SEC Info - PENTAIR plc - ‘10-K’ for 12/31/19

Acquisitions/
divestitures

Foreign currency
translation/other

Aquatic Systems

i 965.9

( i 3.7

)

( i 0.8

)

i 961.4

Filtration Solutions

i 643.5

i 205.5

( i 11.8

)

i 837.2

Flow Technologies

i 463.3

i —

( i 3.6

)

i 459.7

Total goodwill

i 2,072.7

i 201.8

( i 16.2

)

i 2,258.3



In millions	December 31, 2017		Foreign currency translation/other			December 31, 2018
Aquatic Systems	$	i 973.1	$	( i 7.2	)	$	i 965.9
Filtration Solutions	i 667.6		( i 24.1		)	i 643.5
Flow Technologies	i 472.1		( i 8.8		)	i 463.3
Total goodwill	$	i 2,112.8	$	( i 40.1	)	$	i 2,072.7

There has been i no impairment of goodwill for any of the years presented.

Identifiable intangible assets consisted of the following at December 31:

2019

2018

In millions

Cost

Accumulated

amortization

Net

Cost

Accumulated

amortization

Net

Definite-life intangibles

Customer relationships

i 418.1

( i 269.1

)

i 149.0

i 347.1

( i 247.9

)

i 99.2

Trade names

i —

i 0.4

( i 0.4

)

i —

Proprietary technology and patents

i 42.3

( i 25.5

)

i 16.8

i 86.2

( i 68.4

)

i 17.8

Total finite-life intangibles

i 460.4

( i 294.6

)

i 165.8

i 433.7

( i 316.7

)

i 117.0

Indefinite-life intangibles

Trade names

i 173.4

—

i 173.4

i 159.3

—

i 159.3

Total intangibles

i 633.8

( i 294.6

)

i 339.2

i 593.0

( i 316.7

)

i 276.3

Identifiable intangible asset amortization expense in 2019, 2018 and 2017 was $ i 31.7 million, $ i 34.9 million and $ i 36.4 million, respectively.

There was i no impairment charge for trade name intangible assets in 2019 and 2018. In 2017, we recorded an impairment charge for trade name intangible assets of $ i 8.8 million in Filtration Solutions and Flow Technologies.

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



In millions	2020		2021		2022		2023		2024
Estimated amortization expense	$	i 28.3	$	i 23.3	$	i 16.3	$	i 13.9	$	i 12.6

Pentair plc and Subsidiaries

Notes to consolidated financial statements

6. i Supplemental Balance Sheet Information



	December 31
In millions	2019		2018
Inventories
Raw materials and supplies	$	i 196.2	$	i 191.3
Work-in-process	i 65.2		i 64.0
Finished goods	i 116.0		i 132.2
Total inventories	$	i 377.4	$	i 387.5
Other current assets
Cost in excess of billings	$	i 41.0	$	i 36.5
Prepaid expenses	i 48.3		i 36.7
Prepaid income taxes	i 5.2		i 8.5
Other current assets	i 4.6		i 7.7
Total other current assets	$	i 99.1	$	i 89.4
Property, plant and equipment, net
Land and land improvements	$	i 33.7	$	i 33.5
Buildings and leasehold improvements	i 188.1		i 178.9
Machinery and equipment	i 610.7		i 593.8
Construction in progress	i 48.1		i 35.7
Total property, plant and equipment	i 880.6		i 841.9
Accumulated depreciation and amortization	i 597.4		i 569.3
Total property, plant and equipment, net	$	i 283.2	$	i 272.6
Other non-current assets
Right-of-use lease assets	$	i 77.2	$	i —
Deferred income taxes	i 29.6		i 26.2
Deferred compensation plan assets	i 21.3		i 20.9
Other non-current assets	i 68.8		i 98.4
Total other non-current assets	$	i 196.9	$	i 145.5
Other current liabilities
Dividends payable	$	i 32.0	$	i 30.8
Accrued warranty	i 32.1		i 33.9
Accrued rebates and incentives	i 83.5		i 76.9
Billings in excess of cost	i 22.5		i 21.3
Current lease liability	i 19.0		i —
Income taxes payable	i 11.1		i 10.4
Accrued restructuring	i 16.2		i 27.1
Other current liabilities	i 136.5		i 128.0
Total other current liabilities	$	i 352.9	$	i 328.4
Other non-current liabilities
Long-term lease liability	$	i 61.1	$	i —
Income taxes payable	i 45.4		i 46.8
Self-insurance liabilities	i 41.6		i 47.7
Deferred compensation plan liabilities	i 21.3		i 20.9
Foreign currency contract liabilities	i 11.6		i 30.6
Other non-current liabilities	i 25.7		i 22.2
Total other non-current liabilities	$	i 206.7	$	i 168.2

Pentair plc and Subsidiaries

Notes to consolidated financial statements

7. i Accumulated Other Comprehensive Loss

Components of Accumulated Other Comprehensive Loss consist of the following:



	December 31
In millions	2019			2018
Cumulative translation adjustments	$	( i 226.1	)	$	( i 210.8	)
Market value of derivative financial instruments, net of tax	( i 0.4		)	( i 17.8		)
Accumulated other comprehensive loss	$	( i 226.5	)	$	( i 228.6	)

8. i Debt

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



In millions	Average interest rate at	Maturity year	December 31
In millions	December 31, 2019	Maturity year	2019			2018
Commercial paper	i 2.327%	2023	$	i 117.8		$	i 76.0
Revolving credit facilities	i 2.863%	2023	i 35.8			i 26.2
Term loans ⁽¹⁾	i 2.914%	2023	i 200.0			i —
Senior notes - fixed rate ⁽¹⁾	i 2.650%	2019	i —			i 250.0
Senior notes - fixed rate - Euro ⁽¹⁾	i 2.450%	2019	i —			i 155.1
Senior notes - fixed rate ⁽¹⁾	i 3.625%	2020	i 74.0			i 74.0
Senior notes - fixed rate ⁽¹⁾	i 5.000%	2021	i 103.8			i 103.8
Senior notes - fixed rate ⁽¹⁾	i 3.150%	2022	i 88.3			i 88.3
Senior notes - fixed rate ⁽¹⁾	i 4.650%	2025	i 19.3			i 19.3
Senior notes - fixed rate ⁽¹⁾	i 4.500%	2029	i 400.0			i —
Unamortized issuance costs and discounts	N/A	N/A	( i 9.9		)	( i 5.1		)
Total debt			$	i 1,029.1		$	i 787.6

⁽¹⁾Senior notes (“the Notes”) and the term loans are guaranteed as to payment by Pentair plc and PISG

In June 2019, Pentair, Pentair Finance S.à r.l. (“PFSA”) and Pentair Investments Switzerland GmbH (“PISG”) completed a public offering of $ i 400.0 million aggregate principal amount of PFSA’s i 4.500% Senior Notes due 2029 (the “2029 Notes”). The 2029 Notes are fully and unconditionally guaranteed as to payment of principal and interest by Pentair and PISG. We used the net proceeds of the 2029 Notes to partially repay outstanding commercial paper.

In April 2018, Pentair, PISG, PFSA and Pentair, Inc. entered into a credit agreement, providing for an $ i 800.0 million senior unsecured revolving credit facility with a term of i five years (the “Senior Credit Facility”), with Pentair and PISG as guarantors and PFSA and Pentair, Inc. as borrowers. 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. In May 2019, PFSA executed an increase of the Senior Credit Facility by $ i 100.0 million for a total commitment up to $ i 900.0 million in the aggregate.

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

As of December 31, 2019, total availability under the Senior Credit Facility was $ i 746.4 million.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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 $ i 117.8 million of commercial paper outstanding as of December 31, 2019 and $ i 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.

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 its consolidated unrestricted cash in excess of $ i 5.0 million but not to exceed $ i 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 i 3.75 to i 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 i 3.00 to i 1.00 as of the end of each fiscal quarter. For purposes of the Leverage Ratio, the Senior Credit Facility provides for the calculation of EBITDA giving pro forma effect to certain acquisitions, divestitures and liquidations during the period to which such calculation relates.

In addition to the Senior Credit Facility, we have various other credit facilities with an aggregate availability of $ i 21.0 million, of which there were i no outstanding borrowings at December 31, 2019. Borrowings under these credit facilities bear interest at variable rates.

In 2018, we used the $ i 993.6 million of cash received from nVent as a result of the Distribution to pay down commercial paper and revolving credit facilities, redeem the remaining $ i 255.3 million aggregate principal of our i 2.9% fixed rate senior notes due 2018, and complete a cash tender offer in the amount of € i 363.4 million aggregate principal of our i 2.45% senior notes due 2019. All costs associated with the repurchases of debt were recorded as a Loss on early extinguishment of debt in the Consolidated Statements of Operations and Comprehensive Income, including $ i 16.0 million premium paid on early extinguishment and $ i 1.1 million of unamortized deferred financing costs.

We have $ i 74.0 million aggregate principal amount of fixed rate senior notes maturing in 2020. We classified this debt as long-term as of December 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 December 31, 2019 matures on a calendar year basis as follows:



In millions	2020		2021		2022		2023		2024		Thereafter		Total
Contractual debt obligation maturities	$	i 74.0	$	i 103.8	$	i 88.3	$	i 353.6	$	i —	$	i 419.3	$	i 1,039.0

9. i 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 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 December 31, 2019 and 2018, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts of $ i 17.0 million and $ i 47.6 million, respectively. The impact of these contracts on the Consolidated Statements of Operations and Comprehensive Income was not material for any period presented.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Cross Currency Swaps

At December 31, 2019 and 2018, we had outstanding cross currency swap agreements with a combined notional amount of $ i 777.0 million and $ i 283.8 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. As of December 31, 2019 and 2018, we had deferred foreign currency losses of $ i 1.8 million and $ i 14.5 million, respectively, recorded in Accumulated other comprehensive loss associated with our cross currency swap activity.

Foreign Currency Denominated Debt

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 € i 363.4 million of the 2019 Euro Notes. At that time, the remaining € i 136.6 million of the 2019 Euro Notes were re-designated as a net investment hedge in our Euro denominated subsidiaries. In September 2019, the 2019 Euro Notes matured and were paid in full, terminating the net investment hedge. The historical gains/losses on the 2019 Euro Notes have been included as a component of the cumulative translation adjustment account within Accumulated other comprehensive loss. As of December 31, 2019 we had deferred foreign currency gains of $ i 2.8 million and as of December 31, 2018 we had deferred foreign currency losses of $ i 0.8 million, in Accumulated other comprehensive loss 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:



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 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.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

The recorded amounts and estimated fair values of total debt, excluding unamortized issuance costs and discounts, at December 31 were as follows:

2019

2018

In millions

Recorded
Amount

Fair Value

Recorded
Amount

Fair Value

Variable rate debt

i 353.6

i 102.2

Fixed rate debt

i 685.4

i 732.2

i 690.5

i 691.8

Total debt

i 1,039.0

i 1,085.8

i 792.7

i 794.0

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

Recurring fair value measurements

In millions

Level 1

Level 2

Level 3

NAV

Total

Foreign currency contract assets

i —

i 0.1

i —

i 0.1

Foreign currency contract liabilities

i —

( i 11.6

)

i —

( i 11.6

)

Deferred compensation plan assets

i 12.5

i —

i 8.8

i 21.3

Total recurring fair value measurements

i 12.5

( i 11.5

)

i —

i 8.8

i 9.8

Nonrecurring fair value measurements ⁽¹⁾

Recurring fair value measurements

In millions

Level 1

Level 2

Level 3

NAV

Total

Foreign currency contract liabilities

i —

( i 30.6

)

i —

( i 30.6

)

Deferred compensation plan assets

i 17.6

i —

i 3.3

i 20.9

Total recurring fair value measurements

i 17.6

( i 30.6

)

i —

i 3.3

( i 9.7

)

Nonrecurring fair value measurements ⁽¹⁾

⁽¹⁾

During the years ended December 31, 2019 and 2018, we recorded impairment charges for cost method investments in the amount of $ i 21.2 million and $ i 12.0 million, respectively. In 2018, a valuation method using prices in active markets was utilized to determine the fair value. In 2019, we determined the value using unobservable inputs and wrote the balance of the cost method investments to zero.

10. i Income Taxes

Income from continuing operations before income taxes consisted of the following:



	Years ended December 31
In millions	2019			2018			2017
Federal ⁽¹⁾	$	( i 1.6	)	$	( i 24.6	)	$	( i 34.1	)
International ⁽²⁾	i 409.1			i 404.4			i 206.9
Income from continuing operations before income taxes	$	i 407.5		$	i 379.8		$	i 172.8


⁽¹⁾	“Federal” reflects United Kingdom (“U.K.”) loss from continuing operations before income taxes.


⁽²⁾	“International” reflects non-U.K. income from continuing operations before income taxes.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

The provision for income taxes consisted of the following:



	Years ended December 31
In millions	2019			2018			2017
Currently payable (receivable)
Federal ⁽¹⁾	$	i —		$	( i 0.1	)	$	i —
International ⁽²⁾	i 64.2			i 62.3			i 76.7
Total current taxes	i 64.2			i 62.2			i 76.7
Deferred
International ⁽²⁾	( i 18.4		)	( i 4.1		)	( i 18.0		)
Total deferred taxes	( i 18.4		)	( i 4.1		)	( i 18.0		)
Total provision for income taxes	$	i 45.8		$	i 58.1		$	i 58.7


⁽¹⁾	“Federal” represents U.K. taxes.


⁽²⁾	“International” represents non-U.K. taxes.

Reconciliations of the federal statutory income tax rate to our effective tax rate were as follows:



	Years ended December 31
Percentages	2019		2018		2017
U.K. federal statutory income tax rate	i 19.0	%	i 19.0	%	i 19.3	%
Tax effect of international operations⁽¹⁾	( i 8.2	)	( i 9.9	)	( i 18.7	)
Change in valuation allowances	i 1.1		i 7.9		i 27.6
Excess tax benefits on stock-based compensation	( i 0.7	)	( i 1.7	)	( i 4.5	)
Tax effect of U.S. tax reform	i —		( i 0.9	)	i 1.3
Tax effect of early extinguishment of debt	i —		i 0.9		i 9.0
Effective tax rate	i 11.2	%	i 15.3	%	i 34.0	%


⁽¹⁾	The tax effect of international operations consists of non-U.K. jurisdictions.

Re i conciliations of the beginning and ending gross unrecognized tax benefits were as follows:



	Years ended December 31
In millions	2019			2018			2017
Beginning balance	$	i 51.4		$	i 13.8		$	i 46.3
Gross increases for tax positions in prior periods	i 0.4			i 44.0			i 4.7
Gross decreases for tax positions in prior periods	( i 0.8		)	( i 4.4		)	( i 3.4		)
Gross increases based on tax positions related to the current year	i 0.4			i 0.9			i 0.7
Gross decreases related to settlements with taxing authorities	( i 2.9		)	( i 1.8		)	( i 33.6		)
Reductions due to statute expiration	( i 1.1		)	( i 1.1		)	( i 0.9		)
Ending balance	$	i 47.4		$	i 51.4		$	i 13.8

We record gross unrecognized tax benefits in Other current liabilities and Other non-current liabilities in the Consolidated Balance Sheets. Included in the $ i 47.4 million of total gross unrecognized tax benefits as of December 31, 2019 was $ i 47.0 million of tax benefits that, if recognized, would impact the effective tax rate. It is reasonably possible that the gross unrecognized tax benefits as of December 31, 2019 may decrease by a range of i zero to $ i 4.3 million during 2020, primarily as a result of the resolution of non-U.K. examinations, including U.S. state examinations, and the expiration of various statutes of limitations.

Based on the outcome of these examinations, or as a result of the expiration of statute of limitations for specific jurisdictions, it is reasonably possible that certain unrecognized tax benefits for tax positions taken on previously filed tax returns will materially change from those recorded as liabilities in our financial statements. A number of tax periods from 2008 to present are under audit by tax authorities in various jurisdictions, including China, Germany, India, Italy and New Zealand. We anticipate that several of these audits may be concluded in the foreseeable future.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

We record penalties and interest related to unrecognized tax benefits in Provision for income taxes and Net interest expense, respectively, in the Consolidated Statements of Operations and Comprehensive Income. As of December 31, 2019 and 2018, we have liabilities of $ i 0.4 million and $ i 0.5 million, respectively, for the possible payment of penalties and $ i 3.7 million and $ i 3.6 million, respectively, for the possible payment of interest expense, which are recorded in Other current liabilities in the Consolidated Balance Sheets.

Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as “temporary differences.” We record the tax effect of these temporary differences as “deferred tax assets” (generally items that can be used as a tax deduction or credit in future periods) and “deferred tax liabilities” (generally items for which we received a tax deduction but the tax impact has not yet been recorded in the Consolidated Statements of Operations and Comprehensive Income).

D i eferred taxes were recorded in the Consolidated Balance Sheets as follows:



	December 31
In millions	2019		2018
Other non-current assets	$	i 29.6	$	i 26.2
Deferred tax liabilities	i 104.4		i 105.9
Net deferred tax liabilities	$	i 74.8	$	i 79.7

T i he tax effects of the major items recorded as deferred tax assets and liabilities were as follows:



	December 31
In millions	2019		2018
Deferred tax assets
Accrued liabilities and reserves	$	i 41.9	$	i 42.9
Pension and other post-retirement compensation and benefits	i 25.2		i 25.2
Employee compensation and benefits	i 19.6		i 21.8
Tax loss and credit carryforwards	i 712.0		i 724.7
Interest limitations	i 45.0		i 20.6
Total deferred tax assets	i 843.7		i 835.2
Valuation allowance	i 693.8		i 711.9
Deferred tax assets, net of valuation allowance	i 149.9		i 123.3
Deferred tax liabilities
Property, plant and equipment	i 8.5		i 7.1
Goodwill and other intangibles	i 200.4		i 179.7
Other liabilities	i 15.8		i 16.2
Total deferred tax liabilities	i 224.7		i 203.0
Net deferred tax liabilities	$	i 74.8	$	i 79.7

Included in tax loss and credit carryforwards in the table above is a deferred tax asset of $ i 29.6 million as of December 31, 2019 related to foreign tax credit carryover from the tax period ended December 31, 2017 and related to transition taxes. The entire amount is subject to a valuation allowance. The foreign tax credit is eligible for carryforward until the tax period ending December 31, 2027.

As of December 31, 2019, tax loss carryforwards of $ i 2,957.4 million were available to offset future income. A valuation allowance of $ i 663.1 million exists for deferred income tax benefits related to the tax loss carryforwards which may not be realized. We believe sufficient taxable income will be generated in the respective jurisdictions to allow us to fully recover the remainder of the tax losses. The tax losses primarily relate to non-U.S. carryforwards of $ i 2,843.1 million which are subject to varying expiration periods. Non-U.S. carryforwards of $ i 1,763.9 million are located in jurisdictions with unlimited tax loss carryforward periods, while the remainder will begin to expire in 2020. In addition, there were $ i 14.6 million U.S. federal loss carryforwards with unlimited tax loss carryforward periods and $ i 99.7 million of state tax loss carryforwards as of December 31, 2019. State tax losses of $ i 64.0 million are in jurisdictions with unlimited tax loss carryforward periods, while the remainder will expire in future years through 2039.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

U.S. tax reform

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. For 2018, the Company considered in its annual effective tax rate additional provisions of the Act including changes to the deduction for executive compensation and interest expense, a tax on global intangible low-taxed income provisions (“GILTI”), the base erosion anti-abuse tax, and a deduction for foreign-derived intangible income. The Company has elected to treat tax on GILTI income as a period cost and has therefore included it in its annual effective tax rate.

The Company calculated its best estimate of the impact of the Act in its December 31, 2017 income tax provision in accordance with its understanding of the Act and guidance available as of the date of the filing of the 2017 Annual Report on Form 10-K and as a result recorded a provisional income tax expense of $ i 2.2 million in the fourth quarter of 2017, the period in which the legislation was enacted. We subsequently recorded a $ i 3.6 million decrease to the provisional income tax expense in the third quarter of 2018, resulting in a $ i 1.4 million net decrease to income tax expense as a result of the Act.

The amount related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was a decrease to income tax expense of $ i 28.0 million. The amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was an increase to income tax expense of $ i 26.6 million. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.

11. i Benefit Plans

Pension and other post-retirement plans

We sponsor U.S. and non-U.S. defined-benefit pension and other post-retirement plans. Pension benefits are based principally on an employee’s years of service and/or compensation levels near retirement. In addition, we provide certain post-retirement health care and life insurance benefits. Generally, the post-retirement health care and life insurance plans require contributions from retirees.

In 2017, our Board of Directors approved amendments to terminate the Pentair Salaried Plan (the “Salaried Plan”), a U.S. qualified pension plan. The Salaried Plan discontinued accruing benefits on December 31, 2017 and the termination was effective December 31, 2017. The Salaried Plan participants were not adversely affected by the plan termination.

In 2018, participants whose plan benefits were not in pay status as of July 1, 2018 were given the opportunity to elect a lump sum (or monthly annuity) payment during a special election window. Payments of $ i 171.9 million were made to participants who elected to receive a lump sum during this window.

In 2019, the Company received all required government approvals to complete the termination of the Salaried Plan. In June 2019, we entered into an agreement with an insurance company to purchase from us, through an annuity contract, our remaining obligations under the Salaried Plan. For the year ended December 31, 2019, we contributed $ i 11.1 million to the Salaried Plan as part of the process to settle our obligations. As a result of these actions, a non-cash pre-tax settlement gain of $ i 11.8 million was recorded for the year ended December 31, 2019 and is reflected within Net actuarial loss (gain) in the Net periodic benefit expense table below.

As described in Note 1, during the first quarter of 2018, the Company adopted ASU 2017-07. As a result, service costs are classified as employee compensation costs within Cost of goods sold and Selling, general and administrative expense within the Consolidated Statements of Operations and Comprehensive Income. All other components of net periodic benefit expense are classified within Other (income) expense for the periods presented.

The information herein relates to defined-benefit pension and other post-retirement plans of our continuing operations only.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Obligations and funded status

The following tables present reconciliations of plan benefit obligations, fair value of plan assets and the funded status of pension plans and other post-retirement plans as of and for the years ended December 31, 2019 and 2018:

Pension plans

Other post-retirement

plans

In millions

2019

2018

2019

2018

Change in benefit obligations

Benefit obligation beginning of year

i 277.9

i 473.8

i 14.9

i 17.5

Service cost

i 2.6

i 4.1

i —

Interest cost

i 7.3

i 11.5

i 0.6

Settlements

( i 1.5

)

i —

Actuarial loss (gain)

i 8.0

( i 23.6

)

i 2.0

( i 1.4

)

Foreign currency translation

i 0.1

( i 0.2

)

i —

Benefits paid

( i 182.3

)

( i 187.7

)

( i 2.9

)

( i 1.8

)

Benefit obligation end of year

i 112.1

i 277.9

i 14.6

i 14.9

Change in plan assets

Fair value of plan assets beginning of year

i 180.7

i 382.8

i —

Actual return on plan assets

i 16.0

( i 21.4

)

i —

Company contributions

i 18.0

i 7.1

i 2.9

i 1.8

Settlements

(1.5

)

—

Foreign currency translation

i 0.1

( i 0.1

)

i —

Benefits paid

( i 182.3

)

( i 187.7

)

( i 2.9

)

( i 1.8

)

Fair value of plan assets end of year

i 31.0

i 180.7

i —

Funded status

Benefit obligations in excess of the fair value of plan assets

( i 81.1

)

( i 97.2

)

( i 14.6

)

( i 14.9

)

/ i

Amounts recorded in the Consolidated Balance Sheets were as follows:



	Pension plans						Other post-retirement plans
In millions	2019			2018			2019			2018
Current liabilities	$	( i 5.3	)	$	( i 28.3	)	$	( i 1.7	)	$	( i 1.7	)
Non-current liabilities	( i 75.8		)	( i 68.9		)	( i 12.9		)	( i 13.2		)
Benefit obligations in excess of the fair value of plan assets	$	( i 81.1	)	$	( i 97.2	)	$	( i 14.6	)	$	( i 14.9	)

The accumulated benefit obligation for all defined benefit plans was $ i 107.1 million and $ i 275.0 million at December 31, 2019 and 2018, respectively.

Information for pension plans with an accumulated benefit obligation or projected benefit obligation in excess of plan assets as of December 31 was as follows:

Projected benefit obligation

exceeds the fair value

of plan assets

Accumulated benefit obligation

exceeds the fair value of

plan assets

In millions

2019

2018

2019

2018

Projected benefit obligation

i 111.7

i 277.9

i 111.7

i 270.6

Fair value of plan assets

i 30.4

i 180.7

i 30.4

i 173.7

Accumulated benefit obligation

N/A

i 107.1

i 268.3

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Components of net periodic benefit expense for our pension plans for the years ended December 31 were as follows:



In millions	2019			2018			2017
Service cost	$	i 2.6		$	i 4.1		$	i 11.7
Interest cost	i 7.3			i 11.5			i 16.4
Expected return on plan assets	( i 3.9		)	( i 7.6		)	( i 11.6		)
Net actuarial (gain) loss	( i 4.1		)	i 5.2			i 8.4
Net periodic benefit expense	$	i 1.9		$	i 13.2		$	i 24.9

Components of net periodic benefit expense for our other post-retirement plans for the years ended December 31, 2019, 2018 and 2017, were not material.

Assumptions

The following table provides the weighted-average assumptions used to determine benefit obligations and net periodic benefit cost as they pertain to our pension and other post-retirement plans.



	Pension plans						Other post-retirement plans
	2019		2018		2017		2019		2018		2017
Benefit obligation assumptions⁽¹⁾
Discount rate	i 2.68	%	i 3.73	%	i 4.00	%	i 2.81	%	i 3.95	%	i 3.40	%
Rate of compensation increase	i 3.68	%	i 3.77	%	i 3.96	%	NA		NA		NA
Net periodic benefit expense assumptions
Discount rate	i 3.70	%	i 4.00	%	i 3.94	%	i 3.95	%	i 3.40	%	i 3.80	%
Expected long-term return on plan assets	i 4.37	%	i 4.17	%	i 4.05	%	NA		NA		NA
Rate of compensation increase	i 3.72	%	i 3.96	%	i 3.96	%	NA		NA		NA


⁽¹⁾	The benefit obligation for the Salaried Plan as of December 31, 2018 was determined using assumptions reflecting the termination of the plan. As a result, the 2018 weighted-average assumptions for the pension plans reflected in the table above do not include the Salaried Plan.

Discount rates

Expected rates of return

Healthcare cost trend rates

The assumed healthcare cost trend rates for other post-retirement plans as of December 31 were as follows:



	2019		2018
Healthcare cost trend rate assumed for following year	i 5.8	%	i 6.2	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	i 4.4	%	i 4.4	%
Year the cost trend rate reaches the ultimate trend rate	2038		2038

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Pension plans assets

Objective

The primary objective of our investment strategy is to meet the pension obligation to our employees at a reasonable cost to us. This is primarily accomplished through growth of capital and safety of the funds invested.

Asset allocation

Our actual overall asset allocation for our pension plans as compared to our investment policy goals as of December 31 was as follows:



	Actual				Target
	2019		2018		2019		2018
Fixed income	i 70	%	i 87	%	i 72	%	i 95	%
Alternative	i 29	%	i 5	%	i 28	%	i 5	%
Cash	i 1	%	i 8	%	i —	%	i —	%

Fair value measurement

The fair values of our pension plan assets and their respective levels in the fair value hierarchy as of December 31, 2019 and December 31, 2018 were as follows:

In millions

Level 1

Level 2

Level 3

Total

Cash and cash equivalents

i 0.4

i —

i 0.4

Other investments

i —

i 8.9

Total investments at fair value

i 0.4

i —

i 8.9

i 9.3

Investments measured at NAV

i 21.7

Total

i 31.0

In millions

Level 1

Level 2

Level 3

Total

Cash and cash equivalents

i —

i 12.0

i —

i 12.0

Fixed income

i —

i 137.5

i —

i 137.5

Other investments

i —

i 9.3

Total investments at fair value

i —

i 149.5

i 9.3

i 158.8

Investments measured at NAV

i 21.9

Total

i 180.7

Valuation methodologies used for investments measured at fair value were as follows:


•	Cash and cash equivalents: Cash consists of cash held in bank accounts and is considered a Level 1 investment. Cash equivalents consist of investments in commingled funds valued based on observable market data. Such investments were classified as Level 2.

•

Fixed income: Investments in corporate bonds, government securities, mortgages and asset backed securities were valued based upon quoted market prices for similar securities and other observable market data. Investments in commingled funds were generally valued at the end of the period based upon the value of the underlying investments as determined by quoted market prices or by a pricing service. Such investments were classified as Level 2.

•

Other investments: Other investments include investments in commingled funds with diversified investment strategies. Investments in commingled funds that were valued at the end of the period based upon the value of the underlying investments as determined by quoted market prices or by a pricing service were classified as Level 2. Investments in commingled funds that were valued based on unobservable inputs due to liquidation restrictions were classified as Level 3.

Activity for our Level 3 pension plan assets held during the years ended December 31, 2019 and 2018 was not material.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Cash flows

Contributions

Pension contributions from continuing operations totaled $ i 18.0 million and $ i 7.1 million in 2019 and 2018, respectively. We anticipate our 2020 pension contributions to be approximately $ i 6.6 million. The 2020 expected contributions will equal or exceed our minimum funding requirements.

Estimated future benefit payments

The following benefit payments, which reflect expected future service or payout from termination, as appropriate, are expected to be paid by the plans in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter are as follows:



In millions	Pension plans		Other post- retirement plans
2020	$	i 6.8	$	i 1.7
2021	i 6.8		i 1.6
2022	i 6.8		i 1.5
2023	i 7.2		i 1.4
2024	i 7.2		i 1.3
2025 - 2029	i 36.9		i 4.9

Savings plan

We have a 401(k) plan (the “401(k) plan”) with an employee share ownership (“ESOP”) bonus component, which covers certain union and all non-union U.S. employees who met certain age requirements. Under the 401(k) plan, eligible U.S. employees could voluntarily contribute a percentage of their eligible compensation. We match contributions made by employees who met certain eligibility and service requirements.

As of January 1, 2018, the 401(k) company match contribution was changed to a dollar-for-dollar ( i 100%) matching contribution on up to i 5% of employee eligible earnings, contributed as before-tax contributions. This change replaced the ESOP component discussed below and offers the same i 5% total company match.

During 2017, the 401(k) matching contribution was i 100% of eligible employee contributions for the first i 1% of eligible compensation and i 50% of the next i 5% of eligible compensation.

During 2018 and 2017, in addition to the matching contribution, all employees who met certain service requirements received a discretionary ESOP contribution equal to i 1.5% of annual eligible compensation.

Our combined expense for the 401(k) plan and the ESOP was $ i 14.4 million, $ i 23.4 million and $ i 27.9 million in 2019, 2018 and 2017, respectively.

Other retirement compensation

Total other accrued retirement compensation, primarily related to deferred compensation and supplemental retirement plans, was $ i 29.0 million and $ i 28.2 million as of December 31, 2019 and 2018, respectively, and is included in Pension and other post-retirement compensation and benefits and Other non-current liabilities in the Consolidated Balance Sheets.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

12. i Shareholders’ Equity

Authorized shares

Our authorized share capital consists of i 426.0 million ordinary shares with a par value of $ i 0.01 per share.

Share repurchases

In December 2014, the Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $ i 1.0 billion (the “2014 Authorization). On May 8, 2018, the Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $ i 750.0 million (the “2018 Authorization”), replacing the 2014 Authorization. The 2018

Authorization expires on i May 31, 2021.

During the year ended December 31, 2018, we repurchased i 10.2 million of our ordinary shares for $ i 500.0 million, of which i 2.2 million shares, or $ i 150.0 million, and i 8.0 million shares, or $ i 350.0 million, were repurchased pursuant to the 2014 and 2018 Authorizations, respectively.

During the year ended December 31, 2019, we repurchased i 4.0 million of our ordinary shares for $ i 150.0 million pursuant to the 2018 Authorization.

As of December 31, 2019, we had $ i 250.0 million available for share repurchases under the 2018 Authorization.

Dividends payable

On December 9, 2019, the Board of Directors approved a i 6 percent increase in the company’s regular quarterly dividend rate (from $ i 0.18 per share to $ i 0.19 per share) that was paid on February 7, 2020 to shareholders of record at the close of business on January 24, 2020. The balance of dividends payable included in Other current liabilities on our Consolidated Balance Sheets was $ i 32.0 million at December 31, 2019. Dividends paid per ordinary share were $ i 0.72, $ i 1.05 and $ i 1.38 for the years ended December 31, 2019, 2018 and 2017, respectively.

13. i Share Plans

Share-based compensation expense

Total share-based compensation expense for 2019, 2018 and 2017 was as follows:



	December 31
In millions	2019		2018		2017
Restricted stock units	$	i 11.2	$	i 8.9	$	i 17.5
Stock options	i 4.5		i 4.6		i 10.5
Performance share units	i 5.7		i 7.4		i 11.6
Total share-based compensation expense	$	i 21.4	$	i 20.9	$	i 39.6

Of the total share-based compensation expense noted above, $ i 3.4 million and $ i 7.6 million for the years ended December 31, 2018 and 2017, respectively, was reported as part of (Loss) income from discontinued operations, net of tax.

Share incentive plans

In 2012, our Board of Directors, and Tyco International Ltd. (“Tyco”) as our sole shareholder at the time, approved the Pentair plc 2012 Stock and Incentive Plan (the “2012 Plan”). The 2012 Plan became effective on September 28, 2012 and authorizes the issuance of i 9.0 million of our ordinary shares. The shares may be issued as new shares or from shares held in treasury. Our practice is to settle equity-based awards by issuing new shares. The 2012 Plan terminates in September 2022. The 2012 Plan allows for the granting to our officers, directors, employees and consultants of non-qualified stock options, incentive stock options, stock appreciation rights, performance shares, performance units, restricted shares, restricted stock units, deferred stock rights, annual incentive awards, dividend equivalent units and other equity-based awards.

The 2012 Plan is administered by our compensation committee (the “Committee”), which is made up of independent members of our Board of Directors. Employees eligible to receive awards under the 2012 Plan are managerial, administrative or other key employees who are in a position to make a material contribution to the continued profitable growth and long-term success of our company. The Committee has the authority to select the recipients of awards, determine the type and size of awards, establish certain terms and conditions of award grants and take certain other actions as permitted under the 2012 Plan. The 2012 Plan prohibits the Committee from re-pricing awards or canceling and reissuing awards at lower prices.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Non-qualified and incentive stock options

Under the 2012 Plan, we may grant stock options to any eligible employee with an exercise price equal to the market value of the shares on the dates the options were granted. Options generally vest one-third each year over a period of i three years commencing on the grant date and expire i 10 years after the grant date.

Restricted shares and restricted stock units

Under the 2012 Plan, eligible employees may be awarded restricted shares or restricted stock units of our common stock. Restricted shares and restricted stock units generally vest one-third each year over a period of i three years commencing on the grant date, subject to continuous employment and certain other conditions. Restricted shares and restricted stock units are valued at market value on the date of grant and are expensed over the vesting period.

Stock appreciation rights, performance shares and performance units

Under the 2012 Plan, the Committee is permitted to issue these awards which are generally earned over a vesting period of i three years and tied to specific financial metrics. PSUs are granted to certain employees that vest based on the satisfaction of a service period of i three years and the achievement of certain performance metrics over that same period. Upon vesting, PSU holders receive dividends that accumulate during the vesting period. The fair value of these PSUs is determined based on the closing market price of the Company’s ordinary shares at the date of grant. Compensation expense is recognized over the period an employee is required to provide service based on the estimated vesting of the PSUs granted. The estimated vesting of the PSUs is based on the probability of achieving certain financial performance metrics during the vesting period.

Stock options

The following table summarizes stock option activity under all plans for the year ended December 31, 2019:



Shares and intrinsic value in millions	Number of shares		Weighted- average exercise price		Weighted- average remaining contractual life (years)	Aggregate intrinsic value
Outstanding as of January 1, 2019	i 4.1		$	i 35.77
Granted	i 0.4		i 39.05
Exercised	( i 0.6	)	i 26.92
Forfeited	( i 0.1	)	i 44.56
Outstanding as of December 31, 2019	i 3.8		$	i 37.29	i 5.2	$	i 34.1
Options exercisable as of December 31, 2019	i 2.9		$	i 36.08	i 4.2	$	i 30.2
Options expected to vest as of December 31, 2019	i 0.8		$	i 41.35	i 8.3	$	i 3.8

Fair value of options granted

The weighted average grant date fair value of options granted under Pentair plans in 2019, 2018 and 2017 was estimated to be $ i 8.86, $ i 10.92 and $ i 12.59 per share, respectively. The total intrinsic value of options that were exercised during 2019, 2018 and 2017 was $ i 9.5 million, $ i 18.2 million and $ i 34.3 million, respectively. At December 31, 2019, the total unrecognized compensation cost related to stock options was $ i 4.0 million. This cost is expected to be recognized over a weighted average period of i 1.7 years.

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:



	December 31
	2019		2018		2017
Risk-free interest rate	i 2.89	%	i 2.58	%	i 1.65	%
Expected dividend yield	i 1.78	%	i 1.56	%	i 2.35	%
Expected share price volatility	i 23.3	%	i 24.8	%	i 26.9	%
Expected term (years)	i 6.1		i 6.1		i 6.3

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.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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 volatility, we considered a rolling average of historical volatility measured over a period approximately equal to the expected option term. The risk-free 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.

Cash received from option exercises for the years ended December 31, 2019, 2018 and 2017 was $ i 15.5 million, $ i 19.5 million and $ i 46.0 million, respectively. The actual tax benefit realized for the tax deductions from option exercised totaled $ i 2.8 million, $ i 5.6 million and $ i 7.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Restricted stock units

The following table summarizes restricted stock unit activity under all plans for the year ended December 31, 2019:



Shares in millions	Number of shares		Weighted average grant date fair value
Outstanding as of January 1, 2019	i 0.5		$	i 41.74
Granted	i 0.3		i 41.08
Vested	( i 0.2	)	i 37.61
Outstanding as of December 31, 2019	i 0.6		$	i 42.16

As of December 31, 2019, there was $ i 20.5 million of unrecognized compensation cost related to restricted share compensation arrangements granted under the 2012 Plan and previous plans. That cost is expected to be recognized over a weighted-average period of i 1.1 years. The total fair value of shares vested during the years ended December 31, 2019, 2018 and 2017, was $ i 9.3 million, $ i 24.4 million and $ i 21.7 million, respectively. The actual tax benefit realized for the year ended December 31, 2019 and 2018 was $ i 0.1 million and $ i 0.7 million, respectively. There were i no actual tax benefits realized for the year ended December 31, 2017.

Performance share units

The following table summarizes performance share unit activity under all plans for the year ended December 31, 2019:



Shares in millions	Number of shares	Weighted average grant date fair value
Outstanding as of January 1, 2019	i 0.1	$	i 45.42
Granted	i 0.2	i 38.60
Outstanding as of December 31, 2019	i 0.3	$	i 41.62

The expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued. As of December 31, 2019, there was $ i 8.7 million of unrecognized compensation cost related to performance share compensation arrangements granted under the 2012 Plan and previous plans. That cost is expected to be recognized over a weighted-average period of i 1.7 years. There were $ i 0.2 million of actual tax benefits realized for both of the years ended December 31, 2019 and 2018. There were i no actual tax benefits realized for the year ended December 31, 2017.

Electrical separation

In connection with the Separation and Distribution, the Company adjusted its outstanding equity awards on May 1, 2018 in accordance with the Employee Matters Agreement between Pentair and nVent. The outstanding awards will continue to vest over the original vesting period, which is generally i three years from the grant date.

The RSUs, PSUs, and stock option awards issued before May 9, 2017 (the date of Pentair’s announcement of its intention to separate its Water and Electrical businesses) were converted into awards of both Pentair and nVent regardless of which company the award holder was employed by immediately after the Separation. These awards were converted as follows:


•	Restricted stock units: For every unvested Pentair RSU award held, the holder received i one nVent RSU.

Pentair plc and Subsidiaries

Notes to consolidated financial statements


•	Performance share units: Pentair PSUs were converted to Pentair RSUs immediately after the Distribution. The PSUs granted in 2016 were converted at rate of i 125% of target, and the PSUs granted in 2017 were converted at a rate of i 100% of target. For every converted RSU, the shareholder also received i one nVent RSU. The converted RSUs retain the original vesting schedule of the awarded PSUs.

•

Stock options: Every holder of unexercised (vested and unvested) Pentair stock options received both adjusted stock options of Pentair and stock options of nVent, with the number of underlying shares and the exercise price adjusted accordingly to preserve the overall intrinsic value of the awards. The number of Pentair stock options was converted based upon the ratio of Pentair’s pre-Distribution stock price divided by the sum of the Pentair and nVent post-Distribution closing prices. The exercise price for the converted Pentair stock options was adjusted based on the Pentair post-Distribution closing price divided by the Pentair pre-Distribution closing price.

The number of new nVent stock options awarded is the same as the converted number of Pentair stock options calculated as described above. The exercise price for the new nVent stock options was calculated based on nVent’s post-Distribution closing price divided by the Pentair pre-Distribution closing price.

Generally, unvested awards issued after May 9, 2017 were converted to awards of the Company that the shareholder was employed by immediately after the Separation, with adjustments to the number of underlying shares as appropriate to preserve the intrinsic value of such awards immediately prior to the Distribution. The adjustment of the underlying shares was based on the ratio of Pentair’s pre-Distribution stock price divided by the post-Distribution closing price of the respective company’s ordinary shares. The exercise prices of the stock options were converted using the inverse ratio in a manner designed to preserve the intrinsic value of such awards.

14. i Segment Information

We classify our operations into the following business segments:

•

Aquatic Systems - This segment manufactures and sells a complete line of energy-efficient residential and commercial pool equipment and accessories including pumps, filters, heaters, lights, automatic controls, automatic cleaners, maintenance equipment and pool accessories. Applications for our Aquatic Systems products include residential and commercial pool maintenance, pool repair, renovation, service and construction and aquaculture solutions.

•

Filtration Solutions - This segment manufactures and sells water and fluid treatment products and systems, including pressure tanks and vessels, control valves, activated carbon products, conventional filtration products, point-of-entry and point-of-use systems, gas recovery solutions, membrane bioreactors, wastewater reuse systems and advanced membrane filtration and separation systems into the global residential, industrial and commercial markets. These products are used in a range of applications, including use in fluid filtration, ion exchange, desalination, food and beverage, food service and separation technologies for the oil and gas industry.

•

Flow Technologies - This segment manufactures and sells products ranging from light duty diaphragm pumps to high-flow turbine pumps and solid handling pumps while serving the global residential, commercial and industrial markets. These pumps are used in a range of applications, including residential and municipal wells, water treatment, wastewater solids handling, pressure boosting, fluid delivery, circulation and transfer, fire suppression, flood control, agricultural irrigation and crop spray.

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 consolidated financial statements

Financial information by reportable segment is included in the following summary:

2019

2018

2017

2019

2018

2017

In millions

Net sales

Segment income (loss)

Aquatic Systems

i 985.3

i 1,026.1

i 939.6

i 268.9

i 277.6

i 254.1

Filtration Solutions

i 1,066.9

i 1,001.0

i 990.6

i 171.3

i 168.5

i 154.5

Flow Technologies

i 903.6

i 936.7

i 914.2

i 138.4

i 145.6

i 140.6

Other

i 1.4

i 1.3

( i 62.3

)

( i 54.9

)

( i 52.7

)

Consolidated ⁽¹⁾

i 2,957.2

i 2,965.1

i 2,845.7

i 516.3

i 536.8

i 496.5


⁽¹⁾	One customer in the Aquatic Systems segment, Pool Corporation, represented approximately i 15% of our consolidated net sales in 2019, 2018 and 2017.

2019

2018

2017

2019

2018

2017

2019

2018

2017

In millions

Identifiable assets ⁽¹⁾

Capital expenditures

Depreciation

Aquatic Systems

i 1,340.1

i 1,304.2

i 1,323.0

i 11.1

i 10.6

i 9.6

i 8.3

i 8.1

i 10.6

Filtration Solutions

i 1,552.6

i 1,232.4

i 1,333.3

i 26.3

i 16.6

i 19.2

i 22.5

i 23.2

i 21.6

Flow Technologies

i 1,000.0

i 1,003.6

i 1,010.8

i 14.1

i 10.3

i 7.3

i 12.0

i 13.1

i 13.4

Other

i 246.8

i 266.3

i 4,966.6

i 7.0

i 10.7

i 3.0

i 5.5

i 5.3

i 5.2

Consolidated

i 4,139.5

i 3,806.5

i 8,633.7

i 58.5

i 48.2

i 39.1

i 48.3

i 49.7

i 50.8


⁽¹⁾	All cash and cash equivalents and assets held for sale are included in “Other.”

/ i

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



In millions	2019			2018			2017
Segment income	$	i 516.3		$	i 536.8		$	i 496.5
Restructuring and other	( i 21.0		)	( i 31.8		)	( i 28.2		)
Inventory step-up	( i 2.2		)	i —			i —
Intangible amortization	( i 31.7		)	( i 34.9		)	( i 36.4		)
Pension and other post-retirement mark-to-market gain (loss)	i 3.4			( i 3.6		)	( i 8.5		)
Trade name and other impairment	( i 21.2		)	( i 12.0		)	( i 15.6		)
Gain (loss) on sale of businesses	i 2.2			( i 7.3		)	( i 4.2		)
Loss on early extinguishment of debt	i —			( i 17.1		)	( i 101.4		)
Interest expense, net	( i 30.1		)	( i 32.6		)	( i 87.3		)
Corporate allocations	i —			( i 11.0		)	( i 36.7		)
Deal related costs and expenses	( i 4.2		)	( i 2.0		)	i —
Other expense	( i 4.0		)	( i 4.7		)	( i 5.4		)
Income from continuing operations before income taxes	$	i 407.5		$	i 379.8		$	i 172.8

15. i 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.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

The components of lease cost was as follows:



In millions	December 31, 2019
Operating lease cost	$	i 32.5
Sublease income	( i 1.0		)
Total lease cost	$	i 31.5

Supplemental cash flow information related to leases was as follows:



In millions	December 31, 2019
Operating cash flows from operating leases	$	i 26.8
Right-of-use assets obtained in exchange for lease obligations	$	i 91.1

Other information related to leases was as follows:



	December 31, 2019
Weighted-average remaining lease term of operating leases	i 5.2
Weighted-average discount rate of operating leases	i 6.3	%

/ i

Future minimum lease commitments under non-cancelable operating leases as of December 31, 2019 were as follows:



In millions	Operating Leases
2020	$	i 23.3
2021	i 18.8
2022	i 16.3
2023	i 13.9
2024	i 11.0
Thereafter	i 11.0
Total lease payments	i 94.3
Less: imputed interest	( i 14.2		)
Total	$	i 80.1

/ i

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	$	i 23.2
2020	i 17.6
2021	i 13.3
2022	i 11.1
2023	i 9.5
Thereafter	i 13.8
Total	$	i 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.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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 effect on our financial position, results of operations or cash flows.

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

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

The changes in the carrying amount of service and product warranties for the years ended December 31, 2019, 2018 and 2017 were as follows:



	Years ended December 31
In millions	2019			2018			2017
Beginning balance	$	i 33.9		$	i 38.1		$	i 36.3
Service and product warranty provision	i 53.8			i 50.8			i 60.8
Payments	( i 55.5		)	( i 54.6		)	( i 59.6		)
Foreign currency translation	( i 0.1		)	( i 0.4		)	i 0.6
Ending balance	$	i 32.1		$	i 33.9		$	i 38.1

Stand-by letters of credit, bank guarantees and bonds

In certain situations, 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.

As of December 31, 2019 and 2018, the outstanding value of bonds, letters of credit and bank guarantees totaled $ i 91.3 million and $ i 123.6 million, respectively.

Other matters

In addition to the matters described above, from time to time, we are subject to disputes, administrative proceedings and other claims relating to the conduct of our business. These matters include, without limitation, claims relating to commercial or contractual disputes with suppliers, customers or parties to acquisitions and divestitures, intellectual property matters, environmental, safety and health matters, product liability, the use or installation of our products, consumer matters, and employment and labor matters. On the basis of information currently available to it, management does not believe that existing proceedings and claims will have a material impact on our Consolidated Financial Statements. However, litigation is unpredictable, and we could incur judgments or enter into settlements for current or future claims that could adversely affect our financial statements.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

16. i Selected Quarterly Data (Unaudited)

The following tables present 2019 and 2018 quarterly financial information:

2019

In millions, except per-share data

First

Quarter

Second

Quarter

Third

Quarter

Fourth

Quarter

Full

Year

Net sales

i 688.9

i 799.5

i 713.6

i 755.2

i 2,957.2

Gross profit

i 235.6

i 286.7

i 255.0

i 274.2

i 1,051.5

Operating income

i 67.6

i 133.8

i 108.8

i 122.3

i 432.5

Net income from continuing operations

i 52.4

i 115.1

i 91.3

i 102.9

i 361.7

(Loss) income from discontinued operations, net of tax

( i 1.1

)

( i 0.8

)

i 1.0

( i 5.1

)

( i 6.0

)

Net income

i 51.3

i 114.3

i 92.3

i 97.8

i 355.7

Earnings (loss) per ordinary share ⁽¹⁾

Basic

Continuing operations

i 0.31

i 0.68

i 0.54

i 0.61

i 2.14

Discontinued operations

( i 0.01

)

( i 0.01

)

i 0.01

( i 0.03

)

( i 0.04

)

Basic earnings per ordinary share

i 0.30

i 0.67

i 0.55

i 0.58

i 2.10

Diluted

Continuing operations

i 0.30

i 0.68

i 0.54

i 0.61

i 2.12

Discontinued operations

i —

( i 0.01

)

i 0.01

( i 0.03

)

( i 0.03

)

Diluted earnings per ordinary share

i 0.30

i 0.67

i 0.55

i 0.58

i 2.09


⁽¹⁾	Amounts may not total to annual earnings because each quarter and year are calculated separately based on basic and diluted weighted-average ordinary shares outstanding during that period.

2018

In millions, except per-share data

First

Quarter

Second

Quarter

Third

Quarter

Fourth

Quarter

Full

Year

Net sales

i 732.6

i 780.6

i 711.4

i 740.5

i 2,965.1

Gross profit

i 253.3

i 282.6

i 243.8

i 268.0

i 1,047.7

Operating income

i 92.7

i 122.6

i 108.4

i 113.0

i 436.7

Net income from continuing operations

i 58.4

i 77.9

⁽¹⁾

i 91.2

i 94.2

i 321.7

Income (loss) from discontinued operations, net of tax

i 44.5

( i 36.4

)

i 18.9

( i 1.3

)

i 25.7

Net income

i 102.9

i 41.5

i 110.1

i 92.9

i 347.4

Earnings (loss) per ordinary share ⁽²⁾

Basic

Continuing operations

i 0.33

i 0.44

i 0.52

i 0.55

i 1.83

Discontinued operations

i 0.24

( i 0.21

)

i 0.11

( i 0.01

)

i 0.15

Basic earnings per ordinary share

i 0.57

i 0.23

i 0.63

i 0.54

i 1.98

Diluted

Continuing operations

i 0.32

i 0.44

i 0.52

i 0.54

i 1.81

Discontinued operations

i 0.25

( i 0.21

)

i 0.11

( i 0.01

)

i 0.15

Diluted earnings per ordinary share

i 0.57

i 0.23

i 0.63

i 0.53

i 1.96


⁽¹⁾	Includes decrease of $ i 17.1 million related to loss on early extinguishment of debt.


⁽²⁾	Amounts may not total to annual earnings because each quarter and year are calculated separately based on basic and diluted weighted-average ordinary shares outstanding during that period.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

17. i Supplemental Guarantor Information

Pentair plc (the “Parent Company Guarantor”) and Pentair Investments Switzerland GmbH (the “Subsidiary Guarantor”), fully and unconditionally, guarantee the Notes of Pentair Finance S.à r.l. (the “Subsidiary Issuer”). The Subsidiary Guarantor is a Switzerland limited liability company formed in April 2014 and i 100 percent-owned subsidiary of the Parent Company Guarantor. The Subsidiary Issuer is a Luxembourg public limited liability company formed in January 2012 and i 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 Statement of Operations and Comprehensive Income and Condensed Consolidating Statement of Cash Flows for the years ended December 31, 2019, 2018 and 2017 and Condensed Consolidating Balance Sheet as of December 31, 2019 and 2018. Condensed Consolidating financial information for Pentair plc, Pentair Investments Switzerland GmbH and Pentair Finance S.à r.l. on a stand-alone basis is presented using the equity method of accounting for subsidiaries.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Pentair plc and Subsidiaries

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

Year Ended December 31, 2019

In millions

Parent

Company

Guarantor

Subsidiary

Guarantor

Subsidiary

Issuer

Non-guarantor

Eliminations

Consolidated

Total

Net sales

i —

i 2,957.2

i —

i 2,957.2

Cost of goods sold

i —

i 1,905.7

i —

i 1,905.7

Gross profit

i —

i 1,051.5

i —

i 1,051.5

Selling, general and administrative

i 12.5

i 0.1

i 1.3

i 526.2

i —

i 540.1

Research and development

i —

i 78.9

i —

i 78.9

Operating (loss) income

( i 12.5

)

( i 0.1

)

( i 1.3

)

i 446.4

i —

i 432.5

(Earnings) loss from continuing operations of investment in subsidiaries

( i 374.2

)

( i 376.3

)

( i 382.2

)

i —

i 1,132.7

i —

Other (income) expense:

Gain on sale of businesses

i —

( i 2.2

)

i —

( i 2.2

)

Net interest expense

i —

i 2.0

i 4.6

i 23.5

i —

i 30.1

Other income

i —

( i 2.9

)

i —

( i 2.9

)

Income (loss) from continuing operations before income taxes

i 361.7

i 374.2

i 376.3

i 428.0

( i 1,132.7

)

i 407.5

Provision for income taxes

i —

i 45.8

i —

i 45.8

Net income (loss) from continuing operations

i 361.7

i 374.2

i 376.3

i 382.2

( i 1,132.7

)

i 361.7

Loss from discontinued operations, net of tax

i —

( i 6.0

)

i —

( i 6.0

)

(Loss) earnings from discontinued operations of investment in subsidiaries

( i 6.0

)

( i 6.0

)

( i 6.0

)

i —

i 18.0

i —

Net income (loss)

i 355.7

i 368.2

i 370.3

i 376.2

( i 1,114.7

)

i 355.7

Comprehensive income (loss), net of tax

Net income (loss)

i 355.7

i 368.2

i 370.3

i 376.2

( i 1,114.7

)

i 355.7

Changes in cumulative translation adjustment

( i 15.3

)

( i 15.3

)

( i 15.3

)

( i 15.3

)

i 45.9

( i 15.3

)

Changes in market value of derivative financial instruments, net of tax

i 17.4

( i 52.2

)

i 17.4

Comprehensive income (loss)

i 357.8

i 370.3

i 372.4

i 378.3

( i 1,121.0

)

i 357.8

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Pentair plc and Subsidiaries

Condensed Consolidating Balance Sheet

In millions

Parent

Company

Guarantor

Subsidiary

Guarantor

Subsidiary

Issuer

Non-guarantor

Eliminations

Consolidated

Total

Assets

Current assets

Cash and cash equivalents

i —

i 0.1

i 82.4

i —

i 82.5

Accounts and notes receivable, net

i 0.2

i —

i 2.4

i 501.1

( i 0.8

)

i 502.9

Inventories

i —

i 377.4

i —

i 377.4

Other current assets

i 1.2

i —

i 0.2

i 97.7

i —

i 99.1

Total current assets

i 1.4

i —

i 2.7

i 1,058.6

( i 0.8

)

i 1,061.9

Property, plant and equipment, net

i —

i 283.2

i —

i 283.2

Other assets

Investments in subsidiaries

i 1,904.5

i 1,904.0

i 2,789.6

i —

( i 6,598.1

)

i —

Goodwill

i —

i 2,258.3

i —

i 2,258.3

Intangibles, net

i —

i 339.2

i —

i 339.2

Other non-current assets

i 110.6

i 0.9

i 1,278.7

i 184.1

( i 1,377.4

)

i 196.9

Total other assets

i 2,015.1

i 1,904.9

i 4,068.3

i 2,781.6

( i 7,975.5

)

i 2,794.4

Total assets

i 2,016.5

i 1,904.9

i 4,071.0

i 4,123.4

( i 7,976.3

)

i 4,139.5

Liabilities and Equity

Current liabilities

Accounts payable

i 2.4

i 0.1

i 323.3

( i 0.8

)

i 325.1

Employee compensation and benefits

i 0.1

i —

i 70.9

i —

i 71.0

Other current liabilities

i 39.7

i 0.3

i 13.1

i 299.8

i —

i 352.9

Total current liabilities

i 42.2

i 0.4

i 13.2

i 694.0

( i 0.8

)

i 749.0

Other liabilities

Long-term debt

i —

i 2,154.0

i 252.5

( i 1,377.4

)

i 1,029.1

Pension and other post-retirement compensation and benefits

i —

i 96.4

i —

i 96.4

Deferred tax liabilities

i —

i 104.4

i —

i 104.4

Other non-current liabilities

i 20.4

i —

i 186.3

i —

i 206.7

Total liabilities

i 62.6

i 0.4

i 2,167.2

i 1,333.6

( i 1,378.2

)

i 2,185.6

Equity

i 1,953.9

i 1,904.5

i 1,903.8

i 2,789.8

( i 6,598.1

)

i 1,953.9

Total liabilities and equity

i 2,016.5

i 1,904.9

i 4,071.0

i 4,123.4

( i 7,976.3

)

i 4,139.5

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Pentair plc and Subsidiaries

Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2019

In millions

Parent

Company

Guarantor

Subsidiary

Guarantor

Subsidiary

Issuer

Non-guarantor

Eliminations

Consolidated

Total

Operating activities

Net cash provided by (used for) operating activities

i 361.6

i 367.1

i 381.0

i 340.0

( i 1,096.7

)

i 353.0

Investing activities

Capital expenditures

i —

( i 58.5

)

i —

( i 58.5

)

Proceeds from sale of property and equipment

i —

i 0.6

i —

i 0.6

Proceeds from sale of businesses

i —

i 15.3

i —

i 15.3

Acquisitions, net of cash acquired

i —

( i 287.8

)

i —

( i 287.8

)

Net intercompany loan activity

( i 127.8

)

( i 131.7

)

( i 309.9

)

i 203.6

i 365.8

i —

Other

i —

( i 1.5

)

i —

( i 1.5

)

Net cash (used for) provided by investing activities

( i 127.8

)

( i 131.7

)

( i 309.9

)

( i 128.3

)

i 365.8

( i 331.9

)

Financing activities

Net receipts of commercial paper and revolving long-term debt

i —

i 41.9

i 9.6

i —

i 51.5

Proceeds from long-term debt

i —

i 600.0

i —

i 600.0

Repayment of long-term debt

i —

( i 401.5

)

i —

( i 401.5

)

Net change in advances to subsidiaries

i 26.3

( i 235.4

)

( i 301.0

)

( i 220.8

)

i 730.9

i —

Shares issued to employees, net of shares withheld

i 12.5

i —

i 12.5

Repurchases of ordinary shares

( i 150.0

)

i —

( i 150.0

)

Dividends paid

( i 122.7

)

i —

( i 122.7

)

Other

i —

( i 6.9

)

i —

( i 6.9

)

Net cash (used for) provided by financing activities

( i 233.9

)

( i 235.4

)

( i 67.5

)

( i 211.2

)

i 730.9

( i 17.1

)

Effect of exchange rate changes on cash and cash equivalents

i —

( i 3.6

)

i 7.8

i —

i 4.2

Change in cash and cash equivalents

( i 0.1

)

i —

i 8.3

i —

i 8.2

Cash and cash equivalents, beginning of year

i 0.1

i —

i 0.1

i 74.1

i —

i 74.3

Cash and cash equivalents, end of year

i —

i 0.1

i 82.4

i —

i 82.5

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Pentair plc and Subsidiaries

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

Year Ended December 31, 2018

In millions

Parent

Company

Guarantor

Subsidiary

Guarantor

Subsidiary

Issuer

Non-guarantor

Eliminations

Consolidated

Total

Net sales

i —

i 2,965.1

i —

i 2,965.1

Cost of goods sold

i —

i 1,917.4

i —

i 1,917.4

Gross profit

i —

i 1,047.7

i —

i 1,047.7

Selling, general and administrative

i 11.8

i 0.9

i 1.2

i 520.4

i —

i 534.3

Research and development

i —

i 76.7

i —

i 76.7

Operating (loss) income

( i 11.8

)

( i 0.9

)

( i 1.2

)

i 450.6

i —

i 436.7

(Earnings) loss from continuing operations of investment in subsidiaries

( i 333.5

)

( i 333.4

)

( i 376.5

)

i —

i 1,043.4

i —

Other (income) expense:

Loss on sale of businesses

i —

i 7.3

i —

i 7.3

Loss on early extinguishment of debt

i —

i 17.1

i —

i 17.1

Net interest (income) expense

i —

( i 1.0

)

i 24.8

i 8.8

i —

i 32.6

Other income

i —

( i 0.1

)

i —

( i 0.1

)

Income (loss) from continuing operations before income taxes

i 321.7

i 333.5

i 333.4

i 434.6

( i 1,043.4

)

i 379.8

Provision for income taxes

i —

i 58.1

i —

i 58.1

Net income (loss) from continuing operations

i 321.7

i 333.5

i 333.4

i 376.5

( i 1,043.4

)

i 321.7

Income from discontinued operations, net of tax

i —

i 25.7

i —

i 25.7

Earnings (loss) from discontinued operations of investment in subsidiaries

i 25.7

i —

( i 77.1

)

i —

Net income (loss)

i 347.4

i 359.2

i 359.1

i 402.2

( i 1,120.5

)

i 347.4

Comprehensive income (loss), net of tax

Net income (loss)

i 347.4

i 359.2

i 359.1

i 402.2

( i 1,120.5

)

i 347.4

Changes in cumulative translation adjustment

i 10.0

( i 30.0

)

i 10.0

Changes in market value of derivative financial instruments, net of tax

i 4.8

( i 14.4

)

i 4.8

Comprehensive income (loss)

i 362.2

i 374.0

i 373.9

i 417.0

( i 1,164.9

)

i 362.2

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Pentair plc and Subsidiaries

Condensed Consolidating Balance Sheet

In millions

Parent

Company

Guarantor

Subsidiary

Guarantor

Subsidiary

Issuer

Non-guarantor

Eliminations

Consolidated

Total

Assets

Current assets

Cash and cash equivalents

i 0.1

i —

i 0.1

i 74.1

i —

i 74.3

Accounts and notes receivable, net

i 4.6

i —

i 483.6

i —

i 488.2

Inventories

i —

i 387.5

i —

i 387.5

Other current assets

i 3.4

i —

i 2.2

i 99.2

( i 15.4

)

i 89.4

Total current assets

i 8.1

i —

i 2.3

i 1,044.4

( i 15.4

)

i 1,039.4

Property, plant and equipment, net

i —

i 272.6

i —

i 272.6

Other assets

Investments in subsidiaries

i 1,903.8

i 2,036.1

i 2,675.7

i —

( i 6,615.6

)

i —

Goodwill

i —

i 2,072.7

i —

i 2,072.7

Intangibles, net

i —

i 276.3

i —

i 276.3

Other non-current assets

i 23.3

i —

i 696.1

i 729.7

( i 1,303.6

)

i 145.5

Total other assets

i 1,927.1

i 2,036.1

i 3,371.8

i 3,078.7

( i 7,919.2

)

i 2,494.5

Total assets

i 1,935.2

i 2,036.1

i 3,374.1

i 4,395.7

( i 7,934.6

)

i 3,806.5

Liabilities and Equity

Current liabilities

Accounts payable

i 0.9

i —

i 377.7

i —

i 378.6

Employee compensation and benefits

i 0.2

i —

i 111.5

i —

i 111.7

Other current liabilities

i 47.6

i 1.5

i 4.4

i 290.3

( i 15.4

)

i 328.4

Total current liabilities

i 48.7

i 1.5

i 4.4

i 779.5

( i 15.4

)

i 818.7

Other liabilities

Long-term debt

i 29.9

i 130.8

i 1,333.9

i 596.6

( i 1,303.6

)

i 787.6

Pension and other post-retirement compensation and benefits

i —

i 90.0

i —

i 90.0

Deferred tax liabilities

i —

i 105.9

i —

i 105.9

Other non-current liabilities

i 20.5

i —

i 147.7

i —

i 168.2

Total liabilities

i 99.1

i 132.3

i 1,338.3

i 1,719.7

( i 1,319.0

)

i 1,970.4

Equity

i 1,836.1

i 1,903.8

i 2,035.8

i 2,676.0

( i 6,615.6

)

i 1,836.1

Total liabilities and equity

i 1,935.2

i 2,036.1

i 3,374.1

i 4,395.7

( i 7,934.6

)

i 3,806.5

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Pentair plc and Subsidiaries

Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2018

In millions

Parent

Company

Guarantor

Subsidiary

Guarantor

Subsidiary

Issuer

Non-guarantor

Eliminations

Consolidated

Total

Operating activities

Net cash provided by (used for) operating activities

i 266.3

i 362.1

i 370.6

i 637.7

( i 1,197.6

)

i 439.1

Investing activities

Capital expenditures

i —

( i 48.2

)

i —

( i 48.2

)

Proceeds from sale of property and equipment

i —

i 0.2

i —

i 0.2

Payments due to sale of businesses

i —

( i 12.8

)

i —

( i 12.8

)

Acquisitions, net of cash acquired

i —

( i 0.9

)

i —

( i 0.9

)

Net intercompany loan activity

i —

i 94.1

i 181.0

i 1,655.7

( i 1,930.8

)

i —

Net cash provided by (used for) investing activities of continuing operations

i —

i 94.1

i 181.0

i 1,594.0

( i 1,930.8

)

( i 61.7

)

Net cash used for investing activities from discontinued operations

i —

( i 7.1

)

i —

( i 7.1

)

Net cash provided by (used for) investing activities

i —

i 94.1

i 181.0

i 1,586.9

( i 1,930.8

)

( i 68.8

)

Financing activities

Net receipts (repayments) of commercial paper and revolving long-term debt

i —

i 41.9

( i 2.2

)

i —

i 39.7

Repayment of long-term debt

i —

( i 675.1

)

i —

( i 675.1

)

Premium paid on early extinguishment of debt

i —

( i 16.0

)

i —

( i 16.0

)

Distribution of cash from nVent, net of cash transferred

i —

i 993.6

( i 74.2

)

i —

i 919.4

Net change in advances to subsidiaries

i 407.7

( i 456.2

)

( i 874.6

)

( i 2,205.3

)

i 3,128.4

i —

Shares issued to employees, net of shares withheld

i 13.3

i —

i 13.3

Repurchases of ordinary shares

( i 500.0

)

i —

( i 500.0

)

Dividends paid

( i 187.2

)

i —

( i 187.2

)

Other

i —

( i 2.0

)

i —

( i 2.0

)

Net cash provided by (used for) financing activities

( i 266.2

)

( i 456.2

)

( i 532.2

)

( i 2,281.7

)

i 3,128.4

( i 407.9

)

Change in cash held for sale

i —

i 27.0

i —

i 27.0

Effect of exchange rate changes on cash and cash equivalents

i —

( i 19.3

)

i 17.9

i —

( i 1.4

)

Change in cash and cash equivalents

i 0.1

i —

i 0.1

( i 12.2

)

i —

( i 12.0

)

Cash and cash equivalents, beginning of year

i —

i 86.3

i —

i 86.3

Cash and cash equivalents, end of year

i 0.1

i —

i 0.1

i 74.1

i —

i 74.3

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Pentair plc and Subsidiaries

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

Year Ended December 31, 2017

In millions

Parent

Company

Guarantor

Subsidiary

Guarantor

Subsidiary

Issuer

Non-guarantor

Eliminations

Consolidated

Total

Net sales

i —

i 2,845.7

i —

i 2,845.7

Cost of goods sold

i —

i 1,858.2

i —

i 1,858.2

Gross profit

i —

i 987.5

i —

i 987.5

Selling, general and administrative

i 9.0

i 0.6

i —

i 526.4

i —

i 536.0

Research and development

i —

i 73.2

i —

i 73.2

Operating (loss) income

( i 9.0

)

( i 0.6

)

i —

i 387.9

i —

i 378.3

(Earnings) loss from continuing operations of investment in subsidiaries

( i 122.2

)

( i 122.2

)

( i 283.4

)

i —

i 527.8

i —

Other (income) expense:

Loss on sale of businesses

i —

i 4.2

i —

i 4.2

Loss on early extinguishment of debt

i —

i 91.0

i 10.4

i —

i 101.4

Net interest (income) expense

i —

( i 0.6

)

i 70.7

i 17.2

i —

i 87.3

Other expense

i —

i 12.6

i —

i 12.6

Income (loss) from continuing operations before income taxes

i 113.2

i 122.2

i 121.7

i 343.5

( i 527.8

)

i 172.8

(Benefit) provision for income taxes

( i 0.9

)

i —

i 59.6

i —

i 58.7

Net income (loss) from continuing operations

i 114.1

i 122.2

i 121.7

i 283.9

( i 527.8

)

i 114.1

Income from discontinued operations, net of tax

i —

i 371.3

i —

i 371.3

Gain from sale of discontinued operations, net of tax

i —

i 181.1

i —

i 181.1

Earnings (loss) from discontinued operations of investment in subsidiaries

i 552.4

i —

( i 1,657.2

)

i —

Net income (loss)

i 666.5

i 674.6

i 674.1

i 836.3

( i 2,185.0

)

i 666.5

Comprehensive income (loss), net of tax

Net income (loss)

i 666.5

i 674.6

i 674.1

i 836.3

( i 2,185.0

)

i 666.5

Changes in cumulative translation adjustment

i 497.5

( i 1,492.5

)

i 497.5

Changes in market value of derivative financial instruments, net of tax

( i 4.6

)

( i 4.6

)

( i 4.6

)

( i 4.6

)

i 13.8

( i 4.6

)

Comprehensive income (loss)

i 1,159.4

i 1,167.5

i 1,167.0

i 1,329.2

( i 3,663.7

)

i 1,159.4

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Pentair plc and Subsidiaries

Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2017

In millions

Parent

Company

Guarantor

Subsidiary

Guarantor

Subsidiary

Issuer

Non-guarantor