What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-20 compared with 2023-02-21 · 251 added, 237 removed, 1116 unchanged (30% of the section changed)

11 unchanged sentences

Based on this assessment, management believes that, as of December 31, 2023, 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, 2023.

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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, 2023, of the Company and our report dated February 20, 2024, 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 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.

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.

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.

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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Operating income 739.2 595.3 636.9

Other (income) expense

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

Other expense (income)

Gain on sale of businesses — ( 0.2 ) ( 1.4 )

Net interest expense 118.3 61.8 12.5

Other (income) expense ( 16.9 ) ( 1.0 ) 5.3

Other expense (income)

2.0 ( 16.9 ) ( 1.0 )

Income from continuing operations before income taxes 618.9 550.6 626.8

Provision for income taxes 67.4 70.8 75.0

(Benefit) provision for income taxes

( 4.0 ) 67.4 70.8

Net income from continuing operations 622.9 483.2 556.0

(Loss) income from discontinued operations, net of tax ( 2.3 ) ( 3.0 ) 1.5

Loss from discontinued operations, net of tax ( 0.2 ) ( 2.3 ) ( 3.0 )

Net income $ 622.7 $ 480.9 $ 553.0

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Net income $ 622.7 $ 480.9 $ 553.0

Loss (income) from discontinued operations, net of tax 2.3 3.0 ( 1.5 )

Loss from discontinued operations, net of tax 0.2 2.3 3.0

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities of continuing operations

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Amortization 55.3 52.5 26.3

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

Gain on sale of businesses — ( 0.2 ) ( 1.4 )

Deferred income taxes ( 92.5 ) ( 44.8 ) ( 9.0 )

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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 expense (benefit)

12.1 ( 12.2 ) 2.8

Pension and other post-retirement contributions ( 8.7 ) ( 8.8 ) ( 9.4 )

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Acquisitions, net of cash acquired ( 0.6 ) ( 1,580.9 ) ( 338.5 )

Settlement of net investment hedges 78.9 — —

(Payments) receipts upon the settlement of net investment hedges

( 18.5 ) 78.9 —

Other 4.1 0.3 2.7

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Financing activities

Net borrowings (repayments) of revolving long-term debt 124.5 159.4 ( 117.5 )

Net (repayments) borrowings of revolving long-term debt

( 320.0 ) 124.5 159.4

Proceeds from long-term debt — 1,391.3 —

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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 )

Net cash (used for) provided by financing activities

( 468.1 ) 1,232.7 ( 222.2 )

Effect of exchange rate changes on cash and cash equivalents ( 4.3 ) 1.2 12.1

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Consolidated Statements of Changes in Equity

In millions Ordinary shares Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total

In millions Ordinary shares Additional paid-in capital Retained earnings Accumulated other comprehensive loss

Number Amount

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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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Dividends declared — — — ( 147.0 ) — ( 147.0 )

Share repurchases ( 1.0 ) — ( 50.0 ) — — ( 50.0 )

Exercise of options, net of shares tendered for payment 0.4 — 18.3 — — 18.3

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Basis of Presentation and Summary of Significant Accounting Policies

Pentair plc and its consolidated subsidiaries (“we,” “us,” “our,” “Pentair” or the “Company”) is a water industrial manufacturing company comprised of two reporting segments:

Consumer Solutions and Industrial & Flow Technologies.

In March 2020, the World Health Organization declared the novel coronavirus 2019 (“COVID-19”) a global pandemic.

The COVID-19 pandemic has had and may continue to have an unfavorable impact on certain parts of our business.

The broader implications of the COVID-19 pandemic on our business, financial condition and results of operations remain uncertain and will depend on certain developments, including the duration and severity of the COVID-19 pandemic, the impact of virus variants, the effectiveness of vaccinations, the COVID-19 pandemic’s impact on our customers and suppliers and the range of governmental and community reactions to the pandemic.

We may continue to experience reduced customer demand in certain parts of our business or constrained labor and/or supply that could materially and adversely impact our business, financial condition, results of operations, liquidity and cash flows in future periods.

Pentair plc and its consolidated subsidiaries (“we,” “us,” “our,” “Pentair” or the “Company”) is a water industrial manufacturing company comprised of three reporting segments:

Flow (formerly named Industrial & Flow Technologies), Water Solutions and Pool.

Basis of presentation

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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.

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, over time 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.

Actual results could differ from our estimates.

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For contracts with multiple performance obligations, standalone selling price is generally readily observable.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Our performance obligations are satisfied at a point in time or over time as work progresses.

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Contract costs include labor, material, overhead and, when appropriate, general and administrative expenses.

Changes to the original estimates may be required during the life of the contract, and such estimates are reviewed on a regular basis.

Changes to the original estimates may be required during

Pentair plc and Subsidiaries

Notes to consolidated financial statements

the life of the contract, and such estimates are reviewed on a regular basis.

Sales and gross profit are adjusted using the cumulative catch-up method for revisions in estimated total contract costs.

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If the forecasted sales for a customer change, the accrual for rebates is adjusted to reflect the new amount of rebates expected to be earned by the customer.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Shipping and handling costs

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Contract assets are recorded within Other current assets , and contract liabilities are recorded within Other current liabilities in the Consolidated Balance Sheets.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Contract assets and liabilities consisted of the following:

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Net contract assets (liabilities) $ 17.1 $ ( 9.7 ) $ 26.8 ( 276.3 ) %

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.

The $ 26.8 million increase in net contract assets from December 31, 2022 to December 31, 2023 was primarily the result of timing of milestone payments.

Approximately 90 % of our contract liabilities at December 31, 2022 were recognized in revenue during the twelve months ended December 31, 2023.

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, 2023.

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

Practical expedients and exemptions

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Refer to Note 14 for revenue disaggregated by segment.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Geographic net sales information, based on geographic destination of the sale, was as follows:

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R&D expenditures during 2023, 2022 and 2021 were $ 99.8 million, $ 92.2 million and $ 85.9 million, respectively.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Cash equivalents

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Beginning balance $ 10.8 $ 9.1 $ 8.4

Bad debt expense (benefit) (1)

3.6 1.1 ( 0.5 )

Bad debt expense

Acquisitions — 0.3 1.0

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Ending balance $ 11.2 $ 10.8 $ 9.1

(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.”

(1) Other amounts are primarily the effects of changes in currency translations and the impact of allowance for credits.

Inventories are stated at the lower of cost or net realizable value with substantially all inventories recorded using the first-in, first-out (“FIFO”) cost method.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Property, plant and equipment, net

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Costs for repairs and maintenance are charged to expense as incurred.

When property is retired or otherwise disposed of, the recorded cost of the assets and their related accumulated depreciation are removed from the Consolidated Balance Sheets and any related gains or losses are included in income.

We capitalize costs associated with software developed or obtained for internal use when both the preliminary project stage is completed, and it is probable the software being developed will be completed and placed in service.

The costs of computer software developed or obtained for internal use are amortized on a straight-line basis unless another systematic and rational basis is more representative of the software’s use.

When property or capitalized software is retired or otherwise disposed of, the recorded cost of the assets and their related accumulated depreciation are removed from the Consolidated Balance Sheets and any related gains or losses are included in income.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

The following table presents geographic Property, plant and equipment, net by region as of December 31:

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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

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.

During 2023, 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 2023 annual impairment test, the estimated fair value significantly exceeded the carrying value in each of our reporting units, therefore, no impairment charge was required.

During 2022, 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.

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 described in Note 9.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Identifiable intangible assets

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Identifiable intangible assets that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

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 restructuring initiatives implemented 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 impairment charges associated with identifiable intangibles with finite lives were recognized in 2023 or 2021.

Identifiable intangible assets not subject to amortization are tested for impairment annually or more frequently if events warrant.

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

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.

No impairment charges were recognized in 2023, 2022, or 2021 as a result of our annual impairment assessment.

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

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The remaining components of pension expense, including service and interest costs and estimated return on plan assets, are recorded on a quarterly basis.

The service costs are recorded within Operating income and the interest costs, expected return on plan assets and net actuarial gain/loss components of net periodic pension and other post-retirement benefit costs are recorded within Other (income) expense .

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Insurance subsidiary

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These modified grants are accounted for as a new award and measured using the fair value method, resulting in the inclusion of additional compensation expense in our Consolidated Statements of Operations and Comprehensive Income.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Restricted share awards and units (“RSUs”) are recorded as compensation cost over the requisite service periods based on the market value on the date of grant.

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Basic EPS equals net income divided by the weighted-average number of ordinary shares outstanding during the period.

Diluted EPS is computed by dividing net income by the sum of weighted-average number of ordinary shares outstanding plus dilutive effects of ordinary share equivalents.

Diluted EPS is computed by dividing net income by the sum of weighted-average number of ordinary shares outstanding plus dilutive effects of ordinary share equivalents, calculated using the two-class method.

Derivative financial instruments

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 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 derivative is designated and effective, 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.

For a derivative that is not designated as or does not qualify as a hedge, changes in fair value are reported in earnings immediately.

Gains and losses on net investment hedges are included in AOCI as a separate component of equity in the Consolidated Balance Sheets.

We use derivative instruments for the purpose of hedging interest rate and currency exposures, which exist as part of ongoing business operations.

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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.

New accounting standards

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2023-07, “Segment Reporting”, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures regarding significant expenses.

We plan to adopt the standard retrospectively beginning with our annual reporting for the year ending December 31, 2024 and interim reporting beginning January 1, 2025.

We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.

In December 2023, the FASB issued ASU No.

2023-09, “Improvements to Income Tax Disclosures”, which requires new and enhanced disclosures primarily related to income taxes paid and the effective tax rate reconciliation.

We will adopt the standard beginning with our annual reporting for the year ending December 31, 2025.

We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.

In July 2022, as part of our Water 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

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

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

The purchase price allocation was completed in the third quarter of 2023.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

The following table summarizes the final allocation of the purchase price to the fair value of assets acquired and liabilities assumed in the Manitowoc Ice acquisition:

Accounts receivable 36.7

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Purchase price $ 1,613.9

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.

The excess of purchase price over tangible net assets and identified intangible assets acquired has been allocated to goodwill in the amount of $ 789.7 million, all of which is 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.

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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

For the year ended December 31, 2022, 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.

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

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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.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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.

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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.

In October 2021, as part of both of our Flow and Pool 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 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.

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.

In May 2021, as part of our Water 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.

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 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.

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 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.

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:

During 2023, 2022 and 2021, we initiated and continued execution of our Transformation Program as well as certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business.

Restructuring and Transformation Program initiatives during the years ended December 31, 2023, 2022 and 2021 included a reduction in hourly and salaried headcount of approximately 475 employees, 625 employees and 75 employees, respectively.

Restructuring and transformation-related costs included within 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

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Asset impairment and write-offs (1)

Other restructuring costs (2)

Other restructuring costs and related adjustments (2)

( 6.0 ) 13.0 0.4

Total restructuring costs 6.0 56.3 7.4

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Other transformation costs (3)

37.8 23.8 11.7

Total transformation costs 44.7 27.2 11.7

Total restructuring and transformation costs $ 50.7 $ 83.5 $ 19.1

(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.

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

(2) Other restructuring costs and related adjustments primarily consist of certain accruals and related refinements as well as various contract termination costs associated with product line and business exits.

(3) Other transformation costs primarily consist of professional services, project management related costs and asset impairments, partially offset by gain on sale of assets.

Restructuring and transformation costs by reportable segment were as follows:

1 unchanged sentence

In millions 2023 2022 2021

Consumer Solutions $ 55.4 $ 0.9 $ 3.6

Industrial & Flow Technologies 2.2 0.9 4.7

$ 3.4 $ 2.2 $ 0.9

Water Solutions ( 0.1 ) 41.1 0.6

Pool 9.1 14.3 0.3

Other 38.3 25.9 17.3

7 unchanged sentences

Ending balance $ 13.4 $ 23.2

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the years ended December 31, 2023 and 2022 by reportable segment were as follows:

In millions December 31, 2021 Acquisitions Purchase accounting adjustments Foreign

In millions December 31, 2022 Purchase

translation December 31, 2023

Consumer Solutions $ 1,722.5 $ 790.5 $ 1.4 $ ( 9.4 ) $ 2,505.0

Industrial & Flow Technologies 782.0 — 1.0 ( 35.4 ) 747.6

$ 747.6 $ — $ 19.5 $ 767.1

Water Solutions 1,398.1 ( 0.8 ) 3.3 1,400.6

Pool 1,106.9 — — 1,106.9

Total goodwill $ 3,252.6 $ ( 0.8 ) $ 22.8 $ 3,274.6

Pentair plc and Subsidiaries

Notes to consolidated financial statements

In millions December 31, 2020 Acquisitions Purchase accounting adjustments Foreign

In millions December 31, 2021 Acquisitions Purchase

translation December 31, 2022

Consumer Solutions $ 1,580.5 $ 152.9 $ ( 1.2 ) $ ( 9.7 ) $ 1,722.5

Industrial & Flow Technologies 811.7 13.6 — ( 43.3 ) 782.0

$ 782.0 $ — $ 1.0 $ ( 35.4 ) $ 747.6

Water Solutions 618.0 790.5 ( 0.9 ) ( 9.5 ) 1,398.1

Pool 1,104.5 — 2.3 0.1 1,106.9

Total goodwill $ 2,504.5 $ 790.5 $ 2.4 $ ( 44.8 ) $ 3,252.6

15 unchanged sentences

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

No impairment charge was recorded for identifiable intangible assets in 2023 or 2021.

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

60 unchanged sentences

interest rate at Maturity

year December 31

December 31, 2023 2023 2022

8 unchanged sentences

5.900 % 2032 400.0 400.0

Senior notes - fixed rate (1)

5.900 % 2032 400.0 —

Unamortized issuance costs and discounts N/A N/A ( 22.0 ) ( 8.5 )

Unamortized debt issuance costs and discounts

N/A N/A ( 18.5 ) ( 22.0 )

Total debt $ 1,988.3 $ 2,317.3

2 unchanged sentences

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 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.

as borrowers, 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.

3 unchanged sentences

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.

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.

In 2022, Pentair and PFSA entered into a senior unsecured term loan facility (the “Term Loan Facility”), with PFSA, as borrower, Pentair, as guarantor, and the lenders and agents party thereto, providing for 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 which began on the last day of the third quarter of 2023 and increases 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”).

In addition to the Term Loan Facility, Pentair, as guarantor, and PFSA, as issuer, completed a public offering in 2022 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.

6 unchanged sentences

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.

We have $ 37.5 million of Term Loan Facility payments and $ 200.0 million of payments under the senior unsecured term loan facility, associated with the Senior Credit Facility, due in the next twelve months.

We classified this debt as long-term as of December 31, 2023 as we have the intent and ability to refinance such obligations 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, 2023 matures on a calendar year basis as follows:

3 unchanged sentences

Derivative financial instruments

We are exposed to market risk related to changes in foreign currency exchange rates.

To manage the volatility related to this exposure, we periodically enter into a variety of derivative financial instruments.

Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign currency rates.

We are exposed to market risk related to changes in foreign currency exchange rates and interest rates on our variable rate indebtedness.

To manage the volatility related to these exposures, we periodically enter into a variety of derivative financial instruments.

Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign currency rates or variable interest rates.

The derivative contracts contain credit risk to the extent that our bank counterparties may be unable to meet the terms of the agreements.

13 unchanged sentences

Dollar exchange rate.

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.

As of December 31, 2023 and 2022, we had deferred foreign currency losses of $ 51.6 million and $ 40.3 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.

2 unchanged sentences

Notes to consolidated financial statements

In December 2023, we terminated a € 150.0 million cross currency swap agreement, resulting in a net cash payment of $ 17.6 million, of which $ 18.5 million is included within investing activities and $ 0.9 million of interest income is included within operating activities on the Consolidated Statements of Cash Flows.

Subsequent to the termination, we entered into new cross currency swaps with a combined notional amount of € 300.0 million.

In October 2022, we entered into transactions to early terminate and cash settle € 700.0 million of our cross currency swap agreements due to favorable market conditions.

1 unchanged sentence

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 Consolidated Statements of Cash Flows.

In June 2022, we terminated € 300.0 million 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.

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

Hedging of variable interest rates

On March 31, 2023, we entered into floating-to-fixed interest rate swap agreements to hedge the interest rate movements related to a portion of our variable rate debt.

The swaps have a combined notional amount of $ 300.0 million and an average fixed one-month U.S.

Dollar secured overnight financing rate (“SOFR”) of 3.795 %.

They have an effective date of April 4, 2023 and settle monthly through April 2026.

On April 3, 2023, we entered into five-year interest rate collar agreements with a combined notional value of $ 200.0 million to hedge the cash flows related to the interest rate movements on our variable rate debt.

In these collar agreements, the Company and counterparty financial institutions agreed to a one-month U.S.

Dollar SOFR floor of 1.875 % and a cap of 5.000 %.

The collars have an effective date of April 4, 2023 and settle monthly through April 2028.

The interest rate swaps and the collars were designated as cash flow hedges.

Unrealized gains and losses related to the fair value of the interest rate swaps are recorded in Accumulated other comprehensive loss on our Consolidated Balance Sheets.

We had an unrealized gain of $ 0.3 million at December 31, 2023 recorded in Accumulated other comprehensive loss associated with our interest rate swap and collar activity.

The periodic interest settlements related to our interest rate swaps and collars are classified as operating activities.

Fair value measurements

10 unchanged sentences

• 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 above;

• 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 above;

• 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 above;

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

• foreign currency contracts, interest rate swap and collar 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 above;

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

6 unchanged sentences

Financial assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows:

Recurring fair value measurements December 31, 2022

December 31, 2023

In millions Level 1 Level 2 Level 3 NAV Total

Recurring fair value measurements

Interest rate contract assets

$ — $ 0.3 $ — $ — $ 0.3

Foreign currency contract assets

— 0.2 — — 0.2

Foreign currency contract liabilities — ( 70.0 ) — — ( 70.0 )

1 unchanged sentence

Total recurring fair value measurements $ 12.1 $ ( 69.5 ) $ — $ 14.0 $ ( 43.4 )

Recurring fair value measurements December 31, 2021

December 31, 2022

In millions Level 1 Level 2 Level 3 NAV Total

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

Recurring fair value measurements

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

9 unchanged sentences

$ 618.9 $ 550.6 $ 626.8

(1) “Federal” reflects United Kingdom (“U.K.”) income (loss) from continuing operations before income taxes.

(1) “Federal” reflects United Kingdom (“U.K.”) loss from continuing operations before income taxes, given U.K.

tax residency.

(2) “International” reflects non-U.K.

income from continuing operations before income taxes.

The provision for income taxes consisted of the following:

Pentair plc and Subsidiaries

Notes to consolidated financial statements

The (benefit) provision for income taxes consisted of the following:

Years ended December 31

1 unchanged sentence

Currently payable (receivable)

$ — $ — $ 0.1

International (1)

4 unchanged sentences

Total deferred taxes ( 92.5 ) ( 44.8 ) ( 9.0 )

Total provision for income taxes $ 67.4 $ 70.8 $ 75.0

(1) “Federal” represents U.K.

Total (benefit) provision for income taxes

$ ( 4.0 ) $ 67.4 $ 70.8

(1) “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:

2 unchanged sentences

federal statutory income tax rate (1)

23.5 % 19.0 % 19.0 %

Tax effect of international operations (2)

2 unchanged sentences

Excess tax benefits on stock-based compensation ( 0.1 ) ( 0.2 ) ( 1.1 )

Base erosion and anti-abuse tax — — 1.7

Unrecognized tax benefits — — ( 1.3 )

Worthless stock deduction

Change in tax basis in foreign assets (3)

Effective tax rate ( 0.6 ) % 12.2 % 11.3 %

Finance Act of 2021 increased the statutory tax rate from 19.0% to 25.0%, effective April 1, 2023.

Given this change, a prorated U.K.

federal statutory income tax rate was utilized for 2023.

(2) The tax effect of international operations consists of non-U.K.

jurisdictions.

(3) The 2023 impact primarily represents the initial recognition of tax basis in intangible assets in foreign jurisdictions and the related valuation allowance.

Reconciliations of the beginning and ending gross unrecognized tax benefits were as follows:

10 unchanged sentences

Included in the $ 38.6 million of total gross unrecognized tax benefits as of December 31, 2023 was $ 38.3 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, 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.

It is reasonably possible that the gross unrecognized tax benefits as of December 31, 2023 may decrease by a range of zero to $ 33.6 million during 2024, primarily as a result of the expiration of U.S.

statute of limitations, and 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 and various U.S states.

A number of tax periods from 2009 to present

Pentair plc and Subsidiaries

Notes to consolidated financial statements

are under audit by tax authorities in various jurisdictions, including Belgium, Germany and India.

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.

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

At December 31, 2023 and 2022, we have liabilities of $ 0.3 million and $ 0.6 million, respectively, for the possible payment of penalties and $ 6.4 million and $ 4.9 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

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

1 unchanged sentence

Other non-current assets

$ 113.2 $ 26.0

Deferred tax liabilities 40.0 43.3

Net deferred tax liabilities $ 17.3 $ 66.7

Net deferred tax assets (liabilities)

$ 73.2 $ ( 17.3 )

The tax effects of the major items recorded as deferred tax assets and liabilities were as follows:

15 unchanged sentences

Total deferred tax liabilities 183.9 249.8

Net deferred tax liabilities $ 17.3 $ 66.7

Included in tax loss and credit carryforwards in the table above is a deferred tax asset of $ 29.6 million as of December 31, 2022 related to foreign tax credit carryover from the tax period ended December 31, 2017 and related to transition taxes.

The entire amount is subject to a valuation allowance.

The foreign tax credit is eligible for carryforward until the tax period ending December 31, 2027.

Net deferred tax assets (liabilities)

$ 73.2 $ ( 17.3 )

Included in tax loss and credit carryforwards in the table above is a foreign tax credit deferred tax asset of $ 30.7 million as of December 31, 2023.

The $ 30.7 million foreign tax credit carryover consists of $ 29.6 million from the tax period ended December 31, 2017 related to the transition tax and $ 1.1 million from the tax period ended December 31, 2023.

The foreign tax credit carryover from the tax period ended December 31, 2017 will expire December 31, 2027, and the foreign tax credit carryover from the period ended December 31, 2023 will expire December 31, 2033.

The entire amount of foreign tax credit carryovers generated from both periods are subject to a valuation allowance.

As of December 31, 2023, tax loss carryforwards of $ 3,044.4 million were available to offset future income.

2 unchanged sentences

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

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.

carryforwards of $ 2,982.3 million of which

Pentair plc and Subsidiaries

Notes to consolidated financial statements

$ 1,857.1 million are located in jurisdictions with unlimited tax loss carryforward periods, while the remainder will begin to expire in 2024.

In addition, there were $ 62.1 million of U.S.

federal loss carryforwards with unlimited tax loss carryforward periods and $ 65.5 million of U.S.

state tax loss carryforwards as of December 31, 2023.

3 unchanged sentences

It is not practicable to estimate the amount of tax that might be payable if such earnings were to be remitted.

Impacts of U.S.

tax legislation

In April 2020, the IRS released final regulations as part of the Tax Cuts and Jobs Act of 2017 that place limitations on the deductibility of certain interest expense for U.S.

tax purposes.

These regulations resulted in discrete tax expense of approximately $ 14.1 million in 2020, as well as an increase to our 2020 annual effective tax rate of approximately 0.3 %.

In March 2020, the U.S.

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

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.

Benefit Plans

14 unchanged sentences

Interest cost 4.1 2.5 0.5 0.3

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

Actuarial loss (gain)

7.4 ( 22.6 ) ( 0.8 ) ( 1.3 )

Foreign currency translation 1.1 ( 0.2 ) — —

13 unchanged sentences

$ ( 67.0 ) $ ( 62.1 ) $ ( 7.6 ) $ ( 9.0 )

The actuarial loss in 2023 was primarily due to declines in the discount rates to reflect economic conditions at December 31, 2023.

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

6 unchanged sentences

$ ( 67.0 ) $ ( 62.1 ) $ ( 7.6 ) $ ( 9.0 )

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

The accumulated benefit obligation for our pension plans was $ 93.4 million and $ 88.7 million at December 31, 2023 and 2022, respectively.

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:

12 unchanged sentences

Expected return on plan assets ( 0.8 ) ( 0.7 ) ( 0.5 )

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

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.

Net actuarial loss (gain)

7.1 ( 16.4 ) ( 1.5 )

Net periodic benefit expense (income)

$ 12.1 $ ( 12.2 ) $ 2.8

Components of net periodic benefit expense and income for our other post-retirement plans for the years ended December 31, 2023, 2022 and 2021, were not material.

The following table provides the weighted-average assumptions used to determine benefit obligations and net periodic benefit cost as they pertain to our pension and other post-retirement plans.

11 unchanged sentences

3.80 % 3.61 % 3.62 % N/A N/A N/A

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Discount rates

5 unchanged sentences

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 losses of 16.86 % in 2022 and 0.89 % in 2021, and a return of 9.68 % in 2020.

Pension plan assets yielded a gain of 2.82 % in 2023 and losses of 16.86 % and 0.89 % in 2022 and 2021, respectively.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Healthcare cost trend rates

12 unchanged sentences

Alternative 47 % 42 % 47 % 42 %

Cash — % 1 % — % — %

Fair value measurement

2 unchanged sentences

In millions Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 0.2 $ — $ — $ 0.2

Other investments — — 14.2 14.2

Total investments at fair value $ 0.2 $ — $ 14.2 $ 14.4

Investments measured at NAV 16.1

1 unchanged sentence

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

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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

7 unchanged sentences

The 2024 expected contributions will equal or exceed our minimum funding requirements.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Estimated future benefit payments

2 unchanged sentences

2024 $ 8.4 $ 1.1

2028 - 2032 36.2 3.4

We have a 401(k) plan (the “401(k) plan”) with an employee share ownership (“ESOP”) bonus component, which covers certain union and all non-union U.S.

11 unchanged sentences

Share repurchases

In May 2018, the Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $ 750.0 million (the “2018 Authorization”).

The 2018 Authorization expired on May 31, 2021 .

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

The 2020 Authorization expires on December 31, 2025.

The 2020 Authorization supplemented 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, 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.

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

This authorization expires on December 31, 2025.

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

During the year ended December 31, 2023, no ordinary shares were repurchased.

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

Dividends payable

On December 12, 2022, the Board of Directors approved a 5 percent increase in the Company’s regular quarterly dividend rate (from $ 0.21 per share to $ 0.22 per share) that was paid on February 3, 2023 to shareholders of record at the close of business on January 20, 2023.

On December 11, 2023, the Board of Directors approved a regular quarterly cash dividend of $ 0.23 per share that was paid on February 2, 2024 to shareholders of record at the close of business on January 19, 2024.

This dividend reflects a 5 percent increase in the Company’s regular cash dividend rate.

The balance of dividends payable included in Other current liabilities on our Consolidated Balance Sheets was $ 38.0 million at December 31, 2023.

Dividends paid per ordinary share were $ 0.88 , $ 0.84 and $ 0.80 for the years ended December 31, 2023, 2022 and 2021, respectively.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Share-based compensation expense

25 unchanged sentences

Restricted shares and restricted stock units are valued at market value on the date of grant and are expensed over the vesting period.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Stock appreciation rights, performance shares and performance units

6 unchanged sentences

The estimated vesting of the PSUs is based on the probability of achieving certain performance metrics during the vesting period.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Stock options

7 unchanged sentences

Exercised ( 0.3 ) 47.35

Forfeited ( 0.1 ) 52.45

Outstanding as of December 31, 2023 2.3 $ 45.07 4.9 $ 63.7

20 unchanged sentences

The tax benefit related to options exercised was $ 1.0 million, $ 0.1 million and $ 6.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Restricted stock units

5 unchanged sentences

Vested ( 0.4 ) 49.64

Forfeited ( 0.1 ) 53.84

Outstanding as of December 31, 2023 0.6 $ 53.88

Pentair plc and Subsidiaries

Notes to consolidated financial statements

As of December 31, 2023, there was $ 23.9 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 0.8 years.

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

The total fair value of shares vested during the years ended December 31, 2023, 2022 and 2021, was $ 17.6 million, $ 11.7 million and $ 10.5 million, respectively.

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.

The tax benefit related to restricted stock units vested was $ 2.7 million, $ 2.1 million and $ 0.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Performance share units

9 unchanged sentences

That cost is expected to be recognized over a weighted-average period of 1.3 years.

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.

The tax benefits related to performance share units were $ 0.9 million, $ 0.3 million and $ 0.1 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Segment Information

We classify our operations into the following business segments:

• Consumer Solutions — This segment designs, manufactures and sells energy-efficient residential and commercial pool equipment and accessories, and commercial and residential water treatment products and systems.

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, 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.

Effective January 1, 2023, we reorganized our reporting segments to reflect how we are managing our business and to help us accelerate our efforts to improve customer experience, differentiate our products and drive profitability for our shareholders.

All prior period amounts related to the segment change have been retrospectively reclassified to conform to the new presentation.

As part of this reorganization, the legacy Consumer Solutions segment was divided into a Pool segment and a Water Solutions segment.

The Flow (formerly named the Industrial & Flow Technologies) segment remains the same.

We classify our operations into the following reporting segments:

• Flow — The focus of this segment is to deliver water where it is needed, when it is needed, more efficiently and transforms waste into value.

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.

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

This segment designs, manufactures and sells commercial and residential water treatment products and systems including pressure tanks, control valves, activated carbon products, commercial ice machines, conventional filtration products, and point-of-entry and point-of-use water treatment systems.

These 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,

• Pool — The focus of this segment is to provide innovative, energy efficient pool solutions to help people more sustainably enjoy water.

This segment designs, manufactures and sells a complete line of energy-efficient residential and commercial pool equipment and accessories including pumps, filters, heaters, lights, automatic controls, automatic cleaners, maintenance equipment and pool accessories.

Applications for our pool products include residential and commercial pool maintenance, pool repair, renovation, service and construction and aquaculture solutions.

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.

4 unchanged sentences

In millions Net sales Segment income (loss)

Consumer Solutions $ 2,619.5 $ 2,341.9 $ 1,742.9 $ 611.1 $ 554.4 $ 419.1

Industrial & Flow Technologies 1,500.8 1,421.4 1,273.6 242.3 213.3 164.6

$ 1,582.1 $ 1,500.8 $ 1,421.4 $ 282.3 $ 242.3 $ 213.3

Water Solutions

1,177.2 986.8 769.9 247.6 149.0 101.7

1,343.6 1,632.7 1,572.0 417.0 462.1 452.7

Other 1.6 1.5 1.5 ( 91.8 ) ( 85.7 ) ( 81.8 )

1 unchanged sentence

$ 4,104.5 $ 4,121.8 $ 3,764.8 $ 855.1 $ 767.7 $ 685.9

(1) One customer in the Consumer Solutions’ pool business represented approximately 20 %, 20 %, and 15 % of our consolidated net sales in 2022, 2021 and 2020, respectively.

(1) One customer in the Pool business represented approximately 15 % of our consolidated net sales in 2023 and 20 % of our consolidated net sales in both 2022 and 2021.

2023 2022 2021 2023 2022 2021 2023 2022 2021

1 unchanged sentence

Capital expenditures Depreciation

Consumer Solutions $ 4,496.7 $ 2,823.0 $ 2,327.9 $ 53.5 $ 32.5 $ 27.4 $ 27.3 $ 23.7 $ 21.4

Industrial & Flow Technologies 1,722.4 1,716.4 1,661.7 24.0 23.0 26.6 19.5 21.4 19.8

$ 1,709.7 $ 1,722.4 $ 1,716.4 $ 19.6 $ 24.0 $ 23.0 $ 21.1 $ 19.5 $ 21.4

Water Solutions

2,695.2 2,786.4 1,181.6 23.0 24.7 16.4 18.1 18.4 15.8

1,679.8 1,710.3 1,641.4 17.3 28.8 16.1 11.4 8.9 7.9

Other 478.6 228.4 214.2 16.1 7.7 4.7 8.9 7.3 6.1

7 unchanged sentences

Inventory step-up — ( 5.8 ) ( 2.3 )

Intangible amortization ( 52.5 ) ( 26.3 ) ( 28.4 )

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

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

( 6.1 ) 17.5 2.4

Asset impairment and write-offs ( 7.9 ) ( 25.6 ) —

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

Gain on sale of businesses

Russia business exit impact — ( 4.7 ) —

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

Deal-related costs and expenses

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

— ( 22.2 ) ( 7.9 )

Legal accrual adjustments and settlements ( 2.2 ) ( 0.2 ) 7.6

Other expense ( 2.4 ) ( 1.7 ) —

Intangible amortization

( 55.3 ) ( 52.5 ) ( 26.3 )

Interest expense, net

( 118.3 ) ( 61.8 ) ( 12.5 )

Other income (expense)

1.3 ( 2.4 ) ( 2.3 )

Income from continuing operations before income taxes $ 618.9 $ 550.6 $ 626.8

51 unchanged sentences

imputed interest ( 23.9 )

Total $ 105.3

Warranties and guarantees

32 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