QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Quarterly Period Ended March 31, 2020 | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||
(Address of principal executive offices) | |||||||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||
Page | ||
PART I FINANCIAL INFORMATION | ||
ITEM 1. | ||
ITEM 2. | ||
ITEM 3. | ||
ITEM 4. | ||
PART II OTHER INFORMATION | ||
ITEM 1. | ||
ITEM 1A. | ||
ITEM 2. | ||
ITEM 6. | ||
Three months ended | ||||||
In millions, except per-share data | March 31, 2020 | March 31, 2019 | ||||
Net sales | $ | $ | ||||
Cost of goods sold | ||||||
Gross profit | ||||||
Selling, general and administrative expenses | ||||||
Research and development expenses | ||||||
Operating income | ||||||
Other (income) expense: | ||||||
Gain on sale of businesses | ( | ) | ||||
Net interest expense | ||||||
Other expense | ||||||
Income from continuing operations before income taxes | ||||||
Provision for income taxes | ||||||
Net income from continuing operations | ||||||
Loss from discontinued operations, net of tax | ( | ) | ||||
Net income | $ | $ | ||||
Comprehensive income, net of tax | ||||||
Net income | $ | $ | ||||
Changes in cumulative translation adjustment | ( | ) | ( | ) | ||
Changes in market value of derivative financial instruments, net of tax | ||||||
Comprehensive income | $ | $ | ||||
Earnings (loss) per ordinary share | ||||||
Basic | ||||||
Continuing operations | $ | $ | ||||
Discontinued operations | ( | ) | ||||
Basic earnings per ordinary share | $ | $ | ||||
Diluted | ||||||
Continuing operations | $ | $ | ||||
Discontinued operations | ||||||
Diluted earnings per ordinary share | $ | $ | ||||
Weighted average ordinary shares outstanding | ||||||
Basic | ||||||
Diluted | ||||||
March 31, 2020 | December 31, 2019 | |||||
In millions, except per-share data | ||||||
Assets | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | $ | ||||
Accounts and notes receivable, net of allowances of $8.6 and $10.3, respectively | ||||||
Inventories | ||||||
Other current assets | ||||||
Total current assets | ||||||
Property, plant and equipment, net | ||||||
Other assets | ||||||
Goodwill | ||||||
Intangibles, net | ||||||
Other non-current assets | ||||||
Total other assets | ||||||
Total assets | $ | $ | ||||
Liabilities and Equity | ||||||
Current liabilities | ||||||
Accounts payable | $ | $ | ||||
Employee compensation and benefits | ||||||
Other current liabilities | ||||||
Total current liabilities | ||||||
Other liabilities | ||||||
Long-term debt | ||||||
Pension and other post-retirement compensation and benefits | ||||||
Deferred tax liabilities | ||||||
Other non-current liabilities | ||||||
Total liabilities | ||||||
Equity | ||||||
Ordinary shares $0.01 par value, 426.0 authorized, 165.7 and 168.3 issued at March 31, 2020 and December 31, 2019, respectively | ||||||
Additional paid-in capital | ||||||
Retained earnings | ||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ||
Total equity | ||||||
Total liabilities and equity | $ | $ | ||||
Three months ended | ||||||
In millions | March 31, 2020 | March 31, 2019 | ||||
Operating activities | ||||||
Net income | $ | $ | ||||
Loss from discontinued operations, net of tax | ||||||
Adjustments to reconcile net income from continuing operations to net cash provided by (used for) operating activities of continuing operations | ||||||
Equity loss (income) of unconsolidated subsidiaries | ( | ) | ||||
Depreciation | ||||||
Amortization | ||||||
Deferred income taxes | ( | ) | ||||
Gain on sale of businesses | ( | ) | ||||
Share-based compensation | ||||||
Asset impairment | ||||||
Changes in assets and liabilities, net of effects of business acquisitions | ||||||
Accounts receivable | ( | ) | ( | ) | ||
Inventories | ( | ) | ( | ) | ||
Other current assets | ( | ) | ( | ) | ||
Accounts payable | ( | ) | ( | ) | ||
Employee compensation and benefits | ( | ) | ( | ) | ||
Other current liabilities | ( | ) | ( | ) | ||
Other non-current assets and liabilities | ( | ) | ( | ) | ||
Net cash used for operating activities of continuing operations | ( | ) | ( | ) | ||
Net cash provided by operating activities of discontinued operations | ||||||
Net cash used for operating activities | ( | ) | ( | ) | ||
Investing activities | ||||||
Capital expenditures | ( | ) | ( | ) | ||
Proceeds from sale of property and equipment | ||||||
Proceeds from the sale of businesses, net | ||||||
Acquisitions, net of cash acquired | ( | ) | ( | ) | ||
Other | ( | ) | ||||
Net cash used for investing activities | ( | ) | ( | ) | ||
Financing activities | ||||||
Net receipts of commercial paper and revolving long-term debt | ||||||
Shares issued to employees, net of shares withheld | ||||||
Repurchases of ordinary shares | ( | ) | ||||
Dividends paid | ( | ) | ( | ) | ||
Net cash provided by financing activities | ||||||
Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||
Change in cash and cash equivalents | ||||||
Cash and cash equivalents, beginning of period | ||||||
Cash and cash equivalents, end of period | $ | $ | ||||
In millions | Ordinary shares | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Total | |||||||||||||
Number | Amount | |||||||||||||||||
Balance - December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||
Net income | — | — | — | — | ||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | ||||||||||||||
Dividends declared, $0.19 per share | — | — | — | ( | ) | — | ( | ) | ||||||||||
Share repurchases | ( | ) | — | ( | ) | — | — | ( | ) | |||||||||
Exercise of options, net of shares tendered for payment | — | — | — | |||||||||||||||
Issuance of restricted shares, net of cancellations | — | — | — | — | ||||||||||||||
Shares surrendered by employees to pay taxes | ( | ) | — | ( | ) | — | — | ( | ) | |||||||||
Share-based compensation | — | — | — | — | ||||||||||||||
Balance - March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||
In millions | Ordinary shares | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Total | |||||||||||||
Number | Amount | |||||||||||||||||
Balance - December 31, 2018 | $ | $ | $ | $ | ( | ) | $ | |||||||||||
Net income | — | — | — | — | ||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | ||||||||||||||
Dividends declared, $0.18 per share | — | — | — | ( | ) | — | ( | ) | ||||||||||
Exercise of options, net of shares tendered for payment | — | — | — | |||||||||||||||
Issuance of restricted shares, net of cancellations | — | — | — | — | ||||||||||||||
Shares surrendered by employees to pay taxes | — | — | ( | ) | — | — | ( | ) | ||||||||||
Share-based compensation | — | — | — | — | ||||||||||||||
Balance - March 31, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||
In millions | March 31, 2020 | ||
Beginning balance | $ | ||
Bad debt expense | ( | ) | |
Write-offs, net of recoveries | ( | ) | |
Other (1) | ( | ) | |
Ending balance | $ | ||
(1) Other amounts are primarily the effects of changes in currency translations and the impact of allowance for credits. | |||
Three months ended | ||||||
In millions | March 31, 2020 | March 31, 2019 | ||||
U.S. | $ | $ | ||||
Western Europe | ||||||
Developing (1) | ||||||
Other Developed (2) | ||||||
Consolidated net sales | $ | $ | ||||
(1) Developing includes China, Eastern Europe, Latin America, the Middle East and Southeast Asia. | ||||||
(2) Other Developed includes Australia, Canada and Japan. | ||||||
Three months ended | ||||||
In millions | March 31, 2020 | March 31, 2019 | ||||
Residential | $ | $ | ||||
Commercial | ||||||
Industrial | ||||||
Consolidated net sales | $ | $ | ||||
In millions | March 31, 2020 | December 31, 2019 | $ Change | % Change | ||||||||
Contract assets | $ | $ | $ | % | ||||||||
Contract liabilities | ( | ) | ( | )% | ||||||||
Net contract assets | $ | $ | $ | % | ||||||||
4. | Share Plans |
Three months ended | ||||||
In millions | March 31, 2020 | March 31, 2019 | ||||
Restricted stock units | $ | $ | ||||
Stock options | ||||||
Performance share units | ||||||
Total share-based compensation expense | $ | $ | ||||
2020 Annual Grant | ||
Risk-free interest rate | % | |
Expected dividend yield | % | |
Expected share price volatility | % | |
Expected term (years) | ||
5. | Restructuring |
Three months ended | ||||||
In millions | March 31, 2020 | March 31, 2019 | ||||
Severance and related costs | $ | $ | ||||
Total restructuring costs | $ | $ | ||||
Three months ended | ||||||
In millions | March 31, 2020 | March 31, 2019 | ||||
Consumer Solutions | $ | $ | ||||
Industrial & Flow Technologies | ( | ) | ||||
Other | ||||||
Consolidated | $ | $ | ||||
In millions | March 31, 2020 | ||
Beginning balance | $ | ||
Costs incurred | |||
Cash payments and other | ( | ) | |
Ending balance | $ | ||
6. | Earnings Per Share |
Three months ended | ||||||
In millions, except per-share data | March 31, 2020 | March 31, 2019 | ||||
Net income | $ | $ | ||||
Net income from continuing operations | $ | $ | ||||
Weighted average ordinary shares outstanding | ||||||
Basic | ||||||
Dilutive impact of stock options, restricted stock units and performance share units | ||||||
Diluted | ||||||
Earnings (loss) per ordinary share | ||||||
Basic | ||||||
Continuing operations | $ | $ | ||||
Discontinued operations | ( | ) | ||||
Basic earnings per ordinary share | $ | $ | ||||
Diluted | ||||||
Continuing operations | $ | $ | ||||
Discontinued operations | ||||||
Diluted earnings per ordinary share | $ | $ | ||||
Anti-dilutive stock options excluded from the calculation of diluted earnings per share | ||||||
In millions | March 31, 2020 | December 31, 2019 | ||||
Inventories | ||||||
Raw materials and supplies | $ | $ | ||||
Work-in-process | ||||||
Finished goods | ||||||
Total inventories | $ | $ | ||||
Other current assets | ||||||
Cost in excess of billings | $ | $ | ||||
Prepaid expenses | ||||||
Prepaid income taxes | ||||||
Other current assets | ||||||
Total other current assets | $ | $ | ||||
Property, plant and equipment, net | ||||||
Land and land improvements | $ | $ | ||||
Buildings and leasehold improvements | ||||||
Machinery and equipment | ||||||
Capitalized software | ||||||
Construction in progress | ||||||
Total property, plant and equipment | ||||||
Accumulated depreciation and amortization | ||||||
Total property, plant and equipment, net | $ | $ | ||||
Other non-current assets | ||||||
Right-of-use lease assets | $ | $ | ||||
Deferred income taxes | ||||||
Deferred compensation plan assets | ||||||
Foreign currency contract assets | ||||||
Other non-current assets | ||||||
Total other non-current assets | $ | $ | ||||
Other current liabilities | ||||||
Dividends payable | $ | $ | ||||
Accrued warranty | ||||||
Accrued rebates and incentives | ||||||
Billings in excess of cost | ||||||
Current lease liability | ||||||
Income taxes payable | ||||||
Accrued restructuring | ||||||
Other current liabilities | ||||||
Total other current liabilities | $ | $ | ||||
Other non-current liabilities | ||||||
Long-term lease liability | $ | $ | ||||
Income taxes payable | ||||||
Self-insurance liabilities | ||||||
Deferred compensation plan liabilities | ||||||
Foreign currency contract liabilities | ||||||
Other non-current liabilities | ||||||
Total other non-current liabilities | $ | $ | ||||
8. | Goodwill and Other Identifiable Intangible Assets |
In millions | December 31, 2019 | Purchase Accounting Adjustments | Acquisitions | Foreign currency translation/other | March 31, 2020 | ||||||||||
Consumer Solutions | $ | $ | $ | $ | ( | ) | $ | ||||||||
Industrial & Flow Technologies | — | — | ( | ) | |||||||||||
Total goodwill | $ | $ | $ | $ | ( | ) | $ | ||||||||
March 31, 2020 | December 31, 2019 | ||||||||||||||||||
In millions | Cost | Accumulated amortization | Net | Cost | Accumulated amortization | Net | |||||||||||||
Definite-life intangibles | |||||||||||||||||||
Customer relationships | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||
Proprietary technology and patents | ( | ) | ( | ) | |||||||||||||||
Total definite-life intangibles | ( | ) | ( | ) | |||||||||||||||
Indefinite-life intangibles | |||||||||||||||||||
Trade names | — | — | |||||||||||||||||
Total intangibles | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||
Q2-Q4 | ||||||||||||||||||
In millions | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | ||||||||||||
Estimated amortization expense | $ | $ | $ | $ | $ | $ | ||||||||||||
9. | Debt |
In millions | Average interest rate as of March 31, 2020 | Maturity Year | March 31, 2020 | December 31, 2019 | ||||
Commercial paper | 2023 | $ | $ | |||||
Revolving credit facilities | 2023 | |||||||
Term loans (1) | 2023 | |||||||
Senior notes - fixed rate (1) | 2020 | |||||||
Senior notes - fixed rate (1) | 2021 | |||||||
Senior notes - fixed rate (1) | 2022 | |||||||
Senior notes - fixed rate (1) | 2025 | |||||||
Senior notes - fixed rate (1) | 2029 | |||||||
Unamortized debt issuance costs and discounts | N/A | N/A | ( | ) | ( | ) | ||
Total debt | $ | $ | ||||||
(1) Senior notes (“the Notes”) and the term loans are guaranteed as to payment by Pentair plc and PISG | ||||||||
Q2-Q4 | ||||||||||||||||||||||||
In millions | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | ||||||||||||||||
Contractual debt obligation maturities | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
10. | Derivatives and Financial Instruments |
Level 1: | Valuation is based on observable inputs such as quoted market prices (unadjusted) for identical assets or liabilities in active markets. | |
Level 2: | Valuation is based on inputs such as quoted market prices for similar assets or liabilities in active markets or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
Level 3: | Valuation is based upon other unobservable inputs that are significant to the fair value measurement. | |
• | short-term financial instruments (cash and cash equivalents, accounts and notes receivable, accounts and notes payable and variable-rate debt) — recorded amount approximates fair value because of the short maturity period; |
• | long-term fixed-rate debt, including current maturities — fair value is based on market quotes available for issuance of debt with similar terms, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance; |
• | foreign currency contract agreements — fair values are determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance; and |
• | deferred compensation plan assets (mutual funds, common/collective trusts and cash equivalents for payment of certain non-qualified benefits for retired, terminated and active employees) — fair value of mutual funds and cash equivalents are based on quoted market prices in active markets that are classified as Level 1 in the valuation hierarchy defined by the accounting guidance; fair value of common/collective trusts are valued at net asset value (“NAV”), which is based on the fair value of the underlying securities owned by the fund and divided by the number of shares outstanding. |
March 31, 2020 | December 31, 2019 | ||||||||||||
In millions | Recorded Amount | Fair Value | Recorded Amount | Fair Value | |||||||||
Variable rate debt | $ | $ | $ | $ | |||||||||
Fixed rate debt | |||||||||||||
Total debt | $ | $ | $ | $ | |||||||||
March 31, 2020 | |||||||||||||||
In millions | Level 1 | Level 2 | Level 3 | NAV | Total | ||||||||||
Recurring fair value measurements | |||||||||||||||
Foreign currency contract assets | $ | $ | $ | $ | $ | ||||||||||
Deferred compensation plan assets | |||||||||||||||
Total recurring fair value measurements | $ | $ | $ | $ | $ | ||||||||||
December 31, 2019 | |||||||||||||||
In millions | Level 1 | Level 2 | Level 3 | NAV | Total | ||||||||||
Recurring fair value measurements | |||||||||||||||
Foreign currency contract assets | $ | $ | $ | $ | $ | ||||||||||
Foreign currency contract liabilities | ( | ) | ( | ) | |||||||||||
Deferred compensation plan assets | |||||||||||||||
Total recurring fair value measurements | $ | $ | ( | ) | $ | $ | $ | ||||||||
Nonrecurring fair value measurements (1) | |||||||||||||||
(1) | During the year ended December 31, 2019, we recorded impairment charges for cost method investments in the amount of $ |
11. |
12. | Benefit Plans |
Three months ended | ||||||
In millions | March 31, 2020 | March 31, 2019 | ||||
Service cost | $ | $ | ||||
Interest cost | ||||||
Expected return on plan assets | ( | ) | ( | ) | ||
Net periodic benefit cost | $ | $ | ||||
13. | Shareholders’ Equity |
14. | Segment Information |
• | Consumer Solutions — This segment designs, manufactures and sells energy-efficient residential and commercial pool equipment and accessories, and commercial and residential water treatment products and systems. Residential and commercial pool equipment and accessories include pumps, filters, heaters, lights, automatic controls, automatic cleaners, maintenance equipment and pool accessories. Water treatment products and systems include pressure tanks, control valves, activated carbon products, conventional filtration products, and point-of-entry and point-of-use systems. Applications for our pool business include residential and commercial pool maintenance, repair, renovation, service and construction. Our water treatment products and systems are used in residential whole home water filtration, drinking water filtration and water softening solutions in addition to commercial total water management and filtration in food service operations. The primary focus of this segment is business-to-consumer. |
• | Industrial & Flow Technologies — This segment manufactures and sells a variety of fluid treatment and pump products and systems, including pressure vessels, gas recovery solutions, membrane bioreactors, wastewater reuse systems and advanced membrane filtration, separation systems, water disposal pumps, water supply pumps, fluid transfer pumps, turbine pumps, solid handling pumps, and agricultural spray nozzles, while serving the global residential, commercial and industrial markets. These products and systems are used in a range of applications, fluid delivery, ion exchange, desalination, food and beverage, separation technologies for the oil and gas industry, residential and municipal wells, water treatment, wastewater solids handling, pressure boosting, circulation and transfer, fire suppression, flood control, agricultural irrigation and crop spray. The primary focus of this segment is business-to-business. |
Three months ended | ||||||
In millions | March 31, 2020 | March 31, 2019 | ||||
Net sales | ||||||
Consumer Solutions | $ | $ | ||||
Industrial & Flow Technologies | ||||||
Other | ||||||
Consolidated | $ | $ | ||||
Segment income (loss) | ||||||
Consumer Solutions | $ | $ | ||||
Industrial & Flow Technologies | ||||||
Other | ( | ) | ( | ) | ||
Consolidated | $ | $ | ||||
Three months ended | ||||||
In millions | March 31, 2020 | March 31, 2019 | ||||
Segment income | $ | $ | ||||
Deal-related costs and expenses | ( | ) | ( | ) | ||
Inventory step-up | ( | ) | ||||
Restructuring and other | ( | ) | ( | ) | ||
Intangible amortization | ( | ) | ( | ) | ||
Asset impairment | ( | ) | ||||
Gain on sale of businesses | ||||||
COVID-19 related costs and expenses | ( | ) | ||||
Net interest expense | ( | ) | ( | ) | ||
Other expense | ( | ) | ( | ) | ||
Income from continuing operations before income taxes | $ | $ | ||||
15. | Commitments and Contingencies |
In millions | March 31, 2020 | ||
Beginning balance | $ | ||
Service and product warranty provision | |||
Payments | ( | ) | |
Foreign currency translation | ( | ) | |
Ending balance | $ | ||
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
• | Consumer Solutions — This segment designs, manufactures and sells energy-efficient residential and commercial pool equipment and accessories, and commercial and residential water treatment products and systems. Residential and commercial pool equipment and accessories include pumps, filters, heaters, lights, automatic controls, automatic cleaners, maintenance equipment and pool accessories. Water treatment products and systems include pressure tanks, control valves, activated carbon products, conventional filtration products, and point-of-entry and point-of-use systems. Applications for our pool business include residential and commercial pool maintenance, repair, renovation, service and construction. Our water treatment products and systems are used in residential whole home water filtration, drinking water filtration and water softening solutions in addition to commercial total water management and filtration in food service operations. The primary focus of this segment is business-to-consumer. |
• | Industrial & Flow Technologies — This segment manufactures and sells a variety of fluid treatment and pump products and systems, including pressure vessels, gas recovery solutions, membrane bioreactors, wastewater reuse systems and advanced membrane filtration, separation systems, water disposal pumps, water supply pumps, fluid transfer pumps, turbine pumps, solid handling pumps, and agricultural spray nozzles, while serving the global residential, commercial and industrial markets. These products and systems are used in a range of applications, fluid delivery, ion exchange, desalination, food and beverage, separation technologies for the oil and gas industry, residential and municipal wells, water treatment, wastewater solids handling, pressure boosting, circulation and |
• | There are many uncertainties regarding the COVID-19 pandemic, including the anticipated duration and severity of the pandemic and the extent of worldwide social, political and economic disruption it may cause. The impact of the COVID-19 pandemic on our business, financial condition, results of operations and cash flows cannot be determined at this time, and ultimately will be affected by a number of evolving factors including the length of time that the pandemic continues, its effect on the demand for our products and services and the supply chain, as well as the impact of governmental regulations imposed in response to the pandemic. See further discussion above under “COVID-19 Pandemic” for key trends and uncertainties with regard to the COVID-19 pandemic. |
• | During 2019 and the first quarter of 2020, we executed certain business restructuring initiatives unrelated to the COVID-19 pandemic aimed at reducing our fixed cost structure and realigning our business. We expect these actions will contribute to margin growth in 2020. |
• | We have identified specific product and geographic market opportunities that we find attractive and continue to pursue, both within and outside the U.S. We are reinforcing our businesses to more effectively address these opportunities through research and development and additional sales and marketing resources. Unless we successfully penetrate these markets, our core sales growth will likely be limited or may decline. |
• | We have experienced material and other cost inflation. We strive for productivity improvements, and we implement increases in selling prices to help mitigate this inflation. We expect the current economic environment will result in continuing price volatility for many of our raw materials, and we are uncertain as to the timing and impact of these market changes. |
• | In April 2020, the Internal Revenue Service released final regulations as part of the Tax Cuts and Jobs Act of 2017 that place limitations on the deductibility of certain interest expense for U.S. tax purposes. These regulations are expected to create a discrete tax expense of approximately $14.1 million in the second quarter of 2020, as well as an increase to our 2020 annual effective tax rate of approximately 1%. |
• | Managing our business through the COVID-19 pandemic, with a focus on: |
◦ | Protecting our employees, customers and our businesses; |
◦ | Optimizing our free cash flow and liquidity; and |
◦ | Delivering the best financial results possible in the near-term while staying focused on longer-term strategies. |
• | Continued focus on accelerating Pentair Integrated Management System (“PIMS”); |
• | Delivering our growth priorities through new products and global and market expansion, specifically in the areas of pool and residential and commercial filtration solutions; |
• | Optimizing our technological capabilities to increasingly generate innovative new products and advance digital transformation; and |
• | Building a high performance growth culture and delivering on our commitments while living our Win Right values. |
Three months ended | |||||||||||
In millions | March 31, 2020 | March 31, 2019 | $ Change | % / Point Change | |||||||
Net sales | $ | 710.0 | $ | 688.9 | $ | 21.1 | 3.1 | % | |||
Cost of goods sold | 458.4 | 453.3 | 5.1 | 1.1 | % | ||||||
Gross profit | 251.6 | 235.6 | 16.0 | 6.8 | % | ||||||
% of net sales | 35.4 | % | 34.2 | % | 1.2 | pts | |||||
Selling, general and administrative expenses | 131.9 | 147.3 | (15.4 | ) | (10.5 | )% | |||||
% of net sales | 18.6 | % | 21.4 | % | (2.8 | ) pts | |||||
Research and development expenses | 19.0 | 20.7 | (1.7 | ) | (8.2 | )% | |||||
% of net sales | 2.7 | % | 3.0 | % | (0.3 | ) pts | |||||
Operating income | 100.7 | 67.6 | 33.1 | 49.0 | % | ||||||
% of net sales | 14.2 | % | 9.8 | % | 4.4 | pts | |||||
Gain on sale of businesses | — | (3.5 | ) | 3.5 | N.M. | ||||||
Other expense | 1.2 | 0.6 | 0.6 | N.M. | |||||||
Net interest expense | 6.9 | 7.3 | (0.4 | ) | (5.5 | )% | |||||
Income from continuing operations before income taxes | 92.6 | 63.2 | 29.4 | 46.5 | % | ||||||
Provision for income taxes | 19.9 | 10.8 | 9.1 | 84.3 | % | ||||||
Effective tax rate | 21.5 | % | 17.1 | % | 4.4 | pts | |||||
Three months ended March 31, 2020 | ||
over the prior year period | ||
Volume | 1.1 | % |
Price | 1.6 | |
Core growth | 2.7 | |
Acquisition (divestiture) | 1.4 | |
Currency | (1.0 | ) |
Total | 3.1 | % |
• | increased sales volume in our Consumer Solutions segment due to more normal weather patterns and reduced inventory levels in the channel compared to 2019; |
• | selective increases in selling prices to mitigate inflationary cost increases; and |
• | increased sales due to the Aquion and Pelican acquisitions in February 2019 and other small acquisitions in Consumer Solutions in the fourth quarter of 2019 and first quarter of 2020. |
• | sales volume declines as a result of reduced orders over the past twelve months and shipping delays driven by certain COVID-19 constraints and site closures in our Industrial & Flow Technologies segment; and |
• | unfavorable foreign currency effects compared to the same period of the prior year. |
• | increased sales volume and favorable sales mix in the higher margin Consumer Solutions segment; and |
• | selective increases in selling prices to mitigate impacts of inflation. |
• | inflationary increases related to labor costs and certain raw materials. |
• | asset impairment of $15.3 million in the first quarter of 2019 that did not occur in 2020; and |
• | reduction in travel and entertainment expenses due to COVID-19. |
• | restructuring and other costs of $2.4 million in the first quarter of 2020, compared to $1.1 million in the first quarter of 2019. |
• | the impact of lower interest rates during the first three months of 2020, compared to the same period in 2019. |
• | the unfavorable impact of discrete items, including items related to the CARES Act, that occurred during the first quarter of 2020, offset by the favorable mix of global earnings. |
Three months ended | |||||||||
In millions | March 31, 2020 | March 31, 2019 | % / Point Change | ||||||
Net sales | $ | 388.8 | $ | 358.2 | 8.5 | % | |||
Segment income | 84.8 | 75.2 | 12.8 | % | |||||
% of net sales | 21.8 | % | 21.0 | % | 0.8 | pts | |||
Three months ended March 31, 2020 | ||
over the prior year period | ||
Volume | 4.8 | % |
Price | 1.8 | |
Core growth | 6.6 | |
Acquisition | 2.6 | |
Currency | (0.7 | ) |
Total | 8.5 | % |
• | increased sales volume across all product lines in our pool business due to more normal weather patterns and reduced inventory levels in the channel compared to 2019; |
• | selective increases in selling prices to mitigate impacts of inflation; and |
• | increased sales due to the Aquion and Pelican acquisitions that occurred in February 2019 and other small acquisitions in the fourth quarter of 2019 and first quarter of 2020. |
• | unfavorable foreign currency effects compared to the same period of the prior year; and |
• | decreased demand in the residential and commercial filtration businesses in China and Southeast Asia due to COVID-19. |
Three months ended March 31, 2020 | ||
over the prior year period | ||
Growth | 1.6 | pts |
Acquisition | 0.3 | |
Inflation | (1.4 | ) |
Productivity/Price | 0.3 | |
Total | 0.8 | pts |
• | increase in sales volume and favorable sales mix; |
• | impact of Aquion and Pelican acquisitions; and |
• | selective increases in selling prices to mitigate impacts of inflation. |
• | inflationary increases related to labor costs and certain raw materials; and |
• | decreased sales volumes in China and Southeast Asia, which resulted in decreased leverage on operating expenses. |
Three months ended | |||||||||
In millions | March 31, 2020 | March 31, 2019 | % / Point Change | ||||||
Net sales | $ | 320.9 | $ | 330.3 | (2.8 | )% | |||
Segment income | 44.7 | 41.0 | 9.0 | % | |||||
% of net sales | 13.9 | % | 12.4 | % | 1.5 | pts | |||
Three months ended March 31, 2020 | ||
over the prior year period | ||
Volume | (3.0 | )% |
Price | 1.5 | |
Core growth | (1.5 | ) |
Currency | (1.3 | ) |
Total | (2.8 | )% |
• | decreased sales volume in our commercial water supply business as a result of reduced orders over the past twelve months; |
• | delays in shipments driven by certain COVID-19 related constraints and site closures; and |
• | unfavorable foreign currency effects compared to the same periods of the prior year. |
• | selective increases in selling prices to mitigate inflationary cost increases; and |
• | increased sales volume in our food & beverage business. |
Three months ended March 31, 2020 | ||
over the prior year period | ||
Growth | (0.7 | ) pts |
Inflation | (1.2 | ) |
Productivity/Price | 3.4 | |
Total | 1.5 | pts |
• | selective increases in selling prices to mitigate inflationary cost increases; and |
• | increased productivity due to cost actions driving manufacturing efficiencies and lower operating expenses. |
• | inflationary increases related to raw material and labor costs; and |
• | decreased sales volumes in our commercial water supply and industrial businesses, which resulted in decreased leverage on operating expenses. |
Three months ended | ||||
In millions | March 31, 2020 | |||
Net sales | $ | — | ||
Gross profit | — | |||
Loss from continuing operations before taxes | (4.1 | ) | ||
Net loss of continuing operations | (4.1 | ) | ||
In millions | March 31, 2020 | December 31, 2019 | |||||
Current assets (1) | $ | 10.1 | $ | 3.6 | |||
Noncurrent assets (2) | 1,488.8 | 1,303.2 | |||||
Current liabilities (3) | 58.4 | 702.6 | |||||
Noncurrent liabilities (4) | 1,872.2 | 1,428.4 | |||||
(1) Includes assets due from non-guarantor subsidiaries of $7.2 million and $2.4 million as of March 31, 2020 and December 31, 2019, respectively. | |||||||
(2) Includes assets due from non-guarantor subsidiaries of $1,476.5 million and $1,278.7 million as of March 31, 2020 and December 31, 2019, respectively. | |||||||
(3) Includes liabilities due to non-guarantor subsidiaries of $8.9 million and $648.8 million as of March 31, 2020 and December 31, 2019, respectively. | |||||||
(4) Includes liabilities due to non-guarantor subsidiaries of $441.1 million and $449.9 million as of March 31, 2020 and December 31, 2019, respectively. | |||||||
Three months ended | ||||||
In millions | March 31, 2020 | March 31, 2019 | ||||
Net cash used for operating activities of continuing operations | $ | (162.4 | ) | $ | (257.1 | ) |
Capital expenditures of continuing operations | (18.7 | ) | (16.8 | ) | ||
Proceeds from sale of property and equipment of continuing operations | 0.1 | 0.3 | ||||
Free cash flow from continuing operations | $ | (181.0 | ) | $ | (273.6 | ) |
Net cash provided by operating activities of discontinued operations | — | 0.8 | ||||
Free cash flow | $ | (181.0 | ) | $ | (272.8 | ) |
• | The COVID-19 pandemic has caused a global economic slowdown that may last for a potentially extended duration, and it is possible that it could cause a global recession. |
• | Due to the impacts of the COVID-19 pandemic, we have experienced and expect to continue to experience reductions in customer demand for certain of our products and in several of our end-markets, including new pool construction and remodeling, residential and industrial filtration, commercial food service, and residential flow. |
• | The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, certain elements of our business (including certain elements of our operations, supply chains and distribution systems), including as a result of impacts associated with required, preventive and precautionary measures that we, other businesses, our communities and governments are taking. These impacts include requiring employees to work from home or not go into their offices or plants, limiting the number of employees attending meetings, reducing the number of people in our sites at any one time, reducing employee travel and adopting other employee safety measures. These measures may also impact our ability to meet production demands or requests depending on employee attendance or ability to continue to work. |
• | If the COVID-19 pandemic continues and economic conditions worsen, we expect to experience additional adverse impacts on our operational and commercial activities, customer orders and our collections of accounts receivable, which may be material, and it remains uncertain the impact on future operational and commercial activities, customer orders, and collections even if economic conditions begin to improve. |
• | Government or regulatory responses to the COVID-19 pandemic have and are likely to continue to negatively impact our business. Mandatory lockdowns or other restrictions on operations in some countries have temporarily disrupted our ability to manufacture or distribute our products in some of these markets. Continuation or expansion of these disruptions could materially adversely impact our operations and results. In addition to existing travel restrictions, jurisdictions may continue to close borders, impose prolonged quarantines and further restrict travel and business activity, which could significantly impact our ability to support our operations and customers and the ability of our employees to get to their workplaces to produce products and services, or significantly hamper our products from moving through the supply chain. |
• | The impacts of the COVID-19 pandemic may limit our ability to reduce our overall operating costs. We expect increased costs relating to our efforts to mitigate the impact of the COVID-19 pandemic through enhanced sanitization procedures and social-distancing measures we have enacted and will likely continue to enact at our locations around the world in an effort to protect our employees’ health and well-being. |
• | The COVID-19 pandemic has disrupted and is expected to continue to disrupt our global supply chain, operations and routes to market or those of our suppliers or their suppliers. These disruptions or our failure to effectively respond to them have increased and are expected to continue to increase product or distribution costs or cause delays in delivering or an inability to deliver products to our customers. |
• | Disruptions or uncertainties related to the COVID-19 pandemic for a sustained period of time could result in delays or modifications to some of our strategic plans and initiatives and hinder our ability to achieve our growth targets. |
• | The COVID-19 pandemic has increased volatility and pricing in and disrupted the capital markets and commercial paper markets, and volatility is likely to continue. We might not be able to continue to access preferred sources of liquidity when we would like, and our borrowing costs could increase. |
(a) | (b) | (c) | (d) | |||||||
Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Dollar value of shares that may yet be purchased under the plans or programs | ||||||
January 1 - January 25 | 52,165 | $ | 46.38 | — | $ | 250,000,187 | ||||
January 26 - February 22 | 991 | $ | 43.25 | — | $ | 250,000,187 | ||||
February 23 - March 31 | 3,065,304 | $ | 38.10 | 3,038,000 | $ | 134,718,028 | ||||
Total | 3,118,460 | 3,038,000 | ||||||||
(a) | The purchases in this column include 52,165 shares for the period January 1 - January 25, 991 shares for the period January 26 - February 22 and 27,304 shares for the period February 23 - March 31 deemed surrendered to us by participants in our 2012 Stock and Incentive Plan (the “2012 Plan”) and earlier stock incentive plans that are now outstanding under the 2012 Plan (collectively the “Plans”) to satisfy the exercise price or withholding of tax obligations related to the exercise of stock options and vesting of restricted and performance shares. |
(b) | The average price paid in this column includes shares deemed surrendered to us by participants in the Plans to satisfy the exercise price for the exercise price of stock options and withholding tax obligations due upon stock option exercises and vesting of restricted and performance shares. |
(c) | The number of shares in this column represents the number of shares repurchased as part of our publicly announced plans to repurchase our ordinary shares up to the maximum dollar limit authorized by the Board of Directors, discussed below. |
(d) | In May 2018, the Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $750.0 million. The 2018 authorization expires on May 31, 2021. As of March 31, 2020, we had $134.7 million available for share repurchases under this authorization. From time to time, we may enter into a Rule 10b5-1 trading plan for the purpose of repurchasing shares under this authorization. |
List of Guarantors and Subsidiary Issuers of Guaranteed Securities | ||
Certification of Chief Executive Officer. | ||
Certification of Chief Financial Officer. | ||
Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
101 | The following materials from Pentair plc’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 are filed herewith, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2020 and 2019, (ii) the Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019, (iii) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019, (iv) the Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2020 and 2019, and (v) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |
Pentair plc | ||
Registrant | ||
By | /s/ Mark C. Borin | |
Mark C. Borin | ||
Executive Vice President, Chief Financial Officer and Chief Accounting Officer | ||
Name of Guarantor | Jurisdiction of Incorporation |
Pentair plc | Ireland |
Pentair Investments Switzerland GmbH | Switzerland |
1. | I have reviewed this quarterly report on Form 10-Q of Pentair plc; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | April 30, 2020 | /s/ John L. Stauch |
John L. Stauch | ||
President and Chief Executive Officer | ||
1. | I have reviewed this quarterly report on Form 10-Q of Pentair plc; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | April 30, 2020 | /s/ Mark C. Borin |
Mark C. Borin | ||
Executive Vice President, Chief Financial Officer and Chief Accounting Officer | ||
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Date: | April 30, 2020 | /s/ John L. Stauch |
John L. Stauch | ||
President and Chief Executive Officer | ||
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Date: | April 30, 2020 | /s/ Mark C. Borin |
Mark C. Borin | ||
Executive Vice President, Chief Financial Officer and Chief Accounting Officer | ||
Restructuring - Costs Included in Selling, General & Administrative Expenses (Detail) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
| Restructuring Cost and Reserve [Line Items] | ||
| Restructuring costs | $ 2.7 | $ 1.1 |
| Severance and related costs | ||
| Restructuring Cost and Reserve [Line Items] | ||
| Restructuring costs | $ 2.7 | $ 1.1 |
Share Plans - Schedule of Share-based Compensation Expense (Details) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Total share-based compensation expense | $ 6.2 | $ 5.4 |
| Restricted stock units | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Total share-based compensation expense | 3.2 | 2.8 |
| Stock options | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Total share-based compensation expense | 1.0 | 1.4 |
| Performance share units | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Total share-based compensation expense | $ 2.0 | $ 1.2 |
Goodwill and Other Identifiable Intangible Assets - Changes in Carrying Amount of Goodwill by Segment (Detail) $ in Millions |
3 Months Ended |
|---|---|
|
Mar. 31, 2020
USD ($)
| |
| Goodwill [Roll Forward] | |
| Beginning Balance | $ 2,258.3 |
| Purchase Accounting Adjustments | 6.3 |
| Goodwill, Acquired During Period | 14.4 |
| Foreign currency translation/other | (22.2) |
| Ending Balance | 2,256.8 |
| Consumer Solutions [Member] | |
| Goodwill [Roll Forward] | |
| Beginning Balance | 1,501.4 |
| Purchase Accounting Adjustments | 14.4 |
| Goodwill, Acquired During Period | 6.3 |
| Foreign currency translation/other | (2.9) |
| Ending Balance | 1,519.2 |
| Industrial & Flow Technologies [Member] | |
| Goodwill [Roll Forward] | |
| Beginning Balance | 756.9 |
| Foreign currency translation/other | (19.3) |
| Ending Balance | $ 737.6 |
Commitments and Contingencies - Additional Information (Detail) - USD ($) $ in Millions |
Mar. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Commitments and Contingencies Disclosure [Abstract] | ||
| Letters of credit outstanding | $ 89.3 | $ 91.3 |
Debt (Tables) |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt and Average Interest Rates on Debt Outstanding | Debt and the average interest rates on debt outstanding were as follows:
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| Debt Outstanding Matures on Calendar Year Basis | Debt outstanding, excluding unamortized issuance costs and discounts, at March 31, 2020 matures on a calendar year basis as follows:
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Commitments and Contingencies |
3 Months Ended | ||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||
| Commitments and Contingencies | Commitments and Contingencies Warranties and guarantees In connection with our disposition of businesses, product lines and assets, we often provide representations, warranties and indemnities to cover purchasers for various potential liabilities relating to the sold businesses, product lines and assets, such as unknown damages or liabilities relating to the assets and pre-closing tax, product liability, warranty, environmental, or other obligations. The subject matter, amounts and duration of any such indemnification obligations vary for each type of liability indemnified and may vary widely from transaction to transaction. Generally, the maximum obligations under such indemnifications are not explicitly stated and as a result, the overall amount of these obligations cannot be reasonably estimated due to their inchoate and unknown nature. Historically, we have not made significant payments for these indemnifications. We believe that if we were to incur a loss in any of these matters, the loss would not have a material adverse effect on our financial position, results of operations or cash flows. We recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. We provide service and warranty policies on our products. Liability under service and warranty policies is based upon a review of historical warranty and service claim experience. Adjustments are made to accruals as claim data and historical experience warrant. The changes in the carrying amount of service and product warranties of continuing operations for the three months ended March 31, 2020 were as follows:
Stand-by letters of credit, bank guarantees and bonds In certain situations, Tyco International Ltd., Pentair Ltd.’s former parent company (“Tyco”), guaranteed performance by the flow control business of Pentair Ltd. (“Flow Control”) to third parties or provided financial guarantees for financial commitments of Flow Control. In situations where Flow Control and Tyco were unable to obtain a release from these guarantees in connection with the spin-off of Flow Control from Tyco, we will indemnify Tyco for any losses it suffers as a result of such guarantees. In the ordinary course of business, we are required to commit to bonds, letters of credit and bank guarantees that require payments to our customers for any non-performance. The outstanding face value of these instruments fluctuates with the value of our projects in process and in our backlog. In addition, we issue financial stand-by letters of credit primarily to secure our performance to third parties under self-insurance programs. As of March 31, 2020 and December 31, 2019, the outstanding value of bonds, letters of credit and bank guarantees totaled $89.3 million and $91.3 million, respectively.
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Restructuring (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring Related Costs | Restructuring-related costs within Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income included the following:
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| Restructuring Costs By Segment [Table Text Block] | Restructuring costs by reportable segment were as follows:
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| Restructuring Accrual Activity Recorded on Consolidated Balance Sheets | Activity related to accrued severance and related costs recorded in Other current liabilities in the Condensed Consolidated Balance Sheets is summarized as follows for the three months ended March 31, 2020:
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Supplemental Balance Sheet Information |
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| Disclosure Supplemental Balance Sheet Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Supplemental Balance Sheet Information | Supplemental Balance Sheet Information
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Income Taxes |
3 Months Ended |
|---|---|
Mar. 31, 2020 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | Income Taxes We manage our affairs so that we are centrally managed and controlled in the United Kingdom (“U.K.”) and therefore have our tax residency in the U.K. The provision for income taxes consists of provisions for the U.K. and international income taxes. We operate in an international environment with operations in various locations outside the U.K. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates. The effective income tax rate for the three months ended March 31, 2020 was 21.5%, compared to 17.1% for the three months ended March 31, 2019. We continue to actively pursue initiatives to reduce our effective tax rate. The tax rate in any quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution. On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the ability to carryback net operating losses arising in taxable years from 2018 through 2020. The CARES Act provisions provided a positive cash benefit of $16.2 million, offset by base erosion and anti-abuse tax of $6.8 million related to 2019 that was recorded as a discrete tax item in the first quarter of 2020. The liability for uncertain tax positions was $47.5 million and $47.4 million at March 31, 2020 and December 31, 2019, respectively. We record penalties and interest related to unrecognized tax benefits in Provision for income taxes and Net interest expense, respectively, on the Condensed Consolidated Statements of Operations and Comprehensive Income, which is consistent with our past practices. In April 2020, the Internal Revenue Service released final regulations as part of the Tax Cuts and Jobs Act of 2017 that place limitations on the deductibility of certain interest expense for U.S. tax purposes. These regulations are expected to create a discrete tax expense of approximately $14.1 million in the second quarter of 2020, as well as an increase to our 2020 annual effective tax rate of approximately 1%.
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Basis of Presentation and Responsibility for Interim Financial Statements - Adoption of New Accounting Standards (Details) $ in Millions |
3 Months Ended |
|---|---|
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Mar. 31, 2020
USD ($)
| |
| Accounting Policies [Abstract] | |
| Beginning balance | $ 10.3 |
| Bad debt expense | (1.1) |
| Write-offs, net of recoveries | (0.3) |
| Other | (0.3) |
| Ending balance | $ 8.6 |
Derivatives and Financial Instruments (Tables) |
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| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial Assets and Liabilities Measured at Fair Value on Recurring Basis | Financial assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows:
(1) During the year ended December 31, 2019, we recorded impairment charges for cost method investments in the amount of $21.2 million, of which $15.3 million was recorded in the first quarter of 2019. A valuation method using unobservable inputs was utilized to determine the fair value. We wrote the balance of the cost method investments to zero.
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| Recorded Amounts and Estimated Fair Values of Long-term Debt and Derivative Financial Instruments | The recorded amounts and estimated fair values of total debt, excluding unamortized issuance costs and discounts, were as follows:
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Revenue - Schedule of Contract Assets and Liabilities (Details) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2020 |
Dec. 31, 2019 |
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| Revenue from Contract with Customer [Abstract] | ||
| Contract assets | $ 45.5 | $ 41.0 |
| Contract liabilities | 30.4 | 32.6 |
| Net contract assets | 15.1 | $ 8.4 |
| $ Change | ||
| Contract assets | 4.5 | |
| Contract liabilities | (2.2) | |
| Net contract assets | $ 6.7 | |
| % Change | ||
| Contract assets | 11.00% | |
| Contract liabilities | (6.70%) | |
| Net contract assets | 79.80% |
Benefit Plans (Detail) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
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| Retirement Benefits [Abstract] | ||
| Service cost | $ 0.8 | $ 0.7 |
| Interest cost | 0.7 | 2.7 |
| Expected return on plan assets | (0.2) | (1.7) |
| Net periodic benefit cost | $ 1.3 | $ 1.7 |
Goodwill and Other Identifiable Intangible Assets - Estimated Future Amortization Expense for Identifiable Intangible Assets (Detail) $ in Millions |
Mar. 31, 2020
USD ($)
|
|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | |
| Q2 - Q4 2020 | $ 19.6 |
| 2021 | 22.0 |
| 2022 | 15.4 |
| 2023 | 12.8 |
| 2024 | 12.3 |
| 2025 | $ 12.3 |
Basis of Presentation and Responsibility for Interim Financial Statements |
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||
| Basis of Presentation and Responsibility for Interim Financial Statements | Basis of Presentation and Responsibility for Interim Financial Statements The accompanying unaudited condensed consolidated financial statements of Pentair plc and its subsidiaries (“we,” “us,” “our,” “Pentair,” or the “Company”) have been prepared following the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (“GAAP”) can be condensed or omitted. We are responsible for the unaudited condensed consolidated financial statements included in this document. The financial statements include all normal recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. As these are condensed financial statements, one should also read our consolidated financial statements and notes thereto, which are included in our Annual Report on Form 10-K for the year ended December 31, 2019. Revenues, expenses, cash flows, assets and liabilities can and do vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be indicative of those for a full year. In March 2020, the World Health Organization declared the novel coronavirus 2019 (“COVID-19”) a global pandemic. The broader implications of the COVID-19 pandemic on our business, financial condition and results of operations remain uncertain and will depend on certain developments, including the duration and severity of the COVID-19 pandemic, its impact on our customers and suppliers and the range of governmental and community reactions to the pandemic. We may experience reduced customer demand or constrained supply that could materially adversely impact our business, financial condition, results of operations, liquidity and cash flows in future periods. Our fiscal year ends on December 31. We report our interim quarterly periods on a calendar quarter basis. Adoption of new accounting standards On January 1, 2020, we adopted Accounting Standards Update No. 2016-13 “Financial Instruments-Credit Losses” and the related amendments (the “new standard”). The new standard changes the methodology used to measure credit losses for certain financial instruments and financial assets, including trade receivables. The approach utilizes an expected credit loss model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of an asset, which may result in earlier recognition of credit losses than under the previous accounting standards. Under the new standard, we record an allowance for credit losses, reducing our trade receivables balance to an amount we estimate is collectible from our customers. The estimates used in determining the allowance for credit losses are based on historical collection experience, including write-offs and recoveries, periodic credit evaluations of our customers’ financial situation, and current circumstances as well as reasonable and supportable forecasts of future economic conditions. The adoption of this new standard did not have a material impact on our consolidated financial statements. The following table summarizes the activity in the allowance for credit losses:
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Derivatives and Financial Instruments - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended | |
|---|---|---|---|
Mar. 31, 2020 |
Dec. 31, 2018 |
Dec. 31, 2019 |
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| Foreign Exchange Contract [Member] | |||
| Derivative [Line Items] | |||
| Notional amount | $ 5.8 | $ 17.0 | |
| Currency Swap [Member] | |||
| Derivative [Line Items] | |||
| Notional amount | 761.7 | $ 770.0 | |
| Deferred foreign currency gain (loss) | $ 37.0 | $ 1.8 |
Earnings Per Share |
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| Earnings Per Share | Earnings Per Share Basic and diluted earnings per share were calculated as follows:
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Derivatives and Financial Instruments |
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| Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives and Financial Instruments | Derivatives and Financial Instruments Derivative financial instruments We are exposed to market risk related to changes in foreign currency exchange rates. To manage the volatility related to this exposure, we periodically enter into a variety of derivative financial instruments. Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates. The derivative contracts contain credit risk to the extent that our bank counterparties may be unable to meet the terms of the agreements. The amount of such credit risk is generally limited to the unrealized gains, if any, in such contracts. Such risk is minimized by limiting those counterparties to major financial institutions of high credit quality. Foreign currency contracts We conduct business in various locations throughout the world and are subject to market risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. dollar. We manage our economic and transaction exposure to certain market-based risks through the use of foreign currency derivative financial instruments. Our objective in holding these derivatives is to reduce the volatility of net earnings and cash flows associated with changes in foreign currency exchange rates. The majority of our foreign currency contracts have an original maturity date of less than one year. At March 31, 2020 and December 31, 2019, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts of $5.8 million and $17.0 million, respectively. The impact of these contracts on the Condensed Consolidated Statements of Operations and Comprehensive Income was not material for any period presented. Cross Currency Swaps At March 31, 2020 and December 31, 2019, we had outstanding cross currency swap agreements with a combined notional amount of $761.7 million and $770.0 million, respectively. The agreements are accounted for as either cash flow hedges, to hedge foreign currency fluctuations on certain intercompany debt, or as net investment hedges to manage our exposure to fluctuations in the Euro-U.S. Dollar exchange rate. We had deferred foreign currency gains of $37.0 million and deferred currency losses of $1.8 million at March 31, 2020 and December 31, 2019, respectively, in Accumulated other comprehensive loss associated with our cross currency swap activity. Fair value measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:
In making fair value measurements, observable market data must be used when available. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. Fair value of financial instruments The following methods were used to estimate the fair values of each class of financial instruments:
The recorded amounts and estimated fair values of total debt, excluding unamortized issuance costs and discounts, were as follows:
Financial assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows:
(1) During the year ended December 31, 2019, we recorded impairment charges for cost method investments in the amount of $21.2 million, of which $15.3 million was recorded in the first quarter of 2019. A valuation method using unobservable inputs was utilized to determine the fair value. We wrote the balance of the cost method investments to zero.
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Acquisitions Acquisitions (Details) - USD ($) $ in Millions |
1 Months Ended | 3 Months Ended | ||
|---|---|---|---|---|
Feb. 28, 2019 |
Mar. 31, 2020 |
Mar. 31, 2019 |
Dec. 31, 2019 |
|
| Business Acquisition [Line Items] | ||||
| Acquisitions, net of cash acquired | $ 7.2 | $ 287.2 | ||
| Goodwill | $ 2,256.8 | $ 2,258.3 | ||
| Aquion | ||||
| Business Acquisition [Line Items] | ||||
| Acquisitions, net of cash acquired | $ 163.4 | |||
| Goodwill | 101.9 | |||
| Business Acquisition, Goodwill, Expected Tax Deductible Amount | 4.6 | |||
| Indefinite-lived trade name intangible assets | 15.7 | |||
| Definite-lived customer relationships | $ 78.8 | |||
| Estimated useful life | 15 years | |||
| Pelican | ||||
| Business Acquisition [Line Items] | ||||
| Acquisitions, net of cash acquired | $ 121.1 | |||
| Goodwill | 118.0 | |||
| Business Acquisition, Goodwill, Expected Tax Deductible Amount | $ 7.6 | |||
Revenue - Geographic Net Sales Information by Segment (Details) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
| Disaggregation of Revenue [Line Items] | ||
| Net sales | $ 710.0 | $ 688.9 |
| Residential | ||
| Disaggregation of Revenue [Line Items] | ||
| Net sales | 415.8 | 383.6 |
| Commercial | ||
| Disaggregation of Revenue [Line Items] | ||
| Net sales | 141.4 | 150.7 |
| Industrial | ||
| Disaggregation of Revenue [Line Items] | ||
| Net sales | 152.8 | 154.6 |
| U.S. | ||
| Disaggregation of Revenue [Line Items] | ||
| Net sales | 464.0 | 426.0 |
| Western Europe | ||
| Disaggregation of Revenue [Line Items] | ||
| Net sales | 103.8 | 104.3 |
| Developing | ||
| Disaggregation of Revenue [Line Items] | ||
| Net sales | 94.5 | 108.9 |
| Other Developed | ||
| Disaggregation of Revenue [Line Items] | ||
| Net sales | $ 47.7 | $ 49.7 |
Benefit Plans (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Net Benefit Costs | Components of net periodic benefit cost for our pension plans for the three months ended March 31, 2020 and 2019 were as follows:
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Goodwill and Other Identifiable Intangible Assets - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Intangible asset amortization expense | $ 7.6 | $ 8.2 |
Debt - Debt Outstanding Matures on Calendar Year Basis (Detail) $ in Millions |
Mar. 31, 2020
USD ($)
|
|---|---|
| Debt Disclosure [Abstract] | |
| Q2 - Q4 2020 | $ 74.0 |
| 2021 | 103.8 |
| 2022 | 88.3 |
| 2023 | 774.5 |
| 2024 | 0.0 |
| 2025 | 19.3 |
| Thereafter | 400.0 |
| Total debt | $ 1,459.9 |
Income Taxes - Additional Information (Detail) $ in Millions |
1 Months Ended | 3 Months Ended | ||
|---|---|---|---|---|
|
Apr. 30, 2020
USD ($)
|
Mar. 31, 2020
USD ($)
|
Mar. 31, 2019 |
Dec. 31, 2019
USD ($)
|
|
| Subsequent Event [Line Items] | ||||
| Effective income tax rate | 21.50% | 17.10% | ||
| Tax benefit, CARES Act | $ 16.2 | |||
| Tax expense, base erosion and anti-abuse tax | 6.8 | |||
| Total gross liability for unrecognized tax benefits | $ 47.5 | $ 47.4 | ||
| Subsequent Event [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Tax expense, Tax Cuts and Jobs Act | $ 14.1 | |||
| Effective tax rate, Tax Cuts and Jobs Act | 0.01 | |||
Goodwill and Other Identifiable Intangible Assets - Detail of Identifiable Intangible Assets (Detail) - USD ($) $ in Millions |
Mar. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Acquired Intangible Assets By Major Class [Line Items] | ||
| Cost | $ 452.0 | $ 460.4 |
| Accumulated amortization | (297.1) | (294.6) |
| Net | 154.9 | 165.8 |
| Net, indefinite-life intangibles | 171.6 | 173.4 |
| Cost | 623.6 | 633.8 |
| Net | 326.5 | 339.2 |
| Customer relationships | ||
| Acquired Intangible Assets By Major Class [Line Items] | ||
| Cost | 410.3 | 418.1 |
| Accumulated amortization | (271.4) | (269.1) |
| Net | 138.9 | 149.0 |
| Patented Technology [Member] | ||
| Acquired Intangible Assets By Major Class [Line Items] | ||
| Cost | 41.7 | 42.3 |
| Accumulated amortization | (25.7) | (25.5) |
| Net | $ 16.0 | $ 16.8 |
Restructuring - Accrual Activity (Detail) $ in Millions |
3 Months Ended |
|---|---|
|
Mar. 31, 2020
USD ($)
| |
| Restructuring Reserve [Roll Forward] | |
| Beginning balance | $ 16.2 |
| Costs incurred | 2.7 |
| Cash payments and other | (4.7) |
| Ending balance | $ 14.2 |
Share Plans - Schedule of Valuation Assumptions (Details) |
3 Months Ended |
|---|---|
Mar. 31, 2020 | |
| Share-based Payment Arrangement [Abstract] | |
| Risk-free interest rate | 1.61% |
| Expected dividend yield | 1.80% |
| Expected share price volatility | 24.10% |
| Expected term (years) | 6 years 9 months 18 days |