Ferguson Enterprises Inc.
09/26/2025 | Press release | Distributed by Public on 09/26/2025 11:08
Annual Report for Fiscal Year Ending July 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Management'sdiscussion and analysis of financial condition and results of operations ("MD&A") is intended to convey management's perspective regarding the Company's operational and financial performance and should be read in conjunction with the Consolidated Financial Statements and related notes contained in this Annual Report. The discussion in this Annual Report generally focuses on fiscal 2025 compared to fiscal 2024. A discussion of our results of operations and changes in financial condition for fiscal 2024 compared to fiscal 2023 has been excluded from this report, but can be found in Part II, Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operationsof our fiscal 2024 Annual Report.
The following discussion contains trend information and forward-looking statements. Actual results could differ materially from those discussed in these forward-looking statements, as well as from our historical performance, due to various factors, including, but not limited to, those discussed in the "Risk Factors" and "Forward-Looking Statements and Risk Factor Summary" sections and elsewhere in this Annual Report.
Overview
Ferguson is a value-added distributor serving the water and air specialized professional in the residential and non-residential North American construction market. We help make our customers' complex projects simple, successful and sustainable by providing expertise and a wide range of products and services from plumbing, HVAC, appliances, and lighting to PVF, water and wastewater solutions, and more. Ferguson is headquartered in Newport News, Virginia.
The following table presents highlights of our annual performance:
| For the years ended July 31, | |||||||||||
| (In millions, except per share amounts) | 2025 | 2024 | |||||||||
| Net sales | $30,762 | $29,635 | |||||||||
| Operating profit | 2,606 | 2,652 | |||||||||
| Net income | 1,856 | 1,735 | |||||||||
| Earnings per share - diluted | 9.32 | 8.53 | |||||||||
| Net cash provided by operating activities | 1,908 | 1,873 | |||||||||
|
Supplemental non-GAAP financial measures:(1)
|
|||||||||||
| Adjusted operating profit | 2,842 | 2,824 | |||||||||
| Adjusted earnings per share - diluted | 9.94 | 9.69 | |||||||||
(1) The Company uses certain non-GAAP measures, which are not defined or specified under accounting principles generally accepted in the United States ("U.S. GAAP"). See the section titled "Non-GAAP Reconciliations and Supplementary Information."
For fiscal 2025, net sales increased by 3.8%, primarily due to higher sales volume and incremental sales from acquisitions, partially offset by the impact of one less sales day in fiscal 2025 than in fiscal 2024. Pricing was slightly down year-over-year, primarily during the first half of fiscal 2025, due to deflation in certain commodity categories, which was partially offset by improvements in finished goods pricing.
For fiscal 2025, operating profit decreased 1.7% (adjusted operating profit increased 0.6%) compared to fiscal 2024. This decrease was primarily due to $80 million in non-recurring restructuring expenses, along with the profit impact of one less sales day in fiscal 2025. These decreases were partially offset by higher gross profit compared with fiscal 2024. Adjusted operating profit increased due to higher gross profit compared with fiscal 2024.
For fiscal 2025, diluted earnings per share was $9.32 (adjusted diluted earnings per share: $9.94), increasing 9.3% compared with the prior year due to higher net income and the impact of share repurchases. The higher year-over-year net income was primarily driven by non-recurring, non-cash deferred tax charges of $137 million incurred in fiscal 2024 in connection with establishing a new corporate structure to domicile our ultimate parent company in the United States. Adjusted diluted earnings per share increased 2.6%, primarily due the impact of the Company's share repurchases, and to a lesser extent, higher adjusted operating profit.
Net cash provided by operating activities increased 1.9% to $1.9 billion in fiscal 2025. During fiscal 2025, the Company invested $301 million in acquisitions and $305 million in capital expenditures to meet the Company's strategic objectives.
Results of Operations
The table below summarizes the Company's consolidated statements of earnings for the periods indicated.
| For the years ended July 31, | |||||||||||
| (In millions) | 2025 | 2024 | |||||||||
| Net sales | $30,762 | $29,635 | |||||||||
| Cost of sales | (21,327) | (20,582) | |||||||||
| Gross profit | 9,435 | 9,053 | |||||||||
| Selling, general and administrative expenses | (6,376) | (6,038) | |||||||||
| Restructuring and impairment expenses | (80) | (28) | |||||||||
| Depreciation and amortization | (373) | (335) | |||||||||
| Operating profit | 2,606 | 2,652 | |||||||||
| Interest expense, net | (190) | (179) | |||||||||
| Other income (expense), net | 7 | (9) | |||||||||
| Income before income taxes | 2,423 | 2,464 | |||||||||
| Provision for income taxes | (567) | (729) | |||||||||
| Net income | $1,856 | $1,735 | |||||||||
Net sales
Net sales were $30.8 billion in fiscal 2025, an increase of $1.1 billion, or 3.8%, compared with 2024. The increase in net sales was primarily driven by higher sales volume and incremental sales from acquisitions of 1.0%, partially offset by the 0.4% impact of one less sales day in fiscal 2025. Pricing was slightly down year-over-year, primarily during the first half of fiscal 2025, due to deflation in certain commodity categories, which was partially offset by improvements in finished goods pricing. The Company's increase in net sales was primarily driven by growth in non-residential markets, and to a lesser extent, in residential markets in its United States segment.
Gross profit
Gross profit was $9.4 billion in fiscal 2025, an increase of $382 million, or 4.2%, compared with fiscal 2024. Gross profit as a percent of sales was 30.7% in fiscal 2025 compared with 30.5% in the prior year. The increase reflected specific management actions to better capture the value provided to customers and the timing and extent of supplier price increases, partially offset by the impact of deflation in certain commodity categories, primarily during the first half of the year.
Selling, general and administrative expenses ("SG&A")
SG&A expenses in fiscal 2025 increased $338 million, or 5.6%, compared with fiscal 2024. SG&A as a percentage of sales was 20.7% and 20.4% in fiscal 2025 and fiscal 2024, respectively. The increase in SG&A as a percent of sales primarily reflects higher performance based incentive compensation and the impact of cost inflation on labor, infrastructure and fleet.
Restructuring expenses
Corporate restructuring expenses
Corporate restructuring expenses were $7 million and $28 million in fiscal 2025 and 2024, respectively. During fiscal 2024, these expenses primarily related to establishing a new corporate structure to domicile our ultimate parent company in the United States. During fiscal 2025, these expenses were primarily related to transition activities following the establishment of our ultimate parent company's domicile in the United States.
Business restructuring expenses
During the second half of fiscal 2025, the Company implemented targeted actions to streamline operations, enhancing speed and efficiency to better serve customers and drive further profitable growth. As a result of these actions, the Company recorded non-recurring business restructuring expenses of $73 million. No such amounts were recorded in fiscal 2024.
Net interest expense
Net interest expense was $190 million in fiscal 2025 compared with $179 million in fiscal 2024. The increase in interest expense was due to higher average borrowings in fiscal 2025 compared with the prior year.
Income tax expense
Income tax expense was $567 million for fiscal 2025, a decrease of $162 million compared with fiscal 2024. The Company's effective tax rate was 23.4% for fiscal 2025 compared with 29.6% for fiscal 2024. The decrease in income tax expense and the decrease in the effective tax rate were primarily driven by non-recurring, non-cash deferred tax charges of $137 million incurred in the prior fiscal year due to the elimination of certain pre-existing U.K. tax attributes of the Company in connection with establishing a new corporate structure to domicile our ultimate parent company in the United States, as well as the release of uncertain tax positions following the lapse of statute of limitations in fiscal 2025.
Net income
Net income for fiscal 2025 was $1.9 billion, an increase of $121 million, or 7.0%, compared with fiscal 2024 due to the elements described in the sections above.
Segment results of operations for fiscal 2025 and fiscal 2024
The Company's reportable segments are the United States and Canada based on how the Company manages its business and allocates resources, which is on a geographical basis. The Company's measure of segment profit is adjusted operating profit. For further segment information, see Note 2, Segment and net sales information of the Notes to the Consolidated Financial Statements.
United States
| For the years ended July 31, | |||||||||||
| (In millions) | 2025 | 2024 | |||||||||
| Net sales | $29,269 | $28,195 | |||||||||
|
Adjusted operating profit
|
2,840 | 2,820 | |||||||||
Net sales for the United States segment were $29.3 billion in fiscal 2025, an increase of $1.1 billion, or 3.8%, compared with the prior year. The increase in net sales was primarily driven by higher sales volume, along with incremental sales from acquisitions of 1.0%. These increases were partially offset by price deflation of approximately 1%, mainly within certain commodity categories in the first half of the fiscal year that was partially offset by improvements in finished goods pricing. In addition, net sales growth was partially offset by the impact of one fewer sales day of 0.4% in the year-over-year comparison. Net sales growth in the non-residential markets was 6.8% due to growth in each of Commercial, Civil/Infrastructure and Industrial. Net sales in the residential markets increased by 0.9%, with growth across both new construction and RMI.
Adjusted operating profit in the United States was $2.8 billion, an increase of 0.7% compared with the prior year, primarily reflecting higher gross profit, partially offset by higher operating costs in light of sales volume growth and cost inflation.
Canada
| For the years ended July 31, | |||||||||||
| (In millions) | 2025 | 2024 | |||||||||
| Net sales | $1,493 | $1,440 | |||||||||
|
Adjusted operating profit
|
66 | 60 | |||||||||
Net sales for the Canada segment were $1,493 million in fiscal 2025, an increase of $53 million, or 3.7%, compared with the prior year. This increase in net sales was primarily due to incremental sales from acquisitions of 4.7% and price inflation of approximately 2%, partially offset by the impacts of foreign currency exchange rates of 2.3%, one fewer sales day in the fiscal year of 0.5% and slightly lower sales volume.
Adjusted operating profit for the Canada segment increased compared with the prior year, primarily due to higher sales and gross profit, partially offset by higher operating costs compared with the same period of prior year.
Non-GAAP Reconciliations and Supplementary Information
The Company reports its financial results in accordance with U.S. GAAP. However, the Company believes certain non-GAAP financial measures provide users of the Company's financial information with additional meaningful information to assist in understanding financial results and assessing the Company's performance from period to period. These non-GAAP financial measures include adjusted operating profit, adjusted net income and adjusted earnings per share ("adjusted EPS") - diluted. Management believes these measures are important indicators of operations because they exclude items that may not be indicative of our core operating results and provide a better baseline for analyzing trends in our underlying businesses, and they are consistent with how business performance is planned, reported and assessed internally by management and the Company's Board. Such non-GAAP adjustments include amortization of acquired intangible assets, discrete tax items, and any other items that are non-recurring. Non-recurring items may include various restructuring charges, gains or losses on the disposals of businesses which by their nature do not reflect primary operations, as well as certain other items deemed non-recurring in nature and/or that are not a result of the Company's primary operations. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These non-GAAP financial measures should not be considered in isolation or as a substitute for results reported under U.S. GAAP. These non-GAAP financial measures reflect an additional way of viewing aspects of operations that, when viewed with U.S. GAAP results, provide a more complete understanding of the business. The Company strongly encourages investors and shareholders to review the Company's financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.
Reconciliation of net income to adjusted operating profit
The following table reconciles net income (U.S. GAAP) to adjusted operating profit (non-GAAP):
| For the years ended July 31, | |||||||||||
| (In millions) | 2025 | 2024 | |||||||||
| Net income | $1,856 | $1,735 | |||||||||
| Provision for income taxes | 567 | 729 | |||||||||
| Interest expense, net | 190 | 179 | |||||||||
| Other expense, net | (7) | 9 | |||||||||
| Operating profit | 2,606 | 2,652 | |||||||||
|
Corporate restructuring expenses(1)
|
7 | 28 | |||||||||
|
Business restructuring expenses(2)
|
73 | - | |||||||||
| Amortization of acquired intangibles | 156 | 144 | |||||||||
| Adjusted operating profit | $2,842 | $2,824 | |||||||||
(1)For fiscal 2025, corporate restructuring expenses primarily related to incremental costs in connection with transition activities following the establishment of our ultimate parent company's domicile in the United States. For fiscal 2024, corporate restructuring expenses related to incremental costs in connection with establishing the new corporate structure to domicile our ultimate parent company in the United States.
(2)For fiscal 2025, business restructuring expenses related to the Company's implementation of targeted actions to streamline operations, enhancing speed and efficiency to better serve customers and drive further profitable growth.
Reconciliation of net income to adjusted net income and adjusted EPS - diluted
The following table reconciles net income (U.S. GAAP) to adjusted net income and adjusted EPS - diluted (non-GAAP):
| For the years ended July 31, | |||||||||||||||||||||||
| (In millions, except per share amounts) | 2025 | 2024 | |||||||||||||||||||||
|
per share(1)
|
per share(1)
|
||||||||||||||||||||||
| Net income | $1,856 | $9.32 | $1,735 | $8.53 | |||||||||||||||||||
|
Corporate restructurings(2)
|
7 | 0.03 | 28 | 0.14 | |||||||||||||||||||
|
Business restructurings(3)
|
73 | 0.37 | - | - | |||||||||||||||||||
| Amortization of acquired intangibles | 156 | 0.78 | 144 | 0.71 | |||||||||||||||||||
|
Discrete tax adjustments(4)
|
(52) | (0.26) | 101 | 0.49 | |||||||||||||||||||
|
Tax impact on non-GAAP adjustments(5)
|
(59) | (0.30) | (36) | (0.18) | |||||||||||||||||||
| Adjusted net income | $1,981 | $9.94 | $1,972 | $9.69 | |||||||||||||||||||
| Diluted weighted average shares outstanding | 199.2 | 203.5 | |||||||||||||||||||||
(1)Per share on a dilutive basis.
(2)For fiscal 2025, corporate restructuring expenses primarily related to incremental costs in connection with transition activities following the establishment of our ultimate parent company's domicile in the United States. For fiscal 2024, corporate restructuring expenses related to incremental costs in connection with establishing the new corporate structure to domicile our ultimate parent company in the United States.
(3)For fiscal 2025, business restructuring expenses related to the Company's implementation of targeted actions to streamline operations, enhancing speed and efficiency to better serve customers and drive further profitable growth.
(4)For fiscal 2025, discrete tax adjustments primarily related to the release of uncertain tax positions following the lapse of statute of limitations, as well as adjustments in connection with amended returns. For fiscal 2024, discrete tax adjustments primarily related to non-recurring, non-cash deferred tax charges of $137 million, resulting from the elimination of certain pre-existing U.K. tax attributes as part of the establishment of our parent company's domicile in the United States, partially offset by the release of uncertain tax positions, as well as the tax treatment of certain compensation items that were not individually significant.
(5)For fiscal 2025, the tax impact on non-GAAP adjustments related to the restructuring expenses and the amortization of acquired intangibles. For fiscal 2024, the tax impact of non-GAAP adjustments primarily related to the amortization of acquired intangibles.
Liquidity and Capital Resources
The Company believes its current cash position coupled with cash flow anticipated to be generated from operations and access to capital should be sufficient to meet its operating cash requirements for the next 12 months and will also enable the Company to invest and fund acquisitions, capital expenditures, dividend payments, share repurchases, required debt payments and other contractual obligations through the next several fiscal years. The Company also anticipates that it has the ability to obtain alternative sources of financing, if necessary.
Cash flows
As of July 31, 2025 and 2024, the Company had cash and cash equivalents of $674 million and $571 million, respectively. In addition to cash, the Company had $2.0 billion of available liquidity from undrawn debt facilities as of July 31, 2025.
As of July 31, 2025, the Company's total debt was $4.2 billion. The Company anticipates that it will be able to meet its debt obligations as they become due.
Cash flows from operating activities
| As of July 31, | |||||||||||
| (In millions) | 2025 | 2024 | |||||||||
| Net cash provided by operating activities | $1,908 | $1,873 | |||||||||
Net cash provided by operating activities increased by 1.9% to $1.9 billion in fiscal 2025. This increase was primarily driven by the timing of vendor and tax payments compared with the prior year, partially offset by an increase in receivables in light of sales growth and an increase in inventory in connection with sales volume growth and consideration of customer demand, as well as lower net income (adjusted for non-cash items).
Cash flows from investing activities
| As of July 31, | |||||||||||
| (In millions) | 2025 | 2024 | |||||||||
| Net cash used in investing activities | ($543) | ($601) | |||||||||
Net cash used in investing activities decreased 9.7% to $0.5 billion in fiscal 2025.
Capital expenditure totaled $305 million and $372 million in fiscal 2025 and fiscal 2024, respectively. These investments were primarily for strategic projects to support future growth, such as new market distribution centers, our branch network and new technology. In addition, the Company invested $301 million and $260 million in new acquisitions in fiscal 2025 and fiscal 2024, respectively.
Cash flows from financing activities
| As of July 31, | |||||||||||
| (In millions) | 2025 | 2024 | |||||||||
| Net cash used in financing activities | ($1,286) | ($1,313) | |||||||||
Net cash used in financing activities decreased 2.1% to $1.3 billion in fiscal 2025.
Dividends paid to shareholders were $489 million and $784 million in fiscal 2025 and 2024, respectively. The decrease was due to the timing of dividend payments in fiscal 2025 and 2024. The Company generally pays dividends in the fiscal quarter following the fiscal quarter in which the dividend was declared. However, the dividends declared in the fourth quarter of fiscal 2024 were also paid in the fourth quarter of fiscal 2024 in connection with establishing a new corporate structure to domicile our ultimate parent company in the United States. As such, no dividends were paid in the first quarter of fiscal 2025.
Share repurchases under the Company's announced share repurchase program were $948 million and $634 million in fiscal 2025 and 2024, respectively.
Net proceeds from debt were $221 million compared to net proceeds from debt of $145 million in fiscal 2025 and 2024, respectively. In fiscal 2025, the Company received net proceeds of $746 million and $125 million from the issuance of certain Unsecured Senior Notes and net borrowings under the Receivables Facility (each, as defined below), respectively. These proceeds were partially offset by debt repayments of $500 million and $150 million in connection with the Company's Term Loan (as defined in Note 9, Debtto the Consolidated Financial Statements) and the maturity of certain Private Placement Notes (as defined below), respectively. In fiscal 2024, the Company had net borrowings of $200 million under the Receivables Facility, partially offset by the repayment of $55 million in connection with the maturity of certain Private Placement Notes.
Reinvestment of unremitted earnings
We consider foreign earnings of specific subsidiaries to be indefinitely reinvested. As of July 31, 2025 and 2024, these permanently reinvested earnings of foreign subsidiaries amounted to $800 million and $795 million, respectively. If at some future date, the Company ceases to be permanently reinvested in these specific foreign subsidiaries, the Company may be subject to foreign withholding and other taxes on these undistributed earnings and may need to record a deferred tax liability for any outside basis difference on these specific foreign subsidiaries. In addition, interest payments made between the U.S. and U.K. are anticipated to be exempt from withholding taxes, however, if Ferguson should fail to meet treaty requirements, withholding taxes may apply to these payments.
Debt facilities
The following section summarizes certain material provisions of our long-term debt facilities and current obligations. The following description is only a summary, does not purport to be complete and is qualified in its entirety by reference to the documents governing such indebtedness.
| As of July 31, | |||||||||||
| (In millions) | 2025 | 2024 | |||||||||
| Short-term debt | $400 | $150 | |||||||||
| Long-term debt | 3,752 | 3,774 | |||||||||
| Total debt | $4,152 | $3,924 | |||||||||
Private Placement Notes
In June 2015 and November 2017, Wolseley Capital, Inc. ("Wolseley Capital"), a wholly-owned subsidiary of the Company, privately placed fixed rate notes in an aggregate principal amount of $800 million and $355 million, respectively (collectively, the "Private Placement Notes"). As of July 31, 2025, $700 million in Private Placement Notes were outstanding.
Subsequent to July 31, 2025, the Company repaid $400 million in Private Placement Notes that matured in September 2025.
Unsecured Senior Notes
As of July 31, 2025, the Company has issued a total of $3.1 billion in unsecured notes, collectively referred to as the "Unsecured Senior Notes".
•Ferguson Finance plc ("Ferguson Finance") has issued $2.35 billion of Unsecured Senior Notes.
•In October 2024, Ferguson Enterprises Inc. ("FEI") issued an aggregate principal amount of $750 million of Unsecured Senior Notes.
In September 2025, FEI issued an additional $750 million aggregate principal amount of Unsecured Senior Notes, maturing in March 2031 (the "2031 Senior Notes"). The 2031 Senior Notes bear interest at a rate of 4.35%, payable semi-annually.
Revolving Credit Facility
In April 2025, the Company entered into a revolving credit agreement (the "Revolving Credit Agreement"), replacing its existing $1.35 billion Multicurrency Revolving Facility. The Revolving Credit Agreement provides an unsecured revolving credit facility in an aggregate committed amount of $1.5 billion (the "Revolving Facility"). The Revolving Credit Agreement provides the Company with the ability to increase from time to time the aggregate capacity of the facility by $500 million under certain conditions, subject to lender participation.
As of July 31, 2025, no borrowings were outstanding under the Revolving Facility.
Receivables Securitization Facility
The Company maintains a Receivables Securitization Facility with an aggregate total available amount of $915 million (as amended from time to time, the "Receivables Facility"). The Company has the ability to increase the aggregate total available amount under the Receivables Facility up to a total of $1.5 billion from time to time, subject to lender participation.
As of July 31, 2025, $375 million in borrowings were outstanding under the Receivables Facility.
Other
The Company was in compliance with all debt covenants for all facilities as of July 31, 2025.
See Note 9, Debtto the Consolidated Financial Statements for further details regarding the Company's debt.
There have been no significant changes during the fiscal year to the Company's policies on accounting for, valuing and managing the risk of financial instruments.
Guarantor Disclosures
In October 2024, FEI issued and sold $750 million aggregate principal amount of certain Unsecured Senior Notes. The obligations under such Unsecured Senior Notes are unsecured and are fully and unconditionally guaranteed on an unsecured basis by FUKHL (the "Guarantor" and together with FEI, the "Obligor Group").
FEI is a holding company that primarily repurchases shares and pays dividends, issues and services third-party debt obligations and engages in certain corporate and headquarters activities, as well as holds an investment in its direct subsidiary, that primarily holds investments in and borrows from the Guarantor. The Guarantor is a holding company that primarily issues and services third-party debt obligations and holds investments in, borrows from and lends to non-guarantor subsidiary operating companies. These activities are generally funded by non-guarantor subsidiaries. The Guarantor is a private limited company incorporated under the laws of England and Wales and an indirect subsidiary of FEI.
Summarized Financial Information of Obligor Group
The following tables present the summarized financial information specified in Rule 1-02(bb)(1) of Regulation S-X for the Obligor Group on a combined basis, after elimination of intercompany transactions and balances between the Obligor Group, and excluding the investments in and equity in the earnings of any non-guarantor subsidiaries. The summarized financial information has been prepared in accordance with Rule 13-01 of Regulation S-X and should be read in conjunction with the Consolidated Financial Statements and notes thereto that included in Item 8 of this Annual Report.
| As of July 31, | |||||||||||
| (In millions) | 2025 | 2024 | |||||||||
| Current assets | $284 | $69 | |||||||||
| Non-current assets | 25 | 59 | |||||||||
| Current liabilities | 201 | 23 | |||||||||
| Non-current liabilities | 740 | 500 | |||||||||
| Due from non-guarantor subsidiaries | 9,283 | 5,474 | |||||||||
| For the years ended July 31, | |||||
| (In millions) | 2025 | ||||
| Net sales | $- | ||||
| Gross profit | - | ||||
| Operating loss | (46) | ||||
| Net loss | (162) | ||||
| Other interest income, net from non-guarantor subsidiaries | 653 | ||||
|
Other income, net from non-guarantor subsidiaries(1)
|
$4,383 | ||||
(1)Includes income from intercompany transactions with non-guarantor subsidiaries, primarily from non-cash dividend transactions.
Contractual obligations
The table below sets forth the Company's anticipated contractual cash outflows on an undiscounted basis as of July 31, 2025:
|
As of July 31, 2025
|
|||||||||||||||||||||||||||||
| (In millions) | Total |
Fiscal 2026
|
Fiscal
2027 & 2028
|
Fiscal
2029 & 2030
|
Thereafter | ||||||||||||||||||||||||
|
Debt - principal(a)
|
$4,175 | $400 | $975 | $1,350 | $1,450 | ||||||||||||||||||||||||
|
Debt - interest only(b)
|
986 | 178 | 305 | 233 | 270 | ||||||||||||||||||||||||
| Operating leases | 2,089 | 457 | 803 | 479 | 350 | ||||||||||||||||||||||||
| Leases not yet commenced | 63 | 63 | - | - | - | ||||||||||||||||||||||||
|
Other purchase obligations(c)
|
2,708 | 2,708 | - | - | - | ||||||||||||||||||||||||
| Total | $10,021 | $3,806 | $2,083 | $2,062 | $2,070 | ||||||||||||||||||||||||
(a)See Note 9, Debtto the Consolidated Financial Statements for further details.
(b)Interest on debt is calculated using the prevailing spot interest rate as of the balance sheet date.
(c)Other purchase obligations primarily include commitments to purchase inventory and other goods and services and uncompleted additions to property, buildings and equipment that are expected to be satisfied within the next 12 months. Purchase obligations are made in the ordinary course of business to meet operating needs. While purchase orders for both inventory purchases and non-inventory purchases are generally cancellable without penalty, certain vendor agreements provide for cancellation fees or penalties depending on the terms of the contract.
Tax obligations
At July 31, 2025, the Company had aggregate liabilities for unrecognized tax benefits totaling $126 million, none of which are expected to be paid in the next 12 months. The timing of payment, if any, associated with our long-term unrecognized tax benefit liabilities is unknown. See Note 4, Income Taxto the Consolidated Financial Statements for further discussion of our unrecognized tax benefits.
Critical Accounting Estimates
In applying the Company's accounting policies, various transactions and balances are valued using estimates or assumptions. Should these estimates or assumptions prove incorrect, there may be an impact on the following year's financial statements. Management believes that the estimates and assumptions that have been applied would not give rise to a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fiscal year.
The Company's significant accounting policies that require estimates include the allowance for doubtful accounts, inventories, considerations around goodwill impairment, leases and revenue recognition. These policies and related estimates are described in Note 1, Summary of significant accounting policiesto the Consolidated Financial Statements. Some of these accounting policies may require management to make difficult, subjective or complex judgments about the Company's estimates.
The Company considers an accounting policy to be a critical estimate if: (1) it involves assumptions that are uncertain when judgment was applied, and (2) changes in the estimate assumptions, or selection of a different estimate methodology, could have a significant impact on the Company's consolidated financial position and results. The Company has determined that its estimates around inventories and pension obligations represent its most critical accounting estimates.
Inventories
Inventory reserves are recorded against slow‐moving, obsolete and damaged inventories for which the net realizable value is estimated to be less than the cost. The reserve is estimated based on the Company's current knowledge and judgment with respect to inventory levels, sales trends and historical experience.
Pensions
The Company considers that the most sensitive assumptions are the discount rate on the benefit obligation, the wage inflation growth rate and life expectancy in connection with the Company's pension plan in the U.K. Changes in the assumption related to the pension plan in Canada do not result in significant changes.
The Company measures discount rates by reference to corporate bond yields, which can also vary significantly between reporting periods, particularly in light of macroeconomic factors that can impact corporate bond yields. The most sensitive assumption used for the Company's U.K. pension plan were as follows:
| Rate assumption: | 2025 | 2024 | 2023 | ||||||||||||||
| Discount rate, benefit obligation | 5.80% | 5.00% | 5.05% | ||||||||||||||
The sensitivity analyses below show the (increase)/decrease in the Company's defined benefit plan net asset/liability due to reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
| (In millions) | Change | U.K. | |||||||||
| Discount rate, benefit obligation | +0.25 | % | ($33) | ||||||||
| (0.25) | % | 35 | |||||||||
| Wage inflation growth rate, benefit obligation | +0.25 | % | 29 | ||||||||
| (0.25) | % | (28) | |||||||||
| Life expectancy | +1 year | 41 | |||||||||
Accounting developments and changes
Refer to Note 1, Summary of significant accounting policiesto the Consolidated Financial Statements for a discussion of new accounting pronouncements.
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