Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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Overview

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We are a leading supplier of products and solutions that manage and conserve the flow of fluids and energy into, through and out of buildings in the commercial, industrial and residential markets in the Americas, Europe and Asia-Pacific, Middle East and Africa ("APMEA"). For over 150 years, we have designed and produced valve systems that safeguard and regulate water systems, energy efficient heating and hydronic systems, drainage systems and water filtration technology that helps purify and conserve water. We earn revenue and income almost exclusively from the sale of our products. Our principal product and solution categories include:

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Our business is reported in three geographic segments: Americas, Europe, and APMEA. We distribute our products through four primary distribution channels: wholesale, original equipment manufacturers ("OEMs"), specialty, and do-it-yourself ("DIY").

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We believe the factors relating to our future growth include continued product innovation that meets the needs of our customers and our end markets; our ability to continue to make selective acquisitions, both in our core markets as well as in complementary markets; regulatory requirements relating to the quality and conservation of water and the safe use of water; increased demand for clean water; and continued enforcement of plumbing and building codes. Our acquisition strategy focuses on businesses that promote our key macro themes around safety and regulation, energy efficiency and water conservation. We target businesses that we believe will provide us with one or more of the following: an entry into new markets and/or new geographies, improved channel access, unique and/or proprietary technologies, including smart and connected technologies, advanced production capabilities or complementary solution offerings. We have completed 17 acquisitions since 2016, and eight acquisitions in the last three years, all of which were strategic and complementary acquisitions that expanded our addressable market and that we believe will enable value creation through greater scale and growth opportunities.

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Our innovation strategy is focused on differentiated products and solutions that will provide greater opportunity to distinguish ourselves in the marketplace, while at the same time creating innovative products and smart solutions to protect, control, and conserve critical resources, and help our customers with their sustainability efforts through the use of our products. We continually look for strategic opportunities to invest in new products and markets or divest existing product lines where necessary in order to meet those objectives.

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Over the past several years we have been building our smart and connected products foundation by expanding our internal capabilities and making strategic acquisitions. Our strategy is to deliver superior customer value through smart and connected products and intelligent water solutions. This strategy focuses on three dimensions: Connect, Control and Conserve. We are focused on introducing products that connect our customers with smart systems, manage systems for optimal performance, and conserve critical resources by increasing operability, efficiency and safety.

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Products representing a majority of our sales are subject to regulatory standards and code enforcement, which typically require that these products meet stringent performance criteria. We have consistently advocated for the development and enforcement of such plumbing codes. We are focused on maintaining stringent quality control and testing procedures at each of our manufacturing facilities in order to manufacture products in compliance with code requirements and take advantage of the resulting demand for compliant products. We believe that product development, product testing capability and investment in plant and equipment needed to manufacture products in compliance with code requirements, represent a competitive advantage for us.

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Tariffs imposed on foreign imports into the United States have increased the cost of our products and could adversely impact the gross profit we earn on our products. We are proactively managing changes in tariffs by leveraging our global sourcing strategy, driving incremental productivity within our operations and implementing pricing actions as appropriate. We expect that our significant degree of vertical integration, with manufacturing close to our customers, will be an advantage for us in the current environment. We have a proven track record of successfully navigating through periods of disruption and we are committed to continuing our strong execution. However, there can be no assurance that we will be able to fully mitigate the impact of new or increased tariffs and actions taken by the United States or other countries could have a material adverse effect on our business, financial condition or results of operations. On February 20, 2026, the U.S. Supreme Court rendered a decision invalidating tariffs imposed under the International Emergency Economic Powers Act. This decision introduces uncertainty regarding future trade policy actions and could affect our cost structure and supply chain planning. We will continue to monitor developments around the Supreme Court's decision and evaluate its potential impact on our future financial results and business. We also continue to experience inflation in our material, labor and overhead costs. Despite these challenges and uncertainties, we continue to invest in our business, including new products, our smart and connected solutions and our growth and productivity initiatives. We remain focused on our customers' needs and on executing on our long-term strategy.

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The trade policy environment has created uncertainty which may result in reduced economic activity. However, gross domestic product ("GDP") is expected to remain positive and is generally a leading indicator for our repair and replacement business. New construction indicators are mixed. Multi-family and single-family housing, office, retail and recreation verticals are expected to be down, but light industrial, including data centers, is growing and institutional verticals remain steady. The European economy remains weak and geopolitical uncertainties continue, all of which may adversely affect our future financial results.

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Due to the above circumstances and as described generally in this Form 10-K, our results of operations for the year ended December 31, 2025 are not necessarily indicative of future results. Management cannot predict the full impact of the uncertainties discussed above. For further information regarding the impact on the Company, see Item 1A. "Risk Factors."

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Financial Overview

Net sales for 2025 increased 8.3%, or $186.3 million, on a reported basis and 5.3%, or $119.1 million, on an organic basis, compared to 2024. The reported sales increase included acquired sales of 2.3%, or $52.4 million, with $50.4 million reported within the Americas segment and $2.0 million reported within APMEA, and the favorable impact of foreign exchange of $14.8 million, primarily due to the depreciation of the U.S. dollar against the euro. The organic sales increase was primarily driven by incremental price across all of our operating segments, higher volumes in our Americas and APMEA segments, partially offset by lower volumes in our Europe segment. Operating income of $448.1 million increased by $57.7 million, or 14.8%, in 2025 compared to 2024. This increase was primarily driven by favorable price, volume growth, productivity, contributions from our acquisitions and cost savings from prior restructuring actions, partially offset by inflation, tariffs, lower volume in our Europe segment, higher restructuring costs and incremental investments.

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In discussing our results of operations, segment earnings is the GAAP performance measure used by our chief operating decision-maker ("CODM") to assess and evaluate segment results. Segment earnings exclude the impacts of special items which are defined as non-recurring, and unusual expenses or benefits, such as restructuring costs, acquisition-related costs, gain on sale of assets and pension settlements. The CODM uses segment earnings for insight into underlying trends comparing past financial performance with current performance by reporting segment on a consistent basis.

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In addition, we refer to non-GAAP organic changes in financial measures, including organic net sales, organic net sales growth, organic selling, general and administrative expenses, and organic segment earnings, that exclude the impacts of acquisitions, divestitures and foreign exchange. Management believes reporting these non-GAAP financial measures provides useful information to investors, potential investors and others, because it allows for additional insight into underlying trends by providing growth on a consistent basis. We reconcile the change in these non-GAAP financial measures to our reported results below.

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Management's discussion and analysis of our financial condition, results of operations and cash flows as of and for the year ended December 31, 2023 can be found in Item 7 of Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the year ended December 31, 2024.

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Acquisitions

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On November 29, 2025, we completed the acquisition of The Industrial Company for Castings and Sanitary Fittings ("Saudi Cast") in a share purchase transaction funded with cash on hand. Saudi Cast is a leading manufacturer of cast iron and stainless steel drainage solutions, located in Riyadh, Saudi Arabia, offering high quality, specified drainage solutions serving the non-residential and industrial markets. Saudi Cast's operating results since the date of acquisition are included in the APMEA segment.

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On November 14, 2025, we completed the acquisition of Superior Boiler ("Superior") in an equity purchase transaction funded with cash on hand. The aggregate net purchase price was $88.7 million. Superior is headquartered in Hutchinson, Kansas, and is a designer and manufacturer of a wide range of customized steam and hot water boiler systems for commercial, institutional and industrial applications. Superior's operating results since the date of acquisition are included in the Americas segment.

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On November 4, 2025, we completed the acquisition of Haws Corporation ("Haws") in a share purchase transaction funded with cash on hand. Haws is headquartered in Sparks, Nevada and is a leading global brand providing emergency safety and hydration solutions serving industrial, institutional and non-residential end markets for more than 120 years. Haws' operating results since the date of acquisition are included in the Americas segment.

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On June 13, 2025, we completed the acquisition of substantially all of the assets of Freije Treatment Systems, Inc. ("EasyWater") funded with cash on hand. EasyWater is a leading provider of water quality solutions, and designer and manufacturer of innovative, chemical-free technologies for treating water in residential and commercial applications. The acquisition of EasyWater aligns with our continued focus on growth, innovation and expanding our portfolio of high-value water quality solutions. EasyWater's operating results since the date of acquisition are included in the Americas segment.

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On January 2, 2025, we completed the acquisition of I-CON Systems Holdings, LLC ("I-CON") in a membership unit purchase transaction funded with cash on hand. The final net purchase price was $70.7 million. I-CON is headquartered in Oviedo, Florida, and is a designer and manufacturer of intelligent plumbing controls, addressing the unique challenges of water management in correctional facilities. I-CON's operating results since the date of acquisition are included in the Americas segment.

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Recent Developments

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On February 9, 2026, we declared a quarterly dividend of fifty-two cents ($0.52) per share on each outstanding share of Class A common stock and Class B common stock payable on March 13, 2026, to stockholders of record on February 27, 2026.

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Results of Operations

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Year Ended December 31, 2025 Compared to Year Ended December 31, 2024

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Net Sales.Our business is reported in three geographic segments: Americas, Europe and APMEA. Our net sales in each of these segments for the years ended December 31, 2025 and December 31, 2024 were as follows:

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The change in net sales was attributable to the following:

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Our products are sold primarily to wholesalers, OEMs, DIY chains, and through various specialty channels. The change in organic net sales by channel was attributable to the following:

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* Segment change as a % of segment net sales by channel and Total change as a % of consolidated net sales by channel.

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Americas net sales increased $182.5 million, or 11.0%, in 2025 compared to 2024. The change in net sales was positively impacted by $50.4 million, or 3.0%, of acquired sales related to four acquisitions completed during 2025. The change in net sales was negatively impacted by $1.6 million of foreign currency translation. Organic net sales increased $133.7 million, or 8.0%, primarily due to favorable price realization and increased volume. The organic net sales growth was primarily in the wholesale channel from increased sales across our core valve and drain products and in the specialty channel from increased sales of our heating and hot water products.

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Europe net sales decreased $2.6 million, or 0.6%, in 2025 compared to 2024. The change in net sales was positively impacted by $18.4 million, or 4.0%, of foreign currency translation. Organic net sales decreased $21.0 million, or 4.6%, primarily due to volume declines from market weakness in the OEM and wholesale channels, partially offset by favorable price realization. The OEM channel was impacted by reduced government energy incentives and the related heat pump destocking primarily in the first half of 2025, while the wholesale channel was primarily impacted by reduced volume of plumbing product sales into France and Benelux and drains product sales.

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APMEA net sales increased $6.4 million, or 4.8%, in 2025 compared to 2024. The change in net sales was positively impacted by $2.0 million, or 1.5%, of acquired sales related to the Saudi Cast acquisition completed in the fourth quarter of 2025. The change in net sales was negatively impacted by $2.0 million, or 1.5%, of foreign currency translation. Organic net sales increased $6.4 million, or 4.8%, primarily due to increased volume across all major countries in the segment.

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The net increase in net sales due to foreign exchange was mostly due to the favorable impact of the depreciation of the U.S. dollar against the euro, partially offset by the unfavorable impact of the appreciation of the U.S. dollar against the Australian dollar and Canadian dollar in 2025.

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Gross Profit.Gross profit and gross profit as a percent of net sales (gross margin) for 2025 and 2024 were as follows:

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Gross profit and gross margin increased primarily from higher price realization, productivity and contributions from our acquisitions including lower inventory related acquisition adjustments, partially offset by inflation and tariffs.

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Selling, General and Administrative Expenses.Selling, general and administrative ("SG&A") expenses increased $69.8 million, or 10.5%, in 2025 compared to 2024. The increase in SG&A expenses was attributable to the following:

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The increase in organic SG&A expenses was primarily due to an increase in strategic investments of $18.0 million, increased costs due to general inflation of $16.2 million, a net increase in short-term and long-term compensation accruals of $11.1 million, increased variable costs of $9.8 million due to higher net sales, $4.9 million increase in donations, increased product liability and insurance claim costs of $3.7 million and $1.4 million in higher travel and marketing spend, partially offset by $11.6 million from productivity initiatives, $6.7 million of restructuring savings, $3.4 million net benefit from the release of a previously reserved contingency matter and lower professional fees of $2.9 million compared to 2024. The increase in foreign exchange was mainly due to the depreciation of the U.S. dollar against the euro, partially offset by the appreciation of the U.S. dollar against the Australian dollar and Canadian dollar. The acquired SG&A costs related to five acquisitions completed in 2025. The increase in special items SG&A expenses was primarily due to a $7.8 million gain on the settlement of Bradley's frozen pension plan and $4.4 million gain on sale of buildings in 2024 that did not repeat in 2025, partially offset by decreased acquisition-related costs of $3.9 million compared to 2024. Total SG&A expenses, as a percentage of net sales, were 30.1% in 2025 compared to 29.5% in 2024.

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Restructuring. In 2025, we recorded a net restructuring charge of $23.7 million, which included a $22.0 million charge related to the 2025 French restructuring program that was approved in the first quarter of 2025. In 2024, we recorded a net restructuring charge of $7.2 million, which related to immaterial actions in all regions including severance, exit costs and other cost reductions. For a more detailed description of our restructuring plans, see Note 3 of Notes to Consolidated Financial Statements in this Annual Report Form 10-K.

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Operating Income.Operating income, which is made up of segment earnings, Corporate operating loss and special items, for 2025 and 2024 was as follows:

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The increase (decrease) in total segment earnings is attributable to the following:

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Operating income increased $57.7 million, or 14.8%, in 2025 compared to 2024. Operating income was unfavorably impacted by $16.5 million of incremental restructuring charges in 2025 compared to 2024, primarily related to the 2025 French restructuring program, as well as gains of $7.8 million on the settlement of Bradley's frozen pension plan and $4.4 million of gain on the sale of buildings in 2024 that did not repeat in 2025, partially offset by lower acquisition-related costs. The increase in organic operating income of $76.3 million, or 16.8%, was primarily due to higher price realization, higher volume in the Americas and APMEA, and productivity and savings from prior restructuring actions, partially offset by volume deleverage in Europe, inflation, tariffs and investments.

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Interest Income. Interest income increased $0.9 million, or 10.1%, in 2025 compared to 2024 primarily due to higher cash and cash equivalents balances.

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Interest Expense. Interest expense decreased $3.9 million, or 26.5%, in 2025 as compared to 2024 primarily due to a lower principal balance of debt outstanding. Refer to Note 13 Financing Arrangement of Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for further details.

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Other Expense (Income), Net.Other expense (income), net, was an expense balance of $1.3 million in 2025, primarily due to unfavorable foreign currency translation, compared to an income balance of $1.4 million in 2024 primarily due to an immaterial investment gain. Refer to Note 18 Financial Instruments of Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for further details.

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Income Taxes. Our effective income tax rate decreased to 23.5% in 2025 from 24.6% in 2024. The decrease was primarily due to a reversal of a tax liability during the first quarter of 2025 relating to a prior tax year for which we determined the statute of limitations had lapsed. The tax liability reversal resulted in a decrease in our foreign tax credit carryforwards and the release of an associated valuation allowance. This decrease was slightly offset by an increase related to the changes from the One Big Beautiful Bill Act ("OBBBA").

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Net Income. Net income for 2025 was $340.8 million, or $10.17 per share of common stock on a diluted basis, compared to $291.2 million, or $8.69 per share of common stock on a diluted basis, for 2024. Results for 2025 included after-tax charges of $17.8 million, or $0.53 per share of common stock, for restructuring and $4.5 million, or $0.13 per share of common stock, for acquisition-related costs, partially offset by an after-tax benefit of $8.3 million, or $0.25 per share of common stock, for an income tax adjustment related to a lapsed statute tax year liability, as noted above in 'Income Taxes'.

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Results for 2024 included after-tax charges of $10.7 million, or $0.32 per share of common stock, for acquisition-related costs and $5.4 million, or $0.16 per share of common stock, for restructuring, partially offset by after-tax benefits of $5.8 million, or $0.17 per share of common stock, for a gain on the settlement of the Bradley pension plan, $3.5 million, or $0.11 per share of common stock, for a gain on sale of assets and $1.0 million, or $0.03 per share of common stock, for other investment gains.

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Liquidity and Capital Resources

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2025 and 2024 Cash Flows

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We generated $402.0 million of net cash from operating activities in 2025 as compared to $361.1 million in 2024. The increase in cash generated was primarily related to higher net income and lower tax payments as a result of the OBBBA, partially offset by higher working capital investment related to timing of accounts receivable collections and higher inventory primarily related to strategic inventory investment and incremental tariffs.

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We used $302.8 million of net cash for investing activities in 2025 compared to $124.7 million used in 2024. We spent$160.8 million more cash for acquisitions and $16.3 million more cash for net capital expenditures in 2025 compared to 2024.

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We used $96.9 million of net cash for financing activities during 2025 primarily due to dividend payments of $66.9 million, tax withholding payments on vested stock awards of $11.4 million and payments of $16.0 million to repurchase approximately 67,000 shares of Class A common stock. In 2024, we used $190.5 million of net cash for financing activities primarily due to long-term debt repayments of $100.0 million, dividend payments of $55.5 million, tax withholding payments on vested stock awards of $13.0 million and payments of $17.0 million to repurchase approximately 85,000 shares of Class A common stock.

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On July 12, 2024, we entered into the Third Amended and Restated Credit Agreement by and among the Company, certain subsidiaries of the Company, the lenders and other parties from time to time parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (the "Credit Agreement"). The Credit Agreement amends and restates the prior Second Amended and Restated Credit Agreement, dated as of March 30, 2021 (as amended by that certain Amendment No. 1 date August 2, 2022 and Amendment No. 2 dated December 12, 2023), that establishes our senior unsecured revolving credit facility of $800 million (the "Revolving Credit Facility"). The Credit Agreement also contains an expansion option of $400.0 million. Pursuant to the Credit Agreement, the maturity date of the Revolving Credit Facility is July 12, 2029, subject to extension under certain circumstances and subject to the terms of the Credit Agreement. The Credit Agreement provides for a maximum consolidated leverage ratio of 3.50 to 1.00 (or 4.00 to 1.00 during temporary step-ups following certain permitted acquisitions) and the minimum consolidated interest ratio of 3.50 to 1.00.

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The Revolving Credit Facility also includes sub-limits of $100 million for letters of credit and $15 million for swing line loans. As of December 31, 2025, we had drawn down $200.0 million on this line of credit and had $12.2 million in letters of credit outstanding, which resulted in $587.8 million of unused and available credit under the Revolving Credit Facility as of such date. Borrowings outstanding bear interest at a fluctuating rate per annum equal to an applicable percentage defined as (i) in the case of Term Benchmark loans, the Term Benchmark rate plus an applicable percentage, ranging from 1.075% to 1.325%, or (ii) in the case of alternate base rate loans and swing line loans, interest (which at all times will not be less than 1.00%) at the greatest of (a) the Prime Rate in effect on such day, (b) the FRBNY Rate in

effect on such day plus 0.50% and (c) the Term Benchmark rate plus 1.00% for a one-month interest period, in each case, determined by reference to our consolidated leverage ratio. For the borrowings denominated in dollars, there is a fixed 10 basis point adjustment if the reference rate is Term SOFR. The weighted average interest rate on debt outstanding under the Revolving Credit Facility as of December 31, 2025 was 4.98%. The weighted average interest rate on debt outstanding inclusive of the interest rate swaps discussed in Note 18 of the Notes to Consolidated Financial Statements and interest rates under the Revolving Credit Facility as of December 31, 2025 was 4.07%. In addition to paying interest under the Credit Agreement, we are also required to pay certain fees in connection with the Revolving Credit Facility, including, but not limited to, an unused facility fee and letter of credit fees. We may repay loans outstanding under the Credit Agreement from time to time without premium or penalty, other than customary breakage costs, if any, and subject to the terms of the Credit Agreement.

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As of December 31, 2025, we held $405.5 million in cash and cash equivalents. Of this amount, $209.4 million of cash and cash equivalents were held by foreign subsidiaries. Our U.S. operations typically generate sufficient cash flows to meet our domestic obligations. We expect existing cash and cash equivalents and cash flows from operations and financing activities to be sufficient to meet our cash needs for at least the next 12 months and thereafter for the foreseeable future. However, if we did have to borrow to fund some or all of our expected cash outlays, we can do so at reasonable interest rates by utilizing the undrawn borrowings under our Revolving Credit Facility. Subsequent to recording the Toll Tax as part of the Tax Cuts and Jobs Act of 2017, our intent, other than with respect to the one-time repatriation of foreign earnings in 2023, has been to permanently reinvest undistributed earnings of foreign subsidiaries, and we do not have any current plans to repatriate additional post-Toll Tax foreign earnings to fund operations in the United States. However, if amounts held by foreign subsidiaries were needed to fund operations in the United States, we could be required to accrue and pay taxes to repatriate these funds. Such charges may include potential state income taxes and other tax charges.

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On July 4, 2025, the OBBBA was enacted into law, introducing major changes to U.S. tax regulations, with staggered effective dates. Key provisions affecting our income taxes include an increase in bonus depreciation deductions, accelerated expensing of research and development costs and updates to international tax rules. We have included the effects of these changes in our 2025 consolidated financial statements. In 2025, OBBBA had minimal impact on our effective income tax rate, however it generated significant cash tax savings due to accelerated tax deductions.

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We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

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Covenant Compliance

Under the Credit Agreement, we are required to satisfy and maintain specified financial ratios and other financial condition tests as of December 31, 2025. The financial ratios include a consolidated interest coverage ratio based on consolidated earnings before income taxes, interest expense, depreciation, and amortization (Consolidated EBITDA) to consolidated interest expense, as defined in the Credit Agreement. The Credit Agreement defines Consolidated EBITDA to exclude unusual or non-recurring charges and gains. We are also required to maintain a consolidated leverage ratio of consolidated funded debt to Consolidated EBITDA. Consolidated funded debt, as defined in the Credit Agreement, includes all long and short-term debt, finance lease obligations and any trade letters of credit that are outstanding, less cash and cash equivalents on the balance sheet.

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As of December 31, 2025, our actual financial ratios calculated in accordance with the Credit Agreement compared to the required levels under the Credit Agreement were as follows:

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As of December 31, 2025, we were in compliance with all financial covenants related to the Credit Agreement.

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In addition to financial ratios, the Credit Agreement contains affirmative and negative covenants that include limitations on disposition or sale of assets, prohibitions on assuming or incurring any liens on assets with limited exceptions and limitations on making investments other than those permitted by the agreement.

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Working capital (defined as current assets less current liabilities) as of December 31, 2025 was $773.7 million compared to $665.6 million as of December 31, 2024. The ratio of current assets to current liabilities was 2.5 to 1.0 as of December 31, 2025 and 2.6 to 1 as of December 31, 2024. The increase in working capital is primarily related to higher working capital investment related to timing of accounts receivable collections and higher inventory primarily related to strategic inventory investment and incremental tariffs, partially offset by timing of accounts payable and various accrual expense payments.

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Material Cash Requirements

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We expect existing cash and cash equivalentsand cash flows from operations and financing activities to be sufficient to meet our cash needs during 2026 and thereafter for the foreseeable future.

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We anticipate investing between $50 million to $60 million in capital expenditures during 2026 to improve our manufacturing capabilities and invest in technologyand other commercial and operational excellence initiatives. We also anticipate investing approximately $25 million to $30 million during 2026 related to our multi-year cloud-based SAP ERP system implementation for our Americas and APMEA regions. The SAP ERP system implementation will be a phased rollout approach over a number of years. We expect the new ERP investment will result in more efficient and scalable operational processes, provide enhanced analytics to drive improved business performance, and offer an improved customer experience.

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We intend to continue to repurchase shares of Class A common stock consistent with prior years. The repurchases are executed from time to time on the open market or in privately negotiated transactions. The timing and number of shares repurchased will be determined based on our evaluation of market conditions and other factors, see Note 14 of Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

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While we presently intend to continue to pay comparable quarterly cash dividends on both Class A and B common stock, the payment of future cash dividends depends upon our Board of Directors' assessment of our earnings, financial condition, capital requirements and other factors.

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We maintain letters of credit that guarantee our performance or payment to third parties in accordance with specified terms and conditions. Amounts outstanding were approximately $12.2 million as of December 31, 2025 and $12.9 million as of December 31, 2024. Our letters of credit are primarily associated with insurance coverage and, to a lesser extent, foreign purchases and generally expire within one year of issuance. These instruments may exist or expire without being drawn down; therefore, they do not necessarily represent future cash flow obligations.

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Our contractual obligations as of December 31, 2025 are presented in the following table:

(a) Relates to drawdowns on the line of credit under the Credit Agreement as recognized in the consolidated balance sheet. See Note 13 of Notes to the Consolidated Financial Statements in this Annual Report for further disclosures.

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(b) Relates to the lease liabilities recognized for right-of-use assets of operating leases with a lease term longer than twelve months. See Note 9 of Notes to the Consolidated Financial Statements in this Annual Report for further disclosures.

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(c) Relates to the lease liabilities recognized for right-of-use assets of financing leases with a lease term longer than twelve months. See Note 9 of Notes to the Consolidated Financial Statements in this Annual Report for further disclosures.

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(d) Relates to estimated future obligations for the Europe pension plans. See Note 16 of Notes to the Consolidated Financial Statements in this Annual Report for further disclosures.

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(e) Represents the current estimate of future interest payments due on the current and estimated future drawdown requirements on the line of credit under the Credit Agreement referenced above at (a).

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(f) Relates to capital expenditure obligations included in the anticipated capital expenditure investment totals of $50 million to $60 million discussed above.

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(g) Primarily includes $56.7 million of commodity commitments and $12.6 million relates to cost obligations for our SAP ERP system implementation program.

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Non-GAAP Financial Measures

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In accordance with the SEC's Regulation G and Item 10(e) of Regulation S-K, the following provides definitions of the non-GAAP financial measures used by management. We believe that these measures enhance the overall understanding of underlying business results and trends. These non-GAAP measures are not intended to be considered by the user in place of the related GAAP financial measure, but rather as supplemental information to more fully understand our business results. These non-GAAP financial measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted.

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We refer to non-GAAP organic changes in financial measures, including organic net sales, organic net sales growth, organic SG&A expenses and organic segment earnings, which exclude the impacts of acquisitions, divestitures and foreign exchange from year-over-year comparisons. Reconciliations to the most closely related U.S. GAAP measure, net sales, net sales growth, SG&A and segment earnings, have been included in our discussion within "Results of Operations" above. Non-GAAP measures should be considered in addition to, and not as a replacement for or as a superior measure to, U.S. GAAP measures. Management believes reporting these non-GAAP measures provide useful information to investors, potential investors and others, by facilitating easier comparisons of our performance with prior and future periods.

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Adjusted operating income, adjusted operating margins, adjusted net income, and adjusted diluted earnings per share are non-GAAP measures that exclude the impact of special items which are defined as non-recurring and unusual expenses incurred or benefits recognized in the periods presented that relate primarily to our global restructuring programs, acquisition-related costs, gain on sale of assets, pension settlements, other investment gains and the related income tax impacts on these items and other tax adjustments. Management believes reporting these financial measures provides useful information to investors, potential investors and others by facilitating easier comparisons of our performance with prior and future periods.

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A reconciliation of U.S. GAAP results to these adjusted non-GAAP measures is provided below (dollars in millions, except per share amounts):

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Free cash flow is a non-GAAP measure that does not represent cash provided by operating activities in accordance with U.S. GAAP. Therefore, it should not be considered an alternative to net cash provided by or used in operating activities as an indication of our performance. The cash conversion rate of free cash flow to net income is also a measure of our performance in cash flow generation. We believe free cash flow and cash flow conversion rate to be an appropriate supplemental measure of our operating performance because it provides investors with a measure of our ability to generate cash, repay debt, pay dividends, repurchase stock and fund acquisitions.

A reconciliation of net cash provided by operating activities to free cash flow and a calculation of our cash conversion rate is provided below:

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Free cash flow improved in 2025 when compared to 2024 primarily driven by higher net income, partially offset by higher working capital investments related to the timing of accounts receivable collections and higher inventory primarily related to increased tariff costs.

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Our net debt to capitalization ratio, a non GAAP financial measure used by management, at December 31, 2025 was (11.4%) compared to (12.5%) at December 31, 2024. The change was driven by a decrease in net debt balance, primarily due to increased cash and cash equivalents and an increase in stockholders' equity at December 31, 2025 compared to December 31, 2024 due to higher net income. Management believes the net debt to capitalization ratio is an appropriate supplemental measure because it helps investors understand our ability to meet our financing needs and serves as a basis to evaluate our financial structure. Our computation may not be comparable to other companies that may define their net debt to capitalization ratios differently.

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A reconciliation of long-term debt (including current portion) to net debt and our net debt to capitalization ratio is provided below:

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A reconciliation of capitalization is provided below:

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Application of Critical Accounting Policies and Key Estimates

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The preparation of our consolidated financial statements in accordance with U.S. GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported. A critical accounting estimate is an assumption about highly uncertain matters and could have a material effect on the consolidated financial statements if another, also reasonable, amount were used, or a change in the estimate is reasonably likely from period to period. We base our assumptions on historical experience and on other estimates that we believe are reasonable under the circumstances. Actual results could differ significantly from these estimates. There were no significant changes in our accounting policies or significant changes in our accounting estimates during 2025.

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We periodically discuss the development, selection and disclosure of the estimates with our Audit Committee. Management believes the following critical accounting policies reflect our more significant estimates and assumptions.

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Revenue recognition

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We recognize revenue under the core principle to recognize revenue in a manner that depicts the transfer of control to our customers in an amount reflecting the consideration to which we expect to be entitled. In order to achieve that core principle, we apply the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. When determining the transaction price of each contract, we consider contractual consideration payable by the customer and assess variable consideration that may affect the total transaction price. Variable consideration, consisting of early payment discounts, rebates and other sources of price variability, are included in the estimated transaction price based on both customer-specific information as well as historical experience. We regularly review our estimates of variable consideration on the transaction price and recognize changes in estimates on a cumulative catch-up basis as if the most current estimate of the transaction price adjusted for variable consideration had been known as of the inception of the contract.

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Our revenue for product sales is primarily recognized on a point in time model, at the point control transfers to the customer, which is generally when products are shipped from the Company's manufacturing or distribution facilities or when delivered to the customer's named location. For certain product sales, the Company recognizes revenue on an over-time basis. Performance obligations are satisfied over time if the customer receives the benefits as the Company performs work, if the customer controls the asset as it is being produced (continuous transfer of control), or if the product being produced for the customer has no alternative use and the Company has a contractual right to payment for performance to date. For performance obligations satisfied over time, revenue is recognized on a percentage-of-completion basis generally using costs incurred to date relative to total estimated costs at completion to measure progress. Incurred costs represent work performed, which correspond with and best depict transfer of control to the customer. Contract costs can include labor, materials, subcontractors' costs, or other direct costs and indirect costs. Sales tax, value-added tax, or other taxes collected concurrent with revenue producing activities are excluded from revenue. Freight costs billed to customers for shipping and handling activities are included in revenue with the related cost included in selling, general and administrative expenses. See Note 4 of Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for further disclosures and detail regarding revenue recognition.

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Inventory valuation

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Inventories are stated at the lower of cost or net realizable value with costs determined primarily on a first-in, first-out basis. We evaluate the need to record adjustments for excess or obsolete inventory at least quarterly. We utilize both specific product identification and historical product demand as the basis for estimating our excess or obsolete inventory reserve. We identify all inventories that exceed a range of one to three years in sales to calculate inventory on hand that exceeds estimated demand. This is determined by comparing the current inventory balance against unit sales for the trailing twelve months. New products added to inventory within the past twelve months are excluded from this analysis. A portion of our products contain recoverable materials, therefore the excess and obsolete reserve is established net of any estimated recoverable amounts based on historical experience. Changes in market conditions, lower-than-expected customer demand or changes in technology or features could result in additional excess or obsolete inventory that is not saleable and could require additional inventory reserve provisions.

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In certain countries, additional inventory reserves are maintained for potential shrinkage experienced in the manufacturing process. The reserve is established based on the prior year's inventory losses adjusted for any change in the gross inventory balance.

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Goodwill and other intangibles

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We have made numerous acquisitions over the years and have recognized a significant amount of goodwill. Goodwill is tested for impairment annually or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, and determination of the fair value of each reporting unit when a quantitative analysis is performed. The determination of reporting units requires judgment, and if we changed the definition of our reporting units, it is possible that we would have reached different conclusions when

performing our impairment tests. Changes in our management structure or business acquisitions may result in changes to our reporting units. We estimate the fair value of our reporting units using a weighting of fair value derived from income approach based on the present value of estimated future cash flows and guideline public company market approaches.

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Accounting guidance allows us to assess goodwill for impairment utilizing either qualitative or quantitative analyses. We have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

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We first identify those reporting units that we believe could pass a qualitative assessment to determine whether further impairment testing is necessary. For each reporting unit identified, our qualitative analysis includes:

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We then compile this information and make our assessment of whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, we determine it is more likely than not the fair value of a reporting unit is greater than its carrying amount, then performing the quantitative impairment test is unnecessary.

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If the qualitative assessment is not conclusive, or at our election, we quantitatively assess the fair value of a reporting unit to test goodwill for impairment. This assessment uses a weighting of fair values derived from the income approach and the market approach. We weight the fair value derived from the market approach commensurate with the level of comparability of these publicly traded companies to the reporting unit. The income and market approaches consider both entity-specific and observable market information under the fair value hierarchy in ASC Topic 820 and changes in, or additions to, available information may affect the assumptions we use in estimating fair value.

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In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to individual reporting units to determine the carrying amount of each reporting unit.

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The quantitative goodwill impairment test then compares the estimated fair value of the reporting unit and the carrying value of the reporting unit. If the carrying amount of a reporting unit is greater than its fair value, an impairment loss shall be recognized in an amount equal to such excess, limited to the total amount of goodwill allocated to the reporting unit.

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In 2025, we had eight reporting units. Haws, Superior and Saudi Cast were acquired in the fourth quarter of 2025, after the goodwill testing date (October 26, 2025). We performed a qualitative analysis for seven reporting units, which include Blücher, Front-of-the-Wall, US Drains, Water Quality, Fluid Solutions-Americas, Heating and Hot Water Solutions ("HHWS") and APMEA. We performed a quantitative analysis for the Fluid Solutions - Europe reporting unit in connection with the annual strategic plan and due to the underperformance to prior year and budget, primarily caused by the challenging European economic environment in 2025.

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As of October 26, 2025, our testing date, we had $780.0 million of goodwill on our balance sheet. As a result of our qualitative analyses, we determined that the fair values of the seven reporting units noted above were more likely than not greater than the carrying amounts. As a result of the quantitative analysis, we determined that the fair value of the Fluid Solutions - Europe reporting unit exceeded the carrying value. In 2025, no goodwill impairments were recorded. Changes in macroeconomic, industry or market conditions, or our inability to achieve projected results that were used to complete the qualitative and quantitative analyses could result in the reporting unit fair value not exceeding the carrying amounts and could lead to impairment.

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Intangible assets such as trademarks and trade names are generally recorded in connection with a business acquisition and we have recorded certain trademarks and trade names as indefinite-lived intangible assets. Values assigned to intangible assets are typically determined by an independent valuation firm based on our estimates and judgments regarding expectations of the success and life cycle of products and technology acquired. Accounting guidance allows us to perform a qualitative impairment assessment of indefinite-lived intangible assets consistent with the goodwill guidance noted previously. For our 2025 impairment assessment, which occurred as of October 26, 2025, we performed a qualitative assessment for all trademarks and tradenames where the fair value significantly exceeded the carrying value in the previous quantitative assessment performed. As of the assessment, the majority of the trademarks and tradenames were expected to have annual sales growth in 2025, with a few expected to potentially have minimal sales decline in 2025 but sales growth in 2026 or future years. As a result of our qualitative analyses, we determined that the fair values of the indefinite-lived intangibles assets were more likely than not greater than the carrying amounts. If we were to perform a quantitative assessment, the methodology we employ is the relief from royalty method, a subset of the income approach. During 2025, 2024, and 2023, no impairment was recognized on our indefinite-lived intangible assets. Changes in macroeconomics, industry or market conditions, or our inability to achieve projected results that were used to complete the qualitative and quantitative analyses could result in the trademark's or trade name's fair value not exceeding its carrying amount and could lead to impairment.

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Product liability

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Because of retention requirements associated with our insurance policies, we are generally self-insured for potential product liability claims. We are subject to a variety of potential liabilities in connection with product liability cases, and for our most significant volume of liability matters, we maintain a high self-insured retention limit within our product liability and general liability coverage, which we believe to be generally in accordance with industry practices. We maintain excess liability insurance to minimize our risks related to claims in excess of our primary insurance policies. The product liability accrual is established after considering any applicable insurance coverage.

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For our product liability cases in the U.S., we establish a product liability accrual, which includes estimated legal costs associated with accrued claims. For our most significant volume of liability matters, we utilize third-party actuarial valuations which incorporate historical trend factors including, but not limited to, claim frequency and loss severity, and our specific claims experience derived from loss reports provided by third-party claims administrators to establish our product liability accrual. The product liability accrual represents the estimated ultimate losses for all reported and incurred but not reported claims. For the remainder of our product liability accrual, where we do not utilize third-party actuarial valuations, we maintain insurance and calculate potential product liability accruals which includes legal costs associated with the accrued claims on a case-by-case basis. Changes in the nature and volume of product liability claims, legal costs, or the actual settlement amounts could affect the adequacy of the estimates and require changes to the accrual. Because the liability is an estimate, the ultimate liability may be more or less than reported. Any material change in the aforementioned factors could have an adverse impact on our operating results for any particular period depending, in part, upon the operating results for such period.

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Legal contingencies

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We are a defendant in numerous legal matters including legal matters involving environmental issues and product liability as discussed in more detail in Part I, Item 1. "Business-Product Liability, Environmental and Other Litigation Matters" and Note 17 of Notes to Consolidated Financial Statements in this Annual Report on Form 10-K. As required by GAAP, we determine whether an estimated loss from a loss contingency should be accrued by assessing whether a loss is deemed probable and the loss amount can be reasonably estimated. When it is possible to estimate reasonably possible loss or range of loss above the amount accrued, that estimate is aggregated and disclosed. Estimates of potential outcomes of these contingencies are often developed in consultation with outside counsel. While this assessment is based upon all available information, litigation is inherently uncertain and the actual liability to fully resolve litigation cannot be predicted with any assurance of accuracy. In the event of an unfavorable outcome in one or more legal matters, the ultimate liability may be in excess of amounts currently accrued, if any, and may be material to our operating results or cash flows for a particular quarterly or annual period. However, based on information currently known to us, management believes that the ultimate outcome of all legal contingencies, as they are resolved over time, is not likely to have a material adverse effect on our financial condition.

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Income taxes

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We are subject to income taxes in the U.S. (federal and state) and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes.

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We estimate and use our expected annual effective income tax rates to accrue income taxes throughout the interim periods. Effective tax rates are determined based on budgeted earnings before taxes, including our best estimate of permanent items that will affect the effective rate for the year. Management periodically reviews these rates with outside tax advisors and changes are made if material variances from expectations are identified.

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Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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A valuation allowance is provided to offset any net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We consider estimated future taxable income, future reversals of the deferred tax liabilities, and tax planning strategies, in assessing the need for a valuation allowance. Changes in the relevant facts, including the accuracy of our estimated future taxable income, can significantly impact the judgment or need for valuation allowances. In the event we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

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As of December 31, 2025, we decreased our valuation allowance on foreign tax credits by $8.2 million due to the reduction in related foreign tax credits. See Note 11 of Notes to the Consolidated Financial Statements in this Annual Report for further disclosures.

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