Overview

Pentair plc and its consolidated 
subsidiaries (“we,” “us,” “our,” “Pentair” or the “Company”) is a pure play 
water industrial manufacturing company and in 2019 we were comprised of three 
reporting segments: Aquatic Systems, Filtration Solutions and Flow 
Technologies. We classify our operations into business segments based primarily 
on types of products offered and markets served. For the year ended December 
31, 2019, the Aquatic Systems, Filtration Solutions and Flow Technologies 
segments represented approximately 33%, 36% and 31% of total revenues, 
respectively. Commencing with the first quarter of 2020, we revised our 
segments, going from three segments to two with the two revised segments named 
Consumer Solutions and Industrial & Flow Technologies. The discussions below 
reporting on prior periods reflect the previous segmentation, but the 
descriptions of our businesses below continue to apply in their re-segmented 
form. Additional information regarding this re-segmentation is found under the 
section titled “New Segmentation” in ITEM 1 of this Form 10-K. Although our 
jurisdiction of organization is Ireland, we manage our affairs so that we are 
centrally managed and controlled in the United Kingdom (the “U.K.”) and 
therefore have our tax residency in the U.K. On April 28, 2017, we completed 
the sale of the Valves & Controls business to Emerson Electric Co. for $3.15 
billion. The sale resulted in a gain of $181.1 million, net of tax. The results 
of the Valves & Controls business have been presented as discontinued 
operations for all periods presented. The Valves & Controls business was 
previously disclosed as a stand-alone reporting segment.

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 and the issuance by nVent of nVent ordinary 
shares directly to Pentair shareholders (the “Distribution”). We did not retain 
an equity interest in nVent. The results of the Electrical business have been 
presented as discontinued operations for all periods presented. The Electrical 
business was previously disclosed as a stand-alone reporting segment.

In February 2019, as part of Filtration Solutions, we completed the 
acquisitions of Aquion and Pelican for $163.4 million and $121.1 million, 
respectively, in cash, net of cash acquired. Aquion offers a diverse line of 
water conditioners, water filters, drinking-water purifiers, ozone and 
ultraviolet disinfection systems, reverse osmosis systems and acid neutralizers 
for the residential and commercial water treatment industry. Pelican provides 
residential whole home water treatment systems.

Key trends and uncertainties regarding our existing business The following 
trends and uncertainties affected our financial performance in 2019, and will 
likely impact our results in the future:

•

During 2019, we executed certain business restructuring initiatives aimed at 
reducing our fixed cost structure and realigning our business. We expect these 
actions will contribute to margin growth in 2020.

•

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

•

We have experienced material and other cost inflation. We strive for 
productivity improvements, and we implement increases in selling prices to help 
mitigate this inflation. We expect the current economic environment will result 
in continuing price volatility for many of our raw materials, and we are 
uncertain as to the timing and impact of these market changes.

•

Proposed regulations as part of the Tax Cuts and Jobs Act, enacted in the U.S. 
in December 2017, may place limitations on the deductibility of certain 
interest expense for U.S. tax purposes. These proposed regulations could 
materially adversely affect our financial condition, results of operations, 
cash flows or our effective tax rate in future reporting periods when enacted.

•

Our businesses utilize a global supply chain including materials, components 
and products sourced directly or indirectly from China and from other countries 
and geographic regions potentially impacted by the coronavirus outbreak, and 
3-4% of our total revenues are generated from sales to customers in China. Our 
overall business could be negatively impacted by the coronavirus outbreak, but 
the significance of the impact of the coronavirus outbreak on our business and 
the duration for which it may have an impact cannot be determined at this time. 
In 2020, our operating objectives include the following:

•

Accelerating Pentair Integrated Management System (“PIMS”), with specific focus 
on the area of commercial excellence and acquisition integrations;

•

Delivering our growth priorities through new products and global and market 
expansion, specifically in the areas of pool and residential and commercial 
filtration solutions;

•

Optimizing our technological capabilities to increasingly generate innovative 
new products and advance digital transformation; and

•

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


CONSOLIDATED RESULTS OF OPERATIONS

The 0.3 percent decrease in consolidated net sales in 2019 from 2018 was 
primarily the result of:

•

volume declines across all three reportable segments; and

•

unfavorable foreign currency effects. This decrease was partially offset by:

•

selective increases in selling prices to mitigate inflationary cost increases; 
and

•

the acquisitions of the Aquion and Pelican businesses in 2019.


The 4.2 percent increase in consolidated net sales in 2018 from 2017 was 
primarily the result of:

•

core sales increases across all three reportable segments, primarily driven by 
increased sales in the residential and commercial businesses;

•

selective increases in selling prices to mitigate inflationary cost increases; 
and

•

favorable foreign currency effects during the year ended December 31, 2018. 
This increase was partially offset by:

•

sales declines due to the sale of certain businesses during the year ended 
December 31, 2018. Gross profit The 0.3 percentage point increase in gross 
profit as a percentage of net sales in 2019 from 2018 was primarily the result 
of:

•

selective increases in selling prices across all three reportable segments 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. This increase was 
partially offset by:

•

unfavorable mix as a result of a core sales growth decrease in the higher 
margin Aquatic Systems segment; and

•

inflationary increases related to raw materials and labor costs. The 0.6 
percentage point increase in gross profit as a percentage of net sales in 2018 
from 2017 was primarily the result of:

•

selective increases in selling prices across all three reportable segments to 
mitigate inflationary cost increases;

•

favorable mix in the Filtration Solutions segment; and

•

higher contribution margin as a result of savings generated from our PIMS 
initiatives, including lean and supply management practices. This increase was 
partially offset by:

•

inflationary increases related to raw materials and labor costs. Selling, 
general and administrative (“SG&A”) The 0.3 percentage point increase in SG&A 
expense as a percentage of net sales in 2019 from 2018 and was driven by:

•

decreased sales volumes, which resulted in decreased leverage on fixed 
operating expenses;

•

investments in sales and marketing to drive growth; and

•

asset impairments of $21.2 million in 2019, compared to $12.0 million in 2018. 
This increase was partially offset by:

•

restructuring and other costs of $21.0 million in 2019, compared to $31.8 
million in 2018;

•

duplicative corporate costs of $11.0 million in 2018 resulting from the 
Separation of nVent that did not recur in 2019; and

•

lower annual performance based cash incentive awards in 2019 compared to 2018. 
The 0.8 percentage point decrease in SG&A expense as a percentage of net sales 
in 2018 from 2017 was driven by:

•

savings generated from restructuring and other lean initiatives; and

•

higher sales resulting in increased leverage.

26


This decrease was partially offset by:

•

restructuring and other costs of $31.8 million in 2018, compared to $28.2 
million in 2017;

•

the reversal of a $13.3 million indemnification liability in 2017 that did not 
recur in 2018; and

•

investments in sales and marketing to drive growth. Net interest expense The 
7.7 percent and 62.7 decreases in net interest expense in 2019 from 2018 and in 
2018 from 2017, respectively were the result of:

•

lower average outstanding debt levels during the first half of 2019 compared to 
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. Loss on early 
extinguishment of debt In 2018, we redeemed the remaining $255.3 million 
aggregate principal amount of our 2.9% fixed rate senior notes due 2018 and 
completed a cash tender offer in the amount of €363.4 million aggregate 
principal amount of our 2.45% senior notes due 2019. All costs associated with 
the repurchases of debt were recorded as a Loss on the early extinguishment of 
debt, including $16.0 million premium paid on early extinguishment and $1.1 
million of unamortized deferred financing costs. Provision for income taxes The 
4.1 percentage point decrease in the effective tax rate in 2019 from 2018 was 
primarily due to:

•

the mix of global earnings;

•

the impact of lower nondeductible interest expense allocated to continuing 
operations in 2019 compared to 2018;

•

the unfavorable tax impact of restructuring costs in 2018 related to 
jurisdictions with low tax benefits that did not recur in 2019; and

•

a decrease in valuation allowances during 2019. The 18.7 percentage point 
decrease in the effective tax rate in 2018 from 2017 was primarily due to:

•

the mix of global earnings, including the impact of U.S. Tax Reform; and

•

the impact of lower nondeductible interest expense allocated to continuing 
operations in 2018 compared to 2017.

SEGMENT RESULTS OF OPERATIONS This summary that follows provides a discussion 
of the results of operations of each of our 2019 three reportable segments 
(Aquatic Systems, Filtration Solutions and Flow Technologies). Each of these 
segments were comprised of various product offerings that serve multiple end 
markets. 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

Net sales The components of the change in Aquatic Systems net sales were as 
follows:

The 4.0 percent decrease in net sales for Aquatic Systems in 2019 from 2018 was 
primarily the result of:

•

sales volume declines due to cold, wet weather during the first half of 2019 in 
key markets;

•

higher than anticipated inventory levels in some of our key distribution 
channels impacting our residential and commercial businesses during the first 
nine months of 2019;

•

divestitures in our aquaculture and residential pool businesses; and

•

unfavorable foreign currency effects compared to the same periods of the prior 
year. This decrease was partially offset by:

•

selective increases in selling prices to mitigate inflationary cost increases. 
The 9.2 percent increase in net sales for Aquatic Systems in 2018 from 2017 was 
primarily the result of:

•

core sales growth related to higher sales of certain pool products primarily 
serving North American residential housing; and

•

selective increases in selling prices to mitigate inflationary cost increases. 
This increase was partially offset by

•

sales declines due to the divestiture of certain businesses in 2018.

Segment income The components of the change in Aquatic Systems segment income 
from the prior period were as follows:

The 0.2 percentage point increase in segment income for Aquatic Systems as a 
percentage of net sales in 2019 from 2018 was primarily the result of:

•

selective increases in selling prices to mitigate inflationary cost increases; 
and

•

productivity and cost savings generated from PIMS initiatives, including lean 
and supply management practices. This increase was partially offset by:

•

declines in sales volume and unfavorable sales mix;

•

increased investment in both research and development and sales and marketing 
to drive growth; and

•

inflationary increases related to raw material and labor costs.


The 0.1 percentage point increase in segment income for Aquatic Systems as a 
percentage of net sales in 2018 from 2017 was primarily the result of:

•

core sales growth contributions to income;

•

selective increases in selling prices to mitigate inflationary cost increases; 
and

•

cost savings generated from PIMS initiatives including lean and supply 
management practices. This increase was partially offset by:

•

inflationary increases related to raw materials and labor costs.


Filtration Solutions

The 6.6 percent increase in net sales for Filtration Solutions in 2019 from 
2018 was primarily the result of:

•

increased sales due to the acquisitions of Aquion and Pelican in the first 
quarter of 2019; and

•

selective increases in selling prices to mitigate inflationary cost increases. 
This increase was partially offset by:

•

decreased core sales volume in our residential and commercial businesses, 
partially due to lower component sales as Aquion sales are now considered 
intercompany; and

•

unfavorable foreign currency effects. The 1.0 percent increase in net sales for 
Filtration Solutions in 2018 from 2017 was primarily the result of:

•

increased sales volume in our commercial and industrial businesses;

•

selective increases in selling prices to mitigate inflationary cost increases; 
and

•

favorable foreign currency effects. This increase was partially offset by:

•

sales volume declines in our residential vertical; and

•

sales declines due to the divestiture of certain businesses in 2018.


Segment income

The 0.7 percentage point decrease in segment income for Filtration Solutions as 
a percentage of net sales in 2019 from 2018 was primarily the result of:

•

inflationary increases related to raw material and labor costs. This decrease 
was partially offset by:

•

selective increases in selling prices to mitigate inflationary cost increases;

•

the impact of the Aquion and Pelican acquisitions; and

•

favorable mix. The 1.2 percentage point increase in segment income for 
Filtration Solutions as a percentage of net sales in 2018 from 2017 was 
primarily the result of:

•

core growth contributions to income resulting in favorable mix;

•

selective increases in selling prices to mitigate inflationary cost increases; 
and

•

cost savings generated from PIMS initiatives including lean and supply 
management practices. This increase was partially offset by:

•

inflationary increases related to raw material and labor costs. Flow 
Technologies The net sales and segment income for Flow Technologies were as 
follows:



Years ended December 31

Net Sales

The components of the change in Flow Technologies net sales were as follows:



2019 vs 2018

The 3.5 percent decrease in Flow Technologies sales in 2019 from 2018 was 
primarily the result of:


•

decreased sales volume in our agriculture-related business due to cold, wet 
weather in the first half of 2019;

•

unfavorable foreign currency effects compared to the same period of the prior 
year; and

•

the impact of divestitures in our agriculture-related business in Brazil and 
commercial flow business in Australia. This decrease was partially offset by:

•

selective increases in selling prices to mitigate inflationary cost increases. 
The 2.5 percent increase in Flow Technologies sales in 2018 from 2017 was 
primarily the result of:

•

core growth in our commercial and specialty businesses;

•

selective increases in selling prices to mitigate inflationary cost increases; 
and

•

favorable foreign currency effects during 2018; This increase was partially 
offset by:

• The 0.2 percentage point decrease in segment income for Flow Technologies as 
a percentage of net sales in 2019 from 2018 was primarily the result of:

•

inflationary increases related to raw material and labor costs; and

•

decreased sales volumes in our residential, commercial and industrial 
businesses, which resulted in decreased leverage on operating expenses. This 
decrease was partially offset by:

•

selective increases in selling prices to mitigate inflationary cost increases; 
and

•

increased productivity. The 0.1 point increase in segment income for Flow 
Technologies as a percentage of sales in 2018 from 2017 was primarily the 
result of:

•

higher core sales in our commercial and specialty businesses, which resulted in 
increased leverage on fixed operating expenses;

•

selective increases in selling prices to mitigate inflationary cost increases; 
and

•

cost control and savings generated from lean initiatives. This increase was 
partially offset by:

•

inflationary increases related to raw material and labor costs.


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 
generally 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 provided by operating activities of continuing 
operations was $345.2 million in 2019, compared to $458.1 million in 2018 and 
$278.6 million in 2017.

The $345.2 million in net cash provided by operating activities of continuing 
operations in 2019 primarily reflects net income from continuing operations of 
$462.9 million, net of non-cash depreciation, amortization and asset 
impairment, partially offset by a negative impact of $105.4 million as a result 
of changes in net working capital and $20.9 million of pension and other 
post-retirement plan contributions, including $11.1 million of contributions 
made in conjunction with the termination of the Pentair Salaried Plan during 
2019. The $458.1 million in net cash provided by operating activities of 
continuing operations in 2018 primarily reflects net income from continuing 
operations of $435.4 million, net of non-cash depreciation, amortization, asset 
impairment and the loss on early extinguishment of debt, further increased by a 
positive impact $30.2 million as a result of changes in net working capital. 
The $278.6 million in net cash provided by operating activities of continuing 
operations in 2017 primarily reflects net income from continuing operations of 
$318.3 million, net of non-cash depreciation, amortization, asset impairment 
and the loss on early extinguishment of debt, partially offset by a negative 
impact of $87.3 million as a result of changes in net working capital. 
Investing activities Cash used for investing activities of continuing 
operations was $331.9 million in 2019, compared to $61.7 million of cash used 
for investing activities of continuing operations in 2018 and $2,678.1 million 
of cash provided by investing activities of continuing operations in 2017. Net 
cash used for investing activities of continuing operations in 2019 primarily 
reflects capital expenditures of $58.5 million and cash paid primarily for the 
Aquion and Pelican acquisitions, offset by $15.3 million of proceeds received 
from divestitures primarily related to our former aquaculture business. Net 
cash used for investing activities of continuing operations in 2018 primarily 
reflects capital expenditures of $48.2 million and cash paid for the settlement 
of a working capital adjustment related to the sale of the Valves & Controls 
business. Net cash provided by investing activities of continuing operations in 
2017 primarily reflects the sale of the Valves & Controls business, partially 
offset by capital expenditures of $39.1 million and cash paid of $45.9 million 
to acquire a business as part of Filtration Solutions. Financing activities 
Cash used for financing activities was $17.1 million in 2019, compared to 
$407.9 million and $3,432.6 million in 2018 and 2017, respectively.

In 2019, net cash used for financing activities primarily relates to repayment 
of senior notes due in 2019 totaling $401.5 million, $150.0 million of share 
repurchases and payment of dividends of $122.7 million, partially offset by 
proceeds from long-term debt of $600.0 million and net receipts of commercial 
paper and revolving long-term debt of $51.5 million.

As described below, in 2018, we utilized $993.6 million of cash distributed 
from the Separation to repay commercial paper and revolving long-term debt and 
for the early extinguishment of certain series of fixed rate debt. 
Additionally, we repurchased $500.0 million of shares and made dividend 
payments of $187.2 million.

In 2017, net cash used for financing activities primarily related to the 
utilization of proceeds from the sale of the Valves & Controls business to 
repay our commercial paper and revolving long-term debt and for the early 
extinguishment of certain series of fixed rate debt. Additionally, we 
repurchased $200.0 million of shares and made dividend payments of $251.7 
million.

In June 2019, Pentair, Pentair Finance S.à r.l. (“PFSA”) and Pentair 
Investments Switzerland GmbH (“PISG”) completed a public offering of $400.0 
million aggregate principal amount of PFSA’s 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 $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 
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 $100.0 million for a total commitment up to $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 
$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 $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 $746.4 million. 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 
$117.8 million of commercial paper outstanding as of December 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. 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 $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 December 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 $21.0 million, of which there were no outstanding borrowings at 
December 31, 2019. Borrowings under these credit facilities bear interest at 
variable rates. In June 2018, we used the $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 $255.3 million aggregate 
principal of our 2.9% fixed rate senior notes due 2018, and complete a cash 
tender offer in the amount of €363.4 million aggregate principal of our 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 $16.0 million 
premium paid on early extinguishment and $1.1 million of unamortized deferred 
financing costs.

We have $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. As of December 31, 2019, we had $58.8 
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. Authorized shares Our authorized share capital consists of 426.0 
million ordinary shares with a par value of $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 $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 $750.0 
million (the “2018 Authorization”), replacing the 2014 Authorization. The 2018 
Authorization expires on May 31, 2021.

During the year ended December 31, 2017, we repurchased 3.0 million of our 
ordinary shares for $200.0 million under the 2014 Authorization. During the 
year ended December 31, 2018, we repurchased 10.2 million of our ordinary 
shares for $500.0 million, of which 2.2 million shares, or $150.0 million, and 
8.0 million shares, or $350.0 million, were repurchased pursuant to the 2014 
and 2018 Authorizations, respectively. During the year ended December 31, 2019, 
we repurchased 4.0 million of our ordinary shares for $150.0 million pursuant 
to the 2018 Authorization. As of December 31, 2019, we had $250.0 million 
available for share repurchases under the 2018 Authorization. Dividends On 
December 9, 2019, the Board of Directors approved a 6 percent increase in the 
company’s regular quarterly dividend rate (from $0.18 per share to $0.19 per 
share) that was paid on February 7, 2020 to shareholders of record at the close 
of business on January 24, 2020. As a result, the balance of dividends payable 
included in Other current liabilities on our Consolidated Balance Sheets was 
$32.0 million at December 31, 2019. Dividends paid per ordinary share were 
$0.72, $1.05 and $1.38 for the years ended December 31, 2019, 2018 and 2017, 
respectively. 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 GAAP reported amount (e.g., retained 
earnings). Our distributable reserve balance was $6.6 billion and $6.5 billion 
as of December 31, 2019 and 2018, respectively.

Contractual obligations

The majority of the purchase obligations represent commitments for raw 
materials to be utilized in the normal course of business. For purposes of the 
above table, arrangements are considered purchase obligations if a contract 
specifies all significant terms, including fixed or minimum quantities to be 
purchased, a pricing structure and approximate timing of the transaction. In 
addition to the summary of significant contractual obligations, we will incur 
annual interest expense on outstanding variable rate debt. As of December 31, 
2019, variable interest rate debt was $353.6 million at a weighted average 
interest rate of 2.71%. The total gross liability for uncertain tax positions 
at December 31, 2019 was estimated to be $47.4 million. We record penalties and 
interest related to unrecognized tax benefits in Provision for income taxes and 
Interest expense, respectively, which is consistent with our past practices. As 
of December 31, 2019, we had recorded $0.4 million for the possible payment of 
penalties and $3.7 million related to the possible payment of interest. Other 
financial measures In addition to measuring our cash flow generation or usage 
based upon operating, investing and financing classifications included in the 
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 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.

Off-balance sheet arrangements At December 31, 2019, we had no off-balance 
sheet financing arrangements.

COMMITMENTS AND CONTINGENCIES We have been, and in the future may be, made 
parties to a number of actions filed or have been, and in the future may be, 
given notice of potential claims relating to the conduct of our business, 
including those relating to commercial 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. While we believe that a material impact on our consolidated financial 
position, results of operations or cash flows from any such future claims or 
potential claims is unlikely, given the inherent uncertainty of litigation, a 
remote possibility exists that a future adverse ruling or unfavorable 
development could result in future charges that could have a material impact. 
We do and will continue to periodically reexamine our estimates of probable 
liabilities and any associated expenses and receivables and make appropriate 
adjustments to such estimates based on experience and developments in 
litigation.

Product liability claims We are subject to various product liability lawsuits 
and personal injury claims. A substantial number of these lawsuits and claims 
are insured and accrued for by Penwald, our captive insurance subsidiary. See 
discussion in ITEM 1 and ITEM 8, Note 1 of the Notes to Consolidated Financial 
Statements — Insurance subsidiary. Penwald records a liability for these claims 
based on actuarial projections of ultimate losses. For all other claims, 
accruals covering the claims are recorded, on an undiscounted basis, when it is 
probable that a liability has been incurred and the amount of the liability can 
be reasonably estimated based on existing information. The accruals are 
adjusted periodically as additional information becomes available. We have not 
experienced significant unfavorable trends in either the severity or frequency 
of product liability lawsuits or personal injury claims. Stand-by letters of 
credit, bank guarantees and bonds In certain situations, Tyco International 
Ltd., Pentair Ltd.’s former parent company (“Tyco”), guaranteed performance by 
the flow control business of Pentair Ltd. (“Flow Control”) to third parties or 
provided financial guarantees for financial commitments of Flow Control. In 
situations where Flow Control and Tyco were unable to obtain a release from 
these guarantees in connection with the spin-off of Flow Control from Tyco, we 
will indemnify Tyco for any losses it suffers as a result of such guarantees. 
In the ordinary course of business, we are required to commit to bonds, letters 
of credit and bank guarantees that require payments to our customers for any 
non-performance. The outstanding face value of these instruments fluctuates 
with the value of our projects in process and in our backlog. In addition, we 
issue financial stand-by letters of credit primarily to secure our performance 
to third parties under self-insurance programs. As of December 31, 2019 and 
2018, the outstanding value of bonds, letters of credit and bank guarantees 
totaled $91.3 million and $123.6 million, respectively.

CRITICAL ACCOUNTING POLICIES We have adopted various accounting policies to 
prepare the consolidated financial statements in accordance with GAAP. Our 
significant accounting policies are more fully described in ITEM 8, Note 1 of 
the Notes to Consolidated Financial Statements. Certain accounting policies 
require the application of significant judgment by management in selecting the 
appropriate assumptions for calculating financial estimates. By their nature, 
these judgments are subject to an inherent degree of uncertainty. These 
judgments are based on our historical experience, terms of existing contracts, 
our observance of trends in the industry and information available from other 
outside sources, as appropriate. We consider an accounting estimate to be 
critical if:

•

it requires us to make assumptions about matters that were uncertain at the 
time we were making the estimate; and

•

changes in the estimate or different estimates that we could have selected 
would have had a material impact on our financial condition or results of 
operations. Our critical accounting estimates include the following: Impairment 
of goodwill and indefinite-lived intangibles

Goodwill Goodwill represents the excess of the cost of acquired businesses over 
the net of the fair value of identifiable tangible net assets and identifiable 
intangible assets purchased and liabilities assumed. Goodwill is tested at 
least annually for impairment and is tested for impairment more frequently if 
events or changes in circumstances indicate that the asset might be impaired. A 
qualitative assessment is first performed, as of the first day of the fourth 
quarter, to determine whether it is more likely than not that the fair value of 
a reporting unit is less than its carrying value. If it is concluded that this 
is the case, an evaluation, based upon discounted cash flows, is performed and 
requires management to estimate future cash flows, growth rates and economic 
and market conditions. As a result of the qualitative assessment performed as 
of October 1, 2019 and 2018, it was determined that it was more likely than not 
that the fair value of the reporting units exceeded their respective carrying 
values. Factors considered in the analysis included the last discounted cash 
flow fair value assessment of reporting units performed in 2017 and the 
calculated excess fair value over carrying amount, financial performance, 
forecasts and trends, market capitalization, regulatory and environmental 
issues, macro-economic conditions, industry and market considerations, raw 
material costs and management stability. We also consider the extent to which 
each of the adverse events and circumstances identified affect the comparison 
of the respective reporting unit’s fair value with its carrying amount. We 
place more weight on the events and circumstances that most affect the 
respective reporting unit’s fair value or the carrying amount of its net 
assets. We consider positive and mitigating events and circumstances that may 
affect its determination of whether it is more likely than not that the fair 
value exceeds the carrying amount. Identifiable intangible assets Our primary 
identifiable intangible assets include: customer relationships, trade names, 
proprietary technology and patents. Identifiable intangibles with finite lives 
are amortized and those identifiable intangibles with indefinite lives are not 
amortized. Identifiable intangible assets that are subject to amortization are 
evaluated for impairment whenever events or changes in circumstances indicate 
that the carrying amount may not be recoverable. Identifiable intangible assets 
not subject to amortization are tested for impairment annually or more 
frequently if events warrant. We complete our annual impairment test the first 
day of the fourth quarter each year for those identifiable assets not subject 
to amortization.

The impairment test for trade names consists of a comparison of the fair value 
of the trade name with its carrying value. Fair value is measured using the 
relief-from-royalty method. This method assumes the trade name has value to the 
extent that the owner is relieved of the obligation to pay royalties for the 
benefits received from them. This method requires us to estimate the future 
revenue for the related brands, the appropriate royalty rate and the weighted 
average cost of capital. The non-recurring fair value measurement is a “Level 
3” measurement under the fair value hierarchy.

There were no impairment charges recorded in 2019 or 2018 for identifiable 
intangible assets. An impairment charge of $8.8 million was recorded in 2017 
related to certain trade names in Filtration Solutions and Flow Technologies as 
a result of lower forecasted sales volume or rebranding strategies implemented 
in the fourth quarter of 2017. The trade name impairment charges were recorded 
in Selling, general and administrative in our Consolidated Statements of 
Operations and Comprehensive

Pension and other post-retirement plans We sponsor U.S. and non-U.S. 
defined-benefit pension and other post-retirement plans. The amounts recognized 
in our consolidated financial statements related to our defined-benefit pension 
and other post-retirement plans are determined from actuarial valuations. 
Inherent in these valuations are assumptions, including: expected return on 
plan assets, discount rates, rate of increase in future compensation levels and 
health care cost trend rates. These assumptions are updated annually and are 
disclosed in ITEM 8, Note 11 to the Notes to Consolidated Financial Statements. 
Differences in actual experience or changes in assumptions may affect our 
pension and other post-retirement obligations and future expense. We recognize 
changes in the fair value of plan assets and net actuarial gains or losses for 
pension and other post-retirement benefits annually in the fourth quarter each 
year (“mark-to-market adjustment”) and, if applicable, in any quarter in which 
an interim remeasurement is triggered. Net actuarial gains and losses occur 
when the actual experience differs from any of the various assumptions used to 
value our pension and other post-retirement plans or when assumptions change as 
they may each year. The primary factors contributing to actuarial gains and 
losses each year are (1) changes in the discount rate used to value pension and 
other post-retirement benefit obligations as of the measurement date and (2) 
differences between the expected and the actual return on plan assets. This 
accounting method also results in the potential for volatile and difficult to 
forecast mark-to-market adjustments. Mark-to-market adjustments resulted in a 
pre-tax gain of $3.4 million in 2019, and a pre-tax loss of $3.6 million and 
$8.5 million in 2018 and 2017, respectively. The remaining components of 
pension expense, including service and interest costs and the expected return 
on plan assets, are recorded on a quarterly basis as ongoing pension expense. 
Discount rates The discount rate reflects the current rate at which the pension 
liabilities could be effectively settled at the end of the year based on our 
December 31 measurement date. The discount rate was determined by matching our 
expected benefit payments to payments from a stream of bonds rated AA or higher 
available in the marketplace, adjusted to eliminate the effects of call 
provisions. There are no known or anticipated changes in our discount rate 
assumptions that will impact our pension expense in 2020.

Expected rate of return The expected rate of return is designed to be a 
long-term assumption that may be subject to considerable year-to-year variance 
from actual returns. In developing the expected long-term rate of return, we 
considered our historical returns, with consideration given to forecasted 
economic conditions, our asset allocations, input from external consultants and 
broader long-term market indices. Loss contingencies Accruals are recorded for 
various contingencies including legal proceedings, self-insurance and other 
claims that arise in the normal course of business. The accruals are based on 
judgment, the probability of losses and, where applicable, the consideration of 
opinions of internal and/or external legal counsel and actuarially determined 
estimates. Additionally, we record receivables from third party insurers when 
recovery has been determined to be probable.

Income taxes In determining taxable income for financial statement purposes, we 
must make certain estimates and judgments. These estimates and judgments affect 
the calculation of certain tax liabilities and the determination of the 
recoverability of certain of the deferred tax assets, which arise from 
temporary differences between the tax and financial statement recognition of 
revenue and expense. In evaluating our ability to recover our deferred tax 
assets we consider all available positive and negative evidence including our 
past operating results, the existence of cumulative losses in the most recent 
years and our forecast of future taxable income. In estimating future taxable 
income, we develop assumptions including the amount of future pre-tax operating 
income, the reversal of temporary differences and the implementation of 
feasible and prudent tax planning strategies. These assumptions require 
significant judgment about the forecasts of future taxable income and are 
consistent with the plans and estimates we are using to manage the underlying 
businesses. We currently have recorded valuation allowances that we will 
maintain until when, in the opinion of management, it is more likely than not 
that some portion or all of the deferred tax assets will be realized. Our 
income tax expense recorded in the future may be reduced to the extent of 
decreases in our valuation allowances. The realization of our remaining 
deferred tax assets is primarily dependent on future taxable income in the 
appropriate jurisdiction. Any reduction in future taxable income including but 
not limited to any future restructuring activities may require that we record 
an additional valuation allowance against our deferred tax assets. An increase 
in the valuation allowance could result in additional income tax expense in 
such period and could have a significant impact on our future earnings.

Changes in tax laws and rates could also affect recorded deferred tax assets 
and liabilities in the future. Management records the effect of a tax rate or 
law change on the Company’s deferred tax assets and liabilities in the period 
of enactment. Future tax rate or law changes could have a material effect on 
the Company’s financial condition, results of operations or cash flows. In 
addition, the calculation of our tax liabilities involves dealing with 
uncertainties in the application of complex tax regulations in a multitude of 
jurisdictions across our global operations. We perform reviews of our income 
tax positions on a quarterly basis and accrue for uncertain tax positions. We 
recognize potential liabilities and record tax liabilities for anticipated tax 
audit issues in the tax jurisdictions in which we operate based on our estimate 
of whether, and the extent to which, additional taxes will be due. These tax 
liabilities are reflected net of related tax loss carryforwards. As events 
change or resolution occurs, these liabilities are adjusted, such as in the 
case of audit settlements with taxing authorities. The ultimate resolution may 
result in a payment that is materially different from our current estimate of 
the tax liabilities. If our estimate of tax liabilities proves to be less than 
the ultimate assessment, an additional charge to expense would result. If 
payment of these amounts ultimately proves to be less than the recorded 
amounts, the reversal of the liabilities would result in tax benefits being 
recognized in the period when we determine the liabilities are no longer 
necessary.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the 
potential economic loss that may result from adverse changes in the fair value 
of financial instruments. We are exposed to various market risks, including 
changes in interest rates and foreign currency rates. Periodically, we use 
derivative financial instruments to manage or reduce the impact of changes in 
interest rates and foreign currency rates. Counterparties to all derivative 
contracts are major financial institutions. All instruments are entered into 
for other than trading purposes. The major accounting policies and utilization 
of these instruments is described more fully in ITEM 8, Note 1 of the Notes to 
Consolidated Financial Statements.

Interest rate risk Our debt portfolio as of December 31, 2019, was comprised of 
debt predominantly denominated in U.S. dollars. This debt portfolio is 
comprised of 66% fixed-rate debt and 34% variable-rate debt. Changes in 
interest rates have different impacts on the fixed and variable-rate portions 
of our debt portfolio. A change in interest rates on the fixed portion of the 
debt portfolio impacts the fair value, but has no impact on interest incurred 
or cash flows. A change in interest rates on the variable portion of the debt 
portfolio impacts the interest incurred and cash flows but does not impact the 
net financial instrument position. Based on the fixed-rate debt included in our 
debt portfolio, as of December 31, 2019, a 100 basis point increase or decrease 
in interest rates would result in a $39.8 million decrease or $43.4 million 
increase in fair value, respectively. Based on the variable-rate debt included 
in our debt portfolio as of December 31, 2019, a 100 basis point increase or 
decrease in interest rates would result in a $3.5 million increase or decrease 
in interest incurred. Foreign currency risk 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. Periodically, we use derivative financial instruments to manage these 
risks. The functional currencies of our foreign operating locations are 
generally the local currency in the country of domicile. We manage these 
operating activities at the local level and revenues, costs, assets and 
liabilities are generally denominated in local currencies, thereby mitigating 
the risk associated with changes in foreign exchange. However, our results of 
operations and assets and liabilities are reported in U.S. dollars and thus 
will fluctuate with changes in exchange rates between such local currencies and 
the U.S. dollar. From time to time, we may enter into short duration foreign 
currency contracts to hedge foreign currency risks. As the majority of our 
foreign currency contracts have an original maturity date of less than one 
year, there is no material foreign currency risk. At December 31, 2019 and 
2018, we had outstanding foreign currency derivative contracts with gross 
notional U.S. dollar equivalent amounts of $17.0 million and $47.6 million, 
respectively. Changes in the fair value of all derivatives are recognized 
immediately in income unless the derivative qualifies as a hedge of future cash 
flows. Gains and losses related to a hedge are deferred and recorded in the 
Consolidated Balance Sheets as a component of Accumulated other comprehensive 
loss and subsequently recognized in the Consolidated Statements of Operations 
and Comprehensive Income when the hedged item affects earnings. At December 31, 
2019, we had outstanding cross currency swap agreements with a combined 
notional amount of $777.0 million. The cross currency swap 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. The currency 
risk related to the cross currency swap agreements is measured by estimating 
the potential impact of a 10% change in the value of the U.S. dollar relative 
to the Euro. A 10% appreciation of the U.S. dollar relative to the Euro would 
result in a $57.9 million net increase in Accumulated other comprehensive loss. 
Conversely, a 10% depreciation of the U.S. dollar relative to the Euro would 
result in a $55.2 million net decrease in Accumulated other comprehensive loss. 
However, these increases and decreases in Other comprehensive income would be 
offset by decreases or increases in the hedged items on our balance sheet.


FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MANAGEMENT’S REPORT ON INTERNAL 
CONTROL OVER FINANCIAL REPORTING Management of Pentair plc and its subsidiaries 
(the “Company”) is responsible for establishing and maintaining adequate 
internal control over financial reporting, as such term is defined in Rules 
13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934. The Company’s 
internal control over financial reporting is designed to provide reasonable 
assurance regarding the reliability of financial reporting and the preparation 
of financial statements for external purposes in accordance with generally 
accepted accounting principles. The Company’s internal control over financial 
reporting includes those policies and procedures that (1) pertain to 
maintenance of records that, in reasonable detail, accurately and fairly 
reflect the transactions and dispositions of the assets of the Company; (2) 
provide reasonable assurance that transactions are recorded as necessary to 
permit preparation of the financial statements in accordance with generally 
accepted accounting principles and that receipts and expenditures of the 
Company are being made only in accordance with authorizations of management and 
directors of the Company; and (3) provide reasonable assurance regarding 
prevention or timely detection of unauthorized acquisition, use or disposition 
of the Company’s assets that could have a material effect on the financial 
statements. Because of its inherent limitations, internal control over 
financial reporting may not prevent or detect misstatements. Also, projections 
of any evaluation of the effectiveness of internal control over financial 
reporting to future periods are subject to the risk that the controls may 
become inadequate because of changes in conditions or that the degree of 
compliance with the policies or procedures may deteriorate. Management assessed 
the effectiveness of the Company’s internal control over financial reporting as 
of December 31, 2019. In making this assessment, management used the criteria 
for effective internal control over financial reporting described in Internal 
Control-Integrated Framework (2013) issued by the Committee of Sponsoring 
Organizations of the Treadway Commission. Based on this assessment, management 
believes that, as of December 31, 2019, the Company’s internal control over 
financial reporting was effective based on those criteria. Our independent 
registered public accounting firm, Deloitte & Touche LLP, has issued an 
attestation report on the Company’s internal control over financial reporting 
as of December 31, 2019. That attestation report is set forth immediately 
following this management report.


John L. Stauch


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and 
the Board of Directors of Pentair plc

Opinion on Internal Control over Financial Reporting We have audited the 
internal control over financial reporting of Pentair plc and subsidiaries (the 
“Company”) as of December 31, 2019, based on criteria established in Internal 
Control—Integrated Framework (2013) issued by the Committee of Sponsoring 
Organizations of the Treadway Commission (COSO). In our opinion, the Company 
maintained, in all material respects, effective internal control over financial 
reporting as of December 31, 2019, based on the criteria established in 
Internal Control—Integrated Framework (2013) issued by COSO. We have also 
audited, in accordance with the standards of the Public Company Accounting 
Oversight Board (United States) (PCAOB), the consolidated financial statements 
as of and for the year ended December 31, 2019, of the Company and our report 
dated February 25, 2020 expressed an unqualified opinion on those financial 
statements. Basis for Opinion The Company’s management is responsible for 
maintaining effective internal control over financial reporting and for its 
assessment of the effectiveness of internal control over financial reporting, 
included in the accompanying Management’s Report on Internal Control over 
Financial Reporting. Our responsibility is to express an opinion on the 
Company’s internal control over financial reporting based on our audit. We are 
a public accounting firm registered with the PCAOB and are required to be 
independent with respect to the Company in accordance with the U.S. federal 
securities laws and the applicable rules and regulations of the Securities and 
Exchange Commission and the PCAOB. We conducted our audit in accordance with 
the standards of the PCAOB. Those standards require that we plan and perform 
the audit to obtain reasonable assurance about whether effective internal 
control over financial reporting was maintained in all material respects. Our 
audit included obtaining an understanding of internal control over financial 
reporting, assessing the risk that a material weakness exists, testing and 
evaluating the design and operating effectiveness of internal control based on 
the assessed risk, and performing such other procedures as we considered 
necessary in the circumstances. We believe that our audit provides a reasonable 
basis for our opinion. Definition and Limitations of Internal Control over 
Financial Reporting A company’s internal control over financial reporting is a 
process designed to provide reasonable assurance regarding the reliability of 
financial reporting and the preparation of financial statements for external 
purposes in accordance with generally accepted accounting principles. A 
company’s internal control over financial reporting includes those policies and 
procedures that (1) pertain to the maintenance of records that, in reasonable 
detail, accurately and fairly reflect the transactions and dispositions of the 
assets of the company; (2) provide reasonable assurance that transactions are 
recorded as necessary to permit preparation of financial statements in 
accordance with generally accepted accounting principles, and that receipts and 
expenditures of the company are being made only in accordance with 
authorizations of management and directors of the company; and (3) provide 
reasonable assurance regarding prevention or timely detection of unauthorized 
acquisition, use, or disposition of the company’s assets that could have a 
material effect on the financial statements. Because of its inherent 
limitations, internal control over financial reporting may not prevent or 
detect misstatements. Also, projections of any evaluation of effectiveness to 
future periods are subject to the risk that controls may become inadequate 
because of changes in conditions, or that the degree of compliance with the 
policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP Minneapolis, Minnesota February 25, 2020

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and 
the Board of Directors of Pentair plc Opinion on the Financial Statements We 
have audited the accompanying consolidated balance sheets of Pentair plc and 
subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related 
consolidated statements of operations and comprehensive income, cash flows, and 
changes in equity, for each of the three years in the period ended December 31, 
2019, and the related notes (collectively referred to as the “financial 
statements”). In our opinion, the financial statements present fairly, in all 
material respects, the financial position of the Company as of December 31, 
2019 and 2018, and the results of its operations and its cash flows for each of 
the three years in the period ended December 31, 2019, in conformity with 
accounting principles generally accepted in the United States of America. We 
have also audited, in accordance with the standards of the Public Company 
Accounting Oversight Board (United States) (PCAOB), the Company’s internal 
control over financial reporting as of December 31, 2019, based on criteria 
established in Internal Control—Integrated Framework (2013) issued by the 
Committee of Sponsoring Organizations of the Treadway Commission and our report 
dated February 25, 2020 expressed an unqualified opinion on the Company’s 
internal control over financial reporting.

Basis for Opinion These financial statements are the responsibility of the 
Company’s management. Our responsibility is to express an opinion on the 
Company’s financial statements based on our audits. We are a public accounting 
firm registered with the PCAOB and are required to be independent with respect 
to the Company in accordance with the U.S. federal securities laws and the 
applicable rules and regulations of the Securities and Exchange Commission and 
the PCAOB. We conducted our audits in accordance with the standards of the 
PCAOB. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of 
material misstatement, whether due to error or fraud. Our audits included 
performing procedures to assess the risks of material misstatement of the 
financial statements, whether due to error or fraud, and performing procedures 
that respond to those risks. Such procedures included examining, on a test 
basis, evidence regarding the amounts and disclosures in the financial 
statements. Our audits also included evaluating the accounting principles used 
and significant estimates made by management, as well as evaluating the overall 
presentation of the financial statements. We believe that our audits provide a 
reasonable basis for our opinion.

Critical Audit Matters The critical audit matters communicated below are 
matters arising from the current-period audit of the financial statements that 
were communicated or required to be communicated to the audit committee and 
that (1) relate to accounts or disclosures that are material to the financial 
statements and (2) involved our especially challenging, subjective, or complex 
judgments. The communication of critical audit matters does not alter in any 
way our opinion on the financial statements, taken as a whole, and we are not, 
by communicating the critical audit matters below, providing separate opinions 
on the critical audit matters or on the accounts or disclosures to which they 
relate. Indefinite-lived Trade Names — Valuation — Refer to Notes 1 and 5 to 
the financial statements

Critical Audit Matter Description The Company’s evaluation of indefinite-lived 
trade names for impairment involves the comparison of the estimated fair value 
of each indefinite-lived trade name to its carrying value. The Company 
determines the estimated fair value of its trade names using the income 
approach, more specifically, the relief-from-royalty method. The determination 
of the estimated fair value using the relief-from-royalty method requires 
management to make significant estimates and assumptions including selecting 
appropriate royalty and discount rates and forecast future revenues. Changes in 
these assumptions could have a significant impact on the estimated fair value 
of indefinite-lived trade names. For certain of the Company’s indefinite-lived 
trade names, a significant change in estimated fair value could cause a 
significant impairment. The indefinite-lived trade names balance was $173.4 
million as of December 31, 2019, of which certain trade names are higher risk 
for impairment. When identifying the higher risk indefinite-lived trade names, 
we considered the relationship of their fair value to carrying value. The 
estimated fair values of these trade names exceeded their carrying values as of 
the measurement date and, therefore, no impairment was recognized. Given the 
level of judgment involved, management uses a third-party fair value specialist 
to assist in establishing the discount rate and royalty rate assumptions. As 
the trade name revenues are sensitive to changes in demand, auditing these 
assumptions involved a high degree of auditor judgment, and an increased extent 
of audit effort, including the need to involve our fair value specialists. How 
the Critical Audit Matter Was Addressed in the Audit Our audit procedures 
related to the significant estimates and assumptions for the trade names 
included the following, among others:

•

We tested the effectiveness of controls over indefinite-lived trade names, 
including those over management’s review of the revenue forecasts and the 
selection of the royalty and discount rates to be used in the valuation.

•

We assessed management’s ability to prepare accurate revenue forecasts by 
performing a retrospective review to compare actual results to management’s 
historical forecasts.

•

We evaluated the reasonableness of management’s revenue forecasts by inquiring 
of management regarding the forecasts and comparing the forecasts to (1) 
historical results, (2) internal communications to management and the Board of 
Directors, and (3) forecasted information included in Company press releases, 
analyst and industry reports of the Company and companies in its peer group.

•

We considered the impact of changes in the regulatory environment and the 
industry on management’s forecasts. With the assistance of our fair value 
specialists, we evaluated the royalty and discount rates used by management in 
the valuation, including testing the underlying source information and the 
mathematical calculations, developing a range of independent estimates and 
comparing those to the royalty and discount rates selected by management. 
Income Taxes — Completeness of Uncertain Tax Positions — Refer to Notes 1 and 
12 in the financial statements Critical Audit Matter Description The Company 
assesses uncertain tax positions (“UTP”) based upon an evaluation of available 
information and records a liability when a position taken or expected to be 
taken in a tax return does not meet certain measurement or recognition 
criteria. A tax benefit is recognized only if management believes it is more 
likely than not that the tax position will be sustained upon examination by the 
relevant tax authority. Determining the completeness of UTPs is complex and 
significant judgment is involved in identifying which positions may not meet 
the required measurement or recognition criteria. As of December 31, 2019, the 
Company’s recorded UTP balance was $47.4 million. The UTP analysis is complex 
as it includes numerous tax jurisdictions and varying applications of tax laws. 
Given the multiple jurisdictions in which the Company operates and the 
complexity of tax law, auditing the completeness of UTPs involved a high degree 
of auditor judgment, and an increased extent of audit effort, including the 
need to involve our tax specialists.

Basis of Presentation and Summary of Significant Accounting Policies Business 
Pentair plc and its consolidated subsidiaries (“we,” “us,” “our,” “Pentair” or 
the “Company”) is a pure play water company comprised of three reporting 
segments: Aquatic Systems, Filtration Solutions and Flow Technologies. 
Electrical separation On April 30, 2018, Pentair completed the separation of 
its 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”). On May 1, 2018, following the Separation and 
Distribution, nVent became an independent publicly traded company, trading on 
the New York Stock Exchange under the symbol “NVT.” The Company did not retain 
any equity interest in nVent. nVent’s historical financial results are 
reflected in the Company’s consolidated financial statements as a discontinued 
operation. Refer to Note 2 for further discussion. Basis of presentation The 
accompanying consolidated financial statements include the accounts of Pentair 
and all subsidiaries, both the United States (“U.S.”) and non-U.S., which we 
control. Intercompany accounts and transactions have been eliminated. 
Investments in companies of which we own 20% to 50% of the voting stock or have 
the ability to exercise significant influence over operating and financial 
policies of the investee are accounted for using the equity method of 
accounting and as a result, our share of the earnings or losses of such equity 
affiliates is included in the Consolidated Statements of Operations and 
Comprehensive Income. The consolidated financial statements have been prepared 
in U.S. dollars (“USD”) and in accordance with accounting principles generally 
accepted in the United States of America (“GAAP”).

Fiscal year Our fiscal year ends on December 31. We report our interim 
quarterly periods on a calendar quarter basis. Use of estimates The preparation 
of our consolidated financial statements in conformity with GAAP requires us to 
make estimates and assumptions that affect the amounts reported in these 
consolidated financial statements and accompanying notes, disclosures of 
contingent assets and liabilities at the date of the financial statements and 
the reported amounts of revenues and expenses during the reporting period. 
These estimates include our accounting for valuation of goodwill and indefinite 
lived intangible assets, estimated losses on accounts receivable, estimated 
realizable value on excess and obsolete inventory, percentage of completion 
revenue recognition, assets acquired and liabilities assumed in acquisitions, 
estimated selling proceeds from assets held for sale, contingent liabilities, 
income taxes, pension and other post-retirement benefits and the impact of the 
new lease standard, discussed below. Actual results could differ from our 
estimates. Revenue recognition Revenue is recognized when control of the 
promised goods or services are transferred to our customers, in an amount that 
reflects the consideration we expect to be entitled to in exchange for 
transferring those goods or providing services. We account for a contract when 
it has approval and commitment from both parties, the rights of the parties are 
identified, payment terms are identified, the contract has commercial substance 
and collectability of consideration is probable.

When determining whether the customer has obtained control of the goods or 
services, we consider any future performance obligations. Generally, there is 
no post-shipment obligation on product sold other than warranty obligations in 
the normal and ordinary course of business. In the event significant 
post-shipment obligations were to exist, revenue recognition would be deferred 
until Pentair has substantially accomplished what it must do to be entitled to 
the benefits represented by the revenue.

Performance obligations A performance obligation is a promise in a contract to 
transfer a distinct good or service to the customer, and is the unit of account 
for purposes of revenue recognition. A contract’s transaction price is 
allocated to each distinct performance obligation and recognized as revenue 
when, or as, the performance obligation is satisfied. The majority of our 
contracts have a single performance obligation as the promise to transfer the 
individual goods or services is not separately identifiable from other promises 
in the contracts and, therefore, not distinct. For contracts with multiple 
performance obligations, standalone selling price is generally readily 
observable.

Our performance obligations are satisfied at a point in time or over time as 
work progresses. Revenue from goods and services transferred to customers at a 
point in time accounted for 92.0%, 92.5% and 92.4% of our revenue for the years 
ended December 31, 2019, 2018 and 2017, respectively. Revenue on these 
contracts is recognized when obligations under the terms of the contract with 
our customer are satisfied; generally this occurs with the transfer of control 
upon shipment. Revenue from products and services transferred to customers over 
time accounted for 8.0%, 7.5% and 7.6% of our revenue for the years ended 
December 31, 2019, 2018 and 2017, respectively. For the majority of our revenue 
recognized over time, we use an input measure to determine progress towards 
completion. Under this method, sales and gross profit are recognized as work is 
performed generally based on the relationship between the actual costs incurred 
and the total estimated costs at completion (“the cost-to-cost method”) or 
based on efforts for measuring progress towards completion in situations in 
which this approach is more representative of the progress on the contract than 
the cost-to-cost method. Contract costs include labor, material, overhead and, 
when appropriate, general and administrative expenses. Changes to the original 
estimates may be required during the life of the contract, and such estimates 
are reviewed on a regular basis. Sales and gross profit are adjusted using the 
cumulative catch-up method for revisions in estimated total contract costs. 
These reviews have not resulted in adjustments that were significant to our 
results of operations. For performance obligations related to long term 
contracts, when estimates of total costs to be incurred on a performance 
obligation exceed total estimates of revenue to be earned, a provision for the 
entire loss on the performance obligation is recognized in the period the loss 
is determined. On December 31, 2019, we had $56.4 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. Sales returns 
The right of return may exist explicitly or implicitly with our customers. Our 
return policy allows for customer returns only upon our authorization. Goods 
returned must be products we continue to market and must be in salable 
condition. When the right of return exists, we adjust the transaction price for 
the estimated effect of returns. We estimate the expected returns based on 
historical sales levels, the timing and magnitude of historical sales return 
levels as a percent of sales, type of product, type of customer and a 
projection of this experience into the future.

Pricing and sales incentives Our contracts may give customers the option to 
purchase additional goods or services priced at a discount. Options to acquire 
additional goods or services at a discount can come in many forms, such as 
customer programs and incentive offerings including pricing arrangements, 
promotions and other volume-based incentives.

We reduce the transaction price for certain customer programs and incentive 
offerings including pricing arrangements, promotions and other volume-based 
incentives that represent variable consideration. Sales incentives given to our 
customers are recorded using either the expected value method or most likely 
amount approach for estimating the amount of consideration to which Pentair 
shall be entitled. The expected value is the sum of probability-weighted 
amounts in a range of possible consideration amounts. An expected value is an 
appropriate estimate of the amount of variable consideration when there are a 
large number of contracts with similar characteristics. The most likely amount 
is the single most likely amount in a range of possible consideration amounts 
(that is, the single most likely outcome of the contract). The most likely 
amount is an appropriate estimate of the amount of variable consideration if 
the contract has limited possible outcomes (for example, an entity either 
achieves a performance bonus or does not).

Pricing is established at or prior to the time of sale with our customers, and 
we record sales at the agreed-upon net selling price. However, one of our 
businesses allows customers to apply for a refund of a percentage of the 
original purchase price if they can demonstrate sales to a qualifying end 
customer. We use the expected value method to estimate the anticipated refund 
to be paid based on historical experience and reduce sales for the probable 
cost of the discount. The cost of these refunds is recorded as a reduction of 
the transaction price. Volume-based incentives involve rebates that are 
negotiated at or prior to the time of sale with the customer and are redeemable 
only if the customer achieves a specified cumulative level of sales or sales 
increase. Under these incentive programs, at the time of sale, we determine the 
most likely amount of the rebate to be paid based on forecasted sales levels. 
These forecasts are updated at least quarterly for each customer, and the 
transaction price is reduced for the anticipated cost of the rebate. If the 
forecasted sales for a customer change, the accrual for rebates is adjusted to 
reflect the new amount of rebates expected to be earned by the customer.

Shipping and handling costs Amounts billed to customers for shipping and 
handling activities after the customer obtains control are treated as a 
promised service performance obligation and recorded in Net sales in the 
accompanying Consolidated Statements of Operations and Comprehensive Income. 
Shipping and handling costs incurred by Pentair for the delivery of goods to 
customers are considered a cost to fulfill the contract and are included in 
Cost of goods sold in the accompanying Consolidated Statements of Operations 
and Comprehensive Income.

Contract assets and liabilities Contract assets consist of unbilled amounts 
resulting from sales under long-term contracts when the cost-to-cost method of 
revenue recognition is utilized and revenue recognized exceeds the amount 
billed to the customer, such as when the customer retains a small portion of 
the contract price until completion of the contract. We typically receive 
interim payments on sales under long-term contracts as work progresses, 
although for some contracts, we may be entitled to receive an advance payment. 
Contract liabilities consist of advanced payments, billings in excess of costs 
incurred and deferred revenue.

Contract assets are recorded within Other current assets, and contract 
liabilities are recorded within Other current liabilities in the

Consolidated Balance Sheets.

The $4.7 million increase in net contract assets from December 31, 2018 to 
December 31, 2019 was primarily the result of timing of milestone payments. 
Approximately 80% of our contract liabilities at December 31, 2018 were 
recognized in revenue during the twelve months ended December 31, 2019. There 
were no impairment losses recognized on our contract assets for the twelve 
months ended December 31, 2019 and December 31, 2018.

Practical expedients and exemptions We generally expense incremental costs of 
obtaining a contract when incurred because the amortization period would be 
less than one year. These costs primarily relate to sales commissions and are 
recorded in Selling, general and administrative expense in the Consolidated 
Statements of Operations and Comprehensive Income.

We do not disclose the value of unsatisfied performance obligations for 
contracts with an original expected length of one year or less. Further, we do 
not adjust the promised amount of consideration for the effects of a 
significant financing component if we expect, at contract inception, that the 
period between when we transfer a promised good or service to a customer and 
when the customer pays for that good or service will be one year or less.

Revenue by category 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.

Research and development We conduct research and development (“R&D”) activities 
primarily in our own facilities, which mostly consist of development of new 
products, product applications and manufacturing processes. We expense R&D 
costs as incurred. R&D expenditures from continuing operations during 2019, 
2018 and 2017 were $78.9 million, $76.7 million and $73.2 million, 
respectively. Cash equivalents We consider highly liquid investments with 
original maturities of three months or less at the date of acquisition to be 
cash equivalents. Trade receivables and concentration of credit risk We record 
an allowance for doubtful accounts, reducing our receivables balance to an 
amount we estimate is collectible from our customers. Estimates used in 
determining the allowance for doubtful accounts are based on current trends, 
aging of accounts receivable, periodic credit evaluations of our customers’ 
financial condition, and historical collection experience. We generally do not 
require collateral.

Inventories Inventories are stated at lower of cost or net realizable value 
with substantially all inventories recorded using the first-in, first-out 
(“FIFO”) cost method.

Property, plant and equipment, net Property, plant and equipment is stated at 
historical cost. We compute depreciation by the straight-line method based on 
the following estimated useful lives:

Significant improvements that add to productive capacity or extend the lives of 
properties are capitalized. Costs for repairs and maintenance are charged to 
expense as incurred. When property is retired or otherwise disposed of, the 
recorded cost of the assets and their related accumulated depreciation are 
removed from the Consolidated Balance Sheets and any related gains or losses 
are included in income.

We review the recoverability of long-lived assets to be held and used, such as 
property, plant and equipment, when events or changes in circumstances occur 
that indicate the carrying value of the asset or asset group may not be 
recoverable. The assessment of possible impairment is based on our ability to 
recover the carrying value of the asset or asset group from the expected future 
pre-tax cash flows (undiscounted and without interest charges) of the related 
operations. If these cash flows are less than the carrying value of such asset 
or asset group, an impairment loss is recognized for the difference between 
estimated fair value and carrying value. Impairment losses on long-lived assets 
held for sale are determined in a similar manner, except that fair values are 
reduced for the cost to dispose of the assets. The measurement of impairment 
requires us to estimate future cash flows and the fair value of long-lived 
assets. We recorded no material long-lived asset impairment charges in 2019, 
2018, or 2017.

Goodwill and identifiable intangible assets Goodwill Goodwill represents the 
excess of the cost of acquired businesses over the net of the fair value of 
identifiable tangible net assets and identifiable intangible assets purchased 
and liabilities assumed. Goodwill is tested at least annually for impairment 
and is tested for impairment more frequently if events or changes in 
circumstances indicate that the asset might be impaired. A qualitative 
assessment is first performed, as of the first day of the fourth quarter, to 
determine whether it is more likely than not that the fair value of a reporting 
unit is less than its carrying value. If it is concluded that this is the case, 
an evaluation, based upon discounted cash flows, is performed and requires 
management to estimate future cash flows, growth rates and economic and market 
conditions. As a result of the qualitative assessment performed as of October 
1, 2019 and 2018, it was determined that it was more likely than not that the 
fair value of the reporting units exceeded their respective carrying values. 
Factors considered in the analysis included the last discounted cash flow fair 
value assessment of reporting units performed in 2017 and the calculated excess 
fair value over carrying amount, financial performance, forecasts and trends, 
market capitalization, regulatory and environmental issues, macro-economic 
conditions, industry and market considerations, raw material costs and 
management stability. We also consider the extent to which each of the adverse 
events and circumstances identified affect the comparison of the respective 
reporting unit’s fair value with its carrying amount. We place more weight on 
the events and circumstances that most affect the respective reporting unit’s 
fair value or the carrying amount of its net assets. We consider positive and 
mitigating events and circumstances that may affect its determination of 
whether it is more likely than not that the fair value exceeds the carrying 
amount. This non-recurring fair value measurement is a “Level 3” measurement 
under the fair value hierarchy described in Note 9.

Identifiable intangible assets Our primary identifiable intangible assets 
include: customer relationships, trade names, proprietary technology and 
patents. Identifiable intangibles with finite lives are amortized and those 
identifiable intangibles with indefinite lives are not amortized. Identifiable 
intangible assets that are subject to amortization are evaluated for impairment 
whenever events or changes in circumstances indicate that the carrying amount 
may not be recoverable. Identifiable intangible assets not subject to 
amortization are tested for impairment annually or more frequently if events 
warrant. We complete our annual impairment test during the first day of the 
fourth quarter each year for those identifiable assets not subject to 
amortization.

The impairment test for trade names consists of a comparison of the fair value 
of the trade name with its carrying value. Fair value is measured using the 
relief-from-royalty method. This method assumes the trade name has value to the 
extent that the owner is relieved of the obligation to pay royalties for the 
benefits received from them. This method requires us to estimate the future 
revenue for the related brands, the appropriate royalty rate and the weighted 
average cost of capital. The non-recurring fair value measurement is a “Level 
3” measurement under the fair value hierarchy described in Note 9.

There were no impairment charges recorded in 2019 and 2018 for identifiable 
intangible assets. An impairment charge of $8.8 million was recorded in 2017 
related to certain trade names in Filtration Solutions and Flow Technologies as 
a result of lower forecasted sales volume or rebranding strategies implemented 
in the fourth quarter of 2017. The trade name impairment charges were recorded 
in Selling, general and administrative in our Consolidated Statements of 
Operations and Comprehensive Income. Income taxes We use the asset and 
liability approach to account for income taxes. Under this method, deferred tax 
assets and liabilities are recognized for the expected future tax consequences 
of differences between the carrying amounts of assets and liabilities and their 
respective tax bases using enacted tax rates in effect for the year in which 
the differences are expected to reverse. The effect on deferred tax assets and 
liabilities of a change in tax rates is recognized in income in the period when 
the change is enacted. We maintain valuation allowances unless it is more 
likely than not that all or a portion of the deferred tax assets will be 
realized. Changes in valuation allowances from period to period are included in 
our tax provision in the period of change. We recognize the effect of income 
tax positions only if those positions are more likely than not of being 
sustained. Recognized income tax positions are measured at the largest amount 
that is greater than 50% likely of being realized. Changes in recognition or 
measurement are reflected in the period in which the change in judgment occurs. 
Pension and other post-retirement plans We sponsor U.S. and non-U.S. 
defined-benefit pension and other post-retirement plans. The pension and other 
post-retirement benefit costs for company-sponsored benefit plans are 
determined from actuarial assumptions and methodologies, including discount 
rates and expected returns on plan assets. These assumptions are updated 
annually and are disclosed in Note 11. We recognize changes in the fair value 
of plan assets and net actuarial gains or losses for pension and other 
post-retirement benefits annually in the fourth quarter each year 
(“mark-to-market adjustment”) and, if applicable, in any quarter in which an 
interim remeasurement is triggered. Net actuarial gains and losses occur when 
the actual experience differs from any of the various assumptions used to value 
our pension and other post-retirement plans or when assumptions change, as they 
may each year. The remaining components of pension expense, including service 
and interest costs and estimated return on plan assets, are recorded on a 
quarterly basis. Insurance subsidiary A portion of our property and casualty 
insurance program is insured through our regulated wholly-owned captive 
insurance subsidiary, Penwald Insurance Company (“Penwald”). Reserves for 
policy claims are established based on actuarial projections of ultimate 
losses. As of December 31, 2019 and 2018, reserves for policy claims were $54.7 
million, of which $13.1 million was included in Other current liabilities and 
$41.6 million was included in Other non-current liabilities, and $60.9 million, 
of which $13.2 million was included in Other current liabilities and $47.7 
million was included in Other non-current liabilities, respectively. 
Share-based compensation We account for share-based compensation awards on a 
fair value basis. The estimated grant date fair value of each option award is 
recognized in income on an accelerated basis over the requisite service period 
(generally the vesting period). The estimated fair value of each option award 
is calculated using the Black-Scholes option-pricing model. From time to time, 
we have elected to modify the terms of the original grant. These modified 
grants are accounted for as a new award and measured using the fair value 
method, resulting in the inclusion of additional compensation expense in our 
Consolidated Statements of Operations and Comprehensive Income. Restricted 
share awards and units (“RSUs”) are recorded as compensation cost over the 
requisite service periods based on the market value on the date of grant. 
Performance share units (“PSUs”) are stock awards where the ultimate number of 
shares issued will be contingent on the Company’s performance against certain 
financial performance targets. The fair value of each PSU is based on the 
market value on the date of grant. We recognize expense related to the 
estimated vesting of our PSUs granted. The estimated vesting of the PSUs is 
based on the probability of achieving certain financial performance thresholds 
over the specified performance period. Earnings per ordinary share We present 
two calculations of earnings per ordinary share (“EPS”). Basic EPS equals net 
income divided by the weighted-average number of ordinary shares outstanding 
during the period. Diluted EPS is computed by dividing net income by the sum of 
weighted-average number of ordinary shares outstanding plus dilutive effects of 
ordinary share equivalents. Derivative financial instruments We recognize all 
derivatives, including those embedded in other contracts, as either assets or 
liabilities at fair value in our Consolidated Balance Sheets. If the derivative 
is designated and is effective as a cash-flow hedge, the effective portion of 
changes in the fair value of the derivative are recorded in Accumulated other 
comprehensive income (loss) (“AOCI”) as a separate component of equity in the 
Consolidated Balance Sheets and are recognized in the Consolidated Statements 
of Operations and Comprehensive Income when the hedged item affects earnings. 
If the underlying hedged transaction ceases to exist or if the hedge becomes 
ineffective, all changes in fair value of the related derivatives that have not 
been settled are recognized in current earnings. For a derivative that is not 
designated as or does not qualify as a hedge, changes in fair value are 
reported in earnings immediately. Gains and losses on net investment hedges are 
included in AOCI as a separate component of equity in the Consolidated Balance 
Sheets. We use derivative instruments for the purpose of hedging interest rate 
and currency exposures, which exist as part of ongoing business operations. We 
do not hold or issue derivative financial instruments for trading or 
speculative purposes. Our policy is not to enter into contracts with terms that 
cannot be designated as normal purchases or sales. From time to time, we may 
enter into short duration foreign currency contracts to hedge foreign currency 
risks. Foreign currency translation The financial statements of subsidiaries 
located outside of the U.S. are generally measured using the local currency as 
the functional currency, except for certain corporate entities outside of the 
U.S. which are measured using USD. Assets and liabilities of these subsidiaries 
are translated at the rates of exchange at the balance sheet date. Income 
(Loss) and expense items are translated at average monthly rates of exchange. 
The resultant translation adjustments are included in AOCI, a component of 
equity. 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 December 31, 2019, $77.2 million was included in Other non-current 
assets, $19.0 million in Other current liabilities and $61.1 million in Other 
non-current liabilities, on the Consolidated Balance Sheets as a result of the 
new lease standard. There was no impact on our Consolidated Statements of 
Operations and Comprehensive Income or Consolidated Statements of Cash Flows.

On January 1, 2019, we adopted ASU No. 2018-14, “Compensation - Retirement 
Benefits - Defined Benefit Plans - Changes to the Disclosure Requirements for 
Defined Benefit Plans.” This ASU changes the disclosure requirements for 
employers that sponsor defined benefit pension and other postretirement benefit 
plans.

On January 1, 2018, we adopted ASU No. 2017-01, “Clarifying the Definition of a 
Business.” This ASU clarifies the definition of a business and provides 
guidance on whether transactions should be accounted for as acquisitions (or 
disposals) of assets or businesses. The adoption of the new standard did not 
have a material impact on our consolidated financial statements.

On January 1, 2018, we adopted ASU No. 2017-07, “Retirement Benefits-Improving 
the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement 
Benefit Cost.” As a result of the adoption, the interest cost, expected return 
on plan assets and net actuarial gain/loss components of net periodic pension 
and post-retirement benefit cost have been reclassified from Selling, general 
and administrative expense to Other (income) expense. Only the service cost 
component remains in Operating income and is eligible for capitalization in 
assets. The effect of the retrospective presentation change related to the net 
periodic cost of our defined benefit pension and other post-retirement plans on 
our Consolidated Statements of Operations and Comprehensive Income was a 
reclassification of expense of $13.9 million for the year ended December 31, 
2017, from Selling, general and administrative expense to Other (income) 
expense.

On January 1, 2018, we adopted ASU No. 2016-16, “Accounting for Income Taxes: 
Intra-Entity Asset Transfers of Assets Other than Inventory.” This ASU requires 
the tax effects of all intra-entity sales of assets other than inventory to be 
recognized in the period in which the transaction occurs. The adoption resulted 
in a $215.8 million cumulative-effect adjustment (of which $174.6 million 
related to nVent) recorded in retained earnings as of the beginning of 2018. 
The adjustment reflects a $254.3 million reduction of a prepaid long term tax 
asset, partially offset by the establishment of $38.5 million of deferred tax 
assets.

On January 1, 2018, we adopted ASU No. 2014-09, “Revenue from Contracts with 
Customers” and the related amendments (“the new revenue standard”) using the 
modified retrospective method. The cumulative impact to our retained earnings 
at January 1, 2018 was not material. The comparative information has not been 
restated and continues to be reported under the accounting standards in effect 
for those periods. The impact of the adoption of the new standard did not have 
a material impact to our net income.

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 $163.4 million and $121.1 
million, respectively, in cash, net of cash acquired.

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 $87.5 million, $4.6 million 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 $118.0 million, $7.6 
million 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 other accruals.

During 2017, our continuing operations completed acquisitions with purchase 
prices totaling $45.9 million in cash, net of cash acquired. Identifiable 
intangible assets acquired included $19.1 million of definite-lived customer 
relationships with an estimated useful life of 11 years. The pro forma impact 
of these acquisitions was not material.

Discontinued Operations Electrical separation On April 30, 2018, we completed 
the Separation and Distribution. The results of the Electrical business have 
been presented as discontinued operations for all periods presented. The 
Electrical business had been previously disclosed as a stand-alone reporting 
segment. Separation costs related to the Separation and Distribution were $84.2 
million and $39.3 million for the twelve months ended December 31, 2018 and 
2017, respectively. These costs are reported in discontinued operations as they 
represent a cost directly related to the Separation and Distribution and were 
included within (Loss) income from discontinued operations, net of tax.

Sale of Valves & Controls On April 28, 2017, we completed the sale of the 
Valves & Controls business to Emerson Electric Co. for $3.15 billion in cash. 
The sale resulted in a gain of $181.1 million, net of tax. The results of the 
Valves & Controls business have been presented as discontinued operations. The 
Valves & Controls business was previously disclosed as a stand-alone reporting 
segment. Transaction costs of $56.4 million related to the sale of Valves & 
Controls were incurred during the year ended December 31, 2017 and were 
recorded within Gain from sale of discontinued operations before income taxes 
presented below.

Restructuring During 2019, 2018 and 2017, we initiated and continued execution 
of certain business restructuring initiatives aimed at reducing our fixed cost 
structure and realigning our business. Initiatives during the years ended 
December 31, 2019, 2018 and 2017 included a reduction in hourly and salaried 
headcount of approximately 375 employees, 300 employees and 250 employees, 
respectively.

Identifiable intangible asset amortization expense in 2019, 2018 and 2017 was 
$31.7 million, $34.9 million and $36.4 million, respectively. There was 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 $8.8 
million in Filtration Solutions and Flow Technologies.

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 $400.0 
million aggregate principal amount of PFSA’s 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 $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 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 $100.0 million for a total commitment up to $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 
$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 $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 $746.4 million.

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 $117.8 million of commercial paper outstanding as of 
December 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. 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 $5.0 
million but not to exceed $250.0 million) to our consolidated net income 
(excluding, among other things, non-cash gains and losses) before interest, 
taxes, depreciation, amortization and non-cash share-based compensation expense 
(“EBITDA”) on the last day of any period of four consecutive fiscal quarters to 
exceed 3.75 to 1.00 (the “Leverage Ratio”) and (ii) the ratio of our EBITDA to 
our consolidated interest expense, for the same period to be less than 3.00 to 
1.00 as of the end of each fiscal quarter. For purposes of the Leverage Ratio, 
the Senior Credit Facility provides for the calculation of EBITDA giving pro 
forma effect to certain acquisitions, divestitures and liquidations during the 
period to which such calculation relates. In addition to the Senior Credit 
Facility, we have various other credit facilities with an aggregate 
availability of $21.0 million, of which there were no outstanding borrowings at 
December 31, 2019. Borrowings under these credit facilities bear interest at 
variable rates. In 2018, we used the $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 $255.3 million aggregate principal of 
our 2.9% fixed rate senior notes due 2018, and complete a cash tender offer in 
the amount of €363.4 million aggregate principal of our 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 $16.0 million premium paid on early 
extinguishment and $1.1 million of unamortized deferred financing costs.

We have $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:

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 $17.0 million 
and $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.

Cross Currency Swaps At December 31, 2019 and 2018, we had outstanding cross 
currency swap agreements with a combined notional amount of $777.0 million and 
$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 $1.8 million and $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 €363.4 million of the 2019 Euro Notes. At that 
time, the remaining €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 $2.8 million and as of December 31, 2018 we had 
deferred foreign currency losses of $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.

During the years ended December 31, 2019 and 2018, we recorded impairment 
charges for cost method investments in the amount of $21.2 million and $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.

Income Taxes

We record gross unrecognized tax benefits in Other current liabilities and 
Other non-current liabilities in the Consolidated Balance Sheets. Included in 
the $47.4 million of total gross unrecognized tax benefits as of December 31, 
2019 was $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 zero to $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.

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 $0.4 million and $0.5 million, 
respectively, for the possible payment of penalties and $3.7 million and $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). Deferred taxes were 
recorded in the Consolidated Balance Sheets as follows:

Included in tax loss and credit carryforwards in the table above is a deferred 
tax asset of $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 $2,957.4 
million were available to offset future income. A valuation allowance of $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 $2,843.1 million which are subject to varying expiration 
periods. Non-U.S. carryforwards of $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 $14.6 million U.S. 
federal loss carryforwards with unlimited tax loss carryforward periods and 
$99.7 million of state tax loss carryforwards as of December 31, 2019. State 
tax losses of $64.0 million are in jurisdictions with unlimited tax loss 
carryforward periods, while the remainder will expire in future years through 
2039.

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 $2.2 
million in the fourth quarter of 2017, the period in which the legislation was 
enacted. We subsequently recorded a $3.6 million decrease to the provisional 
income tax expense in the third quarter of 2018, resulting in a $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 $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 $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.

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 $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 $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 $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.

Obligations and funded status

Pension plans

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

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 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 The 
discount rate reflects the current rate at which the pension liabilities could 
be effectively settled at the end of the year based on our December 31 
measurement date. The discount rate was determined by matching our expected 
benefit payments to payments from a stream of bonds rated AA or higher 
available in the marketplace, adjusted to eliminate the effects of call 
provisions. There are no known or anticipated changes in our discount rate 
assumptions that will impact our pension expense in 2020. Expected rates of 
return The expected rate of return is designed to be a long-term assumption 
that may be subject to considerable year-to-year variance from actual returns. 
In developing the expected long-term rate of return, we considered our 
historical returns, with consideration given to forecasted economic conditions, 
our asset allocations, input from external consultants and broader long-term 
market indices. Pension plan assets yielded returns of 8.85%, (5.60)% and 
12.00% in 2019, 2018 and 2017, respectively. Healthcare cost trend rates The 
assumed healthcare cost trend rates for other post-retirement plans as of 
December 31 were as follows:

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

Fair value measurement

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.

Cash flows Contributions Pension contributions from continuing operations 
totaled $18.0 million and $7.1 million in 2019 and 2018, respectively. We 
anticipate our 2020 pension contributions to be approximately $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 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 (100%) matching contribution on up to 5% of employee eligible 
earnings, contributed as before-tax contributions. This change replaced the 
ESOP component discussed below and offers the same 5% total company match.

During 2017, the 401(k) matching contribution was 100% of eligible employee 
contributions for the first 1% of eligible compensation and 50% of the next 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 1.5% of annual eligible compensation. 
Our combined expense for the 401(k) plan and the ESOP was $14.4 million, $23.4 
million and $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 $29.0 
million and $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.

Shareholders’ Equity Authorized shares Our authorized share capital consists of 
426.0 million ordinary shares with a par value of $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 $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 $750.0 
million (the “2018 Authorization”), replacing the 2014 Authorization. The 2018 
Authorization expires on May 31, 2021. During the year ended December 31, 2018, 
we repurchased 10.2 million of our ordinary shares for $500.0 million, of which 
2.2 million shares, or $150.0 million, and 8.0 million shares, or $350.0 
million, were repurchased pursuant to the 2014 and 2018 Authorizations, 
respectively. During the year ended December 31, 2019, we repurchased 4.0 
million of our ordinary shares for $150.0 million pursuant to the 2018 
Authorization. As of December 31, 2019, we had $250.0 million available for 
share repurchases under the 2018 Authorization. Dividends payable On December 
9, 2019, the Board of Directors approved a 6 percent increase in the company’s 
regular quarterly dividend rate (from $0.18 per share to $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 $32.0 million at December 
31, 2019. Dividends paid per ordinary share were $0.72, $1.05 and $1.38 for the 
years ended December 31, 2019, 2018 and 2017, respectively.

Share Plans

Share-based compensation expense

Of the total share-based compensation expense noted above, $3.4 million and 
$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 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.

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 three years commencing on 
the grant date and expire 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 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 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 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

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

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

Restricted stock units

As of December 31, 2019, there was $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 1.1 years. The total fair value of shares vested 
during the years ended December 31, 2019, 2018 and 2017, was $9.3 million, 
$24.4 million and $21.7 million, respectively. The actual tax benefit realized 
for the year ended December 31, 2019 and 2018 was $0.1 million and $0.7 
million, respectively. There were no actual tax benefits realized for the year 
ended December 31, 2017. Performance share units

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 
$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 1.7 years. 
There were $0.2 million of actual tax benefits realized for both of the years 
ended December 31, 2019 and 2018. There were 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 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.


•

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


•

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

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.


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.

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 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.

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

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 100 percent-owned subsidiary of the 
Parent Company Guarantor. The Subsidiary Issuer is a Luxembourg public limited 
liability company formed in January 2012 and 100 percent-owned subsidiary of 
the Subsidiary Guarantor. The guarantees provided by the Parent Company 
Guarantor and Subsidiary Guarantor are joint and several.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL 
DISCLOSURE None.