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Item 7. Management’s Discussion and Analysis

2026-08-13 compared with 2025-08-15 · 135 added, 138 removed, 196 unchanged (58% of the section changed)

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AND RESULTS OF OPERATIONS.

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

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

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

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

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

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

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

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

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

We are a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies and related maintenance supplies.

Our leading brands, specialized services, and comprehensive knowledge serve Maintenance, Repair & Operations ("MRO") and Original Equipment Manufacturer ("OEM") end users in virtually all industrial markets through our multi-channel capabilities that provide choice, convenience, and expertise.

We have a long tradition of growth dating back to 1923, the year our business was founded in Cleveland, Ohio.

During 2026, business was conducted primarily in North America, as well as, Australia, New Zealand, and Singapore from 580 facilities.

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

Our 2026 consolidated sales were $5.0 billion, an increase of $403.3 million or 8.8% compared to the prior year, with acquisitions contributing to sales growth by $142.2 million or 3.1% and favorable foreign currency translation of $15.9 million increasing sales by 0.3%.

Excluding the impact of businesses acquired and foreign currency translation, sales increased $245.2 million or 5.4% during the year due to higher volumes of approximately $136.2 million and the remainder from positive price contribution.

The Company generated operating income of $549.5 million, or operating margin of 11.1% of sales for the year ended June 30, 2026, compared to operating income of $498.5 million, or operating margin of 10.9% o f sales in the prior year.

The Company generated net income of $414.5 million and $393.0 million during the years ended June 30, 2026 an d 2025 , respectively.

Our diluted earnings per share was $10.95 in 2026 compared to $10.12 in 2025.

Shareholders’ equity was $1,861.7 million at June 30, 2026 compared to $1,844.5 million at June 30, 2025.

Working capital decreased $255.0 million from June 30, 2025 to $966.3 million at June 30, 2026.

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

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

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

The current ratio was 2.6 to 1 and 3.3 to 1 at June 30, 2026 and 2025, respectively.

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

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

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

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

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

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

The MCU and PMI indices increased since June 2025, while the MIP index decreased slightly over the fiscal year.

The ISM PMI registered 53.3 in June 2026, an increase from the June 2025 reading of 49.0.

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

manufacturing sector.

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

The indices for the months during the most recent quarter, along with the indices for the prior year end and prior quarter ends, were as follows:

Index Reading

Month MCU PMI IP

Month MCU PMI MIP

June 2026 75.7 53.3 97.9

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RESULTS OF OPERATIONS

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

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

This section provides comparisons of material changes in the consolidated financial statements for the years ended June 30, 2026 and 2025.

For the comparison of the years ended June 30, 2025 and 2024, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2025 Annual Report on Form 10-K.

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

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Net Income 8.3 % 8.6 % 5.5 %

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

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

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

The Company's reportable segments are:

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

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

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

Sales in 2026 were $5.0 billion, which was $403.3 million or 8.8% above the prior year, with sales from acquisitions adding $142.2 million or 3.1% and favorable foreign currency translation increasing sales by $15.9 million or 0.3%.

There were 252.5 selling days in both 2026 and 2025.

Excluding the impact of businesses acquired and foreign currency translation, sales we re up $245.2 million or 5.4% durin g the year, due to higher volumes of approximately $136.2 million and the remainder from positive price contribution.

The following table shows changes in sales by reportable segment.

Amounts in millions Amount of change due to

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

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

Sales by Reportable Segment 2026 2025

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Total $ 4,966.7 $ 4,563.4 $ 403.3 $ 142.2 $ 15.9 $ 245.2

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

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

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

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

Sales from our Service Center segment, which operates primarily in MRO markets, increased $169.9 million, or 5.6%, compared to the prior year.

Acquisitions within this segment increased sales by $5.9 million or 0.2% and favorable foreign currency translation increased sales by $15.9 million or 0.5%.

Excluding the impact of businesses acquired and foreign currency translation, sales increased $148.1 million or 4.9% during the year, due to higher volumes of approximately $80.1 million reflecting volume growth across the United States and the remainder from positive price contribution.

Sales from our Engineered Solutions segment increased $233.4 million or 15.1%.

Acquisitions within this segment increased sales $136.3 million or 8.8%.

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

Excluding the impact of businesses acquired, sales increased $97.1 million or 6.3%, due to higher volumes of approximately $56.1 million primarily reflecting stronger demand across our fluid power and automation operations, as well as positive price contribution.

The following table shows changes in sales by geographical area.

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Amounts in millions Amount of change due to

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

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

Sales by Geographic Area 2026 2025

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operations increased $384.4 million or 9.6%, with acquisitions contributing $142.2 million or 3.6%.

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

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

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

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

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

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

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

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

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

Excluding the impact of businesses acquired, sales in the United States were up $242.2 million or 6.0%, reflecting volume growth of $136.2 million and price contribution across both the Service Center and Engineered Solutions segments.

Sales from our Canadian operations increased $4.2 million or 1.4%.

Favorable foreign currency translation increased Canadian sales by $3.0 million or 1.0%.

Excluding the impact of foreign currency translation, Canadian sales were up $1.2 million or 0.4 %.

S ales in other countries increased $14.7 million or 5.5%, primarily due to favorable foreign currency translation increasing sales by $12.9 million or 4.8%.

Exc luding the impact of foreign currency translation, other countries' sales were up $1.8 million or 0.7%.

Our gross profit margin was 30.3% in both 2026 and 2025.

The gross profit margin for the current year was negatively impacted by 0.3% due to higher LIFO expense as compared to the prior year.

This was offset by price contribution and channel execution, as well as favorable mix impacts from the growth in revenues in the Engineered Solutions segment.

Segment gross profit margin for the Service Center segment was 29.2% in both 2026 and 2025, as a 0.2% negative margin impact from higher LIFO expense was offset by price and channel execution.

Segment gross profit margin for the Engineered Solutions segment decreased to 32.4% during the current year compared to 32.5% in 2025, as acquisition growth increased margins by 0.3%, which was more than offset by higher LIFO expense that negatively impacted margins by 0.3%.

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

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SD&A $ 957.3 $ 884.6 $ 72.7 $ 41.4 $ 3.2 $ 28.1

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

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

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

SD&A increased $72.7 million or 8.2% during 2026 compared to 2025 .

As a percentage of sales, SD&A was 19.3% during 2026 compared to 19.4% in 2025.

SD&A from businesses acquired added $41.4 million or 4.7%, inclu ding $10.2 m illion of intangibles amortization related to acquisitions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Changes in foreign currency exchange rates increased SD&A by $3.2 million or 0.4% compared to 2025 .

Excluding the impact of businesses acquired and the impact from foreign currency translation, SD&A increased $28.1 million or 3.1% during 2026 compared to 2025 primarily due to higher compensation costs .

Segment SD&A for the Service Center segment increased $17.5 million, to $503.2 million during 2026 from $485.7 million during 2025 primarily due to higher compensation costs.

As a percentage of sales, segment SD&A was 15.8% in 2026 compared to 16.1% in 2025.

Segment SD&A for the Engineered Solutions segment increased $51.7 million, to $367.0 million during 2026 from $315.2 million during 2025, which reflects an increase of $43.7 million from acquisitions completed within this segment in 2025, coupled with higher compensation costs.

As a percentage of sales, segment SD&A was 20.6% in 2026 compared to 20.3% in 2025.

Operating income increased $50.9 million, or 10.2% , to $549.5 million during 2026 from $498.5 million during 2025, and as a percentage of sales, increased to 11.1% from 10.9%.

Segment operating income for the Service Center segment increased $32.7 million to $426.1 million during 2026 , from $393.5 million during 2025 primarily due to higher gross profit driven by stronger revenues, partially offset by higher SD&A expenses.

As a percentage of sales, segment operating income increased to 13.4% in 2026 from 13.1% in 2025 .

Segment operating income for the Engineered Solutions segment increased $21.8 million to $210.5 million during 2026 from $188.7 million during 2025 due to incremental gross profit driven by stronger revenues and the impact from recent acquisitions, partially offset by higher SD&A expenses.

As a percentage of sales, segment operating income decreased to 11.8% in 2026 from 12.2% in the prior year.

The Company had net interest expense in 2026 of $7.9 million compared to net interest expense of $0.6 million in 2025 primarily reflecting higher net interest expense following the January 2026 maturity of our interest rate swap, as well as lower interest income on reduced cash balances as compared to the prior year.

Other income, net, represents certain non-operating items of income and expense, and was $2.7 million of income in 2026 compared to $3.1 million of income in 2025.

Other income, net for 2026 primarily consists of unrealized gains on investments held by non-qualified deferred compensation trusts of $4.3 million, life insurance income of $0.9 million and other income of $0.3 million, offset by foreign currency transaction losses of $2.6 million and other periodic post-employment costs of $0.1 million.

Other income, net for 2025 consisted primarily of unrealized gains on investments held by non-qualified deferred compensation trusts of $2.7 million, life insurance income of $0.8 million, and other income of $0.2 million, offset by foreign currency transaction losses of $0.5 million and other periodic post-employment costs of $0.1 million.

The effective income tax rate was 23.8% for 2026 compared to 21.6% for 2025.

The increase in the effective tax rate is primarily due to an increase of 0.8% resulting from higher discrete tax expense from changes in estimates related to prior year tax returns identified as part of the preparation of our tax returns, coupled with an increase of 0.7% resulting from lower benefit from changes in unrecognized tax benefits due to expirations of statutes of limitations in the prior year and an increase of 0.5% resulting from lower benefit from the research and development tax credit due to lower qualifying activities in 2026.

As a result o f the factors discussed above, net income for 2026 increased $21.5 million from 2025.

Diluted net income per share was $10.95 per share for 2026 compared to $10.12 per share for 2025, an increase of 8.2%.

At June 30, 2026, we had approximately 580 operating facilities versus 600 at June 30, 2025.

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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.

The Company is required to recognize the effects of changes in tax rates and laws on deferred tax balances in the period in which the legislation is enacted.

As of June 30, 2026, the Company completed its evaluation and as a result, did not have any material adjustments to its financial statements resulting from the enactment of the OBBBA.

LIQUIDITY AND CAPITAL RESOURCES

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At June 30, 2026, we had total debt obligations outstanding of $262.3 million compared to $572.3 million at June 30, 2025.

Management expects that our existing cash, cash equivalents, funds available under the revolving credit facility, and cash provided from operations, will be sufficient to finance normal working capital needs in each of the countries in which we operate, payment of dividends, acquisitions, investments in properties, facilities and equipment, debt service, and the purchase of additional Company common stock.

Management also believes that additional long-term debt and line of credit financing could be obtained on commercially acceptable terms if necessary based on the Company’s credit standing and financial strength.

Management expects that our existing cash, cash equivalents, funds available under the revolving credit facility, and cash provided from operations will be sufficient, for the next 12 months and beyond, to finance normal working capital needs in each of the countries in which we operate, payment of dividends, acquisitions, investments in properties, facilities and equipment, debt service, and the purchase of additional Company common stock.

Management also believes that additional long-term debt and line of credit financing could be obtained based on the Company’s credit standing and financial strength.

The Company’s working capital at June 30, 2026 was $966.3 million compared to $1,221.3 million at June 30, 2025.

The decline is primarily due to lower cash and cash equivalents on hand at June 30, 2026 as a result of debt repayments and share repurchases.

The current ratio was 2.6 to 1 at June 30, 2026 and 3.3 to 1 at June 30, 2025.

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Exchange Rate Effect 69 (226)

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

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

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

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

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

Decrease in Cash and Cash Equivalents $ (261,287) $ (72,200)

Cash provided by operating activities during 2026 declined $8.3 million as compared to the prior year primarily due to an increase in working capital of $65.8 million offset by higher net income of $21.5 million and higher deferred tax provision of $32.6 million reflecting the reduction of the deferred tax asset associated with capitalized R&D costs due to changes from the OBBBA.

The increase in working capital was primarily due to higher accounts receivable of $61.5 million due to stronger revenues generated in the second half of 2026 as compared to 2025.

Net cash used in investing activities during 2026 decreased compared to 2025 primarily due to $11.4 million used for acquisitions in 2026 compared to $293.4 million used for acquisitions during 2025.

N et cash used in financing activities during 2026 increased compared to 2025 primarily due to $317.2 million of cash used to repurchase 1,162,863 shares of common stock in 2026 compared to $152.8 million used to repurchase 655,791 shares of common stock in 2025, coupled with higher net long-term debt repayments in the current year of $310.0 million as compared to $25.1 million in the prior year.

Further, $72.6 million of cash was used for dividend payments in 2026 compared to $63.7 million of cash used for dividend payments in 2025.

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

We paid aggregate dividends of $1.66 and $1.44 per share in fiscal 2025 and 2024, respectively.

We paid aggregate dividends of $1.94 and $1.66 per share in 2026 and 2025, respectively.

Capital Expenditures

We expect capital expenditures for fiscal 2026 to be in the $30.0 million to $35.0 million range, primarily consisting of capital associated with focused investments for growth and information technology equipment maintenance.

We expect capital expenditures for 2027 to be in the $35.0 million to $40.0 million range, primarily consisting of capital associated with focused investments for growth and information technology equipment maintenance.

Share Repurchases

The Board of Directors has authorized the repurchase of shares of the Company’s common stock.

These purchases may be made in open market or through negotiated transactions, from time to time, depending upon market conditions.

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

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

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

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

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

The Board of Directors authorized the repurchase of shares of the Company’s common stock.

These purchases may be made in open market and negotiated transactions, from time to time, depending upon market conditions.

On April 22, 2026, the Board of Directors authorized the repurchase of up to 3.0 million shares of the Company's common stock, replacing the prior authorization.

At June 30, 2026, we had authorization to repurchase 2,854,252 shares.

In 2026, we acquired 1,162,863 shares of the Company's common stock on the open market for $317.2 million.

In 2025, we acquired 655,791 shares of the Company's common stock on the open market for $152.8 million.

Subsequent to June 30, 2026, we acquired 105,285 shares of the Company's common stock on the open market for $34.7 million.

Borrowing Arrangements

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

A summary of long-term debt is as follows (amounts are in thousands):

June 30, 2026 2025

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Trade receivable securitization facility 188,300 188,300

Series E Notes — 25,000

Total debt $ 262,300 $ 572,300

unamortized debt issuance costs — 71

$ 572,300 $ 597,334

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

The revolving credit facility provides a $900.0 million unsecured revolving credit facility and an uncommitted accordion feature which allows the Company to request an increase in the borrowing commitments, or incremental

term loans, under the credit facility in aggregate principal amounts of up to $500.0 million.

Borrowings under this agreement bear interest, at the Company's election, at either the base rate plus a margin that ranges from 0 to 55 basis points based on the Company's net leverage ratio or Secured Overnight Financing Rate (SOFR) plus a margin that ranges from 80 to 155 basis points based on the Company's net leverage ratio.

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

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

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

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

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

In October 2025, the Company entered into a new five-year revolving credit facility with a group of banks to refinance the existing credit facility as well as provide funds for future acquisitions, ongoing working capital and other general corporate purposes.

This agreement provides a $900.0 million unsecured revolving credit facility and an uncommitted accordion feature which allows the Company to request an increase in the borrowing commitments, or incremental term loans, under the credit facility in aggregate principal amounts of up to $800.0 million.

The new revolving credit facility also provides for a $25.0 million sublimit for swing line loans and a $50.0 million sublimit for letters of credit.

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

Borrowing capacity under this facility, without exercising the accordion feature, totaled $825.8 million at June 30, 2026 which is available to fund future acquisitions or other capital and operating requirements.

This amount is net of outstanding letters of credit of $0.2 million at June 30, 2026 to secure certain insurance obligations.

The interest rate on the revolving credit facility was 4.44% as of June 30, 2026.

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

Borrowing capacity under the previous facility, net of outstanding letters of credit of $0.2 million to secure certain insurance obligations, totaled $515.8 million at June 30, 2025.

The interest rate on the previous revolving credit facility was 5.23% as of June 30, 2025.

The Company paid $1.6 million of debt issuance costs related to the new revolving credit facility in 2026, which are included in other current assets and other assets on the consolidated balance sheet as of June 30, 2026 and will be amortized over the five-year term of the new credit facility.

The Company analyzed the unamortized debt issuance costs related to the previous credit facility.

As a result of this analysis, less than $0.1 million of unamortized debt issuance costs were expensed and included within interest expense, net in the statements of consolidated income in the twelve months ended June 30, 2026, and $0.8 million of unamortized debt issuance costs were deferred related to the new credit facility and will be amortized over the five-year term of the new credit facility.

Additionally, the Company had letters of credit outstanding not associated with the revolving credit agreement, in the amount of $5.3 million as of June 30, 2026 and 2025 in order to secure certain insurance obligations.

On July 10, 2025, the Company amended its existing trade receivable securitization facility (the "AR Securitization Facility") and extended its maturity to July 10, 2028.

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

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

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

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

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

dollar-denominated unsecured variable rate debt.

For more information, see Note 7, Derivatives, to the consolidated financial statements, included in Item 8 under the caption “Financial Statements and Supplementary Data.”

The credit facility and the unsecured shelf facility contain restrictive covenants regarding liquidity, net worth, financial ratios, and other covenants.

The interest rate on the AR Securitization Facility as of June 30, 2026 and 2025 was 4.55% and 5.32%, respectively.

The credit facility contains restrictive covenants regarding liquidity, financial ratios, and other covenants.

At June 30, 2026, 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, 2026, the Company's net indebtedness was less than 0.2 times consolidated income before interest, taxes, depreciation and amortization (as defined in these agreements).

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

The Company was in compliance with all financial covenants at June 30, 2026.

Cash Flow Hedge Maturity

As disclosed in Note 7, the interest rate swap the Company entered into in January 2019 matured on January 31, 2026.

The Company reduced outstanding borrowings under its revolving credit facility by a net $310.0 million, using available cash to mitigate the impact of higher interest costs due to the maturity of this instrument.

Accounts Receivable Analysis

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Year Ended June 30, 2026 2025

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

Provision for losses on accounts receivable $ 4,613 $ 5,978

Provision as a % of net sales

0.09 % 0.13 %

Accounts receivable are reported at net realizable value and consist of trade receivables from customers.

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Approximately 1.1% of our accounts receivable balances are more than 90 days past due at June 30, 2026 compared to 2.1% at June 30, 2025.

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

The increase primarily relates

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

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

On an overall basis, we recorded modest provisions for losses on uncollected receivables representing 0.09% of our sales for the year ended June 30, 2026, compared to 0.13% of sales for the year ended June 30, 2025.

This change is primarily in the U.S.

operations of the Service Center segment due to fewer past-due accounts receivable balances past due.

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

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inventories and the average cost method for foreign inventories.

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

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

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

Management uses an inventory turnover ratio to monitor and evaluate inventory and believes that using average costs to determine the inventory turnover ratio instead of LIFO costs provides a more useful analysis.

The annualized inventory turnover based on average costs was 4.5 and 4.3 for the years ended June 30, 2026 and 2025, respectively.

CONTRACTUAL OBLIGATIONS

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Planned funding of post-retirement obligations 1,090 150 350 200 390 —

2,600 1,370 370 290 570 —

Unrecognized income tax benefit liabilities, including interest and penalties 1,300 — — — — 1,300

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Interest on long-term debt obligations (1) 31,373 11,853 15,139 4,381 — —

54,000 24,000 30,000 — — —

Acquisition holdback payments

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$ 560,548 $ 75,159 $ 297,177 $ 128,040 $ 58,872 $ 1,300

(1) Amounts represent estimated contractual interest payments on outstanding long-term debt obligations net of receipts under the terms of the interest rate swap.

(1) Amounts represent estimated contractual interest payments on outstanding long-term debt obligations.

Rates in effect as of June 30, 2026 are used for variable rate debt.

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

CRITICAL ACCOUNTING POLICIES

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions, and estimates at a specific point in time that affect the amounts reported in the consolidated financial statements and disclosed in the accompanying notes.

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We adopted the link chain dollar value LIFO method for accounting for U.S.

inventories in fiscal 1974.

inventories in 1974.

Approximately 13.2% of our domestic inventory dollars relate to LIFO layers added in the 1970s.

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As of June 30, 2026 and 2025, our allowance for doubtful accounts was 1.8% and 2.1% of gross receivables, respectively.

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

Our provision for losses on accounts receivable was $4.6 million and $6.0 million in 2026 and 2025, respectively.

Goodwill and Intangibles

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

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

Each year, we may elect to perform a qualitative assessment to determine whether it is more likely

than not that the fair value of a reporting unit is less than its carrying value.

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

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Important risk factors include, but are not limited to, the following:

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

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

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

reduction in supplier inventory purchase incentives;

loss of key supplier authorizations, lack of product availability (such as due to supply chain strains), changes in supplier distribution programs, inability of suppliers to perform, and transportation disruptions;

changes in customer preferences for products and services of the nature and brands sold by us;

changes in customer procurement policies and practices;

risks relating to the operating levels of our customers and the factors that affect them, including general economic conditions, changes in supply and demand, supply chain and labor challenges, unfavorable exchange rates, adverse governmental regulations and trade policies, and other factors;

the potential inability or unwillingness of our customers to pay amounts owed to us under unsecured trade credit arrangements;

supply chain disruptions;

consolidation in our customers' and suppliers' industries and our potential inability to negotiate favorable contract terms as a result;

competitive pressures;

our reliance on information systems and risks relating to their proper functioning, the security of those systems, and the data stored in or transmitted through them;

the impact of economic conditions on the collectability of trade receivables;

reduced demand for our products in targeted markets due to reasons including consolidation in customer industries;

our ability to retain and attract qualified sales and customer service personnel and other skilled executives, managers and professionals;

the risks associated with our global operations, including exposure to global economic and political conditions, currency exchange volatility, and differing cultural and legal norms and practices;

our ability to execute our operational and growth strategies and the risks associated therewith, including the expenditure of significant resources and the potential failure of Applied to successfully or effectively implement such strategies;

loss of key supplier authorizations, lack of product availability (such as due to supply chain strains), and changes in supplier distribution programs;

reduction in supplier inventory purchase incentives;

volatility in product, energy, labor, and other costs, including as a result of tariffs and other trade policies;

changes in customer or product mix and downward pressure on sales prices;

our reliance on information systems and risks relating to their proper functioning, cybersecurity, and data;

our ability to identify and complete acquisitions, integrate them effectively, and realize their anticipated benefits;

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the incurrence of debt and contingent liabilities in connection with acquisitions;

our ability to access capital markets as needed on reasonable terms;

disruption of operations at our headquarters or distribution centers;

risks and uncertainties associated with our foreign operations, including volatile economic conditions, political instability, cultural and legal differences, and currency exchange fluctuations;

the potential for goodwill and intangible asset impairment;

changes in accounting policies and practices;

an interruption of operations at our headquarters or distribution centers, or in the transportation of products;

risks related to our level of indebtedness and debt service commitments, including potential reduction in the availability of our cash flow to fund operations, limitations on our ability to obtain additional financing in the future, and competitive disadvantages;

our ability to maintain effective internal control over financial reporting;

organizational changes within the Company;

risks related to legal proceedings to which we are a party;

potentially adverse government regulation, legislation, or policies, both enacted and under consideration, including with respect to federal tax policy, international trade, data privacy and security, and government contracting;

and the occurrence of extraordinary events (including prolonged labor disputes, power outages, telecommunication outages, terrorist acts, war, public health emergency, earthquakes, extreme weather events, other natural disasters, fires, floods, and accidents).

Other factors and unanticipated events could also adversely affect our business, financial condition, or results of operations.

Risks can also change over time.

Further, the disclosure of a risk should not be interpreted to imply that the risk has not already materialized.

the potential for goodwill, long-lived, and other intangible asset impairment;

our ability to attract, hire, and retain qualified sales and customer service personnel and other skilled executives, managers, and professionals, and to successfully execute succession plans for key employees;

legal and regulatory risks, including those resulting from changes and variations in law across the jurisdictions in which we operate, litigation, and compliance with complex regulatory schemes;

and global or regional health epidemics and other public health emergencies.

We discuss certain of these matters and other risk factors more fully throughout our Form 10-K, as well as other of our filings with the Securities and Exchange Commission.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis