What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-22 compared with 2021-02-16 · 152 added, 239 removed, 322 unchanged (55% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF=

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking statements

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These factors include the overall impact of the COVID-19 pandemic on our business;

the duration and severity of the COVID-19 pandemic;

the duration and severity of the COVID-19 pandemic, the impact of virus variants and the effectiveness of vaccinations;

actions that may be taken by us, other businesses and governments to address or otherwise mitigate the impact of the COVID-19 pandemic, including those that may impact our ability to operate our facilities, meet production demands, and deliver products to our customers;

the negative impacts of the COVID-19 pandemic on the global economy, our customers and suppliers, and customer demand;

the impacts of the COVID-19 pandemic on the global economy, our workforce, customers and suppliers, and customer demand;

overall global economic and business conditions impacting our business, including the strength of housing and related markets;

demand, competition and pricing pressures in the markets we serve;

supply, demand, logistics, competition and pricing pressures related to and in the markets we serve;

volatility in currency exchange rates;

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the ability to successfully identify, finance, complete and integrate acquisitions;

the ability to achieve the benefits of our restructuring plans and cost reduction initiatives;

the ability to achieve the benefits of our restructuring plans, cost reduction initiatives and transformation program;

risks associated with operating foreign businesses;

the impact of material cost and other inflation;

the impact of raw material, logistics and labor costs and other inflation;

the impact of seasonality of sales and weather conditions;

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the outcome of litigation and governmental proceedings;

and the ability to achieve our long-term strategic operating goals.

and the ability to achieve our long-term strategic operating and ESG goals.

Additional information concerning these and other factors is contained in our filings with the U.S.

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Although our jurisdiction of organization is Ireland, we manage our affairs so that we are centrally managed and controlled in the United Kingdom (the “U.K.”) and therefore have our tax residency in the U.K.

On April 30, 2018, we completed the separation of our Electrical business from the rest of Pentair (the “Separation”) by means of a dividend in specie of the Electrical business, which was effected by the transfer of the Electrical business from Pentair to nVent and the issuance by nVent of nVent ordinary shares directly to Pentair shareholders (the “Distribution”).

We did not retain an equity interest in nVent.

The results of the Electrical business have been presented as discontinued operations for all periods presented.

The Electrical business was previously disclosed as a stand-alone reporting segment.

In February 2019, as part of Consumer Solutions, we completed the acquisitions of Aquion, Inc.

(“Aquion”) and Pelican Water Systems (“Pelican”) for $163.4 million and $121.1 million, respectively, in cash, net of cash acquired and final working capital true-ups.

Aquion offers a diverse line of water conditioners, water filters, drinking-water purifiers, ozone and ultraviolet disinfection systems, reverse osmosis systems and acid neutralizers for the residential and commercial water treatment industry.

Pelican provides residential whole home water treatment systems.

On October 18, 2021, as part of both of our Consumer Solutions and Industrial & Flow Technologies reporting segments, we completed the acquisition of Pleatco Holdings, LLC and related entities (“Pleatco”) for $254.6 million in cash, net of cash acquired.

Pleatco manufactures water filtration and clean air technologies for pool, spa and industrial air customers.

On May 19, 2021, as part of our Consumer Solutions reporting segment, we completed the acquisition of Ken’s Beverage, Inc.

(“KBI”) for $83.1 million in cash, net of cash acquired.

KBI provides beverage equipment and services to commercial customers.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

The COVID-19 pandemic continues to spread throughout the United States (“U.S.”) and the world, with the continued potential for significant impact.

The COVID-19 pandemic has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter-in-place” and “stay-at-home” orders, travel restrictions, business curtailments, limits on gatherings, and other measures.

The COVID-19 pandemic continues to persist throughout the U.S.

and the world, with the continued potential for significant impact.

The COVID-19 pandemic has resulted in governments around the world implementing stringent measures to help control the spread of the virus, including quarantines, “shelter-in-place” and “stay-at-home” orders, travel restrictions, business curtailments, limits on gatherings, vaccine and mask requirements, and other measures.

In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the economic impacts of the COVID-19 pandemic.

The effects of the COVID-19 pandemic have had and may continue to have an unfavorable impact on certain parts of our business.

Health and safety

From the earliest signs of the outbreak, we have taken proactive action to protect the health and safety of our employees, customers, and suppliers.

We have enacted rigorous safety measures in our sites, including implementing social distancing protocols, implementing working from home arrangements for those employees who do not need to be physically present on the manufacturing floor and do not provide manufacturing-support activities, suspending travel, extensively and frequently disinfecting our workspaces, conducting temperature monitoring at our facilities, and providing or accommodating the wearing of facial coverings to those employees who must be physically present in their workplace and where facial coverings are required by local government orders.

We expect to continue to implement these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business, and we may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, and suppliers.

For the year ended December 31, 2020, we incurred $10.4 million of costs related to providing for the health and safety of our employees specific to the COVID-19 pandemic.

We have important manufacturing operations in the U.S.

and around the world that have been affected by the COVID-19 pandemic, and we have taken certain actions to help curb its spread.

Government-mandated measures providing for business curtailments or shutdowns generally exclude certain essential businesses and services, including businesses that manufacture and sell products that are considered essential to daily lives or otherwise operate in essential or critical sectors.

While substantially all of our manufacturing facilities are considered essential and have remained operational, we have experienced intermittent partial or full factory closures at certain facilities as a result of these measures or the need to sanitize the facilities and address employee well-being.

We also experienced brief interruptions in operations due to government-mandated shutdowns at our sites in India, Italy, and New Zealand during the year ended December 31, 2020.

While sanitation-related closures or governmental shutdowns may occur again in the future, all of our manufacturing facilities currently remain operational.

In addition, we have experienced disruptions at some of our facilities with higher absenteeism due to the COVID-19 pandemic.

The COVID-19 pandemic has impacted our factory productivity and supply chain.

Certain of our suppliers, particularly in our pool and flow businesses, faced difficulties maintaining operations in light of manufacturing shutdowns and interruptions due to the COVID-19 pandemic, which negatively impacted our production and contributed to an increase in backlog.

During the third quarter of 2020, we identified second source suppliers and increased supply for key items in our pool business to reduce the production and capacity challenges we encountered in the second quarter of 2020 as a result of supply chain issues and increased demand.

These supply chain and capacity challenges have led to higher transportation and labor costs in order to timely deliver finished goods to our customers.

Restrictions or disruptions of transportation, such as reduced availability of air transport, port closures and increased border controls or closures, have in certain cases resulted, and may continue to result, in higher costs and delays, both for obtaining raw materials and components and shipping finished goods to customers, which could harm our profitability, make our products less competitive, or cause our customers to seek alternative suppliers.

Although we regularly monitor the financial health and operations of companies in our supply chain, and use alternative suppliers when necessary and available, financial hardship or government restrictions on our suppliers or sub-suppliers caused by the COVID-19 pandemic could cause a disruption in our ability to obtain raw materials or components required to manufacture our products and adversely affect our operations.

The COVID-19 pandemic has significantly increased economic and demand uncertainty.

We have experienced and expect to continue to experience reductions in customer demand in several of our end-markets.

Within our Consumer Solutions segment, the COVID-19 pandemic has impacted demand in each of our businesses.

Our pool business has experienced high demand as consumers sheltered-in-place and have spent more time at home.

While shelter-in-place orders impacted our ability to reach our customers in our r esidential water treatment business at the beginning of the second quarter of 2020, we started to see stabilization in demand in this business towards the end of the second quarter and then saw demand rebound in the second half of 2020 as consumers became more comfortable allowing dealers back into their homes to test their water and install new systems.

Our commercial filtration business was negatively impacted by restaurant and hospitality industry closures or operations at limited capacity across North America and Europe in the second quarter and to a lesser extent in the second half of 2020.

New or extended government-mandated shutdowns could impact demand for our Consumer Solutions products in the future.

Within our Industrial & Flow Technologies segment, demand for our residential flow products was initially negatively impacted due to store closures as a result of state-wide orders in the U.S.

However, sell through improved throughout the year driven by pent up demand from the earlier closures.

Demand continued to remain soft in our commercial and infrastructure flow businesses, but stabilized in the third quarter of 2020.

In our industrial filtration business, demand is mostly driven by customer capital spending, which was reduced and/or delayed beginning in the second quarter of 2020 across most industries served.

In addition, lower asset utilization drove down demand in industrial filtration aftermarket sales.

Furthermore, many of our commercial customers have been negatively impacted due to worldwide lockdowns as a result of the COVID-19 pandemic.

While we are preparing for this business to remain under pressure in the near term, we expect long-term demand drivers for this business not to be significantly changed.

The current COVID-19 pandemic or continued spread of COVID-19 has caused a global economic slowdown, and a possibility of a global recession.

In the event of a recession, demand for our products would decline and our business and results of operations would be adversely affected.

Cost mitigation actions

With the continuing uncertainty in light of the COVID-19 pandemic, we have taken steps across our organization to align costs with lower sales volumes.

These steps include renegotiation with suppliers to reduce input costs, driving manufacturing direct labor reductions in line with volume drop, delaying, reducing or eliminating purchased services and travel and, where appropriate, temporary furloughs and hiring freezes.

Additionally, we are proactively managing our working capital and reviewing our capital spending plan, but have not deferred strategic ongoing initiatives.

We also continue to monitor government economic stabilization efforts and have participated in certain legislative provisions, such as deferring estimated tax payments, and may apply for job retention credits.

We continue to monitor the rapidly evolving situation including the development of vaccines and their distribution to address the COVID-19 virus and guidance from international and domestic authorities, including federal, state and local public health authorities, and may take additional actions based on their requirements and recommendations.

In these circumstances, there may be developments outside our control requiring us to adjust our operating plan.

As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of the COVID-19 pandemic on our financial condition, results of operations or cash flows in the future.

In addition, see Part I —I TEM 1A, “Risk Factors,” included herein for our risk factors regarding risks associated with the COVID-19 pandemic.

Our businesses generally have been and continue to be considered essential under applicable government-mandated orders which has allowed us substantially to maintain business continuity at substantially all of our manufacturing facilities throughout the COVID-19 pandemic.

While our facilities substantially remained operational during 2021, we continue to experience various degrees of manufacturing cost pressures and inefficiencies as a result of supply chain issues and, in certain businesses, increased demand.

Although we regularly monitor the financial health and operations of companies in our supply chain, and use

alternative suppliers when necessary and available, financial hardship or government restrictions on our suppliers or sub-suppliers caused by the COVID-19 pandemic could cause a disruption in our ability to obtain raw materials or components required to manufacture our products and adversely affect our operations.

Further, as the COVID-19 pandemic conditions have improved and economic activity has increased, we have experienced supply chain challenges, including availability of materials, increased lead times, as well as inflation of raw materials, logistics and labor costs due to availability constraints and high demand.

We expect the inflationary trends to continue in 2022.

In light of the ongoing COVID-19 pandemic, we maintain our commitment to protect the health and safety of our employees by continuing our enhanced safety protocols for those on-site at our manufacturing facilities, for those who provide manufacturing-support activities, and for those working in office environments.

In addition, we have maintained flexibility for employees who do not need to be physically present at our facilities and sites to perform their job responsibilities remotely and essential business travel has generally remained the main travel activity.

The extent of the COVID-19 pandemic’s effect on our operational and financial performance in the future will depend on future developments, including the duration, geographic location and intensity of the pandemic, the impact of virus variants, the effectiveness of vaccinations, our continued ability to manufacture and distribute our products, as well as any future actions that may be taken by governmental authorities or by us relating to the pandemic.

For more information regarding factors and events that may impact our business, results of operations and financial condition as a result of the COVID-19 pandemic, see Part I—ITEM 1A, “Risk Factors,” included herein.

Transformation Program

During 2021, we launched and committed resources to a program designed to accelerate growth and drive margin expansion through transformation across our businesses to elevate our capabilities, 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.

We are targeting at least 300 basis points of margin expansion by 2025 through:

• reducing business, product, and organizational complexity;

• elevating our proficiency in pricing, sourcing and operations effectiveness;

• delivering decision making speed through organizational clarity and improved processes;

• developing a future state digital enterprise;

• modernizing general and administrative capabilities.

During 2021, we incurred transformation costs that primarily represented professional services and project management related charges.

In 2022, we expect to continue to incur transformation costs that include professional services, project management and related design and execution charges, as well as costs related to both labor and non-labor restructuring and IT investments.

Key Trends and Uncertainties Regarding Our Existing Business

The following trends and uncertainties affected our financial performance in 2020, and will likely impact our results in the future:

• There are many uncertainties regarding the COVID-19 pandemic, including the anticipated duration and severity of the pandemic, the extent of worldwide social, political and economic disruption it may continue to cause and the development and distribution of vaccines to address the COVID-19 virus.

The broader implications 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 and the impact of vaccines on it, its effect on the demand for our products and services, our supply chain, and our manufacturing capacity, as well as the impact of governmental regulations imposed in response to the pandemic.

The following trends and uncertainties affected our financial performance in 2021, and are reasonably likely to impact our results in the future:

• There are many uncertainties regarding the COVID-19 pandemic, including the anticipated duration and severity of the pandemic, the spread of increasing number of virus variants, the extent of worldwide social, political and economic disruption it may continue to cause and the distribution and effectiveness of vaccines to address the COVID-19 virus.

The broader implications of the COVID-19 pandemic that are reasonably likely to impact 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 and the impact of vaccines on it, the impact of virus variants, the effectiveness of vaccinations, the pandemic’s effect on the demand for our products and services, our supply chain, and our manufacturing capacity, 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 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 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 to continue into 2022 and to drive margin growth.

• We created a transformation office and launched and committed resources to the Transformation Program designed to accelerate growth and drive margin expansion by driving operational excellence, reducing complexity and streamlining our processes.

We expect to implement Transformation Program initiatives and incur transformation costs in 2022 and beyond.

• We experienced supply chain challenges, including increased lead times for raw materials due to availability constraints and high demand.

While we have elevated our engagement with our suppliers and used secondary suppliers and new methods of procurement where available to mitigate the supply chain pressures, we expect supply chain challenges to continue in 2022, and which may continue thereafter and could negatively impact our results of operations.

• We experienced inflationary increases of raw materials such as metals, resins and electronics (including drives and motors), as well as increases in logistics and labor costs.

While we have taken pricing actions and we strive for productivity improvements that could help offset these inflationary cost increases, we expect inflationary cost increases to continue in 2022, and which may continue thereafter and could negatively impact our results of operations.

• We have identified specific product and geographic market opportunities that we find attractive and continue to pursue, both within and outside the U.S.

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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 2022, our operating objectives remain to focus on delivering our core while continuing to build out our future.

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◦ Commitment to maintain our investment grade rating;

◦ Return cash to shareholders through dividends and buybacks;

◦ Return cash to shareholders through dividends and share repurchases;

◦ Supplement our business with strategically-aligned mergers and acquisitions.

• Focused growth initiatives that accelerate our investments in digital, technology and services expansion;

• Implementation of Transformation Program initiatives that will drive operational excellence, reduce complexity and improve our organizational structure;

• Building a high performance growth culture and delivering on our commitments while living our Win Right values.

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% of net sales 16.9 % 15.3 % 14.6 % 1.6 pts 0.7 pts

Loss (gain) on sale of businesses 0.1 (2.2) 7.3 N.M.

Loss on early extinguishment of debt — — 17.1 N.M.

(Gain) loss on sale of businesses (1.4) 0.1 (2.2) N.M.

Net interest expense 12.5 23.9 30.1 (47.7) % (20.6) %

Other expense (income) 5.3 (2.9) (0.1) N.M.

Other (income) expense (1.0) 5.3 (2.9) N.M.

Income from continuing operations before income taxes

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The 24.8 percent increase in consolidated net sales in 2021 from 2020 was primarily the result of:

• selective increases in selling prices to mitigate inflationary cost increases;

• increased sales due to the Aquion and Pelican acquisitions in February 2019 and other small acquisitions in our Consumer Solutions segment in the fourth quarter of 2019 and first half of 2020;

• volume increase in our Consumer Solutions segment mainly driven by our pool business;

• volume increase in our residential and irrigation flow businesses in our Industrial & Flow Technologies segment;

• volume increase in our Consumer Solutions segment mainly driven by continued robust demand in our pool and water treatment businesses;

• volume increase in our Industrial & Flow Technologies segment primarily driven by strong demand in the residential and irrigation flow businesses as well as increased demand and recovery in our food and beverage and commercial flow businesses;

• increases in selling prices to mitigate a rise in inflationary costs;

• favorable foreign currency effects in 2021 compared to the prior year.

This increase was partially offset by:

• sales volume declines in certain businesses within our Industrial & Flow Technologies segment due to the impacts of the COVID-19 pandemic.

The 0.6 percentage point decrease in gross profit as a percentage of net sales in 2020 from 2019 was primarily the result of:

• unfavorable mix within the pool and commercial and infrastructure flow businesses;

• lower volumes within our commercial water supply, water disposal, industrial filtration and food and beverage businesses;

• higher transportation and labor costs due to increased demand in our pool business;

• costs related to providing for the health and safety of our employees specific to the COVID-19 pandemic of $8.6 million for the year ended December 31, 2020;

• inflationary increases related to certain raw materials.

This decrease was partially offset by:

• increased productivity due to higher volumes in our pool business;

• selective increases in selling prices to mitigate impacts of inflation;

• increased productivity due to cost actions such as temporary furloughs and hiring freezes in response to the COVID-19 pandemic driving manufacturing efficiencies and lower operating expenses.

The gross profit as a percentage of net sales was unchanged when comparing 2021 and 2020, primarily as a result of:

• volume expansion in both our Consumer Solutions and Industrial & Flow Technologies segments;

• increases in selling prices to mitigate impacts of inflation;

• complexity reduction and exiting older, less profitable product lines in our residential and commercial flow businesses in our Industrial & Flow Technologies segment;

• increased productivity in both the Consumer Solutions and Industrial & Flow Technologies segments.

This was offset by:

• inflationary cost increases due to tight supply of raw materials such as metals, resins and electronics (including drives and motors);

• higher logistics and labor costs due to increased demand as well as factory labor wage increases.

Selling, general and administrative (“SG&A”)

The 1.4 percentage point decrease in SG&A expense as a percentage of net sales in 2021 from 2020 was driven by:

• asset impairment charges of $21.2 million in 2019;

• reduction in travel and entertainment, trade show and advertising expenses due to the COVID-19 pandemic;

• leverage on certain fixed costs due to the significant increase in sales year over year;

• legal settlements and accrual reductions of $7.6 million in 2021;

• restructuring and other costs of $7.4 million in 2021, compared to $14.1 million in 2020;

• lower amortization on definite-lived intangible assets.

This decrease was partially offset by:

• higher employee compensation incentive expense compared to the prior year.

• higher employee incentive compensation due to increased sales and segment income in our Consumer Solutions and Industrial & Flow Technologies segments;

• costs of $11.7 million related to the transformation program launched in 2021.

Net interest expense

The 47.7 percent decrease in net interest expense in 2021 from 2020 was the result of:

• cross currency swaps entered into in June 2019 and December 2019 resulting in more interest income in 2020 than in the prior period;

• lower interest rate revolving credit facilities replacing higher interest rate fixed rate debt that matured during the second half of 2019;

• strong cash flows in 2020 leading to lower overall debt levels.

• strong cash flows in 2021 used to reduce overall debt levels during the year compared to 2020;

• lower interest rates on outstanding variable rate debt.

Provision for income taxes

The 6.2 percentage point increase in the effective tax rate in 2020 from 2019 was primarily due to:

• the unfavorable impact of discrete items, including items related to the CARES Act, and items related to 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.

The 6.1 percentage point decrease in the effective tax rate in 2021 from 2020 was primarily due to:

• the unfavorable impact of discrete items, including items related to the Coronavirus Aid, Relief, and Economic Security Act, and items related to final regulations as part of the Tax Cuts and Jobs Act of 2017 that placed limitations on the deductibility of certain interest expense for U.S.

tax purposes that occurred during 2020 that did not occur in 2021;

• the favorable impact resulting from changes in unrecognized tax benefits for tax positions taken in prior periods.

This decrease was partially offset by:

• the unfavorable mix of global earnings.

2020 Comparison with 2019

A discussion of changes in our consolidated results of operations and liquidity and capital resources from the year ended December 31, 2019 to December 31, 2018 can be found in Part II, ITEM 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 25, 2020.

A discussion of changes in our consolidated results of operations, segment results of operations and liquidity and capital resources from the year ended December 31, 2020 to December 31, 2019 can be found in Part II, ITEM 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year

ended December 31, 2020, which was filed with the SEC on February 16, 2021.

However, such discussion is not incorporated by reference into, and does not constitute a part of, this Annual Report on Form 10-K.

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We evaluate performance based on net sales and segment income and use a variety of ratios to measure performance of our reporting segments.

Segment income represents equity income of unconsolidated subsidiaries and operating income exclusive of intangible amortization, certain acquisition related expenses, costs of restructuring activities, impairments and other unusual non-operating items.

Segment income represents equity income of unconsolidated subsidiaries and operating income exclusive of intangible amortization, certain acquisition related expenses, costs of restructuring and transformation activities, impairments and other unusual non-operating items.

Consumer Solutions

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The 34.4 percent increase in net sales for Consumer Solutions in 2021 from 2020 was primarily the result of:

• increased sales volume across several of the product lines in our pool business due to consumers’ desire to invest in their pools and backyards while sheltering-in-place due to the COVID-19 pandemic;

• higher sales volumes in our residential filtration product lines in North America and China during the second half of 2020;

• selective increases in selling prices to mitigate impacts of inflation;

• 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 during 2020.

This increase was partially offset by:

• sales decreases for 2020 due to lower demand in the water treatment business as government-mandated shutdown and shelter-in-place orders and commercial closures due to the COVID-19 pandemic impacting the ability to reach customers;

• higher-than-usual rebate activity that lowered price due to sales growth in our pool business.

The 2.1 percent increase in net sales for Consumer Solutions in 2019 from 2018 was primarily the result of:

• increased sales due to the acquisitions of Aquion and Pelican in the first quarter of 2019;

• selective increases in selling prices to mitigate inflationary cost increases.

This increase was partially offset by:

• sales volume declines in our pool business due to cold, wet weather during the first half of 2019 in key markets;

• higher than anticipated inventory levels in some of our key distribution channels impacting our pool business during the first nine months of 2019;

• sales volume declines in our residential and commercial components business;

• unfavorable foreign currency effects compared to the same period of the prior year.

• increased sales volume in our pool business due to consumers increasing their pool use while continuing to invest in their homes and backyards;

• increased sales volume in our water treatment business as residential demand remained strong and commercial demand improved due to recovery in the restaurant and hospitality industries in 2021;

• increases in selling prices to mitigate impacts of inflation;

• increased sales due to the Pleatco and KBI acquisitions that occurred in 2021;

• favorable foreign currency effects in 2021 compared to the prior year.

Segment income

The components of the change in Consumer Solutions segment income from the prior period were as follows:

Growth 1.1 pts (1.4) pts

Acquisition (divestiture) 0.4 (0.4)

Growth/Price/Acquisition 5.0 pts 1.9 pts

Currency (0.1) 0.1

Inflation (7.7) (1.3)

Productivity/Price 0.2 3.4

Productivity 2.5 (0.3)

Total (0.3) pts 0.4 pts

The 0.4 percentage point increase in segment income for Consumer Solutions as a percentage of net sales in 2020 from 2019 was primarily the result of:

• increased sales volume in our pool business;

• reduction in travel and entertainment, trade show and advertising expenses due to the COVID-19 pandemic and other cost reduction initiatives;

• impact of Aquion and Pelican acquisitions;

• selective increases in selling prices to mitigate the impacts of inflation.

This increase was partially offset by:

• lower sales volume in the higher margin commercial filtration business;

• higher sales rebates and employee incentive compensation expense in line with increased sales in our pool business;

• higher transportation and labor costs due to increased demand in our pool business;

• inflationary increases related to certain raw materials.

The 0.3 percentage point decrease in segment income for Consumer Solutions as a percentage of net sales in 2021 from 2020 was primarily the result of:

• declines in core sales volume in our pool business resulting in unfavorable sales mix;

• increased investment in both research and development and sales and marketing to drive growth;

• inflationary increases related to raw material and labor costs.

• inflationary cost increases due to high demand and tight supply of raw materials such as metals, resins and electronics (including drives and motors) along with increased logistics and labor costs;

• delayed realization of full amount of announced price increases due to order backlogs;

• higher sales rebates and employee incentive compensation expense in line with increased sales in our pool and water treatment businesses.

This decrease was partially offset by:

• selective increases in selling prices to mitigate inflationary cost increases;

• productivity and cost savings generated from PIMS initiatives, including lean and supply management practices.

• increased sales volume in all of our businesses resulting in cost leverage and higher productivity;

• increases in selling prices to mitigate the impacts of inflation.

Industrial & Flow Technologies

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Core growth 9.1 (5.6)

Acquisition (divestiture) — (1.3)

Acquisition 0.4 —

Currency 2.1 0.4

Total 11.6 % (5.2) %

The 5.2 percent decrease in net sales for Industrial & Flow Technologies in 2020 from 2019 was primarily the result of:

• decreased sales volume in our commercial water supply and water disposal, industrial filtration and food and beverage businesses due to less project sales as a result of customers deferring their capital spending and less service and aftermarket revenue driven by reduced consumption and travel restrictions from government-mandated shutdowns and “shelter-in-place” orders due to the COVID-19 pandemic;

• decreased sales volume in our residential and irrigation flow businesses in the first half of 2020 due to market conditions resulting from the COVID-19 pandemic.

This decrease was partially offset by:

• increased sales volume in our residential and irrigation flow businesses in the second half of 2020 due to strong demand in the residential water supply, water disposal and specialty spray product lines;

• sales growth in our infrastructure business as a result of strong backlog entering 2020;

• selective increases in selling prices to mitigate inflationary cost increases;

• favorable foreign currency effects compared to the same period of the prior year.

The 3.0 percent decrease in net sales for Industrial & Flow Technologies in 2019 from 2018 was primarily the result of:

• decreased sales volume in our agriculture-related business due to cold, wet weather in the first half of 2019;

• unfavorable foreign currency effects compared to the same period of the prior year;

• the impact of divestitures in our agriculture-related business in Brazil and commercial flow business in Australia.

This decrease was partially offset by:

• increased sales volume in our industrial filtration and food and beverage businesses;

• selective increases in selling prices to mitigate inflationary cost increases.

The 11.6 percent increase in net sales for Industrial & Flow Technologies in 2021 from 2020 was primarily the result of:

• increased sales volume in our residential and irrigation flow businesses in 2021 due to strong demand across all product lines in these businesses;

• increased sales volume in our food and beverage business in 2021 due to demand in sustainable gas solutions and beer membrane filtration systems along with recovery in short cycle orders;

• increased sales volume in our commercial flow business due to demand in our water supply and water disposal product lines;

• increases in selling prices to mitigate inflationary cost increases;

• favorable foreign currency effects compared to the prior year.

Segment income

The components of the change in Industrial & Flow Technologies segment income from the prior period were as follows:

Growth (2.5) pts 0.4 pts

Growth/Price/Acquisition 3.6 pts (1.8) pts

Currency 0.1 —

Inflation (3.9) (1.0)

Productivity/Price 1.6 2.6

Productivity 2.3 0.9

Total 2.1 pts (1.9) pts

The 1.9 percentage point decrease in segment income for Industrial & Flow Technologies as a percentage of net sales in 2020 from 2019 was primarily the result of:

• decreased sales volumes in our residential and irrigation flow business in the first half of 2020 due to the COVID-19 pandemic, which resulted in decreased leverage on fixed operating expenses;

• decreased sales volume in our commercial water supply and water disposal, industrial filtration and food and beverage businesses due to the COVID-19 pandemic along with unfavorable mix within our commercial and infrastructure flow and industrial filtration businesses;

• inflationary increases related to raw material and labor costs.

This decrease was partially offset by:

• selective increases in selling prices to mitigate inflationary cost increases;

• lower sales incentive expense in line with decreased sales;

• increased productivity due to cost actions driving manufacturing efficiencies and lower operating expenses.

The 2.1 percentage point increase in segment income for Industrial & Flow Technologies as a percentage of net sales in 2021 from 2020 was primarily the result of:

• selective increases in selling prices to mitigate inflationary cost increases;

• increased productivity;

• increased volume and favorable mix in our industrial filtration and food and beverage businesses.

• increased sales volumes in our residential and irrigation flow and food and beverage businesses which resulted in increased leverage on fixed operating expenses and improved income drop-through;

• increases in selling prices to mitigate inflationary cost increases;

• complexity reduction and exiting older, less profitable product lines in our residential and commercial flow businesses;

• increased productivity due to cost actions driving manufacturing efficiencies.

This increase was partially offset by:

• inflationary increases related to raw material and labor costs.

• inflationary cost increases due to high demand and tight supply of metals, resins and electronics along with increased logistics due to supply chain constraints and labor costs due to workforce shortages.

BACKLOG OF ORDERS BY SEGMENT

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Total $ 1,520.0 $ 747.8 $ 772.2 103.3 %

A substantial portion of our revenues result from orders received and products delivered in the same month.

Our backlog typically has a short manufacturing cycle and products generally ship within 90 days of the date on which a customer places an order.

However, a portion of our backlog, particularly from orders for major capital projects, can take more than one year depending on the size and type of order.

The majority of our backlog is short cycle in nature with shipments within one year from when a customer places an order and a substantial portion of our revenues has historically resulted from orders received and products delivered in the same month.

A portion of our backlog, particularly from orders for major capital projects, can take more than one year from order to delivery depending on the size and type of order.

We record, as part of our backlog, all orders from external customers, which represent firm commitments, and are supported by a purchase order or other legitimate contract.

The increase in our backlog at December 31, 2020 compared to 2019 was mainly a result of increased demand in our pool business.

We expect the majority of our backlog at December 31, 2020 will be shipped in 2021.

Our backlog of orders is dependent upon when customers place orders and is not necessarily an indicator of our expected results for our 2022 net sales.

The increase in our backlog from the prior year was driven by a significant increase in orders due to higher than anticipated demand in our pool business and certain of our residential and commercial businesses, coupled with continuing supply chain disruptions and labor availability challenges.

LIQUIDITY AND CAPITAL RESOURCES

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We experience seasonal cash flows primarily due to seasonal demand in a number of markets.

Consistent with historical trends, we experienced seasonal cash usage in the first quarter of 2020 and drew on our revolving credit facility to repay commercial paper and to fund our operations.

This cash usage reversed in the second quarter of 2020 as the seasonality of our businesses peaked.

Consistent with historical seasonal patterns, the second quarter of 2020 generated significant cash to fund our operations and we used this cash to significantly reduce the draw on our revolving credit facility.

We continued to experience strong cash flow in the second half of 2020, causing our revolving credit facility balance to remain low at December 31, 2020 compared to the prior year end.

End-user demand for pool and certain pumping equipment follows warm weather trends and is at seasonal highs from April to August.

The magnitude of the sales spike is partially mitigated by employing some advance sale “early buy” programs

(generally including extended payment terms and/or additional discounts).

Consistent with historical trends, we experienced seasonal cash usage in the first quarter of 2021 and drew on our revolving credit facility to fund our operations.

This cash usage reversed in the second quarter of 2021 as the seasonality of our businesses peaked and generated significant

cash to fund our operations.

In the second half of 2021, we funded our operations using our continued strong cash flow and our revolving credit facility.

End-user demand for pool and certain pumping equipment follows warm weather trends and historically has been at seasonal highs from April to August.

The magnitude of the sales spike has historically been partially mitigated by employing some advance sale “early buy” programs (generally including extended payment terms and/or additional discounts).

Demand for residential and agricultural water systems is also impacted by weather patterns, particularly by temperature, heavy flooding and droughts.

We expect to continue to have sufficient cash and borrowing capacity to support working capital needs and capital expenditures, to pay interest and service debt and to pay dividends to shareholders quarterly.

We believe our existing liquidity position, coupled with our currently anticipated operating cash flows, will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months.

Although the impact of the COVID-19 pandemic on our future results is uncertain, we believe we are well-positioned to manage our business and have the ability and sufficient capacity to meet these cash requirements by using available cash, internally generated funds and borrowing under our committed and uncommitted credit facilities.

We are committed to maintaining investment grade credit ratings and a solid liquidity position.

In 2021, we completed the acquisitions of KBI and Pleatco for total consideration of approximately $83.1 million and $254.6 million, respectively, in cash, net of cash acquired.

We funded the purchase price for these acquisitions with cash on hand and borrowings under our revolving credit facility.

Summary of Cash Flows

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In 2021, net cash provided by operating activities of continuing operations primarily reflects net income from continuing operations of $633.5 million, net of non-cash depreciation and amortization.

Additionally, the Company had a cash inflow of $109.5 million as a result of changes in net working capital, primarily the result of accounts receivables collections and reduced accounts receivables due to the pool business early buy program shipments with extended payment terms moving from the fourth quarter of 2020 into 2021 due to continued strong demand.

In 2019, net cash provided by operating activities of continuing operations primarily reflects net income from continuing operations of $462.9 million, net of non-cash depreciation, amortization and asset impairment, partially offset by a cash outflow of $105.4 million as a result of changes in net working capital and $20.9 million of pension and other post-retirement plan contributions, including $11.1 million of contributions made in conjunction with the termination of the Pentair Salaried Plan during 2019.

Additionally, we had a cash outflow of $20.8 million as a result of changes in net working capital, primarily due to increased sales demand and inflationary impacts leading to higher accounts receivable, inventory, accounts payable and other current liabilities balances.

In 2020, net cash provided by operating activities of continuing operations primarily reflects net income from continuing operations of $432.2 million, net of non-cash depreciation and amortization.

Additionally, we had a cash inflow of $109.5 million as a result of changes in net working capital, primarily the result of accounts receivables collections and reduced accounts receivables due to the pool business early buy program shipments with extended payment terms moving from the fourth quarter of 2020 into 2021 due to continued strong demand.

Investing activities

Net cash used for investing activities of continuing operations in 2021 primarily reflects capital expenditures of $60.2 million and cash paid for acquisitions of $338.5 million in our Consumer Solutions and Industrial & Flow Technologies reporting segments, net of cash acquired.

Net cash used for investing activities of continuing operations in 2020 primarily reflects capital expenditures of $62.2 million and cash paid for acquisitions of $58.0 million in our Consumer Solutions reporting segment, net of cash acquired.

Net cash used for investing activities of continuing operations in 2019 primarily reflects capital expenditures of $58.5 million and cash paid for the Aquion and Pelican acquisitions, partially offset by $15.3 million of proceeds received from divestitures primarily related to our former aquaculture business.

Financing activities

In 2020, net cash used for financing activities primarily relates to repayment of commercial paper and revolving long-term debt of $117.5 million, repayment of the 3.625% Senior Notes due in 2020 of $74.0 million, $150.2 million of share repurchases and dividend payments of $127.1 million.

In 2019, net cash used for financing activities primarily relates to repayment of senior notes due in 2019 totaling $401.5 million, $150.0 million of share repurchases and payment of dividends of $122.7 million, partially offset by proceeds from long-term debt of $600.0 million and net receipts of commercial paper and revolving long-term debt of $51.5 million.

In 2021, net cash used for financing activities primarily relates to repayment of $103.8 million of senior notes, $150.0 million of share repurchases, dividend payments of $133.0 million and payments upon maturity of cross currency swaps of $14.7 million, partially offset by net borrowings of revolving long-term debt of $158.9 million.

In 2020, net cash used for financing activities primarily relates to repayment of commercial paper and revolving long-term debt of $117.5 million, repayment of $74.0 million of senior notes, $150.2 million of share repurchases and dividend payments of $127.1 million.

Free Cash Flow

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operations (0.4) (0.6) 7.8

Capital expenditures of discontinued operations — — (7.4)

Proceeds from sale of property and equipment of discontinued operations — — 2.3

Free cash flow $ 556.9 $ 511.5 $ 295.1

Debt and Capital

In April 2018, Pentair, Pentair Investments Switzerland GmbH (“PISG”), Pentair Finance S.à r.l (“PFSA“) and Pentair, Inc.

entered into a credit agreement, providing for an $800.0 million senior unsecured revolving credit facility with a term of five years (the “Senior Credit Facility”), with Pentair and PISG as guarantors and PFSA and Pentair, Inc.

as borrowers.

In June 2020, Pentair assumed the PISG guarantee.

The Senior Credit Facility has a maturity date of April 25, 2023.

Borrowings under the Senior Credit Facility bear interest at a rate equal to an adjusted base rate or the London Interbank Offered Rate, plus, in each case, an applicable margin.

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, 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 adjusted base rate, the London interbank offered rate, the euro interbank offered rate or the 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.

In May 2019, PFSA executed an increase of the Senior Credit Facility by $100.0 million for a total commitment up to $900.0 million in the aggregate.

In December 2019, the Senior Credit Facility was amended to provide for the extension of term loans in an aggregate amount of $200.0 million (the “Term Loans”).

The Term Loans are in addition to the Senior Credit Facility commitment.

In addition, PFSA has the option to further increase the Senior Credit Facility in an aggregate amount of up to $300.0 million, through a combination of increases to the total commitment amount of the Senior Credit Facility and/or one or more tranches of term loans in addition to the Term Loans, subject to customary conditions, including the commitment of the participating lenders.

PFSA is authorized to sell short-term commercial paper notes to the extent availability exists under the Senior Credit Facility.

PFSA uses the Senior Credit Facility as back-up liquidity to support 100% of commercial paper outstanding.

PFSA had no commercial paper outstanding as of December 31, 2020 and $117.8 million as of December 31, 2019, all of which was classified as long-term debt as we have the intent and the ability to refinance such obligations on a long-term basis under the Senior Credit Facility.

In March 2020, the commercial paper market began to experience high levels of volatility due to uncertainty related to the COVID-19 pandemic.

The volatility impacted both market access to and pricing of commercial paper.

As a cost mitigation action, we withdrew our credit ratings to access the commercial paper market in the second quarter of 2020 and continued to use the revolving credit facility, along with cash generated from operations, to fund our general operations.

As of December 31, 2021, total availability under the Senior Credit Facility was $705.0 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.

Our debt agreements contain various financial covenants, but the most restrictive covenants are contained in the Senior Credit Facility.

The Senior Credit Facility contains covenants requiring us not to permit (i) the ratio of our consolidated debt (net of our consolidated unrestricted cash 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 to exceed 3.75 to 1.00 (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.

The Senior Credit Facility contains 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 provides for the calculation of EBITDA giving pro forma effect to certain acquisitions, divestitures and liquidations during the period to which such calculation relates.

Our debt agreements contain various financial covenants.

As of December 31, 2020, we were in compliance with all financial covenants in our debt agreements.

In addition to the Senior Credit Facility, we have various other credit facilities with an aggregate availability of $21.4 million, of which there were no outstanding borrowings at December 31, 2021.

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As of December 31, 2021, we had $60.0 million of cash held in certain countries in which the ability to repatriate is limited due to local regulations or significant potential tax consequences.

We believe we have the ability and sufficient capacity to meet these cash requirements by using available cash and internally generated funds and to borrow under our committed and uncommitted credit facilities.

Authorized shares

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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”).

The 2018 Authorization expires on May 31, 2021.

On December 8, 2020, the Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $750.0 million (the “2020 Authorization”).

The 2018 Authorization expired on May 31, 2021.

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 “2020 Authorization”).

The 2020 Authorization expires on December 31, 2025.

The 2020 Authorization supplements the 2018 Authorization.

During the year ended December 31, 2019, we repurchased 4.0 million of our ordinary shares for $150.0 million under the 2018 Authorization.

The 2020 Authorization supplemented the 2018 Authorization.

During the year ended December 31, 2020, we repurchased 3.7 million of our ordinary shares for $150.2 million under the 2018 Authorization.

As of December 31, 2020, we had $99.7 million and $750.0 million available for share repurchases under the 2018 Authorization and 2020 Authorization, respectively.

During the year ended December 31, 2021, we repurchased 2.1 million of our ordinary shares for $150.0 million, of which 0.8 million shares, or $50.0 million, and 1.3 million shares, or $100.0 million, were repurchased pursuant to the 2018 Authorization and 2020 Authorization, respectively.

As of December 31, 2021, we had $650.0 million available for share repurchases under the 2020 Authorization.

On December 7, 2021, the Board of Directors approved a 5 percent increase in the Company’s regular quarterly dividend rate (from $0.20 per share to $0.21 per share) that was paid on February 4, 2022 to shareholders of record at the close of business on January 21, 2022.

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Noncurrent liabilities (4)

(1) Includes assets due from non-guarantor subsidiaries of $2.8 million.

(1) No assets due from non-guarantor subsidiaries were included.

(2) Includes assets due from non-guarantor subsidiaries of $1,202.5 million.

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The Parent Company Guarantor and Subsidiary Issuer do not have material results of operations on a combined basis.

Contractual obligations

The following summarizes our significant contractual obligations that impact our liquidity:

Years ended December 31

In millions 2021 2022 2023 2024 2025 Thereafter Total

Debt obligations $ 103.8 $ 88.3 $ 236.1 $ — $ 19.3 $ 400.0 $ 847.5

Material cash requirements from contractual obligations and commitments

We believe we have the ability to meet our short-term and long-term cash requirements by using available cash and internally generated funds and to borrow under our committed and uncommitted credit facilities.

The following summarizes our material cash requirements from significant contractual obligations and purchase commitments that impact our liquidity as of December 31, 2021:

In millions Next

Twelve Months Greater Than Twelve Months Total

Debt obligations (Note 8) $ 88.3 $ 814.3 $ 902.6

Interest obligations on fixed-rate debt

21.7 128.7 150.4

Operating lease obligations, net of sublease rentals

26.2 22.9 19.5 14.8 6.0 9.5 98.9

Operating lease obligations, net of sublease rentals (Note 15) 29.5 68.3 97.8

Purchase and marketing obligations 21.5 17.6 39.1

26.9 8.5 4.6 3.8 3.8 6.2 53.8

Pension and other post-retirement plan contributions

8.5 8.6 8.7 8.8 8.6 40.3 83.5

Pension and other post-retirement plan contributions (Note 11) 8.8 76.3 85.1

Total contractual obligations, net $ 169.8 $ 1,105.2 $ 1,275.0

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For purposes of the above table, arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the transaction.

In addition to the summary of significant contractual obligations, we will incur annual interest expense on outstanding variable rate debt.

In addition to the significant contractual obligations described above, we will incur annual interest expense on outstanding variable rate debt.

As of December 31, 2021, variable interest rate debt was $395.0 million at a weighted average interest rate of 1.07%.

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As of December 31, 2021, we had recorded $0.2 million for the possible payment of penalties and $3.9 million related to the possible payment of interest.

Off-balance sheet arrangements

At December 31, 2020, we had no off-balance sheet financing arrangements.

COMMITMENTS AND CONTINGENCIES

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While we believe that a material impact on our consolidated financial position, results of operations or cash flows from any such future claims or potential claims is unlikely, given the inherent uncertainty of litigation, a remote possibility exists that a future adverse ruling or unfavorable development could result in future charges that could have a material impact.

We do and will continue to periodically reexamine our estimates of probable liabilities and any associated expenses and receivables and make appropriate adjustments to such estimates based on experience and developments in litigation.

As a result, the current estimates of the potential impact on our consolidated financial position, results of operations and cash flows for the proceedings and claims described in ITEM 8, Note 15 of the Notes to Consolidated Financial Statements could change in the future.

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As of December 31, 2021 and 2020, the outstanding value of bonds, letters of credit and bank guarantees totaled $104.5 million and $99.1 million, respectively.

NEW ACCOUNTING STANDARDS

See ITEM 8, Note 1 of the Notes to Consolidated Financial Statements, included in this Form 10-K, for information pertaining to recently adopted accounting standards or accounting standards to be adopted in the future.

CRITICAL ACCOUNTING POLICIES

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However, we may elect to perform the quantitative goodwill impairment test even if no indications of a potential impairment exist.

During 2020, a quantitative assessment was performed.

The fair value of each reporting unit was determined using a discounted cash flow analysis and market approach.

Projecting discounted future cash flows requires us to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital and the appropriate discount rate.

Use of the market approach consists of comparisons to comparable publicly-traded companies that are similar in size and industry.

The non-recurring fair value measurement is a “Level 3” measurement under the fair value hierarchy.

For the 2020 annual impairment test, the estimated fair value exceeded the carrying value in each of our reporting units, therefore, no impairment charge was required.

During 2021, a qualitative assessment was performed.

We determined that it was more likely than not that the fair value of the reporting units exceeded their respective carrying values.

Factors considered in the analysis included the last discounted cash flow fair value assessment of reporting units and the calculated excess fair value over carrying amount, financial performance, forecasts and trends, market capitalization, regulatory and environmental issues, macro-economic conditions, industry and market considerations, raw material costs and management stability.

As a result, it was determined that it was more likely than not that the fair value of the reporting units exceeded their respective carrying values.

Factors considered in the analysis included the 2020 discounted cash flow fair value assessment of the reporting units and the calculated excess fair value over carrying amount, financial performance, forecasts and trends, market capitalization, regulatory and environmental issues, macro-economic conditions, industry and market considerations, raw material costs and management stability.

We also consider the extent to which each of the adverse events and circumstances identified affect the comparison of the respective reporting unit’s fair value with its carrying amount.

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The non-recurring fair value measurement is a “Level 3” measurement under the fair value hierarchy.

There was no impairment charge recorded in any of the years presented for identifiable intangible assets.

No impairment charge was recorded during 2021 for identifiable intangible assets.

Pension and other post-retirement plans

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This accounting method also results in the potential for volatile and difficult to forecast mark-to-market adjustments.

Mark-to-market adjustments resulted in a pre-tax loss of $6.7 million in 2020, a pre-tax gain of $3.4 million in 2019 and a pre-tax loss of $3.6 million in 2018.

Mark-to-market adjustments resulted in a pre-tax gain of $2.4 million in 2021, a pre-tax loss of $6.7 million in 2020 and a pre-tax gain of $3.4 million in 2019.

The remaining components of pension expense, including service and interest costs and the expected return on plan assets, are recorded on a quarterly basis as ongoing pension expense.

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Accruals are recorded for various contingencies including legal proceedings, self-insurance and other claims that arise in the normal course of business.

The accruals are based on judgment, the probability of losses and, where applicable, the consideration of opinions of internal and/or external legal counsel and actuarial determined estimates.

The accruals are based on judgment, the probability of losses and, where applicable, the consideration of opinions of internal and/or external legal counsel and actuarial estimates.

Additionally, we record receivables from third party insurers when recovery has been determined to be probable.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis