.3 % 9.8 % Forest Products 12.2 % 3.2 % 9.1 % Chem/Petrochem 2.8 % 14.6 % 6.8 % Cement & Aggregate 7.3 % 1.4 % 5.3 % Transportation 3.6 % 4.9 % 4.1 % Oil & Gas 4.9 % 2.1 % 3.9 % Total 100.0 % 100.0 % 100.0 % Year Ended June 30, 2024 Service Center Engineered Solutions Total General Industry 35.0 % 38.7 % 36.2 % Industrial Machinery 8.2 % 24.2 % 13.3 % Food 15.0 % 2.8 % 11.1 % Metals 10.9 % 7.9 % 10.0 % Forest Products 12.0 % 3.2 % 9.2 % Chem/Petrochem 2.7 % 16.0 % 6.9 % Cement & Aggregate 7.4 % 1.3 % 5.5 % Transportation 3.7 % 4.2 % 3.8 % Oil & Gas 5.1 % 1.7 % 4.0 % Total 100.0 % 100.0 % 100.0 % 42 Table of Contents Year Ended June 30, 2023 Service Center Engineered Solutions Total General Industry 34.0 % 41.2 % 36.2 % Industrial Machinery 9.8 % 26.1 % 15.2 % Food 13.2 % 2.7 % 9.8 % Metals 10.6 % 7.5 % 9.6 % Forest Products 12.1 % 2.8 % 9.1 % Chem/Petrochem 2.8 % 13.9 % 6.4 % Cement & Aggregate 7.8 % 1.3 % 5.7 % Transportation 3.7 % 3.1 % 3.5 % Oil & Gas 6.0 % 1.4 % 4.5 % Total 100.0 % 100.0 % 100.0 % The following tables present the Company’s percentage of revenue by reportable segment and product line for the years ended June 30, 2025, 2024, and 2023: Year Ended June 30, 2025 Service Center Engineered Solutions Total Power Transmission 37.5 % 9.8 % 28.2 % General MRO & Other 22.3 % 22.3 % 22.2 % Fluid Power 14.4 % 34.9 % 21.3 % Bearings, Linear & Seals 25.8 % 0.4 % 17.3 % Specialty Flow Control — % 32.6 % 11.0 % Total 100.0 % 100.0 % 100.0 % Year Ended June 30, 2024 Service Center Engineered Solutions Total Power Transmission 37.7 % 11.3 % 29.4 % General MRO & Other 22.1 % 17.2 % 20.5 % Fluid Power 14.1 % 36.3 % 21.1 % Bearings, Linear & Seals 26.1 % 0.4 % 18.0 % Specialty Flow Control — % 34.8 % 11.0 % Total 100.0 % 100.0 % 100.0 % Year Ended June 30, 2023 Service Center Engineered Solutions Total Power Transmission 37.3 % 10.6 % 28.5 % General MRO & Other 21.1 % 19.3 % 20.6 % Fluid Power 13.3 % 34.3 % 20.2 % Bearings, Linear & Seals 28.3 % 0.4 % 19.1 % Specialty Flow Control — % 35.4 % 11.6 % Total 100.0 % 100.0 % 100.0 % 43 Table of Contents Contract Assets and Liabilities Changes related to contract assets and contract liabilities are as follows: June 30, 2025 June 30, 2024 $ Change % Change Contract assets $ 11,659 $ 12,648 $ ( 989 ) ( 7.8 ) % Contract liabilities 29,244 15,777 13,467 85.4 % The change in balances noted above of the Company's contract assets primarily results from the timing difference between the Company's performance and when the customer is billed. The increase in the contract liability balance from the prior year is primarily due to acquisitions in fiscal 2025 . NOTE 3: BUSINESS COMBINATIONS The operating results of all acquired entities are included within the consolidated operating results of the Company from the date of each respective acquisition. Hydradyne Acquisition On December 31, 2024, the Company acquired all of the membership interests of Hydradyne, LLC (Hydradyne), a Dallas, Texas based provider of fluid power solutions and value-added services including product offerings in hydraulics, pneumatics, electromechanical, instrumentation, filtration and fluid conveyance. The purchase price is $ 282,136 , which was funded using available cash. Hydradyne is included in the Engineered Solutions segment. The following table summarizes the assets acquired and liabilities assumed in connection with this acquisition based on their preliminary estimated fair values at the acquisition date, which are subject to adjustment. The areas that remain open primarily relate to working capital adjustments. The purchase accounting will be finalized within one year from the acquisition date. Hydradyne Acquisition Cash and cash equivalents $ 13,373 Accounts receivable 42,852 Inventories 44,085 Other current assets 915 Property, net 6,483 Operating lease assets 52,257 Identifiable intangible assets 126,050 Goodwill 67,903 Other assets 111 Total assets acquired $ 354,029 Accounts payable and accrued liabilities 16,019 Other current liabilities 4,546 Other liabilities 51,328 Net assets acquired $ 282,136 The acquired goodwill is expected to be deductible for income tax purposes. The Company incurred $ 1,608 in third-party costs pertaining to the acquisition of Hydradyne, which are included in selling, distribution, and administration expense in the statement of consolidated income for the fiscal year ended June 30, 2025. Net sales and net income from the Hydradyne acquisition included in the Company's results since December 31, 2024, the date of the acquisition, are $ 124,529 and $ 4,366 , respectively. 44 Table of Contents The following unaudited pro forma consolidated results of operations are prepared as if the Hydradyne acquisition (including the related acquisition costs) occurred at the beginning of fiscal 2024: Pro forma, year ended June 30, 2025 2024 Sales $ 4,692,742 $ 4,748,187 Net income 397,254 387,766 Diluted net income per share $ 10.23 $ 9.88 These pro forma amounts are calculated after applying the Company's accounting policies and adjusting the results to reflect additional amortization that would have been recorded assuming the fair value adjustments to identified intangible assets were applied as of July 1, 2023. Additional amortization of $ 5,473 and $ 11,454 is included in the pro forma results for fiscal 2025 and 2024, respectively. In addition, pro forma adjustments of $ 5,643 and $ 11,285 f or fiscal 2025 and 2024, respectively, were made for interest income that would not have been earned as a result of the cash used for the acquisition. The pro forma net income amounts also incorporate an adjustment to the recorded income tax expense for the income tax effect of the pro forma adjustments described above. These pro forma results of operations do not include any anticipated synergies or other effects of the planned integration of Hydradyne; accordingly, such pro forma adjustments do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred as of the date indicated or that may result in the future. Other Fiscal 2025 Acquisitions On May 1, 2025, the Company acquired substantially all of the net assets of IRIS Factory Automation (IRIS), an Aurora, Illinois provider of automation products, services, and turn-key productized solutions focused on optimizing material handling and traceability workflows across production environments. IRIS is included in the Engineered Solutions segment. The purchase price for IRIS was $ 14,000 , net tangible assets acquired were $ 287 , identifiable intangible assets were $ 7,810 , and goodwill was $ 5,903 ; the values are based upon preliminary estimated fair values at the acquisition date, which are subject to adjustment. The Company funded the acquisition using available cash. The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements. On August 1, 2024, the Company acquired substantially all of the net assets of Total Machine Solutions (TMS), a Fairfield, New Jersey based provider of electrical and mechanical power transmission products and solutions including bearings, drives, motors, conveyor components, and related repair services. TMS is included in the Service Center segment. The purchase price for TMS was $ 6,025 , net tangible assets acquired were $ 1,115 , identifiable intangible assets were $ 2,738 , and goodwill was $ 2,172 ; the values are based upon estimated fair values at the acquisition date. The Company funded this acquisition using available cash. The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements. On August 1, 2024, the Company acquired 100 % of the outstanding shares of Stanley Proctor, a Twinsburg, Ohio based provider of hydraulic, pneumatic, measurement, control, and instrumentation components, as well as fluid power engineered systems. Stanley Proctor is included in the Engineered Solutions segment. The purchase price for Stanley Proctor was $ 3,924 , net tangible assets acquired were $ 362 , identifiable intangible assets were $ 1,725 , and goodwill was $ 1,837 ; the values are based upon estimated fair values at the acquisition date. The Company funded this acquisition using available cash. The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements. Fiscal 2024 Acquisitions On May 1, 2024, the Company acquired 100 % of the outstanding shares of Grupo Kopar (Kopar), a Monterrey, Mexico based provider of emerging automation technologies and engineered solutions. Kopar is included in the Engineered Solutions segm ent. The purchase price for the acquisition was $ 61,870 , net liabilities assumed were $ 4,089 , and intangible assets including goodwill were $ 65,959 based upon estimated fair values at the acquisition date. The Company funded this acquisition using available cash. The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements. On September 1, 2023, the Company acquired substantially all of the net assets of Bearing Distributors, Inc. (BDI), a Columbia, South Carolina based provider of bearings, power transmission, and industrial motion products, and related service and repair capabilities. BDI is included in the Service Center segment. The purchase price for the acquisition was $ 17,926 , net tangible assets acquired were $ 4,102 , and intangible assets including goodwill were $ 13,824 based upon estimated fair values at the acquisition date. The purchase price includes $ 1,800 of acquisition holdback payments, of which $ 900 was paid during the fiscal year ended June 30, 2025. The remaining balance is included in other current liabilities on the consolidated balance sheet as of June 30, 2025, and will be paid on the 45 Table of Contents second anniversary of the acquisition date with interest at a fixed rate of 3.0 % per annum. The Company funded this acquisition using available cash. The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements. On August 1, 2023, the Company acquired substantially all of the net assets of Cangro Industries, Inc. (Cangro), a Farmingdale, New York based provider of bearings, power transmission, and industrial motion products, and related service and repair capabilities. Cangro is included in the Service Center segment. The purchase price for the acquisition was $ 6,219 , net tangible assets acquired were $ 2,070 , and intangible assets including goodwill were $ 4,149 based upon estimated fair values at the acquisition date. The purchase price includes $ 930 of acquisition holdback payments, of which $ 310 was paid during the fiscal year ended June 30, 2025. The remaining balance is included in other current liabilities and other liabilities on the consolidated balance sheet as of June 30, 2025, and will be paid on the second and third anniversaries of the acquisition date with interest at a fixed rate of 1.0 % per annum. The Company funded this acquisition using available cash. The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements. Fiscal 2023 Acquisitions On March 31, 2023, the Company acquired substantially all of the net assets of Advanced Motion Systems Inc. (AMS), a western New York based provider of automation products, services, and engineered solutions focused on a full range of machine vision, robotics, and motion control products and technologies. AMS is included in the Engineered Solutions segment. The purchase price for the acquisition was $ 10,118 , net tangible assets acquired were $ 1,768 , and intangible assets including goodwill were $ 8,350 based upon estimated fair values at the acquisition date. The Company funded this acquisition using available cash. The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements. On November 1, 2022, the Company acquired substantially all of the net assets of Automation, Inc., a Minneapolis, Minnesota based provider of automation products, services, and engineered solutions focused on machine vision, collaborative and mobile robotics, motion control, intelligent sensors, pneumatics, and other related products and solutions. Automation, Inc. is included in the Engineered Solutions segment. The purchase price for the acquisition was $ 25,617 , net tangible assets acquired were $ 3,639 , and intangible assets including goodwill were $ 21,978 based upon estimated fair values at the acquisition date. The Company funded this acquisition using available cash. The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements. NOTE 4: INVENTORIES Inventories consist of the following: June 30, 2025 2024 U.S. inventories at average cost $ 587,479 $ 557,313 Foreign inventories at average cost 150,534 156,873 738,013 714,186 Less: Excess of average cost over LIFO cost for U.S. inventories 232,676 225,928 Inventories $ 505,337 $ 488,258 The overall impact of LIFO layer liquidations increased gross profit by $ 393 , $ 1,160 , and $ 127 in fiscal 2025, 2024, and 2023, respectively. 46 Table of Contents NOTE 5: GOODWILL AND INTANGIBLES The changes in the carrying amount of goodwill for both the Service Center segment and the Engineered Solutions segment for the years ended June 30, 2025 and 2024 are as follows: Service Center Engineered Solutions Total Balance at July 1, 2023 $ 211,231 $ 367,187 $ 578,418 Goodwill acquired during the year 9,712 32,634 42,346 Other, primarily currency translation ( 1,369 ) — ( 1,369 ) Balance at June 30, 2024 219,574 399,821 619,395 Goodwill acquired during the year 2,262 77,847 80,109 Other, primarily currency translation ( 130 ) — ( 130 ) Balance at June 30, 2025 $ 221,706 $ 477,668 $ 699,374 During fiscal 2025, the Company recorded purchase accounting working capital adjustments related to the Kopar acquisition, which increased the purchase price by $ 645 , decreased the fair value of net tangible assets acquired by $ 1,219 , and increased goodwill by $ 1,864 . Also, during fiscal 2025, the Company recorded working capital adjustments related to the TMS acquisition, which decreased the purchase price by $ 475 , increased the fair value of net tangible assets acquired by $ 91 , and decreased goodwill by $ 566 . Further, during fiscal 2025, the Company recorded purchase accounting and working capital adjustments related to the Hydradyne acquisition, which increased the purchase price by $ 6,045 , increased the fair value of net tangible assets acquired by $ 1,593 , increased net intangible assets by $ 410 , and increased goodwill by $ 4,042 . 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, 2025, therefore no impairment exists. At June 30, 2025 and 2024, accumulated goodwill impairment losses subsequent to fiscal 2002 totaled $ 64,794 related to the Service Center segment and $ 167,605 related to the Engineered Solutions segment. The Company's identifiable intangible assets resulting from business combinations are amortized over their estimated period of benefit and consist of the following: June 30, 2025 Amount Accumulated Amortization Net Book Value Finite-Lived Intangibles: Customer relationships $ 510,834 $ 233,392 $ 277,442 Trade names 108,344 41,585 66,759 Other 6,902 2,503 4,399 Total Intangibles $ 626,080 $ 277,480 $ 348,600 June 30, 2024 Amount Accumulated Amortization Net Book Value Finite-Lived Intangibles: Customer relationships $ 394,114 $ 205,422 $ 188,692 Trade names 88,848 34,891 53,957 Other 4,946 1,725 3,221 Total Intangibles $ 487,908 $ 242,038 $ 245,870 Amounts include the impact of foreign currency translation. Fully amortized finite-lived identifiable intangible assets are written off in the period when they become fully amortized. 47 Table of Contents During fiscal 2025, the Company acquired identifiable intangible assets with an acquisition cost allocation and weighted-average life as follows: Acquisition Cost Allocation Weighted-Average Life Customer relationships $ 116,778 20.0 Trade names 19,500 15.0 Other 2,045 13.4 Total Finite-Lived Intangibles Acquired $ 138,323 19.2 Identifiable intangible assets with finite lives are reviewed for impairment when changes in conditions indicate carrying value may not be recoverable. Amortization of identifiable intangibles totaled $ 35,581 , $ 28,923 , and $ 30,805 in fiscal 2025, 2024, and 2023, respectively, and is included in selling, distribution, and administrative expense in the statements of consolidated income. Future amortization expense based on the Company’s identifiable intangible assets as of June 30, 2025 is estimated to be $ 39,600 for 2026, $ 37,000 for 2027, $ 34,500 for 2028, $ 32,500 for 2029, and $ 30,500 for 2030. NOTE 6: DEBT A summary of long-term debt, including the current portion, follows: June 30, 2025 2024 Revolving credit facility $ 384,000 $ 384,000 Trade receivable securitization facility 188,300 188,300 Series E Notes — 25,000 Other — 105 Total debt $ 572,300 $ 597,405 Less: unamortized debt issuance costs — 71 Total long-term debt $ 572,300 $ 597,334 Revolving Credit Facility & Term Loan 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 $ 900,000 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 $ 500,000 . 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 $ 515,791 and $ 515,800 at June 30, 2025 and June 30, 2024, respectively, and is available to fund future acquisitions or other capital and operating requirements. These amounts are net of outstanding letters of credit of $ 209 and $ 200 at June 30, 2025 and June 30, 2024, respectively, 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 not associated with the revolving credit agreement, in the amount of $ 5,336 and $ 4,046 as of June 30, 2025 and June 30, 2024, respectively, in order to secure certain insurance obligations. Trade Receivable Securitization Facility 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. The AR Securitization Facility's maximum borrowing capacity is $ 250,000 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 $ 250,000 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 48 Table of Contents June 30, 2024 was 5.32 % and 6.35 %, respectively. On July 10, 2025, the Company amended the AR Securitization Facility and extended the term to July 10, 2028. Unsecured Shelf Facility At June 30, 2025 the Company had no remaining borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management. Fees on this facility ranged from 0.25 % to 1.25 % per year based on the Company's leverage ratio at each quarter end. The "Series E" notes carried a fixed interest rate of 3.08 %, and the remaining principal balance of $ 25,000 was paid in October 2024. Other Long-Term Borrowing In 2014, the Company assumed $ 2,359 of debt as a part of the headquarters facility acquisition. The 1.50 % fixed interest rate note, held by the State of Ohio Development Services Agency, was fully paid in November 2024. The table below summarizes the aggregate maturities of amounts outstanding under long-term borrowing arrangements for each of the next five years: Fiscal Year Aggregate Maturity 2026 $ — 2027 384,000 2028 — 2029 188,300 2030 — Covenants The credit facility and the unsecured shelf facility contain restrictive covenants regarding liquidity, net worth, financial ratios, and other covenants. At June 30, 2025, the most restrictive of these covenants required that the Company have net indebtedness less than 3.75 times consolidated income before interest, taxes, depreciation and amortization (as defined). At June 30, 2025, the Company's net indebtedness was less than 0.4 times consolidated income before interest, taxes, depreciation and amortization (as defined in these agreements). The Company was in compliance with all financial covenants at June 30, 2025. NOTE 7: DERIVATIVES Risk Management Objective of Using Derivatives The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings. Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive loss and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. In January 2019, the Company entered into an interest rate swap to mitigate variability in forecasted interest payments on $ 463,000 of the Company’s U.S. dollar-denominated unsecured variable rate debt. The notional 49 Table of Contents amount declined over time to $ 384,000 as principal payments were made. The interest rate swap effectively converts a portion of the floating rate interest payment into a fixed rate interest payment. The Company designated the interest rate swap as a pay-fixed, receive-floating interest rate swap instrument and is accounting for this derivative as a cash flow hedge. During fiscal 2021, the Company completed a transaction to amend and extend the interest rate swap agreement which resulted in an extension of the maturity date to January 31, 2026. The pay-fixed interest rate swap is considered a hybrid instrument with a financing component and an embedded at-market derivative that was designated as a cash flow hedge. The weighted average fixed pay rate is 1.58 % and the interest rate swap is indexed to SOFR. The Company made various accounting elections related to changes in critical terms of the hedging relationship due to reference rate reform to preserve the hedging relationship. The interest rate swap converted $ 384,000 of variable rate debt to a rate of 2.48 % as of June 30, 2025 and 2024. The fair value (Level 2 in the fair value hierarchy) of the interest rate cash flow hedge was $ 5,503 as of June 30, 2025, which is included in other current assets in the consolidated balance sheet, and was $ 18,081 as of June 30, 2024, which is included in other current assets and other assets in the consolidated balance sheet. Amounts reclassified from other comprehensive (loss) income, before tax, to interest expense was income of $ 16,124 , $ 18,683 , and $ 7,285 for fiscal 2025, 2024, and 2023, respectively. NOTE 8: FAIR VALUE MEASUREMENTS Marketable securities measured at fair value at June 30, 2025 and June 30, 2024 totaled $ 25,628 and $ 22,519 , respectively. The majority of these marketable securities are held in a rabbi trust for a non-qualified deferred compensation plan. The marketable securities are included in other assets on the consolidated balance sheets and their fair values were determined using quoted market prices (Level 1 in the fair value hierarchy). In addition, the Company holds Corporate-Owned Life Insurance (COLI) policies on certain retired employees, which are valued at the cash surrender value of the policies (Level 3 in the fair value hierarchy). The fair value of the COLI policies totaled $ 20,817 and $ 20,053 , at June 30, 2025 and June 30, 2024, respectively, and are included in other assets on the consolidated balance sheets. As of June 30, 2025, the Company had no fixed interest rate debt outstanding. As of June 30, 2024, the carrying values of the Company's fixed interest rate debt outstanding under its unsecured shelf facility agreement with Prudential Investment Management approximated its fair value (Level 2 in the fair value hierarchy). The revolving credit facility and the AR Securitization Facility contain variable interest rates and their carrying values approximate their fair values (Level 2 in the fair value hierarchy). The carrying value of our cash and cash equivalents, trade accounts receivable, and accounts payable, approximate fair value because of the short-term maturity of these financial instruments. 50 Table of Contents NOTE 9: INCOME TAXES Income Before Income Taxes The components of income before income taxes are as follows: Year Ended June 30, 2025 2024 2023 U.S. $ 475,266 $ 467,785 $ 423,316 Foreign 25,701 30,345 26,495 Income before income taxes $ 500,967 $ 498,130 $ 449,811 Provision for Income Taxes The provision for income taxes consists of: Year Ended June 30, 2025 2024 2023 Current: Federal $ 87,700 $ 86,501 $ 84,294 State and local 18,525 23,016 19,026 Foreign 8,116 3,925 5,468 Total current 114,341 113,442 108,788 Deferred: Federal ( 4,432 ) ( 791 ) ( 1,881 ) State and local ( 310 ) 1,159 ( 84 ) Foreign ( 1,620 ) ( 1,442 ) ( 3,751 ) Total deferred ( 6,362 ) ( 1,074 ) ( 5,716 ) Provision for income taxes $ 107,979 $ 112,368 $ 103,072 Effective Tax Rates The following reconciles the U.S. federal statutory income tax rate to the Company’s effective income tax rate: Year Ended June 30, 2025 2024 2023 Statutory income tax rate 21.0 % 21.0 % 21.0 % Effects of: State and local taxes 2.9 4.0 3.5 Stock compensation ( 1.1 ) ( 1.2 ) ( 1.0 ) GILTI/FDII — ( 0.4 ) ( 0.2 ) R & D credit ( 0.5 ) ( 0.4 ) ( 0.4 ) U.S. tax on foreign income, net ( 0.6 ) ( 0.1 ) — Impact of foreign operations 0.3 0.3 0.2 Non-deductibles/Deductible dividend 0.7 0.9 0.6 Interest deduction ( 0.2 ) ( 0.4 ) ( 0.4 ) Valuation allowance 0.1 ( 0.7 ) ( 0.6 ) Other, net ( 1.0 ) ( 0.4 ) 0.2 Effective income tax rate 21.6 % 22.6 % 22.9 % 51 Table of Contents Deferred Income Tax Assets and Liabilities Significant components of the Company’s deferred income tax assets and liabilities are as follows: June 30, 2025 2024 Deferred tax assets: Compensation liabilities not currently deductible $ 20,331 $ 18,646 Other expenses and reserves not currently deductible 17,430 15,008 Leases 36,054 34,771 Net operating loss carryforwards 5,388 6,340 Capitalization of R&D costs 22,284 17,584 Other 2,281 300 Total deferred tax assets $ 103,768 $ 92,649 Less: Valuation allowance 853 158 Deferred tax assets, net of valuation allowance $ 102,915 $ 92,491 Deferred tax liabilities: Inventories $ ( 20,376 ) $ ( 18,086 ) Goodwill and intangibles ( 64,062 ) ( 63,733 ) Leases ( 35,933 ) ( 34,473 ) Hedging instrument ( 1,906 ) ( 5,965 ) Depreciation and differences in property bases ( 10,530 ) ( 10,506 ) Total deferred tax liabilities ( 132,807 ) ( 132,763 ) Net deferred tax liabilities $ ( 29,892 ) $ ( 40,272 ) Net deferred tax liabilities are classified as follows: Other assets $ 12,263 $ 11,306 Other liabilities ( 42,155 ) ( 51,578 ) Net deferred tax liabilities $ ( 29,892 ) $ ( 40,272 ) As of June 30, 2025 and 2024, the Company had foreign net operating loss carryforwards of approximately $ 19,426 and $ 24,627 , respectively, the tax benefit of which is approximately $ 5,289 and $ 6,146 , respectively. These loss carryforwards will expire at various dates beginning in 2036. As of June 30, 2025 and 2024, the Company had state net operating loss carryforwards, the tax benefit of which is approximately $ 99 and $ 194 , respectively, which will expire at various dates beginning in 2034. 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. The remaining net deferred tax asset is the amount management believes is more-likely-than-not of being realized. The realization of these deferred tax assets can be impacted by changes to tax laws, statutory tax rates and future income levels. The Company evaluates the realization of its deferred tax assets each quarter throughout the year. D uring the fiscal years ended June 30, 2025 and 2024, the Company recorded a net tax expense (benefit) related to the change in valuation allowances of $ 695 and $( 3,283 ), respectively. The total valuation allowance provided against the deferred tax assets is $ 853 and $ 158 as of June 30, 2025 and 2024, respectively. As of June 30, 2025, the Company had accumulated undistributed earnings of non-U.S. subsidiaries of approximately $ 185,700 . The vast majority of such earnings have previously been subjected to the one-time transition tax or the Global Intangible Low Taxed Income (GILTI) inclusion. Therefore, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of our foreign investments would generally be limited to foreign withholding and state income taxes. In addition, we expect foreign tax credits would be available to either offset or partially reduce the tax cost in the event of a distribution. We intend, however, to indefinitely reinvest these earnings and expect future U.S. cash generation to be sufficient to meet future U.S. cash needs. Unrecognized Income Tax Benefits The Company and its subsidiaries file income tax returns in the U.S. federal, various state, local, and foreign jurisdictions. The following table sets forth the changes in the amount of unrecognized tax benefits for the years ended June 30, 2025, 2024, and 2023: 52 Table of Contents Year Ended June 30, 2025 2024 2023 Unrecognized Income Tax Benefits at beginning of the year $ 3,048 $ 4,821 $ 4,926 Current year tax positions 85 105 622 Prior year tax positions 57 ( 412 ) ( 86 ) Expirations of statutes of limitations ( 2,272 ) ( 1,466 ) ( 641 ) Unrecognized Income Tax Benefits at end of year $ 918 $ 3,048 $ 4,821 The Company recognizes interest and penalties related to uncertain tax positions in the provision for income taxes. During 2025, 2024, and 2023, the Company recognized $( 1,060 ), $ 296 , and $ 239 of (income) expense, respectively, for interest and penalties related to unrecognized income tax benefits in its statements of consolidated income. The Company had a liability for penalties and interest of $ 351 , $ 1,411 , and $ 1,115 as of June 30, 2025, 2024, and 2023, respectively. The Company anticipates a decrease to unrecognized income tax benefits within the next twelve months of approximately $ 469 , of which all would affect the effective income tax rate. Included in the balance of unrecognized income tax benefits at June 30, 2025, 2024, and 2023 are $ 809 , $ 2,946 , and $ 4,722 respectively, of income tax benefits that, if recognized, would affect the effective income tax rate. The Company is subject to U.S. federal income tax examinations for the tax years 2022 through 2024 and to state and local income tax examinations for the tax years 2019 through 2024. In addition, the Company is subject to foreign income tax examinations for the tax years 2018 through 2024. The Company’s unrecognized income tax benefits are included in other liabilities in the consolidated balance sheets since payment of cash is not expected within one year, or as a reduction of a deferred tax asset. 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. 53 Table of Contents NOTE 10: SHAREHOLDERS’ EQUITY Treasury Shares At June 30, 2025, 128 shares of the Company’s common stock held as treasury shares were restricted as collateral under escrow arrangements relating to change in control and director and officer indemnification agreements. Accumulated Other Comprehensive Loss Changes in the accumulated other comprehensive loss for the years ended June 30, 2025, 2024, and 2023, are composed of the following amounts, shown net of taxes: Foreign currency translation adjustment Post-employment benefits Cash flow hedge Total accumulated other comprehensive loss Balance at July 1, 2022 $ ( 90,738 ) $ ( 1,303 ) $ 19,746 $ ( 72,295 ) Other comprehensive income 7,639 1,082 13,759 22,480 Amounts reclassified from accumulated other comprehensive loss — 24 ( 5,505 ) ( 5,481 ) Net current-period other comprehensive income 7,639 1,106 8,254 16,999 Balance at June 30, 2023 ( 83,099 ) ( 197 ) 28,000 ( 55,296 ) Other comprehensive (loss) income ( 12,467 ) ( 101 ) 4,499 ( 8,069 ) Amounts reclassified from accumulated other comprehensive loss — ( 93 ) ( 14,108 ) ( 14,201 ) Net current-period other comprehensive loss ( 12,467 ) ( 194 ) ( 9,609 ) ( 22,270 ) Balance at June 30, 2024 ( 95,566 ) ( 391 ) 18,391 ( 77,566 ) Other comprehensive loss ( 1,650 ) ( 33 ) ( 246 ) ( 1,929 ) Amounts reclassified from accumulated other comprehensive loss — ( 14 ) ( 12,177 ) ( 12,191 ) Net current-period other comprehensive loss ( 1,650 ) ( 47 ) ( 12,423 ) ( 14,120 ) Balance at June 30, 2025 $ ( 97,216 ) $ ( 438 ) $ 5,968 $ ( 91,686 ) Other Comprehensive (Loss) Income Details of other comprehensive (loss) income are as follows: Year Ended June 30, 2025 2024 2023 Pre-Tax Amount Tax Benefit Net Amount Pre-Tax Amount Tax (Benefit) Expense Net Amount Pre-Tax Amount Tax Expense (Benefit) Net Amount Foreign currency translation adjustments $ ( 1,655 ) $ ( 5 ) $ ( 1,650 ) $ ( 12,544 ) $ ( 77 ) $ ( 12,467 ) $ 7,723 $ 84 $ 7,639 Post-employment benefits: Actuarial (loss) gain on re-measurement ( 42 ) ( 9 ) ( 33 ) ( 134 ) ( 33 ) ( 101 ) 405 100 305 Reclassification of net actuarial (gains) losses and prior service cost into other (income) expense, net and included in net periodic pension costs ( 25 ) ( 11 ) ( 14 ) ( 117 ) ( 24 ) ( 93 ) 36 12 24 Termination of pension plan — — — — — — 1,031 254 777 Unrealized (loss) gain on cash flow hedge ( 357 ) ( 111 ) ( 246 ) 5,958 1,459 4,499 18,174 4,415 13,759 Reclassification of interest from cash flow hedge into interest expense ( 16,124 ) ( 3,947 ) ( 12,177 ) ( 18,683 ) ( 4,575 ) ( 14,108 ) ( 7,285 ) ( 1,780 ) ( 5,505 ) Other comprehensive (loss) income $ ( 18,203 ) $ ( 4,083 ) $ ( 14,120 ) $ ( 25,520 ) $ ( 3,250 ) $ ( 22,270 ) $ 20,084 $ 3,085 $ 16,999 54 Table of Contents Net Income Per Share Basic net income per share is based on the weighted-average number of common shares outstanding. Diluted net income per share includes the dilutive effect of potential common shares outstanding. Under the two-class method of computing net income per share, non-vested share-based payment awards that contain rights to receive non-forfeitable dividends are considered participating securities. The Company no longer has awards considered to be participating securities, therefore the Company calculated basic and diluted net income per share under only the treasury stock method, which is disclosed below. The following table presents amounts used in computing net income per share and the effect on the weighted-average number of shares of dilutive potential common shares: Year Ended June 30, 2025 2024 2023 Net Income $ 392,988 $ 385,762 $ 346,739 Average Shares Outstanding: Weighted-average common shares outstanding for basic computation 38,289 38,672 38,592 Dilutive effect of potential common shares 527 585 628 Weighted-average common shares outstanding for dilutive computation 38,816 39,257 39,220 Net Income Per Share — Basic $ 10.26 $ 9.98 $ 8.98 Net Income Per Share — Diluted $ 10.12 $ 9.83 $ 8.84 Stock awards relating to 88 , 99 and 84 shares of common stock were outstanding at June 30, 2025, 2024 and 2023, respectively, but were not included in the computation of diluted earnings per share for the fiscal years then ended as they were anti-dilutive. NOTE 11: SHARE-BASED COMPENSATION Share-Based Incentive Plans Following approval by the Company's shareholders in October 2023, the 2023 Long-Term Performance Plan (the "2023 Plan") replaced the 2019 Long-Term Performance Plan. The 2023 Plan, which expires in 2028, provides for granting of SARs, stock options, stock awards, cash awards, and such other awards or combination thereof as the Executive Organization and Compensation Committee or, in the case of director awards, the Corporate Governance & Sustainability Committee, of the Board of Directors (together referred to as the "Committee") may determine to officers, other key employees and members of the Board of Directors. Grants are generally made at regularly scheduled Committee meetings. Compensation costs charged to expense under award programs paid (or to be paid) with shares (including SARs, performance shares, restricted stock, and RSUs) are summarized in the table below: Year Ended June 30, 2025 2024 2023 SARs $ 4,713 $ 3,448 $ 2,785 Performance shares 2,999 4,232 5,302 Restricted stock and RSUs 4,290 5,264 4,274 Total compensation costs under award programs $ 12,002 $ 12,944 $ 12,361 Such amounts are included in selling, distribution, and administrative expense in the accompanying statements of consolidated income. The total income tax benefit recognized in the statements of consolidated income for share-based compensation plans was $ 6,270 , $ 5,885 , and $ 7,886 for fiscal 2025, 2024, and 2023, respectively. It has been the practice of the Company to issue shares from treasury to satisfy requirements of awards paid with shares. 55 Table of Contents The aggregate unrecognized compensation cost for share-based award programs with the potential to be paid at June 30, 2025 is summarized in the table below: June 30, 2025 Average Expected Period of Expected Recognition (Years) SARs $ 6,543 2.5 Performance shares 7,037 1.7 Restricted stock and RSUs 3,030 2.1 Total unrecognized compensation costs under award programs $ 16,610 2.1 Cost of these programs will be recognized as expense over the weighted-average remaining vesting period of 2.1 years. The aggregate number of shares of common stock which may be awarded under the 2023 Plan is 1,600 ; shares available for future grants at June 30, 2025 were 1,460 . Stock Appreciation Rights The weighted-average assumptions used for SARs grants issued in fiscal 2025, 2024, and 2023 are: 2025 2024 2023 Expected life, in years 6.0 6.0 6.2 Risk free interest rate 3.7 % 4.1 % 2.9 % Dividend yield 0.8 % 1.0 % 1.3 % Volatility 37.3 % 37.0 % 35.5 % Per share fair value of SARs granted during the year $ 78.15 $ 55.65 $ 35.98 The expected life is based upon historical exercise experience of the officers, other key employees, and members of the Board of Directors. The risk free interest rate is based upon U.S. Treasury zero-coupon bonds with remaining terms equal to the expected life of the SARs. The assumed dividend yield has been estimated based upon the Company’s historical results and expectations for changes in dividends and stock prices. The volatility assumption is calculated based upon historical daily price observations of the Company’s common stock for a period equal to the expected life. SARs are redeemable solely in Company common stock. The exercise price of stock option awards may be settled by the holder with cash or by tendering Company common stock. A summary of SARs activity is presented below : Shares Weighted-Average Exercise Price Year Ended June 30, 2025 (Shares in thousands) Outstanding at beginning of year 712 $ 82.65 Granted 83 199.30 Exercised ( 82 ) 67.53 Forfeited ( 3 ) 185.99 Outstanding at end of year 710 $ 97.47 Exercisable at end of year 480 $ 73.02 Expected to vest at end of year 704 $ 96.96 The weighted-average remaining contractual terms for SARs outstanding, exercisable, and expected to vest at June 30, 2025 were 5.5 , 4.3 , and 5.5 years, respectively. The aggregate intrinsic values of SARs outstanding, exercisable, and expected to vest at June 30, 2025 were $ 95,798 $ 76,572 , and $ 95,452 , respectively. The aggregate intrinsic value of the SARs exercised during fiscal 2025, 2024, and 2023 was $ 12,982 , $ 19,700 , and $ 20,170 , respectively. The total fair value of shares vested during fiscal 2025, 2024, and 2023 was $ 3,219 , $ 2,550 , and $ 2,691 , respectively. 56 Table of Contents Performance Shares Performance shares are paid in shares of Applied stock at the end of a three-year period provided the Company achieves goals established by the Committee. The number of Applied shares payable will vary depending on the level of the goals achieved. A summary of non-vested performance shares activity at June 30, 2025 is presented below: Shares Weighted-Average Grant-Date Fair Value Year Ended June 30, 2025 (Shares in thousands) Non-vested at beginning of year 101 $ 93.73 Awarded 23 135.53 Vested ( 62 ) 84.86 Non-vested at end of year 62 $ 117.80 The Committee established three one-year goals for each of the 2025, 2024, and 2023 grants. Each fiscal year during the three-year term has its own separate goals, tied to the Company’s earnings before interest, tax, depreciation, and amortization (EBITDA) and after-tax return on assets (ROA). Achievement during any particular fiscal year is awarded and “banked” for payout at the end of the three-year term. For the outstanding grants as of June 30, 2025, the maximum number of shares that could be earned in future periods was 41 . Restricted Stock and Restricted Stock Units Under the 2023 Plan, restricted stock award recipients have voting rights with respect to their shares, but are restricted from selling or transferring the shares prior to vesting; dividends are accrued and paid upon vesting. Restricted stock awards vest over periods of one to four years. RSUs are grants valued in shares of Applied stock, but shares are not issued until the grants vest three to five years from the award date, assuming continued employment with Applied; dividend equivalents on RSUs are accrued and paid upon vesting. A summary of the status of the Company’s non-vested restricted stock and RSUs at June 30, 2025 is presented below: Shares Weighted-Average Grant-Date Fair Value Year Ended June 30, 2025 (Share amounts in thousands) Non-vested at beginning of year 130 $ 99.05 Granted 22 212.71 Forfeitures ( 2 ) 145.77 Vested ( 70 ) 84.44 Non-vested at end of year 80 $ 142.41 NOTE 12: LEASES The Company’s operating lease expense is recognized on a straight-line basis over the lease term and is recorded in selling, distribution, and administrative expense on the statements of consolidated income. Operating lease costs and short-term lease costs were $ 47,591 and $ 14,458 , respectively, for the year ended June 30, 2025 and $ 38,905 and $ 12,683 , respectively, for the year ended June 30, 2024. Variable lease costs and sublease income were not material. Information related to operating leases is as follows: June 30, 2025 2024 Operating lease assets, net $ 188,654 $ 133,289 Operating lease liabilities Other current liabilities $ 39,776 $ 33,466 Other liabilities 158,544 104,143 Total operating lease liabilities $ 198,320 $ 137,609 57 Table of Contents June 30, 2025 2024 Weighted average remaining lease term (years) 6.6 5.5 Weighted average incremental borrowing rate 5.01 % 4.51 % Year Ended June 30, 2025 2024 Cash paid for operating leases $ 45,919 $ 38,130 Right of use assets obtained in exchange for new operating lease liabilities $ 98,196 $ 67,535 The table below summarizes the aggregate maturities of liabilities pertaining to operating leases with terms greater than one year for each of the next five years: Fiscal Year Maturity of Operating Lease Liabilities 2026 $ 48,696 2027 42,252 2028 34,087 2029 27,723 2030 18,787 Thereafter 65,160 Total lease payments 236,705 Less interest 38,385 Present value of lease liabilities $ 198,320 The Company maintains lease agreements for many of the operating facilities of businesses it acquires from previous owners. In many cases, the previous owners of the business acquired become employees of Applied and occupy management positions within those businesses. The payments under lease agreements of this nature totaled $ 2,100 in fiscal 2025, $ 2,250 in fiscal 2024, and $ 1,500 in fiscal 2023. NOTE 13: SEGMENT INFORMATION The Company's reportable segments are: Service Center (formerly Service Center Based Distribution) and Engineered Solutions. The Company changed the reportable segment name from Service Center Based Distribution to Service Center in the fourth quarter of fiscal 2025. There was no change in the composition of either reportable segment. These reportable segments contain the Company's various operating segments which have been aggregated based upon similar economic and operating characteristics. The Service Center segment operates through local service centers and distribution centers with a focus on providing products and services addressing the maintenance and repair of production equipment and motion control infrastructure. 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. The Engineered Solutions segment includes our operations that specialize in distributing, engineering, designing, integrating, and repairing hydraulic and pneumatic fluid power technologies, engineered flow control products and services, and automation technologies. The accounting policies of the Company’s reportable segments are as described in Note 1. The Company's chief operating decision maker (CODM) is the chief executive officer. The CODM uses Segment Operating Income as the measure of segment profit and loss in measuring segment performance, determining how to allocate the Company's assets, evaluating performance in periodic reviews, and during the development of the annual budget and the regular forecasting process. The chief operating decision maker considers budget-to-actual variances on a quarterly basis, as well as segment-specific forecasting, when making decisions about the allocation of operating and capital resources to each segment. The CODM also uses the segment's net sales in measuring segment performance. In addition to the two reportable segments, there is a category of certain business activities and expenses, referred to as corporate & other, that does not constitute an operating segment. Corporate & other expense, net includes the cost of our corporate headquarters and corporate functions, primarily compensation and benefits, and related administrative expenses and other expenses not directly associated with any reportable segment. These corporate and other expenses reconcile segment operating income to total consolidated income before income taxes. 58 Table of Contents Segment Financial Information Year Ended June 30, 2025 Service Center Engineered Solutions Total Total sales $ 3,017,254 $ 1,601,211 $ 4,618,465 Less: Inter-segment sales 1 2,906 52,135 55,041 Net sales $ 3,014,348 $ 1,549,076 $ 4,563,424 Less segment expenses: Cost of sales 2,135,158 1,045,107 Selling, distribution, and administrative expense, including depreciation 2 485,720 315,231 Segment operating income $ 393,470 $ 188,738 $ 582,208 Corporate & other expense, net 83,679 Interest expense, net 612 Other income, net ( 3,050 ) Income before income taxes $ 500,967 Year Ended June 30, 2024 Service Center Engineered Solutions Total Total sales $ 3,059,363 $ 1,472,617 $ 4,531,980 Less: Inter-segment sales 1 2,808 49,766 52,574 Net sales $ 3,056,555 $ 1,422,851 $ 4,479,406 Less segment expenses: Cost of sales 2,173,085 969,668 Selling, distribution, and administrative expense, including depreciation 2 486,476 272,074 Segment operating income $ 396,994 $ 181,109 $ 578,103 Corporate & other expense, net 82,280 Interest expense, net 2,831 Other income, net ( 5,138 ) Income before income taxes $ 498,130 Year Ended June 30, 2023 Service Center Engineered Solutions Total Total sales $ 2,969,494 $ 1,491,750 $ 4,461,244 Less: Inter-segment sales 1 2,652 45,798 48,450 Net sales $ 2,966,842 $ 1,445,952 $ 4,412,794 Less segment expenses: Cost of sales 2,120,467 1,005,362 Selling, distribution, and administrative expense, including depreciation 2 475,793 265,134 Segment operating income $ 370,582 $ 175,456 $ 546,038 Corporate & other expense, net 72,887 Interest expense, net 21,639 Other expense, net 1,701 Income before income taxes $ 449,811 1 The Company accounts for inter-segment sales using market rates. 2 Amortization of intangibles is recorded within selling, distribution, and administrative expense, and therefore included in segment operating income for all periods presented. 59 Table of Contents Supplemental Segment Financial Information Service Center Engineered Solutions Total Year Ended June 30, 2025 Assets used in the business $ 1,765,631 $ 1,409,913 $ 3,175,544 Depreciation and amortization of property 17,492 7,407 24,899 Amortization of intangibles 3,144 32,437 35,581 Capital expenditures 22,544 4,643 27,187 Year Ended June 30, 2024 Assets used in the business $ 1,865,269 $ 1,086,641 $ 2,951,910 Depreciation and amortization of property 17,700 5,731 23,431 Amortization of intangibles 3,188 25,735 28,923 Capital expenditures 18,040 6,824 24,864 Year Ended June 30, 2023 Assets used in the business $ 1,736,393 $ 1,006,939 $ 2,743,332 Depreciation and amortization of property 17,932 4,334 22,266 Amortization of intangibles 2,857 27,948 30,805 Capital expenditures 15,390 11,086 26,476 Geographic Information Long-lived assets are based on physical locations and are composed of the net book value of property and right of use assets. Information by geographic area is as follows: June 30, 2025 2024 Long-Lived Assets: United States $ 269,218 $ 209,987 Canada 33,230 26,436 Other Countries 14,360 15,393 Total $ 316,808 $ 251,816 NOTE 14: COMMITMENTS AND CONTINGENCIES The Company is a party to various pending judicial and administrative proceedings. Based on circumstances currently known, the Company does not expect that the ultimate resolution of any of these matters will have, either individually or in the aggregate, a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows. NOTE 15: OTHER (INCOME) EXPENSE, NET Other (income) expense, net, consists of the following: Year Ended June 30, 2025 2024 2023 Unrealized gain on assets held in rabbi trust for a non-qualified deferred compensation plan $ ( 2,748 ) $ ( 3,300 ) $ ( 2,223 ) Foreign currency transaction losses (gains) 529 ( 1,099 ) 3,284 Net other periodic post-employment costs 145 114 1,470 Life insurance income, net ( 772 ) ( 855 ) ( 668 ) Other, net ( 204 ) 2 ( 162 ) Total other (income) expense, net $ ( 3,050 ) $ ( 5,138 ) $ 1,701 NOTE 16: SUBSEQUENT EVENTS We have evaluated events and transactions occurring subsequent to June 30, 2025 through the date the financial statements were issued. See Note 6 - Debt and Note 9 - Income Taxes for subsequent events disclosures. 60 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.