What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-21 compared with 2022-02-22 · 223 added, 124 removed, 1130 unchanged (23% of the section changed)

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Based on this assessment, management believes that, as of December 31, 2022, the Company’s internal control over financial reporting was effective based on those criteria.

The Company completed its acquisition of Welbilt’s Manitowoc Ice business (“Manitowoc Ice”) on July 28, 2022.

The Company is continuing to integrate Manitowoc Ice into its internal control over financial reporting, and management’s evaluation of the effectiveness of the Company’s internal control over financial reporting excluded Manitowoc Ice as of December 31, 2022, as permitted by guidance issued by the Securities and Exchange Commission.

Manitowoc Ice accounted for approximately 2% of total assets, excluding acquired goodwill and identifiable intangible assets which are included within the scope of management’s assessment, and 4% of total net sales included within the consolidated financial statements of Pentair plc and its subsidiaries as of and for the fiscal year ended December 31, 2022.

Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2022.

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 21, 2023, expressed an unqualified opinion on those financial statements.

As described in Management’s Report on Internal Control over Financial Reporting , management excluded from its assessment the internal control over financial reporting at Manitowoc Ice, which was acquired on July 28, 2022, and whose financial statements constitute approximately 2% of total assets (excluding acquired goodwill and identifiable intangible assets which are included within the scope of management’s assessment) and 4% of total net sales of the consolidated financial statement amounts as of and for the year ended December 31, 2022.

Accordingly, our audit did not include the internal control over financial reporting at Manitowoc Ice.

Basis for Opinion

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

Critical Audit Matter

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

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

Critical Audit Matters

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

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

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

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

▪ We evaluated the appropriateness and consistency of the financial statement disclosures, including judgments associated with unrecognized tax benefits that could increase or decrease within 12 months of the reporting date.

Acquisitions - Valuation of Manitowoc Ice Acquired Customer Relationship Intangible Asset — Refer to Note 2 to the financial statements

Critical Audit Matter Description

On July 28, 2022, the Company completed the acquisition of Welbilt Inc.’s Manitowoc Ice business (“Manitowoc Ice”) for consideration paid of $1.6 billion.

The Company accounted for the acquisition under the acquisition method of accounting for business combinations.

Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including a customer relationship intangible asset of $588.4 million.

Management estimated the fair value of the customer relationship intangible asset using the multi-period excess earnings method, which is a specific discounted cash flow method.

The fair value determination of the customer relationship intangible asset required management to make significant estimates and assumptions related to future cash flows, including margin and revenue growth assumptions, and the selection of the discount and customer attrition rates.

We identified the valuation of the Manitowoc Ice customer relationship intangible asset as a critical audit matter because of the significant estimates and assumptions management made to estimate the fair value of this asset.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s forecasts of future cash flows, including margin and revenue growth assumptions, and the selection of the discount and customer attrition rates for the customer relationship intangible asset.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasts of future cash flows, including the margin and revenue growth rates, and the selection of the discount and customer attrition rates for the acquired customer relationship intangible asset included the following, among others:

• We tested the effectiveness of controls over the valuation of the acquired customer relationship intangible asset, including management’s controls over forecasts of future cash flows, including margin and revenue growth assumptions, and the selection of the discount and customer attrition rates.

• We assessed the reasonableness of management’s forecasts of future cash flows, including margin and revenue growth assumptions, by comparing the projections to historical results for Manitowoc Ice, certain peer companies’ historical results, and industry reports.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) the discount and customer attrition rates by:

• Testing the source information underlying the determination of the discount and customer attrition rates.

• Comparing the selected customer attrition rate to the historical customer attrition rate observed by Manitowoc Ice.

• Testing the mathematical accuracy of the discount and customer attrition rate calculations.

• Developing a range of independent estimates and comparing those to the discount rate selected by management

/s/ Deloitte & Touche LLP

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Share-based compensation 24.9 29.8 20.3

Asset impairment — — 21.2

Pension and other post-retirement expense 2.8 12.2 1.9

Asset impairment and write-offs 25.6 — 2.7

Amortization of bridge financing debt issuance costs 9.0 — —

Pension and other post-retirement (income) expense ( 12.2 ) 2.8 12.2

Pension and other post-retirement contributions ( 8.8 ) ( 9.4 ) ( 8.4 )

(Gain) loss on sale of assets ( 2.3 ) 0.7 0.3

Changes in assets and liabilities, net of effects of business acquisitions

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Net cash provided by operating activities of continuing operations 364.3 613.6 574.2

Net cash (used for) provided by operating activities of discontinued operations ( 0.4 ) ( 0.6 ) 7.8

Net cash used for operating activities of discontinued operations ( 1.0 ) ( 0.4 ) ( 0.6 )

Net cash provided by operating activities 363.3 613.2 573.6

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Acquisitions, net of cash acquired ( 1,580.9 ) ( 338.5 ) ( 58.0 )

Settlement of net investment hedges 78.9 — —

Other 0.3 2.7 2.2

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Repayment of long-term debt ( 88.3 ) ( 103.8 ) ( 74.0 )

Debt issuance costs ( 15.8 ) ( 2.3 ) —

Shares issued to employees, net of shares withheld ( 2.7 ) 22.2 32.9

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Dividends paid ( 138.6 ) ( 133.0 ) ( 127.1 )

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

Other ( 1.8 ) — ( 6.9 )

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

Receipts (payments) upon the settlement of cross currency swaps 12.3 ( 14.7 ) —

Net cash provided by (used for) financing activities 1,232.7 ( 222.2 ) ( 435.9 )

Effect of exchange rate changes on cash and cash equivalents 1.2 12.1 ( 20.2 )

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Net income — — — 553.0 — 553.0

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

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

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

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Basis of presentation

The accompanying consolidated financial statements include the accounts of Pentair and all subsidiaries, both the United States (“U.S.”) and non-U.S., which we control.

The accompanying consolidated financial statements include the accounts of Pentair plc, its wholly-owned subsidiaries and entities for which the Company has a controlling financial interest.

Intercompany accounts and transactions have been eliminated.

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The consolidated financial statements have been prepared in U.S.

dollars (“USD”) and in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

dollars (“USD”) and in accordance with accounting principles generally accepted in the United States (“U.S.”) (“U.S.

Our fiscal year ends on December 31.

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Use of estimates

The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The preparation of our consolidated financial statements in conformity with U.S.

GAAP requires us to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

These estimates include our accounting for valuation of goodwill and indefinite lived intangible assets, estimated losses on accounts receivable, estimated realizable value on excess and obsolete inventory, percentage of completion revenue recognition, assets acquired and liabilities assumed in acquisitions, estimated selling proceeds from assets held for sale, contingent liabilities, income taxes and pension and other post-retirement benefits.

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Contract liabilities 58.1 39.4 18.7 47.5 %

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

Net contract assets (liabilities) $ ( 9.7 ) $ 9.4 $ ( 19.1 ) ( 203.2 ) %

The $ 19.1 million decrease in net contract assets from December 31, 2021 to December 31, 2022 was primarily the result of timing of milestone payments.

Approximately 90 % of our contract liabilities at December 31, 2021 were recognized in revenue during the twelve months ended December 31, 2022.

There were no impairment losses recognized on our contract assets for the twelve months ended December 31, 2021 and December 31, 2020.

There were $ 1.1 million of impairment losses recognized on our net contract liabilities for the twelve months ended December 31, 2022 as a result of our exit of business activity and sales in Russia.

There were no impairment losses recognized on our net contract assets for the twelve months ended December 31, 2021.

Practical expedients and exemptions

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Revenue by category

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

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

Refer to Note 14 for revenue disaggregated by segment.

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(3) Net sales in Ireland, for each of the years presented, were not material.

Vertical net sales information was as follows:

Vertical market net sales information was as follows:

Years ended December 31

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Ending balance $ 10.8 $ 9.1 $ 8.4

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

Standards Update No.

(1) The bad debt benefit for the year-ended December 31, 2020 includes the positive impact related to the adoption of Accounting Standards Update No.

2016-13 “Financial Instruments-Credit Losses.”

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Machinery and equipment 3 to 15

Capitalized software 3 to 10

Significant improvements that add to productive capacity or extend the lives of properties are capitalized.

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The measurement of impairment requires us to estimate future cash flows and the fair value of long-lived assets.

We recorded no material long-lived asset impairment charges in 2021, 2020, or 2019.

We recorded $ 9.2 million of long-lived asset impairment charges in 2022 comprised of long-lived assets which were primarily written off as a result of restructuring actions and certain business exits announced in the fourth quarter of 2022.

No material long-lived asset impairment charges were recorded in 2021 or 2020.

Goodwill and identifiable intangible assets

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

As a result of the qualitative assessment performed during 2022 and 2021, it was determined that it was more likely than not that the fair value of the reporting units exceeded their respective carrying values.

Factors considered in the analysis included the 2020 discounted cash flow fair value assessment of the reporting units and the calculated excess fair value over carrying

Pentair plc and Subsidiaries

Notes to consolidated financial statements

During 2021, a qualitative assessment was performed.

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

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

amount, financial performance, forecasts and trends, market capitalization, regulatory and environmental issues, macro-economic conditions, industry and market considerations, raw material costs and management stability.

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

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

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

During 2020, a quantitative assessment was performed.

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

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

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

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

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

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

Identifiable intangible assets

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

There were no impairment charges recorded in any of the years presented for identifiable intangible assets.

An impairment charge of $ 2.7 million was recorded in 2022 related to the write-off of a proprietary technology intangible asset as a result of a business exit announced in the fourth quarter of 2022.

The impairment charge was recorded in Selling, general and administrative in our Consolidated Statements of Operations and Comprehensive Income.

No additional impairment charges were recognized for identifiable intangible assets in 2022.

No impairment charges were recorded for identifiable intangible assets in 2021 or 2020.

We use the asset and liability approach to account for income taxes.

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We recognize all derivatives, including those embedded in other contracts, as either assets or liabilities at fair value in our Consolidated Balance Sheets.

If the derivative is designated and is effective as a cash-flow hedge, the effective portion of changes in the fair value of the derivative are recorded in Accumulated other comprehensive income (loss) (“AOCI”) as a separate component of equity in the Consolidated Balance Sheets and are recognized in the Consolidated Statements of Operations and Comprehensive Income when the hedged item affects earnings.

If the derivative is designated and is effective as a cash-flow hedge, the effective portion of changes in the fair value of the derivative is recorded in Accumulated other comprehensive income (loss) (“AOCI”) as a separate component of equity in the Consolidated Balance Sheets and is recognized in the Consolidated Statements of Operations and Comprehensive Income when the hedged item affects earnings.

If the underlying hedged transaction ceases to exist or if the hedge becomes ineffective, all changes in fair value of the related derivatives that have not been settled are recognized in current earnings.

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

On July 28, 2022, as part of our Consumer Solutions reporting segment, we acquired the issued and outstanding equity securities of certain subsidiaries of Welbilt, Inc.

(“Welbilt”) and certain other assets, rights, and properties, and assumed certain liabilities, comprising Welbilt’s Manitowoc Ice business (“Manitowoc Ice”), for approximately $ 1.6 billion in cash.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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

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

Manitowoc Ice is a designer, manufacturer and distributor of commercial ice machines.

The acquisition of Manitowoc Ice allows us to enhance and deliver our total water management offerings to an expanded network of channel partners and customers.

The purchase price has been preliminarily allocated based on the estimated fair value of assets acquired and liabilities assumed at the date of the Manitowoc Ice acquisition.

The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation.

These changes will primarily relate to income tax-related items.

We expect the final purchase price allocation to be completed by the third quarter of 2023.

There can be no assurance that such finalization will not result in material changes from the preliminary purchase price allocation.

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

In millions As Originally Reported As Revised

Cash $ 33.8 $ 33.8

Accounts receivable 39.7 36.7

Inventories 70.8 66.5

Other current assets 3.9 3.9

Property, plant and equipment 21.6 21.6

Identifiable intangible assets 728.3 728.3

Goodwill 796.7 790.5

Other assets 1.8 1.8

Current liabilities ( 68.1 ) ( 66.5 )

Other liabilities ( 3.2 ) ( 3.3 )

Purchase price $ 1,625.3 $ 1,613.3

The excess of purchase price over tangible net assets and identified intangible assets acquired has been preliminarily allocated to goodwill in the amount of $ 790.5 million, all of which is expected to be deductible for income tax purposes.

Goodwill recognized from the Manitowoc Ice acquisition primarily reflects the future economic benefit resulting from synergies of our combined operations.

Identifiable intangible assets acquired as part of the Manitowoc Ice acquisition include $ 78.4 million of indefinite-lived trade name intangible assets, $ 588.4 million of definite-lived customer relationships with a weighted-average estimated useful life of 20 years, $ 47.1 million of definite-lived proprietary technology intangible assets with a weighted-average estimated useful life of 10 years and $ 14.4 million of other definite-lived intangible assets with a weighted-average estimated useful life of four months .

The fair values of trade names and proprietary technology acquired in the acquisition were determined using a relief-from-royalty method, and customer relationships and other definite-lived intangible assets acquired were determined using a multi-period excess earnings method.

These methods utilize unobservable inputs that are significant to these fair value measurements and thus classified as Level 3 of the fair value hierarchy described in Note 9.

For the year ended December 31, 2022, non-recurring expense related to the fair value adjustment to acquisition-date inventory of $ 5.8 million, transaction-related charges of $ 19.9 million, and acquisition-related bridge financing costs of $ 9.0 million are reflected in Cost of goods sold , Selling, general and administrative and Net interest expense , respectively, in the Consolidated Statements of Operations and Comprehensive Income.

Manitowoc Ice’s net sales and operating income for the period from the acquisition date to December 31, 2022 were $ 156.3 million and $ 12.2 million, respectively.

Manitowoc’s operating income includes $ 28.6 million of identifiable intangible asset amortization expense and $ 5.8 million of amortization of inventory fair market value step-up.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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

Years Ended December 31

In millions, except per share data 2022 2021

Pro forma net sales $ 4,328.6 $ 4,072.1

Pro forma net income from continuing operations 486.3 523.3

Pro forma earnings per ordinary share - continuing operations

Basic $ 2.95 $ 3.16

Diluted 2.94 3.12

The unaudited pro forma net income from continuing operations includes Manitowoc Ice’s identifiable intangible asset amortization expense of $ 34.1 million and $ 48.5 million for the years ended December 31, 2022 and 2021, respectively.

The unaudited pro forma net income from continuing operations for the year ended December 31, 2022 excludes the impact of $ 34.7 million of transaction-related charges, acquisition-related bridge financing costs and non-recurring expense related to the fair value adjustment to acquisition-date inventory.

The year ended December 31, 2021 was adjusted to include transaction-related charges and non-recurring expense related to the fair value adjustment to acquisition-date inventory.

The pro forma condensed consolidated financial information has been prepared for comparative purposes only and includes certain adjustments, as noted above.

The adjustments are estimates based on currently available information and actual amounts may differ materially from these estimates.

They do not reflect the effect of costs or synergies that would have been expected to result from the integration of the Manitowoc Ice acquisition.

The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the Manitowoc Ice acquisition occurred on January 1, 2021.

In October 2021, as part of both of our Consumer Solutions and Industrial & Flow Technologies reporting segments, we completed the acquisition of Pleatco Holdings, LLC and related entities for $ 256.9 million in cash, net of cash acquired and working capital true-ups.

The excess of purchase price over tangible net assets acquired has been allocated to goodwill in the amount of $ 140.6 million, $ 136.4 million of which is expected to be deductible for income tax purposes.

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

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

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

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

The pro forma impact of this acquisition is not material.

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

for $ 82.2 million in cash, net of cash acquired and working capital true-ups.

The excess of purchase price over tangible net assets acquired has been allocated to goodwill in the amount of $ 28.3 million, all of which is expected to be deductible for income tax purposes.

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

The pro forma impact of this acquisition is not material.

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

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

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

For Aquion, the excess of purchase price over tangible net assets and identified intangible assets acquired has been allocated to goodwill in the amount of $ 101.9 million, $ 4.6 million of which is expected to be deductible for income tax purposes.

Identifiable intangible assets acquired as part of the Aquion acquisition include $ 15.7 million of indefinite-lived trade name intangible assets and $ 78.8 million of definite-lived customer relationships with an estimated useful life of 15 years.

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

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

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Earnings Per Share

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

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Restructuring and Transformation Program

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The Transformation Program is structured in multiple phases and is expected to empower us to work more efficiently and optimize our business to better serve our customers while meeting our financial objectives.

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

During 2022, we initiated and continued execution of certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business, including the announcement of certain business exits within the residential business of our Consumer Solutions segment.

In addition, we executed certain initiatives in 2022 and 2021 associated with the Transformation Program.

Initiatives during the years ended December 31, 2022, 2021 and 2020 included a reduction in hourly and salaried headcount of approximately 625 employees, 75 employees and 175 employees, respectively.

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

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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

Years ended December 31

In millions 2022 2021 2020

Restructuring Initiatives

Severance and related costs $ 17.7 $ 7.0 $ 9.7

Asset impairment and write-offs (1)

Other restructuring costs (2)

Total restructuring costs 56.3 7.4 14.1

Transformation costs (2)

Transformation Program

Severance and related costs 3.4 — —

Other transformation costs (3)

Total transformation costs 27.2 11.7 —

Total restructuring and transformation costs $ 83.5 $ 19.1 $ 14.1

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

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

(1) Asset impairment and write-offs consist of inventory, long-lived assets and an identifiable intangible asset, which were impaired as a result of restructuring actions and certain business exits announced in the fourth quarter of 2022.

(2) Other restructuring costs primarily consist of certain accruals and various contract termination costs associated with business exits.

(3) Other transformation costs primarily consist of professional services and project management related costs.

Restructuring and transformation costs by reportable segment were as follows:

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89.3 ( 35.6 ) 53.7 46.3 ( 32.1 ) 14.2

Other 14.4 ( 14.4 ) — — — —

Total finite-life intangibles 1,204.6 ( 358.9 ) 845.7 605.1 ( 352.2 ) 252.9

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Identifiable intangible asset amortization expense in 2022, 2021 and 2020 was $ 52.5 million, $ 26.3 million and $ 28.4 million, respectively.

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

No impairment charges were recorded for identifiable intangible assets in 2021 or 2020.

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

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Accrued restructuring 23.2 10.7

Interest payable 32.9 10.1

Other current liabilities 112.3 107.6

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December 31, 2022 2022 2021

Revolving credit facilities 1.107 % 2026 $ 195.0 $ 36.1

Term loans 1.033 % 2024 200.0 200.0

Revolving credit facility (Senior Credit Facility) 6.053 % 2026 $ 320.0 $ 195.0

Term Loan Facility 5.463 % 2023 - 2027 1,000.0 —

Term loans (Senior Credit Facility) 5.861 % 2024 200.0 200.0

Senior notes - fixed rate (1)

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

as borrowers, which was amended and restated in December 2021, providing for a $ 900.0 million senior unsecured revolving credit facility and a $ 200.0 million senior unsecured term loan facility.

as borrowers, which was amended and restated in December 2021 and further amended in December 2022, providing for a $ 900.0 million senior unsecured revolving credit facility and a $ 200.0 million senior unsecured term loan facility.

The revolving credit facility has a maturity date of December 16, 2026 and the term loan facility has a maturity date of December 16, 2024.

Borrowings under the Senior Credit Facility bear interest at a rate equal to an adjusted base rate, the London interbank offered rate, the euro interbank offered rate or the central bank rate, plus, in each case, an applicable margin.

Borrowings under the Senior Credit Facility bear interest at a rate equal to an alternate base rate, adjusted term secured overnight financing rate, adjusted euro interbank offered rate, adjusted daily simple secured overnight financing rate or central bank rate, plus, in each case, an applicable margin.

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

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

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

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

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

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

Borrowings under these credit facilities bear interest at variable rates.

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

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

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

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

The Term Loan Facility has a maturity date of July 28, 2027, with required quarterly installment payments of $ 6.3 million beginning on the last day of the third quarter of 2023 and increasing to $ 12.5 million beginning with the last day of the third quarter of 2024.

The Term Loan Facility bears interest at a rate equal to an alternate base rate, adjusted term secured overnight financing rate, or adjusted daily simple secured overnight financing rate, plus, in each case, an applicable margin.

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

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

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

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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

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

For purposes of the Leverage Ratio, the Senior Credit Facility and the Term 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 $ 21.0 million, of which there were no outstanding borrowings at December 31, 2022.

Borrowings under these credit facilities bear interest at variable rates.

We have $ 12.5 million of Term Loan Facility payments due in the next twelve months.

We classified this debt as long-term as of December 31, 2022 as we have the intent and ability to refinance such obligation on a long-term basis under the revolving credit facility under the Senior Credit Facility.

Debt outstanding, excluding unamortized issuance costs and discounts , at December 31, 2022 matures on a calendar year basis as follows:

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Contractual debt obligation maturities $ 12.5 $ 237.5 $ 69.3 $ 370.0 $ 850.0 $ 800.0 $ 2,339.3

$ 88.3 $ — $ 200.0 $ 19.3 $ 195.0 $ 400.0 $ 902.6

Derivatives and Financial Instruments

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Dollar exchange rate.

As of December 31, 2021 and 2020, we had a deferred foreign currency gain of $ 7.3 million and a deferred foreign currency loss of $ 32.8 million, respectively, recorded in Accumulated other comprehensive loss associated with our cross currency swap activity.

As of December 31, 2022 and 2021, we had a deferred foreign currency loss of $ 40.3 million and a deferred foreign currency gain of $ 7.3 million, respectively, recorded in Accumulated other comprehensive loss associated with our cross currency swap activity.

The periodic interest settlements related to our cross currency swap agreements are classified as operating activities.

The cash flows that relate to principal balances are classified as financing activities for the cash flow hedges on intercompany debt and investing activities for the net investment hedges.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

In October 2022, we entered into transactions to early terminate and cash settle € 700 million of our cross currency swap agreements due to favorable market conditions.

The termination of the cross currency swap agreements resulted in net cash receipts of $ 84.3 million, of which $ 2.1 million, $ 70.1 million and $ 12.1 million are included within operating activities, investing activities and financing activities, respectively, on the Consolidated Statements of Cash Flows.

Subsequent to the termination, we entered into new cross currency swap agreements with euro notional amounts matching the original swap agreements.

In June 2022, we terminated two of our cross currency swap agreements, resulting in total net cash received of $ 9.0 million, of which $ 8.8 million is included within investing activities and $ 0.2 million is included within financing activities on the Consolidated Statements of Cash Flows.

We entered into new cross currency swaps with a combined notional amount of $ 320.0 million to replace the terminated cross currency swap agreements.

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

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

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

Fair value measurements

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When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Fair value of financial instruments

The following methods were used to estimate the fair values of each class of financial instrument:

• short-term financial instruments (cash and cash equivalents, accounts and notes receivable, accounts and notes payable and variable-rate debt) — recorded amount approximates fair value because of the short maturity period;

• long-term fixed-rate debt, including current maturities — fair value is based on market quotes available for issuance of debt with similar terms, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance;

• foreign currency contract agreements — fair values are determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance;

• deferred compensation plan assets (mutual funds, common/collective trusts and cash equivalents for payment of certain non-qualified benefits for retired, terminated and active employees) — fair value of mutual funds and cash equivalents are based on quoted market prices in active markets that are classified as Level 1 in the valuation hierarchy defined by the accounting guidance;

• short-term financial instruments (cash and cash equivalents, accounts and notes receivable, accounts payable and variable-rate debt) — recorded amount approximates fair value because of the short maturity period;

fair value of common/collective trusts are valued at net asset value (“NAV”), which is based on the fair value of the underlying securities owned by the fund and divided by the number of shares outstanding.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

The recorded amounts and estimated fair values of total debt, excluding unamortized issuance costs and discounts , at December 31 were as follows:

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In millions Level 1 Level 2 Level 3 NAV Total

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

Foreign currency contract liabilities $ — $ ( 52.2 ) $ — $ — $ ( 52.2 )

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In millions Level 1 Level 2 Level 3 NAV Total

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

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

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income from continuing operations before income taxes.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

The provision for income taxes consisted of the following:

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

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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

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Included in the $ 39.6 million of total gross unrecognized tax benefits as of December 31, 2022 was $ 38.1 million of tax benefits that, if recognized, would impact the effective tax rate.

It is reasonably possible that the gross unrecognized tax benefits as of December 31, 2021 may decrease by a range of zero to $ 3.4 million during 2022, primarily as a result of the resolution of non-U.K.

examinations, including U.S.

federal and state examinations.

It is reasonably possible that the gross unrecognized tax benefits as of December 31, 2022 may decrease by a range of zero to $ 4.5 million during 2023, primarily as a result of the resolution of Germany and U.S.

state examinations.

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

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

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

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

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

At December 31, 2021 and 2020, our

At December 31, 2022 and 2021, we have liabilities of $ 0.6 million and $ 0.2 million, respectively, for the possible payment of penalties and $ 4.9 million and $ 3.9 million, respectively, for the possible payment of interest expense, which are recorded in Other current liabilities in the Consolidated Balance Sheets.

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

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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

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

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Employee compensation and benefits 26.5 18.2

Research and development costs 18.1 —

Tax loss and credit carryforwards 752.4 729.7

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The tax losses primarily relate to non-U.S.

carryforwards of $ 2,778.5 million which are subject to varying expiration periods.

carryforwards of $ 1,895.8 million are located in jurisdictions with unlimited tax loss carryforward periods, while the remainder will begin to expire in 2022.

carryforwards of $ 2,894.2 million of which $ 1,838.5 million are located in jurisdictions with unlimited tax loss carryforward periods, while the remainder will begin to expire in 2023.

In addition, there were $ 7.9 million of U.S.

2 unchanged sentences

state tax losses of $ 7.6 million are in jurisdictions with unlimited tax loss carryforward periods, while the remainder will expire in future years through 2042.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Deferred taxes in the amount of $ 2.0 million have been provided on undistributed earnings of certain subsidiaries.

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

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

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

The CARES Act contains numerous income tax provisions, such as relaxing limitations on the

Pentair plc and Subsidiaries

Notes to consolidated financial statements

deductibility of interest and the ability to carryback net operating losses arising in taxable years from 2018 through 2020.

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

15 unchanged sentences

Interest cost 2.5 2.0 0.3 0.2

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

Actuarial gain ( 22.6 ) ( 2.1 ) ( 1.3 ) ( 1.4 )

Foreign currency translation ( 0.2 ) ( 0.6 ) — —

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$ ( 62.1 ) $ ( 81.7 ) $ ( 9.0 ) $ ( 11.3 )

Pentair plc and Subsidiaries

Notes to consolidated financial statements

The actuarial gain in 2022 was primarily due to increases in the discount rates to reflect economic conditions at December 31, 2022.

7 unchanged sentences

The accumulated benefit obligation for all defined benefit plans was $ 88.7 million and $ 112.7 million at December 31, 2022 and 2021, respectively.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Information for pension plans with an accumulated benefit obligation or projected benefit obligation in excess of plan assets as of December 31 was as follows:

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Net actuarial (gain) loss ( 16.4 ) ( 1.5 ) 6.8

Net periodic benefit expense $ 2.8 $ 12.2 $ 1.9

Net periodic benefit (income) expense $ ( 12.2 ) $ 2.8 $ 12.2

Components of net periodic benefit expense for our other post-retirement plans for the years ended December 31, 2022, 2021 and 2020, were not material.

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Pension plans Other post-retirement

2021 2020 2019 2021 2020 2019

Percentages 2022 2021 2020 2022 2021 2020

Benefit obligation assumptions

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

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

Pension plan assets yielded losses of 16.86 % in 2022 and 0.89 % in 2021, and a return of 9.68 % in 2020.

Healthcare cost trend rates

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Actual Target

2021 2020 2021 2020

Percentages 2022 2021 2022 2021

Fixed income 58 % 67 % 58 % 68 %

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In millions Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 0.3 $ — $ — $ 0.3

Other investments $ — $ — $ 11.9 $ 11.9

Total investments at fair value $ 0.3 $ — $ 11.0 $ 11.3

Investments measured at NAV 16.5

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

• Cash and cash equivalents:

Cash consists of cash held in bank accounts and is considered a Level 1 investment.

Cash equivalents consist of investments in commingled funds valued based on observable market data.

Such investments are considered a Level 2 investment.

• Other investments:

Other investments include investments in commingled funds with diversified investment strategies.

• Cash and cash equivalents — Cash consists of cash held in bank accounts and is considered a Level 1 investment.

• Other investments — Other investments include investments in commingled funds with diversified investment strategies.

Investments in commingled funds that were valued based on unobservable inputs due to liquidation restrictions were classified as Level 3.

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The 2020 Authorization supplemented the 2018 Authorization.

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

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

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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

During the year ended December 31, 2022, we repurchased 1.0 million of our ordinary shares for $ 50.0 million under the 2020 Authorization.

As of December 31, 2022, we had $ 600.0 million available for share repurchases under the 2020 Authorization.

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Exercised ( 0.1 ) 39.44

Forfeited ( 0.1 ) 52.45

Outstanding as of December 31, 2022 2.3 $ 45.16 4.8 $ 8.3

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Cash received from option exercises for the years ended December 31, 2022, 2021 and 2020 was $ 2.5 million, $ 29.3 million and $ 30.8 million, respectively.

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

The tax benefit related to options exercised was $ 0.1 million, $ 6.2 million and $ 2.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Pentair plc and Subsidiaries

10 unchanged sentences

As of December 31, 2022, there was $ 20.0 million of unrecognized compensation cost related to restricted share compensation arrangements granted under the 2020 Plan and previous plans.

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

That cost is expected to be recognized over a weighted-average period of 0.8 years.

The total fair value of shares vested during the years ended December 31, 2022, 2021 and 2020, was $ 11.7 million, $ 10.5 million and $ 11.2 million, respectively.

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

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

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

The tax benefit related to restricted stock units vested was $ 2.1 million and $ 0.6 million for the years ended December 31, 2022 and 2021, respectively.

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

Performance share units

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

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

The tax benefit related to performance share units was $ 0.3 million for the year ended December 31, 2022 and $ 0.1 million for each of the years ended December 31, 2021 and 2020.

Segment Information

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Residential and commercial pool equipment and accessories include pumps, filters, heaters, lights, automatic controls, automatic cleaners, maintenance equipment and pool accessories.

Water treatment products and systems include pressure tanks, control valves, activated carbon products, conventional filtration products, and point-of-entry and point-of-use systems.

Water treatment products and systems include pressure tanks, control valves, activated carbon products, commercial ice machines, conventional filtration products, and point-of-entry and point-of-use systems.

Applications for our pool business’s products include residential and commercial pool maintenance, repair, renovation, service and construction.

Our water treatment products and systems are used in residential whole home water filtration, drinking water filtration and water softening solutions in addition to commercial total water management and filtration in foodservice operations.

In addition, our water solutions business also provides installation and preventative services for water management solutions for commercial operators.

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.

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

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

These products and systems are used in a range of applications, fluid delivery, ion exchange, desalination, food and beverage, separation technologies for the oil and gas industry,

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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.

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

1 unchanged sentence

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

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

Financial information by reportable segment is as follows:

2022 2021 2020 2022 2021 2020

17 unchanged sentences

Segment income $ 767.7 $ 685.9 $ 517.6

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

Restructuring and other ( 32.4 ) ( 7.5 ) ( 12.7 )

Transformation costs ( 27.2 ) ( 11.7 ) —

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Pension and other post-retirement mark-to-market gain (loss) 17.5 2.4 ( 6.7 )

Asset impairment — — ( 21.2 )

Asset impairment and write-offs ( 25.6 ) — ( 2.7 )

Gain (loss) on sale of businesses 0.2 1.4 ( 0.1 )

Russia business exit impact ( 4.7 ) — —

Interest expense, net ( 61.8 ) ( 12.5 ) ( 23.9 )

1 unchanged sentence

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

Legal settlement and accrual adjustments 7.6 — —

Legal accrual adjustments and settlements ( 0.2 ) 7.6 —

Other expense ( 2.4 ) ( 1.7 ) —

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In our opinion, the amounts accrued are appropriate based on facts and circumstances as currently known.

As of December 31, 2021, our recorded reserves for environmental matters were not material.

As of December 31, 2022 and 2021, our recorded reserves for environmental matters were not material.

Product liability claims

We are subject to various product liability lawsuits and personal injury claims.

A substantial number of these lawsuits and claims are insured and accrued for by Penwald, our captive insurance subsidiary.

Penwald records a liability for these claims based on actuarial projections of ultimate losses.

For all other claims, accruals covering the claims are recorded, on an undiscounted basis, when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information.

The accruals are adjusted periodically as additional information becomes available.

We have not experienced significant unfavorable trends in either the severity or frequency of product liability lawsuits or personal injury claims.

Our lease portfolio principally consists of operating leases related to facilities, machinery, equipment and vehicles.

Our lease terms do not include options to extend or terminate the lease until we are reasonably certain that we will exercise that option.

Our accounting for lease terms does not include options to extend or terminate the lease until we are reasonably certain that we will exercise that option.

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

12 unchanged sentences

Total lease cost $ 45.9 $ 36.2

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Supplemental cash flow information related to leases was as follows:

3 unchanged sentences

Right-of-use assets obtained in exchange for lease obligations $ 19.3 $ 12.2

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Other information related to leases was as follows:

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

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

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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

Years ended December 31

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Payments ( 70.4 ) ( 51.8 ) ( 51.1 )

Acquisitions 8.0 0.3 0.2

Foreign currency translation ( 0.3 ) ( 0.3 ) 0.5

Ending balance $ 63.1 $ 40.5 $ 37.0

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Stand-by letters of credit, bank guarantees and bonds

8 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data