WATTS WATER TECHNOLOGIES INC

Previous wording

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 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 solutions categories include:

Current wording

We are a leading supplier of solutions, systems and products 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 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:

Previous wording

We believe that 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. We have completed 14 acquisitions since 2013, including three in the last twelve months. 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 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.

Current wording

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 14 acquisitions since 2015, and in the last two years, we have completed four strategic and complementary acquisitions that expanded our addressable market and that we believe will enable value creation through greater scale and growth opportunities.

Previous wording

We believe that sustainability guides and permeates every aspect of our business, including our product development strategy and design, and how we structure our operations. 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.

Current wording

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.

Previous wording

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 solutions. This strategy focuses on three dimensions: Connect, Control and Conserve. We are focused on introducing products that connect our customers with smart systems, control systems for optimal performance, and conserve critical resources by increasing operability, efficiency and safety.

Current wording

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.

Previous wording

Global economic indicators are mixed and show some signs of softer market conditions in 2024. Elevated interest rates may impact new construction. The European economy continues to show signs of weakening, China’s economy has decelerated, and geo-political risks have heightened. Despite these anticipated challenges, 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 executing on our long-term strategy.

Current wording

Global gross domestic product (“GDP”) remains positive and is generally a leading indicator for our repair and replacement business. New construction indicators are mixed. Multi-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 geo-political uncertainties continue. Elevated interest rates may impact new construction. Tariffs on foreign imports into the United States, particularly from Canada, China and Mexico, should they be implemented, will increase the cost of our products and could adversely impact the gross margin we earn on our products. We believe we are prepared to proactively work with our supply chain to mitigate the cost impact, seek alternative supply sources when necessary and pass increases in costs to our customers, to the extent possible, when they occur. We also continue to experience inflation across our labor and overhead costs. Despite these anticipated 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 executing on our long-term strategy.

Previous wording

Net sales for 2023 increased 3.9%, or $76.8 million, on a reported basis and 0.8%, or $16.3 million, on an organic basis, compared to 2022, primarily driven by incremental price across all of our operating segments, partially offset by lower volumes. The reported sales increase included acquired sales of 3.0%, or $58.6 million, with $33.4 million reported within the Americas segment and $25.2 million reported with APMEA, and the favorable impact of foreign exchange of 0.1%, or $1.9 million. The foreign exchange impact was primarily driven by 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 Canadian dollar and Chinese yuan. Operating income of $350.9 million increased by $35.9 million, or 11.4%, in 2023 compared to 2022. This increase was primarily driven by favorable price, product mix, productivity, and cost savings from prior restructuring actions, partially offset by inflation, lower volume and incremental investments.

Current wording

Net sales for 2024 increased 9.5%, or $195.9 million, on a reported basis and decreased 0.9%, or $18.0 million, on an organic basis, compared to 2023. The reported sales increase included acquired sales of 10.4%, or $214.7 million, with $206.6 million reported within the Americas segment and $8.1 million reported within APMEA, and the unfavorable impact of foreign exchange of $0.8 million. The organic sales decrease was primarily driven by lower volumes in our Europe segment, partially offset by incremental price across all of our operating segments. Operating income of $390.4 million increased by $39.5 million, or 11.3%, in 2024 compared to 2023. This increase was primarily driven by contribution from our acquisitions, favorable price, product mix, productivity, and cost savings from restructuring actions, partially offset by inflation, lower volume in our Europe segment and incremental investments.

Previous wording

In discussing our results of operations, we refer to non-GAAP financial measures, including organic sales, organic selling, general and administrative expenses, and organic operating income, that excludes the impacts of acquisitions, divestitures and foreign exchange from year-over-year comparisons. 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.

Current wording

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.

Previous wording

Effective January 1, 2024, we completed the acquisition of Josam Company following its conversion into Josam Industries, LLC (“Josam”) in a share purchase transaction funded with cash on hand. The aggregate net purchase price was approximately $98.7 millionand is subject to a final post-closing working capital adjustment. The net transaction value was approximately $88.7 million after adjusting for the estimated net present value of expected tax benefits of approximately $10 million. Josam is based in Michigan City, Indiana, and is a leading provider and manufacturer of drainage and plumbing products, serving commercial, industrial, and multi-family end markets for over 100 years. Josam’s annualized sales are approximately $35 million. We will account for the transaction as a business combination in the first quarter of 2024.

Current wording

Effective January 1, 2024, we completed the acquisition of Josam Company following its conversion into Josam Industries, LLC (“Josam”) in a share purchase transaction funded with cash on hand. The aggregate net purchase price was approximately $98.9 million, net of cash acquired of $4.6 million. The final post-closing working capital adjustment was immaterial and adjusted in the second quarter of 2024, resulting in a final purchase price of $99.0 million, net of cash acquired. Josam is based in Michigan City, Indiana, and is a leading provider and manufacturer of drainage and plumbing products, serving commercial, industrial, and multi-family end markets for over 100 years. We accounted for the transaction as a business combination in 2024.

Previous wording

On February 7, 2024, we declared a quarterly dividend of thirty-six cents ($0.36) per share on each outstanding share of Class A common stock and Class B common stock payable on March 15, 2024 to stockholders of record on March 1, 2024.

Current wording

On February 3, 2025, we declared a quarterly dividend of forty-three cents ($0.43) per share on each outstanding share of Class A common stock and Class B common stock payable on March 14, 2025, to stockholders of record on February 28, 2025.

Previous wording

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

Current wording

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:

Previous wording

Americas net sales increased $38.1 million, or 2.7%, in 2023 compared to 2022. The change in net sales was negatively impacted by $3.3 million, or 0.2%, of foreign currency translation, which was more than offset by $33.4 million, or 2.4%, of acquired sales related to the Bradley acquisition completed in the fourth quarter of 2023. Organic net sales increased $8.0 million, or 0.5%, primarily due to incremental price realization partially offset by lower volumes. The organic net sales increase was primarily in the wholesale channel due to growth across our core valve products, mostly offset by decreases in the specialty channel primarily due to volume declines in our gas connectors and marine instrumentation and decreases in products sold through the OEM channel into the residential end markets.

Current wording

Americas net sales increased $236.8 million, or 16.6%, in 2024 compared to 2023. The change in net sales was positively impacted by $206.6 million, or 14.5%, of acquired sales related to the Bradley and Josam acquisitions completed in the fourth quarter of 2023 and first quarter of 2024, respectively. The change in net sales was negatively impacted by $1.4 million, or 0.1%, of foreign currency translation. Organic net sales increased $31.6 million, or 2.2%, primarily due to increased volume and favorable price realization. The organic net sales growth was primarily in the wholesale channel from increased sales across our core valve products and in the specialty channel from increased sales of our heating and hot water products.

Previous wording

APMEA net sales increased $25.7 million, or 28.4%, in 2023 compared to 2022. The change in net sales was negatively impacted by $4.0 million, or 4.5%, of foreign currency translation, which was more than offset by $25.2 million, or 27.9%, of acquired sales related to the Enware acquisition completed in the second quarter of 2023. Organic net sales increased $4.5 million, or 5.0%, due to higher prices realization and volumes, primarily from growth in the Middle East and Australia, partially offset by declines in China.

Current wording

APMEA net sales increased $17.9 million, or 15.4%, in 2024 compared to 2023. The change in net sales was negatively impacted by $0.9 million, or 0.8%, of foreign currency translation, which was more than offset by $8.1 million, or 7.0%, of acquired sales related to the Enware acquisition completed in the second quarter of 2023. Organic net sales increased $10.7 million, or 9.2%, primarily due to increased volume across all major countries in the segment.

Previous wording

The net increase in 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 Canadian dollar and Chinese yuan in 2023. We cannot predict whether foreign currencies will appreciate or depreciate against the U.S. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or negative impact on our net sales.

Current wording

The net decrease in sales due to foreign exchange was mostly due to the unfavorable impact of the appreciation of the U.S. dollar against the Chinese yuan and Canadian dollar, partially offset by the favorable impact of the depreciation of the U.S. dollar against the euro in 2024.

Previous wording

Selling, General and Administrative Expenses. Selling, general and administrative, or SG&A, expenses increased $55.8 million, or 10.2%, in 2023 compared to 2022. The increase in SG&A expenses was attributable to the following:

Current wording

Selling, General and Administrative Expenses. Selling, general and administrative, or SG&A, expenses increased $59.9 million, or 9.9%, in 2024 compared to 2023. The increase in SG&A expenses was attributable to the following:

Previous wording

The organic increase was primarily due to an increase in net investments of $17.9 million, including in our smart and connected and other strategic initiatives, general inflation of $13.7 million, acquisition-related costs of $7.1 million, higher travel and marketing costs of $5.2 million and a net increase in short-term and long-term compensation accruals of $6.0 million, compared to 2022. These increases were partially offset by $6.6 million from productivity initiatives, $4.8 million of restructuring savings and $4.1 million reduction in freight costs. 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 Canadian dollar and Chinese yuan. The acquired SG&A costs related to the Bradley acquisition in the Americas segment in the fourth quarter of 2023 and the Enware acquisition in the APMEA segment in the second quarter of 2023. Total SG&A expenses, as a percentage of sales, were 29.4% in 2023 compared to 27.8% in 2022.

Current wording

The organic decrease in SG&A expenses was primarily due to $10.3 million from productivity initiatives, a net decrease in short-term and long-term compensation accruals of $6.7 million, $3.3 million of restructuring saving, and decreases of $4.0 million in professional fees, $2.9 million in engineering project spend, $2.0 million in donations, $1.4 million in depreciation and amortization, $1.1 million in travel and marketing spend, and $1.1 million in insurance and product liability claim costs. These decreases were partially offset by general inflation of $16.7 million and an increase in investments of $16.3 million, including in our smart and connected initiatives and other strategic initiatives, compared to 2023. The decrease in foreign exchange was primarily driven by the appreciation of the U.S. dollar against the Canadian dollar and Chinese yuan, partially offset by the depreciation of the U.S. dollar against the euro. The acquired increase in SG&A related to the Bradley and Josam acquisitions in the Americas segment completed in the fourth quarter of 2023 and first quarter of 2024, respectively, as well as the Enware acquisition in the APMEA segment completed in the second quarter of 2023. The decrease in special items SG&A costs 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. Total SG&A expenses, as a percentage of net sales, were 29.5% in 2024 compared to 29.4% in 2023.

Previous wording

Restructuring. In 2023, we recorded a net restructuring charge of $5.5 million, which primarily related to immaterial cost reduction actions in all regions primarily related to severance and other exit costs. In 2022, we recorded a net restructuring charge of $10.6 million, which related to a 2021 French restructuring program as well as other actions related to the decommissioning of machinery at one of our facilities in the Americas and cost reduction actions in Europe and the Americas. For a more detailed description of our current restructuring plans, see Note 3 of Notes to Consolidated Financial Statements in this Annual Report Form 10-K.

Current wording

Restructuring. 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. In 2023, we recorded a net restructuring charge of $5.5 million, which related to immaterial cost reduction actions in all regions primarily related to severance and other exit costs. For a more detailed description of our current and future restructuring plans, see “Recent Developments” above and Note 3 of Notes to Consolidated Financial Statements in this Annual Report Form 10-K.

Previous wording

Operating Income (Loss). Operating income (loss) by geographic segment for 2023 and 2022 was as follows:

Current wording

Operating Income. Operating income, which is made up of segment earnings, Corporate operating loss and special items, for 2024 and 2023 was as follows:

Previous wording

The increase (decrease) in operating income (loss) is attributable to the following:

Current wording

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

Previous wording

Operating income increased $35.9 million, or 11.4%, in 2023 compared to 2022. Operating income was positively impacted by $2.2 million, or 0.7%, of acquired sales and the foreign currency translation impact was flat compared to 2022. The increase in organic operating income of $28.7 million, or 9.0%, was due to higher price, favorable product mix, productivity, and savings from prior restructuring actions. These increases were partially offset by inflation, lower volume, incremental investments and acquisition-related costs.

Current wording

Operating income increased $39.5 million, or 11.3%, in 2024 compared to 2023. Operating income increased due to higher segment earnings in the Americas of $47.5 million, or 13.6%, and in APMEA of $5.2 million, or 1.5%, partially offset by lower segment earnings in Europe of $19.2 million, or 5.5%. The increase in organic segment earnings of $7.8 million, or 2.2%, was due to higher price, favorable product mix, productivity, and savings from restructuring actions, partially offset by inflation, lower volume in Europe and incremental investments. Total segment earnings were positively impacted by $25.5 million, or 7.3%, from acquisitions and positively impacted by $0.2 million, or 0.1%, of foreign currency translation compared to 2023.

Previous wording

Interest Income. Interest income increased $6.6 million in 2023 as compared to 2022 primarily due to higher interest rates earned on our cash and cash equivalents.

Current wording

Interest Income. Interest income increased $1.7 million, or 23.6%, in 2024 as compared to 2023 primarily due to higher interest rates earned on our cash and cash equivalents.

Previous wording

Interest Expense. Interest expense increased $1.2 million, or 17.1%, in 2023 as compared to 2022 primarily due to higher principal balance of debt outstanding due to the acquisition of Bradley during 2023 and an increase in interest rates. Refer to Note 12 of Notes to Consolidated Financial Statements in this Annual Report on Form 10-Kfor further details.

Current wording

Interest Expense. Interest expense increased $6.5 million, or 79.3%, in 2024 as compared to 2023 primarily due to a higher principal balance of debt outstanding due to the acquisition of Bradley in the fourth quarter of 2023 and an increase in interest rates. Refer to Note 12 of Notes to Consolidated Financial Statements in this Annual Report on Form 10-Kfor further details.

Previous wording

Other Expense (Income), Net. Other expense (income) decreased $0.6 million compared to 2022. The decrease was primarily due to $1.0 million of reduced expense as a result of theincrease in deferred compensation plan assets. Refer to Note 17 Financial Instruments of Notes to Consolidated Financial Statements in this Annual Report on Form 10-Kfor further details.

Current wording

Other (Income) expense, Net. Other (income) expense, net, was an income balance of $1.4 million in 2024 primarily due to an immaterial investment gain. In 2023, other (income) expense, net was an expense balance primarily due to unfavorable foreign currency translation. Refer to Note 17 Financial Instruments of Notes to Consolidated Financial Statements in this Annual Report on Form 10-Kfor further details.

Previous wording

Income Taxes. Our effective income tax rate increased to 24.9% in 2023, from 18.2% in 2022. The increase is primarily due to the $16.1 million tax benefit in 2022 related to the modification of the structure of our Mexican supply chain operations and the additional foreign withholding taxes associated with the repatriation of funds in 2023.

Current wording

Income Taxes. Our effective income tax rate decreased to 24.6% in 2024 from 24.9% in 2023. The decrease is primarily due to 2023 having additional foreign withholding taxes associated with the repatriation of funds and was partially offset by a lower tax benefit from the vesting of stock compensation awards and incremental foreign taxes related to the final settlement of a foreign tax audit in 2024.

Previous wording

Net Income. Net income for 2023 was $262.1 million, or $7.82 per common share on a diluted basis, compared to $251.5 million, or $7.48 per common share on a diluted basis, for 2022. Results for 2023 include after-tax charges of $8.3 million, or $0.25 per common share, for acquisition-related costs, $5.3 million, or $0.16 per common share, primarily for an income tax adjustment related to repatriation of foreign funds and $4.1 million, or $0.12 per common share, for restructuring; partially offset by an after-tax benefit of $2.5 million, or $0.08 per common share, for an adjustment to contingent consideration.

Current wording

Results for 2023 include after-tax charges of $8.3 million, or $0.25 per common share, for acquisition-related costs, $5.3 million, or $0.16 per common share, primarily for an income tax adjustment related to repatriation of foreign funds and $4.1 million, or $0.12 per common share, for restructuring; partially offset by an after-tax benefit of $2.5 million, or $0.08 per common share, for an adjustment to contingent consideration.

Previous wording

We generated $310.8 million of net cash from operating activities in 2023 as compared to $224.0 million in 2022. The increase in cash generated was primarily due to higher net income and reduced working capital investments, partially offset by increased payments related to income taxes and customer incentives.

Current wording

We generated $361.1 million of net cash from operating activities in 2024 as compared to $310.8 million in 2023. The increase in cash generated was primarily due to higher net income, improved working capital and cash flows generated from acquisitions.

Previous wording

We used $343.1 million of net cash for investing activities in 2023 compared to $22.9 million used in 2022. We spent $313.4 million more cash for the acquisitions in our Americas and APMEA segments and $1.6 million more cash for net capital expenditures in 2023 compared to 2022.

Current wording

We used $124.7 million of net cash for investing activities in 2024 compared to $343.1 million used in 2023. We spent $217.1 million less cash for acquisitions and $0.3 million less cash for net capital expenditures in 2024 compared to 2023.

Previous wording

We generated $69.0 million of net cash from financing activities in 2023 primarily due to proceeds from drawdowns of $240.0 million offset by long-term debt repayments on our line of credit totaling $90.0 million, and partially offset by tax withholding payments on vested stock awards of $15.8 million, dividend payments of $46.5 million and payments of $16.0 million to repurchase 91,622 shares of Class A common stock. In 2022, we used $121.7 million of net cash from financing activities primarily due to long-term debt repayments of $80.0 million, dividend payments of $39.5 million, tax withholding payments on vested stock awards of $13.3 million and payments of $69.4 million to repurchase 493,733 shares of Class A common stock. These payments were partially offset by proceeds from drawdowns on our line of credit totaling $85.0 million.

Current wording

We used $190.5 million of net cash for financing activities during 2024 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 85,435 shares of Class A common stock. In 2023, we generated $69.0 million of net cash from financing activities in 2023 primarily due to proceeds from borrowings of $240.0 million offset by long-term debt repayments on our line of credit totaling $90.0 million, tax withholding payments on vested stock awards of $15.8 million, dividend payments of $46.5 million and payments of $16.0 million to repurchase 91,622 shares of Class A common stock.

Previous wording

On March 30, 2021, we and certain of our subsidiaries entered into the Second Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent , as amended by Amendment no. 1 dated August 2, 2022, Amendment no. 2 dated December 12, 2023 and as may be further amended, restated, amended and restated, modified or supplemented from time to time (the “Credit Agreement”). The Credit Agreement establishes senior unsecured revolving credit facility of $800 million from February 12, 2022 to March 30, 2026 (the “Revolving Credit Facility”). The maturity date of the Revolving Credit Facility is March 30, 2026 subject to extension under certain circumstances and subject to the terms of the Credit Agreement. The Credit Agreement provides for our maximum consolidated leverage ratio of 3.50 to 1.00 (or 4.00 to 1.00 during temporary step-ups following certain acquisitions) and the minimum consolidated interest ratio of 3.50 to 1.00.

Current wording

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.

Previous wording

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, 2023, we had drawn down $300.0 million on this line of credit and had $12.5 million in letters of credit outstanding, which resulted in $487.5 million of unused and available credit under the Revolving Credit Facility as of such date. Borrowings outstanding under the Revolving Credit Facility 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 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, 2023 was 6.53%. The weighted average interest rate on debt outstanding inclusive of the interest rate swaps discussed in Note 12 of the Notes to Consolidated Financial Statements and interest rates under the Revolving Credit Facility as of December 31, 2023 was 4.89%. 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. As of December 31, 2023, we were in compliance with all covenants related to the Credit Agreement.

Current wording

The Revolving Credit Facility also includes sublimits of $100 million for letters of credit and $15 million for swing line loans. As of December 31, 2024, we had drawn down $200.0 million on this line of credit and had $12.9 million in letters of credit outstanding, which resulted in $587.1 million of unused and available credit under the Revolving Credit Facility as of such date. Borrowings outstanding under the Revolving Credit Facility 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, 2024 was 5.64%. The weighted average interest rate on debt outstanding inclusive of the interest rate swap discussed in Note 17 of the Notes to Consolidated Financial Statements and interest rates under the Revolving Credit Facility as of December 31, 2024 was 4.07%. In addition to paying interest under the Credit Agreement, we are also required to pay certain fees in connection with the

Previous wording

As of December 31, 2023, we held $350.1 million in cash and cash equivalents. Of this amount, $171.7 million was held by foreign subsidiaries. In the fourth quarter of 2023, we determined we would make a one-time repatriation of foreign earnings to assist in funding recent acquisitions. In 2023 we repatriated approximately $117.9 million of both previously taxed foreign earnings and the fourth quarter one-time repatriation of foreign earnings, using the majority of that cash to reduce our outstanding debt and to fund acquisitions. Our U.S. operations typically generate sufficient cash flows to meet our domestic obligations. 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.

Current wording

As of December 31, 2024, we held $386.9 million in cash and cash equivalents. Of this amount, $161.0 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. 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. In 2024, we repatriated approximately $75.4 million of previously taxed foreign earnings, using the majority of that cash to reduce our outstanding debt and to fund acquisitions.

Previous wording

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 are material to investors.

Current wording

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.

Previous wording

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.

Current wording

Under the Credit Agreement, we are required to satisfy and maintain specified financial ratios and other financial condition tests as of December 31, 2024. 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.

Previous wording

Working capital (defined as current assets less current liabilities) as of December 31, 2023 was $655.2 million compared to $571.9 million as of December 31, 2022. The ratio of current assets to current liabilities was 2.6 to 1 as of December 31, 2023 compared to 2.5 to 1 as of December 31, 2022. The increase in working capital is primarily related to the increase in cash and cash equivalents as a result of increased cash from operating activities.

Current wording

Working capital (defined as current assets less current liabilities) as of December 31, 2024 was $665.6 million compared to $655.2 million as of December 31, 2023. The ratio of current assets to current liabilities was 2.6 to 1 as of December 31, 2024 and December 31, 2023. The increase in working capital is primarily related to the increase in cash and cash equivalents as a result of increased cash from operating activities.

Previous wording

We anticipate investing between $55 million to $65 million in capital expenditures during 2024 to improve our manufacturing capabilities and invest in technology and other commercial and operational excellence initiatives.

Current wording

We anticipate investing between $45 million to $50 million in capital expenditures during 2025 to improve our manufacturing capabilities and invest in technology and other commercial and operational excellence initiatives. We also anticipate investing approximately $20 million to $25 million during 2025 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.

Previous wording

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 $12.5 million as of December 31, 2023 and $12.1 million as of December 31, 2022. 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.

Current wording

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 $12.9 million as of December 31, 2024 and $12.5 million as of December 31, 2023. 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.

Previous wording

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

Current wording

(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).

Previous wording

(g) Relates to capital expenditure obligations included in the anticipated capital expenditure investment totals of $55 million to $65 million discussed above.

Current wording

(g) Relates to capital expenditure obligations included in the anticipated capital expenditure investment totals of $45 million to $50 million discussed above.

Previous wording

In accordance with the SEC's Regulation G and Item 10(e) of Regulation S-K, the following provides definitions of the non-GAAP 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 measure, but rather as supplemental information to more fully understand our business results. These non-GAAP 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.

Current wording

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.

Previous wording

GAAP measure, net sales, has been included in our discussion within “Results of Operations” above. Organic net sales should be considered in addition to, and not as a replacement for or as a superior measure to net sales. Management believes reporting organic sales growth provides useful information to investors, potential investors and others, by facilitating easier comparisons of our revenue performance with prior and future periods.

Current wording

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 are non-GAAP measures that exclude the impacts of acquisitions, divestitures and foreign exchange from year-over-year comparisons. A reconciliation 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.

Previous wording

Adjusted operating income, adjusted operating margins, adjusted net income, and adjusted earnings per share are non-GAAP measures that exclude certain expenses incurred and benefits recognized in the periods presented that relate primarily to our global restructuring programs, acquisition-related costs, contingent consideration adjustment, gain on sale of asset, 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.

Current wording

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, contingent consideration adjustment, gain or loss 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.