What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-27 compared with 2023-04-27 · 183 added, 134 removed, 249 unchanged (56% of the section changed)

7 unchanged sentences

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

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

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

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

22 unchanged sentences

Industrial & Flow Technologies, Water Solutions and Pool.

For the first three months of 2023, the Industrial & Flow Technologies, Water Solutions and Pool segments represented approximately 38%, 26% and 36% of total revenues, respectively.

For the first six months of 2023, the Industrial & Flow Technologies, Water Solutions and Pool segments represented approximately 38%, 29% and 33% of total revenues, respectively.

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

12 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 2023 and are reasonably likely to impact our results in the future:

• During 2022 and the first three months of 2023, we executed certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business.

The following trends and uncertainties affected our financial performance in the first six months of 2023 and are reasonably likely to impact our results in the future:

• During 2022 and the first six months of 2023, 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 2023 and to drive margin growth.

• In 2021, we created a transformation office and launched and committed resources to the Transformation Program designed to accelerate growth and drive margin expansion by driving operational excellence, reducing complexity and streamlining our processes.

During 2022 and the first three months of 2023, we made strategic progress on our Transformation Program initiatives with a primary focus on two of our four key themes of pricing excellence and strategic sourcing and built capabilities across all themes, including the other two of operations excellence and organizational effectiveness.

We expect to continue to execute on our key Transformation Program initiatives during 2023 to drive margin expansion and continue to incur transformation costs throughout the remainder of 2023 and beyond.

• During the first three months of 2023, we continued to experience supply chain challenges and inflationary cost increases of certain raw materials due to availability constraints and high demand.

During 2022 and the first six months of 2023, we made strategic progress on our Transformation Program initiatives with a primary focus on three of our four key themes of pricing excellence, strategic sourcing and operations excellence.

In addition, we built capabilities across all themes, including the final theme of organizational effectiveness.

We expect to continue to execute on our key Transformation Program initiatives during 2023 to drive margin expansion and to continue to incur transformation costs throughout the remainder of 2023 and beyond.

• During the first six months of 2023, we continued to experience supply chain challenges and inflationary cost increases of certain raw materials due to availability constraints and high demand.

While we have taken pricing actions and implemented transformation initiatives that we expect to improve productivity and offset these cost increases, we expect supply chain pressures and inflationary cost increases to continue for the remainder of 2023, which may continue thereafter and could negatively impact our results of operations.

• During the second half of 2022 and the first six months of 2023, we have seen inventory correcting within our residential distributor channels.

We anticipate channel inventories to normalize to more historical levels by the end of the third quarter of 2023.

• The Organization for Economic Co-operation and Development Pillar Two Model Rules (“Pillar Two”) for a global 15.0% minimum tax are in the process of being adopted by a number of jurisdictions in which we operate.

In particular, the United Kingdom has completed passage of legislation to comply with the Pillar Two framework which becomes effective beginning in 2024.

Pillar Two could negatively impact our effective tax rate beginning in 2024.

We are continuing to evaluate the impact of proposed and enacted legislative changes as new guidance becomes available.

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

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Unless we successfully penetrate these markets, our core sales growth will likely be limited or may decline.

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

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

The broader implications of the COVID-19 pandemic that are reasonably likely to impact our business, financial condition, results of operations and cash flows cannot be determined at this time, and ultimately will be affected by a number of evolving factors including the length of time that the pandemic continues and the impact of vaccines on it, the impact of virus variants, the effectiveness of vaccinations, the pandemic’s effect on the demand for our products and services, our supply chain, and our manufacturing and distribution capacity, as well as the impact of governmental regulations imposed in response to the pandemic.

In 2023, our operating objectives focus on delivering our core and building our future.

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CONSOLIDATED RESULTS OF OPERATIONS

The consolidated results of operations for the three months ended March 31, 2023 and March 31, 2022 were as follows:

The consolidated results of operations for the three months ended June 30, 2023 and 2022 were as follows:

Three months ended

In millions March 31,

2023 March 31,

In millions June 30,

2023 June 30,

Change % / Point

4 unchanged sentences

36.9 % 33.8 % 3.1 pts

Selling, general and administrative

165.1 145.6 19.5 13.4 %

% of net sales

15.3 % 13.7 % 1.6 pts

Research and development

25.9 23.1 2.8 12.1 %

% of net sales 2.4 % 2.2 % 0.2 pts

Operating income 208.5 190.8 17.7 9.3 %

% of net sales 19.3 % 17.9 % 1.4 pts

Other (income) expense (4.8) 0.1 (4.9) N.M.

Net interest expense 31.8 9.2 22.6 N.M.

Income from continuing operations before income taxes 181.5 181.5 — — %

Provision for income taxes

27.3 28.5 (1.2) (4.2) %

Effective tax rate 15.0 % 15.7 % (0.7) pts

Not Meaningful

The consolidated results of operations for the six months ended June 30, 2023 and June 30, 2022 were as follows:

Six months ended

In millions June 30,

2023 June 30,

Change % / Point

Net sales $ 2,111.1 $ 2,063.8 $ 47.3 2.3 %

Cost of goods sold 1,329.8 1,372.1 (42.3) (3.1) %

Gross profit 781.3 691.7 89.6 13.0 %

% of net sales

37.0 % 33.5 % 3.5 pts

Selling, general and administrative expenses

7 unchanged sentences

% of net sales 18.6 % 16.3 % 2.3 pts

Other expense 0.7 0.1 0.6 N.M.

Other (income) expense (4.1) 0.2 (4.3) N.M.

Net interest expense 64.2 14.9 49.3 N.M.

5 unchanged sentences

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

Three months ended March 31, 2023

over the prior year period

Three months ended June 30, 2023 Six months ended June 30, 2023

over the prior year period over the prior year period

Volume (14.5) % (13.3) %

Price 7.5 8.4

Core growth (7.0) (4.9)

1 unchanged sentence

Currency (0.2) (0.6)

The 2.9 percent increase in net sales in the first quarter of 2023 from 2022 was primarily driven by:

Total 1.7 % 2.3 %

The 1.7 and 2.3 percent increases in net sales in the second quarter and first half, respectively, of 2023 from 2022 were primarily driven by:

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

• increased sales in our commercial business within our Water Solutions segment from the acquisition of Manitowoc Ice, which was completed in the third quarter of 2022;

• sales volume increase in our Industrial & Flow Technologies segment mainly driven by our commercial flow and industrial solutions businesses.

The increase was partially offset by:

• sales volume decreases in our Pool segment primarily due to unusual U.S.

weather in the West, higher channel inventory and lower demand compared to the first quarter of the prior year;

• sales volume decrease in our residential business within our Water Solutions segment driven by lower demand compared to the first quarter of the prior year and certain business exits announced in the second half of 2022;

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

The 3.9 percentage point increase in gross profit as a percentage of net sales in the first three months of 2023 from 2022 was primarily driven by:

• increased sales within our Water Solutions segment from the acquisition of Manitowoc Ice, which was completed in the third quarter of 2022;

• higher sales volume in our commercial business within our Water Solutions segment driven by higher demand and easing of supply chain pressures which allowed increased production and delivery to market;

• increased sales volume in our commercial flow and industrial solutions businesses within our Industrial & Flow Technologies segment compared to the prior year.

These increases were partially offset by:

• sales volume decreases in our Pool segment primarily due to weather challenges in the U.S., higher channel inventory and lower demand compared to the prior year;

• sales volume decreases in our residential business within our Water Solutions segment driven by lower demand compared to the prior year and certain business exits announced in the second half of 2022;

• unfavorable foreign currency effects compared to the prior year.

The 3.1 and 3.5 percentage point increases in gross profit as a percentage of net sales in the second quarter and first half, respectively, of 2023 from 2022 were primarily driven by:

• increases in selling prices to mitigate impacts of inflation;

1 unchanged sentence

• increased productivity in our Industrial & Flow Technologies segment mainly driven by manufacturing leverage and transformation initiatives.

The increase was partially offset by:

These increases were partially offset by:

• inflationary cost increases related to labor costs and certain raw materials;

• asset impairments and write-offs of $3.9 million recorded in the first quarter of 2023.

• decreased productivity in our Pool segment due to decreased sales volume compared to the prior year;

• asset impairments and write-offs of $3.9 million recorded in the first half of 2023.

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

The 0.4 percentage point increase in SG&A as a percentage of net sales in the first quarter of 2023 from 2022 was primarily driven by:

• increased identifiable intangible asset amortization expense of $8.5 million related to the addition of Manitowoc Ice’s definite-lived intangible assets in the third quarter of 2022;

• transformation costs of $8.5 million in the first quarter of 2023, compared to $5.5 million in the first quarter of 2022;

• inflationary cost increases including higher employee labor costs in the first quarter of 2023.

The increase was partially offset by:

• 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 that did not recur in the first quarter of 2023;

• deal-related costs and expenses of $6.4 million in the first quarter of 2022, compared to none in the current period.

The 1.6 and 1.0 percentage point increases in SG&A as a percentage of net sales in the second quarter and first half, respectively, of 2023 from 2022 were primarily driven by:

• increased identifiable intangible asset amortization expense of $8.5 million in the second quarter of 2023 and $17.1 million in the first six months of 2023 related to the addition of Manitowoc Ice’s definite-lived intangible assets in the third quarter of 2022;

• transformation costs of $6.0 million in the second quarter of 2023, compared to $5.2 million in the second quarter of 2022, and $14.5 million in the first half of 2023, compared to $10.7 million in the first half of 2022;

• inflationary cost increases including higher employee labor costs in the first half of 2023.

These increases were partially offset by:

• deal-related costs and expenses of $1.6 million in the second quarter of 2022 and $8.0 million in the first half of 2022, compared to none in the second quarter or first half of 2023.

Net interest expense

The increase in net interest expense in the first quarter of 2023 from 2022 was primarily driven by:

The increases in net interest expense in the second quarter and first half, respectively, of 2023 from 2022 were primarily driven by:

• increased debt due to the acquisition of Manitowoc Ice in the third quarter of 2022;

• increased variable interest rates in the first quarter of 2023, compared to the same period of the prior year.

• increased variable interest rates compared to the same periods of the prior year.

These increases were partially offset 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 acquisition of Manitowoc Ice that did not recur in the first six months of 2023.

Provision for income taxes

The 0.8 percentage point decrease in the effective tax rate in the first quarter of 2023 from 2022 was primarily driven b y:

The 0.7 and 0.8 percentage point decreases in the effective tax rate in the second quarter and first half, respectively, of 2023 from 2022 were primarily driven b y:

• the favorable mix of global earnings.

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

Three months ended

In millions March 31,

2023 March 31,

Three months ended Six months ended

In millions June 30,

2023 June 30,

2022 % / Point Change June 30,

2023 June 30,

2022 % / Point Change

1 unchanged sentence

Segment income 74.8 59.1 26.6% 139.8 111.3 25.6%

% of net sales 16.6 % 14.6 % 2.0 pts

% of net sales 18.2 % 15.7 % 2.5 pts 17.4 % 15.1 % 2.3 pts

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

Three months ended March 31, 2023

over the prior year period

Three months ended June 30, 2023 Six months ended June 30, 2023

over the prior year period over the prior year period

Volume (0.9) % 0.1 %

Price 10.0 10.1

Core growth 9.1 10.2

Currency — (1.0)

The 9.4 percent increase in net sales for Industrial & Flow Technologies in the first quarter of 2023 from 2022 was primarily driven by:

Total 9.1 % 9.2 %

The 9.1 and 9.2 percent increases in net sales for Industrial & Flow Technologies in the second quarter and first half, respectively, of 2023 from 2022 were primarily driven by:

• increases in selling prices to mitigate inflationary cost increases;

• increased sales volume in our commercial flow and industrial solutions businesses.

This increase was partially offset by:

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

• increased sales volume in our commercial flow and industrial solutions businesses compared to the prior year.

These increases were partially offset by:

• decreased sales volume in our residential flow business compared to the prior year;

• unfavorable foreign currency effects compared to the 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, 2023

over the prior year period

Growth/Price 8.1 pts

Three months ended June 30, 2023 Six months ended June 30, 2023

over the prior year period over the prior year period

Growth/Price 7.5 pts 7.8 pts

Currency (0.1) (0.1)

1 unchanged sentence

Productivity 0.6 0.7

Total 2.0 pts

The 2.0 percentage point increase in segment income for Industrial & Flow Technologies as a percentage of net sales in the first quarter of 2023 from 2022 was primarily driven by:

• increases in selling prices to mitigate inflationary cost increases;

Total 2.5 pts 2.3 pts

The 2.5 and 2.3 percentage point increases in segment income for Industrial & Flow Technologies as a percentage of net sales in the second quarter and first half, respectively, of 2023 from 2022 were primarily driven by:

• increases in selling prices to mitigate impacts of inflation;

• increased productivity mainly driven by manufacturing leverage and transformation initiatives.

This increase was partially offset by:

These increases were partially offset by:

• inflationary cost increases related to labor costs and certain raw materials.

1 unchanged sentence

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

Three months ended

In millions March 31,

2023 March 31,

Three months ended Six months ended

In millions June 30,

2023 June 30,

2022 % / Point Change June 30,

2023 June 30,

2022 % / Point Change

1 unchanged sentence

Segment income 74.8 32.5 130.2% 127.2 54.7 132.5%

% of net sales 19.3 % 10.8 % 8.5 pts

% of net sales 22.2 % 14.6 % 7.6 pts 20.9 % 12.8 % 8.1 pts

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

Three months ended March 31, 2023

over the prior year period

Three months ended June 30, 2023 Six months ended June 30, 2023

over the prior year period over the prior year period

Volume 6.3 % 1.8 %

Price 2.9 3.8

Core growth 9.2 5.6

1 unchanged sentence

Currency (0.5) (1.0)

The 32.2 percent increase in net sales for Water Solutions in the first quarter of 2023 from 2022 was primarily driven by:

• increased sales in our commercial business as a result of the acquisition of Manitowoc Ice, which was completed in the third quarter of 2022;

Total 51.3 % 42.1 %

The 51.3 and 42.1 percent increases in net sales for Water Solutions in the second quarter and first half, respectively, of 2023 from 2022 were primarily driven by:

• increased sales as a result of the acquisition of Manitowoc Ice, which was completed in the third quarter of 2022;

• higher sales volume in our commercial business driven by higher demand and easing of supply chain pressures which allowed increased production and delivery to market;

• increases in selling prices to mitigate inflationary cost increases.

This increase was partially offset by:

• decreased sales volume in our residential business driven by lower demand compared to the first quarter of the prior year and certain business exits announced in the second half of 2022;

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

These increases were partially offset by:

• decreased sales volume in our residential business driven by lower demand compared to the prior year and certain business exits announced in the second half of 2022;

• unfavorable foreign currency effects compared to the prior year.

Segment income

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

Three months ended March 31, 2023

over the prior year period

Growth/Price/Acquisition/Divestitures 13.1 pts

Three months ended June 30, 2023 Six months ended June 30, 2023

over the prior year period over the prior year period

Growth/Price/Acquisition/Divestitures 10.1 pts 11.6 pts

Currency (0.4) (0.5)

1 unchanged sentence

Productivity 3.5 2.6

Total 8.5 pts

The 8.5 percentage point increase in segment income for Water Solutions as a percentage of net sales in the first quarter of 2023 from 2022 was primarily driven by:

• increased sales in our commercial business as a result of the Manitowoc Ice acquisition;

• increases in selling prices to mitigate inflationary cost increases;

• increased productivity as a result of certain transformation and restructuring initiatives.

The increase was partially offset by:

Total 7.6 pts 8.1 pts

The 7.6 and 8.1 percentage point increases in segment income for Water Solutions as a percentage of net sales in the second quarter and first half, respectively, of 2023 from 2022 were primarily driven by:

• increased sales as a result of the Manitowoc Ice acquisition;

• increases in selling prices to mitigate impacts of inflation;

• increased productivity in the residential business as a result of certain transformation and restructuring initiatives.

These increases were partially offset by:

• inflationary cost increases related to labor costs and certain raw materials;

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

• unfavorable foreign currency effects compared to the prior year.

The net sales and segment income for Pool were as follows:

Three months ended

In millions March 31,

2023 March 31,

Three months ended Six months ended

In millions June 30,

2023 June 30,

2022 % / Point Change June 30,

2023 June 30,

2022 % / Point Change

1 unchanged sentence

Segment income 105.1 136.7 (23.1)% 221.3 253.0 (12.5)%

% of net sales 31.9 % 26.7 % 5.2 pts

% of net sales 31.4 % 29.5 % 1.9 pts 31.7 % 28.1 % 3.6 pts

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

Three months ended March 31, 2023

over the prior year period

Three months ended June 30, 2023 Six months ended June 30, 2023

over the prior year period over the prior year period

Volume (35.5) % (31.4) %

Price 7.6 9.2

Core growth (27.9) (22.2)

1 unchanged sentence

Total (28.0) % (22.3) %

The 16.3 percent decrease in net sales for Pool in the first quarter of 2023 from 2022 was primarily driven by:

• sales volume decreases primarily due to unusual U.S.

weather in the West, higher channel inventory and lower demand compared to the first quarter of the prior year;

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

This decrease was partially offset by:

The 28.0 and 22.3 percent decreases in net sales for Pool in the second quarter and first half, respectively, of 2023 from 2022 were primarily driven by:

• sales volume decreases primarily due to weather challenges in the U.S., higher channel inventory and lower demand compared to the prior year;

• unfavorable foreign currency effects compared to the prior year.

These decreases were partially offset by:

• increases in selling prices to mitigate inflationary cost increases.

1 unchanged sentence

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

Three months ended March 31, 2023

over the prior year period

Growth/Price 9.6 pts

Three months ended June 30, 2023 Six months ended June 30, 2023

over the prior year period over the prior year period

Growth/Price 5.1 pts 7.3 pts

Inflation (1.1) (2.7)

Productivity (2.1) (1.0)

Total 5.2 pts

The 5.2 percentage point increase in segment income for Pool as a percentage of net sales in the first quarter of 2023 from 2022 was primarily driven by:

• increases in selling prices to mitigate inflationary cost increases.

The increase was partially offset by:

Total 1.9 pts 3.6 pts

The 1.9 and 3.6 percentage point increases in segment income for Pool as a percentage of net sales in the second quarter and first half, respectively, of 2023 from 2022 were primarily driven by:

• increases in selling prices to mitigate impacts of inflation;

• positive impact to margin associated with benefits realized from our transformation initiatives;

• cost management initiatives associated with decreased sales volume.

These increases were partially offset by:

• decreased leverage due to lower sales volume compared to the prior year;

• inflationary cost increases related to labor costs and certain raw materials.

BACKLOG OF ORDERS BY SEGMENT

In millions March 31,

In millions June 30,

2023 December 31,

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Consistent with historical trends, we experienced seasonal cash usage in the first quarter of 2023 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 2023 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 is at seasonal highs from April to August.

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Summary of cash flows

Three months ended

In millions March 31,

2023 March 31,

Six months ended

In millions June 30,

2023 June 30,

Net cash provided by (used for):

Operating activities $ (106.6) $ (131.5)

Operating activities of continuing operations $ 340.1 $ 176.3

Investing activities (26.1) (29.8)

1 unchanged sentence

Operating activities

The $106.6 million in net cash used for operating activities in the first three months of 2023 primarily reflects $161.1 million of net income from continuing operations, net of non-cash depreciation, amortization and asset impairment.

Additionally, we had a cash outflow of $262.6 million as a result of changes in net working capital, primarily due to an increase in accounts receivable largely related to certain advance sale programs in anticipation of our distributors’ peak sales season in the second and third quarters.

The $131.5 million in net cash used for operating activities in the first three months of 2022 primarily reflects $138.1 million of net income from continuing operations, net of non-cash depreciation and 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 was due to higher sales during the last month of the first quarter of 2022 and timing of collections.

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

The $340.1 million in net cash provided by operating activities of continuing operations in the first six months of 2023 primarily reflects $344.2 million of net income from continuing operations, net of non-cash depreciation, definite-lived intangible amortization and asset impairment.

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 was higher due to inflationary impacts and continued supply chain inefficiencies.

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

Investing activities

Net cash used for investing activities in the first three months of 2023 primarily reflects capital expenditures of $16.6 million.

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 six months of 2023 primarily reflects capital expenditures of $35.4 million, partially offset by proceeds from the sale of property and equipment of $5.0 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.

Financing activities

Net cash provided by financing activities in the first three months of 2023 primarily relates to net borrowings of revolving long-term debt of $173.6 million, partially offset by dividend payments of $36.2 million.

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

Net cash used for financing activities in the first six months of 2023 primarily relates to net repayments of revolving long-term debt of $204.3 million and dividend payments of $72.5 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.

Free cash flow

7 unchanged sentences

The following table is a reconciliation of free cash flow:

Three months ended

In millions March 31,

2023 March 31,

Net cash used for operating activities $ (106.6) $ (131.5)

Capital expenditures (16.6) (17.7)

Proceeds from sale of property and equipment 0.2 —

Six months ended

In millions June 30,

2023 June 30,

Net cash provided by operating activities of continuing operations $ 340.1 $ 176.3

Capital expenditures of continuing operations (35.4) (40.1)

Proceeds from sale of property and equipment of continuing operations 5.0 2.9

Free cash flow from continuing operations 309.7 139.1

Net cash used for operating activities of discontinued operations (1.6) (1.0)

Free cash flow $ 308.1 $ 138.1

6 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, 2023, total availability under the Senior Credit Facility was $406.4 million.

As of June 30, 2023, total availability under the Senior Credit Facility was $784.3 million.

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

7 unchanged sentences

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

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.

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 $21.1 million, of which there were no outstanding borrowings at March 31, 2023.

In addition to the Senior Credit Facility and the Term Loan Facility, we have various other credit facilities with an aggregate availability of $20.8 million, of which there were no outstanding borrowings at June 30, 2023.

Borrowings under these credit facilities bear interest at variable rates.

We have $25.0 million of Term Loan Facility payments due in the next twelve months.

We classified this debt as long-term as of March 31, 2023 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.

As of March 31, 2023, we had $98.9 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, 2023 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.

As of June 30, 2023, we had $117.6 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, 2023, no ordinary shares were repurchased.

As of March 31, 2023, we had $600.0 million available for share repurchases under this authorization.

During the three and six months ended June 30, 2023, no ordinary shares were repurchased.

As of June 30, 2023, we had $600.0 million available for share repurchases under this authorization.

Dividends payable

On February 20, 2023, the Board of Directors declared a quarterly cash dividend of $0.22, payable on May 5, 2023 to shareholders of record at the close of business on April 21, 2023.

As a result, the balance of dividends payable included in Other current liabilities on our Condensed Consolidated Balance Sheets was $36.3 million at March 31, 2023, compared to $36.2 million at December 31, 2022.

We paid dividends in the first three months of 2023 of $36.2 million, or $0.22 per ordinary share compared with $34.7 million, or $0.21 per ordinary share, in the prior year period.

On May 8, 2023, the Board of Directors declared a quarterly cash dividend of $0.22 per share, payable on August 4, 2023 to shareholders of record at the close of business on July 21, 2023.

As a result, the balance of dividends payable included in Other current liabilities on our Condensed Consolidated Balance Sheets was $36.4 million at June 30, 2023, compared to $36.2 million at December 31, 2022.

We paid dividends in the first six months of 2023 of $72.5 million, or $0.44 per ordinary share compared with $69.5 million, or $0.42 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, 2023 and December 31, 2022 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, 2023 and December 31, 2022 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,

2023 December 31,

6 unchanged sentences

2,420.3 2,640.3

(1) No assets due from non-guarantor subsidiaries were included as of March 31, 2023 and December 31, 2022, respectively.

(2) Includes assets due from non-guarantor subsidiaries of $2,667.9 million and $2,664.7 million as of March 31, 2023 and December 31, 2022, respectively.

(3) Includes liabilities due to non-guarantor subsidiaries of $890.1 million and $989.8 million as of March 31, 2023 and December 31, 2022, respectively.

(4) Includes liabilities due to non-guarantor subsidiaries of $263.0 million and $259.8 million as of March 31, 2023 and December 31, 2022, respectively.

(1) No assets due from non-guarantor subsidiaries were included as of June 30, 2023 and December 31, 2022, respectively.

(2) Includes assets due from non-guarantor subsidiaries of $2,668.8 million and $2,664.7 million as of June 30, 2023 and December 31, 2022, respectively.

(3) Includes liabilities due to non-guarantor subsidiaries of $1,323.4 million and $989.8 million as of June 30, 2023 and December 31, 2022, respectively.

(4) Includes liabilities due to non-guarantor subsidiaries of $263.9 million and $259.8 million as of June 30, 2023 and December 31, 2022, 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, 2023.

There have been no material changes in our market risk during the quarter ended June 30, 2023.

For additional information refer to Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2022.

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