What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-22 compared with 2021-02-16 · 139 added, 321 removed, 1115 unchanged (29% of the section changed)

57 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Indefinite-lived Trade Names — Valuation — Refer to Notes 1 and 5 to the financial statements

Critical Audit Matter Description

The Company’s evaluation of indefinite-lived trade names for impairment involves the comparison of the estimated fair value of each indefinite-lived trade name to its carrying value.

The Company determines the estimated fair value of its trade names using the income approach, more specifically, the relief-from-royalty method.

The determination of the estimated fair value using the relief-from-royalty method requires management to make significant estimates and assumptions including selecting appropriate royalty and weighted average cost of capital (“WACC”) rates and forecasting future revenues for the related brands.

Changes in these assumptions could have a significant impact on the estimated fair value of indefinite-lived trade names.

For certain of the Company’s indefinite-lived trade names, a significant change in estimated fair value could cause a significant impairment.

The indefinite-lived trade names balance was $180.6 million as of December 31, 2020, of which certain trade names are higher risk for impairment.

When identifying the higher risk indefinite-lived trade names, we considered the relationship of their fair value to carrying value.

The estimated fair values of these trade names exceeded their carrying values as of the measurement date and, therefore, no impairment was recognized.

Given the level of judgment involved, management uses a third-party fair value specialist to assist in establishing the royalty and WACC rate assumptions.

The future trade name revenues are sensitive to changes in demand, and the short-term growth rates have increased uncertainty as a result of the COVID-19 pandemic.

Auditing these assumptions involved a high degree of auditor judgment, and an increased extent of audit effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasts of future trade name revenues and selection of the royalty and WACC rates included the following, among others:

• We tested the effectiveness of controls over indefinite-lived trade names impairment evaluation, including those over management’s review of the trade name revenue forecasts and the selection of the royalty and WACC rates to be used in the valuation.

• We assessed management’s ability to prepare accurate trade name revenue forecasts by performing a retrospective review to compare actual results to management’s historical forecasts.

• We evaluated the reasonableness of management’s trade name revenue forecasts by inquiring of management regarding the forecasts and comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, (3) forecasted information included in Company press releases, (4) underlying analysis detailing business strategies and growth plans, and (5) current industry, market and economic trends.

• We also performed sensitivity analyses to evaluate the impact that changes in the significant assumptions would have on the fair value of the trade names.

• With the assistance of our fair value specialists, we evaluated the royalty and WACC rates used by management in the valuation, including (1) testing the underlying source information and the mathematical calculations, (2) developing a range of independent estimates and comparing those to the WACC rate selected by management, and (3) comparing the selected royalty rate to market data for comparable licensing agreement rates.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Income Taxes — Completeness of Uncertain Tax Positions — Refer to Notes 1 and 10 to the financial statements

5 unchanged sentences

The UTP analysis is complex as it includes numerous tax jurisdictions and varying applications of tax laws.

Given the multiple jurisdictions in which the Company operates and the complexity of tax law, auditing the completeness of UTPs involved a high degree of auditor judgment, and an increased extent of audit effort, including the need to involve our tax specialists.

Given the multiple jurisdictions in which the Company operates and the complexity of tax regulations, auditing the completeness of UTPs involved a high degree of auditor judgment, and an increased extent of audit effort, including the need to involve our tax specialists.

How the Critical Audit Matter Was Addressed in the Audit

10 unchanged sentences

▪ We considered changes in and assessed the Company’s interpretation of applicable tax laws.

▪ We inspected the Company’s filed tax returns and the tax provision to obtain an understanding of significant differences.

▪ We inspected the Company’s summary of differences between the filed tax returns and the tax provision to obtain an understanding of significant differences.

We assessed whether the appropriate UTPs were recorded as well as whether any additional UTPs needed to be considered.

15 unchanged sentences

Other (income) expense

Loss (gain) on sale of businesses 0.1 ( 2.2 ) 7.3

Loss on early extinguishment of debt — — 17.1

(Gain) loss on sale of businesses ( 1.4 ) 0.1 ( 2.2 )

Net interest expense 12.5 23.9 30.1

Other expense (income) 5.3 ( 2.9 ) ( 0.1 )

Other (income) expense ( 1.0 ) 5.3 ( 2.9 )

Income from continuing operations before income taxes 626.8 432.1 407.5

432.1 407.5 379.8

Provision for income taxes 70.8 75.0 45.8

Net income from continuing operations 556.0 357.1 361.7

357.1 361.7 321.7

Income (loss) from discontinued operations, net of tax 1.5 ( 6.0 ) 25.7

(Loss) income from discontinued operations, net of tax ( 3.0 ) 1.5 ( 6.0 )

Net income $ 553.0 $ 358.6 $ 355.7

56 unchanged sentences

Net income $ 553.0 $ 358.6 $ 355.7

(Income) loss from discontinued operations, net of tax ( 1.5 ) 6.0 ( 25.7 )

Loss (income) from discontinued operations, net of tax 3.0 ( 1.5 ) 6.0

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities of continuing operations

2 unchanged sentences

Amortization 26.3 28.4 31.7

Loss (gain) on sale of businesses 0.1 ( 2.2 ) 7.3

(Gain) loss on sale of businesses ( 1.4 ) 0.1 ( 2.2 )

Deferred income taxes ( 9.0 ) 4.6 ( 18.4 )

1 unchanged sentence

Asset impairment — — 21.2

Loss on early extinguishment of debt — — 17.1

Pension and other post-retirement expense 2.8 12.2 1.9

14 unchanged sentences

Proceeds from sale of property and equipment 3.9 0.1 0.6

Proceeds from (payments due to) sale of businesses — 15.3 ( 12.8 )

Proceeds from sale of businesses, net 1.4 — 15.3

Acquisitions, net of cash acquired ( 338.5 ) ( 58.0 ) ( 287.8 )

Other 2.7 2.2 ( 1.5 )

Net cash used for investing activities of continuing operations ( 117.9 ) ( 331.9 ) ( 61.7 )

Net cash used for investing activities of discontinued operations — — ( 7.1 )

Net cash used for investing activities ( 390.7 ) ( 117.9 ) ( 331.9 )

Financing activities

Net (repayments) receipts of commercial paper and revolving long-term debt ( 117.5 ) 51.5 39.7

Net borrowings (repayments) of revolving long-term debt 158.9 ( 117.5 ) 51.5

Proceeds from long-term debt — — 600.0

Repayment of long-term debt ( 103.8 ) ( 74.0 ) ( 401.5 )

Premium paid on early extinguishment of debt — — ( 16.0 )

Distribution of cash from nVent, net of cash transferred — — 919.4

Shares issued to employees, net of shares withheld 22.2 32.9 12.5

1 unchanged sentence

Dividends paid ( 133.0 ) ( 127.1 ) ( 122.7 )

Payments upon the maturity of cross currency swaps ( 14.7 ) — —

Other ( 1.8 ) — ( 6.9 )

Net cash used for financing activities ( 222.2 ) ( 435.9 ) ( 17.1 )

Change in cash held for sale — — 27.0

Effect of exchange rate changes on cash and cash equivalents 12.1 ( 20.2 ) 4.2

8 unchanged sentences

Consolidated Statements of Changes in Equity

Ordinary shares Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total

In millions Ordinary shares Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total

Number Amount

1 unchanged sentence

Net income — — — 355.7 — 355.7

Cumulative effect of accounting changes

— — — ( 214.0 ) — ( 214.0 )

Other comprehensive income, net of tax — — — — 2.1 2.1

— — — — 62.6 62.6

Distribution to nVent

— — ( 438.2 ) ( 2,291.0 ) ( 47.8 ) ( 2,777.0 )

Dividends declared — — — ( 123.9 ) — ( 123.9 )

1 unchanged sentence

Exercise of options, net of shares tendered for payment 0.7 — 17.1 — — 17.1

0.9 — 24.3 — — 24.3

Issuance of restricted shares, net of cancellations 0.3 — — — — —

0.5 — — — — —

Shares surrendered by employees to pay taxes ( 0.1 ) — ( 4.6 ) — — ( 4.6 )

( 0.1 ) ( 11.0 ) — — ( 11.0 )

Share-based compensation — — 21.4 — — 21.4

2 unchanged sentences

Other comprehensive income, net of tax — — — — 19.2 19.2

— — — — 2.1 2.1

Dividends declared — — — ( 128.4 ) — ( 128.4 )

1 unchanged sentence

Exercise of options, net of shares tendered for payment 1.3 — 37.6 — — 37.6

0.7 — 17.1 — — 17.1

Issuance of restricted shares, net of cancellations 0.3 — — — — —

0.3 — — — — —

Shares surrendered by employees to pay taxes ( 0.1 ) — ( 4.7 ) — — ( 4.7 )

( 0.1 ) — ( 4.6 ) — — ( 4.6 )

Share-based compensation — — 20.3 — — 20.3

1 unchanged sentence

Net income — — — 553.0 — 553.0

Other comprehensive income, net of tax

— — — — 19.2 19.2

Other comprehensive loss, net of tax — — — — ( 6.6 ) ( 6.6 )

Dividends declared — — — ( 132.8 ) — ( 132.8 )

1 unchanged sentence

Exercise of options, net of shares tendered for payment 0.9 — 30.1 — — 30.1

1.3 — 37.6 — — 37.6

Issuance of restricted shares, net of cancellations 0.3 — — — — —

0.3 — — — — —

Shares surrendered by employees to pay taxes ( 0.1 ) — ( 7.9 ) — — ( 7.9 )

( 0.1 ) — ( 4.7 ) — — ( 4.7 )

Share-based compensation — — 29.8 — — 29.8

4 unchanged sentences

Basis of Presentation and Summary of Significant Accounting Policies

Pentair plc and its consolidated subsidiaries (“we,” “us,” “our,” “Pentair” or the “Company”) is a pure play water industrial manufacturing company comprised of two reporting segments:

Pentair plc and its consolidated subsidiaries (“we,” “us,” “our,” “Pentair” or the “Company”) is a water industrial manufacturing company comprised of two reporting segments:

Consumer Solutions and Industrial & Flow Technologies.

Electrical separation

On April 30, 2018, Pentair completed the separation of its 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 Electric plc (“nVent”) and the issuance by nVent of ordinary shares directly to Pentair shareholders (the “Distribution”).

On May 1, 2018, following the Separation and Distribution, nVent became an independent publicly traded company, trading on the New York Stock Exchange under the symbol “NVT.”

The Company did not retain any equity interest in nVent.

nVent’s historical financial results are reflected in the Company’s consolidated financial statements as a discontinued operation.

Refer to Note 2 for further discussion.

In March 2020, the World Health Organization declared the novel coronavirus 2019 (“COVID-19”) a global pandemic.

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

The broader implications of the COVID-19 pandemic on our business, financial condition and results of operations remain uncertain and will depend on certain developments, including the duration and severity of the COVID-19 pandemic and the availability and distribution of vaccines to address the COVID-19 virus, its impact on our customers and suppliers and the range of governmental and community reactions to the pandemic.

We may continue to experience reduced customer demand or constrained supply that could materially adversely impact our business, financial condition, results of operations, liquidity and cash flows in future periods.

The broader implications of the COVID-19 pandemic on our business, financial condition and results of operations remain uncertain and will depend on certain developments, including the duration and severity of the COVID-19 pandemic, the impact of virus variants, the effectiveness of vaccinations, the COVID-19 pandemic’s impact on our customers and suppliers and the range of governmental and community reactions to the pandemic.

We may continue to experience reduced customer demand in certain parts of our business or constrained labor and/or supply that could materially and adversely impact our business, financial condition, results of operations, liquidity and cash flows in future periods.

Basis of presentation

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In the event significant post-shipment obligations were to exist, revenue recognition would be deferred until Pentair has substantially accomplished what it must do to be entitled to the benefits represented by the revenue.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Performance obligations

3 unchanged sentences

For contracts with multiple performance obligations, standalone selling price is generally readily observable.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Our performance obligations are satisfied at a point in time or over time as work progresses.

31 unchanged sentences

The cost of these refunds is recorded as a reduction of the transaction price.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Volume-based incentives involve rebates that are negotiated at or prior to the time of sale with the customer and are redeemable only if the customer achieves a specified cumulative level of sales or sales increase.

2 unchanged sentences

If the forecasted sales for a customer change, the accrual for rebates is adjusted to reflect the new amount of rebates expected to be earned by the customer.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Shipping and handling costs

11 unchanged sentences

Net contract assets $ 9.4 $ 22.6 $ ( 13.2 ) ( 58.4 ) %

The $ 14.2 million increase in net contract assets from December 31, 2019 to December 31, 2020 was primarily the result of timing of milestone payments.

The $ 13.2 million decrease in net contract assets from December 31, 2020 to December 31, 2021 was primarily the result of timing of milestone payments.

Approximately 80 % of our contract liabilities at December 31, 2020 were recognized in revenue during the twelve months ended December 31, 2021.

45 unchanged sentences

Beginning balance $ 8.4 $ 10.3 $ 14.0

Bad debt (benefit) expense (1)

Bad debt expense (benefit) (1)

1.1 ( 0.5 ) 0.7

Acquisitions 1.0 0.1 0.7

Write-offs, net of recoveries ( 0.9 ) ( 1.6 ) ( 4.1 )

2 unchanged sentences

(1) The bad debt benefit for the year-ended December 31, 2020 includes the positive impact related to the adoption of Accounting

Standards Update (“ASU”) No.

Standards Update No.

2016-13 “Financial Instruments-Credit Losses.”

(2) Other amounts are primarily the effects of changes in currency translations and the impact of allowance for credits.

Inventories are stated at lower of cost or net realizable value with substantially all inventories recorded using the first-in, first-out (“FIFO”) cost method .

Inventories are stated at the lower of cost or net realizable value with substantially all inventories recorded using the first-in, first-out (“FIFO”) cost method.

Pentair plc and Subsidiaries

36 unchanged sentences

Notes to consolidated financial statements

During 2021, a qualitative assessment was performed.

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.

We place more weight on the events and circumstances that most affect the respective reporting unit’s fair value or the carrying amount of its net assets.

We consider positive and mitigating events and circumstances that may affect its determination of whether it is more likely than not that the fair value exceeds the carrying amount.

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

During 2020, a quantitative assessment was performed.

4 unchanged sentences

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 2019, 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.

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.

We place more weight on the events and circumstances that most affect the respective reporting unit’s fair value or the carrying amount of its net assets.

We consider positive and mitigating events and circumstances that may affect its determination of whether it is more likely than not that the fair value exceeds the carrying amount.

The non-recurring fair value measurement is a “Level 3” measurement under the fair value hierarchy described in Note 9.

Identifiable intangible assets

27 unchanged sentences

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

The service costs are recorded within Operating income and the interest costs, expected return on plan assets and net actuarial gain/loss components of net periodic pension and other post-retirement benefit costs are recorded within Other expense (income).

Pentair plc and Subsidiaries

36 unchanged sentences

The resultant translation adjustments are included in AOCI, a component of equity.

New accounting standards

On March 2, 2020, we early adopted the SEC’s rule titled “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities,” which simplifies the disclosure requirements related to our guaranteed registered securities under Rule 3-10 of Regulation S-X.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

On January 1, 2020, we adopted ASU No.

2016-13 “Financial Instruments-Credit Losses” and the related amendments (the “new standard”).

The new standard changes the methodology used to measure credit losses for certain financial instruments and financial assets, including trade receivables.

The approach utilizes an expected credit loss model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of an asset, which may result in earlier recognition of credit losses than under the previous accounting standards.

Under the new standard, we record an allowance for credit losses, reducing our trade receivables balance to an amount we estimate is collectible from our customers.

The estimates used in determining the allowance for credit losses are based on historical collection experience, including write-offs and recoveries, periodic credit evaluations of our customers’ financial situation, and current circumstances as well as reasonable and supportable forecasts of future economic conditions.

The adoption of this new standard did not have a material impact on our consolidated financial statements.

Acquisitions and Discontinued Operations

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 for $ 254.6 million in cash, net of cash acquired.

The excess of purchase price over tangible net assets acquired has been preliminarily allocated to goodwill in the amount of $ 137.3 million, $ 131.4 million of which is expected to be deductible for income tax purposes.

Identifiable intangible assets acquired consisted of $ 97.9 million of definite-lived customer relationships with an estimated useful life of 17 years.

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

for $ 83.1 million in cash, net of cash acquired.

The excess of purchase price over tangible net assets acquired has been preliminarily allocated to goodwill in the amount of $ 29.2 million, all of which is expected to be deductible for income tax purposes.

Identifiable intangible assets acquired consisted of $ 38.0 million of definite-lived customer relationships with an estimated useful life of 22 years.

In 2020, our Consumer Solutions reporting segment completed acquisitions with purchase prices totaling $ 58.0 million in cash, net of cash acquired.

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

3 unchanged sentences

For Pelican, the excess purchase price over tangible net assets acquired has been allocated to goodwill in the amount of $ 118.0 million, $ 7.6 million of which is expected to be deductible for income tax purposes.

In 2020, our Consumer Solutions reporting segment completed acquisitions with purchase prices totaling $ 58.0 million in cash, net of cash acquired.

The pro forma impact of the acquisitions in 2021, 2020 and 2019 were not material.

Discontinued Operations

On April 30, 2018, we completed the Separation and Distribution.

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

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

Separation costs related to the Separation and Distribution were $ 84.2 million for the twelve months ended December 31, 2018.

These costs are reported in discontinued operations as they represent a cost directly related to the Separation and Distribution and were included within Income (loss) from discontinued operations, net of tax presented below.

Operating results of discontinued operations are summarized below:

Years ended December 31

In millions 2020 2019 2018

Net sales $ — $ — $ 693.9

Cost of goods sold — — 424.0

Gross profit — — 269.9

Selling, general and administrative ( 1.2 ) 7.4 237.8

Research and development — — 14.6

Operating income (loss) $ 1.2 $ ( 7.4 ) $ 17.5

Income (loss) from discontinued operations before income taxes $ 1.6 $ ( 7.6 ) $ 31.8

Income tax provision (benefit) 0.1 ( 1.6 ) 6.1

Income (loss) from discontinued operations, net of tax $ 1.5 $ ( 6.0 ) $ 25.7

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Earnings Per Share

16 unchanged sentences

Anti-dilutive stock options excluded from the calculation of diluted earnings per share

Restructuring

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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 2021, 2020 and 2019, we initiated and continued execution of certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business.

Initiatives during the years ended December 31, 2021, 2020 and 2019 included a reduction in hourly and salaried headcount of approximately 75 employees, 175 employees and 375 employees, respectively.

Restructuring related costs included in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income included costs for severance and other restructuring costs as follows:

Restructuring and transformation-related costs included in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income included costs for severance and other restructuring costs as follows:

Years ended December 31

1 unchanged sentence

Severance and related costs $ 7.0 $ 9.7 $ 11.7

Other 4.4 2.3 27.4

Other restructuring costs (1)

Total restructuring costs 7.4 14.1 14.0

Transformation costs (2)

Total restructuring and transformation costs $ 19.1 $ 14.1 $ 14.0

(1) Other restructuring costs primarily consist of asset impairment and various contract termination costs.

Restructuring costs by reportable segment were as follows:

(2) Transformation costs primarily consist of professional services and project management and related costs.

Restructuring and transformation costs by reportable segment were as follows:

Years ended December 31

4 unchanged sentences

Consolidated $ 19.1 $ 14.1 $ 14.0

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Activity related to accrued severance and related costs recorded in Other current liabilities in the Consolidated Balance Sheets is summarized as follows:

7 unchanged sentences

The changes in the carrying amount of goodwill for the years ended December 31, 2021 and 2020 by reportable segment were as follows:

In millions December 31, 2019 Acquisitions/

divestitures Purchase accounting adjustments Foreign

In millions December 31, 2020 Acquisitions Purchase accounting adjustments Foreign

translation December 31, 2021

2 unchanged sentences

Total goodwill $ 2,392.2 $ 166.5 $ ( 1.2 ) $ ( 53.0 ) $ 2,504.5

In millions December 31, 2018 Acquisitions/

divestitures Foreign currency

Pentair plc and Subsidiaries

Notes to consolidated financial statements

In millions December 31, 2019 Acquisitions Purchase accounting adjustments Foreign

translation December 31, 2020

31 unchanged sentences

Prepaid expenses 57.1 48.5

Prepaid income taxes 3.8 5.2

Other current assets 6.4 6.9

19 unchanged sentences

Accrued rebates and incentives 198.7 122.0

Accrued freight 36.5 20.5

Billings in excess of cost 31.2 22.5

25 unchanged sentences

December 31, 2021 2021 2020

Commercial paper N/A 2023 $ — $ 117.8

Revolving credit facilities 1.107 % 2026 $ 195.0 $ 36.1

8 unchanged sentences

4.500 % 2029 400.0 400.0

Senior notes - fixed rate (1)

4.500 % 2029 400.0 400.0

Unamortized issuance costs and discounts N/A N/A ( 8.5 ) ( 7.9 )

1 unchanged sentence

(1) Senior notes are guaranteed as to payment by Pentair plc.

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.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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.

3 unchanged sentences

We classified this debt as long-term as of December 31, 2021 as we have the intent and ability to refinance such obligation on a long-term basis under the Senior Credit Facility.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Debt outstanding, excluding unamortized issuance costs and discounts , at December 31, 2021 matures on a calendar year basis as follows:

22 unchanged sentences

Dollar exchange rate.

As of December 31, 2020 and 2019, we had deferred foreign currency losses of $ 32.8 million and $ 1.8 million, respectively, recorded in Accumulated other comprehensive loss associated with our cross currency swap activity.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Foreign Currency Denominated Debt

In September 2015, we designated the €500 million 2.45% Senior Notes due 2019 (the “2019 Euro Notes”) as a net investment hedge for a portion of our net investment in our Euro denominated subsidiaries.

In June 2018, the Company completed a tender offer for € 363.4 million of the 2019 Euro Notes.

At that time, the remaining € 136.6 million of the 2019 Euro Notes were re-designated as a net investment hedge in our Euro denominated subsidiaries.

In September 2019, the 2019 Euro Notes matured and were paid in full, terminating the net investment hedge.

The historical gains/losses on the 2019 Euro Notes have been included as a component of the cumulative translation adjustment account within Accumulated other comprehensive loss .

As of December 31, 2020 and December 31, 2019, we had deferred foreign currency gains of $ 2.8 million, in Accumulated other comprehensive loss associated with the net investment hedge activity.

As of December 31, 2021 and 2020, we had a deferred foreign currency gain of $ 7.3 million and a deferred foreign currency loss of $ 32.8 million, 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.

In January 2021, one of our cross currency swap agreements, which was accounted for as a cash flow hedge, matured, resulting in a net cash payment of $ 14.7 million.

The net cash payment is included within financing activities on the Condensed Consolidated Statements of Cash Flows.

Fair value measurements

6 unchanged sentences

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.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Fair value of financial instruments

12 unchanged sentences

Total debt $ 902.6 $ 959.3 $ 847.5 $ 931.5

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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

1 unchanged sentence

In millions Level 1 Level 2 Level 3 NAV Total

Foreign currency contract assets $ — $ 7.2 $ — $ — $ 7.2

Foreign currency contract liabilities — ( 9.5 ) — — ( 9.5 )

3 unchanged sentences

In millions Level 1 Level 2 Level 3 NAV Total

Foreign currency contract assets $ — $ 0.1 $ — $ — $ 0.1

Foreign currency contract liabilities $ — $ ( 69.6 ) $ — $ — $ ( 69.6 )

1 unchanged sentence

Total recurring fair value measurements $ 12.2 $ ( 69.6 ) $ — $ 10.4 $ ( 47.0 )

Nonrecurring fair value measurements

During the years ended December 31, 2019 and 2018, we recorded impairment charges for cost method investments in the amount of $ 21.2 million and $ 12.0 million, respectively.

In 2018, a valuation method using prices in active markets was utilized to determine the fair value.

In 2019, we determined the value using unobservable inputs and wrote the balance of the cost method investments to zero.

Income from continuing operations before income taxes consisted of the following:

9 unchanged sentences

income from continuing operations before income taxes.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

The provision for income taxes consisted of the following:

12 unchanged sentences

(2) “International” represents non-U.K.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Reconciliations of the federal statutory income tax rate to our effective tax rate were as follows:

7 unchanged sentences

Base erosion and anti-abuse tax — 1.7 —

Tax effect of U.S.

tax reform — — ( 0.9 )

Tax effect of early extinguishment of debt — — 0.9

Unrecognized tax benefits ( 1.3 ) — —

Effective tax rate 11.3 % 17.4 % 11.2 %

15 unchanged sentences

examinations, including U.S.

state examinations, and the expiration of various statutes of limitations.

Based on the outcome of these examinations, or as a result of the expiration of statute of limitations for specific jurisdictions, it is reasonably possible that certain unrecognized tax benefits for tax positions taken on previously filed tax returns will materially change from those recorded as liabilities in our financial statements.

A number of tax periods from 2008 to present are under audit by tax authorities in various jurisdictions, including China, Germany, India, Italy, New Zealand, and the U.S.

federal and state examinations.

Based on the outcome of these examinations, or as a result of the expiration of statutes of limitations for specific jurisdictions, it is reasonably possible that certain unrecognized tax benefits for tax positions taken on previously filed tax returns will materially change from those recorded as liabilities in our financial statements.

A number of tax periods from 2009 to present are under audit by tax authorities in various jurisdictions, including Germany, India, Italy, and the U.S.

We anticipate that several of these audits may be concluded in the foreseeable future.

We record penalties and interest related to unrecognized tax benefits in Provision for income taxes and Net interest expense , respectively, in the Consolidated Statements of Operations and Comprehensive Income.

As of December 31, 2020 and 2019, we have liabilities of $ 0.2 million and $ 0.4 million, respectively, for the possible payment of penalties and $ 4.6 million and $ 3.7 million, respectively, for the possible payment of interest expense, which are recorded in Other current liabilities in the Consolidated Balance Sheets.

Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as “temporary differences.” We record the tax effect of these temporary differences as “deferred tax assets” (generally items that can be used as a tax deduction or credit in future periods) and “deferred tax liabilities” (generally items for which we received a tax deduction but the tax impact has not yet been recorded in the Consolidated Statements of Operations and Comprehensive Income).

At December 31, 2021 and 2020, our

Pentair plc and Subsidiaries

Notes to consolidated financial statements

liabilities for the possible payment of penalties was $ 0.2 million at both dates and for the possible payment of interest expense were $ 3.9 million and $ 4.6 million, respectively, which are recorded in Other current liabilities in the Consolidated Balance Sheets.

Deferred taxes were recorded in the Consolidated Balance Sheets as follows:

30 unchanged sentences

In addition, there were $ 10.2 million of U.S.

federal loss carryforwards with unlimited tax loss carryforward periods and $ 128.6 million of U.S.

state tax loss carryforwards as of December 31, 2021.

state tax losses of $ 64.3 million are in jurisdictions with unlimited tax loss carryforward periods, while the remainder will expire in future years through 2041.

Taxes have not been provided on undistributed earnings of subsidiaries where it is our intention to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so.

It is not practicable to estimate the amount of tax that might be payable if such earnings were to be remitted.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

It is not practicable to estimate the amount of tax that might be payable if such earnings were to be remitted.

Impacts of U.S.

tax legislation

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code.

Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

For 2018 and subsequent years, the Company considered in its annual effective tax rate additional provisions of the Act including changes to the deduction for executive compensation and interest expense, a tax on global intangible low-taxed income provisions (“GILTI”), the base erosion anti-abuse tax, and a deduction for foreign-derived intangible income.

The Company has elected to treat tax on GILTI income as a period cost and has therefore included it in its annual effective tax rate.

In April 2020, the IRS released final regulations as part of the Act that place limitations on the deductibility of certain interest expense for U.S.

In April 2020, the IRS released final regulations as part of the Tax Cuts and Jobs Act of 2017 that place limitations on the deductibility of certain interest expense for U.S.

tax purposes.

These regulations resulted in discrete tax expense of approximately $ 14.1 million in 2020, as well as an increase to our 2020 annual effective tax rate of approximately 0.3 %.

On March 27, 2020, the U.S.

In March 2020, the U.S.

enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in response to the COVID-19 pandemic.

The CARES Act contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the ability to carryback net operating losses arising in taxable years from 2018 through 2020.

The CARES Act provides positive cash benefits of approximately $ 26.9 million, offset by an increase to our 2020 annual effective tax rate of approximately 1.0 % and $ 5.1 million in discrete tax items recorded in 2020, mainly attributable to base erosion and anti-abuse tax related to 2019.

The CARES Act provided positive cash benefits of approximately $ 26.9 million, offset by an increase to our 2020 annual effective tax rate of approximately 1.0 % and $ 5.1 million in discrete tax items recorded in 2020, mainly attributable to base erosion and anti-abuse tax related to 2019.

Benefit Plans

5 unchanged sentences

Generally, the post-retirement health care and life insurance plans require contributions from retirees.

In 2017, our Board of Directors approved amendments to terminate the Pentair Salaried Plan (the “Salaried Plan”), a U.S.

qualified pension plan.

The Salaried Plan discontinued accruing benefits on December 31, 2017 and the termination was effective December 31, 2017.

The Salaried Plan participants were not adversely affected by the plan termination.

In 2018, participants whose plan benefits were not in pay status as of July 1, 2018 were given the opportunity to elect a lump sum (or monthly annuity) payment during a special election window.

Payments of $ 171.9 million were made to participants who elected to receive a lump sum during this window.

In 2019, the Company received all required government approvals to complete the termination of the Salaried Plan.

In June 2019, we entered into an agreement with an insurance company to purchase from us, through an annuity contract, our remaining obligations under the Salaried Plan.

For the year ended December 31, 2019, we contributed $ 11.1 million to the Salaried Plan as part of the process to settle our obligations.

As a result of these actions, a non-cash pre-tax settlement gain of $ 11.8 million was recorded for the year ended December 31, 2019 and is reflected within Net actuarial loss (gain) in the Net periodic benefit expense table below.

The information herein relates to defined-benefit pension and other post-retirement plans of our continuing operations only.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Obligations and funded status

7 unchanged sentences

Interest cost 2.0 2.9 0.2 0.4

Settlements — ( 1.5 ) — —

Actuarial loss 9.3 8.0 0.1 2.0

Actuarial (gain) loss ( 2.1 ) 9.3 ( 1.4 ) 0.1

Foreign currency translation ( 0.6 ) 1.4 — —

6 unchanged sentences

Company contributions 8.1 7.1 1.3 1.3

Settlements — ( 1.5 ) — —

Foreign currency translation ( 0.3 ) 0.8 — —

5 unchanged sentences

$ ( 81.7 ) $ ( 87.1 ) $ ( 11.3 ) $ ( 13.8 )

The actuarial loss in 2020 was primarily due to declines in the discount rates to reflect economic conditions at December 31, 2020.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

The actuarial gain in 2021 was primarily due to increases in the discount rates to reflect economic conditions at December 31, 2021.

Amounts recorded in the Consolidated Balance Sheets were as follows:

15 unchanged sentences

Accumulated benefit obligation N/A N/A 112.7 119.3

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Components of net periodic benefit expense for our pension plans for the years ended December 31 were as follows:

3 unchanged sentences

Expected return on plan assets ( 0.5 ) ( 0.8 ) ( 3.9 )

Net actuarial loss (gain) 6.8 ( 4.1 ) 5.2

Net actuarial (gain) loss ( 1.5 ) 6.8 ( 4.1 )

Net periodic benefit expense $ 2.8 $ 12.2 $ 1.9

13 unchanged sentences

3.62 % 3.68 % 3.72 % N/A N/A N/A

(1) The benefit obligation for the Salaried Plan as of December 31, 2018 was determined using assumptions reflecting the termination of the plan.

As a result, the 2018 weighted-average assumptions for the pension plans reflected in the table above do not include the Salaried Plan.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Discount rates

5 unchanged sentences

In developing the expected long-term rate of return, we considered our historical returns, with consideration given to forecasted economic conditions, our asset allocations, input from external consultants and broader long-term market indices.

Pension plan assets yielded returns of 9.68 %, 8.85 % and ( 5.60 )% in 2020, 2019 and 2018, respectively.

Pension plan assets yielded a loss of ( 0.89 )% in 2021 and returns of 9.68 % and 8.85 % in 2020 and 2019, respectively.

Healthcare cost trend rates

3 unchanged sentences

Year the cost trend rate reaches the ultimate trend rate 2046 2038

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Pension plans assets

22 unchanged sentences

Investments measured at NAV 23.6

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Valuation methodologies used for investments measured at fair value were as follows:

13 unchanged sentences

The following benefit payments, which reflect expected future service or payout from termination, as appropriate, are expected to be paid by the plans in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter are as follows:

Pentair plc and Subsidiaries

Notes to consolidated financial statements

In millions Pension plans Other post-

7 unchanged sentences

The 401(k) company match contribution is a dollar-for-dollar ( 100 %) matching contribution on up to 5 % of employee eligible earnings, contributed as before-tax contributions.

During 2018, in addition to the matching contribution, all employees who met certain service requirements received a discretionary ESOP contribution equal to 1.5 % of annual eligible compensation.

Our combined expense for the 401(k) plan and the ESOP was $ 15.3 million, $ 14.4 million and $ 23.4 million in 2020, 2019 and 2018, respectively.

Our expense for the 401(k) plan, including the ESOP, was $ 19.0 million, $ 15.3 million and $ 14.4 million in 2021, 2020 and 2019, respectively.

Other retirement compensation

5 unchanged sentences

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.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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.

Dividends payable

2 unchanged sentences

Dividends paid per ordinary share were $ 0.80 , $ 0.76 and $ 0.72 for the years ended December 31, 2021, 2020 and 2019, respectively.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Share-based compensation expense

5 unchanged sentences

Total share-based compensation expense $ 29.8 $ 20.3 $ 21.4

Of the total share-based compensation expense noted above, $ 3.4 million for the year ended December 31, 2018 was reported as part of Income (loss) from discontinued operations, net of tax.

Share incentive plans

18 unchanged sentences

Restricted shares and restricted stock units are valued at market value on the date of grant and are expensed over the vesting period.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Stock appreciation rights, performance shares and performance units

6 unchanged sentences

The estimated vesting of the PSUs is based on the probability of achieving certain performance metrics during the vesting period.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Stock options

7 unchanged sentences

Exercised ( 0.9 ) 38.88

Forfeited ( 0.3 ) 45.61

Outstanding as of December 31, 2021 2.2 $ 42.86 5.5 $ 66.4

20 unchanged sentences

The actual tax benefit realized for the tax deductions from options exercised totaled $ 6.2 million, $ 2.9 million and $ 2.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Restricted stock units

7 unchanged sentences

Outstanding as of December 31, 2021 0.6 $ 47.78

Pentair plc and Subsidiaries

Notes to consolidated financial statements

As of December 31, 2021, there was $ 23.4 million of unrecognized compensation cost related to restricted share compensation arrangements granted under the 2020 Plan and previous plans.

That cost is expected to be recognized over a weighted-average period of 1.2 years.

That cost is expected to be recognized over a weighted-average period of 1.0 year.

The total fair value of shares vested during the years ended December 31, 2021, 2020 and 2019, was $ 10.5 million, $ 11.2 million and $ 9.3 million, respectively.

For the year ended December 31, 2020, there was no tax benefit realized.

The actual tax benefit realized for the years ended December 31, 2019 and 2018, was $ 0.1 million, and $ 0.7 million respectively.

For the year ended December 31, 2021, there was $ 0.6 million of tax benefit realized.

For the year ended December 31, 2020, no tax benefit was realized.

The actual tax benefit realized for the year ended December 31, 2019, was $ 0.1 million.

Performance share units

4 unchanged sentences

Granted 0.1 52.56

Forfeited ( 0.1 ) 43.30

Vested ( 0.1 ) 45.42

Outstanding as of December 31, 2021 0.4 $ 45.55

3 unchanged sentences

There were $ 0.1 million, $ 0.1 million, and $ 0.2 million of actual tax benefits realized for the years ended December 31, 2021, 2020, and 2019, respectively.

Electrical separation

In connection with the Separation and Distribution, the Company adjusted its outstanding equity awards on May 1, 2018 in accordance with the Employee Matters Agreement between Pentair and nVent.

The outstanding awards will continue to vest over the original vesting period, which is generally three years from the grant date.

The RSUs, PSUs, and stock option awards issued before May 9, 2017 (the date of Pentair’s announcement of its intention to separate its Water and Electrical businesses) were converted into awards of both Pentair and nVent regardless of which company the award holder was employed by immediately after the Separation.

These awards were converted as follows:

• Restricted stock units :

For every unvested Pentair RSU award held, the holder received one nVent RSU.

• Performance share units :

Pentair PSUs were converted to Pentair RSUs immediately after the Distribution.

The PSUs granted in 2016 were converted at rate of 125 % of target, and the PSUs granted in 2017 were converted at a rate of 100 % of target.

For every converted RSU, the shareholder also received one nVent RSU.

The converted RSUs retain the original vesting schedule of the awarded PSUs.

• Stock options:

Every holder of unexercised (vested and unvested) Pentair stock options received both adjusted stock options of Pentair and stock options of nVent, with the number of underlying shares and the exercise price adjusted accordingly to preserve the overall intrinsic value of the awards.

The number of Pentair stock options was converted based upon the ratio of Pentair’s pre-Distribution stock price divided by the sum of the Pentair and nVent post-Distribution closing prices.

The exercise price for the converted Pentair stock options was adjusted based on the Pentair post-Distribution closing price divided by the Pentair pre-Distribution closing price.

The number of new nVent stock options awarded is the same as the converted number of Pentair stock options calculated as described above.

The exercise price for the new nVent stock options was calculated based on nVent’s post-Distribution closing price divided by the Pentair pre-Distribution closing price.

Generally, unvested awards issued after May 9, 2017 were converted to awards of the Company that the shareholder was employed by immediately after the Separation, with adjustments to the number of underlying shares as appropriate to preserve the intrinsic value of such awards immediately prior to the Distribution.

The adjustment of the underlying shares was based on the ratio of Pentair’s pre-Distribution stock price divided by the post-Distribution closing price of the respective company’s ordinary shares.

The exercise prices of the stock options were converted using the inverse ratio in a manner designed to preserve the intrinsic value of such awards.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Segment Information

Effective January 1, 2020, we reorganized our business segments to better support our organization with our strategies and to better align with our customer base, resulting in a change to our reporting segments.

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 Aquatic Systems, Flow Technologies, and Filtration Solutions segments were realigned into two reportable business segments:

We classify our operations into the following business segments:

• Consumer Solutions - This segment designs, manufactures and sells energy-efficient residential and commercial pool equipment and accessories, and commercial and residential water treatment products and systems.

7 unchanged sentences

The primary focus of this segment is business-to-business.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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

These results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented.

Segment income (loss) 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 (loss) 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.

Financial information by reportable segment is included in the following summary:

6 unchanged sentences

$ 3,764.8 $ 3,017.8 $ 2,957.2 $ 685.9 $ 517.6 $ 516.3

(1) One customer in the Consumer Solutions segment, Pool Corporation, represented approximately 15 % of our consolidated net sales in 2020, 2019 and 2018.

(1) One customer in the Consumer Solutions’ pool business represented approximately 20 %, 15 %, and 15 % of our consolidated net sales in 2021, 2020 and 2019, respectively.

2021 2020 2019 2021 2020 2019 2021 2020 2019

5 unchanged sentences

Consolidated $ 4,753.6 $ 4,197.2 $ 4,139.5 $ 60.2 $ 62.2 $ 58.5 $ 51.2 $ 46.7 $ 48.3

(1) All cash and cash equivalents and assets held for sale are included in “Other.”

Pentair plc and Subsidiaries

Notes to consolidated financial statements

(1) All cash and cash equivalents are included in “Other.”

The following table presents a reconciliation of consolidated segment income to consolidated income from continuing operations before income taxes:

1 unchanged sentence

Segment income $ 685.9 $ 517.6 $ 516.3

Restructuring and other ( 15.4 ) ( 21.0 ) ( 31.8 )

Restructuring and other costs ( 7.5 ) ( 15.4 ) ( 21.0 )

Transformation costs ( 11.7 ) — —

Inventory step-up ( 2.3 ) — ( 2.2 )

Intangible amortization ( 26.3 ) ( 28.4 ) ( 31.7 )

Pension and other post-retirement mark-to-market (loss) gain ( 6.7 ) 3.4 ( 3.6 )

Pension and other post-retirement mark-to-market gain (loss) 2.4 ( 6.7 ) 3.4

Asset impairment — — ( 21.2 )

(Loss) gain on sale of businesses ( 0.1 ) 2.2 ( 7.3 )

Loss on early extinguishment of debt — — ( 17.1 )

Gain (loss) on sale of businesses 1.4 ( 0.1 ) 2.2

Interest expense, net ( 12.5 ) ( 23.9 ) ( 30.1 )

Corporate allocations — — ( 11.0 )

Deal related costs and expenses ( 7.9 ) ( 0.6 ) ( 4.2 )

COVID-19 related costs and expenses ( 0.6 ) ( 10.4 ) —

Legal settlement and accrual adjustments 7.6 — —

Other expense ( 1.7 ) — ( 4.0 )

Income from continuing operations before income taxes $ 626.8 $ 432.1 $ 407.5

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Commitments and Contingencies

2 unchanged sentences

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 adverse 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 the notes to our consolidated financial statements could change in the future.

8 unchanged sentences

Operating lease cost for lease payments is recognized on a straight-line basis over the lease term and principally consists of fixed payments for base rent.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

These operating lease right-of-use (“ROU”) assets are included in Other non-current assets on Consolidated Balance Sheets, and represent our right to use the underlying asset for the lease term.

These operating lease right-of-use (“ROU”) assets are included in Other non-current assets on the Consolidated Balance Sheets, and represent our right to use the underlying asset for the lease term.

Our obligation to make lease payments arising from the lease are included in Other current liabilities and Other non-current liabilities on the Consolidated Balance Sheets.

4 unchanged sentences

Accordingly, all costs associated with a lease contract are accounted for as one lease cost.

The components of lease cost was as follows:

The components of lease cost were as follows:

In millions December 31,

8 unchanged sentences

Right-of-use assets obtained in exchange for lease obligations $ 12.2 $ 13.6

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Other information related to leases was as follows:

9 unchanged sentences

The subject matter, amounts and duration of any such indemnification obligations vary for each type of liability indemnified and may vary widely from transaction to transaction.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Generally, the maximum obligation under such indemnifications is not explicitly stated and as a result, the overall amount of these obligations cannot be reasonably estimated.

8 unchanged sentences

Adjustments are made to accruals as claim data and historical experience warrant.

The changes in the carrying amount of service and product warranties for the years ended December 31, 2020, 2019 and 2018 were as follows:

The changes in the carrying amount of service and product warranties were as follows:

Years ended December 31

5 unchanged sentences

Ending balance $ 40.5 $ 37.0 $ 32.1

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Stand-by letters of credit, bank guarantees and bonds

6 unchanged sentences

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.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Selected Quarterly Data (Unaudited)

The following tables present 2020 and 2019 quarterly financial information:

In millions, except per-share data First

Quarter Second

Quarter Third

Quarter Fourth

Net sales $ 710.0 $ 713.3 $ 798.5 $ 796.0 $ 3,017.8

Gross profit 251.6 245.1 277.4 283.5 1,057.6

Operating income 100.7 111.1 128.1 121.5 461.4

Net income from continuing operations

72.7 73.8 110.8 99.8 357.1

(Loss) income from discontinued operations, net of tax — ( 1.7 ) — 3.2 1.5

Net income 72.7 72.1 110.8 103.0 358.6

Earnings (loss) per ordinary share (1)

Continuing operations $ 0.43 $ 0.44 $ 0.67 $ 0.60 $ 2.14

Discontinued operations — ( 0.01 ) — 0.02 0.01

Basic earnings per ordinary share

$ 0.43 $ 0.43 $ 0.67 $ 0.62 $ 2.15

Continuing operations $ 0.43 $ 0.44 $ 0.66 $ 0.60 $ 2.13

Discontinued operations — ( 0.01 ) — 0.01 0.01

Diluted earnings per ordinary share

$ 0.43 $ 0.43 $ 0.66 $ 0.61 $ 2.14

(1) Amounts may not total to annual earnings because each quarter and year are calculated separately based on basic and diluted weighted-average ordinary shares outstanding during that period.

In millions, except per-share data First

Quarter Second

Quarter Third

Quarter Fourth

Net sales $ 688.9 $ 799.5 $ 713.6 $ 755.2 $ 2,957.2

Gross profit 235.6 286.7 255.0 274.2 1,051.5

Operating income 67.6 133.8 108.8 122.3 432.5

Net income from continuing operations

52.4 115.1 91.3 102.9 361.7

(Loss) income from discontinued operations, net of tax ( 1.1 ) ( 0.8 ) 1.0 ( 5.1 ) ( 6.0 )

Net income 51.3 114.3 92.3 97.8 355.7

Earnings (loss) per ordinary share (1)

Continuing operations $ 0.31 $ 0.68 $ 0.54 $ 0.61 $ 2.14

Discontinued operations ( 0.01 ) ( 0.01 ) 0.01 ( 0.03 ) ( 0.04 )

Basic earnings per ordinary share

$ 0.30 $ 0.67 $ 0.55 $ 0.58 $ 2.10

Continuing operations $ 0.30 $ 0.68 $ 0.54 $ 0.61 $ 2.12

Discontinued operations

— ( 0.01 ) 0.01 ( 0.03 ) ( 0.03 )

Diluted earnings per ordinary share

$ 0.30 $ 0.67 $ 0.55 $ 0.58 $ 2.09

(1) Amounts may not total to annual earnings because each quarter and year are calculated separately based on basic and diluted weighted-average ordinary shares outstanding during that period.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data