Item 1. FINANCIAL STATEMENTS

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Item 1. FINANCIAL STATEMENTS

Pentair plc and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)


	Three months ended
In millions, except per-share data		March 31, 2024		March 31, 2023
Net sales		$	1,017.2	$	1,028.6
Cost of goods sold		627.1		646.8
Gross profit		390.1		381.8
Selling, general and administrative expenses		185.2		173.3
Research and development expenses		24.1		24.9

Operating income		180.8		183.6
Other expense



Net interest expense		27.3		32.4
Other expense		0.1		0.7
Income from continuing operations before income taxes		153.4		150.5
Provision for income taxes		19.9		22.0
Net income from continuing operations		133.5		128.5
(Loss) income from discontinued operations, net of tax		(0.2)		1.2

Net income		$	133.3	$	129.7

Comprehensive income, net of tax
Net income		$	133.3	$	129.7
Changes in cumulative translation adjustment		(21.7)		12.1

Changes in market value of derivative financial instruments, net of tax		22.7		(7.2)
Comprehensive income		$	134.3	$	134.6
Earnings per ordinary share
Basic
Continuing operations		$	0.80	$	0.78
Discontinued operations		—		0.01
Basic earnings per ordinary share		$	0.80	$	0.79
Diluted
Continuing operations		$	0.80	$	0.78
Discontinued operations		—		0.01
Diluted earnings per ordinary share		$	0.80	$	0.79
Weighted average ordinary shares outstanding
Basic		165.7		164.8
Diluted		167.2		165.8

See accompanying notes to condensed consolidated financial statements.

Pentair plc and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)


	March 31, 2024		December 31, 2023
In millions, except per-share data
Assets
Current assets
Cash and cash equivalents	$	109.1	$	170.3
Accounts receivable, net of allowances of $12.0 and $11.2, respectively	807.4		561.7
Inventories	675.1		677.7
Other current assets	157.0		159.3

Total current assets	1,748.6		1,569.0
Property, plant and equipment, net	363.1		362.0
Other assets
Goodwill	3,255.8		3,274.6
Intangibles, net	1,026.2		1,042.4
Other non-current assets	345.0		315.3

Total other assets	4,627.0		4,632.3
Total assets	$	6,738.7	$	6,563.3
Liabilities and Equity
Current liabilities

Accounts payable	$	308.8	$	278.9
Employee compensation and benefits	96.0		125.4
Other current liabilities	514.5		545.3

Total current liabilities	919.3		949.6
Other liabilities
Long-term debt	2,084.3		1,988.3
Pension and other post-retirement compensation and benefits	73.1		73.6
Deferred tax liabilities	39.0		40.0
Other non-current liabilities	295.8		294.7

Total liabilities	3,411.5		3,346.2
Commitments and contingencies (Note 15)
Equity
Ordinary shares $0.01 par value, 426.0 authorized, 166.0 and 165.3 issued at March 31, 2024 and December 31, 2023, respectively	1.7		1.7

Additional paid-in capital	1,607.6		1,593.6
Retained earnings	1,961.3		1,866.2
Accumulated other comprehensive loss	(243.4)		(244.4)
Total equity	3,327.2		3,217.1
Total liabilities and equity	$	6,738.7	$	6,563.3

See accompanying notes to condensed consolidated financial statements.

Pentair plc and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Three months ended
In millions	March 31, 2024		March 31, 2023
Operating activities
Net income	$	133.3	$	129.7
Loss (income) from discontinued operations, net of tax	0.2		(1.2)

Adjustments to reconcile net income from continuing operations to net cash provided by (used for) operating activities
Equity income of unconsolidated subsidiaries	(0.9)		(0.2)
Depreciation	14.9		14.7
Amortization	13.5		13.8
Deferred income taxes	4.8		(14.0)

Share-based compensation	7.9		7.2
Asset impairment and write-offs	0.8		4.1





Changes in assets and liabilities, net of effects of business acquisitions
Accounts receivable	(249.5)		(184.8)
Inventories	(3.2)		6.0
Other current assets	(11.8)		(17.4)
Accounts payable	33.0		(24.9)
Employee compensation and benefits	(28.3)		(12.8)
Other current liabilities	(28.1)		(28.7)
Other non-current assets and liabilities	6.0		1.9
Net cash used for operating activities of continuing operations	(107.4)		(106.6)
Net cash used for operating activities of discontinued operations	(0.2)		—
Net cash used for operating activities	(107.6)		(106.6)
Investing activities
Capital expenditures	(19.3)		(16.6)
Proceeds from sale of property and equipment	—		0.2

Acquisitions, net of cash acquired	—		0.2



Net cash used for investing activities	(19.3)		(16.2)
Financing activities

Net borrowings of revolving long-term debt	101.4		173.6

Repayments of long-term debt	(6.3)		—


Shares issued to employees, net of shares withheld	6.1		(4.1)

Dividends paid	(38.0)		(36.2)



Net cash provided by financing activities	63.2		133.3

Effect of exchange rate changes on cash and cash equivalents	2.5		(0.2)
Change in cash and cash equivalents	(61.2)		10.3
Cash and cash equivalents, beginning of period	170.3		108.9
Cash and cash equivalents, end of period	$	109.1	$	119.2

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) income				Total
Number	Amount
Balance - December 31, 2023	165.3	$	1.7		$	1,593.6	$	1,866.2	$	(244.4)		$	3,217.1
Net income	—	—			—		133.3		—			133.3
Other comprehensive income, net of tax	—	—			—		—		1.0			1.0
Dividends declared, $0.23 per share	—	—			—		(38.2)		—			(38.2)

Exercise of options, net of shares tendered for payment	0.4	—			15.2		—		—			15.2
Issuance of restricted shares, net of cancellations	0.4	—			(4.0)		—		—			(4.0)
Shares surrendered by employees to pay taxes	(0.1)	—			(5.1)		—		—			(5.1)
Share-based compensation	—	—			7.9		—		—			7.9
Balance - March 31, 2024	166.0	$	1.7		$	1,607.6	$	1,961.3	$	(243.4)		$	3,327.2


In millions	Ordinary shares			Additional paid-in capital		Retained earnings		Accumulated other comprehensive (loss) income		Total
Number	Amount
Balance - December 31, 2022	164.5	$	1.7	$	1,554.9	$	1,390.5	$	(239.0)	$	2,708.1
Net income	—	—		—		129.7		—		129.7

Other comprehensive income, net of tax	—	—		—		—		4.9		4.9
Dividends declared, $0.22 per share	—	—		—		(36.3)		—		(36.3)

Exercise of options, net of shares tendered for payment	0.1	—		2.5		—		—		2.5
Issuance of restricted shares, net of cancellations	0.5	—		(2.3)		—		—		(2.3)
Shares surrendered by employees to pay taxes	(0.1)	—		(4.3)		—		—		(4.3)
Share-based compensation	—	—		7.2		—		—		7.2
Balance - March 31, 2023	165.0	$	1.7	$	1,558.0	$	1,483.9	$	(234.1)	$	2,809.5

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 United States (“U.S.”) Securities and Exchange Commission 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, 2023.

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.

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

Recent U.S. Securities and Exchange Commission (“SEC”) final rules

In March 2024, the SEC issued the final rules under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. In April 2024, the SEC voluntarily stayed the new rules as a result of pending legal challenges. These rules, if adopted, will require registrants to disclose certain climate-related information, including Scope 1 and Scope 2 greenhouse gas emissions and other climate-related topics, in registration statements and annual reports, when material. Disclosure requirements, absent the results of pending legal challenges, will begin phasing in with our annual reporting for the year ending December 31, 2025. We are currently evaluating the impact the rules will have on our disclosures.

**2.**Revenue

We disaggregate our revenue from contracts with customers by segment, geographic location and vertical market, 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 14 for revenue disaggregated by segment.

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


	Three months ended
In millions		March 31, 2024		March 31, 2023
U.S.		$	705.2	$	715.8
Western Europe		131.6		127.8
Developing (1)		122.7		121.1
Other Developed (2)		57.7		63.9
Consolidated net sales		$	1,017.2	$	1,028.6


(1) Developing includes China, Eastern Europe, Latin America, the Middle East and Southeast Asia.
(2) Other Developed includes Australia, Canada and Japan.

Vertical market net sales information was as follows:


	Three months ended
In millions		March 31, 2024		March 31, 2023
Residential		$	543.2	$	566.4
Commercial		273.6		273.3
Industrial		200.4		188.9
Consolidated net sales		$	1,017.2	$	1,028.6

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Performance obligations

As of March 31, 2024, we had $103.8 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	March 31, 2024		December 31, 2023		$ Change		% Change
Contract assets	$	69.9	$	70.8	$	(0.9)	(1.3)	%
Contract liabilities	46.8		53.7		(6.9)		(12.8)	%
Net contract assets	$	23.1	$	17.1	$	6.0	35.1	%

The $6.0 million increase in net contract assets from December 31, 2023 to March 31, 2024 was primarily the result of timing of milestone payments. Approximately 60% of our contract liabilities at December 31, 2023 were recognized in revenue in the first quarter of 2024.

3. Share Plans

Total share-based compensation expense for the three months ended March 31, 2024 and 2023 was as follows:


	Three months ended
In millions		March 31, 2024		March 31, 2023
Restricted stock units		$	3.8	$	3.7
Stock options		1.4		1.1
Performance share units		2.7		2.4
Total share-based compensation expense		$	7.9	$	7.2

In the first quarter of 2024, 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 0.5 million, of which 0.2 million were restricted stock units (“RSUs”), 0.2 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 $75.70, $25.10 and $71.83, respectively.

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:


	2024 Annual Grant
Risk-free interest rate	4.44	%
Expected dividend yield	1.43	%
Expected share price volatility	30.90	%
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 U.S. Treasury Department yield curve in effect at the time of grant.

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

4. Restructuring and Transformation Program

In 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 three months ended March 31, 2024, we initiated and continued execution of our Transformation Program as well as certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business. Restructuring and Transformation Program initiatives included a reduction in hourly and salaried headcount of approximately 100 employees during the three months ended March 31, 2024.

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


	Three months ended
In millions		March 31, 2024		March 31, 2023
Restructuring Initiatives
Severance and related costs		$	4.0	$	2.5

Other restructuring costs and related adjustments (1)		1.0		0.6
Total restructuring costs		5.0		3.1
Transformation Program
Severance and related costs		0.4		1.9
Other transformation costs (2)		16.6		6.6
Total transformation costs		17.0		8.5
Total restructuring and transformation costs		$	22.0	$	11.6
(1) Other restructuring costs and related adjustments primarily consist of certain accruals, various contract termination costs, asset impairments and inventory write-offs associated with business and product line exits.
(2) Other transformation costs primarily consist of professional services and project management related costs.

Restructuring and transformation costs by reportable segment were as follows:


	Three months ended
In millions		March 31, 2024		March 31, 2023
Flow		$	2.6	$	0.4
Water Solutions		0.6		1.5
Pool		3.7		3.3
Other		15.1		6.4
Consolidated		$	22.0	$	11.6

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 three months ended March 31, 2024:


In millions	March 31, 2024
Beginning balance	$	13.4

Costs incurred	4.4
Cash payments and other	(3.1)
Ending balance	$	14.7

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

5. Earnings Per Share

Basic and diluted earnings per share were calculated as follows:


	Three months ended
In millions, except per-share data		March 31, 2024		March 31, 2023
Net income		$	133.3	$	129.7
Net income from continuing operations		$	133.5	$	128.5
Weighted average ordinary shares outstanding
Basic		165.7		164.8
Dilutive impact of stock options, restricted stock units and performance share units		1.5		1.0
Diluted		167.2		165.8
Earnings per ordinary share
Basic
Continuing operations		$	0.80	$	0.78
Discontinued operations		—		0.01
Basic earnings per ordinary share		$	0.80	$	0.79
Diluted
Continuing operations		$	0.80	$	0.78
Discontinued operations		—		0.01
Diluted earnings per ordinary share		$	0.80	$	0.79
Anti-dilutive stock options excluded from the calculation of diluted earnings per share		0.2		0.7

6. 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.

Activity related to our allowance for credit losses is summarized as follows for the three months ended March 31, 2024:


In millions	March 31, 2024
Beginning balance	$	11.2
Bad debt expense	0.3


Other (1)	0.5
Ending balance	$	12.0
(1) 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)

7. Supplemental Balance Sheet Information


In millions	March 31, 2024		December 31, 2023
Inventories
Raw materials and supplies	$	365.6	$	369.1
Work-in-process	96.0		97.1
Finished goods	213.5		211.5
Total inventories	$	675.1	$	677.7
Other current assets
Cost in excess of billings	$	69.9	$	70.8
Prepaid expenses	64.1		55.2

Other current assets	23.0		33.3
Total other current assets	$	157.0	$	159.3
Property, plant and equipment, net
Land and land improvements	$	31.9	$	32.3
Buildings and leasehold improvements	229.7		225.5
Machinery and equipment	674.9		669.9
Capitalized software	86.1		70.5
Construction in progress	41.6		55.8
Total property, plant and equipment	1,064.2		1,054.0
Accumulated depreciation and amortization	701.1		692.0
Total property, plant and equipment, net	$	363.1	$	362.0
Other non-current assets
Right-of-use lease assets	$	117.4	$	102.0

Deferred income taxes	120.7		113.2
Deferred compensation plan assets	27.4		26.1

Other non-current assets	79.5		74.0
Total other non-current assets	$	345.0	$	315.3
Other current liabilities

Dividends payable	$	38.2	$	38.0
Accrued warranty	71.7		65.0
Accrued rebates and incentives	159.8		181.8
Accrued freight	21.3		20.4
Billings in excess of cost	39.0		46.9
Current lease liability	25.9		26.2
Income taxes payable	17.3		20.7
Accrued restructuring	14.7		13.4
Interest payable	18.7		29.7
Other current liabilities	107.9		103.2
Total other current liabilities	$	514.5	$	545.3
Other non-current liabilities
Long-term lease liability	$	96.2	$	79.1
Income taxes payable	36.0		35.6
Self-insurance liabilities	52.2		51.9
Deferred compensation plan liabilities	27.4		26.1
Foreign currency contract liabilities	52.3		70.0
Other non-current liabilities	31.7		32.0
Total other non-current liabilities	$	295.8	$	294.7

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

8. Goodwill and Other Identifiable Intangible Assets

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


In millions	December 31, 2023		Foreign Currency Translation		March 31, 2024
Flow	$	767.1	$	(15.2)	$	751.9
Water Solutions	1,400.6		(3.6)		1,397.0
Pool	1,106.9		—		1,106.9
Total goodwill	$	3,274.6	$	(18.8)	$	3,255.8

Identifiable intangible assets consisted of the following:


	March 31, 2024						December 31, 2023
In millions	Cost		Accumulated amortization		Net		Cost		Accumulated amortization		Net
Definite-life intangibles
Customer relationships	$	1,101.2	$	(369.5)	$	731.7	$	1,106.2	$	(361.8)	$	744.4
Proprietary technology and patents	89.3		(44.4)		44.9		89.7		(43.2)		46.5


Total finite-life intangibles	1,190.5		(413.9)		776.6		1,195.9		(405.0)		790.9
Indefinite-life intangibles
Trade names	249.6		—		249.6		251.5		—		251.5
Total intangibles	$	1,440.1	$	(413.9)	$	1,026.2	$	1,447.4	$	(405.0)	$	1,042.4

Identifiable intangible asset amortization expense was $13.5 million and $13.8 million for the three months ended March 31, 2024 and 2023, respectively.

Estimated future amortization expense for identifiable intangible assets during the remainder of 2024 and the next five years is as follows:


	Q2-Q4
	2024		2025		2026		2027		2028		2029
Estimated amortization expense	$	40.5	$	54.0	$	52.7	$	51.5	$	48.9	$	48.5

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

9. Debt

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


In millions	Average interest rate as of March 31, 2024	Maturity Year	March 31, 2024		December 31, 2023

Revolving credit facility (Senior Credit Facility)	6.542%	2026	$	101.4	$	—
Term Loan Facility	6.785%	2023 - 2027	981.3		987.5
Term loans (Senior Credit Facility)	6.550%	2024	200.0		200.0
Senior notes - fixed rate (1)	4.650%	2025	19.3		19.3
Senior notes - fixed rate (1)	4.500%	2029	400.0		400.0
Senior notes - fixed rate (1)	5.900%	2032	400.0		400.0
Unamortized debt issuance costs and discounts	N/A	N/A	(17.7)		(18.5)
Total debt			$	2,084.3	$	1,988.3


(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 and a $200.0 million senior unsecured term loan facility. The revolving credit facility has a maturity date of December 16, 2026 and the term loan facility has a maturity date of December 16, 2024. Borrowings under the Senior Credit Facility bear interest at a rate equal to an alternate base rate, adjusted term secured overnight financing rate, adjusted euro interbank offered rate, adjusted daily simple secured overnight financing rate or central bank rate, plus, in each case, an applicable margin. The applicable margin is based on, at PFSA’s election, Pentair’s leverage level or PFSA’s public credit rating.

As of March 31, 2024, total availability under the Senior Credit Facility was $798.6 million. In addition, PFSA has the option to request to increase the revolving credit facility and/or to enter into one or more additional tranches of term loans in an aggregate amount of up to $300.0 million, subject to customary conditions, including the commitment of the participating lenders.

In addition, Pentair and PFSA are parties to a senior unsecured term loan facility (the “Term Loan Facility”), with PFSA, as borrower, Pentair, as guarantor, providing for an aggregate principal amount of $1.0 billion. The Term Loan Facility has a maturity date of July 28, 2027, with required quarterly installment payments of $6.3 million which began on the last day of the third quarter of 2023 and increase to $12.5 million beginning with the last day of the third quarter of 2024. The Term Loan Facility bears interest at a rate equal to an alternate base rate, adjusted term secured overnight financing rate, or adjusted daily simple secured overnight financing rate, plus, in each case, an applicable margin. The applicable margin is based on, at PFSA’s election, Pentair’s leverage level or PFSA’s public credit rating.

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 and cash equivalents 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 $20.8 million, of which there were no outstanding borrowings at March 31, 2024. Borrowings under these credit facilities bear interest at variable rates.

We have $43.8 million of Term Loan Facility payments and $200.0 million of payments under the senior unsecured term loan facility, associated with the Senior Credit Facility, due in the next twelve months. We classified this debt as long-term as of

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

March 31, 2024 as we have the intent and ability to refinance such obligation on a long-term basis under the revolving credit facility under the Senior Credit Facility.

Debt outstanding, excluding unamortized issuance costs and discounts, at March 31, 2024 matures on a calendar year basis as follows:


	Q2 - Q4
In millions	2024		2025		2026		2027		2028		2029		Thereafter		Total
Contractual debt obligation maturities	$	231.3	$	69.3	$	151.4	$	850.0	$	—	$	400.0	$	400.0	$	2,102.0

10. Derivatives and Financial Instruments

Derivative financial instruments

We are exposed to market risk related to changes in foreign currency exchange rates and interest rates on our variable rate indebtedness. To manage the volatility related to these exposures, we periodically enter into a variety of derivative financial instruments. Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates or variable interest rates. The derivative contracts contain credit risk to the extent that our bank counterparties may be unable to meet the terms of the agreements. 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 March 31, 2024 and December 31, 2023, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts of $21.3 million and $23.9 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 March 31, 2024 and December 31, 2023, we had outstanding cross currency swap agreements with a combined notional amount of $917.1 million and $940.2 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 $33.4 million and $51.6 million at March 31, 2024 and December 31, 2023, respectively, recorded in Accumulated other comprehensive loss associated with our cross currency swap activity. The periodic interest settlements related to our cross currency swap agreements are classified as operating activities. 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.

Hedging of variable interest rates

We manage our exposure to certain interest rate risks related to our variable rate debt through the use of interest rate swaps and collars. We enter into these agreements to hedge the variability of interest expense and cash flows attributable to changes in interest rates of our variable rate debt. As of March 31, 2024, we had an aggregate notional amount of $300.0 million and $200.0 million in interest rate swaps and collars, respectively, that are designated as cash flow hedges.

Unrealized gains and losses related to the fair value of the interest rate swaps are recorded in Accumulated other comprehensive loss on our Condensed Consolidated Balance Sheets. We had unrealized gains of $4.8 million and $0.3 million at March 31, 2024 and December 31, 2023, respectively, recorded in Accumulated other comprehensive loss associated with our interest rate swap and collar activity. The periodic interest settlements related to our interest rate swaps and collars are classified as operating activities.

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

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.

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 instrument:

short-term financial instruments (cash and cash equivalents, accounts and notes receivable, accounts 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 above;
foreign currency contracts, interest rate swap and collar agreements — fair values are determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 in the valuation hierarchy defined above; 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 above; fair value of common/collective trusts are valued at net asset value (“NAV”), which is based on the fair value of the underlying securities owned by the fund and divided by the number of shares outstanding.

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


	March 31, 2024				December 31, 2023
In millions	Recorded Amount		Fair Value		Recorded Amount		Fair Value
Variable rate debt	$	1,282.7	$	1,282.7	$	1,187.5	$	1,187.5
Fixed rate debt	819.3		808.0		819.3		824.5
Total debt	$	2,102.0	$	2,090.7	$	2,006.8	$	2,012.0

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

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


	March 31, 2024
In millions	Level 1		Level 2		Level 3		NAV		Total
Recurring fair value measurements
Interest rate contract assets	$	—	$	4.8	$	—	$	—	$	4.8
Foreign currency contract assets	—		4.9		—		—		4.9
Foreign currency contract liabilities	—		(52.3)		—		—		(52.3)


Deferred compensation plan assets	12.9		—		—		14.5		27.4
Total recurring fair value measurements	$	12.9	$	(42.6)	$	—	$	14.5	$	(15.2)


	December 31, 2023
In millions	Level 1		Level 2		Level 3		NAV		Total
Recurring fair value measurements
Interest rate contract assets	$	—	$	0.3	$	—	$	—	$	0.3
Foreign currency contract assets	—		0.2		—		—		0.2
Foreign currency contract liabilities	—		(70.0)		—		—		(70.0)
Deferred compensation plan assets	12.1		—		—		14.0		26.1
Total recurring fair value measurements	$	12.1	$	(69.5)	$	—	$	14.0	$	(43.4)

11. 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 three months ended March 31, 2024 was 13.0%, compared to 14.6% for the three months ended March 31, 2023. 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 the mix of global earnings or adjustments that are required to be reported in the specific quarter of resolution.

The total gross liability for uncertain tax positions was $38.3 million and $38.6 million at March 31, 2024 and December 31, 2023, 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.

The Organization for Economic Co-operation and Development Pillar Two Model Rules (“Pillar Two”) for a global 15.0% minimum tax are in the process of being adopted by a number of jurisdictions in which we operate. In particular, the U.K. completed passage of legislation to comply with the Pillar Two framework which became effective on January 1, 2024. For the three months ended March 31, 2024, the impact of Pillar Two on our condensed consolidated financial statements was not material.

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

12. Benefit Plans

Components of net periodic benefit expense for our pension plans for the three months ended March 31, 2024 and 2023 were as follows:


	Three months ended
In millions		March 31, 2024		March 31, 2023
Service cost		$	0.4	$	0.4
Interest cost		1.0		1.0
Expected return on plan assets		(0.1)		(0.2)

Net periodic benefit expense		$	1.3	$	1.2

Components of net periodic benefit expense for our other post-retirement plans for the three months ended March 31, 2024 and 2023 were not material.

13. Shareholders’ Equity

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

Dividends payable

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

14. 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.

Financial information by reportable segment is as follows:


	Three months ended
In millions		March 31, 2024		March 31, 2023
Net sales
Flow		$	384.3	$	391.8
Water Solutions		273.1		272.0
Pool		359.5		364.3
Other		0.3		0.5
Consolidated		$	1,017.2	$	1,028.6
Segment income (loss)
Flow		$	77.3	$	65.0
Water Solutions		55.6		52.4
Pool		110.8		116.2
Other		(26.4)		(22.6)
Consolidated		$	217.3	$	211.0

Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

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


	Three months ended
In millions		March 31, 2024		March 31, 2023
Segment income		$	217.3	$	211.0


Asset impairment and write-offs		(0.8)		(3.9)
Restructuring and other		(4.6)		(2.9)
Transformation costs		(17.0)		(8.5)
Intangible amortization		(13.5)		(13.8)







Legal accrual adjustments and settlements		0.3		1.9
Interest expense, net		(27.3)		(32.4)
Other expense		(1.0)		(0.9)
Income from continuing operations before income taxes		$	153.4	$	150.5

15. Commitments and Contingencies

Warranties

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.

The changes in the carrying amount of service and product warranties from continuing operations for the three months ended March 31, 2024 were as follows:


In millions	March 31, 2024
Beginning balance	$	65.0
Service and product warranty provision	24.0
Payments	(17.1)

Foreign currency translation	(0.2)
Ending balance	$	71.7

Stand-by letters of credit, bank guarantees and bonds

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 March 31, 2024 and December 31, 2023, the outstanding value of bonds, letters of credit and bank guarantees totaled $111.1 million and $124.3 million, respectively.

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