PENTAIR plc

Previous wording

The terms “us,” “we,” “our” or “Pentair” refer to Pentair plc and its consolidated subsidiaries. At Pentair, we believe the health of our world depends on reliable access to clean water. We deliver a comprehensive range of smart, sustainable water solutions to homes, businesses and industries around the world. Our industry-leading and proven portfolio of solutions enables our customers to access clean, safe water; reduce water consumption; and recover and reuse water. Whether it’s moving, improving or helping people enjoy water, we help manage life’s most essential resource. We are composed of three reporting segments: Flow, Water Solutions and Pool. For the first three months of 2024, the Flow, Water Solutions and Pool segments represented approximately 38%, 27% and 35% of total revenues, respectively. We classify our operations into reporting segments based primarily on types of products offered and markets served:

Current wording

The terms “us,” “we,” “our” or “Pentair” refer to Pentair plc and its consolidated subsidiaries. At Pentair, we believe the health of our world depends on reliable access to clean water. We deliver a comprehensive range of smart, sustainable water solutions to homes, businesses and industries around the world. Our industry-leading and proven portfolio of solutions enables our customers to access clean, safe water; reduce water consumption; and recover and reuse water. Whether it’s moving, improving or helping people enjoy water, we help manage life’s most essential resource. We are composed of three reporting segments: Flow, Water Solutions and Pool. For the first six months of 2024, the Flow, Water Solutions and Pool segments represented approximately 37%, 28% and 35% of total revenues, respectively. We classify our operations into reporting segments based primarily on types of products offered and markets served:

Previous wording

The following trends and uncertainties affected our financial performance in the first three months of 2024 and are reasonably likely to impact our results in the future:

Current wording

The following trends and uncertainties affected our financial performance in the first six months of 2024 and are reasonably likely to impact our results in the future:

Previous wording

•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 2023 and the first three months of 2024, 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 2024 and beyond.

Current wording

•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 2023 and the first six months of 2024, 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 2024 and beyond.

Previous wording

•During 2023 and the first three months of 2024, 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 2024 and to drive margin growth.

Current wording

•During 2023 and the first six months of 2024, 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 2024 and to drive margin growth.

Previous wording

•During 2023 and the first three months of 2024, we experienced inflationary cost increases for certain raw materials. The current volatile market for commodities has the potential to continue to drive price increases in our supply chain. While we have taken pricing actions and implemented transformation initiatives that we expect to improve productivity and offset cost increases, we anticipate supply chain pressures and inflationary cost increases to continue for the remainder of 2024.

Current wording

•During 2023 and the first six months of 2024, we experienced inflationary cost increases for certain raw materials as well as logistics and transportation costs. The current volatile market for commodities has the potential to continue to drive price increases in our supply chain. While we have taken pricing actions and implemented transformation initiatives that we expect to improve productivity and offset cost increases, we anticipate supply chain pressures and inflationary cost increases to continue for the remainder of 2024.

Previous wording

•Continuing to implement our Transformation Program initiatives that will drive operational excellence, reduce complexity and improve our organizational structure; and

Current wording

•Continuing to implement our Transformation Program initiatives that will drive operational excellence, reduce complexity and improve our organizational structure, which includes the focus on 80/20 actions to drive profitable growth; and

Previous wording

•increased sales volume in our commercial flow business within our Flow segment compared to the same period of the prior year.

Current wording

•increased sales volume in our commercial flow business within our Flow segment in the first half of 2024 compared to the prior year; and

Previous wording

•increased selling prices to mitigate inflationary cost increases.

Current wording

•increased selling prices in our commercial flow and industrial solutions businesses within our Flow segment, in our commercial business within our Water Solutions segment and in our Pool segment to mitigate inflationary cost increases.

Previous wording

•decreased sales volume in our residential flow business within our Flow segment and our residential business within our Water Solutions segment compared to the same period of the prior year;

Current wording

•decreased sales volume in our residential flow and industrial solutions businesses within our Flow segment compared to the prior year;

Previous wording

•decreased sales volume in our commercial business within our Water Solutions segment driven by the completion of a large project in 2023 that did not recur in the first three months of 2024; and

Current wording

•decreased sales volume within our commercial and residential businesses in our Water Solutions segment compared to the prior year, in addition to the completion of a large project in 2023 within our commercial business that did not recur in the first half of 2024;

Previous wording

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

Current wording

•unfavorable foreign currency effects compared to the prior year; and

Previous wording

The 1.3 percentage point increase in gross profit as a percentage of net sales in the first quarter of 2024 from 2023 was primarily driven by:

Current wording

The 2.9 and 2.1 percentage point increases in gross profit as a percentage of net sales in the second quarter and first half, respectively, of 2024 from 2023 were primarily driven by:

Previous wording

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

Current wording

•increased productivity mainly driven by manufacturing leverage within our Pool segment and transformation initiatives; and

Previous wording

•asset impairment and write-offs of $0.8 million recorded in the first quarter of 2024, compared to $3.9 million in the first quarter of 2023.

Current wording

•asset impairment and write-offs of $0.8 million recorded in the first half of 2024, compared to $3.9 million in the first half of 2023.

Previous wording

The 1.1 percentage point decrease in segment income for Pool as a percentage of net sales in the first quarter of 2024 from 2023 was primarily driven by:

Current wording

The 0.3 percentage point decrease in SG&A as a percentage of net sales in the second quarter of 2024 from 2023 was primarily driven by:

Previous wording

•restructuring and other costs of $4.6 million in the first quarter of 2024, compared to $2.9 million in the first quarter of 2023.

Current wording

•restructuring and other costs of $5.9 million in the second quarter of 2024, compared to $0.6 million in the second quarter of 2023.

Previous wording

The 1.4 percentage point increase in SG&A as a percentage of net sales in the first quarter of 2024 from 2023 was primarily driven by:

Current wording

The 0.6 percentage point increase in SG&A as a percentage of net sales in the first half of 2024 from 2023 was primarily driven by:

Previous wording

The 15.7 percent decrease in net interest expense in the first quarter of 2024 from 2023 was primarily driven by:

Current wording

The 17.3 and 16.5 percent decreases in net interest expense in the second quarter and first half, respectively, of 2024 from 2023 were primarily driven by:

Previous wording

The 1.6 percentage point decrease in the effective tax rate in the first quarter of 2024 from 2023 was primarily driven by:

Current wording

The 0.2 percentage point decrease in the effective tax rate in the first half of 2024 from 2023 was primarily driven by:

Previous wording

•the favorable impact of discrete items that occurred during the first quarter of 2024 that did not occur in the same period of the prior year.

Current wording

•the favorable impact of discrete items that occurred during the first half of 2024 that did not occur in the same period of the prior year.

Previous wording

We evaluate performance based on net sales and segment income and use a variety of ratios to measure performance of our reporting segments. Segment income represents equity income of unconsolidated subsidiaries and operating income exclusive of intangible amortization, costs of restructuring and transformation activities, impairments, legal accrual adjustments and settlements and other unusual non-operating items.

Current wording

We evaluate performance based on net sales and reportable segment income (“segment income”) and use a variety of ratios to measure performance of our reporting segments. Segment income represents operating income of each reportable segment inclusive of equity income of unconsolidated subsidiaries and exclusive of intangible amortization, costs of restructuring and transformation activities, impairments, legal accrual adjustments and settlements and other unusual non-operating items.

Previous wording

The 1.9 percent decrease in net sales for Flow in the first quarter of 2024 from 2023 was primarily driven by:

Current wording

The 3.6 and 2.8 percent decreases in net sales for Flow in the second quarter and first half, respectively, of 2024 from 2023 were primarily driven by:

Previous wording

The 3.5 percentage point increase in segment income for Flow as a percentage of net sales in the first quarter of 2024 from 2023 was primarily driven by:

Current wording

The 3.1 and 3.3 percentage point increases in segment income for Flow as a percentage of net sales in the second quarter and first half, respectively, of 2024 from 2023 were primarily driven by:

Previous wording

The 0.4 percent increase in net sales for Water Solutions in the first quarter of 2024 from 2023 was primarily driven by:

Current wording

The 7.6 and 4.0 percent decreases in net sales for Water Solutions in the second quarter and first half, respectively, of 2024 from 2023 were primarily driven by:

Previous wording

•decreased sales volume in our commercial business driven by the completion of a large project in 2023 that did not recur in the first three months of 2024;

Current wording

•decreased sales volume in our commercial and residential businesses compared to the prior year, in addition to the completion of a large project in 2023 within our commercial business that did not recur in the first half of 2024; and

Previous wording

The 1.1 percentage point increase in segment income for Water Solutions as a percentage of net sales in the first quarter of 2024 from 2023 was primarily driven by:

Current wording

The 1.3 and 1.1 percentage point increases in segment income for Water Solutions as a percentage of net sales in the second quarter and first half, respectively, of 2024 from 2023 were primarily driven by:

Previous wording

•increased selling prices in our commercial business to mitigate impacts of inflation and favorable mix; and

Current wording

•increased selling prices in our commercial business to mitigate impacts of inflation and favorable mix.

Previous wording

The 1.3 percent decrease in net sales for Pool in the first quarter of 2024 from 2023 was primarily driven by:

Current wording

The 17.1 and 7.5 percent increases in net sales for Pool in the second quarter and first half, respectively, of 2024 from 2023 were primarily driven by:

Previous wording

The majority of our backlog is short cycle in nature with shipments within one year from when a customer places an order and a substantial portion of our revenues has historically resulted from orders received and products delivered in the same month. A portion of our backlog, particularly from orders for major capital projects, can take more than one year from order to delivery depending on the size and type of order. We record, as part of our backlog, all orders from external customers, which represent firm commitments, and are supported by a purchase order or other legitimate contract. Our backlog of orders is dependent upon when customers place orders and is not necessarily an indicator of our expected results for our 2024 net sales. The decrease in our overall backlog from December 31, 2023 was primarily driven by backlog in our Flow and Pool segments trending down to more historical levels as a result of increased manufacturing capacity and improved lead times.

Current wording

The majority of our backlog is short cycle in nature with shipments within one year from when a customer places an order and a substantial portion of our revenues has historically resulted from orders received and products delivered in the same month. A portion of our backlog, particularly from orders for major capital projects, can take more than one year from order to delivery depending on the size and type of order. We record, as part of our backlog, all orders from external customers, which represent firm commitments, and are supported by a purchase order or other legitimate contract. Our backlog of orders is dependent upon when customers place orders and is not necessarily an indicator of our expected results for our 2024 net sales. The decrease in our overall backlog from December 31, 2023 was primarily driven by our backlog trending down to more historical levels as a result of increased manufacturing capacity and improved lead times within each of our reportable segments as well as delivery of orders associated with certain advance sale (“early buy”) programs within our Pool segment.

Previous wording

We experience seasonal cash flows primarily due to seasonal demand in a number of markets. Consistent with historical trends, we experienced seasonal cash usage in the first quarter of 2024 and drew on our revolving credit facility to fund our operations. This cash usage typically reverses in the second quarter as the seasonality of our businesses peak. We expect historical seasonal patterns to continue and the second quarter of 2024 to generate significant cash to fund our operations.

Current wording

We experience seasonal cash flows primarily due to seasonal demand in a number of markets. Consistent with historical trends, we experienced seasonal cash usage in the first quarter of 2024 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.

Previous wording

Net cash used for operating activities of continuing operations in the first three months of 2024 primarily reflects a cash outflow of $287.9 million as a result of changes in net working capital, primarily due to an increase in accounts receivable largely related to certain advance sale programs in anticipation of our distributors’ peak sales season in the second and third quarters. The outflow related to net working capital was partially offset by net income from continuing operations, net of non-cash depreciation, definite-lived intangible amortization and asset impairment, of $162.7 million.

Current wording

Net cash provided by operating activities of continuing operations in the first six months of 2024 primarily reflects net income from continuing operations, net of non-cash depreciation, definite-lived intangible amortization, share-based compensation and asset impairment, of $394.0 million. Additionally, we had a cash inflow of $15.4 million as a result of changes in net working capital, primarily due to lower inventory and increased accounts payable balances. The decrease in inventory was primarily related to supply chain efficiencies and improved lead times. The higher accounts payable balance was attributable to inventory purchases for our peak sales season.

Previous wording

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

Current wording

Net cash used for investing activities in the first six months of 2024 primarily reflects capital expenditures of $36.3 million.

Previous wording

Net cash used for investing activities in the first three months of 2024 reflects capital expenditures of $19.3 million.

Current wording

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.

Previous wording

Net cash provided by financing activities in the first three months of 2024 primarily relates to net borrowings of revolving long-term debt of $101.4 million, partially offset by dividend payments of $38.0 million.

Current wording

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.

Previous wording

Pentair, Pentair Finance S.à r.l (“PFSA”) and Pentair, Inc. are parties to a credit agreement (the “Senior Credit Facility”), with Pentair as guarantor and PFSA and Pentair, Inc. 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. Borrowings under the Senior Credit Facility bear interest at a rate equal to an alternate base rate, adjusted term secured overnight financing rate, adjusted euro interbank offered rate, adjusted daily simple secured overnight financing rate or central bank rate, plus, in each case, an applicable margin. The applicable margin is based on, at PFSA’s election, Pentair’s leverage level or PFSA’s public credit rating.

Current wording

Pentair, Pentair Finance S.à r.l (“PFSA”) and Pentair, Inc. are parties to a credit agreement (the “Senior Credit Facility”), with Pentair as guarantor and PFSA and Pentair, Inc. as borrowers, providing for a $900.0 million senior unsecured revolving credit facility. During the second quarter of 2024, PFSA repaid $200.0 million of term loans under the Senior Credit Facility. The revolving credit facility has a maturity date of December 16, 2026. Borrowings under the Senior Credit Facility bear interest at a rate equal to an alternate base rate, adjusted term secured overnight financing rate, adjusted euro interbank offered rate, adjusted daily simple secured overnight financing rate or central bank rate, plus, in each case, an applicable margin. The applicable margin is based on, at PFSA’s election, Pentair’s leverage level or PFSA’s public credit rating.

Previous wording

As of March 31, 2024, total availability under the Senior Credit Facility was $798.6 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.

Current wording

As of June 30, 2024, 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 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.

Previous wording

We have $43.8 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 March 31, 2024 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.

Current wording

We have $25.0 million of Term Loan Facility payments due in the next twelve months. We classified this debt as long-term as of June 30, 2024 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.

Previous wording

As of March 31, 2024, we had $89.1 million of cash held in certain countries in which the ability to repatriate is limited due to local regulations or significant potential tax consequences.

Current wording

As of June 30, 2024, we had $105.5 million of cash held in certain countries in which the ability to repatriate is limited due to local regulations or significant potential tax consequences.

Previous wording

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 three months ended March 31, 2024, no ordinary shares were repurchased. As of March 31, 2024, we had $600.0 million available for share repurchases under this authorization.

Current wording

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 three and six months ended June 30, 2024, we repurchased 0.6 million of our ordinary shares for $50.0 million. As of June 30, 2024, we had $550.0 million available for share repurchases under this authorization.

Previous wording

On February 19, 2024, the Board of Directors declared a quarterly cash dividend of $0.23 per share, payable on May 3, 2024 to shareholders of record at the close of business on April 19, 2024. As a result, the balance of dividends payable included in Other current liabilitieson our Condensed Consolidated Balance Sheets was $38.2 million at March 31, 2024, compared to $38.0 million at December 31, 2023.

Current wording

On May 6, 2024, the Board of Directors declared a quarterly cash dividend of $0.23 per share, payable on August 2, 2024 to shareholders of record at the close of business on July 19, 2024. As a result, the balance of dividends payable included in Other current liabilitieson our Condensed Consolidated Balance Sheets was $38.1 million at June 30, 2024, compared to $38.0 million at December 31, 2023.