2020 ANNUAL REPORT
Making the Most
of Life’s Essential
Resources
ESSENTIAL RESOURCES. FOR LIFE.
Your resources. Our resources. The world’s resources. From our residential and business
solutions that help people move, improve and enjoy their water, to our sustainable innovations
and applications, Pentair makes the most of life’s essential resources.
OUR PURPOSE
We believe that the health of our world depends on reliable access
to clean, safe water.
OUR MISSION
Pentair delivers smart, sustainable
OUR VISION
To be the leading residential and
solutions that empower our customers to
commercial water treatment company.
make the most of life’s essential resources.
UNITED BY OUR WIN RIGHT VALUES
WIN
RIGHT
Customer First
Absolute Integrity
Innovation & Adaptability
Respect & Teamwork
Accountability for Performance
Positive Energy
Dear Shareholders —
We are proud that during 2020, Pentair’s team of approximately 9,750 people continued to
deliver on our commitments with dedication and resilience as we worked through levels of
uncertainty never experienced before. Our teams successfully navigated the challenges of
the global pandemic, and we believe we will emerge as a stronger company as a result.
The pandemic also served as a reminder that what we do at Pentair matters. Our mission to
“make the most of life’s essential resources” is visible in our products, solutions, and
services, from our residential and business solutions that help people move, improve, and
enjoy their water, to our sustainable innovations and applications.
Delivering on Our Commitments
Beginning with our commitment to our shareholders, in 2020 we were proud to deliver strong financial results.
We also continued our long legacy of returning capital to our shareholders. We announced earlier that 2021 marks
the 45th consecutive year of dividend increases, which places Pentair in elite company as a dividend aristocrat.
Also in 2020, we continued to invest in our top priorities and built capabilities to provide a strong foundation to
accelerate organic growth. This past year highlighted the resiliency of our residential portfolio, with many of our
products in our Pool business in higher demand as consumers stayed at home. We focused on accelerating fewer,
larger growth actions including expanding our content in Pool and building out our residential Water Treatment
offerings. Within our Industrial & Flow Technologies segment, we focused on promising growth areas around
sustainable gas and smart solutions within our industrial filtration business.
We filled out our management team, which included naming two new segment leaders for our Consumer
Solutions and our Industrial & Flow Technologies segments, and a Chief Supply Chain Officer. Our segment
leaders are focused on accelerating strategic growth and driving margin expansion. Our supply chain leader will
renew our focus on the Pentair Integrated Management System (“PIMS”), our extensive tool kit to build
sustainable performance for our shareholders across our entire global enterprise.
We committed to building and advancing unity, equity, and inclusion in our communities and in our company.
This past year we amplified our focus on diversity in leadership and throughout the organization. We continued
our legacy of philanthropy and implemented a matching grant program for employee contributions to social
justice causes. Our Pentair Foundation also made meaningful grants as we work to transform the way water is
sustainably delivered to people in need around the globe.
We announced Pentair’s newly formed office of Social Responsibility to further Environmental, Social, and
Governance (“ESG”) stewardship. In 2020, we completed an ESG assessment identifying key topics of
importance to our shareholders, customers, suppliers, employees, and communities. We are working to identify
ESG goals and targets that we believe will unify our stakeholders around our shared mission and values and our
commitment to being a positive influence on the social and environmental issues of today.
Reflecting on this most unusual year, I want to take a moment to express my gratitude to our employees for all
that they accomplished this past year to help Pentair achieve our commitments and build out important processes
to ensure accelerated and sustained results.
Going forward, we will continue to invest in our prioritized strategies, focusing on smart, sustainable solutions
that empower our customers to make the most of life’s essential resources. We are energized about the future and
our ability to deliver for you, our shareholders.
Thank you for your support,
John L. Stauch
Pentair President and CEO
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended December 31, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number 001-11625
(Exact name of Registrant as specified in its charter)
Ireland
(State or other jurisdiction of
incorporation or organization)
Pentair plc
98-1141328
(I.R.S. Employer
Identification number)
Regal House, 70 London Road, Twickenham, London, TW13QS United Kingdom
(Address of principal executive offices)
Registrant’s telephone number, including area code: 44-74-9421-6154
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Ordinary Shares, nominal value $0.01 per share
Trading Symbol(s) Name of each exchange on which registered
PNR
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the
past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer
☑ Accelerated filer
☐ Non-accelerated filer
☐
Smaller reporting
company
☐
Emerging growth
company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
Aggregate market value of voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of $37.99 per share as
reported on the New York Stock Exchange on June 30, 2020 (the last business day of Registrant’s most recently completed second quarter): $6,245,419,948.
The number of shares outstanding of Registrant’s only class of common stock on December 31, 2020 was 166,063,551.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant’s definitive proxy statement for its annual general meeting to be held on May 4, 2021, are incorporated by reference in this Form 10-K in
response to Part III, ITEM 10, 11, 12, 13 and 14.
Pentair plc
Annual Report on Form 10-K
For the Year Ended December 31, 2020
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
Page
1
5
17
18
18
18
20
22
39
41
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ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
ITEM 1. BUSINESS
PART I
Unless the context otherwise indicates, references herein to “Pentair,” the “Company,” and such words as “we,” “us,” and “our”
include Pentair plc and its consolidated subsidiaries.
GENERAL
Pentair makes the most of life’s essential resources. From our residential and business solutions that help people move, improve
and enjoy their water, to our sustainable innovations and applications, we deliver smart, sustainable solutions for life.
Pentair strategy
Our vision is to be the leading residential and commercial water treatment company. As a pure play water company, we are:
•
•
•
Focused on strategies to advance pool growth and accelerate residential and commercial water treatment;
Accelerated by innovation and digital transformation; and
Grounded in Win Right values and utilizing the Pentair Integrated Management System (“PIMS”) consisting of lean
enterprise, growth and talent management to drive sustained and consistent performance.
HISTORY AND DEVELOPMENT
We are an Irish public limited company that was formed in 2014. We are the successor to Pentair Ltd., a Swiss corporation
formed in 2012, and Pentair, Inc., a Minnesota corporation formed in 1966 and our wholly-owned subsidiary, under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). 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 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.
Our registered principal office is located at Regal House, 70 London Road, Twickenham, London, TW13QS United Kingdom.
Our management office in the United States (“U.S.”) is located at 5500 Wayzata Boulevard, Suite 900, Golden Valley,
Minnesota.
BUSINESS AND PRODUCTS
Pentair is comprised of two reportable business segments: Consumer Solutions and Industrial & Flow Technologies. The
following is a brief description of each of the Company’s reportable segments and business activities.
Consumer Solutions
The Consumer Solutions segment designs, manufactures and sells energy-efficient residential and commercial pool equipment
and accessories, and commercial and residential water treatment products and systems. Residential and commercial pool
equipment and accessories include pumps, filters, heaters, lights, automatic controls, automatic cleaners, maintenance equipment
and pool accessories. Water treatment products and systems include pressure tanks, control valves, activated carbon products,
conventional filtration products, and point-of-entry and point-of-use systems. Applications for our pool business’s products
include residential and commercial pool maintenance, repair, renovation, service and construction. Our water treatment products
and systems are used in residential whole home water filtration, drinking water filtration and water softening solutions in addition
to commercial total water management and filtration in food service operations. The primary focus of this segment is business-to-
consumer.
For the fiscal year ended December 31, 2020, our pool business comprised 60% of the Consumer Solutions sales. The pool
business is a leader in North American pool equipment, serving a market that is primarily replacement. The other 40% of sales
were from the water treatment businesses, which sell residential and commercial components, residential systems and commercial
systems.
Consumer Solutions brand names include Everpure, Kreepy Krauly, Pelican, Pentair Water Solutions, RainSoft and Sta-Rite.
1
Customers
Consumer Solutions customers include businesses engaged in wholesale and retail distribution in the residential & commercial
verticals. Customers also include end-users, consumers and original equipment manufacturers.
One customer of the Consumer Solutions segment, Pool Corporation, represented approximately 15% of our consolidated net
sales in 2020 and 2019.
Seasonality
We experience seasonal demand with several end customers and end-users within Consumer Solutions. End-user demand for pool
equipment follows warm weather trends and is at seasonal highs from April to August. The magnitude of the sales increase is
mitigated by employing some advance sale “early buy” programs (generally including extended payment terms and/or additional
discounts).
Competition
Consumer Solutions faces numerous domestic and international competitors, some of which have substantially greater resources
directed to the verticals in which we compete. Competition focuses on brand names, product performance (including energy-
efficient offerings and required specifications), quality, service and price. We compete by offering a wide variety of innovative
and high-quality products, which are competitively priced. We believe our distribution channels and reputation for quality also
provide us a competitive advantage.
Industrial & Flow Technologies
The Industrial & Flow Technologies segment manufactures and sells a variety of fluid treatment products (advanced membrane
filtration, separation systems, membrane bioreactors), pumps (water supply pumps, water disposal pumps, solid handling pumps,
fluid transfer pumps, turbine pumps), valves, and spray nozzles as well as systems combining these products (process filtration
systems, gas recovery solutions). These products and systems serve the global residential, commercial, industrial, agricultural and
infrastructure verticals. They are used in a range of applications, food and beverage, fluid separation technologies (oil and gas and
other industries), water and wastewater treatment, water wells, pressure boosting, fire suppression, flood control, agricultural
irrigation, crop spray and fluid circulation and transfer. The primary focus of this segment is business-to-business.
For the fiscal year ended December 31, 2020, our residential and irrigation flow businesses comprised 40% of the Industrial &
Flow Technologies sales. The residential and irrigation flow businesses sell pumps focused on residential and agriculture. Another
30% of sales were from the commercial & infrastructure flow businesses, which sell larger pumps focused on fire suppression,
waste water and flood control. The remaining 30% of sales were from the industrial filtration business, comprised of applications
focused on industrial process filtration and sustainable gas.
Industrial & Flow Technologies brand names include Pentair, Aurora, Berkeley, Codeline, Fairbanks-Nijhuis, Haffmans,
Hydromatic, Hypro, Jung Pumpen, Myers, Sta-Rite, Shurflo, Südmo and X-Flow.
Customers
Industrial & Flow Technologies customers include businesses engaged with end users, and wholesale and retail distribution in the
residential, commercial, food & beverage and industrial verticals.
Seasonality
We experience increased demand for residential water supply and irrigation pumps following weather trends, which are at
seasonal highs from April to August. Seasonal effects may vary from year to year and are impacted by weather patterns,
particularly by temperatures, heavy flooding and droughts.
Competition
Industrial & Flow Technologies faces numerous domestic and international competitors, some of which have substantially greater
resources directed to the verticals in which we compete. Competition focuses on brand names, product performance (including
energy-efficient offerings and required specifications), quality, service and price. We compete by offering a wide variety of
innovative and high-quality products, which are competitively priced.
INFORMATION REGARDING ALL REPORTABLE SEGMENTS
Research and development
We conduct research and development activities primarily in our own facilities. These efforts consist primarily of the
development of new products, product applications and manufacturing processes.
2
Raw materials
The principal materials we use in manufacturing our products are electric motors, mild steel, stainless steel, electronic
components, plastics (resins, fiberglass, epoxies), copper and paint (powder and liquid). In addition to the purchase of raw
materials, we purchase some finished goods for distribution through our sales channels.
We purchase the materials we use in various manufacturing processes on the open market, and the majority are available through
multiple sources which are in adequate supply. We have not experienced any significant work stoppages to date due to shortages
of materials. We have certain long-term commitments, principally price commitments, for the purchase of various component
parts and raw materials and believe that it is unlikely that any of these agreements would be terminated prematurely. Alternate
sources of supply at competitive prices are available for most materials for which long-term commitments exist, and we believe
that the termination of any of these commitments would not have a material adverse effect on our financial position, results of
operations or cash flows.
Certain commodities, such as metals and resin, are subject to market and duty-driven price fluctuations. We manage these
fluctuations through several mechanisms, including long-term agreements with price adjustment clauses for significant
commodity market movements in certain circumstances. Prices for raw materials, such as metals and resins, may trend higher in
the future.
Intellectual property
Patents, non-compete agreements, proprietary technologies, customer relationships, trademarks, trade names and brand names are
important to our business. However, we do not regard our business as being materially dependent upon any single patent, non-
compete agreement, proprietary technology, customer relationship, trademark, trade name or brand name.
Patents, patent applications and license agreements will expire or terminate over time by operation of law, in accordance with
their terms or otherwise. We do not expect the termination of patents, patent applications or license agreements to have a material
adverse effect on our financial position, results of operations or cash flows.
Human capital resources
We believe our success depends on our ability to attract, develop and retain strong employees. We believe a deep-rooted culture
energizes our employees to make a difference within and beyond the workplace. We strive to be the destination for top talent, and
work hard to develop and retain high performers throughout their career. We also believe our Win Right values, positive culture
and commitment to inclusion and diversity foster innovation and curiosity, which, in turn, contribute to us being an industry
leader.
As of December 31, 2020, we had approximately 9,750 employees worldwide, of which approximately 52% are located in the
U.S. A small portion of our U.S. employees are unionized, while outside the U.S., we have employees in certain countries,
particularly in Europe, that are represented by an employee representative organization, such as a union, works council or
employee association.
Refer to "COVID-19 Pandemic" included in ITEM 7, "Management’s Discussion and Analysis of Financial Condition and
Results of Operations" for information on human capital management actions we have taken in response to the COVID-19
pandemic.
Employee engagement and development
Engaging our employees and developing their careers is important to our long-term success and ties directly to our Win Right
culture and values. We engage with our employees and gather feedback about our employee programs, practices and policies
through various approaches that include: town hall meetings where Pentair leaders share strategies and perspectives; quarterly
leadership webcasts to help ensure our results and expectations are clearly communicated; an annual global leadership meeting to
help drive growth and productivity initiatives and share best practices; and a feedback feature on our employee intranet.
Training and development
To support employees in their career journey, we have developed and shared through our employee intranet a number of new
tools and resources. These resources include: live training sessions; on-demand eLearning and virtual classrooms; and
downloadable materials.
Our talent development efforts span across all levels of our organization, including our Leadership Development Program, a 36-
month program in which future leaders participate in cross-functional rotations intended to develop their capabilities throughout
organization-wide exposure.
3
Inclusion and diversity
Our commitment to inclusion and diversity is part of living our Win Right values. Our success also depends on our ability to
attract, engage and retain a diverse group of employees. We believe an inclusive and diverse workforce contributes different
perspectives and innovative ideas that enable us to improve every day. We believe that every employee should be provided the
same opportunity to be heard, respected, have a sense of belonging and contribute to our mission. Race, gender, ethnicity, country
of origin, age, personal style, sexual orientation, physical ability, religion, life experiences and many more factors contribute to
this diversity.
Our statistics are a measure of our performance, and we are committed to advancing a diverse workplace. The following sets forth
information regarding the diversity of our workforce as of December 31, 2020:
Minorities*
Women**
Percent of workforce
Percent of leadership roles***
41.5%
31.4%
24.8%
27.6%
* Inclusive of the following racial minority groups: Black/African American, Hispanic/Latino, American Indian/Alaskan Native,
Asian, Native Hawaiian/Other Pacific Islander. Data for U.S. employee population only.
** Global data.
*** Leadership roles are those of employees who are director level and above.
We take an integrated approach to supporting and promoting workplace inclusion and diversity including: ensuring leadership
involvement and ownership; attracting and retaining diverse talent at all levels; fostering a globally aware, inclusive culture; and
ensuring our practices are fair and nondiscriminatory. In addition, we promote an inclusive and diverse workplace through: a
training called the “The Power of Inclusion”; business resource groups led by employees; Pentair’s Code of Business Conduct and
Ethics; and an Inclusion and Diversity Hub on our employee intranet.
Health, safety and wellness
We are committed to providing a safe workplace for all of our employees. We encourage employees to “Stop Work” anytime
there is a potential concern regarding worker safety, and promote an open door policy so that all of our employees feel free to
speak to their manager if there are any potential health, safety, compliance or sustainability concerns. Additionally, each site
maintains a confidential reporting process, and we encourage the use of the Ethics Hotline for employees to report anonymously
potential safety concerns. All locations, enterprise wide, must meet and/or exceed regulatory agency standards as applicable to
each plant’s location.
Compensation and benefits
In the U.S., all non-union full-time employees are eligible to receive the following benefits: short-term and long-term disability
insurance; flexible and health savings accounts and wellness programs; health insurance (medical, pharmacy, dental); eight weeks
paid parental leave for birth, adoptive and foster parents; two weeks paid caregiver leave; legal services; retirement provision;
stock ownership; tuition reimbursement; holidays; vacation and sick time. Union employee benefits vary by contract.
ESG Activities
As a leading provider of water treatment and sustainable solutions and with a foundation of Win Right values, we recognize that
the work we do and the products and services we provide improve lives and the environment around the world. Pentair strives to
be a positive influence on the social and environmental issues of today. As we progress, we are committed to building on our Win
Right values and culture by further contributing to the development of a sustainable and responsible society that we believe will
also drive our future growth. We are focused on further integrating our environmental, social and governance (“ESG”) goals
throughout our business by creating broad accountability for our social responsibility strategy and creating shared commitments
and targets. In 2020, Pentair completed a formal ESG assessment to identify ESG topics of importance to our shareholders,
customers, suppliers, employees and communities. Through engagement with these stakeholders, internal business leaders and
subject matter experts, we identified ESG goals designed to culminate into targets to further our commitment to social
responsibility.
We have published an annual corporate responsibility that has reported on our ESG activities and accomplishments, which can be
found on our corporate website, and which is not incorporated by reference into this Annual Report on Form 10-K. In addition,
we have established a formal social responsibility program to further advance our social responsibility goals.
Environmental Matters
See ITEM 1A “Risk Factors - We are exposed to potential environmental laws, liabilities and litigation.”
4
Captive 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. Accruals with respect to liabilities insured by third parties, such as liabilities arising from acquired businesses,
pre-Penwald liabilities and those of certain non-U.S. operations are established.
Matters pertaining to Penwald are discussed in ITEM 8, Note 1 of the Notes to Consolidated Financial Statements – Insurance
subsidiary, included in this Form 10-K.
Available information
We make available free of charge (other than an investor’s own Internet access charges) through our Internet website (http://
www.pentair.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if
applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission
(the “SEC”). Reports of beneficial ownership filed by our directors and executive officers pursuant to Section 16(a) of the
Exchange Act are also available on our website. We are not including the information contained on our website as part of or
incorporating it by reference into, this Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
You should carefully consider all of the information in this document and the following risk factors before making an investment
decision regarding our securities. Any of the following risks could materially and adversely affect our business, financial
condition, results of operations, cash flows and the actual outcome of matters as to which forward-looking statements are made in
this document.
Risks Relating to the COVID-19 Pandemic
The COVID-19 pandemic is expected to have a material negative impact on our business, financial condition, results of
operations and cash flows.
Our business and financial results have been and are expected to continue to be negatively impacted by the COVID-19 pandemic.
The severity, magnitude and duration of the current COVID-19 pandemic is uncertain, rapidly changing and hard to predict. In
2020, the COVID-19 pandemic significantly impacted economic activity and markets around the world and our business, and it is
expected to negatively impact our business in numerous ways, including but not limited to those outlined below:
•
•
•
•
•
The COVID-19 pandemic has caused a global economic slowdown that may last for a potentially extended duration, and
it is possible that it could cause a global recession. Deteriorating economic and political conditions caused by the
COVID-19 pandemic, such as increased unemployment, decreases in capital spending, declines in consumer confidence,
or economic slowdowns or recessions, could cause a decrease in demand for our products.
Due to the impacts of the COVID-19 pandemic, we have experienced and expect to continue to experience reductions in
customer demand for certain of our products and in several of our end-markets, including commercial filtration,
commercial flow, industrial filtration and food and beverage.
The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, certain elements of our
business (including certain elements of our operations, supply chains and distribution systems), including as a result of
impacts associated with required, preventive and precautionary measures that we, other businesses, our communities and
governments are taking. These impacts include requiring employees to work from home or not go into their offices or
facilities, limiting the number of employees attending meetings, reducing the number of people in our sites at any one
time, reducing employee travel and adopting other employee safety measures. These measures also may impact our
ability to meet production demands or requests and may delay our new product introductions depending on employee
attendance or ability to continue to work. In addition, we have experienced disruptions at some of our facilities with
higher absenteeism due to the COVID-19 pandemic.
If the COVID-19 pandemic continues and economic conditions worsen, we expect to experience additional adverse
impacts on our operational and commercial activities, customer orders and our collections of accounts receivable, which
may be material, and it remains uncertain the impact on future operational and commercial activities, customer orders,
and collections even if economic conditions begin to improve.
Government or regulatory responses to the COVID-19 pandemic have and are likely to continue to negatively impact our
business. During the first and second quarters of 2020, mandatory lockdowns or other restrictions on operations in some
5
countries temporarily disrupted our ability to manufacture or distribute our products in some of these markets. A
reoccurrence of these disruptions could materially adversely impact our operations and results. In addition, the current
resurgence of the COVID-19 pandemic and government restrictions related thereto in the fourth quarter of 2020 and first
quarter of 2021 may negatively impact demand in certain of our commercial and industrial businesses. In addition to
existing travel restrictions, jurisdictions may continue to close borders, impose prolonged quarantines and further restrict
travel and business activity, and other related supply chain delays may develop, which could significantly impact our
ability to support our operations and customers, meet demand, develop new products, ship our backlog and also impact
the ability of our employees to get to their workplaces to produce products and services, or significantly hamper our
products from moving through the supply chain.
•
•
The impacts of the COVID-19 pandemic may limit our ability to reduce our overall operating costs. We have
experienced increased costs relating to our efforts to mitigate the impact of the COVID-19 pandemic through, among
other things, enhanced sanitization procedures and social-distancing measures we have enacted and will likely continue
to enact at our locations around the world in an effort to protect our employees’ health and well-being.
The COVID-19 pandemic has disrupted and is expected to continue to disrupt our operations, global supply chain and
routes to market or those of our suppliers or their suppliers. These disruptions or our failure to effectively respond to
them have increased and may continue to increase product, distribution or labor costs or cause delays in delivering our
backlog or may cause an inability to deliver products to our customers or meet customer demand.
• While we have experienced high demand in our pool business as consumers sheltered-in-place and have spent more time
at home as a result of the COVID-19 pandemic that contributed to growth in our sales during 2020, such growth may not
be sustainable and may not be repeated in future periods. Furthermore, even if growth in demand continues, we may not
be able to meet that demand due to production and capacity challenges.
•
•
•
Disruptions or uncertainties related to the COVID-19 pandemic for a sustained period of time could result in delays or
modifications to some of our strategic plans and initiatives and hinder our ability to achieve our growth targets.
The COVID-19 pandemic has increased volatility and pricing in and disrupted the capital markets and commercial paper
markets, and volatility is likely to continue. We might not be able to continue to access preferred sources of liquidity
when we would like, and our borrowing costs could increase.
Actions we have taken or may take, or decisions we have made or may make, as a consequence of the COVID-19
pandemic, may result in legal investigations or claims, regulatory actions, or litigation against us.
We might not be able to predict or respond to all impacts of the COVID-19 pandemic on a timely basis to prevent near- or long-
term adverse impacts to our results. Due to the speed with which the COVID-19 situation continues to develop, the global breadth
of its spread and the range of governmental and community reactions thereto, there is uncertainty around its duration and ultimate
impact and uncertainty regarding the availability and distribution of vaccines to address the COVID-19 virus; therefore, any
negative impact on our business, financial condition (including without limitation our liquidity), results of operations and cash
flows cannot be reasonably estimated at this time, but the COVID-19 pandemic could lead to extended disruption of economic
activity and the impact on our business, financial condition, results of operations and cash flows could be material. The ultimate
impact of these disruptions also depends on events beyond our knowledge or control, including the duration and severity of the
COVID-19 pandemic and actions taken by parties other than us to respond to them. The foregoing and other impacts of the
COVID-19 pandemic could have the effect of heightening many of the other risks described below and any of these impacts could
materially adversely affect our business, financial condition, results of operations and cash flows.
Risks Relating to Our Business
General global economic and business conditions affect demand for our products.
We compete in various geographic regions and product markets around the world. Among these, the most significant are global
industrial, commercial, and residential markets. We have experienced, and expect to continue to experience, fluctuations in
revenues and results of operations due to economic and business cycles. Important factors for our businesses and the businesses of
our customers include the overall strength of the global economy and various regional economies and our customers’ confidence
in these economies, industrial and governmental capital spending, the strength of residential and commercial real estate markets,
residential housing markets, the commercial business climate, unemployment rates, availability of consumer and commercial
financing, interest rates, and energy and commodity prices. The businesses of many of our industrial customers are to varying
degrees cyclical and have experienced periodic downturns. While we attempt to minimize our exposure to economic or market
fluctuations by serving a balanced mix of end markets and geographic regions, any of the above factors, individually or in the
aggregate, or a significant or sustained downturn in a specific end market or geographic region could reduce demand for our
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products and services, which could have a material adverse effect on our business, financial condition, results of operations and
cash flows.
We compete in attractive markets with a high level of competition, which may result in pressure on our profit margins and
limit our ability to maintain or increase the market share of our products.
The markets for our products and services are geographically diverse and highly competitive. We compete against large and well-
established national and global companies, as well as regional and local companies and lower cost manufacturers. Competition
may also result from new entrants into the markets we serve, offering products and/or services that compete with us. We compete
based on technical expertise, intellectual property, reputation for quality and reliability, timeliness of delivery, previous
installation history, contractual terms, service offerings, customer experience and service, and price. Competition may also result
from new entrants into the markets we serve, offering products and/or services that compete with ours. Some of our competitors
attempt to compete based primarily on price, localized expertise and local relationships, especially with respect to products and
applications that do not require a great deal of engineering or technical expertise. In addition, during economic downturns,
average selling prices tend to decrease as market participants compete more aggressively on price. Moreover, demand for our
products, which impacts profit margins, is affected by changes in customer order patterns, such as changes in the levels of
inventory maintained by customers and the timing of customer purchases, adoption of new technology and connected products,
and changes in customers’ preferences for our products, including the success of products offered by our competitors. Customer
purchasing behavior may also shift by product mix in the market or result in a shift to new distribution channels, including e-
commerce, which is a rapidly developing area. If we are unable to continue to differentiate our products, services and solutions or
adapt to changes in customer purchasing behavior or shifts in distribution channels, or if we are forced to cut prices or to incur
additional costs to remain competitive, it could have a material adverse effect on our business, financial condition, results of
operations and cash flows.
Volatility in currency exchange rates could have a material adverse effect on our financial condition, results of operations and
cash flows.
Sales outside of the U.S. for the year ended December 31, 2020 accounted for 33% of our net sales. Our financial statements
reflect translation of items denominated in non-U.S. currencies to U.S. dollars. Therefore, if the U.S. dollar strengthens in relation
to the principal non-U.S. currencies from which we derive revenue as compared to a prior period, our U.S. dollar reported revenue
and income will effectively be decreased to the extent of the change in currency valuations, and vice-versa. Fluctuations in foreign
currency exchange rates, most notably the strengthening of the U.S. dollar against the euro, could have a material adverse effect
on our reported revenue in future periods. In addition, currency variations could have a material adverse effect on margins on
sales of our products in countries outside of the U.S. and margins on sales of products that include components obtained from
suppliers located outside of the U.S.
Our future growth is dependent upon our ability to transform and adapt our products, services, solutions, and organization to
meet the demands of local markets in both developed and emerging economies and by developing or acquiring new
technologies that achieve market acceptance with acceptable margins.
We operate in global markets that are characterized by customer demand that is often global in scope but localized in delivery.
We compete with thousands of smaller regional and local companies that may be positioned to offer products produced at lower
cost than ours, or to capitalize on highly localized relationships and knowledge that are difficult for us to replicate. Also, in
several emerging markets, potential customers prefer local suppliers, in some cases because of existing relationships and in other
cases because of local legal restrictions or incentives that favor local businesses. In addition, we need to be flexible to adapt our
products to ever changing customer preferences, including those relating to regulatory, climate change and social responsibility
matters. Accordingly, our future success depends upon a number of factors, including our ability to transform and adapt our
products, services, solutions, organization, workforce and sales strategies to fit localities throughout the world, particularly in high
growth emerging markets; identify emerging technological and other trends in our target end markets; and develop or acquire
competitive technologies, products, services, and solutions and bring them to market quickly and cost-effectively. The failure to
effectively adapt our products, services, or solutions could have a material adverse effect on our business, financial condition,
results of operations and cash flows.
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We may not be able to identify, finance and complete suitable acquisitions and investments, and any completed acquisitions
and investments may be unsuccessful or consume significant resources.
Our business strategy includes acquiring businesses and making investments that complement our existing businesses. We
continue to analyze and evaluate the acquisition of strategic businesses or product lines with the potential to strengthen our
industry position or enhance our existing set of product, service, and solution offerings. We may not be able to identify suitable
acquisition candidates, obtain financing or have sufficient cash necessary for acquisitions or successfully complete acquisitions in
the future. Acquisitions and investments may involve significant cash expenditures, debt incurrences, equity issuances, operating
losses and expenses. Acquisitions involve numerous other risks, including:
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diversion of management time and attention from daily operations;
difficulties integrating acquired businesses, technologies and personnel into our business;
difficulties in obtaining and verifying the financial statements and other business information of acquired businesses;
inability to obtain required regulatory approvals;
potential loss of key employees, key contractual relationships or key customers of acquired companies or of ours;
assumption of the liabilities and exposure to unforeseen liabilities of acquired companies; and
dilution of interests of holders of our shares through the issuance of equity securities or equity-linked securities.
Any acquisitions or investments may not be successful or realize the intended benefits and may ultimately result in impairment
charges or have a material adverse effect on our business, financial condition, results of operations and cash flows.
We may not achieve some or all of the expected benefits of our business initiatives.
During 2020, 2019 and 2018, we initiated and continued execution of certain business initiatives aimed at reducing our fixed cost
structure and realigning our business. As a result, we have incurred substantial expense, including restructuring charges. We may
not be able to achieve the operating efficiencies to reduce costs or realize benefits that were anticipated in connection with these
initiatives. If we are unable to execute these initiatives as planned, we may not realize all or any of the anticipated benefits, which
could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are exposed to political, regulatory, economic, trade, and other risks that arise from operating a multinational business.
Sales outside of the U.S. for the year ended December 31, 2020 accounted for 33% of our net sales. Further, most of our
businesses obtain some products, components and raw materials from non-U.S. suppliers. Accordingly, our business is subject to
the political, regulatory, economic, trade, and other risks that are inherent in operating in and purchasing from, numerous
countries. These risks include:
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changes in general economic and political conditions in countries where we operate, particularly in emerging markets;
relatively more severe economic conditions in some international markets than in the U.S.;
the imposition of tariffs, duties, exchange controls or other trade restrictions;
changes in tax treaties, laws or rulings that could have a material adverse impact on our effective tax rate;
the difficulty of enforcing agreements and collecting receivables through non-U.S. legal systems;
the difficulty of communicating and monitoring evolving standards and directives across our product lines, services, and
global facilities;
the difficulty of ensuring that products and services meet ever-changing regional regulations and requirements;
trade protection measures and import or export licensing requirements and restrictions;
the possibility of terrorist action affecting us or our operations;
the threat of nationalization and expropriation;
the difficulty in staffing and managing widespread operations in non-U.S. labor markets;
limitations on repatriation of earnings or other regionally-imposed capital requirements;
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the difficulty of protecting intellectual property in non-U.S. countries; and
changes in and required compliance with a variety of non-U.S. laws and regulations.
In 2016, the United Kingdom held a referendum in which voters approved an exit from the European Union (“Brexit”). The
United Kingdom subsequently withdrew from the European Union effective on January 31, 2020, subject to a transition period
that ended on December 31, 2020. Since January 1, 2021, the European Union - United Kingdom Trade and Cooperative
Agreement has provisionally been in effect. Given the lack of comparable precedent, the implications of Brexit, or how such
implications might affect our company, continue to remain unclear at this time. Brexit could, among other impacts, disrupt trade
and the movement of goods, services and people between the United Kingdom and the European Union or other countries as well
as create legal and global economic uncertainty.
Our success depends in part on our ability to anticipate and effectively manage these and other risks. We cannot assure that these
and other factors will not have a material adverse effect on our international operations or on our business as a whole.
Changes in U.S. or foreign government administrative policy, including changes to existing trade agreements, could have a
material adverse effect on us.
As a result of changes to U.S. or foreign government administrative policy, there may be changes to existing trade agreements,
like the U.S.-Mexico-Canada Agreement (“USMCA”); greater restrictions on free trade generally; significant increases in tariffs
on goods imported into the U.S., particularly tariffs on products manufactured in Mexico, China, or other countries where we
purchase from, have operations or manufacture or sell products; prohibitions or restrictions on doing business with certain
companies, including those with certain relationships with China; and adverse responses by foreign governments to U.S. trade
policy, among other possible changes. It remains unclear what the U.S. administration or foreign governments, including China,
will or will not do with respect to tariffs, USMCA or other international trade agreements and policies. A trade war; other
governmental action related to tariffs or international trade agreements, including USMCA; changes in U.S. social, political,
regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment
in the territories and countries where we currently purchase, manufacture and sell products; and any resulting negative sentiments
towards the U.S. as a result of such changes, could have a material adverse effect on our business, financial condition, results of
operations and cash flows.
We may experience cost and other inflation.
In the past, we have experienced material cost and other inflation in a number of our businesses. We strive for productivity
improvements and implement increases in selling prices to help mitigate cost increases in raw materials (especially metals and
resins), energy and other costs including wages, pension, health care and insurance. We continue to implement operational
initiatives in order to mitigate the impacts of this inflation and continuously reduce our costs. However, these actions may not be
successful in managing our costs or increasing our productivity and we anticipate inflation to continue with respect to materials
(especially resins, copper, steel and stainless steel) as well as labor. Continued cost inflation or failure of our initiatives to
generate cost savings or improve productivity could have a material adverse effect on our business, financial condition, results of
operations and cash flows.
Intellectual property challenges may hinder our ability to develop, engineer and market our products.
Patents, non-compete agreements, proprietary technologies, customer relationships, trademarks, trade names and brand names are
important to our business. Intellectual property protection, however, may not preclude competitors from developing products
similar to ours or from challenging our names or products. Our pending patent applications, and our pending copyright and
trademark registration applications, may not be allowed, or competitors may challenge the validity or scope of our patents,
copyrights or trademarks. In addition, our patents, copyrights, trademarks and other intellectual property rights may not provide us
a significant competitive advantage. Furthermore, our business strategy also includes expanding our smart products and Internet
of Things offerings and there are many other companies that hold patents in this space. Over the past few years, we have noticed
an increasing tendency for participants in our markets to use challenges to intellectual property as a means to compete. Patent and
trademark challenges increase our costs to develop, engineer and market our products. We may need to spend significant
resources monitoring, enforcing and defending our intellectual property rights, and we may or may not be able to detect
infringement by third parties. If we fail to successfully enforce our intellectual property rights or register new patents, our
competitive position could suffer, which could have a material adverse effect on our business, financial condition, results of
operations and cash flows.
We have significant goodwill and intangible assets and future impairment of our goodwill and intangible assets could have a
material adverse effect on our results of operations.
We test goodwill and other indefinite-lived intangible assets for impairment on at least an annual basis, and more frequently if
circumstances warrant. As of December 31, 2020 our goodwill and intangible assets were $2,718 million and represented 65% of
our total assets. Declines in fair market value could result in future goodwill and intangible asset impairment charges.
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A loss of, or material cancellation, reduction, or delay in purchases by, one or more of our largest customers could harm our
business.
Our net sales to our largest customer represented approximately 15% of our consolidated net sales in 2020. While we do not have
any other customers that accounted for 10% or more of our consolidated net sales in 2020, we have other customers that are key
to the success of our business. Our concentration of sales to a relatively small number of larger customers makes our relationship
with each of these customers important to our business. Our success is dependent on retaining these customers, which requires us
to successfully manage relationships and anticipate the needs of our customers in the channels in which we sell our products. Our
customers also may be impacted by economic conditions in the industries of those customers, which could result in reduced
demand for our products. We cannot provide assurance that we will be able to retain our largest customers. In addition, some of
our customers may shift their purchases to our competitors in the future. The loss of one or more of our largest customers, any
material cancellation, reduction, or delay in purchases by these customers, or our inability to successfully develop relationships
with additional customers could have a material adverse effect on our business, financial condition, results of operations and cash
flows.
Catastrophic and other events beyond our control may disrupt operations at our manufacturing facilities and those of our
suppliers, which could cause us to be unable to meet customer demands or increase our costs, or reduce customer spending.
If operations at any of our manufacturing facilities or those of our suppliers were to be disrupted as a result of significant
equipment failures, natural disasters, earthquakes, power outages, fires, explosions, terrorism, adverse weather conditions, labor
disputes, public health epidemics (including the COVID-19 pandemic) or other catastrophic events or disruptions outside of our
control, we may be unable to fill customer orders and otherwise meet customer demand for our products. In particular, our pool
business operations in North Carolina and California are in areas that are more susceptible to natural disasters such as hurricanes,
wildfires, and earthquakes. In addition, these types of events may negatively impact residential, commercial and industrial
spending in impacted regions or, depending on the severity, globally. As a result, any of such events could have a material adverse
effect on our business, financial condition, results of operations and cash flows. We maintain property insurance that we believe
to be adequate to provide for reconstruction of facilities and equipment, and to cover business interruption losses resulting from
any production interruption or shutdown caused by an insured loss. However, any recovery under our insurance policies may not
offset the lost sales or increased costs that may be experienced during the disruption of operations, which could have a material
adverse effect on our business, financial condition, results of operations and cash flows.
Seasonality of sales and weather conditions could have a material adverse effect on our financial results.
We experience seasonal demand with end-customers and end-users within each of our business segments. Demand for pool
equipment in the pool business; water treatment solutions in our water treatment and industrial filtration businesses; and
residential water supply, infrastructure and agricultural products in the businesses within the Industrial & Flow Technologies
segment follows warm weather trends and is at seasonal highs from April to August. While we attempt to mitigate the magnitude
of the sales spike in the pool business and in the businesses within the Industrial & Flow Technologies segment by employing
some advance sale “early buy” programs (generally including extended payment terms and/or additional discounts), we cannot
provide any assurance that such programs will be successful. In addition, seasonal effects in the pool business and in the
businesses within the Industrial & Flow Technologies segment may vary from year to year and be impacted by weather patterns,
particularly by temperature, heavy flooding and droughts. Moreover, adverse weather conditions, such as cold or wet weather,
may negatively impact demand for, and sales of, pool equipment in the pool business and residential water supply, commercial,
infrastructure and agricultural products in the businesses within the Industrial & Flow Technologies segment.
Our focus on consumer solutions for residential and commercial water treatment as a strategic priority exposes us to certain
risks that could have a material adverse impact on our revenue and profitability as well as our reputation.
As we introduce residential and commercial water treatment solutions, we may have limited experience in markets we choose to
enter, and our customers may not like our value propositions. New initiatives we test through trials and pilots may not scale or
grow effectively or as we expected, which could limit our growth and negatively affect our operating results. Designing,
marketing and executing these solutions is subject to incremental risks. These risks include, for example:
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increased labor expense to fulfill our customer promises, which may be higher than the related revenue;
the requirement to recruit, train and retain qualified personnel;
increased risk of errors or omissions in the sales or fulfillment of solutions or services;
unpredictable extended warranty failure rates and related expenses;
employees in transit using company vehicles to visit customer locations and employees being present in customer homes,
which may increase our scope of liability;
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the potential for increased scope of liability relating to our consumer products, services and solutions and related
business model;
the engagement of third parties to assist with sales, installation or servicing of our products and solutions, and the
potential responsibility for the actions they take; and
increased risk of non-compliance with new laws and regulations applicable to these solutions.
These expanded risks increase the complexity of our business and place significant responsibility on our management, employees,
operations, systems, technical expertise, financial resources, and internal controls and compliance functions.
Interruption of our supply chain could affect our ability to produce or deliver our products and could negatively impact our
business and profitability.
Any material interruption in our supply chain, such as material interruption of the supply of raw materials and components due to
the casualty loss of any of our manufacturing plants, interruptions in service by our third-party logistic service providers or
common carriers that ship goods within our distribution channels, unexpected delays in shipping or processing through customs of
goods, trade restrictions, such as increased tariffs or quotas, embargoes or customs restrictions, or other unexpected or
uncontrollable events that cause a material interruption in our supply chain such as pandemics, social or labor unrest, natural
disasters or political disputes and military conflicts, could have a negative material impact on our business and our profitability.
Additionally, our raw materials and components are sourced from a wide variety of domestic and international business partners.
We rely on these suppliers to provide high quality products and to comply with applicable laws. Our ability to find qualified
suppliers who meet our standards and supply products in a timely and efficient manner may be a challenge, especially with
respect to raw materials and components sourced from outside the U.S. and from countries or regions with diminished
infrastructure, developing or failing economies or which are experiencing political instability or social unrest. For certain
products, we may rely on one or very few suppliers. A supplier's failure to meet our standards, provide products in a timely and
efficient manner, or comply with applicable laws is beyond our control. These issues could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
Risks Relating to Our Debt and Financial Markets
Covenants in our debt instruments may adversely affect us.
Our credit agreements and indentures contain customary financial covenants, including those that limit the amount of our debt,
which may restrict the operations of our business and our ability to incur additional debt to finance acquisitions. Our ability to
meet the financial covenants may be affected by events beyond our control, and we cannot provide assurance that we will meet
those tests. A breach of any of these covenants could result in a default under our credit agreements or indentures. Upon the
occurrence of an event of default under any of our credit facilities or indentures, the lenders or trustees could elect to declare all
amounts outstanding thereunder to be immediately due and payable and, in the case of credit facility lenders, terminate all
commitments to extend further credit. If the lenders or trustees accelerate the repayment of borrowings, we cannot provide
assurance that we will have sufficient assets to repay our credit facilities and our other indebtedness. Furthermore, acceleration of
any obligation under any of our material debt instruments will permit the holders of our other material debt to accelerate their
obligations, which could have a material adverse effect on our financial condition.
We may increase our debt or raise additional capital, our credit ratings may be downgraded in the future, or our interest rates
may increase, each of which could affect our financial condition, and may decrease our profitability.
As of December 31, 2020, we had $839.6 million of total debt outstanding. We may increase our debt or raise additional capital in
the future, subject to restrictions in our debt agreements. If our cash flow from operations is less than we anticipate, if our cash
requirements are more than we expect, or if we intend to finance acquisitions, we may require more financing. However, debt or
equity financing may not be available to us on acceptable terms, if at all. If we incur additional debt or raise equity through the
issuance of additional capital shares, the terms of the debt or capital shares issued may give the holders rights, preferences and
privileges senior to those of holders of our ordinary shares, particularly in the event of liquidation. The terms of the debt may also
impose additional and more stringent restrictions on our operations than we currently have. If we raise funds through the issuance
of additional equity, the percentage ownership of existing shareholders in our company would decline. If we are unable to raise
additional capital when needed, our financial condition could be adversely affected.
Unfavorable changes in the ratings that rating agencies assign to our debt may ultimately negatively impact our access to the debt
capital markets and increase the costs we incur to borrow funds. If ratings for our debt fall below investment grade, our access to
the debt capital markets may become restricted. Additionally, our credit agreements generally include an increase in interest rates
if the ratings for our debt are downgraded. In addition, borrowings under our revolving credit facility and term loans bear interest
at a rate equal to an adjusted base rate or the London Interbank Offered Rate (“LIBOR”), plus, in each case, an applicable margin.
The U.K. Financial Conduct Authority, which regulates LIBOR, has announced it intends to phase out LIBOR by the end of
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2021. The credit agreement governing our revolving credit facility and term loans provides procedures for determining a
replacement or alternative base rate in the event that LIBOR is discontinued; however, any calculation of interest based upon such
replacement or alternative base rate may result in higher interest rates. To the extent that our interest rates increase, our interest
expense will increase, which could adversely affect our financial condition, results of operations and cash flows.
Our leverage could have a material adverse effect on our business, financial condition or results of operations.
Our ability to make payments on and to refinance our indebtedness, including our existing debt as well as any future debt that we
may incur, will depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to
generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our
control. If we are not able to repay or refinance our debt as it becomes due, we may be forced to sell assets or take other
disadvantageous actions, including (i) reducing financing in the future for working capital, capital expenditures and general
corporate purposes or (ii) dedicating an unsustainable level of our cash flow from operations to the payment of principal and
interest on our indebtedness. The lenders who hold such debt could also accelerate amounts due, which could potentially trigger a
default or acceleration of any of our other debt.
Disruptions in the financial markets could adversely affect us, our customers and our suppliers by increasing funding costs or
reducing availability of credit.
In the normal course of our business, we may access credit markets for general corporate purposes, which may include repayment
of indebtedness, acquisitions, additions to working capital, repurchase of shares, capital expenditures and investments in our
subsidiaries. Although we expect to have sufficient liquidity to meet our foreseeable needs, our access to and the cost of capital
could be negatively impacted by disruptions in the credit markets, which have occurred in the past and made financing terms for
borrowers unattractive or unavailable. For example, during 2020, the commercial paper market began to experience high levels of
volatility due to uncertainty related to the COVID-19 pandemic that impacted both market access to and pricing of commercial
paper and we withdrew our credit ratings to access the commercial paper market. These factors may make it more difficult or
expensive for us to access credit markets if the need arises. In addition, these factors may make it more difficult for our suppliers
to meet demand for products or for customers to purchase products or commence new projects, as suppliers and customers may
experience increased costs of debt financing or difficulties in obtaining debt financing. Disruptions in the financial markets have
had adverse effects on other areas of the economy and have led to a slowdown in general economic activity that may continue to
adversely affect our businesses. One or more of these factors could adversely affect our business, financial condition, results of
operations or cash flows.
Risks Relating to Legal, Regulatory and Compliance Matters
Violations of the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act, and other anti-corruption laws outside the U.S. could
have a material adverse effect on us.
The U.S. Foreign Corrupt Practices Act (“FCPA”), U.K. Bribery Act, and other anti-corruption laws in other jurisdictions
generally prohibit companies and their intermediaries from making improper payments to government officials or other persons
for the purpose of obtaining or retaining business. Recent years have seen a substantial increase in anti-bribery law enforcement
activity, with more frequent and aggressive investigations and enforcement proceedings by both the U.S. Department of Justice
and the SEC, increased enforcement activity by non-U.S. regulators and increases in criminal and civil proceedings brought
against companies and individuals. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of
the world that are recognized as having governmental and commercial corruption and in certain circumstances, strict compliance
with anti-bribery laws may conflict with local customs and practices. Because many of our customers and end users are involved
in infrastructure construction and energy production, they are often subject to increased regulations and scrutiny by regulators. We
cannot assure that our internal control policies and procedures will always protect us from negligent, reckless or criminal acts
committed by our employees or third-party intermediaries. In the event that we believe or have reason to believe that our
employees, customers, or agents have or may have violated applicable anti-corruption laws, including the FCPA, we may be
required to investigate the relevant facts and circumstances, which can be expensive and require significant time and attention
from senior management. Violations of these laws may require self-disclosure to government agencies and result in criminal or
civil sanctions, which could disrupt our business and result in a material adverse effect on our reputation, business, financial
condition, results of operations and cash flows.
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Our failure to satisfy international trade compliance regulations, and changes in U.S. government sanctions, could have a
material adverse effect on us.
Our global operations require importing and exporting goods and technology across international borders on a regular basis.
Certain of the products we sell are “dual use” products, which are products that may have both civil and military applications, or
may otherwise be involved in weapons proliferation, and are often subject to more stringent export controls. From time to time,
we obtain or receive information alleging improper activity in connection with imports or exports. Our policy mandates strict
compliance with U.S. and non-U.S. trade laws applicable to our products. However, even when we are in strict compliance with
law and our policies, we may suffer reputational damage if certain of our products are sold through various intermediaries to
sanctioned entities or to entities operating in sanctioned countries. When we receive information alleging improper activity, our
policy is to investigate that information and respond appropriately, including, if warranted, reporting our findings to relevant
governmental authorities. Nonetheless, our policies and procedures may not always protect us from actions that would violate
U.S. and/or non-U.S. laws. Any improper actions could subject us to civil or criminal penalties, including material monetary fines,
or other adverse actions including denial of import or export privileges, and could damage our reputation and business prospects.
We are exposed to environmental laws, liabilities and litigation.
We are subject to U.S. federal, state, local and non-U.S. laws and regulations governing our environmental practices, public and
worker health and safety, and the indoor and outdoor environment. Compliance with these environmental, health and safety
regulations could require us to satisfy environmental liabilities, increase the cost of manufacturing our products or otherwise have
a material adverse effect on our business, financial condition, results of operations and cash flows. Any violations of these laws by
us could cause us to incur unanticipated liabilities. We are also required to comply with various environmental laws and maintain
permits, many of which are subject to renewal from time to time, for many of our businesses, and we could suffer if we are unable
to renew existing permits or to obtain any additional permits that may be required. Compliance with environmental requirements
also could require significant operating or capital expenditures or result in significant operational restrictions. We cannot assure
you that we have been or will be at all times in compliance with environmental and health and safety laws. If we violate these
laws, we could be fined, criminally charged or otherwise sanctioned by regulators.
We have been named as a defendant, target or a potentially responsible party (“PRP”) in a number of environmental matters
relating to our current or former businesses. We have disposed of a number of businesses and in certain cases, we have retained
responsibility and potential liability for certain environmental obligations. We have received claims for indemnification from
certain purchasers of businesses from us. We may be named as a PRP at other sites in the future for existing business units, as
well as both divested and acquired businesses. In addition to clean-up actions brought by governmental authorities, private parties
could bring individual or class-action claims due to the presence of, or exposure to, hazardous substances.
Certain environmental laws impose liability on current or previous owners or operators of real property for the cost of removal or
remediation of hazardous substances at their properties or at properties at which they have disposed of hazardous substances. We
have projects underway at several current and former manufacturing facilities to investigate and remediate environmental
contamination resulting from our past operations or by the operations of divested or acquired businesses or other businesses that
previously owned or used the properties. The cost of remediation and other environmental liabilities can be difficult to accurately
predict. In addition, environmental requirements change and tend to become more stringent over time. Our eventual
environmental remediation costs and liabilities could exceed the amount of our current reserves.
Our subsidiaries are party to asbestos-related product litigation that could adversely affect our financial condition, results of
operations and cash flows.
Our subsidiaries, along with numerous other companies, are named as defendants in a substantial number of lawsuits based on
alleged exposure to asbestos-containing materials, substantially all of which relate to our discontinued operations. These cases
typically involve product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products
that either contained asbestos or were attached to or used with asbestos-containing components manufactured by third parties.
Each case typically names a large number of product manufacturers, service providers and premises owners. Historically, our
subsidiaries have been identified as defendants in asbestos-related claims. Our strategy has been, and continues to be, to mount a
vigorous defense aimed at having unsubstantiated suits dismissed, and settling claims before trial only where appropriate. As of
December 31, 2020, there were approximately 630 claims pending against our subsidiaries, substantially all of which relate to our
discontinued operations. We cannot predict with certainty the extent to which we will be successful in litigating or otherwise
resolving lawsuits in the future, and we continue to evaluate different strategies related to asbestos claims filed against us
including entity restructuring and judicial relief. Unfavorable rulings, judgments or settlement terms could have a material adverse
impact on our business and financial condition, results of operations and cash flows. In addition, most of the asbestos claims
against us are covered by liability insurance policies from many years ago. As our insurers resolve claims relating to past policy
periods, the aggregate coverage provided by those policies erodes. If we exhaust our coverage under those policies, we will be
exposed to potential uninsured losses.
13
Failure to comply with the broad range of standards, laws and regulations in the jurisdictions in which we operate may result
in exposure to substantial disruptions, costs and liabilities.
Both our products and the operation of our manufacturing facilities are subject to certain statutory and regulatory requirements.
These laws and regulations impose on us increasingly complex, stringent and costly compliance activities, including but not
limited to environmental, health, and safety protection standards and permitting, labeling and other requirements regarding
(among other things) pump efficiency, air quality and emissions, and wastewater discharges; the use, handling, and disposal of
hazardous or toxic materials; remediation of environmental contamination; and working conditions for and compensation of our
employees. We may also be affected by future standards, laws or regulations, including those imposed in response to energy,
climate change, product functionality, geopolitical, corporate social responsibility, or similar concerns. These standards, laws, or
regulations may impact our costs of operation, the sourcing of raw materials, and the manufacture and distribution of our products
and place restrictions and other requirements or impediments on the products and solutions we can sell in certain geographical
locations or on the willingness of certain investors to own our shares.
We are exposed to certain regulatory, financial and other risks related to climate change and other sustainability matters.
Climate change is receiving ever increasing attention worldwide. Many scientists, legislators and others attribute global warming
to increased levels of greenhouse gases, which has led to significant legislative and regulatory efforts to limit greenhouse gas
emissions. The U.S. Environmental Protection Agency (“EPA”) has published findings that emissions of carbon dioxide,
methane, and other greenhouse gases (“GHGs”) present an endangerment to public health and the environment because emissions
of such gases are, according to the EPA, contributing to the warming of the earth’s atmosphere and other climate changes. Based
on these findings, the EPA has implemented regulations that require reporting of GHG emissions, or that limit emissions of GHGs
from certain mobile or stationary sources. In addition, the U.S. Congress and federal and state regulatory agencies have
considered other legislation and regulatory proposals to reduce emissions of GHGs, and many states have already taken legal
measures to reduce emissions of GHGs, primarily through the development of GHG inventories, GHG permitting and/or regional
GHG cap-and-trade programs. It is uncertain whether, when and in what form a federal mandatory carbon dioxide emissions
reduction program, or other state programs, may be adopted. Similarly, certain countries have adopted the Kyoto Protocol and/or
the Paris Accord, and these and other existing international initiatives and regulations or those under consideration could affect
our international operations. To the extent our customers, particularly our energy and industrial customers, are subject to any of
these or other similar proposed or newly enacted laws and regulations, we are exposed to risks that the additional costs by
customers to comply with such laws and regulations could impact their ability or desire to continue to operate at similar levels in
certain jurisdictions as historically seen or as currently anticipated, which could negatively impact their demand for our products
and services. As customers become increasingly concerned about the environmental impact of their purchases, if we fail to keep
up with changing regulations or innovate or operate in ways that minimize the energy use of our products or operations, customers
may choose more energy efficient or sustainable alternatives. These actions could also increase costs associated with our
operations, including costs for raw materials and transportation. It is uncertain what laws will be enacted and therefore we cannot
predict the potential impact of such laws on our future financial condition, results of operations and cash flows.
In addition, as part of our strategy regarding environmental, climate change and sustainability matters, we may set targets aimed
at reducing our impact on the environment and climate change or targets relating to other sustainability matters. It is possible that
we may not be able to achieve such targets or our desired impact, which may cause us to suffer from reputational damage or our
business or financial condition could be adversely affected. It is also possible that failure to achieve such targets or actions we
take to achieve our strategy or targets would result in increased costs to our operations. In addition, investors and stakeholders are
increasingly focused on ESG matters, and as stakeholder ESG expectations and standards are evolving, this may cause us to suffer
from reputational damage and our business or financial condition could be adversely affected.
Increased information technology security threats and computer crime pose a risk to our systems, networks, products and
services, and we are exposed to potential regulatory, financial and reputational risks relating to the protection of our data.
We rely upon information technology systems and networks in connection with a variety of business activities, some of which are
managed by third parties. As our business increasingly interfaces with employees, customers, dealers and suppliers using
information technology systems and networks, we are subject to an increased risk to the secure operation of these systems and
networks. Our evolution into smart products, Internet of Things, business-to-consumer, and e-commerce subjects us to increased
cyber and technology risks. The secure operation of our information technology systems and networks is critical to our business
operations and strategy. Information technology security threats from user error to attacks designed to gain unauthorized access to
our systems, networks and data are increasing in frequency and sophistication. These threats pose a risk to the security of our
systems and networks and the confidentiality, availability and integrity of the data we process and maintain. Establishing systems
and processes to address these threats may increase our costs. We have experienced data breaches, and, although we have
determined such data breaches to be immaterial and such data breaches have not had a material adverse effect on our financial
condition, results of operations or cash flows, there can be no assurance of similar results in the future. Should future attacks
succeed in the theft of assets, exporting sensitive data or financial information or controlling sensitive systems or networks, it
could expose us and our employees, customers, dealers and suppliers to the theft of assets, misuse of information or systems,
14
compromising of confidential information, manipulation and destruction of data, defective products, production downtimes and
operations disruptions. The occurrence of any of these events could have a material adverse effect on our reputation, business,
financial condition, results of operations and cash flows. In addition, such breaches in security could result in litigation, regulatory
action and potential liability and the costs and operational consequences of implementing further data protection measures.
Changes in data privacy laws and our ability to comply with them could have a material adverse effect on us.
We collect and store data that is sensitive to us and our employees, customers, dealers and suppliers. A variety of state, national,
foreign and international laws and regulations apply to the collection, use, retention, protection, security, disclosure, transfer and
other processing of personal and other data. Many foreign data privacy regulations, including the General Data Protection
Regulation (the “GDPR”) in the European Union, are more stringent than federal regulations in the United States. Within the
United States, many states are considering adopting, or have already adopted privacy regulations, including, for example, the
California Consumer Privacy Act. The applicability of these laws to our business has increased due to our focus on expanding
business-to-consumer and e-commerce offerings. These laws and regulations are rapidly evolving and changing, and could have
an adverse effect on our operations. Companies’ obligations and requirements under these laws and regulations are subject to
uncertainty in how they may be interpreted by courts and governmental authorities. The costs of compliance with, and the other
burdens imposed by, these and other laws or regulatory actions may increase our operational costs, and/or result in interruptions
or delays in the availability of systems. In the case of non-compliance with these laws, including the GDPR, regulators have the
authority to levy significant fines. In addition, if there is a breach of privacy, we may be required to make notifications under data
privacy regulations. The occurrence of any of these events could have a material adverse effect on our reputation, business,
financial condition, results of operations and cash flows.
We may be negatively impacted by litigation and other claims.
We are currently, and may in the future, become subject to litigation and other claims. These legal proceedings are typically
claims that relate to our products or services or to the conduct of our business and 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 protection
matters; and employment and labor matters. The outcome of such legal proceedings cannot be predicted with certainty and some
may be disposed of unfavorably to us. We also may not have insurance that covers such claims. While we currently maintain what
we believe to be suitable product liability insurance, we may not be able to maintain this insurance on acceptable terms, and this
insurance may not provide adequate protection against potential or previously existing liabilities. In addition, we self-insure a
portion of product liability claims and must satisfy deductibles on other insured claims. Further, some of our business involves the
sale of our products to customers that are constructing large and complex systems, facilities or other capital projects, and while we
generally try to limit our exposure to liquidated damages, consequential damages and other potential damages in the contracts for
these projects, we could be exposed to significant monetary damages and other liabilities in connection with the sale of our
products for these projects for a variety of reasons. In addition, some of our businesses, customers, and dealers are subject to
various laws and regulations regarding consumer protection and advertising and sales practices, and we have been named, and
may be named in the future, as a defendant in litigation, some of which are or may be class action complaints, arising from
alleged violation of these laws and regulations. Successful claims or litigation against us for significant amounts could have a
material adverse effect on our reputation, business, financial condition, results of operations and cash flows.
Risks Relating to Our Jurisdiction of Incorporation in Ireland and Tax Residency in the U.K.
We are subject to changes in law and other factors that may not allow us to maintain a worldwide effective corporate tax rate
that is competitive in our industry.
While we believe that we should be able to maintain a worldwide effective corporate tax rate that is competitive in our industry,
we cannot give any assurance as to what our effective tax rate will be in the future because of, among other things, uncertainty
regarding tax policies of the jurisdictions where we operate. Also, the tax laws and treaties of the U.S., the U.K., Ireland and other
jurisdictions could change in the future, and such changes could cause a material change in our worldwide effective corporate tax
rate. In addition, legislative action could be taken by the U.S., the U.K., Ireland or the European Union that could override tax
treaties or modify tax statutes or regulations upon which we expect to rely and adversely affect our effective tax rate. We cannot
predict the outcome of any specific legislative proposals. If proposals were enacted that had the effect of disregarding our
incorporation in Ireland or limiting our ability as an Irish company to maintain tax residency in the U.K., we could be subject to
increased taxation, which could materially adversely affect our financial condition, results of operations, cash flows or our
effective tax rate in future reporting periods.
15
A change in our tax residency could have a negative effect on our future profitability, and may trigger taxes on dividends or
exit charges.
Under current Irish legislation, a company is regarded as resident for tax purposes in Ireland if it is incorporated in Ireland. Under
current U.K. legislation, a company that is centrally managed and controlled in the U.K. is regarded as resident in the U.K. for
taxation purposes unless it is treated as resident in another jurisdiction pursuant to any appropriate double tax treaty with the U.K.
Other jurisdictions may also seek to assert taxing jurisdiction over us.
The Organization for Economic Co-operation and Development proposed a number of measures relating to the tax treatment of
multinationals, some of which are implemented by amending double tax treaties through the multilateral convention to implement
tax treaty related measures to prevent base erosion and profit shifting (the “MLI”). The MLI has now entered into force for a
number of countries, including Ireland and the U.K. Under the Double Tax Convention between Ireland and the U.K., as amended
by the MLI, the residence tie-breaker provides that a company will remain dual resident unless there is a determination otherwise
by the tax authorities of the two contracting states.
We have obtained a determination from the Competent Authorities of the Irish Revenue Commissioners and the U.K. HM
Revenue & Customs which states that we are resident for tax purposes only in the U.K.
It is possible that in the future, whether as a result of a change in law or the practice of any relevant tax authority or as a result of
any change in the conduct of our affairs, we could become, or be regarded as having become, resident in a jurisdiction other than
the U.K. If we cease to be resident in the U.K. and become a resident in another jurisdiction, we may be subject to U.K. exit
charges, and could become liable for additional tax charges in the other jurisdiction (including dividend withholding taxes or
corporate income tax charges). If we were to be treated as resident in more than one jurisdiction, we could be subject to taxation
in multiple jurisdictions. If, for example, we were considered to be a tax resident of Ireland, we could become liable for Irish
corporation tax, and any dividends paid by us could be subject to Irish dividend withholding tax.
Irish law differs from the laws in effect in the United States and may afford less protection to holders of our securities.
It may not be possible to enforce court judgments obtained in the U.S. against us in Ireland based on the civil liability provisions
of the U.S. federal or state securities laws. In addition, there is some uncertainty as to whether the courts of Ireland would
recognize or enforce judgments of U.S. courts obtained against us or our directors or officers based on the civil liabilities
provisions of the U.S. federal or state securities laws or hear actions against us or those persons based on those laws. We have
been advised that the U.S. currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement
of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any U.S. federal
or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically
be enforceable in Ireland.
As an Irish company, we are governed by the Irish Companies Act, which differs in some material respects from laws generally
applicable to U.S. corporations and shareholders, including, among others, differences relating to interested director and officer
transactions and shareholder lawsuits. Likewise, the duties of directors and officers of an Irish company generally are owed to the
company only. Shareholders of Irish companies generally do not have a personal right of action against directors or officers of the
company and may exercise such rights of action on behalf of the company only in limited circumstances. Accordingly, holders of
our securities may have more difficulty protecting their interests than would holders of securities of a corporation incorporated in
a jurisdiction of the U.S.
Transfers of our ordinary shares may be subject to Irish stamp duty.
Transfers of our ordinary shares effected by means of the transfer of book entry interests in the Depository Trust Company
(“DTC”) will not be subject to Irish stamp duty. However, if you hold your ordinary shares directly rather than beneficially
through DTC, any transfer of your ordinary shares could be subject to Irish stamp duty (currently at the rate of 1 percent of the
higher of the price paid or the market value of the shares acquired). Payment of Irish stamp duty is generally a legal obligation of
the transferee.
We currently intend to pay, or cause one of our affiliates to pay, stamp duty in connection with share transfers made in the
ordinary course of trading by a seller who holds shares directly to a buyer who holds the acquired shares beneficially. In other
cases we may, in our absolute discretion, pay or cause one of our affiliates to pay any stamp duty. Our articles of association
provide that, in the event of any such payment, we (i) may seek reimbursement from the buyer, (ii) will have a lien against the
shares acquired by such buyer and any dividends paid on such shares and (iii) may set-off the amount of the stamp duty against
future dividends on such shares. Parties to a share transfer may assume that any stamp duty arising in respect of a transaction in
our shares has been paid unless one or both of such parties is otherwise notified by us.
16
Our ordinary shares, received by means of a gift or inheritance could be subject to Irish capital acquisitions tax.
Irish capital acquisitions tax (“CAT”) could apply to a gift or inheritance of our ordinary shares irrespective of the place of
residence, ordinary residence or domicile of the parties. This is because our shares will be regarded as property situated in Ireland.
The person who receives the gift or inheritance has primary liability for CAT. Gifts and inheritances passing between spouses are
exempt from CAT. Children have a tax-free threshold of €335,000 per lifetime in respect of taxable gifts or inheritances received
from their parents for periods on or after October 9, 2019.
General Risk Factors
Our share price may fluctuate significantly.
We cannot predict the prices at which our shares may trade. The market price of our shares may fluctuate widely, depending on
many factors, some of which may be beyond our control, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
actual or anticipated fluctuations in our results of operations due to factors related to our business;
success or failure of our business strategy;
our quarterly or annual earnings, or those of other companies in our industry;
our ability to obtain third-party financing as needed;
announcements by us or our competitors of significant acquisitions or dispositions;
changes in accounting standards, policies, guidance, interpretations or principles;
changes in earnings estimates or guidance by us or securities analysts or our ability to meet those estimates or guidance;
the operating and share price performance of other comparable companies;
investor perception of us;
effect of certain events or occurrences on our reputation;
overall market fluctuations;
results from any material litigation or governmental investigation or environmental liabilities;
natural or other environmental disasters;
changes in laws and regulations affecting our business; and
general economic conditions and other external factors.
Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular
company. These broad market fluctuations could have a material adverse effect on our share price.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
17
ITEM 2. PROPERTIES
Our principal office is located in leased premises in London, U.K., and our management office in the U.S. is located in leased
premises in Golden Valley, Minnesota.
Our operations are conducted in facilities throughout the world. These facilities house manufacturing and distribution operations,
as well as sales and marketing, engineering and administrative offices. The following is a summary of our principal properties as
of December 31, 2020, including manufacturing, distribution, sales offices and service centers:
No. of Facilities
Sales and
Location
Manufacturing Distribution
Corporate Offices Service Centers
Consumer Solutions
Industrial & Flow
Technologies
Corporate
Total
U.S. and 6 foreign countries
U.S. and 15 foreign countries
U.S. and 3 foreign countries
16
20
—
36
8
15
—
23
7
6
5
18
10
7
—
17
We believe that our production facilities as well as the related machinery and equipment, are well maintained and suitable for
their purpose and are adequate to support our businesses.
ITEM 3. LEGAL PROCEEDINGS
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, contractual or regulatory
disputes with suppliers, customers, authorities or parties to acquisitions and divestiture; intellectual property matters;
environmental, asbestos, safety and health matters; product liability; the use or installation of our products; consumer matters; and
employment and labor matters. Refer to “Legal proceedings” and “Environmental Matters” within Note 15 “Commitments and
Contingencies”, of the consolidated financial statements included in ITEM 8 of Part II of this Form 10-K for information
regarding legal and regulatory proceedings we are involved in. In addition, see Item 1A “Risk Factors - Our subsidiaries are party
to asbestos-related product litigation that could adversely affect our financial condition, results of operations and cash flows”
related to asbestos matters.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
18
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Current executive officers of Pentair plc, their ages, current position and their business experience during at least the past five
years are as follows:
Name
Age Current Position and Business Experience
John L. Stauch
56
Kelly A. Baker
51
Mario R. D’Ovidio
51
Robert P. Fishman
57
John H. Jacko
63
Jerome O. Pedretti
50
Stephen J. Pilla
57
Karla C. Robertson
50
Philip M. Rolchigo
59
President and Chief Executive Officer since 2018; Executive Vice President and Chief Financial
Officer 2007 - 2018; Chief Financial Officer of the Automation and Control Systems unit of
Honeywell International Inc. 2005 - 2007; Vice President, Finance and Chief Financial Officer of
the Sensing and Controls unit of Honeywell International Inc. 2004 - 2005; Vice President,
Finance and Chief Financial Officer of the Automation & Control Products unit of Honeywell
International Inc. 2002 - 2004; Chief Financial Officer and IT Director of PerkinElmer
Optoelectronics, a unit of PerkinElmer, Inc., 2000 - 2002.
Executive Vice President and Chief Human Resources Officer since 2018; Chief Human
Resources Officer, Water segment, 2017 - 2018; Chief Human Resources Officer of Patterson
Companies, Inc. (a dental and animal health industry product and technology distributor) 2016 -
2017; Vice President of Human Resources, North America Retail and Marketing Function of
General Mills (a multinational manufacturer and marketer of branded consumer foods) 2014 -
2016; Vice President of Human Resources, Corporate & Global Business Solutions of General
Mills 2009 - 2014; Vice President of Diversity & Inclusion of General Mills 2005 - 2009.
Executive Vice President and President, Consumer Solutions since 2020; Senior Vice President
of Sales and Ownership Solutions - North America of Electrolux AB (a manufacturer of large
and small household appliances) 2017 – 2020; Global Vice President Sales and Service –
Husqvarna AB (a manufacturer of innovative outdoor power products) 2016 – 2017; Vice
President Global Product Management and Development of Husqvarna AB 2014 – 2016.
Executive Vice President, Chief Financial Officer and Chief Accounting Officer since 2020;
Executive Vice President and Chief Financial Officer of NCR Corporation (a global provider of
omni-channel technology solutions) 2016 - 2018; Senior Vice President and Chief Financial
Officer of NCR Corporation 2010 - 2016; Vice President and Corporate Controller of NCR
Corporation 2007 - 2009.
Executive Vice President and Chief Growth Officer since 2018; Senior Vice President and Chief
Marketing Officer 2017 - 2018; Vice President and Chief Marketing Officer of Kennametal Inc.
(a global supplier of tooling, engineered components and advanced materials) 2007 - 2016;
Senior Vice President and Chief Marketing Officer of Flowserve Corporation, 2002 - 2007; Vice
President of Marketing and Customer Management of Flowserve Corporation 2001 - 2002.
Executive Vice President and President, Industrial & Flow Technologies since 2020. Senior Vice
President of Pentair’s former Aquatic Systems reporting segment 2016 - 2019; Vice President of
Pentair’s former Valves & Controls business 2014 - 2016; Vice President Growth Strategy 2010
- 2014; Various business leadership positions of Pentair 2005 - 2014; Consultant at Bain & Co
2002 - 2005.
Executive Vice President and Chief Supply Chain Officer since 2020; Vice President and Chief
Supply Chain Officer of Red Wing Shoe Co. (a manufacturer of personal protection equipment
and footwear) 2017 - 2020; Vice President and General Manager of Pentair’s former Enclosure
Division 2015 – 2017; Vice President of Pentair’s Global Operations and Supply Chain 2014 –
2016; Vice President, Global Supply of Pentair 2009 – 2012; Various other business leadership
positions of Pentair 2002 – 2009.
Executive Vice President, General Counsel, Secretary and Chief Social Responsibility Officer
since 2020; Executive Vice President, General Counsel and Secretary 2018-2020; General
Counsel, Water segment 2017 - 2018; Executive Vice President, General Counsel and Corporate
Secretary of SUPERVALU Inc. (a wholesaler and retailer of grocery products) 2013 - 2017;
Vice President, Employment, Compensation and Benefits Law of SUPERVALU Inc. 2012 -
2013; Director, Employment Law of SUPERVALU Inc. 2011 - 2012; Senior Counsel,
Employment Law of SUPERVALU Inc. 2009 - 2011; Senior Employee Relations Counsel of
Target Corporation 2006 - 2008; Associate, Faegre & Benson LLP 2000 - 2005; Judicial Clerk,
United States District Court for the Southern District of Iowa 1998 - 2000.
Executive Vice President and Chief Technology Officer since 2018; Chief Technology Officer
2017 - 2018; Vice President of Technology 2015 - 2017; Vice President of Engineering 2007 -
2015; Business Development Director of Water Technologies business of GE Global Research
Center 2006 - 2007; Director of Technology of GE Water & Process Technologies 2003 - 2006;
Chief Technology Officer of Osmonics 2000 - 2003; Vice President of Research & Development
of Osmonics 1998 - 2000.
19
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our ordinary shares are listed for trading on the New York Stock Exchange (“NYSE”) under the symbol “PNR.” As of
December 31, 2020, there were 13,931 shareholders of record.
Pentair has paid 180 consecutive quarterly cash dividends, including most recently a dividend of $0.19 per share in the fourth
quarter of 2020. On December 8, 2020, Pentair’s Board of Directors approved a 5 percent increase in the Company’s regular
quarterly cash dividend rate (from $0.19 per share to $0.20 per share) that was paid on February 5, 2021 to shareholders of record
at the close of business on January 22, 2021. 2021 marks the 45th consecutive year that Pentair has increased its dividend.
The timing, declaration and payment of future dividends to holders of our ordinary shares will depend upon many factors,
including our financial condition and results of operations, the capital requirements of our businesses, industry practice and any
other relevant factors.
Share Performance Graph
The following information under the caption “Share Performance Graph” in this ITEM 5 of this Annual Report on Form 10-K is
not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), or to the liabilities of Section 18 of the Exchange Act and will not be
deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except
to the extent we specifically incorporate it by reference into such a filing.
The following graph sets forth the cumulative total shareholder return on our ordinary shares for the last five years, assuming the
investment of $100 on December 31, 2015 and the reinvestment of all dividends since that date to December 31, 2020. The graph
also contains for comparison purposes the S&P 500 Index and the S&P 500 Industrials Index, assuming the same investment level
and reinvestment of dividends.
By virtue of our market capitalization, we are a component of the S&P 500 Index. On the basis of our size and diversity of
businesses, we believe the S&P 500 Industrials Index is an appropriate published industry index for comparison purposes.
20
Company / Index
Pentair plc
S&P 500 Index
S&P 500 Industrials Index
Base Period
December
2015
2016
INDEXED RETURNS
Years ended December 31
2018
2019
2017
$
100 $
116.00 $
149.25 $
121.10 $
149.78 $
100
100
111.96
110.12
136.40
134.97
130.42
130.86
171.49
172.69
2020
176.57
203.04
212.71
Purchases of Equity Securities
The following table provides information with respect to purchases we made of our ordinary shares during the fourth quarter of
2020:
(a)
(b)
(c)
(d)
Total number
of shares
purchased
Average
price paid
per share
Total number
of shares
purchased as
part of publicly
announced plans
or programs
Dollar value of
shares that may
yet be purchased
under the plans
or programs
October 1 – October 24
October 25 – November 21
November 22 – December 31
Total
714 $
689,880
68
690,662
47.02
51.97
53.09
— $
672,797
—
672,797
134,718,028
99,718,419
849,718,419
(a) The purchases in this column include 714 shares for the period October 1 – October 24, 17,083 shares for the period
October 25 – November 21, and 68 shares for the period November 22 – December 31 deemed surrendered to us by
participants in our equity incentive plans to satisfy the exercise price or withholding of tax obligations related to the exercise
of stock options and vesting of restricted and performance shares.
(b) The average price paid in this column includes shares repurchased as part of our publicly announced plans and shares deemed
surrendered to us by participants in the Plans to satisfy the exercise price for the exercise price of stock options and
withholding tax obligations due upon stock option exercises and vesting of restricted and performance shares.
(c) The number of shares in this column represents the number of shares repurchased as part of our publicly announced plans to
repurchase our ordinary shares up to a maximum dollar limit authorized by the Board of Directors, discussed below.
(d)
In May 2018, the Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $750.0
million (the “2018 Authorization”). The 2018 Authorization expires on May 31, 2021. On December 8, 2020, the Board of
Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $750.0 million (the “2020
Authorization”). The 2020 Authorization expires on December 31, 2025. The 2020 Authorization supplements the 2018
Authorization. We have $99.7 million and $750.0 million remaining availability for repurchases under the 2018
Authorization and 2020 Authorization, respectively. From time to time, we may enter into a Rule 10b5-1 trading plan for the
purpose of repurchasing shares under this authorization.
21
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF=
OPERATIONS
Forward-looking statements
This report contains statements that we believe to be “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements, other than statements of historical fact are forward-looking statements. Without
limitation, any statements preceded or followed by or that include the words “targets,” “plans,” “believes,” “expects,” “intends,”
“will,” “likely,” “may,” “anticipates,” “estimates,” “projects,” “should,” “would,” “could,” “positioned,” “strategy,” “future” or
words, phrases or terms of similar substance or the negative thereof, are forward-looking statements. These forward-looking
statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of
which are beyond our control, which could cause actual results to differ materially from those expressed or implied by such
forward-looking statements. These factors include the overall impact of the COVID-19 pandemic on our business; the duration
and severity of the COVID-19 pandemic; actions that may be taken by us, other businesses and governments to address or
otherwise mitigate the impact of the COVID-19 pandemic, including those that may impact our ability to operate our facilities,
meet production demands, and deliver products to our customers; the negative impacts of the COVID-19 pandemic on the global
economy, our customers and suppliers, and customer demand; overall global economic and business conditions impacting our
business, including the strength of housing and related markets; demand, competition and pricing pressures in the markets we
serve; volatility in currency exchange rates; failure of markets to accept new product introductions and enhancements; the ability
to successfully identify, finance, complete and integrate acquisitions; the ability to achieve the benefits of our restructuring plans
and cost reduction initiatives; risks associated with operating foreign businesses; the impact of material cost and other inflation;
the impact of seasonality of sales and weather conditions; our ability to comply with laws and regulations; the impact of changes
in laws, regulations and administrative policy, including those that limit U.S. tax benefits or impact trade agreements and tariffs;
the outcome of litigation and governmental proceedings; and the ability to achieve our long-term strategic operating goals.
Additional information concerning these and other factors is contained in our filings with the U.S. Securities and Exchange
Commission (the “SEC”), including this Annual Report on Form 10-K. All forward-looking statements speak only as of the date
of this report. Pentair assumes no obligation, and disclaims any obligation, to update the information contained in this report.
Overview
Pentair plc and its consolidated subsidiaries (“we,” “us,” “our,” “Pentair” or the “Company”) is a pure play water industrial
manufacturing company comprised of two reporting segments: Consumer Solutions and Industrial & 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, 2020, the Consumer Solutions and Industrial & Flow Technologies segments represented approximately
58% and 42% of total revenues, respectively.
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 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 Consumer 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 and final working capital
true-ups. 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.
COVID-19 Pandemic
In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 pandemic
continues to spread throughout the United States (“U.S.”) and the world, with the continued potential for significant impact. The
COVID-19 pandemic has resulted in governments around the world implementing increasingly stringent measures to help control
the spread of the virus, including quarantines, “shelter-in-place” and “stay-at-home” orders, travel restrictions, business
curtailments, limits on gatherings, and other measures. In addition, governments and central banks in several parts of the world
have enacted fiscal and monetary stimulus measures to counteract the economic impacts of the COVID-19 pandemic. The effects
of the COVID-19 pandemic have had and may continue to have an unfavorable impact on certain parts of our business.
22
Health and safety
From the earliest signs of the outbreak, we have taken proactive action to protect the health and safety of our employees,
customers, and suppliers. We have enacted rigorous safety measures in our sites, including implementing social distancing
protocols, implementing working from home arrangements for those employees who do not need to be physically present on the
manufacturing floor and do not provide manufacturing-support activities, suspending travel, extensively and frequently
disinfecting our workspaces, conducting temperature monitoring at our facilities, and providing or accommodating the wearing of
facial coverings to those employees who must be physically present in their workplace and where facial coverings are required by
local government orders. We expect to continue to implement these measures until we determine that the COVID-19 pandemic is
adequately contained for purposes of our business, and we may take further actions as government authorities require or
recommend or as we determine to be in the best interests of our employees, customers, and suppliers. For the year ended
December 31, 2020, we incurred $10.4 million of costs related to providing for the health and safety of our employees specific to
the COVID-19 pandemic.
Operations
We have important manufacturing operations in the U.S. and around the world that have been affected by the COVID-19
pandemic, and we have taken certain actions to help curb its spread. Government-mandated measures providing for business
curtailments or shutdowns generally exclude certain essential businesses and services, including businesses that manufacture and
sell products that are considered essential to daily lives or otherwise operate in essential or critical sectors. While substantially all
of our manufacturing facilities are considered essential and have remained operational, we have experienced intermittent partial or
full factory closures at certain facilities as a result of these measures or the need to sanitize the facilities and address employee
well-being. We also experienced brief interruptions in operations due to government-mandated shutdowns at our sites in India,
Italy, and New Zealand during the year ended December 31, 2020. While sanitation-related closures or governmental shutdowns
may occur again in the future, all of our manufacturing facilities currently remain operational. In addition, we have experienced
disruptions at some of our facilities with higher absenteeism due to the COVID-19 pandemic.
Supply
The COVID-19 pandemic has impacted our factory productivity and supply chain. Certain of our suppliers, particularly in our
pool and flow businesses, faced difficulties maintaining operations in light of manufacturing shutdowns and interruptions due to
the COVID-19 pandemic, which negatively impacted our production and contributed to an increase in backlog. During the third
quarter of 2020, we identified second source suppliers and increased supply for key items in our pool business to reduce the
production and capacity challenges we encountered in the second quarter of 2020 as a result of supply chain issues and increased
demand. These supply chain and capacity challenges have led to higher transportation and labor costs in order to timely deliver
finished goods to our customers. Restrictions or disruptions of transportation, such as reduced availability of air transport, port
closures and increased border controls or closures, have in certain cases resulted, and may continue to result, in higher costs and
delays, both for obtaining raw materials and components and shipping finished goods to customers, which could harm our
profitability, make our products less competitive, or cause our customers to seek alternative suppliers. Although we regularly
monitor the financial health and operations of companies in our supply chain, and use alternative suppliers when necessary and
available, financial hardship or government restrictions on our suppliers or sub-suppliers caused by the COVID-19 pandemic
could cause a disruption in our ability to obtain raw materials or components required to manufacture our products and adversely
affect our operations.
Demand
The COVID-19 pandemic has significantly increased economic and demand uncertainty. We have experienced and expect to
continue to experience reductions in customer demand in several of our end-markets.
Within our Consumer Solutions segment, the COVID-19 pandemic has impacted demand in each of our businesses. Our pool
business has experienced high demand as consumers sheltered-in-place and have spent more time at home. While shelter-in-place
orders impacted our ability to reach our customers in our residential water treatment business at the beginning of the second
quarter of 2020, we started to see stabilization in demand in this business towards the end of the second quarter and then saw
demand rebound in the second half of 2020 as consumers became more comfortable allowing dealers back into their homes to test
their water and install new systems. Our commercial filtration business was negatively impacted by restaurant and hospitality
industry closures or operations at limited capacity across North America and Europe in the second quarter and to a lesser extent in
the second half of 2020. New or extended government-mandated shutdowns could impact demand for our Consumer Solutions
products in the future.
23
Within our Industrial & Flow Technologies segment, demand for our residential flow products was initially negatively impacted
due to store closures as a result of state-wide orders in the U.S. However, sell through improved throughout the year driven by
pent up demand from the earlier closures. Demand continued to remain soft in our commercial and infrastructure flow businesses,
but stabilized in the third quarter of 2020. In our industrial filtration business, demand is mostly driven by customer capital
spending, which was reduced and/or delayed beginning in the second quarter of 2020 across most industries served. In addition,
lower asset utilization drove down demand in industrial filtration aftermarket sales. Furthermore, many of our commercial
customers have been negatively impacted due to worldwide lockdowns as a result of the COVID-19 pandemic. While we are
preparing for this business to remain under pressure in the near term, we expect long-term demand drivers for this business not to
be significantly changed.
The current COVID-19 pandemic or continued spread of COVID-19 has caused a global economic slowdown, and a possibility of
a global recession. In the event of a recession, demand for our products would decline and our business and results of operations
would be adversely affected.
Cost mitigation actions
With the continuing uncertainty in light of the COVID-19 pandemic, we have taken steps across our organization to align costs
with lower sales volumes. These steps include renegotiation with suppliers to reduce input costs, driving manufacturing direct
labor reductions in line with volume drop, delaying, reducing or eliminating purchased services and travel and, where appropriate,
temporary furloughs and hiring freezes. Additionally, we are proactively managing our working capital and reviewing our capital
spending plan, but have not deferred strategic ongoing initiatives. We also continue to monitor government economic stabilization
efforts and have participated in certain legislative provisions, such as deferring estimated tax payments, and may apply for job
retention credits.
We continue to monitor the rapidly evolving situation including the development of vaccines and their distribution to address the
COVID-19 virus and guidance from international and domestic authorities, including federal, state and local public health
authorities, and may take additional actions based on their requirements and recommendations. In these circumstances, there may
be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation,
we cannot reasonably estimate the impacts of the COVID-19 pandemic on our financial condition, results of operations or cash
flows in the future. In addition, see Part I—ITEM 1A, “Risk Factors,” included herein for our risk factors regarding risks
associated with the COVID-19 pandemic.
Key Trends and Uncertainties Regarding Our Existing Business
The following trends and uncertainties affected our financial performance in 2020, and will likely impact our results in the future:
•
•
There are many uncertainties regarding the COVID-19 pandemic, including the anticipated duration and severity of the
pandemic, the extent of worldwide social, political and economic disruption it may continue to cause and the
development and distribution of vaccines to address the COVID-19 virus. The broader implications of the COVID-19
pandemic on our business, financial condition, results of operations and cash flows cannot be determined at this time,
and ultimately will be affected by a number of evolving factors including the length of time that the pandemic continues
and the impact of vaccines on it, its effect on the demand for our products and services, our supply chain, and our
manufacturing capacity, as well as the impact of governmental regulations imposed in response to the pandemic. See
further discussion above under “COVID-19 Pandemic” for key trends and uncertainties with regard to the COVID-19
pandemic.
During 2020, we executed certain business restructuring initiatives unrelated to the COVID-19 pandemic aimed at
reducing our fixed cost structure and realigning our business. We expect these actions to continue into 2021 and to drive
margin growth.
• We have identified specific product and geographic market opportunities that we find attractive and continue to pursue,
both within and outside the U.S. We are reinforcing that our businesses more effectively address these opportunities
through research and development and additional sales and marketing resources. Unless we successfully penetrate these
markets, our core sales growth will likely be limited or may decline.
• 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.
24
In 2021, our operating objectives remain to focus on delivering our core while continuing to build out our future. We expect to
execute these objectives by:
•
•
•
•
•
Delivering revenue growth in our core businesses;
Delivering income and cash by managing price/cost inflation, prioritization of growth investments and addressing the
cost structures as necessary;
Continued focus on capital allocation through:
◦
◦
◦
Commitment to maintain our investment grade rating;
Return cash to shareholders through dividends and buybacks; and
Supplement our business with strategically-aligned mergers and acquisitions.
Focused growth initiatives that accelerate our investments in digital, technology and services expansion; and
Building a high performance growth culture and delivering on our commitments while living our Win Right values.
CONSOLIDATED RESULTS OF OPERATIONS
The consolidated results of operations were as follows:
In millions
Net sales
Cost of goods sold
Gross profit
% of net sales
Selling, general and administrative
% of net sales
Research and development
% of net sales
Operating income
% of net sales
Loss (gain) on sale of businesses
Loss on early extinguishment of debt
Net interest expense
Other expense (income)
Years ended December 31
2020
2019
2018
$ 3,017.8
$ 2,957.2
$ 2,965.1
1,960.2
1,057.6
1,905.7
1,051.5
1,917.4
1,047.7
35.0 %
35.6 %
35.3 %
520.5
540.1
534.3
17.2 %
75.7
2.5 %
18.3 %
78.9
2.7 %
18.0 %
76.7
2.6 %
% / point change
2020 vs
2019
2019 vs
2018
2.0 %
2.9 %
0.6 %
(0.6) pts
(3.6) %
(1.1) pts
(4.1) %
(0.2) pts
(0.3) %
(0.6) %
0.4 %
0.3 pts
1.1 %
0.3 pts
2.9 %
0.1 pts
461.4
432.5
436.7
15.3 %
14.6 %
14.7 %
6.7 %
0.7 pts
(1.0) %
(0.1) pts
0.1
—
23.9
5.3
(2.2)
—
30.1
(2.9)
7.3
17.1
32.6
(0.1)
N.M.
N.M.
N.M.
N.M.
(20.6) %
(7.7) %
N.M.
N.M.
Income from continuing operations before income taxes
432.1
407.5
379.8
6.0 %
7.3 %
Provision for income taxes
Effective tax rate
N.M. Not Meaningful
75.0
17.4 %
45.8
11.2 %
58.1
15.3 %
63.8 % (21.2) %
(4.1) pts
6.2 pts
25
Net sales
The components of the consolidated net sales change were as follows:
Volume
Price
Core growth
Acquisition
Currency
Total
2020 vs 2019
0.4 %
0.9
1.3
0.5
0.2
2.0 %
2019 vs 2018
(3.9) %
2.6
(1.3)
2.5
(1.5)
(0.3) %
The 2.0 percent increase in consolidated net sales in 2020 from 2019 was primarily the result of:
•
•
•
•
•
selective increases in selling prices to mitigate inflationary cost increases;
increased sales due to the Aquion and Pelican acquisitions in February 2019 and other small acquisitions in our
Consumer Solutions segment in the fourth quarter of 2019 and first half of 2020;
volume increase in our Consumer Solutions segment mainly driven by our pool business;
volume increase in our residential and irrigation flow businesses in our Industrial & Flow Technologies segment; and
favorable foreign currency effects in 2020 compared to the prior year.
This increase was partially offset by:
•
sales volume declines in certain businesses within our Industrial & Flow Technologies segment due to the impacts of the
COVID-19 pandemic.
Gross profit
The 0.6 percentage point decrease in gross profit as a percentage of net sales in 2020 from 2019 was primarily the result of:
•
•
•
•
•
unfavorable mix within the pool and commercial and infrastructure flow businesses;
lower volumes within our commercial water supply, water disposal, industrial filtration and food and beverage
businesses;
higher transportation and labor costs due to increased demand in our pool business;
costs related to providing for the health and safety of our employees specific to the COVID-19 pandemic of $8.6 million
for the year ended December 31, 2020; and
inflationary increases related to certain raw materials.
This decrease was partially offset by:
•
•
•
increased productivity due to higher volumes in our pool business;
selective increases in selling prices to mitigate impacts of inflation; and
increased productivity due to cost actions such as temporary furloughs and hiring freezes in response to the COVID-19
pandemic driving manufacturing efficiencies and lower operating expenses.
Selling, general and administrative (“SG&A”)
The 1.1 percentage point decrease in SG&A expense as a percentage of net sales in 2020 from 2019 was driven by:
•
•
•
asset impairment charges of $21.2 million in 2019;
reduction in travel and entertainment, trade show and advertising expenses due to the COVID-19 pandemic; and
restructuring and other costs of $15.4 million in 2020, compared to $21.0 million in 2019.
26
This decrease was partially offset by:
•
higher employee compensation incentive expense compared to the prior year.
Net interest expense
The 20.6 percent decrease in net interest expense in 2020 from 2019 was the result of:
•
•
•
cross currency swaps entered into in June 2019 and December 2019 resulting in more interest income in 2020 than in the
prior period;
lower interest rate revolving credit facilities replacing higher interest rate fixed rate debt that matured during the second
half of 2019; and
strong cash flows in 2020 leading to lower overall debt levels.
Provision for income taxes
The 6.2 percentage point increase in the effective tax rate in 2020 from 2019 was primarily due to:
•
the unfavorable impact of discrete items, including items related to the CARES Act, and items related to final regulations
as part of the Tax Cuts and Jobs Act of 2017 that place limitations on the deductibility of certain interest expense for
U.S. tax purposes.
2019 Comparison with 2018
A discussion of changes in our consolidated results of operations and liquidity and capital resources from the year ended
December 31, 2019 to December 31, 2018 can be found in Part II, ITEM 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed
with the SEC on February 25, 2020. However, such discussion is not incorporated by reference into, and does not constitute a part
of, this Annual Report on Form 10-K.
SEGMENT RESULTS OF OPERATIONS
The summary that follows provides a discussion of the results of operations of our two reportable segments (Consumer Solutions
and Industrial & Flow Technologies). Each of these segments is comprised of various product offerings that serve multiple end
users.
We evaluate performance based on net sales and segment income and use a variety of ratios to measure performance of our
reporting segments. Segment income represents equity income of unconsolidated subsidiaries and operating income exclusive of
intangible amortization, certain acquisition related expenses, costs of restructuring activities, impairments and other unusual non-
operating items.
Consumer Solutions
The net sales and segment income for Consumer Solutions were as follows:
In millions
Net sales
Segment income
% of net sales
Years ended December 31
2020
2019
2018
$
1,742.9
$
1,611.7
$ 1,578.4
419.1
24.0 %
379.6
392.9
23.6 %
24.9 %
% / point change
2020 vs
2019
2019 vs
2018
8.1 %
10.4 %
0.4 pts
2.1 %
(3.4) %
(1.3) pts
27
Net sales
The components of the change in Consumer Solutions net sales were as follows:
Volume
Price
Core growth
Acquisition
Currency
Total
2020 vs 2019
6.3 %
0.8
7.1
1.0
—
8.1 %
2019 vs 2018
(6.2) %
3.3
(2.9)
5.8
(0.8)
2.1 %
The 8.1 percent increase in net sales for Consumer Solutions in 2020 from 2019 was primarily the result of:
•
•
•
•
increased sales volume across several of the product lines in our pool business due to consumers’ desire to invest in their
pools and backyards while sheltering-in-place due to the COVID-19 pandemic;
higher sales volumes in our residential filtration product lines in North America and China during the second half of
2020;
selective increases in selling prices to mitigate impacts of inflation; and
increased sales due to the Aquion and Pelican acquisitions that occurred in February 2019 and other small acquisitions in
the fourth quarter of 2019 and during 2020.
This increase was partially offset by:
•
•
sales decreases for 2020 due to lower demand in the water treatment business as government-mandated shutdown and
shelter-in-place orders and commercial closures due to the COVID-19 pandemic impacting the ability to reach
customers; and
higher-than-usual rebate activity that lowered price due to sales growth in our pool business.
The 2.1 percent increase in net sales for Consumer 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:
•
•
•
•
sales volume declines in our pool business 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 pool business during the
first nine months of 2019;
sales volume declines in our residential and commercial components business; and
unfavorable foreign currency effects compared to the same period of the prior year.
28
Segment income
The components of the change in Consumer Solutions segment income from the prior period were as follows:
Growth
Acquisition (divestiture)
Inflation
Productivity/Price
Total
2020
2019
1.1 pts
(1.4) pts
0.4
(1.3)
0.2
(0.4)
(2.9)
3.4
0.4 pts
(1.3) pts
The 0.4 percentage point increase in segment income for Consumer Solutions as a percentage of net sales in 2020 from 2019 was
primarily the result of:
•
•
•
•
increased sales volume in our pool business;
reduction in travel and entertainment, trade show and advertising expenses due to the COVID-19 pandemic and other
cost reduction initiatives;
impact of Aquion and Pelican acquisitions; and
selective increases in selling prices to mitigate the impacts of inflation.
This increase was partially offset by:
•
•
•
•
lower sales volume in the higher margin commercial filtration business;
higher sales rebates and employee incentive compensation expense in line with increased sales in our pool business;
higher transportation and labor costs due to increased demand in our pool business; and
inflationary increases related to certain raw materials.
The 1.3 percentage point decrease in segment income for Consumer Solutions as a percentage of net sales in 2019 from 2018 was
primarily the result of:
•
•
•
declines in core sales volume in our pool business resulting in 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.
This decrease was partially offset by:
•
•
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.
Industrial & Flow Technologies
The net sales and segment income for Industrial & Flow Technologies were as follows:
In millions
Net sales
Segment income
% of net sales
Years ended December 31
2020
2019
2018
% / point change
2020 vs
2019
2019 vs
2018
$
1,273.6
$
1,344.1
$ 1,385.4
(5.2) %
(3.0) %
164.6
12.9 %
199.0
198.8
14.8 %
14.3 %
(17.3) %
(1.9) pts
0.1 %
0.5 pts
29
Net sales
The components of the change in Industrial & Flow Technologies net sales were as follows:
Volume
Price
Core growth
Acquisition (divestiture)
Currency
Total
2020 vs 2019
(6.5) %
0.9
(5.6)
—
0.4
(5.2) %
2019 vs 2018
(1.4) %
1.9
0.5
(1.3)
(2.2)
(3.0) %
The 5.2 percent decrease in net sales for Industrial & Flow Technologies in 2020 from 2019 was primarily the result of:
•
•
decreased sales volume in our commercial water supply and water disposal, industrial filtration and food and beverage
businesses due to less project sales as a result of customers deferring their capital spending and less service and
aftermarket revenue driven by reduced consumption and travel restrictions from government-mandated shutdowns and
“shelter-in-place” orders due to the COVID-19 pandemic;
decreased sales volume in our residential and irrigation flow businesses in the first half of 2020 due to market conditions
resulting from the COVID-19 pandemic.
This decrease was partially offset by:
•
•
•
•
increased sales volume in our residential and irrigation flow businesses in the second half of 2020 due to strong demand
in the residential water supply, water disposal and specialty spray product lines;
sales growth in our infrastructure business as a result of strong backlog entering 2020;
selective increases in selling prices to mitigate inflationary cost increases; and
favorable foreign currency effects compared to the same period of the prior year.
The 3.0 percent decrease in net sales for Industrial & Flow Technologies 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:
•
•
increased sales volume in our industrial filtration and food and beverage businesses; and
selective increases in selling prices to mitigate inflationary cost increases.
Segment income
The components of the change in Industrial & Flow Technologies segment income from the prior period were as follows:
Growth
Inflation
Productivity/Price
Total
2020
2019
(2.5) pts
0.4 pts
(1.0)
1.6
(2.5)
2.6
(1.9) pts
0.5 pts
The 1.9 percentage point decrease in segment income for Industrial & Flow Technologies as a percentage of net sales in 2020
from 2019 was primarily the result of:
•
decreased sales volumes in our residential and irrigation flow business in the first half of 2020 due to the COVID-19
pandemic, which resulted in decreased leverage on fixed operating expenses;
30
•
•
decreased sales volume in our commercial water supply and water disposal, industrial filtration and food and beverage
businesses due to the COVID-19 pandemic along with unfavorable mix within our commercial and infrastructure flow
and industrial filtration businesses; and
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;
lower sales incentive expense in line with decreased sales; and
increased productivity due to cost actions driving manufacturing efficiencies and lower operating expenses.
The 0.5 percentage point increase in segment income for Industrial & Flow Technologies 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;
increased productivity; and
increased volume and favorable mix in our industrial filtration and food and beverage businesses.
This increase was partially offset by:
•
inflationary increases related to raw material and labor costs.
BACKLOG OF ORDERS BY SEGMENT
In millions
Consumer Solutions
Industrial & Flow Technologies
Total
December 31
2020
2019
$ change
% change
$
$
459.1 $
288.7
747.8 $
138.2 $
251.2
389.4 $
320.9
37.5
358.4
232.2 %
14.9 %
92.0 %
A substantial portion of our revenues result from orders received and products delivered in the same month. Our backlog typically
has a short manufacturing cycle and products generally ship within 90 days of the date on which a customer places an
order. However, a portion of our backlog, particularly from orders for major capital projects, can take more than one year
depending on the size and type of order. We record, as part of our backlog, all orders from external customers, which represent
firm commitments, and are supported by a purchase order or other legitimate contract. The increase in our backlog at December
31, 2020 compared to 2019 was mainly a result of increased demand in our pool business. We expect the majority of our backlog
at December 31, 2020 will be shipped in 2021.
LIQUIDITY AND CAPITAL RESOURCES
We generally fund cash requirements for working capital, capital expenditures, equity investments, acquisitions, debt repayments,
dividend payments and share repurchases from cash generated from operations, availability under existing committed revolving
credit facilities and in certain instances, public and private debt and equity offerings. Our primary revolving credit facility has
generally been adequate for these purposes, although we have negotiated additional credit facilities or completed debt and equity
offerings as needed to allow us to complete acquisitions.
We experience seasonal cash flows primarily due to seasonal demand in a number of markets. Consistent with historical trends,
we experienced seasonal cash usage in the first quarter of 2020 and drew on our revolving credit facility to repay commercial
paper and to fund our operations. This cash usage reversed in the second quarter of 2020 as the seasonality of our businesses
peaked. Consistent with historical seasonal patterns, the second quarter of 2020 generated significant cash to fund our operations
and we used this cash to significantly reduce the draw on our revolving credit facility. We continued to experience strong cash
flow in the second half of 2020, causing our revolving credit facility balance to remain low at December 31, 2020 compared to the
prior year end.
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
31
including extended payment terms and/or additional discounts). Demand for residential and agricultural water systems is also
impacted by weather patterns, particularly by temperature, heavy flooding and droughts.
We expect to continue to have sufficient cash and borrowing capacity to support working capital needs and capital expenditures,
to pay interest and service debt and to pay dividends to shareholders quarterly. We believe our existing liquidity position, coupled
with our currently anticipated operating cash flows, will be sufficient to meet our cash needs arising in the ordinary course of
business for the next twelve months. Although the impact of the COVID-19 pandemic on our future results is uncertain, we
believe we are well-positioned to manage our business and have the ability and sufficient capacity to meet these cash
requirements by using available cash, internally generated funds and borrowing under our committed and uncommitted credit
facilities. We are committed to maintaining investment grade credit ratings and a solid liquidity position.
Summary of Cash Flows
Cash flows from continuing operations were as follows:
In millions
Cash provided by (used for):
Operating activities
Investing activities
Financing activities
Years ended December 31
2020
2019
2018
$
574.2 $
345.2 $
(117.9)
(435.9)
(331.9)
(17.1)
458.1
(61.7)
(407.9)
Operating activities
In 2020, net cash provided by operating activities of continuing operations primarily reflects net income from continuing
operations of $432.2 million, net of non-cash depreciation and amortization. Additionally, the Company had a cash inflow of
$109.5 million as a result of changes in net working capital, primarily the result of accounts receivables collections and reduced
accounts receivables due to the pool business early buy program shipments with extended payment terms moving from the fourth
quarter of 2020 into 2021 due to continued strong demand.
In 2019, net cash provided by operating activities of continuing operations primarily reflects net income from continuing
operations of $462.9 million, net of non-cash depreciation, amortization and asset impairment, partially offset by a cash outflow
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.
Investing activities
Net cash used for investing activities of continuing operations in 2020 primarily reflects capital expenditures of $62.2 million and
cash paid for acquisitions of $58.0 million in our Consumer Solutions reporting segment, net of cash acquired.
Net cash used for investing activities of continuing operations in 2019 primarily reflects capital expenditures of $58.5 million and
cash paid for the Aquion and Pelican acquisitions, partially offset by $15.3 million of proceeds received from divestitures
primarily related to our former aquaculture business.
Financing activities
In 2020, net cash used for financing activities primarily relates to repayment of commercial paper and revolving long-term debt of
$117.5 million, repayment of the 3.625% Senior Notes due in 2020 of $74.0 million, $150.2 million of share repurchases and
dividend payments of $127.1 million.
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.
32
Free Cash Flow
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, repurchase
shares and repay debt. In addition, free cash flow is used as a criterion to measure and pay compensation-based incentives. Our
measure of free cash flow may not be comparable to similarly titled measures reported by other companies.
The following table is a reconciliation of free cash flow:
In millions
Net cash provided by operating activities of continuing operations
Capital expenditures of continuing operations
Proceeds from sale of property and equipment of continuing operations
Free cash flow from continuing operations
Net cash (used for) provided by operating activities of discontinued
operations
Capital expenditures of discontinued operations
Proceeds from sale of property and equipment of discontinued operations
Free cash flow
Years ended December 31
2020
2019
2018
$
$
574.2 $
345.2 $
(62.2)
0.1
(58.5)
0.6
512.1 $
287.3 $
(0.6)
—
—
7.8
—
—
$
511.5 $
295.1 $
458.1
(48.2)
0.2
410.1
(19.0)
(7.4)
2.3
386.0
Debt and Capital
In April 2018, Pentair, Pentair Investments Switzerland GmbH (“PISG”), Pentair Finance S.à r.l (“PFSA“) and Pentair, Inc.
entered into a credit agreement, providing for an $800.0 million senior unsecured revolving credit facility with a term of five
years (the “Senior Credit Facility”), with Pentair and PISG as guarantors and PFSA and Pentair, Inc. as borrowers. In June 2020,
Pentair assumed the PISG guarantee. 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.
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 no
commercial paper outstanding as of December 31, 2020 and $117.8 million as of December 31, 2019, 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.
In March 2020, the commercial paper market began to experience high levels of volatility due to uncertainty related to the
COVID-19 pandemic. The volatility impacted both market access to and pricing of commercial paper. As a cost mitigation action,
we withdrew our credit ratings to access the commercial paper market in the second quarter of 2020 and continued to use the
revolving credit facility, along with cash generated from operations, to fund our general operations. As of December 31, 2020,
total availability under the Senior Credit Facility was $863.9 million.
33
Our debt agreements contain various financial covenants, but the most restrictive covenants are contained in the Senior Credit
Facility. The Senior Credit Facility contains covenants requiring us not to permit (i) the ratio of our consolidated debt (net of our
consolidated unrestricted cash in excess of $5.0 million but not to exceed $250.0 million) to our consolidated net income
(excluding, among other things, non-cash gains and losses) before interest, taxes, depreciation, amortization and non-cash share-
based compensation expense (“EBITDA”) on the last day of any period of four consecutive fiscal quarters to exceed 3.75 to 1.00
(the “Leverage Ratio”) and (ii) the ratio of our EBITDA to our consolidated interest expense, for the same period to be less than
3.00 to 1.00 as of the end of each fiscal quarter. For purposes of the Leverage Ratio, the Senior Credit Facility provides for the
calculation of EBITDA giving pro forma effect to certain acquisitions, divestitures and liquidations during the period to which
such calculation relates. Our debt agreements contain various financial covenants. As of December 31, 2020, 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 $21.4 million, of
which there were no outstanding borrowings at December 31, 2020. Borrowings under these credit facilities bear interest at
variable rates.
We have $103.8 million aggregate principal amount of fixed rate senior notes maturing in the next twelve months. We classified
this debt as long-term as of December 31, 2020 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, 2020, we had $56.9 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 sufficient cash and borrowing capacity to support working capital needs and capital expenditures,
to pay interest and service debt and to pay dividends to shareholders quarterly. We believe 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 May 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”). The 2018 Authorization expires on May 31, 2021. On December 8, 2020, the Board of
Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $750.0 million (the “2020
Authorization”). The 2020 Authorization expires on December 31, 2025. The 2020 Authorization supplements the 2018
Authorization.
During the year ended December 31, 2019, we repurchased 4.0 million of our ordinary shares for $150.0 million under the 2018
Authorization.
During the year ended December 31, 2020, we repurchased 3.7 million of our ordinary shares for $150.2 million under the 2018
Authorization. As of December 31, 2020, we had $99.7 million and $750.0 million available for share repurchases under the 2018
Authorization and 2020 Authorization, respectively.
Dividends
On December 8, 2020, the Board of Directors approved a 5 percent increase in the Company’s regular quarterly dividend rate
(from $0.19 per share to $0.20 per share) that was paid on February 5, 2021 to shareholders of record at the close of business on
January 22, 2021. The balance of dividends payable included in Other current liabilities on our Consolidated Balance Sheets was
$33.2 million at December 31, 2020. Dividends paid per ordinary share were $0.76, $0.72 and $1.05 for the years ended
December 31, 2020, 2019 and 2018, 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 $8.8 billion and $6.6 billion as of December 31, 2020 and 2019,
respectively.
34
Supplemental guarantor information
Pentair plc (the “Parent Company Guarantor”), fully and unconditionally, guarantees the senior notes of PFSA (the “Subsidiary
Issuer”). The Subsidiary Issuer is a Luxembourg private limited liability company and 100 percent-owned subsidiary of the Parent
Company Guarantor.
The Parent Company Guarantor is a holding company established to own directly and indirectly substantially all of its operating
and other subsidiaries. The Subsidiary Issuer is a holding company formed to own directly and indirectly substantially all of its
operating and other subsidiaries and to issue debt securities, including the senior notes. The Parent Company Guarantor’s
principal source of cash flow, including cash flow to make payments on the senior notes pursuant to the guarantees, is dividends
from its subsidiaries. The Subsidiary Issuer’s principal source of cash flow is interest income from its subsidiaries. None of the
subsidiaries of the Parent Company Guarantor or the Subsidiary Issuer is under any direct obligation to pay or otherwise fund
amounts due on the senior notes or the guarantees, whether in the form of dividends, distributions, loans or other payments. In
addition, there may be statutory and regulatory limitations on the payment of dividends from certain subsidiaries of the Parent
Company Guarantor or the Subsidiary Issuer. If such subsidiaries are unable to transfer funds to the Parent Company Guarantor or
the Subsidiary Issuer and sufficient cash or liquidity is not otherwise available, the Parent Company Guarantor or the Subsidiary
Issuer may not be able to make principal and interest payments on their outstanding debt, including the senior notes or the
guarantees.
The following table presents summarized financial information as of December 31, 2020 for the Parent Company Guarantor and
Subsidiary Issuer on a combined basis after elimination of (i) intercompany transactions and balances among the guarantors and
issuer and (ii) equity in earnings from and investments in any subsidiary that is a non-Guarantor or issuer.
In millions
Current assets (1)
Noncurrent assets (2)
Current liabilities (3)
Noncurrent liabilities (4)
(1) Includes assets due from non-guarantor subsidiaries of $2.8 million.
(2) Includes assets due from non-guarantor subsidiaries of $1,028.5 million.
(3) Includes liabilities due to non-guarantor subsidiaries of $556.6 million.
(4) Includes liabilities due to non-guarantor subsidiaries of $495.2 million.
$
December 31,
2020
8.2
1,040.9
608.3
1,283.0
The Parent Company Guarantor and Subsidiary Issuer do not have material results of operations on a combined basis.
Contractual obligations
The following summarizes our significant contractual obligations that impact our liquidity:
In millions
Debt obligations
Interest obligations on fixed-rate debt
Operating lease obligations, net of
sublease rentals
Purchase and marketing obligations
Pension and other post-retirement plan
contributions
2021
2022
2023
2024
2025
Thereafter
Total
Years ended December 31
$
103.8 $
88.3 $
236.1 $
— $
19.3 $
400.0 $
24.3
21.7
18.9
18.9
18.9
72.0
26.2
26.9
22.9
8.5
19.5
4.6
14.8
3.8
6.0
3.8
9.5
6.2
847.5
174.7
98.9
53.8
8.5
8.6
8.7
8.8
8.6
40.3
83.5
Total contractual obligations, net
$
189.7 $
150.0 $
287.8 $
46.3 $
56.6 $
528.0 $
1,258.4
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, 2020, variable interest rate debt was $236.1 million at a weighted average interest rate of 1.23%.
35
The total gross liability for uncertain tax positions at December 31, 2020 was estimated to be $46.3 million. We record penalties
and interest related to unrecognized tax benefits in Provision for income taxes and Net interest expense, respectively, which is
consistent with our past practices. As of December 31, 2020, we had recorded $0.2 million for the possible payment of penalties
and $4.6 million related to the possible payment of interest.
Off-balance sheet arrangements
At December 31, 2020, 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, asbestos, 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. As a result, the current estimates of
the potential impact on our consolidated financial position, results of operations and cash flows for the proceedings and claims
described in ITEM 8, Note 15 of the Notes to Consolidated Financial Statements could change in the future.
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, 2020 and 2019, the outstanding value of bonds, letters of credit and bank guarantees totaled $99.1 million
and $91.3 million, respectively.
NEW ACCOUNTING STANDARDS
See ITEM 8, Note 1 of the Notes to Consolidated Financial Statements, included in this Form 10-K, for information pertaining to
recently adopted accounting standards or accounting standards to be adopted in the future.
36
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.
We test our goodwill for impairment at least annually during the fourth quarter or more frequently if events or changes in
circumstances indicate that the asset might be impaired. We perform our annual or interim goodwill impairment test by comparing
the fair value of the relevant reporting unit with its carrying amount. We would recognize an impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total
amount of goodwill allocated to that reporting unit.
We have the option to perform a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill
impairment test. However, we may elect to perform the quantitative goodwill impairment test even if no indications of a potential
impairment exist.
During 2020, a quantitative assessment was performed. The fair value of each reporting unit was determined using a discounted
cash flow analysis and market approach. Projecting discounted future cash flows requires us to make significant estimates
regarding future revenues and expenses, projected capital expenditures, changes in working capital and the appropriate discount
rate. Use of the market approach consists of comparisons to comparable publicly-traded companies that are similar in size and
industry. The non-recurring fair value measurement is a “Level 3” measurement under the fair value hierarchy. For the 2020
annual impairment test, the estimated fair value exceeded the carrying value in each of our reporting units, therefore, no
impairment charge was required.
During 2019, a qualitative assessment was performed. We 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 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.
37
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 was no impairment charge recorded in any of the years presented for identifiable intangible assets.
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 re-measurement 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 loss of $6.7 million in 2020, a pre-tax gain of $3.4 million
in 2019 and a pre-tax loss of $3.6 million in 2018. 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. There are no known or anticipated changes in
our discount rate assumptions that will impact our pension expense in 2021.
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 actuarial 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.
38
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.
ITEM 7A. 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, 2020, was comprised of debt predominantly denominated in U.S. dollars. This debt
portfolio is comprised of 72% fixed-rate debt and 28% 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, 2020, a 100 basis point increase or decrease in
interest rates would result in a $37.6 million decrease or $40.9 million increase in fair value, respectively.
Based on the variable-rate debt included in our debt portfolio as of December 31, 2020, a 100 basis point increase or decrease in
interest rates would result in a $2.4 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.
39
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, 2020, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts
of $12.4 million. 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, 2020, we had outstanding cross currency swap agreements with a combined notional amount of $855.1 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 $63.7 million net increase in accumulated other comprehensive income. Conversely, a 10% depreciation of the U.S. dollar
relative to the Euro would result in an $57.0 million net decrease in accumulated other comprehensive income. However, these
increases and decreases in other comprehensive income would be offset by decreases or increases in the hedged items on our
balance sheet.
40
ITEM 8. 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, 2020. 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, 2020, 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, 2020. That attestation report is set forth immediately following this
management report.
John L. Stauch
President and Chief Executive Officer
Robert P. Fishman
Executive Vice President, Chief Financial Officer and
Chief Accounting Officer
41
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,
2020, 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, 2020, based on 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, 2020, of the Company and our report
dated February 16, 2021 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 16, 2021
42
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2020, 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, 2020, 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 16, 2021, 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 weighted average cost of capital (“WACC”) rates and forecasting future revenues for the related brands. 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 $180.6 million as of December 31, 2020, 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.
43
Given the level of judgment involved, management uses a third-party fair value specialist to assist in establishing the royalty and
WACC rate assumptions. The future trade name revenues are sensitive to changes in demand, and the short-term growth rates
have increased uncertainty as a result of the COVID-19 pandemic. 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 forecasts of future trade name revenues and selection of the royalty and WACC rates included
the following, among others:
• We tested the effectiveness of controls over indefinite-lived trade names impairment evaluation, including those over
management’s review of the trade name revenue forecasts and the selection of the royalty and WACC rates to be used in
the valuation.
• We assessed management’s ability to prepare accurate trade name revenue forecasts by performing a retrospective
review to compare actual results to management’s historical forecasts.
• We evaluated the reasonableness of management’s trade name 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, (3) forecasted information included in Company press releases, (4) underlying analysis detailing
business strategies and growth plans, and (5) current industry, market and economic trends.
• We also performed sensitivity analyses to evaluate the impact that changes in the significant assumptions would have on
the fair value of the trade names.
• With the assistance of our fair value specialists, we evaluated the royalty and WACC rates used by management in the
valuation, including (1) testing the underlying source information and the mathematical calculations, (2) developing a
range of independent estimates and comparing those to the WACC rate selected by management, and (3) comparing the
selected royalty rate to market data for comparable licensing agreement rates.
Income Taxes — Completeness of Uncertain Tax Positions — Refer to Notes 1 and 10 to the financial statements
Critical Audit Matter Description
The Company assesses uncertain tax positions (“UTPs”) 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, 2020, the
Company’s recorded UTP balance was $46.3 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.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to evaluate the completeness of UTPs in material jurisdictions included the following, among others:
• We tested the effectiveness of controls over management’s determination of the existence of UTPs.
• With the assistance of our income tax specialists, we assessed the Company’s determination of the existence of UTPs. In
particular, our procedures included:
◦
Evaluating the Company’s significant judgments related to completeness of UTPs in material jurisdictions:
▪ We performed inquiries of management to assess whether they are aware of any new items or
significant changes to the business that would impact the UTP assessment or give rise to new UTPs.
44
▪ We evaluated the following: technical merits of existing UTPs, technical merits of potential UTPs, and
significant transactions and their tax implications, including the completeness and accuracy of the
underlying data supporting the transactions.
▪ We assessed the appropriateness and consistency of management’s methods and assumptions used in
identifying UTPs.
▪ We evaluated former and ongoing tax audits by tax authorities.
▪ We considered changes in and assessed the Company’s interpretation of applicable tax laws.
▪ We inspected the Company’s filed tax returns and the tax provision to obtain an understanding of
significant differences. We assessed whether the appropriate UTPs were recorded as well as whether
any additional UTPs needed to be considered.
▪ We evaluated the appropriateness and consistency of the financial statement disclosures, including
judgments associated with unrecognized tax benefits that could increase or decrease within 12 months
of the reporting date.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 16, 2021
We have served as the Company’s auditor since 1977.
45
Pentair plc and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
In millions, except per-share data
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative
Research and development
Operating income
Other (income) expense
Loss (gain) on sale of businesses
Loss on early extinguishment of debt
Net interest expense
Other expense (income)
Income from continuing operations before income taxes
Provision for income taxes
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Comprehensive income, net of tax
Net income
Changes in cumulative translation adjustment
Changes in market value of derivative financial instruments, net of tax
Comprehensive income
Earnings (loss) per ordinary share
Basic
Continuing operations
Discontinued operations
Basic earnings per ordinary share
Diluted
Continuing operations
Discontinued operations
Diluted earnings per ordinary share
Weighted average ordinary shares outstanding
Basic
Diluted
Years ended December 31
2020
2019
2018
$
3,017.8 $
2,957.2 $
1,960.2
1,057.6
520.5
75.7
461.4
0.1
—
23.9
5.3
432.1
75.0
357.1
1.5
358.6 $
1,905.7
1,051.5
540.1
78.9
432.5
(2.2)
—
30.1
(2.9)
407.5
45.8
361.7
(6.0)
355.7 $
358.6 $
355.7 $
49.0
(29.8)
(15.3)
17.4
377.8 $
357.8 $
2.14 $
0.01
2.15 $
2.13 $
0.01
2.14 $
166.5
167.4
2.14 $
(0.04)
2.10 $
2.12 $
(0.03)
2.09 $
169.4
170.4
$
$
$
$
$
$
$
2,965.1
1,917.4
1,047.7
534.3
76.7
436.7
7.3
17.1
32.6
(0.1)
379.8
58.1
321.7
25.7
347.4
347.4
10.0
4.8
362.2
1.83
0.15
1.98
1.81
0.15
1.96
175.8
177.3
See accompanying notes to consolidated financial statements.
46
Pentair plc and Subsidiaries
Consolidated Balance Sheets
In millions, except per-share data
Assets
Current assets
Cash and cash equivalents
Accounts receivable, net of allowances of $8.4 and $10.3, respectively
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Other assets
Goodwill
Intangibles, net
Other non-current assets
Total other assets
Total assets
Liabilities and Equity
Current liabilities
Accounts payable
Employee compensation and benefits
Other current liabilities
Total current liabilities
Other liabilities
Long-term debt
Pension and other post-retirement compensation and benefits
Deferred tax liabilities
Other non-current liabilities
Total liabilities
Commitments and contingencies (Note 15)
Equity
Ordinary shares $0.01 par value, 426.0 authorized, 166.1 and 168.3 issued at December 31,
2020 and 2019, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
December 31
2020
2019
82.1 $
367.5
420.0
105.5
975.1
301.2
2,392.2
325.9
202.8
2,920.9
4,197.2 $
245.1 $
117.0
410.4
772.5
839.6
102.0
107.4
269.4
2,090.9
82.5
502.9
377.4
99.1
1,061.9
283.2
2,258.3
339.2
196.9
2,794.4
4,139.5
325.1
71.0
352.9
749.0
1,029.1
96.4
104.4
206.7
2,185.6
1.7
1,680.7
631.2
(207.3)
2,106.3
4,197.2 $
1.7
1,777.7
401.0
(226.5)
1,953.9
4,139.5
$
$
$
$
47
Pentair plc and Subsidiaries
Consolidated Statements of Cash Flows
In millions
Operating activities
Net income
(Income) loss from discontinued operations, net of tax
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities of
Years ended December 31
2019
2018
2020
$
358.6 $
(1.5)
355.7 $
6.0
347.4
(25.7)
continuing operations
Equity income of unconsolidated subsidiaries
Depreciation
Amortization
Loss (gain) on sale of businesses
Deferred income taxes
Share-based compensation
Asset impairment
Loss on early extinguishment of debt
Pension and other post-retirement expense
Pension and other post-retirement contributions
Changes in assets and liabilities, net of effects of business acquisitions
Accounts receivable
Inventories
Other current assets
Accounts payable
Employee compensation and benefits
Other current liabilities
Other non-current assets and liabilities
Net cash provided by operating activities of continuing operations
Net cash (used for) provided by operating activities of discontinued operations
Net cash provided by operating activities
Investing activities
Capital expenditures
Proceeds from sale of property and equipment
Proceeds from (payments due to) sale of businesses
Acquisitions, net of cash acquired
Other
Net cash used for investing activities of continuing operations
Net cash used for investing activities of discontinued operations
Net cash used for investing activities
Financing activities
Net (repayments) receipts of commercial paper and revolving long-term debt
Proceeds from long-term debt
Repayment of long-term debt
Premium paid on early extinguishment of debt
Distribution of cash from nVent, net of cash transferred
Shares issued to employees, net of shares withheld
Repurchases of ordinary shares
Dividends paid
Other
Net cash used for financing activities
Change in cash held for sale
Effect of exchange rate changes on cash and cash equivalents
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information:
Cash paid for interest, net
Cash paid for income taxes, net
(1.4)
46.7
28.4
0.1
4.6
20.3
—
—
12.2
(8.4)
148.3
(29.1)
(2.3)
(81.9)
42.5
32.0
5.1
574.2
(0.6)
573.6
(3.5)
48.3
31.7
(2.2)
(18.4)
21.4
21.2
—
1.9
(20.9)
(17.5)
13.6
(18.4)
(63.6)
(19.1)
(0.4)
9.4
345.2
7.8
353.0
(62.2)
(58.5)
0.1
—
(58.0)
2.2
(117.9)
—
0.6
15.3
(287.8)
(1.5)
(331.9)
—
(117.9)
(331.9)
(117.5)
—
(74.0)
—
—
32.9
(150.2)
(127.1)
—
(435.9)
—
(20.2)
(0.4)
82.5
51.5
600.0
(401.5)
—
—
12.5
(150.0)
(122.7)
(6.9)
(17.1)
—
4.2
8.2
74.3
82.1 $
82.5 $
(8.4)
49.7
34.9
7.3
(4.1)
20.9
12.0
17.1
13.2
(8.9)
(15.3)
(40.1)
31.2
58.3
(0.6)
(3.3)
(27.5)
458.1
(19.0)
439.1
(48.2)
0.2
(12.8)
(0.9)
—
(61.7)
(7.1)
(68.8)
39.7
—
(675.1)
(16.0)
919.4
13.3
(500.0)
(187.2)
(2.0)
(407.9)
27.0
(1.4)
(12.0)
86.3
74.3
41.0 $
67.7
33.7 $
59.0
43.7
92.9
$
$
See accompanying notes to consolidated financial statements.
48
In millions
Balance - December 31, 2017
Net income
Cumulative effect of accounting changes
Other comprehensive income, net of tax
Distribution to nVent
Dividends declared
Share repurchases
Exercise of options, net of shares tendered for payment
Issuance of restricted shares, net of cancellations
Shares surrendered by employees to pay taxes
Share-based compensation
Balance - December 31, 2018
Net income
Other comprehensive income, net of tax
Dividends declared
Share repurchases
Exercise of options, net of shares tendered for payment
Issuance of restricted shares, net of cancellations
Shares surrendered by employees to pay taxes
Share-based compensation
Balance - December 31, 2019
Net income
Other comprehensive income, net of tax
Dividends declared
Share repurchases
Exercise of options, net of shares tendered for payment
Issuance of restricted shares, net of cancellations
Shares surrendered by employees to pay taxes
Share-based compensation
Balance - December 31, 2020
Pentair plc and Subsidiaries
Consolidated Statements of Changes in Equity
Ordinary shares
Number
Amount
Additional
paid-in capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
180.3 $
1.8 $
2,797.7 $
2,481.7 $
(243.4) $
5,037.8
—
—
—
—
—
—
—
—
—
—
—
—
—
347.4
(214.0)
—
—
—
62.6
347.4
(214.0)
62.6
(438.2)
(2,291.0)
(47.8)
(2,777.0)
—
(154.9)
(10.2)
(0.1)
(499.9)
0.9
0.5
(0.1)
—
—
—
24.3
—
(11.0)
20.9
—
—
—
—
—
—
—
—
—
—
—
(154.9)
(500.0)
24.3
—
(11.0)
20.9
171.4 $
1.7 $
1,893.8 $
169.2 $
(228.6) $
1,836.1
—
—
—
(4.0)
0.7
0.3
(0.1)
—
—
—
—
—
—
—
—
—
—
—
—
(150.0)
17.1
—
(4.6)
21.4
355.7
—
(123.9)
—
—
—
—
—
—
2.1
—
—
—
—
—
—
355.7
2.1
(123.9)
(150.0)
17.1
—
(4.6)
21.4
168.3 $
1.7 $
1,777.7 $
401.0 $
(226.5) $
1,953.9
—
—
—
(3.7)
1.3
0.3
(0.1)
—
—
—
—
—
—
—
—
—
—
—
—
(150.2)
37.6
—
(4.7)
20.3
358.6
—
(128.4)
—
—
—
—
—
—
19.2
—
—
—
—
—
—
358.6
19.2
(128.4)
(150.2)
37.6
—
(4.7)
20.3
166.1 $
1.7 $
1,680.7 $
631.2 $
(207.3) $
2,106.3
See accompanying notes to consolidated financial statements.
49
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Basis of Presentation and Summary of Significant Accounting Policies
1.
Business
Pentair plc and its consolidated subsidiaries (“we,” “us,” “our,” “Pentair” or the “Company”) is a pure play water industrial
manufacturing company comprised of two reporting segments: Consumer Solutions and Industrial & 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.
COVID-19
In March 2020, the World Health Organization declared the novel coronavirus 2019 (“COVID-19”) a global pandemic. The
COVID-19 pandemic has had and may continue to have an unfavorable impact on certain parts of our business. The broader
implications of the COVID-19 pandemic on our business, financial condition and results of operations remain uncertain and will
depend on certain developments, including the duration and severity of the COVID-19 pandemic and the availability and
distribution of vaccines to address the COVID-19 virus, its impact on our customers and suppliers and the range of governmental
and community reactions to the pandemic. We may continue to experience reduced customer demand or constrained supply that
could materially adversely impact our business, financial condition, results of operations, liquidity and cash flows in future
periods.
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 and pension and other post-retirement benefits. Actual results could differ from our estimates.
Revenue recognition
Revenue is recognized when control of the promised goods or services is 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.
50
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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 92.2%, 92.0% and 92.5% of our revenue for the years ended December
31, 2020, 2019 and 2018, 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 7.8%, 8.0% and 7.5% of our revenue for the
years ended December 31, 2020, 2019 and 2018, 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, 2020, we had $76.7 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.
51
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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.
Contract assets and liabilities consisted of the following:
In millions
Contract assets
Contract liabilities
Net contract assets
December 31
2020
2019
$ Change
% Change
$
$
50.1 $
27.5
22.6 $
41.0 $
32.6
8.4 $
9.1
(5.1)
14.2
22.2 %
(15.6) %
169.0 %
The $14.2 million increase in net contract assets from December 31, 2019 to December 31, 2020 was primarily the result of
timing of milestone payments. Approximately 85% of our contract liabilities at December 31, 2019 were recognized in revenue
during the twelve months ended December 31, 2020. There were no impairment losses recognized on our contract assets for the
twelve months ended December 31, 2020 and December 31, 2019.
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.
52
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Geographic net sales information, based on geographic destination of the sale, was as follows:
In millions
U.S.
Years ended December 31
2020
2019
2018
$
2,011.7 $
1,866.7 $
1,858.1
Western Europe
Developing (1)
Other Developed (2)
Consolidated net sales (3)
(1) Developing includes China, Eastern Europe, Latin America, the Middle East and Southeast Asia.
(2) Other Developed includes Australia, Canada and Japan.
(3) Net sales in Ireland, for each of the years presented, were not material.
$
375.3
427.5
203.3
3,017.8 $
401.6
480.6
208.3
402.7
476.5
227.8
2,957.2 $
2,965.1
Vertical net sales information was as follows:
In millions
Residential
Commercial
Industrial
Consolidated net sales
Years ended December 31
2019
2018
2020
$
1,883.4 $
1,668.2 $
1,665.9
528.6
605.8
627.3
661.7
630.7
668.5
$
3,017.8 $
2,957.2 $
2,965.1
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 during
2020, 2019 and 2018 were $75.7 million, $78.9 million and $76.7 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 credit losses, reducing our receivables balance to an amount we estimate is collectible from our
customers. Estimates used in determining the allowance for credit losses are based on current trends, aging of accounts receivable,
periodic credit evaluations of our customers’ financial condition, and historical collection experience as well as reasonable and
supportable forecasts of future economic conditions. We generally do not require collateral.
The following table summarizes the activity in the allowance for credit losses:
In millions
Years ended December 31
2020
2019
2018
Beginning balance
Bad debt (benefit) expense (1)
Write-offs, net of recoveries
Other (2)
Ending balance
(1) The bad debt benefit for the year-ended December 31, 2020 includes the positive impact related to the adoption of Accounting
Standards Update (“ASU”) No. 2016-13 “Financial Instruments-Credit Losses.”
10.3 $
14.0 $
10.3 $
8.4 $
(0.4)
(4.1)
(1.0)
(1.6)
1.4
0.1
$
$
14.2
1.1
(0.9)
(0.4)
14.0
(2) Other amounts are primarily the effects of changes in currency translations and the impact of allowance for credits.
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.
53
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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:
Land improvements
Buildings and leasehold improvements
Machinery and equipment
Years
5 to 20
5 to 50
3 to 15
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.
The following table presents geographic Property, plant and equipment, net by region as of December 31:
In millions
U.S.
Western Europe
Developing (1)
Other Developed (2)
Consolidated (3)
(1) Developing includes China, Eastern Europe, Latin America, the Middle East and Southeast Asia.
(2) Other Developed includes Australia, Canada and Japan.
(3) Property, plant and equipment, net in Ireland, for each of the years presented, were not material.
2020
2019
$
183.6 $
76.7
30.4
10.5
$
301.2 $
172.3
69.7
31.1
10.1
283.2
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 2020, 2019, or 2018.
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.
We test our goodwill for impairment at least annually during the fourth quarter or more frequently if events or changes in
circumstances indicate that the asset might be impaired. We perform our annual or interim goodwill impairment test by comparing
the fair value of the relevant reporting unit with its carrying amount. We would recognize an impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total
amount of goodwill allocated to that reporting unit.
We have the option to perform a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill
impairment test. However, we may elect to perform the quantitative goodwill impairment test even if no indications of a potential
impairment exist.
During 2020, a quantitative assessment was performed. The fair value of each reporting unit was determined using a discounted
cash flow analysis and market approach. Projecting discounted future cash flows requires us to make significant estimates
regarding future revenues and expenses, projected capital expenditures, changes in working capital and the appropriate discount
rate. Use of the market approach consists of comparisons to comparable publicly-traded companies that are similar in size and
industry. The non-recurring fair value measurement is a “Level 3” measurement under the fair value hierarchy. For the 2020
annual impairment test, the estimated fair value exceeded the carrying value in each of our reporting units, therefore, no
impairment charge was required.
54
Pentair plc and Subsidiaries
Notes to consolidated financial statements
During 2019, a qualitative assessment was performed. We 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 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. The 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 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 any of the years presented for identifiable intangible assets.
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 re-measurement 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. The service costs are recorded within Operating income and the interest costs, expected return on
plan assets and net actuarial gain/loss components of net periodic pension and other post-retirement benefit costs are recorded
within Other expense (income).
55
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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, 2020 and 2019, reserves for policy claims were $55.0 million, of which $13.0 million was
included in Other current liabilities and $42.0 million was included in Other non-current liabilities, and $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,
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 performance goals. The Compensation Committee has the ability to adjust performance
goals or modify the manner of measuring or evaluating a performance goal using its discretion. 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 performance metrics 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 the Company’s non-U.S. dollar functional currency international subsidiaries are measured using the
local currency as the functional currency. 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 March 2, 2020, we early adopted the SEC’s rule titled “Financial Disclosures about Guarantors and Issuers of Guaranteed
Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities,” which simplifies the disclosure requirements
related to our guaranteed registered securities under Rule 3-10 of Regulation S-X.
56
Pentair plc and Subsidiaries
Notes to consolidated financial statements
On January 1, 2020, we adopted ASU No. 2016-13 “Financial Instruments-Credit Losses” and the related amendments (the “new
standard”). The new standard changes the methodology used to measure credit losses for certain financial instruments and
financial assets, including trade receivables. The approach utilizes an expected credit loss model that requires consideration of a
broader range of information to estimate expected credit losses over the lifetime of an asset, which may result in earlier
recognition of credit losses than under the previous accounting standards.
Under the new standard, we record an allowance for credit losses, reducing our trade receivables balance to an amount we
estimate is collectible from our customers. The estimates used in determining the allowance for credit losses are based on
historical collection experience, including write-offs and recoveries, periodic credit evaluations of our customers’ financial
situation, and current circumstances as well as reasonable and supportable forecasts of future economic conditions. The adoption
of this new standard did not have a material impact on our consolidated financial statements.
Acquisitions and Discontinued Operations
2.
Acquisitions
In February 2019, as part of Consumer 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 and final working capital
true-ups.
For Aquion, the excess of purchase price over tangible net assets and identified intangible assets acquired has been allocated to
goodwill in the amount of $101.9 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 allocated to goodwill in the amount of $118.0
million, $7.6 million of which is expected to be deductible for income tax purposes.
In 2020, our Consumer Solutions reporting segment completed acquisitions with purchase prices totaling $58.0 million in cash,
net of cash acquired.
The pro forma impact of the acquisitions in 2019 and 2020 were not material.
Discontinued Operations
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 for the twelve months ended
December 31, 2018. These costs are reported in discontinued operations as they represent a cost directly related to the Separation
and Distribution and were included within Income (loss) from discontinued operations, net of tax presented below.
Operating results of discontinued operations are summarized below:
In millions
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative
Research and development
Operating income (loss)
Income (loss) from discontinued operations before income taxes
Income tax provision (benefit)
Income (loss) from discontinued operations, net of tax
Years ended December 31
2020
2019
2018
$
$
$
$
— $
—
—
(1.2)
—
— $
—
—
7.4
—
1.2 $
(7.4) $
1.6 $
0.1
1.5 $
(7.6) $
(1.6)
(6.0) $
693.9
424.0
269.9
237.8
14.6
17.5
31.8
6.1
25.7
57
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Earnings Per Share
3.
Basic and diluted earnings per share were calculated as follows:
In millions, except per share data
Net income
Net income from continuing operations
Weighted average ordinary shares outstanding
Basic
Dilutive impact of stock options and restricted stock awards
Diluted
Earnings (loss) per ordinary share
Basic
Continuing operations
Discontinued operations
Basic earnings per ordinary share
Diluted
Continuing operations
Discontinued operations
Diluted earnings per ordinary share
Anti-dilutive stock options excluded from the calculation of diluted earnings
per share
Years ended December 31
2020
2019
2018
$
$
358.6 $
357.1 $
355.7 $
361.7 $
166.5
0.9
167.4
169.4
1.0
170.4
$
$
$
$
2.14 $
0.01
2.15 $
2.13 $
0.01
2.14 $
2.14 $
(0.04)
2.10 $
2.12 $
(0.03)
2.09 $
1.7
2.1
347.4
321.7
175.8
1.5
177.3
1.83
0.15
1.98
1.81
0.15
1.96
1.2
Restructuring
4.
During 2020, 2019 and 2018, 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, 2020, 2019 and 2018
included a reduction in hourly and salaried headcount of approximately 175 employees, 375 employees and 300 employees,
respectively.
Restructuring related costs included in Selling, general and administrative expenses in the Consolidated Statements of Operations
and Comprehensive Income included costs for severance and other restructuring costs as follows:
In millions
Severance and related costs
Other
Total restructuring costs
Years ended December 31
2020
2019
2018
$
$
9.7 $
4.4
14.1 $
11.7 $
2.3
14.0 $
13.2
27.4
40.6
Other restructuring costs primarily consist of asset impairment and various contract termination costs.
Restructuring costs by reportable segment were as follows:
In millions
Consumer Solutions
Industrial & Flow Technologies
Other
Consolidated
Years ended December 31
2020
2019
2018
$
$
3.6 $
4.7
5.8
6.7 $
4.9
2.4
14.1 $
14.0 $
14.7
24.5
1.4
40.6
58
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Activity related to accrued severance and related costs recorded in Other current liabilities in the Consolidated Balance Sheets is
summarized as follows:
In millions
Beginning balance
Costs incurred
Cash payments and other
Ending balance
Years ended December 31
2020
2019
$
$
16.2 $
9.7
(10.7)
15.2 $
27.1
11.7
(22.6)
16.2
Goodwill and Other Identifiable Intangible Assets
5.
The changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019 by reportable segment were as
follows:
In millions
Consumer Solutions
Industrial & Flow Technologies
Total goodwill
December 31,
2019
Acquisitions/
divestitures
Purchase
accounting
adjustments
Foreign
currency
translation
December 31,
2020
$
$
1,501.4 $
756.9
2,258.3 $
51.9 $
—
51.9 $
14.4 $
—
14.4 $
12.8 $
54.8
67.6 $
1,580.5
811.7
2,392.2
In millions
Consumer Solutions
Industrial & Flow Technologies
Total goodwill
December 31,
2018
Acquisitions/
divestitures
Foreign currency
translation
December 31,
2019
$
$
1,302.8 $
769.9
2,072.7 $
201.8 $
—
201.8 $
(3.2) $
(13.0)
(16.2) $
1,501.4
756.9
2,258.3
There has been no impairment of goodwill for any of the years presented.
Identifiable intangible assets consisted of the following at December 31:
In millions
Definite-life intangibles
Customer relationships
Proprietary technology and
patents
Total finite-life intangibles
Indefinite-life intangibles
2020
Accumulated
amortization
Cost
Net
Cost
2019
Accumulated
amortization
Net
$
435.9 $
(308.1) $
127.8 $
418.1 $
(269.1) $
149.0
46.9
482.8
(29.4)
(337.5)
17.5
145.3
42.3
460.4
(25.5)
(294.6)
Trade names
Total intangibles
180.6
663.4 $
$
—
180.6
(337.5) $
325.9 $
173.4
633.8 $
—
(294.6) $
16.8
165.8
173.4
339.2
Identifiable intangible asset amortization expense in 2020, 2019 and 2018 was $28.4 million, $31.7 million and $34.9 million,
respectively.
There was no impairment charge for intangible assets in any of the years presented.
Estimated future amortization expense for identifiable intangible assets during the next five years is as follows:
In millions
2021
2022
2023
2024
2025
Estimated amortization expense
$
23.9 $
16.6 $
13.9 $
13.3 $
13.3
59
Pentair plc and Subsidiaries
Notes to consolidated financial statements
6.
Supplemental Balance Sheet Information
In millions
Inventories
Raw materials and supplies
Work-in-process
Finished goods
Total inventories
Other current assets
Cost in excess of billings
Prepaid expenses
Prepaid income taxes
Other current assets
Total other current assets
Property, plant and equipment, net
Land and land improvements
Buildings and leasehold improvements
Machinery and equipment
Capitalized software
Construction in progress
Total property, plant and equipment
Accumulated depreciation and amortization
Total property, plant and equipment, net
Other non-current assets
Right-of-use lease assets
Deferred income taxes
Deferred compensation plan assets
Other non-current assets
Total other non-current assets
Other current liabilities
Dividends payable
Accrued warranty
Accrued rebates and incentives
Billings in excess of cost
Current lease liability
Income taxes payable
Accrued restructuring
Other current liabilities
Total other current liabilities
Other non-current liabilities
Long-term lease liability
Income taxes payable
Self-insurance liabilities
Deferred compensation plan liabilities
Foreign currency contract liabilities
Other non-current liabilities
Total other non-current liabilities
$
$
$
$
$
$
$
$
$
$
$
December 31
2020
2019
218.7 $
67.2
134.1
420.0 $
50.1 $
48.5
3.8
3.1
105.5 $
35.9 $
195.4
589.7
79.9
47.8
948.7
647.5
301.2 $
83.6 $
27.4
22.6
69.2
196.2
65.2
116.0
377.4
41.0
48.3
5.2
4.6
99.1
33.7
188.1
537.2
73.5
48.1
880.6
597.4
283.2
77.2
29.6
21.3
68.8
202.8 $
196.9
33.2 $
37.0
122.0
22.5
22.1
14.6
15.2
143.8
410.4 $
65.1 $
44.8
42.0
22.6
69.6
25.3
32.0
32.1
83.5
22.5
19.0
11.1
16.2
136.5
352.9
61.1
45.4
41.6
21.3
11.6
25.7
60
$
269.4 $
206.7
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Accumulated Other Comprehensive Loss
7.
Components of Accumulated Other Comprehensive Loss consist of the following:
In millions
Cumulative translation adjustments
Market value of derivative financial instruments, net of tax
Accumulated other comprehensive loss
Debt
8.
Debt and the average interest rates on debt outstanding were as follows:
December 31
2020
2019
$
$
(177.1) $
(30.2)
(207.3) $
(226.1)
(0.4)
(226.5)
In millions
Commercial paper
Revolving credit facilities
Term loans
Senior notes - fixed rate (1)
Senior notes - fixed rate (1)
Senior notes - fixed rate (1)
Senior notes - fixed rate (1)
Senior notes - fixed rate (1)
Unamortized issuance costs and discounts
Total debt
Average
interest rate at
December 31, 2020
Maturity
year
December 31
2020
2019
N/A
1.244%
1.224%
3.625%
5.000%
3.150%
4.650%
4.500%
N/A
$
2023
2023
2023
2020
2021
2022
2025
2029
N/A
— $
36.1
200.0
—
103.8
88.3
19.3
400.0
(7.9)
117.8
35.8
200.0
74.0
103.8
88.3
19.3
400.0
(9.9)
$
839.6 $
1,029.1
(1) Senior notes are guaranteed as to payment by Pentair plc.
In April 2018, Pentair, Pentair Investments Switzerland GmbH (“PISG”), Pentair Finance S.à r.l (“PFSA“) and Pentair, Inc.
entered into a credit agreement, providing for an $800.0 million senior unsecured revolving credit facility with a term of five
years (the “Senior Credit Facility”), with Pentair and PISG as guarantors and PFSA and Pentair, Inc. as borrowers. In June 2020,
Pentair assumed the PISG guarantee. 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.
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 no
commercial paper outstanding as of December 31, 2020 and $117.8 million as of December 31, 2019, 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.
61
Pentair plc and Subsidiaries
Notes to consolidated financial statements
In March 2020, the commercial paper market began to experience high levels of volatility due to uncertainty related to the
COVID-19 pandemic. The volatility impacted both market access to and pricing of commercial paper. As a cost mitigation action,
we withdrew our credit ratings to access the commercial paper market in the second quarter of 2020 and continued to use the
revolving credit facility, along with cash generated from operations, to fund our general operations. As of December 31, 2020,
total availability under the Senior Credit Facility was $863.9 million.
Our debt agreements contain various financial covenants, but the most restrictive covenants are contained in the Senior Credit
Facility. The Senior Credit Facility contains covenants requiring us not to permit (i) the ratio of our consolidated debt (net of our
consolidated unrestricted cash in excess of $5.0 million but not to exceed $250.0 million) to our consolidated net income
(excluding, among other things, non-cash gains and losses) before interest, taxes, depreciation, amortization and non-cash share-
based compensation expense (“EBITDA”) on the last day of any period of four consecutive fiscal quarters to exceed 3.75 to 1.00
(the “Leverage Ratio”) and (ii) the ratio of our EBITDA to our consolidated interest expense, for the same period to be less than
3.00 to 1.00 as of the end of each fiscal quarter. For purposes of the Leverage Ratio, the Senior Credit Facility provides for the
calculation of EBITDA giving pro forma effect to certain acquisitions, divestitures and liquidations during the period to which
such calculation relates.
In addition to the Senior Credit Facility, we have various other credit facilities with an aggregate availability of $21.4 million, of
which there were no outstanding borrowings at December 31, 2020. Borrowings under these credit facilities bear interest at
variable rates.
We have $103.8 million aggregate principal amount of fixed rate senior notes maturing in the next twelve months. We classified
this debt as long-term as of December 31, 2020 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, 2020 matures on a calendar year basis as
follows:
In millions
2021
2022
2023
2024
2025
Thereafter
Total
Contractual debt obligation maturities $
103.8 $
88.3 $
236.1 $
— $
19.3 $
400.0 $
847.5
Derivatives and Financial Instruments
9.
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, 2020 and 2019, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar
equivalent amounts of $12.4 million and $17.0 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, 2020 and 2019, we had outstanding cross currency swap agreements with a combined notional amount of
$855.1 million and $777.0 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, 2020 and 2019, we had deferred foreign currency losses of $32.8 million
and $1.8 million, respectively, recorded in Accumulated other comprehensive loss associated with our cross currency swap
activity.
62
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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,
2020 and December 31, 2019, we had deferred foreign currency gains of $2.8 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.
The recorded amounts and estimated fair values of total debt, excluding unamortized issuance costs and discounts, at
December 31 were as follows:
In millions
Variable rate debt
Fixed rate debt
Total debt
2020
2019
Recorded
Amount
Fair
Value
Recorded
Amount
Fair
Value
236.1 $
611.4
847.5 $
236.1 $
695.4
931.5 $
353.6 $
685.4
1,039.0 $
353.6
732.2
1,085.8
$
$
63
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Financial assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows:
Recurring fair value measurements
In millions
Foreign currency contract liabilities
Deferred compensation plan assets
Total recurring fair value measurements
Recurring fair value measurements
In millions
Foreign currency contract assets
Foreign currency contract liabilities
Deferred compensation plan assets
Total recurring fair value measurements
December 31, 2020
Level 1
Level 2
Level 3
NAV
Total
— $
(69.6) $
12.2
12.2 $
—
(69.6) $
— $
—
— $
— $
10.4
10.4 $
(69.6)
22.6
(47.0)
December 31, 2019
Level 1
Level 2
Level 3
NAV
Total
— $
—
12.5
12.5 $
0.1 $
(11.6)
—
(11.5) $
— $
—
—
— $
— $
—
8.8
8.8 $
0.1
(11.6)
21.3
9.8
$
$
$
$
Nonrecurring fair value measurements
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
10.
Income from continuing operations before income taxes consisted of the following:
In millions
Federal (1)
International (2)
Income from continuing operations before income taxes
Years ended December 31
2020
2019
2018
$
$
7.2 $
424.9
432.1 $
(1.6) $
409.1
407.5 $
(24.6)
404.4
379.8
(1) “Federal” reflects United Kingdom (“U.K.”) income (loss) from continuing operations before income taxes.
(2) “International” reflects non-U.K. income from continuing operations before income taxes.
The provision for income taxes consisted of the following:
Years ended December 31
2019
2018
2020
$
$
0.1 $
70.3
70.4
4.6
4.6
75.0 $
— $
64.2
64.2
(18.4)
(18.4)
45.8 $
(0.1)
62.3
62.2
(4.1)
(4.1)
58.1
In millions
Currently payable (receivable)
Federal (1)
International (2)
Total current taxes
Deferred
International (2)
Total deferred taxes
Total provision for income taxes
(1) “Federal” represents U.K. taxes.
(2) “International” represents non-U.K. taxes.
64
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Reconciliations of the federal statutory income tax rate to our effective tax rate were as follows:
Percentages
U.K. federal statutory income tax rate
Tax effect of international operations (1)
Change in valuation allowances
Excess tax benefits on stock-based compensation
Base erosion and anti-abuse tax
Tax effect of U.S. tax reform
Tax effect of early extinguishment of debt
Effective tax rate
Years ended December 31
2019
2018
2020
19.0 %
(3.9)
1.3
(0.7)
1.7
—
—
17.4 %
19.0 %
(8.2)
1.1
(0.7)
—
—
—
11.2 %
19.0 %
(9.9)
7.9
(1.7)
—
(0.9)
0.9
15.3 %
(1) The tax effect of international operations consists of non-U.K. jurisdictions.
Reconciliations of the beginning and ending gross unrecognized tax benefits were as follows:
In millions
Beginning balance
Gross increases for tax positions in prior periods
Gross decreases for tax positions in prior periods
Gross increases based on tax positions related to the current year
Gross decreases related to settlements with taxing authorities
Reductions due to statute expiration
Ending balance
Years ended December 31
2020
2019
2018
$
47.4 $
51.4 $
0.6
—
0.2
(1.1)
(0.8)
0.4
(0.8)
0.4
(2.9)
(1.1)
$
46.3 $
47.4 $
13.8
44.0
(4.4)
0.9
(1.8)
(1.1)
51.4
We record gross unrecognized tax benefits in Other current liabilities and Other non-current liabilities in the Consolidated
Balance Sheets. Included in the $46.3 million of total gross unrecognized tax benefits as of December 31, 2020 was $45.9 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, 2020 may decrease by a range of zero to $10.6 million during 2021, 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, New Zealand, and the U.S. 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, 2020 and 2019, we
have liabilities of $0.2 million and $0.4 million, respectively, for the possible payment of penalties and $4.6 million and $3.7
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).
65
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Deferred taxes were recorded in the Consolidated Balance Sheets as follows:
In millions
Other non-current assets
Deferred tax liabilities
Net deferred tax liabilities
The tax effects of the major items recorded as deferred tax assets and liabilities were as follows:
In millions
Deferred tax assets
Accrued liabilities and reserves
Pension and other post-retirement compensation and benefits
Employee compensation and benefits
Tax loss and credit carryforwards
Interest limitations
Total deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities
Property, plant and equipment
Goodwill and other intangibles
Other liabilities
Total deferred tax liabilities
Net deferred tax liabilities
December 31
2020
2019
27.4 $
107.4
80.0 $
29.6
104.4
74.8
December 31
2020
2019
$
$
$
59.4 $
26.2
18.5
744.5
49.9
898.5
747.3
151.2
5.3
209.0
16.9
231.2
41.9
25.2
19.6
712.0
45.0
843.7
693.8
149.9
8.5
200.4
15.8
224.7
74.8
$
80.0 $
Included in tax loss and credit carryforwards in the table above is a deferred tax asset of $29.6 million as of December 31, 2020
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, 2020, tax loss carryforwards of $2,923.5 million were available to offset future income. A valuation
allowance of $716.7 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 $2,824.9 million which are subject to
varying expiration periods. Non-U.S. carryforwards of $1,785.0 million are located in jurisdictions with unlimited tax loss
carryforward periods, while the remainder will begin to expire in 2021. In addition, there were $98.6 million of U.S. state tax loss
carryforwards as of December 31, 2020. U.S. state tax losses of $61.1 million are in jurisdictions with unlimited tax loss
carryforward periods, while the remainder will expire in future years through 2040.
Taxes have not been provided on undistributed earnings of subsidiaries where it is our intention to reinvest these earnings
permanently or to repatriate the earnings only when it is tax effective to do so. It is not practicable to estimate the amount of tax
that might be payable if such earnings were to be remitted.
66
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Impacts of U.S. tax legislation
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 and subsequent years, 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.
In April 2020, the IRS released final regulations as part of the Act that place limitations on the deductibility of certain interest
expense for U.S. tax purposes. These regulations resulted in discrete tax expense of approximately $14.1 million in 2020, as well
as an increase to our 2020 annual effective tax rate of approximately 0.3%.
On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in response to the
COVID-19 pandemic. The CARES Act contains numerous income tax provisions, such as relaxing limitations on the deductibility
of interest and the ability to carryback net operating losses arising in taxable years from 2018 through 2020. The CARES Act
provides positive cash benefits of approximately $26.9 million, offset by an increase to our 2020 annual effective tax rate of
approximately 1.0% and $5.1 million in discrete tax items recorded in 2020, mainly attributable to base erosion and anti-abuse tax
related to 2019.
Benefit Plans
11.
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.
The information herein relates to defined-benefit pension and other post-retirement plans of our continuing operations only.
67
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Obligations and funded status
The following tables present reconciliations of plan benefit obligations, fair value of plan assets and the funded status of pension
plans and other post-retirement plans as of and for the years ended December 31, 2020 and 2019:
In millions
Change in benefit obligations
Benefit obligation beginning of year
Service cost
Interest cost
Settlements
Actuarial loss
Foreign currency translation
Benefits paid
Benefit obligation end of year
Change in plan assets
Fair value of plan assets beginning of year
Actual return on plan assets
Company contributions
Settlements
Foreign currency translation
Benefits paid
Fair value of plan assets end of year
Funded status
Benefit obligations in excess of the fair value of plan assets
Pension plans
Other post-retirement
plans
2020
2019
2020
2019
$
112.1 $
277.9 $
14.6 $
14.9
3.3
2.9
—
9.3
1.4
2.6
7.3
(1.5)
8.0
0.1
—
0.4
—
0.1
—
(8.2)
(182.3)
120.8 $
112.1 $
(1.3)
13.8 $
31.0 $
180.7 $
— $
3.0
7.1
—
0.8
16.0
18.0
(1.5)
0.1
(8.2)
33.7 $
(182.3)
31.0 $
—
1.3
—
—
(1.3)
— $
—
0.6
—
2.0
—
(2.9)
14.6
—
—
2.9
—
—
(2.9)
—
(87.1) $
(81.1) $
(13.8) $
(14.6)
$
$
$
$
The actuarial loss in 2020 was primarily due to declines in the discount rates to reflect economic conditions at December 31,
2020.
Amounts recorded in the Consolidated Balance Sheets were as follows:
In millions
Current liabilities
Non-current liabilities
Benefit obligations in excess of the fair value of plan assets
Pension plans
Other post-retirement
plans
2020
2019
2020
2019
$
$
(5.6) $
(81.5)
(87.1) $
(5.3) $
(75.8)
(81.1) $
(1.5) $
(12.3)
(13.8) $
(1.7)
(12.9)
(14.6)
The accumulated benefit obligation for all defined benefit plans was $119.3 million and $107.1 million at December 31, 2020 and
2019, respectively.
Information for pension plans with an accumulated benefit obligation or projected benefit obligation in excess of plan assets as of
December 31 was as follows:
In millions
Projected benefit obligation
Fair value of plan assets
Accumulated benefit obligation
Projected benefit obligation
exceeds the fair value
of plan assets
Accumulated benefit
obligation
exceeds the fair value of
plan assets
2020
2019
2020
2019
$
120.8 $
111.7 $
120.8 $
33.7
N/A
30.4
N/A
33.7
119.3
111.7
30.4
107.1
68
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Components of net periodic benefit expense for our pension plans for the years ended December 31 were as follows:
In millions
Service cost
Interest cost
Expected return on plan assets
Net actuarial loss (gain)
Net periodic benefit expense
2020
2019
2018
$
3.3 $
2.6 $
2.9
(0.8)
6.8
7.3
(3.9)
(4.1)
$
12.2 $
1.9 $
4.1
11.5
(7.6)
5.2
13.2
Components of net periodic benefit expense for our other post-retirement plans for the years ended December 31, 2020, 2019 and
2018, were not material.
Assumptions
The following table provides the weighted-average assumptions used to determine benefit obligations and net periodic benefit
cost as they pertain to our pension and other post-retirement plans.
Benefit obligation assumptions (1)
Discount rate
Rate of compensation increase
Net periodic benefit expense assumptions
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
Pension plans
Other post-retirement
plans
2020
2019
2018
2020
2019
2018
1.74 % 2.68 % 3.73 %
1.77 % 2.81 % 3.95 %
3.62 % 3.68 % 3.77 %
N/A
N/A
N/A
2.68 % 3.70 % 4.00 %
2.81 % 3.95 % 3.40 %
3.32 % 4.37 % 4.17 %
3.68 % 3.72 % 3.96 %
N/A
N/A
N/A
N/A
N/A
N/A
(1) The benefit obligation for the Salaried Plan as of December 31, 2018 was determined using assumptions reflecting the
termination of the plan. As a result, the 2018 weighted-average assumptions for the pension plans reflected in the table above
do not include the Salaried Plan.
Discount rates
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. There are no known or anticipated changes in
our discount rate assumptions that will impact our pension expense in 2021.
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 9.68%, 8.85% and (5.60)% in 2020, 2019 and 2018, respectively.
Healthcare cost trend rates
The assumed healthcare cost trend rates for other post-retirement plans as of December 31 were as follows:
Healthcare cost trend rate assumed for following year
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
Year the cost trend rate reaches the ultimate trend rate
2020
2019
5.4 %
4.4 %
2038
5.8 %
4.4 %
2038
69
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Pension plans assets
Objective
The primary objective of our investment strategy is to meet the pension obligation to our employees at a reasonable cost to us.
This is primarily accomplished through growth of capital and safety of the funds invested.
Asset allocation
Our actual overall asset allocation for our pension plans as compared to our investment policy goals as of December 31 was as
follows:
Fixed income
Alternative
Cash
Actual
Target
2020
2019
2020
2019
70 %
30 %
— %
70 %
29 %
1 %
71 %
29 %
— %
72 %
28 %
— %
Fair value measurement
The fair values of our pension plan assets and their respective levels in the fair value hierarchy as of December 31, 2020 and
December 31, 2019 were as follows:
In millions
Cash and cash equivalents
Other investments
Total investments at fair value
Investments measured at NAV
Total
In millions
Cash and cash equivalents
Other investments
Total investments at fair value
Investments measured at NAV
Total
$
$
$
$
December 31, 2020
Level 1
Level 2
Level 3
Total
0.1 $
—
0.1 $
— $
—
— $
— $
10.0
10.0 $
$
0.1
10.0
10.1
23.6
33.7
December 31, 2019
Level 1
Level 2
Level 3
Total
0.4 $
—
0.4 $
— $
—
— $
— $
8.9
8.9 $
$
0.4
8.9
9.3
21.7
31.0
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 are
considered a Level 2 investment.
Other investments: Other investments include investments in commingled funds with diversified investment strategies.
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, 2020 and 2019 was not material.
Cash flows
Contributions
Pension contributions totaled $7.1 million and $18.0 million in 2020 and 2019, respectively. We anticipate our 2021 pension
contributions to be approximately $6.5 million. The 2021 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:
70
Pentair plc and Subsidiaries
Notes to consolidated financial statements
In millions
2021
2022
2023
2024
2025
2026 - 2030
Pension plans
Other post-
retirement
plans
$
7.0 $
7.2
7.4
7.6
7.5
36.0
1.5
1.4
1.3
1.2
1.1
4.3
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 may
voluntarily contribute a percentage of their eligible compensation. We match contributions made by employees who met certain
eligibility and service requirements. The 401(k) company match contribution is a dollar-for-dollar (100%) matching contribution
on up to 5% of employee eligible earnings, contributed as before-tax contributions.
During 2018, 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 $15.3 million, $14.4 million and $23.4 million in 2020, 2019 and
2018, respectively.
Other retirement compensation
Total other accrued retirement compensation, primarily related to deferred compensation and supplemental retirement plans, was
$30.7 million and $29.0 million as of December 31, 2020 and 2019, 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
12.
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 May 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”). The 2018 Authorization expires on May 31, 2021. On December 8, 2020, the Board of
Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $750.0 million (the “2020
Authorization”). The 2020 Authorization expires on December 31, 2025. The 2020 Authorization supplements the 2018
Authorization.
During the year ended December 31, 2019, we repurchased 4.0 million of our ordinary shares for $150.0 million under the 2018
Authorization.
During the year ended December 31, 2020, we repurchased 3.7 million of our ordinary shares for $150.2 million under the 2018
Authorization. As of December 31, 2020, we had $99.7 million and $750.0 million available for share repurchases under the 2018
Authorization and 2020 Authorization, respectively.
Dividends payable
On December 8, 2020, the Board of Directors approved a 5 percent increase in the Company’s regular quarterly dividend rate
(from $0.19 per share to $0.20 per share) that was paid on February 5, 2021 to shareholders of record at the close of business on
January 22, 2021. The balance of dividends payable included in Other current liabilities on our Consolidated Balance Sheets was
$33.2 million at December 31, 2020. Dividends paid per ordinary share were $0.76, $0.72 and $1.05 for the years ended
December 31, 2020, 2019 and 2018, respectively.
71
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Share Plans
13.
Share-based compensation expense
Total share-based compensation expense for 2020, 2019 and 2018 was as follows:
In millions
Restricted stock units
Stock options
Performance share units
Total share-based compensation expense
December 31
2020
2019
2018
$
$
12.5 $
11.2 $
3.0
4.8
4.5
5.7
20.3 $
21.4 $
8.9
4.6
7.4
20.9
Of the total share-based compensation expense noted above, $3.4 million for the year ended December 31, 2018 was reported as
part of Income (loss) from discontinued operations, net of tax.
Share incentive plans
In May 2020, the Pentair plc 2020 Share and Incentive Plan (“2020 Share Plan”) was approved during the Annual General
Meeting of Shareholders. The Pentair plc 2012 Stock and Incentive Plan (“2012 Stock Plan”) terminated upon the approval of the
2020 Share Plan, although awards outstanding under the 2012 Stock Plan continue in effect. Beginning May 5, 2020, all share-
based compensation grants were made under the 2020 Share Plan.
The 2020 Share Plan authorizes the issuance of 3.3 million of our ordinary shares, plus the number of shares reserved under the
2012 Stock Plan that were not the subject of outstanding awards as of the date the 2020 Share Plan became effective, which was
2.5 million shares, plus certain shares that would become available under the 2012 Stock Plan if it had remained in effect. 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 2020 Share Plan terminates on the date all shares reserved for issuance have been issued. The 2020 Share Plan allows
for the granting to our employees, consultants and directors of stock options, stock appreciation rights, performance share units,
restricted shares, restricted stock units, deferred stock rights, incentive awards, dividend equivalent units and other equity-based
awards.
The 2020 Share 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 2020 Share Plan are managerial,
administrative or professional employees. 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
2020 Share Plan. The 2020 Share Plan prohibits the Committee from re-pricing awards or canceling and reissuing awards at lower
prices.
Non-qualified and incentive stock options
Under the 2020 Share 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 2020 Share 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 2020 Share Plan, the Committee is permitted to issue these awards which are generally contingent on the achievement
of predetermined performance goals over a vesting period of three years. The Committee has the ability to adjust performance
goals or modify the manner of measuring or evaluating a performance goal using its discretion. 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 performance metrics during
the vesting period.
72
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Stock options
The following table summarizes stock option activity under all plans for the year ended December 31, 2020:
Shares and intrinsic value in millions
Outstanding as of January 1, 2020
Granted
Exercised
Forfeited
Outstanding as of December 31, 2020
Options exercisable as of December 31, 2020
Options expected to vest as of December 31, 2020
Weighted-
average
exercise
price
Weighted-
average
remaining
contractual life
(years)
Aggregate
intrinsic
value
Number of
shares
3.8 $
0.4
(1.1)
(0.3)
2.8 $
2.1 $
0.7 $
37.29
44.58
30.05
45.61
40.47
39.72
42.85
5.6
4.7
8.4
$
$
$
35.5
28.6
6.8
Fair value of options granted
The weighted average grant date fair value of options granted under Pentair plans in 2020, 2019 and 2018 was estimated to be
$9.55, $8.86 and $10.92 per share, respectively. The total intrinsic value of options that were exercised during 2020, 2019 and
2018 was $18.0 million, $9.5 million and $18.2 million, respectively. At December 31, 2020, the total unrecognized
compensation cost related to stock options was $3.0 million. This cost is expected to be recognized over a weighted average
period of 1.8 years.
We estimated the fair value of each stock option award issued in the annual share-based compensation grant using a Black-
Scholes option pricing model, modified for dividends and using the following assumptions:
Risk-free interest rate
Expected dividend yield
Expected share price volatility
Expected term (years)
2020
1.61 %
1.80 %
24.10 %
6.8
December 31
2019
2.89 %
1.78 %
23.30 %
6.1
2018
2.58 %
1.56 %
24.80 %
6.1
These estimates require us to make assumptions based on historical results, observance of trends in our share price, changes in
option exercise behavior, future expectations and other relevant factors. If other assumptions had been used, share-based
compensation expense, as calculated and recorded under the accounting guidance, could have been affected.
We based the expected life assumption on historical experience as well as the terms and vesting periods of the options granted.
For purposes of determining expected 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, 2020, 2019 and 2018 was $30.8 million, $15.5 million and
$19.5 million, respectively. The actual tax benefit realized for the tax deductions from options exercised totaled $2.9 million, $2.8
million and $5.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.
73
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Restricted stock units
The following table summarizes restricted stock unit activity under all plans for the year ended December 31, 2020:
Shares in millions
Outstanding as of January 1, 2020
Granted
Vested
Forfeited
Outstanding as of December 31, 2020
Number of
shares
Weighted
average
grant date
fair value
0.6 $
0.4
(0.2)
(0.1)
0.7 $
42.16
42.37
40.85
42.79
42.52
As of December 31, 2020, there was $25.6 million of unrecognized compensation cost related to restricted share compensation
arrangements granted under the 2020 Plan and previous plans. That cost is expected to be recognized over a weighted-average
period of 1.2 years. The total fair value of shares vested during the years ended December 31, 2020, 2019 and 2018, was $11.2
million, $9.3 million and $24.4 million, respectively. For the year ended December 31, 2020, there was no tax benefit realized.
The actual tax benefit realized for the years ended December 31, 2019 and 2018, was $0.1 million, and $0.7 million respectively.
Performance share units
The following table summarizes performance share unit activity under all plans for the year ended December 31, 2020:
Shares in millions
Outstanding as of January 1, 2020
Granted
Forfeited
Outstanding as of December 31, 2020
Number of
shares
Weighted
average
grant date
fair value
0.3 $
0.2
(0.1)
0.4 $
41.62
45.31
43.30
42.78
The expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued. As of
December 31, 2020, there was $7.5 million of unrecognized compensation cost related to performance share compensation
arrangements granted under the 2020 Plan and previous plans. That cost is expected to be recognized over a weighted-average
period of 1.2 years. There were $0.1 million, $0.2 million, and $0.2 million of actual tax benefits realized for the years ended
December 31, 2020, 2019, and 2018, respectively.
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. These awards were converted as follows:
•
•
•
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.
74
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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
14.
Effective January 1, 2020, we reorganized our business segments to better support our organization with our strategies and to
better align with our customer base, resulting in a change to our reporting segments. All prior period amounts related to the
segment change have been retrospectively reclassified to conform to the new presentation. As part of this reorganization, the
legacy Aquatic Systems, Flow Technologies, and Filtration Solutions segments were realigned into two reportable business
segments:
•
•
Consumer Solutions - This segment designs, manufactures and sells energy-efficient residential and commercial pool
equipment and accessories, and commercial and residential water treatment products and systems. Residential and
commercial pool equipment and accessories include pumps, filters, heaters, lights, automatic controls, automatic
cleaners, maintenance equipment and pool accessories. Water treatment products and systems include pressure tanks,
control valves, activated carbon products, conventional filtration products, and point-of-entry and point-of-use systems.
Applications for our pool business’s products include residential and commercial pool maintenance, repair, renovation,
service and construction. Our water treatment products and systems are used in residential whole home water filtration,
drinking water filtration and water softening solutions in addition to commercial total water management and filtration in
foodservice operations. The primary focus of this segment is business-to-consumer.
Industrial & Flow Technologies - This segment manufactures and sells a variety of fluid treatment and pump products
and systems, including pressure vessels, gas recovery solutions, membrane bioreactors, wastewater reuse systems and
advanced membrane filtration, separation systems, water disposal pumps, water supply pumps, fluid transfer pumps,
turbine pumps, solid handling pumps, and agricultural spray nozzles, while serving the global residential, commercial
and industrial markets. These products and systems are used in a range of applications, fluid delivery, ion exchange,
desalination, food and beverage, separation technologies for the oil and gas industry, residential and municipal wells,
water treatment, wastewater solids handling, pressure boosting, circulation and transfer, fire suppression, flood control,
agricultural irrigation and crop spray. The primary focus of this segment is business-to-business.
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.
Financial information by reportable segment is included in the following summary:
In millions
Consumer Solutions
Industrial & Flow Technologies
Other
Consolidated (1)
2020
2019
Net sales
2018
2020
2019
2018
Segment income (loss)
$
1,742.9 $
1,273.6
1.3
1,611.7 $
1,344.1
1.4
$
3,017.8 $
2,957.2 $
1,578.4 $
1,385.4
1.3
2,965.1 $
419.1 $
164.6
(66.1)
517.6 $
379.6 $
199.0
(62.3)
516.3 $
392.9
198.8
(54.9)
536.8
(1) One customer in the Consumer Solutions segment, Pool Corporation, represented approximately 15% of our consolidated net
sales in 2020, 2019 and 2018.
75
Pentair plc and Subsidiaries
Notes to consolidated financial statements
In millions
Consumer Solutions
Industrial & Flow
Technologies
Other
Consolidated
2020
2019
Identifiable assets (1)
2018
$ 2,327.9 $ 2,329.9 $ 1,952.2 $
1,661.7 1,562.8 1,588.0
266.3
246.8
$ 4,197.2 $ 4,139.5 $ 3,806.5 $
207.6
2020
2019
2018
2020
2019
2018
Capital expenditures
27.4 $
31.2 $
Depreciation
22.7 $
21.4 $
21.8 $
20.9
26.6
8.2
62.2 $
20.3
7.0
58.5 $
14.8
10.7
48.2 $
19.8
5.5
46.7 $
21.0
5.5
48.3 $
23.5
5.3
49.7
(1) All cash and cash equivalents and assets held for sale are included in “Other.”
The following table presents a reconciliation of consolidated segment income to consolidated income from continuing operations
before income taxes:
In millions
Segment income
Restructuring and other
Inventory step-up
Intangible amortization
Pension and other post-retirement mark-to-market (loss) gain
Asset impairment
(Loss) gain on sale of businesses
Loss on early extinguishment of debt
Interest expense, net
Corporate allocations
Deal related costs and expenses
COVID-19 related costs and expenses
Other expense
2020
2019
2018
$
517.6 $
516.3 $
(15.4)
—
(28.4)
(6.7)
—
(0.1)
—
(23.9)
—
(0.6)
(10.4)
—
(21.0)
(2.2)
(31.7)
3.4
(21.2)
2.2
—
(30.1)
—
(4.2)
—
(4.0)
536.8
(31.8)
—
(34.9)
(3.6)
(12.0)
(7.3)
(17.1)
(32.6)
(11.0)
(2.0)
—
(4.7)
Income from continuing operations before income taxes
$
432.1 $
407.5 $
379.8
Commitments and Contingencies
15.
Legal proceedings
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 regulatory or contractual
disputes with suppliers, authorities, customers or parties to acquisitions and divestitures, intellectual property matters,
environmental, asbestos, 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 adverse 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. As a result, the current estimates of
the potential impact on our consolidated financial position, results of operations and cash flows for the proceedings and claims
described in the notes to our consolidated financial statements could change in the future.
Environmental matters
We have been named as defendant, target or a potentially responsible party in a number of environmental clean-ups relating to our
current or former business units. Accruals for environmental matters are recorded on a site-by-site basis when it is probable that a
liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing
technologies. It can be difficult to estimate reliably the final costs of investigation and remediation due to various factors. In our
opinion, the amounts accrued are appropriate based on facts and circumstances as currently known. As of December 31, 2020, our
recorded reserves for environmental matters were not material.
76
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Leases
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.
These operating lease right-of-use (“ROU”) assets are included in Other non-current assets on Consolidated Balance Sheets, and
represent our right to use the underlying asset for the lease term. Our obligation to make lease payments arising from the lease are
included in Other current liabilities and Other non-current liabilities on the Consolidated Balance Sheets. 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 at the commencement date in determining the present value of lease payments. The ROU asset
also excludes any accrued lease payments and unamortized lease incentives.
For measurement and classification of lease agreements, we group lease and non-lease components into 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 components of lease cost was as follows:
In millions
Operating lease cost
Sublease income
Total lease cost
Supplemental cash flow information related to leases was as follows:
In millions
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for lease obligations
Other information related to leases was as follows:
Weighted-average remaining lease term of operating leases (years)
Weighted-average discount rate of operating leases
December 31,
2020
December 31,
2019
$
$
32.5 $
(1.0)
31.5 $
32.5
(1.0)
31.5
December 31,
2020
December 31,
2019
$
$
28.5 $
13.6 $
26.8
91.1
December 31,
2020
December 31,
2019
4.7
5.5 %
5.2
6.3 %
Future minimum lease commitments under non-cancelable operating leases as of December 31, 2020 were as follows:
In millions
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: imputed interest
Total
$
$
26.2
22.9
19.5
14.8
6.0
9.5
98.9
(11.7)
87.2
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.
77
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Generally, the maximum obligation under such indemnifications is not explicitly stated and as a result, the overall amount of these
obligations cannot be reasonably estimated. Historically, we have not made significant payments for these indemnifications. We
believe that if we were to incur a loss in any of these matters, the loss would not have a material effect on our financial position,
results of operations or cash flows.
We recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. In
connection with the disposition of the Valves & Controls business, we agreed to indemnify Emerson Electric Co. for certain pre-
closing tax liabilities. We have recorded a liability representing the fair value of our expected future obligation for this matter.
We provide service and warranty policies on our products. Liability under service and warranty policies is based upon a review of
historical warranty and service claim experience. Adjustments are made to accruals as claim data and historical experience
warrant.
The changes in the carrying amount of service and product warranties for the years ended December 31, 2020, 2019 and 2018
were as follows:
In millions
Beginning balance
Service and product warranty provision
Payments
Foreign currency translation
Ending balance
Years ended December 31
2020
2019
2018
$
32.1 $
33.9 $
55.5
(51.1)
0.5
53.8
(55.5)
(0.1)
$
37.0 $
32.1 $
38.1
50.8
(54.6)
(0.4)
33.9
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, 2020 and 2019, the outstanding value of bonds, letters of credit and bank guarantees totaled $99.1 million
and $91.3 million, respectively.
78
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Selected Quarterly Data (Unaudited)
16.
The following tables present 2020 and 2019 quarterly financial information:
In millions, except per-share data
Net sales
Gross profit
Operating income
Net income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income
Earnings (loss) per ordinary share (1)
Basic
Continuing operations
Discontinued operations
Basic earnings per ordinary share
Diluted
Continuing operations
Discontinued operations
Diluted earnings per ordinary share
First
Quarter
Second
Quarter
2020
Third
Quarter
Fourth
Quarter
Full
Year
$ 710.0 $ 713.3 $ 798.5 $ 796.0 $ 3,017.8
251.6
245.1
277.4
283.5 1,057.6
100.7
111.1
128.1
121.5
72.7
73.8
110.8
99.8
—
(1.7)
—
3.2
461.4
357.1
1.5
72.7
72.1
110.8
103.0
358.6
$
0.43 $
0.44 $
0.67 $
0.60 $
—
(0.01)
—
0.02
$
0.43 $
0.43 $
0.67 $
0.62 $
$
0.43 $
0.44 $
0.66 $
0.60 $
—
(0.01)
—
0.01
$
0.43 $
0.43 $
0.66 $
0.61 $
2.14
0.01
2.15
2.13
0.01
2.14
(1) Amounts may not total to annual earnings because each quarter and year are calculated separately based on basic and diluted
weighted-average ordinary shares outstanding during that period.
In millions, except per-share data
Net sales
Gross profit
Operating income
Net income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income
Earnings (loss) per ordinary share (1)
Basic
Continuing operations
Discontinued operations
Basic earnings per ordinary share
Diluted
Continuing operations
Discontinued operations
Diluted earnings per ordinary share
First
Quarter
Second
Quarter
2019
Third
Quarter
Fourth
Quarter
Full
Year
$ 688.9 $ 799.5 $ 713.6 $ 755.2 $ 2,957.2
235.6
286.7
255.0
274.2 1,051.5
67.6
133.8
108.8
122.3
52.4
115.1
91.3
102.9
432.5
361.7
(1.1)
(0.8)
1.0
(5.1)
(6.0)
51.3
114.3
92.3
97.8
355.7
$
0.31 $
0.68 $
0.54 $
0.61 $
2.14
(0.01)
(0.01)
0.01
(0.03)
(0.04)
$
0.30 $
0.67 $
0.55 $
0.58 $
2.10
$
0.30 $
0.68 $
0.54 $
0.61 $
2.12
—
(0.01)
0.01
(0.03)
(0.03)
$
0.30 $
0.67 $
0.55 $
0.58 $
2.09
(1) Amounts may not total to annual earnings because each quarter and year are calculated separately based on basic and diluted
weighted-average ordinary shares outstanding during that period.
79
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as of the end of the year ended December 31,
2020, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (“the Exchange Act”). Based upon their evaluation, our
Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as
of the year ended December 31, 2020 to ensure that information required to be disclosed by us in the reports we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms and to ensure that information required to be disclosed by us in the reports we file or
submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and
principal financial officers, as appropriate to allow timely decisions regarding required disclosures.
Management’s Annual Report on Internal Control Over Financial Reporting
The report of management required under this ITEM 9A is contained in ITEM 8 of this Annual Report on Form 10-K under the
caption “Management’s Report on Internal Control Over Financial Reporting.”
Attestation Report of Independent Registered Public Accounting Firm
The attestation report required under this ITEM 9A is contained in ITEM 8 of this Annual Report on Form 10-K under the caption
“Report of Independent Registered Public Accounting Firm.”
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2020
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
80
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required under this item with respect to directors is contained in our Proxy Statement for our 2021 annual general
meeting of shareholders under the captions “Corporate Governance Matters” and “Proposal 1 Re-elect Director Nominees” and is
incorporated herein by reference.
Information required under this item with respect to executive officers is contained in Part I of this Form 10-K under the caption
“Information About Our Executive Officers.”
Our Board of Directors has adopted Pentair’s Code of Business Conduct and Ethics and designated it as the code of ethics for the
Company’s Chief Executive Officer and senior financial officers. The Code of Business Conduct and Ethics also applies to all
employees and directors in accordance with New York Stock Exchange Listing Standards. We have posted a copy of Pentair’s
Code of Business Conduct and Ethics on our website at http://pentair.com/en/about-us/leadership/corporate-governance. We
intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to or waivers from, Pentair’s
Code of Business Conduct and Ethics by posting such information on our website at http://pentair.com/en/about-us/leadership/
corporate-governance.
We are not including the information contained on our website as part of, or incorporating it by reference into, this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this item is contained in our Proxy Statement for our 2021 annual general meeting of shareholders
under the captions “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Executive Compensation
Tables” and “Corporate Governance Matters - Director Compensation” and is incorporated herein by reference.
81
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information required under this item with respect to security ownership is contained in our Proxy Statement for our 2021 annual
general meeting of shareholders under the caption “Security Ownership” and is incorporated herein by reference.
The following table summarizes, as of December 31, 2020, information about compensation plans under which our equity
securities are authorized for issuance:
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
86,233 (1) $
4,006,791 (4)
15,616 (6)
4,108,640
$
— (2)
40.47 (2)
24.27 (2)
40.39 (2)
5,497,519 (3)
400,997 (5)
— (7)
5,898,516
Plan category
Equity compensation plans approved by
security holders:
2020 Share and Incentive Plan
2012 Stock and Incentive Plan
2008 Omnibus Stock Incentive Plan
Total
(1) Consists of 86,233 shares subject to restricted stock units.
(2) Represents the weighted average exercise price of outstanding stock options and does not take into account outstanding
restricted stock units or performance share units.
(3) Represents securities remaining available for issuance under the 2020 Share and Incentive Plan.
(4) Consists of 3,059,184 shares subject to stock options, 588,399 shares subject to restricted stock units, and 359,208 shares
subject to performance share awards.
(5) The 2012 Stock and Incentive Plan was terminated in 2020. Stock options, restricted stock units and performance share
awards previously granted under the 2012 Stock and Incentive Plan remain outstanding, but no further options or shares may
be granted under this plan.
(6) Consists of 15,616 shares subject to stock options.
(7) The 2008 Omnibus Stock Incentive Plan was terminated in 2012. Stock options previously granted under the 2008 Omnibus
Stock Incentive Plan remain outstanding, but no further options or shares may be granted under this plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information required under this item is contained in our Proxy Statement for our 2021 annual general meeting of shareholders
under the captions “Proposal 1 Re-elect Director Nominees - Director Independence” and “Corporate Governance Matters - The
Board’s Role and Responsibilities - Policies and Procedures Regarding Related Person Transactions” and is incorporated herein
by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required under this item is contained in our Proxy Statement for our 2021 annual general meeting of shareholders
under the caption “Proposal 3 Ratify, by Nonbinding, Advisory Vote, the Appointment of Deloitte & Touche LLP as the
Independent Auditor of Pentair plc and to Authorize, by Binding Vote, the Audit and Finance Committee of the Board of
Directors to Set the Auditor’s Remuneration” and is incorporated herein by reference.
82
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) List of documents filed as part of this report:
(1) Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2020,
2019 and 2018
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Changes in Equity for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
None.
All other schedules for which provision is made in the applicable accounting regulations of the Securities and
Exchange Commission have been omitted because they are not applicable or the required information is shown
in the financial statements or notes thereto.
(3) Exhibits
The exhibits of this Annual Report on Form 10-K included herein are set forth below.
Exhibit
Number Exhibit
3.1
4.1
4.2
4.3
4.4
4.5
4.6
Amended and Restated Memorandum and Articles of Association of Pentair plc (Incorporated by reference to
Exhibit 3.1 to the Current Report on Form 8-K of Pentair plc filed with the Commission on May 9, 2017 (File No.
001-11625)).
Indenture, dated as of September 24, 2012, among Pentair Finance S.A. (formerly Tyco Flow Control International
Finance S.A.) (as Issuer), Pentair Ltd. (as Guarantor) and Wells Fargo Bank, National Association (as Trustee)
(Incorporated by reference to Exhibit 4.1 in the Current Report on Form 8-K of Pentair Ltd. filed with the
Commission on September 28, 2012 (File No. 001-11625)).
Second Supplemental Indenture, dated as of September 24, 2012, among Pentair Finance S.A. (formerly Tyco
Flow Control International Finance S.A.) (as Issuer), Pentair Ltd. (as Guarantor), Pentair, Inc. and Wells Fargo
Bank, National Association (as Trustee) (Incorporated by reference to Exhibit 4.3 in the Current Report on Form
8-K of Pentair Ltd. filed with the Commission on September 28, 2012 (File No. 001-11625)).
Fifth Supplemental Indenture, dated as of December 18, 2012, among Pentair Finance S.A. (as Issuer), Pentair Ltd.
(as Guarantor) and Wells Fargo Bank, National Association (as Trustee) (Incorporated by reference to Exhibit 4.1
in the Current Report on Form 8-K of Pentair Ltd. filed with the Commission on December 18, 2012 (File No.
001-11625)).
Sixth Supplemental Indenture, dated as of May 20, 2014, among Pentair Finance S.A., Pentair Ltd., Pentair
Investments Switzerland GmbH, Pentair plc and Wells Fargo Bank, National Association, as trustee (Incorporated
by reference to Exhibit 4.3 in the Current Report on Form 8-K of Pentair plc filed with the Commission on May
20, 2014 (File No. 001-11625)).
Seventh Supplemental Indenture, dated as of May 26, 2017, among Pentair Finance S.A., Pentair plc, Pentair
Investments Switzerland GmbH and Wells Fargo Bank, National Association as trustee (Incorporated by reference
to Exhibit 4.1 to the Current Report on Form 8-K of Pentair plc filed with the Commission on May 31, 2017 (File
No. 001-11625)).
Senior Indenture, dated May 2, 2011 by and among Pentair, Inc. and Wells Fargo Bank, National Association
(Incorporated by reference to Exhibit 4.5 to Pentair, Inc.’s Registration Statement on Form S-3 (Registration
333-173829)).
83
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
10.1
First Supplemental Indenture, dated as of May 9, 2011, among Pentair, Inc., the guarantors named therein and
Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 4.2 in the Current Report on Form
8-K of Pentair, Inc. filed with the Commission on May 9, 2011 (File No. 000-04689)).
Third Supplemental Indenture, dated October 1, 2012, among Pentair Ltd., Pentair, Inc. and Wells Fargo Bank,
National Association, as trustee (Incorporated by reference to Exhibit 4.1 in the Current Report on Form 8-K of
Pentair Ltd. filed with the Commission on October 1, 2012 (File No. 001-11625)).
Fourth Supplemental Indenture, dated as of December 17, 2012, among Pentair, Inc. (as Issuer), Pentair Ltd. (as
Guarantor) and Wells Fargo Bank, National Association (as Trustee) (Incorporated by reference to Exhibit 4.2 in
the Current Report on Form 8-K of Pentair Ltd. filed with the Commission on December 18, 2012 (File No.
001-11625)).
Fifth Supplemental Indenture, dated as of May 20, 2014, among Pentair, Inc., Pentair Ltd., Pentair Investments
Switzerland GmbH, Pentair plc and Wells Fargo Bank, National Association, as trustee (Incorporated by reference
to Exhibit 4.2 in the Current Report on Form 8-K of Pentair plc filed with the Commission on May 20, 2014 (File
No. 001-11625)).
Sixth Supplemental Indenture, dated as of May 26, 2017, among Pentair, Inc., Pentair plc, Pentair Investments
Switzerland GmbH and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit
4.2 to the Current Report on Form 8-K of Pentair plc filed with the Commission on May 31, 2017 (File No.
001-11625)).
Credit Agreement, dated as of April 25, 2018, among Pentair plc, Pentair Investments Switzerland GmbH, Pentair
Finance S.à r.l., Pentair, Inc. and the lenders and agents party thereto (Incorporated by reference to Exhibit 4.1 to
the Current Report on Form 8-K of Pentair plc filed with the Commission on April 30, 2018) (File No.
001-11625)).
Amendment No. 1, dated as of December 2, 2019, to Credit Agreement, dated as of April 15, 2018, among Pentair
plc, Pentair Investments Switzerland GmbH, Pentair Finance S.à r.l., Pentair, Inc. and the lenders and agents party
thereto (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of Pentair plc filed with the
Commission on December 6, 2019) (File No. 001-11625)).
Indenture, dated as of September 16, 2015, among Pentair Finance S.A. (as Issuer), Pentair plc (as Parent and
Guarantor), Pentair Investments Switzerland GmbH (as Guarantor) and U.S. Bank National Association (as
Trustee) (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of Pentair plc filed with the
Commission on September 16, 2015 (File No. 001-11625)).
Third Supplemental Indenture, dated as of September 16, 2015, among Pentair Finance S.A. (as Issuer), Pentair
plc (as Parent and Guarantor), Pentair Investments Switzerland GmbH (as Guarantor) and U.S. Bank National
Association (as Trustee) (Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K of Pentair
plc filed with the Commission on September 16, 2015 (File No. 001-11625)).
Fifth Supplemental Indenture, dated as of May 26, 2017, among Pentair Finance S.A., Pentair plc, Pentair
Investments Switzerland GmbH and U.S. Bank National Association, as trustee (Incorporated by reference to
Exhibit 4.3 to the Current Report on Form 8-K of Pentair plc filed with the Commission on May 31, 2017 (File
No. 001-11625)).
Sixth Supplemental Indenture, dated as of June 21, 2019, among Pentair Finance S.à r.l. (as Issuer), Pentair plc (as
Parent and Guarantor), Pentair Investments Switzerland GmbH (as Guarantor) and U.S. Bank National
Association (as Trustee) (Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K of Pentair
plc filed with the Commission on June 21, 2019 (File No. 001-11625)).
Seventh Supplemental Indenture, dated as of June 22, 2020, among Pentair Finance S.à r.l. (as Issuer), Pentair plc
(as Parent and Guarantor), Pentair Investments Switzerland GmbH (as Guarantor) and U.S. Bank National
Association (as Trustee) (Incorporated by reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q of Pentair
plc filed with the Commission on July 23, 2020 (File No. 001-11625)).
Eighth Supplemental Indenture, dated as of June 22, 2020, among Pentair Finance S.à r.l. (as Issuer), Pentair plc
(as Successor Parent Guarantor), Pentair Investments Switzerland GmbH (as Guarantor) and Wells Fargo Bank
National Association (as Trustee) (Incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q
of Pentair plc filed with the Commission on July 23, 2020 (File No. 001-11625)).
Description of Securities.
Tax Matters Agreement, dated as of April 27, 2018, by and between Pentair plc and nVent Electric plc
(Incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K of Pentair plc filed with the
Commission on April 30, 2018 (File No. 001-11625)).
84
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Pentair plc 2012 Stock and Incentive Plan, as amended and restated effective as of January 1, 2017. (Incorporated
by reference to Exhibit 10.2 to the Annual Report on Form 10-K of Pentair plc for the year ended December 31,
2016 (File No. 001-11625)).*
Form of Executive Officer Stock Option Grant Agreement for grants made prior to January 1, 2017 (Incorporated
by reference to Exhibit 10.7 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June
3, 2014 (File No. 001-11625)).*
Form of Non-Employee Director Stock Option Grant Agreement (Incorporated by reference to Exhibit 10.10 in
the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).*
Pentair plc 2008 Omnibus Stock Incentive Plan, as amended and restated effective as of January 1, 2017
(Incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K of Pentair plc for the year ended
December 31, 2016 (File No. 001-11625)).*
Form of Assignment and Assumption Agreement, among Pentair, Inc., Pentair Ltd. and the executive officers of
Pentair Ltd. relating to Key Executive Employment and Severance Agreement (Incorporated by reference to
Exhibit 10.12 in the Current Report on Form 8-K of Pentair Ltd. filed with the Commission on October 1, 2012
(File No. 001-11625)).*
Form of Key Executive Employment and Severance Agreement for John L. Stauch (Incorporated by reference to
Exhibit 10.1 in the Quarterly Report on Form 10-Q of Pentair plc for the quarter ended June 30, 2018 (File No.
001-11625)).*
Form of Key Executive Employment and Severance Agreement for John H. Jacko (Incorporated by reference to
Exhibit 10.2 in the Quarterly Report on Form 10-Q of Pentair plc for the quarter ended June 30, 2018 (File No.
001-11625)).*
Form of Key Executive Employment and Severance Agreement for Karla C. Robertson, Kelly A. Baker, Philip M.
Rolchigo, Robert P. Fishman, Jerome O. Pedretti, Mario R. D’Ovidio and Stephen J. Pilla (Incorporated by
reference to Exhibit 10.3 in the Quarterly Report on Form 10-Q of Pentair plc for the quarter ended June 30, 2018
(File No. 001-11625)).*
Pentair plc Compensation Plan for Non-Employee Directors, as amended and restated (Incorporated by reference
to Exhibit 10.6 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File
No. 001-11625)).*
Pentair plc Employee Stock Purchase and Bonus Plan, as amended and restated effective as of January 1, 2021.
Pentair, Inc. Non-Qualified Deferred Compensation Plan, as amended and restated (Incorporated by reference to
Exhibit 10.17 to the Annual Report on Form 10-K of Pentair plc for the year ended December 31, 2018 (File No.
001-11625)).*
Trust Agreement for Pentair, Inc. Non-Qualified Deferred Compensation Plan between Pentair, Inc. and Fidelity
Management Trust Company (Incorporated by reference to Exhibit 10.18 contained in the Annual Report on Form
10-K of Pentair, Inc. for the year ended December 31, 1995 (File No. 000-04689)).*
Pentair, Inc. Supplemental Executive Retirement Plan effective January 1, 2009, as amended and restated
(Incorporated by reference to Exhibit 10.13 in the Current Report on Form 8-K of Pentair plc filed with the
Commission on June 3, 2014 (File No. 001-11625)).*
Pentair, Inc. Restoration Plan effective January 1, 2009, as amended and restated (Incorporated by reference to
Exhibit 10.14 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File
No. 001-11625)).*
Form of Deed of Indemnification for directors and executive officers of Pentair plc (Incorporated by reference to
Exhibit 10.15 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File
No. 001-11625)).*
Form of Indemnification Agreement for directors and executive officers of Pentair plc (Incorporated by reference
to Exhibit 10.16 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File
No. 001-11625)).*
Form of Executive Officer Key Talent Award Agreement for grants made prior to May 5, 2020 (Incorporated by
reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Pentair plc for the quarter ended March 31,
2018 (File No. 001-11625)).*
Form of Executive Officer Stock Option Grant Agreement for grants made on or after January 1, 2017 and prior to
February 26, 2018 (Incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K of Pentair plc
for the year ended December 31, 2016 (File No. 001-11625)).*
85
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
Form of Executive Officer Restricted Stock Unit Award Agreement for grants made on or after February 26, 2018
and prior to May 5, 2020 (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of
Pentair plc for the quarter ended March 31, 2018 (File No. 001-11625)).*
Form of Executive Officer Stock Option Award Agreement for grants made on or after February 26, 2018 and
prior to May 5, 2020 (Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q of Pentair
plc for the quarter ended March 31, 2018 (File No. 001-11625)).*
Form of Executive Officer Performance Stock Unit Award Agreement for grants made on or after February 26,
2018 and prior to January 1, 2019 (Incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-
Q of Pentair plc for the quarter ended March 31, 2018 (File No. 001-11625)).*
Form of Executive Officer Performance Stock Unit Award Agreement for grants made on or after January 1, 2019
and prior to May 5, 2020 (Incorporated by reference to Exhibit 10.32 to the Annual Report on Form 10-K of
Pentair plc for the year ended December 31, 2018 (File No. 001-11625)).*
Pentair plc 2020 Share and Incentive Plan, effective as of May 5, 2020 (Incorporated by reference to Appendix B
to the Definitive Proxy Statement on Schedule 14A of Pentair plc filed on March 20, 2020 (File No. 001-11625)).*
Form of Employee Restricted Stock Unit Award Agreement under the Pentair plc 2020 Share and Incentive Plan
(Incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 of Pentair plc (Reg. No.
333-238544)).*
Form of Non-Employee Director Restricted Stock Unit Award Agreement under the Pentair plc 2020 Share and
Incentive Plan (Incorporated by reference to Exhibit 99.2 to the Registration Statement on Form S-8 of Pentair plc
(Reg. No. 333-238544)).*
Form of Key Talent Award Agreement under the Pentair plc 2020 Share and Incentive Plan (Incorporated by
reference to Exhibit 99.3 to the Registration Statement on Form S-8 of Pentair plc (Reg. No. 333-238544)).*
Form of Stock Option Award Agreement under the Pentair plc 2020 Share and Incentive Plan (Incorporated by
reference to Exhibit 99.4 to the Registration Statement on Form S-8 of Pentair plc (Reg. No. 333-238544)).*
Form of Performance Share Unit Award Agreement under the Pentair plc 2020 Share and Incentive Plan
(Incorporated by reference to Exhibit 99.5 to the Registration Statement on Form S-8 of Pentair plc (Reg. No.
333-238544)).*
Pentair plc Executive Officer Severance Plan.*
Amendment No. 1 to the Pentair plc 2020 Share and Incentive Plan.*
Amendment to Key Executive Employment and Severance Agreement, as of January 1, 2021, for John L. Stauch,
John H. Jacko, Karla C. Robertson, Kelly A. Baker, Philip M. Rolchigo, Robert P. Fishman, Jerome O. Pedretti,
Mario R. D’Ovidio and Stephen J. Pilla.*
10.33
Separation Agreement, effective December 31, 2020, between Karl Frykman and Pentair Water Pool and Spa,
Inc.*
21
22
23
24
31.1
31.2
32.1
32.2
List of Pentair plc subsidiaries.
List of Guarantors and Subsidiary Issuers of Guaranteed Securities. (Incorporated by reference to Exhibit 22 to the
Quarterly Report on Form 10-Q of Pentair plc for the quarter ended September 30, 2020 (File No. 001-11625)).
Consent of Independent Registered Public Accounting Firm — Deloitte & Touche LLP.
Power of attorney.
Certification of Chief Executive Officer.
Certification of Chief Financial Officer.
Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
86
101
The following materials from Pentair plc’s Annual Report on Form 10-K for the year ended December 31, 2020
are filed herewith, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated
Statements of Operations and Comprehensive Income for the years ended December 31, 2020, 2019 and 2018, (ii)
the Consolidated Balance Sheets as of December 31, 2020 and 2019, (iii) the Consolidated Statements of Cash
Flows for the years ended December 31, 2020, 2019 and 2018, (iv) the Consolidated Statements of Changes in
Equity for the years ended December 31, 2020, 2019 and 2018 and (v) the Notes to the Consolidated Financial
Statements. The instance document does not appear in the interactive data file because its XBRL tags are
embedded within the Inline XBRL document.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Denotes a management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
None.
87
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 16, 2021.
SIGNATURES
PENTAIR PLC
By /s/ Robert P. Fishman
Robert P. Fishman
Executive Vice President, Chief Financial Officer and
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities indicated, on February 16, 2021.
Signature
/s/ John L. Stauch
John L. Stauch
/s/ Robert P. Fishman
Robert P. Fishman
*
Mona Abutaleb Stephenson
*
Glynis A. Bryan
*
T. Michael Glenn
*
Theodore L. Harris
*
David A. Jones
*
Gregory E. Knight
*
Michael T. Speetzen
*
Billie I. Williamson
*By
/s/ Karla C. Robertson
Karla C. Robertson
Attorney-in-fact
Title
President and Chief Executive Officer, Director
Executive Vice President, Chief Financial Officer and
Chief Accounting Officer
Director
Director
Director
Director
Director
Director
Director
Director
88
Our Annual General Meeting of Shareholders will be
held at Pentair’s office in the United States located
5500 Wayzata Blvd, Suite 900, Golden Valley,
Minnesota 55416, on Tuesday, May 4, 2021, at 8:00
a.m. Central Time. Shareholders in Ireland may
participate in Annual General Meeting by audio link
at Arthur Cox LLP, Ten Earlsfort Terrace, Dublin 2,
D02 T380, Ireland, at 2:00 p.m. Irish Time.
Shareholders seeking more information about the
Company can access news releases describing
significant company events and earnings results
for each quarter and the fiscal year as well as the
Form 10-K and other Securities and Exchange
Commission filings at www.pentair.com.
Information may also be obtained by request
from the Pentair Investor Relations Department,
5500 Wayzata Blvd, Suite 900, Golden Valley,
Minnesota 55416.
New York Stock Exchange (symbol: PNR)
Computershare, Inc.
P.O. Box 505000
Louisville, KY 40233-5000
Telephone inquiries: 1-866-241-7684(U.S.)
1-732-491-0587(non U.S.)
E-mail inquiries: web.queries@computershare.com
Essential Resources. For Life.
This communication contains statements that we believe to be "forward-looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements, other than statements of historical fact, are forward-looking statements. Without limitation, any statements preceded
or followed by or that include the words "targets," "plans," "believes," "expects," "intends," "will," "likely," "may," "anticipates," "estimates," "projects," "should,"
"would," "positioned," "strategy," "future" or words, phrases or terms of similar substance or the negative thereof, are forward-looking statements. These
forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which
are beyond our control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These
factors include the overall impact of the COVID-19 pandemic on our business; the duration and severity of the COVID-19 pandemic; actions that may be taken
by us, other businesses and governments to address or otherwise mitigate the impact of the COVID-19 pandemic, including those that may impact our ability
to operate our facilities, meet production demands, and deliver products to our customers; the negative impacts of the COVID-19 pandemic on the global
economy, our customers and suppliers, and customer demand; overall global economic and business conditions impacting our business, including the
strength of housing and related markets; demand, competition and pricing pressures in the markets we serve; volatility in currency exchange rates; failure of
markets to accept new product introductions and enhancements; the ability to successfully identify, finance, complete and integrate acquisitions; the ability
to achieve the benefits of our restructuring plans and cost reduction initiatives; risks associated with operating foreign businesses; the impact of material
cost and other inflation; the impact of seasonality of sales and weather conditions; our ability to comply with laws and regulations; the impact of changes in
laws, regulations and administrative policy, including those that limit U.S. tax benefits or impact trade agreements and tariffs; the outcome of litigation and
governmental proceedings; and the ability to achieve our long-term strategic operating goals. Additional information concerning these and other factors is
contained in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2020.
All forward-looking statements speak only as of the date of this communication. Pentair plc assumes no obligation, and disclaims any obligation, to update
the information contained in this communication.
70 London Road
Twickenham, London, TW1 3QS
United Kingdom
pentair.com
All Pentair trademarks and logos are owned
by Pentair. All other brands or product
names are trademarks or registered marks
of their respective owners. Because we are
continuously improving our products and
services, Pentair reserves the right to change
specifications without prior notice.