What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-21 compared with 2021-10-26 · 173 added, 270 removed, 183 unchanged (71% of the section changed)

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Without limitation, any statements preceded or followed by or that include the words “targets,” “plans,” “believes,” “expects,” “intends,” “will,” “likely,” “may,” “anticipates,” “estimates,” “projects,” “should,” “would,” “could,” “positioned,” “strategy,” “future” or words, phrases or terms of similar substance or the negative thereof, are forward-looking statements.

All statements made about the Manitowoc Ice acquisition, including the anticipated time for completing the acquisition, and the anticipated benefits of the acquisition are forward-looking statements.

These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

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

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

These factors include our ability to close and fund the Manitowoc Ice acquisition on the expected terms and time schedule, including obtaining regulatory approvals and satisfying other closing conditions;

our ability to integrate the Manitowoc Ice acquisition successfully;

our ability to retain customers and employees of Manitowoc Ice;

the overall impact of the COVID-19 pandemic on our and the Manitowoc Ice business;

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 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;

overall global economic and business conditions impacting our business, including the strength of housing and related markets and conditions relating to the conflict between Russia and Ukraine and related sanctions;

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

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failure of markets to accept new product introductions and enhancements;

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

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

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

risks associated with operating foreign businesses;

risks associated with operating foreign businesses and foreign supply chains;

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

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the impact of changes in laws, regulations and administrative policy, including those that limit U.S.

tax benefits or impact trade agreements and tariffs;

tax benefits or impact ability to trade, trade agreements and tariffs;

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.

Securities and Exchange Commission (the “SEC”), including this Form 10-Q and our Form 10-K for the year ended December 31, 2020.

Securities and Exchange Commission (the “SEC”), including this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021.

All forward-looking statements speak only as of the date of this report.

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At Pentair, we believe the health of our world depends on reliable access to clean water.

We deliver a comprehensive range of smart, sustainable water solutions to homes, business and industry around the world.

Our industry leading and proven portfolio of solutions enables our customers to access clean, safe water, reduce water consumption, and recover and reuse it.

We deliver a comprehensive range of smart, sustainable water solutions to homes, businesses and industries around the world.

Our industry-leading and proven portfolio of solutions enables our customers to access clean, safe water;

reduce water consumption;

and recover and reuse water.

Whether it’s improving, moving or helping people enjoy water, we help manage the world’s most precious resource.

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Consumer Solutions and Industrial & Flow Technologies.

For the first nine months of 2021, the Consumer Solutions and Industrial & Flow Technologies segments represented approximately 62% and 38% of total revenues, respectively.

For the first three months of 2022, the Consumer Solutions and Industrial & Flow Technologies segments represented approximately 64% and 36% of total revenues, respectively.

We classify our operations into business segments based primarily on types of products offered and markets served:

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

• Industrial & Flow Technologies — This segment manufactures and sells a variety of fluid treatment and pump products and systems, including pressure vessels, gas recovery solutions, membrane bioreactors, wastewater reuse systems and advanced membrane filtration, separation systems, water disposal pumps, water supply pumps, fluid transfer pumps, turbine pumps, solid handling pumps, and agricultural spray nozzles, while serving the global residential, commercial and industrial markets.

residential, commercial and industrial markets.

These products and systems are used in a range of applications, including fluid delivery, ion exchange, desalination, food and beverage, separation technologies for the oil and gas industry, residential and municipal wells, water treatment, wastewater solids handling, pressure boosting, circulation and transfer, fire suppression, flood control, agricultural irrigation and crop spray.

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

On September 15, 2021, as part of both of our Consumer Solutions and Industrial & Flow Technologies reporting segments, we entered into a definitive agreement to acquire Pleatco Holdings, LLC and related entities (“Pleatco”), a manufacturer of water filtration and clean air technologies for pool, spa and industrial air customers, for total consideration of approximately $255.0 million in cash, subject to customary adjustments.

We completed the Pleatco acquisition on October 18, 2021.

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

(“KBI”) for $82.8 million in cash, net of cash acquired.

KBI provides beverage equipment and services to commercial customers.

On March 2, 2022, as part of our Consumer Solutions reporting segment, we entered into a definitive agreement with Welbilt, Inc.

(“Welbilt”), to acquire the issued and outstanding equity securities of certain subsidiaries of Welbilt and certain other assets, rights, and properties, and assume certain liabilities, comprising Welbilt’s Manitowoc Ice business (“Manitowoc Ice”), for an aggregate purchase price of $1.6 billion, subject to customary adjustments contemplated by the definitive agreement.

We expect to fund the purchase price for the acquisition with new debt that we anticipate to be investment grade, including the Term Loan Facility (as defined below).

We expect to close our Manitowoc Ice acquisition in the second or third quarter of 2022, subject to customary closing conditions and necessary regulatory approvals.

COVID-19 Pandemic Update

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

The COVID-19 pandemic continues to persist 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 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.

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

While our facilities have remained operational during the first nine months of 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 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 throughout the remainder of 2021 and may continue thereafter.

Our Consumer Solutions segment delivered significant growth in the first nine months of 2021 led by continued strength in our pool and residential water treatment businesses.

The high level of demand in these businesses continued as consumers invested in their homes and backyards.

Demand in our commercial water treatment business improved in 2021 as the restaurant and hospitality industries reopened.

Our Industrial & Flow Technologies segment had strong growth in the first nine months of 2021 mainly driven by increased volume within our residential and irrigation flow businesses due to high demand in the residential vertical.

Our commercial flow business experienced increased sales in the first nine months of 2021 due to strong demand in our water supply and water disposal product lines.

Demand in our infrastructure business stabilized in the first half of 2021 and sales increased in the third quarter.

In our industrial filtration business, demand is mostly driven by customer capital spending, which saw recovery begin in the second quarter and growth in the third quarter of 2021 in food and beverage while the industrial long-cycle project business had decreased sales volumes in comparison with the prior year.

We maintain our commitment to protect the health and safety of our employees, customers, and suppliers by continuing our enhanced safety protocols for those on-site at our manufacturing facilities and for those who provide manufacturing-support

In addition, employees who do not need to be physically present at our facilities and sites to perform their job responsibilities generally continue to work from home and essential business travel remains 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 rate and 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 “Risk Factors - Risks Related to the COVID-19 Pandemic” included in Item 1A.

“Risk Factors” in our 2020 Annual Report on Form 10-K.

Transformation Program

During the second quarter of 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.

We are targeting at least 300 basis points of margin expansion by 2025 through the following Transformation Program pillars:

• reducing business and product complexity;

• developing a future state digital enterprise by eliminating non-value add activities, streamlining processes and using automation to increase productivity;

• modernizing general and administrative expenses;

• delivering decision making speed through improved processes and analytics.

During the first nine months of 2021, we incurred transformation costs that primarily represented professional services and project management related charges.

Throughout the remainder of 2021 and beyond 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.

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

The ongoing effects of the COVID-19 pandemic continue to impact global economic conditions.

In the first quarter of 2022, we have continued to experience various degrees of supply chain challenges, including increased lead times for raw materials due to availability constraints and high demand.

In connection with the supply chain disruptions described above, we have experienced inflationary increases of certain raw materials, such as metals, resins and electronics (including drives and motors), as well as logistics, transportation and labor costs.

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.

The COVID-19 pandemic may have a material negative impact on our business, financial condition, results of operations and cash flows” included in Item 1A.

“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Key Trends and Uncertainties Regarding Our Existing Business

The following trends and uncertainties affected our financial performance in the first nine months of 2021 and/or may 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 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, the impact of virus variants, the rate and 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.

The following trends and uncertainties affected our financial performance in the first three months of 2022 and/or may 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 an 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 Update” for key trends and uncertainties with regard to the COVID-19 pandemic.

• During 2020 and the first nine months of 2021, we executed certain business restructuring initiatives unrelated to the COVID-19 pandemic aimed at reducing our fixed cost structure and realigning our business.

• During 2021 and the first three months of 2022, we executed certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business.

We expect these actions to continue throughout the remainder of 2022 and to drive margin growth.

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We expect to implement Transformation Program initiatives and incur transformation costs throughout the remainder of 2022 and beyond.

• During the first nine months of 2021, 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 for the remainder of 2021, and which may continue thereafter and could negatively impact our results of operations.

• During the first nine months of 2021, we experienced inflationary increases of raw materials such as metals, resins and electronics, 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 for the remainder of 2021, and which may continue thereafter and could negatively impact our results of operations.

• During the first three months of 2022, we continued to experience 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 throughout the remainder of 2022, which may continue thereafter and could negatively impact our results of operations.

• During the first three months of 2022, we continued to experience inflationary increases in costs of raw materials such as metals, resins and electronics (including drives and motors), as well as increases in logistics, transportation 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 throughout the remainder of 2022, which may continue thereafter and could negatively impact our results of operations.

• At the end of the first quarter of 2022, our backlog, including in our pool business, remained materially consistent with the backlog at the end of 2021.

While we are continuing to work through our backlog, customer orders in our pool business may be cancelled to better reflect mix of products, meet anticipated demand and allow us to better utilize plant capacity.

• 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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• Delivering revenue growth in our core businesses;

• Delivering income and cash by managing price/cost inflation, prioritization of growth investments and addressing the cost structures as necessary;

• Delivering income and cash by managing price/cost inflation, prioritizing growth investments and addressing the cost structures as necessary;

• Continued focus on capital allocation through:

◦ Commitment to maintain our investment grade rating;

◦ Return cash to shareholders through dividends and buybacks;

◦ Return of 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;

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

• 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.

CONSOLIDATED RESULTS OF OPERATIONS

The consolidated results of operations for the three months ended September 30, 2021 and 2020 were as follows:

The consolidated results of operations for the three months ended March 31, 2022 and March 31, 2021 were as follows:

Three months ended

In millions September 30,

2021 September 30,

Change % / Point

Net sales $ 969.2 $ 798.5 $ 170.7 21.4 %

Cost of goods sold 634.4 521.1 113.3 21.7 %

Gross profit 334.8 277.4 57.4 20.7 %

% of net sales

34.5 % 34.7 % (0.2) pts

Selling, general and administrative

145.6 130.0 15.6 12.0 %

% of net sales

15.0 % 16.3 % (1.3) pts

Research and development

21.9 19.3 2.6 13.5 %

% of net sales 2.3 % 2.4 % (0.1) pts

Operating income 167.3 128.1 39.2 30.6 %

% of net sales 17.3 % 16.0 % 1.3 pts

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

Other expense (income) 0.3 (2.5) 2.8 N.M.

Net interest expense 2.6 5.4 (2.8) (51.9) %

Income from continuing operations before income taxes 165.8 125.2 40.6 32.4 %

Provision for income taxes

22.1 14.4 7.7 53.5 %

Effective tax rate 13.3 % 11.5 % 1.8 pts

Not Meaningful

The consolidated results of operations for the nine months ended September 30, 2021 and September 30, 2020 were as follows:

Nine months ended

In millions September 30,

2021 September 30,

In millions March 31,

2022 March 31,

Change % / Point

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% of net sales 14.6 % 18.1 % (3.5) pts

(Gain) loss on sale of businesses (1.4) 0.1 (1.5) N.M.

Other expense (income) 1.0 (1.6) 2.6 N.M.

Other expense 0.1 0.4 (0.3) N.M.

Net interest expense 5.7 5.1 0.6 11.8 %

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The components of the consolidated net sales change from the prior period were as follows:

Three months ended September 30, 2021 Nine months ended September 30, 2021

over the prior year period over the prior year period

Volume 11.8 % 18.2 %

Price 6.6 3.2

Three months ended March 31, 2022

over the prior year period

Core growth 12.4

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Currency (1.3)

Total 21.4 % 25.0 %

The 21.4 and 25.0 percent increases in net sales in the third quarter and first nine months, respectively, of 2021 from 2020 were primarily driven by:

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

• volume increase in our Industrial & Flow Technologies segment primarily driven by strong demand across all product lines in the residential and irrigation flow businesses as well as increased demand in sustainable gas solutions and recovery in short cycle orders in our food and beverage business;

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

• favorable foreign currency effects compared to the third quarter and first nine months of the prior year.

The 0.2 percentage point decrease in gross profit as a percentage of net sales in the third quarter of 2021 from 2020 was primarily driven by:

• inflationary cost increases due to tight supply of raw materials such as metals, resins and electronics;

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

This decrease was partially offset by:

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

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

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

The 0.9 percentage point increase in gross profit as a percentage of net sales in the first nine months of 2021 from 2020 was primarily driven by:

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

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

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

The 15.4 percent increase in net sales in the first quarter of 2022 from 2021 was primarily driven by:

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

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

• increased sales in the first quarter of 2022 from the acquisitions of Pleatco Holdings, LLC (“Pleatco”) and Ken’s Beverage, Inc (“KBI”) in 2021.

The increase was partially offset by:

• volume decrease in our Industrial & Flow Technologies segment primarily driven by our residential and irrigation flow businesses;

• unfavorable foreign currency effects compared to the first quarter of the prior year.

The 3.2 percentage point decrease in gross profit as a percentage of net sales in the first three months of 2022 from 2021 was primarily driven by:

• inflationary cost increases due to tight supply of raw materials such as metals, resins, and electronics;

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

• higher logistics and labor costs due to increased demand, additional headcount and factory labor wage increases;

• a charge of $1.7 million recorded in the first quarter of 2022 for the write-off of inventory and costs related to contracts and orders that we will no longer fulfill in light of our exiting of business activity and sales in Russia.

The decrease was partially offset by:

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

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

The 1.3 and 1.1 percentage point decreases in SG&A as a percentage of net sales in the third quarter and first nine months, respectively, of 2021 from 2020 were primarily driven by:

• reduction in travel and entertainment, trade show and advertising expenses for the first nine months of 2021 compared to the prior year due to the COVID-19 pandemic restrictions not beginning until March of 2020;

• legal accrual reductions of $2.4 million in the first quarter of 2021;

• lower amortization on definite-lived intangible assets;

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

These decreases were partially offset by:

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

• restructuring and transformation costs of $4.0 million and $11.2 million in the third quarter and first nine months, respectively, of 2021, compared to $1.8 million and $5.6 million in the third quarter and first nine months, respectively, of 2020.

The 0.6 percentage point increase in SG&A as a percentage of net sales in the first quarter of 2022 from 2021 was primarily driven by:

• transformation costs of $5.5 million in the first quarter of 2022, compared to none in the first quarter of 2021;

• deal-related costs and expenses of $6.4 million in the first quarter of 2022, compared to $0.7 million in the same period of the prior year;

• a charge of $4.2 million recorded in the first quarter of 2022 for the write-off of uncollectible accounts receivable and other costs incurred in light of our exiting of business activity and sales in Russia;

• higher labor costs due to additional headcount compared to the prior year.

Net interest expense

The 51.9 and 42.5 percent decreases in net interest expense in the third quarter and first nine months, respectively, of 2021 from 2020 were primarily driven by:

• strong cash flows in 2021 used to repay senior fixed notes that matured as well as reduce variable debt leading to overall lower debt levels compared to the same periods of the prior year;

• lower interest rates on outstanding variable debt.

The 11.8 percent increase in net interest expense in the first quarter of 2022 from 2021 was primarily driven by:

• debt issuance costs of $2.6 million incurred during the first quarter of 2022 related to financing commitments for a bridge loan facility established in connection with the definitive agreement to purchase Manitowoc Ice.

The increase was partially offset by:

• €100.0 million cross-currency swap executed in February 2021;

• the weakening of the Euro compared to the same period of the prior year resulting in less interest expense on the outstanding cross currency swaps in the first quarter of 2022.

Provision for income taxes

The 1.8 percentage point increase in the effective tax rate in the third quarter of 2021 from 2020 was primarily driven b y:

• the impact of discrete items specific to the third quarter of 2021 compared to 2020;

• the unfavorable mix of global earnings.

The 5.7 percentage point decrease in the effective tax rate in the first nine months of 2021 from 2020 was primarily driven b y:

• 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 place limitations on the deductibility of certain interest expense for U.S.

tax purposes that occurred during the first nine months of 2020 that did not occur in 2021.

The decrease was partially offset by:

The 1.9 percentage point increase in the effective tax rate in the first quarter of 2022 from 2021 was primarily driven b y:

• the unfavorable mix of global earnings.

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The net sales and segment income for Consumer Solutions were as follows:

Three months ended Nine months ended

In millions September 30,

2021 September 30,

2020 % / Point Change September 30,

2021 September 30,

Three months ended

In millions March 31,

2022 March 31,

2021 % / Point Change

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Segment income 138.5 131.0 5.7 %

% of net sales 23.5 % 24.2 % (0.7) pts 24.5 % 23.4 % 1.1 pts

% of net sales 21.6 % 25.1 % (3.5) pts

The components of the change in Consumer Solutions net sales from the prior period were as follows:

Three months ended September 30, 2021 Nine months ended September 30, 2021

over the prior year period over the prior year period

Volume 18.0 % 27.9 %

Price 8.1 4.0

Three months ended March 31, 2022

over the prior year period

Core growth 16.7

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Currency (0.6)

Total 30.3 % 35.8 %

The 30.3 and 35.8 percent increases in net sales for Consumer Solutions in the third quarter and first nine months, respectively, of 2021 from 2020 were primarily driven by:

• increased sales volume in our pool business due to consumers increasing their pool use while continuing to invest in their homes and backyards as a result of the COVID-19 pandemic;

• increased sales volume in our water treatment business as residential demand remained strong in the third quarter and first nine months of 2021;

• increased sales volume in our commercial water treatment business in the third quarter and first nine months of 2021 due to improved demand in the restaurant and hospitality industries;

• increased sales due to acquisitions that occurred in the first nine months of 2021 and last quarter of 2020;

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

• favorable foreign currency effects compared to the third quarter and first nine months of the prior year.

The 23.0 percent increase in net sales for Consumer Solutions in the first quarter of 2022 from 2021 was primarily driven by:

• increases in selling prices to mitigate impacts of inflation;

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

• increased sales volume mainly in our pool business as a result of an increase in available capacity.

This increase was partially offset by:

• unfavorable foreign currency effects compared to the first quarter of the prior year.

Segment income

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

Three months ended September 30, 2021 Nine months ended September 30, 2021

over the prior year period over the prior year period

Growth/Price/Acquisition 5.9 pts 4.0 pts

Currency (0.1) (0.1)

Three months ended March 31, 2022

over the prior year period

Growth/Price/Acquisition 8.1 pts

Inflation (12.2)

Productivity 0.6

Total (0.7) pts 1.1 pts

The 0.7 percentage point decrease in segment income for Consumer Solutions as a percentage of net sales in the third quarter of 2021 from 2020 was primarily driven by:

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

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

Total (3.5) pts

The 3.5 percentage point decrease in segment income for Consumer Solutions as a percentage of net sales in the first quarter of 2022 from 2021 was primarily driven by:

• inflationary cost increases due to high demand and limited supply of raw materials such as metals, resins, and electronics along with increased logistics and labor costs.

The decrease was partially offset by:

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

• increased sales volume across all of our businesses resulting in cost leverage and favorable income drop through;

• increased productivity.

The 1.1 percentage point increase in segment income for Consumer Solutions as a percentage of net sales in the first nine months of 2021 from 2020 was primarily driven by:

• increased sales volume in all of our businesses resulting in cost leverage and favorable income drop through;

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

• increased productivity.

The increase was partially offset by:

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

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

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

• increased volume and productivity primarily in our pool business.

Industrial & Flow Technologies

The net sales and segment income for Industrial & Flow Technologies were as follows:

Three months ended Nine months ended

In millions September 30,

2021 September 30,

2020 % / Point Change September 30,

2021 September 30,

Three months ended

In millions March 31,

2022 March 31,

2021 % / Point Change

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Segment income 52.2 50.0 4.4 %

% of net sales 14.8 % 13.0 % 1.8 pts 15.0 % 13.7 % 1.3 pts

% of net sales 14.6 % 14.5 % 0.1 pts

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

Three months ended September 30, 2021 Nine months ended September 30, 2021

over the prior year period over the prior year period

Three months ended March 31, 2022

over the prior year period

Volume (1.6) %

Price 4.3 2.2

Core growth 6.0

Acquisition 0.4

Currency (2.3)

Total 8.5 % 10.7 %

The 8.5 and 10.7 percent increases in net sales for Industrial & Flow Technologies in the third quarter and first nine months, respectively, of 2021 from 2020 were primarily driven by:

• increased sales volume in our residential and irrigation flow businesses in the third quarter and first nine months of 2021 due to strong demand across all product lines in these businesses;

• increased sales volume in our food and beverage business in the third quarter and first nine months of 2021 due to demand in sustainable gas solutions and recovery in short cycle orders;

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

• favorable foreign currency effects in the third quarter and first nine months compared to the same periods of the prior year.

These increases were partially offset by:

• decreased sales volume in our industrial filtration business.

The 4.1 percent increase in net sales for Industrial & Flow Technologies in the first quarter of 2022 from 2021 was primarily driven by:

• increases in selling prices to mitigate inflationary cost increases;

• increased sales volume in our industrial solutions business due to the Pleatco acquisition as well as continued recovery in our project sales.

This increase was partially offset by:

• decreased sales volume in our residential and irrigation flow businesses due to exiting a small product line and labor constraints;

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

Segment income

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

Three months ended September 30, 2021 Nine months ended September 30, 2021

over the prior year period over the prior year period

Growth/Price/Acquisition 4.4 pts 2.6 pts

Currency — 0.1

Three months ended March 31, 2022

over the prior year period

Growth/Price/Acquisition 7.6 pts

Inflation (7.0)

Productivity (0.5)

Total 1.8 pts 1.3 pts

The 1.8 and 1.3 percentage point increases in segment income for Industrial & Flow Technologies as a percentage of net sales in the third quarter and first nine months, respectively, of 2021 from 2020 were primarily driven by:

• 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;

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

• increased productivity due to cost actions driving manufacturing efficiencies.

These increases were partially offset by:

Total 0.1 pts

The 0.1 percentage point increase in segment income for Industrial & Flow Technologies as a percentage of net sales in the first quarter of 2022 from 2021 was primarily driven by:

• increases in selling prices to mitigate inflationary cost increases;

• improved sales mix in our commercial and infrastructure flow businesses.

This increase was partially offset by:

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

• increased operating expenses as a result of our continued focus on strategic growth.

BACKLOG OF ORDERS BY SEGMENT

In millions September 30,

2021 December 31,

2020 $ Change % Change

Consumer Solutions $ 1,218.8 $ 459.1 $ 759.7 165.5 %

Industrial & Flow Technologies 409.9 288.7 121.2 42.0 %

Total $ 1,628.7 $ 747.8 $ 880.9 117.8 %

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 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.

Our backlog of orders is dependent upon when customers place orders and is not necessarily an indicator of our expected results for our 2021 net sales.

The increase in our backlog from December 31, 2020 to September 30, 2021 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.

• decreased productivity in our residential and irrigation flow businesses due to workforce shortages.

LIQUIDITY AND CAPITAL RESOURCES

We generally fund cash requirements for working capital, capital expenditures, equity investments, acquisitions, debt repayments, dividend payments and share repurchases from cash generated from operations, availability under existing committed revolving credit facilities and in certain instances, public and private debt and equity offerings.

Our primary revolving credit facilities have generally been adequate for these purposes, although we have negotiated additional credit facilities or completed debt and equity offerings as needed to allow us to complete acquisitions.

Our primary revolving credit facility has generally been adequate for these purposes, although we have negotiated additional credit facilities or completed debt and equity offerings as needed to allow us to complete acquisitions.

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 2022 and drew on our revolving credit facility to fund our operations.

This cash usage reversed in the second quarter as the seasonality of our businesses peaked and generated significant cash to fund our operations.

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

This cash usage typically reverses in the second quarter as the seasonality of our businesses peak.

We expect historical seasonal patterns to continue and the second quarter of 2022 to generate significant cash to fund our operations.

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).

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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.

We completed the Pleatco acquisition on October 18, 2021 for total consideration of approximately $255.0 million in cash, subject to customary adjustments.

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

Summary of Cash Flows

Nine months ended

In millions September 30,

2021 September 30,

Three months ended

In millions March 31,

2022 March 31,

Net cash provided by (used for):

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Operating activities

The $540.4 million in net cash provided by operating activities of continuing operations in the first nine months of 2021 primarily reflects $465.1 million of net income from continuing operations, net of non-cash depreciation and amortization.

Additionally, the Company had a cash inflow of $64.3 million as a result of changes in net working capital, primarily the result of increased sales and demand leading to higher accrued rebates and incentives, accounts payables, accounts receivable and inventory balances.

The $500.8 million in net cash provided by operating activities of continuing operations in the first nine months of 2020 primarily reflects $313.2 million of net income from continuing operations, net of non-cash depreciation and amortization.

Additionally, the Company had a cash inflow of $165.6 million as a result of changes in net working capital, primarily the result of collections on accounts receivables from our early buy programs in the pool business that became due in the second quarter.

The $131.5 million in net cash used for operating activities of continuing operations in the first three months of 2022 primarily reflects $138.1 million of net income from continuing operations, net of non-cash depreciation and definite-lived intangible amortization.

Additionally, we had a cash outflow of $274.2 million as a result of changes in net working capital, primarily the result of increased accounts receivable and inventory balances along with lower employee compensation and benefits accruals compared to December 31, 2021.

The change in the accounts receivable balance is due to higher sales during the last month of the first quarter and timing of collections.

The increased inventory balance is related to additional purchases to support existing orders.

The lower employee compensation and benefits accruals are attributable to the payment of employee incentive compensation in the first quarter.

The $18.8 million in net cash used for operating activities of continuing operations in the first three months of 2021 primarily reflects $150.9 million of net income from continuing operations, net of non-cash depreciation and definite-lived intangible amortization.

Additionally, we had a cash outflow of $173.8 million as a result of changes in net working capital, primarily the result of increased accounts receivables due to strong demand in the pool business and early buy programs in anticipation of our distributors’ peak sales season in the second and third quarters.

Investing activities

Net cash used for investing activities in the first nine months of 2021 primarily reflects net cash paid of $82.8 million for the Ken’s Beverage, Inc.

acquisition, net of cash acquired, and capital expenditures of $38.6 million.

Net cash used for investing activities in the first nine months of 2020 primarily reflects capital expenditures of $44.4 million and cash paid for acquisitions in our Consumer Solutions reporting segment of $28.5 million, net of cash acquired.

Net cash used for investing activities in the first three months of 2022 primarily reflects capital expenditures of $17.7 million.

Net cash used for investing activities in the first three months of 2021 reflects capital expenditures of $13.2 million and proceeds from the sale of property and equipment of $3.4 million.

Financing activities

Net cash used for financing activities in the first nine months of 2021 primarily relates to the repayment of the 5.000% Senior Notes due in 2021 of $103.8 million, net repayments of revolving long-term debt of $36.1 million, $100.0 million of share repurchases, dividend payments of $99.9 million and payments upon the maturity of cross currency swaps of $14.7 million.

Net cash used for financing activities in the first nine months of 2020 primarily relates to net repayments of commercial paper and revolving long-term debt of $151.3 million, the repayment of the 3.625% Senior Notes due in 2020 of $74.0 million, $115.2 million of share repurchases and dividend payments of $95.4 million.

Net cash provided by financing activities in the first three months of 2022 primarily relates to net borrowings of revolving long-term debt of $199.6 million, partially offset by dividend payments of $34.7 million and payments of debt issuance costs of $5.8 million.

Net cash provided by financing activities in the first three months of 2021 primarily relates to net borrowings of revolving long-term debt of $92.4 million, partially offset by $9.6 million of share repurchases, dividend payments of $33.3 million and payments upon the maturity of cross currency swaps of $14.7 million.

Free Cash Flow

6 unchanged sentences

The following table is a reconciliation of free cash flow:

Nine months ended

In millions September 30,

2021 September 30,

Net cash provided by operating activities of continuing operations $ 540.4 $ 500.8

Three months ended

In millions March 31,

2022 March 31,

Net cash used for operating activities of continuing operations $ (131.5) $ (18.8)

Capital expenditures of continuing operations (17.7) (13.2)

6 unchanged sentences

are parties to a credit agreement (the “Senior Credit Facility”), with Pentair as guarantor and PFSA and Pentair, Inc.

as borrowers, providing for a $900.0 million senior unsecured revolving credit facility.

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.

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 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.

The Senior Credit Facility provides for the extension of term loans in an aggregate amount of $200.0 million (the “Term Loans”).

We have utilized the term loan extension since December 2019.

The Term Loans are in addition to the revolving 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 revolving 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 September 30, 2021 and December 31, 2020.

In 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 and continued to use the revolving credit facility, along with cash generated from operations, to fund our general operations.

As of September 30, 2021, total availability under the Senior Credit Facility was $900.0 million.

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.

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.

As of September 30, 2021, we were in compliance with all financial covenants in our debt agreements, and there was no material uncertainty about our ongoing ability to meet these covenants.

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 September 30, 2021.

As of March 31, 2022, total availability under the Senior Credit Facility was $505.0 million.

In addition, PFSA has the option to request to increase the revolving credit facility and/or enter into one or more additional tranches of term loans in an aggregate amount of up to $300.0 million, subject to customary conditions, including the commitment of the participating lenders.

In connection with entering into the definitive agreement to acquire Manitowoc Ice, Pentair and PFSA entered into a commitment letter, dated March 2, 2022 (the “Commitment Letter”), pursuant to which, among other things, the lenders have committed to provide debt financing for the acquisition of Manitowoc Ice, consisting of a senior unsecured bridge facility of

$1.6 billion (the “Bridge Facility”), on the terms and subject to the conditions set forth in the Commitment Letter.

The Bridge Facility will be subject to mandatory reduction and prepayment for 100% of the net cash proceeds from the issuance of any debt and other of our securities, other specified events and the Term Loan Facility (as defined below), subject to certain exceptions.

On March 24, 2022, in contemplation of the acquisition of Manitowoc Ice, Pentair and PFSA entered into a Loan Agreement among PFSA, as borrower, Pentair, as guarantor, and the lenders and agents party thereto, providing for a five-year $600.0 million senior unsecured term loan facility (the “Term Loan Facility”).

PFSA and Pentair intend to borrow the full $600.0 million aggregate principal amount available under the Term Loan Facility to finance a portion of the purchase price in the Manitowoc Ice acquisition and to pay related fees and expenses.

The aggregate principal amount of the commitments under the Term Loan Facility have replaced a corresponding amount of the commitments in respect of the Bridge Facility in accordance with the terms of the Commitment Letter.

As a result, the remaining commitment under the Bridge Facility was $1.0 billion as of March 31, 2022.

No borrowings or loans were outstanding under the Bridge Facility or the Term Loan Facility as of March 31, 2022.

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

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

For purposes of the Leverage Ratio, the Senior Credit Facility and the Term Loan Facility provide for the calculation of EBITDA giving pro forma effect to certain acquisitions, divestitures and liquidations during the period to which such calculation relates.

In addition to the Senior Credit Facility and the Term Loan Facility, we have various other credit facilities with an aggregate availability of $21.5 million, of which there were no outstanding borrowings at March 31, 2022.

Borrowings under these credit facilities bear interest at variable rates.

We have $88.3 million fixed rate senior notes maturing in the next twelve months.

We classified this debt as long-term as of September 30, 2021 as we have the intent and ability to refinance such obligation on a long-term basis under the Senior Credit Facility.

As of September 30, 2021, we had $60.2 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 classified this debt as long-term as of March 31, 2022 as we have the intent and ability to refinance such obligation on a long-term basis under the Senior Credit Facility.

As of March 31, 2022, we had $65.1 million of cash held in certain countries in which the ability to repatriate is limited due to local regulations or significant potential tax consequences.

Share repurchases

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 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”).

In December 2020, the Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $750.0 million.

The authorization expires on December 31, 2025.

The 2020 Authorization supplemented the 2018 Authorization.

During the nine months ended September 30, 2021, we repurchased 1.4 million of our ordinary shares for $100.0 million, of which 0.8 million shares, or $50.0 million, and 0.6 million shares, or $50.0 million, were repurchased pursuant to the 2018 Authorization and 2020 Authorization, respectively.

As of September 30, 2021, we had $700.0 million available for share repurchases under the 2020 Authorization.

During the three months ended March 31, 2022, no ordinary shares were repurchased.

As of March 31, 2022, we had $650.0 million available for share repurchases under this authorization.

Dividends payable

On September 21, 2021, the Board of Directors declared a quarterly cash dividend of $0.20, payable on November 5, 2021 to shareholders of record at the close of business on October 22, 2021.

As a result, the balance of dividends payable included in Other current liabilities on our Condensed Consolidated Balance Sheets was $33.1 million at September 30, 2021, compared to $33.2 million at December 31, 2020.

We paid dividends in the first nine months of 2021 of $99.9 million, or $0.60 per ordinary share compared with $95.4 million, or $0.57 per ordinary share, in the prior year period.

On February 21, 2022, the Board of Directors declared a quarterly cash dividend of $0.21, payable on May 6, 2022 to shareholders of record at the close of business on April 22, 2022.

As a result, the balance of dividends payable included in Other current liabilities on our Condensed Consolidated Balance Sheets was $34.7 million at March 31, 2022, compared to $33.0 million at December 31, 2021.

We paid dividends in the first three months of 2022 of $34.7 million, or $0.21 per ordinary share compared with $33.3 million, or $0.20 per ordinary share, in the prior year period.

Under Irish law, the payment of future cash dividends and repurchases of shares may be paid only out of Pentair plc’s “distributable reserves” on its statutory balance sheet.

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The Subsidiary Issuer’s principal source of cash flow is interest income from its subsidiaries.

None of the subsidiaries of the Parent Company Guarantor or the Subsidiary Issuer is under any direct obligation to pay or otherwise fund amounts due on the senior notes or the guarantees, whether in the form of dividends, distributions, loans or other payments.

Neither the subsidiaries of the Parent Company Guarantor nor the Subsidiary Issuer is under any direct obligation to pay or otherwise fund amounts due on the senior notes or the guarantees, whether in the form of dividends, distributions, loans or other payments.

In addition, there may be statutory and regulatory limitations on the payment of dividends from certain subsidiaries of the Parent Company Guarantor or the Subsidiary Issuer.

If such subsidiaries are unable to transfer funds to the Parent Company Guarantor or the Subsidiary Issuer and sufficient cash or liquidity is not otherwise available, the Parent Company Guarantor or the Subsidiary Issuer may not be able to make principal and interest payments on their outstanding debt, including the senior notes or the guarantees.

The following table presents summarized financial information as of September 30, 2021 and December 31, 2020 for the Parent Company Guarantor and Subsidiary Issuer on a combined basis after elimination of (i) intercompany transactions and balances among the guarantors and issuer and (ii) equity in earnings from and investments in any subsidiary that is a non-Guarantor or issuer.

In millions September 30,

The following table presents summarized financial information as of March 31, 2022 and December 31, 2021 for the Parent Company Guarantor and Subsidiary Issuer on a combined basis after elimination of (i) intercompany transactions and balances among the guarantors and issuer and (ii) equity in earnings from and investments in any subsidiary that is a non-Guarantor or issuer.

In millions March 31,

2022 December 31,

5 unchanged sentences

1,386.8 1,193.6

(1) Includes assets due from non-guarantor subsidiaries of $7.1 million and $2.8 million as of September 30, 2021 and December 31, 2020, respectively.

(2) Includes assets due from non-guarantor subsidiaries of $949.5 million and $1,028.5 million as of September 30, 2021 and December 31, 2020, respectively.

(3) Includes liabilities due to non-guarantor subsidiaries of $662.7 million and $556.6 million as of September 30, 2021 and December 31, 2020, respectively.

(4) Includes liabilities due to non-guarantor subsidiaries of $283.6 million and $495.2 million as of September 30, 2021 and December 31, 2020, respectively.

(1) No assets due from non-guarantor subsidiaries were included as of March 31, 2022 and December 31, 2021, respectively.

(2) Includes assets due from non-guarantor subsidiaries of $1,198.7 million and $1,202.5 million as of March 31, 2022 and December 31, 2021, respectively.

(3) Includes liabilities due to non-guarantor subsidiaries of $640.6 million and $792.1 million as of March 31, 2022 and December 31, 2021, respectively.

(4) Includes liabilities due to non-guarantor subsidiaries of $273.0 million and $276.8 million as of March 31, 2022 and December 31, 2021, respectively.

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

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Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates.

In our 2020 Annual Report on Form 10-K, we identified the critical accounting policies that affect our more significant estimates and assumptions used in preparing our consolidated financial statements.

In our Annual Report on Form 10-K for the year ended December 31, 2021, we identified the critical accounting policies that affect our more significant estimates and assumptions used in preparing our consolidated financial statements.

There have been no material changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk during the quarter ended September 30, 2021.

For additional information refer to Item 7A of our 2020 Annual Report on Form 10-K.

There have been no material changes in our market risk during the quarter ended March 31, 2022.

For additional information refer to Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2021.

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-Q

Item 2. Management’s Discussion and Analysis