APPLIED INDUSTRIAL TECHNOLOGIES INC

Previous wording

Applied Industrial Technologies (“Applied,” the “Company,” “We,” “Us” or “Our”) is a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies. Our leading brands, specialized services, and comprehensive knowledge serve MRO (Maintenance, Repair & Operations) and OEM (Original Equipment Manufacturer) end users in virtually all industrial markets through our multi-channel capabilities that provide choice, convenience, and expertise. We have a long tradition of growth dating back to 1923, the year our business was founded in Cleveland, Ohio. During the third quarter of fiscal 2026, business was conducted in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, Singapore, and Costa Rica from 589 facilities.

Current wording

Applied Industrial Technologies (“Applied,” the “Company,” “We,” “Us” or “Our”) is a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies and related maintenance supplies. Our leading brands, specialized services, and comprehensive knowledge serve 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 the first quarter of 2027, business was conducted primarily in North America, as well as Australia, New Zealand, and Singapore from 580 facilities.

Previous wording

The following is Management's Discussion and Analysis of significant factors which have affected our financial condition, results of operations and cash flows during the periods included in the accompanying condensed consolidated balance sheets, statements of consolidated income, consolidated comprehensive income and consolidated cash flows. When reviewing the discussion and analysis set forth below, 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 are not necessarily sold in the comparable period of the prior year, resulting in the inability to quantify with certainty commonly used comparative metrics analyzing sales, such as changes due to volumes, product mix and price.

Current wording

The following is Management's Discussion and Analysis of significant factors which affected our financial condition, results of operations and cash flows during the periods included in the accompanying condensed consolidated balance sheets, statements of consolidated income, consolidated comprehensive income and consolidated cash flows. When reviewing the discussion and analysis set forth below, please note that a significant number of stock keeping units ("SKUs") we sell, or the products we sell in our Engineered Solutions segment, in any given period are not necessarily sold in the comparable period of the prior year, resulting in the inability to quantify with certainty commonly used comparative metrics analyzing sales, such as changes due to volumes, product mix and price.

Previous wording

Consolidated sales for the quarter ended March 31, 2026 increased $84.7 million or 7.3% compared to the prior year quarter, with acquisitions contributing to sales growth by $5.5 million or 0.5% and favorable foreign currency translation contributing $9.5 million or 0.8% to sales growth. Excluding the impact of businesses acquired and foreign currency translation, sales increased $69.7 million or 6.0% during the quarter primarily reflecting volume growth in both the Service Center and Engineered Solutions segment and modest price contribution. The Company generated operating income of $137.9 million, or operating margin of 11.0% of sales for the quarter ended March 31, 2026, compared to operating income of $129.4 million, or operating margin of 11.1% of sales for the same quarter in the prior year. The Company generated net income of $99.8 million both the quarters ended March 31, 2026 and March 31, 2025.

Current wording

Consolidated sales for the quarter ended September 30, 2026 increased $91.7 million or 7.6% compared to the prior year quarter, with acquisitions increasing sales by $3.5 million or 0.3% and favorable foreign currency translation of $2.6 million increasing sales by 0.2%. Excluding the impact of businesses acquired and foreign currency translation, sales increased $85.6 million or 7.1% during the quarter primarily reflecting volume growth in the Engineered Solutions segment and modest price contribution. The Company generated operating income of $143.6 million, or operating margin of 11.1% of sales for the quarter ended September 30, 2026, compared to operating income of $129.0 million, or operating margin of 10.8% of sales for the same quarter in the prior year. Net income of $110.4 million increased 9.5% compared to the prior year quarter.

Previous wording

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.

Current wording

Applied monitors several economic indices that have been 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 indices available for the months during the current quarter, along with the indices for the prior year end, were as follows:

Previous wording

The number of Company employees was 6,859 at March 31, 2026, 6,837 at June 30, 2025, and 6,818 at March 31, 2025. The number of operating facilities totaled 589 at March 31, 2026, 596 at June 30, 2025, and 619 at March 31, 2025.

Current wording

The approximate number of employees was 6,800 at September 30, 2026, 6,900 at June 30, 2026, and 6,794 at September 30, 2025. The number of operating facilities totaled 580 at September 30, 2026, 580 at June 30, 2026 and 594 at September 30, 2025.

Previous wording

During the quarter ended March 31, 2026, sales increased $84.7 million or 7.3% compared to the prior year quarter, with sales from acquisitions adding $5.5 million or 0.5%, and favorable foreign currency translation increasing sales by $9.5 million or 0.8%. There were 63 selling days in both the quarters ended March 31, 2026 and March 31, 2025. Excluding the impact of businesses acquired and foreign currency translation, sales increased $69.7 million or 6.0% during the quarter due to higher volumes of approximately $40.0 million with the remainder attributed to positive price contribution.

Current wording

During the quarter ended September 30, 2026, sales increased $91.7 million or 7.6% compared to the prior year quarter, with sales from acquisitions adding $3.5 million or 0.3% and favorable foreign currency translation accounting for a increase of $2.6 million or 0.2%. There were 64 selling days in both the quarter ended September 30, 2026 and 2025. Excluding the impact of businesses acquired and foreign currency translation, sales increased $85.6 million or 7.1% during the quarter due to higher volumes of approximately $60.0 million with the remainder attributed to positive price contribution.

Previous wording

Sales from our Service Center segment, which operates primarily in MRO markets, increased $43.3 million or 5.7% compared to the prior year quarter. Acquisitions within this segment increased sales by$1.8 million or 0.2% and foreign currency translation increased sales by $9.5 million or 1.3%. Excluding the impact of businesses acquired and foreign currency translation, sales increased $32.0 million or 4.2%, due to higher volumes of approximately $13.0 million reflecting improving end-market demand and progress with internal growth initiatives across the United States, as well as positive price contribution of approximately $19.0 million.

Current wording

Sales in our Service Center segment, which operates primarily in MRO markets, increased $33.0 million or 4.2% compared to the prior year quarter. Acquisitions within this segment increased sales by $3.5 million or 0.4% while favorable foreign currency translation increased sales by $2.6 million or 0.3%. Excluding the impact of businesses acquired and foreign currency translation, sales increased $26.9 million or 3.5%, due to favorable end-market demand and benefits from our internal sales initiatives across the United States of approximately $35.0 million, partially offset by softer end-market demand within our international operations.

Previous wording

Sales from our Engineered Solutions segment increased $41.4 million or 10.2%. Acquisitions within this segment increased sales by $3.7 million or 0.9%. Excluding the impact of businesses acquired, sales increased $37.7 million, or 9.3%, due to higher volumes of approximately $27.0 million primarily reflecting stronger demand across our fluid power and automation operations, as well as modest demand improvement across our flow control operations and the remainder is positive price contributions.

Current wording

Sales in our Engineered Solutions segment increased $58.7 million or 14.1%, primarily due to higher volumes of approximately $46.0 million reflecting stronger demand across our fluid power and automation operations, and to a lesser extent our flow control operations, with the remainder from positive price contribution.

Previous wording

Sales in our U.S. operations increased $74.9 million or 7.2%, as acquisitions added $5.5 million or 0.5%. Excluding the impact of businesses acquired, sales in the United States increased $69.4 million or 6.7% primarily reflecting stronger demand in the Engineered Solutions segment and the Service Center segment, as well as positive price contribution year over year. Sales from our Canadian operations decreased $0.8 million or 1.1%. Favorable foreign currency translation increased Canadian sales by $3.4 million or 4.8%. Excluding the impact of foreign currency translation, Canadian sales decreased $4.2 million or 5.9% due to softer end-market demand in the Service Center segment. Sales in other countries increased $10.6 million or 16.9%. Favorable foreign currency translation increased sales $6.1 million or 9.7%. Excluding the impact of foreign currency translation, sales in other countries increased $4.5 million or 7.2% due primarily to higher demand for fluid power solutions.

Current wording

Sales in our U.S. operations increased $86.9 million or 8.2%, including the effect of acquisitions contributing $3.5 million or 0.3%. Excluding the impact of businesses acquired, sales in the United States were up $83.4 million or 7.9% primarily due to higher demand in the Engineered Solutions segment, and to a lesser extent our Service Center segment. Sales in Canada decreased $5.1 million or 6.9%, including unfavorable foreign currency translation of $1.2 million or 1.6%. Excluding the impact of foreign currency translation, Canadian sales decreased $3.9 million or 5.3% due to lower demand in the Service Center segment. Sales in other countries increased $9.9 million or 14.6%, including favorable foreign currency translation of $3.8 million or 5.5%. Excluding the impact of foreign currency translation, sales in other countries increased $6.1 million or 9.1% due to strong demand in markets served in our Engineered Solutions segment.

Previous wording

Our gross profit margin was 30.4% in the quarter ended March 31, 2026 compared to 30.5% in the prior year quarter. The gross profit margin for the current year quarter was negatively impacted by 0.3% due to higher LIFO expense as compared to the prior year quarter. This was partially offset from favorable mix impacts from the growth in revenues in the Engineered Solutions segment.

Current wording

Our gross profit margin was 30.4% in the quarter ended September 30, 2026 compared to 30.1% in the prior period. The gross profit margin for the current year was negatively impacted by 0.2% due to higher LIFO expense as compared to the prior year. Excluding the incremental LIFO expense, gross profit margin increased due to price contributions and channel execution of approximately 0.4% and favorable mix impact of approximately 0.1% from growth in revenues in the Engineered Solutions Segment.

Previous wording

SD&A consists of associate compensation, benefits and other expenses associated with selling, purchasing, warehousing, supply chain management and providing 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, and facility related expenses. SD&A was 19.5% of sales in the nine months ended March 31, 2026 compared to 19.3% in the prior year, an increase of $60.4 million or 9.4% compared to the prior year. SD&A from businesses acquired added $40.6 million or 6.3% of SD&A expenses, including $6.3 million of intangibles amortization related to acquisitions. Changes in foreign currency exchange rates increased SD&A during the nine months ended March 31, 2026 by $2.2 million or 0.3% compared to the prior year. Excluding the impact of businesses acquired and the unfavorable currency translation impact, SD&A increased $17.6 million or 2.8% during the nine months ended March 31, 2026 compared to the prior year primarily due to higher compensation costs.

Current wording

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 19.3% of sales in the quarter ended September 30, 2026 compared to 19.4% in the prior year quarter. SD&A increased $16.2 million or 7.0% compared to the prior year quarter, including SD&A from businesses acquired of $0.5 million or 0.2%. Changes in foreign currency exchange rates had the effect of increasing SD&A during the quarter ended September 30, 2026 by $0.5 million or 0.2% compared to the prior year quarter. Excluding the impact of businesses acquired and the favorable currency translation impact, SD&A increased $15.2 million or 6.6% during the quarter ended September 30, 2026 compared to the prior year quarter primarily due to higher compensation costs of $12.3 million.

Previous wording

Segment SD&A for the Service Center segment increased $8.8 million, to $125.6 million during the current year quarter from $116.8 million during the prior year quarter due primarily to higher compensation costs of $2.8 million, changes in foreign currency exchange rates of $1.9 million, and accounts receivable provisioning cost of $1.1 million. As a percentage of sales, segment SD&A was 15.6% in the current year quarter compared to 15.3% in the prior year quarter. Segment SD&A for the Engineered Solutions segment increased $6.6 million, to $94.1 million during the current year quarter from $87.6 million during the prior year quarter due to higher compensation costs of $4.6 million and accounts receivable provisioning cost of $1.1 million. As a percentage of sales, segment SD&A was 21.1% in the current year quarter compared to 21.6% in the prior year quarter primarily reflecting effective expense leveraging on higher sales levels.

Current wording

Segment SD&A for the Service Center segment increased $10.3 million, to $132.5 million during the current year quarter from $122.2 million during the prior year quarter due primarily to higher compensation costs of $5.6 million and accounts receivable provisioning cost of $1.8 million. As a percentage of sales, segment SD&A was 16.3% in the current year quarter compared to 15.6% in the prior year quarter due to the factors previously noted. Segment SD&A for the Engineered Solutions segment increased $4.1 million, to $93.4 million during the current year quarter from $89.3 million during the prior year quarter due to higher compensation costs of $5.9 million, offset by a decrease in depreciation and amortization of $0.8 million. As a percentage of sales, segment SD&A was 19.6% in the current year quarter compared to 21.4% in the prior year quarter primarily reflecting effective expense leveraging on higher sales levels.

Previous wording

Operating income increased $8.5 million or 6.6%, to$137.9 million in the current year quarter from $129.4 million during the prior year quarter, and as a percent of sales decreased to 11.0% from 11.1% during the prior year quarter.

Current wording

Operating income increased$14.6 million or 11.3%, to $143.6 million in the current year quarter from $129.0 million during prior year quarter, and as a percent of sales increased to 11.1% from 10.8% during the prior year quarter.

Previous wording

Segment operating income for the Service Center segment increased $3.0 million to $109.4 million during the current year quarter, from $106.4 million during the prior year quarterdue to higher revenues partially offset by higher SD&A expenses. As a percentage of sales, segment operating income decreased to 13.6% in thecurrent year quarter from 14.0% in the prior year quarter primarily due to higher employee related costs and accounts receivable provisioning cost. Segment operating income for the Engineered Solutions segment increased $7.1 million to $51.6 million during the current year quarter from $44.5 million during the prior year quarter due to incremental gross profit on higher volumes, partially offset by higher SD&A expenses. As a percentage of sales, segment operating income increased to 11.6% in the current year quarter from 11.0% in the prior year quarter, primarily reflecting effective expense leveraging on higher sales levels.

Current wording

Segment operating income for the Service Center segment increased $1.3 million to $105.3 million during the current year quarter, from $104.0 million during the prior year quarter due to higher revenues partially offset by higher SD&A expenses. As a percentage of sales, segment operating income decreased to 12.9% in the current year quarter from 13.3% in the prior year quarter, primarily due to higher employee related costs and accounts receivable provisioning cost. Segment operating income for the Engineered Solutions segment increased $15.1 million to $60.9 million during the current year quarter from $45.8 million during the prior year quarter due to incremental gross profit on higher volumes, partially offset by higher SD&A expenses. As a percentage of sales, segment operating income increased to 12.8% in the current year quarter from 11.0% in the prior year quarter, primarily reflecting effective expense leveraging on higher sales levels.

Previous wording

The Company had net interest expense in the current year period of $4.4 million compared to net interest income of $0.7 million in the prior year primarily reflecting lower interest income on lower cash balances as compared to the prior year.

Current wording

The Company had net interest expense in the current year quarter of $3.1 million compared to net inte rest expense of $1.0 million in the prior year quarter 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.

Previous wording

Other expense, net, which represents certain non-operating items of income and expense, was expense of $0.4 million in the current year quarter compared to expense of $1.3 million in the prior year quarter. Current quarter expense primarily consists of unrealized losses on investments held by non-qualified deferred compensation trusts of $0.7 million and foreign currency transaction losses of $0.2 million, offset by life insurance income of $0.5 million. During the prior year quarter, other expense, net included $0.7 million in unrealized losses on investments held by non-qualified deferred compensation trusts and $1.0 million in foreign currency transaction losses.

Current wording

Other income, net, which represents certain non-operating items of income and expense, was income of $0.4 million in the current year quarter compared to income of $0.5 million in the prior year quarter.

Previous wording

The effective income tax rate was 26.2% for the quarter ended March 31, 2026 compared to 21.6% for the quarter ended March 31, 2025. The increase in the effective tax rate is primarily due to discrete tax expense from changes in estimates related to prior year tax returns of $2.5 million identified as part of the preparation of the tax return, coupled with lower benefit from the research and development tax credit due to lower qualifying activities in 2026. In the prior year period, there was a discrete tax benefit of $1.7 million from changes in estimates related to prior year tax returns.

Current wording

The effective income tax rate was 21.7% for the quarter ended September 30, 2026 compared to 21.6% for the quarter ended September 30, 2025.

Previous wording

As a result of the factors noted above, net income for the quarter ended March 31, 2026 increased less than$0.1 million compared to the prior year quarter. Diluted net income per share was $2.65 per share for the quarter ended March 31, 2026 compared to $2.57 per share in the prior year quarter, an increase of 3.1%.

Current wording

As a result of the factors addressed above, net income for the quarter ended September 30, 2026 increased $9.6 million or 9.5% compared to the prior year quarter. Diluted net income per share was $2.97 per share for the quarter ended September 30, 2026 compared to $2.63 per share in the prior year quarter, an increase of 12.9%.

Previous wording

Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of debt. We had total debt obligations outstanding of $365.3 million and $572.3 million as of March 31, 2026 and June 30, 2025, respectively. 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 based on the Company's credit standing and financial strength.

Current wording

Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of debt. We had total debt obligations outstanding of $282.3 million at September 30, 2026 compared to $262.3 million at June 30, 2026. 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 based on the Company's credit standing and financial strength.

Previous wording

The Company's working capital at March 31, 2026 was $1,044.6 million, compared to $1,221.3 million at June 30, 2025. The current ratio was 2.9 to 1 at March 31, 2026 and 3.3 to 1 at June 30, 2025.

Current wording

The Company's working capital at September 30, 2026 was $1,015.4 million, compared to $966.3 million at June 30, 2026. The current ratio was 2.9 to 1 at September 30, 2026 and 2.6 to 1 at June 30, 2026.

Previous wording

Net cash used in investing activities during the nine months ended March 31, 2026 decreased from the prior primarily due to $11.4 million used for acquisitions in the nine months ended March 31, 2026 compared to$273.3 million used for acquisitions in the prior year.

Current wording

Net cash used in investing activities during the three months ended September 30, 2026 increased from the prior period primarily due to$13.0 million used for capital expenditures in thecurrent year quarter compared to $7.3 million in the prior year quarter to support growth in our business and information technology investment.

Previous wording

Net cash used in financing activities during the nine months ended March 31, 2026 increased from the prior year due to higher share repurchase activity in 2026 coupled with higher debt repayments. The Company used $236.4 million of cash to repurchase 897,115 shares of common stock during the nine months ended March 31, 2026 as compared to $79.8 million used to repurchase 331,876 shares of common stock in the prior year. This was coupled with higher net long-term debt repayments in the current year of $207.0 million as compared to $25.1 million in the prior year.

Current wording

Net cash used in financing activities during the three months ended September 30, 2026 increased from the prior quarter primarily due to $80.0 million used to repurchase 245,285 sharesof common stock in the current year quarter compared to $53.2 million used to repurchase 204,136 shares of common stock in the prior year quarter, partially offset by incremental borrowings under the revolving credit facility of $20.0 million.

Previous wording

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. At March 31, 2026, we had authorization to repurchase 402,885 shares. During the three months ended March 31, 2026, the Company acquired 346,479 shares of the Company's common stock on the open market for $93.0 million. During thenine months ended March 31, 2026, the Company acquired 897,115 shares of the Company's common stock on the open market for $236.4 million. During the three months ended March 31, 2025, the Company acquired 204,500 shares of treasury stock on the open market for $49.3 million. During thenine months ended March 31, 2025, the Company acquired 331,876 shares of treasury stock on the open market for $79.8 million.

Current wording

The Board of Directors has 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. At September 30, 2026, we had authorization to repurchase 2,608,967 shares. During the three months ended September 30, 2026, we purchased 245,285 shares of the Company's common stock on the open market at an average price per share of $326.29. During the three months ended September 30, 2025, we purchased 204,136 shares of the Company's common stock on the open market at an average price per share of $260.49.

Previous wording

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

Current wording

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

Previous wording

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 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$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 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$722.8 million at March 31, 2026 and 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 March 31, 2026 to secure certain insurance obligations. The interest rate on the revolving credit facility was 4.47% as of March 31, 2026.

Current wording

On October 24, 2025, 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 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 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, both of which are based on the Company's net leverage ratio. Borrowing capacity under this facility, without exercising the accordion feature, totaled $805.8 million and $825.8 million at September 30, 2026 and June 30, 2026, respectively, which 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 September 30, 2026 and June 30, 2026, respectively, to secure certain insurance obligations. The interest rate on the revolving credit facility was 4.70% and 4.44% as of September 30, 2026 and June 30, 2026, respectively.

Previous wording

The Company paid$1.6 million of debt issuance costs related to the new revolving credit facility in the nine months ended March 31, 2026, which are included in other current assets and other assets on the condensed consolidated balance sheet as of March 31, 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 under ASC Topic 470 -Debt. As a result of this analysis, less than $0.1 million of unamortized debt issuance costs were expensed and included within interest expense, net on the condensed statements of consolidated income in the nine months ended March 31, 2026, and$0.8 million of unamortized debt issuance costs were rolled forward into the new credit facility and will be amortized over the five-year term of the new credit facility.

Current wording

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

Previous wording

Additionally, the Company had letters of credit outstanding not associated with the revolving credit agreement, in the amount of$5.3 million as of March 31, 2026 and June 30, 2025, to secure certain insurance obligations.

Current wording

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

Previous wording

In August 2018, the Company established a trade receivable securitization facility (AR Securitization Facility). The AR Securitization Facility effectively increases the Company’s borrowing capacity by collateralizing a portion of the amount of the U.S. operations’ trade accounts receivable. The Company uses the proceeds from the AR Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing costs. The AR Securitization Facility's maximum borrowing capacity is$250.0 million, fees on amounts borrowed are 0.90% per year, and the facility terminates on August 4, 2026. Borrowing capacity is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable portfolio and, therefore, at certain times, we may not be able to fully access the$250.0 million of borrowing capacity available under the AR Securitization Facility. Borrowings under the AR Securitization Facility carry variable interest rates tied to SOFR. The interest rate on the AR Securitization Facility as of March 31, 2026 and June 30, 2025 was 4.58% and 5.32%, respectively. On July 10, 2025, the Company amended the AR Securitization Facility and extended the term to July 10, 2028, with no substantial changes in other terms.

Current wording

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. 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 $250.0 million and fees on amounts borrowed are 0.90% per year. Borrowing capacity is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable portfolio and, therefore, at certain times, we may not be able to fully access the $250.0 million of borrowing capacity available under the AR Securitization Facility. Borrowings under the AR Securitization Facility carry variable interest rates tied to SOFR. The interest rate on the AR Securitization Facility as of September 30, 2026 and June 30, 2026 was 4.80% and 4.55%, respectively.

Previous wording

The credit facility and the unsecured shelf facility contain restrictive covenants regarding liquidity, net worth, financial ratios, and other covenants. At March 31, 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 in these agreements). At March 31, 2026, the Company's net indebtedness was 0.3 times consolidated income before interest, taxes, depreciation and amortization (as defined in these agreements). The Company was in compliance with all financial covenants at March 31, 2026.

Current wording

The credit facility contains restrictive covenants regarding liquidity, net worth, financial ratios, and other covenants. At September 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 in these agreements). At September 30, 2026, the Company's net indebtedness was less than 0.3 times consolidated income before interest, taxes, depreciation and amortization (as defined in these agreements). The Company was in compliance with all financial covenants at September 30, 2026.

Previous wording

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

Current wording

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

Previous wording

Accounts receivable are reported at net realizable value and consist of trade receivables from customers. Management monitors accounts receivable by reviewing Days Sales Outstanding (DSO) and the aging of receivables for each of the Company's locations.

Current wording

Accounts receivable are reported at net realizable value and consist of trade receivables from customers. Management monitors accounts receivable by reviewing Days Sales Outstanding (DSO) and the aging of receivables for each of the Company's operations.

Previous wording

On a consolidated basis, DSO was 57.0 at March 31, 2026 compared to 56.6 June 30, 2025. As of March 31, 2026, approximately 1.2% of our accounts receivable balances are more than 90 days past due, compared to 2.1% at June 30, 2025.

Current wording

On a consolidated basis, DSO was 57.3 at September 30, 2026 compared to 55.3 at June 30, 2026. As of September 30, 2026,1.4% of our accounts receivable balances are more than 90 days past due, compared to 1.1% at June 30, 2026.

Previous wording

On an overall basis, we recorded modest provisions for losses on uncollected receivables representing 0.03% of sales for the nine months ended March 31, 2026 compared to provision for losses of 0.08% of sales for the nine months ended March 31, 2025. This change is primarily in the U.S. operations of the Service Center segment due to less accounts receivable balances past due. Historically, this percentage is between 0.10% to 0.15%. Management believes the overall receivables aging and provision for losses on accounts receivable are at reasonable levels.

Current wording

On an overall basis, we recorded modest provisions for losses on uncollected receivables representing 0.08% of our sales in the three months ended September 30, 2026, compared to the recovery of losses of (0.14)% of sales for the three months ended September 30, 2025. This change is primarily in the U.S. operations of the Service Center segment. Historically, this percentage is around 0.10% to 0.15%. Management believes the overall receivables aging and provision for losses on uncollected receivables are at reasonable levels.

Previous wording

Inventories are valued using the last-in, first-out (LIFO) method for U.S. 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 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 4.4 and 4.3 for the periods ended March 31, 2026 and June 30, 2025, respectively.

Current wording

Inventories are valued using the last-in, first-out (LIFO) method for U.S. 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 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 for both the periods ended September 30, 2026 and June 30, 2026.

Previous wording

Management’s Discussion and Analysis contains statements that are forward-looking based on management’s current expectations about the future. Forward-looking statements are often identified by qualifiers, such as “guidance”, “expect”, “believe”, “plan”, “intend”, “will”, “should”, “could”, “would”, “anticipate”, “estimate”, “forecast”, “may”, "optimistic" and derivative or similar words or expressions. Similarly, descriptions of objectives, strategies, plans, or goals are also forward-looking statements. These statements may discuss, among other things, expected growth, future sales, future cash flows, future capital expenditures, future performance, and the anticipation and expectations of the Company and its management as to future occurrences and trends. The Company intends that the forward-looking statements be subject to the safe harbors established in the Private Securities Litigation Reform Act of 1995, as amended, and by the Securities and Exchange Commission in its rules, regulations and releases.

Current wording

Management’s Discussion and Analysis, contains statements that are forward-looking based on management’s current expectations about the future. Forward-looking statements are often identified by qualifiers, such as “guidance,” “expect,” “believe,” “plan,” “intend,” “will,” “should,” “could,” “would,” “anticipate,” “estimate,” “forecast,” “may,” “potential,” "optimistic," and derivative or similar words or expressions. Similarly, descriptions of objectives, strategies, plans, or goals are also forward-looking statements. These statements may discuss, among other things, expected growth, future sales, future cash flows, future capital expenditures, future performance, and the anticipation and expectations of the Company and its management as to future occurrences and trends. The Company intends that the forward-looking statements be subject to the safe harbors established in the Private Securities Litigation Reform Act of 1995, as amended, and by the Securities and Exchange Commission in its rules, regulations, and releases.

Previous wording

Important risk factors include, but are not limited to, the following: risks relating to the operations levels of our customers and the economic factors that affect them; 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; 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; our ability to identify and complete acquisitions, integrate them effectively, and realize their anticipated benefits; the variability, timing and nature of new business opportunities including acquisitions, alliances, customer relationships, and supplier authorizations; 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; 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 op…

Excerpt shortened here; the source contains the full paragraph.

Current wording

Important risk factors include, but are not limited to, the following: 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; 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; the variability, timing and nature of new business opportunities including acquisitions, alliances, customer relationships, and supplier authorizations; the incurrence of debt and contingent liabilities in connection with acquisitions; 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; 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.