Item 1. FINANCIAL STATEMENTS

Pentair plc and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

			Three months ended									Nine months ended
In millions, except per-share data			September 30, 2021			September 30, 2020						September 30, 2021			September 30, 2020
Net sales			$	969.2		$	798.5					$	2,776.2		$	2,221.8
Cost of goods sold			634.4			521.1						1,785.2			1,447.7
Gross profit			334.8			277.4						991.0			774.1
Selling, general and administrative expenses			145.6			130.0						440.4			378.6
Research and development expenses			21.9			19.3						64.4			55.6
Operating income			167.3			128.1						486.2			339.9
Other (income) expense:
(Gain) loss on sale of businesses			(1.4)			—						(1.4)			0.1
Net interest expense			2.6			5.4						11.5			20.0
Other expense (income)			0.3			(2.5)						1.0			(1.6)
Income from continuing operations before income taxes			165.8			125.2						475.1			321.4
Provision for income taxes			22.1			14.4						67.7			64.1
Net income from continuing operations			143.7			110.8						407.4			257.3
Loss from discontinued operations, net of tax			(0.1)			—						(3.1)			(1.7)
Net income			$	143.6		$	110.8					$	404.3		$	255.6
Comprehensive income, net of tax
Net income			$	143.6		$	110.8					$	404.3		$	255.6
Changes in cumulative translation adjustment			(19.0)			25.1						(31.3)			15.5
Changes in market value of derivative financial instruments, net of tax			12.1			(22.6)						25.0			(1.3)
Comprehensive income			$	136.7		$	113.3					$	398.0		$	269.8
Earnings (loss) per ordinary share
Basic
Continuing operations			$	0.87		$	0.67					$	2.46		$	1.54
Discontinued operations			—			—						(0.02)			(0.01)
Basic earnings per ordinary share			$	0.87		$	0.67					$	2.44		$	1.53
Diluted
Continuing operations			$	0.86		$	0.66					$	2.43		$	1.54
Discontinued operations			—			—						(0.02)			(0.01)
Diluted earnings per ordinary share			$	0.86		$	0.66					$	2.41		$	1.53
Weighted average ordinary shares outstanding
Basic			165.7			166.1						166.0			166.6
Diluted			167.6			167.1						167.7			167.4

See accompanying notes to condensed consolidated financial statements.

Pentair plc and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

			September 30, 2021			December 31, 2020
In millions, except per-share data
Assets
Current assets
Cash and cash equivalents			$	173.2		$	82.1
Accounts receivable, net of allowances of $9.8 and $8.4, respectively			461.0			367.5
Inventories			504.6			420.0
Other current assets			110.7			105.5
Total current assets			1,249.5			975.1
Property, plant and equipment, net			296.8			301.2
Other assets
Goodwill			2,386.5			2,392.2
Intangibles, net			339.6			325.9
Other non-current assets			200.4			202.8
Total other assets			2,926.5			2,920.9
Total assets			$	4,472.8		$	4,197.2
Liabilities and Equity
Current liabilities
Accounts payable			$	342.5		$	245.1
Employee compensation and benefits			146.3			117.0
Other current liabilities			527.2			410.4
Total current liabilities			1,016.0			772.5
Other liabilities
Long-term debt			700.9			839.6
Pension and other post-retirement compensation and benefits			97.3			102.0
Deferred tax liabilities			95.7			107.4
Other non-current liabilities			224.8			269.4
Total liabilities			2,134.7			2,090.9
Commitments and contingencies (Note 16)
Equity
Ordinary shares $0.01 par value, 426.0 authorized, 165.5 and 166.1 issued at September 30, 2021 and December 31, 2020, respectively			1.7			1.7
Additional paid-in capital			1,614.2			1,680.7
Retained earnings			935.8			631.2
Accumulated other comprehensive loss			(213.6)			(207.3)
Total equity			2,338.1			2,106.3
Total liabilities and equity			$	4,472.8		$	4,197.2

See accompanying notes to condensed consolidated financial statements.

Pentair plc and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

			Nine months ended
In millions			September 30, 2021			September 30, 2020
Operating activities
Net income			$	404.3		$	255.6
Loss from discontinued operations, net of tax			3.1			1.7
Adjustments to reconcile net income from continuing operations to net cash provided by (used for) operating activities of continuing operations
Equity income of unconsolidated subsidiaries			(0.2)			(1.0)
Depreciation			38.3			34.4
Amortization			19.4			21.5
Deferred income taxes			(4.8)			8.5
(Gain) loss on sale of businesses			(1.4)			0.1
Share-based compensation			20.8			15.2
Changes in assets and liabilities, net of effects of business acquisitions
Accounts receivable			(78.2)			147.3
Inventories			(76.1)			(17.7)
Other current assets			(9.6)			(13.4)
Accounts payable			79.3			(46.7)
Employee compensation and benefits			30.7			35.0
Other current liabilities			118.2			61.1
Other non-current assets and liabilities			(3.4)			(0.8)
Net cash provided by operating activities of continuing operations			540.4			500.8
Net cash used for operating activities of discontinued operations			(0.3)			(0.5)
Net cash provided by operating activities			540.1			500.3
Investing activities
Capital expenditures			(38.6)			(44.4)
Proceeds from sale of property and equipment			3.7			0.1
Proceeds from the sale of businesses, net			1.4			—
Acquisitions, net of cash acquired			(83.6)			(28.5)
Other			2.7			2.2
Net cash used for investing activities			(114.4)			(70.6)
Financing activities
Net borrowings of commercial paper and revolving long-term debt			(36.1)			(151.3)
Repayments of long-term debt			(103.8)			(74.0)
Shares issued to employees, net of shares withheld			12.7			21.1
Repurchases of ordinary shares			(100.0)			(115.2)
Dividends paid			(99.9)			(95.4)
Payments upon the maturity of cross currency swaps			(14.7)			—
Net cash used for financing activities			(341.8)			(414.8)
Effect of exchange rate changes on cash and cash equivalents			7.2			(14.8)
Change in cash and cash equivalents			91.1			0.1
Cash and cash equivalents, beginning of period			82.1			82.5
Cash and cash equivalents, end of period			$	173.2		$	82.6

See accompanying notes to condensed consolidated financial statements.

Pentair plc and Subsidiaries

Condensed Consolidated Statements of Changes in Equity (Unaudited)

In millions			Ordinary shares												Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss									Total
Number			Amount
Balance - December 31, 2020			166.1			$	1.7											$	1,680.7		$	631.2		$	(207.3)								$	2,106.3
Net income			—			—												—			128.6			—									128.6
Other comprehensive loss, net of tax			—			—												—			—			(3.7)									(3.7)
Dividends declared, $0.20 per share			—			—												—			(33.3)			—									(33.3)
Share repurchases			(0.2)			—												(9.6)			—			—									(9.6)
Exercise of options, net of shares tendered for payment			0.1			—												5.2			—			—									5.2
Issuance of restricted shares, net of cancellations			0.2			—												—			—			—									—
Shares surrendered by employees to pay taxes			—			—												(5.3)			—			—									(5.3)
Share-based compensation			—			—												5.6			—			—									5.6
Balance - March 31, 2021			166.2			$	1.7											$	1,676.6		$	726.5		$	(211.0)								$	2,193.8
Net income			—			—												—			132.1			—									132.1
Other comprehensive income, net of tax			—			—												—			—			4.3									4.3
Dividends declared, $0.20 per share			—			—												—			(33.3)			—									(33.3)
Share repurchases			(0.6)			—												(40.4)			—			—									(40.4)
Exercise of options, net of shares tendered for payment			0.3			—												5.6			—			—									5.6
Issuance of restricted shares, net of cancellations			0.1			—												—			—			—									—
Shares surrendered by employees to pay taxes			(0.1)			—												(1.5)			—			—									(1.5)
Share-based compensation			—			—												11.0			—			—									11.0
Balance - June 30, 2021			165.9			$	1.7											$	1,651.3		$	825.3		$	(206.7)								$	2,271.6
Net income			—			—												—			143.6			—									143.6
Other comprehensive loss, net of tax			—			—												—			—			(6.9)									(6.9)
Dividends declared, $0.20 per share			—			—												—			(33.1)			—									(33.1)
Share repurchase			(0.6)			—												(50.0)			—			—									(50.0)
Exercise of options, net of shares tendered for payment			0.2			—												8.9			—			—									8.9
Shares surrendered by employees to pay taxes			—			—												(0.2)			—			—									(0.2)
Share-based compensation			—			—												4.2			—			—									4.2
Balance - September 30, 2021			165.5			$	1.7											$	1,614.2		$	935.8		$	(213.6)								$	2,338.1

In millions			Ordinary shares									Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total
Number			Amount
Balance - December 31, 2019			168.3			$	1.7					$	1,777.7		$	401.0		$	(226.5)		$	1,953.9
Net income			—			—						—			72.7			—			72.7
Other comprehensive income, net of tax			—			—						—			—			1.3			1.3
Dividends declared, $0.19 per share			—			—						—			(31.6)			—			(31.6)
Share repurchases			(3.0)			—						(115.2)			—			—			(115.2)
Exercise of options, net of shares tendered for payment			0.3			—						8.8			—			—			8.8
Issuance of restricted shares, net of cancellations			0.2			—						—			—			—			—
Shares surrendered by employees to pay taxes			(0.1)			—						(3.6)			—			—			(3.6)
Share-based compensation			—			—						6.2			—			—			6.2
Balance - March 31, 2020			165.7			$	1.7					$	1,673.9		$	442.1		$	(225.2)		$	1,892.5
Net income			—			—						—			72.1			—			72.1
Other comprehensive income, net of tax			—			—						—			—			10.4			10.4
Dividends declared, $0.19 per share			—			—						—			(31.7)			—			(31.7)
Exercise of options, net of shares tendered for payment			0.1			—						2.8			—			—			2.8
Issuance of restricted shares, net of cancellations			0.1			—						—			—			—			—
Shares surrendered by employees to pay taxes			—			—						(0.6)			—			—			(0.6)
Share-based compensation			—			—						4.2			—			—			4.2
Balance - June 30, 2020			165.9			$	1.7					$	1,680.3		$	482.5		$	(214.8)		$	1,949.7
Net income			—			—						—			110.8			—			110.8
Other comprehensive income, net of tax			—			—						—			—			2.5			2.5
Dividends declared, $0.19 per share			—			—						—			(31.7)			—			(31.7)
Exercise of options, net of shares tendered for payment			0.4			—						14.1			—			—			14.1
Shares surrendered by employees to pay taxes			—			—						(0.4)			—			—			(0.4)
Share-based compensation			—			—						4.8			—			—			4.8
Balance - September 30, 2020			166.3			$	1.7					$	1,698.8		$	561.6		$	(212.3)		$	2,049.8

See accompanying notes to condensed consolidated financial statements.

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

**1.**Basis of Presentation and Responsibility for Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements of Pentair plc and its subsidiaries (“we,” “us,” “our,” “Pentair,” or the “Company”) have been prepared following the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (“GAAP”) can be condensed or omitted.

We are responsible for the unaudited condensed consolidated financial statements included in this document. The financial statements include all normal recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. As these are condensed financial statements, one should also read our consolidated financial statements and notes thereto, which are included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Revenues, expenses, cash flows, assets and liabilities can and do vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be indicative of those for a full year.

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 rate and 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.

Our fiscal year ends on December 31. We report our interim quarterly periods on a calendar quarter basis.

**2.**Revenue

We disaggregate our revenue from contracts with customers by segment, geographic location and vertical, as we believe these best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Refer to Note 15 for revenue disaggregated by segment.

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

			Three months ended									Nine months ended
In millions			September 30, 2021			September 30, 2020						September 30, 2021			September 30, 2020
U.S.			$	669.3		$	541.2					$	1,895.0		$	1,487.9
Western Europe			115.1			92.6						351.1			281.3
Developing (1)			123.7			108.3						349.6			303.2
Other Developed (2)			61.1			56.4						180.5			149.4
Consolidated net sales			$	969.2		$	798.5					$	2,776.2		$	2,221.8
(1) Developing includes China, Eastern Europe, Latin America, the Middle East and Southeast Asia.
(2) Other Developed includes Australia, Canada and Japan.

Vertical net sales information was as follows:

			Three months ended									Nine months ended
In millions			September 30, 2021			September 30, 2020						September 30, 2021			September 30, 2020
Residential			$	628.8		$	520.3					$	1,800.0		$	1,375.8
Commercial			178.1			126.0						488.9			391.8
Industrial			162.3			152.2						487.3			454.2
Consolidated net sales			$	969.2		$	798.5					$	2,776.2		$	2,221.8

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Performance obligations

On September 30, 2021, we had $72.0 million of remaining performance obligations on contracts with an original expected duration of one year or more. We expect to recognize the majority of our remaining performance obligations on these contracts within the next 12 to 18 months.

Contract assets and liabilities

Contract assets and liabilities consisted of the following:

In millions			September 30, 2021			December 31, 2020						$ Change			% Change
Contract assets			$	55.2		$	50.1					$	5.1		10.2		%
Contract liabilities			38.3			27.5						10.8			39.3		%
Net contract assets			$	16.9		$	22.6					$	(5.7)		(25.2)		%

The $5.7 million decrease in net contract assets from December 31, 2020 to September 30, 2021 was primarily the result of timing of milestone payments. Approximately 75% of our contract liabilities at December 31, 2020 were recognized in revenue in the first nine months of 2021. There were no impairment losses recognized on our contract assets for the three months ended September 30, 2021.

**3.**Acquisitions

On September 15, 2021, as part of both of our Consumer Solutions and Industrial & Flow Technologies reporting segments, we entered into a definitive agreement to acquire Pleatco Holdings, LLC and related entities (“Pleatco”) for total consideration of approximately $255.0 million in cash, subject to customary adjustments. We completed the Pleatco acquisition on October 18, 2021.

On May 19, 2021, as part of our Consumer Solutions reporting segment, we completed the acquisition of Ken’s Beverage, Inc. for $82.8 million in cash, net of cash acquired. The excess of purchase price over tangible net assets acquired has been preliminarily allocated to goodwill in the amount of $29.0 million, all of which is expected to be deductible for income tax purposes. Identifiable intangible assets acquired consisted of $38.0 million of definite-lived customer relationships with an estimated useful life of 22 years.

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

The pro forma impact of these acquisitions is not material.

**4.**Share Plans

Total share-based compensation expense for the three and nine months ended September 30, 2021 and 2020 was as follows:

			Three months ended									Nine months ended
In millions			September 30, 2021			September 30, 2020						September 30, 2021			September 30, 2020
Restricted stock units			$	2.4		$	3.0					$	9.4		$	9.3
Stock options			0.7			0.6						2.5			2.2
Performance share units			1.1			1.2						8.9			3.7
Total share-based compensation expense			$	4.2		$	4.8					$	20.8		$	15.2

In the first quarter of 2021, we issued our annual share-based compensation grants under the Pentair plc 2020 Share and Incentive Plan to eligible employees. The total number of awards issued was approximately 0.7 million, of which 0.3 million were restricted stock units (“RSUs”), 0.3 million were stock options and 0.1 million were performance share units (“PSUs”). The weighted-average grant date fair value of the RSUs, stock options and PSUs issued was $55.42, $12.88, and $52.57, respectively.

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

We estimated the fair value of each stock option award issued in the annual share-based compensation grant using a Black-Scholes option pricing model, modified for dividends and using the following assumptions:

			2021 Annual Grant
Risk-free interest rate			0.37		%
Expected dividend yield			1.56		%
Expected share price volatility			29.60		%
Expected term (years)			6.5

These estimates require us to make assumptions based on historical results, observance of trends in our share price, changes in option exercise behavior, future expectations and other relevant factors. If other assumptions had been used, share-based compensation expense, as calculated and recorded under the accounting guidance, could have been affected. We based the expected life assumption on historical experience as well as the terms and vesting periods of the options granted. For purposes of determining expected share price volatility, we considered a rolling average of historical volatility measured over a period approximately equal to the expected option term. The risk-free interest rate for periods that coincide with the expected life of the options is based on the United States (“U.S.”) Treasury Department yield curve in effect at the time of grant.

**5.**Restructuring and Transformation Program

During the second quarter of 2021, we launched and committed resources to a program designed to accelerate growth and drive margin expansion through transformation of our business model to drive operational excellence, reduce complexity and streamline our processes (the “Transformation Program”). 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 the nine months ended September 30, 2021 and the year ended December 31, 2020, we initiated and continued execution of actions aimed at reducing our fixed cost structure and realigning our business associated with restructuring and the Transformation Program, including the reduction in headcount of approximately 50 and 175 employees, respectively.

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

			Three months ended									Nine months ended
In millions			September 30, 2021			September 30, 2020						September 30, 2021			September 30, 2020
Severance and related costs			$	—		$	1.2					$	5.1		$	5.0
Transformation costs (1)			4.0			—						5.9			—
Other costs (2)			—			0.6						0.2			0.6
Total restructuring and transformation costs			$	4.0		$	1.8					$	11.2		$	5.6

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

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

Restructuring and transformation costs by reportable segment were as follows:

			Three months ended									Nine months ended
In millions			September 30, 2021			September 30, 2020						September 30, 2021			September 30, 2020
Consumer Solutions			$	0.1		$	0.4					$	0.8		$	2.4
Industrial & Flow Technologies			(0.2)			1.1						0.3			1.7
Other			4.1			0.3						10.1			1.5
Consolidated			$	4.0		$	1.8					$	11.2		$	5.6

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Activity related to accrued severance and related costs recorded in Other current liabilities in the Condensed Consolidated Balance Sheets is summarized as follows for the nine months ended September 30, 2021:

In millions			September 30, 2021
Beginning balance			$	15.2
Costs incurred			5.1
Cash payments and other			(8.0)
Ending balance			$	12.3

**6.**Earnings Per Share

Basic and diluted earnings per share were calculated as follows:

			Three months ended									Nine months ended
In millions, except per-share data			September 30, 2021			September 30, 2020						September 30, 2021			September 30, 2020
Net income			$	143.6		$	110.8					$	404.3		$	255.6
Net income from continuing operations			$	143.7		$	110.8					$	407.4		$	257.3
Weighted average ordinary shares outstanding
Basic			165.7			166.1						166.0			166.6
Dilutive impact of stock options, restricted stock units and performance share units			1.9			1.0						1.7			0.8
Diluted			167.6			167.1						167.7			167.4
Earnings (loss) per ordinary share
Basic
Continuing operations			$	0.87		$	0.67					$	2.46		$	1.54
Discontinued operations			—			—						(0.02)			(0.01)
Basic earnings per ordinary share			$	0.87		$	0.67					$	2.44		$	1.53
Diluted
Continuing operations			$	0.86		$	0.66					$	2.43		$	1.54
Discontinued operations			—			—						(0.02)			(0.01)
Diluted earnings per ordinary share			$	0.86		$	0.66					$	2.41		$	1.53
Anti-dilutive stock options excluded from the calculation of diluted earnings per share			—			1.6						0.1			2.2

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

**7.**Accounts Receivable

All trade receivables are reported on our Condensed Consolidated Balance Sheets at the outstanding principal amount adjusted for any allowance for credit losses and write-offs, net of recoveries. We record an allowance for credit losses, reducing our receivables balance to an amount we estimate is collectible from our customers. Estimates used in determining the allowance for credit losses are based on current trends, aging of accounts receivable, periodic credit evaluations of our customers’ financial condition, and historical collection experience as well as reasonable and supportable forecasts of future economic conditions. Write-offs are recorded at the time all collection efforts have been exhausted. We generally do not require collateral. We review our allowance for credit losses on a quarterly basis.

In millions			September 30, 2021			December 31, 2020
Beginning balance			$	8.4		$	10.3
Bad debt expense (benefit) (1)			1.1			(0.5)
Acquisitions			0.6			0.1
Write-offs, net of recoveries			(0.6)			(1.6)
Other (2)			0.3			0.1
Ending balance			$	9.8		$	8.4
(1) The bad debt benefit for the year-ended December 31, 2020 includes the positive impact related to the adoption of ASU No. 2016-13 “Financial Instruments-Credit Losses.”
(2) Other amounts are primarily the effects of changes in currency translation and the impact of allowance for credits.

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

**8.**Supplemental Balance Sheet Information

In millions			September 30, 2021			December 31, 2020
Inventories
Raw materials and supplies			$	265.4		$	218.7
Work-in-process			71.2			67.2
Finished goods			168.0			134.1
Total inventories			$	504.6		$	420.0
Other current assets
Cost in excess of billings			$	55.2		$	50.1
Prepaid expenses			50.8			48.5
Prepaid income taxes			1.7			3.8
Other current assets			3.0			3.1
Total other current assets			$	110.7		$	105.5
Property, plant and equipment, net
Land and land improvements			$	35.1		$	35.9
Buildings and leasehold improvements			192.1			195.4
Machinery and equipment			601.0			589.7
Capitalized software			82.8			79.9
Construction in progress			56.2			47.8
Total property, plant and equipment			967.2			948.7
Accumulated depreciation and amortization			670.4			647.5
Total property, plant and equipment, net			$	296.8		$	301.2
Other non-current assets
Right-of-use lease assets			$	78.6		$	83.6
Deferred income taxes			27.3			27.4
Deferred compensation plan assets			24.2			22.6
Other non-current assets			70.3			69.2
Total other non-current assets			$	200.4		$	202.8
Other current liabilities
Dividends payable			$	33.1		$	33.2
Accrued warranty			43.0			37.0
Accrued rebates and incentives			209.6			122.0
Billings in excess of cost			30.7			22.5
Current lease liability			24.7			22.1
Income taxes payable			21.8			14.6
Accrued restructuring			12.3			15.2
Other current liabilities			152.0			143.8
Total other current liabilities			$	527.2		$	410.4
Other non-current liabilities
Long-term lease liability			$	56.1		$	65.1
Income taxes payable			45.0			44.8
Self-insurance liabilities			45.1			42.0
Deferred compensation plan liabilities			24.2			22.6
Foreign currency contract liabilities			26.3			69.6
Other non-current liabilities			28.1			25.3
Total other non-current liabilities			$	224.8		$	269.4

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

**9.**Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill by reportable segment were as follows:

In millions			December 31, 2020			Purchase Accounting Adjustments			Acquisitions			Foreign currency translation/other			September 30, 2021
Consumer Solutions			$	1,580.5		$	(1.2)		$	29.0		$	(6.0)		$	1,602.3
Industrial & Flow Technologies			811.7			—			—			(27.5)			784.2
Total goodwill			$	2,392.2		$	(1.2)		$	29.0		$	(33.5)		$	2,386.5

Identifiable intangible assets consisted of the following:

			September 30, 2021												December 31, 2020
In millions			Cost			Accumulated amortization			Net						Cost			Accumulated amortization			Net
Definite-life intangibles
Customer relationships			$	465.3		$	(318.0)		$	147.3					$	435.9		$	(308.1)		$	127.8
Proprietary technology and patents			46.6			(31.4)			15.2						46.9			(29.4)			17.5
Total definite-life intangibles			511.9			(349.4)			162.5						482.8			(337.5)			145.3
Indefinite-life intangibles
Trade names			177.1			—			177.1						180.6			—			180.6
Total intangibles			$	689.0		$	(349.4)		$	339.6					$	663.4		$	(337.5)		$	325.9

Identifiable intangible asset amortization expense was $6.0 million and $6.9 million for the three months ended September 30, 2021 and 2020, respectively, and $19.4 million and $21.5 million for the nine months ended September 30, 2021 and 2020, respectively.

Estimated future amortization expense for identifiable intangible assets during the remainder of 2021 and the next five years is as follows:

			Q4
			2021			2022			2023			2024			2025			2026
Estimated amortization expense			$	5.8		$	17.6		$	15.4		$	14.9		$	14.9		$	13.5

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

**10.**Debt

Debt and the average interest rates on debt outstanding were as follows:

In millions			Average interest rate as of September 30, 2021			Maturity Year			September 30, 2021			December 31, 2020
Revolving credit facilities			1.080%			2023			$	—		$	36.1
Term loans			1.006%			2023			200.0			200.0
Senior notes - fixed rate (1)			5.000%			2021			—			103.8
Senior notes - fixed rate (1)			3.150%			2022			88.3			88.3
Senior notes - fixed rate (1)			4.650%			2025			19.3			19.3
Senior notes - fixed rate (1)			4.500%			2029			400.0			400.0
Unamortized debt issuance costs and discounts			N/A			N/A			(6.7)			(7.9)
Total debt									$	700.9		$	839.6
(1) Senior notes are guaranteed as to payment by Pentair plc.

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. The Senior Credit Facility has a maturity date of April 25, 2023. Borrowings under the Senior Credit Facility bear interest at a rate equal to an adjusted base rate or the London Interbank Offered 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.

The Senior Credit Facility provides for the extension of term loans in an aggregate amount of $200.0 million (the “Term Loans”). We have utilized the term loan extension since December 2019. The Term Loans are in addition to the revolving credit facility commitment. In addition, PFSA has the option to further increase the Senior Credit Facility in an aggregate amount of up to $300.0 million, through a combination of increases to the total commitment amount of the revolving credit facility and/or one or more tranches of term loans in addition to the Term Loans, subject to customary conditions, including the commitment of the participating lenders.

PFSA is authorized to sell short-term commercial paper notes to the extent availability exists under the Senior Credit Facility. PFSA uses the Senior Credit Facility as back-up liquidity to support 100% of commercial paper outstanding. PFSA had no commercial paper outstanding as of September 30, 2021 and December 31, 2020.

In 2020, the commercial paper market began to experience high levels of volatility due to uncertainty related to the COVID-19 pandemic. The volatility impacted both market access to and pricing of commercial paper. As a cost mitigation action, we withdrew our credit ratings to access the commercial paper market and continued to use the revolving credit facility, along with cash generated from operations, to fund our general operations. As of September 30, 2021, total availability under the Senior Credit Facility was $900.0 million.

Our debt agreements contain various financial covenants, but the most restrictive covenants are contained in the Senior Credit Facility. The Senior Credit Facility contains covenants requiring us not to permit (i) the ratio of our consolidated debt (net of our consolidated unrestricted cash in excess of $5.0 million but not to exceed $250.0 million) to our consolidated net income (excluding, among other things, non-cash gains and losses) before interest, taxes, depreciation, amortization and non-cash share-based compensation expense (“EBITDA”) on the last day of any period of four consecutive fiscal quarters to exceed 3.75 to 1.00 (the “Leverage Ratio”) and (ii) the ratio of our EBITDA to our consolidated interest expense, for the same period to be less than 3.00 to 1.00 as of the end of each fiscal quarter. For purposes of the Leverage Ratio, the Senior Credit Facility provides for the calculation of EBITDA giving pro forma effect to certain acquisitions, divestitures and liquidations during the period to which such calculation relates.

In addition to the Senior Credit Facility, we have various other credit facilities with an aggregate availability of $21.4 million, of which there were no outstanding borrowings at September 30, 2021. Borrowings under these credit facilities bear interest at variable rates.

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

We have $88.3 million of fixed rate senior notes maturing in the next twelve months. We classified this debt as long-term as of September 30, 2021 as we have the intent and ability to refinance such obligation on a long-term basis under the Senior Credit Facility.

Debt outstanding, excluding unamortized issuance costs and discounts, at September 30, 2021 matures on a calendar year basis as follows:

			Q4
In millions			2021			2022			2023			2024			2025			2026						Thereafter			Total
Contractual debt obligation maturities			$	—		$	88.3		$	200.0		$	—		$	19.3		$	—					$	400.0		$	707.6

**11.**Derivatives and Financial Instruments

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 exchange rates. The derivative contracts contain credit risk to the extent that our bank counterparties may be unable to meet the terms of the agreements. The amount of such credit risk is generally limited to the unrealized gains, if any, in such contracts. Such risk is minimized by limiting those counterparties to major financial institutions of high credit quality.

Foreign currency contracts

We conduct business in various locations throughout the world and are subject to market risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. dollar. We manage our economic and transaction exposure to certain market-based risks through the use of foreign currency derivative financial instruments. Our objective in holding these derivatives is to reduce the volatility of net earnings and cash flows associated with changes in foreign currency exchange rates. The majority of our foreign currency contracts have an original maturity date of less than one year.

At September 30, 2021 and December 31, 2020, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts of $10.6 million and $12.4 million, respectively. The impact of these contracts on the Condensed Consolidated Statements of Operations and Comprehensive Income was not material for any period presented.

Cross Currency Swaps

At September 30, 2021 and December 31, 2020, we had outstanding cross currency swap agreements with a combined notional amount of $817.8 million and $855.1 million, respectively. The agreements are accounted for as either cash flow hedges, to hedge foreign currency fluctuations on certain intercompany debt, or as net investment hedges to manage our exposure to fluctuations in the Euro-U.S. Dollar exchange rate. We had deferred foreign currency losses of $8.3 million and $32.8 million at September 30, 2021 and December 31, 2020, respectively, in Accumulated other comprehensive loss associated with our cross currency swap activity. The periodic interest settlements related to our cross currency swap agreements are classified as operating activities. The cash flows that relate to principal balances are classified as financing activities for the cash flow hedges on intercompany debt and investing activities for the net investment hedges.

In January 2021, one of our cross currency swap agreements which was accounted for as a cash flow hedge matured, resulting in a net cash payment of $14.7 million. The net cash payment is included within financing activities on the Condensed Consolidated Statements of Cash Flows.

Fair value measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:

Level 1:						Valuation is based on observable inputs such as quoted market prices (unadjusted) for identical assets or liabilities in active markets.
Level 2:						Valuation is based on inputs such as quoted market prices for similar assets or liabilities in active markets or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3:						Valuation is based upon other unobservable inputs that are significant to the fair value measurement.

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

In making fair value measurements, observable market data must be used when available. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Fair value of financial instruments

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

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

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

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

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

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

			September 30, 2021									December 31, 2020
In millions			Recorded Amount			Fair Value						Recorded Amount			Fair Value
Variable rate debt			$	200.0		$	200.0					$	236.1		$	236.1
Fixed rate debt			507.6			572.7						611.4			695.4
Total debt			$	707.6		$	772.7					$	847.5		$	931.5

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

			September 30, 2021
In millions			Level 1			Level 2			Level 3			NAV			Total
Recurring fair value measurements
Foreign currency contract assets			$	—		$	3.3		$	—		$	—		$	3.3
Foreign currency contract liabilities			—			(26.3)			—			—			(26.3)
Deferred compensation plan assets			12.9			—			—			11.3			24.2
Total recurring fair value measurements			$	12.9		$	(23.0)		$	—		$	11.3		$	1.2

			December 31, 2020
In millions			Level 1			Level 2			Level 3			NAV			Total
Recurring fair value measurements
Foreign currency contract liabilities			$	—		$	(69.6)		$	—		$	—		$	(69.6)
Deferred compensation plan assets			12.2			—			—			10.4			22.6
Total recurring fair value measurements			$	12.2		$	(69.6)		$	—		$	10.4		$	(47.0)

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

**12.**Income Taxes

We manage our affairs so that we are centrally managed and controlled in the United Kingdom (“U.K.”) and therefore have our tax residency in the U.K. The provision for income taxes consists of provisions for the U.K. and international income taxes. We operate in an international environment with operations in various locations outside the U.K. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates.

The effective income tax rate for the nine months ended September 30, 2021 was 14.2%, compared to 19.9% for the nine months ended September 30, 2020. We continue to actively pursue initiatives to reduce our effective tax rate. The tax rate in any quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution.

The liability for uncertain tax positions was $46.7 million and $46.3 million at September 30, 2021 and December 31, 2020, respectively. We record penalties and interest related to unrecognized tax benefits in Provision for income taxes and Net interest expense, respectively, on the Condensed Consolidated Statements of Operations and Comprehensive Income, which is consistent with our past practices.

**13.**Benefit Plans

Components of net periodic benefit expense for our pension plans for the three and nine months ended September 30, 2021 and 2020 were as follows:

			Three months ended									Nine months ended
In millions			September 30, 2021			September 30, 2020						September 30, 2021			September 30, 2020
Service cost			$	0.7		$	0.8					$	2.1		$	2.4
Interest cost			0.5			0.7						1.5			2.1
Expected return on plan assets			(0.1)			(0.2)						(0.3)			(0.6)
Net periodic benefit expense			$	1.1		$	1.3					$	3.3		$	3.9

Components of net periodic benefit expense for our other post-retirement plans for the three and nine months ended September 30, 2021 and 2020 were not material.

**14.**Shareholders’ Equity

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 nine months ended September 30, 2021, we repurchased 1.4 million of our ordinary shares for $100.0 million, of which 0.8 million shares, or $50.0 million, and 0.6 million shares, or $50.0 million, were repurchased pursuant to the 2018 Authorization and the 2020 Authorization, respectively. As of September 30, 2021, we had $700.0 million available for share repurchases under the 2020 Authorization.

Dividends payable

On September 21, 2021, the Board of Directors declared a quarterly cash dividend of $0.20, payable on November 5, 2021 to shareholders of record at the close of business on October 22, 2021. As a result, the balance of dividends payable included in Other current liabilities on our Condensed Consolidated Balance Sheets was $33.1 million at September 30, 2021, compared to $33.2 million at December 31, 2020.

**15.**Segment Information

We evaluate performance based on net sales and segment income (loss) and use a variety of ratios to measure performance of our reporting segments. These results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented. Segment income (loss) represents equity income of unconsolidated subsidiaries and operating income exclusive of intangible amortization, certain acquisition related expenses, costs of restructuring and transformation activities, impairments and other unusual non-operating items.

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Financial information by reportable segment is as follows:

			Three months ended									Nine months ended
In millions			September 30, 2021			September 30, 2020						September 30, 2021			September 30, 2020
Net sales
Consumer Solutions			$	613.6		$	470.8					$	1,711.9		$	1,260.8
Industrial & Flow Technologies			355.1			327.4						1,063.1			960.1
Other			0.5			0.3						1.2			0.9
Consolidated			$	969.2		$	798.5					$	2,776.2		$	2,221.8
Segment income (loss)
Consumer Solutions			$	144.2		$	113.8					$	418.6		$	295.3
Industrial & Flow Technologies			52.4			42.7						159.5			131.5
Other			(16.9)			(16.0)						(59.1)			(50.1)
Consolidated			$	179.7		$	140.5					$	519.0		$	376.7

The following table presents a reconciliation of consolidated segment income to consolidated income from continuing operations before income taxes:

			Three months ended									Nine months ended
In millions			September 30, 2021			September 30, 2020						September 30, 2021			September 30, 2020
Segment income			$	179.7		$	140.5					$	519.0		$	376.7
Deal-related costs and expenses			(2.1)			—						(3.8)			(0.4)
Restructuring, transformation and other costs			(4.1)			(2.1)						(11.4)			(5.6)
Intangible amortization			(6.0)			(6.9)						(19.4)			(21.5)
Gain (loss) on sale of businesses			1.4			—						1.4			(0.1)
COVID-19 related costs and expenses			(0.1)			(2.6)						(0.4)			(8.3)
Legal accrual adjustments			—			—						2.4			—
Net interest expense			(2.6)			(5.4)						(11.5)			(20.0)
Other expense			(0.4)			1.7						(1.2)			0.6
Income from continuing operations before income taxes			$	165.8		$	125.2					$	475.1		$	321.4

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

**16.**Commitments and Contingencies

Legal proceedings

We have been, and in the future may be, made parties to a number of actions filed or have been, and in the future may be, given notice of potential claims relating to the conduct of our business, including those relating to commercial, regulatory or contractual disputes with suppliers, authorities, customers or parties to acquisitions and divestitures, intellectual property matters, environmental, asbestos, safety and health matters, product liability, the use or installation of our products, consumer matters, and employment and labor matters.

While we believe that a material impact on our consolidated financial position, results of operations or cash flows from any such future claims or potential claims is unlikely, given the inherent uncertainty of litigation, a remote possibility exists that a future adverse ruling or unfavorable development could result in future charges that could have a material adverse impact. We do and will continue to periodically reexamine our estimates of probable liabilities and any associated expenses and receivables and make appropriate adjustments to such estimates based on experience and developments in litigation. As a result, the current estimates of the potential impact on our consolidated financial position, results of operations and cash flows for the proceedings and claims described in the notes to our consolidated financial statements could change in the future.

Environmental matters

We have been named as defendant, target or a potentially responsible party in a number of environmental clean-ups relating to our current or former business units. Accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. It can be difficult to estimate reliably the final costs of investigation and remediation due to various factors. In our opinion, the amounts accrued are appropriate based on facts and circumstances as currently known. As of September 30, 2021 and December 31, 2020, our recorded reserves for environmental matters were not material.

Product liability claims

We are subject to various product liability lawsuits and personal injury claims. A substantial number of these lawsuits and claims are insured and accrued for by Penwald, our captive insurance subsidiary. Penwald records a liability for these claims based on actuarial projections of ultimate losses. For all other claims, accruals covering the claims are recorded, on an undiscounted basis, when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information. The accruals are adjusted periodically as additional information becomes available. We have not experienced significant unfavorable trends in either the severity or frequency of product liability lawsuits or personal injury claims.

Warranties and guarantees

In connection with our disposition of businesses or product lines, we may agree to indemnify purchasers for various potential liabilities relating to the sold business, such as pre-closing tax, product liability, warranty, environmental, or other obligations. The subject matter, amounts and duration of any such indemnification obligations vary for each type of liability indemnified and may vary widely from transaction to transaction.

Generally, the maximum obligations under such indemnifications are not explicitly stated and as a result, the overall amount of these obligations cannot be reasonably estimated. Historically, we have not made significant payments for these indemnifications. We believe that if we were to incur a loss in any of these matters, the loss would not have a material adverse effect on our financial position, results of operations or cash flows.

We recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. In connection with the disposition of the Valves & Controls business, we agreed to indemnify Emerson Electric Co. for certain pre-closing tax liabilities. We have recorded a liability representing the fair value of our expected future obligation for this matter.

We provide service and warranty policies on our products. Liability under service and warranty policies is based upon a review of historical warranty and service claim experience. Adjustments are made to accruals as claim data and historical experience warrant.

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

The changes in the carrying amount of service and product warranties of continuing operations for the nine months ended September 30, 2021 were as follows:

In millions			September 30, 2021
Beginning balance			$	37.0
Service and product warranty provision			44.6
Payments			(38.3)
Foreign currency translation			(0.3)
Ending balance			$	43.0

Stand-by letters of credit, bank guarantees and bonds

In certain situations, Tyco International Ltd., Pentair Ltd.’s former parent company (“Tyco”), guaranteed performance by the flow control business of Pentair Ltd. (“Flow Control”) to third parties or provided financial guarantees for financial commitments of Flow Control. In situations where Flow Control and Tyco were unable to obtain a release from these guarantees in connection with the spin-off of Flow Control from Tyco, we will indemnify Tyco for any losses it suffers as a result of such guarantees.

In the ordinary course of business, we are required to commit to bonds, letters of credit and bank guarantees that require payments to our customers for any non-performance. The outstanding face value of these instruments fluctuates with the value of our projects in process and in our backlog. In addition, we issue financial stand-by letters of credit primarily to secure our performance to third parties under self-insurance programs.

As of September 30, 2021 and December 31, 2020, the outstanding value of bonds, letters of credit and bank guarantees totaled $98.5 million and $99.1 million, respectively.