filings.toolsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Management on Veralto Corporation’s Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control-Integrated Framework” (2013 framework). Based on this assessment, management concluded that, as of December 31, 2025, the Company’s internal control over financial reporting is effective.
The Company’s independent registered public accounting firm has issued an audit report on the effectiveness of the Company’s internal control over financial reporting. This report dated February 20, 2026 appears on page 46 of this Annual Report on Form 10-K.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Veralto Corporation
Opinion on Internal Control Over Financial Reporting
We have audited Veralto Corporation’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Veralto Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2025 and 2024, the related consolidated and combined statements of earnings, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and schedule listed in the Index at Item 15(a) and our report dated February 20, 2026 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Veralto Corporation’s Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| /s/ Ernst & Young LLP | ||
| Philadelphia, Pennsylvania | ||
| February 20, 2026 |
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Veralto Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Veralto Corporation (the Company) as of December 31, 2025 and 2024, the related consolidated and combined statements of earnings, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated and combined financial statements”). In our opinion, the consolidated and combined financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 20, 2026 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated and combined financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
| Goodwill Impairment | ||||||||
| Description of the Matter | As described in Note 9 to the consolidated and combined financial statements, goodwill is tested for impairment at least annually, or more frequently if indicators of potential goodwill impairment exists, at the reporting unit level. Total goodwill as of December 31, 2025 was $2.8 billion. To estimate the fair value of each reporting unit, the Company used the market approach based on trading multiples of earnings before interest, taxes, depreciation and amortization (EBITDA). The Company did not record any impairment of the carrying value of goodwill during the year ended December 31, 2025. Auditing management’s goodwill impairment test for the Company’s reporting units was challenging and judgmental due to the estimation required to determine the fair value of the reporting units. In particular, the fair value estimates related to the identification of peer companies to derive the trading EBITDA multiples involved a high degree of management subjectivity. | |||||||
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to estimate the fair value of each reporting unit. For example, we tested controls over the appropriateness of assumptions management used and over the completeness and accuracy of the identification of peer companies. To test the estimated fair value of the Company’s reporting units, our audit procedures included, among others, testing the significant assumptions used in the Company’s analyses, as well as testing the completeness and accuracy of the underlying data. For example, we compared the significant assumptions to third-party industry and economic data, and to the historical results of the Company’s reporting units. We performed sensitivity analyses of certain assumptions to evaluate the changes in the fair values of the reporting units that would result from changes in key assumptions. We also involved internal valuation specialists to assist in our evaluation of the identification of peer companies used by the Company. In addition, we tested management’s reconciliation of the fair values of its reporting units to the market capitalization of the Company. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2022.
Philadelphia, Pennsylvania
February 20, 2026
VERALTO CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in millions, except per share amounts)
| As of December 31 | |||||||||||
| 2025 | 2024 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 2,031 | $ | 1,101 | |||||||
| Trade accounts receivable, less allowance for credit losses of $36 and $37, respectively | 897 | 812 | |||||||||
| Inventories | 307 | 288 | |||||||||
| Prepaid expenses and other current assets | 197 | 186 | |||||||||
| Total current assets | 3,432 | 2,387 | |||||||||
| Property, plant and equipment, net | 294 | 268 | |||||||||
| Other long-term assets | 605 | 523 | |||||||||
| Goodwill | 2,838 | 2,693 | |||||||||
| Other intangible assets, net | 524 | 535 | |||||||||
| Total assets | $ | 7,693 | $ | 6,406 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ | 700 | $ | — | |||||||
| Trade accounts payable | 416 | 395 | |||||||||
| Accrued expenses and other liabilities | 940 | 850 | |||||||||
| Total current liabilities | 2,056 | 1,245 | |||||||||
| Other long-term liabilities | 558 | 517 | |||||||||
| Long-term debt | 1,973 | 2,599 | |||||||||
| Stockholders’ Equity: | |||||||||||
| Preferred stock - $0.01 par value as of December 31, 2025 and December 31, 2024, 15 million shares authorized as of both dates; and 0 shares issued and outstanding as of both dates | — | — | |||||||||
| Common stock - $0.01 par value as of December 31, 2025 and December 31, 2024, 1.0 billion shares authorized as of both dates; and 248.4 million shares and 247.4 million shares issued and outstanding, respectively | 2 | 2 | |||||||||
| Additional paid-in capital | 2,272 | 2,190 | |||||||||
| Retained earnings | 1,744 | 917 | |||||||||
| Accumulated other comprehensive loss | (913) | (1,071) | |||||||||
| Total Veralto stockholders’ equity | 3,105 | 2,038 | |||||||||
| Noncontrolling interests | 1 | 7 | |||||||||
| Total stockholders’ equity | 3,106 | 2,045 | |||||||||
| Total liabilities and stockholders’ equity | $ | 7,693 | $ | 6,406 |
See the accompanying Notes to the Consolidated and Combined Financial Statements.
VERALTO CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS
($ and shares in millions, except per share amounts)
| Year Ended December 31 | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Sales | $ | 5,503 | $ | 5,193 | $ | 5,021 | ||||||||||||||
| Cost of sales | (2,204) | (2,088) | (2,120) | |||||||||||||||||
| Gross profit | 3,299 | 3,105 | 2,901 | |||||||||||||||||
| Operating costs: | ||||||||||||||||||||
| Selling, general and administrative expenses | (1,756) | (1,644) | (1,536) | |||||||||||||||||
| Research and development expenses | (266) | (253) | (225) | |||||||||||||||||
| Operating profit | 1,277 | 1,208 | 1,140 | |||||||||||||||||
| Nonoperating income (expense): | ||||||||||||||||||||
| Other income (expense), net | (8) | (9) | (14) | |||||||||||||||||
| Interest expense, net | (96) | (113) | (30) | |||||||||||||||||
| Earnings before income taxes | 1,173 | 1,086 | 1,096 | |||||||||||||||||
| Income taxes | (233) | (253) | (257) | |||||||||||||||||
| Net earnings | $ | 940 | $ | 833 | $ | 839 | ||||||||||||||
| Net earnings per common share: | ||||||||||||||||||||
| Basic | $ | 3.79 | $ | 3.37 | $ | 3.41 | ||||||||||||||
| Diluted | $ | 3.76 | $ | 3.34 | $ | 3.40 | ||||||||||||||
| Average common stock and common equivalent shares outstanding: | ||||||||||||||||||||
| Basic | 248.3 | 247.3 | 246.4 | |||||||||||||||||
| Diluted | 250.3 | 249.6 | 246.8 |
See the accompanying Notes to the Consolidated and Combined Financial Statements.
VERALTO CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME
($ in millions)
| Year Ended December 31 | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Net earnings | $ | 940 | $ | 833 | $ | 839 | |||||||||||
| Other comprehensive income (loss), net of income taxes: | |||||||||||||||||
| Foreign currency translation adjustments | 220 | (139) | 29 | ||||||||||||||
| Pension and postretirement plan benefit adjustments | (2) | (4) | (15) | ||||||||||||||
| Unrealized gain (loss) on net investment hedges | (60) | 26 | (14) | ||||||||||||||
| Total other comprehensive income (loss), net of income taxes | 158 | (117) | — | ||||||||||||||
| Comprehensive income | $ | 1,098 | $ | 716 | $ | 839 |
See the accompanying Notes to the Consolidated and Combined Financial Statements.
| VERALTO CORPORATION CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ($ and shares in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | Retained Earnings | Net Former Parent Investment | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | ||||||||||||||||||||||||||||||||||||||||||||||||||
| January 1, 2023 | — | $ | — | $ | — | $ | — | $ | 4,189 | $ | (954) | $ | 5 | |||||||||||||||||||||||||||||||||||||||||||
| Net earnings for the year | — | — | — | 200 | 639 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | (22) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Recapitalization | 246.3 | 2 | — | — | (2) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Consideration paid to Former Parent in connection with Separation | — | — | — | — | (2,600) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net transfers to Former Parent | — | — | — | — | (147) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Noncash adjustments to Former Parent's investment, net | — | — | 2,114 | — | (2,114) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Former parent stock-based compensation activity | — | — | — | — | 35 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based deferred compensation award activity | — | — | 20 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | — | — | 23 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | — | — | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | 246.3 | $ | 2 | $ | 2,157 | $ | 178 | $ | — | $ | (954) | $ | 6 | |||||||||||||||||||||||||||||||||||||||||||
| Net earnings for the year | — | — | — | 833 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | (94) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Separation related adjustments | — | — | (55) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | (117) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | 1.1 | — | 88 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | — | — | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | 247.4 | $ | 2 | $ | 2,190 | $ | 917 | $ | — | $ | (1,071) | $ | 7 | |||||||||||||||||||||||||||||||||||||||||||
| VERALTO CORPORATION CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ($ and shares in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | Retained Earnings | Net Former Parent Investment | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings for the year | — | $ | — | $ | — | $ | 940 | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | (113) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Separation related adjustments | — | — | (9) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | 158 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | 1.0 | — | 97 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | — | — | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of noncontrolling interests | — | — | (6) | — | — | — | (9) | |||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2025 | 248.4 | $ | 2 | $ | 2,272 | $ | 1,744 | $ | — | $ | (913) | $ | 1 |
See the accompanying Notes to the Consolidated and Combined Financial Statements.
VERALTO CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
($ in millions)
| Year Ended December 31 | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net earnings | $ | 940 | $ | 833 | $ | 839 | |||||||||||
| Noncash items: | |||||||||||||||||
| Depreciation | 42 | 40 | 39 | ||||||||||||||
| Amortization of intangible assets | 36 | 38 | 48 | ||||||||||||||
| Stock-based compensation expense | 74 | 65 | 55 | ||||||||||||||
| Loss on product line dispositions | 6 | 15 | — | ||||||||||||||
| Impairments and other charges | 6 | — | 15 | ||||||||||||||
| Change in deferred income taxes | (49) | (74) | (25) | ||||||||||||||
| Change in trade accounts receivable, net | (50) | 3 | 2 | ||||||||||||||
| Change in inventories | (6) | 3 | 52 | ||||||||||||||
| Change in trade accounts payable | 8 | (29) | (1) | ||||||||||||||
| Change in prepaid expenses and other assets | (40) | (48) | (54) | ||||||||||||||
| Change in accrued expenses and other liabilities | 110 | 29 | (7) | ||||||||||||||
| Net cash provided by operating activities | 1,077 | 875 | 963 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Cash paid for acquisitions, net of cash acquired | — | (363) | — | ||||||||||||||
| Payments for additions to property, plant and equipment | (63) | (55) | (54) | ||||||||||||||
| All other investing activities | (35) | (16) | (1) | ||||||||||||||
| Net cash used in investing activities | (98) | (434) | (55) | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Proceeds from issuance of common stock in connection with stock-based compensation | 22 | 24 | 4 | ||||||||||||||
| Net transfers to Former Parent | — | — | (147) | ||||||||||||||
| Consideration paid to Former Parent in connection with Separation | — | — | (2,600) | ||||||||||||||
| Payment of dividends | (109) | (89) | — | ||||||||||||||
| Proceeds from borrowings (maturities longer than 90 days) | — | — | 2,608 | ||||||||||||||
| All other financing activities | (15) | — | — | ||||||||||||||
| Net cash used in financing activities | (102) | (65) | (135) | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 53 | (37) | (11) | ||||||||||||||
| Net change in cash and cash equivalents | 930 | 339 | 762 | ||||||||||||||
| Beginning balance of cash and cash equivalents | 1,101 | 762 | — | ||||||||||||||
| Ending balance of cash and cash equivalents | $ | 2,031 | $ | 1,101 | $ | 762 | |||||||||||
| Supplemental disclosures: | |||||||||||||||||
| Cash interest payments | $ | 138 | $ | 137 | $ | — | |||||||||||
| Cash income tax payments | $ | 235 | $ | 293 | $ | 113 | |||||||||||
See the accompanying Notes to the Consolidated and Combined Financial Statements.
VERALTO CORPORATION
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Veralto Corporation’s (“Veralto,” the “Company,” “we,” “us,” or “our”) unifying purpose is Safeguarding the World’s Most Vital Resources TM. The Company’s diverse group of associates and leading operating companies provide essential technology solutions that monitor, enhance and protect key resources around the globe. The Company is committed to the advancement of public health and safety and believes it is positioned to support its customers as they address large global challenges including environmental resource sustainability, water scarcity, management of severe weather events, food and pharmaceutical security, and the impact of an aging workforce. Through its core offerings in water analytics, water treatment, marking and coding and packaging and color, customers look to the Company’s solutions to help ensure the safety, quality, efficiency and reliability of their products, processes and people globally. The Company operates through two segments – Water Quality (“WQ”) and Product Quality & Innovation (“PQI”). Through the Water Quality segment, the Company improves the quality and reliability of water through its leading brands Hach, Trojan Technologies and ChemTreat. Through the Product Quality & Innovation segment, the Company promotes consumer trust in products and helps enable product innovation through leading brands including Videojet, Linx, Esko, X-Rite and Pantone.
Prior to the Company’s separation from Danaher Corporation (“Danaher” or “Former Parent”), on September 29, 2023 (the “Separation”), Veralto’s businesses were comprised of Danaher’s Environmental & Applied Solutions segment. Refer to Note 18 for additional information regarding the Separation.
The accompanying Consolidated and Combined Financial Statements present the Company’s historical financial position, results of operations, changes in stockholders’ equity and cash flows in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Accounting Principles—The accompanying financial statements have been prepared in accordance with GAAP. The Consolidated and Combined Financial Statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation. The Consolidated and Combined Financial Statements also reflect the impact of noncontrolling interests. Noncontrolling interests do not have a significant impact on the Company’s consolidated earnings before income taxes, therefore earnings attributable to noncontrolling interests are not presented separately in the Company’s Consolidated and Combined Statements of Earnings. Earnings attributable to noncontrolling interests have been reflected in selling, general and administrative expenses and were insignificant in all periods presented. Reclassifications of certain prior year amounts have been made to conform to the current year presentation.
Use of Estimates—The preparation of these financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company bases these estimates on historical experience, the current economic environment and on various other assumptions that are believed to be reasonable under the circumstances. However, uncertainties associated with these estimates exist and actual results may differ materially from these estimates.
Cash and Cash Equivalents—The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents.
Accounts Receivable and Allowances for Credit Losses—All trade accounts, contract and finance receivables are reported on the accompanying Consolidated Balance Sheets adjusted for any write-offs and net of allowances for credit losses. The allowances for credit losses represent management’s best estimate of the expected future credit losses from the Company’s trade accounts, contract and finance receivable portfolios. Determination of the allowances requires management to exercise judgment about the timing, frequency and severity of credit losses that could materially affect the provision for credit losses and, therefore, net earnings. The Company regularly performs detailed reviews of its portfolios to determine if an impairment has occurred and evaluates the collectability of receivables based on a combination of various financial and qualitative factors that may affect customers’ ability to pay, including customers’ financial condition, collateral, debt-servicing ability, past payment experience and credit bureau information. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific reserve is recorded against amounts due to reduce the recognized receivable to the amount reasonably expected to be collected. Additions to the allowances for credit losses are charged to current period earnings, amounts determined to be uncollectible are charged directly against the allowances, while amounts recovered on previously written-off accounts increase the allowances. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional reserves
would be required. The Company does not believe that trade accounts receivable represents significant concentrations of credit risk because of the diversified portfolio of individual customers and geographical areas. The Company’s allowance for credit losses as of December 31, 2025 reflects the Company’s best estimate of the expected future losses for its accounts receivables; however, these estimates may change and future actual losses may differ from the Company’s estimates. The Company will continue to monitor economic conditions and will revise the estimates of the expected future losses for accounts receivable as necessary. The Company recorded $6 million, $9 million and $10 million of expense associated with credit losses for the years ended December 31, 2025, 2024 and 2023, respectively.
Included in the Company’s trade accounts receivable and other long-term assets as of December 31, 2025 and 2024 are $193 million and $165 million of net aggregate financing receivables, respectively. All financing receivables are evaluated for impairment based on individual customer credit profiles.
Inventories—Inventories include the costs of material, labor and overhead. Inventories are stated at the lower of cost and net realizable value primarily using the first-in, first-out method.
The classes of inventory as of December 31 are summarized as follows:
| ($ in millions) | 2025 | 2024 | |||||||||
| Finished goods | $ | 130 | $ | 122 | |||||||
| Work in process | 45 | 39 | |||||||||
| Raw materials | 132 | 127 | |||||||||
| Total | $ | 307 | $ | 288 |
Prepaid Expenses and Other Current Assets—Prepaid expenses and other current assets primarily result from advance payments to vendors for goods and services and are capitalized until the related goods are received or services are performed. Included in the Company’s prepaid expenses and other current assets as of December 31, 2025 and 2024 are prepaid expenses of $141 million and $110 million, respectively.
Property, Plant and Equipment—Property, plant and equipment are carried at cost. The provision for depreciation has been computed principally by the straight-line method based on the estimated useful lives of the depreciable assets as follows:
| Category | Useful Life | |||||||
| Buildings | 30 years | |||||||
| Leased assets and leasehold improvements | Amortized over the lesser of the economic life of the asset or the term of the lease | |||||||
| Machinery and equipment | 3 – 10 years | |||||||
| Customer-leased instruments | 5 – 10 years |
Estimated useful lives are periodically reviewed and, when appropriate, changes to estimates are made prospectively.
The classes of property, plant and equipment as of December 31 are summarized as follows:
| ($ in millions) | 2025 | 2024 | |||||||||
| Land and improvements | $ | 18 | $ | 16 | |||||||
| Buildings | 229 | 208 | |||||||||
| Machinery and equipment | 543 | 502 | |||||||||
| Customer-leased equipment | 30 | 27 | |||||||||
| Gross property, plant and equipment | 820 | 753 | |||||||||
| Less: accumulated depreciation | (526) | (485) | |||||||||
| Property, plant and equipment, net | $ | 294 | $ | 268 |
Investments—Equity investments in common stock or in-substance common stock for which the Company has a significant influence but not a controlling interest, are accounted for using the equity method of accounting which requires the Company to record its initial investment at cost and adjust the balance each period for the Company’s share of the investee’s income or loss and dividends paid. For securities without readily available fair values, the
Company has elected the measurement alternative to record these investments at cost and to adjust for impairments and observable price changes with a same or similar security from the same issuer within net earnings (the “Fair Value Alternative”). Additionally, the Company is a limited partner in a partnership that invests in start-up companies. While the partnership records these investments at fair value, the Company’s investment in the partnership is accounted for under the equity method of accounting.
Investments for which the Company does not have the ability to significantly influence the operating decisions of the investee, or for which the investment is in securities other than common stock or in-substance common stock are accounted for using the cost method. For investments accounted for under the cost method that do not have readily determinable fair values, the Company measures them at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The Company made minority investments in equity method investments and non-marketable equity securities totaling $7 million and $15 million in 2025 and 2024, respectively. Non-controlling investments made in 2025 and 2024 are included in other long-term assets. The Company made no such investments in 2023. No significant realized or unrealized gains or losses were recorded in 2025, 2024 or 2023 with respect to these investments. The Company recorded net realized and unrealized gains and losses, as well as impairments in other income (expense), net, in the accompanying Consolidated and Combined Statements of Earnings. Refer to Note 7 for additional information.
Other Assets—Other assets principally include noncurrent financing receivables, noncurrent deferred tax assets, operating lease right-of-use assets, other investments and a tax indemnification asset as a result of the Separation from Danaher.
Fair Value of Financial Instruments—The Company’s financial instruments consist primarily of cash and cash equivalents, trade accounts receivable, cross-currency swaps, obligations under trade accounts payable and short and long-term debt. Due to their short-term nature, the carrying values for cash and cash equivalents, trade accounts receivable and trade accounts payable approximate fair value. Refer to Note 10 for the fair values of the Company’s long-term debt, cross-currency swaps and other obligations.
Goodwill and Other Intangible Assets—Goodwill and other intangible assets result from the Company’s acquisition of existing businesses. In accordance with accounting standards related to business combinations, goodwill is not amortized; however, certain finite-lived identifiable intangible assets, primarily customer relationships and acquired technology, are amortized over their estimated useful lives. Intangible assets with indefinite lives are not amortized. The Company reviews identified intangible assets and goodwill for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company also tests intangible assets with indefinite lives and goodwill for impairment at least annually. Refer to Notes 2 and 9 for additional information about the Company’s goodwill and other intangible assets.
Revenue Recognition—The Company derives revenues primarily from the sale of Water Quality and Product Quality & Innovation products and services. Revenue is recognized when control of the promised products or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price). A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. For equipment and consumables sold by the Company, control transfers to the customer at a point in time. To indicate the transfer of control, the Company must have a present right to payment, legal title must have passed to the customer, the customer must have the significant risks and rewards of ownership, and where acceptance is not a formality, the customer must have accepted the product or service. The Company’s principal terms of sale are Free On Board (“FOB”) Shipping Point, or equivalent, and the Company records revenue for these product sales upon transfer of control to the customer, which may occur at shipment. For those FOB Shipping Point arrangements where risk of loss is not transferred until delivery, the Company transfers control and records revenue upon delivery of the product to the customer. Sales arrangements with delivery terms that are not FOB Shipping Point are not recognized upon shipment and the transfer of control for revenue recognition is evaluated based on the associated shipping terms and customer obligations. If a performance obligation to the customer with respect to a sales transaction remains to be fulfilled following shipment (typically installation or acceptance by the customer), revenue recognition for that performance obligation is deferred until such commitments have been fulfilled. Returns for products sold are estimated and recorded as a reduction of revenue at the time of sale. Customer allowances and rebates, consisting primarily of volume discounts and other short-term incentive programs, are recorded as a reduction of revenue at the time of sale because these allowances reflect a reduction in the transaction price.
Product returns, customer allowances and rebates are estimated based on historical experience and known trends. For extended warranty and service, control transfers to the customer over the term of the arrangement. Revenue for extended warranty and service is recognized based upon the period of time elapsed under the arrangement. Revenue for other long-term contracts is generally recognized based upon the cost-to-cost method, which measures costs incurred relative to total estimated costs, provided that the Company meets the criteria associated with transferring control of the good or service over time.
Certain of the Company’s revenues relate to sales-type leases (“STL”) and operating-type lease (“OTL”) arrangements. Leases are outside the scope of ASC 606 and are therefore accounted for in accordance with ASC 842, Leases. Equipment lease revenue for STL arrangements is recognized upon lease commencement. Equipment lease revenue for OTL agreements is recognized on a straight-line basis over the life of the lease, and the cost of customer-leased equipment is recorded within property, plant and equipment in the accompanying Consolidated Balance Sheets and depreciated over the equipment’s estimated useful life. Depreciation expense associated with the leased equipment under OTL arrangements is reflected in cost of sales in the accompanying Consolidated and Combined Statements of Earnings.
For a contract with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation on a relative standalone selling price basis using the Company’s best estimate of the standalone selling price of each distinct product or service in the contract. The primary method used to estimate standalone selling price is the price observed in standalone sales to customers. Allocation of the transaction price is determined at the contracts’ inception.
Shipping and Handling—Shipping and handling costs are included as a component of cost of sales. Revenue derived from shipping and handling costs billed to customers is included in sales.
Advertising—Advertising costs are expensed as incurred.
Research and Development—The Company conducts research and development activities for the purpose of developing new products, enhancing the functionality, effectiveness, ease of use and reliability of the Company’s existing products and expanding the applications for which uses of the Company’s products are appropriate. Research and development costs are expensed as incurred.
Income Taxes—Income taxes for the Company are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in the Consolidated and Combined Financial Statements and their respective tax basis. Deferred income tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred income tax assets and liabilities are reported in other assets and other liabilities in the Consolidated Balance Sheets, respectively. The effect on deferred income tax assets and liabilities of a change in tax rates is generally recognized in income tax expense in the period that includes the enactment date. Global Intangible Low-Taxed Income (“GILTI”) is accounted for as a current tax expense in the year the tax is incurred.
Valuation allowances are recorded if it is more likely than not that some portion of the deferred income tax assets will not be realized. In evaluating the need for a valuation allowance, the Company considers various factors, including the expected level of future taxable income and available tax planning strategies. Any changes in judgment about the valuation allowance are recorded through income tax expense and are based on changes in facts and circumstances regarding realizability of deferred tax assets.
The Company must presume that an income tax position taken in a tax return will be examined by the relevant tax authority and determine whether it is more likely than not that the tax position will be sustained upon examination based upon the technical merits of the position. An income tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The Company establishes a liability for unrecognized income tax benefits for income tax positions for which it is more likely than not that a tax position will not be sustained upon examination by the respective taxing authority to the extent such tax positions reduce the Company’s income tax liability. The Company recognizes interest and penalties related to unrecognized income tax benefits in income tax expense in the Consolidated and Combined Statements of Earnings. Refer to Note 6 for additional information.
Productivity Improvement and Restructuring—The Company periodically initiates productivity improvement and restructuring activities to appropriately position the Company’s cost base relative to prevailing economic conditions and associated customer demand as well as in connection with certain acquisitions. Costs associated with productivity improvement and restructuring actions can include one-time termination benefits and related charges in
addition to facility closure, contract termination and other related activities. The Company records the cost of the productivity improvement and restructuring activities when the associated liability is incurred.
Foreign Currency Translation—Exchange rate adjustments resulting from foreign currency transactions are recognized in net earnings, whereas effects resulting from the translation of financial statements are reflected as a component of accumulated other comprehensive income (loss). Assets and liabilities of subsidiaries operating outside the United States with a functional currency other than U.S. dollars are translated into U.S. dollars using year end exchange rates and income statement accounts are translated at weighted average rates. Net foreign currency transaction losses were $24 million and $14 million for the years ended December 31, 2025 and 2024, respectively. As discussed below, the Company uses its foreign currency-denominated debt and cross-currency swap arrangements whereby existing U.S. dollar-denominated borrowings are effectively converted to foreign currency borrowings to partially hedge its net investments in foreign operations against adverse movements in exchange rates.
Derivative Financial Instruments—The Company is neither a dealer nor a trader in derivative instruments. The Company has generally accepted the exposure to transactional exchange rate movements without using derivative instruments to manage this risk, although the Company from time to time partially hedges its net investments in foreign operations against adverse movements in exchange rates through foreign currency denominated debt and cross-currency swaps. When utilized, the derivative instruments are recorded on the Consolidated Balance Sheets as either an asset or liability measured at fair value. To the extent the derivative instrument qualifies as an effective hedge, changes in fair value are recognized in accumulated other comprehensive income (loss) in stockholders’ equity. Changes in the value of the foreign currency denominated debt and cross-currency swaps designated as hedges of the Company’s net investment in foreign operations based on spot rates are recognized in accumulated other comprehensive income (loss) in stockholders’ equity and offset changes in the value of the Company’s foreign currency denominated operations. Refer to Note 13 for additional information.
Accumulated Other Comprehensive Income (Loss)—Accumulated other comprehensive income (loss) refers to certain gains and losses that under GAAP are included in comprehensive income (loss) but are excluded from net earnings as these amounts are initially recorded as an adjustment to stockholders’ equity. Foreign currency translation adjustments are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. Net investment hedge adjustments reflect the gains or losses on the foreign currency denominated long-term debt issuance designated as a nonderivative hedging instrument, as well as the Company’s cross-currency swap derivatives designated as net investment hedges, net of any income tax impacts. Pension and postretirement plan benefit adjustments relate to unrecognized prior service credits and actuarial losses. Refer to Notes 13, 14 and 17 for additional information.
Loss Contingencies—The Company records a reserve for loss contingencies when it is both probable that a loss will be incurred and the amount of the loss is reasonably estimable. The Company evaluates pending litigation and other contingencies at least quarterly and adjusts the reserve for such contingencies for changes in probable and reasonably estimable losses. The Company includes an estimate for related legal costs at the time such costs are both probable and reasonably estimable.
Stock-Based Compensation—Certain employees of the Company participate in Veralto’s shared-based compensation plans which include stock options, restricted stock units (“RSUs”), and performance stock units ("PSUs"). The Company had no stock-based compensation plans prior to the Separation; however certain of the Company’s employees had participated in Danaher’s stock-based compensation plans (“Danaher Plans”). The expense associated with Veralto employees who participated in the Danaher Plans was allocated to the Company in the accompanying Consolidated and Combined Statements of Earnings for the associated periods prior to the Separation. Equity-based compensation expense is recognized net of an estimated forfeiture rate on a straight-line basis over the requisite service period of the award, except that in the case of RSUs, compensation expense is recognized using an accelerated attribution method. Refer to Note 17 for additional information on the stock-based compensation plans in which certain employees of the Company participate.
Pension and Postretirement Benefit Plans—The Company measures its pension and postretirement plans’ assets and its obligations that determine the respective plan’s funded status as of the end of the Company’s fiscal year, and recognizes an asset for a plan’s overfunded status or a liability for a plan’s underfunded status in its balance sheet. Changes in the funded status of the plans are recognized in the year in which the changes occur and reported in comprehensive income (loss). Refer to Note 14 for additional information on the Company’s pension and postretirement plans including a discussion of the actuarial assumptions, the Company’s policy for recognizing the associated gains and losses and the method used to estimate service and interest cost components.
Recent Accounting Pronouncements—In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement — reporting Comprehensive Income — Expense Disaggregation Disclosures. The ASU requires entities to provide disaggregated disclosures of certain categories of expenses on an annual and interim basis including purchases of inventory, employee compensation, depreciation and intangible asset amortization for each income statement line item that contains those expenses. This ASU is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027 with early adoption permitted. The Company is currently assessing the impact of this ASU on its disclosures in the Consolidated Financial Statements.
On March 6, 2024, the SEC adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors, which requires registrants to disclose material climate-related risks, activities to mitigate or adapt to such risks, information about board oversight of climate-related risks and climate-related targets or goals that are material to the registrant’s business, results of operations or financial condition. In April 2024, the SEC voluntarily stayed the final rules pending the resolution of certain legal challenges and, in March 2025, voted to end its defense of the final rules in litigation. The Company is currently assessing the impact of these final rules on its Consolidated Financial Statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which enhances the transparency of income tax disclosures in ASC 740, Income Taxes, primarily related to the rate reconciliation and income taxes paid information. The ASU is effective for fiscal years beginning after December 15, 2024, may be applied retrospectively and early adoption is permitted. The Company first applied the ASU to the Company's annual disclosures for the year ended December 31, 2025. The ASU will be applied prospectively.
NOTE 2. ACQUISITIONS
The Company continually evaluates potential acquisitions that either strategically fit with the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive business area. The Company has completed a number of acquisitions that have been accounted for as purchases and have resulted in the recognition of goodwill in the Company’s Consolidated and Combined Financial Statements. This goodwill arises because the purchase prices for these businesses exceed the fair value of acquired identifiable net assets due to the purchase prices reflecting a number of factors including the future earnings and cash flow potential of these businesses, the multiple to earnings, cash flow and other factors at which similar businesses have been purchased by other acquirers, the competitive nature of the processes by which the Company acquired the businesses, the avoidance of the time and costs which would be required (and the associated risks that would be encountered) to enhance the Company’s existing product offerings to key target markets and enter into new and profitable businesses and the complementary strategic fit and resulting synergies these businesses bring to existing operations.
The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. The Company obtains the information used for the purchase price allocation during due diligence and through other sources. In the months after closing, as the Company obtains additional information about the acquired assets and liabilities, including through tangible and intangible asset appraisals, and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. The fair values of acquired intangibles are determined based on estimates and assumptions that are deemed reasonable by the Company. Significant assumptions include the discount rates and certain assumptions that form the basis of the forecasted results of the acquired business, including revenue, revenue growth rates, royalty rates and technology obsolescence rates. These assumptions are forward-looking and could be affected by future economic and market conditions. The Company engages third-party valuation specialists who review the Company’s critical assumptions and calculations of the fair value of acquired intangible assets in connection with significant acquisitions. Only facts and circumstances that existed as of the acquisition date are considered for subsequent adjustment.
The following briefly describes the Company’s acquisition activity for the three years ended December 31, 2025.
2025
During 2025, the Company acquired assets and businesses across three transactions for total consideration of approximately $32 million in cash, net of cash acquired. The assets and businesses complement each of the Company’s two segments. The Company recorded an aggregate of approximately $23 million of goodwill related to the acquisition of these businesses.
2024
On October 4, 2024, the Company acquired the holding company that owned TraceGains for a cash purchase price of approximately $349 million, net of cash acquired (the “TraceGains Acquisition”). TraceGains is a leading provider of cloud-based software solutions that enable connected data and digital workflow management to help consumer brands meet increasingly stringent compliance and reporting regulations for food and beverage safety and traceability. TraceGains is now part of the Company’s PQI segment. The Company completed the TraceGains Acquisition using cash on hand. The Company preliminarily recorded approximately $240 million of goodwill related to the TraceGains Acquisition.
During 2024, in addition to the TraceGains Acquisition, the Company acquired assets and businesses across three transactions for total consideration of approximately $14 million in cash, net of cash acquired. The businesses acquired complement the Company's PQI segment. The Company recorded an aggregate of approximately $3 million of goodwill related to the acquisition of these businesses.
2023
The Company had no acquisitions during the year ended December 31, 2023.
The following summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the individually significant acquisition of TraceGains in 2024 discussed above. All of the other 2025 and 2024 acquisitions were not material in the aggregate.
| ($ in millions) | TraceGains | ||||||||||||||||||||||
| Trade accounts receivable | $ | 5 | |||||||||||||||||||||
| Intangible assets - trade names | 5 | ||||||||||||||||||||||
| Intangible assets - developed technology | 86 | ||||||||||||||||||||||
| Intangible assets - customer relationships | 55 | ||||||||||||||||||||||
| Goodwill | 240 | ||||||||||||||||||||||
| Deferred revenue | (18) | ||||||||||||||||||||||
| Deferred tax liabilities | (21) | ||||||||||||||||||||||
| Other assets and liabilities, net | (3) | ||||||||||||||||||||||
| Net assets acquired | $ | 349 | |||||||||||||||||||||
| Net cash consideration | $ | 349 |
As a result of further refining its estimates and assumptions since the date of the acquisition, the Company recorded immaterial measurement period adjustments to the initial opening balance sheet which are reflected in the table above during 2025.
Intangible assets identified
The weighted-average amortization periods for definite-lived intangible assets acquired in 2025 are 14 years for $10 million of developed technology.
The weighted-average amortization periods for definite-lived intangible assets acquired in 2024 are 15 years for customer relationships and 10 years for developed technology. The weighted-average amortization period for definite-lived intangible assets acquired in 2024 is 12 years. Trade names acquired during 2024 have an indefinite life.
Transaction costs
Transaction-related costs for the TraceGains Acquisition were $4 million for the year ended December 31, 2024. Transaction-related costs and acquisition-related fair value adjustments attributable to other acquisitions for the years ended 2025 and 2024 were not material.
Pro Forma Financial Information
Pro forma financial information for these acquisitions has not been presented because the acquisitions were not material to the Company’s Consolidated Statements of Earnings. See Note 9 for goodwill and intangible assets acquired.
NOTE 3. NET EARNINGS PER COMMON SHARE
Earnings per Common Share
Basic net earnings per share (“EPS”) is calculated by dividing net earnings by the weighted average number of shares of common stock outstanding for the applicable period. Diluted EPS is computed based on the weighted average number of common shares outstanding increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued and reduced by the number of shares the Company could have repurchased with the proceeds from the issuance of the potentially dilutive shares.
The Company was incorporated on October 26, 2022; accordingly, the Company had no shares or common equivalent shares outstanding prior to that date. The total number of shares outstanding at Separation was 246.3 million and is utilized for the calculation of both basic and diluted EPS for the period prior to the Separation.
Information related to the calculation of net earnings per common share for the years ended December 31 is summarized as follows:
| ($ and shares in millions, except per share amounts) | 2025 | 2024 | 2023 | ||||||||||||||
| Numerator: | |||||||||||||||||
| Net earnings | $ | 940 | $ | 833 | $ | 839 | |||||||||||
| Denominator: | |||||||||||||||||
| Weighted average common shares outstanding used in Basic EPS | 248.3 | 247.3 | 246.4 | ||||||||||||||
| Incremental shares from assumed exercise of dilutive options and vesting of dilutive RSUs and PSUs | 2.0 | 2.3 | 0.4 | ||||||||||||||
| Weighted average common shares outstanding used in Diluted EPS | 250.3 | 249.6 | 246.8 | ||||||||||||||
| Basic EPS | $ | 3.79 | $ | 3.37 | $ | 3.41 | |||||||||||
| Diluted EPS | $ | 3.76 | $ | 3.34 | $ | 3.40 |
NOTE 4. REVENUE
The following table presents the Company’s revenues disaggregated by geographical region and revenue type. Sales taxes and other usage-based taxes collected from customers are excluded from revenues.
| ($ in millions) | Water Quality | Product Quality & Innovation | Total | ||||||||||||||
| Year ended December 31, 2025: | |||||||||||||||||
| Geographical region: | |||||||||||||||||
| North America(a) | $ | 1,895 | $ | 744 | $ | 2,639 | |||||||||||
| Western Europe | 598 | 643 | 1,241 | ||||||||||||||
| Other developed markets | 65 | 53 | 118 | ||||||||||||||
| High-growth markets(b) | 763 | 742 | 1,505 | ||||||||||||||
| Total | $ | 3,321 | $ | 2,182 | $ | 5,503 | |||||||||||
| Revenue type: | |||||||||||||||||
| Recurring | $ | 1,966 | $ | 1,393 | $ | 3,359 | |||||||||||
| Nonrecurring | 1,355 | 789 | 2,144 | ||||||||||||||
| Total | $ | 3,321 | $ | 2,182 | $ | 5,503 | |||||||||||
| Year ended December 31, 2024: | |||||||||||||||||
| Geographical region: | |||||||||||||||||
| North America(a) | $ | 1,804 | $ | 689 | $ | 2,493 | |||||||||||
| Western Europe | 546 | 603 | 1,149 | ||||||||||||||
| Other developed markets | 65 | 50 | 115 | ||||||||||||||
| High-growth markets(b) | 723 | 713 | 1,436 | ||||||||||||||
| Total | $ | 3,138 | $ | 2,055 | $ | 5,193 | |||||||||||
| Revenue type: | |||||||||||||||||
| Recurring | $ | 1,846 | $ | 1,303 | $ | 3,149 | |||||||||||
| Nonrecurring | 1,292 | 752 | 2,044 | ||||||||||||||
| Total | $ | 3,138 | $ | 2,055 | $ | 5,193 | |||||||||||
| Year ended December 31, 2023: | |||||||||||||||||
| Geographical region: | |||||||||||||||||
| North America (a) | $ | 1,694 | $ | 659 | $ | 2,353 | |||||||||||
| Western Europe | 536 | 584 | 1,120 | ||||||||||||||
| Other developed markets | 65 | 53 | 118 | ||||||||||||||
| High-growth markets (b) | 744 | 686 | 1,430 | ||||||||||||||
| Total | $ | 3,039 | $ | 1,982 | $ | 5,021 | |||||||||||
| Revenue type: | |||||||||||||||||
| Recurring | $ | 1,727 | $ | 1,227 | $ | 2,954 | |||||||||||
| Nonrecurring | 1,312 | 755 | 2,067 | ||||||||||||||
| Total | $ | 3,039 | $ | 1,982 | $ | 5,021 |
(a) The Company defines North America as the United States and Canada.
(b) The Company defines high-growth markets as developing markets of the world which include Asia (with the exception of Japan, Australia and New Zealand), Latin America (including Mexico), the Middle East, Eastern Europe and Africa. The Company defines developed markets as all markets of the world that are not high-growth markets.
The Company sells equipment to customers as well as consumables and services, some of which customers purchase on a recurring basis. Consumables sold for use with the equipment sold by the Company are typically critical to the use of the equipment and are typically used on a one-time or limited basis, requiring frequent replacement in the customer’s operating cycle. Examples of these consumables include chemistries for water testing instruments and cartridges for marking and coding equipment. Additionally, some of the Company’s consumables are used on a standalone basis, such as water treatment solutions. The Company separates its goods and services between those typically sold to a customer on a recurring basis and those typically sold to a customer on a nonrecurring basis. Recurring revenue includes revenue from consumables, services, spare parts and OTLs. Nonrecurring revenue includes revenue from equipment and STLs. OTLs and STLs are included in the above revenue amounts. For the years ended December 31, 2025, 2024 and 2023, lease revenue was $98 million, $82 million and $86 million, respectively. Service and software revenue was immaterial for all periods presented. Software revenues for point-in-time licenses are nonrecurring while revenues for Software-as-a-Service and over time licenses are recurring.
Remaining Performance Obligations
Remaining performance obligations represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year which are fully or partially unsatisfied at the end of the period. Remaining performance obligations include noncancelable purchase orders, the non-lease portion of minimum purchase commitments under long-term consumable supply arrangements, extended warranty and service and other long-term contracts. These remaining performance obligations do not include revenue from contracts with customers with an original term of one year or less, revenue from long-term consumable supply arrangements with no minimum purchase requirements or revenue expected from purchases made in excess of the minimum purchase requirements or revenue from equipment leased to customers. While the remaining performance obligation disclosure is similar in concept to backlog, the definition of remaining performance obligations excludes leases and contracts that provide the customer with the right to cancel or terminate for convenience with no substantial penalty, even if historical experience indicates the likelihood of cancellation or termination is remote. Additionally, the Company has elected to exclude contracts with customers with an original term of one year or less from remaining performance obligations while these contracts are included within backlog.
As of December 31, 2025, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $325 million. The Company expects to recognize revenue on approximately 42% of the remaining performance obligations over the next 12 months, 32% over the subsequent 12 months, and the remainder recognized thereafter.
Contract Liabilities
The Company often receives cash payments from customers in advance of the Company’s performance resulting in contract liabilities that are classified as either current or long-term in the Consolidated Balance Sheets based on the timing of when the Company expects to recognize revenue. As of December 31, 2025 and 2024, contract liabilities were approximately $287 million and $254 million, respectively, and are included within accrued expenses and other liabilities and other long-term liabilities in the accompanying Consolidated Balance Sheets. Revenue recognized during the years ended December 31, 2025 and 2024 that was included in the opening contract liability balance was approximately $230 million and $196 million, respectively.
NOTE 5. SEGMENT INFORMATION
The Company operates and reports its results in two separate business segments consisting of the Water Quality and Product Quality & Innovation segments.
The Company’s Water Quality segment provides proprietary precision instrumentation, consumables, software, services and advanced water treatment technologies to help measure, analyze and treat the world’s water in municipal, industrial, commercial, residential, research and natural resource applications.
The Company’s Product Quality & Innovation segment provides equipment, consumables, software and services for various marking and coding, traceability, printing, packaging design and quality management, packaging converting and color and appearance management applications for consumer packaged goods and industrial products.
Resources are allocated and performance is assessed by the President & Chief Executive Officer (CEO), whom the Company has determined to be the Chief Operating Decision Maker (“CODM”). The CODM evaluates the performance of its segments and allocates resources to them based on operating profit. The CODM also compares actual results to expectations in assessing performance of the segments. Operating profit represents total revenues less operating expenses, excluding nonoperating income and expense and income taxes. Operating profit amounts in the Other segment consist of unallocated corporate costs and other costs not considered part of management’s evaluation of reportable segment operating performance.
The identifiable assets by segment are those used in each segment’s operations. Intersegment amounts are not significant and are eliminated to arrive at combined totals.
Detailed segment data for the years ended December 31 is as follows:
| ($ in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Sales: | |||||||||||||||||
| Water Quality | $ | 3,321 | $ | 3,138 | $ | 3,039 | |||||||||||
| Product Quality & Innovation | 2,182 | 2,055 | 1,982 | ||||||||||||||
| Total | $ | 5,503 | $ | 5,193 | $ | 5,021 | |||||||||||
| Operating profit: | |||||||||||||||||
| Water Quality | $ | 844 | $ | 768 | $ | 730 | |||||||||||
| Product Quality & Innovation | 549 | 529 | 472 | ||||||||||||||
| Other | (116) | (89) | (62) | ||||||||||||||
| Total | $ | 1,277 | $ | 1,208 | $ | 1,140 | |||||||||||
| Depreciation and amortization of intangible assets: | |||||||||||||||||
| Water Quality | $ | 36 | $ | 41 | $ | 45 | |||||||||||
| Product Quality & Innovation | 41 | 36 | 42 | ||||||||||||||
| Other | 1 | 1 | — | ||||||||||||||
| Total | $ | 78 | $ | 78 | $ | 87 | |||||||||||
| Capital expenditures: | |||||||||||||||||
| Water Quality | $ | 36 | $ | 36 | $ | 29 | |||||||||||
| Product Quality & Innovation | 27 | 17 | 17 | ||||||||||||||
| Other | — | 2 | 8 | ||||||||||||||
| Total | $ | 63 | $ | 55 | $ | 54 |
Identifiable assets by segment for the years ended December 31 are as follows:
| ($ in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Water Quality | $ | 2,651 | $ | 2,450 | $ | 2,508 | |||||||||||
| Product Quality & Innovation | 2,810 | 2,657 | 2,289 | ||||||||||||||
| Other | 2,232 | 1,299 | 896 | ||||||||||||||
| Total | $ | 7,693 | $ | 6,406 | $ | 5,693 |
Reconciliations of total segment sales to total segment operating profit and of total segment operating profit to total consolidated and combined earnings before income taxes, for the years ended December 31 is as follows:
2025
| ($ in millions) | Water Quality | Product Quality & Innovation | Other | Total | ||||||||||||||||||||||
| Sales | $ | 3,321 | $ | 2,182 | $ | — | $ | 5,503 | ||||||||||||||||||
| Less: other segment items | (2,477) | (1,633) | (116) | (4,226) | ||||||||||||||||||||||
| Segment operating profit | $ | 844 | $ | 549 | $ | (116) | $ | 1,277 | ||||||||||||||||||
| Other expense, net | (8) | |||||||||||||||||||||||||
| Interest expense, net | (96) | |||||||||||||||||||||||||
| Earnings before income taxes | $ | 1,173 |
2024
| ($ in millions) | Water Quality | Product Quality & Innovation | Other | Total | ||||||||||||||||||||||
| Sales | $ | 3,138 | $ | 2,055 | $ | — | $ | 5,193 | ||||||||||||||||||
| Less: other segment items | (2,370) | (1,526) | (89) | (3,985) | ||||||||||||||||||||||
| Segment operating profit | $ | 768 | $ | 529 | $ | (89) | $ | 1,208 | ||||||||||||||||||
| Other expense, net | (9) | |||||||||||||||||||||||||
| Interest expense, net | (113) | |||||||||||||||||||||||||
| Earnings before income taxes | $ | 1,086 |
2023
| ($ in millions) | Water Quality | Product Quality & Innovation | Other | Total | ||||||||||||||||||||||
| Sales | $ | 3,039 | $ | 1,982 | $ | — | $ | 5,021 | ||||||||||||||||||
| Less: other segment items | (2,309) | (1,510) | (62) | (3,881) | ||||||||||||||||||||||
| Segment operating profit | $ | 730 | $ | 472 | $ | (62) | $ | 1,140 | ||||||||||||||||||
| Other income, net | (14) | |||||||||||||||||||||||||
| Interest expense, net | (30) | |||||||||||||||||||||||||
| Earnings before income taxes | $ | 1,096 |
Operations in Geographical Areas:
| Year Ended December 31 | |||||||||||||||||
| ($ in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Sales: | |||||||||||||||||
| United States | $ | 2,440 | $ | 2,312 | $ | 2,177 | |||||||||||
| China | 336 | 334 | 356 | ||||||||||||||
| Germany | 281 | 266 | 257 | ||||||||||||||
| All other (each country individually less than 5% of total sales) | 2,446 | 2,281 | 2,231 | ||||||||||||||
| Total | $ | 5,503 | $ | 5,193 | $ | 5,021 | |||||||||||
| Property, plant and equipment, net: | |||||||||||||||||
| United States | $ | 203 | $ | 200 | $ | 179 | |||||||||||
| United Kingdom | 17 | 16 | 14 | ||||||||||||||
| Germany | 34 | 24 | 23 | ||||||||||||||
| All other (each country individually less than 5% of total property, plant and equipment, net) | 40 | 28 | 46 | ||||||||||||||
| Total | $ | 294 | $ | 268 | $ | 262 |
NOTE 6. INCOME TAXES
Prior to the Separation, the Company’s operating results were included in Danaher’s various consolidated U.S. federal and certain state income tax returns, as well as certain foreign returns. For periods prior to the Separation, the Company’s Consolidated and Combined Financial Statements reflect income tax expense and deferred tax balances as if the Company had filed tax returns on a standalone basis separate from Danaher. The separate return method applies the accounting guidance for income taxes to the standalone financial statements as if the Company was a separate taxpayer and a standalone enterprise for periods prior to the Separation.
Earnings from operations before income taxes for the years ended December 31 were as follows:
| ($ in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| United States | $ | 697 | $ | 555 | $ | 484 | |||||||||||
| Non-U.S. | 476 | 531 | 612 | ||||||||||||||
| Total | $ | 1,173 | $ | 1,086 | $ | 1,096 |
The provision for income taxes for the years ended December 31 were as follows:
| ($ in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Current: | |||||||||||||||||
| Federal U.S. | $ | 109 | $ | 116 | $ | 86 | |||||||||||
| Non-U.S. | 136 | 184 | 169 | ||||||||||||||
| State and local | 37 | 27 | 27 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal U.S. | (34) | (45) | (19) | ||||||||||||||
| Non-U.S. | (12) | (29) | (4) | ||||||||||||||
| State and local | (3) | — | (2) | ||||||||||||||
| Income tax provision | $ | 233 | $ | 253 | $ | 257 |
The Company has determined that certain foreign earnings that have been previously taxed in the United States are not considered permanently reinvested. The cost to repatriate these earnings is limited to potential foreign withholding and state income taxes and is not expected to be material and has not been provided for. The Company intends to permanently reinvest its foreign earnings that have not previously been subject to U.S. income tax. The potential tax implications of repatriating unremitted earnings are driven by the facts at the time of distribution and therefore not practicable to determine. We regularly review our plans for reinvestment or repatriation of unremitted foreign earnings and any future change in our plans would require us to provide for the net tax impacts of these amounts.
The effective income tax rate from operations for the years ended December 31 varies from the U.S. statutory federal income tax rate as follows. Periods presented that are prior to the adoption of ASU 2023-09 have not been adjusted.
| 2025 | |||||||||||
| ($ in millions, except % of pretax earnings) | $ Value | % of Pretax Earnings | |||||||||
| Statutory federal income tax rate | $ | 246 | 21.0 | % | |||||||
| Increase (decrease) in tax rate resulting from: | |||||||||||
| State income taxes (net of Federal income tax benefit) (a) | 26 | 2.2 | |||||||||
| Foreign tax effects: | |||||||||||
| Germany: | |||||||||||
| Statutory rate difference | 14 | 1.2 | |||||||||
| Other | 9 | 0.8 | |||||||||
| Other foreign jurisdictions | (7) | (0.6) | |||||||||
| Effect of cross-border tax laws: | |||||||||||
| Foreign derived intangible income | (28) | (2.4) | |||||||||
| Subpart F, net of foreign tax credits | (26) | (2.2) | |||||||||
| Other | 2 | 0.2 | |||||||||
| Nontaxable or nondeductible items | 4 | 0.3 | |||||||||
| Tax credits | (8) | (0.7) | |||||||||
| Changes in unrecognized tax benefits | (1) | (0.1) | |||||||||
| Other | 2 | 0.2 | |||||||||
| Effective income tax rate | $ | 233 | 19.9 | % |
(a) States that make up 50% of provision include: CA, CT, IL, NY, PA, and VA
| Percentage of Pretax Earnings | |||||||||||
| 2024 | 2023 | ||||||||||
| Statutory federal income tax rate | 21.0 | % | 21.0 | % | |||||||
| Increase (decrease) in tax rate resulting from: | |||||||||||
| State income taxes (net of Federal income tax benefit) | 2.0 | 1.9 | |||||||||
| Non-U.S. rate differential | 2.1 | 3.5 | |||||||||
| US Taxation of Foreign Earnings | (4.2) | (2.1) | |||||||||
| Change in uncertain tax positions | 3.2 | — | |||||||||
| R&D and other tax credits | (0.9) | (1.3) | |||||||||
| Other | 0.7 | 1.0 | |||||||||
| Net excess tax benefits from stock-based compensation | (0.6) | (0.6) | |||||||||
| Effective income tax rate | 23.3 | % | 23.4 | % |
The Company’s effective tax rate for 2025, 2024 and 2023 differs from the U.S. federal statutory rate of 21.0%, due principally to the Company’s earnings outside the United States that are taxed at rates different than the U.S. federal statutory rate, state taxes, as well as the impact of the following:
-
The effective tax rate of 19.9% in 2025 includes a net discrete tax benefit related to the reduction of the tax indemnification related to the Separation, release of a valuation allowance on deferred tax assets, and excess tax benefits from stock-based compensation. This decreased the reported rate on a net basis by 1.4%.
-
The effective tax rate of 23.3% in 2024 includes net tax provisions primarily related to changes in estimates associated with prior period uncertain tax positions and the reduction of the tax indemnification related to the Separation partially offset by excess tax benefits from stock-based compensation. This increased the reported rate on a net basis by 0.6%. It also includes a 0.3% unfavorable impact of a non-deductible loss on the sale of a product line.
-
The effective tax rate of 23.4% in 2023 includes net tax benefits primarily related to excess tax benefits from stock-based compensation. This decreased the reported rate on a net basis by 1.0%.
On July 4, 2025, an act to provide for reconciliation to title II of H. Con. Res. 14 (known commonly as the One Big Beautiful Bill Act (“OBBBA”)) was enacted into law. The OBBBA includes eliminating the requirement to capitalize U.S. R&D, permanent extension of certain provisions of the Tax Cuts & Jobs Act of 2017 and other corporate tax impacts. The Company has considered the impact on the Consolidated and Combined Financial Statements and concluded it is immaterial.
Significant components of the Company’s deferred tax assets and liabilities from operations at the end of each fiscal year were as follows:
| ($ in millions) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Allowance for credit losses | $ | 7 | $ | 6 | |||||||
| Inventories | 15 | 18 | |||||||||
| Employee benefit plans | 15 | 8 | |||||||||
| Other accruals and prepayments | 129 | 112 | |||||||||
| Stock-based compensation expense | 20 | 17 | |||||||||
| Operating lease liabilities | 46 | 37 | |||||||||
| Capitalized research and development costs | 102 | 86 | |||||||||
| Tax credit, operating loss and capital loss carryforwards | 40 | 57 | |||||||||
| Net investment hedge | 15 | — | |||||||||
| Valuation allowances | (21) | (32) | |||||||||
| Total deferred tax assets | 368 | 309 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Depreciation | (16) | (13) | |||||||||
| Operating lease right-of-use assets | (43) | (35) | |||||||||
| Goodwill and other intangible assets | (263) | (270) | |||||||||
| Net investment hedge | — | (3) | |||||||||
| Total deferred tax liability | (322) | (321) | |||||||||
| Net deferred tax assets (liabilities) | $ | 46 | $ | (12) |
Deferred tax assets and deferred tax liabilities are included in other assets and other long-term liabilities, respectively, in the accompanying Consolidated Balance Sheets.
A valuation allowance is recorded on certain deferred tax assets if it has been determined it is more likely than not that all or a portion of these assets will not be realized. The valuation allowances in 2025 and 2024 are primarily attributable to foreign net operating loss carryforwards.
As of December 31, 2025, our U.S. and non-U.S. net operating loss carryforwards totaled $142 million, of which $42 million is related to federal and state net operating loss carryforwards, and $100 million related to non-U.S. net operating loss carryforwards. Certain of these losses can be carried forward indefinitely and others can be carried forward to various expiration dates from 2026 through 2045.
The Company recognizes tax benefits from uncertain tax positions only if, in its assessment, it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Judgment is required in evaluating tax positions and determining income tax provisions. The Company re-evaluates the technical merits of its tax positions and may recognize an uncertain tax benefit in certain circumstances, including when: (i) a tax audit is completed; (ii) applicable tax laws change, including a tax case ruling or legislative guidance; or (iii) the applicable statute of limitations expires.
As of December 31, 2025, tax benefits totaled $175 million ($116 million, net of the impact of $85 million of indirect tax benefits offset by $28 million associated with potential interest and penalties). As of December 31, 2024, tax benefits totaled $156 million ($116 million, net of the impact of $66 million of indirect tax benefits offset by $26 million associated with potential interest and penalties). The Company recognized approximately $2 million of net tax expense from potential interest and penalties during 2025, $7 million of net tax expense from potential interest and penalties during 2024, and $1 million of net tax benefits from the reversal of potential interest and penalties during 2023. To the extent taxes are not assessed with respect to uncertain tax positions, substantially all amounts accrued (including interest and penalties and net of indirect offsets) will be reduced and reflected as a reduction of the overall income tax provision. Unrecognized tax benefits and associated accrued interest and penalties are included in our income tax provision, income and other accrued expenses as detailed in Note 11.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding amounts accrued for potential interest and penalties, is as follows:
| ($ in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Unrecognized tax benefits, beginning of year | $ | 156 | $ | 97 | $ | 94 | |||||||||||
| Additions based on tax positions related to the current year | 26 | 46 | — | ||||||||||||||
| Additions for tax positions of prior years | 7 | 15 | 7 | ||||||||||||||
| Reductions for tax positions of prior years | (16) | — | (3) | ||||||||||||||
| Acquisitions, divestitures and other | — | — | 4 | ||||||||||||||
| Statute of limitations expirations | (1) | (1) | (1) | ||||||||||||||
| Settlements | (1) | — | (4) | ||||||||||||||
| Effect of foreign currency translation | 4 | (1) | — | ||||||||||||||
| Unrecognized tax benefits, end of year | $ | 175 | $ | 156 | $ | 97 | |||||||||||
The Company conducts business globally, and the Former Parent filed numerous consolidated and separate income tax returns in the U.S. federal and state and non-U.S. jurisdictions. The non-U.S. countries in which the Company has a significant presence include Belgium, Brazil, Canada, China, Germany, the Netherlands and the United Kingdom. Excluding these non-U.S. jurisdictions, the Company believes that a change in the statutory tax rate of any individual non-U.S. country would not have a material effect on the Company’s Consolidated and Combined Financial Statements given the geographic dispersion of the Company’s income.
The Company is routinely examined by various domestic and international taxing authorities. In connection with the Separation, the Company entered into certain agreements with Danaher, including a tax matters agreement. The tax matters agreement distinguishes between the treatment of tax matters for “Joint” filings compared to “Separate” filings prior to the Separation. “Joint” filings involve legal entities, such as those in the United States, that include operations from both Danaher and the Company. By contrast, “Separate” filings involve certain entities (primarily outside of the United States) that exclusively include either Danaher’s or the Company’s operations, respectively. In accordance with the tax matters agreement, Danaher is liable for and has indemnified the Company against all income tax liabilities involving “Joint” filings for periods prior to the Separation. The Company remains liable for certain pre-Separation income tax liabilities including those related to the Company’s “Separate” filings.
The Company files U.S. federal income tax returns and income tax returns in various state, local and foreign jurisdictions. The Company has various income tax audits ongoing at any time throughout the world. Except for jurisdictions where the Company has NOLs or tax credit carryforwards, the Company is no longer subject to any tax assessment from tax authorities for years prior to 2020.
Income taxes paid, net of refunds received, by jurisdiction for the year ended December 31 is as follows:
| ($ in millions) | 2025 | ||||
| Federal | $ | 71 | |||
| State | $ | 29 | |||
| Brazil | $ | 16 | |||
| China | $ | 12 | |||
| Germany | $ | 44 | |||
| Other Foreign | $ | 63 | |||
| Total Taxes Paid | $ | 235 |
NOTE 7. NONOPERATING INCOME (EXPENSE)
The following sets forth the components of the Company’s other income (expense), net:
| ($ in millions) | 2025 | 2024 | 2023 | ||||||||||||||||||||||||||
| Other components of net periodic benefit costs | $ | 2 | $ | 1 | $ | 1 | |||||||||||||||||||||||
| Unrealized investment losses | (1) | — | — | ||||||||||||||||||||||||||
| Impairment of equity investments | (3) | — | (15) | ||||||||||||||||||||||||||
| Net loss on product line dispositions | (6) | (10) | — | ||||||||||||||||||||||||||
| Total other income (expense), net | $ | (8) | $ | (9) | $ | (14) |
Other Components of Net Periodic Benefit Costs
The Company disaggregates the service cost component of net periodic benefit costs of noncontributory defined benefit pension plans and other postretirement employee benefit plans and presents the other components of net periodic benefit cost in other income (expense), net. These other components of net period benefit costs include the assumed rate of return on plan assets, partially offset by amortization of actuarial losses and interest.
Investment Gains (Losses)
For investments in equity securities without readily available fair values, the Company has elected the fair value alternative and records adjustments to fair value within net earnings. Additionally, the Company is a limited partner in a partnership that invests primarily in early stage companies. While the partnership records these investments at fair value, the Company’s investment in the partnership is accounted for under the equity method of accounting. The investment gains (losses) include realized and unrealized gains and losses related to changes in the fair value of the Company’s investments in equity securities and the Company’s equity in earnings of the partnerships that reflect the changes in fair value of the investments of the partnerships and related management fees and operating expenses.
Impairment of Equity Investments
During 2025, the Company recorded an impairment of $3 million related to an equity investment accounted for under the fair value alternative method. There were no impairments recorded related to investments in 2024. During 2023, the Company recorded an impairment of $15 million related to an equity method investment.
Loss on Product Line Dispositions, net
During 2025, the Company divested one product line and recorded a $6 million loss associated with the sale that is presented in other income (expense), net. The divestiture of this product line was recorded in the Product Quality & Innovation segment. During 2024, the Company divested two product lines and recorded a $10 million net loss associated with the sales that is presented in other income (expense), net. The divestiture of these product lines were recorded in the Water Quality segment. The 2025 and 2024 divestitures did not represent a strategic shift with a major effect on the Company’s operations and financial results and therefore are not reported as discontinued operations.
NOTE 8. LEASES
The Company has operating leases for office space, warehouses, distribution centers, research and development facilities, manufacturing locations and certain equipment, primarily automobiles. Many leases include one or more
options to renew, some of which include options to extend the leases for up to 15 years, and some leases include options to terminate the leases within 30 days. In certain of the Company’s lease agreements, the rental payments are adjusted periodically to reflect actual charges incurred for common area maintenance, utilities, inflation and/or changes in other indexes. The Company’s finance leases were not material as of December 31, 2025 and 2024. Right-of-use (“ROU”) assets arising from finance leases are included in property, plant and equipment, net and the liabilities are included in accrued expenses and other liabilities and other long-term liabilities in the accompanying Consolidated Balance Sheets.
The Consolidated and Combined Financial Statements include the following amounts related to operating leases where the Company is the lessee:
| ($ in millions) | 2025 | 2024 | 2023 | |||||||||||||||||||||||
| Consolidated and Combined Statements of Earnings | ||||||||||||||||||||||||||
| Fixed operating lease expense (a) | $ | 59 | $ | 51 | $ | 43 | ||||||||||||||||||||
| Variable operating lease expense | 20 | 18 | 12 | |||||||||||||||||||||||
| Total operating lease expense | $ | 79 | $ | 69 | $ | 55 | ||||||||||||||||||||
| Consolidated and Combined Statements of Cash Flows | ||||||||||||||||||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 57 | $ | 49 | $ | 41 | ||||||||||||||||||||
| ROU assets obtained in exchange for operating lease obligations | 52 | 47 | 52 | |||||||||||||||||||||||
| Consolidated Balance Sheets | December 31, 2025 | December 31, 2024 | ||||||||||||||||||||||||
| Lease Assets and Liabilities | Classification | |||||||||||||||||||||||||
| Operating lease ROU assets | Other long-term assets | $ | 195 | $ | 159 | |||||||||||||||||||||
| Operating lease liabilities - current | Accrued expenses and other liabilities | $ | 48 | $ | 39 | |||||||||||||||||||||
| Operating lease liabilities - long-term | Other long-term liabilities | 158 | 129 | |||||||||||||||||||||||
| Total operating lease liabilities | $ | 206 | $ | 168 | ||||||||||||||||||||||
| Weighted average remaining lease term | 7 years | 7 years | ||||||||||||||||||||||||
| Weighted average discount rate | 4.6 | % | 4.6 | % |
(a) Includes short-term leases and sublease income, both of which were immaterial.
The following table presents the maturity of the Company’s operating lease liabilities as of December 31, 2025 ($ in millions):
| 2026 | $ | 55 | |||
| 2027 | 43 | ||||
| 2028 | 32 | ||||
| 2029 | 25 | ||||
| 2030 | 19 | ||||
| Thereafter | 64 | ||||
| Total operating lease payments | 238 | ||||
| Less: imputed interest | (32) | ||||
| Total operating lease liabilities | $ | 206 |
As of December 31, 2025, the Company had no additional significant operating or finance leases that had not yet commenced.
NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS
As discussed in Note 2, goodwill arises from the purchase price for acquired businesses exceeding the fair value of tangible and intangible assets acquired less assumed liabilities and noncontrolling interests. Management assesses the goodwill of each of its reporting units for impairment at least annually at the beginning of the fourth quarter and as “triggering” events occur that indicate that it is more likely than not that an impairment exists. The Company elected to bypass the optional qualitative goodwill assessment allowed by applicable accounting standards and performed a quantitative impairment test for all reporting units as this was determined to be the most effective method to assess for impairment across the reporting units.
The Company estimates the fair value of its reporting units using a market approach, based on current trading multiples of forecasted EBITDA for peer companies operating in businesses similar to each of the Company’s reporting units, in addition to recent market sale transactions of comparable companies. In determining the estimated fair value of each reporting unit, the Company also applies a control premium to the trading multiples of EBITDA for peer companies. If the estimated fair value of the reporting unit is less than its carrying value, the Company will impair the goodwill for the amount of the carrying value in excess of the fair value.
As of December 31, 2025, the Company had three reporting units for goodwill impairment testing. As of the date of the 2025 annual impairment test, the carrying value of the goodwill included in each individual reporting unit ranged from $553 million to approximately $1.3 billion. No goodwill impairment charges were recorded for the years ended December 31, 2025, 2024 and 2023 and no “triggering” events have occurred subsequent to the performance of the 2025 annual impairment test. The factors used by management in its impairment analysis are inherently subject to uncertainty. If actual results are not consistent with management’s estimates and assumptions, goodwill and other intangible assets may be overstated and a charge would need to be taken against net earnings.
The following is a rollforward of the Company’s goodwill by segment:
| ($ in millions) | Water Quality | Product Quality & Innovation | Total | ||||||||||||||
| Balance, January 1, 2024 | $ | 1,305 | $ | 1,228 | $ | 2,533 | |||||||||||
| Attributable to 2024 acquisitions | — | 243 | 243 | ||||||||||||||
| Foreign currency translation and other | (49) | (34) | (83) | ||||||||||||||
| Balance, December 31, 2024 | 1,256 | 1,437 | 2,693 | ||||||||||||||
| Attributable to 2025 acquisitions | 23 | — | 23 | ||||||||||||||
| Attributable to 2025 divestitures | — | (2) | (2) | ||||||||||||||
| Foreign currency translation and other | 63 | 61 | 124 | ||||||||||||||
| Balance, December 31, 2025 | $ | 1,342 | $ | 1,496 | $ | 2,838 |
Finite-lived intangible assets are amortized over their legal or estimated useful life. The following summarizes the gross carrying value and accumulated amortization for each major category of intangible assets as of December 31:
| 2025 | 2024 | ||||||||||||||||||||||
| ($ in millions) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||||||||
| Finite-lived intangibles: | |||||||||||||||||||||||
| Customer relationships | $ | 654 | $ | (550) | $ | 631 | $ | (510) | |||||||||||||||
| Patents, technology and other intangibles | 371 | (259) | 355 | (246) | |||||||||||||||||||
| Total finite-lived intangibles | 1,025 | (809) | 986 | (756) | |||||||||||||||||||
| Indefinite-lived intangibles: | |||||||||||||||||||||||
| Trademarks and trade names | 308 | — | 305 | — | |||||||||||||||||||
| Total intangibles | $ | 1,333 | $ | (809) | $ | 1,291 | $ | (756) |
During 2025 and 2024, the Company acquired finite-lived intangible assets consisting primarily of developed technology and customer relationships along with indefinite-lived trade names. Refer to Note 2 for additional information on the intangible assets acquired. There were no such acquisitions during 2023.
The Company reviews identified intangible assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Indefinite-lived intangibles are subject to impairment testing at least annually or more frequently if events or changes in circumstances indicate that potential impairment exists. The Company identified impairment triggers during the second and third quarters of 2023 which resulted in the impairment of certain long-lived assets, including customer relationships and trade names. In 2023, the Company recorded impairment charges totaling $12 million related to these long-lived assets in selling, general and administrative expenses in the Consolidated and Combined Statements of Earnings. There were no impairment charges recorded during 2025 or 2024.
Total intangible amortization expense in 2025, 2024 and 2023 was $36 million, $38 million and $48 million, respectively. Based on the intangible assets recorded as of December 31, 2025, amortization expense is estimated to be approximately $35 million during 2026, $32 million during 2027, $30 million during 2028, $28 million during 2029 and $25 million during 2030.
NOTE 10. FAIR VALUE MEASUREMENTS
Accounting standards define fair value based on an exit price model, establish a framework for measuring fair value for assets and liabilities required to be carried at fair value and provide for certain disclosures related to the valuation methods used within the valuation hierarchy as established within the accounting standards. This hierarchy prioritizes the inputs into three broad levels as follows.
-
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
-
Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, or other observable characteristics for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from, or corroborated by, observable market data through correlation.
-
Level 3 inputs are unobservable inputs based on the Company’s assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
A summary of financial liabilities that are measured at fair value on a recurring basis were as follows:
| ($ in millions) | Quoted Prices in Active Market (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Deferred compensation liabilities | $ | 42 | $ | — | $ | — | $ | 42 | |||||||||||||||
| Cross-currency swap derivative contracts | — | 9 | — | 9 | |||||||||||||||||||
| Total Liabilities | $ | 42 | $ | 9 | $ | — | $ | 51 | |||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Deferred compensation liabilities | $ | 32 | $ | — | $ | — | $ | 32 | |||||||||||||||
| Total Liabilities | $ | 32 | $ | — | $ | — | $ | 32 |
Certain management employees participate in the Company’s nonqualified deferred compensation programs, which permits such employees to defer a portion of their compensation, on a pretax basis, until after their termination of employment. All amounts deferred under such plans are unfunded, unsecured obligations and are presented as a component of the compensation and benefits accrual included in other long-term liabilities in the accompanying Consolidated Balance Sheets. Participants may choose among alternative earning rates for the amounts they defer, which are primarily based on investment options within the Company’s defined contribution plans for the benefit of U.S. employees (“401(k) Programs”) (except that the earnings rates for amounts contributed unilaterally by the Company are entirely based on changes in the value of the Company’s common stock). Changes in the deferred compensation liability under these programs are recognized based on changes in the fair value of the participants’ accounts, which are based on the applicable earnings rates.
The cross-currency swap derivative contracts are classified as Level 2 in the fair value hierarchy as they are measured using the income approach with the relevant interest rates and current currency exchange rates and forward curves as inputs. Refer to Note 13 for additional information.
Fair Value of Financial Instruments
The carrying amounts and fair values of the Company’s other financial instruments as of December 31 were as follows:
| 2025 | 2024 | ||||||||||||||||||||||
| ($ in millions) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||
| Debt obligations: | |||||||||||||||||||||||
| Current portion of long-term debt | $ | 700 | $ | 706 | $ | — | $ | — | |||||||||||||||
| Long-term debt | 1,973 | 2,045 | 2,599 | 2,638 |
As of December 31, 2025, short and long-term borrowings were categorized as Level 1. The fair value of long-term borrowings was based on quoted market prices. The difference between the fair value and the carrying amounts of long-term borrowings is attributable to changes in market interest rates and/or the Company’s credit ratings subsequent to the occurrence of the borrowing. The fair values of borrowings with original maturities of one year or less, as well as cash and cash equivalents, trade accounts receivable, net and trade accounts payable generally approximate their carrying amounts due to the short-term maturities of these instruments.
Refer to Note 14 for information related to the fair value of the Company sponsored defined benefit pension plan assets.
NOTE 11. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities as of December 31 were as follows:
| 2025 | 2024 | ||||||||||||||||||||||
| ($ in millions) | Current | Noncurrent | Current | Noncurrent | |||||||||||||||||||
| Compensation and benefits | $ | 271 | $ | 40 | $ | 244 | $ | 29 | |||||||||||||||
| Deferred revenue | 267 | 20 | 237 | 17 | |||||||||||||||||||
| Taxes, income and other | 101 | 279 | 77 | 295 | |||||||||||||||||||
| Operating lease liabilities | 48 | 158 | 39 | 129 | |||||||||||||||||||
| Other | 253 | 61 | 253 | 47 | |||||||||||||||||||
| Total | $ | 940 | $ | 558 | $ | 850 | $ | 517 |
Other category above primarily includes accruals related to sales and product allowances, pension and postretirement benefits, interest payable, dividends payable, derivative liability and warranty reserves.
NOTE 12. FINANCING
The components of the Company’s debt as of December 31, less unamortized debt discounts and debt issuance costs, were as follows:
| ($ in millions) | Outstanding Amount | |||||||||||||||||||
| Description and Aggregate Principal Amount | 2025 | 2024 | ||||||||||||||||||
| 5.50% senior unsecured notes due 9/18/2026 ($700 million) (the “2026 Notes”) | $ | 700 | $ | 697 | ||||||||||||||||
| 5.35% senior unsecured notes due 9/18/2028 ($700 million) (the “2028 Notes”) | 696 | 696 | ||||||||||||||||||
| 4.15% senior unsecured notes due 9/19/2031 (€500 million) (the “2031 Notes”) | 584 | 513 | ||||||||||||||||||
| 5.45% senior unsecured notes due 9/18/2033 ($700 million) (the "2033 Notes") | 693 | 693 | ||||||||||||||||||
| Total Debt | 2,673 | 2,599 | ||||||||||||||||||
| Less: current portion of long-term debt | (700) | — | ||||||||||||||||||
| Long-term debt | $ | 1,973 | $ | 2,599 |
Senior Unsecured Notes
In September 2023, and in connection with the Separation, the Company issued approximately $2.1 billion aggregate principal amount of USD senior unsecured notes in three series with maturity dates ranging from 2026 through 2033 (collectively, the “U.S. Dollar Notes”). Additionally, the Company issued €500 million principal amount of senior unsecured notes (“Euro Notes”) with a maturity date of 2031.
Interest payments on the U.S. Dollar Notes are due semi-annually until maturity. Interest payments on the Euro Notes are due annually until maturity. In the event of a change in control and a related downgrade of the ratings of the U.S. Dollar Notes and Euro Notes (collectively, the "Notes") below investment grade, the indentures governing the Notes requires that the Company make an offer to each holder of the Notes to repurchase all or any part of that holder's notes at a repurchase price equal to 101% of the aggregate principal amount of the Notes repurchased, plus any accrued and unpaid interest. The indentures also include a limitation on liens incurred by the Company and its wholly owned U.S. subsidiaries. The indentures do not restrict the Company or its subsidiaries from incurring indebtedness, nor does it require any financial covenants. All the covenants are subject to a number of exceptions, limitations, and qualifications.
Upon issuance, the Notes became guaranteed by Danaher. Following the completion of the Separation on September 30, 2023, Danaher was automatically and unconditionally released and discharged from all obligations under its guarantees.
The Company recorded $24 million of debt discounts and debt issuance costs related to the Notes. Debt issuance costs are presented as a reduction of debt in the Consolidated Balance Sheets and are amortized as a component of interest expense over the term of the related debt. Unamortized debt discounts and debt issuance costs totaled $14 million and $19 million as of December 31, 2025 and 2024, respectively.
The proceeds of the Notes were distributed to Danaher during September as partial consideration for the net assets contributed to Veralto in advance of the Separation on September 30, 2023.
Registration Rights Agreement
In connection with the issuance of the Notes, the Company entered into a registration rights agreement, pursuant to which the Company was obligated to use commercially reasonable efforts to file with the SEC, and cause to be declared effective, a registration statement with respect to an offer to exchange each series of Notes for registered notes (“Registered Notes”) with substantially identical terms (“Exchange Offer”). Accordingly, on July 26, 2024, the Company filed a Form S-4 with the SEC (the “Registration Statement”), which Registration Statement was declared effective on August 5, 2024. On August 5, 2024, the Company launched the Exchange Offer, which expired on September 3, 2024. Substantially all Notes were tendered and exchanged for Registered Notes in the Exchange Offer.
Credit Facility
On August 31, 2023, the Company entered into a credit agreement providing for a five-year unsecured revolving credit facility in an aggregate committed amount of $1.5 billion (the “Credit Facility”). There were no outstanding amounts under the Credit Facility as of December 31, 2025. The Credit Facility includes an alternative currency sublimit up to an amount equal to 90% of the aggregate commitments and a $100 million swingline sublimit and provides for the issuance of swing loans.
Borrowings under the Credit Facility bear interest at the Company’s option as follows: (i) in the case of borrowings denominated in U.S. dollars, (1) Term Secured Overnight Financing Rate (“SOFR”) Loans (as defined in the Credit Agreement) bear interest at a variable rate equal to the Term SOFR (as defined in the Credit Agreement) plus the Applicable Rate (a margin of between 79.5 and 130.0 basis points, depending on the Company’s long-term debt credit rating); and (2) Base Rate Committed Loans and Swing Line Loans (each as defined in the Credit Agreement) bear interest at a variable rate equal to the highest of (a) the Federal funds rate (as published by the Federal Reserve Bank of New York from time to time) plus 1/2 of 1.0%, (b) Bank of America’s “prime rate” as publicly announced from time to time, (c) Term SOFR (based on one-month interest period plus 1.0%) and (d) 1.0%, plus in each case the Applicable Rate (a margin of between 0.0 to 30.0 basis points, depending on the Company’s long-term debt credit rating); and (ii) in the case of borrowings denominated in euros, Alternative Currency Loans (as defined in the Credit Agreement) bear interest at EURIBOR (as defined in the Credit Agreement) plus the Applicable Rate (a margin of between 79.5 and 130.0 basis points, depending on the Company’s long-term debt credit rating). In addition, the Company is required to pay a per annum facility fee of between 8.0 and 20.0 basis points (depending on the Company’s long-term debt credit rating) based on the aggregate commitments under the Credit Facility, regardless of usage. The Company’s current credit rating as of December 31, 2025 is Baa1/BBB and the associated facility fee is 9.0 basis points.
The Credit Facility contains affirmative and negative covenants customary to financings of this type that, among other things, limits the Company and its subsidiaries’ ability to incur additional liens and to make certain fundamental changes. In addition, the Credit Facility contains a financial covenant that requires the Company to not exceed a maximum consolidated net leverage ratio of 3.75:1.00 that will be tested quarterly. The maximum consolidated net leverage ratio will be increased to 4.25:1.00 for the four consecutive full fiscal quarters immediately following the consummation of any material acquisition. The Company intends to use the Credit Facility for liquidity support for the Company’s commercial paper programs and for general corporate purposes. Outstanding commercial paper directly reduces borrowing capacity under the Credit Facility. There were no amounts outstanding under the commercial paper program as of December 31, 2025.
Debt issuance costs related to the credit facility were not material.
Other
The Company’s minimum principal payments for the next five years are as follows ($ in millions):
| 2026 | $ | 700 | |||
| 2027 | — | ||||
| 2028 | 700 | ||||
| 2029 | — | ||||
| 2030 | — | ||||
| Thereafter | 1,287 |
NOTE 13. DERIVATIVES AND HEDGING TRANSACTIONS
On July 29, 2025, the Company entered into cross-currency swap derivative contracts with a total notional amount of $410 million to partially hedge its net investments in non-U.S. operations against adverse movements in exchange rates between the U.S. dollar and the euro and Swiss franc. These contracts are agreements to exchange fixed-rate payments in one currency for fixed-rate payments in another currency and effectively convert U.S. dollar-denominated bonds to obligations denominated in the hedged currency. These contracts also reduce the interest rate from the stated interest rates on the U.S. dollar-denominated debt to the interest rates of the swaps. The changes in the spot rate of these instruments are recorded in accumulated other comprehensive income (loss) (“OCI”) in stockholders’ equity, partially offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in accumulated OCI. The interest income or expense from these swaps is recorded in interest expense in the accompanying Consolidated and Combined Statements of Earnings consistent with the classification of interest expense attributable to the underlying debt. These instruments mature in September 2030 and September 2033.
In September 2023, the Company issued €500 million of foreign currency denominated long-term debt that is designated as a partial hedge of its net investment in foreign operations against adverse movements in exchange rates between the U.S. dollar and the euro. This foreign currency denominated long-term debt issuance is designated and qualifies as a nonderivative hedging instrument. Accordingly, the foreign currency translation of this debt instrument is recorded in accumulated OCI, offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in accumulated OCI. This instrument matures in September 2031.
The following table summarizes the notional values as of December 31, 2025 and 2024 and pretax impact of changes in the fair values of instruments designated as net investment hedges in accumulated other comprehensive income (“OCI”) for the year then ended:
| ($ in millions) | Notional Amount Outstanding | Gain (Loss) Recognized in OCI | Amounts Reclassified from OCI | ||||||||||||||||||||
| Year ended December 31, 2025: | |||||||||||||||||||||||
| Net investment hedges: | |||||||||||||||||||||||
| Cross-currency contracts | $ | 410 | $ | (9) | $ | — | |||||||||||||||||
| Foreign currency denominated debt | 584 | (70) | $ | — | |||||||||||||||||||
| Total | $ | 994 | $ | (79) | $ | — | |||||||||||||||||
| Year ended December 31, 2024: | |||||||||||||||||||||||
| Net investment hedges: | |||||||||||||||||||||||
| Foreign currency denominated debt | $ | 513 | $ | 34 | $ | — | |||||||||||||||||
Gains or losses related to the net investment hedges are classified as foreign currency translation adjustments in the schedule of changes in OCI in Note 17, as these items are attributable to the Company’s hedges of its net investment in foreign operations.
The Company did not reclassify any other deferred gains or losses related to the net investment hedges from accumulated other comprehensive income (loss) to earnings during the years ended December 31, 2025 and December 31, 2024. In addition, the Company did not have any ineffectiveness related to the net investment hedges during the years ended December 31, 2025 and December 31, 2024 and, should they arise, any ineffective portions of the hedges would be reclassified from accumulated other comprehensive income (loss) into earnings during the period of change. The cash inflows and outflows associated with the Company’s derivative contracts designated as net investment hedges are classified in all other investing activities in the accompanying Consolidated and Combined Statements of Cash Flows, except for cash flows from the periodic interest settlements on the cross-currency swaps which are reported as cash flows from operating activities in the Consolidated and Combined Statements of Cash Flows.
The Company’s derivative instruments, as well as its nonderivative debt instrument designated and qualifying as a net investment hedge, were classified in the Company’s Consolidated Balance Sheets as follows:
| ($ in millions) | 2025 | 2024 | ||||||||||||
| Derivative instruments | ||||||||||||||
| Other long-term liabilities | $ | 9 | $ | — | ||||||||||
| Nonderivative hedging instruments | ||||||||||||||
| Long-term debt | $ | 584 | $ | 513 |
Amounts related to the Company’s derivatives expected to be reclassified from accumulated OCI to net earnings during the next 12 months, if interest rates and foreign exchange rates remain unchanged, were not significant.
NOTE 14. PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFIT PLANS
Certain of the Company's employees participate in noncontributory defined benefit pension plans and under certain of these plans, benefit accruals continue. In general, the Company’s policy is to fund these plans based on
considerations relating to legal requirements, underlying asset returns, the plan’s funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates and other factors.
The following sets forth the funded status of the Company's plans as of the most recent actuarial valuations using measurement dates of December 31:
| ($ in millions) | 2025 | 2024 | |||||||||
| Change in pension benefit obligation: | |||||||||||
| Benefit obligation at beginning of year | $ | (162) | $ | (171) | |||||||
| Service cost | (5) | (5) | |||||||||
| Interest cost | (3) | (4) | |||||||||
| Participant contributions | (2) | (2) | |||||||||
| Plan settlements and curtailments | 1 | 9 | |||||||||
| Benefits and other expenses paid | 5 | 5 | |||||||||
| Actuarial (loss) gain | 1 | (4) | |||||||||
| Foreign exchange rate impact and other | (22) | 10 | |||||||||
| Benefit obligation at end of year | (187) | (162) | |||||||||
| Change in plan assets: | |||||||||||
| Fair value of plan assets at beginning of year | 127 | 135 | |||||||||
| Actual return on plan assets | 5 | 3 | |||||||||
| Employer contributions | 5 | 6 | |||||||||
| Participant contributions | 2 | 2 | |||||||||
| Settlements | (1) | (7) | |||||||||
| Benefits and other expenses paid | (5) | (5) | |||||||||
| Foreign exchange rate impact | 18 | (7) | |||||||||
| Fair value of plan assets at end of year | 151 | 127 | |||||||||
| Funded status | $ | (36) | $ | (35) |
The largest contributors to the net actuarial loss affecting the benefit obligation in 2025 were a decrease in the 2025 discount rate compared to the prior period and updated claims cost assumptions. The largest contributor to the net actuarial loss affecting the benefit obligation in 2024 was a decrease in the 2024 discount rates compared to the prior period.
Projected benefit obligation (“PBO”) and fair value of plan assets for pension plans and postretirement benefit plans with PBOs in excess of plan assets:
| ($ in millions) | 2025 | 2024 | |||||||||
| Projected benefit obligation | $ | 185 | $ | 162 | |||||||
| Fair value of plan assets | 150 | 127 |
The year-over-year change in the amounts above reflects the benefit plans with a PBO in excess of the fair value of plan assets.
Accumulated benefit obligation (“ABO”) and fair value of plan assets for pension plans and postretirement benefit plans with ABOs in excess of plan assets:
| ($ in millions) | 2025 | 2024 | |||||||||
| Accumulated benefit obligation | $ | 170 | $ | 149 | |||||||
| Fair value of plan assets | 150 | 127 |
The year-over-year change in the amounts above reflects the benefit plans with an ABO in excess of the fair value of plan assets.
Weighted average assumptions used to determine benefit obligations at date of measurement:
| 2025 | 2024 | ||||||||||
| Discount rate | 2.0 | % | 1.7 | % | |||||||
| Rate of compensation increase | 2.2 | % | 2.2 | % |
In 2025, the medical trend rate used to determine the postretirement benefit obligation was 7.0%. The rate decreases gradually to an ultimate rate of 4.0% by 2050 and remains at that level thereafter. In 2024, the medical trend rate used to determine the postretirement benefit obligation was 7.7%, gradually decreasing to an ultimate rate of 4.0% by 2049 and remaining at that level thereafter. The trend rate is a significant factor in determining the amounts reported.
Components of net periodic pension and postretirement benefit (cost):
| ($ in millions) | 2025 | 2024 | |||||||||
| Service cost | $ | (5) | $ | (5) | |||||||
| Interest cost | (3) | (4) | |||||||||
| Expected return on plan assets | 4 | 4 | |||||||||
| Amortization of prior service credit | 1 | 1 | |||||||||
| Amortization of net loss | — | — | |||||||||
| Settlement and curtailment gain | — | 2 | |||||||||
| Net periodic pension cost | $ | (3) | $ | (2) |
The components of the net periodic benefit (cost) of the noncontributory defined benefit pension plans and other postretirement employee benefit plans other than service cost are included in other income (expense), net in the Consolidated and Combined Statements of Earnings.
Weighted average assumptions used to determine net periodic pension benefit (cost) at date of measurement:
| 2025 | 2024 | ||||||||||
| Discount rate | 1.7 | % | 2.0 | % | |||||||
| Expected long-term return on plan assets | 3.0 | % | 3.1 | % | |||||||
| Rate of compensation increase | 2.2 | % | 2.5 | % |
The discount rate reflects the market rate on December 31 of the prior year for high-quality fixed-income investments with maturities corresponding to the Company’s benefit obligations and is subject to change each year.
Included in accumulated other comprehensive income (loss) as of December 31, 2025 are the following amounts that have not yet been recognized in net periodic pension cost: unrecognized prior service credit of $6 million ($4 million, after-tax) and unrecognized actuarial gains of approximately $13 million ($10 million, after-tax). The unrecognized losses and prior service cost, net, is calculated as the difference between the actuarially determined projected benefit obligation and the value of the plan assets less accrued pension costs as of December 31, 2025.
Selection of Expected Rate of Return on Assets
The expected rate of return reflects the asset allocation of the plans, and is based primarily on broad, publicly traded equity and fixed-income indices and forward-looking estimates of active portfolio and investment management. Long-term rate of return on asset assumptions for the plans were determined on a plan-by-plan basis based on the composition of assets and ranged from 1.8% to 4.4% in 2025 and 2.0% to 3.3% in 2024, with a weighted average rate of return assumption of 3.0% and 3.1% in 2025 and 2024, respectively.
Pension Plan Assets
The Company’s pension plan assets are invested in various insurance contracts as determined by the administrator of each plan. The value of the plan assets directly affects the funded status of the Company’s pension plans recorded in the Consolidated and Combined Financial Statements.
Insurance contracts are valued based upon the quoted prices of the underlying investments with the insurance company and are considered a Level 2 investment. The fair value of plan assets as of December 31, 2025 and 2024 was $151 million and $127 million, respectively.
The method described above may produce a fair value estimate that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes the valuation methods are appropriate and consistent with the methods used by other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Expected Contributions
During 2026, the Company’s cash contribution requirements for its pension plans are expected to be approximately $6 million. The ultimate amounts to be contributed depend upon, among other things, legal requirements, underlying asset returns, the plan’s funded status, the anticipated tax deductibility of the contributions, local practices, market conditions, interest rates and other factors.
The following sets forth benefit payments, which reflect expected future service, as appropriate, expected to be paid by the plans in the periods indicated ($ in millions):
| 2026 | $ | 8 | |||
| 2027 | 8 | ||||
| 2028 | 11 | ||||
| 2029 | 11 | ||||
| 2030 | 10 | ||||
| 2031 - 2035 | 52 |
Other Matters
Substantially all employees not covered by defined benefit plans are covered by defined contribution plans, which generally provide for Company funding based on a percentage of compensation.
Expense for all defined benefit and defined contribution pension plans amounted to $67 million, $63 million and $52 million for the years ended December 31, 2025, 2024 and 2023, respectively.
NOTE 15. COMMITMENTS
Warranties
The Company generally accrues estimated warranty costs at the time of sale. In general, manufactured products are warranted against defects in material and workmanship when properly used for their intended purpose, installed correctly and appropriately maintained. Warranty periods depend on the nature of the product and range from the date of such sale up to twenty years. The amount of the accrued warranty liability is determined based on historical information such as past experience, product failure rates or number of units repaired, estimated cost of material and labor and in certain instances estimated property damage. As of December 31, 2025 and 2024, the Company had accrued warranty liabilities of $30 million as of the end of both periods.
Purchase Obligations
The Company has entered into agreements to purchase goods or services that are enforceable and legally binding on the Company and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancellable at any time without penalty. As of December 31, 2025, the aggregate amount of the Company’s purchase obligations totaled approximately $166 million and the majority of these obligations are expected to be settled during 2026.
NOTE 16. LITIGATION AND CONTINGENCIES
The Company is subject to or otherwise responsible for a variety of litigation and other legal and regulatory proceedings in the course of its business (or related to the business operations of previously owned entities), including claims or counterclaims for damages arising out of the use of products or services and claims relating to intellectual property matters, employment matters, tax matters, commercial disputes, breach of contract claims,
competition and sales and trading practices, environmental matters, personal injury, insurance coverage and acquisition or divestiture-related matters, as well as regulatory subpoenas, requests for information, investigations and enforcement. The Company may also from time to time become subject to lawsuits as a result of acquisitions or as a result of liabilities retained from, or representations, warranties or indemnities provided in connection with, businesses divested by the Company or its predecessors. The types of claims made in lawsuits include claims for compensatory damages, consequential damages, punitive damages and/or injunctive relief.
While the Company maintains general, products, property, workers’ compensation, automobile, cargo, aviation, crime, cyber, fiduciary and directors’ and officers’ liability insurance (and has acquired rights under similar policies in connection with certain acquisitions) up to certain limits that cover certain of these claims, this insurance may be insufficient or unavailable to cover such losses. For general, products and property liability and most other insured risks, the Company purchases outside insurance coverage only for severe losses and must establish and maintain reserves with respect to amounts within the self-insured retention. In addition, while the Company believes it is entitled to indemnification from third parties for some of these claims, these rights may also be insufficient or unavailable to cover such losses.
The Company records a liability in the Consolidated and Combined Financial Statements for loss contingencies when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss does not meet the known or probable level but is reasonably possible it is disclosed and if the loss or range of loss can be reasonably estimated, the estimated loss or range of loss is disclosed. The Company’s reserves consist of specific reserves for individual claims and additional amounts for anticipated developments of these claims as well as for incurred but not yet reported claims. The specific reserves for individual known claims are quantified with the assistance of legal counsel and outside risk professionals where appropriate. In addition, outside risk professionals assist in the determination of reserves for incurred but not yet reported claims through evaluation of the Company’s specific loss history, actual claims reported and industry trends together with statistical and other factors. Reserve estimates may be adjusted as additional information regarding a claim becomes known. Because most contingencies are resolved over long periods of time, new developments (including litigation developments, the discovery of new facts, changes in legislation and outcomes of similar cases), changes in assumptions or changes in the Company’s strategy in any given period can require the Company to adjust the loss contingency estimates that have been recorded in the financial statements, record estimates for liabilities or assets previously not susceptible to reasonable estimates or pay cash settlements or judgments.
In addition, the Company’s operations, products and services are subject to numerous U.S. federal, state, local and non-U.S. environmental, health and safety laws and regulations concerning, among other things, the health and safety of Veralto employees, the generation, storage, use and transportation of hazardous materials, emissions or discharges of substances into the environment, investigation and remediation of hazardous substances or materials at various sites, chemical constituents in products and end-of-life disposal and take-back programs for products sold. A number of the Company’s operations involve the handling, manufacturing, use or sale of substances that are or could be classified as hazardous materials within the meaning of applicable laws. Compliance with these laws and regulations has not had and, based on current information and the applicable laws and regulations currently in effect, is not expected to have a material effect on the Company’s capital expenditures, earnings or competitive position, and the Company does not anticipate material capital expenditures for environmental control facilities.
In addition to environmental compliance costs, the Company from time to time incurs costs related to remedial efforts or alleged environmental damage associated with past or current waste disposal practices or other hazardous materials handling practices. The Company may also from time to time become party to personal injury, property damage or other claims brought by private parties alleging injury or damage due to the presence of, or exposure to, hazardous substances. If the Company determines that potential liability for a particular site or with respect to a personal injury claim is known or considered probable and reasonably estimable, the Company accrues the total estimated loss, including investigation and remediation costs, associated with the site or claim.
While the Company actively pursues insurance recoveries, as well as recoveries from other potentially responsible parties, it does not recognize any insurance recoveries until realized or until such time as a sustained pattern of collections is established related to historical matters of a similar nature and magnitude. If the Company’s self-insurance and litigation reserves prove inadequate, it would be required to incur an expense equal to the amount of the loss incurred in excess of the reserves, which would adversely affect the Company’s Consolidated and Combined Financial Statements.
As of December 31, 2025, the Company had approximately $152 million of guarantees consisting primarily of outstanding standby letters of credit, bank guarantees and performance and bid bonds. These guarantees have been provided in connection with certain arrangements with vendors, customers, insurance providers, financing counterparties and governmental entities to secure the Company’s obligations and/or performance requirements related to specific transactions. The Company believes that if the obligations under these instruments were triggered, they would not have a material effect on its Consolidated and Combined Financial Statements.
NOTE 17. STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION
Capital Stock
Under Veralto’s certificate of incorporation, as of December 31, 2025, Veralto’s authorized capital stock consists of 1.0 billion common shares with par value $0.01 per share and 15 million preferred shares with par value $0.01 per share. On September 29, 2023, the 100 shares of Veralto common stock held by Danaher were recapitalized into 246,291,342 shares of Veralto common stock held by Danaher. On September 30, 2023, Danaher distributed all of Veralto’s issued and outstanding common stock to Danaher’s stockholders. No preferred shares were issued or outstanding on December 31, 2025. Each share of Veralto common stock entitles the holder to one vote on all matters to be voted upon by common stockholders. Veralto’s Board of Directors (the “Board”) is authorized to issue shares of preferred stock in one or more series and has discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. The Board’s authority to issue preferred stock with voting rights or conversion rights that, if exercised, could adversely affect the voting power of the holders of common stock, could potentially discourage attempts by third parties to obtain control of Veralto through certain types of takeover practices.
Following the Separation, the Company began paying a regular quarterly dividend during the first quarter of 2024. Aggregate cash payments for the four quarterly dividends paid to stockholders during 2025 and 2024 were $109 million and $89 million, respectively, and were recorded as dividends to stockholders in the Consolidated and Combined Statements of Changes in Stockholders’ Equity and the Consolidated and Combined Statements of Cash Flows.
On December 16, 2025, the Company’s board of directors authorized a quarterly dividend of $0.13 per share of Company common stock payable on January 30, 2026 to holders of record at the close of business on December 31, 2025.
Share Repurchase Program
On November 25, 2025, the Company announced that its Board of Directors approved a share repurchase program (the “Repurchase Program”) authorizing the repurchase of up to $750 million of the Company’s common stock from time to time on the open market (including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act of 1934, as amended), in privately negotiated transactions or by other methods, at the Company’s discretion. The program does not obligate the Company to acquire any particular amount of its common stock, has no expiration date, and will continue until otherwise suspended or terminated at any time for any reason. The timing and amount of any shares repurchased under the program will be determined by members of the Company’s management based on its evaluation of market, business conditions, and other factors.
During the year ended December 31, 2025, the Company did not make any share repurchases.
Stock-Based Compensation
In connection with the Separation, the Company adopted the 2023 Omnibus Incentive Plan (the “Stock Plan”) and outstanding equity awards of Danaher held by Veralto employees were converted into or replaced with awards of Veralto common stock under the Stock Plan based on the “concentration method,” and as adjusted to maintain the economic value before and after the Separation date using the ratio of the Veralto common stock fair market value relative to the Danaher common stock fair market value prior to the Separation. The incremental stock-based compensation expense recorded as a result of this equity award conversion is $10 million, with $7 million recognized after the Separation in the fourth quarter of 2023 and an additional $3 million recognized over the remaining service period. For each equity award holder, the intent was to maintain the economic value of the equity awards before and after the Separation. The terms of the equity awards, such as the award period, exercisability and vesting schedule, as applicable, generally continue unchanged. Other than converted or replacement equity awards of Veralto issued in replacement of the Former Parent’s RSUs and stock options, the terms of the converted or replacement equity awards of Veralto (e.g., vesting date and expiration date) continued unchanged.
The Stock Plan provides for the grant of stock options, PSUs, and RSUs, among other types of awards. A total of 22 million shares of Veralto common stock have been authorized for issuance under the Stock Plan. As of December 31, 2025, approximately 13 million shares of common stock remain available for issuance under the Stock Plan.
Stock options under the Stock Plan generally vest pro rata over a three-year or four-year period and terminate 10 years from the grant date, though the specific terms of each grant are determined by the Compensation Committee of the Company’s Board of Directors. The Company’s executive officers, non-employee directors, and certain other employees may be awarded stock options with different vesting criteria. Exercise prices for stock options granted under the Stock Plan are generally equal to the closing price of Veralto’s common stock on the New York Stock Exchange on the date of grant, while stock options issued as conversion awards in connection with the Separation from Danaher were priced to maintain the economic value before and after the Separation.
RSUs granted under the Stock Plan provide for the issuance of common stock at no cost to the holder. RSUs granted to employees generally vest pro rata over a three-year or four-year period, although certain employees and non-employee directors may be awarded RSUs with different time-based vesting criteria. Certain members of senior management may also be awarded incremental RSUs subject to performance-based vesting criteria. Prior to vesting, RSUs do not have dividend equivalent rights, do not have voting rights, and the shares underlying the RSUs are not considered issued or outstanding.
PSUs granted under the Stock Plan provide for the issuance of a share of the Company’s common stock at no cost to the holder and will vest at 0% to 200% of the target share amount based on achievement of performance targets. The performance targets are based on a mix of both achievement of an internal growth metric and the Company’s total stockholder return ranking, both over a performance period of approximately three years. PSUs issued are entitled to dividend equivalent rights. The PSU dividend equivalent rights are subject to the same vesting and payment restrictions as the related shares, but do not have voting rights and the shares underlying the PSUs are not considered issued and outstanding.
The equity compensation awards granted by the Company generally vest only if the employee is employed by the Company (or in the case of directors, the director continues to serve on the Company Board) on the vesting date or in other limited circumstances, including following a qualifying retirement. To cover the exercise of options and vesting of RSUs, the Company generally issues new shares from its authorized but unissued share pool, although it may instead issue treasury shares in certain circumstances.
The Company accounts for stock-based compensation by measuring the cost of employee services received in exchange for all equity awards granted based on the fair value of the award as of the grant date. The Company recognizes the compensation expense over the requisite service period (which is generally the vesting period but may be shorter than the vesting period if the employee becomes retirement eligible before the end of the vesting period). For awards issued after the Separation the fair value for RSU awards was calculated using the closing price of the Company’s common stock on the date of grant, adjusted for the fact that RSUs do not accrue dividends. The fair value of the options granted was calculated using a Black-Scholes Merton option pricing model (“Black-Scholes”).
The following summarizes the assumptions used in the Black-Scholes model to value options granted during the years ended December 31:
| 2025 | 2024 | 2023 | |||||||||||||||
| Risk-free interest rate | 3.8 – 4.3% | 4.0 – 4.5% | 4.6 – 4.7% | ||||||||||||||
| Weighted average volatility | 30.6% | 33.0% – 36.1% | 32.7% – 35.7% | ||||||||||||||
| Dividend yield | 0.4% – 0.5% | 0.4% – 0.5% | —% | ||||||||||||||
| Expected years until exercise | 6 | 5 – 7 | 5 – 7 |
The Black-Scholes model incorporates assumptions to value stock-based awards. The risk-free rate of interest for periods within the contractual life of the option is based on a zero-coupon U.S. government instrument whose maturity period equals or approximates the option’s expected term. Expected volatility is based on the average historical stock price volatility of a group of peer companies for the expected term of the option. The dividend yield is calculated by dividing the Company’s annual common stock dividend, based on the most recent quarterly dividend rate, by the closing stock price on the grant date. To estimate the option exercise timing used in the valuation model (which impacts the risk-free interest rate and the expected years until exercise), in addition to considering the vesting period and contractual term of the option, the Company analyzes and considers actual historical exercise experience for previously granted options.
The amount of stock-based compensation expense recognized during a period is also based on the portion of the awards that are ultimately expected to vest. The Company estimates pre-vesting forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. Ultimately, the total expense recognized over the vesting period will equal the fair value of awards that actually vest.
The Company’s total stock-based compensation expense for the years ended December 31, 2025, 2024 and 2023 was $74 million, $65 million, and $55 million, respectively.
Stock-based compensation has been recognized as a component of selling, general and administrative expenses in the accompanying Consolidated and Combined Statements of Earnings. As of December 31, 2025, $41 million of total unrecognized compensation cost related to RSUs and PSUs is expected to be recognized over a weighted average period of approximately two years. As of December 31, 2025, $36 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted average period of approximately two years. Future compensation amounts will be adjusted for any changes in estimated forfeitures.
The following summarizes option activity under the Company’s stock plans:
| (in millions, except weighted average exercise price and number of years) | Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | |||||||||||||||||||
| Balance, January 1, 2023 | — | $ | — | ||||||||||||||||||||
| Awards converted from Former Parent Plan | 5.7 | 58.22 | |||||||||||||||||||||
| Granted | 0.1 | 77.53 | |||||||||||||||||||||
| Exercised | (0.1) | 31.81 | |||||||||||||||||||||
| Cancelled/forfeited | (0.1) | 78.05 | |||||||||||||||||||||
| Outstanding as of December 31, 2023 | 5.6 | $ | 58.93 | 6.3 | $ | 141 | |||||||||||||||||
| Granted | 0.9 | 89.15 | |||||||||||||||||||||
| Exercised | (0.8) | 41.36 | |||||||||||||||||||||
| Cancelled/forfeited | (0.3) | 81.69 | |||||||||||||||||||||
| Outstanding as of December 31, 2024 | 5.4 | 65.52 | 6.0 | $ | 199 | ||||||||||||||||||
| Granted | 0.9 | 99.84 | |||||||||||||||||||||
| Exercised | (0.8) | 50.10 | |||||||||||||||||||||
| Cancelled/forfeited | (0.2) | 87.86 | |||||||||||||||||||||
| Outstanding as of December 31, 2025 | 5.3 | $ | 72.66 | 5.0 | $ | 148 | |||||||||||||||||
| Vested and expected to vest as of December 31, 2025 (a) | 5.4 | $ | 72.36 | 5.0 | $ | 148 | |||||||||||||||||
| Vested as of December 31, 2025 | 3.2 | $ | 59.80 | 4.0 | $ | 127 |
(a) The “expected to vest” options are the net unvested options that remain after applying the forfeiture rate assumption to total unvested options.
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of 2025 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2025. The amount of aggregate intrinsic value will change based on the price of the Company’s common stock.
The weighted average per share grant-date fair values of options granted during 2025 and 2024 was $36.09 and $33.90, respectively.
Options outstanding as of December 31, 2025 are summarized below:
| (in millions, except price per share and number of years) | Outstanding | Exercisable | |||||||||||||||||||||||||||
| Exercise Price | Shares | Average Exercise Price | Average Remaining Life (in years) | Shares | Average Exercise Price | ||||||||||||||||||||||||
| $22.04 to $43.78 | 1.1 | $ | 32.87 | 2 | 1.1 | $ | 32.87 | ||||||||||||||||||||||
| $43.79 to $75.81 | 1.1 | 62.22 | 4 | 1.0 | 60.46 | ||||||||||||||||||||||||
| $75.82 to $86.70 | 1.0 | 82.26 | 6 | 0.4 | 82.27 | ||||||||||||||||||||||||
| $86.71 to $98.00 | 1.1 | 88.54 | 6 | 0.5 | 89.83 | ||||||||||||||||||||||||
| $98.01 to $102.68 | 1.1 | 99.98 | 8 | 0.2 | 100.27 |
The aggregate intrinsic value of options exercised during the year ended December 31, 2025 was $38 million. Exercise of options during the year ended December 31, 2025 resulted in net cash receipts of $35 million. Upon exercise of the award by the employee, the Company derives a tax deduction measured by the excess of the market value over the grant price at the date of exercise. The Company realized a tax benefit of $7 million in 2025 related to the exercise of employee stock options.
The following summarizes information on unvested RSU activity:
| (in millions, except weighted average grant-date fair value) | Number of RSUs | Weighted Average Grant-Date Fair Value | |||||||||
| Unvested as of January 1, 2023 | — | $ | — | ||||||||
| Awards from Former Parent plan | 1.0 | 76.38 | |||||||||
| Granted | 0.1 | 76.19 | |||||||||
| Vested | (0.1) | 80.20 | |||||||||
| Forfeited | — | 77.93 | |||||||||
| Unvested as of December 31, 2023 | 1.0 | $ | 76.23 | ||||||||
| Granted | 0.5 | 95.60 | |||||||||
| Vested | (0.4) | 71.07 | |||||||||
| Forfeited | (0.1) | 81.19 | |||||||||
| Unvested as of December 31, 2024 | 1.0 | $ | 86.45 | ||||||||
| Granted | 0.6 | 107.71 | |||||||||
| Vested | (0.3) | 79.46 | |||||||||
| Forfeited | (0.1) | 88.73 | |||||||||
| Unvested as of December 31, 2025 | 1.2 | $ | 97.38 |
The tax benefit of $7 million related to the vesting of RSUs for the year ended December 31, 2025 has been recorded as a reduction to the current income tax provision and is reflected as an operating cash inflow in the accompanying Consolidated and Combined Statements of Cash Flows.
In connection with the exercise of certain stock options and the vesting of RSUs previously issued by the Company, a number of shares sufficient to fund statutory minimum tax withholding requirements has been withheld from the total shares issued or released to the award holder (though under the terms of the applicable plan, the shares are considered to have been issued and are not added back to the pool of shares available for grant). During the year ended December 31, 2025, 131 thousand shares with an aggregate value of $13 million were withheld to satisfy the requirement. The withholding is treated as a reduction in additional paid-in capital in the accompanying Consolidated and Combined Statements of Stockholders’ Equity and a reduction in proceeds from the issuance of common stock in connection with stock-based compensation in the Consolidated and Combined Statements of Cash Flows.
Accumulated Other Comprehensive Income
The changes in accumulated other comprehensive income (loss) by component are summarized below.
| ($ in millions) | Foreign Currency Translation Adjustments | Net Investment Hedges | Pension and Postretirement Plan Benefit Adjustments | Accumulated Comprehensive Income (Loss) | |||||||||||||||||||||||||||||||
| Balance, January 1, 2023 | $ | (968) | $ | — | $ | 14 | $ | (954) | |||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications: | |||||||||||||||||||||||||||||||||||
| Increase (decrease) | 29 | (19) | (18) | (8) | |||||||||||||||||||||||||||||||
| Income tax impact | — | 5 | 2 | 7 | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, net of income taxes | 29 | (14) | (16) | (1) | |||||||||||||||||||||||||||||||
| Reclassification adjustments | |||||||||||||||||||||||||||||||||||
| Increase | — | — | 1 | (a) | 1 | ||||||||||||||||||||||||||||||
| Income tax impact | — | — | — | — | |||||||||||||||||||||||||||||||
| Reclassification adjustments, net of income taxes | — | — | 1 | 1 | |||||||||||||||||||||||||||||||
| Net other comprehensive income (loss), net of income taxes | 29 | (14) | (15) | — | |||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | (939) | (14) | (1) | (954) | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications: | |||||||||||||||||||||||||||||||||||
| Increase (decrease) | (139) | 34 | — | (105) | |||||||||||||||||||||||||||||||
| Income tax impact | — | (8) | — | (8) | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, net of income taxes | (139) | 26 | — | (113) | |||||||||||||||||||||||||||||||
| Reclassification adjustments | |||||||||||||||||||||||||||||||||||
| Increase (decrease) | — | — | (5) | (a) | (5) | ||||||||||||||||||||||||||||||
| Income tax impact | — | — | 1 | 1 | |||||||||||||||||||||||||||||||
| Reclassification adjustments, net of income taxes | — | — | (4) | (4) | |||||||||||||||||||||||||||||||
| Net other comprehensive income (loss), net of income taxes | (139) | 26 | (4) | (117) | |||||||||||||||||||||||||||||||
| Balance, December 31, 2024 | (1,078) | 12 | (5) | (1,071) | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications: | |||||||||||||||||||||||||||||||||||
| Increase (decrease) | 220 | (79) | (3) | 138 | |||||||||||||||||||||||||||||||
| Income tax impact | — | 19 | — | 19 | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, net of income taxes | 220 | (60) | (3) | 157 | |||||||||||||||||||||||||||||||
| Reclassification adjustments | |||||||||||||||||||||||||||||||||||
| Increase (decrease) | — | — | 1 | (a) | 1 | ||||||||||||||||||||||||||||||
| Income tax impact | — | — | — | — | |||||||||||||||||||||||||||||||
| Reclassification adjustments, net of income taxes | — | — | 1 | 1 | |||||||||||||||||||||||||||||||
| Net other comprehensive income (loss), net of income taxes | 220 | (60) | (2) | 158 | |||||||||||||||||||||||||||||||
| Balance, December 31, 2025 | $ | (858) | $ | (48) | $ | (7) | $ | (913) |
(a) This accumulated other comprehensive income (loss) component is included in the computation of net periodic pension and postretirement cost (refer to Note 14 for additional details).
NOTE 18. BASIS OF PRESENTATION AND RELATED PARTY TRANSACTIONS
Basis of Presentation
Prior to the Company’s separation from Danaher Corporation, Veralto’s businesses were comprised of Danaher’s Environmental & Applied Solutions segment. On August 24, 2023, the Board of Directors of Danaher approved the separation of Danaher’s Environmental & Applied Solutions segment through the pro rata distribution of all of the issued and outstanding common stock of Veralto Corporation to Danaher's stockholders. In connection with the Separation, on September 20, 2023, the net assets of the Veralto businesses were contributed to Veralto, a wholly-owned subsidiary of the Former Parent, and, as partial consideration for such contribution the Company made a cash payment to Danaher in the amount of $2.6 billion. In addition, on September 29, 2023, the 100 shares of Veralto common stock held by Danaher were recapitalized into 246,291,342 shares of Veralto common stock held by Danaher. All per share amounts in the Consolidated and Combined Statements of Earnings for the period prior to the Separation have been retroactively adjusted to give effect to this recapitalization. Veralto completed the Separation on September 30, 2023, the first day of its fiscal fourth quarter.
The Consolidated and Combined Financial Statements for periods prior to the Separation were derived from the historical financial statements and accounting records of the Environmental & Applied Solutions segment of Danaher in accordance with GAAP for the preparation of carved-out combined financial statements. Through the date of Separation, all revenues and costs as well as assets and liabilities directly associated with the business activity of the Company are included as a component of the Combined Financial Statements. Prior to the separation, the financial statements also included allocations of certain general, administrative, sales and marketing expenses from Danaher’s corporate office to the Company and Danaher’s investment, as applicable. The allocations were determined on a reasonable basis; however, the amounts are not necessarily representative of the amounts that would have been reflected in the financial statements had the Company been an entity that operated independently of Danaher during the applicable periods.
Following the Separation, the consolidated financial statements include the accounts of Veralto and those of the Company’s wholly-owned subsidiaries and no longer include any allocations from Danaher. Accordingly:
-
The Consolidated Balance Sheets at December 31, 2025 and December 31, 2024 consist of the Company’s consolidated balances.
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The Consolidated Statement of Earnings, Statement of Comprehensive Income, Statement of Changes in Stockholders’ Equity and Statement of Cash Flows for the years ended December 31, 2025 and December 31, 2024 consist of the Company’s consolidated results.
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The Consolidated and Combined Statement of Earnings, Statement of Comprehensive Income, Statement of Changes in Stockholders’ Equity and Statement of Cash Flows for the year ended December 31, 2023 consist of the Company’s consolidated results for the three months ended December 31, 2023 and the combined results of the Veralto businesses for the nine months ended September 29, 2023.
The 2023 Combined Financial Statements may not be indicative of results had the Company been a separate stand-alone entity throughout the periods presented, nor are the results stated herein indicative of what the Company’s financial position, results of operations and cash flows may be in the future.
All significant transactions between the Company and Former Parent have been included in the accompanying Consolidated and Combined Financial Statements. Transactions with Former Parent are reflected in the accompanying Consolidated and Combined Statements of Stockholders’ Equity as “Net transfers to Former Parent.” In addition, the accumulated net effect of intercompany transactions between the Company and Danaher or Danaher affiliates for periods prior to the Separation are included in “Noncash adjustments to Former Parent’s investment, net.”
Before the Separation, the Company was dependent upon Danaher for all of its working capital and financing requirements under Danaher’s centralized approach to cash management and financing of operations of its subsidiaries. Because the Company was part of Danaher during the nine months ended September 29, 2023, only cash, cash equivalents and borrowings clearly associated with Veralto and related to the Separation have been included in the Combined Financial Statements through the date of Separation. Other financial transactions relating to the business operations of the Company during the above period were accounted for through the Net Former Parent investment account of the Company.
Related Party Transactions with Danaher
In connection with the Separation, on September 29, 2023, Danaher and Veralto entered into a separation and distribution agreement as well as various other related agreements (collectively the “Agreements”) that govern the Separation and the relationships between the parties going forward, including a transition services agreement, employee matters agreement, tax matters agreement, intellectual property matters agreement, Veralto Enterprise System (“VES”) license agreement, and framework agreement governing certain commercial arrangements between subsidiaries of Danaher and Veralto.
Employee Matters Agreement
Veralto and Danaher entered into an employee matters agreement that governs Veralto’s and Danaher’s compensation and employee benefit obligations with respect to the employees and other service providers of each company, and generally allocates liabilities and responsibilities relating to employment matters and employee compensation and benefit plans and programs.
Tax Matters Agreement
In connection with the separation and distribution, Veralto and Danaher entered into a tax matters agreement that governs the parties’ respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes. In general, under the agreement, Veralto is responsible for any U.S. federal, state, local or foreign taxes (and any related interest, penalties or audit adjustments) imposed with respect to tax returns that include only Veralto and/or any of its subsidiaries for any periods or portions thereof ending on or prior to the consummation of the separation and distribution. Danaher retains responsibility for any U.S. federal, state, local or foreign taxes (and any related interest, penalties or audit adjustments) imposed with respect to tax returns that include Danaher or any of its subsidiaries and Veralto and/or any of its subsidiaries for periods or portions thereof prior to the consummation of the separation and distribution.
Intellectual Property Matters Agreement
Veralto and Danaher entered into an intellectual property matters agreement which sets forth the terms and conditions pursuant to which Danaher and Veralto have mutually granted certain personal, generally irrevocable, non-exclusive, worldwide, and royalty-free rights to use certain intellectual property. Both parties are able to sublicense their rights in connection with activities relating to the their businesses, but not for independent use by third parties. Under the intellectual property matters agreement, the term period with respect to licensed or sublicensed know-how is perpetual and with respect to each licensed or sublicensed patent it will expire upon expiration of the last valid claim of such patent.
The intellectual property matters agreement is intended to provide freedom to operate in the event that any of Danaher’s retained trade secrets (excluding VES) or patented technology is used in any of Veralto’s businesses, and, as such, applies to all portions of Veralto’s businesses. However, Veralto believes that there may be relatively little use of such retained trade secrets or patented technology in its businesses, and as a result, Veralto does not believe that the intellectual property matters agreement has a material impact on any of its businesses.
Veralto Enterprise System License Agreement
Veralto and Danaher entered into a VES license agreement pursuant to which Danaher granted a nonexclusive, worldwide, non-transferable, perpetual license to Veralto to use, modify, enhance and improve VES solely in support of its businesses. Veralto is able to sublicense such license solely to direct and indirect, wholly-owned subsidiaries (but only as long as such entities remain direct and indirect, wholly-owned subsidiaries) and to third parties to the extent reasonably necessary to support the businesses of Veralto and its subsidiaries and subject to appropriate confidentiality and non-use obligations. In addition, both parties had licenses to improvements made by each party to VES through September 30, 2025. The term period for the VES license agreement is perpetual, unless terminated earlier by either party.
Transition Services Agreement
Danaher and Veralto entered into a transition services agreement that became effective upon the distribution, pursuant to which Danaher and its subsidiaries and Veralto and its subsidiaries provide to each other various services. The services provided include information technology, facilities, certain accounting and other financial functions, and administrative services. The charges for the transition services generally allow the providing
company to fully recover all out-of-pocket costs and expenses it actually incurs in connection with providing the service, plus, in some cases, the allocated indirect costs of providing the services, generally without profit.
Revenue and Other Transactions Entered Into In the Ordinary Course of Business
Prior to the Separation, the Company operated as part of Danaher and not as a stand-alone company and certain of its revenue arrangements related to contracts entered into in the ordinary course of business with Danaher and its affiliates. Following the Separation, Veralto continues to enter into revenue arrangements in the ordinary course of business with Danaher and its subsidiaries, although certain agreements were entered into or terminated as a result of the Separation.
Sales to Danaher and its subsidiaries during the years ended December 31, 2025 and 2024, were $19 million and $21 million, respectively. During the three months ended December 31, 2023 following the Separation, sales to Danaher and its subsidiaries were $7 million. Sales to Danaher and its subsidiaries were $21 million during the nine months ended September 29, 2023.
In addition to transactions entered into in the ordinary course of business, the Company received net payments of approximately $4 million during the year ended December 31, 2025, and made net payments of approximately $16 million and $10 million during the years ended December 31, 2024 and 2023, respectively, in accordance with the transition services agreement for various services provided to the Company by Danaher.
Allocated Expenses
Prior to the Separation, Veralto operated as part of Danaher and not as a stand-alone company. Accordingly, certain shared costs for management and support functions which were provided on a centralized basis within Danaher were allocated to Veralto and are reflected as expenses in these financial statements prior to the Separation date. The Company considers the allocation methodologies used to be reasonable and appropriate reflections of the related expenses attributable to Veralto for purposes of the carved-out financial statements; however, the expenses reflected in these financial statements for periods prior to the Separation date may not be indicative of the actual expenses that would have been incurred during the periods presented if the Company had operated as a separate stand-alone entity. In addition, the expenses reflected in the financial statements may not be indicative of expenses that the Company will incur in the future.
Corporate Expenses
Certain corporate overhead and shared expenses incurred by Danaher and its subsidiaries have been allocated to the Company and are reflected in the Consolidated and Combined Statements of Earnings. These amounts include, but are not limited to, items such as general management and executive oversight, costs to support Danaher information technology infrastructure, facilities, compliance, human resources, marketing and legal functions and financial management and transaction processing including public company reporting, consolidated tax filings and tax planning, Danaher benefit plan administration, risk management and consolidated treasury services, certain employee benefits and incentives, and stock based compensation administration. These costs are allocated using methodologies that management believes are reasonable for the item being allocated. Allocation methodologies include the Company’s relative share of revenues, headcount, or functional spend as a percentage of the total.
Corporate expenses allocated to Veralto from Danaher and its subsidiaries for the year ended December 31, 2023 were $42 million. Following the Separation, the Company independently incurs expenses as a stand-alone company and no expenses are allocated by Danaher.
Insurance Programs Administered by Danaher
In addition to the corporate allocations discussed above, the Company was allocated expenses related to certain insurance programs Danaher administers on behalf of the Company, including workers compensation, property, cargo, automobile, crime, fiduciary, product, general and directors’ and officers’ liability insurance. These amounts were allocated using various methodologies, as described below.
Included within the insurance cost allocation are allocations related to programs for which Danaher is self-insured up to a certain amount. For the self-insured component, costs are allocated to the Company based on its incurred claims. Danaher has premium based policies which cover amounts in excess of the self-insured retentions. The Company is allocated a portion of the total insurance cost incurred by the Danaher based on its pro-rata portion of the Danaher’s total underlying exposure base. An estimated liability relating to the Company’s known and incurred
but not reported claims has been allocated to the Company and reflected on the accompanying Consolidated Balance Sheets.
Insurance programs expenses allocated to Veralto from Danaher and its subsidiaries for the year ended December 31, 2023 were $8 million.
Medical Insurance Programs Administered by Danaher
In addition to the corporate allocations discussed above, the Company was allocated expenses related to the medical insurance programs the Danaher administers on behalf of the Company. These amounts were allocated using actual medical claims incurred during the period for the associated employees attributable to the Company.
Medical insurance programs expenses allocated to Veralto from Danaher and its subsidiaries for the year ended December 31, 2023 were $88 million.
Deferred Compensation Program Administered by Danaher
Refer to Note 10 for information regarding the deferred compensation program. In connection with the Separation, the Company established a similar independent, nonqualified deferred compensation program.
Deferred compensation program expenses incurred for the year ended December 31, 2023 were $3 million.
NOTE 19. SUBSEQUENT EVENTS
On January 22, 2026, the Company completed the acquisition of In-Situ, Inc. (“In-Situ”), a global leader in environmental water measurement and monitoring solutions with a leading portfolio of water quality sondes, water quality sensors and data management solutions that help customers monitor and measure the quality or quantity of surface and groundwater. The total purchase price was cash consideration of approximately $427 million, net of cash acquired. In-Situ will be included in the Water Quality segment.
The initial accounting for the In-Situ acquisition is incomplete as a result of the timing of the acquisition. Accordingly, it is impracticable for the Company to make certain business combination disclosures such as the estimated fair values of assets and liabilities acquired and the amount of goodwill.
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