10-K


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2015
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
 
98-1141328
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification number)
 
 
P.O. Box 471, Sharp Street, Walkden, Manchester, M28 8BU United Kingdom
(Address of principal executive offices)
Registrant’s telephone number, including area code: 44-161-703-1885
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Ordinary Shares, nominal value $0.01 per share
 
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 þ    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 þ
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 þ    No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes þ    No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in PART III of this Form 10-K or any amendment to this Form 10-K.  þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  þ
  
Accelerated filer  o
  
Non-accelerated filer  o
  
Smaller reporting company  o
 
  
 
  
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ¨    No þ
Aggregate market value of voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of $63.75 per share as reported on the New York Stock Exchange on June 26, 2015 (the last business day of Registrant’s most recently completed second quarter): $11,256,593,708
The number of shares outstanding of Registrant’s only class of common stock on December 31, 2015 was 180,455,693.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant’s definitive proxy statement for its annual meeting to be held on May 10, 2016, 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, 2015
 
 
 
 
  
Page
PART I
 
 
 
ITEM 1.
 
  
 
 
 
ITEM 1A.
 
  
 
 
 
ITEM 1B.
 
  
 
 
 
ITEM 2.
 
  
 
 
 
 
 
ITEM 3.
 
  
 
 
 
 
 
ITEM 4.
 
  
 
PART II
 
 
 
ITEM 5.
 
  
 
 
 
 
 
ITEM 6.
 
  
 
 
 
ITEM 7.
 
  
 
 
 
ITEM 7A.
 
  
 
 
 
ITEM 8.
 
  
 
 
 
ITEM 9.
 
  
 
 
 
ITEM 9A.
 
  
 
 
 
ITEM 9B.
 
  
 
PART III
 
 
 
ITEM 10.
 
  
 
 
 
ITEM 11.
 
  
 
 
 
ITEM 12.
 
  
 
 
 
ITEM 13.
 
  
 
 
 
ITEM 14.
 
  
 
PART IV
 
 
 
ITEM 15.
 
  
 
 
 
 
 
  



PART I

ITEM 1.    BUSINESS
GENERAL
Pentair plc is a focused diversified industrial manufacturing company comprising four reporting segments: Valves & Controls, Flow & Filtration Solutions, Water Quality Systems and Technical Solutions. Valves & Controls designs, manufactures, markets and services valves, fittings, automation and controls and actuators. Flow & Filtration Solutions designs, manufactures, markets and services solutions for the toughest filtration, separation, flow and fluid management challenges in agriculture, food and beverage processing, water supply and disposal and a variety of industrial applications. Water Quality Systems designs, manufactures, markets and services innovative water system products and solutions to meet filtration and fluid management challenges in food and beverage, water, swimming pools and aquaculture applications. Technical Solutions designs, manufactures, markets and services products that guard and protect some of the world’s most sensitive electrical and electronic equipment, as well as heat management solutions designed to provide thermal protection to temperature sensitive fluid applications and engineered electrical and fastening products for electrical, mechanical and civil applications.
Pentair strategy
Our strategy is to drive sustainable, profitable growth and return on invested capital improvements through:
•
building operational excellence through the Pentair Integrated Management System ("PIMS") consisting of lean enterprise, growth and talent management;
•
driving long-term growth in sales, operating income and cash flows, through growth and productivity initiatives along with acquisitions;
•
developing new products and enhancing existing products;
•
penetrating attractive growth markets, particularly outside of the United States;
•
expanding multi-channel distribution; and
•
proactively managing our business portfolio for optimal value creation, including consideration of new business platforms.
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. We are an Irish corporation limited by shares 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").
HISTORY AND DEVELOPMENT
In December 2013, the Company's Board of Directors approved changing the Company's jurisdiction of organization from Switzerland to Ireland. At an extraordinary meeting of shareholders on May 20, 2014, Pentair Ltd. shareholders voted in favor of a reorganization proposal pursuant to which Pentair Ltd. would merge into Pentair plc and all Pentair Ltd. common shares would be cancelled and all holders of such shares would receive ordinary shares of Pentair plc on a one-to-one basis. The reorganization transaction was completed on June 3, 2014, at which time Pentair plc replaced Pentair Ltd. as the ultimate parent company (the "Redomicile"). Shares of Pentair plc began trading on the New York Stock Exchange ("NYSE") on June 3, 2014 under the symbol "PNR," the same symbol under which Pentair Ltd. shares were previously traded.
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 former parent company, Pentair Ltd., took its form on September 28, 2012 as a result of a reverse acquisition (the "Merger") involving Pentair, Inc. and an indirect, wholly-owned subsidiary of Flow Control (defined below), with Pentair, Inc. surviving as an indirect, wholly-owned subsidiary of ours. "Flow Control" refers to Pentair Ltd. prior to the Merger. Prior to the Merger, Tyco International Ltd. ("Tyco") engaged in an internal restructuring whereby it transferred to Flow Control certain assets related to the flow control business of Tyco, and Flow Control assumed from Tyco certain liabilities related to the flow control business of Tyco. On September 28, 2012 prior to the Merger, Tyco effected a spin-off of Flow Control through the pro-rata distribution of 100% of the outstanding ordinary shares of Flow Control to Tyco’s shareholders (the "Distribution"), resulting in the distribution of approximately 110.9 million of our ordinary shares to Tyco’s shareholders. The Merger was accounted for as a reverse acquisition under the purchase method of accounting with Pentair, Inc. treated as the acquirer.

1


On September 18, 2015, we acquired, as part of Technical Solutions, all of the outstanding shares of capital stock of ERICO Global Company ("ERICO") for approximately $1.8 billion (the "ERICO Acquisition"). ERICO is a leading global manufacturer and marketer of engineered electrical and fastening products for electrical, mechanical and civil applications. ERICO has employees in 30 countries across the world with recognized brands including CADDY fixing, fastening and support products; ERICO electrical grounding, bonding and connectivity products and LENTON engineered systems.
Our registered principal office is located at P.O. Box 471, Sharp Street, Walkden, Manchester, M28 8BU United Kingdom. Our management office in the United States ("U.S.") is located at 5500 Wayzata Boulevard, Suite 600, Minneapolis, Minnesota.
BUSINESS AND PRODUCTS
Reporting segment and geographical financial information is contained in ITEM 8, Note 16 of the Notes to Consolidated Financial Statements, included in this Form 10-K. The following is a brief description of each of the Company’s reportable segments and business activities.
VALVES & CONTROLS
The Valves & Controls segment designs, manufactures, markets and services valves, fittings, automation and controls and actuators for the energy and industrial verticals.
Valve products include a broad range of industrial valves, including on-off valves, safety relief valves and other specialty valves. Actuation products include pneumatic, hydraulic and electric actuators. Control products include limit switches, valve positioners, network systems and accessories.
Valves & Controls products are used in many applications including oil and gas, power, chemical and pharmaceutical, mining, marine and food and beverage. Valves & Controls also provides engineering, design, inspection, maintenance and repair services for its valves and related products. The product line is sold under many trade names, including Anderson Greenwood, Biffi, Crosby, Keystone and Vanessa, globally via its internal sales force and in some cases through independent distributors.
Customers
Valves & Controls customers include businesses engaged in a wide range of applications within the energy and industrial verticals. Customers include end-users as well as engineering, procurement and construction companies, contractors, original equipment manufacturers and distributors.
Seasonality
Valves & Controls is not significantly affected by seasonal demand fluctuations.
Competition
The flow control industry is highly fragmented, consisting of many local and regional companies and a few global competitors. We compete against a number of international, national and local manufacturers of industrial valves, as well as against specialized manufacturers on the basis of product capability, product quality, breadth of product line, delivery, service capability and price. Our major competitors vary by region and by industry.
FLOW & FILTRATION SOLUTIONS
The Flow & Filtration Solutions segment designs, manufactures, markets and services solutions for the toughest filtration, separation, flow and fluid management challenges in agriculture, food and beverage processing, water supply and disposal and a variety of industrial applications.
Flow & Filtration Solutions is involved in the entire fluid management system, from advanced filtration, desalination and water supply to water disposal, process and control. From product selection to installation, maintenance and servicing, Flow & Filtration Solutions supports a broad range of products and services specifically tailored to address customers' needs for reliable and efficient movement and control of fluids. Solutions include light duty diaphragm pumps and pressure boosters, high-flow turbine pumps and solid handling pumps, as well as advanced filtration, oil & gas separation, membrane technology, energy recovery and quality control and instrumentation.
Applications for Flow and Filtration Solutions’ products include precision agriculture, water supply and disposal, fire applications and food and beverage processing. Brand names for Flow & Filtration Solutions products include Aurora, Berkeley, Fairbanks-Nijhuis, Haffmans, Hydromatic, Hypro, Sta-Rite, Südmo and X-Flow.

Customers
Flow & Filtration Solutions customers include businesses engaged in wholesale distribution and retail across the residential, commercial, industrial, infrastructure, energy and food and beverage verticals. Customers also include end-users as well as engineering procurement contractors, original equipment manufacturers and residential retail consumers.

2


Seasonality
We experience demand for residential water supply products, infrastructure and agricultural products following warm weather trends, which are at seasonal highs from April to August. The magnitude of the sales increase is partially mitigated by employing some advance sale "early buy" programs (generally including extended payment terms and/or additional discounts). Seasonal effects may vary from year to year and are impacted by weather patterns, particularly by temperatures, heavy flooding and droughts.
Competition
Flow & Filtration Solutions faces numerous domestic and international competitors, some of which have substantially greater resources directed to the verticals in which we compete. Competition in Flow & Filtration Solutions 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.
WATER QUALITY SYSTEMS
The Water Quality Systems segment designs, manufactures, markets and services innovative water system products and solutions to meet filtration and fluid management challenges in food and beverage, water, swimming pools and aquaculture applications.
Water Quality Systems offers a comprehensive product suite that includes a full range of recreational water treatment equipment including energy-efficient pumps, point-of-entry / point-of-use filtration for residential and commercial applications including foodservice, valves, UV sanitization and automation controls. We offer design and consulting services and our advanced water technologies are used across a wide number of industries including industrial, residential, commercial, municipal, foodservice, aquaculture, aquaponics, aquatic life support systems, irrigation and flood control, wastewater and more. Our equipment and solutions are found in swimming pools and spas, aquaculture farms, laboratories, water purification and sanitation systems, foodservice operations, and in other applications across the globe.
Brand names for Water Quality Systems include Everpure, Pentair and Sta-Rite.
Customers
Water Quality Systems customers include businesses engaged in wholesale and retail distribution in the residential & commercial, food & beverage and infrastructure verticals. Customers in the residential & commercial vertical also include end-users and consumers.
Seasonality
We experience seasonal demand with several end customers and end-users within Water Quality Systems. End-user demand for pool equipment follows warm weather trends and is at seasonal highs from April to August. The magnitude of the sales increase is partially mitigated by employing some advance sale "early buy" programs (generally including extended payment terms and/or additional discounts).
Competition
Water Quality Systems 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), quality 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.
TECHNICAL SOLUTIONS
The Technical Solutions segment designs, manufactures, markets and services products that guard and protect some of the world’s most sensitive electrical and electronic equipment, as well as heat management solutions designed to provide thermal protection to temperature sensitive fluid applications and engineered electrical and fastening products for electrical, mechanical and civil applications.

Technical Solutions products include mild steel, stainless steel, aluminum and non-metallic enclosures, cabinets, cases, subracks, backplanes, engineered fastening solutions across a wide range of industries and verticals and thermal management systems including heat tracing, floor heating, fire-rated and specialty wiring, sensing, and snow melting and de-icing solutions for industrial, commercial and residential use.
The portfolio of products serves a range of industries, including use in industrial, energy, residential & commercial and infrastructure verticals. Brand names for Technical Solutions offerings include CADDY, ERICO, Hoffman, LENTON, Raychem, Schroff and Tracer. Technical Solutions products are highly engineered and are sold largely through independent distributors and on a project basis, via a network of sales and service professionals.

3


Customers
Technical Solutions customers include electrical distributors, data center contractors, original equipment manufacturers, contractors mainly of greenfield developments and maintenance contractors. Technical Solutions has a global installed base of customers.
Seasonality
Technical Solutions generally experiences increased demand for thermal protection products and services during the fall and winter months in the Northern Hemisphere and increased demand for electrical fastening products during the spring and summer months in the Northern Hemisphere.
Competition
Within Technical Solutions, the equipment protection business faces significant competition in the verticals it serves, particularly within the communications industry, where product design, prototyping, global supply, price competition and customer service are significant factors. The industries and verticals served by the thermal management business are highly fragmented, comprising local markets and niches.
INFORMATION REGARDING ALL REPORTABLE SEGMENTS
Backlog of orders by segment
 
December 31
In millions
2015
2014
$ change
% change
Valves & Controls
$
1,127.6

$
1,233.7

$
(106.1
)
(8.6
)%
Flow & Filtration Solutions
289.6

361.2

(71.6
)
(19.8
)
Water Quality Systems
141.4

121.0

20.4

16.9

Technical Solutions
319.0

281.0

38.0

13.5

Total
$
1,877.6

$
1,996.9

$
(119.3
)
(6.0
)%
Backlog from Valves & Controls consists of business in the energy and industrial verticals. Generally, backlog from Valves & Controls has a longer manufacturing cycle and products typically ship within six to twelve months of the date on which a customer places an order. Backlog from Flow & Filtration Solutions, Water Quality Systems and Technical Solutions typically has a shorter manufacturing cycle and products generally ship within 90 days of the date on which a customer places an order. A substantial portion of our revenues, however, result from orders received and product delivered in the same month. 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. We expect the majority of our backlog from all segments at December 31, 2015 will be filled in 2016.
Research and development
We conduct research and development activities primarily in our own facilities. These efforts consist primarily of the development of new products, product applications and manufacturing processes. Research and development expenditures during 2015, 2014 and 2013 were $119.6 million, $117.3 million and $122.8 million, respectively.
Environmental
Environmental matters are discussed in ITEM 3, ITEM 7 and ITEM 8, Note 17 of the Notes to Consolidated Financial Statements, included in this Form 10-K.
Raw materials
The principal materials we use in manufacturing our products are electric motors, mild steel, stainless steel, electronic components, plastics (resins, fiberglass, epoxies), copper and paint (powder and liquid). In addition to the purchase of raw materials, we purchase some finished goods for distribution through our sales channels.
We purchase the materials we use in various manufacturing processes on the open market and the majority is available through multiple sources which are in adequate supply. We have not experienced any significant work stoppages to date due to shortages of materials. We have certain long-term commitments, principally price commitments, for the purchase of various component parts and raw materials and believe that it is unlikely that any of these agreements would be terminated prematurely. Alternate sources of supply at competitive prices are available for most materials for which long-term commitments exist and we believe that the termination of any of these commitments would not have a material adverse effect on our financial position, results of operations or cash flows.

4


Certain commodities, such as metals and resin, are subject to market and duty-driven price fluctuations. We manage these fluctuations through several mechanisms, including long-term agreements with price adjustment clauses for significant commodity market movements in certain circumstances. Prices for raw materials, such as metals and resins, may trend higher in the future.
Intellectual property
Patents, non-compete agreements, proprietary technologies, customer relationships, trademarks, trade names and brand names are important to our business. However, we do not regard our business as being materially dependent upon any single patent, non-compete agreement, proprietary technology, customer relationship, trademark, trade name or brand name.
Patents, patent applications and license agreements will expire or terminate over time by operation of law, in accordance with their terms or otherwise. We do not expect the termination of patents, patent applications or license agreements to have a material adverse effect on our financial position, results of operations or cash flows.
Employees
As of December 31, 2015, we employed 27,600 people worldwide, of which 9,600 were in the U.S. and 10,200 were covered by collective bargaining agreements or works councils. We believe that our relations with the labor unions have generally been good.
Captive insurance subsidiary
We insure certain general and product liability, property, workers’ compensation and automobile liability risks 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 3 and 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 U.S. Securities and Exchange Commission ("SEC"). Reports of beneficial ownership filed by our directors and executive officers pursuant to Section 16(a) of the Exchange Act are also available on our website. We are not including the information contained on our website as part of or incorporating it by reference into, this Annual Report on Form 10-K.
ITEM 1A.    RISK FACTORS
You should carefully consider all of the information in this document and the following risk factors before making an investment decision regarding our securities. Any of the following risks could materially and adversely affect our business, financial condition, results of operations, cash flows and the actual outcome of matters as to which forward-looking statements are made in this document.
Risks Relating to Our Business
General global economic and business conditions affect demand for our products.
We compete in various geographic regions and product markets around the world. Among these, the most significant are global industrial markets and residential markets. We have experienced, and expect to continue to experience, fluctuations in revenues and operating results due to economic and business cycles. Important factors for our businesses and the businesses of our customers include the overall strength of the economy and our customers’ confidence in the economy, industrial and governmental capital spending, the strength of the residential and commercial real estate markets, unemployment rates, availability of consumer and commercial financing, interest rates, and energy and commodity prices. The businesses of many of our industrial customers, particularly oil and gas companies, chemical and petrochemical companies, mining and general industrial companies, 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.

5


In particular, products sold by Valves & Controls to energy-related businesses are cyclical in nature as the worldwide demand for oil and gas fluctuates. Lower worldwide demand for oil and gas impacts the economics of oil and gas capital project investments, reducing the demand for our products. Therefore, results of operations for any particular period are not necessarily indicative of the results of operations for any future period. Prices for oil and gas are subject to fluctuations in response to changes in the supply of, and demand for, oil and gas, market uncertainty and a variety of other economic factors that are beyond our control. Since the latter half of 2014, the price of oil has dropped dramatically. A sustained depression of oil prices may result in the reduction or deferral of major capital projects, including significant maintenance projects and upgrades. Lower levels of oil and gas maintenance spend and major capital project activity may result in a corresponding decline in the demand for our products and services that could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We compete in attractive markets with a high level of competition, which may result in pressure on our profit margins and limit our ability to maintain or increase the market share of our products.
The markets for our products and services are geographically diverse and highly competitive. We compete against large and well-established national and global companies, as well as regional and local companies and lower cost manufacturers. We compete based on technical expertise, reputation for quality and reliability, timeliness of delivery, previous installation history, contractual terms and price. Some of our competitors, in particular smaller companies, 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. If we are unable to continue to differentiate our products, services and solutions, or if we are forced to cut prices or to incur additional costs to remain competitive, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
Volatility in currency exchange rates may adversely affect our financial condition, results of operations and cash flows.
Sales outside of the U.S. for the year ended December 31, 2015 accounted for 52 percent 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 principle 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. During 2015, foreign currency translations had a 6.6 percent negative impact on our results of operations. Fluctuations in foreign currency exchange rates, most notably the strengthening of the U.S. dollar against the Euro, could continue to adversely affect our reported revenue in future periods. In addition, currency variations can adversely affect margins on sales of our products in countries outside of the U.S. and margins on sales of products that include components obtained from suppliers located outside of the U.S.
Our future growth is dependent upon our ability to continue to adapt our products, services 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. Accordingly, our future success depends upon a number of factors, including our ability to adapt our products, services, 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 products and services and bring them to market quickly and cost-effectively. We have chosen to focus our growth initiatives in specific end markets and geographies, but we cannot provide assurance that these growth initiatives will be sufficient to offset revenue declines in other markets. The failure to effectively adapt our products or services could materially and adversely affect our business, financial condition, results of operations and cash flows.

6


Our business strategy includes acquiring businesses and making investments that complement our existing businesses. We may not be able to identify, finance and complete suitable acquisitions and investments, and any completed acquisitions and investments could be unsuccessful or consume significant resources, which could adversely affect our operating results.
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 and service offerings. We cannot provide any assurance that we will be able to identify suitable acquisition candidates, obtain financing or have sufficient cash necessary for acquisitions or successfully complete acquisitions in the future or that completed acquisitions will be successful. Acquisitions and investments may involve significant cash expenditures, debt incurrences, equity issuances, operating losses and expenses that could have a material adverse effect on our business, financial condition, results of operations and cash flows. Acquisitions involve numerous other risks, including:
•
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, including risks related to the U.S. Foreign Corrupt Practices Act (the "FCPA"); 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 complete transactions quickly and to integrate acquired operations efficiently into our business operations. Any acquisitions or investments may ultimately harm our business, financial condition, results of operations and cash flows, as such acquisitions may not be successful and may ultimately result in impairment charges.
We may not realize the anticipated benefits of the acquisition of ERICO Global Company and any benefit may take longer to realize than we expect.
On September 18, 2015, we acquired all of the outstanding shares of capital stock of ERICO for approximately $1.8 billion. The ERICO Acquisition involves the integration of ERICO’s operations with our existing operations, and there are uncertainties inherent in such an integration. We will be required to devote significant management attention and resources to integrating ERICO’s operations. Delays or unexpected difficulties in the integration process could adversely affect our business, financial results and financial condition. Even if we are able to integrate ERICO’s operations successfully, this integration may not result in the realization of the full benefits of revenue synergies, cost savings and operational efficiencies that we expect or the achievement of these benefits within a reasonable period of time. In addition, we may not have identified all liabilities and other factors regarding ERICO that could produce unintended and unexpected consequences for us. Undiscovered factors could result in us incurring financial liabilities, which could be material, and in us not achieving the expected benefits from the ERICO Acquisition within our desired time frames, if at all.

We may not achieve some or all of the expected benefits of our business initiatives.
During 2015, 2014 and 2013, we initiated and continued execution of certain business initiatives aimed at reducing our fixed cost structure and realigning our business. As a result, we have incurred substantial expense, including restructuring charges. We may not be able to achieve the operating efficiencies to reduce costs or realize benefits that were initially 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 adversely affect our business and results of operations.
We are exposed to political, regulatory, economic and other risks that arise from operating a multinational business.
Sales outside of the U.S. for the year ended December 31, 2015 accounted for 52 percent 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 and other risks that are inherent in operating in numerous countries. These risks include:
•
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 United States;
•
the difficulty of enforcing agreements and collecting receivables through foreign legal systems;

7


•
the difficulty of communicating and monitoring standards and directives across our global network of after-market service centers and manufacturing facilities;
•
trade protection measures and import or export licensing requirements and restrictions;
•
the possibility of terrorist action affecting us or our operations;
•
the threat of nationalization and expropriation;
•
the imposition of tariffs, exchange controls or other trade restrictions;
•
difficulty in staffing and managing widespread operations in non-U.S. labor markets;
•
changes in tax treaties, laws or rulings that could have an adverse impact on our effective tax rate;
•
limitations on repatriation of earnings;
•
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.
Our success depends in part on our ability to anticipate and effectively manage these and other risks. We cannot assure you that these and other factors will not have a material adverse effect on our international operations or on our business as a whole.
Our future revenue depends in part on the existence of and our ability to win new contracts for major capital projects.
A significant portion of our revenue in Technical Solutions is derived from major capital projects. The number of such projects we may win in any year fluctuates, and is dependent upon the general availability of such projects and our ability to bid successfully for them. If negative market conditions arise, fewer such projects may be available, and if we fail to secure adequate financial arrangements or required governmental approvals we may not be able to pursue particular projects. Either condition could materially and adversely affect our business, financial condition, results of operations and cash flows.
We maintain a sizable backlog and the timing of our conversion of revenue out of backlog is uncertain. Our inability to convert backlog into revenue, whether due to factors that are within or outside of our control, could adversely affect our revenue and profitability.
The timing of our conversion of revenue out of backlog is subject to a variety of factors that may cause delays, many of which, including fluctuations in our customers’ delivery schedules, are beyond our control. This is especially true with respect to major global capital projects, where the extended timeline for project completion and invoice satisfaction increases the likelihood for delays in the conversion of backlog related to modifications and order cancellations. Such delays may lead to significant fluctuations in results of operations and cash flows from quarter to quarter, making it difficult to predict our financial performance on a quarterly basis. Further, while we believe that historical order cancellations have not been significant, if we were to experience a significant amount of cancellations of or reductions in orders, it would reduce our backlog and, consequently, our future sales and results of operations.
Material cost and other inflation have adversely affected and could continue to affect our results of operations.
In the past, we have experienced material cost and other inflation in a number of our businesses. We strive for productivity improvements and implement increases in selling prices to help mitigate cost increases in raw materials (especially metals and resins), energy and other costs such as 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. We cannot provide assurance, however, that these actions will be successful in managing our costs or increasing our productivity. Continued cost inflation or failure of our initiatives to generate cost savings or improve productivity would likely negatively impact our results of operations.
We are exposed to liquidated damages in many of our customer contracts.
Many of our customer contracts contain liquidated damages provisions in the event that we fail to perform our obligations thereunder in a timely manner or in accordance with agreed terms, conditions and standards. Liquidated damages provisions typically provide for a payment to be made by us to the customer if we fail to deliver a product or service on time. We generally try to limit our exposure to a maximum penalty within a contract. However, because our products are often components of large and complex systems or capital projects, if we incur liquidated damages they may materially and adversely affect our business, financial condition, results of operations and cash flows.

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Certain of our products require certifications by regulators or standards organizations, and our failure to obtain or maintain such certifications could negatively impact our business.
In certain industries and for certain applications, in particular with respect to our pressure relief valves and valves used in the nuclear power generation industry, we must obtain certifications for our products or installations by regulators or standards organizations. As we expand our products offering into emerging markets, we will need to comply with additional and potentially different certification requirements. If we fail to obtain required certifications for our products, or if we fail to maintain such certifications on our products after they have been certified, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
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. Over the past few years, we have noticed an increasing tendency for participants in our markets to use conflicts over and 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 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 harm 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 negative impact on our financial results.
We test goodwill and indefinite-lived intangible assets for impairment on at least an annual basis, and more frequently if circumstances warrant, by comparing the estimated fair value of each of our reporting units to their respective carrying values on their balance sheets. As of December 31, 2015 our goodwill and intangible assets were $7,745.5 million and represented 65% of our total assets. Long-term declines in projected future cash flows could result in future goodwill and intangible asset impairments. For example, we recognized a pre-tax, non-cash impairment charge of $554.7 million for the year ended December 31, 2015 related to goodwill and trade name intangible assets in Valves & Controls. Because of the significance of our goodwill and intangible assets, any future impairment of these assets could have a material adverse effect on our financial results.
We may be adversely affected by work stoppages, union negotiations, labor disputes and other matters associated with our labor force.
As of December 31, 2015, approximately 10,200 of our employees were covered by collective bargaining agreements or works councils. Although we believe that our relations with the labor unions and work councils that represent our employees are generally good and we have experienced no material strikes and only minor work stoppages recently, no assurances can be made that we will not experience in the future these and other types of conflicts with labor unions, works councils, other groups representing employees or our employees generally, or that any future negotiations with our labor unions will not result in significant increases in our cost of labor.
Seasonality of sales and weather conditions may adversely affect our financial results.
We experience seasonal demand in a number of markets within Flow & Filtration Solutions, Water Quality Systems and Technical Solutions. In Flow & Filtration Solutions, demand for residential water supply products, infrastructure and agricultural products follows warm weather trends and is at seasonal highs from April to August. In Water Quality Systems, end-user demand for pool equipment in our primary markets follows warm weather trends and is at seasonal highs from April to August. The magnitude of the sales increase in both Flow & Filtration Solutions and Water Quality Systems is partially mitigated by employing some advance sale or "early buy" programs (generally including extended payment terms and/or additional discounts). Seasonal effects may vary from year to year and are impacted by weather patterns, particularly by temperatures, heavy flooding and droughts. Technical Solutions generally experiences increased demand for thermal protection products and services during the fall and winter months in the Northern Hemisphere and increased demand for electrical fastening products during the spring and summer months in the Northern Hemisphere. We cannot provide assurance that seasonality and weather conditions will not have a material adverse effect on our results of operations.
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:
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actual or anticipated fluctuations in our operating results due to factors related to our business;

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success or failure of our business strategy;
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our quarterly or annual earnings, or those of other companies in our industry;
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our ability to obtain third-party financing as needed;
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announcements by us or our competitors of significant acquisitions or dispositions;
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changes in accounting standards, policies, guidance, interpretations or principles;
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changes in earnings estimates by us or securities analysts or our ability to meet those estimates;
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the operating and share price performance of other comparable companies;
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investor perception of us;
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natural or other environmental disasters that investors believe may affect us;
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overall market fluctuations;
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results from any material litigation, including asbestos claims, government investigations or environmental liabilities;
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changes in laws and regulations affecting our business; and
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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 adversely affect the trading price of our shares.
Risks Relating to Legal, Regulatory and Compliance Matters
Our subsidiaries are party to asbestos-related product litigation that could adversely affect our financial condition, results of operations and cash flows.
Our subsidiaries, along with numerous other companies, are named as defendants in a substantial number of lawsuits based on alleged exposure to asbestos-containing materials. These cases typically involve product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were attached to or used with asbestos-containing components manufactured by third parties. Each case typically names between dozens to hundreds of corporate defendants. Historically, our subsidiaries have been identified as defendants in asbestos-related claims. We have experienced an increase in the number of asbestos-related lawsuits over the past several years, including lawsuits by plaintiffs with mesothelioma-related claims. A large percentage of these suits have not presented viable legal claims and, as a result, have been dismissed or withdrawn. Our strategy has been, and continues to be, to mount a vigorous defense aimed at having unsubstantiated suits dismissed, and, only where appropriate, settling claims before trial. As of December 31, 2015, there were approximately 4,100 claims pending against our subsidiaries. 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.

We currently record an estimated liability related to pending claims and future claims, including related defense costs, based on a number of key assumptions and estimation methodologies. These assumptions are derived from historical claims experience and reflect our expectations about future claim activities. These assumptions about the future may or may not prove accurate, and accordingly, we may incur additional liabilities in the future. A change in one or more of the inputs or the methodology that we use to estimate the asbestos liability could materially change the estimated liability and associated cash flows for pending and future claims. Although it is possible that we will incur additional costs for asbestos claims filed beyond what we have currently recorded, we do not believe there is a reasonable basis for estimating those costs at this time. On an annual basis, we review, and update as appropriate, such estimated asbestos liabilities and assets and the underlying assumptions. Such an update could result in a material change in such estimated assets and liabilities.

We also record an asset that represents our best estimate of probable recoveries from insurers or other responsible parties for the estimated asbestos liabilities. There are significant assumptions made in developing estimates of asbestos-related recoveries, such as policy triggers, policy or contract interpretation, success in litigation in certain cases, the methodology for allocating claims to policies and the continued solvency of the insurers or other responsible parties. The assumptions underlying the recorded asset may not prove accurate, and as a result, actual performance by our insurers and other responsible parties could result in lower receivables and cash flows expected to reduce our asbestos costs. We believe it is possible that the

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cost of asbestos claims filed beyond our estimation period, net of expected recoveries, could have a material adverse effect on our financial condition, results of operations and cash flows.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar anti-corruption laws outside the United States.
The FCPA and similar 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 ("DOJ") 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 scrutiny by regulators. We cannot assure you that our internal control policies and procedures will always protect us from 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 or agents have or may have violated applicable anti-corruption laws, including the FCPA we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may 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.
Prior to the Merger, the Flow Control business was subject to investigations by the DOJ and the SEC related to allegations that improper payments were made by the Flow Control business and other Tyco subsidiaries and third-party intermediaries in recent years in violation of the FCPA. Tyco reported to the DOJ and the SEC the remedial measures that it had taken in response to the allegations and Tyco’s own internal investigations. As a result of discussions with the DOJ and SEC aimed at resolving these matters, on September 24, 2012, Tyco entered into a settlement with the SEC and a non-prosecution agreement with the DOJ. As a result, the Flow Control business may be subject to investigations in other jurisdictions or suffer other criminal or civil penalties or adverse impacts, including being subject to lawsuits brought by private litigants, each of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our failure to satisfy international trade compliance regulations may adversely affect us.
Our global operations require importing and exporting goods and technology across international borders on a regular basis. Certain of the products we manufacture 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 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, we cannot provide assurance that our policies and procedures will always protect us from actions that would violate U.S. and/or non-U.S. laws. Any improper actions could subject us to civil or criminal penalties, including material monetary fines, or other adverse actions including denial of import or export privileges, and could damage our reputation and business prospects.
We are exposed to potential environmental and other 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 adversely affect our business, financial condition and results of operations. Any violations of these laws by us could cause us to incur unanticipated liabilities that could harm our operating results and cause our business to suffer. We are also required to comply with various environmental laws and maintain permits, some of which are subject to discretionary 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 we may require. Compliance with environmental requirements also could require significant operating or capital expenditures or result in significant operational restrictions. We cannot assure you that we have been or will be at all times in compliance with environmental and health and safety laws. If we violate these laws, we could be fined, criminally charged or otherwise sanctioned by regulators.
We have been named as defendant, target or a potentially responsible party ("PRP") in a number of environmental clean-ups relating to our current or former business units. We have disposed of a number of businesses in recent years and in certain

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cases, we have retained responsibility and potential liability for certain environmental obligations. We have received claims for indemnification from certain purchasers. 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 cleanup actions brought by governmental authorities, private parties could bring personal injury or other 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 other businesses that previously owned or used the properties. The cost of cleanup and other environmental liabilities can be difficult to accurately predict. In addition, environmental requirements change and tend to become more stringent over time. Thus, we cannot provide assurance that our eventual environmental clean-up costs and liabilities will not exceed the amount of our current reserves.
We are exposed to potential regulatory, financial and reputational risks related to certain "conflict minerals."
In 2012, the SEC adopted disclosure requirements related to certain minerals sourced from the Democratic Republic of Congo or adjoining countries, as required by Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The final rules impose inquiry, diligence and disclosure obligations with respect to "conflict minerals," defined as tin, tantalum, tungsten and gold, that are necessary to the functionality of a product manufactured, or contracted to be manufactured, by an SEC reporting company. Certain of these minerals are used extensively in components manufactured by our suppliers (or in components incorporated by our suppliers into components supplied to us) for use in our products. Under the final rules, an SEC reporting company must conduct a country of origin inquiry that is reasonably designed to determine whether any of the "conflict minerals" that are necessary to the functionality of a product manufactured, or contracted to be manufactured, by the company originated in the Democratic Republic of the Congo or an adjoining country. If any such "conflict minerals" originated in the Democratic Republic of Congo or an adjoining country, the final rules require the issuer to exercise due diligence on the source of such "conflict minerals" and their chain of custody with the ultimate objective of determining whether the "conflict minerals" directly or indirectly financed or benefited armed groups in the Democratic Republic of the Congo or an adjoining country. The issuer must then prepare and file with the SEC annually a report regarding its diligence efforts, which we have done since the SEC's reporting requirements became effective. We have incurred, and expect to continue to incur, significant costs to conduct country of origin inquiries and to exercise such due diligence.
We have a very large number of suppliers and our supply chain is very complex and multifaceted. While we have no intention to use minerals sourced from the Democratic Republic of Congo or adjoining countries that are not "conflict free" (meaning that they do not contain "conflict minerals" that directly or indirectly finance or benefit armed groups in the Democratic Republic of the Congo or an adjoining country), a significant number of our suppliers are small businesses, and those small businesses have limited or no resources to track their sources of minerals. As a result, we have experienced, and expect to continue to experience, ongoing significant difficulty in determining the country of origin or the source and chain of custody for all "conflict minerals" used in our products and disclosing that our products are "conflict free." We may face reputational challenges if we are unable to verify the country of origin or the source and chain of custody for all "conflict minerals" used in our products or if we continue to be unable to disclose that our products are "conflict free." The ongoing implementation of these rules may also affect the sourcing and availability of some minerals necessary to the manufacture of our products and may affect the availability and price of "conflict minerals" capable of certification as "conflict free." Accordingly, we have incurred, and expect to continue to incur, significant costs as a consequence of these rules, which may adversely affect our business, financial condition or results of operations.
We are exposed to certain regulatory and financial risks related to climate change.
Climate change is receiving ever increasing attention worldwide. Many scientists, legislators and others attribute global warming to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. The U.S. Congress and federal and state regulatory agencies have been considering legislation and regulatory proposals that would regulate and limit greenhouse gas emissions. It is uncertain whether, when and in what form a federal mandatory carbon dioxide emissions reduction program may be adopted. Similarly, certain countries have adopted the Kyoto Protocol and this and other existing international initiatives or those under consideration could affect our international operations. To the extent our customers, particularly those involved in the oil and gas, power generation, petrochemical processing or petroleum refining industries, 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. In addition, new laws and regulations that might favor the increased use of non-fossil fuels, including nuclear, wind, solar and bio-fuels or that are designed to increase energy efficiency, could dampen demand for oil and gas production or power generation resulting in lower spending by customers for our products and services. These actions could also increase costs associated with

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our operations, including costs for raw materials and transportation. Because it is uncertain what laws will be enacted, we cannot predict the potential impact of such laws on our future financial condition, results of operations and cash flows.
Increased information technology security threats and more sophisticated computer crime pose a risk to our systems, networks, products and services. 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. Additionally, we collect and store data that is sensitive to Pentair and its employees, customers, dealers and suppliers. The secure operation of these information technology systems and networks, and the processing and maintenance of this data 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. Attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats. 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 and changes in legal requirements relating to data collection and storage may increase our costs. We have identified attempts to gain unauthorized access to our information technology systems and networks. To our knowledge, no such attack was ultimately successful in exporting sensitive data or controlling sensitive systems or networks. Should such an attack succeed it could expose us and our employees, customers, dealers and suppliers to misuse of information or systems, the compromising of confidential information, theft of assets, manipulation and destruction of data, defective products, production downtimes and operations disruptions, and breach of privacy, which may require notification under data privacy and other applicable laws. The occurrence of any of these events could adversely affect our reputation, competitive position, business and results of operations. In addition, such breaches in security could result in litigation, regulatory action and potential liability and the costs and operational consequences of implementing further data protection measures.
Our results of operations may be negatively impacted by litigation.
Our businesses expose us to potential litigation, such as product liability claims relating to the design, manufacture and sale of our products. While we currently maintain what we believe to be suitable product liability insurance, we cannot provide assurance that we will be able to maintain this insurance on acceptable terms or that this insurance will provide adequate protection against potential or previously existing liabilities. In addition, we self-insure a portion of product liability claims. Successful claims against us for significant amounts could materially and adversely affect our product reputation, financial condition, results of operations and cash flows.
Risks Relating to the Distribution and the Merger
We share responsibility for certain income tax liabilities for tax periods prior to and including the date of the Distribution.
In connection with the Distribution, we entered into a tax sharing agreement (the "2012 Tax Sharing Agreement") with Tyco and The ADT Corporation ("ADT"), which governs the rights and obligations of ADT, Tyco and us for certain pre-Distribution tax liabilities, including Tyco’s obligations under a separate tax sharing agreement (the "2007 Tax Sharing Agreement") entered into by Tyco, Covidien Ltd. (now known as Medtronic plc, "Medtronic") and TE Connectivity Ltd. ("TE Connectivity") in connection with the 2007 distributions of Medtronic and TE Connectivity by Tyco (the "2007 Separation").
The 2007 Tax Sharing Agreement governs the rights and obligations of Tyco, Medtronic and TE Connectivity with respect to certain pre-2007 Separation tax liabilities and certain tax liabilities arising in connection with the 2007 Separation. More specifically, Tyco, Medtronic and TE Connectivity share 27%, 42% and 31%, respectively, of income tax liabilities that arise from adjustments made by tax authorities to Tyco’s, Medtronic’s and TE Connectivity’s U.S. and certain non-U.S. 2007 and prior income tax returns. In addition, in the event that the 2007 Separation or certain related transactions are determined to be taxable as a result of actions taken after the 2007 Separation by Tyco, Medtronic or TE Connectivity, the party responsible for such failure would be responsible for all taxes imposed on Tyco, Medtronic or TE Connectivity as a result thereof. If none of the companies is responsible for such failure, then Tyco, Medtronic and TE Connectivity would be responsible for such taxes, in the same manner and in the same proportions as other shared tax liabilities under the 2007 Tax Sharing Agreement. Costs and expenses associated with the management of these shared tax liabilities are generally shared equally among the parties.
The 2012 Tax Sharing Agreement provides that we, Tyco and ADT will share (i) certain pre-Distribution income tax liabilities that arise from adjustments made by tax authorities to our, Tyco’s and ADT’s U.S. income tax returns, and (ii) payments required to be made by Tyco with respect to the 2007 Tax Sharing Agreement (the liabilities in clauses (i) and (ii) collectively, "Shared Tax Liabilities"). Tyco is responsible for the first $500 million of Shared Tax Liabilities. As of December 31, 2015, Tyco has paid $63.0 million of Shared Tax Liabilities. We and ADT will share 42% and 58%, respectively, of the next $225 million of Shared Tax Liabilities. We, ADT and Tyco will share 20%, 27.5% and 52.5%, respectively, of Shared Tax Liabilities above $725 million. Costs and expenses associated with the management of Shared Tax Liabilities will generally be shared 20% by us, 27.5% by ADT and 52.5% by Tyco.

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Tax authorities, including the Internal Revenue Service ("IRS"), have raised issues and proposed tax adjustments, in particular with respect to tax years preceding the 2007 Separation, in connection with examinations of Tyco’s and its subsidiaries’ income tax returns. The issues and proposed adjustments are generally subject to the sharing provisions of the 2007 Tax Sharing Agreement which may require Tyco to make a payment to a taxing authority, Medtronic or TE Connectivity. In connection with U.S. federal tax audits, the IRS has raised a number of issues and proposed adjustments for periods beginning with the 1997 tax year. Although Tyco has resolve substantially all of the issues and adjustments proposed by the IRS for tax years through 2007, it has not been able to resolve matters related to the treatment of certain intercompany debt transactions during the period. As described below, Tyco has entered into a settlement with the IRS intended to resolve the intercompany debt issues for Tyco’s 1997 - 2000 audit cycle; however, the ultimate resolution of these matters is uncertain and could result in Tyco being responsible for a greater amount than it expects under the 2007 Tax Sharing Agreement.
On July 1, 2013, Tyco announced that the IRS issued Notices of Deficiency ("Tyco IRS Notices") to Tyco asserting that several of Tyco’s former U.S. subsidiaries collectively owe additional taxes of $883.3 million plus penalties of $154 million based on audits of the 1997 through 2000 tax years of Tyco and its subsidiaries as they existed at that time. These amounts exclude interest and do not reflect the impact on subsequent periods if the IRS position described below is ultimately successful.
The IRS asserted in the Tyco IRS Notices that substantially all of Tyco’s intercompany debt originated during the 1997 - 2000 period should not be treated as debt for U.S. federal income tax purposes, and has disallowed interest and related deductions recognized on U.S. income tax returns for those periods totaling approximately $2.9 billion. If the IRS is successful in asserting its claim, it would have an adverse impact on interest deductions related to the same Tyco intercompany debt in subsequent time periods, totaling approximately $6.6 billion, which Tyco has advised us that it expects the IRS to disallow. Under the 2012 Tax Sharing Agreement, Tyco has the right to administer, control, and settle all U.S. income tax audits for periods prior to and including the Distribution. Tyco has filed petitions with the U.S. Tax Court contesting the IRS proposed adjustments and a trial date has been set for October 2016.
On January 19, 2016, Tyco announced that it had entered into Stipulations of Settled Issues with the IRS intended to resolve all disputes related to the intercompany debt issues for Tyco’s 1997 - 2000 audit cycle currently before the U.S. Tax Court. The Stipulations of Settled Issues are contingent upon the IRS Appeals Division applying the same settlement to all intercompany debt issues on appeal for subsequent audit cycles (2001 - 2007) and, if applicable, review by the U.S. Congress Joint Committee on Taxation. Tyco further disclosed that if finalized, the tentative resolution would cover all aspects of the controversy described above and before the Appeals Division of the IRS, and would result in a total cash payment to the IRS in the range of $475 million to $525 million, which includes all interest and penalties, and that this payment would be subject to the sharing formulas described above in the 2007 and 2012 Tax Sharing Agreements with Pentair not being responsible for any payment related to this amount. However, we cannot provide any assurance that the conditions precedent to this settlement will be met, that the intercompany debt dispute is settled with the IRS or that the IRS will consistently apply the terms of the settlement to all of Tyco’s U.S. income tax returns filed subsequent to 2000.
If the IRS should successfully assert its position, our share of the collective liability, if any, would be determined pursuant to the 2007 Tax Sharing Agreement and the 2012 Tax Sharing Agreement. Any payment that Tyco is required to make under the 2007 Tax Sharing Agreement, including if the IRS were to prevail with respect to the matter set forth above, could result in a material liability for us under the 2012 Tax Sharing Agreement. To the extent we are responsible for any liability under the 2012 Tax Sharing Agreement, and indirectly the 2007 Tax Sharing Agreement, there could be a material adverse impact on our financial condition, results of operations, cash flows or our effective tax rate in future reporting periods.
If the Merger, Distribution or certain internal transactions undertaken in anticipation of the Distribution are determined to be taxable for U.S. federal income tax purposes, we, our shareholders or Tyco could incur significant U.S. federal income tax liabilities.
Pentair, Inc. and Tyco received private letter rulings from the IRS in connection with the Distribution and the Merger regarding the U.S. federal income tax consequences of the Distribution and the Merger to the effect that, for U.S. federal income tax purposes: the Distribution will qualify as tax-free under Sections 355 and 361 of the Internal Revenue Code of 1986, as amended (the "Code"), except for cash received in lieu of fractional shares; certain internal transactions undertaken in anticipation of the Distribution will qualify for favorable treatment under the Code; the Merger will qualify as a reorganization under Section 368(a) of the Code; certain anticipated post-closing transactions will not prevent the tax-free treatment of the Distribution or the Merger; and Section 367(a)(1) of the Code will not cause the Merger to be taxable to Pentair, Inc. shareholders (except for a U.S. shareholder who is or will be a "five-percent transferee shareholder" within the meaning of applicable Treasury Regulations but who does not enter into a "gain recognition agreement" with the IRS). In addition, Tyco received a legal opinion confirming the tax-free status of the Distribution for U.S. federal income tax purposes and Tyco and Pentair, Inc. received legal opinions to the effect that the Merger will qualify as a reorganization under section 368(a) of the Code and that Section 367(a)(1) of the Code will not cause the Merger to be taxable to Pentair, Inc. shareholders (except for a U.S. shareholder who is or will be a "five-percent transferee shareholder" within the meaning of applicable Treasury

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Regulations but who does not enter into a "gain recognition agreement" with the IRS).
The private letter rulings and opinions relied on certain facts and assumptions, and certain representations and undertakings, from us, Tyco and Pentair, Inc. Notwithstanding the private letter rulings and the opinions, the IRS could determine on audit that the Distribution, the internal transactions or the Merger should be treated as taxable transactions if it determines that any of these facts, assumptions, representations or undertakings is not correct or has been violated, or that the Distribution, the internal transactions or the Merger should be taxable for other reasons, including as a result of significant changes in share or asset ownership after the Merger.
If the Distribution ultimately is determined to be taxable, the Distribution could be treated as a taxable dividend or capital gain to Tyco shareholders for U.S. federal income tax purposes, and Tyco shareholders could incur significant U.S. federal income tax liabilities. In addition, Tyco would recognize a gain in an amount equal to the excess of the fair market value of Pentair Ltd.’s ordinary shares distributed to Tyco shareholders on the Distribution date over Tyco’s tax basis in such ordinary shares, but such gain, if recognized, generally would not be subject to U.S. federal income tax. However, Tyco could incur significant U.S. federal income tax liabilities if it is ultimately determined that certain internal transactions undertaken in anticipation of the Distribution are taxable. If the Merger ultimately is determined to be taxable, Pentair, Inc. shareholders would recognize taxable gain or loss on their disposition of Pentair, Inc. ordinary shares in the Merger.
Under the terms of the 2012 Tax Sharing Agreement, in the event the Distribution, the ADT distribution, the internal transactions or the Merger were determined to be taxable as a result of actions taken after the Distribution by us, ADT or Tyco, the party responsible for such failure would be responsible for all taxes imposed as a result thereof. If such failure is not the result of actions taken after the Distribution by us, ADT or Tyco, then we, ADT and Tyco would be responsible for any taxes imposed as a result of such determination in the same manner and in the same proportions as we, ADT and Tyco are responsible for Shared Tax Liabilities. Such tax amounts could be significant. In the event that any party to the 2012 Tax Sharing Agreement defaults in its obligation to pay certain taxes to another party that arise as a result of no party’s fault, each non-defaulting party would be responsible for an equal amount of the defaulting party’s obligation to make a payment to another party in respect of such other party’s taxes. In addition, if another party to the 2012 Tax Sharing Agreement that is responsible for all or a portion of an income tax liability were to default in its payment of such liability to a taxing authority, we could be legally liable under applicable tax law for such liabilities and required to make additional tax payments. Accordingly, under certain circumstances, we may be obligated to pay amounts in excess of our agreed-upon share of our, Tyco’s and ADT’s tax liabilities.
If the Distribution or the Merger is determined to be taxable for Swiss withholding or other tax purposes, we could incur significant Swiss withholding tax or other tax liabilities.
Generally, Swiss withholding tax of 35% is due on dividends and similar distributions to Tyco’s shareholders, regardless of the place of residency of the shareholder. As of January 1, 2011, distributions to shareholders out of qualifying contributed surplus (Kapitaleinlage) accumulated on or after January 1, 1997 are exempt from Swiss withholding tax if certain conditions are met (Kapitaleinlageprinzip). Tyco has obtained a ruling from the Swiss Federal Tax Administration confirming that the Distribution qualifies as payment out of such qualifying contributed surplus and no amount will be withheld by Tyco when making the Distribution.
As a condition to closing of the Merger, Tyco obtained rulings from the Swiss Federal Tax Administration confirming: (i) that the Merger will be a transaction that is generally tax-free for Swiss federal, cantonal, and communal tax purposes (including with respect to Swiss stamp tax and Swiss withholding tax); (ii) the relevant Swiss tax base of an acquisition subsidiary of ours for Swiss tax (including federal and cantonal and communal) purposes; (iii) the relevant amount of capital contribution reserves (Kapitaleinlageprinzip) which will be exempt from Swiss withholding tax in the event of a distribution to our shareholders after the Merger; and (iv) that no Swiss stamp tax will be levied on certain post-Merger restructuring transactions.
These tax rulings rely on certain facts and assumptions, and certain representations and undertakings, from Tyco. Notwithstanding these tax rulings, the Swiss Federal Tax Administration could determine on audit that the Distribution or the Merger or certain internal transactions undertaken in anticipation of the Distribution should be treated as a taxable transaction for withholding tax or other tax purposes if it determines that any of these facts, assumptions, representations or undertakings is not correct or has been violated. If the Distribution or the Merger or certain internal transactions undertaken in anticipation of the Distribution ultimately are determined to be taxable for withholding tax or other tax purposes, we and Tyco could incur material Swiss withholding tax or other tax liabilities that could significantly detract from, or eliminate, the benefits of the Distribution and the Merger. In addition, we could become liable to indemnify Tyco for part of any Swiss withholding tax liabilities to the extent provided under the 2012 Tax Sharing Agreement.

15


Risks Relating to Our Liquidity
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 their products or for prospective customers to commence new projects, as customers and suppliers 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. These disruptions may have other unknown adverse effects. One or more of these factors could adversely affect our business, financial condition, results of operations or cash flows.
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 can 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 in the future, which could affect our financial condition, and may decrease our profitability.
As of December 31, 2015, we had $4.7 billion 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.
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.
Risks Relating to Our Jurisdiction of Incorporation in Ireland and Tax Residency in the United Kingdom
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 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 particular, legislative action could be taken by the U.S., the U.K., Ireland or the European Union which could override tax treaties or modify tax statutes or regulations upon which we expect to rely and adversely affect our effective tax

16


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. and take advantage of the tax treaties among the U.S., the U.K. and Ireland, 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 taxes on dividends.
Under current Irish legislation, a company is regarded as resident for tax purposes in Ireland if it is centrally managed and controlled in Ireland, or, in certain circumstances, 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. Where a company is treated as tax resident under the domestic laws of both the U.K. and Ireland then the provisions of article 4(3) of the Double Tax Convention between Ireland and the U.K. provide that such enterprise shall be treated as resident only in the jurisdiction in which its place of effective management is situated. We have managed, and we intend to continue to manage, our affairs so that we are centrally managed and controlled in the U.K. and therefore have our tax residency only in the U.K. However, we cannot provide assurance that we will continue to be resident only in the U.K. for tax purposes. 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 its affairs, we could become, or be regarded as having become resident in a jurisdiction other than the U.K. If 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 United States currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Ireland.
As an Irish company, we are governed by the Irish Companies Act, which differs in some material respects from laws generally applicable to U.S. corporations and shareholders, including, among others, differences relating to interested director and officer transactions and shareholder lawsuits. Likewise, the duties of directors and officers of an Irish company generally are owed to the company only. Shareholders of Irish companies generally do not have a personal right of action against directors or officers of the company and may exercise such rights of action on behalf of the company only in limited circumstances. Accordingly, holders of our securities may have more difficulty protecting their interests than would holders of securities of a corporation incorporated in a jurisdiction of the U.S.
Transfers of our ordinary shares may be subject to Irish stamp duty.
Transfers of our ordinary shares effected by means of the transfer of book entry interests in the Depository Trust Company ("DTC") will not be subject to Irish stamp duty. However, if you hold your ordinary shares directly rather than beneficially through DTC, any transfer of your ordinary shares could be subject to Irish stamp duty (currently at the rate of 1% 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.
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 €280,000 per lifetime in respect of taxable gifts or inheritances received from their parents for periods on or after October 14, 2015.

17


ITEM 1B.  UNRESOLVED STAFF COMMENTS
None.
ITEM 2.  PROPERTIES
Our principal office is located in leased premises in Manchester, United Kingdom, and our management office in the United States is located in leased premises in Minneapolis, 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.
We carry out our Valves & Controls manufacturing operations at 8 plants located throughout the United States and at 32 plants located in 16 other countries. In addition, Valves & Controls has 23 distribution facilities, 56 sales offices and 51 service centers located in numerous countries throughout the world.
We carry out our Flow & Filtration Solutions manufacturing operations at 7 plants located throughout the United States and at 12 plants located in 8 other countries. In addition, Flow & Filtration Solutions has 22 distribution facilities, 18 sales offices and 10 service centers located in numerous countries throughout the world.
We carry out our Water Quality Systems manufacturing operations at 13 plants located throughout the United States and at 10 plants located in 6 other countries. In addition, Water Quality Systems has 15 distribution facilities, 11 sales offices and 2 service centers located in numerous countries throughout the world.
We carry out our Technical Solutions manufacturing operations at 10 plants located throughout the United States and at 15 plants located in 11 other countries. In addition, Technical Solutions has 11 distribution facilities, 52 sales offices and 3 service centers located in numerous countries throughout the world.
We believe that our production facilities are suitable for their purpose and are adequate to support our businesses. 
ITEM 3.  LEGAL PROCEEDINGS
We have been made parties to a number of actions filed or have been given notice of potential claims relating to the conduct of our business, including those pertaining to commercial disputes, product liability, asbestos, environmental, safety and health, patent infringement and employment matters.
While we believe that a material impact on our consolidated financial position, results of operations or cash flows from any such future claims or potential claims is unlikely, given the inherent uncertainty of litigation, a remote possibility exists that a future adverse ruling or unfavorable development could result in future charges that could have a material adverse impact. We do and will continue to periodically reexamine our estimates of probable liabilities and any associated expenses and receivables and make appropriate adjustments to such estimates based on experience and developments in litigation. As a result, the current estimates of the potential impact on our consolidated financial position, results of operations and cash flows for the proceedings and claims described in the notes to our consolidated financial statements could change in the future.
Asbestos matters
Our subsidiaries and numerous other companies are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. These cases typically involve product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were attached to or used with asbestos-containing components manufactured by third-parties. Each case typically names between dozens to hundreds of corporate defendants. While we have observed an increase in the number of these lawsuits over the past several years, including lawsuits by plaintiffs with mesothelioma-related claims, a large percentage of these suits have not presented viable legal claims and, as a result, have been dismissed by the courts. Our historical strategy has been to mount a vigorous defense aimed at having unsubstantiated suits dismissed, and, where appropriate, settling suits before trial. Although a large percentage of litigated suits have been dismissed, we cannot predict the extent to which we will be successful in resolving lawsuits in the future.
As of December 31, 2015, there were approximately 4,100 claims outstanding against our subsidiaries. This amount is not adjusted for claims that are not actively being prosecuted, identified incorrect defendants, or duplicated other actions, which would ultimately reflect our current estimate of the number of viable claims made against us, our affiliates, or entities for which we assumed responsibility in connection with acquisitions or divestitures. In addition, the amount does not include certain claims pending against third parties for which we have been provided an indemnification.

18


Our estimated liability for asbestos-related claims was $237.9 million and $249.1 million as of December 31, 2015 and 2014, respectively, and was recorded in Other non-current liabilities in the Consolidated Balance Sheets for pending and future claims and related defense costs. Our estimated receivable for insurance recoveries was $111.0 million and $115.8 million at December 31, 2015 and 2014, all of which was acquired in the Merger, and was recorded in Other non-current assets in the Consolidated Balance Sheets.
Environmental matters
We are involved in or have retained responsibility and potential liability for environmental obligations and legal proceedings related to our current business and, including pursuant to certain indemnification obligations, related to certain formerly owned businesses. We are responsible, or alleged to be responsible, for ongoing environmental investigation and/or remediation of sites in several countries. These sites are in various stages of investigation and/or remediation and at some of these sites our liability is considered de minimis. We received notification from the U.S. Environmental Protection Agency and from similar state and non-U.S. environmental agencies that several sites formerly or currently owned and/or operated by us, and other properties or water supplies that may be or may have been impacted from those operations, contain disposed or recycled materials or waste and require environmental investigation and/or remediation. Those sites include instances where we have been identified as a potentially responsible party under U.S. federal, state and/or non-U.S. environmental laws and regulations. For several formerly owned businesses, we have also received claims for indemnification from purchasers of these businesses.
Our 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. Based upon our experience, current information regarding known contingencies and applicable laws, we have recorded reserves for these environmental matters of $22.8 million and $31.4 million as of December 31, 2015 and 2014, respectively. We do not anticipate these environmental conditions will have a material adverse effect on our financial position, results of operations or cash flows. However, unknown conditions, new details about existing conditions or changes in environmental requirements may give rise to environmental liabilities that will exceed the amount of our current reserves and could have a material adverse effect 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. In 2004, we disposed of the Tools Group and we retained responsibility for certain product claims. We have not experienced significant unfavorable trends in either the severity or frequency of product liability lawsuits or personal injury claims.
Compliance matters
Prior to the Merger, the Flow Control business was subject to investigations by the DOJ and the SEC related to allegations that improper payments were made by the Flow Control business and other Tyco subsidiaries and third-party intermediaries in recent years in violation of the Foreign Corrupt Practices Act. Tyco reported to the DOJ and the SEC the remedial measures that it had taken in response to the allegations and Tyco’s own internal investigations. As a result of discussions with the DOJ and SEC aimed at resolving these matters, on September 24, 2012, Tyco entered into a settlement with the SEC and a non-prosecution agreement with the DOJ.
ITEM 4.  MINE SAFETY DISCLOSURES
Not applicable.

19


EXECUTIVE OFFICERS OF THE REGISTRANT
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
Randall J. Hogan
 
60

 
Chief Executive Officer since 2001 and Chairman of the Board since 2002; President and Chief Operating Officer, 1999 — 2000; Executive Vice President and President of Pentair’s Electrical and Electronic Enclosures Group, 1998 — 1999; United Technologies Carrier Transicold President, 1995 — 1997; Pratt & Whitney Industrial Turbines Vice President and General Manager, 1994 — 1995; General Electric various executive positions, 1988 — 1994; McKinsey & Company consultant, 1981 — 1987.
John L. Stauch
 
51

 
Executive Vice President and Chief Financial Officer since 2007; 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; Various executive, investor relations and managerial finance positions with Honeywell International Inc. and its predecessor AlliedSignal Inc., 1994 — 2000.
Angela D. Jilek
 
47

 
Senior Vice President, General Counsel and Secretary since 2010; Assistant General Counsel, 2002 — 2010; Shareholder and Officer of the law firm of Henson & Efron, P.A., 2000 — 2002; Associate Attorney in the law firm of Henson & Efron, P.A. 1996 — 2000 and in the law firm of Felhaber Larson Fenlon & Vogt, P.A., 1992 — 1996.
Mark C. Borin
 
48

 
Chief Accounting Officer since 2008 and Treasurer since 2015; Partner in the audit practice of the public accounting firm KPMG LLP, 2000 — 2008; Various positions in the audit practice of KPMG LLP, 1989 — 2000.
Karl R. Frykman
 
55

 
President, Water Quality Systems Global Business Unit since 2007; President of Aquatic Systems' National Pool Tile group, 1998— 2007; Vice President of Operations for American Products, 1995— 1998; Vice President of Anthony Pools, 1990 — 1995; Vice President of Poolsaver, 1988 — 1990.
Alok Maskara
 
44

 
President, Technical Solutions Global Business Unit since 2014; President, Thermal Management business, 2012 — 2014; President, Water Purification business, 2011 — 2012; President, Residential Filtration business, 2008 — 2011; General Manager of the Residential & Commercial water business at General Electric Corporation, 2006 — 2008; Manager Corporate Initiatives, General Electric Corporation, 2004 — 2006; Various executive positions with McKinsey & Company, 2000 — 2004.
Beth A. Wozniak
 
51

 
President, Flow & Filtration Solutions Global Business Unit since 2015; President of Environmental and Combustion Controls unit of Honeywell International Inc., 2011 — 2015; President of Sensing and Controls unit of Honeywell International Inc., 2006 — 2011; Various leadership positions at Honeywell International Inc. and its predecessor AlliedSignal Inc., 1990 — 2006.

20


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 and trade under the symbol "PNR." As of December 31, 2015, there were 19,990 shareholders of record.
The high, low and closing sales price for our ordinary shares and the dividends paid for each of the quarterly periods for 2015 and 2014 were as follows:
 
2015
 
2014
  
First  
Second  
Third  
Fourth  
 
First  
Second  
Third  
Fourth  
High
$
68.24

$
66.52

$
69.65

$
59.69

 
$
83.37

$
81.04

$
73.36

$
69.37

Low
60.73

59.92

49.44

48.14

 
71.29

71.96

62.91

59.09

Close
62.39

63.75

51.98

49.53

 
77.66

72.76

67.41

66.42

Dividends paid
0.32

0.32

0.32

0.32

 
0.25

0.25

0.30

0.30

Pentair has paid 160 consecutive quarterly dividends. The Board of Directors has approved a plan to increase the dividend for 2016, which will mark the 40th consecutive year we have increased dividends.
Future dividends on our ordinary shares or reductions of share capital for distribution to shareholders, if any, must be approved by our Board of Directors for payment out of distributable reserves on our statutory balance sheet. We are not permitted to pay dividends out of share capital, which includes share premiums. Distributable reserves may be created through the earnings of the Irish parent company and through a reduction in share capital approved by the Irish High Court. Distributable reserves are not linked to a U.S. generally accepted accounting principles ("GAAP") reported amount (e.g., retained earnings). On July 22, 2014, the Irish High Court approved Pentair plc's conversion of approximately $14.4 billion of share premium to distributable reserves. On July 29, 2014, following the approval of the Irish High Court, we made the required filing of Pentair plc's initial accounts with the Irish Companies Registration Office, which completed the process to allow us to pay future cash dividends and redeem and repurchase shares out of Pentair plc's "distributable reserves." Our distributable reserve balance was $9.6 billion and $12.1 billion as of December 31, 2015 and 2014, respectively.
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.
United Kingdom tax considerations
Although our jurisdiction of organization is Ireland, we manage our affairs so that we are centrally managed and controlled in the U.K. and therefore have our tax residency in the U.K.
As a result of its U.K. tax status, dividend distributions by Pentair plc to its shareholders are not subject to withholding tax, as the U.K. currently does not levy a withholding tax on dividend distributions.
See the discussion of "Dividends" under "Liquidity and Capital Resources—Financing Activities" in ITEM 7 of this annual report on Form 10-K for additional information required by this item.



21


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, 2010 and the reinvestment of all dividends since that date to December 31, 2015. 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.

 
Base Period
December
2010
 
INDEXED RETURNS
Years ended December 31
Company / Index
2011
2012
2013
2014
2015
Pentair plc
100
 
93.13

140.52

225.80

196.08

149.39

S&P 500 Index
100
 
102.11

118.45

156.82

178.28

180.75

S&P 500 Industrials Index
100
 
99.41

114.67

161.31

177.16

172.67


22


Purchases of Equity Securities
The following table provides information with respect to purchases we made of our ordinary shares during the fourth quarter of 2015:
 
(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
September 27 – October 24, 2015
85,640

$
51.80

—

$
800,000,049

October 25 – November 21, 2015
388

55.11

—

800,000,049

November 22 – December 31, 2015
1,523

54.67

—

800,000,049

Total
87,551

 
—

 
(a)
The purchases in this column include 85,640 shares for the period September 27 – October 24, 2015, 388 shares for the period October 25 – November 21, 2015, and 1,523 shares for the period November 22 – December 31, 2015 deemed surrendered to us by participants in our 2012 Stock and Incentive Plan (the "2012 Plan") and earlier stock incentive plans that are now outstanding under the 2012 Plan (collectively the "Plans") to satisfy the exercise price or withholding of tax obligations related to the exercise of stock options and vesting of restricted shares.
(b)
The average price paid in this column includes shares repurchased as part of our publicly announced plans and shares deemed surrendered to us by participants in the Plans to satisfy the exercise price of stock options and withholding tax obligations due upon stock option exercises and vesting of restricted 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 of $3.2 billion.
(d)
In December 2014, our Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $1.0 billion. This authorization expires on December 31, 2019.

23


ITEM 6.  SELECTED FINANCIAL DATA
The following table sets forth our selected historical financial data for the five years ended December 31, 2015.
 
 
Years ended December 31
In millions, except per-share data
2015
2014
2013
2012
2011
Consolidated statements of operations and comprehensive income (loss) data
 
 
 
 
 
Net sales
$
6,449.0

$
7,039.0

$
6,999.7

$
4,306.8

$
3,456.7

Operating income (loss)
177.2

851.9

742.6

(4.8
)
100.2

Net income (loss) from continuing operations attributable to Pentair plc
(65.0
)
607.0

511.7

(81.5
)
(7.5
)
Per-share data

 
 
 
 
Basic:

 
 
 
 
Earnings (loss) per ordinary share from continuing operations attributable to Pentair plc
$
(0.36
)
$
3.19

$
2.54

$
(0.64
)
$
(0.08
)
Weighted average shares
180.3

190.6

201.1

127.4

98.2

Diluted:

 
 
 
 
Earnings (loss) per ordinary share from continuing operations attributable to Pentair plc
$
(0.36
)
$
3.14

$
2.50

$
(0.64
)
$
(0.08
)
Weighted average shares
182.6

193.7

204.6

127.4

98.2

Cash dividends declared and paid per ordinary share
$
1.28

$
1.10

$
0.96

$
0.88

$
0.80

Cash dividends declared and unpaid per ordinary share
0.33

0.64

0.50

0.46

—

Consolidated balance sheets data

 
 
 
 
Total assets
$
11,857.0

$
10,655.2

$
11,743.3

$
11,882.7

$
4,586.3

Total debt
4,710.0

3,004.1

2,550.4

2,451.6

1,309.1

Total equity
4,008.8

4,663.8

6,217.7

6,487.5

2,047.4

Factors affecting comparability of our Selected Financial Data
In the fourth quarter of 2015, we recorded a pre-tax, non-cash goodwill and trade name impairment charge of $554.7 million.

For periods prior to 2012, the Consolidated Statements of Operations and Comprehensive Income (Loss) include the historical results of Pentair, Inc. Following the consummation of the Merger on September 28, 2012, the consolidated financial statements include the results of Flow Control.
In May 2011, we acquired as part of Flow & Filtration Solutions, the Clean Process Technologies division of privately held Norit Holding B.V. In the fourth quarter of 2011, we recorded a pre-tax non-cash goodwill impairment charge of $200.5 million.


24


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," "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 overall global economic and business conditions, including worldwide demand for oil and gas; the ability to achieve the benefits of our restructuring plans; the ability to successfully identify, finance, complete and integrate acquisitions, including the ability to successfully integrate and achieve the expected benefits of the acquisition of ERICO Global Company; competition and pricing pressures in the markets we serve; the strength of housing and related markets; volatility in currency exchange rates and commodity prices; inability to generate savings from excellence in operations initiatives consisting of lean enterprise, supply management and cash flow practices; increased risks associated with operating foreign businesses; the ability to deliver backlog and win future project work; failure of markets to accept new product introductions and enhancements; the impact of changes in laws and regulations, including those that limit U.S. tax benefits; the outcome of litigation and governmental proceedings; and the ability to achieve our long-term strategic operating goals. Additional information concerning these and other factors is contained in our filings with the U.S. Securities and Exchange Commission, including in Item 1A of this Annual Report on Form 10-K. All forward-looking statements speak only as of the date of this report. Pentair plc assumes no obligation, and disclaims any obligation, to update the information contained in this report.
Overview
Pentair plc is a focused diversified industrial manufacturing company comprising four reporting segments: Valves & Controls, Flow & Filtration Solutions, Water Quality Systems and Technical Solutions. We classify our operations into business segments based primarily on types of products offered and markets served. For the year ended December 31, 2015, Valves & Controls, Flow & Filtration Solutions, Water Quality Systems and Technical Solutions accounted for 29 percent, 22 percent, 21 percent and 28 percent of total revenues, respectively.
In December 2013, the Company's Board of Directors approved changing the Company's jurisdiction of organization from Switzerland to Ireland. At an extraordinary meeting of shareholders on May 20, 2014, Pentair Ltd. shareholders voted in favor of a reorganization proposal pursuant to which Pentair Ltd. would merge into Pentair plc and all Pentair Ltd. common shares would be cancelled and all holders of such shares would receive ordinary shares of Pentair plc on a one-to-one basis. The reorganization transaction was completed on June 3, 2014, at which time Pentair plc replaced Pentair Ltd. as the ultimate parent company (the "Redomicile"). Shares of Pentair plc began trading on the New York Stock Exchange ("NYSE") on June 3, 2014 under the symbol "PNR", the same symbol under which Pentair Ltd. shares were previously traded.
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 former parent company, Pentair Ltd., took its form on September 28, 2012 as a result of a reverse acquisition (the "Merger") involving Pentair, Inc. and an indirect, wholly-owned subsidiary of Flow Control (defined below), with Pentair, Inc. surviving as an indirect, wholly-owned subsidiary of Pentair Ltd. "Flow Control" refers to Pentair Ltd. prior the Merger. Prior to the Merger, Tyco International Ltd. ("Tyco") engaged in an internal restructuring whereby it transferred to Flow Control certain assets related to the flow control business of Tyco, and Flow Control assumed from Tyco certain liabilities related to the flow control business of Tyco. On September 28, 2012 prior to the Merger, Tyco effected a spin-off of Flow Control through the pro-rata distribution of 100% of the outstanding ordinary shares of Flow Control to Tyco’s shareholders (the "Distribution"), resulting in the distribution of approximately 110.9 million of our ordinary shares to Tyco’s shareholders. The Merger was accounted for as a reverse acquisition under the purchase method of accounting with Pentair, Inc. treated as the acquirer.
On January 30, 2014, we acquired, as part of Water Quality Systems, the remaining 19.9 percent ownership interest in two entities, a U.S. entity and an international entity (collectively, Pentair Residential Filtration or "PRF"), from GE Water & Process Technologies (a unit of General Electric Company) ("GE") for $134.3 million in cash. Prior to the acquisition, we held a 80.1 percent ownership equity interest in PRF, representing our and GE's respective global water softener and residential water filtration businesses.

25


On July 28, 2014, our Board of Directors approved a decision to exit our Water Transport business in Australia. The results of the Water Transport business have been presented as discontinued operations and the assets and liabilities of the Water Transport business have been reclassified as held for sale for all periods presented. During 2014, we recognized an impairment charge related to allocated amounts of goodwill, intangible assets, property, plant & equipment and other non-current assets totaling $380.1 million, net of tax, representing our estimated loss on disposal of the Water Transport business. The sale of the Water Transport business was completed in 2015.
On September 18, 2015, we acquired, as part of Technical Solutions, all of the outstanding shares of capital stock of ERICO Global Company ("ERICO") for approximately $1.8 billion (the "ERICO Acquisition"). ERICO is a leading global manufacturer and marketer of engineered electrical and fastening products for electrical, mechanical and civil applications. ERICO has employees in 30 countries across the world with recognized brands including CADDY fixing, fastening and support products; ERICO electrical grounding, bonding and connectivity products and LENTON engineered systems.
During the latter part of the fourth quarter of 2015, the oil and gas industry continued to deteriorate, leading management to reconsider its estimates for future profitability of Valves & Controls. As a result, for the year ended December 31, 2015, we recognized a pre-tax, non-cash impairment charge of $554.7 million related to goodwill and trade name intangible assets in Valves & Controls.
Key trends and uncertainties regarding our existing business
The following trends and uncertainties affected our financial performance in 2015 and 2014, and will likely impact our results in the future:

•
In late 2014 and continuing through 2015, our results were negatively impacted due to the strengthening of the U.S. dollar against most key global currencies. We expect this trend to continue into 2016.
•
In 2015, we experienced declines in project orders, particularly within the energy and industrial businesses. We expect headwinds in the energy and industrial business to continue and oil prices to remain depressed throughout 2016.
•
In the last three quarters of 2015, we initiated further restructuring actions to offset the negative earnings impact of foreign exchange and core revenue decline. We expect to continue these actions into 2016 and these actions will contribute to margin growth in 2016.
•
We have identified specific product and geographic market opportunities that we find attractive and continue to pursue, both within and outside the United States. We are reinforcing our businesses to more effectively address these opportunities through research and development and additional sales and marketing resources. Unless we successfully penetrate these markets, our core sales growth will likely be limited or may decline.
•
Despite the favorable long-term outlook for our end-markets, we experience differing levels of volatility depending on the end-market and may continue to do so over the medium and longer term. While we believe the general trends are favorable, factors specific to each of our major end-markets may negatively affect the capital spending plans of our customers and lead to lower sales volumes for us.
•
Through 2014 and into 2015, we experienced material and other cost inflation. We strive for productivity improvements, and we implement increases in selling prices to help mitigate this inflation. We expect the current economic environment will result in continuing price volatility for many of our raw materials. Commodity prices have declined, but we are uncertain as to the timing and impact of these market changes.
In 2016, our operating objectives include the following:
•
Reducing long-term debt and overall leverage through improved cash flow performance;
•
Driving operating excellence through lean enterprise initiatives, with specific focus on sourcing and supply management, cash flow management and lean operations;
•
Achieving differentiated revenue growth through new products and global and market expansion;
•
Optimizing our technological capabilities to increasingly generate innovative new products; and
•
Focusing on developing global talent in light of our increased global presence.

26


CONSOLIDATED RESULTS OF OPERATIONS
The consolidated results of operations were as follows:
 
Years ended December 31
 
% / point change
In millions
2015
2014
2013
 
2015 vs. 2014
2014 vs. 2013
Net sales
$
6,449.0

$
7,039.0

$
6,999.7

 
(8.4
)%
0.6
 %
Cost of goods sold
4,263.2

4,576.0

4,629.6

 
(6.8
)%
(1.2
)%
Gross profit
2,185.8

2,463.0

2,370.1

 
(11.3
)%
3.9
 %
% of net sales
33.9
%
35.0
%
33.9
%
 
(1.1
)
1.1

 
 
 
 
 
 
 
Selling, general and administrative
1,334.3

1,493.8

1,493.7

 
(10.7
)%
—
 %
% of net sales
20.8
%
21.3
%
21.3
%
 
(0.5
)
—

Research and development
119.6

117.3

122.8

 
2.0
 %
(4.5
)%
% of net sales
1.9
%
1.7
%
1.8
%
 
0.2

(0.1
)
Impairment of goodwill and trade names
554.7

—

11.0

 
N.M.

(100.0
)%
% of net sales
8.6
%
—
%
0.2
%
 
8.6

(0.2
)
 
 
 
 
 
 
 
Operating income
177.2

851.9

742.6

 
(79.2
)%
14.7
 %
% of net sales
2.7
%
12.1
%
10.6
%
 
(9.4
)
1.5

 
 
 
 
 
 
 
Loss (gain) on sale of businesses, net
3.2

0.2

(20.8
)
 
N.M.

(101.0
)%
Net interest expense
102.7

68.6

70.9

 
49.7
 %
(3.2
)%
 
 
 
 
 
 
 
Income from continuing operations before income taxes and noncontrolling interest
74.1

784.3

694.5

 
(90.6
)%
12.9
 %
Provision for income taxes
139.1

177.3

177.0

 
(21.5
)%
0.2
 %
   Effective tax rate
187.7
%
22.6
%
25.5
%
 
165.1

(2.9
)
N.M. Not Meaningful
Net sales
The components of the consolidated net sales change were as follows:
 
2015 vs. 2014
 
2014 vs. 2013
Volume
(4.3
)%
 
1.0
 %
Price
0.4

 
0.9

   Core growth (decline)
(3.9
)
 
1.9

Acquisition (divestiture)
2.1

 
(0.2
)
Currency
(6.6
)
 
(1.1
)
Total
(8.4
)%
 
0.6
 %
The 8.4 percent decrease in consolidated net sales in 2015 from 2014 was primarily the result of:
•
a slowdown in industrial capital spending, particularly in the oil & gas and energy-related businesses, driving core sales declines in Valves & Controls;
•
slowing economic activity in China, Brazil and other developing markets; and
•
a strong U.S. dollar causing unfavorable foreign currency effects.
These decreases were partially offset by:
•
core sales growth in Water Quality Systems and Technical Solutions, primarily as the result of increased volume in the United States and Canada;

27


•
sales of $147.0 million in 2015 as a result of the ERICO Acquisition;
•
core sales growth in our food & beverage and residential & commercial businesses; and
•
selective increases in selling prices to mitigate inflationary cost increases.
The 0.6 percent increase in consolidated net sales in 2014 from 2013 was primarily the result of:
•
core sales growth in Technical Solutions, primarily as the result of increased volume in the United States, China and Canada;
•
core sales growth in Water Quality Systems due to higher sales of certain pool products serving North American residential housing and increased demand for global food & beverage solutions; and
•
selective increases in selling prices to mitigate inflationary cost increases.
These increases were partially offset by:
•
unfavorable foreign currency effects;
•
decreases in sales of energy products in Valves & Controls and sales declines in residential retail product sales and infrastructure businesses in Flow & Filtration Solutions; and
•
loss of revenue related to the 2013 divestitures of businesses in Technical Solutions and Flow & Filtration Solutions.
Gross profit 
The 1.1 percentage point decrease in gross profit as a percentage of sales in 2015 from 2014 was primarily the result of:
•
lower core sales volumes, which resulted in decreased leverage on fixed expenses included in cost of goods sold;
•
an increase in cost of goods sold of $35.7 million in 2015 compared to 2014 as a result of inventory fair value step-up recorded as part of the Technical Solutions acquisitions in 2015, which did not occur in 2014; and
•
inflationary increases related to raw materials and labor costs.
These decreases were partially offset by:
•
higher contribution margin as a result of savings generated from our Pentair Integrated Management System ("PIMS") initiatives including lean and supply management practices; and
•
selective increases in selling prices to mitigate inflationary cost increases.
The 1.1 percentage point increase in gross profit as a percentage of sales in 2014 from 2013 was primarily the result of:
•
a decrease in cost of goods sold of $86.6 million in 2014 compared to 2013 as a result of inventory fair value step-up and customer backlog recorded as part of the Merger purchase accounting in 2013, which did not recur in 2014;
•
higher contribution margin as a result of savings generated from our PIMS initiatives including lean and supply management practices; and
•
selective increases in selling prices across all business segments to mitigate inflationary cost increases.
These increases were partially offset by:
•
inflationary increases related to raw materials and labor costs.
Selling, general and administrative ("SG&A") 
The 0.5 percentage point decrease in SG&A expense as a percentage of sales in 2015 from 2014 and was driven by:
•
"mark-to-market" actuarial gains related to pension and other post-retirement benefit plans of $23.0 million in 2015, compared to "mark-to-market" actuarial losses of $49.9 million in 2014; and
•
cost savings generated from back-office consolidation, reduction in personnel and other lean initiatives.

28


These decreases were partially offset by:
•
restructuring costs of $117.8 million in 2015, compared to $88.3 million in 2014;
•
deal related costs and expenses of $14.3 million for 2015; and
•
lower sales volume and the resulting loss of leverage on fixed operating expenses.
SG&A expense as a percentage of sales remained consistent in 2014 from 2013 and was favorably impacted by the following:
•
restructuring costs of $88.3 million in 2014, compared to $103.2 million in 2013;
•
savings generated from back-office consolidation, reduction in personnel and other lean initiatives; and
•
higher sales volume and the resultant gain of leverage on fixed operating expenses.
These favorable fluctuations were offset by the following:
•
"mark-to-market" actuarial losses related to pension and other post-retirement benefit plans of $49.9 million in 2014, compared to "mark-to-market" actuarial gains of $63.2 million in 2013; and
•
costs of $10.3 million incurred in 2014, compared to $5.4 million in 2013, as a result of the Redomicile of the Company from Switzerland to Ireland.
Impairment of goodwill and trade names
During the fourth quarter of 2015, we recognized a pre-tax, non-cash impairment charge of $554.7 million related to goodwill and trade name intangible assets in Valves & Controls. An impairment charge of $11.0 million was recorded in the fourth quarter of 2013 related to a trade name in Technical Solutions.
Gain on sale of businesses, net
During 2013, we sold businesses that were part of Technical Solutions and Flow & Filtration Solutions for a cash purchase price of $30.1 million and $13.4 million, respectively, net of transaction costs, resulting in a gain of $16.8 million and $4.0 million, respectively.
Net interest expense
The 49.7 percent increase in net interest expense in 2015 from 2014 was primarily the result of:
•
the amortization of $10.8 million of debt issuance costs during 2015 related to financing commitments for a senior unsecured bridge loan facility established (and subsequently terminated upon issuance of the September 2015 issuance of senior notes discussed in Liquidity and Capital Resources below) in connection with the ERICO Acquisition;
•
the impact of higher debt levels during 2015, compared to 2014, primarily as the result of the September 2015 issuance of senior notes; and
•
higher interest rates on commercial paper.
The 3.2 percent decrease in net interest expense in 2014 from 2013 was primarily the result of:
•
reduced overall interest rates in effect on our outstanding debt; and
•
additional interest expense of $2.1 million in the second quarter of 2013 for a working capital and net indebtedness adjustment related to the Merger that did not recur in 2014.
These decreases were partially offset by:
•
the impact of higher debt levels during 2014 compared to 2013.
Provision for income taxes
The 165.1 percentage point increase in the effective tax rate in 2015 from 2014 was primarily due to:
•
a goodwill impairment charge of $515.2 million, which was not tax deductible;
•
restructuring costs in jurisdictions with low tax benefits;
•
an increase in valuation allowances during 2015; and

29


•
the unfavorable tax impact of transaction costs related to the ERICO Acquisition.
These increases were partially offset by:
•
the mix of global earnings toward lower tax jurisdictions; and
•
non-recurring withholding taxes during 2014 which did not recur in 2015.
The 2.9 percentage point decrease in the effective tax rate in 2014 from 2013 was primarily due to:
•
the mix of global earnings toward lower tax jurisdictions.
The decrease was partially offset by:
•
increase in withholding taxes that are non-recurring.
SEGMENT RESULTS OF OPERATIONS
This summary that follows provides a discussion of the results of operations of each of our four reportable segments (Valves & Controls, Flow & Filtration Solutions, Water Quality Systems and Technical Solutions). Each of these segments comprises various product offerings that serve multiple end markets.
We evaluate performance based on sales and segment income and use a variety of ratios to measure performance of our reporting segments. During the third quarter of 2015, we revised our definition of segment income to exclude intangible amortization to better reflect how management assesses performance of the business. Segment income represents operating income (loss) from continuing operations exclusive of intangible amortization, certain acquisition related expenses, costs of restructuring activities, impairments and other unusual non-operating items.
Valves & Controls
The net sales and segment income for Valves & Controls were as follows:
 
Years ended December 31
 
% / point change
In millions
2015
2014
2013
 
2015 vs. 2014
2014 vs. 2013
Net sales
$
1,840.1

$
2,377.3

$
2,451.7

 
(22.6
)%
(3.0
)%
Segment income
223.0

398.5

349.3

 
(44.0
)%
14.1
 %
% of net sales
12.1
%
16.8
%
14.2
%
 
(4.7
)
2.6

Net sales
The components of the change in Valves & Controls net sales were as follows:
 
2015 vs. 2014
 
2014 vs. 2013
Volume
(13.6
)%
 
(2.2
)%
Price
(0.1
)
 
0.5

   Core growth
(13.7
)
 
(1.7
)
Currency
(8.9
)
 
(1.3
)
Total
(22.6
)%
 
(3.0
)%
The 22.6 percent decrease in Valves & Controls net sales in 2015 from 2014 was primarily the result of:
•
lower shipments and orders within the oil & gas and industrial businesses and broad-based slowing of global capital spending;
•
continued sales decline in the mining industry; and
•
a strong U.S. dollar causing unfavorable foreign currency effects.
These decreases were partially offset by:
•
sales growth in developing regions, including Southeast Asia, India and Eastern Europe.

30


The 3.0 percent decrease in Valves & Controls net sales in 2014 from 2013 was primarily the result of:
•
decreased sales volume related to lower shipments for our energy products, particularly in the mining industry; and
•
unfavorable foreign currency effects.
These decreases were partially offset by:
•
increased sales volume for our industrial products; and
•
selective increases in selling prices to mitigate inflationary cost increases.
Segment income
The components of the change in Valves & Controls segment income from the prior period were as follows:
 
2015
2014
Growth
(6.5
) pts
—

Inflation
(1.0
)
(1.4
)
Productivity/Price
2.8

4.0

Total
(4.7
) pts
2.6
 pts

The 4.7 percentage point decrease in segment income for Valves & Controls as a percentage of net sales in 2015 from 2014 was primarily the result of:
•
lower core sales volumes, which resulted in decreased leverage on operating expenses; and
•
inflationary cost increases.
These decreases were partially offset by:
•
cost savings generated from back-office consolidation, reduction in personnel and other lean initiatives.
The 2.6 percentage point increase in segment income for Valves & Controls as a percentage of net sales in 2014 from 2013 was primarily the result of:
•
selective increases in selling price to mitigate inflationary cost increases related to raw materials and labor costs;
•
favorable project mix due to higher margin projects in 2014; and
•
savings generated from our PIMS initiatives, including lean and supply management practices.
These increases were partially offset by:
•
costs related to the operating model transformation investment in 2014.
Flow & Filtration Solutions
The net sales and segment income for Flow & Filtration Solutions were as follows:
 
Years ended December 31
 
% / point change
In millions
2015
2014
2013
 
2015 vs. 2014
2014 vs. 2013
Net sales
$
1,441.6

$
1,603.1

$
1,651.8

 
(10.1
)%
(2.9
)%
Segment income
185.1

199.5

202.4

 
(7.2
)%
(1.4
)%
% of net sales
12.8
%
12.3
%
12.3
%
 
0.5

—


31


Net sales
The components of the change in Flow & Filtration Solutions net sales were as follows:
 
2015 vs. 2014
 
2014 vs. 2013
Volume
(4.6
)%
 
(2.1
)%
Price
1.0

 
0.7

   Core growth
(3.6
)
 
(1.4
)
Acquisition (divestiture)
—

 
(0.6
)
Currency
(6.5
)
 
(0.9
)
Total
(10.1
)%
 
(2.9
)%
The 10.1 percent decrease in Flow & Filtration Solutions sales in 2015 from 2014 was primarily the result of:
•
decrease in core sales due to significant declines in the global agricultural industry, broad-based slowing of global capital spending and customer inventory de-stocking;
•
decreased sales volume related to the loss of a customer in the residential retail business during the second half of 2014; and
•
a strong U.S. dollar causing unfavorable foreign currency effects.
These decreases were partially offset by:
•
selective increases in selling prices to mitigate inflationary cost increases;
•
core sales growth in our food & beverage business; and
•
core growth in developing regions, including Eastern Europe and Southeast Asia.
The 2.9 percent decrease in Flow & Filtration Solutions sales in 2014 from 2013 was primarily the result of:
•
decreased sales volume related to the loss of a customer in the residential retail business and sales declines in the infrastructure business;
•
loss of revenue related to the divestiture of a business at the end of the fourth quarter of 2013; and
•
unfavorable foreign currency effects.
These decreases were partially offset by:
•
selective increases in selling prices to mitigate inflationary cost increases.
Segment income
The components of the change in Flow & Filtration Solutions segment income from the prior period were as follows:
 
2015
2014
Growth
(2.5
) pts
—

Acquisition (divestiture)
—

(0.1
)
Inflation
(1.4
)
(1.5
)
Productivity/Price
4.4

1.6

Total
0.5
 pts
—


The 0.5 percentage point increase in segment income for Flow & Filtration Solutions as a percentage of net sales in 2015 from 2014 was primarily the result of:
•
price increases more than offsetting inflationary cost increases;
•
savings driven by restructuring actions; and
•
savings generated from our PIMS initiatives including lean and supply management practices.

32


These increases were partially offset by:
•
inflationary increases related to labor and certain raw materials;
•
lower core sales volumes, which resulted in decreased leverage on operating expenses; and
•
decreased sales volume related to the loss of a customer in the residential retail business during the second half of 2014.
Segment income for Flow & Filtration Solutions as a percentage of net sales remained consistent in 2014 from 2013 and was positively impacted by the following:
•
selective increases in selling prices to mitigate inflationary cost increases; and
•
savings generated from our PIMS initiatives including lean and supply management practices.
These were partially offset by:
•
inflationary increases related to labor and certain raw materials.
Water Quality Systems
The net sales and segment income for Water Quality Systems were as follows:
 
Years ended December 31
 
% / point change
In millions
2015
2014
2013
 
2015 vs. 2014
2014 vs. 2013
Net sales
$
1,381.5

$
1,356.4

$
1,269.3

 
1.9
%
6.9
%
Segment income
281.8

253.3

227.9

 
11.3
%
11.1
%
% of net sales
20.4
%
18.7
%
18.0
%
 
1.7

0.7

Net sales
The components of the change in Water Quality Systems net sales were as follows:
 
2015 vs. 2014
 
2014 vs. 2013
Volume
4.2
 %
 
6.2
 %
Price
0.8

 
1.3

   Core growth
5.0

 
7.5

Currency
(3.1
)
 
(0.6
)
Total
1.9
 %
 
6.9
 %
The 1.9 percent increase in Water Quality Systems sales in 2015 from 2014 was primarily the result of:
•
core sales growth related to higher sales of certain pool products primarily serving the North American residential housing market in 2015;
•
core sales growth within our residential & commercial and food & beverage businesses; and
•
selective increases in selling prices to mitigate inflationary cost increases.
These increases were partially offset by:
•
a strong U.S. dollar causing unfavorable foreign currency effects; and
•
decreased sales in Western Europe and in the developing regions of Brazil and Latin America.
The 6.9 percent increase in Water Quality Systems sales in 2014 from 2013 was primarily the result of:
•
core sales growth related to higher sales of certain pool products primarily serving North American residential housing;
•
increased demand for global food & beverage solutions in 2014;

33


•
growth in developed regions led by strength in the U.S. and Western Europe; and
•
selective increases in selling prices to mitigate inflationary cost increases.
These increases were partially offset by:
•
sales declines in our industrial and infrastructure businesses;
•
unfavorable foreign currency effects; and
•
decreased sales in Brazil and Western Europe.
Segment income
The components of the change in Water Quality Systems segment income from the prior period were as follows:
 
2015
2014
Growth
0.3
 pts
—

Inflation
(1.0
)
(1.5
)
Productivity/Price
2.4

2.2

Total
1.7
 pts
0.7
 pts

The 1.7 percentage point increase in segment income for Water Quality Systems as a percentage of net sales in 2015 from 2014 was primarily the result of:
•
price increases more than offsetting inflationary cost increases; and
•
cost savings generated from back-office consolidation, reduction in personnel and other lean initiatives.
These increases were partially offset by:
•
inflationary increases related to labor costs and certain raw materials.
The 0.7 percentage point increase in segment income for Water Quality Systems as a percentage of net sales in 2014 from 2013 was primarily the result of:
•
selective increases in selling prices to mitigate inflationary cost increases; and
•
core sales growth in our residential & commercial and food & beverage businesses, which resulted in increased leverage on operating expenses.
These increases were partially offset by:
•
inflationary increases related to certain raw materials; and
•
lower sales volumes in our industrial and infrastructure businesses, which resulted in decreased leverage on operating expenses.
Technical Solutions
The net sales and segment income for Technical Solutions were as follows:
 
Years ended December 31
 
% / point change
In millions
2015
2014
2013
 
2015 vs. 2014
2014 vs. 2013
Net sales
$
1,809.3

$
1,728.1

$
1,663.4

 
4.7
 %
3.9
%
Segment income
395.0

378.1

342.0

 
4.5
 %
10.6
%
% of net sales
21.8
%
21.9
%
20.6
%
 
(0.1
)
1.3


34


Net sales
The components of the change in Technical Solutions net sales were as follows:
 
2015 vs. 2014
 
2014 vs. 2013
Volume
2.2
 %
 
4.2
 %
Price
0.1

 
1.3

   Core growth
2.3

 
5.5

Acquisition (divestiture)
8.5

 
(0.4
)
Currency
(6.1
)
 
(1.2
)
Total
4.7
 %
 
3.9
 %
The 4.7 percent increase in Technical Solutions sales in 2015 from 2014 was primarily the result of:
•
sales of $147.0 million in 2015 as a result of the ERICO Acquisition;
•
core growth in our residential & commercial and energy businesses; and
•
higher project core sales volume in the United States and Canada.
These increases were partially offset by:
•
a strong U.S. dollar causing unfavorable foreign currency effects;
•
lower core sales volumes in our infrastructure business, primarily due to broad-based slowing of global capital spending; and
•
a decrease in demand for products in developing regions.
The 3.9 percent increase in Technical Solutions sales in 2014 from 2013 was primarily the result of:
•
higher sales volume in the U.S., China and Canada;
•
increased sales in our industrial, infrastructure and residential & commercial businesses; and
•
selective increases in selling prices to mitigate inflationary cost increases.
These increases were partially offset by:
•
unfavorable foreign currency effects; and
•
loss of revenue related to the divestiture of a business at the end of the first quarter of 2013.
Segment income
The components of the change in Technical Solutions segment income from the prior period were as follows:

 
2015
2014
Growth
(1.3
) pts
—

Acquisition/Divestiture
0.4

0.1

Inflation
(1.1
)
(1.7
)
Productivity/Price
1.9

2.9

Total
(0.1
) pts
1.3
 pts

The 0.1 percentage point decrease in segment income for Technical Solutions as a percentage of net sales in 2015 from 2014 and was primarily the result of:
•
high margin project sales in 2014 that did not recur in 2015;
•
lower core sales volumes in our infrastructure business, which resulted in decreased leverage on operating expenses; and

35


•
inflationary increases related to labor costs and certain raw materials.
These decreases were partially offset by:
•
higher core sales volumes in our energy and commercial businesses, which resulted in increased leverage on operating expenses; and
•
selective increases in selling prices to mitigate inflationary cost increases.
The 1.3 percentage point increase in segment income for Technical Solutions as a percentage of sales in 2014 from 2013 was primarily the result of:
•
higher sales volume in our industrial, infrastructure and residential & commercial businesses, which resulted in increased leverage on operating expenses; and
•
selective increases in selling prices to mitigate inflationary cost increases.
These increases were partially offset by:
•
inflationary increases related to labor costs and certain raw materials.
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. We have grown our businesses in significant part in the past through acquisitions financed by credit provided under our revolving credit facilities and from time to time, by private or public debt issuance. Our primary revolving credit facilities have generally been adequate for these purposes, although we have negotiated additional credit facilities as needed to allow us to complete acquisitions. We intend to issue commercial paper to fund our financing needs on a short-term basis and to use our revolving credit facility as back-up liquidity to support commercial paper.
We are focusing on increasing our cash flow and repaying existing debt, while continuing to fund our research and development, marketing and capital investment initiatives. Our intent is to maintain investment grade ratings and a solid liquidity position.
We experience seasonal cash flows primarily due to seasonal demand in a number of markets within Flow & Filtration Solutions and Water Quality Systems. We generally borrow in the first quarter of our fiscal year for operational purposes, which usage reverses in the second quarter as the seasonality of our businesses peaks. End-user demand for pool and certain pumping equipment follows warm weather trends and is at seasonal highs from April to August. The magnitude of the sales spike is partially mitigated by employing some advance sale "early buy" programs (generally including extended payment terms and/or additional discounts). Demand for residential and agricultural water systems is also impacted by weather patterns, particularly by heavy flooding and droughts. Additionally, Technical Solutions generally experiences increased demand for thermal protection products and services during the fall and winter months in the Northern Hemisphere.
Operating activities
Cash provided by operating activities of continuing operations was $750.0 million in 2015, or $255.0 million lower than in 2014. The decrease in cash provided by operating activities from continuing operations was due primarily to a $173.2 million decrease in Net income (loss) from continuing operations before noncontrolling interest, net of the following non-cash items: depreciation and amortization, loss (gain) on sale of businesses, goodwill and trade name impairment and pension and other post-retirement expense (income).
Cash provided by operating activities from continuing operations was $1,005.0 million in 2014, or $73.7 million higher than in 2013. The increase in cash provided by operating activities from continuing operations was due primarily to a $184.3 million increase in Net income (loss) before noncontrolling interest, net of the following non-cash items: depreciation and amortization, loss (gain) on sale of businesses, trade name impairment and pension and other post-retirement expense (income).
Investing activities
Net cash used for investing activities of continuing operations was $2,024.5 million in 2015, compared to $128.3 million in 2014 and $211.2 million in 2013. The following investing activities impacted our cash flow:

36


Acquisitions
In 2015, we paid cash of $1,806.3 million, net of cash acquired, to acquire ERICO Global Company during the third quarter and cash of $96.0 million, net of cash acquired, to acquire Nuheat Industries Limited ("Nuheat") during the second quarter, both as part of Technical Solutions. During the fourth quarter, we paid an additional $0.9 million related to the Nuheat acquisition in settlement of a working capital adjustment.
In December 2014, we paid cash of $7.5 million and $4.8 million to acquire businesses as part of Water Quality Systems and Technical Solutions, respectively.
In June 2013, $84.4 million of cash was paid to Tyco in settlement of a working capital and net indebtedness adjustment related to the Merger. In addition, in December 2013 we acquired a business as part of Water Quality Systems for cash consideration of $8.0 million, net of cash acquired.
Divestitures
During 2013, we sold businesses that were part of Technical Solutions and Flow & Filtration Solutions for a cash purchase price of $30.1 million and $13.4 million, respectively, net of transaction costs, resulting in a gain of $16.8 million and $4.0 million, respectively.
Capital expenditures
Capital expenditures in 2015, 2014 and 2013 were $134.3 million, $129.6 million and $170.0 million, respectively. We anticipate capital expenditures for fiscal 2016 to be approximately $140 million, primarily for capacity expansions of manufacturing facilities located in our low-cost countries, developing new products and general maintenance.
Financing activities
Net cash provided by financing activities was $1,286.3 million in 2015. Cash provided by financing activities in 2015 was primarily due to cash proceeds received from the September 2015 issuance of senior notes (discussed below), partially offset by share repurchases, repayment of $350.0 million of senior notes due 2015 and payment of dividends.
Net cash used for financing activities was $995.1 million in 2014. Cash used for financing activities in 2014 included share repurchases, payments of dividends and the purchase of the remaining noncontrolling interest in a business, partially offset by net receipts of commercial paper and revolving long-term debt to fund our operations in the normal course of business.
Net cash used for financing activities was $719.1 million in 2013. Cash used for financing activities in 2013 included share repurchases and payments of dividends, partially offset by net receipts of commercial paper and revolving long-term debt to fund our operations in the normal course of business and cash received from shares issued to employees.
In September 2015, Pentair plc, Pentair Finance S.A. ("PFSA") and Pentair Investments Switzerland GmbH ("PISG"), a 100-percent owned subsidiary of Pentair plc and the 100-percent owner of PFSA, completed public offerings (the "September 2015 Offerings") of $500.0 million aggregate principal amount of PFSA's 2.90% Senior Notes due 2018, $400.0 million aggregate principal amount of PFSA's 3.625% Senior Notes due 2020, $250.0 million aggregate principal amount of PFSA's 4.65% Senior Notes due 2025 and €500.0 million aggregate principal amount of PFSA's 2.45% Senior Notes due 2019, all of which are guaranteed as to payment by Pentair plc and PISG. Pentair plc used the net proceeds from the September 2015 Offerings to finance the ERICO Acquisition.
Additionally, PFSA has outstanding $350.0 million of 1.875% Senior Notes due 2017, $250.0 million of 2.65% Senior Notes due 2019, $373.0 million of the 5.00% Senior Notes due 2021 and $550.0 million of 3.15% Senior Notes due 2022 and Pentair, Inc. has outstanding $127.0 million of 5.00% Senior Notes due 2021, all of which are guaranteed as to payment by Pentair plc and PISG.
Pentair, Inc. had a credit agreement providing for an unsecured, committed revolving credit facility (the "Prior Credit Facility") pursuant to which Pentair Ltd. was the guarantor and PFSA and certain other of our subsidiaries were affiliate borrowers. In October 2014, Pentair plc, PISG, PFSA and Pentair, Inc. entered into an amended and restated credit agreement related to the Prior Credit Facility (the "Amended Credit Facility"), with Pentair plc and PISG as guarantors and PFSA and Pentair, Inc. as borrowers. The Amended Credit Facility increased the maximum aggregate availability to $2,100.0 million and extended the maturity date to October 3, 2019. Borrowings under the Amended Credit Facility generally bear interest at a variable rate equal to the London Interbank Offered Rate ("LIBOR") plus a specified margin based upon PFSA's credit ratings. PFSA must pay a facility fee ranging from 9.0 to 25.0 basis points per annum (based upon PFSA's credit ratings) on the amount of each lender's commitment and letter of credit fee for each letter of credit issued and outstanding under the Amended Credit Facility.
In August 2015, Pentair plc, PISG and PFSA entered into a First Amendment to the Amended Credit Facility (the "First Amendment"), which, among other things, increased the Leverage Ratio (as defined below) following the ERICO Acquisition

37


from 3.50 to 1.00 on the last day of each fiscal quarter to the amounts specified below. Additionally, in September 2015, Pentair plc, PISG and PFSA entered into a Second Amendment to the Amended Credit Facility (the "Second Amendment," and together with the First Amendment, the "Amendments"), which, among other things, increased the maximum aggregate availability to $2,500.0 million.
PFSA is authorized to sell short-term commercial paper notes to the extent availability exists under the Amended Credit Facility. PFSA uses the Amended Credit Facility as back-up liquidity to support 100% of commercial paper outstanding. As of December 31, 2015 and 2014, we had $179.5 million and $987.6 million, respectively, of commercial paper outstanding, all of which was classified as long-term as we have the intent and the ability to refinance such obligations on a long-term basis under the Amended Credit Facility.
Our debt agreements contain certain financial covenants, the most restrictive of which are in the Amended Credit Facility (as updated for the Amendments), including that we may not permit (i) the ratio of our consolidated debt plus synthetic lease obligations to our consolidated net income (excluding, among other things, non-cash gains and losses) before interest, taxes, depreciation, amortization, non-cash share-based compensation expense, and up to a lifetime maximum $25.0 million of costs, fees and expenses incurred in connect with certain acquisitions, investments, dispositions and the issuance, repayment or refinancing debt, and in addition (but without duplication of) the fees, cost and expenses referred above, any fees costs and expenses, in an aggregate amount not to exceed $50.0 million, incurred in connection with the ERICO Acquisition and any related incurrance, issuance, repayment or refinancing of debt ("EBITDA") for the four consecutive fiscal quarters then ended (the "Leverage Ratio") to exceed (a) 4.50 to 1.00 as of the last day of any period of four consecutive fiscal quarters ending on or prior to June 30, 2016; (b) 4.25 to 1.00 as of the last day of the period of four consecutive fiscal quarters ending on September 30, 2016; (c) 4.00 to 1.00 as of the last day of the period of four consecutive fiscal quarters ending on December 31, 2016; (d) 3.75 to 1.00 as of the last day of the period of four consecutive fiscal quarters ending after December 31, 2016 but before June 30, 2017; and (e) 3.50 to 1.00 as of the last day of the period of four consecutive fiscal quarters ending after June 30, 2017, and (ii) the ratio of our EBITDA for the four consecutive fiscal quarters then ended to our consolidated interest expense, including consolidated yield or discount accrued as to outstanding securitization obligations (if any), 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 Amended Credit Facility provides for the calculation of EBITDA giving pro forma effect to certain acquisitions, divestitures and liquidations during the period to which such calculation relates. As of December 31, 2015, we were in compliance with all financial covenants in our debt agreements.
Total availability under the Amended Credit Facility was $1,139.1 million as of December 31, 2015, which was limited to $640.6 million by the Leverage Ratio in the Amended Credit Facility’s credit agreement.
In addition to the Amended Credit Facility, we have various other credit facilities with an aggregate availability of $50.6 million, of which none was outstanding at December 31, 2015. Borrowings under these credit facilities bear interest at variable rates.
As of December 31, 2015, we had $64.2 million of cash held in certain countries in which the ability to repatriate is limited due to local regulations or significant potential tax consequences.
We expect to continue to have cash requirements to support working capital needs and capital expenditures, to pay interest and service debt and to pay dividends to shareholders quarterly. We believe we have the ability and sufficient capacity to meet these cash requirements by using available cash and internally generated funds and to borrow under our committed and uncommitted credit facilities.
Dividends
We paid dividends in 2015 of $231.7 million, or $1.28 per ordinary share, compared with $211.4 million, or $1.10 per ordinary share, in 2014 and $194.2 million, or $0.96 per ordinary share, in 2013. On December 8, 2015, the Board of Directors declared a dividend of $0.33 that was paid on February 12, 2016 to shareholders of record at the close of business on January 29, 2016. Additionally, the Board of Directors approved a plan to increase the 2016 annual cash dividend to $1.34, which is intended to be paid in four quarterly installments of $0.33 in each of the first and second quarters of 2016 and $0.34 in each of the third and fourth quarters of 2016. The 2016 increase will mark the 40th consecutive year we have increased dividends.
Under Irish law, the payment of future cash dividends after those approved at our 2014 annual meeting of shareholders and redemptions and repurchases of shares following the Redomicile may be paid only out of Pentair plc's "distributable reserves" on its statutory balance sheet. Pentair plc is not permitted to pay dividends out of share capital, which includes share premiums. Distributable reserves may be created through the earnings of the Irish parent company and through a reduction in share capital approved by the Irish High Court. Distributable reserves are not linked to a U.S. generally accepted accounting principles ("GAAP") reported amount (e.g., retained earnings). On July 22, 2014, the Irish High Court approved Pentair plc's conversion of approximately $14.4 billion of share premium to distributable reserves. On July 29, 2014, following the approval of the Irish

38


High Court, we made the required filing of Pentair plc's initial accounts with the Irish Companies Registration Office, which completed the process to allow us to pay future cash dividends and redeem and repurchase shares out of Pentair plc's "distributable reserves." Our distributable reserve balance was $9.6 billion and $12.1 billion as of December 31, 2015 and 2014, respectively.
Authorized shares
Our authorized share capital consists of 426.0 million ordinary shares with a par value of $0.01 per share.
Ordinary shares held in treasury
In August 2015, we canceled all of our ordinary shares held in treasury. At the time of the cancellation, we held 19.1 million ordinary shares in treasury at a cost of $1.2 billion.
Share repurchases
Prior to the closing of the Merger, our Board of Directors, and Tyco as our sole shareholder, authorized the repurchase of our ordinary shares with a maximum aggregate value of $400.0 million following the closing of the Merger. This authorization did not have an expiration date. In October 2012, our Board of Directors authorized the repurchase of our ordinary shares with a maximum aggregate value of $800.0 million. This authorization expired on December 31, 2015 and was in addition to the $400.0 million share repurchase authorization. There is no remaining availability under the 2012 authorizations.
In December 2013, the Board of Directors authorized the repurchase of shares of our ordinary shares up to a maximum dollar limit of $1.0 billion. This authorization expires on December 31, 2016 and is in addition to the combined $1.2 billion 2012 share repurchase authorizations. There is no remaining availability under the 2013 authorization.
In December 2014, the Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $1.0 billion. This authorization is in addition to the 2012 and 2013 share repurchase authorizations. The authorization expires on December 31, 2019.
During the year ended December 31, 2015, we repurchased 3.1 million of our ordinary shares for $200.0 million under the 2014 authorization and had $800.0 million remaining availability for repurchases under the 2014 authorization.
Contractual obligations
The following summarizes our significant contractual obligations that impact our liquidity:
 
Years ended December 31
In millions
2016
2017
2018
2019
2020
Thereafter
Total
Debt obligations
$
—

$
350.0

$
500.0

$
2,159.3

$
400.0

$
1,300.0

$
4,709.3

Capital lease obligations
0.7

—

—

—

—

—

0.7

Interest obligations on fixed-rate debt
109.6

107.9

99.4

85.2

64.8

98.0

564.9

Operating lease obligations, net of sublease rentals
44.3

32.6

24.8

19.8

14.9

23.3

159.7

Purchase obligations
43.1

1.7

0.2

0.1

0.1

0.1

45.3

Pension and other post-retirement plan contributions
24.4

20.4

22.5

23.2

19.8

87.1

197.4

Marketing obligations
6.6

4.2

3.5

3.0

2.4

11.9

31.6

Total contractual obligations, net
$
228.7

$
516.8

$
650.4

$
2,290.6

$
502.0

$
1,520.4

$
5,708.9

The majority of the purchase obligations represent commitments for raw materials to be utilized in the normal course of business. For purposes of the above table, arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the transaction.
In addition to the summary of significant contractual obligations, we will incur annual interest expense on outstanding variable rate debt. As of December 31, 2015, variable interest rate debt was $1,360.9 million at a weighted average interest rate of 1.54%.
The total gross liability for uncertain tax positions at December 31, 2015 was estimated to be $69.9 million. We record penalties and interest related to unrecognized tax benefits in Provision for income taxes and Interest expense, respectively, which is consistent with our past practices. As of December 31, 2015, we had recorded $2.6 million for the possible payment of penalties and $10.8 million related to the possible payment of interest.

39


Other financial measures
In addition to measuring our cash flow generation or usage based upon operating, investing and financing classifications included in the Consolidated Statements of Cash Flows, we also measure our free cash flow. We have a long-term goal to consistently generate free cash flow that equals or exceeds 100 percent conversion of net income. Free cash flow is a non-GAAP financial measure that we use to assess our cash flow performance. We believe free cash flow is an important measure of operating performance because it provides us and our investors a measurement of cash generated from operations that is available to pay dividends, make acquisitions, repay debt and repurchase shares. In addition, free cash flow is used as a criterion to measure and pay compensation-based incentives. Our measure of free cash flow may not be comparable to similarly titled measures reported by other companies. The following table is a reconciliation of free cash flow:
 
Years ended December 31
In millions
2015
2014
2013
Net cash provided by operating activities of continuing operations
$
750.0

$
1,005.0

$
931.3

Capital expenditures
(134.3
)
(129.6
)
(170.0
)
Proceeds from sale of property and equipment
27.3

13.1

6.0

Free cash flow
$
643.0

$
888.5

$
767.3

Off-balance sheet arrangements
At December 31, 2015, we had no off-balance sheet financing arrangements.
COMMITMENTS AND CONTINGENCIES
We have been made parties to a number of actions filed or have been given notice of potential claims relating to the conduct of our business, including those pertaining to commercial disputes, product liability, asbestos, environmental, safety and health, patent infringement and employment matters.
While we believe that a material impact on our consolidated financial position, results of operations or cash flows from any such future claims or potential claims is unlikely, given the inherent uncertainty of litigation, a remote possibility exists that a future adverse ruling or unfavorable development could result in future charges that could have a material impact. We do and will continue to periodically reexamine our estimates of probable liabilities and any associated expenses and receivables and make appropriate adjustments to such estimates based on experience and developments in litigation. As a result, the current estimates of the potential impact on our consolidated financial position, results of operations and cash flows for the proceedings and claims described in ITEM 8, Note 17 of the Notes to Consolidated Financial Statements could change in the future.
Asbestos matters
Our subsidiaries and numerous other companies are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. These cases typically involve product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were attached to or used with asbestos-containing components manufactured by third-parties. Each case typically names between dozens to hundreds of corporate defendants. While we have observed an increase in the number of these lawsuits over the past several years, including lawsuits by plaintiffs with mesothelioma-related claims, a large percentage of these suits have not presented viable legal claims and, as a result, have been dismissed by the courts. Our historical strategy has been to mount a vigorous defense aimed at having unsubstantiated suits dismissed, and, where appropriate, settling suits before trial. Although a large percentage of litigated suits have been dismissed, we cannot predict the extent to which we will be successful in resolving lawsuits in the future.
As of December 31, 2015, there were approximately 4,100 claims outstanding against our subsidiaries. This amount is not adjusted for claims that are not actively being prosecuted, identified incorrect defendants, or duplicated other actions, which would ultimately reflect our current estimate of the number of viable claims made against us, our affiliates, or entities for which we assumed responsibility in connection with acquisitions or divestitures. In addition, the amount does not include certain claims pending against third parties for which we have been provided an indemnification.
Our estimated liability for asbestos-related claims was $237.9 million and $249.1 million as of December 31, 2015 and 2014, respectively, and was recorded in Other non-current liabilities in the Consolidated Balance Sheets for pending and future claims and related defense costs. Our estimated receivable for insurance recoveries was $111.0 million and $115.8 million at December 31, 2015 and 2014, respectively, and was recorded in Other non-current assets in the Consolidated Balance Sheets.
Environmental matters
We are involved in or have retained responsibility and potential liability for environmental obligations and legal proceedings related to our current business and, including pursuant to certain indemnification obligations, related to certain formerly owned

40


businesses. We are responsible, or alleged to be responsible, for ongoing environmental investigation and/or remediation of sites in several countries. These sites are in various stages of investigation and/or remediation and at some of these sites our liability is considered de minimis. We received notification from the U.S. Environmental Protection Agency and from similar state and non-U.S. environmental agencies, that several sites formerly or currently owned and/or operated by us, and other properties or water supplies that may be or may have been impacted from those operations, contain disposed or recycled materials or waste and require environmental investigation and/or remediation. Those sites include instances where we have been identified as a potentially responsible party under U.S. federal, state and/or non-U.S. environmental laws and regulations. For several formerly owned businesses, we have also received claims for indemnification from purchasers of these businesses.
Our 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. Based upon our experience, current information regarding known contingencies and applicable laws, we have recorded reserves for these environmental matters of $22.8 million and $31.4 million as of December 31, 2015 and 2014, respectively. We do not anticipate these environmental conditions will have a material adverse effect on our financial position, results of operations or cash flows. However, unknown conditions, new details about existing conditions or changes in environmental requirements may give rise to environmental liabilities that will exceed the amount of our current reserves and could have a material adverse effect 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. In 2004, we disposed of the Tools Group and we retained responsibility for certain product claims. 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 guaranteed Flow Control’s performance 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, we will indemnify Tyco for any losses it suffers as a result of such guarantees.
In disposing of assets or businesses, we often provide representations, warranties and indemnities to cover various risks including unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities and unidentified tax liabilities and legal fees related to periods prior to disposition. We do not have the ability to reasonably estimate the potential liability due to the inchoate and unknown nature of these potential liabilities. However, we have no reason to believe that these uncertainties would have a material adverse effect on our financial position, results of operations or cash flows.
In the ordinary course of business, we are required to commit to bonds, letters of credit and bank guarantees that require payments to our customers for any non-performance. The outstanding face value of these instruments fluctuates with the value of our projects in process and in our backlog. In addition, we issue financial stand-by letters of credit primarily to secure our performance to third parties under self-insurance programs.
As of December 31, 2015 and 2014, the outstanding value of bonds, letters of credit and bank guarantees totaled $402.2 million and $370.1 million, respectively.
NEW ACCOUNTING STANDARDS
See ITEM 8, Note 1 of the Notes to Consolidated Financial Statements, included in this Form 10-K, for information pertaining to recently adopted accounting standards or accounting standards to be adopted in the future.
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 of our 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

41


uncertainty. These judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry and information available from other outside sources, as appropriate. We consider an accounting estimate to be critical if:
•
it requires us to make assumptions about matters that were uncertain at the time we were making the estimate; and
•
changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results of operations.
Our critical accounting estimates include the following:
Impairment of goodwill and indefinite-lived intangibles
Goodwill
Goodwill represents the excess of the cost of acquired businesses over the net of the fair value of identifiable tangible net assets and identifiable intangible assets purchased and liabilities assumed.
Goodwill is tested at least annually for impairment and is tested for impairment more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is performed using a two-step process. In the first step, the fair value of each reporting unit is compared with the carrying amount of the reporting unit, including goodwill. If the estimated fair value is less than the carrying amount of the reporting unit there is an indication that goodwill impairment exists and a second step must be completed in order to determine the amount of the goodwill impairment, if any that should be recorded. In the second step, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation.
The fair value of each reporting unit is 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. Actual results may differ from those used in our valuations.
In developing our discounted cash flow analysis, assumptions about future revenues and expenses, capital expenditures and changes in working capital are based on our annual operating plan and long-term business plan for each of our reporting units. These plans take into consideration numerous factors including historical experience, anticipated future economic conditions, changes in raw material prices and growth expectations for the industries and end markets we participate in. These assumptions are determined over a six year long-term planning period. The six year growth rates for revenues and operating profits vary for each reporting unit being evaluated. Revenues and operating profit beyond 2021 are projected to grow at a perpetual growth rate of 3.0%.
Discount rate assumptions for each reporting unit take into consideration our assessment of risks inherent in the future cash flows of the respective reporting unit and our weighted-average cost of capital. We utilized discount rates ranging from 9.5% to 12.5% in determining the discounted cash flows in our fair value analysis.
In estimating fair value using the market approach, we identify a group of comparable publicly-traded companies for each reporting unit that are similar in terms of size and product offering. These groups of comparable companies are used to develop multiples based on total market-based invested capital as a multiple of earnings before interest, taxes, depreciation and amortization ("EBITDA"). We determine our estimated values by applying these comparable EBITDA multiples to the operating results of our reporting units. The ultimate fair value of each reporting unit is determined considering the results of both valuation methods.
We completed step one of our annual goodwill impairment evaluation as of the first day of the fourth quarter of 2015, 2014 and 2013 with all but one of our reporting units' fair value substantially in excess of its carrying value. In connection with our 2015 annual impairment test, we determined that the fair value of our Valves & Controls reporting unit did not exceed its carrying value by a significant amount. The percentage of excess fair value over carrying value of this reporting unit was approximately 9% as of the annual impairment testing date. If cash flow projections decreased by 10.5%, or if the discount rate increased by 100 basis points, this reporting unit would have failed the annual step one test.
During the latter part of the fourth quarter of 2015, the oil and gas industry continued to deteriorate, leading management to reconsider its estimates for future profitability of the reporting unit and thereby increasing the likelihood that the associated goodwill could be impaired. As such, we concluded that a triggering event occurred during the fourth quarter of 2015 requiring that we test Valves & Controls goodwill for impairment. As a result, we reperformed our step one analysis as of December 31,

42


2015. Consistent with our annual test, the fair value was estimated using both a discounted cash flow analysis and market approach.
The results of our step one goodwill impairment testing as of December 31, 2015 indicated that the fair value of Valves & Controls was below its carrying value. Accordingly, we performed the step two test and concluded the goodwill of Valves & Controls was impaired. As a result, we recorded a non-cash goodwill impairment charge of $515.2 million for the year ended December 31, 2015. The impairment is included in Impairment of goodwill and trade names in our Consolidated Statements of Operations and Comprehensive Income (Loss).
Identifiable intangible assets
Our primary identifiable intangible assets include: customer relationships, trade names and trademarks, proprietary technology, backlog and patents. Identifiable intangibles with finite lives are amortized and those identifiable intangibles with indefinite lives are not amortized. Identifiable intangible assets that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangible assets not subject to amortization are tested for impairment annually or more frequently if events warrant. We complete our annual impairment test during the fourth quarter each year for those identifiable assets not subject to amortization.
The impairment test 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.
As noted above, during the latter part of the fourth quarter of 2015, the oil and gas industry continued to deteriorate, leading management to reconsider its estimates for future profitability of the Valves & Controls and thereby increasing the likelihood that the associated intangible assets could be impaired. As such, we concluded that a triggering event occurred during the fourth quarter of 2015 requiring that we test Valves & Controls trade names for impairment. As a result of this test, an impairment charge of $39.5 million was recorded in 2015 related to trade names in Valves & Controls.

There was no impairment charge recorded in 2014 for identifiable intangible assets. An impairment charge of $11.0 million was recorded in 2013 related to a trade name in Technical Solutions as the result of a rebranding strategy implemented in the fourth quarter of 2013. These trade name impairment charges were recorded in Impairment of goodwill and trade names in our Consolidated Statements of Operations and Comprehensive Income (Loss).
Impairment of long-lived assets
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, 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. During 2015, 2014, and 2013, we recorded impairment charges of $17.7 million, $20.9 million and $16.6 million, respectively, in conjunction with restructuring activities.
Percentage of completion revenue recognition
Revenue from certain long-term contracts is recognized over the contractual period under the percentage of completion method of accounting. Under this method, sales and gross profit are recognized as work is performed either 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 expended 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. 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 and contract values. These reviews have not resulted in adjustments that were significant to our results of operations. Estimated losses are recorded when identified. Claims against customers are recognized as revenue upon settlement.

43


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 13 to the Notes to Consolidated Financial Statements. Differences in actual experience or changes in assumptions may affect our pension and other post-retirement obligations and future expense.
We recognize changes in the fair value of plan assets and net actuarial gains or losses for pension and other post-retirement benefits annually in the fourth quarter each year ("mark-to-market adjustment") and, if applicable, in any quarter in which an interim remeasurement is triggered. Net actuarial gains and losses occur when the actual experience differs from any of the various assumptions used to value our pension and other post-retirement plans or when assumptions change as they may each year. The primary factors contributing to actuarial gains and losses each year are (1) changes in the discount rate used to value pension and other post-retirement benefit obligations as of the measurement date and (2) differences between the expected and the actual return on plan assets. This accounting method also results in the potential for volatile and difficult to forecast mark-to-market adjustments. Mark-to-market adjustments resulted in pre-tax income of $23.0 million in 2015, a pre-tax charge of $49.9 million in 2014 and pre-tax income of $63.2 million in 2013. 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 rate
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 available in the marketplace rated AA or higher, adjusted to eliminate the effects of call provisions. This produced a weighted-average discount rate for our U.S. plans of 4.21% in 2015, 3.63% in 2014 and 4.51% in 2013. The discount rates on our Non-U.S. plans ranged from 0.50% to 4.25% in 2015, 0.50% to 4.25% in 2014 and 0.50% to 5.00% in 2013. There are no known or anticipated changes in our discount rate assumption that will impact our pension expense in 2016.
Expected rate of return
Our expected rate of return on plan assets for our U.S. plans was 3.65% for 2015, 4.56% in 2014 and 3.75% in 2013. The expected rate of return on our Non-U.S. plans ranged from 1.00% to 6.00% in 2015, 1.00% to 6.40% in 2014 and 1.00% to 6.50% in 2013. 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 longer-term market indices.
During 2012, we adopted an investment strategy for our U.S. pension plans with a primary objective of preserving the funded status of the U.S. plans. This was achieved through investments in fixed interest instruments with interest rate sensitivity characteristics closely reflecting the interest rate sensitivity of our benefit obligations. The shifting of allocations away from equities to liability hedging fixed income investments, by reinvesting in fixed income instruments as equity investments were redeemed, was completed during 2013. As of December 31, 2015, the U.S. pension plans have an approximately 98 percent allocation to fixed income investments. As a result of the adoption of this investment strategy, we anticipate the expected rate of return on our U.S. funded pension plans will continue to be consistent with the discount rate.
See ITEM 8, Note 13 of the Notes to Consolidated Financial Statements for further information regarding pension and other post-retirement plans.
Loss contingencies
Accruals are recorded for various contingencies including legal proceedings, self-insurance and other claims that arise in the normal course of business. The accruals are based on judgment, the probability of losses and, where applicable, the consideration of opinions of internal and/or external legal counsel and actuarially determined estimates. Additionally, we record receivables from third party insurers when recovery has been determined to be probable.
We recognize asbestos-related liabilities on an undiscounted basis when a loss is probable and can be reasonably estimated. Certain of these liabilities are subject to insurance coverage. Our subsidiaries and numerous other companies are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. 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. The process of estimating asbestos-related liabilities and the corresponding insurance recoveries receivable is

44


complex and dependent primarily on our historical claim experience, estimates of potential future claims, our legal strategy for resolving these claims, the availability of insurance coverage, and the solvency and creditworthiness of insurers.
See ITEM 8, Note 17 of the Notes to Consolidated Financial Statements for further information regarding loss contingencies.
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 not 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. 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, 2015, was comprised of debt predominantly denominated in U.S. dollars. This debt portfolio is comprised of 71% fixed-rate debt and 29% variable-rate debt. Changes in interest rates have different impacts on the fixed and variable-rate portions of our debt portfolio. A change in interest rates on the fixed portion of the debt portfolio impacts the fair value but has no impact on interest incurred or cash flows. A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows but does not impact the net financial instrument position.
Based on the fixed-rate debt included in our debt portfolio, as of December 31, 2015, a 100 basis point increase or decrease in interest rates would result in a $144.3 million decrease or a $152.1 million increase in fair value, respectively.
Based on the variable-rate debt included in our debt portfolio as of December 31, 2015, a 100 basis point increase or decrease in interest rates would result in a $13.6 million increase or decrease in interest incurred.

45


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, 2015 and 2014, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts of $331.5 million and $250.8 million, respectively. Changes in the fair value of all derivatives are recognized immediately in income unless the derivative qualifies as a hedge of future cash flows. Gains and losses related to a hedge are deferred and recorded in the Consolidated Balance Sheets as a component of AOCI and subsequently recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) when the hedged item affects earnings.

In September 2015, we designated the €500.0 million 2.45% Senior Notes due 2019 (the "2019 Euro Notes") as a net investment hedge of our investments in certain international subsidiaries that use the Euro as their functional currency. The hedge is intended to reduce, but will not eliminate, the impact on our financial results of changes in the exchange rate between the Euro and the U.S. dollar. The currency risk related to the net investment hedge is measured by estimating the potential impact of a 10% change in the value of the U.S. dollar relative to the Euro. The rates used to perform this analysis were based on the market exchange rates in effect on December 31, 2015. A 10% appreciation of the U.S. dollar relative to the Euro would result in a $49.9 million net increase in Other comprehensive income. Conversely, a 10% depreciation of the U.S. dollar relative to the Euro would result in a $60.9 million net decrease in Other comprehensive income. However, these increases and decreases in Other comprehensive income would be offset by decreases or increases in the hedged net investments on our balance sheet due to currency translation.

46


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, 2015. 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, 2015, the Company’s internal control over financial reporting was effective based on those criteria.
Management has excluded from its assessment the internal control over financial reporting at ERICO Global Company, which was acquired on September 18, 2015 and whose financial statements constitute approximately 19 percent of total assets and 2 percent of total revenues in the consolidated financial statements as of and for the year ended December 31, 2015.
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, 2015. That attestation report is set forth immediately following this management report.
 
Randall J. Hogan
 
John L. Stauch
Chairman and Chief Executive Officer
 
Executive Vice President and Chief Financial Officer


47


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Pentair plc
Manchester, United Kingdom
We have audited the internal control over financial reporting of Pentair plc and subsidiaries (the "Company") as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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. As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at ERICO Global Company ("ERICO"), which was acquired on September 18, 2015 and whose financial statements constitute approximately 19 percent of total assets and 2 percent of total revenues in the consolidated financial statements as of and for the year ended December 31, 2015. Accordingly, our audit did not include the internal control over financial reporting at ERICO.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel 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 the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the 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.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule listed in the Index at Item 15 as of and for the year ended December 31, 2015 of the Company and our report dated February 26, 2016 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 26, 2016


48


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Pentair plc
Manchester, United Kingdom
We have audited the accompanying consolidated balance sheets of Pentair plc and subsidiaries (the "Company") as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive income (loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2015. Our audits also included the consolidated financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Pentair plc and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2016 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 26, 2016


49


Pentair plc and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
 
 
Years ended December 31
In millions, except per-share data
2015
2014
2013
Net sales
$
6,449.0

$
7,039.0

$
6,999.7

Cost of goods sold
4,263.2

4,576.0

4,629.6

Gross profit
2,185.8

2,463.0

2,370.1

Selling, general and administrative
1,334.3

1,493.8

1,493.7

Research and development
119.6

117.3

122.8

Impairment of goodwill and trade names
554.7

—

11.0

Operating income
177.2

851.9

742.6

Other (income) expense
 
 
 
Loss (gain) on sale of businesses, net
3.2

0.2

(20.8
)
Equity income of unconsolidated subsidiaries
(2.8
)
(1.2
)
(2.0
)
Interest income
(6.0
)
(3.7
)
(4.4
)
Interest expense
108.7

72.3

75.3

Income from continuing operations before income taxes and noncontrolling interest
74.1

784.3

694.5

Provision for income taxes
139.1

177.3

177.0

Net income (loss) from continuing operations before noncontrolling interest
(65.0
)
607.0

517.5

Income (loss) from discontinued operations, net of tax
(4.7
)
(6.4
)
25.9

Loss from sale / impairment of discontinued operations, net of tax
(6.7
)
(385.7
)
(0.8
)
Net income (loss) before noncontrolling interest
(76.4
)
214.9

542.6

Noncontrolling interest
—

—

5.8

Net income (loss) attributable to Pentair plc
$
(76.4
)
$
214.9

$
536.8

Net income (loss) from continuing operations attributable to Pentair plc
$
(65.0
)
$
607.0

$
511.7

Comprehensive income (loss), net of tax
 
 
 
Net income (loss) before noncontrolling interest
$
(76.4
)
$
214.9

$
542.6

Changes in cumulative translation adjustment
(264.9
)
(336.3
)
(29.1
)
Amortization of pension and other post-retirement prior service cost, net of $0, $0 and $0.2 tax, respectively
—

—

(0.4
)
Changes in market value of derivative financial instruments, net of $0.5, $1.1 and $0.7 tax, respectively
0.2

(0.4
)
(0.3
)
Total comprehensive income (loss)
(341.1
)
(121.8
)
512.8

Less: Comprehensive income attributable to noncontrolling interest
—

—

8.0

Comprehensive income (loss) attributable to Pentair plc
$
(341.1
)
$
(121.8
)
$
504.8

Earnings (loss) per ordinary share attributable to Pentair plc
 
 
 
Basic
 
 
 
Continuing operations
$
(0.36
)
$
3.19

$
2.54

Discontinued operations
(0.06
)
(2.06
)
0.13

Basic earnings (loss) per ordinary share attributable to Pentair plc
$
(0.42
)
$
1.13

$
2.67

Diluted
 
 
 
Continuing operations
$
(0.36
)
$
3.14

$
2.50

Discontinued operations
(0.06
)
(2.03
)
0.12

Diluted earnings (loss) per ordinary share attributable to Pentair plc
$
(0.42
)
$
1.11

$
2.62

Weighted average ordinary shares outstanding
 
 
 
Basic
180.3

190.6

201.1

Diluted
182.6

193.7

204.6

See accompanying notes to consolidated financial statements.

50


Pentair plc and Subsidiaries
Consolidated Balance Sheets
 
 
December 31
In millions, except per-share data
2015
2014
Assets
Current assets
 
 
Cash and cash equivalents
$
126.3

$
110.4

Accounts and notes receivable, net of allowances of $103.7 and $96.5, respectively
1,167.7

1,205.9

Inventories
1,174.3

1,130.4

Other current assets
312.3

366.8

Current assets held for sale
—

80.6

Total current assets
2,780.6

2,894.1

Property, plant and equipment, net
942.8

950.0

Other assets
 
 
Goodwill
5,255.4

4,741.9

Intangibles, net
2,490.1

1,608.1

Other non-current assets
388.1

436.2

Non-current assets held for sale
—

24.9

Total other assets
8,133.6

6,811.1

Total assets
$
11,857.0

$
10,655.2

Liabilities and Equity
Current liabilities
 
 
Current maturities of long-term debt and short-term borrowings
$
0.7

$
6.7

Accounts payable
578.8

583.1

Employee compensation and benefits
262.9

305.5

Other current liabilities
644.1

709.1

Current liabilities held for sale
—

35.1

Total current liabilities
1,486.5

1,639.5

Other liabilities
 
 
Long-term debt
4,709.3

2,997.4

Pension and other post-retirement compensation and benefits
287.2

322.0

Deferred tax liabilities
844.2

528.3

Other non-current liabilities
521.0

497.7

Non-current liabilities held for sale
—

6.5

Total liabilities
7,848.2

5,991.4

Equity
 
 
Ordinary shares $0.01 par value, 426.0 authorized, 180.5 and 202.4 issued at December 31, 2015 and December 31, 2014, respectively
1.8

2.0

Ordinary shares held in treasury, 19.9 shares at December 31, 2014
—

(1,251.9
)
Additional paid-in capital
2,860.3

4,250.0

Retained earnings
1,791.7

2,044.0

Accumulated other comprehensive loss
(645.0
)
(380.3
)
Total equity
4,008.8

4,663.8

Total liabilities and equity
$
11,857.0

$
10,655.2

See accompanying notes to consolidated financial statements.

51


Pentair plc and Subsidiaries
Consolidated Statements of Cash Flows
 
Years ended December 31
In millions
2015
2014
2013
Operating activities
 
 
 
Net income (loss) before noncontrolling interest
$
(76.4
)
$
214.9

$
542.6

Loss (income) from discontinued operations, net of tax
4.7

6.4

(25.9
)
Loss from sale / impairment of discontinued operations, net of tax
6.7

385.7

0.8

Adjustments to reconcile net income (loss) from continuing operations before noncontrolling interest to net cash provided by (used for) operating activities of continuing operations
 
 
 
Equity income of unconsolidated subsidiaries
(2.8
)
(1.2
)
(2.0
)
Depreciation
139.5

138.7

141.3

Amortization
121.4

114.0

134.1

Loss (gain) on sale of businesses, net
3.2

0.2

(20.8
)
Deferred income taxes
3.0

2.0

54.0

Share-based compensation
33.0

33.6

31.1

Impairment of goodwill and trade names
554.7

—

11.0

Excess tax benefits from share-based compensation
(6.0
)
(12.6
)
(16.8
)
Amortization of bridge financing debt issuance costs
10.8

—

—

Pension and other post-retirement expense (income)
9.1

76.2

(31.3
)
Pension and other post-retirement contributions
(24.7
)
(27.7
)
(34.0
)
Changes in assets and liabilities, net of effects of business acquisitions
 
 
 
Accounts and notes receivable
48.8

9.0

(106.3
)
Inventories
1.4

(3.7
)
58.1

Other current assets
(21.7
)
(22.0
)
(5.7
)
Accounts payable
(8.1
)
34.5

41.1

Employee compensation and benefits
(41.1
)
13.2

66.3

Other current liabilities
(31.2
)
58.5

41.2

Other non-current assets and liabilities
25.7

(14.7
)
52.5

Net cash provided by (used for) operating activities of continuing operations
750.0

1,005.0

931.3

Net cash provided by (used for) operating activities of discontinued operations
(10.7
)
3.4

(3.4
)
Net cash provided by (used for) operating activities
739.3

1,008.4

927.9

Investing activities
 
 
 
Capital expenditures
(134.3
)
(129.6
)
(170.0
)
Proceeds from sale of property and equipment
27.3

13.1

6.0

Proceeds from sale of businesses, net
—

0.3

43.5

Acquisitions, net of cash acquired
(1,913.9
)
(12.3
)
(92.4
)
Other
(3.6
)
0.2

1.7

Net cash provided by (used for) investing activities of continuing operations
(2,024.5
)
(128.3
)
(211.2
)
Net cash provided by (used for) investing activities of discontinued operations
59.0

—

—

Net cash provided by (used for) investing activities
(1,965.5
)
(128.3
)
(211.2
)
Financing activities
 
 
 
Net receipts (repayments) of short-term borrowings
(2.3
)
0.5

—

Net receipts of commercial paper and revolving long-term debt
363.5

468.6

104.2

Proceeds from long-term debt
1,714.8

2.2

0.7

Repayment of long-term debt
(356.6
)
(16.8
)
(7.4
)
Debt issuance costs
(26.8
)
(3.1
)
(1.4
)
Excess tax benefits from share-based compensation
6.0

12.6

16.8

Shares issued to employees, net of shares withheld