2021
ANNUAL
REPORT
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 reserve the right to
change speci(cid:357)cations without prior notice.
A PURPOSE-DRIVEN COMPANY
We inspire people to move, improve and enjoy life’s
essential resources for happier, healthier lives
UNITED BY OUR WIN RIGHT VALUES
WIN
RIGHT
Customer First
Absolute Integrity
Innovation & Adaptability
Respect & Teamwork
Accountability for Performance
Positive Energy
CAUTION CONCERNING
FORWARD-LOOKING STATEMENTS
This report contains statements that we believe to be (cid:565)forward(cid:557)
looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements, other than
statements of historical fact, are forward(cid:557)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(cid:557)looking statements. These forward(cid:557)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(cid:557)
looking statements. These factors include the overall impact of
the COVID(cid:557)19 pandemic on our business(cid:539) the duration and severity
of the COVID(cid:557)19 pandemic, the impact of virus variants and the
effectiveness of vaccinations(cid:539) actions that may be taken by
us, other businesses and governments to address or otherwise
mitigate the impact of the COVID(cid:557)19 pandemic, including those that
may impact our ability to operate our facilities, meet production
demands, and deliver products to our customers(cid:539) the impacts of
the COVID(cid:557)19 pandemic on the global economy, our workforce,
customers and suppliers, and customer demand(cid:539) overall global
economic and business conditions impacting our business,
including the strength of housing and related markets(cid:539) supply,
demand, logistics, competition and pricing pressures related
to and in the markets we serve(cid:539) volatility in currency exchange
rates(cid:539) failure of markets to accept new product introductions
and enhancements(cid:539) the ability to successfully identify, (cid:357)nance,
complete and integrate acquisitions(cid:539) the ability to achieve the
bene(cid:357)ts of our restructuring plans, cost reduction initiatives and
transformation program(cid:539) risks associated with operating foreign
businesses(cid:539) the impact of raw material, logistics and labor costs
and other in(cid:358)ation(cid:539) the impact of seasonality of sales and weather
conditions(cid:539) our ability to comply with laws and regulations(cid:539)
the impact of changes in laws, regulations and administrative
policy, including those that limit U.S. tax bene(cid:357)ts or impact trade
agreements and tariffs(cid:539) the outcome of litigation and governmental
proceedings(cid:539) and the ability to achieve our long(cid:557)term strategic
operating and ESG goals. Additional information concerning these
and other factors is contained in our (cid:357)lings with the U.S. Securities
and Exchange Commission (the “SEC”), including this Annual Report
on (cid:57)orm 10(cid:557)K. All forward(cid:557)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.
ANNUAL GENERAL MEETING
Our Annual General Meeting of Shareholders
will be held at Claridge’s, Brook Street, Mayfair,
London, W1K 4HR, United Kingdom, on
Tuesday, May 17, 2022, at 8:00 a.m. local 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 8:00 a.m. local time (IST).
STOCK EXCHANGE LISTING
New York Stock Exchange (symbol: PNR)
INVESTOR INFORMATION
Shareholders seeking more information
about the Company can access news releases
describing signi(cid:357)cant company events and
earnings results for each quarter and the
(cid:357)scal year as well as the (cid:57)orm 10(cid:557)K and other
Securities and Exchange Commission (cid:357)lings
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.
REGISTRAR, STOCK TRANSFER
AND PAYING AGENT
Computershare, Inc.
P.O. Box 505000
Louisville, KY 40233(cid:557)5000
Telephone inquiries: 1(cid:557)866(cid:557)241(cid:557)7684 (U.S.)
1(cid:557)732(cid:557)491(cid:557)0587 (non U.S.)
E(cid:557)mail inquiries:
web.queries@computershare.com
Dear Shareholders:
The year 2021 was an important year for Pentair, and one that made us stronger. We are very
grateful for the tireless efforts of our employees in helping deliver for our customers and
create value for shareholders. Our team of 11,250 employees put our purpose into practice as
well as demonstrated their relentless effort and agility in managing through global supply
chain and labor challenges in addition to significant inflationary pressures.
Delivering on Our 2021 Commitments
Beginning with our commitment to shareholders, we delivered robust growth in sales, income,
and EPS while also expanding margins. Additionally, 2021 was another excellent year of
generating strong free cash flow; we returned approximately half to shareholders through
dividends and share repurchases while also funding two strategic acquisitions. We acquired Ken’s Beverage to
expand our Commercial Water Treatment strategy, and the acquisition of Pleatco complemented our Pool and
Industrial businesses. We announced a dividend increase that will mark 2022 as the 46th consecutive year of dividend
increases, an important component of our long-term capital allocation strategy.
In 2021, we continued investing in building our brand, our digital capabilities, and our innovation around smart and
sustainable solutions. Our Pool business benefited from a large installed base, movement towards more autonomous
and more energy efficient pools, and favorable population migration trends. Our Water Treatment business built
momentum on the Residential side with smarter, connected solutions, while our more profitable Commercial
business recovered nicely despite restaurant traffic still not returning to 2019 levels. Finally, our Industrial
businesses exited 2021 with continued growth in orders, particularly in our Food and Beverage and Sustainable Gas
businesses.
Through our Office of Social Responsibility, we have been focused on the continued integration of our
environmental, social and governance (ESG) priorities with our business strategies, supporting our belief that these
efforts are cultivating a long-term value proposition for Pentair. In 2021, we made great progress on our goals,
including advancements in reducing our impact on the environment within our manufacturing processes; innovating
to deliver sustainable solutions for our customers; building a more socially responsible and sustainable supply chain;
and fostering an inclusive and diverse workforce. We plan to continue to invest in and fund the initiatives that we
expect will make the greatest impact to our business and shareholders.
Building Shareholder Value
We believe Pentair has a strong foundation and the opportunity to continue creating substantial value. We believe we
have compelling business platforms that are industry leaders in their designated spaces. Propelled by attractive
secular trends, we believe these spaces are growing faster than the overall global industries, and we have carved out
exciting strategic growth opportunities in which we have already begun to demonstrate performance. As we
announced earlier in 2021, we embarked on a transformation journey to reduce complexity within our business and
unlock value. We believe this will allow us to grow faster than the industries in which we participate and will help us
expand margins rapidly by 2025. And finally, our balance sheet is strong, which we believe will support incremental
value creation above and beyond what our base businesses can do on their own with tuck-in M&A.
As a purpose-driven organization, we take great pride in the positive impact we have on the world, and in turn,
building shareholder value. We strive to make the world better through our products and solutions, inspiring people
to move, improve and enjoy life’s essential resources for happier, healthier lives.
Thank you for your continued 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, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number 001-11625
☑
☐
Pentair plc
(Exact name of Registrant as specified in its charter)
Ireland
(State or other jurisdiction of
incorporation or organization)
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
Trading Symbol(s)
Name of each exchange on which registered
Ordinary Shares, nominal value $0.01 per share
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 $67.49 per share as
reported on the New York Stock Exchange on June 30, 2021 (the last business day of Registrant’s most recently completed second quarter): $11,084,021,014.
The number of shares outstanding of Registrant’s only class of common stock on December 31, 2021 was 165,098,847.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant’s definitive proxy statement for its annual general meeting to be held on May 17, 2022, 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, 2021
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
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
Quantitative and Qualitative Disclosures about Market Risk
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 9C.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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
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PART I
ITEM 1. BUSINESS
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
At Pentair, we inspire people to move, improve and enjoy life’s essential resources for happier, healthier lives. From our
residential and business water solutions, 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 company, we:
•
•
•
•
Focus on growth in our core businesses and strategic initiatives;
Accelerate digital, innovation, technology and environmental, social and governance (“ESG”) investments;
Expedite growth and drive margin expansion through our transformation program;
Utilize Win Right values and 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.
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, 2021, our pool business comprised 65% 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 35% 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, Ken’s Beverage, Kreepy Krauly, Pentair Water Solutions, Pleatco, RainSoft
and Sta-Rite.
Customers
Consumer Solutions customers include businesses engaged in wholesale and retail distribution in the residential and commercial
verticals. Customers also include end-users, consumers and original equipment manufacturers.
1
One customer in the Consumer Solutions’ pool business represented approximately 20% and 15% of our consolidated net sales
for 2021 and 2020, respectively.
Seasonality
We have historically experienced seasonal demand with several end customers and end-users within Consumer Solutions. End-
user demand for pool equipment follows warm weather trends and historically has been at seasonal highs from April to August.
The magnitude of the sales spike has historically been partially 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, 2021, our residential and irrigation flow businesses comprised 45% of the Industrial &
Flow Technologies sales. The residential and irrigation flow businesses sell pumps focused on residential and agriculture. Another
25% 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 have historically experienced increased demand for residential water supply and irrigation pumps following weather trends,
which historically has been 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 mostly of the development
of new products, product applications and manufacturing processes.
Raw materials
The principal materials we use in manufacturing our products are mild steel, stainless steel, electronic components (including
motors), 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 for resale.
2
We purchase the materials we use in various manufacturing processes on the open market, and the majority are available through
multiple sources. Supplier capabilities were stressed in 2021 compared to previous years as a result of the unstable situation
brought on by the novel coronavirus 2019 (“COVID-19”) pandemic, reduced labor availability and the shortage of electronic
components and other raw materials. We have certain long-term commitments, principally price commitments, for the purchase of
various component parts and raw materials and continue to work with our suppliers to maintain delivery continuity. Alternate
sources of supply are available for most materials 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 resins, are subject to commodity 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, resins and electronics, may
trend higher in the near future due to the existing inflationary market trends.
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, 2021, we had approximately 11,250 employees worldwide, of which approximately 57% 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.
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; employee surveys; 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 tools and
resources. These resources include: live training sessions; on-demand eLearning and virtual classrooms; and downloadable
materials. Additionally, our annual talent management process allows employees to build development plans with their leaders to
develop their careers.
Our talent development efforts span across all levels of our organization, including our campus Leadership Development
Program, a 36-month program in which future leaders participate in rotations intended to develop their capabilities through
organization-wide exposure, and our Growth Manager development programs that prepare our new and experienced managers to
be more effective and inclusive leaders at Pentair.
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.
3
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, 2021:
Percent of workforce
Percent of leadership roles (3)
26.0%
Minorities (1)
Women (2)
(1) 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.
(2) Global data.
(3) Leadership roles are those of employees who are director level and above.
43.3%
30.6%
32.4%
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.
In light of the ongoing COVID-19 pandemic, we maintain our commitment to protect the health and safety of our employees by
continuing our enhanced safety protocols for those on-site at our manufacturing facilities, for those who provide manufacturing-
support activities, and for those working in office environments. In addition, we have maintained flexibility for employees who do
not need to be physically present at our facilities and sites to perform their job responsibilities remotely and essential business
travel has generally remained the main travel activity.
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 benefits; 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 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, which ultimately culminated into Pentair’s Social Responsibility Targets, which we announced in 2021.
Annually, we publish a corporate responsibility report 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.
In addition, the SEC maintains an internet site that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC, and you may access any materials we file with the SEC through their
website at www.sec.gov.
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 Our Business
The COVID-19 pandemic may have a material negative impact on our business, financial condition, results of operations and
cash flows.
Our business and financial results have been and may continue to be negatively impacted by the COVID-19 pandemic and its
repercussions. The severity, magnitude and duration of the current COVID-19 pandemic is uncertain, rapidly changing and hard
to predict. In 2021 and 2020, the COVID-19 pandemic significantly impacted economic activity and markets around the world
and our business, and it may negatively impact our business in numerous ways, including but not limited to those outlined below:
•
•
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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 may continue to experience reductions in
customer demand for certain products and in certain end-markets.
Our workforce may be unable or unwilling to work on-site or travel as a result of the continuing pandemic and related
vaccine requirements, event cancellations, facility closures, shelter-in-place, travel and other restrictions and changes in
industry practice, or if they, their co-workers or their family members become ill or otherwise require care arrangements.
Regulations for vaccines and COVID-19 testing have been announced and additional regulations may be announced in
the jurisdictions in which our businesses operate. Implementation of new regulations for vaccines may result in attrition
of professional and skilled labor and impact our ability to attract and retain talent necessary for our business operations.
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 may experience additional adverse impacts
on our operational and commercial activities, customer orders and our collections of accounts receivable, which could be
material, and it remains uncertain the impact on future operational and commercial activities, customer orders, and
collections even if economic conditions improve.
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Government or regulatory responses to the COVID-19 pandemic have and may continue to negatively impact our
business. During 2021 and 2020, mandatory lockdowns or other restrictions on operations in some 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 to existing travel restrictions,
jurisdictions may continue to close borders, impose increased vaccine or testing requirements, prolong 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, our continued measures taken to protect our employees’ health and well-being.
The increase in demand as the COVID-19 pandemic has stabilized or waned has disrupted and is expected to continue to
disrupt our operations, global supply chain and routes to market and/or those of our suppliers and/or their suppliers.
These disruptions or our failure to effectively respond to them have increased and may continue to increase product,
logistics or labor costs, limit availability of raw materials 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 have spent more time at home as a result of
the COVID-19 pandemic that contributed to growth in our sales during 2021 and 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 supply, production, capacity, and/or labor challenges.
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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.
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 may 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 severity
and ultimate impact, actions taken by parties other than us to respond to the pandemic and the impact of virus variants and the
effectiveness of vaccines to address the COVID-19 virus and variants; 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 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.
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. In particular, during 2021, we had higher than anticipated
demand in our pool business and certain of our residential and commercial businesses. Such demand may not be sustainable and
may not be repeated in future periods. 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, inflation
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 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, regional and local companies, diversified and pure-play companies, and lower cost
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manufacturers. Competition may also result from new entrants into the markets we serve offering products and/or services that
compete with ours. 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. 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
change 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.
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.
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.
It may be difficult for us to integrate acquired businesses efficiently into our business operations. 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.
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We may not achieve some or all of the expected benefits of our business initiatives.
During 2021, 2020 and 2019, we initiated and continued execution of certain business initiatives aimed at reducing our fixed cost
structure and realigning our business. During 2021, we also launched and committed resources to a program designed to
accelerate growth and drive margin expansion through transformation of our business model to drive operational excellence,
reduce complexity and streamline our processes. As a result, we have incurred and expect to continue to incur in the future
substantial expense, including transformation costs that include professional services, project management and related design and
execution charges, as well as costs related to both labor and non-labor restructuring and IT investments, and restructuring charges.
We may not be able to achieve accelerated growth and margin expansion or operating efficiencies to reduce costs or realize
benefits that we 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 may experience cost and other inflation.
During 2021, we experienced inflationary cost increases of raw materials, such as metals, resins and electronics (including drives
and motors), as well as increases in logistics and labor costs, and we expect inflationary cost increases to continue in 2022. We
strive for productivity improvements and implement increases in selling prices to help mitigate cost increases in raw materials
(especially metals, resins and electronics), logistics, 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, stainless steel and electronics) as well as labor and
logistics. Continued cost inflation or failure of our initiatives to increase prices, generate cost savings or improve productivity
could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Interruption of our supply chain could affect our ability to produce or deliver our products and could negatively impact our
business and profitability.
During 2021, we experienced supply chain challenges, including increased lead times for raw materials due to availability
constraints and high demand. While we have elevated our engagement with our suppliers and used secondary suppliers and new
methods of procurement where available to mitigate the supply chain pressures, we expect supply chain challenges to continue in
2022. 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 negatively affect our ability to produce or deliver our products and 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. In addition,
our competitors may be less reliant on third party suppliers than we are, which may give such competitors more control over their
supply chain and lead times for manufacturing products. These issues 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, 2021 accounted for 32% 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 sanctions, tariffs, duties, exchange controls, currency restrictions 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;
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the difficulty of communicating and monitoring evolving standards and directives across our product lines, services, and
global facilities;
the difficulty of ensuring that our products, services and supply chains 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;
changes due to nationalist consumer sentiment;
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;
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, some of which may be
incompatible.
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;
greater restrictions on free trade generally; significant increases in tariffs on goods including those imported into the U.S.,
particularly tariffs on products manufactured in Mexico, China, or other countries where we purchase, have operations or
manufacture or sell products; prohibitions or restrictions on doing business with certain entities, 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 or
international trade agreements and policies. A trade war; other governmental action related to tariffs or international trade
agreements; 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, have operations or
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.
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, including competitors, 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, 2021 our goodwill and intangible assets were $2,933 million and represented 62% 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 or delivery of products to, one or more of our largest
customers could harm our business.
Our net sales to our largest customer represented approximately 20% of our consolidated net sales in 2021. While we do not have
any other customers that accounted for 10% or more of our consolidated net sales in 2021, 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 or a delay in purchases of our products. In addition, our customers may cancel orders for purchases of our products or
may not order products at rates consistent with past order levels. In addition, we may not be able to timely deliver products to our
largest customers due to supply chain interruptions or otherwise. 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 or delivery of products to 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 within the Consumer Solutions segment 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 historically we have attempted 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 should
we use such programs in the future they 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;
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employees in transit using company vehicles to visit customer locations and employees being present in customer homes,
which may increase our scope of liability;
the potential for increased scope of liability relating to our consumer products, services and solutions and related
business model, including increased exposure to consumer lawsuits and enforcement actions by governmental
authorities;
increased costs of liability insurance to cover risks associated with performing installation and other services;
the cyber-security and data protection risks related to the collection and storage of consumer data;
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.
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, 2021 accounted for 32% 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.
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, 2021, we had $894.1 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. 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.
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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. 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.
Our failure to satisfy international trade compliance regulations, and changes in U.S. government and other applicable
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.
12
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 provide
assurance 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 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. In
addition, some cases brought against us involve the presence of asbestos at facilities that we own or used to own. 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, 2021, there were approximately 670 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, while most of the asbestos claims
against us are covered by liability insurance policies from many years ago, not all claims are insured. 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.
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) product efficiency and performance, material makeup, 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.
13
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 in
February 2021 the U.S. rejoined the Paris Accord, and these and other existing or potential international initiatives and regulations
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. We may also be subject to consumer lawsuits or enforcement
actions by governmental authorities if our ESG claims relating to product marketing are inaccurate. 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 have set and may set
additional targets aimed at reducing our impact on the environment and climate change and/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 actions
we take to achieve our strategy or targets could 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, our failure to
sufficiently respond to these evolving standards and expectations 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 cybersecurity incidents, and, although we
have determined such cybersecurity incidents to be immaterial and such incidents 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, 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 cybersecurity incidents 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
14
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 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 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. In addition, our indemnification
obligations relating to the purchase or sale of businesses could result in litigation or claims of unknown amounts. 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.
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
15
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.
Irish law differs from the laws in effect in the United States, which may negatively impact our ability to issue ordinary shares.
Under Irish law, we must have authority from our shareholders to issue any ordinary shares, including shares that are part of our
authorized but unissued share capital. In addition, unless otherwise authorized by its shareholders, when an Irish company issues
shares for cash to new shareholders, it is required first to offer those shares on the same or more favorable terms to existing
shareholders on a pro-rata basis. If we are unable to obtain these authorizations from our shareholders, or are otherwise limited by
the terms of our authorizations, our ability to issue ordinary shares under our equity compensation plans and, if applicable, to
facilitate funding acquisitions or otherwise raise capital could be adversely affected.
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% 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, 2021, 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
17
18
—
35
23
12
—
35
18
7
5
30
25
10
—
35
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, regulatory or contractual
disputes with suppliers, customers, authorities 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. 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
57
Adrian C. Chiu
43
Mario R. D’Ovidio
52
Robert P. Fishman
58
Jerome O. Pedretti
51
Stephen J. Pilla
58
Karla C. Robertson
51
Philip M. Rolchigo
60
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, Chief Human Resources Officer and Chief Transformation Officer
since 2021; Vice President of Total Rewards and Human Resources Information Systems 2018 –
2021; Vice President and Project Management Office Leader for the separation of nVent plc
(Pentair’s former electrical business) 2017 – 2018; Vice President of Human Resources
Technology, Operations, and Equity Compensation 2016 – 2018; Senior Director of Human
Resources Technology and Services 2011 – 2016; Various consulting positions of increasing
responsibility at IBM Global Business Services 2000 – 2011.
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 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, 2021, there were 13,318 shareholders of record.
Pentair has paid 184 consecutive quarterly cash dividends, including most recently a dividend of $0.20 per share in the fourth
quarter of 2021. On December 7, 2021, Pentair’s Board of Directors approved a 5 percent increase in the Company’s regular
quarterly cash dividend rate (from $0.20 per share to $0.21 per share) that was paid on February 4, 2022 to shareholders of record
at the close of business on January 21, 2022. 2022 marks the 46th 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, 2016 and the reinvestment of all dividends since that date to December 31, 2021. 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
2016
2017
INDEXED RETURNS
Years ended December 31
2019
2020
2018
$
100 $
128.67 $
104.40 $
129.12 $
152.22 $
100
100
121.83
122.56
116.49
118.83
153.17
156.82
181.35
193.16
2021
211.96
233.41
247.04
Purchases of Equity Securities
The following table provides information with respect to purchases we made of our ordinary shares during the fourth quarter of
2021:
(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 30
October 31 – November 27
November 28 – December 31
Total
107,831 $
502,229
63,539
673,599
74.43
75.78
75.59
107,458 $
501,279
52,595
661,332
692,001,253
654,002,042
650,002,158
(a) The purchases in this column include 373 shares for the period October 1 – October 30, 950 shares for the period October 31
– November 27, and 10,944 shares for the period November 28 – 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 our equity incentive 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 December 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. We have $650.0 million
remaining availability for repurchases under the 2020 Authorization. From time to time, we may enter into a Rule 10b5-1
trading plan for the purpose of repurchasing shares under this authorization.
ITEM 6. [RESERVED]
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, the impact of virus variants and the effectiveness of vaccinations; 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
impacts of the COVID-19 pandemic on the global economy, our workforce, customers and suppliers, and customer demand;
overall global economic and business conditions impacting our business, including the strength of housing and related markets;
supply, demand, logistics, competition and pricing pressures related to and 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, cost reduction initiatives
and transformation program; risks associated with operating foreign businesses; the impact of raw material, logistics and labor
costs 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 and ESG 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, 2021, the Consumer Solutions and Industrial & Flow Technologies segments represented approximately
62% and 38% 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 October 18, 2021, as part of both of our Consumer Solutions and Industrial & Flow Technologies reporting segments, we
completed the acquisition of Pleatco Holdings, LLC and related entities (“Pleatco”) for $254.6 million in cash, net of cash
acquired. Pleatco manufactures water filtration and clean air technologies for pool, spa and industrial air customers.
On May 19, 2021, as part of our Consumer Solutions reporting segment, we completed the acquisition of Ken’s Beverage, Inc.
(“KBI”) for $83.1 million in cash, net of cash acquired. KBI provides beverage equipment and services to commercial customers.
COVID-19 Pandemic
In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 pandemic
continues to persist throughout the U.S. and the world, with the continued potential for significant impact. The COVID-19
pandemic has resulted in governments around the world implementing 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, vaccine and mask requirements, 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.
Our businesses generally have been and continue to be considered essential under applicable government-mandated orders which
has allowed us substantially to maintain business continuity at substantially all of our manufacturing facilities throughout the
COVID-19 pandemic. While our facilities substantially remained operational during 2021, we continue to experience various
degrees of manufacturing cost pressures and inefficiencies as a result of supply chain issues and, in certain businesses, increased
demand. Although we regularly monitor the financial health and operations of companies in our supply chain, and use alternative
22
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. Further, as the COVID-19 pandemic conditions have improved and economic
activity has increased, we have experienced supply chain challenges, including availability of materials, increased lead times, as
well as inflation of raw materials, logistics and labor costs due to availability constraints and high demand. We expect the
inflationary trends to continue in 2022.
In light of the ongoing COVID-19 pandemic, we maintain our commitment to protect the health and safety of our employees by
continuing our enhanced safety protocols for those on-site at our manufacturing facilities, for those who provide manufacturing-
support activities, and for those working in office environments. In addition, we have maintained flexibility for employees who do
not need to be physically present at our facilities and sites to perform their job responsibilities remotely and essential business
travel has generally remained the main travel activity.
The extent of the COVID-19 pandemic’s effect on our operational and financial performance in the future will depend on future
developments, including the duration, geographic location and intensity of the pandemic, the impact of virus variants, the
effectiveness of vaccinations, our continued ability to manufacture and distribute our products, as well as any future actions that
may be taken by governmental authorities or by us relating to the pandemic. For more information regarding factors and events
that may impact our business, results of operations and financial condition as a result of the COVID-19 pandemic, see Part I—
ITEM 1A, “Risk Factors,” included herein.
Transformation Program
During 2021, we launched and committed resources to a program designed to accelerate growth and drive margin expansion
through transformation across our businesses to elevate our capabilities, reduce complexity and streamline our processes (the
“Transformation Program”). The Transformation Program is structured in multiple phases and is expected to empower us to work
more efficiently and optimize our business to better serve our customers while meeting our financial objectives.
We are targeting at least 300 basis points of margin expansion by 2025 through:
reducing business, product, and organizational complexity;
•
elevating our proficiency in pricing, sourcing and operations effectiveness;
•
delivering decision making speed through organizational clarity and improved processes;
•
•
developing a future state digital enterprise; and
• modernizing general and administrative capabilities.
During 2021, we incurred transformation costs that primarily represented professional services and project management related
charges. In 2022, we expect to continue to incur transformation costs that include professional services, project management and
related design and execution charges, as well as costs related to both labor and non-labor restructuring and IT investments.
Key Trends and Uncertainties Regarding Our Existing Business
The following trends and uncertainties affected our financial performance in 2021, and are reasonably likely to 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 spread of increasing number of virus variants, the extent of worldwide social, political and economic
disruption it may continue to cause and the distribution and effectiveness of vaccines to address the COVID-19 virus.
The broader implications of the COVID-19 pandemic that are reasonably likely to impact 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, the
impact of virus variants, the effectiveness of vaccinations, the pandemic’s 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.
• 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 2022 and to drive margin growth.
• We created a transformation office and launched and committed resources to the Transformation Program designed to
accelerate growth and drive margin expansion by driving operational excellence, reducing complexity and streamlining
our processes. We expect to implement Transformation Program initiatives and incur transformation costs in 2022 and
beyond.
23
• We experienced supply chain challenges, including increased lead times for raw materials due to availability constraints
and high demand. While we have elevated our engagement with our suppliers and used secondary suppliers and new
methods of procurement where available to mitigate the supply chain pressures, we expect supply chain challenges to
continue in 2022, and which may continue thereafter and could negatively impact our results of operations.
• We experienced inflationary increases of raw materials such as metals, resins and electronics (including drives and
motors), as well as increases in logistics and labor costs. While we have taken pricing actions and we strive for
productivity improvements that could help offset these inflationary cost increases, we expect inflationary cost increases
to continue in 2022, and which may continue thereafter and could negatively impact our results of operations.
• 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.
In 2022, 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 share repurchases; and
Supplement our business with strategically-aligned mergers and acquisitions.
Focused growth initiatives that accelerate our investments in digital, technology and services expansion;
Implementation of Transformation Program initiatives that will drive operational excellence, reduce complexity and
improve our organizational structure; and
Building a high performance growth culture and delivering on our commitments while living our Win Right values.
24
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
(Gain) loss on sale of businesses
Net interest expense
Other (income) expense
Years ended December 31
2021
2020
2019
$ 3,764.8
$ 3,017.8
$ 2,957.2
2,445.6
1,319.2
1,960.2
1,057.6
1,905.7
1,051.5
35.0 %
35.0 %
35.6 %
596.4
520.5
540.1
15.8 %
85.9
2.3 %
17.2 %
75.7
2.5 %
18.3 %
78.9
2.7 %
% / point change
2021 vs
2020
2020 vs
2019
24.8 %
24.8 %
24.7 %
— pts
14.6 %
(1.4) pts
13.5 %
(0.2) pts
2.0 %
2.9 %
0.6 %
(0.6) pts
(3.6) %
(1.1) pts
(4.1) %
(0.2) pts
636.9
461.4
432.5
16.9 %
15.3 %
14.6 %
38.0 %
1.6 pts
6.7 %
0.7 pts
(1.4)
12.5
(1.0)
0.1
23.9
5.3
(2.2)
30.1
(2.9)
N.M.
N.M.
(47.7) % (20.6) %
N.M.
N.M.
Income from continuing operations before income taxes
626.8
432.1
407.5
Provision for income taxes
Effective tax rate
N.M. Not Meaningful
70.8
11.3 %
75.0
17.4 %
45.8
11.2 %
45.1 %
(5.6) %
(6.1) pts
6.0 %
63.8 %
6.2 pts
Net sales
The components of the consolidated net sales change were as follows:
Volume
Price
Core growth
Acquisition
Currency
Total
2021 vs 2020
16.3 %
4.6
20.9
2.6
1.3
24.8 %
2020 vs 2019
0.4 %
0.9
1.3
0.5
0.2
2.0 %
The 24.8 percent increase in consolidated net sales in 2021 from 2020 was primarily the result of:
•
•
•
•
volume increase in our Consumer Solutions segment mainly driven by continued robust demand in our pool and water
treatment businesses;
volume increase in our Industrial & Flow Technologies segment primarily driven by strong demand in the residential and
irrigation flow businesses as well as increased demand and recovery in our food and beverage and commercial flow
businesses;
increases in selling prices to mitigate a rise in inflationary costs; and
favorable foreign currency effects in 2021 compared to the prior year.
25
Gross profit
The gross profit as a percentage of net sales was unchanged when comparing 2021 and 2020, primarily as a result of:
•
•
•
•
volume expansion in both our Consumer Solutions and Industrial & Flow Technologies segments;
increases in selling prices to mitigate impacts of inflation;
complexity reduction and exiting older, less profitable product lines in our residential and commercial flow businesses in
our Industrial & Flow Technologies segment; and
increased productivity in both the Consumer Solutions and Industrial & Flow Technologies segments.
This was offset by:
•
•
inflationary cost increases due to tight supply of raw materials such as metals, resins and electronics (including drives
and motors); and
higher logistics and labor costs due to increased demand as well as factory labor wage increases.
Selling, general and administrative (“SG&A”)
The 1.4 percentage point decrease in SG&A expense as a percentage of net sales in 2021 from 2020 was driven by:
•
•
•
•
leverage on certain fixed costs due to the significant increase in sales year over year;
legal settlements and accrual reductions of $7.6 million in 2021;
restructuring and other costs of $7.4 million in 2021, compared to $14.1 million in 2020; and
lower amortization on definite-lived intangible assets.
This decrease was partially offset by:
•
•
higher employee incentive compensation due to increased sales and segment income in our Consumer Solutions and
Industrial & Flow Technologies segments; and
costs of $11.7 million related to the transformation program launched in 2021.
Net interest expense
The 47.7 percent decrease in net interest expense in 2021 from 2020 was the result of:
•
•
strong cash flows in 2021 used to reduce overall debt levels during the year compared to 2020; and
lower interest rates on outstanding variable rate debt.
Provision for income taxes
The 6.1 percentage point decrease in the effective tax rate in 2021 from 2020 was primarily due to:
•
•
the unfavorable impact of discrete items, including items related to the Coronavirus Aid, Relief, and Economic Security
Act, and items related to final regulations as part of the Tax Cuts and Jobs Act of 2017 that placed limitations on the
deductibility of certain interest expense for U.S. tax purposes that occurred during 2020 that did not occur in 2021; and
the favorable impact resulting from changes in unrecognized tax benefits for tax positions taken in prior periods.
This decrease was partially offset by:
•
the unfavorable mix of global earnings.
2020 Comparison with 2019
A discussion of changes in our consolidated results of operations, segment results of operations and liquidity and capital resources
from the year ended December 31, 2020 to December 31, 2019 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,
2020, which was filed with the SEC on February 16, 2021. However, such discussion is not incorporated by reference into, and
does not constitute a part of, this Annual Report on Form 10-K.
26
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 and transformation 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
2021
2020
2019
$
2,341.9
$
1,742.9
$ 1,611.7
554.4
23.7 %
419.1
379.6
24.0 %
23.6 %
% / point change
2021 vs
2020
2020 vs
2019
34.4 %
32.3 %
(0.3) pts
8.1 %
10.4 %
0.4 pts
Net sales
The components of the change in Consumer Solutions net sales were as follows:
Volume
Price
Core growth
Acquisition
Currency
Total
2021 vs 2020
23.8 %
5.7
29.5
4.3
0.6
34.4 %
2020 vs 2019
6.3 %
0.8
7.1
1.0
—
8.1 %
The 34.4 percent increase in net sales for Consumer Solutions in 2021 from 2020 was primarily the result of:
•
•
•
•
•
increased sales volume in our pool business due to consumers increasing their pool use while continuing to invest in their
homes and backyards;
increased sales volume in our water treatment business as residential demand remained strong and commercial demand
improved due to recovery in the restaurant and hospitality industries in 2021;
increases in selling prices to mitigate impacts of inflation;
increased sales due to the Pleatco and KBI acquisitions that occurred in 2021; and
favorable foreign currency effects in 2021 compared to the prior year.
Segment income
The components of the change in Consumer Solutions segment income from the prior period were as follows:
Growth/Price/Acquisition
Currency
Inflation
Productivity
Total
2021
2020
5.0 pts
1.9 pts
(0.1)
(7.7)
2.5
0.1
(1.3)
(0.3)
(0.3) pts
0.4 pts
27
The 0.3 percentage point decrease in segment income for Consumer Solutions as a percentage of net sales in 2021 from 2020 was
primarily the result of:
•
•
•
inflationary cost increases due to high demand and tight supply of raw materials such as metals, resins and electronics
(including drives and motors) along with increased logistics and labor costs;
delayed realization of full amount of announced price increases due to order backlogs; and
higher sales rebates and employee incentive compensation expense in line with increased sales in our pool and water
treatment businesses.
This decrease was partially offset by:
•
•
increased sales volume in all of our businesses resulting in cost leverage and higher productivity; and
increases in selling prices to mitigate the impacts of inflation.
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
% / point change
2021
2020
2019
2021 vs 2020 2020 vs 2019
$
1,421.4
$
1,273.6
$ 1,344.1
213.3
15.0 %
164.6
199.0
12.9 %
14.8 %
11.6 %
29.6 %
2.1 pts
(5.2) %
(17.3) %
(1.9) pts
Net sales
The components of the change in Industrial & Flow Technologies net sales were as follows:
Volume
Price
Core growth
Acquisition
Currency
Total
2021 vs 2020
5.9 %
3.2
9.1
0.4
2.1
11.6 %
2020 vs 2019
(6.5) %
0.9
(5.6)
—
0.4
(5.2) %
The 11.6 percent increase in net sales for Industrial & Flow Technologies in 2021 from 2020 was primarily the result of:
•
•
•
•
•
increased sales volume in our residential and irrigation flow businesses in 2021 due to strong demand across all product
lines in these businesses;
increased sales volume in our food and beverage business in 2021 due to demand in sustainable gas solutions and beer
membrane filtration systems along with recovery in short cycle orders;
increased sales volume in our commercial flow business due to demand in our water supply and water disposal product
lines;
increases in selling prices to mitigate inflationary cost increases; and
favorable foreign currency effects compared to the prior year.
28
Segment income
The components of the change in Industrial & Flow Technologies segment income from the prior period were as follows:
Growth/Price/Acquisition
Currency
Inflation
Productivity
Total
2021
2020
3.6 pts
(1.8) pts
0.1
(3.9)
2.3
—
(1.0)
0.9
2.1 pts
(1.9) pts
The 2.1 percentage point increase in segment income for Industrial & Flow Technologies as a percentage of net sales in 2021
from 2020 was primarily the result of:
•
•
•
•
increased sales volumes in our residential and irrigation flow and food and beverage businesses which resulted in
increased leverage on fixed operating expenses and improved income drop-through;
increases in selling prices to mitigate inflationary cost increases;
complexity reduction and exiting older, less profitable product lines in our residential and commercial flow businesses;
and
increased productivity due to cost actions driving manufacturing efficiencies.
This increase was partially offset by:
•
inflationary cost increases due to high demand and tight supply of metals, resins and electronics along with increased
logistics due to supply chain constraints and labor costs due to workforce shortages.
BACKLOG OF ORDERS BY SEGMENT
In millions
Consumer Solutions
Industrial & Flow Technologies
Total
December 31
2021
2020
$ change
% change
$
$
1,073.7 $
446.3
1,520.0 $
459.1 $
288.7
747.8 $
614.6
157.6
772.2
133.9 %
54.6 %
103.3 %
The majority of our backlog is short cycle in nature with shipments within one year from when a customer places an order and a
substantial portion of our revenues has historically resulted from orders received and products delivered in the same month. A
portion of our backlog, particularly from orders for major capital projects, can take more than one year from order to delivery
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. Our backlog of orders is dependent upon
when customers place orders and is not necessarily an indicator of our expected results for our 2022 net sales.
The increase in our backlog from the prior year was driven by a significant increase in orders due to higher than anticipated
demand in our pool business and certain of our residential and commercial businesses, coupled with continuing supply chain
disruptions and labor availability challenges.
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.
29
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 2021 and drew on our revolving credit facility to fund our operations.
This cash usage reversed in the second quarter of 2021 as the seasonality of our businesses peaked and generated significant cash
to fund our operations. In the second half of 2021, we funded our operations using our continued strong cash flow and our
revolving credit facility.
End-user demand for pool and certain pumping equipment follows warm weather trends and historically has been at seasonal
highs from April to August. The magnitude of the sales spike has historically been partially mitigated by employing some
advance sale “early buy” programs (generally including extended payment terms and/or additional discounts). Demand for
residential and agricultural water systems is also impacted by weather patterns, particularly by temperature, heavy flooding and
droughts.
In 2021, we completed the acquisitions of KBI and Pleatco for total consideration of approximately $83.1 million and
$254.6 million, respectively, in cash, net of cash acquired. We funded the purchase price for these acquisitions with cash on hand
and borrowings under our revolving credit facility.
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
2021
2020
2019
$
613.6 $
574.2 $
(390.7)
(222.2)
(117.9)
(435.9)
345.2
(331.9)
(17.1)
Operating activities
In 2021, net cash provided by operating activities of continuing operations primarily reflects net income from continuing
operations of $633.5 million, net of non-cash depreciation and amortization. Additionally, we had a cash outflow of $20.8 million
as a result of changes in net working capital, primarily due to increased sales demand and inflationary impacts leading to higher
accounts receivable, inventory, accounts payable and other current liabilities balances.
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, we 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.
Investing activities
Net cash used for investing activities of continuing operations in 2021 primarily reflects capital expenditures of $60.2 million and
cash paid for acquisitions of $338.5 million in our Consumer Solutions and Industrial & Flow Technologies reporting segments,
net of cash acquired.
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.
Financing activities
In 2021, net cash used for financing activities primarily relates to repayment of $103.8 million of senior notes, $150.0 million of
share repurchases, dividend payments of $133.0 million and payments upon maturity of cross currency swaps of $14.7 million,
partially offset by net borrowings of revolving long-term debt of $158.9 million.
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 $74.0 million of senior notes, $150.2 million of share repurchases and dividend payments of $127.1
million.
30
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
Free cash flow
Debt and Capital
Years ended December 31
2021
2020
2019
$
$
$
613.6 $
574.2 $
(60.2)
3.9
(62.2)
0.1
557.3 $
512.1 $
(0.4)
(0.6)
556.9 $
511.5 $
345.2
(58.5)
0.6
287.3
7.8
295.1
Pentair, Pentair Finance S.à r.l (“PFSA“) and Pentair, Inc. are parties to a credit agreement (the “Senior Credit Facility”), with
Pentair as guarantor and PFSA and Pentair, Inc. as borrowers, which was amended and restated in December 2021, providing for
a $900.0 million senior unsecured revolving credit facility and a $200.0 million senior unsecured term loan facility. The revolving
credit facility has a maturity date of December 16, 2026 and the term loan facility has a maturity date of December 16, 2024.
Borrowings under the Senior Credit Facility bear interest at a rate equal to an adjusted base rate, the London interbank offered
rate, the euro interbank offered rate or the central bank rate, plus, in each case, an applicable margin. The applicable margin is
based on, at PFSA’s election, Pentair’s leverage level or PFSA’s public credit rating.
As of December 31, 2021, total availability under the Senior Credit Facility was $705.0 million. In addition, PFSA has the option
to request to increase the revolving credit facility and/or to enter into one or more additional tranches of term loans in an
aggregate amount of up to $300.0 million, subject to customary conditions, including the commitment of the participating lenders.
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 and cash equivalents in excess of $5.0 million but not to exceed $250.0 million) to our consolidated
net income (excluding, among other things, non-cash gains and losses) before interest, taxes, depreciation, amortization and non-
cash share-based compensation expense (“EBITDA”) on the last day of any period of four consecutive fiscal quarters (each, a
“testing period”) to exceed 3.75 to 1.00 (or, at PFSA’s election and subject to certain conditions, 4.25 to 1.00 for four testing
periods in connection with certain material acquisitions) (the “Leverage Ratio”) and (ii) the ratio of our EBITDA to our
consolidated interest expense, for the same period to be less than 3.00 to 1.00 as of the end of each fiscal quarter. For purposes of
the Leverage Ratio, the Senior Credit Facility 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, 2021. Borrowings under these credit facilities bear interest at
variable rates.
We have $88.3 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, 2021 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, 2021, we had $60.0 million of cash held in certain countries in which the ability to repatriate is limited due to
local regulations or significant potential tax consequences.
Authorized shares
Our authorized share capital consists of 426.0 million ordinary shares with a par value of $0.01 per share.
31
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 expired on May 31, 2021. In December 2020, the Board of Directors
authorized the repurchase of our ordinary shares up to a maximum dollar limit of $750.0 million (the “2020 Authorization”). The
2020 Authorization expires on December 31, 2025. The 2020 Authorization supplemented 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.
During the year ended December 31, 2021, we repurchased 2.1 million of our ordinary shares for $150.0 million, of which 0.8
million shares, or $50.0 million, and 1.3 million shares, or $100.0 million, were repurchased pursuant to the 2018 Authorization
and 2020 Authorization, respectively. As of December 31, 2021, we had $650.0 million available for share repurchases under the
2020 Authorization.
Dividends
On December 7, 2021, the Board of Directors approved a 5 percent increase in the Company’s regular quarterly dividend rate
(from $0.20 per share to $0.21 per share) that was paid on February 4, 2022 to shareholders of record at the close of business on
January 21, 2022. The balance of dividends payable included in Other current liabilities on our Consolidated Balance Sheets was
$33.0 million at December 31, 2021. Dividends paid per ordinary share were $0.80, $0.76 and $0.72 for the years ended
December 31, 2021, 2020 and 2019, 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 $8.4 billion and $8.8 billion as of December 31, 2021 and 2020,
respectively.
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.
32
The following table presents summarized financial information as of December 31, 2021 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) No assets due from non-guarantor subsidiaries were included.
(2) Includes assets due from non-guarantor subsidiaries of $1,202.5 million.
(3) Includes liabilities due to non-guarantor subsidiaries of $792.1 million.
(4) Includes liabilities due to non-guarantor subsidiaries of $276.8 million.
December 31,
2021
$
3.4
1,222.3
843.4
1,193.6
The Parent Company Guarantor and Subsidiary Issuer do not have material results of operations on a combined basis.
Material cash requirements from contractual obligations and commitments
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 to meet our short-
term and long-term cash requirements by using available cash and internally generated funds and to borrow under our committed
and uncommitted credit facilities. The following summarizes our material cash requirements from significant contractual
obligations and purchase commitments that impact our liquidity as of December 31, 2021:
In millions
Debt obligations (Note 8)
Interest obligations on fixed-rate debt
Operating lease obligations, net of sublease rentals (Note 15)
Purchase and marketing obligations
Pension and other post-retirement plan contributions (Note 11)
Next
Twelve Months
Greater Than
Twelve Months
Total
$
88.3 $
21.7
29.5
21.5
8.8
814.3 $
128.7
68.3
17.6
76.3
902.6
150.4
97.8
39.1
85.1
Total contractual obligations, net
$
169.8 $
1,105.2 $
1,275.0
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 significant contractual obligations described above, we will incur annual interest expense on outstanding
variable rate debt. As of December 31, 2021, variable interest rate debt was $395.0 million at a weighted average interest rate of
1.07%.
The total gross liability for uncertain tax positions at December 31, 2021 was estimated to be $37.3 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, 2021, we had recorded $0.2 million for the possible payment of penalties
and $3.9 million related to the possible payment of interest.
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
33
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 and applicable accounting rules. 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, 2021 and 2020, the outstanding value of bonds, letters of credit and bank guarantees totaled $104.5 million
and $99.1 million, respectively.
CRITICAL ACCOUNTING POLICIES
We have adopted various accounting policies to prepare the consolidated financial statements in accordance with GAAP. Our
significant accounting policies are more fully described in ITEM 8, Note 1 of the Notes to Consolidated Financial Statements.
Certain accounting policies require the application of significant judgment by management in selecting the appropriate
assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty.
These judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry and
information available from other outside sources, as appropriate. We consider an accounting estimate to be critical if:
•
•
it requires us to make assumptions about matters that were uncertain at the time we were making the estimate; and
changes in the estimate or different estimates that we could have selected would have had a material impact on our
financial condition or results of operations.
Our critical accounting estimates include the following:
Impairment of goodwill and indefinite-lived intangibles
Goodwill
Goodwill represents the excess of the cost of acquired businesses over the net of the fair value of identifiable tangible net assets
and identifiable intangible assets purchased and liabilities assumed.
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.
34
During 2021, a qualitative assessment was performed. As a result, it was determined that it was more likely than not that the fair
value of the reporting units exceeded their respective carrying values. Factors considered in the analysis included the 2020
discounted cash flow fair value assessment of the 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.
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. No impairment charge was recorded during 2021 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 gain of $2.4 million in 2021, a pre-tax loss of $6.7 million
in 2020 and a pre-tax gain of $3.4 million in 2019. 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 2022.
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.
35
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 estimates. Additionally, we record receivables from third party
insurers when recovery has been determined to be probable.
Income taxes
In determining taxable income for financial statement purposes, we must make certain estimates and judgments. These estimates
and judgments affect the calculation of certain tax liabilities and the determination of the recoverability of certain of the deferred
tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense. In
evaluating our ability to recover our deferred tax assets we consider all available positive and negative evidence including our past
operating results, the existence of cumulative losses in the most recent years and our forecast of future taxable income. In
estimating future taxable income, we develop assumptions including the amount of future pre-tax operating income, the reversal
of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require
significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to
manage the underlying businesses.
We currently have recorded valuation allowances that we will maintain until when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will be realized. Our income tax expense recorded in the future
may be reduced to the extent of decreases in our valuation allowances. The realization of our remaining deferred tax assets is
primarily dependent on future taxable income in the appropriate jurisdiction. Any reduction in future taxable income including but
not limited to any future restructuring activities may require that we record an additional valuation allowance against our deferred
tax assets. An increase in the valuation allowance could result in additional income tax expense in such period and could have a
significant impact on our future earnings.
Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management records the
effect of a tax rate or law change on the Company’s deferred tax assets and liabilities in the period of enactment. Future tax rate or
law changes could have a material effect on the Company’s financial condition, results of operations or cash flows.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in
a multitude of jurisdictions across our global operations. We perform reviews of our income tax positions on a quarterly basis and
accrue for uncertain tax positions. We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the
tax jurisdictions in which we operate based on our estimate of whether, and the extent to which, additional taxes will be due.
These tax liabilities are reflected net of related tax loss carryforwards. As events change or resolution occurs, these liabilities are
adjusted, such as in the case of audit settlements with taxing authorities. The ultimate resolution may result in a payment that is
materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the
ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than
the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine
the liabilities are no longer necessary.
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, 2021, was comprised of debt predominantly denominated in U.S. dollars. This debt
portfolio is comprised of 56% fixed-rate debt and 44% 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.
36
Based on the fixed-rate debt included in our debt portfolio, as of December 31, 2021, a 100 basis point increase or decrease in
interest rates would result in a $31.2 million decrease or $33.7 million increase in fair value, respectively.
Based on the variable-rate debt included in our debt portfolio as of December 31, 2021, a 100 basis point increase or decrease in
interest rates would result in a $4.0 million increase or decrease in interest incurred.
Foreign currency risk
We conduct business in various locations throughout the world and are subject to market risk due to changes in the value of
foreign currencies in relation to our reporting currency, the U.S. dollar. Periodically, we use derivative financial instruments to
manage these risks. The functional currencies of our foreign operating locations are generally the local currency in the country of
domicile. We manage these operating activities at the local level and revenues, costs, assets and liabilities are generally
denominated in local currencies, thereby mitigating the risk associated with changes in foreign exchange. However, our results of
operations and assets and liabilities are reported in U.S. dollars and thus will fluctuate with changes in exchange rates between
such local currencies and the U.S. dollar.
From time to time, we may enter into short duration foreign currency contracts to hedge foreign currency risks. As the majority of
our foreign currency contracts have an original maturity date of less than one year, there is no material foreign currency risk. At
December 31, 2021, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts
of $14.7 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, 2021, we had outstanding cross currency swap agreements with a combined notional amount of $794.4 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 $64.6 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 $64.7 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.
37
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, 2021. 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, 2021, 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, 2021. 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
38
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,
2021, 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, 2021, 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, 2021, of the Company and our report
dated February 22, 2022 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 22, 2022
39
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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2021, 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, 2021, 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 22, 2022, 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 Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that (1) relates 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 matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
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, 2021, the
Company’s recorded UTP balance was $37.3 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 regulations, 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.
40
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.
▪ 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 summary of differences between the 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 22, 2022
We have served as the Company’s auditor since 1977.
41
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
(Gain) loss on sale of businesses
Net interest expense
Other (income) expense
Income from continuing operations before income taxes
Provision for income taxes
Net income from continuing operations
(Loss) income 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
2021
2020
2019
$
3,764.8 $
3,017.8 $
2,445.6
1,319.2
596.4
85.9
636.9
(1.4)
12.5
(1.0)
626.8
70.8
556.0
(3.0)
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
553.0 $
358.6 $
553.0 $
358.6 $
(47.0)
40.4
49.0
(29.8)
546.4 $
377.8 $
3.36 $
(0.02)
3.34 $
3.32 $
(0.02)
3.30 $
2.14 $
0.01
2.15 $
2.13 $
0.01
2.14 $
165.8
167.5
166.5
167.4
$
$
$
$
$
$
$
2,957.2
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
355.7
(15.3)
17.4
357.8
2.14
(0.04)
2.10
2.12
(0.03)
2.09
169.4
170.4
See accompanying notes to consolidated financial statements.
42
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 $9.1 and $8.4, 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, 165.1 and 166.1 issued at December 31,
2021 and 2020, 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
2021
2020
94.5 $
534.3
562.9
112.3
1,304.0
310.0
2,504.5
428.0
207.1
3,139.6
4,753.6 $
385.7 $
140.1
525.9
1,051.7
894.1
93.2
89.8
202.9
2,331.7
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
1.7
1,582.7
1,051.4
(213.9)
2,421.9
4,753.6 $
1.7
1,680.7
631.2
(207.3)
2,106.3
4,197.2
$
$
$
$
43
Pentair plc and Subsidiaries
Consolidated Statements of Cash Flows
In millions
Operating activities
Net income
Loss (income) from discontinued operations, net of tax
Adjustments to reconcile net income from continuing operations to net cash provided by
operating activities of continuing operations
Equity income of unconsolidated subsidiaries
Depreciation
Amortization
(Gain) loss on sale of businesses
Deferred income taxes
Share-based compensation
Asset impairment
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 sale of businesses, net
Acquisitions, net of cash acquired
Other
Net cash used for investing activities
Financing activities
Net borrowings (repayments) of revolving long-term debt
Proceeds from long-term debt
Repayment of long-term debt
Shares issued to employees, net of shares withheld
Repurchases of ordinary shares
Dividends paid
Payments upon the maturity of cross currency swaps
Other
Net cash used for financing activities
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
Years ended December 31
2020
2019
2021
$
553.0 $
3.0
358.6 $
(1.5)
355.7
6.0
(0.3)
51.2
26.3
(1.4)
(9.0)
29.8
—
2.8
(9.4)
(142.0)
(121.4)
(12.3)
114.2
24.5
116.2
(11.6)
613.6
(0.4)
613.2
(60.2)
3.9
1.4
(338.5)
2.7
(390.7)
158.9
—
(103.8)
22.2
(150.0)
(133.0)
(14.7)
(1.8)
(222.2)
12.1
12.4
82.1
94.5 $
(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
(62.2)
0.1
—
(58.0)
2.2
(117.9)
(117.5)
—
(74.0)
32.9
(150.2)
(127.1)
—
—
(435.9)
(20.2)
(0.4)
82.5
82.1 $
(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
(58.5)
0.6
15.3
(287.8)
(1.5)
(331.9)
51.5
600.0
(401.5)
12.5
(150.0)
(122.7)
—
(6.9)
(17.1)
4.2
8.2
74.3
82.5
29.9 $
71.8
41.0 $
67.7
33.7
59.0
$
$
See accompanying notes to consolidated financial statements.
44
Pentair plc and Subsidiaries
Consolidated Statements of Changes in Equity
In millions
Ordinary shares
Number
Amount
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
Balance - December 31, 2018
171.4 $
1.7 $
1,893.8 $
169.2 $
(228.6) $ 1,836.1
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
—
—
—
(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
Balance - December 31, 2019
168.3 $
1.7 $
1,777.7 $
401.0 $
(226.5) $ 1,953.9
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
—
—
—
(3.7)
1.3
0.3
(0.1)
—
—
—
—
—
—
—
—
—
—
—
—
(150.2)
37.6
—
(4.7)
20.3
358.6
—
(128.4)
—
—
—
—
—
—
358.6
19.2
19.2
—
—
—
—
—
—
(128.4)
(150.2)
37.6
—
(4.7)
20.3
Balance - December 31, 2020
166.1 $
1.7 $
1,680.7 $
631.2 $
(207.3) $ 2,106.3
Net income
Other comprehensive loss, 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
—
—
—
(2.1)
0.9
0.3
(0.1)
—
—
—
—
—
—
—
—
—
—
—
—
(150.0)
30.1
—
(7.9)
29.8
553.0
—
(132.8)
—
—
—
—
—
—
553.0
(6.6)
(6.6)
—
—
—
—
—
—
(132.8)
(150.0)
30.1
—
(7.9)
29.8
Balance - December 31, 2021
165.1 $
1.7 $
1,582.7 $
1,051.4 $
(213.9) $ 2,421.9
See accompanying notes to consolidated financial statements.
45
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 water industrial manufacturing
company comprised of two reporting segments: Consumer Solutions and Industrial & Flow Technologies.
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, the impact of virus variants, the
effectiveness of vaccinations, the COVID-19 pandemic’s 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 in certain parts of our
business or constrained labor and/or supply that could materially and 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.
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.
46
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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 91.9%, 92.2% and 92.0% of our revenue for the years ended December
31, 2021, 2020 and 2019, respectively. Revenue on these contracts is recognized when obligations under the terms of the contract
with our customer are satisfied; generally this occurs with the transfer of control upon shipment.
Revenue from products and services transferred to customers over time accounted for 8.1%, 7.8% and 8.0% of our revenue for the
years ended December 31, 2021, 2020 and 2019, 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, 2021, we had $89.2 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.
47
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
2021
2020
$ Change
% Change
$
$
48.8 $
39.4
9.4 $
50.1 $
27.5
22.6 $
(1.3)
11.9
(13.2)
(2.6) %
43.3 %
(58.4) %
The $13.2 million decrease in net contract assets from December 31, 2020 to December 31, 2021 was primarily the result of
timing of milestone payments. Approximately 80% of our contract liabilities at December 31, 2020 were recognized in revenue
during the twelve months ended December 31, 2021. There were no impairment losses recognized on our contract assets for the
twelve months ended December 31, 2021 and December 31, 2020.
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.
48
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
2021
2020
2019
$
2,571.2 $
2,011.7 $
1,866.7
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.
$
460.4
487.1
246.1
3,764.8 $
375.3
427.5
203.3
401.6
480.6
208.3
3,017.8 $
2,957.2
Vertical net sales information was as follows:
In millions
Residential
Commercial
Industrial
Consolidated net sales
Years ended December 31
2021
2020
2019
$
2,437.6 $
1,883.4 $
1,668.2
665.9
661.3
528.6
605.8
627.3
661.7
$
3,764.8 $
3,017.8 $
2,957.2
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
2021, 2020 and 2019 were $85.9 million, $75.7 million and $78.9 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
Beginning balance
Bad debt expense (benefit) (1)
Acquisitions
Years ended December 31
2021
2020
2019
$
8.4 $
1.1
1.0
10.3 $
(0.5)
0.1
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 No. 2016-13 “Financial Instruments-Credit Losses.”
(2) Other amounts are primarily the effects of changes in currency translations and the impact of allowance for credits.
(0.5)
9.1 $
0.1
8.4 $
(0.9)
(1.6)
$
14.0
0.7
0.7
(4.1)
(1.0)
10.3
49
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Inventories
Inventories are stated at the lower of cost or net realizable value with substantially all inventories recorded using the first-in, first-
out (“FIFO”) cost method.
Property, plant and equipment, net
Property, plant and equipment is stated at historical cost. We compute depreciation by the straight-line method based on the
following estimated useful lives:
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)
2021
2020
$
198.7 $
71.5
29.5
10.3
$
310.0 $
183.6
76.7
30.4
10.5
301.2
(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.
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 2021, 2020, or 2019.
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.
50
Pentair plc and Subsidiaries
Notes to consolidated financial statements
During 2021, a qualitative assessment was performed. As a result, it was determined that it was more likely than not that the fair
value of the reporting units exceeded their respective carrying values. Factors considered in the analysis included the 2020
discounted cash flow fair value assessment of the 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.
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.
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 (income) expense.
51
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, 2021 and 2020, reserves for policy claims were $55.6 million, of which $13.0 million was
included in Other current liabilities and $42.6 million was included in Other non-current liabilities, and $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,
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.
52
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Acquisitions
2.
On October 18, 2021, as part of both of our Consumer Solutions and Industrial & Flow Technologies reporting segments, we
completed the acquisition of Pleatco Holdings, LLC and related entities for $254.6 million in cash, net of cash acquired. The
excess of purchase price over tangible net assets acquired has been preliminarily allocated to goodwill in the amount of $137.3
million, $131.4 million of which is expected to be deductible for income tax purposes. Identifiable intangible assets acquired
consisted of $97.9 million of definite-lived customer relationships with an estimated useful life of 17 years.
On May 19, 2021, as part of our Consumer Solutions reporting segment, we completed the acquisition of Ken’s Beverage, Inc. for
$83.1 million in cash, net of cash acquired. The excess of purchase price over tangible net assets acquired has been preliminarily
allocated to goodwill in the amount of $29.2 million, all of which is expected to be deductible for income tax purposes.
Identifiable intangible assets acquired consisted of $38.0 million of definite-lived customer relationships with an estimated useful
life of 22 years.
In 2020, our Consumer Solutions reporting segment completed acquisitions with purchase prices totaling $58.0 million in cash,
net of cash acquired.
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.
The pro forma impact of the acquisitions in 2021, 2020 and 2019 were not material.
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
2021
2020
2019
$
$
553.0 $
556.0 $
358.6 $
357.1 $
165.8
1.7
167.5
166.5
0.9
167.4
$
$
$
$
3.36 $
(0.02)
3.34 $
3.32 $
(0.02)
3.30 $
2.14 $
0.01
2.15 $
2.13 $
0.01
2.14 $
355.7
361.7
169.4
1.0
170.4
2.14
(0.04)
2.10
2.12
(0.03)
2.09
0.1
1.7
2.1
53
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Restructuring and Transformation Program
4.
In 2021, we launched and committed resources to a program designed to accelerate growth and drive margin expansion through
transformation of our business model to drive operational excellence, reduce complexity and streamline our processes (the
“Transformation Program”). The Transformation Program is structured in multiple phases and is expected to empower us to work
more efficiently and optimize our business to better serve our customers while meeting our financial objectives.
During 2021, 2020 and 2019, 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, 2021, 2020 and 2019
included a reduction in hourly and salaried headcount of approximately 75 employees, 175 employees and 375 employees,
respectively.
Restructuring and transformation-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 restructuring costs (1)
Total restructuring costs
Transformation costs (2)
Total restructuring and transformation costs
Years ended December 31
2021
2020
2019
$
$
7.0 $
0.4
7.4
11.7
19.1 $
9.7 $
4.4
14.1
—
14.1 $
11.7
2.3
14.0
—
14.0
(1) Other restructuring costs primarily consist of asset impairment and various contract termination costs.
(2) Transformation costs primarily consist of professional services and project management and related costs.
Restructuring and transformation costs by reportable segment were as follows:
In millions
Consumer Solutions
Industrial & Flow Technologies
Other
Consolidated
Years ended December 31
2021
2020
2019
$
$
0.9 $
0.9
17.3
19.1 $
3.6 $
4.7
5.8
14.1 $
6.7
4.9
2.4
14.0
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
2021
2020
$
$
15.2 $
7.0
(11.5)
10.7 $
16.2
9.7
(10.7)
15.2
54
Pentair plc and Subsidiaries
Notes to consolidated financial statements
5.
Goodwill and Other Identifiable Intangible Assets
The changes in the carrying amount of goodwill for the years ended December 31, 2021 and 2020 by reportable segment were as
follows:
In millions
Consumer Solutions
Industrial & Flow Technologies
Total goodwill
In millions
Consumer Solutions
Industrial & Flow Technologies
Total goodwill
December 31,
2020
Acquisitions
Purchase
accounting
adjustments
Foreign
currency
translation
December 31,
2021
$
$
1,580.5 $
811.7
2,392.2 $
152.9 $
13.6
166.5 $
(1.2) $
—
(1.2) $
(9.7) $
(43.3)
(53.0) $
1,722.5
782.0
2,504.5
December 31,
2019
Acquisitions
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
There has been no impairment of goodwill for any of the years presented.
Identifiable intangible assets consisted of the following at December 31:
17.5
145.3
180.6
325.9
In millions
Definite-life intangibles
Customer relationships
Proprietary technology and
patents
Total finite-life intangibles
Indefinite-life intangibles
2021
Accumulated
amortization
Cost
Net
Cost
2020
Accumulated
amortization
Net
$
558.8 $
(320.1) $
238.7 $
435.9 $
(308.1) $
127.8
46.3
605.1
(32.1)
(352.2)
14.2
252.9
46.9
482.8
(29.4)
(337.5)
Trade names
Total intangibles
175.1
780.2 $
$
—
175.1
(352.2) $
428.0 $
180.6
663.4 $
—
(337.5) $
Identifiable intangible asset amortization expense in 2021, 2020 and 2019 was $26.3 million, $28.4 million and $31.7 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
2022
2023
2024
2025
2026
Estimated amortization expense
$
23.3 $
21.0 $
20.5 $
20.5 $
19.2
55
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
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
Accrued freight
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
56
December 31
2021
2020
290.3 $
77.4
195.2
562.9 $
48.8 $
57.1
6.4
112.3 $
34.8 $
194.5
607.3
66.5
62.8
965.9
655.9
310.0 $
84.5 $
23.1
25.6
73.9
207.1 $
33.0 $
40.5
198.7
36.5
31.2
25.6
32.0
10.7
117.7
525.9 $
62.6 $
34.1
42.6
25.6
9.5
28.5
202.9 $
218.7
67.2
134.1
420.0
50.1
48.5
6.9
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
202.8
33.2
37.0
122.0
20.5
22.5
22.1
14.6
15.2
123.3
410.4
65.1
44.8
42.0
22.6
69.6
25.3
269.4
$
$
$
$
$
$
$
$
$
$
$
$
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
2021
2020
$
$
(224.1) $
10.2
(213.9) $
(177.1)
(30.2)
(207.3)
In millions
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)
Unamortized issuance costs and discounts
Total debt
(1) Senior notes are guaranteed as to payment by Pentair plc.
Average
interest rate at
December 31, 2021
Maturity
year
December 31
2021
2020
1.107%
1.033%
5.000%
3.150%
4.650%
4.500%
N/A
$
2026
2024
2021
2022
2025
2029
N/A
195.0 $
200.0
—
88.3
19.3
400.0
(8.5)
$
894.1 $
36.1
200.0
103.8
88.3
19.3
400.0
(7.9)
839.6
Pentair, Pentair Finance S.à r.l (“PFSA“) and Pentair, Inc. are parties to a credit agreement (the “Senior Credit Facility”), with
Pentair as guarantor and PFSA and Pentair, Inc. as borrowers, which was amended and restated in December 2021, providing for
a $900.0 million senior unsecured revolving credit facility and a $200.0 million senior unsecured term loan facility. The revolving
credit facility has a maturity date of December 16, 2026 and the term loan facility has a maturity date of December 16, 2024.
Borrowings under the Senior Credit Facility bear interest at a rate equal to an adjusted base rate, the London interbank offered
rate, the euro interbank offered rate or the central bank rate, plus, in each case, an applicable margin. The applicable margin is
based on, at PFSA’s election, Pentair’s leverage level or PFSA’s public credit rating.
As of December 31, 2021, total availability under the Senior Credit Facility was $705.0 million. In addition, PFSA has the option
to request to increase the revolving credit facility and/or to enter into one or more additional tranches of term loans in an
aggregate amount of up to $300.0 million, subject to customary conditions, including the commitment of the participating lenders.
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 and cash equivalents in excess of $5.0 million but not to exceed $250.0 million) to our consolidated
net income (excluding, among other things, non-cash gains and losses) before interest, taxes, depreciation, amortization and non-
cash share-based compensation expense (“EBITDA”) on the last day of any period of four consecutive fiscal quarters (each, a
“testing period”) to exceed 3.75 to 1.00 (or, at PFSA’s election and subject to certain conditions, 4.25 to 1.00 for four testing
periods in connection with certain material acquisitions) (the “Leverage Ratio”) and (ii) the ratio of our EBITDA to our
consolidated interest expense, for the same period to be less than 3.00 to 1.00 as of the end of each fiscal quarter. For purposes of
the Leverage Ratio, the Senior Credit Facility 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, 2021. Borrowings under these credit facilities bear interest at
variable rates.
We have $88.3 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, 2021 as we have the intent and ability to refinance such obligation on a long-term basis
under the Senior Credit Facility.
57
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Debt outstanding, excluding unamortized issuance costs and discounts, at December 31, 2021 matures on a calendar year basis as
follows:
In millions
2022
2023
2024
2025
2026
Thereafter
Total
Contractual debt obligation maturities $
88.3 $
— $
200.0 $
19.3 $
195.0 $
400.0 $
902.6
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, 2021 and 2020, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar
equivalent amounts of $14.7 million and $12.4 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, 2021 and 2020, we had outstanding cross currency swap agreements with a combined notional amount of
$794.4 million and $855.1 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, 2021 and 2020, we had a deferred foreign currency gain of $7.3 million and
a deferred foreign currency loss of $32.8 million, respectively, recorded in Accumulated other comprehensive loss associated with
our cross currency swap activity. The periodic interest settlements related to our cross currency swap agreements are classified as
operating activities. The cash flows that relate to principal balances are classified as financing activities for the cash flow hedges
on intercompany debt and investing activities for the net investment hedges.
In January 2021, one of our cross currency swap agreements, which was accounted for as a cash flow hedge, matured, resulting in
a net cash payment of $14.7 million. The net cash payment is included within financing activities on the Condensed Consolidated
Statements of Cash Flows.
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.
58
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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
2021
2020
Recorded
Amount
Fair
Value
Recorded
Amount
Fair
Value
$
$
395.0 $
507.6
902.6 $
395.0 $
564.3
959.3 $
236.1 $
611.4
847.5 $
236.1
695.4
931.5
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 assets
Foreign currency contract liabilities
Deferred compensation plan assets
Total recurring fair value measurements
Recurring fair value measurements
In millions
Foreign currency contract liabilities
Deferred compensation plan assets
Total recurring fair value measurements
December 31, 2021
Level 1
Level 2
Level 3
NAV
Total
— $
—
13.6
13.6 $
7.2 $
(9.5)
—
(2.3) $
— $
—
—
— $
— $
—
12.0
12.0 $
7.2
(9.5)
25.6
23.3
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)
$
$
$
$
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
626.8 $
(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.
$
Years ended December 31
2020
2019
2021
$
(11.2) $
638.0
7.2 $
424.9
432.1 $
(1.6)
409.1
407.5
59
Pentair plc and Subsidiaries
Notes to consolidated financial statements
The provision for income taxes consisted of the following:
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.
Years ended December 31
2020
2019
2021
$
$
— $
79.8
79.8
(9.0)
(9.0)
70.8 $
0.1 $
70.3
70.4
4.6
4.6
75.0 $
—
64.2
64.2
(18.4)
(18.4)
45.8
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
Unrecognized tax benefits
Effective tax rate
(1) The tax effect of international operations consists of non-U.K. jurisdictions.
Years ended December 31
2020
2019
2021
19.0 %
(5.1)
(0.2)
(1.1)
—
(1.3)
11.3 %
19.0 %
(3.9)
1.3
(0.7)
1.7
—
17.4 %
19.0 %
(8.2)
1.1
(0.7)
—
—
11.2 %
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
2021
2020
2019
$
46.3 $
47.4 $
2.5
(0.7)
0.2
(0.9)
(10.1)
37.3 $
0.6
—
0.2
(1.1)
(0.8)
46.3 $
$
51.4
0.4
(0.8)
0.4
(2.9)
(1.1)
47.4
We record gross unrecognized tax benefits in Other current liabilities and Other non-current liabilities in the Consolidated
Balance Sheets. Included in the $37.3 million of total gross unrecognized tax benefits as of December 31, 2021 was $37.0 million
of tax benefits that, if recognized, would impact the effective tax rate. It is reasonably possible that the gross unrecognized tax
benefits as of December 31, 2021 may decrease by a range of zero to $3.4 million during 2022, primarily as a result of the
resolution of non-U.K. examinations, including U.S. federal and state examinations.
Based on the outcome of these examinations, or as a result of the expiration of statutes 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 2009 to present are under audit
by tax authorities in various jurisdictions, including Germany, India, Italy, and the U.S. We anticipate that several of these audits
may be concluded in the foreseeable future.
60
Pentair plc and Subsidiaries
Notes to consolidated financial statements
We record penalties and interest related to unrecognized tax benefits in Provision for income taxes and Net interest expense,
respectively, in the Consolidated Statements of Operations and Comprehensive Income. At December 31, 2021 and 2020, our
liabilities for the possible payment of penalties was $0.2 million at both dates and for the possible payment of interest expense
were $3.9 million and $4.6 million, respectively, which are recorded in Other current liabilities in the Consolidated Balance
Sheets.
Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as
“temporary differences.” We record the tax effect of these temporary differences as “deferred tax assets” (generally items that can
be used as a tax deduction or credit in future periods) and “deferred tax liabilities” (generally items for which we received a tax
deduction but the tax impact has not yet been recorded in the Consolidated Statements of Operations and Comprehensive
Income).
Deferred taxes were recorded in the Consolidated Balance Sheets as follows:
$
$
$
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
2021
2020
23.1 $
89.8
66.7 $
27.4
107.4
80.0
December 31
2021
2020
57.8 $
24.6
18.2
729.7
67.5
897.8
727.2
170.6
10.2
210.4
16.7
237.3
59.4
26.2
18.5
744.5
49.9
898.5
747.3
151.2
5.3
209.0
16.9
231.2
80.0
$
66.7 $
Included in tax loss and credit carryforwards in the table above is a deferred tax asset of $29.6 million as of December 31, 2021
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, 2021, tax loss carryforwards of $2,917.3 million were available to offset future income. A valuation
allowance of $684.7 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 $2,778.5 million which are subject to
varying expiration periods. Non-U.S. carryforwards of $1,895.8 million are located in jurisdictions with unlimited tax loss
carryforward periods, while the remainder will begin to expire in 2022. In addition, there were $10.2 million of U.S. federal loss
carryforwards with unlimited tax loss carryforward periods and $128.6 million of U.S. state tax loss carryforwards as of
December 31, 2021. U.S. state tax losses of $64.3 million are in jurisdictions with unlimited tax loss carryforward periods, while
the remainder will expire in future years through 2041.
61
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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.
Impacts of U.S. tax legislation
In April 2020, the IRS released 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. 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%.
In March 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
provided 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.
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, 2021 and 2020:
In millions
Change in benefit obligations
Benefit obligation beginning of year
Service cost
Interest cost
Actuarial (gain) 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
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
2021
2020
2021
2020
$
120.8 $
112.1 $
13.8 $
14.6
2.8
2.0
(2.1)
(0.6)
3.3
2.9
9.3
1.4
(6.8)
116.1 $
(8.2)
120.8 $
—
0.2
(1.4)
—
(1.3)
11.3 $
33.7 $
31.0 $
— $
(0.3)
8.1
(0.3)
(6.8)
34.4 $
3.0
7.1
0.8
(8.2)
33.7 $
—
1.3
—
(1.3)
— $
—
0.4
0.1
—
(1.3)
13.8
—
—
1.3
—
(1.3)
—
(81.7) $
(87.1) $
(11.3) $
(13.8)
$
$
$
$
The actuarial gain in 2021 was primarily due to increases in the discount rates to reflect economic conditions at December 31,
2021.
62
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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
2021
2020
2021
2020
$
$
(5.7) $
(76.0)
(81.7) $
(5.6) $
(81.5)
(87.1) $
(1.3) $
(10.0)
(11.3) $
(1.5)
(12.3)
(13.8)
The accumulated benefit obligation for all defined benefit plans was $112.7 million and $119.3 million at December 31, 2021 and
2020, 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
2021
2020
2021
2020
$
116.1 $
120.8 $
116.1 $
34.4
N/A
33.7
N/A
34.4
112.7
120.8
33.7
119.3
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 (gain) loss
Net periodic benefit expense
2021
2020
2019
$
2.8 $
3.3 $
2.0
(0.5)
(1.5)
2.9
(0.8)
6.8
$
2.8 $
12.2 $
2.6
7.3
(3.9)
(4.1)
1.9
Components of net periodic benefit expense for our other post-retirement plans for the years ended December 31, 2021, 2020 and
2019, 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
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
2021
2020
2019
2021
2020
2019
2.21 % 1.74 % 2.68 %
2.34 % 1.77 % 2.81 %
3.61 % 3.62 % 3.68 %
N/A
N/A
N/A
1.74 % 2.68 % 3.70 %
1.77 % 2.81 % 3.95 %
2.60 % 3.32 % 4.37 %
3.62 % 3.68 % 3.72 %
N/A
N/A
N/A
N/A
N/A
N/A
63
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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 2022.
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 a loss of (0.89)% in 2021 and returns of 9.68% and 8.85% in 2020 and 2019, 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
2021
2020
5.5 %
4.0 %
2046
5.4 %
4.4 %
2038
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
2021
2020
2021
2020
67 %
32 %
1 %
70 %
30 %
— %
68 %
32 %
— %
71 %
29 %
— %
Fair value measurement
The fair values of our pension plan assets and their respective levels in the fair value hierarchy as of December 31, 2021 and
December 31, 2020 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, 2021
Level 1
Level 2
Level 3
Total
0.3 $
—
0.3 $
— $
—
— $
— $
11.0
11.0 $
$
0.3
11.0
11.3
23.1
34.4
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
$
$
$
$
64
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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, 2021 and 2020 was not material.
Cash flows
Contributions
Pension contributions totaled $8.1 million and $7.1 million in 2021 and 2020, respectively. We anticipate our 2022 pension
contributions to be approximately $6.6 million. The 2022 expected contributions will equal or exceed our minimum funding
requirements.
Estimated future benefit payments
The following benefit payments, which reflect expected future service or payout from termination, as appropriate, are expected to
be paid by the plans in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter are as follows:
In millions
2022
2023
2024
2025
2026
2027 - 2031
Pension plans
Other post-
retirement
plans
$
7.4 $
7.5
7.8
7.6
7.4
37.7
1.4
1.3
1.2
1.1
1.0
3.7
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.
Our expense for the 401(k) plan, including the ESOP, was $19.0 million, $15.3 million and $14.4 million in 2021, 2020 and 2019,
respectively.
Other retirement compensation
Total other accrued retirement compensation, primarily related to deferred compensation and supplemental retirement plans, was
$32.7 million and $30.7 million as of December 31, 2021 and 2020, respectively, and is included in Pension and other post-
retirement compensation and benefits and Other non-current liabilities in the Consolidated Balance Sheets.
65
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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 expired on May 31, 2021. In December 2020, the Board of Directors
authorized the repurchase of our ordinary shares up to a maximum dollar limit of $750.0 million (the “2020 Authorization”). The
2020 Authorization expires on December 31, 2025. The 2020 Authorization supplemented 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.
During the year ended December 31, 2021, we repurchased 2.1 million of our ordinary shares for $150.0 million, of which 0.8
million shares, or $50.0 million, and 1.3 million shares, or $100.0 million, were repurchased pursuant to the 2018 Authorization
and 2020 Authorization, respectively. As of December 31, 2021, we had $650.0 million available for share repurchases under the
2020 Authorization.
Dividends payable
On December 7, 2021, the Board of Directors approved a 5 percent increase in the Company’s regular quarterly dividend rate
(from $0.20 per share to $0.21 per share) that was paid on February 4, 2022 to shareholders of record at the close of business on
January 21, 2022. The balance of dividends payable included in Other current liabilities on our Consolidated Balance Sheets was
$33.0 million at December 31, 2021. Dividends paid per ordinary share were $0.80, $0.76 and $0.72 for the years ended
December 31, 2021, 2020 and 2019, respectively.
Share Plans
13.
Share-based compensation expense
Total share-based compensation expense for 2021, 2020 and 2019 was as follows:
In millions
Restricted stock units
Stock options
Performance share units
Total share-based compensation expense
December 31
2021
2020
2019
$
$
13.0 $
3.4
13.4
29.8 $
12.5 $
3.0
4.8
20.3 $
11.2
4.5
5.7
21.4
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.
66
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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.
Stock options
The following table summarizes stock option activity under all plans for the year ended December 31, 2021:
Shares and intrinsic value in millions
Outstanding as of January 1, 2021
Granted
Exercised
Outstanding as of December 31, 2021
Options exercisable as of December 31, 2021
Options expected to vest as of December 31, 2021
Weighted-
average
exercise
price
Weighted-
average
remaining
contractual life
(years)
Aggregate
intrinsic
value
Number of
shares
2.8 $
0.3
(0.9)
2.2 $
1.6 $
0.6 $
40.47
53.25
38.88
42.86
40.90
47.83
5.5
4.5
8.0
$
$
$
66.4
50.9
14.9
Fair value of options granted
The weighted average grant date fair value of options granted under Pentair plans in 2021, 2020 and 2019 was estimated to be
$12.88, $9.55 and $8.86 per share, respectively. The total intrinsic value of options that were exercised during 2021, 2020 and
2019 was $29.0 million, $18.0 million and $9.5 million, respectively. At December 31, 2021, the total unrecognized
compensation cost related to stock options was $3.9 million. This cost is expected to be recognized over a weighted average
period of 1.9 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)
2021
0.37 %
1.56 %
29.60 %
6.5
December 31
2020
1.61 %
1.80 %
24.10 %
6.8
2019
2.89 %
1.78 %
23.30 %
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.
67
Pentair plc and Subsidiaries
Notes to consolidated financial statements
We based the expected life assumption on historical experience as well as the terms and vesting periods of the options granted.
For purposes of determining expected volatility, we considered a rolling average of historical volatility measured over a period
approximately equal to the expected option term. The risk-free rate for periods that coincide with the expected life of the options
is based on the U.S. Treasury Department yield curve in effect at the time of grant.
Cash received from option exercises for the years ended December 31, 2021, 2020 and 2019 was $29.3 million, $30.8 million and
$15.5 million, respectively. The actual tax benefit realized for the tax deductions from options exercised totaled $6.2 million, $2.9
million and $2.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Restricted stock units
The following table summarizes restricted stock unit activity under all plans for the year ended December 31, 2021:
Shares in millions
Outstanding as of January 1, 2021
Granted
Vested
Forfeited
Outstanding as of December 31, 2021
Number of
shares
Weighted
average
grant date
fair value
0.7 $
0.3
(0.3)
(0.1)
0.6 $
42.52
56.42
41.56
47.06
47.78
As of December 31, 2021, there was $23.4 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 1.0 year. The total fair value of shares vested during the years ended December 31, 2021, 2020 and 2019, was $10.5
million, $11.2 million and $9.3 million, respectively. For the year ended December 31, 2021, there was $0.6 million of tax benefit
realized. For the year ended December 31, 2020, no tax benefit was realized. The actual tax benefit realized for the year ended
December 31, 2019, was $0.1 million.
Performance share units
The following table summarizes performance share unit activity under all plans for the year ended December 31, 2021:
Shares in millions
Outstanding as of January 1, 2021
Granted
Vested
Outstanding as of December 31, 2021
Number of
shares
Weighted
average
grant date
fair value
0.4 $
0.1
(0.1)
0.4 $
42.78
52.56
45.42
45.55
The expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued. As of
December 31, 2021, there was $15.3 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, $0.1 million, and $0.2 million of actual tax benefits realized for the years ended
December 31, 2021, 2020, and 2019, respectively.
68
Pentair plc and Subsidiaries
Notes to consolidated financial statements
Segment Information
14.
We classify our operations into the following 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 and transformation activities, impairments and other unusual non-operating items.
Financial information by reportable segment is included in the following summary:
2021
2020
2019
2021
2020
2019
In millions
379.6
1,742.9 $
Consumer Solutions
199.0
1,273.6
Industrial & Flow Technologies
(62.3)
1.3
Other
Consolidated (1)
516.3
3,017.8 $
(1) One customer in the Consumer Solutions’ pool business represented approximately 20%, 15%, and 15% of our consolidated net sales in
1,611.7 $
1,344.1
1.4
2,957.2 $
2,341.9 $
1,421.4
1.5
3,764.8 $
554.4 $
213.3
(81.8)
685.9 $
419.1 $
164.6
(66.1)
517.6 $
Segment income (loss)
Net sales
$
$
2021, 2020 and 2019, respectively.
2021
2020
Identifiable assets (1)
2019
$ 2,823.0 $ 2,327.9 $ 2,329.9 $
In millions
Consumer Solutions
Industrial & Flow
Technologies
Other
Consolidated
(1) All cash and cash equivalents are included in “Other.”
1,716.4 1,661.7 1,562.8
246.8
207.6
$ 4,753.6 $ 4,197.2 $ 4,139.5 $
214.2
2021
2020
2019
2021
2020
2019
Capital expenditures
32.5 $
27.4 $
Depreciation
31.2 $
23.7 $
21.4 $
21.8
23.0
4.7
60.2 $
26.6
8.2
62.2 $
20.3
7.0
58.5 $
21.4
6.1
51.2 $
19.8
5.5
46.7 $
21.0
5.5
48.3
69
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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 costs
Transformation costs
Inventory step-up
Intangible amortization
Pension and other post-retirement mark-to-market gain (loss)
Asset impairment
Gain (loss) on sale of businesses
Interest expense, net
Deal related costs and expenses
COVID-19 related costs and expenses
Legal settlement and accrual adjustments
Other expense
2021
2020
2019
$
685.9 $
517.6 $
(7.5)
(11.7)
(2.3)
(26.3)
2.4
—
1.4
(12.5)
(7.9)
(0.6)
7.6
(1.7)
(15.4)
—
—
(28.4)
(6.7)
—
(0.1)
(23.9)
(0.6)
(10.4)
—
—
516.3
(21.0)
—
(2.2)
(31.7)
3.4
(21.2)
2.2
(30.1)
(4.2)
—
—
(4.0)
Income from continuing operations before income taxes
$
626.8 $
432.1 $
407.5
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 and applicable accounting rules. 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, 2021, our
recorded reserves for environmental matters were not material.
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 the 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
70
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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 were 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,
2021
December 31,
2020
$
$
37.2 $
(1.0)
36.2 $
32.5
(1.0)
31.5
December 31,
2021
December 31,
2020
$
$
41.5 $
12.2 $
28.5
13.6
December 31,
2021
December 31,
2020
4.1
5.1 %
4.7
5.5 %
Future minimum lease commitments under non-cancelable operating leases as of December 31, 2021 were as follows:
In millions
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: imputed interest
Total
$
$
29.5
25.3
19.7
9.6
6.0
7.7
97.8
(9.6)
88.2
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.
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.
71
Pentair plc and Subsidiaries
Notes to consolidated financial statements
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 were as follows:
In millions
Beginning balance
Service and product warranty provision
Payments
Foreign currency translation
Ending balance
Years ended December 31
2021
2020
2019
$
37.0 $
32.1 $
55.6
(51.8)
(0.3)
55.5
(51.1)
0.5
$
40.5 $
37.0 $
33.9
53.8
(55.5)
(0.1)
32.1
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, 2021 and 2020, the outstanding value of bonds, letters of credit and bank guarantees totaled $104.5 million
and $99.1 million, respectively.
72
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,
2021, 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, 2021 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, 2021
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
73
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 2022 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 2022 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.
74
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 2022 annual
general meeting of shareholders under the caption “Security Ownership” and is incorporated herein by reference.
The following table summarizes, as of December 31, 2021, 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)
777,309 (1) $
2,597,495 (4)
3,374,804
$
53.28 (2)
41.04 (2)
42.63 (2)
5,151,819 (3)
360,068 (5)
5,511,887
Plan category
Equity compensation plans approved by
security holders:
2020 Share and Incentive Plan
2012 Stock and Incentive Plan
Total
(1) Consists of 307,572 shares subject to stock options, 337,364 shares subject to restricted stock units, and 132,373 shares
subject to performance share awards.
(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 2,066,108 shares subject to stock options, 291,305 shares subject to restricted stock units, and 240,082 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information required under this item is contained in our Proxy Statement for our 2022 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 2022 annual general meeting of shareholders
under the caption “Proposal 3 Ratify, by Nonbinding, Advisory Vote, the Appointment of Deloitte & Touche LLP (PCAOB ID
No. 34) 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.
75
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(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, 2021,
2020 and 2019
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Changes in Equity for the years ended December 31, 2021, 2020 and 2019
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)).
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)).
Amended and Restated Credit Agreement, dated as of December 16, 2021, among Pentair plc, 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 20, 2021 (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)).
76
4.7
4.8
4.9
4.10
4.11
4.12
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
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)).
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)).*
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 Karla C. Robertson, 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)).*
Form of Key Executive Employment and Severance Agreement for Adrian C. Chiu.*
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.
(Incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K of Pentair plc for the year ended
December 31, 2020 (File No. 001-11625)).*
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)).*
77
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
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)).*
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 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 (Incorporated by reference to Exhibit 10.30 to the Annual Report on
Form 10-K of Pentair plc for the year ended December 31, 2020 (File No. 001-11625)).*
Amendment No. 1 to the Pentair plc 2020 Share and Incentive Plan (Incorporated by reference to Exhibit 10.31 to
the Annual Report on Form 10-K of Pentair plc for the year ended December 31, 2020 (File No. 001-11625)).*
78
10.30
Amendment to Key Executive Employment and Severance Agreement, as of January 1, 2021, for John L. Stauch,
Karla C. Robertson, Philip M. Rolchigo, Robert P. Fishman, Jerome O. Pedretti, Mario R. D’Ovidio and Stephen
J. Pilla (Incorporated by reference to Exhibit 10.32 to the Annual Report on Form 10-K of Pentair plc for the year
ended December 31, 2020 (File No. 001-11625)).*
21
22
23
24
31.1
31.2
32.1
32.2
101
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 June 30, 2021 (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.
The following materials from Pentair plc’s Annual Report on Form 10-K for the year ended December 31, 2021
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, 2021, 2020 and 2019, (ii)
the Consolidated Balance Sheets as of December 31, 2021 and 2020, (iii) the Consolidated Statements of Cash
Flows for the years ended December 31, 2021, 2020 and 2019, (iv) the Consolidated Statements of Changes in
Equity for the years ended December 31, 2021, 2020 and 2019 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.
79
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 22, 2022.
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 22, 2022.
Signature
/s/ John L. Stauch
John L. Stauch
/s/ Robert P. Fishman
Robert P. Fishman
*
Mona Abutaleb Stephenson
*
Melissa Barra
*
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
Director
80
A PURPOSE-DRIVEN COMPANY
We inspire people to move, improve and enjoy life’s
essential resources for happier, healthier lives
UNITED BY OUR WIN RIGHT VALUES
WIN
RIGHT
Customer First
Absolute Integrity
Innovation & Adaptability
Respect & Teamwork
Accountability for Performance
Positive Energy
CAUTION CONCERNING
FORWARD-LOOKING STATEMENTS
This report contains statements that we believe to be (cid:565)forward(cid:557)
looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements, other than
statements of historical fact, are forward(cid:557)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(cid:557)looking statements. These forward(cid:557)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(cid:557)
looking statements. These factors include the overall impact of
the COVID(cid:557)19 pandemic on our business(cid:539) the duration and severity
of the COVID(cid:557)19 pandemic, the impact of virus variants and the
effectiveness of vaccinations(cid:539) actions that may be taken by
us, other businesses and governments to address or otherwise
mitigate the impact of the COVID(cid:557)19 pandemic, including those that
may impact our ability to operate our facilities, meet production
demands, and deliver products to our customers(cid:539) the impacts of
the COVID(cid:557)19 pandemic on the global economy, our workforce,
customers and suppliers, and customer demand(cid:539) overall global
economic and business conditions impacting our business,
including the strength of housing and related markets(cid:539) supply,
demand, logistics, competition and pricing pressures related
to and in the markets we serve(cid:539) volatility in currency exchange
rates(cid:539) failure of markets to accept new product introductions
and enhancements(cid:539) the ability to successfully identify, (cid:357)nance,
complete and integrate acquisitions(cid:539) the ability to achieve the
bene(cid:357)ts of our restructuring plans, cost reduction initiatives and
transformation program(cid:539) risks associated with operating foreign
businesses(cid:539) the impact of raw material, logistics and labor costs
and other in(cid:358)ation(cid:539) the impact of seasonality of sales and weather
conditions(cid:539) our ability to comply with laws and regulations(cid:539)
the impact of changes in laws, regulations and administrative
policy, including those that limit U.S. tax bene(cid:357)ts or impact trade
agreements and tariffs(cid:539) the outcome of litigation and governmental
proceedings(cid:539) and the ability to achieve our long(cid:557)term strategic
operating and ESG goals. Additional information concerning these
and other factors is contained in our (cid:357)lings with the U.S. Securities
and Exchange Commission (the “SEC”), including this Annual Report
on (cid:57)orm 10(cid:557)K. All forward(cid:557)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.
ANNUAL GENERAL MEETING
Our Annual General Meeting of Shareholders
will be held at Claridge’s, Brook Street, Mayfair,
London, W1K 4HR, United Kingdom, on
Tuesday, May 17, 2022, at 8:00 a.m. local 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 8:00 a.m. local time (IST).
STOCK EXCHANGE LISTING
New York Stock Exchange (symbol: PNR)
INVESTOR INFORMATION
Shareholders seeking more information
about the Company can access news releases
describing signi(cid:357)cant company events and
earnings results for each quarter and the
(cid:357)scal year as well as the (cid:57)orm 10(cid:557)K and other
Securities and Exchange Commission (cid:357)lings
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.
REGISTRAR, STOCK TRANSFER
AND PAYING AGENT
Computershare, Inc.
P.O. Box 505000
Louisville, KY 40233(cid:557)5000
Telephone inquiries: 1(cid:557)866(cid:557)241(cid:557)7684 (U.S.)
1(cid:557)732(cid:557)491(cid:557)0587 (non U.S.)
E(cid:557)mail inquiries:
web.queries@computershare.com
2021
ANNUAL
REPORT
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 reserve the right to
change speci(cid:357)cations without prior notice.