What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-24 compared with 2023-07-27 · 130 added, 115 removed, 317 unchanged (44% of the section changed)

5 unchanged sentences

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

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

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

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

the ability to achieve the benefits of our restructuring plans, cost reduction initiatives and 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 six months of 2023, the Industrial & Flow Technologies, Water Solutions and Pool segments represented approximately 38%, 29% and 33% of total revenues, respectively.

For the first nine months of 2023, the Industrial & Flow Technologies, Water Solutions and Pool segments represented approximately 39%, 29% and 32% of total revenues, respectively.

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

1 unchanged sentence

This segment designs, 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.

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

• Water Solutions — The focus of this segment is to provide great tasting, higher-quality water and ice while helping end-users use water more productively.

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Key Trends and Uncertainties Regarding Our Existing 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.

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

• 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 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.

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

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

• During 2022 and the first nine 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.

• During the first nine 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.

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

We anticipate channel inventories to approach more normalized levels by the end 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.

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

We are reinforcing that our businesses more effectively address these opportunities through research and development and additional sales and marketing resources.

We expect to continue investing in our businesses to drive these opportunities through research and development and additional sales and marketing resources.

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

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CONSOLIDATED RESULTS OF OPERATIONS

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

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

Three months ended

In millions June 30,

2023 June 30,

In millions September 30,

2023 September 30,

Change % / Point

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% of net sales 17.9 % 13.9 % 4.0 pts

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

Net interest expense 31.8 9.2 22.6 N.M.

Gain on sale of businesses — (0.2) 0.2 N.M.

Other (income) expense

(0.3) 0.3 (0.6) N.M.

Net interest expense 27.5 19.3 8.2 42.5 %

Income from continuing operations before income taxes 152.9 127.7 25.2 19.7 %

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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,

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

Nine months ended

In millions September 30,

2023 September 30,

Change % / Point

13 unchanged sentences

% of net sales 18.3 % 15.5 % 2.8 pts

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

Gain on sale of businesses — (0.2) 0.2 N.M.

Other (income) expense

(4.4) 0.5 (4.9) N.M.

Net interest expense 91.7 34.2 57.5 N.M.

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

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

Three months ended September 30, 2023 Nine months ended September 30, 2023

over the prior year period over the prior year period

5 unchanged sentences

Total (4.4) % — %

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;

The 4.4 percent decrease in net sales in the third quarter of 2023 from 2022 was primarily driven by:

• decreased sales volume in our residential flow business within our Industrial & Flow Technologies segment compared to the prior year;

• decreased sales volume 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;

• sales volume decreases in our Pool segment primarily due to higher channel inventory and lower demand compared to the prior year.

This decrease was partially offset by:

• increases in selling prices to mitigate a rise in inflationary costs and lower rebates and incentives in our Pool segment;

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

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• 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;

Net sales were flat in the first nine months of 2023 from 2022, primarily driven by:

• sales volume decreases in our Pool segment primarily due to higher channel inventory and lower demand compared to the prior year;

• 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;

• increases in selling prices to mitigate a rise in inflationary costs and lower rebates and incentives in our Pool segment.

The 3.9 and 3.7 percentage point increases in gross profit as a percentage of net sales in the third quarter and first nine months, respectively, of 2023 from 2022 were primarily driven by:

• increases in selling prices to mitigate impacts of inflationary costs and lower rebates and incentives in our Pool segment;

• increased productivity within our Water Solutions segment as a result of certain transformation and restructuring initiatives;

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

• 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.

• inventory impairments and write-offs of $1.4 million in the third quarter of 2023 and $5.3 million in the first nine months of 2023.

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

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:

• 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 six months of 2023;

• 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.

The 0.3 percentage point decrease in SG&A as a percentage of net sales in the third quarter of 2023 from 2022 was primarily driven by:

• identifiable intangible asset amortization expense of $13.8 million in the third quarter of 2023, compared to $18.5 million in the third quarter of 2022;

• restructuring and other costs of $1.6 million in the third quarter of 2023, compared to $12.5 million in the third quarter of 2022;

• no deal-related costs and expenses in the third quarter of 2023, compared to $13.4 million in the third quarter of 2022.

The decrease was partially offset by:

• transformation costs of $13.5 million in the third quarter of 2023, compared to $10.1 million in the third quarter of 2022;

• higher employee compensation costs compared to the same period of the prior year.

The 0.6 percentage point increase in SG&A as a percentage of net sales in the first nine months of 2023 from 2022 was primarily driven by:

• increased identifiable intangible asset amortization expense of $12.7 million in the first nine months of 2023 related to the addition of Manitowoc Ice’s definite-lived intangible assets in the third quarter of 2022;

• transformation costs of $28.0 million in the first nine months of 2023, compared to $20.8 million in the first nine months of 2022;

• higher employee compensation costs compared to the same period of the prior year.

The increase was partially offset by:

• no deal-related costs and expenses in the first nine months of 2023, compared to $21.4 million in the first nine months of 2022;

• restructuring and other costs of $5.1 million in the first nine months of 2023, compared to $15.7 million in the first nine months of 2022.

Net interest expense

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;

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

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

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

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.

• the amortization of debt issuance costs of $1.3 million during the third quarter of 2022 and $9.0 million during the first nine months 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 nine months of 2023.

Provision for income taxes

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.

The 4.0 and 0.6 percentage point increases in the effective tax rate in the third quarter and first nine months, respectively, of 2023 from 2022 were primarily driven b y:

• the unfavorable mix of global earnings.

These increases were partially offset by:

• the impact of favorable discrete items that occurred during the third quarter and first nine months of 2023 that did not occur in 2022.

SEGMENT RESULTS OF OPERATIONS

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

Three months ended Six months ended

In millions June 30,

2023 June 30,

2022 % / Point Change June 30,

2023 June 30,

Three months ended Nine months ended

In millions September 30,

2023 September 30,

2022 % / Point Change September 30,

2023 September 30,

2022 % / Point Change

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

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

Three months ended September 30, 2023 Nine months ended September 30, 2023

over the prior year period over the prior year period

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Total 2.7 % 7.0 %

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:

The 2.7 and 7.0 percent increases in net sales for Industrial & Flow Technologies in the third quarter and first nine months, 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 compared to the prior year;

• favorable foreign currency effects compared to the third quarter of 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 June 30, 2023 Six months ended June 30, 2023

Three months ended September 30, 2023 Nine months ended September 30, 2023

over the prior year period over the prior year period

4 unchanged sentences

Total 2.5 pts 2.4 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:

The 2.5 and 2.4 percentage point increases in segment income for Industrial & Flow Technologies as a percentage of net sales in the third quarter and first nine months, respectively, of 2023 from 2022 were primarily driven by:

• increases in selling prices to mitigate impacts of inflation;

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

• unfavorable foreign currency effects compared to the prior year.

Water Solutions

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

Three months ended Six months ended

In millions June 30,

2023 June 30,

2022 % / Point Change June 30,

2023 June 30,

Three months ended Nine months ended

In millions September 30,

2023 September 30,

2022 % / Point Change September 30,

2023 September 30,

2022 % / Point Change

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

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

Three months ended September 30, 2023 Nine months ended September 30, 2023

over the prior year period over the prior year period

5 unchanged sentences

Total 8.8 % 29.0 %

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:

The 8.8 and 29.0 percent increases in net sales for Water Solutions in the third quarter and first nine months, 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;

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• 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.

• unfavorable foreign currency effects compared to the first nine months of 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 June 30, 2023 Six months ended June 30, 2023

Three months ended September 30, 2023 Nine months ended September 30, 2023

over the prior year period over the prior year period

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Total 5.1 pts 6.8 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:

The 5.1 and 6.8 percentage point increases in segment income for Water Solutions as a percentage of net sales in the third quarter and first nine months, respectively, of 2023 from 2022 were primarily driven by:

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

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

Three months ended Six months ended

In millions June 30,

2023 June 30,

2022 % / Point Change June 30,

2023 June 30,

Three months ended Nine months ended

In millions September 30,

2023 September 30,

2022 % / Point Change September 30,

2023 September 30,

2022 % / Point Change

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

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

Three months ended September 30, 2023 Nine months ended September 30, 2023

over the prior year period over the prior year period

4 unchanged sentences

Total (20.8) % (21.9) %

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.

The 20.8 and 21.9 percent decreases in net sales for Pool in the third quarter and first nine months, respectively, of 2023 from 2022 were primarily driven by:

• sales volume decreases primarily due to higher channel inventory and lower demand compared to the prior year.

These decreases were partially offset by:

• increases in selling prices to mitigate inflationary cost increases.

• increases in selling prices to mitigate inflationary cost increases and lower rebates and incentives.

Segment income

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 June 30, 2023 Six months ended June 30, 2023

Three months ended September 30, 2023 Nine months ended September 30, 2023

over the prior year period over the prior year period

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Total 1.3 pts 2.9 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;

The 1.3 and 2.9 percentage point increases in segment income for Pool as a percentage of net sales in the third quarter and first nine months, respectively, of 2023 from 2022 were primarily driven by:

• increases in selling prices to mitigate impacts of inflation and lower rebates and incentives;

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

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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 June 30,

In millions September 30,

2023 December 31,

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Our backlog of orders is dependent upon when customers place orders and is not necessarily an indicator of our expected results for our 2023 net sales.

The decrease in our overall backlog from December 31, 2022 was primarily driven by our Pool segment’s backlog trending down to more historical levels as a result of increased manufacturing capacity, improved lead times and customers balancing the need to place new orders with market demand and channel inventory levels.

The decrease in our overall backlog from December 31, 2022 was primarily driven by our backlog trending down to more historical levels as a result of increased manufacturing capacity and improved lead times.

LIQUIDITY AND CAPITAL RESOURCES

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

This cash usage reversed in the second quarter of 2023 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

Six months ended

In millions June 30,

2023 June 30,

Nine months ended

In millions September 30,

2023 September 30,

Net cash provided by (used for):

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Operating activities

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 $502.3 million in net cash provided by operating activities of continuing operations in the first nine months of 2023 primarily reflects $506.8 million of net income from continuing operations, net of non-cash depreciation, definite-lived intangible amortization and asset impairment.

The $271.5 million in net cash provided by operating activities of continuing operations in the first nine months of 2022 primarily reflects $458.2 million of net income from continuing operations, net of non-cash depreciation and definite-lived intangible amortization.

Additionally, we had a cash outflow of $165.2 million as a result of changes in net working capital, primarily due to increased inventory balances 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 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.

Net cash used for investing activities in the first nine months of 2023 primarily reflects capital expenditures of $54.8 million, partially offset by proceeds from the sale of property and equipment of $5.4 million.

Net cash used for investing activities in the first nine months of 2022 primarily reflects the net cash paid of $1,591.5 million for the Manitowoc Ice acquisition and capital expenditures of $63.2 million, partially offset by cash received upon the settlement of net investment hedges of $8.8 million.

Financing activities

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.

Net cash used for financing activities in the first nine months of 2023 primarily relates to net repayments of revolving long-term debt of $320.0 million and dividend payments of $108.9 million.

Net cash provided by financing activities in the first nine months of 2022 primarily relates to net borrowings of revolving long-term debt of $256.1 million and net proceeds received from the Term Loan Facility and issuance of the 2032 Senior Notes of $1,391.3 million used to finance the Manitowoc Ice acquisition, partially offset by dividend payments of $104.1 million, repayment of $88.3 million senior fixed notes, share repurchases of $50.0 million and payments of debt issuance costs of $15.7 million.

Free cash flow

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The following table is a reconciliation of free cash flow:

Six months ended

In millions June 30,

2023 June 30,

Nine months ended

In millions September 30,

2023 September 30,

Net cash provided by operating activities of continuing operations $ 502.3 $ 271.5

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

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

As of September 30, 2023, total availability under the Senior Credit Facility was $900.0 million.

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

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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 has a maturity date of July 28, 2027, with required quarterly installment payments of $6.3 million that began on the last day of the third quarter of 2023 and increase 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.

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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 $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 $31.3 million of Term Loan Facility payments due in the next twelve months.

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.

We classified this debt as long-term as of September 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 September 30, 2023, we had $93.1 million of cash held in certain countries in which the ability to repatriate is limited due to local regulations or significant potential tax consequences.

Share repurchases

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The authorization expires on December 31, 2025.

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.

During the three and nine months ended September 30, 2023, no ordinary shares were repurchased.

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

Dividends payable

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.

On September 18, 2023, the Board of Directors declared a quarterly cash dividend of $0.22 per share, payable on November 3, 2023 to shareholders of record at the close of business on October 20, 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 September 30, 2023, compared to $36.2 million at December 31, 2022.

We paid dividends in the first nine months of 2023 of $108.9 million, or $0.66 per ordinary share compared with $104.1 million, or $0.63 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 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,

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

2023 December 31,

6 unchanged sentences

2,310.8 2,640.3

(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.

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

(2) Includes assets due from non-guarantor subsidiaries of $2,660.7 million and $2,664.7 million as of September 30, 2023 and December 31, 2022, respectively.

(3) Includes liabilities due to non-guarantor subsidiaries of $1,455.9 million and $989.8 million as of September 30, 2023 and December 31, 2022, respectively.

(4) Includes liabilities due to non-guarantor subsidiaries of $255.8 million and $259.8 million as of September 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 June 30, 2023.

There have been no material changes in our market risk during the quarter ended September 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