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,
2019
|
March 31,
2018
|
Net sales
|
$
|
688.9
|
|
$
|
732.6
|
|
Cost of goods sold
|
453.3
|
|
479.3
|
|
Gross profit
|
235.6
|
|
253.3
|
|
Selling, general and administrative expenses
|
147.3
|
|
141.8
|
|
Research and development expenses
|
20.7
|
|
18.8
|
|
Operating income
|
67.6
|
|
92.7
|
|
Other (income) expense:
|
|
|
(Gain) loss on sale of business
|
(3.5
|
)
|
5.3
|
|
Net interest expense
|
7.3
|
|
13.5
|
|
Other expense
|
0.6
|
|
0.4
|
|
Income from continuing operations before income taxes
|
63.2
|
|
73.5
|
|
Provision for income taxes
|
10.8
|
|
15.1
|
|
Net income from continuing operations
|
52.4
|
|
58.4
|
|
(Loss) income from discontinued operations, net of tax
|
(1.1
|
)
|
44.5
|
|
Net income
|
$
|
51.3
|
|
$
|
102.9
|
|
Comprehensive income, net of tax
|
|
|
Net income
|
$
|
51.3
|
|
$
|
102.9
|
|
Changes in cumulative translation adjustment
|
(1.6
|
)
|
2.4
|
|
Changes in market value of derivative financial instruments, net of tax
|
4.3
|
|
(3.8
|
)
|
Comprehensive income
|
$
|
54.0
|
|
$
|
101.5
|
|
Earnings (loss) per ordinary share
|
|
|
Basic
|
|
|
Continuing operations
|
$
|
0.31
|
|
$
|
0.33
|
|
Discontinued operations
|
(0.01
|
)
|
0.24
|
|
Basic earnings per ordinary share
|
$
|
0.30
|
|
$
|
0.57
|
|
Diluted
|
|
|
Continuing operations
|
$
|
0.30
|
|
$
|
0.32
|
|
Discontinued operations
|
—
|
|
0.25
|
|
Diluted earnings per ordinary share
|
$
|
0.30
|
|
$
|
0.57
|
|
Weighted average ordinary shares outstanding
|
|
|
Basic
|
171.6
|
|
179.2
|
|
Diluted
|
172.5
|
|
181.5
|
|
See accompanying notes to condensed consolidated financial statements.
Pentair plc and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
|
|
|
|
|
|
|
|
|
March 31,
2019
|
December 31,
2018
|
In millions, except per-share data
|
Assets
|
Current assets
|
|
|
Cash and cash equivalents
|
$
|
78.9
|
|
$
|
74.3
|
|
Accounts and notes receivable, net of allowances of $14.7 and $14.0, respectively
|
645.7
|
|
488.2
|
|
Inventories
|
421.8
|
|
387.5
|
|
Other current assets
|
105.2
|
|
89.4
|
|
Total current assets
|
1,251.6
|
|
1,039.4
|
|
Property, plant and equipment, net
|
279.1
|
|
272.6
|
|
Other assets
|
|
|
Goodwill
|
2,283.0
|
|
2,072.7
|
|
Intangibles, net
|
361.5
|
|
276.3
|
|
Other non-current assets
|
207.0
|
|
145.5
|
|
Total other assets
|
2,851.5
|
|
2,494.5
|
|
Total assets
|
$
|
4,382.2
|
|
$
|
3,806.5
|
|
Liabilities and Equity
|
Current liabilities
|
|
|
Accounts payable
|
$
|
265.3
|
|
$
|
378.6
|
|
Employee compensation and benefits
|
94.2
|
|
111.7
|
|
Other current liabilities
|
345.8
|
|
328.4
|
|
Total current liabilities
|
705.3
|
|
818.7
|
|
Other liabilities
|
|
|
Long-term debt
|
1,370.7
|
|
787.6
|
|
Pension and other post-retirement compensation and benefits
|
89.8
|
|
90.0
|
|
Deferred tax liabilities
|
124.6
|
|
105.9
|
|
Other non-current liabilities
|
221.4
|
|
168.2
|
|
Total liabilities
|
2,511.8
|
|
1,970.4
|
|
Equity
|
|
|
Ordinary shares $0.01 par value, 426.0 authorized, 171.9 and 171.4 issued at March 31, 2019 and December 31, 2018, respectively
|
1.7
|
|
1.7
|
|
Additional paid-in capital
|
1,905.1
|
|
1,893.8
|
|
Retained earnings
|
189.5
|
|
169.2
|
|
Accumulated other comprehensive loss
|
(225.9
|
)
|
(228.6
|
)
|
Total equity
|
1,870.4
|
|
1,836.1
|
|
Total liabilities and equity
|
$
|
4,382.2
|
|
$
|
3,806.5
|
|
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,
2019
|
March 31,
2018
|
Operating activities
|
|
|
Net income
|
$
|
51.3
|
|
$
|
102.9
|
|
Loss (income) from discontinued operations, net of tax
|
1.1
|
|
(44.5
|
)
|
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
|
(0.6
|
)
|
(0.6
|
)
|
Depreciation
|
12.0
|
|
12.6
|
|
Amortization
|
8.2
|
|
9.3
|
|
Deferred income taxes
|
(1.7
|
)
|
(9.9
|
)
|
(Gain) loss on sale of business
|
(3.5
|
)
|
5.3
|
|
Share-based compensation
|
5.4
|
|
6.0
|
|
Trade name and other impairment
|
15.3
|
|
—
|
|
Changes in assets and liabilities, net of effects of business acquisitions
|
|
|
Accounts and notes receivable
|
(154.0
|
)
|
(146.2
|
)
|
Inventories
|
(22.2
|
)
|
(8.4
|
)
|
Other current assets
|
(22.5
|
)
|
5.6
|
|
Accounts payable
|
(118.2
|
)
|
(59.7
|
)
|
Employee compensation and benefits
|
(18.9
|
)
|
(30.1
|
)
|
Other current liabilities
|
(8.3
|
)
|
(39.6
|
)
|
Other non-current assets and liabilities
|
(0.5
|
)
|
3.3
|
|
Net cash used for operating activities of continuing operations
|
(257.1
|
)
|
(194.0
|
)
|
Net cash provided by operating activities of discontinued operations
|
0.8
|
|
26.4
|
|
Net cash used for operating activities
|
(256.3
|
)
|
(167.6
|
)
|
Investing activities
|
|
|
Capital expenditures
|
(16.8
|
)
|
(11.5
|
)
|
Proceeds from sale of property and equipment
|
0.3
|
|
—
|
|
Proceeds from (payments due to) the sale of businesses, net
|
0.7
|
|
(13.8
|
)
|
Acquisitions, net of cash acquired
|
(287.2
|
)
|
(0.9
|
)
|
Other
|
(1.5
|
)
|
—
|
|
Net cash used for investing activities of continuing operations
|
(304.5
|
)
|
(26.2
|
)
|
Net cash used for investing activities of discontinued operations
|
—
|
|
(5.0
|
)
|
Net cash used for investing activities
|
(304.5
|
)
|
(31.2
|
)
|
Financing activities
|
|
|
Net receipts of commercial paper and revolving long-term debt
|
584.1
|
|
417.5
|
|
Shares issued to employees, net of shares withheld
|
5.9
|
|
0.9
|
|
Repurchases of ordinary shares
|
—
|
|
(150.0
|
)
|
Dividends paid
|
(31.0
|
)
|
(63.3
|
)
|
Net cash provided by financing activities of continuing operations
|
559.0
|
|
205.1
|
|
Net cash provided by financing activities of discontinued operations
|
—
|
|
792.7
|
|
Net cash provided by financing activities
|
559.0
|
|
997.8
|
|
Change in cash held for sale
|
—
|
|
(809.7
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
6.4
|
|
(4.8
|
)
|
Change in cash and cash equivalents
|
4.6
|
|
(15.5
|
)
|
Cash and cash equivalents, beginning of period
|
74.3
|
|
86.3
|
|
Cash and cash equivalents, end of period
|
$
|
78.9
|
|
$
|
70.8
|
|
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, 2018
|
171.4
|
|
$
|
1.7
|
|
|
$
|
1,893.8
|
|
$
|
169.2
|
|
$
|
(228.6
|
)
|
$
|
1,836.1
|
|
Net income
|
—
|
|
—
|
|
|
—
|
|
51.3
|
|
—
|
|
51.3
|
|
Other comprehensive income, net of tax
|
—
|
|
—
|
|
|
—
|
|
—
|
|
2.7
|
|
2.7
|
|
Dividends declared, $0.18 per share
|
—
|
|
—
|
|
|
—
|
|
(31.0
|
)
|
—
|
|
(31.0
|
)
|
Exercise of options, net of shares tendered for payment
|
0.3
|
|
—
|
|
|
9.1
|
|
—
|
|
—
|
|
9.1
|
|
Issuance of restricted shares, net of cancellations
|
0.2
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Shares surrendered by employees to pay taxes
|
—
|
|
—
|
|
|
(3.2
|
)
|
—
|
|
—
|
|
(3.2
|
)
|
Share-based compensation
|
—
|
|
—
|
|
|
5.4
|
|
—
|
|
—
|
|
5.4
|
|
Balance - March 31, 2019
|
171.9
|
|
$
|
1.7
|
|
|
$
|
1,905.1
|
|
$
|
189.5
|
|
$
|
(225.9
|
)
|
$
|
1,870.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Ordinary shares
|
|
Additional paid-in capital
|
Retained earnings
|
Accumulated
other
comprehensive loss
|
Total
|
Number
|
Amount
|
Balance - December 31, 2017
|
180.3
|
|
$
|
1.8
|
|
|
$
|
2,797.7
|
|
$
|
2,481.7
|
|
$
|
(243.4
|
)
|
$
|
5,037.8
|
|
Net income
|
—
|
|
—
|
|
|
—
|
|
102.9
|
|
—
|
|
102.9
|
|
Cumulative effect of accounting changes
|
—
|
|
—
|
|
|
—
|
|
(214.0
|
)
|
—
|
|
(214.0
|
)
|
Other comprehensive loss, net of tax
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(1.4
|
)
|
(1.4
|
)
|
Dividends declared, $0.35 per share
|
—
|
|
—
|
|
|
—
|
|
(62.6
|
)
|
—
|
|
(62.6
|
)
|
Share repurchase
|
(2.2
|
)
|
—
|
|
|
(150.0
|
)
|
—
|
|
—
|
|
(150.0
|
)
|
Exercise of options, net of shares tendered for payment
|
0.1
|
|
—
|
|
|
5.8
|
|
—
|
|
—
|
|
5.8
|
|
Issuance of restricted shares, net of cancellations
|
0.3
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Shares surrendered by employees to pay taxes
|
(0.1
|
)
|
—
|
|
|
(4.8
|
)
|
—
|
|
—
|
|
(4.8
|
)
|
Share-based compensation
|
—
|
|
—
|
|
|
6.0
|
|
—
|
|
—
|
|
6.0
|
|
Balance - March 31, 2018
|
178.4
|
|
$
|
1.8
|
|
|
$
|
2,654.7
|
|
$
|
2,308.0
|
|
$
|
(244.8
|
)
|
$
|
4,719.7
|
|
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, 2018
.
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.
Adoption of new accounting standards
On January 1, 2019, we adopted ASU No. 2016-02, “Leases” (“the new lease standard” or “ASC 842”) using the transition method of adoption. Under the transition method of adoption, comparative information has not been restated and continues to be reported under the standards in effect for those periods. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. We also elected the practical expedient to not separate non-lease components from the lease components to which they relate, and instead account for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes. Accordingly, all costs associated with a lease contract are accounted for as one lease cost.
The impact of adopting the new standard primarily relates to the recognition of a lease right-of-use (“ROU”) asset and current and non-current lease liability on the consolidated balance sheet. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As we cannot readily determine the rate implicit in the lease, we use our incremental borrowing rate determined by country of lease origin based on the anticipated lease term as determined at commencement date in determining the present value of lease payments. The ROU asset also excludes any accrued lease payments and unamortized lease incentives.
As of
March 31, 2019
,
$74.7 million
was included in
Other non-current assets
,
$19.9 million
in
Other current liabilities
and
$57.7 million
in
Other non-current liabilities
, on the Condensed Consolidated Balance Sheets as a result of the new lease standard. There was no impact on our Condensed Consolidated Statements of Operations and Comprehensive Income or Condensed Consolidated Statements of Cash Flows.
Refer to Note 15 for further discussion.
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
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 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,
2019
|
March 31,
2018
|
U.S.
|
$
|
426.0
|
|
$
|
452.4
|
|
Western Europe
|
104.3
|
|
110.3
|
|
Developing
(1)
|
108.9
|
|
113.0
|
|
Other Developed
(2)
|
49.7
|
|
56.9
|
|
Consolidated net sales
|
$
|
688.9
|
|
$
|
732.6
|
|
(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
|
In millions
|
March 31,
2019
|
March 31,
2018
|
Residential
|
$
|
383.6
|
|
$
|
412.2
|
|
Commercial
|
150.7
|
|
151.8
|
|
Industrial
|
154.6
|
|
168.6
|
|
Consolidated net sales
|
$
|
688.9
|
|
$
|
732.6
|
|
Performance obligations
On
March 31, 2019
, we had
$66.4 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,
2019
|
December 31,
2018
|
|
$ Change
|
% Change
|
Contract assets
|
$
|
38.4
|
|
$
|
36.5
|
|
|
$
|
1.9
|
|
5.2
|
%
|
Contract liabilities
|
32.9
|
|
32.8
|
|
|
0.1
|
|
0.3
|
%
|
Net contract assets
|
$
|
5.5
|
|
$
|
3.7
|
|
|
$
|
1.8
|
|
48.6
|
%
|
The
$1.8 million
increase
in net contract
assets
from
December 31, 2018
to
March 31, 2019
was primarily the result of timing of milestone payments. Approximately
50%
of our contract liabilities at
December 31, 2018
were recognized in revenue in the
first quarter
of
2019
. There were
no
impairment losses recognized on our contract assets for the three months ended
March 31, 2019
.
3.
Acquisitions and Discontinued Operations
Acquisitions
In February 2019, as part of Filtration Solutions, we completed the acquisitions of Aquion, Inc. (“Aquion”) and Pelican Water Systems (“Pelican”) for
$164.7 million
and
$122.5 million
in cash, net of cash acquired, respectively.
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
For Aquion, the excess of purchase price over tangible net assets and identified intangible assets acquired has been preliminarily allocated to goodwill in the amount of
$94.6 million
, none of which is expected to be deductible for income tax purposes. Identifiable intangible assets acquired as part of the Aquion acquisition include
$15.7 million
of indefinite-lived trade name intangible assets and
$78.8 million
of definite-lived customer relationships with an estimated useful life of
15 years
.
For Pelican, the excess purchase price over tangible net assets acquired has been preliminarily allocated to goodwill in the amount of
$121.9 million
, none of which is expected to be deductible for income tax purposes.
The preliminary purchase price allocation for these acquisitions is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. These changes will primarily relate to impacts associated with income taxes and other accruals.
The proforma impact of these acquisitions is not material.
Discontinued Operation
—
Electrical Separation
On April 30, 2018, we completed the separation of our Electrical business from the rest of Pentair (the “Separation”) by means of a dividend in specie of the Electrical business, which was effected by the transfer of the Electrical business from Pentair to nVent Electric plc (“nVent”) and the issuance by nVent of ordinary shares directly to Pentair shareholders (the “Distribution”). The results of the Electrical business have been presented as discontinued operations. The Electrical business had been previously disclosed as a stand-alone reporting segment. Separation costs related to the Separation and Distribution were
$24.6 million
for the three months ended
March 31, 2018
. These costs are reported in discontinued operations as they represent a cost directly related to the Separation and Distribution and are included within
(Loss) income from discontinued operations, net of tax
presented below.
Operating results of the discontinued operation is summarized below:
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions
|
March 31,
2019
|
March 31,
2018
|
Net sales
|
$
|
—
|
|
$
|
538.9
|
|
Cost of goods sold
|
—
|
|
330.2
|
|
Gross profit
|
—
|
|
208.7
|
|
Selling, general and administrative expenses
|
0.3
|
|
137.8
|
|
Research and development expenses
|
—
|
|
11.3
|
|
Operating income (loss)
|
$
|
(0.3
|
)
|
$
|
59.6
|
|
|
|
|
(Loss) income from discontinued operations before income taxes
|
$
|
(0.8
|
)
|
$
|
58.2
|
|
Income tax provision
|
0.3
|
|
13.7
|
|
(Loss) income from discontinued operations, net of tax
|
$
|
(1.1
|
)
|
$
|
44.5
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Total share-based compensation expense for the
three months ended
March 31, 2019
and
2018
was as follows:
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions
|
March 31,
2019
|
March 31,
2018
|
Restricted stock units
|
$
|
2.8
|
|
$
|
2.4
|
|
Stock options
|
1.4
|
|
1.2
|
|
Performance share units
|
1.2
|
|
2.4
|
|
Total share-based compensation expense
|
$
|
5.4
|
|
$
|
6.0
|
|
Of the total share-based compensation expense noted above,
$2.0 million
was reported as part of
(Loss) income from discontinued operations, net of tax
for the three months ended
March 31, 2018
.
In the first quarter of 2019, we issued our annual share-based compensation grants under the Pentair plc 2012 Stock and Incentive Plan to eligible employees. The total number of awards issued was approximately
0.8 million
, of which
0.3 million
were restricted stock units (“RSUs”),
0.4 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
$40.84
,
$8.84
, and
$38.47
, 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:
|
|
|
|
|
2019
Annual Grant
|
Risk-free interest rate
|
2.89
|
%
|
Expected dividend yield
|
1.78
|
%
|
Expected share price volatility
|
23.3
|
%
|
Expected term (years)
|
6.1
|
|
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.
During the
three months ended
March 31, 2019
and the year ended
December 31, 2018
, we initiated and continued execution of certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business. These initiatives included the reduction in hourly and salaried headcount of approximately
10
employees and
300
employees, respectively.
Restructuring-related costs included in
Selling, general and administrative expenses
in the Condensed Consolidated Statements of Operations and Comprehensive Income included costs for severance and other restructuring costs as follows:
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions
|
March 31,
2019
|
March 31,
2018
|
Severance and related costs
|
$
|
1.1
|
|
$
|
5.4
|
|
Other
|
—
|
|
0.2
|
|
Total restructuring costs
|
$
|
1.1
|
|
$
|
5.6
|
|
Other restructuring costs primarily consist of asset impairment and various contract termination costs.
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Restructuring costs by reportable segment were as follows:
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions
|
March 31,
2019
|
March 31,
2018
|
Aquatic Systems
|
$
|
0.9
|
|
$
|
1.8
|
|
Filtration Solutions
|
0.4
|
|
2.0
|
|
Flow Technologies
|
(0.3
|
)
|
1.7
|
|
Other
|
0.1
|
|
0.1
|
|
Consolidated
|
$
|
1.1
|
|
$
|
5.6
|
|
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, 2019
:
|
|
|
|
|
In millions
|
March 31,
2019
|
Beginning balance
|
$
|
27.1
|
|
Costs incurred
|
1.1
|
|
Cash payments and other
|
(8.0
|
)
|
Ending balance
|
$
|
20.2
|
|
Basic and diluted earnings per share were calculated as follows:
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions, except per-share data
|
March 31,
2019
|
March 31,
2018
|
Net income
|
$
|
51.3
|
|
$
|
102.9
|
|
Net income from continuing operations
|
$
|
52.4
|
|
$
|
58.4
|
|
Weighted average ordinary shares outstanding
|
|
|
Basic
|
171.6
|
|
179.2
|
|
Dilutive impact of stock options, restricted stock units and performance share units
|
0.9
|
|
2.3
|
|
Diluted
|
172.5
|
|
181.5
|
|
Earnings (loss) per ordinary share
|
|
|
Basic
|
|
|
Continuing operations
|
$
|
0.31
|
|
$
|
0.33
|
|
Discontinued operations
|
(0.01
|
)
|
0.24
|
|
Basic earnings per ordinary share
|
$
|
0.30
|
|
$
|
0.57
|
|
Diluted
|
|
|
Continuing operations
|
$
|
0.30
|
|
$
|
0.32
|
|
Discontinued operations
|
—
|
|
0.25
|
|
Diluted earnings per ordinary share
|
$
|
0.30
|
|
$
|
0.57
|
|
Anti-dilutive stock options excluded from the calculation of diluted earnings per share
|
1.7
|
|
0.4
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
7. Supplemental Balance Sheet Information
|
|
|
|
|
|
|
|
In millions
|
March 31,
2019
|
December 31,
2018
|
Inventories
|
|
|
Raw materials and supplies
|
$
|
208.5
|
|
$
|
191.3
|
|
Work-in-process
|
68.3
|
|
64.0
|
|
Finished goods
|
145.0
|
|
132.2
|
|
Total inventories
|
$
|
421.8
|
|
$
|
387.5
|
|
Other current assets
|
|
|
Cost in excess of billings
|
$
|
38.4
|
|
$
|
36.5
|
|
Prepaid expenses
|
52.7
|
|
36.7
|
|
Prepaid income taxes
|
5.3
|
|
8.5
|
|
Other current assets
|
8.8
|
|
7.7
|
|
Total other current assets
|
$
|
105.2
|
|
$
|
89.4
|
|
Property, plant and equipment, net
|
|
|
Land and land improvements
|
$
|
33.6
|
|
$
|
33.5
|
|
Buildings and leasehold improvements
|
179.6
|
|
178.9
|
|
Machinery and equipment
|
604.1
|
|
593.8
|
|
Construction in progress
|
39.6
|
|
35.7
|
|
Total property, plant and equipment
|
856.9
|
|
841.9
|
|
Accumulated depreciation and amortization
|
577.8
|
|
569.3
|
|
Total property, plant and equipment, net
|
$
|
279.1
|
|
$
|
272.6
|
|
Other non-current assets
|
|
|
Right-of-use lease assets
|
$
|
74.7
|
|
$
|
—
|
|
Deferred income taxes
|
26.3
|
|
26.2
|
|
Deferred compensation plan assets
|
21.2
|
|
20.9
|
|
Other non-current assets
|
84.8
|
|
98.4
|
|
Total other non-current assets
|
$
|
207.0
|
|
$
|
145.5
|
|
Other current liabilities
|
|
|
Dividends payable
|
$
|
30.9
|
|
$
|
30.8
|
|
Accrued warranty
|
34.6
|
|
33.9
|
|
Accrued rebates
|
45.7
|
|
55.7
|
|
Billings in excess of cost
|
19.7
|
|
21.3
|
|
Current lease liability
|
19.9
|
|
—
|
|
Income taxes payable
|
9.9
|
|
10.4
|
|
Accrued restructuring
|
20.2
|
|
27.1
|
|
Other current liabilities
|
164.9
|
|
149.2
|
|
Total other current liabilities
|
$
|
345.8
|
|
$
|
328.4
|
|
Other non-current liabilities
|
|
|
Long-term lease liability
|
$
|
57.7
|
|
$
|
—
|
|
Income taxes payable
|
46.8
|
|
46.8
|
|
Self-insurance liabilities
|
45.7
|
|
47.7
|
|
Deferred compensation plan liabilities
|
21.2
|
|
20.9
|
|
Foreign currency contract liabilities
|
23.9
|
|
30.6
|
|
Other non-current liabilities
|
26.1
|
|
22.2
|
|
Total other non-current liabilities
|
$
|
221.4
|
|
$
|
168.2
|
|
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,
2018
|
Acquisitions
|
Foreign currency
translation/other
|
March 31,
2019
|
Aquatic Systems
|
$
|
965.9
|
|
$
|
—
|
|
$
|
(0.6
|
)
|
$
|
965.3
|
|
Filtration Solutions
|
643.5
|
|
216.5
|
|
(4.5
|
)
|
855.5
|
|
Flow Technologies
|
463.3
|
|
—
|
|
(1.1
|
)
|
462.2
|
|
Total goodwill
|
$
|
2,072.7
|
|
$
|
216.5
|
|
$
|
(6.2
|
)
|
$
|
2,283.0
|
|
Identifiable intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
In millions
|
Cost
|
Accumulated
amortization
|
Net
|
|
Cost
|
Accumulated
amortization
|
Net
|
Definite-life intangibles
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
424.6
|
|
$
|
(253.3
|
)
|
$
|
171.3
|
|
|
$
|
347.1
|
|
$
|
(247.9
|
)
|
$
|
99.2
|
|
Trade names
|
0.4
|
|
(0.4
|
)
|
—
|
|
|
0.4
|
|
(0.4
|
)
|
—
|
|
Proprietary technology and patents
|
85.5
|
|
(69.6
|
)
|
15.9
|
|
|
86.2
|
|
(68.4
|
)
|
17.8
|
|
Total definite-life intangibles
|
510.5
|
|
(323.3
|
)
|
187.2
|
|
|
433.7
|
|
(316.7
|
)
|
117.0
|
|
Indefinite-life intangibles
|
|
|
|
|
|
|
|
Trade names
|
174.3
|
|
—
|
|
174.3
|
|
|
159.3
|
|
—
|
|
159.3
|
|
Total intangibles
|
$
|
684.8
|
|
$
|
(323.3
|
)
|
$
|
361.5
|
|
|
$
|
593.0
|
|
$
|
(316.7
|
)
|
$
|
276.3
|
|
Identifiable intangible asset amortization expense
$8.2 million
and
$9.3 million
for the three months ended
March 31, 2019
and
2018
, respectively.
Estimated future amortization expense for identifiable intangible assets during the remainder of
2019
and the next five years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q2-Q4
|
|
|
|
|
|
In millions
|
2019
|
2020
|
2021
|
2022
|
2023
|
2024
|
Estimated amortization expense
|
$
|
23.4
|
|
$
|
27.5
|
|
$
|
22.4
|
|
$
|
15.3
|
|
$
|
13.0
|
|
$
|
12.4
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Debt and the average interest rates on debt outstanding were as follows:
|
|
|
|
|
|
|
|
|
|
In millions
|
Average interest rate as of March 31, 2019
|
Maturity
Year
|
March 31,
2019
|
December 31,
2018
|
Commercial paper
|
3.171%
|
2023
|
$
|
681.2
|
|
$
|
76.0
|
|
Revolving credit facilities
|
3.595%
|
2023
|
5.0
|
|
26.2
|
|
Senior notes - fixed rate (1)
|
2.650%
|
2019
|
250.0
|
|
250.0
|
|
Senior notes - fixed rate - Euro (1)
|
2.450%
|
2019
|
153.6
|
|
155.1
|
|
Senior notes - fixed rate (1)
|
3.625%
|
2020
|
74.0
|
|
74.0
|
|
Senior notes - fixed rate (1)
|
5.000%
|
2021
|
103.8
|
|
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
|
|
Unamortized debt issuance costs and discounts
|
N/A
|
N/A
|
(4.5
|
)
|
(5.1
|
)
|
Total debt
|
|
|
$
|
1,370.7
|
|
$
|
787.6
|
|
(1)
Senior notes are guaranteed as to payment by Pentair and PISG.
|
In April 2018, Pentair, Pentair Investments Switzerland GmbH (“PISG”), Pentair Finance S.à r.l. (“PFSA”) and Pentair, Inc. entered into a credit agreement, providing for an
$800.0 million
senior unsecured revolving credit facility with a term of
five years
(the “Senior Credit Facility”), with Pentair and PISG as guarantors and PFSA and Pentair, Inc. as borrowers. The Senior Credit Facility replaced PFSA’s existing credit facility under that certain Amended and Restated Credit Agreement, dated as of October 3, 2014. 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.
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
$681.2 million
of commercial paper outstanding as of
March 31, 2019
and
$76.0 million
as of
December 31, 2018
, all of which was classified as long-term debt as we have the intent and the ability to refinance such obligations on a long-term basis under the Senior Credit Facility.
Total availability under the Senior Credit Facility was
$113.8 million
as of
March 31, 2019
. Additionally, PFSA has the option to request to increase the Senior Credit Facility in an aggregate amount of up to
$300.0 million
, subject to customary conditions, including the commitment of the participating lenders. We anticipate that, during the second quarter of 2019, PFSA will request an increase in the Senior Credit Facility of
$100.0 million
pursuant to such option.
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. As of
March 31, 2019
,
we were in compliance with all financial covenants in our debt agreements
.
In addition to the Senior Credit Facility, we have various other credit facilities with an aggregate availability of
$21.2 million
, of which there were
no
outstanding borrowings at
March 31, 2019
. Borrowings under these credit facilities bear interest at variable rates.
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
We have
$403.6 million
aggregate principal amount of fixed rate senior notes maturing in the next twelve months. We classified this debt as long-term as of
March 31, 2019
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
March 31, 2019
matures on a calendar year basis as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q2-Q4
|
|
|
|
|
|
|
|
In millions
|
2019
|
2020
|
2021
|
2022
|
2023
|
2024
|
Thereafter
|
Total
|
Contractual debt obligation maturities
|
$
|
403.6
|
|
$
|
74.0
|
|
$
|
103.8
|
|
$
|
88.3
|
|
$
|
686.2
|
|
$
|
—
|
|
$
|
19.3
|
|
$
|
1,375.2
|
|
|
|
10.
|
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
March 31, 2019
and
December 31, 2018
, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts of
$313.6 million
and
$331.4 million
, respectively. The impact of these contracts on the Condensed Consolidated Statements of Operations and Comprehensive Income was not material for any period presented.
Gains or losses on foreign currency contracts designated as hedges are reclassified out of
Accumulated other comprehensive loss
(“AOCI”) and into
Selling, general and administrative expenses
in the Condensed Consolidated Statements of Operations and Comprehensive Income upon settlement. Such reclassifications during the
three months ended
March 31, 2019
and
2018
were not material.
Net investment hedge
We have net investments in foreign subsidiaries that are subject to changes in the foreign currency exchange rate. In September 2015, we designated the
€500 million
2.45%
Senior Notes due 2019 (the “2019 Euro Notes”) as a net investment hedge for a portion of our net investment in our Euro-denominated subsidiaries. In June 2018, the Company completed a tender offer for
€363.4 million
of the 2019 Euro Notes. The remaining
€136.6 million
of the 2019 Euro Notes have been re-designated as a net investment hedge in our Euro-denominated subsidiaries. The gains/losses on the 2019 Euro Notes have been included as a component of the cumulative translation adjustment account within AOCI. We had a deferred foreign currency gain of
$0.7 million
at
March 31, 2019
and a deferred foreign currency loss of
$0.8 million
at
December 31, 2018
in AOCI associated with the net investment hedge activity.
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:
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
|
|
|
|
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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
In millions
|
Recorded
Amount
|
Fair
Value
|
|
Recorded
Amount
|
Fair
Value
|
Variable rate debt
|
$
|
686.2
|
|
$
|
686.2
|
|
|
$
|
102.2
|
|
$
|
102.2
|
|
Fixed rate debt
|
689.0
|
|
694.6
|
|
|
690.5
|
|
691.8
|
|
Total debt
|
$
|
1,375.2
|
|
$
|
1,380.8
|
|
|
$
|
792.7
|
|
$
|
794.0
|
|
Financial assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
In millions
|
Level 1
|
Level 2
|
Level 3
|
NAV
|
Total
|
Recurring fair value measurements
|
|
|
|
|
|
Foreign currency contract assets
|
$
|
—
|
|
$
|
0.3
|
|
$
|
—
|
|
$
|
—
|
|
$
|
0.3
|
|
Foreign currency contract liabilities
|
—
|
|
(23.9
|
)
|
—
|
|
—
|
|
(23.9
|
)
|
Deferred compensation plan assets
|
17.0
|
|
—
|
|
—
|
|
4.2
|
|
21.2
|
|
Total recurring fair value measurements
|
$
|
17.0
|
|
$
|
(23.6
|
)
|
$
|
—
|
|
$
|
4.2
|
|
$
|
(2.4
|
)
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
In millions
|
Level 1
|
Level 2
|
Level 3
|
NAV
|
Total
|
Recurring fair value measurements
|
|
|
|
|
|
Foreign currency contract liabilities
|
$
|
—
|
|
$
|
(30.6
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
(30.6
|
)
|
Deferred compensation plan assets
|
17.6
|
|
—
|
|
—
|
|
3.3
|
|
20.9
|
|
Total recurring fair value measurements
|
$
|
17.6
|
|
$
|
(30.6
|
)
|
$
|
—
|
|
$
|
3.3
|
|
$
|
(9.7
|
)
|
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, 2019
was
17.1%
, compared to
20.5%
for the
three months ended
March 31, 2018
. 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
$49.6 million
and
$51.4 million
at
March 31, 2019
and
December 31, 2018
, 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.
Components of net periodic benefit cost for our pension plans for the
three months ended
March 31, 2019
and
2018
were as follows:
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions
|
March 31,
2019
|
March 31,
2018
|
Service cost
|
$
|
0.7
|
|
$
|
1.0
|
|
Interest cost
|
2.7
|
|
3.0
|
|
Expected return on plan assets
|
(1.7
|
)
|
(2.2
|
)
|
Net periodic benefit cost
|
$
|
1.7
|
|
$
|
1.8
|
|
Components of net periodic benefit cost for our other post-retirement plans for the
three months ended
March 31, 2019
and
2018
were not material.
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 authorization expires on
May 31, 2021
. There were no share repurchases during the
three months ended
March 31, 2019
. As of
March 31, 2019
, we had
$400.0 million
available for share repurchases.
Dividends payable
On
December 10, 2018
, the Board of Directors declared a quarterly cash dividend of
$0.18
, that was paid on February 8, 2019, to shareholders of record at the close of business on January 25, 2019. Additionally, the Board of Directors approved a plan to pay an annual cash dividend of
$0.72
in 2019. Further, on
February 19, 2019
, the Board of Directors declared a quarterly cash dividend of
$0.18
payable on
May 3, 2019
, to shareholders of record at the close of business on
April 19, 2019
. As a result, the balance of dividends payable included in
Other current liabilities
on our Condensed Consolidated Balance Sheets was
$30.9 million
at
March 31, 2019
, compared to
$30.8 million
at
December 31, 2018
.
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 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
|
In millions
|
March 31,
2019
|
March 31,
2018
|
Net sales
|
|
|
Aquatic Systems
|
$
|
220.5
|
|
$
|
240.4
|
|
Filtration Solutions
|
239.3
|
|
251.6
|
|
Flow Technologies
|
228.7
|
|
240.3
|
|
Other
|
0.4
|
|
0.3
|
|
Consolidated
|
$
|
688.9
|
|
$
|
732.6
|
|
Segment income (loss)
|
|
|
Aquatic Systems
|
$
|
52.4
|
|
$
|
60.0
|
|
Filtration Solutions
|
33.7
|
|
33.7
|
|
Flow Technologies
|
30.1
|
|
38.7
|
|
Other
|
(17.5
|
)
|
(15.4
|
)
|
Consolidated
|
$
|
98.7
|
|
$
|
117.0
|
|
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,
2019
|
March 31,
2018
|
Segment income
|
$
|
98.7
|
|
$
|
117.0
|
|
Deal-related costs and expenses
|
(4.2
|
)
|
—
|
|
Inventory step-up
|
(1.7
|
)
|
—
|
|
Restructuring and other
|
(1.1
|
)
|
(5.6
|
)
|
Intangible amortization
|
(8.2
|
)
|
(9.3
|
)
|
Asset impairment
|
(15.3
|
)
|
—
|
|
Gain (loss) on sale of business
|
3.5
|
|
(5.3
|
)
|
Corporate allocations
|
—
|
|
(8.8
|
)
|
Net interest expense
|
(7.3
|
)
|
(13.5
|
)
|
Other expense
|
(1.2
|
)
|
(1.0
|
)
|
Income from continuing operations before income taxes
|
$
|
63.2
|
|
$
|
73.5
|
|
|
|
15.
|
Commitments and Contingencies
|
Leases
We determine if an arrangement is a lease at inception. Our lease portfolio principally consists of operating leases related to facilities, machinery, equipment and vehicles. Our lease terms do not include options to extend or terminate the lease until we are reasonably certain that we will exercise that option. Operating lease cost for lease payments is recognized on a straight-line basis over the lease term and principally consists of fixed payments for base rent.
The components of lease cost for the
three months ended
March 31, 2019
were as follows:
|
|
|
|
|
In millions
|
March 31,
2019
|
Operating lease cost
|
$
|
8.6
|
|
Sublease income
|
(0.2
|
)
|
Total lease cost
|
$
|
8.4
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Supplemental cash flow information related to leases for the
three months ended
March 31, 2019
was as follows:
|
|
|
|
|
In millions
|
March 31,
2019
|
Operating cash flows from operating leases
|
$
|
6.6
|
|
Right-of-use assets obtained in exchange for lease obligations
|
79.5
|
|
Other information related to leases was as follows:
|
|
|
|
|
March 31,
2019
|
Weighted-average remaining lease term of operating leases
|
5 years
|
|
Weighted-average discount rate of operating leases
|
6.2
|
%
|
Future minimum lease commitments under non-cancelable operating leases, as of
March 31, 2019
were as follows:
|
|
|
|
|
In millions
|
Operating Leases
|
Q2 through Q4 2019
|
$
|
18.5
|
|
2020
|
19.6
|
|
2021
|
14.9
|
|
2022
|
12.3
|
|
2023
|
10.3
|
|
Thereafter
|
15.6
|
|
Total lease payments
|
91.2
|
|
Less: imputed interest
|
(13.6
|
)
|
Total
|
$
|
77.6
|
|
Future minimum lease commitments under non-cancelable operating leases based on accounting standards applicable as of
December 31, 2018
were as follows:
|
|
|
|
|
In millions
|
Operating Leases
|
2019
|
$
|
23.2
|
|
2020
|
17.6
|
|
2021
|
13.3
|
|
2022
|
11.1
|
|
2023
|
9.5
|
|
Thereafter
|
13.8
|
|
Total
|
$
|
88.5
|
|
Warranties and guarantees
In connection with the disposition of our 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 obligation under such indemnifications is 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.
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
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 in 2017, 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.
The changes in the carrying amount of service and product warranties of continuing operations for the
three months ended
March 31, 2019
were as follows:
|
|
|
|
|
In millions
|
March 31,
2019
|
Beginning balance
|
$
|
33.9
|
|
Service and product warranty provision
|
11.2
|
|
Payments
|
(10.5
|
)
|
Ending balance
|
$
|
34.6
|
|
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 disposing of assets or businesses, we often provide representations, warranties and indemnities to cover various risks including unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities and unidentified tax liabilities and legal fees related to periods prior to disposition. We do not have the ability to reasonably estimate the potential liability due to the inchoate and unknown nature of these potential liabilities. However, we have no reason to believe that these uncertainties would have a material adverse effect on our financial position, results of operations or cash flows.
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, 2019
and
December 31, 2018
, the outstanding value of bonds, letters of credit and bank guarantees totaled
$121.6 million
and
$123.6 million
, respectively.
|
|
16.
|
Supplemental Guarantor Information
|
Pentair plc (the “Parent Company Guarantor”) and PISG (the “Subsidiary Guarantor”), fully and unconditionally, guarantee the Notes of PFSA (the “Subsidiary Issuer”). The Subsidiary Guarantor is a Switzerland limited liability company and
100 percent
-owned subsidiary of the Parent Company Guarantor. The Subsidiary Issuer is a Luxembourg private limited liability company and
100 percent
-owned subsidiary of the Subsidiary Guarantor. The guarantees provided by the Parent Company Guarantor and Subsidiary Guarantor are joint and several.
The following supplemental financial information sets forth the Company’s Condensed Consolidating Statements of Operations and Comprehensive Income (Loss), Condensed Consolidating Balance Sheets and Condensed Consolidating Statements of Cash Flows by relevant group within the Company: Pentair plc and PISG as the guarantors, PFSA as issuer of the debt and all other non-guarantor subsidiaries. Condensed consolidating financial information for Pentair plc, PISG and PFSA on a stand-alone basis is presented using the equity method of accounting for subsidiaries.
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Three months ended
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
Company
Guarantor
|
Subsidiary
Guarantor
|
Subsidiary
Issuer
|
Non-guarantor
Subsidiaries
|
Eliminations
|
Consolidated
Total
|
Net sales
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
688.9
|
|
$
|
—
|
|
$
|
688.9
|
|
Cost of goods sold
|
—
|
|
—
|
|
—
|
|
453.3
|
|
—
|
|
453.3
|
|
Gross profit
|
—
|
|
—
|
|
—
|
|
235.6
|
|
—
|
|
235.6
|
|
Selling, general and administrative expenses
|
3.0
|
|
0.1
|
|
0.3
|
|
143.9
|
|
—
|
|
147.3
|
|
Research and development expenses
|
—
|
|
—
|
|
—
|
|
20.7
|
|
—
|
|
20.7
|
|
Operating (loss) income
|
(3.0
|
)
|
(0.1
|
)
|
(0.3
|
)
|
71.0
|
|
—
|
|
67.6
|
|
(Earnings) loss from continuing operations of investment in subsidiaries
|
(55.4
|
)
|
(56.9
|
)
|
(57.7
|
)
|
—
|
|
170.0
|
|
—
|
|
Other (income) expense:
|
|
|
|
|
|
|
Gain on sale of business
|
—
|
|
—
|
|
—
|
|
(3.5
|
)
|
—
|
|
(3.5
|
)
|
Net interest expense
|
—
|
|
1.4
|
|
0.5
|
|
5.4
|
|
—
|
|
7.3
|
|
Other expense
|
—
|
|
—
|
|
—
|
|
0.6
|
|
—
|
|
0.6
|
|
Income (loss) from continuing operations before income taxes
|
52.4
|
|
55.4
|
|
56.9
|
|
68.5
|
|
(170.0
|
)
|
63.2
|
|
Provision for income taxes
|
—
|
|
—
|
|
—
|
|
10.8
|
|
—
|
|
10.8
|
|
Net income (loss) from continuing operations
|
52.4
|
|
55.4
|
|
56.9
|
|
57.7
|
|
(170.0
|
)
|
52.4
|
|
Loss from discontinued operations, net of tax
|
—
|
|
—
|
|
—
|
|
(1.1
|
)
|
—
|
|
(1.1
|
)
|
(Loss) earnings from discontinued operations of investment in subsidiaries
|
(1.1
|
)
|
(1.1
|
)
|
(1.1
|
)
|
—
|
|
3.3
|
|
—
|
|
Net income (loss)
|
$
|
51.3
|
|
$
|
54.3
|
|
$
|
55.8
|
|
$
|
56.6
|
|
$
|
(166.7
|
)
|
$
|
51.3
|
|
Comprehensive income (loss), net of tax
|
|
|
|
|
|
|
Net income (loss)
|
$
|
51.3
|
|
$
|
54.3
|
|
$
|
55.8
|
|
$
|
56.6
|
|
$
|
(166.7
|
)
|
$
|
51.3
|
|
Changes in cumulative translation adjustment
|
(1.6
|
)
|
(1.6
|
)
|
(1.6
|
)
|
(1.6
|
)
|
4.8
|
|
(1.6
|
)
|
Changes in market value of derivative financial instruments, net of tax
|
4.3
|
|
4.3
|
|
4.3
|
|
4.3
|
|
(12.9
|
)
|
4.3
|
|
Comprehensive income (loss)
|
$
|
54.0
|
|
$
|
57.0
|
|
$
|
58.5
|
|
$
|
59.3
|
|
$
|
(174.8
|
)
|
$
|
54.0
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Condensed Consolidating Balance Sheet
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
Company
Guarantor
|
Subsidiary
Guarantor
|
Subsidiary
Issuer
|
Non-guarantor
Subsidiaries
|
Eliminations
|
Consolidated
Total
|
Assets
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
0.1
|
|
$
|
—
|
|
$
|
—
|
|
$
|
78.8
|
|
$
|
—
|
|
$
|
78.9
|
|
Accounts and notes receivable, net
|
—
|
|
—
|
|
6.3
|
|
645.7
|
|
(6.3
|
)
|
645.7
|
|
Inventories
|
—
|
|
—
|
|
—
|
|
421.8
|
|
—
|
|
421.8
|
|
Other current assets
|
3.1
|
|
—
|
|
0.1
|
|
102.0
|
|
—
|
|
105.2
|
|
Total current assets
|
3.2
|
|
—
|
|
6.4
|
|
1,248.3
|
|
(6.3
|
)
|
1,251.6
|
|
Property, plant and equipment, net
|
—
|
|
—
|
|
—
|
|
279.1
|
|
—
|
|
279.1
|
|
Other assets
|
|
|
|
|
|
|
Investments in subsidiaries
|
1,965.9
|
|
2,099.7
|
|
2,740.2
|
|
—
|
|
(6,805.8
|
)
|
—
|
|
Goodwill
|
—
|
|
—
|
|
—
|
|
2,283.0
|
|
—
|
|
2,283.0
|
|
Intangibles, net
|
—
|
|
—
|
|
—
|
|
361.5
|
|
—
|
|
361.5
|
|
Other non-current assets
|
23.4
|
|
—
|
|
1,319.5
|
|
813.1
|
|
(1,949.0
|
)
|
207.0
|
|
Total other assets
|
1,989.3
|
|
2,099.7
|
|
4,059.7
|
|
3,457.6
|
|
(8,754.8
|
)
|
2,851.5
|
|
Total assets
|
$
|
1,992.5
|
|
$
|
2,099.7
|
|
$
|
4,066.1
|
|
$
|
4,985.0
|
|
$
|
(8,761.1
|
)
|
$
|
4,382.2
|
|
Liabilities and Equity
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable
|
$
|
6.3
|
|
$
|
—
|
|
$
|
—
|
|
$
|
265.3
|
|
$
|
(6.3
|
)
|
$
|
265.3
|
|
Employee compensation and benefits
|
0.3
|
|
0.1
|
|
—
|
|
93.8
|
|
—
|
|
94.2
|
|
Other current liabilities
|
35.7
|
|
1.3
|
|
6.7
|
|
302.1
|
|
—
|
|
345.8
|
|
Total current liabilities
|
42.3
|
|
1.4
|
|
6.7
|
|
661.2
|
|
(6.3
|
)
|
705.3
|
|
Other liabilities
|
|
|
|
|
|
|
Long-term debt
|
59.7
|
|
132.4
|
|
1,959.9
|
|
1,167.7
|
|
(1,949.0
|
)
|
1,370.7
|
|
Pension and other post-retirement compensation and benefits
|
—
|
|
—
|
|
—
|
|
89.8
|
|
—
|
|
89.8
|
|
Deferred tax liabilities
|
—
|
|
—
|
|
—
|
|
124.6
|
|
—
|
|
124.6
|
|
Other non-current liabilities
|
20.1
|
|
—
|
|
—
|
|
201.3
|
|
—
|
|
221.4
|
|
Total liabilities
|
122.1
|
|
133.8
|
|
1,966.6
|
|
2,244.6
|
|
(1,955.3
|
)
|
2,511.8
|
|
Equity
|
1,870.4
|
|
1,965.9
|
|
2,099.5
|
|
2,740.4
|
|
(6,805.8
|
)
|
1,870.4
|
|
Total liabilities and equity
|
$
|
1,992.5
|
|
$
|
2,099.7
|
|
$
|
4,066.1
|
|
$
|
4,985.0
|
|
$
|
(8,761.1
|
)
|
$
|
4,382.2
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Condensed Consolidating Statement of Cash Flows
Three months ended
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
Company
Guarantor
|
Subsidiary
Guarantor
|
Subsidiary
Issuer
|
Non-guarantor
Subsidiaries
|
Eliminations
|
Consolidated
Total
|
Operating activities
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities
|
$
|
(31.8
|
)
|
$
|
57.1
|
|
$
|
54.6
|
|
$
|
(172.8
|
)
|
$
|
(163.4
|
)
|
$
|
(256.3
|
)
|
Investing activities
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
—
|
|
—
|
|
(16.8
|
)
|
—
|
|
(16.8
|
)
|
Proceeds from sale of property and equipment
|
—
|
|
—
|
|
—
|
|
0.3
|
|
—
|
|
0.3
|
|
Proceeds from the sale of businesses
|
—
|
|
—
|
|
—
|
|
0.7
|
|
—
|
|
0.7
|
|
Acquisitions, net of cash acquired
|
—
|
|
—
|
|
—
|
|
(287.2
|
)
|
—
|
|
(287.2
|
)
|
Net intercompany loan activity
|
—
|
|
—
|
|
(627.8
|
)
|
(21.9
|
)
|
649.7
|
|
—
|
|
Other
|
—
|
|
—
|
|
—
|
|
(1.5
|
)
|
—
|
|
(1.5
|
)
|
Net cash provided by (used for) investing activities
|
—
|
|
—
|
|
(627.8
|
)
|
(326.4
|
)
|
649.7
|
|
(304.5
|
)
|
Financing activities
|
|
|
|
|
|
|
Net receipts (repayments) of commercial paper and revolving long-term debt
|
—
|
|
—
|
|
605.2
|
|
(21.1
|
)
|
—
|
|
584.1
|
|
Net change in advances to subsidiaries
|
56.9
|
|
(57.1
|
)
|
(33.6
|
)
|
520.1
|
|
(486.3
|
)
|
—
|
|
Shares issued to employees, net of shares withheld
|
5.9
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5.9
|
|
Dividends paid
|
(31.0
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(31.0
|
)
|
Net cash provided by (used for) financing activities
|
31.8
|
|
(57.1
|
)
|
571.6
|
|
499.0
|
|
(486.3
|
)
|
559.0
|
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
—
|
|
1.5
|
|
4.9
|
|
—
|
|
6.4
|
|
Change in cash and cash equivalents
|
—
|
|
—
|
|
(0.1
|
)
|
4.7
|
|
—
|
|
4.6
|
|
Cash and cash equivalents, beginning of period
|
0.1
|
|
—
|
|
0.1
|
|
74.1
|
|
—
|
|
74.3
|
|
Cash and cash equivalents, end of period
|
$
|
0.1
|
|
$
|
—
|
|
$
|
—
|
|
$
|
78.8
|
|
$
|
—
|
|
$
|
78.9
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Three months ended
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
Company
Guarantor
|
Subsidiary
Guarantor
|
Subsidiary
Issuer
|
Non-guarantor
Subsidiaries
|
Eliminations
|
Consolidated
Total
|
Net sales
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
732.6
|
|
$
|
—
|
|
$
|
732.6
|
|
Cost of goods sold
|
—
|
|
—
|
|
—
|
|
479.3
|
|
—
|
|
479.3
|
|
Gross profit
|
—
|
|
—
|
|
—
|
|
253.3
|
|
—
|
|
253.3
|
|
Selling, general and administrative expenses
|
7.1
|
|
—
|
|
0.1
|
|
134.6
|
|
—
|
|
141.8
|
|
Research and development expenses
|
—
|
|
—
|
|
—
|
|
18.8
|
|
—
|
|
18.8
|
|
Operating (loss) income
|
(7.1
|
)
|
—
|
|
(0.1
|
)
|
99.9
|
|
—
|
|
92.7
|
|
(Earnings) loss from continuing operations of investment in subsidiaries
|
(65.5
|
)
|
(65.2
|
)
|
(77.9
|
)
|
—
|
|
208.6
|
|
—
|
|
Other (income) expense:
|
|
|
|
|
|
|
Loss on sale of business
|
—
|
|
—
|
|
—
|
|
5.3
|
|
—
|
|
5.3
|
|
Net interest (income) expense
|
—
|
|
(0.3
|
)
|
12.6
|
|
1.2
|
|
—
|
|
13.5
|
|
Other expense
|
—
|
|
—
|
|
—
|
|
0.4
|
|
—
|
|
0.4
|
|
Income (loss) from continuing operations before income taxes
|
58.4
|
|
65.5
|
|
65.2
|
|
93.0
|
|
(208.6
|
)
|
73.5
|
|
Provision for income taxes
|
—
|
|
—
|
|
—
|
|
15.1
|
|
—
|
|
15.1
|
|
Net income (loss) from continuing operations
|
58.4
|
|
65.5
|
|
65.2
|
|
77.9
|
|
(208.6
|
)
|
58.4
|
|
Income from discontinued operations, net of tax
|
—
|
|
—
|
|
—
|
|
44.5
|
|
—
|
|
44.5
|
|
Earnings (loss) from discontinued operations of investment in subsidiaries
|
44.5
|
|
44.5
|
|
44.5
|
|
—
|
|
(133.5
|
)
|
—
|
|
Net income (loss)
|
$
|
102.9
|
|
$
|
110.0
|
|
$
|
109.7
|
|
$
|
122.4
|
|
$
|
(342.1
|
)
|
$
|
102.9
|
|
Comprehensive income (loss), net of tax
|
|
|
|
|
|
|
Net income (loss)
|
$
|
102.9
|
|
$
|
110.0
|
|
$
|
109.7
|
|
$
|
122.4
|
|
$
|
(342.1
|
)
|
$
|
102.9
|
|
Changes in cumulative translation adjustment
|
2.4
|
|
2.4
|
|
2.4
|
|
2.4
|
|
(7.2
|
)
|
2.4
|
|
Changes in market value of derivative financial instruments, net of tax
|
(3.8
|
)
|
(3.8
|
)
|
(3.8
|
)
|
(3.8
|
)
|
11.4
|
|
(3.8
|
)
|
Comprehensive income (loss)
|
$
|
101.5
|
|
$
|
108.6
|
|
$
|
108.3
|
|
$
|
121.0
|
|
$
|
(337.9
|
)
|
$
|
101.5
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Condensed Consolidating Balance Sheet
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
Company
Guarantor
|
Subsidiary
Guarantor
|
Subsidiary
Issuer
|
Non-guarantor
Subsidiaries
|
Eliminations
|
Consolidated
Total
|
Assets
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
0.1
|
|
$
|
—
|
|
$
|
0.1
|
|
$
|
74.1
|
|
$
|
—
|
|
$
|
74.3
|
|
Accounts and notes receivable, net
|
4.6
|
|
—
|
|
—
|
|
483.6
|
|
—
|
|
488.2
|
|
Inventories
|
—
|
|
—
|
|
—
|
|
387.5
|
|
—
|
|
387.5
|
|
Other current assets
|
3.4
|
|
—
|
|
2.2
|
|
99.2
|
|
(15.4
|
)
|
89.4
|
|
Total current assets
|
8.1
|
|
—
|
|
2.3
|
|
1,044.4
|
|
(15.4
|
)
|
1,039.4
|
|
Property, plant and equipment, net
|
—
|
|
—
|
|
—
|
|
272.6
|
|
—
|
|
272.6
|
|
Other assets
|
|
|
|
|
|
|
Investments in subsidiaries
|
1,903.8
|
|
2,036.1
|
|
2,675.7
|
|
—
|
|
(6,615.6
|
)
|
—
|
|
Goodwill
|
—
|
|
—
|
|
—
|
|
2,072.7
|
|
—
|
|
2,072.7
|
|
Intangibles, net
|
—
|
|
—
|
|
—
|
|
276.3
|
|
—
|
|
276.3
|
|
Other non-current assets
|
23.3
|
|
—
|
|
696.1
|
|
729.7
|
|
(1,303.6
|
)
|
145.5
|
|
Total other assets
|
1,927.1
|
|
2,036.1
|
|
3,371.8
|
|
3,078.7
|
|
(7,919.2
|
)
|
2,494.5
|
|
Total assets
|
$
|
1,935.2
|
|
$
|
2,036.1
|
|
$
|
3,374.1
|
|
$
|
4,395.7
|
|
$
|
(7,934.6
|
)
|
$
|
3,806.5
|
|
Liabilities and Equity
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable
|
$
|
0.9
|
|
$
|
—
|
|
$
|
—
|
|
$
|
377.7
|
|
$
|
—
|
|
$
|
378.6
|
|
Employee compensation and benefits
|
0.2
|
|
—
|
|
—
|
|
111.5
|
|
—
|
|
111.7
|
|
Other current liabilities
|
47.6
|
|
1.5
|
|
4.4
|
|
290.3
|
|
(15.4
|
)
|
328.4
|
|
Total current liabilities
|
48.7
|
|
1.5
|
|
4.4
|
|
779.5
|
|
(15.4
|
)
|
818.7
|
|
Other liabilities
|
|
|
|
|
|
|
Long-term debt
|
29.9
|
|
130.8
|
|
1,333.9
|
|
596.6
|
|
(1,303.6
|
)
|
787.6
|
|
Pension and other post-retirement compensation and benefits
|
—
|
|
—
|
|
—
|
|
90.0
|
|
—
|
|
90.0
|
|
Deferred tax liabilities
|
—
|
|
—
|
|
—
|
|
105.9
|
|
—
|
|
105.9
|
|
Other non-current liabilities
|
20.5
|
|
—
|
|
—
|
|
147.7
|
|
—
|
|
168.2
|
|
Total liabilities
|
99.1
|
|
132.3
|
|
1,338.3
|
|
1,719.7
|
|
(1,319.0
|
)
|
1,970.4
|
|
Equity
|
1,836.1
|
|
1,903.8
|
|
2,035.8
|
|
2,676.0
|
|
(6,615.6
|
)
|
1,836.1
|
|
Total liabilities and equity
|
$
|
1,935.2
|
|
$
|
2,036.1
|
|
$
|
3,374.1
|
|
$
|
4,395.7
|
|
$
|
(7,934.6
|
)
|
$
|
3,806.5
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Condensed Consolidating Statement of Cash Flows
Three months ended
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
Company
Guarantor
|
Subsidiary
Guarantor
|
Subsidiary
Issuer
|
Non-guarantor
Subsidiaries
|
Eliminations
|
Consolidated
Total
|
Operating activities
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities
|
$
|
82.8
|
|
$
|
111.6
|
|
$
|
109.3
|
|
$
|
4.3
|
|
$
|
(475.6
|
)
|
$
|
(167.6
|
)
|
Investing activities
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
—
|
|
—
|
|
(11.5
|
)
|
—
|
|
(11.5
|
)
|
Proceeds from sale of property and equipment
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Proceeds from sale of businesses, net
|
—
|
|
—
|
|
—
|
|
(13.8
|
)
|
—
|
|
(13.8
|
)
|
Acquisitions, net of cash acquired
|
—
|
|
—
|
|
—
|
|
(0.9
|
)
|
—
|
|
(0.9
|
)
|
Net intercompany loan activity
|
—
|
|
(1.9
|
)
|
(262.6
|
)
|
103.1
|
|
161.4
|
|
—
|
|
Net cash provided by (used for) investing activities of continuing operations
|
—
|
|
(1.9
|
)
|
(262.6
|
)
|
76.9
|
|
161.4
|
|
(26.2
|
)
|
Net cash provided by (used for) investing activities of discontinued operations
|
—
|
|
—
|
|
—
|
|
(5.0
|
)
|
—
|
|
(5.0
|
)
|
Net cash provided by (used for) investing activities
|
—
|
|
(1.9
|
)
|
(262.6
|
)
|
71.9
|
|
161.4
|
|
(31.2
|
)
|
Financing activities
|
|
|
|
|
|
|
Net repayments of commercial paper and revolving long-term debt
|
—
|
|
—
|
|
223.8
|
|
193.7
|
|
—
|
|
417.5
|
|
Net change in advances to subsidiaries
|
129.8
|
|
(109.7
|
)
|
(91.6
|
)
|
(242.7
|
)
|
314.2
|
|
—
|
|
Shares issued to employees, net of shares withheld
|
0.9
|
|
—
|
|
—
|
|
—
|
|
—
|
|
0.9
|
|
Repurchases of ordinary shares
|
(150.0
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(150.0
|
)
|
Dividends paid
|
(63.3
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(63.3
|
)
|
Net cash provided by (used for) financing activities of continuing operations
|
(82.6
|
)
|
(109.7
|
)
|
132.2
|
|
(49.0
|
)
|
314.2
|
|
205.1
|
|
Net cash provided by financing activities of discontinued operations
|
—
|
|
—
|
|
—
|
|
792.7
|
|
—
|
|
792.7
|
|
Net cash provided by (used for) financing activities
|
(82.6
|
)
|
(109.7
|
)
|
132.2
|
|
743.7
|
|
314.2
|
|
997.8
|
|
Change in cash held for sale
|
—
|
|
—
|
|
—
|
|
(809.7
|
)
|
—
|
|
(809.7
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
—
|
|
21.1
|
|
(25.9
|
)
|
—
|
|
(4.8
|
)
|
Change in cash and cash equivalents
|
0.2
|
|
—
|
|
—
|
|
(15.7
|
)
|
—
|
|
(15.5
|
)
|
Cash and cash equivalents, beginning of period
|
—
|
|
—
|
|
—
|
|
86.3
|
|
—
|
|
86.3
|
|
Cash and cash equivalents, end of period
|
$
|
0.2
|
|
$
|
—
|
|
$
|
—
|
|
$
|
70.6
|
|
$
|
—
|
|
$
|
70.8
|
|
CONSOLIDATED RESULTS OF OPERATIONS
The consolidated results of operations for the
three months ended
March 31, 2019
and
March 31, 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions
|
March 31,
2019
|
March 31,
2018
|
$
Change
|
% / Point
Change
|
Net sales
|
$
|
688.9
|
|
$
|
732.6
|
|
$
|
(43.7
|
)
|
(6.0
|
)%
|
Cost of goods sold
|
453.3
|
|
479.3
|
|
(26.0
|
)
|
(5.4
|
)%
|
Gross profit
|
235.6
|
|
253.3
|
|
(17.7
|
)
|
(7.0
|
)%
|
% of net sales
|
34.2
|
%
|
34.6
|
%
|
|
(0.4
|
) pts
|
|
|
|
|
|
Selling, general and administrative expenses
|
147.3
|
|
141.8
|
|
5.5
|
|
3.9
|
%
|
% of net sales
|
21.4
|
%
|
19.4
|
%
|
|
2.0
|
pts
|
Research and development expenses
|
20.7
|
|
18.8
|
|
1.9
|
|
10.1
|
%
|
% of net sales
|
3.0
|
%
|
2.6
|
%
|
|
0.4
|
pts
|
|
|
|
|
|
Operating income
|
67.6
|
|
92.7
|
|
(25.1
|
)
|
(27.1
|
)%
|
% of net sales
|
9.8
|
%
|
12.7
|
%
|
|
(2.9
|
) pts
|
|
|
|
|
|
(Gain) loss on sale of business
|
(3.5
|
)
|
5.3
|
|
(8.8
|
)
|
(166.0
|
)%
|
Other expense
|
0.6
|
|
0.4
|
|
0.2
|
|
50.0
|
%
|
Net interest expense
|
7.3
|
|
13.5
|
|
(6.2
|
)
|
(45.9
|
)%
|
|
|
|
|
|
Income from continuing operations before income taxes
|
63.2
|
|
73.5
|
|
(10.3
|
)
|
(14.0
|
)%
|
Provision for income taxes
|
10.8
|
|
15.1
|
|
(4.3
|
)
|
(28.5
|
)%
|
Effective tax rate
|
17.1
|
%
|
20.5
|
%
|
|
(3.4
|
) pts
|
Net sales
The components of the consolidated net sales change from the prior period were as follows:
|
|
|
|
|
Three months ended March 31, 2019
|
|
over the prior year period
|
Volume
|
(6.2
|
)%
|
Price
|
2.0
|
|
Core growth
|
(4.2
|
)
|
Acquisition (divestiture)
|
0.6
|
|
Currency
|
(2.4
|
)
|
Total
|
(6.0
|
)%
|
The
6.0
percentage point
decrease
in net sales in the
first quarter
of
2019
from
2018
was primarily driven by:
|
|
•
|
decreased sales volume in our Aquatic Systems segment and agriculture-related business in our Flow Technologies segment due to cold and wet weather and higher than anticipated inventory levels in some of our key distribution channels; and
|
|
|
•
|
unfavorable foreign currency effects for the three months ended
March 31, 2019
.
|
This
decrease
was partially offset by:
|
|
•
|
selective increases in selling prices; and
|
|
|
•
|
the impact of the Aquion and Pelican acquisitions.
|
Gross profit
The
0.4
percentage point
decrease
in gross profit as a percentage of sales in the
first quarter
of
2019
from
2018
was primarily driven by:
|
|
•
|
unfavorable mix as a result of a 6.4 percent core growth decrease in the higher margin Aquatic Systems segment; and
|
|
|
•
|
inflationary increases related to labor costs and certain raw materials.
|
This
decrease
was partially offset by:
|
|
•
|
selective increases in selling prices to mitigate inflationary cost increases; and
|
|
|
•
|
higher contribution margin as a result of savings generated from our PIMS initiatives including lean and supply management practices.
|
Selling, general and administrative expenses (“SG&A”)
The
2.0
percentage point
increase
in SG&A as a percentage of sales in the
first quarter
of
2019
from
2018
was primarily driven by:
|
|
•
|
a one-time asset impairment of $15.3 million; and
|
|
|
•
|
increased investment in sales and marketing to drive growth.
|
This
increase
was partially offset by:
|
|
•
|
restructuring and other costs of
$1.1 million
in the first quarter of 2019 compared to
$5.6 million
in the first quarter of 2018; and
|
|
|
•
|
savings generated from restructuring and other lean initiatives.
|
Net interest expense
The
45.9
percent
decrease
in net interest expense in the
first quarter
of
2019
from
2018
was primarily driven by:
|
|
•
|
the impact of lower debt levels during the first quarter of
2019
, compared to the comparable periods in
2018
. In June 2018, the proceeds from the Separation were utilized to repay the remaining $255.3 million aggregate principal amount of our 2.9% fixed rate senior notes due 2018 and for the early extinguishment of €363.4 million aggregate principal amount of our 2.45% senior notes due 2019.
|
This
decrease
was partially offset by:
|
|
•
|
increased expense due to a higher outstanding commercial paper balance in 2019 compared to 2018, which was primarily used to fund the Aquion and Pelican acquisitions.
|
Provision for income taxes
The
3.4
percentage point
decrease
in the effective tax rate in the
first quarter
of
2019
from
2018
was primarily driven by:
•
the mix of global earnings; and
•
the impact of less nondeductible interest expense in 2019 compared to 2018.
SEGMENT RESULTS OF OPERATIONS
The summary that follows provides a discussion of the results of operations of each of our three reportable segments (Aquatic Systems, Filtration Solutions and Flow Technologies). Each of these segments is comprised of various product offerings that serve multiple end users.
We evaluate performance based on 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 activities, impairments and other unusual non-operating items.
Aquatic Systems
The net sales and segment income for Aquatic Systems were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
In millions
|
March 31,
2019
|
March 31,
2018
|
|
% / Point Change
|
Net sales
|
$
|
220.5
|
|
$
|
240.4
|
|
|
(8.3
|
)%
|
Segment income
|
52.4
|
|
60.0
|
|
|
(12.7
|
)%
|
% of net sales
|
23.8
|
%
|
25.0
|
%
|
|
(1.2
|
) pts
|
Net sales
The components of the change in
Aquatic Systems
net sales from the prior period were as follows:
|
|
|
|
|
Three months ended March 31, 2019
|
|
over the prior year period
|
Volume
|
(10.0
|
)%
|
Price
|
3.6
|
|
Core growth
|
(6.4
|
)
|
Acquisition (divestiture)
|
(1.1
|
)
|
Currency
|
(0.8
|
)
|
Total
|
(8.3
|
)%
|
The
8.3
percent
decrease
in net sales for Aquatic Systems in the
first quarter
of
2019
from
2018
was primarily driven by:
|
|
•
|
sales volume declines due to cold, wet weather and higher than anticipated inventory levels in some of our key distribution channels impacting our residential and commercial businesses;
|
|
|
•
|
the impact of divestitures; and
|
|
|
•
|
unfavorable foreign currency effects compared to the same period of the prior year.
|
This
decrease
was partially offset by:
|
|
•
|
selective increases in selling prices.
|
Segment income
The components of the change in Aquatic Systems segment income as a percentage of net sales from the prior period were as follows:
|
|
|
|
|
Three months ended March 31, 2019
|
|
over the prior year period
|
Growth
|
(2.2
|
) pts
|
Inflation
|
(3.2
|
)
|
Productivity/Price
|
4.2
|
|
Total
|
(1.2
|
) pts
|
The
1.2
percentage point
decrease
in segment income for Aquatic Systems as a percentage of net sales in the
first quarter
of
2019
from
2018
was primarily driven by:
|
|
•
|
inflationary increases related to labor costs and certain raw materials; and
|
|
|
•
|
sales declines in our residential and commercial businesses.
|
This decrease was partially offset by:
|
|
•
|
selective increases in selling prices to mitigate impacts of inflation; and
|
|
|
•
|
increased productivity.
|
Filtration Solutions
The net sales and segment income for Filtration Solutions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
In millions
|
March 31,
2019
|
March 31,
2018
|
|
% / Point Change
|
Net sales
|
$
|
239.3
|
|
$
|
251.6
|
|
|
(4.9
|
)%
|
Segment income
|
33.7
|
|
33.7
|
|
|
—
|
|
% of net sales
|
14.1
|
%
|
13.4
|
%
|
|
0.7
|
pts
|
Net sales
The components of the change in Filtration Solutions net sales from the prior period were as follows:
|
|
|
|
|
Three months ended March 31, 2019
|
|
over the prior year period
|
Volume
|
(7.1
|
)%
|
Price
|
1.1
|
|
Core growth
|
(6.0
|
)
|
Acquisition (divestiture)
|
4.8
|
|
Currency
|
(3.7
|
)
|
Total
|
(4.9
|
)%
|
The
4.9
percent
decrease
in net sales for Filtration Solutions in the
first quarter
of
2019
from
2018
was primarily driven by:
|
|
•
|
decreased sales volume in our residential and commercial businesses, partially due to lower component sales as Aquion sales are now considered intercompany;
|
|
|
•
|
modest sales declines in Europe;
|
|
|
•
|
unfavorable foreign currency effects compared to the same period of the prior year.
|
This
decrease
was partially offset by:
|
|
•
|
selective increases in selling prices to mitigate inflationary cost increases; and
|
|
|
•
|
increased sales due to the Aquion and Pelican acquisitions.
|
Segment income
The components of the change in Filtration Solutions segment income as a percentage of net sales from the prior period were as follows:
|
|
|
|
|
Three months ended March 31, 2019
|
|
over the prior year period
|
Growth
|
0.1
|
pts
|
Inflation
|
(2.9
|
)
|
Productivity/Price
|
3.5
|
|
Total
|
0.7
|
pts
|
The
0.7
percentage point
increase
in segment income for Filtration Solutions as a percentage of net sales in the
first quarter
of
2019
from
2018
was primarily driven by:
|
|
•
|
selective increases in selling prices to mitigate inflationary cost increases;
|
|
|
•
|
increased productivity and positive mix; and
|
|
|
•
|
the impact of the Aquion and Pelican acquisitions.
|
The
increase
was partially offset by:
|
|
•
|
inflationary increases related to labor costs and certain raw materials.
|
Flow Technologies
The net sales and segment income for Flow Technologies were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
In millions
|
March 31,
2019
|
March 31,
2018
|
|
% / Point Change
|
Net sales
|
$
|
228.7
|
|
$
|
240.3
|
|
|
(4.8
|
)%
|
Segment income
|
30.1
|
|
38.7
|
|
|
(22.2
|
)%
|
% of net sales
|
13.2
|
%
|
16.1
|
%
|
|
(2.9
|
) pts
|
Net sales
The components of the change in Flow Technologies net sales from the prior period were as follows:
|
|
|
|
|
Three months ended March 31, 2019
|
|
over the prior year period
|
Volume
|
(1.5
|
)%
|
Price
|
1.2
|
|
Core growth
|
(0.3
|
)
|
Acquisition (divestiture)
|
(2.1
|
)
|
Currency
|
(2.4
|
)
|
Total
|
(4.8
|
)%
|
The
4.8
percent
decrease
in net sales for Flow Technologies in the
first quarter
of
2019
from
2018
was primarily driven by:
|
|
•
|
unfavorable foreign currency effects compared to the same period of the prior year;
|
|
|
•
|
the impact of divestitures; and
|
|
|
•
|
decreased sales volume primarily in our higher margin, seasonal agriculture-related business due to cold, wet weather.
|
This
decrease
was partially offset by:
|
|
•
|
selective increases in selling prices to mitigate inflationary cost increases.
|
Segment income
The components of the change in Flow Technologies segment income as a percentage of net sales from the prior period were as follows:
|
|
|
|
|
Three months ended March 31, 2019
|
|
over the prior year period
|
Growth
|
(1.1
|
) pts
|
Inflation
|
(3.6
|
)
|
Productivity/Price
|
1.8
|
|
Total
|
(2.9
|
) pts
|
The
2.9
percentage point
decrease
in segment income for Flow Technologies as a percentage of net sales in the
first quarter
of
2019
from
2018
was primarily driven by:
|
|
•
|
decreased sales volumes in our higher margin Specialty Ag Spray business, which resulted in decreased leverage on operating expenses;
|
|
|
•
|
inflationary increases related to labor costs and certain raw materials;
|
|
|
•
|
the impact of divestitures; and
|
|
|
•
|
decreased sales volume in our residential and industrial businesses.
|
The
decrease
was partially offset by:
|
|
•
|
selective increases in selling prices to mitigate inflationary cost increases; and
|
|
|
•
|
increased productivity.
|
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 facilities have 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 intend to issue commercial paper to fund our financing needs on a short-term basis and use our revolving credit facility as back-up liquidity to support commercial paper.
We are focusing on increasing our cash flow and repaying existing debt, while continuing to fund our research and development, marketing and capital investment initiatives. Our intent is to maintain investment grade credit ratings and a solid liquidity position.
We experience seasonal cash flows primarily due to seasonal demand in a number of markets. We generally borrow in the first quarter of our fiscal year for operational purposes, which usage reverses in the second quarter as the seasonality of our businesses peaks. End-user demand for pool and certain pumping equipment follows warm weather trends and is at seasonal highs from April to August. The magnitude of the sales spike is 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.
Operating activities
Cash
used for
operating activities of continuing operations was
$257.1 million
in the first
three months
of
2019
, compared to
$194.0 million
in the same period of
2018
.
The
$257.1 million
in net cash
used for
operating activities of continuing operations in the first
three months
of
2019
primarily reflects an increase in net working capital. Operating cash flows in the first three months of 2019 were negatively impacted by
$344.1 million
due to the increase in net working capital, primarily the result of an increase in accounts receivable in anticipation of our distributors’ peak sales season in the second and third quarters. The increase in net working capital was offset by
$87.9 million
of net income from continuing operations, net of non-cash depreciation, amortization and asset impairments.
The
$194.0 million
in net cash
used for
operating activities of continuing operations in the first
three months
of
2018
primarily reflects an increase in net working capital of
$278.4 million
, offset by
$80.3 million
of net income from continuing operations, net of non-cash depreciation and amortization.
Investing activities
Cash
used for
investing activities of continuing operations was
$304.5 million
in the first
three months
of
2019
, compared to
$26.2 million
in the same period of
2018
. Net cash
used for
investing activities of continuing operations in the first
three months
of
2019
primarily reflects capital expenditures of
$16.8 million
and cash paid for the Aquion and Pelican acquisitions of
$287.2 million
, net of cash acquired.
Net cash
used for
investing activities of continuing operations in the first
three months
of
2018
primarily reflects cash paid for the settlement of a working capital adjustment related to the sale of the Valves & Controls business and capital expenditures of
$11.5 million
.
Financing activities
Net cash
provided by
financing activities of continuing operations was
$559.0 million
in the first
three months
of
2019
, compared with
$205.1 million
in the prior year period. Net cash provided by financing activities of continuing operations in the first
three months
of
2019
primarily relates to net receipts of commercial paper and revolving long-term debt of
$584.1 million
used to fund the Aquion and Pelican acquisitions and our working capital needs, partially offset by payment of dividends of
$31.0 million
.
Net cash
provided by
financing activities of continuing operations in the first
three months
2018
primarily relates to net receipts of commercial paper and revolving long-term debt of
$417.5 million
, partially offset by
$150.0
million of share repurchases and
$63.3 million
for the payment of dividends.
In April 2018, Pentair, Pentair Investments Switzerland GmbH (“PISG”), Pentair Finance S.à r.l. (“PFSA”) and Pentair, Inc. entered into a credit agreement, providing for a
five
-year
$800.0 million
senior unsecured revolving credit facility (the “Senior Credit Facility”), with Pentair and PISG as guarantors and PFSA and Pentair, Inc. as borrowers. The Senior Credit Facility replaced PFSA’s existing credit facility under that certain Amended and Restated Credit Agreement, dated as of October 3, 2014. 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.
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
$681.2 million
of commercial paper outstanding as of
March 31, 2019
and
$76.0 million
as of
December 31, 2018
, all of which was classified as long-term debt as we have the intent and the ability to refinance such obligations on a long-term basis under the Senior Credit Facility.
Total availability under the Senior Credit Facility was
$113.8 million
as of
March 31, 2019
. Additionally, PFSA has the option to request to increase the Senior Credit Facility in an aggregate amount of up to
$300.0 million
, subject to customary conditions, including the commitment of the participating lenders. We anticipate that, during the second quarter of 2019, PFSA will request an increase in the Senior Credit Facility of
$100.0 million
pursuant to such option.
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. As of
March 31, 2019
,
we were in compliance with all financial covenants in our debt agreements
.
In addition to the Senior Credit Facility, we have various other credit facilities with an aggregate availability of
$21.2 million
, of which there were
no
outstanding borrowings at
March 31, 2019
. Borrowings under these credit facilities bear interest at variable rates.
We have
$403.6 million
aggregate principal amount of fixed rate senior notes maturing in the next twelve months. We classified this debt as long-term as of
March 31, 2019
as we have the intent and ability to refinance such obligation on a long-term basis under the Senior Credit Facility.
As of
March 31, 2019
, we have
$48.2 million
of cash held in certain countries in which the ability to repatriate is limited due to local regulations or significant potential tax consequences.
We expect to continue to have cash requirements to support working capital needs and capital expenditures, to pay interest and service debt and to pay dividends to shareholders quarterly. We believe we have the ability and sufficient capacity to meet these cash requirements by using available cash and internally generated funds and to borrow under our committed and uncommitted credit facilities.
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 authorization expires on
May 31, 2021
. There were no share repurchases during the
three months ended
March 31, 2019
. As of
March 31, 2019
, we had
$400.0 million
available for share repurchases.
Dividends payable
On
December 10, 2018
, the Board of Directors declared a quarterly cash dividend of
$0.18
, that was paid on February 8, 2019, to shareholders of record at the close of business on January 25, 2019. Additionally, the Board of Directors approved a plan to pay an annual cash dividend of
$0.72
in 2019. Additionally, on
February 19, 2019
, the Board of Directors declared a quarterly cash dividend of
$0.18
payable on
May 3, 2019
, to shareholders of record at the close of business on
April 19, 2019
. As a result, the balance of dividends payable included in
Other current liabilities
on our Condensed Consolidated Balance Sheets was
$30.9 million
at
March 31, 2019
, compared to
$30.8 million
at
December 31, 2018
.
We paid dividends in the first
three months
of
2019
of
$31.0 million
, or
$0.18
per ordinary share compared with
$63.3 million
, or
$0.35
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
$6.5 billion
as of
December 31, 2018
.
Other financial measures
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 that equals or exceeds 100 percent conversion of adjusted 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, make acquisitions, repay debt and repurchase shares. 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:
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions
|
March 31,
2019
|
March 31,
2018
|
Net cash used for operating activities of continuing operations
|
$
|
(257.1
|
)
|
$
|
(194.0
|
)
|
Capital expenditures of continuing operations
|
(16.8
|
)
|
(11.5
|
)
|
Proceeds from sale of property and equipment of continuing operations
|
0.3
|
|
—
|
|
Free cash flow from continuing operations
|
$
|
(273.6
|
)
|
$
|
(205.5
|
)
|
Net cash provided by operating activities of discontinued operations
|
0.8
|
|
26.4
|
|
Capital expenditures of discontinued operations
|
—
|
|
(5.3
|
)
|
Proceeds from sale of property and equipment of discontinued operations
|
—
|
|
2.3
|
|
Free cash flow
|
$
|
(272.8
|
)
|
$
|
(182.1
|
)
|
NEW ACCOUNTING STANDARDS
See Note 1 of the Notes to Condensed Consolidated Financial Statements for information pertaining to recently adopted accounting standards.
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
2018
Annual Report on Form 10-K, 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
2018
Annual Report on Form 10-K for the year ended
December 31, 2018
.