Ferguson Enterprises Inc. /DE/

Notes to the Condensed Consolidated Financial Statements

Note 1: Summary of significant accounting policies

Background

Ferguson Enterprises Inc. (including subsidiaries, the “Company”) (NYSE: FERG; LSE: FERG) is a Delaware corporation. Ferguson is a value-added distributor serving the water and air specialized professional in the residential and non-residential North American construction market. We help make our customers’ complex projects simple, successful and sustainable by providing expertise and a wide range of products and services from plumbing, HVAC, appliances, and lighting to PVF, water and wastewater solutions, and more. Ferguson is headquartered in Newport News, Virginia. We sell through a common network of distribution centers, branches, counter service and specialist sales associates, showroom consultants and e-commerce channels. The corporate headquarters of the Company is located at 751 Lakefront Commons, Newport News, Virginia 23606.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements and notes to the condensed consolidated financial statements are presented in accordance with the rules and regulations of the SEC and accounting principles generally accepted in the United States of America (“U.S. GAAP”), but do not include all disclosures normally required in annual consolidated financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report. The financial results for the interim period may not be indicative of the financial results for the entire fiscal period.

Use of estimates

The preparation of the Company's interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions affecting certain reported amounts in the interim condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits with banks with original maturities of three months or less and overdrafts to the extent there is a legal right of offset and practice of net settlement with cash balances. Cash equivalents also include amounts due from third-party credit card processors as they are both short-term and highly liquid in nature and are typically converted to cash within a few days of the sales transaction.

Restricted cash primarily consists of deferred consideration for business combinations, subject to various settlement agreements. These amounts are recorded in prepaid and other current assets and other non-current assets in the Company’s condensed consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows.

Supplier finance program

The Company maintains a supplier financing program with a third party financial institution wherein certain of the Company’s shipping and logistics providers in the United States can opt to receive early payment from the third party financial institution at a nominal discount. Such payment terms are independently negotiated between the third party financial institution and the shipping and logistics providers. The Company’s obligations to suppliers are unchanged and payment terms are consistent with the Company’s normal payment terms. All outstanding payables related to the supplier finance program are classified within accounts payable within our condensed consolidated balance sheets and were $63 million and $62 million as of October 31, 2025 and July 31, 2025, respectively.

Recently issued accounting standard updates (“ASU”)

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” This ASU requires new financial statement disclosures disaggregating prescribed expense categories within relevant income statement expense captions, including information about purchases of inventory, employee compensation, depreciation, and intangible asset amortization for each relevant expense caption on the face of the income statement. Per ASU No. 2025-01, the amendments under ASU No. 2024-03 are effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The ASU No. 2024-03 can be adopted either prospectively or retrospectively. The Company is currently evaluating the ASU to determine the impact on its disclosures.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This ASU provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid. The amendments in this ASU are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively; however, retrospective application is also permitted. The impact to the Company’s consolidated financial statements and related disclosures is not expected to be material.

In September 2025, the FASB issued ASU No. 2025-06, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40).” The amendments in this update remove all references to the previously existing software development project stages and require entities to start capitalizing software costs when management has authorized and committed funding to a software project and it is probable that the project will be completed with its intended functionality. The new standard is effective for fiscal years beginning after December 15, 2027. Early adoption is permitted and can be applied prospectively, retrospectively, or utilizing a modified transition approach. The Company is currently evaluating the ASU to determine the impact on its consolidated financial statements.

Recent accounting pronouncements pending adoption that are not discussed above are either not applicable, or will not have, or are not expected to have, a material impact on our consolidated financial condition, results of operations or cash flows.

Note 2: Segment and net sales information

The Company reports its financial results of operations on a geographical basis in the followingtwo reportable segments: United States and Canada. Each segment generally derives its revenues in the same manner as described in Note 1, Summary of significant accounting policies included in the Annual Report. The Company uses adjusted operating profit as its measure of segment profit. Certain income and expenses are not allocated to the Company’s segments and, thus, the information that management uses to make operating decisions and assess performance does not reflect such amounts.

This segment structure reflects the financial information and reports used by the Company’s management, specifically its chief operating decision makers (“CODM”), to make decisions regarding the Company’s business, including resource allocations and performance assessments, as well as the current operating focus in compliance with ASC 280, Segment Reporting. The Company’s CODM are the Chief Executive Officer and the Chief Financial Officer.

The significant expenses reviewed by the CODM include operating costs and costs of sales. The operating costs evaluated by the CODM are primarily SG&A, including depreciation expense on long lived assets and software amortization expense.

The CODM use segment adjusted operating profit to evaluate performance and allocate resources (including employees, property, and financial or capital resources) in conjunction with the annual budget process, as well as during periodic business reviews.

Segment results were as follows:

(1)Primarily includes SG&A, including depreciation expense on long lived assets and software amortization expense that is not related to a segment.

Capital expenditures and depreciation and amortization by segment were as follows:

Assets by segment included:

Long-lived assets are as follows:

Net sales disaggregation

A disaggregation of net sales by customer group in the United States is as follows:

The Company does not disaggregate sales for Canada based on materiality. No sales to an individual customer accounted for more than 10% of net sales during any of the periods presented.

The Company is a value-added distributor in North America, providing a wide range of products from plumbing, HVAC, appliances, and lighting to PVF, water and wastewater solutions, and more. We offer a broad line of products, and items are regularly added to and removed from the Company's inventory. Accordingly, it would be impractical to provide sales information by product category due to the way the business is managed, and the dynamic nature of the inventory offered.

Note 3: Weighted average shares

The following table shows the calculation of diluted shares:

(1)Represents the potential dilutive impact of share-based awards.

Note 4: Income tax

The Company’s tax provision for each period presented was calculated using an estimated annual tax rate, adjusted for discrete items occurring during the applicable period to arrive at an effective tax rate. The effective income tax rates for the relevant periods were as follows:

During the three months ended October 31, 2025, there were no material changes to the Company’s unrecognized tax benefits, beyond the release of benefits following the lapse of statute of limitations, when compared to those items disclosed in the Annual Report.

Note 5: Debt

The Company’s debt obligations consisted of the following:

Receivables Securitization Facility

The Company maintains a Receivables Securitization Facility (the “Receivables Facility”) which is primarily governed by the Receivables Purchase Agreement, dated July 31, 2013, as amended from time to time. The Receivables Facility consists of funding for up to $915 million. The Company has the ability to increase the aggregate total available amount under the Receivables Facility up to a total of $1.5 billion, subject to lender participation. As of October 31, 2025, no borrowings were outstanding under the Receivables Facility.

Revolving Credit Facility

The Company, pursuant to a revolving credit agreement (the “Revolving Credit Agreement”), maintains a revolving credit facility that has aggregate total available credit commitments of $1.5 billion (the “Revolving Facility”). The Revolving Credit Agreement provides the Company with the ability to increase the aggregate capacity of the facility by $500 million under certain conditions, including the receipt of additional or increased lender commitments. As of October 31, 2025, no borrowings were outstanding under the Revolving Facility.

Private Placement Notes

In September 2025, the Company repaid $400 million related to the 3.73% private placement notes that matured.

2031 Senior Notes

In September 2025, the Company issued and sold $750 million aggregate principal amount of unsecured senior notes, maturing in March 2031 (the “2031 Senior Notes”). The 2031 Senior Notes bear interest at a rate of 4.35%, payable semi-annually. The obligations of the Company under the 2031 Senior Notes are fully and unconditionally guaranteed by Ferguson UK Holdings Limited, an indirect subsidiary of the Company.

The 2031 Senior Notes may be redeemed, in whole or in part, (i) at 100% of the principal amount on the notes being redeemed plus a “make-whole” prepayment premium at any time prior to one month before the maturity date (the “Notes Par Call Date”) or (ii) after the Notes Par Call Date at 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest on the principal being redeemed. The 2031 Senior Notes include covenants, subject to certain exceptions, which include limitations on the granting of liens and on mergers and acquisitions.

Other

The Company was in compliance with all debt covenants that were in effect as of October 31, 2025.

Note 6: Assets and liabilities at fair value

The Company has not changed its valuation techniques for measuring the fair value of any financial assets or liabilities during the periods presented. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and other debt instruments, such as the Receivables Facility due to its variable interest rate, approximated their fair values as of October 31, 2025 and July 31, 2025.

The Company’s derivatives (interest rate swaps which are considered fair value hedges) and investments in equity instruments are carried at fair value on the condensed consolidated balance sheets (Level 2 and Level 3 fair value inputs, respectively) and are not material. The notional amount of the Company’s outstanding fair value hedges was $150 million as of October 31, 2025 and July 31, 2025.

Carrying amounts and the related estimated fair value of the Company’s long-term debt were as follows:

Note 7: Commitments and contingencies

The Company is, from time to time, involved in various legal proceedings considered to be normal course of business in relation to, among other things, the products that we supply, contractual and commercial disputes and disputes with employees. Provision is made if, on the basis of current information and professional advice, liabilities are considered probable. In the case of unfavorable outcomes, the Company may benefit from applicable insurance protection. The Company does not expect any of its pending legal proceedings to have a material adverse effect on its results of operations, financial position or cash flows.

Note 8: Accumulated other comprehensive loss

The change in accumulated other comprehensive loss was as follows:

Amounts reclassified from accumulated other comprehensive loss related to pension and other post-retirement items include the related income tax impacts. Such amounts consisted of the following:

Note 9: Retirement benefit obligations

The Company maintains pension plans in the U.K. and Canada. The components of net periodic pension cost, which are included in Other (expense) income, net in the condensed consolidated statements of earnings, were as follows:

The impact of exchange rate fluctuations is included in the amortization of net actuarial losses line above.

Note 10: Stockholders’ equity

The following table presents a summary of the Company’s share activity:

Share Repurchases

The Company is currently purchasing shares under an authorization that allows up to $5.0 billion in share repurchases. As of October 31, 2025, the Company had completed $4.2 billion in share repurchases under the authorized program.

Ordinary Shares and Treasury shares

As of August 1, 2024, the Company canceled all ordinary shares in connection with its completion of the transaction to establish a new corporate structure to domicile our parent company in the United States. As a result, in the first quarter of fiscal 2025,30,827,929 ordinary shares held in treasury were canceled,201,343,253 of outstanding ordinary shares not held in treasury were canceled and 201,343,253 shares of common stock were issued as consideration therefor.

Note 11: Share-based compensation

The Company grants share-based compensation awards that can be broadly characterized by the underlying vesting conditions as follows:

•Time vested, restricted stock units (“RSU”) vest over time. RSU awards granted prior to fiscal 2025 cliff vest, typically at the end ofthree years. RSU awards granted in fiscal 2025 and beyond will vest in equal, annual installments over three years. The fair value of these awards is based on the closing share price on the date of grant.

•Multiple metric performance stock units granted to certain members of management (“PSU-EX”) typically vest following three-year performance cycles. The number of shares issued will vary based upon adjusted EPS growth (diluted), return on capital employed (“ROCE”) and relative total shareholder return (“rTSR”). The fair value of awards vesting based upon EPS growth (diluted) and ROCE are equal to the closing share price on the date of grant and the fair value of rTSR awards are determined using a Monte-Carlo simulation.

•Single metric performance stock units (“PSU”) typically vest following three-year performance cycles. The number of shares issued will vary based upon the Company’s performance against an adjusted operating profit measure. The Company did not issue new PSUs in the current quarter.

The following table summarizes the share-based incentive awards activity for the three months ended October 31, 2025:

(1)In September 2025, the Company’s Compensation Committee used discretion to adjust the payout percentage for certain performance stock awards granted in fiscal 2023 that were not probable of vesting such that they became probable of vesting. This modification resulted in $43 million of share-based compensation expense and impacted approximately 530 grantees.

The following table relates to RSU, PSU and PSU-EX awards activity:

The following table relates to all share-based compensation awards:

Total unrecog nized share-based compensation expense for all share-based payment plans was $96 million at October 31, 2025, which is expected to be recognized over a weighted average period of 2.1 years.

Stock Options

In October 2025, the Company granted 25,135 stock options with an exercise price equal to the closing share price of the Company's common stock on the last trading day prior to the date of grant. These options vest and become exercisable over three years, in equal, annual installments beginningone year from the date of grant, and expire 10 years from the date of grant. The fair value of the Company's stock options was estimated on the date of grant using the Black-Scholes option-pricing model. As of October 31, 2025, the Company had 63,523 total stock options outstanding. Theshare-based compensation expense of stock options is not material.