UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period Ended March 31, 2023

OR 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-11625

Pentair plc

(Exact name of Registrant as specified in its charter)

Ireland			98-1141328
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
	Regal House, 70 London Road,	Twickenham,	London,	TW13QS	United Kingdom
(Address of principal executive offices)

Registrant’s telephone number, including area code: 44-74-9421-6154

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary Shares, nominal value $0.01 per share	PNR	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting
company ☐ Emerging growth
company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

On March 31, 2023, 164,950,305 shares of Registrant’s common stock were outstanding.

Pentair plc and Subsidiaries

		Page
PART I FINANCIAL INFORMATION
ITEM 1.	Financial Statements (unaudited)
	Condensed Consolidated Statements of Operations and Comprehensive Income	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Cash Flows	5
	Condensed Consolidated Statements of Changes in Equity	6
	Notes to Condensed Consolidated Financial Statements	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	34
ITEM 4.	Controls and Procedures	35
PART II OTHER INFORMATION
ITEM 1.	Legal Proceedings	35
ITEM 1A.	Risk Factors	35
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
ITEM 6.	Exhibits	37
	Signatures	38

2

PART I FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

Pentair plc and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

	Three months ended
In millions, except per-share data	March 31, 2023		March 31, 2022
Net sales	$	1,028.6	$	999.6
Cost of goods sold	646.8		667.4
Gross profit	381.8		332.2
Selling, general and administrative expenses	173.3		164.1
Research and development expenses	24.9		22.3
Operating income	183.6		145.8
Other expense
Net interest expense	32.4		5.7
Other expense	0.7		0.1
Income from continuing operations before income taxes	150.5		140.0
Provision for income taxes	22.0		21.5
Net income from continuing operations	128.5		118.5
Income (loss) from discontinued operations, net of tax	1.2		(0.9)
Net income	$	129.7	$	117.6
Comprehensive income, net of tax
Net income	$	129.7	$	117.6
Changes in cumulative translation adjustment	12.1		(7.4)
Changes in market value of derivative financial instruments, net of tax	(7.2)		6.6
Comprehensive income	$	134.6	$	116.8
Earnings (loss) per ordinary share
Basic
Continuing operations	$	0.78	$	0.72
Discontinued operations	0.01		(0.01)
Basic earnings per ordinary share	$	0.79	$	0.71
Diluted
Continuing operations	$	0.78	$	0.71
Discontinued operations	0.01		(0.01)
Diluted earnings per ordinary share	$	0.79	$	0.70
Weighted average ordinary shares outstanding
Basic	164.8		165.3
Diluted	165.8		166.5

See accompanying notes to condensed consolidated financial statements.

3

Pentair plc and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

	March 31, 2023		December 31, 2022
In millions, except per-share data
Assets
Current assets
Cash and cash equivalents	$	119.2	$	108.9
Accounts receivable, net of allowances of $11.4 and $10.8, respectively	718.1		531.5
Inventories	782.8		790.0
Other current assets	146.6		128.1
Total current assets	1,766.7		1,558.5
Property, plant and equipment, net	348.8		344.5
Other assets
Goodwill	3,263.2		3,252.6
Intangibles, net	1,081.9		1,094.6
Other non-current assets	210.6		197.3
Total other assets	4,555.7		4,544.5
Total assets	$	6,671.2	$	6,447.5
Liabilities and Equity
Current liabilities
Accounts payable	$	331.3	$	355.0
Employee compensation and benefits	94.1		106.0
Other current liabilities	576.2		602.1
Total current liabilities	1,001.6		1,063.1
Other liabilities
Long-term debt	2,491.8		2,317.3
Pension and other post-retirement compensation and benefits	71.1		70.8
Deferred tax liabilities	43.9		43.3
Other non-current liabilities	253.3		244.9
Total liabilities	3,861.7		3,739.4
Commitments and contingencies (Note 16)
Equity
Ordinary shares $0.01 par value, 426.0 authorized, 165.0 and 164.5 issued at March 31, 2023 and December 31, 2022, respectively	1.7		1.7
Additional paid-in capital	1,558.0		1,554.9
Retained earnings	1,483.9		1,390.5
Accumulated other comprehensive loss	(234.1)		(239.0)
Total equity	2,809.5		2,708.1
Total liabilities and equity	$	6,671.2	$	6,447.5

See accompanying notes to condensed consolidated financial statements.

4

Pentair plc and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Three months ended
In millions	March 31, 2023		March 31, 2022
Operating activities
Net income	$	129.7	$	117.6
(Income) loss from discontinued operations, net of tax	(1.2)		0.9
Adjustments to reconcile net income from continuing operations to net cash provided by (used for) operating activities
Equity income of unconsolidated subsidiaries	(0.2)		(0.5)
Depreciation	14.7		13.0
Amortization	13.8		6.6
Deferred income taxes	(14.0)		(3.7)
Share-based compensation	7.2		6.9
Asset impairment and write-offs	4.1		—
Amortization of bridge financing fees	—		2.6
Changes in assets and liabilities, net of effects of business acquisitions
Accounts receivable	(184.8)		(116.1)
Inventories	6.0		(95.1)
Other current assets	(17.4)		(23.5)
Accounts payable	(24.9)		10.4
Employee compensation and benefits	(12.8)		(37.5)
Other current liabilities	(28.7)		(12.4)
Other non-current assets and liabilities	1.9		(0.7)
Net cash used for operating activities	(106.6)		(131.5)
Investing activities
Capital expenditures	(16.6)		(17.7)
Proceeds from sale of property and equipment	0.2		—
Acquisitions, net of cash acquired	0.2		(1.4)
Net cash used for investing activities	(16.2)		(19.1)
Financing activities
Net borrowings of revolving long-term debt	173.6		199.6
Debt issuance costs	—		(5.8)
Shares issued to employees, net of shares withheld	(4.1)		(5.3)
Dividends paid	(36.2)		(34.7)
Net cash provided by financing activities	133.3		153.8
Effect of exchange rate changes on cash and cash equivalents	(0.2)		4.6
Change in cash and cash equivalents	10.3		7.8
Cash and cash equivalents, beginning of period	108.9		94.5
Cash and cash equivalents, end of period	$	119.2	$	102.3

See accompanying notes to condensed consolidated financial statements.

5

Pentair plc and Subsidiaries

Condensed Consolidated Statements of Changes in Equity (Unaudited)

In millions	Ordinary shares			Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Total
	Number	Amount
Balance - December 31, 2022	164.5	$	1.7	$	1,554.9	$	1,390.5	$	(239.0)	$	2,708.1
Net income	—	—		—		129.7		—		129.7
Other comprehensive income, net of tax	—	—		—		—		4.9		4.9
Dividends declared, $0.22 per share	—	—		—		(36.3)		—		(36.3)
Exercise of options, net of shares tendered for payment	0.1	—		2.5		—		—		2.5
Issuance of restricted shares, net of cancellations	0.5	—		(2.3)		—		—		(2.3)
Shares surrendered by employees to pay taxes	(0.1)	—		(4.3)		—		—		(4.3)
Share-based compensation	—	—		7.2		—		—		7.2
Balance - March 31, 2023	165.0	$	1.7	$	1,558.0	$	1,483.9	$	(234.1)	$	2,809.5

In millions	Ordinary shares			Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Total
	Number	Amount
Balance - December 31, 2021	165.1	$	1.7	$	1,582.7	$	1,051.4	$	(213.9)	$	2,421.9
Net income	—	—		—		117.6		—		117.6
Other comprehensive loss, net of tax	—	—		—		—		(0.8)		(0.8)
Dividends declared, $0.21 per share	—	—		—		(36.4)		—		(36.4)
Exercise of options, net of shares tendered for payment	—	—		0.5		—		—		0.5
Issuance of restricted shares, net of cancellations	0.4	—		(2.2)		—		—		(2.2)
Shares surrendered by employees to pay taxes	(0.1)	—		(3.6)		—		—		(3.6)
Share-based compensation	—	—		6.9		—		—		6.9
Balance - March 31, 2022	165.4	$	1.7	$	1,584.3	$	1,132.6	$	(214.7)	$	2,503.9

See accompanying notes to condensed consolidated financial statements.

6

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

1.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 United States (“U.S.”) Securities and Exchange Commission 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, 2022.

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.

Our fiscal year ends on December 31. We report our interim quarterly periods on a calendar quarter basis.

2.Revenue

We disaggregate our revenue from contracts with customers by segment, geographic location and vertical market, as we believe these best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Refer to Note 15 for revenue disaggregated by segment.

Geographic net sales information, based on geographic destination of the sale, was as follows:

	Three months ended
In millions	March 31, 2023		March 31, 2022
U.S.	$	715.8	$	706.0
Western Europe	127.8		117.9
Developing (1)	121.1		110.6
Other Developed (2)	63.9		65.1
Consolidated net sales	$	1,028.6	$	999.6
(1) Developing includes China, Eastern Europe, Latin America, the Middle East and Southeast Asia.
(2) Other Developed includes Australia, Canada and Japan.

Vertical market net sales information was as follows:

	Three months ended
In millions	March 31, 2023		March 31, 2022
Residential	$	566.4	$	682.8
Commercial	273.3		149.7
Industrial	188.9		167.1
Consolidated net sales	$	1,028.6	$	999.6

Performance obligations

On March 31, 2023, we had $98.1 million of remaining performance obligations on contracts with an original expected duration of one year or more. We expect to recognize the majority of our remaining performance obligations on these contracts within the next 12 to 18 months.

7

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Contract assets and liabilities

Contract assets and liabilities consisted of the following:

In millions	March 31, 2023		December 31, 2022		$ Change		% Change
Contract assets	$	53.0	$	48.4	$	4.6	9.5	%
Contract liabilities	54.1		58.1		(4.0)		(6.9)	%
Net contract liabilities	$	(1.1)	$	(9.7)	$	8.6	(88.7)	%

The $8.6 million decrease in net contract liabilities from December 31, 2022 to March 31, 2023 was primarily the result of timing of milestone payments. Approximately 60% of our contract liabilities at December 31, 2022 were recognized in revenue in the first quarter of 2023.

3.Acquisitions

In July 2022, as part of our Water Solutions reporting segment, we acquired the issued and outstanding equity securities of certain subsidiaries of Welbilt, Inc. (“Welbilt”) and certain other assets, rights, and properties, and assumed certain liabilities, comprising Welbilt’s Manitowoc Ice business (“Manitowoc Ice”), for approximately $1.6 billion in cash.

Manitowoc Ice is a designer, manufacturer and distributor of commercial ice machines. The acquisition of Manitowoc Ice allows us to enhance and deliver our total water management offerings to an expanded network of channel partners and customers.

The purchase price has been preliminarily allocated based on the estimated fair value of assets acquired and liabilities assumed at the date of the Manitowoc Ice acquisition. The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. These changes will primarily relate to income tax-related items. We expect the final purchase price allocation to be completed by the third quarter of 2023. There can be no assurance that such finalization will not result in material changes from the preliminary purchase price allocation.

The following table summarizes our preliminary estimates of the fair values of the assets acquired and liabilities assumed in the Manitowoc Ice acquisition as previously reported as of December 31, 2022 and revised as of March 31, 2023:

In millions	As Previously Reported		As Revised
Cash	$	33.8	$	33.8
Accounts receivable	36.7		36.7
Inventories	66.5		66.8
Other current assets	3.9		3.9
Property, plant and equipment	21.6		21.6
Identifiable intangible assets	728.3		728.3
Goodwill	790.5		791.0
Other assets	1.8		1.8
Current liabilities	(66.5)		(67.5)
Other liabilities	(3.3)		(3.3)
Purchase price	$	1,613.3	$	1,613.1

8

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

The excess of purchase price over tangible net assets and identified intangible assets acquired has been preliminarily allocated to goodwill in the amount of $791.0 million, all of which is expected to be deductible for income tax purposes. Goodwill recognized from the Manitowoc Ice acquisition primarily reflects the future economic benefit resulting from synergies of our combined operations.

Identifiable intangible assets acquired as part of the Manitowoc Ice acquisition include $78.4 million of indefinite-lived trade name intangible assets, $588.4 million of definite-lived customer relationships with a weighted-average estimated useful life of 20 years, $47.1 million of definite-lived proprietary technology intangible assets with a weighted-average estimated useful life of 10 years and $14.4 million of other definite-lived intangible assets with a weighted-average estimated useful life of four months. The fair values of trade names and proprietary technology acquired in the acquisition were determined using a relief-from-royalty method, and customer relationships and other definite-lived intangible assets acquired were determined using a multi-period excess earnings method. These methods utilize unobservable inputs that are significant to these fair value measurements and thus classified as Level 3 of the fair value hierarchy described in Note 11.

The following table presents unaudited pro forma financial information as if the Manitowoc Ice acquisition had occurred on January 1, 2021:

	Three months ended
In millions, except per share data	March 31, 2022
Pro forma net sales	$	1,074.5
Pro forma net income from continuing operations	123.0
Pro forma earnings per ordinary share - continuing operations
Basic	$	0.74
Diluted	0.74

The unaudited pro forma net income from continuing operations includes Manitowoc Ice’s identifiable intangible asset amortization expense of $8.5 million for the three months ended March 31, 2022. The unaudited pro forma net income from continuing operations for the three months ended March 31, 2022 excludes the impact of $8.9 million of transaction-related charges and acquisition-related bridge financing costs.

The pro forma condensed consolidated financial information has been prepared for comparative purposes only and includes certain adjustments, as noted above. The adjustments are estimates based on currently available information and actual amounts may differ materially from these estimates. They do not reflect the effect of costs or synergies that would have been expected to result from the integration of the Manitowoc Ice acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the Manitowoc Ice acquisition occurred on January 1, 2021.

9

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

4.Share Plans

Total share-based compensation expense for the three months ended March 31, 2023 and 2022 was as follows:

	Three months ended
In millions	March 31, 2023		March 31, 2022
Restricted stock units	$	3.7	$	3.6
Stock options	1.1		1.0
Performance share units	2.4		2.3
Total share-based compensation expense	$	7.2	$	6.9

In the first quarter of 2023, we issued our annual share-based compensation grants under the Pentair plc 2020 Share and Incentive Plan to eligible employees. The total number of awards issued was approximately 0.9 million, of which 0.3 million were restricted stock units (“RSUs”), 0.4 million were stock options and 0.2 million were performance share units (“PSUs”). The weighted-average grant date fair value of the RSUs, stock options and PSUs issued was $51.11, $14.03, and $46.39, respectively.

We estimated the fair value of each stock option award issued in the annual share-based compensation grant using a Black-Scholes option pricing model, modified for dividends and using the following assumptions:

	2023 Annual Grant
Risk-free interest rate	4.00	%
Expected dividend yield	2.02	%
Expected share price volatility	30.4	%
Expected term (years)	6.1

These estimates require us to make assumptions based on historical results, observance of trends in our share price, changes in option exercise behavior, future expectations and other relevant factors. If other assumptions had been used, share-based compensation expense, as calculated and recorded under the accounting guidance, could have been affected. We based the expected life assumption on historical experience as well as the terms and vesting periods of the options granted. For purposes of determining expected share price volatility, we considered a rolling average of historical volatility measured over a period approximately equal to the expected option term. The risk-free interest rate for periods that coincide with the expected life of the options is based on the U.S. Treasury Department yield curve in effect at the time of grant.

5.Restructuring and Transformation Program

In 2021, we launched and committed resources to a program designed to accelerate growth and drive margin expansion through transformation of our business model to drive operational excellence, reduce complexity and streamline our processes (the “Transformation Program”). The Transformation Program is structured in multiple phases and is expected to empower us to work more efficiently and optimize our business to better serve our customers while meeting our financial objectives.

During the three months ended March 31, 2023, we initiated and continued execution of certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business. In addition, we have continued to execute certain initiatives associated with the Transformation Program. These initiatives included a reduction in hourly and salaried headcount of approximately 200 employees during the three months ended March 31, 2023.

10

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Restructuring and transformation-related costs included within Cost of goods sold and Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income included the following: 

	Three months ended
In millions	March 31, 2023		March 31, 2022
Restructuring Initiatives
Severance and related costs	$	2.5	$	1.9
Other restructuring costs (1)	0.6		—
Total restructuring costs	3.1		1.9
Transformation Program
Severance and related costs	1.9		—
Other transformation costs (2)	6.6		5.5
Total transformation costs	8.5		5.5
Total restructuring and transformation costs	$	11.6	$	7.4
(1) Other restructuring costs primarily consist of certain accruals, various contract termination costs and inventory write-offs associated with business and product line exits.
(2) Other transformation costs primarily consist of professional services and project management and related costs.

Restructuring and transformation costs by reportable segment were as follows:

	Three months ended
In millions	March 31, 2023		March 31, 2022
Industrial & Flow Technologies	$	0.4	$	0.6
Water Solutions	1.5		0.3
Pool	3.3		1.0
Other	6.4		5.5
Consolidated	$	11.6	$	7.4

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, 2023: 

In millions	March 31, 2023
Beginning balance	$	23.2
Costs incurred	4.4
Cash payments and other	(7.8)
Ending balance	$	19.8

11

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

6.Earnings Per Share

Basic and diluted earnings per share were calculated as follows:

	Three months ended
In millions, except per-share data	March 31, 2023		March 31, 2022
Net income	$	129.7	$	117.6
Net income from continuing operations	$	128.5	$	118.5
Weighted average ordinary shares outstanding
Basic	164.8		165.3
Dilutive impact of stock options, restricted stock units and performance share units	1.0		1.2
Diluted	165.8		166.5
Earnings (loss) per ordinary share
Basic
Continuing operations	$	0.78	$	0.72
Discontinued operations	0.01		(0.01)
Basic earnings per ordinary share	$	0.79	$	0.71
Diluted
Continuing operations	$	0.78	$	0.71
Discontinued operations	0.01		(0.01)
Diluted earnings per ordinary share	$	0.79	$	0.70
Anti-dilutive stock options excluded from the calculation of diluted earnings per share	0.7		0.5

7.Accounts Receivable

All trade receivables are reported on our Condensed Consolidated Balance Sheets at the outstanding principal amount adjusted for any allowance for credit losses and write-offs, net of recoveries. We record an allowance for credit losses, reducing our receivables balance to an amount we estimate is collectible from our customers. Estimates used in determining the allowance for credit losses are based on current trends, aging of accounts receivable, periodic credit evaluations of our customers’ financial condition, and historical collection experience as well as reasonable and supportable forecasts of future economic conditions. Write-offs are recorded at the time all collection efforts have been exhausted. We generally do not require collateral. We review our allowance for credit losses on a quarterly basis.

Activity related to our allowance for credit losses is summarized as follows for the three months ended March 31, 2023: 

In millions	March 31, 2023
Beginning balance	$	10.8
Bad debt expense	0.1
Write-offs, net of recoveries	(0.1)
Other (1)	0.6
Ending balance	$	11.4
(1) Other amounts are primarily the effects of changes in currency translation and the impact of allowance for credits.

12

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

8.Supplemental Balance Sheet Information

In millions	March 31, 2023		December 31, 2022
Inventories
Raw materials and supplies	$	414.1	$	404.1
Work-in-process	105.6		95.6
Finished goods	263.1		290.3
Total inventories	$	782.8	$	790.0
Other current assets
Cost in excess of billings	$	53.0	$	48.4
Prepaid expenses	88.8		74.8
Other current assets	4.8		4.9
Total other current assets	$	146.6	$	128.1
Property, plant and equipment, net
Land and land improvements	$	32.5	$	32.3
Buildings and leasehold improvements	218.2		200.7
Machinery and equipment	646.8		639.2
Capitalized software	72.0		68.8
Construction in progress	54.1		60.6
Total property, plant and equipment	1,023.6		1,001.6
Accumulated depreciation and amortization	674.8		657.1
Total property, plant and equipment, net	$	348.8	$	344.5
Other non-current assets
Right-of-use lease assets	$	76.1	$	78.6
Deferred income taxes	40.1		26.0
Deferred compensation plan assets	22.7		21.7
Other non-current assets	71.7		71.0
Total other non-current assets	$	210.6	$	197.3
Other current liabilities
Dividends payable	$	36.3	$	36.2
Accrued warranty	66.1		63.1
Accrued rebates and incentives	177.9		200.1
Accrued freight	38.0		39.4
Billings in excess of cost	44.9		43.8
Current lease liability	28.9		29.3
Income taxes payable	32.6		21.8
Accrued restructuring	19.8		23.2
Interest payable	23.9		32.9
Other current liabilities	107.8		112.3
Total other current liabilities	$	576.2	$	602.1
Other non-current liabilities
Long-term lease liability	$	50.3	$	52.4
Income taxes payable	35.2		35.1
Self-insurance liabilities	52.9		52.1
Deferred compensation plan liabilities	22.7		21.7
Foreign currency contract liabilities	62.3		52.2
Other non-current liabilities	29.9		31.4
Total other non-current liabilities	$	253.3	$	244.9

13

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

9.Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill by reportable segment were as follows:

In millions	December 31, 2022		Purchase Accounting Adjustments		Foreign  Currency  Translation		March 31, 2023
Industrial & Flow Technologies	$	747.6	$	—	$	8.1	$	755.7
Water Solutions	1,398.1		0.5		2.0		1,400.6
Pool	1,106.9		—		—		1,106.9
Total goodwill	$	3,252.6	$	0.5	$	10.1	$	3,263.2

Identifiable intangible assets consisted of the following:

	March 31, 2023						December 31, 2022
In millions	Cost		Accumulated amortization		Net		Cost		Accumulated amortization		Net
Definite-life intangibles
Customer relationships	$	1,102.8	$	(322.7)	$	780.1	$	1,100.9	$	(308.9)	$	792.0
Proprietary technology and patents	89.4		(37.6)		51.8		89.3		(35.6)		53.7
Other	—		—		—		14.4		(14.4)		—
Total finite-life intangibles	1,192.2		(360.3)		831.9		1,204.6		(358.9)		845.7
Indefinite-life intangibles
Trade names	250.0		—		250.0		248.9		—		248.9
Total intangibles	$	1,442.2	$	(360.3)	$	1,081.9	$	1,453.5	$	(358.9)	$	1,094.6

Identifiable intangible asset amortization expense was $13.8 million and $6.6 million for the three months ended March 31, 2023 and 2022, respectively.

Estimated future amortization expense for identifiable intangible assets during the remainder of 2023 and the next five years is as follows:

	Q2-Q4
	2023		2024		2025		2026		2027		2028
Estimated amortization expense	$	40.9	$	54.1	$	54.1	$	52.8	$	51.5	$	49.0

14

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

10.Debt

Debt and the average interest rates on debt outstanding were as follows: 

In millions	Average interest rate as of March 31, 2023	Maturity Year	March 31, 2023		December 31, 2022
Revolving credit facility (Senior Credit Facility)	6.080%	2026	$	493.6	$	320.0
Term Loan Facility	6.114%	2023 - 2027	1,000.0		1,000.0
Term loans (Senior Credit Facility)	6.102%	2024	200.0		200.0
Senior notes - fixed rate (1)	4.650%	2025	19.3		19.3
Senior notes - fixed rate (1)	4.500%	2029	400.0		400.0
Senior notes - fixed rate (1)	5.900%	2032	400.0		400.0
Unamortized debt issuance costs and discounts	N/A	N/A	(21.1)		(22.0)
Total debt			$	2,491.8	$	2,317.3
(1) Senior notes are guaranteed as to payment by Pentair plc.

Pentair, Pentair Finance S.à r.l (“PFSA“) and Pentair, Inc. are parties to a credit agreement (the “Senior Credit Facility”), with Pentair as guarantor and PFSA and Pentair, Inc. as borrowers, which was amended and restated in December 2021 and further amended in December 2022, providing for a $900.0 million senior unsecured revolving credit facility and a $200.0 million senior unsecured term loan facility. The revolving credit facility has a maturity date of December 16, 2026 and the term loan facility has a maturity date of December 16, 2024. Borrowings under the Senior Credit Facility bear interest at a rate equal to an alternate base rate, adjusted term secured overnight financing rate, adjusted euro interbank offered rate, adjusted daily simple secured overnight financing rate or central bank rate, plus, in each case, an applicable margin. The applicable margin is based on, at PFSA’s election, Pentair’s leverage level or PFSA’s public credit rating.

As of March 31, 2023, total availability under the Senior Credit Facility was $406.4 million. In addition, PFSA has the option to request to increase the revolving credit facility and/or to enter into one or more additional tranches of term loans in an aggregate amount of up to $300.0 million, subject to customary conditions, including the commitment of the participating lenders.

In March 2022, in contemplation of the acquisition of Manitowoc Ice, Pentair and PFSA entered into a Loan Agreement among PFSA, as borrower, Pentair, as guarantor, and the lenders and agents party thereto, providing for a $600.0 million senior unsecured term loan facility (the “Term Loan Facility”). In June 2022, the Term Loan Facility was amended to increase the facility by $400.0 million to an aggregate principal amount of $1.0 billion. The Term Loan Facility has a maturity date of July 28, 2027, with required quarterly installment payments of $6.3 million beginning on the last day of the third quarter of 2023 and increasing to $12.5 million beginning with the last day of the third quarter of 2024. The Term Loan Facility bears interest at a rate equal to an alternate base rate, adjusted term secured overnight financing rate, or adjusted daily simple secured overnight financing rate, plus, in each case, an applicable margin. The applicable margin is based on, at PFSA’s election, Pentair’s leverage level or PFSA’s public credit rating.

In July 2022, in contemplation of the acquisition of Manitowoc Ice, Pentair, as guarantor, and PFSA, as issuer, completed a public offering of $400.0 million aggregate principal amount of 5.900% Senior Notes due 2032 (“2032 Senior Notes”).

We used the net proceeds from the Term Loan Facility and the issuance of the 2032 Senior Notes to finance a portion of the Manitowoc Ice acquisition purchase price and to pay related fees and expenses.

Our debt agreements contain various financial covenants, but the most restrictive covenants are contained in the Senior Credit Facility and the Term Loan Facility. The Senior Credit Facility and the Term Loan Facility contain covenants requiring us not to permit (i) the ratio of our consolidated debt (net of our consolidated unrestricted cash and cash equivalents in excess of $5.0 million but not to exceed $250.0 million) to our consolidated net income (excluding, among other things, non-cash gains and losses) before interest, taxes, depreciation, amortization and non-cash share-based compensation expense (“EBITDA”) on the last day of any period of four consecutive fiscal quarters (each, a “testing period”) to exceed 3.75 to 1.00 (or, at PFSA’s election and subject to certain conditions, 4.25 to 1.00 for four testing periods in connection with certain material acquisitions) (the “Leverage Ratio”) and (ii) the ratio of our EBITDA to our consolidated interest expense, for the same period to be less than 3.00 to 1.00 as of the end of each fiscal quarter. For purposes of the Leverage Ratio, the Senior Credit Facility and the Term

15

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Loan Facility provide for the calculation of EBITDA giving pro forma effect to certain acquisitions, divestitures and liquidations during the period to which such calculation relates.

In addition to the Senior Credit Facility and the Term Loan Facility, we have various other credit facilities with an aggregate availability of $21.1 million, of which there were no outstanding borrowings at March 31, 2023. Borrowings under these credit facilities bear interest at variable rates.

We have $18.8 million of Term Loan Facility payments due in the next twelve months. We classified this debt as long-term as of March 31, 2023 as we have the intent and ability to refinance such obligation on a long-term basis under the revolving credit facility under the Senior Credit Facility.

Debt outstanding, excluding unamortized issuance costs and discounts, at March 31, 2023 matures on a calendar year basis as follows:

	Q2-Q4
In millions	2023		2024		2025		2026		2027		2028		Thereafter		Total
Contractual debt obligation maturities	$	12.5	$	237.5	$	69.3	$	543.6	$	850.0	$	—	$	800.0	$	2,512.9

11.Derivatives and Financial Instruments

Derivative financial instruments

We are exposed to market risk related to changes in foreign currency exchange rates and interest rates on our variable rate indebtedness. To manage the volatility related to these exposures, 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 or variable interest 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, 2023 and December 31, 2022, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts of $17.1 million and $9.4 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, 2023 and December 31, 2022, we had outstanding cross currency swap agreements with a combined notional amount of $759.1 million and $746.3 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 losses of $47.6 million and $40.3 million at March 31, 2023 and December 31, 2022, respectively, recorded in Accumulated other comprehensive loss associated with our cross currency swap activity. The periodic interest settlements related to our cross currency swap agreements are classified as operating activities. The cash flows that relate to principal balances are classified as financing activities for the cash flow hedges on intercompany debt and investing activities for the net investment hedges.

Hedging of variable interest rates

On March 31, 2023, we entered into floating-to-fixed interest rate swap agreements to hedge the interest rate variability related to a portion of our Senior Credit Facility and Term Loan Facility referenced in Note 10. The swaps have a combined notional amount of $300.0 million, an average fixed one-month U.S. Dollar secured overnight financing rate (“SOFR”) of 3.795% and settle monthly through April 2026.

16

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

On April 3, 2023, we entered into five-year interest rate collar agreements with a combined notional value of $200.0 million to hedge the cash flows related to the interest rate variability on our Senior Credit Facility and Term Loan Facility referenced in Note 10. In these collar agreements, the Company and counterparty financial institutions agreed to a one-month U.S. Dollar SOFR floor of 1.875% and a cap of 5.000%. The collars have an effective date of April 4, 2023 and settle monthly through April 2028.

The interest rate swaps and the collars were designated as cash flow hedges. Unrealized gains and losses related to the fair value of the interest rate swaps are recorded in Accumulated other comprehensive loss on our Condensed Consolidated Balance Sheets.

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:

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.

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 instrument: 

•short-term financial instruments (cash and cash equivalents, accounts and notes receivable, accounts 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 above;

•foreign currency contracts, interest rate swap and collar 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 above; 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 above; 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.

17

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

The recorded amounts and estimated fair values of total debt, excluding unamortized issuance costs and discounts, were as follows:

	March 31, 2023				December 31, 2022
In millions	Recorded Amount		Fair Value		Recorded Amount		Fair Value
Variable rate debt	$	1,693.6	$	1,693.6	$	1,520.0	$	1,520.0
Fixed rate debt	819.3		817.5		819.3		789.3
Total debt	$	2,512.9	$	2,511.1	$	2,339.3	$	2,309.3

Financial assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows:

	March 31, 2023
In millions	Level 1		Level 2		Level 3		NAV		Total
Recurring fair value measurements
Foreign currency contract assets	$	—	$	0.5	$	—	$	—	$	0.5
Foreign currency contract liabilities	—		(62.3)		—		—		(62.3)
Deferred compensation plan assets	10.7		—		—		12.0		22.7
Total recurring fair value measurements	$	10.7	$	(61.8)	$	—	$	12.0	$	(39.1)

	December 31, 2022
In millions	Level 1		Level 2		Level 3		NAV		Total
Recurring fair value measurements
Foreign currency contract liabilities	$	—	$	(52.2)	$	—	$	—	$	(52.2)
Deferred compensation plan assets	10.5		—		—		11.2		21.7
Total recurring fair value measurements	$	10.5	$	(52.2)	$	—	$	11.2	$	(30.5)

12.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, 2023 was 14.6%, compared to 15.4% for the three months ended March 31, 2022. 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 the mix of global earnings or adjustments that are required to be reported in the specific quarter of resolution.

The total gross liability for uncertain tax positions was $39.6 million at March 31, 2023 and December 31, 2022. 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.

18

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

13.Benefit Plans

Components of net periodic benefit expense for our pension plans for the three months ended March 31, 2023 and 2022 were as follows:

	Three months ended
In millions	March 31, 2023		March 31, 2022
Service cost	$	0.4	$	0.6
Interest cost	1.0		0.6
Expected return on plan assets	(0.2)		(0.1)
Net periodic benefit expense	$	1.2	$	1.1

Components of net periodic benefit expense for our other post-retirement plans for the three months ended March 31, 2023 and 2022 were not material.

14.Shareholders’ Equity

Share repurchases

In December 2020, the Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $750.0 million. The authorization expires on December 31, 2025. During the three months ended March 31, 2023, no ordinary shares were repurchased. As of March 31, 2023, we had $600.0 million available for share repurchases under this authorization.

Dividends payable

On February 20, 2023, the Board of Directors declared a quarterly cash dividend of $0.22, payable on May 5, 2023 to shareholders of record at the close of business on April 21, 2023. As a result, the balance of dividends payable included in Other current liabilities on our Condensed Consolidated Balance Sheets was $36.3 million at March 31, 2023, compared to $36.2 million at December 31, 2022.

15.Segment Information

Effective January 1, 2023, we reorganized our reporting segments to reflect how we are managing our business and to help us accelerate our efforts to improve customer experience, differentiate our products and drive profitability for our shareholders. All prior period amounts related to the segment change have been retrospectively reclassified to conform to the new presentation. As part of this reorganization, the legacy Consumer Solutions segment was divided into a Pool segment and a Water Solutions segment. The Industrial & Flow Technologies segment remains the same. We classify our operations into the following reporting segments:

•Industrial & Flow Technologies — The focus of this segment is to deliver water where it is needed, when it is needed and more efficiently and transforming waste into value. This segment designs, 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.

•Water Solutions — The focus of this segment is to provide great tasting, higher-quality water and ice while helping end-users use water more productively. This segment designs, manufactures and sells commercial and residential water treatment products and systems including pressure tanks, control valves, activated carbon products, commercial ice machines, conventional filtration products, and point-of-entry and point-of-use water treatment systems. These water treatment products and systems are used in residential whole home water filtration, drinking water filtration and water softening solutions in addition to comme