What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-26 compared with 2022-04-21 · 182 added, 114 removed, 242 unchanged (55% of the section changed)

6 unchanged sentences

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 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;

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

our ability to integrate the Manitowoc Ice acquisition successfully;

31 unchanged sentences

Consumer Solutions and Industrial & Flow Technologies.

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

For the first six 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:

11 unchanged sentences

(“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.

We expect to fund the purchase price for the acquisition with borrowings under our term loan facility and net proceeds from the issuance of our 2032 senior notes, together with cash on hand and/or borrowings under our revolving credit facility.

We expect to close our Manitowoc Ice acquisition on or around July 28, 2022, subject to customary closing conditions set forth in the definitive agreement.

Effective January 1, 2023, Pentair will move to three reporting segments to reflect how we expect to manage our business beginning in 2023.

As a result of this segment change, the Consumer Solutions segment will be divided into a Pool segment and a Water Solutions segment.

Our new Water Solutions segment will include Manitowoc Ice, assuming the successful completion of the acquisition on or around July 28, 2022.

The Industrial & Flow Technologies segment will remain the same.

COVID-19 Pandemic Update

1 unchanged sentence

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.

During the first six months 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.

6 unchanged sentences

Key Trends and Uncertainties Regarding Our Existing Business

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:

The following trends and uncertainties affected our financial performance in the first six 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.

1 unchanged sentence

See further discussion above under “ COVID-19 Pandemic Update” for key trends and uncertainties with regard to the COVID-19 pandemic.

• 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.

• During 2021 and the first six 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.

1 unchanged sentence

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

• 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.

• During the first six 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.

• During the first six 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.

• At the end of the second quarter of 2022, our backlog, primarily in our Consumer Solutions segment, decreased compared to the backlog at the end of 2021 as shipments outpaced new orders during the period as customers balanced the need to place new orders with market demand and channel inventory levels.

This downward trend may continue throughout the remainder of 2022 as we expect backlog to return to more historical levels.

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

• Integration of Manitowoc Ice’s operations with our existing operations;

• 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 March 31, 2022 and March 31, 2021 were as follows:

The consolidated results of operations for the three months ended June 30, 2022 and 2021 were as follows:

Three months ended

In millions March 31,

2022 March 31,

In millions June 30,

2022 June 30,

Change % / Point

4 unchanged sentences

33.8 % 36.2 % (2.4) pts

Selling, general and administrative

145.6 158.2 (12.6) (8.0) %

% of net sales

13.7 % 16.8 % (3.1) pts

Research and development

23.1 21.0 2.1 10.0 %

% of net sales 2.2 % 2.2 % — pts

Operating income 190.8 161.8 29.0 17.9 %

% of net sales 17.9 % 17.2 % 0.7 pts

Other expense 0.1 0.3 (0.2) N.M.

Net interest expense 9.2 3.8 5.4 142.1 %

Income from continuing operations before income taxes 181.5 157.7 23.8 15.1 %

Provision for income taxes

28.5 25.1 3.4 13.5 %

Effective tax rate 15.7 % 15.9 % (0.2) pts

Not Meaningful

The consolidated results of operations for the six months ended June 30, 2022 and June 30, 2021 were as follows:

Six months ended

In millions June 30,

2022 June 30,

Change % / Point

Net sales $ 2,063.8 $ 1,807.0 $ 256.8 14.2 %

Cost of goods sold 1,372.1 1,150.8 221.3 19.2 %

Gross profit 691.7 656.2 35.5 5.4 %

% of net sales

33.5 % 36.3 % (2.8) pts

Selling, general and administrative expenses

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

Three months ended March 31, 2022

over the prior year period

Three months ended June 30, 2022 Six months ended June 30, 2022

over the prior year period over the prior year period

Volume (2.2) % — %

Price 14.5 12.4

Core growth 12.3 12.4

1 unchanged sentence

Currency (2.2) (1.9)

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

Total 13.1 % 14.2 %

The 13.1 and 14.2 percent increases in net sales in the second quarter and first half, respectively, of 2022 from 2021 were 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:

• volume increase in our Consumer Solutions segment mainly driven by our pool business in the first half of 2022;

• volume increase in our industrial solutions business within our Industrial & Flow Technologies segment in the second quarter and first half of 2022;

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

These increases were partially offset by:

• volume decrease in our residential and irrigation flow and commercial and infrastructure flow businesses within our Industrial & Flow Technologies segment in the second quarter and first half of 2022;

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

The 2.4 and 2.8 percentage point decreases in gross profit as a percentage of net sales in the second quarter and first half, respectively, of 2022 from 2021 were primarily driven by:

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

1 unchanged sentence

• 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.

These decreases were partially offset by:

• increases in selling prices to mitigate impacts of inflation.

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

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;

The 3.1 and 1.3 percentage point decreases in SG&A as a percentage of net sales in the second quarter and first half, respectively, of 2022 from 2021 were primarily driven by:

• higher employee incentive and stock compensation expense in 2021 compared to 2022 as the result of stronger financial performance in 2021 than initially forecasted;

• insurance proceeds received in the second quarter of 2022 as recovery of previously incurred expenses;

• a gain on sale of fixed assets completed in the second quarter of 2022.

These decreases were partially offset by:

• transformation costs of $5.2 million in the second quarter of 2022, compared to $1.9 million in the second quarter of 2021, and $10.7 million in the first half of 2022, compared to $1.9 million in the first half of 2021;

• deal-related costs and expenses of $1.6 million in the second quarter of 2022, compared to $1.0 million in the same period of the prior year, and $8.0 million in the first half of 2022, compared to $1.7 million in the first half of 2021;

• 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 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.

The 142.1 and 67.4 percent increases in net interest expense in the second quarter and first half, respectively, of 2022 from 2021 were primarily driven by:

• the amortization of debt issuance costs of $5.1 million during the second quarter of 2022 and $7.7 million during the first half of 2022 related to financing commitments for a bridge loan facility established in connection with the definitive agreement to purchase Manitowoc Ice;

• increased variable rate lending compared to the same periods of the prior year.

These increases were partially offset by:

• 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 second quarter and first half of 2022.

Provision for income taxes

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.

The 0.2% percentage point decrease in the effective tax rate in the second quarter of 2022 from 2021 was primarily driven b y:

• the favorable mix of global earnings.

The 0.9 percentage point increase in the effective tax rate in the first half of 2022 from 2021 was primarily driven b y:

• the favorable impact of discrete items that occurred during the first half of 2021 that did not occur in 2022.

This increase was partially offset by:

• the favorable mix of global earnings.

SEGMENT RESULTS OF OPERATIONS

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

Three months ended

In millions March 31,

2022 March 31,

Three months ended Six months ended

In millions June 30,

2022 June 30,

2021 % / Point Change June 30,

2022 June 30,

2021 % / Point Change

1 unchanged sentence

Segment income 169.2 143.4 18.0 % 307.7 274.4 12.1 %

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

% of net sales 24.7 % 24.9 % (0.2) pts 23.2 % 25.0 % (1.8) pts

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

Three months ended March 31, 2022

over the prior year period

Three months ended June 30, 2022 Six months ended June 30, 2022

over the prior year period over the prior year period

Volume (1.8) % 1.4 %

Price 17.2 14.6

Core growth 15.4 16.0

1 unchanged sentence

Currency (1.2) (0.9)

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

Total 18.9 % 20.9 %

The 18.9 and 20.9 percent increases in net sales for Consumer Solutions in the second quarter and first half, respectively, of 2022 from 2021 were 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.

• increased sales volume in the first half of 2022 in our pool business as a result of an increase in available capacity.

These increases were partially offset by:

• decreased sales volume in our residential businesses in the second quarter and first half of 2022 compared to the prior year;

• unfavorable foreign currency effects compared to the second quarter and first half 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 March 31, 2022

over the prior year period

Growth/Price/Acquisition 8.1 pts

Three months ended June 30, 2022 Six months ended June 30, 2022

over the prior year period over the prior year period

Growth/Price/Acquisition 12.8 pts 10.5 pts

Inflation (11.5) (11.8)

Productivity (1.5) (0.5)

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:

Total (0.2) pts (1.8) pts

The 0.2 and 1.8 percentage point decreases in segment income for Consumer Solutions as a percentage of net sales in the second quarter and first half, respectively, of 2022 from 2021 were 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:

• decreased productivity in our residential water treatment business due to decreased sales volume in the second quarter and first half of 2022 compared to the prior year.

These decreases were partially offset by:

• 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

In millions March 31,

2022 March 31,

Three months ended Six months ended

In millions June 30,

2022 June 30,

2021 % / Point Change June 30,

2022 June 30,

2021 % / Point Change

1 unchanged sentence

Segment income 59.1 57.1 3.5 % 111.3 107.1 3.9 %

% of net sales 14.6 % 14.5 % 0.1 pts

% of net sales 15.7 % 15.7 % — pts 15.1 % 15.1 % — pts

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

Three months ended March 31, 2022

over the prior year period

Three months ended June 30, 2022 Six months ended June 30, 2022

over the prior year period over the prior year period

Volume (2.7) % (2.2) %

Price 10.1 8.9

Core growth 7.4 6.7

1 unchanged sentence

Currency (4.1) (3.2)

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

Total 3.7 % 3.9 %

The 3.7 and 3.9 percent increases in net sales for Industrial & Flow Technologies in the second quarter and first half, respectively, of 2022 from 2021 were 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.

• increased sales volume in our industrial solutions business due to continued recovery in our project sales;

• increased sales due to the acquisition of Pleatco in 2021.

These increases were partially offset by:

• decreased sales volume in our residential and irrigation flow and commercial and infrastructure flow businesses in the second quarter and first half of 2022;

• unfavorable foreign currency effects compared to the second quarter and first half 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 March 31, 2022

over the prior year period

Growth/Price/Acquisition 7.6 pts

Three months ended June 30, 2022 Six months ended June 30, 2022

over the prior year period over the prior year period

Growth/Price/Acquisition 8.9 pts 8.2 pts

Currency (0.1) (0.1)

Inflation (7.7) (7.3)

Productivity (1.1) (0.8)

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:

Total — pts — pts

Segment income for Industrial & Flow Technologies as a percentage of net sales was flat in both the second quarter and first half of 2022 from 2021, 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;

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

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

• decreased productivity due to supply chain and plant inefficiencies, partially offset by insurance proceeds and gain on sale of fixed assets.

BACKLOG OF ORDERS BY SEGMENT

In millions June 30,

2022 December 31,

2021 $ Change % Change

Consumer Solutions $ 752.1 $ 1,073.7 $ (321.6) (30.0) %

Industrial & Flow Technologies 509.5 446.3 63.2 14.2 %

Total $ 1,261.6 $ 1,520.0 $ (258.4) (17.0) %

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 2022 net sales.

The decrease in backlog in our Consumer Solutions segment from December 31, 2021 to June 30, 2022 was primarily due to shipments outpacing new orders during the period as customers balanced the need to place new orders with market demand and channel inventory levels.

LIQUIDITY AND CAPITAL RESOURCES

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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 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.

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 follows warm weather trends and historically has been at seasonal highs from April to August.

4 unchanged sentences

Summary of Cash Flows

Three months ended

In millions March 31,

2022 March 31,

Six months ended

In millions June 30,

2022 June 30,

Net cash provided by (used for):

3 unchanged sentences

Operating activities

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 $176.3 million in net cash provided by operating activities of continuing operations in the first six months of 2022 primarily reflects $310.9 million of net income from continuing operations, net of non-cash depreciation and definite-lived intangible amortization.

Additionally, we had a cash outflow of $129.7 million as a result of changes in net working capital, primarily due to increased inventory balances and lower employee compensation and benefits accruals compared to December 31, 2021.

The inventory balance is higher due to inflationary impacts and continued supply chain inefficiencies.

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.

The $361.0 million in net cash provided by operating activities of continuing operations in the first six months of 2021 primarily reflects $302.6 million of net income from continuing operations, net of non-cash depreciation and definite-lived intangible amortization.

Additionally, we had a cash inflow of $47.2 million as a result of changes in net working capital, primarily due to increased accounts receivables on higher sales, increased accounts payables resulting from inventory purchases to meet demand and increased sales leading to higher accrued rebates and incentives.

Investing activities

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.

Net cash used for investing activities in the first six months of 2022 primarily reflects capital expenditures of $40.1 million, partially offset by cash received upon the settlement of net investment hedges of $8.8 million.

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

acquisition prior to working capital true-ups and capital expenditures of $24.3 million.

Financing activities

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.

Net cash used for financing activities in the first six months of 2022 primarily relates to dividend payments of $69.5 million, share repurchases of $50.0 million and payments of debt issuance costs of $8.9 million, partially offset by net borrowings of revolving long-term debt of $19.8 million,

Net cash used for financing activities in the first six months of 2021 primarily relates to the repayment of $103.8 million of senior fixed notes, net borrowings of revolving long-term debt of $20.0 million, share repurchases of $50.0 million, dividend payments of $66.7 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:

Three months ended

In millions March 31,

2022 March 31,

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

Six months ended

In millions June 30,

2022 June 30,

Net cash provided by operating activities of continuing operations $ 176.3 $ 361.0

Capital expenditures of continuing operations (40.1) (24.3)

10 unchanged sentences

The applicable margin is based on, at PFSA’s election, Pentair’s leverage level or PFSA’s public credit rating.

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

As of June 30, 2022, total availability under the Senior Credit Facility was $685.0 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.

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

On June 30, 2022, the Term Loan Facility was amended to increase the facility by $400.0 million to an aggregate principal amount of $1.0 billion.

PFSA and Pentair intend to borrow the full $1.0 billion 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.

As a result, the remaining commitment under the Bridge Facility was $600.0 million as of June 30, 2022.

No borrowings or loans were outstanding under the Bridge Facility or the Term Loan Facility as of June 30, 2022.

On July 8, 2022, in contemplation of the acquisition of Manitowoc Ice, Pentair, as guarantor, and PFSA, as issuer, completed a public offering of $400.0 million aggregate principal amount of 5.900% Senior Notes due 2032 (“2032 Senior Notes”).

PFSA and Pentair intend to use the net proceeds from the issuance of the 2032 Senior Notes to finance a portion of the purchase price in the Manitowoc Ice acquisition and to pay related fees and expenses.

The net proceeds from the issuance of the 2032 Senior Notes have replaced a corresponding amount of the commitments in respect of the Bridge Facility in accordance with the terms of the Commitment Letter.

On July 8, 2022, Pentair and PFSA voluntarily eliminated the remaining $200.0 million of commitments under the Bridge Facility.

As a result, there are no remaining commitments under the Bridge Facility.

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

1 unchanged sentence

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 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.

We classified this debt as long-term as of June 30, 2022 as we have the intent and ability to refinance such obligation on a long-term basis under the Senior Credit Facility.

As of June 30, 2022, we had $65.0 million of cash held in certain countries in which the ability to repatriate is limited due to local regulations or significant potential tax consequences.

Share repurchases

1 unchanged sentence

The authorization expires on December 31, 2025.

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.

During the three and six months ended June 30, 2022, we repurchased 0.9 million of our ordinary shares for $50.0 million.

As of June 30, 2022, we had $600.0 million available for share repurchases under this authorization.

Dividends payable

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.

On May 16, 2022, the Board of Directors declared a quarterly cash dividend of $0.21, payable on August 5, 2022 to shareholders of record at the close of business on July 22, 2022.

As a result, the balance of dividends payable included in Other current liabilities on our Condensed Consolidated Balance Sheets was $34.5 million at June 30, 2022, compared to $33.0 million at December 31, 2021.

We paid dividends in the first six months of 2022 of $69.5 million, or $0.42 per ordinary share compared with $66.7 million, or $0.40 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.

14 unchanged sentences

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 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,

The following table presents summarized financial information as of June 30, 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 June 30,

2022 December 31,

5 unchanged sentences

1,192.0 1,193.6

(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.

(1) No assets due from non-guarantor subsidiaries were included as of June 30, 2022 and December 31, 2021, respectively.

(2) Includes assets due from non-guarantor subsidiaries of $1,183.4 million and $1,202.5 million as of June 30, 2022 and December 31, 2021, respectively.

(3) Includes liabilities due to non-guarantor subsidiaries of $904.2 million and $792.1 million as of June 30, 2022 and December 31, 2021, respectively.

(4) Includes liabilities due to non-guarantor subsidiaries of $257.7 million and $276.8 million as of June 30, 2022 and December 31, 2021, respectively.

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

5 unchanged sentences

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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