Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Statements

This report contains statements that we believe to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, are forward-looking statements. Without limitation, any statements preceded or followed by or that include the words “targets,” “plans,” “believes,” “expects,” “intends,” “will,” “likely,” “may,” “anticipates,” “estimates,” “projects,” “should,” “would,” “could,” “positioned,” “strategy,” “future” or words, phrases or terms of similar substance or the negative thereof, are forward-looking statements. All statements made about the Manitowoc Ice acquisition, including the anticipated time for completing the acquisition, and the anticipated benefits of the acquisition are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include our ability to close the Manitowoc Ice acquisition on the expected terms and time schedule, including satisfying closing conditions; our ability to integrate the Manitowoc Ice acquisition successfully; our ability to retain customers and employees of Manitowoc Ice; the overall impact of the COVID-19 pandemic on our and the Manitowoc Ice business; the duration and severity of the COVID-19 pandemic, the impact of virus variants and the effectiveness of vaccinations; actions that may be taken by us, other businesses and governments to address or otherwise mitigate the impact of the COVID-19 pandemic, including those that may impact our ability to operate our facilities, meet production demands, and deliver products to our customers; the impacts of the COVID-19 pandemic on the global economy, our workforce, customers and suppliers, and customer demand; overall global economic and business conditions impacting our business, including the strength of housing and related markets and conditions relating to the conflict between Russia and Ukraine and related sanctions; supply, demand, logistics, competition and pricing pressures related to and in the markets we serve; volatility in currency exchange rates; failure of markets to accept new product introductions and enhancements; the ability to successfully identify, finance, complete and integrate acquisitions; the ability to achieve the benefits of our restructuring plans, cost reduction initiatives and transformation program; risks associated with operating foreign businesses and foreign supply chains; the impact of raw material costs, labor costs and other inflation; the impact of seasonality of sales and weather conditions; our ability to comply with laws and regulations; the impact of changes in laws, regulations and administrative policy, including those that limit U.S. tax benefits or impact ability to trade, trade agreements and tariffs; the outcome of litigation and governmental proceedings; and the ability to achieve our long-term strategic operating and ESG goals. Additional information concerning these and other factors is contained in our filings with the U.S. Securities and Exchange Commission (the “SEC”), including this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021. All forward-looking statements speak only as of the date of this report. Pentair assumes no obligation, and disclaims any obligation, to update the information contained in this report.

Overview

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 improving, moving or helping people enjoy water, we help manage the world’s most precious resource. We are comprised of two reporting segments: Consumer Solutions and Industrial & Flow Technologies. For the first six months of 2022, the Consumer Solutions and Industrial & Flow Technologies segments represented approximately 64% and 36% of total revenues, respectively. We classify our operations into business segments based primarily on types of products offered and markets served:

• 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, 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. 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, including fluid delivery, ion exchange, desalination, food and beverage, separation technologies for the oil and gas industry, residential and municipal wells, water treatment, wastewater solids handling, pressure boosting, circulation and transfer, fire suppression, flood control, agricultural irrigation and crop spray. The primary focus of this segment is business-to-business.

On March 2, 2022, as part of our Consumer Solutions reporting segment, we entered into a definitive agreement with Welbilt, Inc. (“Welbilt”), to acquire the issued and outstanding equity securities of certain subsidiaries of Welbilt and certain other assets, rights, and properties, and assume certain liabilities, comprising Welbilt’s Manitowoc Ice business (“Manitowoc Ice”), for an aggregate purchase price of $1.6 billion, subject to customary adjustments contemplated by the definitive agreement. We expect to fund the purchase price for the acquisition with borrowings under our term loan facility and net proceeds from the issuance of our 2032 senior notes, together with cash on hand and/or borrowings under our revolving credit facility. We expect to close our Manitowoc Ice acquisition on or around July 28, 2022, subject to customary closing conditions set forth in the definitive agreement.

Effective January 1, 2023, Pentair will move to three reporting segments to reflect how we expect to manage our business beginning in 2023. As a result of this segment change, the Consumer Solutions segment will be divided into a Pool segment and a Water Solutions segment. Our new Water Solutions segment will include Manitowoc Ice, assuming the successful completion of the acquisition on or around July 28, 2022. The Industrial & Flow Technologies segment will remain the same.

COVID-19 Pandemic Update

In 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The ongoing effects of the COVID-19 pandemic continue to impact global economic conditions. During the first six months of 2022, we have continued to experience various degrees of supply chain challenges, including increased lead times for raw materials due to availability constraints and high demand. While we have elevated our engagement with our suppliers and used secondary suppliers and new methods of procurement where available to mitigate the supply chain pressures, we expect supply chain challenges to continue throughout 2022.

In connection with the supply chain disruptions described above, we have experienced inflationary increases of certain raw materials, such as metals, resins and electronics (including drives and motors), as well as logistics, transportation and labor costs. While we have taken pricing actions and we strive for productivity improvements that could help offset these inflationary cost increases, we expect inflationary cost increases to continue throughout 2022.

The extent of the COVID-19 pandemic’s effect on our operational and financial performance in the future will depend on future developments, including the duration, geographic location and intensity of the pandemic, the impact of virus variants, the effectiveness of vaccinations, our continued ability to manufacture and distribute our products, as well as any future actions that may be taken by governmental authorities or by us relating to the pandemic. For more information regarding factors and events that may impact our business, results of operations and financial condition as a result of the COVID-19 pandemic, see “Risk Factors - Risks Relating to our Business: The COVID-19 pandemic may have a material negative impact on our business, financial condition, results of operations and cash flows” included in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Key Trends and Uncertainties Regarding Our Existing Business

The following trends and uncertainties affected our financial performance in the first six months of 2022 and/or may impact our results in the future:

• There are many uncertainties regarding the COVID-19 pandemic, including the anticipated duration and severity of the pandemic, the spread of an increasing number of virus variants, the extent of worldwide social, political and economic disruption it may continue to cause and the distribution and effectiveness of vaccines to address the COVID-19 virus. The broader implications of the COVID-19 pandemic that are reasonably likely to impact our business, financial condition, results of operations and cash flows cannot be determined at this time, and ultimately will be affected by a number of evolving factors including the length of time that the pandemic continues and the impact of vaccines on it, the impact of virus variants, the effectiveness of vaccinations, the pandemic’s effect on the demand for our products and services, our supply chain, and our manufacturing capacity, as well as the impact of governmental regulations imposed in response to the pandemic. See further discussion above under “COVID-19 Pandemic Update” for key trends and uncertainties with regard to the COVID-19 pandemic.

• During 2021 and the first six months of 2022, 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 2022 and to drive margin growth.

• In 2021, we created a transformation office and launched and committed resources to the Transformation Program designed to accelerate growth and drive margin expansion by driving operational excellence, reducing complexity and streamlining our processes. We expect to implement Transformation Program initiatives and incur transformation costs throughout the remainder of 2022 and beyond.

• During the first six months of 2022, we continued to experience supply chain challenges, including increased lead times for raw materials due to availability constraints and high demand. While we have elevated our engagement with our suppliers and used secondary suppliers and new methods of procurement where available to mitigate the supply chain pressures, we expect supply chain challenges to continue throughout the remainder of 2022, which may continue thereafter and could negatively impact our results of operations.

• During the first six months of 2022, we continued to experience inflationary increases in costs of raw materials such as metals, resins and electronics (including drives and motors), as well as increases in logistics, transportation and labor costs. While we have taken pricing actions and we strive for productivity improvements that could help offset these inflationary cost increases, we expect inflationary cost increases to continue throughout the remainder of 2022, which may continue thereafter and could negatively impact our results of operations.

*•*At the end of the second quarter of 2022, our backlog, primarily in our Consumer Solutions segment, decreased compared to the backlog at the end of 2021 as shipments outpaced new orders during the period as customers balanced the need to place new orders with market demand and channel inventory levels. This downward trend may continue throughout the remainder of 2022 as we expect backlog to return to more historical levels.

• We have identified specific product and geographic market opportunities that we find attractive and continue to pursue, both within and outside the U.S. We are reinforcing that our businesses more effectively address these opportunities through research and development and additional sales and marketing resources. Unless we successfully penetrate these markets, our core sales growth will likely be limited or may decline.

In 2022, our operating objectives remain to focus on delivering our core while continuing to build out our future. We expect to execute these objectives by:

• Delivering revenue growth in our core businesses;

• Delivering income and cash by managing price/cost inflation, prioritizing growth investments and addressing the cost structures as necessary;

• Continued focus on capital allocation through:

◦Commitment to maintain our investment grade rating;

◦Return of cash to shareholders through dividends and share repurchases; and

◦Supplement our business with strategically-aligned mergers and acquisitions;

• Focused growth initiatives that accelerate our investments in digital, technology and services expansion;

• Implementation of Transformation Program initiatives that will drive operational excellence, reduce complexity and improve our organizational structure;

• Integration of Manitowoc Ice’s operations with our existing operations; and

• Building a high performance growth culture and delivering on our commitments while living our Win Right values.

CONSOLIDATED RESULTS OF OPERATIONS

The consolidated results of operations for the three months ended June 30, 2022 and 2021 were as follows:

			Three months ended
In millions			June 30, 2022			June 30, 2021			$ Change			% / Point Change
Net sales			$	1,064.2		$	941.1		$	123.1		13.1		%
Cost of goods sold			704.7			600.1			104.6			17.4		%
Gross profit			359.5			341.0			18.5			5.4		%
% of net sales			33.8		%	36.2		%				(2.4)		pts
Selling, general and administrative			145.6			158.2			(12.6)			(8.0)		%
% of net sales			13.7		%	16.8		%				(3.1)		pts
Research and development			23.1			21.0			2.1			10.0		%
% of net sales			2.2		%	2.2		%				—		pts
Operating income			190.8			161.8			29.0			17.9		%
% of net sales			17.9		%	17.2		%				0.7		pts
Other expense			0.1			0.3			(0.2)			N.M.
Net interest expense			9.2			3.8			5.4			142.1		%
Income from continuing operations before income taxes			181.5			157.7			23.8			15.1		%
Provision for income taxes			28.5			25.1			3.4			13.5		%
Effective tax rate			15.7		%	15.9		%				(0.2)		pts

N.M. Not Meaningful

The consolidated results of operations for the six months ended June 30, 2022 and June 30, 2021 were as follows:

			Six months ended
In millions			June 30, 2022			June 30, 2021			$ Change			% / Point Change
Net sales			$	2,063.8		$	1,807.0		$	256.8		14.2		%
Cost of goods sold			1,372.1			1,150.8			221.3			19.2		%
Gross profit			691.7			656.2			35.5			5.4		%
% of net sales			33.5		%	36.3		%				(2.8)		pts
Selling, general and administrative expenses			309.7			294.8			14.9			5.1		%
% of net sales			15.0		%	16.3		%				(1.3)		pts
Research and development expenses			45.4			42.5			2.9			6.8		%
% of net sales			2.2		%	2.4		%				(0.2)		pts
Operating income			336.6			318.9			17.7			5.6		%
% of net sales			16.3		%	17.6		%				(1.3)		pts
Other expense			0.2			0.7			(0.5)			N.M.
Net interest expense			14.9			8.9			6.0			67.4		%
Income from continuing operations before income taxes			321.5			309.3			12.2			3.9		%
Provision for income taxes			50.0			45.6			4.4			9.6		%
Effective tax rate			15.6		%	14.7		%				0.9		pts

N.M. Not Meaningful

Net sales

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

			Three months ended June 30, 2022			Six months ended June 30, 2022
			over the prior year period			over the prior year period
Volume			(2.2)		%	—		%
Price			14.5			12.4
Core growth			12.3			12.4
Acquisition			3.0			3.7
Currency			(2.2)			(1.9)
Total			13.1		%	14.2		%

The 13.1 and 14.2 percent increases in net sales in the second quarter and first half, respectively, of 2022 from 2021 were primarily driven by:

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

• volume increase in our Consumer Solutions segment mainly driven by our pool business in the first half of 2022;

• volume increase in our industrial solutions business within our Industrial & Flow Technologies segment in the second quarter and first half of 2022; and

• increased sales in the second quarter and first half of 2022 from the acquisitions of Pleatco Holdings, LLC (“Pleatco”) and Ken’s Beverage, Inc (“KBI”) in 2021.

These increases were partially offset by:

*•*volume decrease in our residential and irrigation flow and commercial and infrastructure flow businesses within our Industrial & Flow Technologies segment in the second quarter and first half of 2022; and

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

Gross profit

The 2.4 and 2.8 percentage point decreases in gross profit as a percentage of net sales in the second quarter and first half, respectively, of 2022 from 2021 were primarily driven by:

• inflationary cost increases due to tight supply of raw materials such as metals, resins and electronics;

• higher logistics and labor costs due to increased demand, additional headcount and factory labor wage increases; and

• a charge of $1.7 million recorded in the first quarter of 2022 for the write-off of inventory and costs related to contracts and orders that we will no longer fulfill in light of our exiting of business activity and sales in Russia.

These decreases were partially offset by:

*•*increases in selling prices to mitigate impacts of inflation.

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

The 3.1 and 1.3 percentage point decreases in SG&A as a percentage of net sales in the second quarter and first half, respectively, of 2022 from 2021 were primarily driven by:

• higher employee incentive and stock compensation expense in 2021 compared to 2022 as the result of stronger financial performance in 2021 than initially forecasted;

• insurance proceeds received in the second quarter of 2022 as recovery of previously incurred expenses; and

• a gain on sale of fixed assets completed in the second quarter of 2022.

These decreases were partially offset by:

• transformation costs of $5.2 million in the second quarter of 2022, compared to $1.9 million in the second quarter of 2021, and $10.7 million in the first half of 2022, compared to $1.9 million in the first half of 2021;

*•*deal-related costs and expenses of $1.6 million in the second quarter of 2022, compared to $1.0 million in the same period of the prior year, and $8.0 million in the first half of 2022, compared to $1.7 million in the first half of 2021; and

• a charge of $4.2 million recorded in the first quarter of 2022 for the write-off of uncollectible accounts receivable and other costs incurred in light of our exiting of business activity and sales in Russia.

Net interest expense

The 142.1 and 67.4 percent increases in net interest expense in the second quarter and first half, respectively, of 2022 from 2021 were primarily driven by:

*•*the amortization of debt issuance costs of $5.1 million during the second quarter of 2022 and $7.7 million during the first half of 2022 related to financing commitments for a bridge loan facility established in connection with the definitive agreement to purchase Manitowoc Ice; and

• increased variable rate lending compared to the same periods of the prior year.

These increases were partially offset by:

• the weakening of the Euro compared to the same period of the prior year resulting in less interest expense on the outstanding cross currency swaps in the second quarter and first half of 2022.

Provision for income taxes

The 0.2% percentage point decrease in the effective tax rate in the second quarter of 2022 from 2021 was primarily driven by:

• the favorable mix of global earnings.

The 0.9 percentage point increase in the effective tax rate in the first half of 2022 from 2021 was primarily driven by:

• the favorable impact of discrete items that occurred during the first half of 2021 that did not occur in 2022.

This increase was partially offset by:

• the favorable mix of global earnings.

SEGMENT RESULTS OF OPERATIONS

The summary that follows provides a discussion of the results of operations of our two reportable segments (Consumer Solutions and Industrial & Flow Technologies). Each of these segments is comprised of various product offerings that serve multiple end users.

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, certain acquisition-related expenses, costs of restructuring and transformation activities, impairments and other unusual non-operating items.

Consumer Solutions

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

			Three months ended															Six months ended
In millions			June 30, 2022			June 30, 2021						% / Point Change						June 30, 2022			June 30, 2021						% / Point Change
Net sales			$	686.2		$	576.9					18.9		%				$	1,327.4		$	1,098.3					20.9		%
Segment income			169.2			143.4						18.0		%				307.7			274.4						12.1		%
% of net sales			24.7		%	24.9		%				(0.2)		pts				23.2		%	25.0		%				(1.8)		pts

Net sales

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

			Three months ended June 30, 2022			Six months ended June 30, 2022
			over the prior year period			over the prior year period
Volume			(1.8)		%	1.4		%
Price			17.2			14.6
Core growth			15.4			16.0
Acquisition			4.7			5.8
Currency			(1.2)			(0.9)
Total			18.9		%	20.9		%

The 18.9 and 20.9 percent increases in net sales for Consumer Solutions in the second quarter and first half, respectively, of 2022 from 2021 were primarily driven by:

• increases in selling prices to mitigate impacts of inflation;

• increased sales due to the Pleatco and KBI acquisitions that occurred in 2021; and

• increased sales volume in the first half of 2022 in our pool business as a result of an increase in available capacity.

These increases were partially offset by:

• decreased sales volume in our residential businesses in the second quarter and first half of 2022 compared to the prior year; and

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

Segment income

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

			Three months ended June 30, 2022			Six months ended June 30, 2022
			over the prior year period			over the prior year period
Growth/Price/Acquisition			12.8		pts	10.5		pts
Inflation			(11.5)			(11.8)
Productivity			(1.5)			(0.5)
Total			(0.2)		pts	(1.8)		pts

The 0.2 and 1.8 percentage point decreases in segment income for Consumer Solutions as a percentage of net sales in the second quarter and first half, respectively, of 2022 from 2021 were primarily driven by:

• inflationary cost increases due to high demand and limited supply of raw materials such as metals, resins and electronics along with increased logistics and labor costs; and

• decreased productivity in our residential water treatment business due to decreased sales volume in the second quarter and first half of 2022 compared to the prior year.

These decreases were partially offset by:

• increases in selling prices to mitigate the impacts of inflation.

Industrial & Flow Technologies

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

			Three months ended															Six months ended
In millions			June 30, 2022			June 30, 2021						% / Point Change						June 30, 2022			June 30, 2021						% / Point Change
Net sales			$	377.4		$	363.9					3.7		%				$	735.5		$	708.0					3.9		%
Segment income			59.1			57.1						3.5		%				111.3			107.1						3.9		%
% of net sales			15.7		%	15.7		%				—		pts				15.1		%	15.1		%				—		pts

Net sales

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

			Three months ended June 30, 2022			Six months ended June 30, 2022
			over the prior year period			over the prior year period
Volume			(2.7)		%	(2.2)		%
Price			10.1			8.9
Core growth			7.4			6.7
Acquisition			0.4			0.4
Currency			(4.1)			(3.2)
Total			3.7		%	3.9		%

The 3.7 and 3.9 percent increases in net sales for Industrial & Flow Technologies in the second quarter and first half, respectively, of 2022 from 2021 were primarily driven by:

• increases in selling prices to mitigate inflationary cost increases;

• increased sales volume in our industrial solutions business due to continued recovery in our project sales; and

• increased sales due to the acquisition of Pleatco in 2021.

These increases were partially offset by:

*•*decreased sales volume in our residential and irrigation flow and commercial and infrastructure flow businesses in the second quarter and first half of 2022; and

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

Segment income

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

			Three months ended June 30, 2022			Six months ended June 30, 2022
			over the prior year period			over the prior year period
Growth/Price/Acquisition			8.9		pts	8.2		pts
Currency			(0.1)			(0.1)
Inflation			(7.7)			(7.3)
Productivity			(1.1)			(0.8)
Total			—		pts	—		pts

Segment income for Industrial & Flow Technologies as a percentage of net sales was flat in both the second quarter and first half of 2022 from 2021, primarily driven by:

• increases in selling prices to mitigate inflationary cost increases;

• inflationary cost increases due to high demand and tight supply of metals and resins along with increased logistics costs due to supply chain constraints and labor costs due to workforce shortages; and

• decreased productivity due to supply chain and plant inefficiencies, partially offset by insurance proceeds and gain on sale of fixed assets.

BACKLOG OF ORDERS BY SEGMENT

In millions			June 30, 2022			December 31, 2021			$ Change			% Change
Consumer Solutions			$	752.1		$	1,073.7		$	(321.6)		(30.0)		%
Industrial & Flow Technologies			509.5			446.3			63.2			14.2		%
Total			$	1,261.6		$	1,520.0		$	(258.4)		(17.0)		%

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 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 2022 net sales.

The decrease in backlog in our Consumer Solutions segment from December 31, 2021 to June 30, 2022 was primarily due to shipments outpacing new orders during the period as customers balanced the need to place new orders with market demand and channel inventory levels.

LIQUIDITY AND CAPITAL RESOURCES

We generally fund cash requirements for working capital, capital expenditures, equity investments, acquisitions, debt repayments, dividend payments and share repurchases from cash generated from operations, availability under existing committed revolving credit facilities and in certain instances, public and private debt and equity offerings. Our primary revolving credit facility has generally been adequate for these purposes, although we have negotiated additional credit facilities or completed debt and equity offerings as needed to allow us to complete acquisitions.

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 2022 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.

End-user demand for pool and certain pumping equipment follows warm weather trends and historically has been at seasonal highs from April to August. The magnitude of the sales spike has historically been partially mitigated by employing some advance sale “early buy” programs (generally including extended payment terms and/or additional discounts). Demand for residential and agricultural water systems is also impacted by weather patterns, particularly by heavy flooding and droughts.

We expect to continue to have sufficient cash and borrowing capacity to support working capital needs and capital expenditures, to pay interest and service debt and to pay dividends to shareholders quarterly. We believe our existing liquidity position, coupled with our currently anticipated operating cash flows, will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months.

Summary of Cash Flows

			Six months ended
In millions			June 30, 2022			June 30, 2021
Net cash provided by (used for):
Operating activities of continuing operations			$	176.3		$	361.0
Investing activities			(29.8)			(100.9)
Financing activities			(113.8)			(251.2)

Operating activities

The $176.3 million in net cash provided by operating activities of continuing operations in the first six months of 2022 primarily reflects $310.9 million of net income from continuing operations, net of non-cash depreciation and definite-lived intangible amortization. Additionally, we had a cash outflow of $129.7 million as a result of changes in net working capital, primarily due to increased inventory balances and lower employee compensation and benefits accruals compared to December 31, 2021. The inventory balance is higher due to inflationary impacts and continued supply chain inefficiencies. The lower employee compensation and benefits accruals are attributable to the payment of employee incentive compensation in the first quarter.

The $361.0 million in net cash provided by operating activities of continuing operations in the first six months of 2021 primarily reflects $302.6 million of net income from continuing operations, net of non-cash depreciation and definite-lived intangible amortization. Additionally, we had a cash inflow of $47.2 million as a result of changes in net working capital, primarily due to increased accounts receivables on higher sales, increased accounts payables resulting from inventory purchases to meet demand and increased sales leading to higher accrued rebates and incentives.

Investing activities

Net cash used for investing activities in the first six months of 2022 primarily reflects capital expenditures of $40.1 million, partially offset by cash received upon the settlement of net investment hedges of $8.8 million.

Net cash used for investing activities in the first six months of 2021 reflects the net cash paid of $82.8 million for the Ken’s Beverage, Inc. acquisition prior to working capital true-ups and capital expenditures of $24.3 million.

Financing activities

Net cash used for financing activities in the first six months of 2022 primarily relates to dividend payments of $69.5 million, share repurchases of $50.0 million and payments of debt issuance costs of $8.9 million, partially offset by net borrowings of revolving long-term debt of $19.8 million,

Net cash used for financing activities in the first six months of 2021 primarily relates to the repayment of $103.8 million of senior fixed notes, net borrowings of revolving long-term debt of $20.0 million, share repurchases of $50.0 million, dividend payments of $66.7 million and payments upon the maturity of cross currency swaps of $14.7 million.

Free Cash Flow

In addition to measuring our cash flow generation or usage based upon operating, investing and financing classifications included in the Condensed Consolidated Statements of Cash Flows, we also measure our free cash flow. We have a long-term goal to consistently generate free cash flow greater than 100 percent conversion of net income. Free cash flow is a non-GAAP financial measure that we use to assess our cash flow performance. We believe free cash flow is an important measure of liquidity because it provides us and our investors a measurement of cash generated from operations that is available to pay dividends, repurchase shares and repay debt. In addition, free cash flow is used as a criterion to measure and pay compensation-based incentives. Our measure of free cash flow may not be comparable to similarly titled measures reported by other companies.

The following table is a reconciliation of free cash flow:

									Six months ended
In millions												June 30, 2022			June 30, 2021
Net cash provided by operating activities of continuing operations												$	176.3		$	361.0
Capital expenditures of continuing operations												(40.1)			(24.3)
Proceeds from sale of property and equipment of continuing operations												2.9			3.5
Free cash flow from continuing operations												139.1			340.2
Net cash used for operating activities of discontinued operations												(1.0)			(0.2)
Free cash flow												$	138.1		$	340.0

Debt and Capital

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, which was amended and restated in December 2021, 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 adjusted base rate, the London interbank offered rate or the 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.

As of June 30, 2022, total availability under the Senior Credit Facility was $685.0 million. In addition, PFSA has the option to request to increase the revolving credit facility and/or 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 connection with entering into the definitive agreement to acquire Manitowoc Ice, Pentair and PFSA entered into a commitment letter, dated March 2, 2022 (the “Commitment Letter”), pursuant to which, among other things, the lenders have committed to provide debt financing for the acquisition of Manitowoc Ice, consisting of a senior unsecured bridge facility of $1.6 billion (the “Bridge Facility”), on the terms and subject to the conditions set forth in the Commitment Letter. The Bridge Facility will be subject to mandatory reduction and prepayment for 100% of the net cash proceeds from the issuance of any debt and other of our securities, other specified events and the Term Loan Facility (as defined below), subject to certain exceptions.

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 five-year $600.0 million senior unsecured term loan facility (the “Term Loan Facility”). On June 30, 2022, the Term Loan Facility was amended to increase the facility by $400.0 million to an aggregate principal amount of $1.0 billion. PFSA and Pentair intend to borrow the full $1.0 billion aggregate principal amount available under the Term Loan Facility to finance a portion of the purchase price in the Manitowoc Ice acquisition and to pay related fees and expenses.

The aggregate principal amount of the commitments under the Term Loan Facility have replaced a corresponding amount of the commitments in respect of the Bridge Facility in accordance with the terms of the Commitment Letter. As a result, the remaining commitment under the Bridge Facility was $600.0 million as of June 30, 2022. No borrowings or loans were outstanding under the Bridge Facility or the Term Loan Facility as of June 30, 2022.

On July 8, 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”). PFSA and Pentair intend to use the net proceeds from the issuance of the 2032 Senior Notes to finance a portion of the purchase price in the Manitowoc Ice acquisition and to pay related fees and expenses.

The net proceeds from the issuance of the 2032 Senior Notes have replaced a corresponding amount of the commitments in respect of the Bridge Facility in accordance with the terms of the Commitment Letter. On July 8, 2022, Pentair and PFSA voluntarily eliminated the remaining $200.0 million of commitments under the Bridge Facility. As a result, there are no remaining commitments under the Bridge Facility.

Our debt agreements contain various financial covenants, but the most restrictive covenants are contained in the Senior Credit Facility and the Term Loan Facility. The Senior Credit Facility and the Term Loan Facility contain covenants requiring us not to permit (i) the ratio of our consolidated debt (net of our consolidated unrestricted cash in excess of $5.0 million but not to exceed $250.0 million) to our consolidated net income (excluding, among other things, non-cash gains and losses) before interest, taxes, depreciation, amortization and non-cash share-based compensation expense (“EBITDA”) on the last day of any period of four consecutive fiscal quarters (each a “testing period”) to exceed 3.75 to 1.00 (or, at PFSA’s election and subject to certain conditions 4.25 to 1.00 for four testing periods in connection with certain material acquisitions) (the “Leverage Ratio”) and (ii) the ratio of our EBITDA to our consolidated interest expense, for the same period to be less than 3.00 to 1.00 as of the end of each fiscal quarter. For purposes of the Leverage Ratio, the Senior Credit Facility and the Term Loan Facility provide for the calculation of EBITDA giving pro forma effect to certain acquisitions, divestitures and liquidations during the period to which such calculation relates.

In addition to the Senior Credit Facility and the Term Loan Facility, we have various other credit facilities with an aggregate availability of $21.5 million, of which there were no outstanding borrowings at June 30, 2022. Borrowings under these credit facilities bear interest at variable rates.

We have $88.3 million fixed rate senior notes maturing in the next twelve months. We classified this debt as long-term as of June 30, 2022 as we have the intent and ability to refinance such obligation on a long-term basis under the Senior Credit Facility.

As of June 30, 2022, we had $65.0 million of cash held in certain countries in which the ability to repatriate is limited due to local regulations or significant potential tax consequences.

Share repurchases

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 authorization expires on December 31, 2025. During the three and six months ended June 30, 2022, we repurchased 0.9 million of our ordinary shares for $50.0 million. As of June 30, 2022, we had $600.0 million available for share repurchases under this authorization.

Dividends payable

On May 16, 2022, the Board of Directors declared a quarterly cash dividend of $0.21, payable on August 5, 2022 to shareholders of record at the close of business on July 22, 2022. As a result, the balance of dividends payable included in Other current liabilities on our Condensed Consolidated Balance Sheets was $34.5 million at June 30, 2022, compared to $33.0 million at December 31, 2021.

We paid dividends in the first six months of 2022 of $69.5 million, or $0.42 per ordinary share compared with $66.7 million, or $0.40 per ordinary share, in the prior year period.

Under Irish law, the payment of future cash dividends and repurchases of shares may be paid only out of Pentair plc’s “distributable reserves” on its statutory balance sheet. Pentair plc is not permitted to pay dividends out of share capital, which includes share premiums. Distributable reserves may be created through the earnings of the Irish parent company and through a reduction in share capital approved by the Irish High Court. Distributable reserves are not linked to a U.S. generally accepted accounting principles (“GAAP”) reported amount (e.g., retained earnings). Our distributable reserve balance was $8.4 billion as of December 31, 2021.

Supplemental guarantor information

Pentair plc (the “Parent Company Guarantor”), fully and unconditionally, guarantees the senior notes of PFSA (the “Subsidiary Issuer”). The Subsidiary Issuer is a Luxembourg private limited liability company and 100 percent-owned subsidiary of the Parent Company Guarantor.

The Parent Company Guarantor is a holding company established to own directly and indirectly substantially all of its operating and other subsidiaries. The Subsidiary Issuer is a holding company formed to own directly and indirectly substantially all of its operating and other subsidiaries and to issue debt securities, including the senior notes. The Parent Company Guarantor’s principal source of cash flow, including cash flow to make payments on the senior notes pursuant to the guarantees, is dividends from its subsidiaries. The Subsidiary Issuer’s principal source of cash flow is interest income from its subsidiaries. Neither the subsidiaries of the Parent Company Guarantor nor the Subsidiary Issuer is under any direct obligation to pay or otherwise fund amounts due on the senior notes or the guarantees, whether in the form of dividends, distributions, loans or other payments. In addition, there may be statutory and regulatory limitations on the payment of dividends from certain subsidiaries of the Parent Company Guarantor or the Subsidiary Issuer. If such subsidiaries are unable to transfer funds to the Parent Company Guarantor or the Subsidiary Issuer and sufficient cash or liquidity is not otherwise available, the Parent Company Guarantor or the Subsidiary Issuer may not be able to make principal and interest payments on their outstanding debt, including the senior notes or the guarantees.

The following table presents summarized financial information as of June 30, 2022 and December 31, 2021 for the Parent Company Guarantor and Subsidiary Issuer on a combined basis after elimination of (i) intercompany transactions and balances among the guarantors and issuer and (ii) equity in earnings from and investments in any subsidiary that is a non-Guarantor or issuer.

In millions			June 30, 2022			December 31, 2021
Current assets (1)			$	2.2		$	3.4
Noncurrent assets (2)			1,214.3			1,222.3
Current liabilities (3)			960.0			843.4
Noncurrent liabilities (4)			1,192.0			1,193.6
(1) No assets due from non-guarantor subsidiaries were included as of June 30, 2022 and December 31, 2021, respectively.
(2) Includes assets due from non-guarantor subsidiaries of $1,183.4 million and $1,202.5 million as of June 30, 2022 and December 31, 2021, respectively.
(3) Includes liabilities due to non-guarantor subsidiaries of $904.2 million and $792.1 million as of June 30, 2022 and December 31, 2021, respectively.
(4) Includes liabilities due to non-guarantor subsidiaries of $257.7 million and $276.8 million as of June 30, 2022 and December 31, 2021, respectively.

The Parent Company Guarantor and Subsidiary Issuer do not have material results of operations on a combined basis.

CRITICAL ACCOUNTING POLICIES

We have adopted various accounting policies to prepare the consolidated financial statements in accordance with GAAP. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. In our Annual Report on Form 10-K for the year ended December 31, 2021, we identified the critical accounting policies that affect our more significant estimates and assumptions used in preparing our consolidated financial statements. There have been no material changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.