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, 2016
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)
 
 
43 London Wall, London, EC2M 5TF, United Kingdom
(Address of principal executive offices)
Registrant's telephone number, including area code: 44-207-347-8925
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 $58.29 per share as reported on the New York Stock Exchange on June 30, 2016 (the last business day of Registrant's most recently completed second quarter): $9,520,686,063 .
The number of shares outstanding of Registrant's only class of common stock on December 31, 2016 was 181,765,451 .
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant's definitive proxy statement for its annual meeting to be held on May 9, 2017 , 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, 2016
 
 
 
 
  
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.
 
  
 
 
 
 
 
ITEM 16.
 
  
 
 
 
 
 
  



PART I

ITEM 1.    BUSINESS
GENERAL
Pentair plc is a focused diversified industrial manufacturing company comprising three reporting segments: Water Quality Systems, Flow & Filtration Solutions and Technical Solutions. 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. 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. 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 public limited company that was formed in 2014. We are the successor to Pentair Ltd., a Swiss corporation formed in 2012, and Pentair, Inc., a Minnesota corporation formed in 1966 and our wholly-owned subsidiary, under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
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.
On August 18, 2016, we entered into a share purchase agreement to sell our Valves & Controls business to Emerson Electric Co. for a purchase price of $3.15 billion in cash, subject to customary adjustments. We believe the sale will be completed by the end of the first quarter of 2017, subject to customary regulatory approvals and closing conditions. The results of the Valves and Controls business have been presented as discontinued operations and the related assets and liabilities have been reclassified as held for sale for all periods presented. The Valves & Controls business was previously disclosed as a stand-alone reporting segment.
Our registered principal office is located at 43 London Wall, London, EC2M 5TF, 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.
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 Pentair, Pentair Aquatic Eco-Systems, Everpure, Kreepy Krauly, Sta-Rite and Shurflo.
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.
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.

2


Flow & Filtration Solutions is involved in the entire water, water treatment and wastewater system from advanced filtration, desalination, water supply to water disposal, process and control. Our solutions also help in critical municipal challenges around flood control, storm water management, de-watering, dredging and fish friendly solutions. From engineered solutions to installation and maintenance, we support a broad range of solutions and services specifically tailored to address our customers' needs for water reuse, water availability and water stewardship. 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, biogas upgrading, water supply and disposal, fire applications and food and beverage processing. Brand names for Flow & Filtration Solutions products include Aurora, Berkeley, Codeline, Fairbanks-Nijhuis, Haffmans, Hypro, Sta-Rite, Südmo and X-Flow.
Customers
Flow & Filtration Solutions customers include businesses engaged in wholesale distribution and retail across the residential, commercial, food and beverage, infrastructure, industrial, and energy verticals. Customers also include end-users as well as engineering procurement contractors, and original equipment manufacturers.
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.
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 the commercial, communications, energy, electronics, industrial, infrastructure, medical, and security & defense verticals. Brand names for Technical Solutions offerings include CADDY, ERICO, Hoffman, LENTON, Raychem, Schroff and Tracer.
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. The industries and verticals served by the engineered fastening solutions

3


business is relatively fragmented, with about a dozen major competitors and a large number of smaller suppliers. We compete by offering a wide variety of innovative and compatible products, which are competitively priced.
NEW SEGMENTATION
During the first quarter of 2017, we reorganized our business segments to reflect a new operating structure, resulting in a change to our reporting segments in 2017. As part of this reorganization, the legacy Water Quality Systems business segment was combined with the legacy Flow & Filtration Solutions business segment to form the Water reporting segment and now operates as a stand-alone business segment. In addition, the legacy Technical Solutions business segment will be renamed the Electrical reporting segment. All segment information presented throughout this Annual Report on Form 10-K, with exception of the table below, was prepared based on the reporting segments in place during 2016.
The below table presents sales and segment income under the revised reporting segments (Water and Electrical) for the years ended December 31, 2016, 2015, and 2014.
 
December 31
In millions
2016
2015
2014
Net Sales
 
 
 
Water
$
2,777.7

$
2,808.3

$
2,941.3

Electrical
2,116.0

1,809.3

1,728.1

Other
(3.7
)
(1.2
)
(2.6
)
Consolidated
$
4,890.0

$
4,616.4

$
4,666.8

Segment income (loss)
 
 
 
Water
$
494.0

$
469.0

$
454.6

Electrical
447.2

395.0

378.1

Other
(101.7
)
(108.8
)
(127.5
)
Consolidated
$
839.5

$
755.2

$
705.2

INFORMATION REGARDING ALL REPORTABLE SEGMENTS
Backlog of orders by segment
 
December 31
In millions
2016
2015
$ change
% change
Water Quality Systems
$
134.8

$
141.4

$
(6.6
)
(4.7
)%
Flow and Filtration Solutions
241.0

289.6

(48.6
)
(16.8
)
Technical Solutions
266.3

319.0

(52.7
)
(16.5
)
Total
$
642.1

$
750.0

$
(107.9
)
(14.4
)%
A substantial portion of our revenues result from orders received and product delivered in the same month. Our backlog typically has a short manufacturing cycle and products generally ship within 90 days of the date on which a customer places an order.  However, a portion of our backlog, particularly from orders for major capital projects, can take more than one year depending on the size and type of order. We record as part of our backlog all orders from external customers, which represent firm commitments, and are supported by a purchase order or other legitimate contract. We expect the majority of our backlog at December 31, 2016 will be shipped in 2017 .
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 2016 , 2015 and 2014 were $114.1 million , $98.7 million and $96.4 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.

4


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.
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, 2016 , we employed 26,000 people worldwide, of which 9,500 were in the U.S. and 9,000 were covered by collective bargaining agreements or works councils. Of the 26,000 people employed worldwide as of December 31, 2016 , 7,500 relate to our Valves & Controls business classified as held for sale, of which 1,500 were in the U.S. and 2,200 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.

5


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.
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, 2016 accounted for 41 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 2016, foreign currency translations had a 0.8 percent negative impact on our net sales. 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 complete the sale of our Valves & controls business in the time frame or on the terms we anticipate.
On August 18, 2016, we entered into an agreement to sell our Valves & Controls business to Emerson Electric Co. for a purchase price of $3.15 billion in cash, subject to certain customary adjustments. We believe the sale will be completed by the end of the first quarter of 2017, subject to customary regulatory approvals and closing conditions. The completion of the sale is subject to a number of risks and uncertainties, including the satisfaction of the conditions to the completion of the sale, the parties to the transactions obtaining the necessary regulatory approvals, the occurrence of any event, change or other circumstance that could give rise to the termination of the sale agreement and our ability to obtain the expected proceeds from the sale. These and other factors could impair our ability to complete the sale in the time frame and on the terms we anticipate, and this could have a material adverse effect on our financial position, results of operations or cash flows.

We may not achieve some or all of the expected benefits of our business initiatives.
During 2016 , 2015 and 2014 , 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, 2016 accounted for 41 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;
•
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;

7


•
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.
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.
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, 2016 our goodwill and intangible assets were $5,849.2 million and represented 51% of our total assets. Long-term declines in projected future cash flows could result in future goodwill and intangible asset impairments.
We may be adversely affected by work stoppages, union negotiations, labor disputes and other matters associated with our labor force.
As of December 31, 2016 , approximately 9,000 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.

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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, 2016 , there were approximately 3,800 claims pending against our subsidiaries, of which approximately 3,300 relate to the Valves & Controls business classified as held for sale. We cannot predict with certainty the extent to which we will be successful in litigating or

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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 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.

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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 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

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resulting in lower spending by customers for our products and services. These actions could also increase costs associated with 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.
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 (now known as Johnson Controls International plc, "Johnson Controls") and The ADT Corporation ("ADT"), which governs the rights and obligations of ADT, Johnson Controls and us for certain pre-Distribution tax liabilities, including Johnson Controls' obligations under a separate tax sharing agreement (the "2007 Tax Sharing Agreement") entered into by Johnson Controls, 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 Johnson Controls.
The 2012 Tax Sharing Agreement provides that we, Johnson Controls and ADT will share (i) certain pre-Distribution income tax liabilities that arise from adjustments made by tax authorities to our, Johnson Controls' and ADT's U.S. income tax returns, including withholding tax, income tax, or other tax liabilities that could arise if the Merger, Distribution or certain internal transactions undertaken in anticipation of the Distribution are determined to be taxable for U.S. federal or Swiss tax purposes, and (ii) payments required to be made by Johnson Controls with respect to the 2007 Tax Sharing Agreement (the liabilities in clauses (i) and (ii) collectively, "Shared Tax Liabilities"). Johnson Controls is responsible for the first $500 million of Shared Tax Liabilities. As of December 31, 2016, Johnson Controls has paid $210.0 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 Johnson Controls 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 Johnson Controls. As of December 31, 2016 , we have a liability of $13.3 million recorded for this matter in Other non-current liabilities in the Consolidated Balance Sheets. However, the ultimate resolution of these matters, and the impact of that resolution, are uncertain. To the extent we are responsible for any liability under the 2012 Tax Sharing Agreement, and indirectly the 2007 Tax Sharing Agreement, in excess of the recorded liability, 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.
In addition, 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 Johnson Controls, the party responsible for such failure would be responsible for all taxes imposed as a result thereof. If such

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failure is not the result of actions taken after the Distribution by us, ADT or Johnson Controls, then we, ADT and Johnson Controls 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 Johnson Controls are responsible for Shared Tax Liabilities. Such tax amounts could be significant.

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, 2016 , we had $4.3 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.

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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 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

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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 €310,000 per lifetime in respect of taxable gifts or inheritances received from their parents for periods on or after October 12, 2016.
ITEM 1B.  UNRESOLVED STAFF COMMENTS
None.
ITEM 2.  PROPERTIES
Our principal office is located in leased premises in London, 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 Water Quality Systems manufacturing operations at 12 plants located throughout the United States and at 7 plants located in 6 other countries. In addition, Water Quality Systems has 15 distribution facilities, 14 sales offices and 1 service center located in numerous countries throughout the world.
We carry out our Flow & Filtration Solutions manufacturing operations at 8 plants located throughout the United States and at 12 plants located in 8 other countries. In addition, Flow & Filtration Solutions has 14 distribution facilities, 14 sales offices and 10 service centers located in numerous countries throughout the world.
We carry out our Technical Solutions manufacturing operations at 9 plants located throughout the United States and at 11 plants located in 9 other countries. In addition, Technical Solutions has 16 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.

15


As of December 31, 2016 , there were approximately 3,800 claims outstanding against our subsidiaries, of which approximately 3,300 relate to the Valves & Controls business classified as held for sale. 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 $228.3 million and $237.9 million as of December 31, 2016 and 2015 , respectively, and was recorded in Non-current liabilities held for sale in the Consolidated Balance Sheets for pending and future claims and related defense costs. Our estimated receivable for insurance recoveries was $108.5 million and $111.0 million , respectively, at December 31, 2016 and 2015 , and was recorded in Non-current assets held for sale 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 $18.3 million and $22.8 million as of December 31, 2016 and 2015 , respectively, which relate primarily to the Valves & Controls business classified as held for sale. 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. 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.

16


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
 
61

 
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
 
52

 
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
 
48

 
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.
Karen L. Keegans
 
51

 
Senior Vice President and Chief Human Resources Officer since 2016; Vice President and Chief Human Resources Officer of Praxair Inc., 2014 — 2016; Vice President North America Human Resources of Praxair Inc., 2012 — 2014; Vice President of Human Resources and Global Manufacturing of Monsanto, 2011 — 2012; Various executive human resources positions of Monsanto, 2007 — 2011.
John H. Jacko
 
59

 
Senior Vice President and Chief Marketing Officer since 2017; Vice President and Chief Marketing Officer of Kennametal Corporation, 2007 — 2016; Senior Vice President and Chief Marketing Officer of Flowserve Corporation, 2002 — 2007; Vice President of Marketing and Customer Management of Flowserve Corporation, 2001 — 2002; Various business leadership positions of Honeywell Aerospace, 1995 — 2001.
Mark C. Borin
 
49

 
Senior Vice President and 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
 
56

 
President, Water segment since 2017; President, Water Quality Systems Global Business Unit, 2007 — 2016; 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.
Beth A. Wozniak
 
52

 
President, Electrical segment since 2017; President, Flow & Filtration Solutions Global Business Unit, 2015 — 2016; 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.
Dennis J. Cassidy, Jr.
 
48

 
President, Valves & Controls global business unit since 2016; Managing Director - Oil, Gas and Chemicals Strategy and Operations Expert, AlixPartners, 2012 — 2016; Vice President, Booz & Company, 2009 — 2012; Principal, Booz Allen Hamilton, 2004 — 2009.

17


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, 2016 , there were 18,840  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 2016 and 2015 were as follows:
 
2016
 
2015
   
First  
Second  
Third  
Fourth  
 
First  
Second  
Third  
Fourth  
High
$
54.54

$
63.39

$
66.99

$
64.39

 
$
68.24

$
66.52

$
69.65

$
59.69

Low
41.57

50.37

57.20

53.80

 
60.73

59.92

49.44

48.14

Close
54.26

58.29

64.24

56.07

 
62.39

63.75

51.98

49.53

Dividends paid
0.33

0.33

0.34

0.34

 
0.32

0.32

0.32

0.32

Pentair has paid 164 consecutive quarterly dividends. The Board of Directors has approved a plan to increase the dividend for 2017, which will mark the 41 st 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 $9.4 billion and $9.6 billion as of December 31, 2016 and 2015 , 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.



18


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, 2011 and the reinvestment of all dividends since that date to December 31, 2016 . 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.
A2016PENTAIRSHARPERFORMANCEC.JPG

 
Base Period
December
2011
 
INDEXED RETURNS
Years ended December 31
Company / Index
2012
2013
2014
2015
2016
Pentair plc
100
 
150.88

242.46

210.55

160.41

186.07

S&P 500 Index
100
 
116.00

153.57

174.60

177.01

198.18

S&P 500 Industrials Index
100
 
115.35

162.67

178.21

173.70

206.46


19


Purchases of Equity Securities
The following table provides information with respect to purchases we made of our ordinary shares during the fourth quarter of 2016 :
 
(a)
(b)
(c)
(d)
 
Total number of
shares
purchased
Average price
paid per share
Total number of
shares
purchased as
part of publicly
announced
plans or
programs
Dollar value
of
shares that may
yet be purchased
under the plans or
programs
October 1 – October 29, 2016
1,633

$
59.95

—

$
800,000,049

October 30 – November 26, 2016
1,181

56.44

—

800,000,049

November 27 – December 31, 2016
1,596

58.34

—

800,000,049

Total
4,410

 
—

 
(a)
The purchases in this column include 1,633 shares for the period October 1 – October 29, 2016 , 1,181 shares for the period October 30 – November 26, 2016 , and 1,596 shares for the period November 27 – December 31, 2016 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 $1.0 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 . We have $800.0 million remaining availability for repurchases under the 2014 authorization.

20


ITEM 6.  SELECTED FINANCIAL DATA
The following table sets forth our selected historical financial data for the five years ended December 31, 2016. All periods presented have been revised, as applicable, to present the results of the Valves & Controls business as discontinued operations and to reclassify the assets and liabilities of the Valves & Controls business as held for sale. See ITEM 8, Note 3 of the Notes to Consolidated Financial Statements for additional information.
 
 
Years ended December 31
In millions, except per-share data
2016
2015
2014
2013
2012
Consolidated statements of operations and comprehensive income (loss) data
 
 
 
 
 
Net sales
$
4,890.0

$
4,616.4

$
4,666.8

$
4,553.7

$
3,767.4

Operating income
700.7

616.1

538.5

529.2

76.4

Net income (loss) from continuing operations attributable to Pentair plc
451.6

397.1

356.6

354.8

(21.3
)
Per-share data

 
 
 
 
Basic:

 
 
 
 
Earnings (loss) per ordinary share from continuing operations attributable to Pentair plc
$
2.49

$
2.20

$
1.87

$
1.76

$
(0.17
)
Weighted average shares
181.3

180.3

190.6

201.1

127.4

Diluted:

 
 
 
 
Earnings (loss) per ordinary share from continuing operations attributable to Pentair plc
$
2.47

$
2.17

$
1.84

$
1.73

$
(0.17
)
Weighted average shares
183.1

182.6

193.7

204.6

127.4

Cash dividends declared and paid per ordinary share
$
1.34

$
1.28

$
1.10

$
0.96

$
0.88

Cash dividends declared and unpaid per ordinary share
0.345

0.33

0.64

0.50

0.46

Consolidated balance sheets data

 
 
 
 
Total assets
$
11,534.8

$
11,833.5

$
10,643.8

$
11,732.5

$
11,870.6

Total debt
4,279.2

4,685.8

2,988.4

2,532.6

2,430.9

Total equity
4,254.4

4,008.8

4,663.8

6,217.7

6,487.5

Factors affecting comparability of our Selected Financial Data
The consummation of the Merger with Tyco's Flow Control business occurred on September 28, 2012. Prior to the Merger, the Consolidated Statements of Operations and Comprehensive Income (Loss) include the historical results of Pentair, Inc.



21


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements
This report contains statements that we believe to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact are forward-looking statements. Without limitation, any statements preceded or followed by or that include the words "targets," "plans," "believes," "expects," "intends," "will," "likely," "may," "anticipates," "estimates," "projects," "should," "would," "positioned," "strategy," "future" or words, phrases or terms of similar substance or the negative thereof, are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include the ability to successfully complete the sale of the Valves & Controls business on anticipated terms and timetable: 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; 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 three reporting segments: Water Quality Systems, Flow & Filtration Solutions 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, 2016 , Water Quality Systems, Flow & Filtration Solutions and Technical Solutions accounted for 29 percent , 28 percent and 43 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.

22


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.
On August 18, 2016, we entered into a share purchase agreement to sell our Valves & Controls business to Emerson Electric Co. for a purchase price of $3.15 billion in cash, subject to customary adjustments. We believe the sale will be completed by the end of the first quarter of 2017, subject to customary regulatory approvals and closing conditions. The results of the Valves and Controls business have been presented as discontinued operations and the related assets and liabilities have been reclassified as held for sale for all periods presented. The Valves & Controls business was previously disclosed as a stand-alone reporting segment.
Key trends and uncertainties regarding our existing business
The following trends and uncertainties affected our financial performance in 2016 and 2015 , and will likely impact our results in the future:

•
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. During 2015 and 2016, our core sales have been challenged by broad-based industrial capital expenditure and maintenance deferrals. We expect this trend to continue into 2017.

•
We experienced declines within our industrial and energy businesses. We expect headwinds in the industrial and energy businesses to continue and oil prices to remain depressed into 2017.

•
We initiated restructuring actions to offset the negative earnings impact of core revenue decline and foreign exchange. We expect to continue these actions into 2017 and these actions will contribute to margin growth in 2017.

•
In late 2015 and continuing through 2016, 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 2017.
•
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.
•
We have experienced material and other cost inflation. We strive for productivity improvements, and we implement increases in selling prices to help mitigate this inflation. We expect the current economic environment will result in continuing price volatility for many of our raw materials, and we are uncertain as to the timing and impact of these market changes.
In 2017 , our operating objectives include the following:
•
Reducing long-term debt and overall leverage through improved cash flow performance and the pending sale of the Valves & Controls business;
•
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 global presence.

23


CONSOLIDATED RESULTS OF OPERATIONS
The consolidated results of operations were as follows:
 
Years ended December 31
 
% / point change
In millions
2016
2015
2014
 
2016 vs 2015
2015 vs 2014
Net sales
$
4,890.0

$
4,616.4

$
4,666.8

 
5.9
 %
(1.1
)%
Cost of goods sold
3,095.9

3,017.6

3,046.3

 
2.6
 %
(0.9
)%
Gross profit
1,794.1

1,598.8

1,620.5

 
12.2
 %
(1.3
)%
% of net sales
36.7
%
34.6
%
34.7
%
 
2.1 pts

(0.1) pts

 
 
 
 
 
 
 
Selling, general and administrative
979.3

884.0

985.6

 
10.8
 %
(10.3
)%
% of net sales
20.0
%
19.1
%
21.1
%
 
0.9 pts

(2.0) pts

Research and development
114.1

98.7

96.4

 
15.6
 %
2.4
 %
% of net sales
2.3
%
2.1
%
2.1
%
 
0.2 pts

—

 
 
 
 
 
 
 
Operating income
700.7

616.1

538.5

 
13.7
 %
14.4
 %
% of net sales
14.3
%
13.3
%
11.5
%
 
1.0 pts

1.8 pts

 
 
 
 
 
 
 
Loss on sale of businesses, net
3.9

3.2

0.2

 
21.9
 %
N.M.

Net interest expense
140.1

101.9

68.6

 
37.5
 %
48.5
 %
 
 
 
 
 
 
 
Income from continuing operations before income taxes
561.0

512.5

470.9

 
9.5
 %
8.8
 %
Provision for income taxes
109.4

115.4

114.3

 
(5.2
)%
1.0
 %
   Effective tax rate
19.5
%
22.5
%
24.3
%
 
(3.0) pts

(1.8) pts

N.M. Not Meaningful
Net sales
The components of the consolidated net sales change were as follows:
 
2016 vs 2015
 
2015 vs 2014
Volume
(1.7
)%
 
0.5
 %
Price
0.3

 
0.6

   Core growth
(1.4
)
 
1.1

Acquisition
8.1

 
3.1

Currency
(0.8
)
 
(5.3
)
Total
5.9
 %
 
(1.1
)%
The 5.9 percent increase in consolidated net sales in 2016 from 2015 was primarily the result of:
•
sales of $516.1 million in 2016 as a result of the ERICO Acquisition, compared to sales of $147.0 million in 2015 ; and
•
core sales growth in Water Quality Systems, primarily as the result of increased volume in the United States and Canada.
These increase s were partially offset by:
•
continued slowdown in capital spending, particularly in our industrial and energy businesses, driving core sales declines in Flow & Filtration Solutions and Technical Solutions;
•
slowing economic activity in certain developing regions, including China and Brazil; and
•
a strong U.S. dollar causing unfavorable foreign currency effects.

24


The 1.1 percent decrease in consolidated net sales in 2015 from 2014 was primarily the result of:
•
a strong U.S. dollar causing unfavorable foreign currency effects;
•
a slowdown in industrial capital spending, particularly in our industrial and infrastructure businesses; and
•
slowing economic activity in China, Brazil and other developing markets.
These decrease s were partially offset by:
•
sales of $147.0 million as a result of the ERICO Acquisition;
•
core sales growth in Water Quality Systems and Technical Solutions, primarily as the result of increased volume in the United States and Canada; and
•
core sales growth in our food & beverage and residential & commercial businesses.
Gross profit  
The 2.1 percentage point increase in gross profit as a percentage of sales in 2016 from 2015 was primarily the result of:
•
higher sales volumes, which resulted in increased leverage on fixed expenses included in cost of goods sold;
•
higher contribution margin as a result of savings generated from our Pentair Integrated Management System ("PIMS") initiatives including lean and supply management practices; and
•
a decrease in cost of goods sold of $35.7 million in 2016 compared to 2015 as a result of inventory fair value step-up recorded as part of the Technical Solutions acquisitions in 2015.
These increase s were partially offset by:
•
inflationary increases related to raw materials and labor costs.
The 0.1 percentage point decrease in gross profit as a percentage of sales in 2015 from 2014 was primarily the result of:
•
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; 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 PIMS initiatives including lean and supply management practices.
Selling, general and administrative ("SG&A")  
The 0.9 percentage point increase in SG&A expense as a percentage of sales in 2016 from 2015 and was driven by:
•
"mark-to-market" actuarial losses related to pension and other post-retirement benefit plans of $4.2 million in 2016, compared to "mark-to-market" actuarial gains of $23.0 million in 2015;
•
an increase in intangible asset amortization as a result of the ERICO Acquisition that occurred at the end of the third quarter in 2015;
•
a non-cash impairment charge of $13.3 million related to a trade name intangible asset in Technical Solutions; and
•
increased investment in sales and marketing to drive growth.
These increase s were partially offset by:
•
restructuring costs of $24.5 million in 2016 , compared to $41.3 million in 2015 ;
•
deal related costs and expenses of $14.3 million in 2015, which did not occur in 2016; and
•
savings generated from back-office consolidation, reduction in personnel and other lean initiatives.

25


The 2.0 percentage point decrease in SG&A expense as a percentage of sales in 2015 from 2014 and was driven by the following:
•
"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 $31.5 million in 2014;
•
costs of $10.3 million incurred in 2014 as a result of the Redomicile of the Company from Switzerland to Ireland, which did not occur in 2015; and
•
cost savings generated from back-office consolidation, reduction in personnel and other lean initiatives.
These decrease s were partially offset by:
•
deal related costs and expenses of $14.3 million in 2015; and
•
lower sales volume and the resultant loss of leverage on fixed operating expenses.
Net interest expense
The 37.5 percent increase in net interest expense in 2016 from 2015 was primarily the result of:
•
the impact of higher debt levels during 2016, compared to 2015, primarily as the result of the September 2015 issuance of senior notes used to finance the ERICO Acquisition; and
•
increased overall interest rates in effect on our outstanding debt.
The 48.5 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; and
•
the impact of higher debt levels during 2015, compared to 2014, primarily as the result of the September 2015 issuance of senior notes used to finance the ERICO Acquisition.
Provision for income taxes
The 3.0 percentage point decrease in the effective tax rate in 2016 from 2015 was primarily due to:
•
the mix of global earnings toward lower tax jurisdictions; and
•
the unfavorable tax impact of transaction costs in 2015 related to the ERICO Acquisition.
The 1.8 percentage point decrease in the effective tax rate in 2015 from 2014 was primarily due to:
•
the mix of global earnings toward lower tax jurisdictions; and
•
non-recurring withholding taxes during 2014 which did not recur in 2015.
The decrease was partially offset by:
•
the unfavorable tax impact of transaction costs in 2015 related to the ERICO Acquisition.


SEGMENT RESULTS OF OPERATIONS
This summary that follows provides a discussion of the results of operations of each of our three reportable segments (Water Quality Systems, Flow & Filtration Solutions 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 equity income of unconsolidated subsidiaries and operating income exclusive of intangible amortization, certain acquisition related expenses, costs of restructuring activities, "mark-to-market" gain/loss for pension and other post-retirement plans, impairments and other unusual non-operating items.

26


Water Quality Systems
The net sales and segment income for Water Quality Systems were as follows:
 
Years ended December 31
 
% / point change
In millions
2016
2015
2014
 
2016 vs 2015
2015 vs 2014
Net sales
$
1,428.2

$
1,381.5

$
1,356.4

 
3.4
%
1.9
%
Segment income
313.3

281.8

253.3

 
11.2
%
11.3
%
% of net sales
21.9
%
20.4
%
18.7
%
 
1.5 pts

1.7 pts

Net sales
The components of the change in Water Quality Systems net sales were as follows:
 
2016 vs 2015
 
2015 vs 2014
Volume
2.8
 %
 
4.2
 %
Price
0.9

 
0.8

   Core growth
3.7

 
5.0

Currency
(0.3
)
 
(3.1
)
Total
3.4
 %
 
1.9
 %
The 3.4% percent increase in Water Quality Systems sales in 2016 from 2015 was primarily the result of:
•
core sales growth related to higher sales of certain pool products primarily serving North American residential housing in 2016; and
•
selective increases in selling prices to mitigate inflationary cost increases.
These increase s were partially offset by:
•
a strong U.S. dollar causing unfavorable foreign currency effects; and
•
core sales declines in Western Europe, Asia and in certain developing regions.
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 North American residential housing 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 increase 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.

27


Segment income
The components of the change in Water Quality Systems segment income from the prior period were as follows:
 
2016
2015
Growth
0.6
 pts
0.3
 pts
Inflation
(0.9
)
(1.0
)
Productivity/Price
1.8

2.4

Total
1.5
 pts
1.7
 pts

The 1.5 percentage point increase in segment income for Water Quality Systems as a percentage of net sales in 2016 from 2015 was primarily the result of:
•
favorable material savings and product mix offsetting inflation;
•
selective increases in selling prices to mitigate inflationary cost increases; and
•
cost savings generated from PIMS initiatives including lean and supply management practices.
These increase s were partially offset by:
•
inflationary increases related to labor costs and certain raw materials; and
•
continued growth investments in research & development and sales & marketing.
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 increase s were partially offset by:
•
inflationary increases related to labor costs and certain raw materials.
Flow & Filtration Solutions
The net sales and segment income for Flow & Filtration Solutions were as follows:
 
Years ended December 31
 
% / point change
In millions
2016
2015
2014
 
2016 vs 2015
2015 vs 2014
Net sales
$
1,363.1

$
1,441.6

$
1,603.1

 
(5.4
)%
(10.1
)%
Segment income
180.7

187.2

201.3

 
(3.5
)%
(7.0
)%
% of net sales
13.3
%
13.0
%
12.6
%
 
0.3 pts

0.4 pts

Net sales
The components of the change in Flow & Filtration Solutions net sales were as follows:
 
2016 vs 2015
 
2015 vs 2014
Volume
(5.6
)%
 
(4.6
)%
Price
0.8

 
1.0

   Core growth
(4.8
)
 
(3.6
)
Currency
(0.6
)
 
(6.5
)
Total
(5.4
)%
 
(10.1
)%
The 5.4 percent decrease in Flow & Filtration Solutions sales in 2016 from 2015 was primarily the result of:
•
continued slowdown in industrial capital spending, driving core sales declines in our industrial business;
•
core sales declines in the food & beverage business due mainly to weak irrigation sales and lower project sales;

28


•
continued sales declines in China, Southeast Asia and Brazil as the result of economic uncertainty; and
•
a strong U.S. dollar causing unfavorable foreign currency effects.
These decrease s were partially offset by:
•
core sales growth related to higher sales of pump and filtration solutions serving the infrastructure business;
•
core growth in the Middle East; and
•
selective increases in selling prices to mitigate inflationary cost increases.
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 decrease s 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.
Segment income
The components of the change in Flow & Filtration Solutions segment income from the prior period were as follows:
 
2016
2015
Growth
(1.5
) pts
(2.6
) pts
Inflation
(1.1
)
(1.4
)
Productivity/Price
2.9

4.4

Total
0.3
 pts
0.4
 pts

The 0.3 percentage point increase in segment income for Flow & Filtration Solutions as a percentage of net sales in 2016 from 2015 was primarily the result of:
•
selective increases in selling prices to mitigate inflationary cost increases;
•
savings driven from cost-out actions; and
•
savings generated from our PIMS initiatives, including lean and supply management practices.
These increase s were partially offset by:
•
lower core sales volumes, which resulted in decreased leverage on operating expenses;
•
negative product mix and pricing pressure; and
•
inflationary increases related to labor and certain raw materials.
The 0.4 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 from cost-out actions; and
•
savings generated from our PIMS initiatives, including lean and supply management practices.

29


These increase s were partially offset by:
•
lower core sales volumes, which resulted in decreased leverage on operating expenses; and
•
inflationary increases related to labor and certain raw materials.
Technical Solutions
The net sales and segment income for Technical Solutions were as follows:
 
Years ended December 31
 
% / point change
In millions
2016
2015
2014
 
2016 vs 2015
2015 vs 2014
Net sales
$
2,116.0

$
1,809.3

$
1,728.1

 
17.0
 %
4.7
 %
Segment income
447.2

395.0

378.1

 
13.2
 %
4.5
 %
% of net sales
21.1
%
21.8
%
21.9
%
 
(0.7) pts

(0.1) pts

Net sales
The components of the change in Technical Solutions net sales were as follows:
 
2016 vs 2015
 
2015 vs 2014
Volume
(2.1
)%
 
2.2
 %
Price
(0.4
)
 
0.1

   Core growth
(2.5
)
 
2.3

Acquisition
20.6

 
8.5

Currency
(1.1
)
 
(6.1
)
Total
17.0
 %
 
4.7
 %
The 17.0 percent increase in Technical Solutions sales in 2016 from 2015 was primarily the result of:
•
sales of $516.1 million in 2016 as a result of the ERICO Acquisition, compared to sales of $147.0 million in 2015 ; and
•
core growth in our industrial and residential & commercial businesses.
These increase s were partially offset by:
•
continued slowdown in capital spending, particularly in the energy and infrastructure businesses, driving core sales declines; and
•
a strong U.S. dollar causing unfavorable foreign currency effects.
The 4.7 percent increase in Technical Solutions sales in 2015 from 2014 was primarily the result of:
•
sales of $147.0 million as a result of the ERICO Acquisition;
•
core growth in our residential & commercial and energy businesses; and
•
higher project core sales volume in the U.S. and Canada.
These increase s 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.

30


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

 
2015
2014
Growth/Acquisition
(1.0
) pts
(0.9
) pts
Inflation
(1.1
)
(1.1
)
Productivity/Price
1.4

1.9

Total
(0.7
) pts
(0.1
) pts

The 0.7 percentage point decrease in segment income for Technical Solutions as a percentage of net sales in 2016 from 2015 was primarily the result of:
•
lower margin project sales not offsetting the decline in higher margin product sales; and
•
inflationary increases related to labor costs and certain raw materials.
These decrease s were partially offset by:
•
higher core sales in our industrial and residential & commercial businesses, which resulted in increased leverage on operating expenses; and
•
strong contribution and integration synergies as a result of the ERICO Acquisition.
The 0.1 percentage point decrease in segment income for Technical Solutions as a percentage of sales in 2015 from 2014 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
•
inflationary increases related to labor costs and certain raw materials.
These decrease s 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.
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

31


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 $702.4 million in 2016 , or $104.7 million higher than in 2015 . The increase in cash provided by operating activities from continuing operations was due primarily to a $ 122.6 million increase in Net income from continuing operations , net of the following non-cash items: depreciation and amortization, loss on sale of businesses, trade name impairment and pension and other post-retirement expense.
Cash provided by operating activities from continuing operations was $597.7 million in 2015 , or $78.3 million   lower than in 2014 . The decrease in cash provided by operating activities from continuing operations was due primarily to changes in non-cash pension and other post-retirement expenses and increases in net working capital during 2015.
Investing activities
Net cash used for investing activities of continuing operations was $123.3 million in 2016 , compared to $2,003.6 million in 2015 and $93.9 million in 2014 . The following investing activities impacted our cash flow:
Acquisitions
In November 2016, we paid cash of $25.0 million to acquire a business as part of Water Quality Systems.
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.
Capital expenditures
Capital expenditures in 2016 , 2015 and 2014 were $117.8 million , $91.3 million and $83.7 million , respectively. We anticipate capital expenditures for fiscal 2017 to be approximately $100 million, primarily for capacity expansions of manufacturing facilities located in our low-cost countries, developing new products and general maintenance.
Financing activities
Net cash used for financing activities was $600.1 million in 2016 . Cash used for financing activities in 2016 was primarily due to net repayments of commercial paper and revolving long-term debt and payment of dividends.
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.
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.
The Senior Notes issued in the September 2015 Offerings, 1.875% Senior Notes due 2017 , 2.65% Senior Notes due 2019 , $373.0 million of the 5.00% Senior Notes due 2021 and 3.15% Senior Notes due 2022 issued by PFSA and $127.0 million of the 5.00% Senior Notes due 2021 issued by Pentair, Inc. (collectively, the "Notes"), are guaranteed as to payment by Pentair plc and PISG.
In October 2014, Pentair plc, PISG, PFSA and Pentair, Inc. entered into an amended and restated credit agreement (the "Credit Facility"), with Pentair plc and PISG as guarantors and PFSA and Pentair, Inc. as borrowers. The Credit Facility had a maximum aggregate availability to $2,100.0 million and a maturity date of October 3, 2019. Borrowings under the Credit

32


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 Credit Facility.
In August 2015, Pentair plc, PISG and PFSA entered into a First Amendment to the Credit Facility (the "First Amendment"), which, among other things, increased the Leverage Ratio (as defined below). In September 2015, Pentair plc, PISG and PFSA entered into a Second Amendment to the Credit Facility (the "Second Amendment"), which, among other things, increased the maximum aggregate availability to $2,500.0 million . Additionally, in September 2016, Pentair plc, PISG and PFSA entered into a Third Amendment to the Credit Facility (the "Third Amendment," and collectively with the First Amendment and Second Amendment, the "Amendments"), which, among other things, increased the maximum Leverage Ratio to the amounts specified below, and amended the definition of EBITDA to include earnings from discontinued operations subject to a sale agreement until such disposition actually occurs.
PFSA is authorized to sell short-term commercial paper notes to the extent availability exists under the Credit Facility. PFSA uses the Credit Facility as back-up liquidity to support 100% of commercial paper outstanding. As of December 31, 2016 and 2015 , we had $398.7 and $179.5 , 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 Credit Facility.
Our debt agreements contain certain financial covenants, the most restrictive of which are in the 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, up to a lifetime maximum $25.0 million of costs, fees and expenses incurred in connection with certain acquisitions, investments, dispositions and the 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 September 30, 2016; (b) 4.50 to 1.00 as of the last day of the period of four consecutive fiscal quarters ending on December 31, 2016; (c) 4.25 to 1.00 as of the last day of the period of four consecutive fiscal quarters ending on March 31, 2017; (d) 4.00 to 1.00 as of the last day of the period of four consecutive fiscal quarters ending on June 30, 2017; and (e) 3.50 to 1.00 as of the last day of the period of four consecutive fiscal quarters ending thereafter, 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 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, 2016 , we were in compliance with all financial covenants in our debt agreements.
Total availability under the Credit Facility was $1,524.5 million as of December 31, 2016 , which was limited to $803.5 million by the Leverage Ratio in the Credit Facility's credit agreement.
In addition to the Credit Facility, we have various other credit facilities with an aggregate availability of $49.4 million , of which there were no outstanding borrowings at December 31, 2016 . Borrowings under these credit facilities bear interest at variable rates.
As of December 31, 2016 , we had $122.4 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.
Further, we plan to utilize a portion of the proceeds from the sale of our Valves & Controls business to retire a significant portion of outstanding debt, and thus reduce our future contractual obligations. We believe the sale of the Valves & Controls business will be completed by the end of the first quarter of 2017, subject to customary regulatory approvals and closing conditions.
Dividends
On December 6, 2016, the Board of Directors declared a quarterly cash dividend of $0.345 that was paid on February 10, 2017 to shareholders of record at the close of business on January 27, 2017. Additionally, the Board of Director's approved a plan to increase the 2017 annual cash dividend to $1.38 , which is intended to paid in four quarterly installments. The 2017 increase will mark the 41 st consecutive year we have increased dividends.

33



We paid dividends in 2016 of $243.6 million , or $1.34 per ordinary share, compared with $231.7 million , or $1.28 per ordinary share, in 2015 and $211.4 million , or $1.10 per ordinary share, in 2014 .
Under Irish law, the payment of future cash dividends and repurchases of shares may be paid only out of Pentair plc's "distributable reserves" on its statutory balance sheet. Pentair plc is not permitted to pay dividends out of share capital, which includes share premiums. Distributable reserves may be created through the earnings of the Irish parent company and through a reduction in share capital approved by the Irish High Court. Distributable reserves are not linked to a 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 $9.4 billion and $9.6 billion as of December 31, 2016 and 2015 , 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. In October 2012, the Board of Directors authorized the repurchase of our ordinary shares with a maximum dollar limit of $800.0 million . The authorization expired on December 31, 2015. There is no remaining availability under the 2012 authorizations.

In December 2013, the Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $1.0 billion . The authorization expired on December 31, 2016. 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 . 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 . We have $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
2017
2018
2019
2020
2021
Thereafter
Total
Debt obligations
$
0.8

$
500.0

$
2,096.2

$
400.0

$
500.0

$
800.0

$
4,297.0

Interest obligations on fixed-rate debt
107.0

98.1

83.5

64.2

38.3

55.3

446.4

Operating lease obligations, net of sublease rentals
29.8

23.9

19.3

14.4

10.7

12.2

110.3

Purchase and marketing obligations
61.2

19.0

5.0

2.4

2.4

9.5

99.5

Pension and other post-retirement plan contributions
13.5

13.5

14.4

16.1

13.9

71.4

142.8

Total contractual obligations, net
$
212.3

$
654.5

$
2,218.4

$
497.1

$
565.3

$
948.4

$
5,096.0

The majority of the purchase obligations represent commitments for raw materials to be utilized in the normal course of business. For purposes of the above table, arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the transaction.
In addition to the summary of significant contractual obligations, we will incur annual interest expense on outstanding variable rate debt. As of December 31, 2016 , variable interest rate debt was $976.3 million at a weighted average interest rate of 2.01% .

34


The total gross liability for uncertain tax positions at December 31, 2016 was estimated to be $71.1 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, 2016 , we had recorded $2.4 million for the possible payment of penalties and $11.0 million related to the possible payment of interest.
Other financial measures
In addition to measuring our cash flow generation or usage based upon operating, investing and financing classifications included in the Consolidated Statements of Cash Flows, we also measure our free cash flow. We have a long-term goal to consistently generate free cash flow that equals or exceeds 100 percent conversion of net income. Free cash flow is a non-GAAP financial measure that we use to assess our cash flow performance. We believe free cash flow is an important measure of 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
2016
2015
2014
Net cash provided by (used for) operating activities of continuing operations
$
702.4

$
597.7

$
676.0

Capital expenditures
(117.8
)
(91.3
)
(83.7
)
Proceeds from sale of property and equipment
24.7

4.6

1.9

Free cash flow from continuing operations
$
609.3

$
511.0

$
594.2

Net cash provided by (used for) operating activities of discontinued operations
159.0

141.6

332.4

Capital expenditures of discontinued operations
(20.4
)
(43.0
)
(45.9
)
Proceeds from sale of property and equipment of discontinued operations
21.9

22.7

11.2

Free cash flow
$
769.8

$
632.3

$
891.9

Off-balance sheet arrangements
At December 31, 2016 , 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, 2016 , there were approximately 3,800 claims outstanding against our subsidiaries, of which approximately 3,300 relate to the Valves & Controls business classified as held for sale. These amounts include adjustments for claims that are not actively being prosecuted. The amounts are not adjusted for claims that identify incorrect defendants or duplicate other

35


actions. 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 $228.3 million and $237.9 million as of December 31, 2016 and 2015 , respectively, and was recorded in Non-current liabilities held for sale in the Consolidated Balance Sheets for pending and future claims and related defense costs. Our estimated receivable for insurance recoveries was $108.5 million and $111.0 million at December 31, 2016 and 2015 , respectively, and was recorded in Non-current assets held for sale 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. 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. Based upon our experience, current information regarding known contingencies and applicable laws, we have recorded reserves for these environmental matters of $18.3 million and $22.8 million as of December 31, 2016 and 2015 , respectively, which relate primarily to the Valves & Controls business classified as held for sale. We do not anticipate these environmental conditions will have a material adverse effect on our financial position, results of operations or cash flows.
Product liability claims
We are subject to various product liability lawsuits and personal injury claims. A substantial number of these lawsuits and claims are insured and accrued for by Penwald, our captive insurance subsidiary. See discussion in ITEM 1 and ITEM 8, Note 1 of the Notes to Consolidated Financial Statements — Insurance subsidiary. Penwald records a liability for these claims based on actuarial projections of ultimate losses. For all other claims, accruals covering the claims are recorded, on an undiscounted basis, when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information. The accruals are adjusted periodically as additional information becomes available. We have not experienced significant unfavorable trends in either the severity or frequency of product liability lawsuits or personal injury claims.
Stand-by letters of credit, bank guarantees and bonds
In certain situations, Tyco 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, 2016 and 2015 , the outstanding value of bonds, letters of credit and bank guarantees totaled $331.0 million and $402.2 million , respectively, of which $156.6 million and $202.3 million , respectively, relate to the Valves & Controls business classified as held for sale.
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

36


assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry and information available from other outside sources, as appropriate. We consider an accounting estimate to be critical if:
•
it requires us to make assumptions about matters that were uncertain at the time we were making the estimate; and
•
changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results of operations.
Our critical accounting estimates include the following:
Impairment of goodwill and indefinite-lived intangibles
Goodwill
Goodwill represents the excess of the cost of acquired businesses over the net of the fair value of identifiable tangible net assets and identifiable intangible assets purchased and liabilities assumed.
Goodwill is tested at least annually for impairment and is tested for impairment more frequently if events or changes in circumstances indicate that the asset might be impaired. 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 2022 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 a discount rate of 9.0% 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 2016 , 2015 and 2014 with each of our reporting units' fair value in excess of its carrying value.
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, 2015. Consistent with our annual test, the fair value was estimated using both a discounted cash flow analysis and market approach.

37


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 the Valves & Controls business classified as held for sale 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 charge was recorded in Income (loss) from discontinued operations, net of tax 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.

An impairment charge of $13.3 million was recorded in 2016 related to a trade name in Technical Solutions as the result of a rebranding strategy implemented in the fourth quarter of 2016. The trade name impairment charges were recorded in Selling, general and administrative in our Consolidated Statements of Operations and Comprehensive Income (Loss).

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 the Valves & Controls business classified as held for sale. The impairment charge was recorded in Income (loss) from discontinued operations, net of tax in our Consolidated Statements of Operations and Comprehensive Income (Loss).

There were no impairment charges recorded in 2014 for identifiable intangible assets.
Pension and other post-retirement plans
We sponsor U.S. and Non-U.S. defined-benefit pension and other post-retirement plans. The amounts recognized in our consolidated financial statements related to our defined-benefit pension and other post-retirement plans are determined from actuarial valuations. Inherent in these valuations are assumptions, including: expected return on plan assets, discount rates, rate of increase in future compensation levels and health care cost trend rates. These assumptions are updated annually and are disclosed in ITEM 8, Note 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 a pre-tax charge of $4.2 million in 2016 , pre-tax income of $23.0 million in 2015 and a pre-tax charge of $31.5 million in 2014 . 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 4.02% in 2016 , 4.21% in 2015 and 3.63% in 2014 . The discount rates on our Non-U.S. plans ranged from 0.50% to 4.00% in 2016 , 0.50% to 4.25% in 2015 and 0.50% to 4.25% in 2014 . There are no known or anticipated changes in our discount rate assumption that will impact our pension expense in 2017 .

38


Expected rate of return
Our expected rate of return on plan assets for our U.S. plans was 4.28% for 2016 , 3.65% in 2015 and 4.56% in 2014 . The expected rate of return on our Non-U.S. plans ranged from 1.00% to 5.50% in 2016 , 1.00% to 6.00% in 2015 and 1.00% to 6.00% in 2014 . 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, 2016 , the U.S. pension plans have an approximately 99 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 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

39


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, 2016 , was comprised of debt predominantly denominated in U.S. dollars. This debt portfolio is comprised of 77% fixed-rate debt and 23% 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, 2016 , a 100 basis point increase or decrease in interest rates would result in a $118.5 million decrease or a $124.3 million increase in fair value, respectively.
Based on the variable-rate debt included in our debt portfolio as of December 31, 2016 , a 100 basis point increase or decrease in interest rates would result in a $9.8 million increase or decrease in interest incurred.
Foreign currency risk
We conduct business in various locations throughout the world and are subject to market risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. dollar. Periodically, we use derivative financial instruments to manage these risks. The functional currencies of our foreign operating locations are generally the local currency in the country of domicile. We manage these operating activities at the local level and revenues, costs, assets and liabilities are generally denominated in local currencies, thereby mitigating the risk associated with changes in foreign exchange. However, our results of operations and assets and liabilities are reported in U.S. dollars and thus will fluctuate with changes in exchange rates between such local currencies and the U.S. dollar.

From time to time, we may enter into short duration foreign currency contracts to hedge foreign currency risks. As the majority of our foreign currency contracts have an original maturity date of less than one year, there is no material foreign currency risk. At December 31, 2016 and 2015 , we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts of $475.6 million and $331.5 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, 2016 . A 10% appreciation of the U.S. dollar relative to the Euro would result in a $47.3 million net increase in Other comprehensive income. Conversely, a 10% depreciation of the U.S. dollar relative to the Euro would result in a $57.9 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.

40


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Pentair plc and its subsidiaries (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2016 . 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, 2016 , the Company's internal control over financial reporting was effective based on those criteria.
Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on the Company's internal control over financial reporting as of December 31, 2016 . 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


41


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Pentair plc
London, United Kingdom
We have audited the internal control over financial reporting of Pentair plc and subsidiaries (the "Company") as of December 31, 2016 , 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.
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, 2016 , 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, 2016 of the Company and our report dated February 21, 2017 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 21, 2017


42


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Pentair plc
London, United Kingdom
We have audited the accompanying consolidated balance sheets of Pentair plc and subsidiaries (the "Company") as of December 31, 2016 and 2015 , 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, 2016 . 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, 2016 and 2015 , and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 , 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, 2016 , 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 21, 2017 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 21, 2017


43


Pentair plc and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
 
 
Years ended December 31
In millions, except per-share data
2016
2015
2014
Net sales
$
4,890.0

$
4,616.4

$
4,666.8

Cost of goods sold
3,095.9

3,017.6

3,046.3

Gross profit
1,794.1

1,598.8

1,620.5

Selling, general and administrative
979.3

884.0

985.6

Research and development
114.1

98.7

96.4

Operating income
700.7

616.1

538.5

Other (income) expense
 
 
 
Loss on sale of businesses, net
3.9

3.2

0.2

Equity income of unconsolidated subsidiaries
(4.3
)
(1.5
)
(1.2
)
Interest income
(8.3
)
(4.7
)
(2.3
)
Interest expense
148.4

106.6

70.9

Income from continuing operations before income taxes
561.0

512.5

470.9

Provision for income taxes
109.4

115.4

114.3

Net income from continuing operations
451.6

397.1

356.6

Income (loss) from discontinued operations, net of tax
70.0

(466.8
)
244.0

Gain (loss) from sale / impairment of discontinued operations, net of tax
0.6

(6.7
)
(385.7
)
Net income (loss)
$
522.2

$
(76.4
)
$
214.9

Comprehensive income (loss), net of tax
 
 
 
Net income (loss)
$
522.2

$
(76.4
)
$
214.9

Changes in cumulative translation adjustment
(83.0
)
(264.9
)
(336.3
)
Changes in market value of derivative financial instruments, net of $1.9, $0.5 and $1.1 tax, respectively
(8.3
)
0.2

(0.4
)
Comprehensive income (loss)
$
430.9

$
(341.1
)
$
(121.8
)
Earnings (loss) per ordinary share
 
 
 
Basic
 
 
 
Continuing operations
$
2.49

$
2.20

$
1.87

Discontinued operations
0.39

(2.62
)
(0.74
)
Basic earnings (loss) per ordinary share
$
2.88

$
(0.42
)
$
1.13

Diluted
 
 
 
Continuing operations
$
2.47

$
2.17

$
1.84

Discontinued operations
0.38

(2.59
)
(0.73
)
Diluted earnings (loss) per ordinary share
$
2.85

$
(0.42
)
$
1.11

Weighted average ordinary shares outstanding
 
 
 
Basic
181.3

180.3

190.6

Diluted
183.1

182.6

193.7

See accompanying notes to consolidated financial statements.

44


Pentair plc and Subsidiaries
Consolidated Balance Sheets
 
 
December 31
In millions, except per-share data
2016
2015
Assets
Current assets
 
 
Cash and cash equivalents
$
238.5

$
126.3

Accounts and notes receivable, net of allowances of $25.6 and $46.1, respectively
764.0

773.2

Inventories
524.2

564.7

Other current assets
253.4

220.0

Current assets held for sale
891.9

1,093.4

Total current assets
2,672.0

2,777.6

Property, plant and equipment, net
538.6

539.8

Other assets
 
 
Goodwill
4,217.4

4,259.0

Intangibles, net
1,631.8

1,747.4

Other non-current assets
182.1

161.1

Non-current assets held for sale
2,292.9

2,348.6

Total other assets
8,324.2

8,516.1

Total assets
$
11,534.8

$
11,833.5

Liabilities and Equity
Current liabilities
 
 
Current maturities of long-term debt and short-term borrowings
$
0.8

$
—

Accounts payable
436.6

403.8

Employee compensation and benefits
166.1

162.6

Other current liabilities
511.5

487.1

Current liabilities held for sale
356.2

433.0

Total current liabilities
1,471.2

1,486.5

Other liabilities
 
 
Long-term debt
4,278.4

4,685.8

Pension and other post-retirement compensation and benefits
253.4

244.6

Deferred tax liabilities
609.5

670.2

Other non-current liabilities
162.0

192.4

Non-current liabilities held for sale
505.9

545.2

Total liabilities
7,280.4

7,824.7

Equity
 
 
Ordinary shares $0.01 par value, 426.0 authorized, 181.8 and 180.5 issued at December 31, 2016 and December 31, 2015, respectively
1.8

1.8

Additional paid-in capital
2,920.8

2,860.3

Retained earnings
2,068.1

1,791.7

Accumulated other comprehensive loss
(736.3
)
(645.0
)
Total equity
4,254.4

4,008.8

Total liabilities and equity
$
11,534.8

$
11,833.5

See accompanying notes to consolidated financial statements.

45


Pentair plc and Subsidiaries
Consolidated Statements of Cash Flows
 
Years ended December 31
In millions
2016
2015
2014
Operating activities
 
 
 
Net income (loss)
$
522.2

$
(76.4
)
$
214.9

(Income) loss from discontinued operations, net of tax
(70.0
)
466.8

(244.0
)
(Gain) loss from sale / impairment of discontinued operations, net of tax
(0.6
)
6.7

385.7

Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used for) operating activities of continuing operations
 
 
 
Equity income of unconsolidated subsidiaries
(4.3
)
(1.5
)
(1.2
)
Depreciation
84.6

81.2

79.7

Amortization
96.4

68.1

60.6

Loss on sale of businesses, net
3.9

3.2

0.2

Deferred income taxes
(16.1
)
(2.3
)
(23.0
)
Share-based compensation
34.2

33.0

33.6

Impairment of trade names
13.3

—

—

Excess tax benefits from share-based compensation
(8.0
)
(6.0
)
(12.6
)
Amortization of bridge financing debt issuance costs
—

10.8

—

Pension and other post-retirement expense
31.8

9.4

57.5

Pension and other post-retirement contributions
(13.5
)
(12.7
)
(12.6
)
Changes in assets and liabilities, net of effects of business acquisitions
 
 
 
Accounts and notes receivable
21.3

(6.2
)
15.3

Inventories
34.3

54.7

30.8

Other current assets
(15.8
)
(27.3
)
(25.8
)
Accounts payable
38.0

10.6

5.3

Employee compensation and benefits
7.0

(15.6
)
(1.7
)
Other current liabilities
51.6

(16.6
)
60.4

Other non-current assets and liabilities
(107.9
)
17.8

52.9

Net cash provided by (used for) operating activities of continuing operations
702.4

597.7

676.0

Net cash provided by (used for) operating activities of discontinued operations
159.0

141.6

332.4

Net cash provided by (used for) operating activities
861.4

739.3

1,008.4

Investing activities
 
 
 
Capital expenditures
(117.8
)
(91.3
)
(83.7
)
Proceeds from sale of property and equipment
24.7

4.6

1.9

Acquisitions, net of cash acquired
(25.0
)
(1,913.9
)
(12.3
)
Other
(5.2
)
(3.0
)
0.2

Net cash provided by (used for) investing activities of continuing operations
(123.3
)
(2,003.6
)
(93.9
)
Net cash provided by (used for) investing activities of discontinued operations
1.5

38.1

(34.4
)
Net cash provided by (used for) investing activities
(121.8
)
(1,965.5
)
(128.3
)
Financing activities
 
 
 
Net receipts (repayments) of short-term borrowings
0.8

(2.3
)
0.5

Net receipts (repayments) of commercial paper and revolving long-term debt
(385.3
)
363.5

468.6

Proceeds from long-term debt
—

1,714.8

2.2

Repayment of long-term debt
(0.7
)
(356.6
)
(16.8
)
Debt issuance costs
—

(26.8
)
(3.1
)
Excess tax benefits from share-based compensation
8.0

6.0

12.6

Shares issued to employees, net of shares withheld
20.7

19.4

37.0

Repurchases of ordinary shares
—

(200.0
)
(1,150.0
)
Dividends paid
(243.6
)
(231.7
)
(211.4
)
Purchase of noncontrolling interest
—

—

(134.7
)
Net cash provided by (used for) financing activities
(600.1
)
1,286.3

(995.1
)
Effect of exchange rate changes on cash and cash equivalents
(27.3
)
(44.2
)
(30.6
)
Change in cash and cash equivalents
112.2

15.9

(145.6
)
Cash and cash equivalents, beginning of year
126.3

110.4

256.0

Cash and cash equivalents, end of year
$
238.5

$
126.3

$
110.4

See accompanying notes to consolidated financial statements.

46


Pentair plc and Subsidiaries
Consolidated Statements of Changes in Equity
In millions
Ordinary shares
 
Treasury shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total Pentair plc
Non-controlling interest
 Total
Number
Amount
 
Number
Amount
Balance - December 31, 2013
213.0

$
113.5

 
(15.6
)
$
(875.1
)
$
5,071.4

$
1,829.1

$
(43.6
)
$
6,095.3

$
122.4

$
6,217.7

Net income
—

—

 
—

—

—

214.9

—

214.9

—

214.9

Other comprehensive loss, net of tax
—

—

 
—

—

—

—

(336.7
)
(336.7
)
—

(336.7
)
Tax benefit of share-based compensation
—

—

 
—

—

11.4

—

—

11.4

—

11.4

Conversion of Pentair Ltd. common shares to Pentair plc ordinary shares
—

(111.4
)
 
—

—

111.4

—

—

—

—

—

Dividends declared
—

—

 
—

—

(229.5
)
—

—

(229.5
)
—

(229.5
)
Purchase of noncontrolling interest
—

—

 
—

—

(12.3
)
—

—

(12.3
)
(122.4
)
(134.7
)
Share repurchase
(10.6
)
(0.1
)
 
(5.8
)
(450.7
)
(699.2
)
—

—

(1,150.0
)
—

(1,150.0
)
Exercise of options, net of shares tendered for payment
—

—

 
1.3

60.9

(14.4
)
—

—

46.5

—

46.5

Issuance of restricted shares, net of cancellations
—

—

 
0.3

19.3

(19.3
)
—

—

—

—

—

Shares surrendered by employees to pay taxes
—

—

 
(0.1
)
(6.3
)
(3.1
)
—

—

(9.4
)
—

(9.4
)
Share-based compensation
—

—

 
—

—

33.6

—

—

33.6

—

33.6

Balance - December 31, 2014
202.4

$
2.0

 
(19.9
)
$
(1,251.9
)
$
4,250.0

$
2,044.0

$
(380.3
)
$
4,663.8

$
—

$
4,663.8

Net loss
—

—

 
—

—

—

(76.4
)
—

(76.4
)
—

(76.4
)
Other comprehensive loss, net of tax
—

—

 
—

—

—

—

(264.7
)
(264.7
)
—

(264.7
)
Tax benefit of share-based compensation
—

—

 
—

—

5.7

—

—

5.7

—

5.7

Dividends declared
—

—

 
—

—

1.5

(175.9
)
—

(174.4
)
—

(174.4
)
Share repurchase
(3.1
)
—

 
—

—

(200.0
)
—

—

(200.0
)
—

(200.0
)
Cancellation of treasury shares
(19.1
)
(0.2
)
 
19.1

1,210.9

(1,210.7
)
—

—

—

—

—

Exercise of options, net of shares tendered for payment
0.1

—

 
0.7

34.6

(3.5
)
—

—

31.1

—

31.1

Issuance of restricted shares, net of cancellations
0.3

—

 
0.2

9.4

(9.4
)
—

—

—

—

—

Shares surrendered by employees to pay taxes
(0.1
)
—

 
(0.1
)
(3.0
)
(6.3
)
—

—

(9.3
)
—

(9.3
)
Share-based compensation
—

—

 
—

—

33.0

—

—

33.0

—

33.0

Balance - December 31, 2015
180.5

$
1.8

 
—

$
—

$
2,860.3

$
1,791.7

$
(645.0
)
$
4,008.8

$
—

$
4,008.8

Net income
—

—

 
—

—

—

522.2

—

522.2

—

522.2

Other comprehensive loss, net of tax
—

—

 
—

—

—

—

(91.3
)
(91.3
)
—

(91.3
)
Tax benefit of share-based compensation
—

—

 
—

—

5.5

—

—

5.5

—

5.5

Dividends declared
—

—

 
—

—

—

(245.8
)
—

(245.8
)
—

(245.8
)
Exercise of options, net of shares tendered for payment
1.0

—

 
—

—

31.6

—

—

31.6

—

31.6

Issuance of restricted shares, net of cancellations
0.5

—

 
—

—

—

—

—

—

—

—

Shares surrendered by employees to pay taxes
(0.2
)
—

 
—

—

(10.8
)
—

—

(10.8
)
—

(10.8
)
Share-based compensation
—

—

 
—

—

34.2

—

—

34.2

—

34.2

Balance - December 31, 2016
181.8

$
1.8

 
—

$
—

$
2,920.8

$
2,068.1

$
(736.3
)
$
4,254.4

$
—

$
4,254.4

See accompanying notes to consolidated financial statements.

47
Pentair plc and Subsidiaries
Notes to consolidated financial statements


1.
Basis of Presentation and Summary of Significant Accounting Policies
Business
Pentair plc and its consolidated subsidiaries (the "Company" or "Pentair") is a focused diversified industrial manufacturing company comprising three reporting segments: Water Quality Systems, Flow & Filtration Solutions and Technical Solutions.

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, an Irish company, and all Pentair Ltd. CHF 0.50 par value common shares would be canceled and all holders of such shares would receive $0.01 par value ordinary shares of Pentair plc on a one-for-one basis. The reorganization transaction was completed on June 3, 2014, at which time Pentair plc replaced Pentair Ltd. as our ultimate parent company (the "Redomicile"). Shares of Pentair plc began trading on the New York Stock Exchange 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.
Basis of presentation
The accompanying consolidated financial statements include the accounts of Pentair and all subsidiaries, both the United States ("U.S.") and non-U.S., which we control. Intercompany accounts and transactions have been eliminated. Investments in companies of which we own 20% to 50% of the voting stock or have the ability to exercise significant influence over operating and financial policies of the investee are accounted for using the equity method of accounting and as a result, our share of the earnings or losses of such equity affiliates is included in the Consolidated Statements of Operations and Comprehensive Income (Loss).
The consolidated financial statements have been prepared in U.S. dollars ("USD") and in accordance with accounting principles generally accepted in the United States of America ("GAAP").
Fiscal year
Our fiscal year ends on December 31. Beginning in the first quarter of 2016, we report our interim quarterly periods on a calendar quarter basis. Prior to the first quarter of 2016, we reported our interim quarterly periods on a 13-week basis ending on a Saturday.
Use of estimates
The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include our accounting for valuation of goodwill and indefinite lived intangible assets, estimated losses on accounts receivable, estimated realizable value on excess and obsolete inventory, percentage of completion revenue recognition, assets acquired and liabilities assumed in acquisitions, estimated selling proceeds from assets held for sale, contingent liabilities, income taxes and pension and other post-retirement benefits. Actual results could differ from our estimates.
Revenue recognition
We recognize revenue when it is realized or realizable and has been earned. Revenue is recognized when persuasive evidence of an arrangement exists, shipment or delivery has occurred (depending on the terms of the sale), our price to the buyer is fixed or determinable, and collectability is reasonably assured.
Generally, there is no post-shipment obligation on product sold other than warranty obligations in the normal and ordinary course of business. In the event significant post-shipment obligations were to exist, revenue recognition would be deferred until substantially all obligations were satisfied.

48
Pentair plc and Subsidiaries
Notes to consolidated financial statements


Percentage of completion
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 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. 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.
We record costs and earnings in excess of billings on uncompleted contracts within Other current assets and billings in excess of costs and earnings on uncompleted contracts within Other current liabilities in the Consolidated Balance Sheets.
Sales returns
The right of return may exist explicitly or implicitly with our customers. Generally, our return policy allows for customer returns only upon our authorization. Goods returned must be product we continue to market and must be in salable condition. Returns of custom or modified goods are normally not allowed. At the time of sale, we reduce revenue for the estimated effect of returns. Estimated sales returns include consideration of historical sales levels, the timing and magnitude of historical sales return levels as a percent of sales, type of product, type of customer and a projection of this experience into the future.
Pricing and sales incentives
We record estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions and other volume-based incentives at the later of the date revenue is recognized or the incentive is offered. Sales incentives given to our customers are recorded as a reduction of revenue unless we (1) receive an identifiable benefit for the goods or services in exchange for the consideration and (2) we can reasonably estimate the fair value of the benefit received.
 
Pricing is established at or prior to the time of sale with our customers and we record sales at the agreed-upon net selling price. However, one of our businesses allows customers to apply for a refund of a percentage of the original purchase price if they can demonstrate sales to a qualifying end customer. At the time of sale, we estimate the anticipated refund to be paid based on historical experience and reduce sales for the probable cost of the discount. The cost of these refunds is recorded as a reduction in gross sales.
Volume-based incentives involve rebates that are negotiated at or prior to the time of sale with the customer and are redeemable only if the customer achieves a specified cumulative level of sales or sales increase. Under these incentive programs, at the time of sale, we reforecast the anticipated rebate to be paid based on forecasted sales levels. These forecasts are updated at least quarterly for each customer and sales are reduced for the anticipated cost of the rebate. If the forecasted sales for a customer changes, the accrual for rebates is adjusted to reflect the new amount of rebates expected to be earned by the customer.
Shipping and handling costs
Amounts billed to customers for shipping and handling are recorded in Net sales in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). Shipping and handling costs incurred by Pentair for the delivery of goods to customers are included in Cost of goods sold in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).
Research and development
We conduct research and development ("R&D") activities in our own facilities, which consist primarily of the development of new products, product applications and manufacturing processes. We expense R&D costs as incurred. R&D expenditures during 2016 , 2015 and 2014 were $114.1 million , $98.7 million and $96.4 million , respectively.
Cash equivalents
We consider highly liquid investments with original maturities of three months or less at the date of acquisition to be cash equivalents.
Trade receivables and concentration of credit risk
We record an allowance for doubtful accounts, reducing our receivables balance to an amount we estimate is collectible from our customers. Estimates used in determining the allowance for doubtful accounts are based on current trends, aging of accounts receivable, periodic credit evaluations of our customers' financial condition, and historical collection experience. We generally do not require collateral. No customer receivable balances exceeded 10% of total net receivable balances as of December 31, 2016 or December 31, 2015 .

49
Pentair plc and Subsidiaries
Notes to consolidated financial statements


Inventories
Inventories are stated at the lower of cost or market with substantially all inventories recorded using the first-in, first-out ("FIFO") cost method and with an insignificant amount of inventories located outside the U.S. recorded using a moving average cost method which approximates FIFO.
 
Property, plant and equipment, net
Property, plant and equipment is stated at historical cost. We compute depreciation by the straight-line method based on the following estimated useful lives:
 
Years
Land improvements
5 to 20
Buildings and leasehold improvements
5 to 50
Machinery and equipment
3 to 15
Significant improvements that add to productive capacity or extend the lives of properties are capitalized. Costs for repairs and maintenance are charged to expense as incurred. When property is retired or otherwise disposed of, the recorded cost of the assets and their related accumulated depreciation are removed from the Consolidated Balance Sheets and any related gains or losses are included in income.
We review the recoverability of long-lived assets to be held and used, such as property, plant and equipment, when events or changes in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset or asset group from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset or asset group, an impairment loss is recognized for the difference between estimated fair value and carrying value. Impairment losses on long-lived assets held for sale are determined in a similar manner, except that fair values are reduced for the cost to dispose of the assets. The measurement of impairment requires us to estimate future cash flows and the fair value of long-lived assets. We recorded no impairment charges in 2016 in conjunction with restructuring activities. During 2015 and 2014 , we recorded $5.1 million and $13.0 million , respectively, in conjunction with restructuring activities.
Goodwill and identifiable intangible assets
Goodwill
Goodwill represents the excess of the cost of acquired businesses over the net of the fair value of identifiable tangible net assets and identifiable intangible assets purchased and liabilities assumed.
Goodwill is tested 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. This non-recurring fair value measurement is a "Level 3" measurement under the fair value hierarchy described below.
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 2022 are projected to grow at a perpetual growth rate of 3.0% .

50
Pentair plc and Subsidiaries
Notes to consolidated financial statements


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 a discount rate of 9.0% 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 2016 , 2015 and 2014 with each reporting unit's fair value in excess of its carrying value.

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 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, 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 Income (loss) from discontinued operations, net of tax in our Consolidated Statements of Operations and Comprehensive Income (Loss).
Identifiable intangible assets
Our primary identifiable intangible assets include: customer relationships, trade names, proprietary technology and patents. Identifiable intangibles with finite lives are amortized and those identifiable intangibles with indefinite lives are not amortized. Identifiable intangible assets that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangible assets not subject to amortization are tested for impairment annually or more frequently if events warrant. We complete our annual impairment test during the fourth quarter each year for those identifiable assets not subject to amortization.
The impairment test for trade names consists of a comparison of the fair value of the trade name with its carrying value. Fair value is measured using the relief-from-royalty method. This method assumes the trade name has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital. The non-recurring fair value measurement is a "Level 3" measurement under the fair value hierarchy described below.
An impairment charge of $13.3 million was recorded in 2016 related to a trade name in Technical Solutions as a result of a rebranding strategy implemented in the fourth quarter of 2016. The trade name impairment charges were recorded in Selling, general and administrative in our Consolidated Statements of Operations and Comprehensive Income (Loss).
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 the Valves & Controls business classified as held for sale. The impairment is included in Income (loss) from discontinued operations, net of tax in our Consolidated Statements of Operations and Comprehensive Income (Loss).

There were no impairment charges recorded in 2014 for identifiable intangible assets.
Income taxes
We use the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is

51
Pentair plc and Subsidiaries
Notes to consolidated financial statements


enacted. Deferred tax assets are reduced by a valuation allowance 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. Changes in valuation allowances from period to period are included in our tax provision in the period of change. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Pension and other post-retirement plans
We sponsor U.S. and Non-U.S. defined-benefit pension and other post-retirement plans. The pension and other post-retirement benefit costs for company-sponsored benefit plans are determined from actuarial assumptions and methodologies, including discount rates, expected returns on plan assets and health care cost trend rates. These assumptions are updated annually and are disclosed in Note 13.
We recognize changes in the fair value of plan assets and net actuarial gains or losses for pension and other post-retirement benefits annually in the fourth quarter each year ("mark-to-market adjustment") and, if applicable, in any quarter in which an interim remeasurement is triggered. Net actuarial gains and losses occur when the actual experience differs from any of the various assumptions used to value our pension and other post-retirement plans or when assumptions change, as they may each year. The remaining components of pension expense, including service and interest costs and estimated return on plan assets, are recorded on a quarterly basis.
Environmental
We recognize environmental clean-up liabilities on an undiscounted basis when a loss is probable and can be reasonably estimated. Such liabilities generally are not subject to insurance coverage. The cost of each environmental clean-up is estimated by engineering, financial and legal specialists based on current law. Such estimates are based primarily upon the estimated cost of investigation and remediation required and the likelihood that, where applicable, other potentially responsible parties ("PRPs") will be able to fulfill their commitments at the sites where Pentair may be jointly and severally liable. The process of estimating environmental clean-up liabilities is complex and dependent primarily on the nature and extent of historical information and physical data relating to a contaminated site, the complexity of the site, the uncertainty as to what remedy and technology will be required and the outcome of discussions with regulatory agencies and other PRPs at multi-party sites. In future periods, new laws or regulations, advances in clean-up technologies and additional information about the ultimate clean-up remedy that is used could significantly change our estimates. Accruals for environmental liabilities are primarily included in Other current liabilities held for sale and Other non-current liabilities held for sale in the Consolidated Balance Sheets.
Asbestos matters
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 and we recognize receivables for asbestos-related insurance recoveries only when realization of the claim is deemed probable. 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 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. On an annual basis, we review, and update as appropriate, such estimated asbestos liabilities and assets and the underlying assumptions. Accruals for asbestos-related liabilities are included in Other non-current liabilities held for sale and the estimated receivable for insurance recoveries are recorded in Other non-current assets held for sale in the Consolidated Balance Sheets.
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. As of December 31, 2016 and 2015 , reserves for policy claims were $63.0 million ( $13.2 million included in Other current liabilities and $49.8 million included in Other non-current liabilities ) and $62.2 million ( $13.2 million included in Other current liabilities and $49.0 million included in Other non-current liabilities ), respectively.
Share-based compensation
We account for share-based compensation awards on a fair value basis. The estimated grant date fair value of each option award is recognized in income on an accelerated basis over the requisite service period (generally the vesting period). The estimated fair value of each option award is calculated using the Black-Scholes option-pricing model. From time to time, we have elected to modify the terms of the original grant. These modified grants are accounted for as a new award and measured

52
Pentair plc and Subsidiaries
Notes to consolidated financial statements


using the fair value method, resulting in the inclusion of additional compensation expense in our Consolidated Statements of Operations and Comprehensive Income (Loss). Restricted share awards and units are recorded as compensation cost on an accelerated basis over the requisite service periods based on the market value on the date of grant.

Performance share units ("PSU") are stock awards where the ultimate number of shares issued will be contingent on the Company's performance against certain financial performance targets. The fair value of each PSU is based on the market value on the date of grant. We recognize expense related to the estimated vesting of our PSUs granted. The estimated vesting of the performance share units is based on the probability of achieving certain financial performance thresholds over the specified performance period.
Earnings (loss) per ordinary share
Basic earnings (loss) per share are computed by dividing net income (loss) attributable to Pentair plc by the weighted-average number of ordinary shares outstanding. Diluted earnings (loss) per share are computed by dividing net income (loss) attributable to Pentair plc by the weighted-average number of ordinary shares outstanding including the dilutive effects of ordinary share equivalents.
Derivative financial instruments
We recognize all derivatives, including those embedded in other contracts, as either assets or liabilities at fair value in our Consolidated Balance Sheets. If the derivative is designated and is effective as a cash-flow hedge, changes in the fair value of the derivative are recorded in Accumulated other comprehensive income (loss) ("AOCI") as a separate component of equity in the Consolidated Balance Sheets and is recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) when the hedged item affects earnings. If the underlying hedged transaction ceases to exist or if the hedge becomes ineffective, all changes in fair value of the related derivatives that have not been settled are recognized in current earnings. For a derivative that is not designated as or does not qualify as a hedge, changes in fair value are reported in earnings immediately.

Gains and losses on net investment hedges are included in AOCI as a separate component of equity in the Consolidated Balance Sheets.
We use derivative instruments for the purpose of hedging interest rate and currency exposures, which exist as part of ongoing business operations. We do not hold or issue derivative financial instruments for trading or speculative purposes. All other contracts that contain provisions meeting the definition of a derivative also meet the requirements of and have been designated as, normal purchases or sales. Our policy is not to enter into contracts with terms that cannot be designated as normal purchases or sales. From time to time, we may enter into short duration foreign currency contracts to hedge foreign currency risks.
Fair value measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:
Level 1:  Valuation is based on observable inputs such as quoted market prices (unadjusted) for identical assets or liabilities in active markets.
Level 2:  Valuation is based on inputs such as quoted market prices for similar assets or liabilities in active markets or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3:  Valuation is based upon other unobservable inputs that are significant to the fair value measurement.
In making fair value measurements, observable market data must be used when available. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
Foreign currency translation
The financial statements of subsidiaries located outside of the U.S. are generally measured using the local currency as the functional currency, except for certain corporate entities outside of the U.S. which are measured using USD. Assets and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date. Income and expense items are translated at average monthly rates of exchange. The resultant translation adjustments are included in AOCI, a separate component of equity.

53
Pentair plc and Subsidiaries
Notes to consolidated financial statements


New accounting standards
In March 2016, the Financial Accounting Standards Board ("FASB") issued a new accounting standard that will change certain aspects of accounting for share-based payments to employees, including the accounting for income taxes, forfeitures and statutory withholding requirements, as well as classification in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. We will adopt this standard during the first quarter of 2017. We do not expect the adoption of the standard to have a significant impact on our financial condition or results of operations.
In February 2016, the FASB issued new accounting requirements regarding accounting for leases, which require an entity to recognize both assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within that reporting period, and early adoption is permitted. We have not yet determined the potential effects on our financial condition or results of operations.
In November 2015, the FASB issued a new accounting standard which clarifies and simplifies the balance sheet classification of deferred tax assets and liabilities. Under the new standard, all deferred tax assets and liabilities are required to be classified as non-current in a classified balance sheet. The Company adopted the new standard on a prospective basis in the fourth quarter of 2016 and the prior period was not retrospectively adjusted. The adoption of the standard did not impact the Company's consolidated financial position, results of operations, equity or cash flows.
In April 2015, the FASB issued a new accounting standard which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The new standard was effective for annual and interim periods beginning after December 15, 2015. We adopted the new standard during the first quarter of 2016 and, as a result, reclassified unamortized debt issuance costs of $23.5 million from Other current assets and Other non-current assets to Long-term debt on the Consolidated Balance Sheet as of December 31, 2015.
In May 2014, the FASB issued new accounting requirements for the recognition of revenue from contracts with customers. The new requirements also include additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The requirements are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company intends to adopt the new revenue guidance as of January 1, 2018 and is currently evaluating the overall impact this standard will have on our consolidated financial statements and related disclosures, as well as the expected method of adoption.
2.
Acquisitions
Material acquisitions
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.
The purchase price has been allocated based on the fair value of assets acquired and liabilities assumed at the date of the ERICO Acquisition. The purchase price allocation was completed in the third quarter of 2016.
The following table summarizes our preliminary estimates of the fair values of the assets acquired and liabilities assumed in the ERICO Acquisition as previously reported at December 31, 2015 and as revised for adjustments made during 2016:

54
Pentair plc and Subsidiaries
Notes to consolidated financial statements


In millions
As Originally Reported
As Revised
Cash
$
11.8

$
11.8

Accounts receivable
75.9

75.9

Inventories
102.4

101.8

Other current assets
2.9

2.8

Property, plant and equipment
53.4

53.1

Identifiable intangible assets
1,033.8

1,033.8

Goodwill
1,061.9

1,031.0

Current liabilities
(97.2
)
(94.7
)
Deferred income taxes, including current
(418.8
)
(382.3
)
Other liabilities
(8.0
)
(15.1
)
Purchase price
$
1,818.1

$
1,818.1

The excess of purchase price over tangible net assets and identified intangible assets acquired has been allocated to goodwill in the amount of $1,031.0 million , none of which is expected to be deductible for income tax purposes. Identifiable intangible assets acquired as part of the ERICO Acquisition include $228.4 million of indefinite-lived trade name intangible assets and $805.4 million of definite-lived customer relationships with an estimated useful life of 21 years.

The following unaudited pro forma consolidated condensed financial results of operations are presented as if the ERICO Acquisition was consummated on January 1, 2014, the beginning of the comparable prior annual reporting period:
 
Years ended December 31
In millions, except share and per-share data
2015
2014
Pro forma net sales
$
5,002.6

$
5,223.8

Pro forma net income from continuing operations
460.4

358.8

Pro forma earnings per ordinary share - continuing operations
 
 
Basic
$
2.55

$
1.88

Diluted
2.52

1.85

The unaudited pro forma net income from continuing operations for the year ended December 31, 2014 was adjusted to include the impact of $32.8 million in non-recurring items related to acquisition date fair value adjustments to inventory. The unaudited pro forma net income for the year ended December 31, 2015 excludes the impact of $24.6 million of non-recurring transaction related and bridge financing costs.
The pro forma condensed consolidated financial information has been prepared for comparative purposes only and includes certain adjustments, as noted above. The adjustments are estimates based on currently available information and actual amounts may differ materially from these estimates. They do not reflect the effect of costs or synergies that would have been expected to result from the integration of the ERICO Acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the ERICO Acquisition occurred on January 1, 2014.
Other acquisitions
In November 2016, we completed an acquisition as part of Water Quality Systems with a purchase price of $25.0 million in cash, net of cash acquired. The pro forma impact of the acquisition was not material.
In April 2015, we acquired, as part of Technical Solutions, all of the outstanding shares of capital stock of Nuheat Industries Limited ("Nuheat") for $96.0 million in cash ( 120.5 million Canadian dollars translated at the April 2, 2015 exchange rate), net of cash acquired. In November 2015, cash of $0.9 million ( 1.2 million Canadian dollars translated at the average monthly exchange rate) was paid to Nuheat in settlement of a working capital adjustment. Based in Canada, Nuheat is a leading manufacturer of electric floor heating systems that are distributed across North America. Total goodwill recorded as part of the purchase allocation was $43.2 million , none of which is tax deductible. Identified intangible assets acquired consisted of customer relationships of $53.3 million , with an estimated useful life of 17 years. The pro forma impact of this acquisition was not material.

55
Pentair plc and Subsidiaries
Notes to consolidated financial statements


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. There was no material pro forma impact from this acquisition as the results of PRF were consolidated into our financial statements prior to acquiring the remaining interest.
3.
Discontinued Operations
On August 18, 2016, we entered into a Share Purchase Agreement (the "Purchase Agreement") to sell our Valves & Controls business to Emerson Electric Co. for a purchase price of $3.15 billion in cash, subject to certain customary adjustments. We believe the sale will be completed by the end of the first quarter of 2017, subject to customary regulatory approvals and closing conditions.

We have concluded, as a result of the signing of the Purchase Agreement, that the Valves & Controls business has met the criteria to be classified as held for sale. The results of the Valves & Controls business have been presented as discontinued operations and the related assets and liabilities have been reclassified as held for sale for all periods presented. The Valves & Controls business was previously disclosed as a stand-alone reporting segment. Transaction costs of $24.2 million related to the sale of Valves & Controls were incurred during the year ended December 31, 2016 and were recorded within Selling, general and administrative expenses in the operating results of discontinued operations presented below.

On July 28, 2014, our Board of Directors approved a decision to exit our Water Transport business in Australia. During the third quarter of 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 a $12.3 million tax benefit, representing our estimated loss on disposal of the Water Transport business. The impairment charge was determined using significant unobservable inputs ("Level 3" fair value measurements). In addition, during the first quarter of 2014 and fourth quarter of 2013, we sold portions of our Water Transport business in Australia and New Zealand, respectively, resulting in losses of $5.6 million , net of a $2.4 million tax benefit, and $0.8 million , net of a $0.3 million tax benefit, respectively.
During 2015, we sold the remainder of our Water Transport business and received cash proceeds of  $59.0 million . The results of the Water Transport business have been presented as discontinued operations.
Operating results of discontinued operations are summarized below:
 
Years ended December 31
In millions
2016
2015
2014
Net sales
$
1,639.4

$
1,858.6

$
2,673.3

Cost of goods sold
1,177.1

1,271.2

1,785.1

Gross profit
462.3

587.4

888.2

Selling, general and administrative
367.6

457.8

551.5

Research and development
18.2

21.2

23.4

Impairment of goodwill and trade names
—

554.7

—

Operating income (loss)
$
76.5

$
(446.3
)
$
313.3

 
 
 
 
Income (loss) from discontinued operations before income taxes
$
77.2

$
(445.5
)
$
314.9

Provision for income taxes
7.2

21.3

70.9

Income (loss) from discontinued operations, net of tax
$
70.0

$
(466.8
)
$
244.0

 
 
 
 
Gain (loss) from sale / impairment of discontinued operations before income taxes
$
0.6

$
(6.7
)
$
(400.4
)
Income tax benefit
—

—

14.7

Gain (loss) from sale / impairment of discontinued operations, net of tax
$
0.6

$
(6.7
)
$
(385.7
)

56
Pentair plc and Subsidiaries
Notes to consolidated financial statements


The carrying amounts of major classes of assets and liabilities that were classified as held for sale on the Consolidated Balance Sheets were as follows:
 
December 31
In millions
2016
2015
Accounts and notes receivable, net
$
365.4

$
394.5

Inventories
491.5

609.6

Other current assets
35.0

89.3

Current assets held for sale
$
891.9

$
1,093.4

Property, plant and equipment, net
$
361.5

$
403.1

Goodwill
996.4

996.4

Intangibles, net
703.5

742.7

Asbestos-related insurance receivable
108.5

111.0

Other non-current assets
123.0

95.4

Non-current assets held for sale
$
2,292.9

$
2,348.6

Accounts payable
$
151.4

$
175.0

Employee compensation and benefits
61.5

100.3

Other current liabilities
143.3

157.7

Current liabilities held for sale
$
356.2

$
433.0

Pension and other post-retirement compensation and benefits
$
32.2

$
42.6

Deferred tax liabilities
162.8

173.9

Asbestos-related liabilities
228.3

237.9

Other non-current liabilities
82.6

90.8

Non-current liabilities held for sale
$
505.9

$
545.2

4.
Earnings (Loss) Per Share
Basic and diluted earnings (loss) per share were calculated as follows:
 
Years ended December 31
In millions, except per share data
2016
2015
2014
Net income (loss)
$
522.2

$
(76.4
)
$
214.9

Net income from continuing operations
$
451.6

$
397.1

$
356.6

Weighted average ordinary shares outstanding
 
 
 
Basic
181.3

180.3

190.6

Dilutive impact of stock options and restricted stock awards
1.8

2.3

3.1

Diluted
183.1

182.6

193.7

Earnings (loss) per ordinary share
 
 
 
Basic
 
 
 
Continuing operations
$
2.49

$
2.20

$
1.87

Discontinued operations
0.39

(2.62
)
(0.74
)
Basic earnings (loss) per ordinary share
$
2.88

$
(0.42
)
$
1.13

Diluted
 
 
 
Continuing operations
$
2.47

$
2.17

$
1.84

Discontinued operations
0.38

(2.59
)
(0.73
)
Diluted earnings (loss) per ordinary share
$
2.85

$
(0.42
)
$
1.11

Anti-dilutive stock options excluded from the calculation of diluted earnings per share
1.2

1.3

0.5


57
Pentair plc and Subsidiaries
Notes to consolidated financial statements



5.
Restructuring
During 2016 , 2015 and 2014 , we initiated and continued execution of certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business. The 2016 initiatives included a reduction in hourly and salaried headcount of approximately 650 employees, which included 100 in Water Quality Systems, 200 in Flow & Filtration Solutions and 350 in Technical Solutions. The 2015 initiatives included the reduction in hourly and salaried headcount of approximately 500 employees, which included 100 in Water Quality Systems, 200 in Flow & Filtration Solutions and 200 in Technical Solutions. The 2014 initiatives included the reduction in hourly and salaried headcount of approximately 550 employees, which included 50 in Water Quality Systems, 350 in Flow & Filtration Solutions and 150 in Technical Solutions.
Restructuring related costs included in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss) included costs for severance and other restructuring costs as follows:
 
Years ended December 31
In millions
2016
2015
2014
Severance and related costs
$
24.5

$
34.5

$
23.3

Other
—

6.8

16.2

Total restructuring costs
$
24.5

$
41.3

$
39.5

Other restructuring costs primarily consist of asset impairment and various contract termination costs.

Restructuring costs by reportable segment were as follows:
 
Years ended December 31
In millions
2016
2015
2014
Water Quality Systems
$
6.0

$
6.2

$
15.2

Flow & Filtration Solutions
4.5

11.2

14.0

Technical Solutions
12.3

15.7

4.3

Other
1.7

8.2

6.0

Consolidated
$
24.5

$
41.3

$
39.5

Activity related to accrued severance and related costs recorded in Other current liabilities in the Consolidated Balance Sheets is summarized as follows:
 
Years ended December 31
In millions
2016
2015
Beginning balance
$
37.1

$
34.7

Costs incurred
24.5

34.5

Cash payments and other
(36.2
)
(32.1
)
Ending balance
$
25.4

$
37.1

6.
Goodwill and Other Identifiable Intangible Assets
The changes in the carrying amount of goodwill for the years ended December 31, 2016 and 2015 by reportable segment were as follows:
In millions
December 31, 2015
Acquisitions/
divestitures
Purchase accounting adjustments
Foreign currency
translation/other
December 31, 2016
Water Quality Systems
$
1,121.1

$
20.8

$
—

$
(4.8
)
$
1,137.1

Flow & Filtration Solutions
882.7

—

—

(25.2
)
857.5

Technical Solutions
2,255.2

—

(30.9
)
(1.5
)
2,222.8

Total goodwill
$
4,259.0

$
20.8

$
(30.9
)
$
(31.5
)
$
4,217.4


58
Pentair plc and Subsidiaries
Notes to consolidated financial statements


In millions
December 31, 2014
Acquisitions/
divestitures
Foreign currency
translation/other
December 31, 2015
Water Quality Systems
$
1,137.6

$
—

$
(16.5
)
$
1,121.1

Flow & Filtration Solutions
942.4

—

(59.7
)
882.7

Technical Solutions
1,150.3

1,116.4

(11.5
)
2,255.2

Total goodwill
$
3,230.3

$
1,116.4

$
(87.7
)
$
4,259.0


Accumulated goodwill impairment losses were $200.5 million as of December 31, 2016 and 2015 .
Identifiable intangible assets consisted of the following at December 31:
   
2016
 
2015
In millions
Cost
Accumulated
amortization
Net
 
Cost
Accumulated
amortization
Net
Finite-life intangibles
 
 
 
 
 
 
 
Customer relationships
$
1,478.0

$
(346.7
)
$
1,131.3

 
$
1,482.9

$
(266.9
)
$
1,216.0

Trade names
1.8

(1.4
)
0.4

 
1.8

(1.2
)
0.6

Proprietary technology and patents
141.3

(100.3
)
41.0

 
144.1

(89.8
)
54.3

Total finite-life intangibles
1,621.1

(448.4
)
1,172.7

 
1,628.8

(357.9
)
1,270.9

Indefinite-life intangibles
 
 
 
 
 
 
 
Trade names
459.1

—

459.1

 
476.5

—

476.5

Total intangibles
$
2,080.2

$
(448.4
)
$
1,631.8

 
$
2,105.3

$
(357.9
)
$
1,747.4

Identifiable intangible asset amortization expense in 2016 , 2015 and 2014 was $96.4 million , $68.1 million and $60.6 million , respectively.
In 2016 , we recorded an impairment charge for trade name intangible assets of $13.3 million in Technical Solutions. There were no impairment charges recorded in 2015 and 2014 .
Estimated future amortization expense for identifiable intangible assets during the next five years is as follows:
In millions
2017
2018
2019
2020
2021
Estimated amortization expense
$
95.5

$
94.0

$
91.6

$
85.0

$
80.0



59
Pentair plc and Subsidiaries
Notes to consolidated financial statements


7.
Supplemental Balance Sheet Information
   
December 31
In millions
2016
2015
Inventories
 
 
Raw materials and supplies
$
223.5

$
243.9

Work-in-process
67.3

74.4

Finished goods
233.4

246.4

Total inventories
$
524.2

$
564.7

Other current assets
 
 
Cost in excess of billings
$
107.7

$
114.4

Prepaid expenses
68.7

59.1

Prepaid income taxes
67.2

0.8

Other current assets
9.8

45.7

Total other current assets
$
253.4

$
220.0

Property, plant and equipment, net
 
 
Land and land improvements
$
66.2

$
86.6

Buildings and leasehold improvements
335.0

338.9

Machinery and equipment
932.5

960.2

Construction in progress
68.6

68.3

Total property, plant and equipment
1,402.3

1,454.0

Accumulated depreciation and amortization
863.7

914.2

Total property, plant and equipment, net
$
538.6

$
539.8

Other non-current assets
 
 
Deferred income taxes
$
39.0

$
2.2

Deferred compensation plan assets
47.9

50.8

Other non-current assets
95.2

108.1

Total other non-current assets
$
182.1

$
161.1

Other current liabilities
 
 
Dividends payable
$
61.8

$
59.6

Accrued warranty
38.9

47.0

Accrued rebates
78.2

50.7

Billings in excess of cost
22.5

32.0

Income taxes payable
87.3

58.9

Other current liabilities
222.8

238.9

Total other current liabilities
$
511.5

$
487.1

Other non-current liabilities
 
 
Income taxes payable
$
36.1

$
46.8

Self-insurance liabilities
49.8

49.0

Deferred compensation plan liabilities
47.9

50.8

Other non-current liabilities
28.2

45.8

Total other non-current liabilities
$
162.0

$
192.4



60
Pentair plc and Subsidiaries
Notes to consolidated financial statements


8.
Supplemental Cash Flow Information
   
Years ended December 31
In millions
2016
2015
2014
Cash paid for interest, net
$
143.4

$
76.9

$
67.5

Cash paid for income taxes, net
145.1

182.8

134.2

9.
Accumulated Other Comprehensive Income (Loss)
Components of AOCI consist of the following:
   
December 31
In millions
2016
2015
Cumulative translation adjustments
$
(718.9
)
$
(635.9
)
Change in market value of derivative financial instruments, net of tax
(17.4
)
(9.1
)
Accumulated other comprehensive loss
$
(736.3
)
$
(645.0
)
10.
Debt
Debt and the average interest rates on debt outstanding were as follows:
In millions
Average
interest rate at
Maturity
year
December 31
December 31, 2016
2016
2015
Commercial paper
1.754%
2019
$
398.7

$
179.5

Revolving credit facilities
2.192%
2019
576.8

1,181.4

Senior notes - fixed rate
1.875%
2017
350.0

350.0

Senior notes - fixed rate
2.900%
2018
500.0

500.0

Senior notes - fixed rate
2.650%
2019
250.0

250.0

Senior notes - fixed rate - Euro
2.450%
2019
520.7

548.4

Senior notes - fixed rate
3.625%
2020
400.0

400.0

Senior notes - fixed rate
5.000%
2021
500.0

500.0

Senior notes - fixed rate
3.150%
2022
550.0

550.0

Senior notes - fixed rate
4.650%
2025
250.0

250.0

Other
N/A
N/A
0.8

—

Unamortized debt issuance costs and discounts
N/A
N/A
(17.8
)
(23.5
)
Total debt
 
 
4,279.2

4,685.8

Less: Current maturities and short-term borrowings
 
 
(0.8
)
—

Long-term debt
 
 
$
4,278.4

$
4,685.8

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.
The Senior Notes issued in the September 2015 Offerings, 1.875% Senior Notes due 2017 , 2.65% Senior Notes due 2019 , $373.0 million of the 5.00% Senior Notes due 2021 and 3.15% Senior Notes due 2022 issued by PFSA and $127.0 million of the 5.00% Senior Notes due 2021 issued by Pentair, Inc. (collectively, the "Notes"), are guaranteed as to payment by Pentair plc and PISG.
In October 2014, Pentair plc, PISG, PFSA and Pentair, Inc. entered into an amended and restated credit agreement (the "Credit Facility"), with Pentair plc and PISG as guarantors and PFSA and Pentair, Inc. as borrowers. The Credit Facility had a

61
Pentair plc and Subsidiaries
Notes to consolidated financial statements


maximum aggregate availability to $2,100.0 million and a maturity date of October 3, 2019. Borrowings under the 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 Credit Facility.
In August 2015, Pentair plc, PISG and PFSA entered into a First Amendment to the Credit Facility (the "First Amendment"), which, among other things, increased the Leverage Ratio (as defined below). In September 2015, Pentair plc, PISG and PFSA entered into a Second Amendment to the Credit Facility (the "Second Amendment"), which, among other things, increased the maximum aggregate availability to $2,500.0 million . Additionally, in September 2016, Pentair plc, PISG and PFSA entered into a Third Amendment to the Credit Facility (the "Third Amendment," and collectively with the First Amendment and Second Amendment, the "Amendments"), which, among other things, increased the maximum Leverage Ratio to the amounts specified below, and amended the definition of EBITDA to include earnings from discontinued operations subject to a sale agreement until such disposition actually occurs.
PFSA is authorized to sell short-term commercial paper notes to the extent availability exists under the Credit Facility. PFSA uses the Credit Facility as back-up liquidity to support 100% of commercial paper outstanding. As of December 31, 2016 and 2015 , we had $398.7 million and $179.5 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 Credit Facility.
Our debt agreements contain certain financial covenants, the most restrictive of which are in the 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, up to a lifetime maximum $25.0 million of costs, fees and expenses incurred in connection with certain acquisitions, investments, dispositions and the 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 September 30, 2016; (b) 4.50 to 1.00 as of the last day of the period of four consecutive fiscal quarters ending on December 31, 2016; (c) 4.25 to 1.00 as of the last day of the period of four consecutive fiscal quarters ending on March 31, 2017; (d) 4.00 to 1.00 as of the last day of the period of four consecutive fiscal quarters ending on June 30, 2017; and (e) 3.50 to 1.00 as of the last day of the period of four consecutive fiscal quarters ending thereafter, 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 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, 2016 , we were in compliance with all financial covenants in our debt agreements.
Total availability under the Credit Facility was $1,524.5 million as of December 31, 2016 , which was limited to $803.5 million by the Leverage Ratio in the Credit Facility's credit agreement.
In addition to the Credit Facility, we have various other credit facilities with an aggregate availability of $49.4 million , of which there were no outstanding borrowings at December 31, 2016 . Borrowings under these credit facilities bear interest at variable rates.
We have $350.0 million of fixed rate senior notes maturing in September 2017 . We classified this debt as long-term as of December 31, 2016 as we have the intent and ability to refinance such obligation on a long-term basis under the Credit Facility.
Debt outstanding, excluding unamortized issuance costs and discounts , at December 31, 2016 matures on a calendar year basis as follows:
In millions
2017
2018
2019
2020
2021
Thereafter
Total
Contractual debt obligation maturities
$
0.8

$
500.0

$
2,096.2

$
400.0

$
500.0

$
800.0

$
4,297.0


62
Pentair plc and Subsidiaries
Notes to consolidated financial statements


11.
Derivatives and Financial Instruments
Derivative financial instruments
We are exposed to market risk related to changes in foreign currency exchange rates. To manage the volatility related to this exposure, we periodically enter into a variety of derivative financial instruments. Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign currency rates. The derivative contracts contain credit risk to the extent that our bank counterparties may be unable to meet the terms of the agreements. The amount of such credit risk is generally limited to the unrealized gains, if any, in such contracts. Such risk is minimized by limiting those counterparties to major financial institutions of high credit quality.
Foreign currency contracts
We conduct business in various locations throughout the world and are subject to market risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. dollar. We manage our economic and transaction exposure to certain market-based risks through the use of foreign currency derivative financial instruments. Our objective in holding these derivatives is to reduce the volatility of net earnings and cash flows associated with changes in foreign currency exchange rates. The majority of our foreign currency contracts have an original maturity date of less than one year.

At December 31, 2016 and 2015 , we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts of $475.6 million and $331.5 million , respectively. The impact of these contracts on the Consolidated Statements of Operations and Comprehensive Income (Loss) was not material for any period presented.

Gains or losses on foreign currency contracts designated as hedges are reclassified out of AOCI and into Selling, general and administrative expense in the Consolidated Statements of Operations and Comprehensive Income (Loss) upon settlement. Such reclassifications during 2016 , 2015 and 2014 were not material.

Net investment hedge
We have net investments in foreign subsidiaries that are subject to changes in the foreign currency exchange rate. In September 2015, we designated the €500 million 2.45% Senior Notes due 2019 (the "2019 Euro Notes") as a net investment hedge for a portion of our net investment in our Euro denominated subsidiaries . The gains/losses on the 2019 Euro Notes have been included as a component of the cumulative translation adjustment account within AOCI. As of  December 31, 2016 and 2015 , we had deferred foreign currency gains of  $44.2 million  and $16.4 million , respectively, in AOCI associated with the net investment hedge activity.
Fair value of financial instruments
The following methods were used to estimate the fair values of each class of financial instrument:
•
short-term financial instruments (cash and cash equivalents, accounts and notes receivable, accounts and notes payable and variable-rate debt) — recorded amount approximates fair value because of the short maturity period;
•
long-term fixed-rate debt, including current maturities — fair value is based on market quotes available for issuance of debt with similar terms, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance; and
•
foreign currency contract agreements — fair values are determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance.
The recorded amounts and estimated fair values of total debt, excluding unamortized issuance costs and discounts , at December 31 were as follows:
 
2016
 
2015
In millions
Recorded
Amount
Fair Value
 
Recorded
Amount
Fair Value
Variable rate debt
$
976.3

$
976.3

 
$
1,360.9

$
1,360.9

Fixed rate debt
3,320.7

3,427.1

 
3,348.4

3,395.4

Total debt
$
4,297.0

$
4,403.4

 
$
4,709.3

$
4,756.3

 

63
Pentair plc and Subsidiaries
Notes to consolidated financial statements


Financial assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows:
Recurring fair value measurements
December 31, 2016
In millions
Level 1
Level 2
Level 3
Total
Foreign currency contract assets
$
—

$
5.5

$
—

$
5.5

Foreign currency contract liabilities
—

(5.4
)
—

(5.4
)
Deferred compensation plans assets (2)
41.6

6.3

—

47.9

Total recurring fair value measurements
$
41.6

$
6.4

$
—

$
48.0

Nonrecurring fair value measurements (1)
 
 
 
 
Recurring fair value measurements
December 31, 2015
In millions
Level 1
Level 2
Level 3
Total
Foreign currency contract assets
$
—

$
0.1

$
—

$
0.1

Foreign currency contract liabilities
—

(7.6
)
—

(7.6
)
Deferred compensation plan assets (2)
43.8

7.0

—

50.8

Total recurring fair value measurements
$
43.8

$
(0.5
)
$
—

$
43.3

Nonrecurring fair value measurements (3) (4)
 
 
 
 
 
(1)
During the fourth quarter of 2016, we completed our annual intangible assets impairment review. As a result, we recorded a pre-tax non-cash impairment charge of $13.3 million for a trade name intangible in 2016. The impairment charge reduced the carrying value of the impacted trade name intangible to $0. The fair value of trade names 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.

(2)
Deferred compensation plan assets include mutual funds, common/collective trusts and cash equivalents for payment of certain non-qualified benefits for retired, terminated and active employees. The fair value of mutual funds and cash equivalents were based on quoted market prices in active markets. The underlying investments in the common/collective trusts primarily include intermediate and long-term debt securities, corporate debt securities, equity securities and fixed income securities. The overall fair value of the common/collective trusts are based on observable inputs.
(3)
During the fourth quarter of 2015, we performed a goodwill impairment test for the Valves & Controls reporting unit using the required two-step process as of December 31, 2015. As a result, we recorded a non-cash goodwill impairment charge of $515.2 million . The first step of this process includes comparing the fair value to the carrying value of the reporting unit to which the goodwill is allocated to identify potential impairment. If the fair value of the reporting unit exceeds its carrying value, goodwill allocated to that reporting unit is not considered impaired. If the inverse result is observed, the reporting unit is considered to be impaired and step two of the test to measure the amount of impairment must be completed.
The fair value of the reporting unit was determined using a discounted cash flow analysis and market approach. Projecting discounted future cash flows requires us to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital and the appropriate discount rate. Use of the market approach consists of comparisons to comparable publicly-traded companies that are similar in size and industry. Actual results may differ from those used in our valuations.
Step two compares the implied fair value of the goodwill with the carrying value of that goodwill. If the carrying value of the goodwill exceeds its implied fair value, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.


64
Pentair plc and Subsidiaries
Notes to consolidated financial statements


(4)
During the fourth quarter of 2015, we performed an impairment test for our Valves & Controls trade names. As a result, we recorded a pre-tax, non-cash trade name impairment charge of $39.5 million . The fair value of trade names is measured using the relief-from-royalty method. This method assumes the trade name has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital.
The Valves & Controls business referred to above has met the criteria to be classified as held for sale and is presented as discontinued operations for all periods presented. See Note 3 of the Notes to the Consolidated Financial Statements for additional information.
12.
Income Taxes
Income from continuing operations before income taxes consisted of the following:
 
Years ended December 31
In millions
2016
2015
2014
Federal (1)
$
(25.6
)
$
(21.8
)
$
(15.8
)
International (2)
586.6

534.3

486.7

Income from continuing operations before income taxes
$
561.0

$
512.5

$
470.9

(1)
"Federal" reflects U.K. income from continuing operations before income taxes.
(2)
"International" reflects non-U.K. income from continuing operations before income taxes.
The provision for income taxes consisted of the following:
 
Years ended December 31
In millions
2016
2015
2014
Currently payable
 
 
 
Federal (1)
$
(0.1
)
$
—

$
0.5

International (2)
125.6

117.7

136.8

Total current taxes
125.5

117.7

137.3

Deferred
 
 
 
Federal (1)
(0.4
)
1.2

(0.7
)
International (2)
(15.7
)
(3.5
)
(22.3
)
Total deferred taxes
(16.1
)
(2.3
)
(23.0
)
Total provision for income taxes
$
109.4

$
115.4

$
114.3

(1)
"Federal" represents U.K. taxes.
(2)
"International" represents non-U.K. taxes.
Reconciliations of the federal statutory income tax rate to our effective tax rate were as follows:
 
Years ended December 31
Percentages
2016
2015
2014
Federal statutory income tax rate (1)
20.0

20.3

21.0

Tax effect of international operations (2)
(11.8
)
(6.5
)
(4.9
)
Change in valuation allowances
9.7

6.9

4.4

Withholding taxes
0.9

0.6

2.8

Interest limitations
0.6

0.7

1.0

Non-deductible transaction costs
0.1

0.5

—

Effective tax rate
19.5

22.5

24.3

(1)
The statutory rate for 2016 , 2015 and 2014 reflects the U.K. statutory rate of 20.0 percent , 20.3 percent and 21.0 percent , respectively.
(2)
The tax effect of international operations consists of non-U.K. jurisdictions.

65
Pentair plc and Subsidiaries
Notes to consolidated financial statements


Reconciliations of the beginning and ending gross unrecognized tax benefits were as follows:
 
Years ended December 31
In millions
2016
2015
2014
Beginning balance
$
45.6

$
40.3

$
39.5

Gross increases for tax positions in prior periods
27.4

4.7

0.8

Gross decreases for tax positions in prior periods
(4.8
)
(1.5
)
(0.2
)
Gross increases based on tax positions related to the current year
2.0

1.3

1.1

Gross decreases related to settlements with taxing authorities
(3.4
)
(1.9
)
(0.1
)
Reductions due to statute expiration
(0.8
)
(1.4
)
(1.1
)
Gross (decreases) increases due to currency fluctuations
(0.2
)
(2.5
)
0.3

Gross increases due to acquisitions
5.3

6.6

—

Ending balance
$
71.1

$
45.6

$
40.3

Included in the $71.1 million of total gross unrecognized tax benefits as of December 31, 2016 was $68.3 million of tax benefits that, if recognized, would impact the effective tax rate. It is reasonably possible that the gross unrecognized tax benefits as of December 31, 2016 may decrease by a range of zero to $42.2 million during 2017 , primarily as a result of the resolution of non-U.K. examinations, including U.S. federal and state examinations, and the expiration of various statutes of limitations. The $27.4 million gross increase for tax positions in prior periods consists primarily of a tentative settlement with the Internal Revenue Service ("IRS") related to the value of certain intellectual property sold from the U.S. to a non-U.S. affiliate. The increase for tax positions in prior periods had no impact on our effective tax rate.
Based on the outcome of these examinations, or as a result of the expiration of statute of limitations for specific jurisdictions, it is reasonably possible that certain unrecognized tax benefits for tax positions taken on previously filed tax returns will materially change from those recorded as liabilities in our financial statements. The IRS is currently examining the Panthro Acquisition Co. U.S. federal income tax returns for tax years ending December 31, 2012 and December 31, 2013. A number of tax periods from 2002 to present are under audit by tax authorities in various jurisdictions, including Canada, France, Germany, India, Italy, New Zealand and Singapore. We anticipate that several of these audits may be concluded in the foreseeable future. We are also subject to the 2012 Tax Sharing Agreement, discussed below, which generally applies to pre-Distribution Tyco tax periods which remain subject to audit by the IRS.
We record penalties and interest related to unrecognized tax benefits in Provision for income taxes and Interest expense , respectively, in the Consolidated Statements of Operations and Comprehensive Income (Loss). As of December 31, 2016 and 2015 , we have liabilities of $2.4 million and $2.3 million , respectively, for the possible payment of penalties and $11.0 million and $7.9 million , respectively, for the possible payment of interest expense, which are recorded in Other current liabilities in the Consolidated Balance Sheets.
Taxes have not been provided on undistributed earnings of subsidiaries where it is our intention to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so. It is not practicable to estimate the amount of tax that might be payable if such earnings were to be remitted.
Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as "temporary differences." We record the tax effect of these temporary differences as "deferred tax assets" (generally items that can be used as a tax deduction or credit in future periods) and "deferred tax liabilities" (generally items for which we received a tax deduction but the tax impact has not yet been recorded in the Consolidated Statements of Operations and Comprehensive Income (Loss)).
Deferred taxes were recorded in the Consolidated Balance Sheets as follows:
 
December 31
In millions
2016
2015
Other current assets
$
—

$
34.4

Other non-current assets
39.0

2.2

Deferred tax liabilities
609.5

670.2

Net deferred tax liabilities
$
570.5

$
633.6



66
Pentair plc and Subsidiaries
Notes to consolidated financial statements


The tax effects of the major items recorded as deferred tax assets and liabilities were as follows:
 
December 31
In millions
2016
2015
Deferred tax assets
 
 
Accrued liabilities and reserves
$
83.2

$
70.2

Pension and other post-retirement benefits
48.9

44.5

Employee compensation and benefits
76.6

78.3

Tax loss and credit carryforwards
391.0

293.8

Total deferred tax assets
599.7

486.8

Valuation allowance
380.8

286.5

Deferred tax assets, net of valuation allowance
218.9

200.3

Deferred tax liabilities
 
 
Property, plant and equipment
23.6

23.9

Goodwill and other intangibles
733.7

774.2

Other liabilities
32.1

35.8

Total deferred tax liabilities
789.4

833.9

Net deferred tax liabilities
$
570.5

$
633.6

As of December 31, 2016 , tax loss carryforwards of $1,462.4 million were available to offset future income. A valuation allowance of $378.9 million exists for deferred income tax benefits related to the tax loss carryforwards which may not be realized. The increase in tax loss carryforwards and valuation allowance from 2015 to 2016 were primarily related to restructuring and interest expense. We believe sufficient taxable income will be generated in the respective jurisdictions to allow us to fully recover the remainder of the tax losses. The tax losses relate to Non-U.S. carryforwards of $1,388.0 million which are subject to varying expiration periods. Non-U.S. carryforwards of $1,130.6 million are located in jurisdictions with unlimited tax loss carryforward periods, while the remainder will begin to expire in 2017 . In addition, there were no U.S. federal tax loss carryforwards and $74.4 million of state tax loss carryforwards as of December 31, 2016 , which will expire in future years through 2036 .
Tax sharing agreement
In connection with the Distribution, we entered into a tax sharing agreement (the "2012 Tax Sharing Agreement") with Tyco (now known as Johnson Controls International plc, "Johnson Controls") and The ADT Corporation ("ADT"), which governs the rights and obligations of ADT, Johnson Controls and us for certain pre-Distribution tax liabilities, including Johnson Controls' obligations under a separate tax sharing agreement (the "2007 Tax Sharing Agreement") entered into by Johnson Controls, 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 Johnson Controls.
The 2012 Tax Sharing Agreement provides that we, Johnson Controls and ADT will share (i) certain pre-Distribution income tax liabilities that arise from adjustments made by tax authorities to our, Johnson Controls' and ADT's U.S. income tax returns, including withholding tax, income tax or other tax liabilities that could arise if the Merger, Distribution or certain internal transactions undertaken in anticipation of the Distribution are determined to be taxable for U.S. federal or Swiss tax purposes, and (ii) payments required to be made by Johnson Controls with respect to the 2007 Tax Sharing Agreement (the liabilities in clauses (i) and (ii) collectively, "Shared Tax Liabilities"). Johnson Controls is responsible for the first $500 million of Shared Tax Liabilities. As of December 31, 2016, Johnson Controls has paid $210.0 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 Johnson Controls 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 Johnson Controls. As of December 31, 2016 , we have a liability of $13.3 million recorded for this matter in Other non-current liabilities in the Consolidated Balance Sheets.

In addition, 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 Johnson Controls, 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 Johnson Controls, then we, ADT and Johnson Controls 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 Johnson Controls are responsible for Shared Tax Liabilities.

67
Pentair plc and Subsidiaries
Notes to consolidated financial statements


13.
Benefit Plans
Pension and other post-retirement plans
We sponsor U.S. and Non-U.S. defined-benefit pension and other post-retirement plans. Pension benefits are based principally on an employee's years of service and/or compensation levels near retirement. In addition, we provide certain post-retirement health care and life insurance benefits. Generally, the post-retirement health care and life insurance plans require contributions from retirees. In December 2007, we announced that we will be freezing certain U.S. pension plans as of December 31, 2017.

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

Obligations and funded status
The following tables present reconciliations of plan benefit obligations, fair value of plan assets and the funded status of pension plans and other post-retirement plans as of and for the years ended December 31, 2016 and 2015 :
 
U.S. pension plans
 
Non-U.S. pension plans
 
Other post-retirement
plans
In millions
2016
2015
 
2016
2015
 
2016
2015
Change in benefit obligations
 
 
 
 
 
 
 
 
Benefit obligation beginning of year
$
396.9

$
416.2

 
$
173.4

$
189.6

 
$
38.8

$
41.5

Service cost
11.2

14.0

 
6.6

7.8

 
0.2

0.2

Interest cost
16.4

14.9

 
4.1

3.9

 
1.5

1.5

Actuarial loss (gain)
0.9

(39.1
)
 
16.8

(6.5
)
 
(0.5
)
(0.9
)
Foreign currency translation
—

—

 
(9.2
)
(17.0
)
 
—

—

Benefits paid
(12.1
)
(9.1
)
 
(4.9
)
(4.4
)
 
(3.1
)
(3.5
)
Benefit obligation end of year
$
413.3

$
396.9

 
$
186.8

$
173.4

 
$
36.9

$
38.8

Change in plan assets
 
 
 
 
 
 
 
 
Fair value of plan assets beginning of year
$
327.7

$
343.9

 
$
46.6

$
49.9

 
$
—

$
—

Actual return on plan assets
24.6

(11.1
)
 
3.0

1.3

 
—

—

Company contributions
4.2

4.0

 
5.8

5.2

 
3.1

3.5

Foreign currency translation
—

—

 
(4.8
)
(5.4
)
 
—

—

Benefits paid
(12.1
)
(9.1
)
 
(4.9
)
(4.4
)
 
(3.1
)
(3.5
)
Fair value of plan assets end of year
$
344.4

$
327.7

 
$
45.7

$
46.6

 
$
—

$
—

Funded status
 
 
 
 
 
 
 
 
Benefit obligations in excess of the fair value of plan assets
$
(68.9
)
$
(69.2
)
 
$
(141.1
)
$
(126.8
)
 
$
(36.9
)
$
(38.8
)
Amounts recorded in the Consolidated Balance Sheets were as follows:
 
U.S. pension plans
 
Non-U.S. pension plans
 
Other post-retirement
plans
In millions
2016
2015
 
2016
2015
 
2016
2015
Other non-current assets
$
0.8

$
0.5

 
$
3.2

$
4.5

 
$
—

$
—

Current liabilities
(4.4
)
(4.1
)
 
(2.9
)
(3.0
)
 
(3.2
)
(3.3
)
Non-current liabilities
(65.3
)
(65.6
)
 
(141.4
)
(128.3
)
 
(33.7
)
(35.5
)
Benefit obligations in excess of the fair value of plan assets
$
(68.9
)
$
(69.2
)
 
$
(141.1
)
$
(126.8
)
 
$
(36.9
)
$
(38.8
)
The accumulated benefit obligation for all defined benefit plans was $585.9 million and $547.9 million at December 31, 2016 and 2015 , respectively.
 

68
Pentair plc and Subsidiaries
Notes to consolidated financial statements


Information for pension plans with an accumulated benefit obligation or projected benefit obligation in excess of plan assets as of December 31 was as follows:
 
Projected benefit obligation
exceeds the fair value
of plan assets
 
Accumulated benefit  obligation
exceeds the fair value of
plan assets
In millions
2016
2015
 
2016
2015
U.S. pension plans
 
 
 
 
 
Projected benefit obligation
$
87.2

$
86.4

 
$
87.2

$
86.4

Fair value of plan assets
17.5

16.6

 
17.5

16.6

Accumulated benefit obligation
N/A

N/A

 
86.3

82.4

Non-U.S. pension plans
 
 
 
 
 
Projected benefit obligation
$
165.2

$
152.7

 
$
165.2

$
145.0

Fair value of plan assets
20.9

21.4

 
20.9

14.2

Accumulated benefit obligation
NA

NA

 
155.7

136.8

Components of net periodic benefit expense for our pension plans for the years ended December 31 were as follows:
 
U. S. pension plans
 
Non-U.S. pension plans
In millions
2016
2015
2014
 
2016
2015
2014
Service cost
$
11.2

$
14.0

$
13.1

 
$
6.6

$
7.8

$
5.3

Interest cost
16.4

14.9

15.4

 
4.1

3.9

5.3

Expected return on plan assets
(11.4
)
(10.0
)
(10.5
)
 
(1.5
)
(1.6
)
(1.7
)
Net actuarial (gain) loss
(12.4
)
(18.0
)
(3.1
)
 
17.2

(2.4
)
31.5

Net periodic benefit expense
$
3.8

$
0.9

$
14.9

 
$
26.4

$
7.7

$
40.4

Components of net periodic benefit expense for our other post-retirement plans for the years ended December 31 2016 , 2015 and 2014 , were not material.

Assumptions
Weighted-average assumptions used to determine benefit obligations as of December 31 were as follows:
 
U.S. pension plans
 
Non-U.S. pension plans
 
Other post-retirement
plans
Percentages
2016
2015
2014
 
2016
2015
2014
 
2016
2015
2014
Discount rate
4.02
%
4.21
%
3.63
%
 
2.00
%
2.52
%
2.30
%
 
3.80
%
3.95
%
3.60
%
Rate of compensation increase
4.00
%
4.00
%
4.00
%
 
2.91
%
2.90
%
2.89
%
 
—
—
—

Weighted-average assumptions used to determine net periodic benefit expense (income) for years ended December 31 were as follows:
 
U.S. pension plans
 
Non-U.S. pension plans
 
Other post-retirement
plans
Percentages
2016
2015
2014
 
2016
2015
2014
 
2016
2015
2014
Discount rate
4.21
%
3.63
%
4.51
%
 
2.52
%
2.30
%
3.73
%
 
3.95
%
3.60
%
4.35
%
Expected long-term return on plan assets
4.28
%
3.65
%
4.56
%
 
3.29
%
3.57
%
4.19
%
 
—
—
—
Rate of compensation increase
4.00
%
4.00
%
4.00
%
 
2.90
%
2.89
%
2.94
%
 
—
—
—
Uncertainty in the securities markets and U.S. economy could result in investment returns less than those assumed. Should the securities markets decline or medical and prescription drug costs increase at a rate greater than assumed, we would expect increasing annual combined net pension and other post-retirement costs for the next several years. Should actual experience

69
Pentair plc and Subsidiaries
Notes to consolidated financial statements


differ from actuarial assumptions, the projected pension benefit obligation and net pension cost and accumulated other post-retirement benefit obligation and other post-retirement benefit cost would be affected in future years.
Discount rates
The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year based on our December 31 measurement date. The discount rate was determined by matching our expected benefit payments to payments from a stream of bonds rated AA or higher available in the marketplace, adjusted to eliminate the effects of call provisions. This produced a weighted-average discount rate for our U.S. pension plans of 4.02% , 4.21% and 3.63% in 2016 , 2015 and 2014 , respectively. The discount rates on our non-U.S. pension plans ranged from 0.50% to 4.00% , 0.50% to 4.25% and 0.50% to 4.25% in 2016 , 2015 and 2014 , respectively. There are no known or anticipated changes in our discount rate assumptions that will impact our pension expense in 2017 .
Expected rates of return
Our expected rates of return on U.S. pension plan assets were 4.28% , 3.65% and 4.56% for 2016 , 2015 and 2014 , respectively. The expected rates of return on non-U.S. pension plan assets ranged from 1.00% to 5.50% , 1.00% to 6.00% and 1.00% to 6.00% in 2016 , 2015 and 2014 , respectively. 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. U.S. pension plan assets yielded returns of 7.50% , (3.20)% and 22.30% in 2016 , 2015 and 2014 , respectively. As a result of our de-risking strategy to reduce U.S. pension plan liability, we anticipate the expected rate of return on our U.S. funded pension plans will continue to be consistent with the discount rate utilized. Any difference in the expected rate and actual returns will be included with the actuarial gain or loss recorded in the fourth quarter when our plans are remeasured.
Healthcare cost trend rates
The assumed healthcare cost trend rates for other post-retirement plans as of December 31 were as follows:
 
2016
2015
Healthcare cost trend rate assumed for following year
7.0
%
7.4
%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
4.4
%
4.4
%
Year the cost trend rate reaches the ultimate trend rate
2038

2038

The assumed healthcare cost trend rates can have a significant effect on the amounts reported for healthcare plans. A one-percentage-point change in the assumed healthcare cost trend rates would have the following effects as of and for the year ended December 31, 2016 :
 
One Percentage Point
In millions
Increase
Decrease
Increase (decrease) in annual service and interest cost
$
0.1

$
(0.1
)
Increase (decrease) in other post-retirement benefit obligations
0.8

(0.7
)
Pension plans assets
Objective
The primary objective of our investment strategy is to meet the pension obligation to our employees at a reasonable cost to us. This is primarily accomplished through growth of capital and safety of the funds invested.
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. 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, 2016 , the U.S. pension plans have an approximately 99 percent allocation to fixed income investments.
Asset allocation
Our actual overall asset allocation for our U.S. and non-U.S. pension plans as compared to our investment policy goals as of December 31 was as follows:

70
Pentair plc and Subsidiaries
Notes to consolidated financial statements


 
U.S. pension plans
 
Actual
 
Target
Percentages
2016
2015
 
2016
2015
Fixed income
99
%
98
%
 
100
%
100
%
Alternative
1
%
2
%
 
—
%
—
%
 
 
Non-U.S. pension plans
 
Actual
 
Target
Percentages
2016
2015
 
2016
2015
Equity securities
23
%
23
%
 
23
%
22
%
Fixed income
46
%
46
%
 
48
%
48
%
Alternative
26
%
27
%
 
27
%
28
%
Cash
5
%
4
%
 
2
%
2
%
Fair value measurement
The fair values of our pension plan assets and their respective levels in the fair value hierarchy as of December 31, 2016 and December 31, 2015 were as follows:
 
December 31, 2016
In millions
Level 1
Level 2
Level 3
Total
Cash and cash equivalents
$
—

$
3.4

$
—

$
3.4

Fixed income:




Corporate and non U.S. government
—

290.5

—

290.5

U.S. treasuries
—

30.5

—

30.5

Mortgage-backed securities
—

4.5

—

4.5

Other
—

37.0

—

37.0

Global equity securities:
 
 
 
 
Large cap equity
—

2.2

—

2.2

International equity
—

8.3

—

8.3

Other investments
—

11.7

2.0

13.7

Total fair value of plan assets
$
—

$
388.1

$
2.0

$
390.1


 
December 31, 2015
In millions
Level 1
Level 2
Level 3
Total
Cash and cash equivalents
$
—

$
3.1

$
—

$
3.1

Fixed income:




Corporate and non U.S. government
—

248.6

—

248.6

U.S. treasuries
—

52.0

—

52.0

Mortgage-backed securities
—

5.8

—

5.8

Other
—

37.2

—

37.2

Global equity securities:
 
 
 
 
Large cap equity
—

2.4

—

2.4

International equity
—

7.8

—

7.8

Other investments
—

13.3

4.1

17.4

Total fair value of plan assets
$
—

$
370.2

$
4.1

$
374.3


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

71
Pentair plc and Subsidiaries
Notes to consolidated financial statements


•
Cash and cash equivalents: Cash consists of cash held in bank accounts and was classified as Level 1. Cash equivalents consist of investments in commingled funds valued based on observable market data. Such investments were classified as Level 2.
•
Fixed income:  Investments in corporate bonds, government securities, mortgages and asset backed securities were valued based upon quoted market prices for similar securities and other observable market data. Investments in commingled funds were generally valued at the net asset value of units held at the end of the period based upon the value of the underlying investments as determined by quoted market prices or by a pricing service. Such investments were classified as Level 2.
•
Global equity securities:  Investments in commingled funds were valued at the net asset value of units held at the end of the period based upon the value of the underlying investments as determined by quoted market prices or by a pricing service. Such investments were classified as Level 2.
•
Other investments:  Other investments include investments in commingled funds with diversified investment strategies. Investments in commingled funds that were valued at the net asset value of units held at the end of the period based upon the value of the underlying investments as determined by quoted market prices or by a pricing service were classified as Level 2. Investments in commingled funds that were valued based on unobservable inputs due to liquidation restrictions were classified as Level 3.
Activity for our Level 3 pension plan assets held during the years ended December 31, 2016 and 2015 was not material.
Cash flows
Contributions
Pension contributions totaled $10.0 million and $9.2 million in 2016 and 2015 , respectively. Our 2017 pension contributions are expected to be approximately $22.0 million to $27.0 million . The 2017 expected contributions will equal or exceed our minimum funding requirements.
 
Estimated future benefit payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans for the years ended December 31 as follows:
In millions
U.S. pension
plans
Non-U.S.
pension plans
Other post-
retirement
plans
2017
$
13.9

$
4.3

$
3.1

2018
16.2

4.6

3.1

2019
18.5

5.5

3.1

2020
19.3

7.3

3.0

2021
19.3

5.2

2.9

Thereafter
113.4

33.1

12.5

Savings plan
We have a 401(k) plan (the "401(k) plan") with an employee share ownership ("ESOP") bonus component, which covers certain union and all non-union U.S. employees who meet certain age requirements. Under the 401(k) plan, eligible U.S. employees may voluntarily contribute a percentage of their eligible compensation. We match contributions made by employees who meet certain eligibility and service requirements. Our matching contribution is 100% of eligible employee contributions for the first 1% of eligible compensation and 50% of the next 5% of eligible compensation.
In addition to the matching contribution, all employees who meet certain service requirements receive a discretionary ESOP contribution equal to 1.5% of annual eligible compensation.
Our combined expense for the 401(k) plan and the ESOP was $27.1 million , $26.5 million and $21.5 million in 2016 , 2015 and 2014 , respectively.
Other retirement compensation
Total other accrued retirement compensation, primarily related to deferred compensation and supplemental retirement plans, was $61.0 million and $65.8 million as of December 31, 2016 and 2015 , respectively, and is included in Pension and other post-retirement compensation and benefits and Other non-current liabilities in the Consolidated Balance Sheets.

72
Pentair plc and Subsidiaries
Notes to consolidated financial statements


14.
Shareholders' Equity
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 does not have an expiration date. In October 2012, the Board of Directors authorized the repurchase of our ordinary shares with a maximum dollar limit of $800.0 million . The 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 our ordinary shares up to a maximum dollar limit of $1.0 billion . The authorization expired on December 31, 2016. 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 . 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. We have $800.0 million remaining availability for repurchases under the 2014 authorization.
Dividends payable
On December 6, 2016, the Board of Directors declared a quarterly cash dividend of $0.345 that was paid on February 10, 2017 to shareholders of record at the close of business on January 27, 2017. Additionally, the Board of Directors approved a plan to increase the 2017 annual cash dividend to $1.38 , which is intended to be paid in four quarterly installments. As a result, the balance of dividends payable included in Other current liabilities on our Consolidated Balance Sheets was $61.8 million at December 31, 2016 . Dividends paid per ordinary share were $1.34 , $1.28 and $1.10 for the years ended December 31, 2016 , 2015 and 2014 , respectively.
15.
Share Plans
Share-based compensation expense
Total share-based compensation expense for 2016 , 2015 and 2014 was as follows:
 
December 31
In millions
2016
2015
2014
Restricted stock units
$
17.3

$
21.6

$
22.6

Stock options
10.4

11.4

11.0

Performance share units
6.5

—

—

Total share-based compensation expense
$
34.2

$
33.0

$
33.6

Share incentive plans
Prior to the Merger, our Board of Directors, and Tyco as our sole shareholder, approved the Pentair plc 2012 Stock and Incentive Plan (the "2012 Plan"). The 2012 Plan became effective on September 28, 2012 and authorizes the issuance of 9.0 million of our ordinary shares. The shares may be issued as new shares or from shares held in treasury. Prior to the cancellation of our shares held in treasury in August 2015, our practice was to settle equity-based awards from shares held in treasury. Subsequent to the cancellation, our practice is to settle equity-based awards by issuing new shares. The 2012 Plan terminates in September 2022. The 2012 Plan allows for the granting to our officers, directors, employees and consultants of non-qualified stock options, incentive stock options, stock appreciation rights, performance shares, performance units, restricted shares, restricted stock units, deferred stock rights, annual incentive awards, dividend equivalent units and other equity-based awards.
The 2012 Plan is administered by our compensation committee (the "Committee"), which is made up of independent members of our Board of Directors. Employees eligible to receive awards under the 2012 Plan are managerial, administrative or other key employees who are in a position to make a material contribution to the continued profitable growth and long-term success of our company. The Committee has the authority to select the recipients of awards, determine the type and size of awards,

73
Pentair plc and Subsidiaries
Notes to consolidated financial statements


establish certain terms and conditions of award grants and take certain other actions as permitted under the 2012 Plan. The 2012 Plan prohibits the Committee from re-pricing awards or cancelling and reissuing awards at lower prices.
The 2008 Omnibus Stock Incentive Plan as Amended and Restated (the "2008 Plan") terminated upon the completion of the Merger. Prior grants of restricted stock units and stock options made under the 2008 Plan and earlier stock incentive plans outstanding at completion of the Merger were converted into equity-based awards with respect to our ordinary shares and were assumed by us on the terms in effect at the time of grant and are outstanding under the 2012 Plan.
Non-qualified and incentive stock options
Under the 2012 Plan, we may grant stock options to any eligible employee with an exercise price equal to the market value of the shares on the dates the options were granted. Options generally vest over a three -year period commencing on the grant date and expire 10 years after the grant date.
Restricted shares and restricted stock units
Under the 2012 Plan, eligible employees may be awarded restricted shares or restricted stock units of our common stock. Restricted shares and restricted stock units generally vest one-third each year over a three -year period after issuance, subject to continuous employment and certain other conditions. Restricted shares and restricted stock units are valued at market value on the date of grant and are expensed over the vesting period.
Stock appreciation rights, performance shares and performance units
Under the 2012 Plan, the Committee is permitted to issue these awards which are generally earned over a three -year vesting period and tied to specific financial metrics. In December 2015, the Committee approved the grant of performance share units ("PSUs") to certain employees that vest based on the satisfaction of a three-year service period and the achievement of certain performance metrics over that same period. Upon vesting, PSU holders receive dividends that accumulate during the vesting period. The fair value of these PSUs is determined based on the closing market price of the Company's ordinary shares at the date of grant. Compensation expense is recognized over the period an employee is required to provide service based on the estimated vesting of the PSUs granted. The estimated vesting of the PSUs is based on the probability of achieving certain financial performance metrics during the three year vesting period.
Stock options
The following table summarizes stock option activity under all plans for the year ended December 31, 2016 :
Shares and intrinsic value in millions
Number of shares
Weighted-
average
exercise
price
Weighted-
average
remaining
contractual life
(years)
Aggregate
intrinsic
value
Outstanding as of January 1, 2016
5.6

$
42.55

 
 
Granted
1.3

47.99

 
 
Exercised
(1.0
)
32.38

 
 
Forfeited
(0.1
)
59.24

 
 
Expired
(0.1
)
30.18

 
 
Outstanding as of December 31, 2016
5.7

$
45.72

5.3
$
74.9

Options exercisable as of December 31, 2016
3.9

$
41.05

3.9
$
67.3

Options expected to vest as of December 31, 2016
1.8

$
56.04

8.6
$
7.6

Fair value of options granted
The weighted average grant date fair value of options granted under Pentair plans in 2016 , 2015 and 2014 was estimated to be $9.74 , $16.40 and $23.23 per share, respectively. The total intrinsic value of options that were exercised during 2016 , 2015 and 2014 was $27.1 million , $20.8 million and $34.8 million , respectively. At December 31, 2016 , the total unrecognized compensation cost related to stock options was $11.6 million . This cost is expected to be recognized over a weighted average period of 2.1 years .

74
Pentair plc and Subsidiaries
Notes to consolidated financial statements


We estimated the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model, modified for dividends and using the following weighted average assumptions:
 
December 31
 
2016
 
2015
 
2014
Risk-free interest rate
1.56
%

1.60
%
 
1.44
%
Expected dividend yield
2.49
%

1.97
%
 
1.46
%
Expected share price volatility
27.3
%

30.4
%
 
35.3
%
Expected term (years)
5.9


6.0

 
5.6

 
These estimates require us to make assumptions based on historical results, observance of trends in our share price, changes in option exercise behavior, future expectations and other relevant factors. If other assumptions had been used, share-based compensation expense, as calculated and recorded under the accounting guidance, could have been affected.
We based the expected life assumption on historical experience as well as the terms and vesting periods of the options granted. For purposes of determining expected volatility, we considered a rolling average of historical volatility measured over a period approximately equal to the expected option term. The risk-free rate for periods that coincide with the expected life of the options is based on the U.S. Treasury Department yield curve in effect at the time of grant.
Cash received from option exercises for the years ended December 31, 2016 , 2015 and 2014 was $31.6 million , $28.7 million and $46.6 million , respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $5.5 million , $4.8 million and $8.3 million for the years ended December 31, 2016 , 2015 and 2014 , respectively.
Restricted stock units
The following table summarizes restricted stock unit activity under all plans for the year ended December 31, 2016 :
Shares in millions
Number of
shares
Weighted
average
grant date
fair value
Outstanding as of January 1, 2016
0.8

$
55.64

Granted
0.4

50.72

Vested
(0.5
)
52.37

Forfeited
—

—

Outstanding as of December 31, 2016
0.7

$
55.31

As of December 31, 2016 , there was $29.1 million of unrecognized compensation cost related to restricted share compensation arrangements granted under the 2012 Plan and previous plans. That cost is expected to be recognized over a weighted-average period of 2.3 years. The total fair value of shares vested during the years ended December 31, 2016 , 2015 and 2014 , was $27.2 million , $26.0 million and $26.3 million , respectively. For the year ended December 31, 2016 there was no actual tax benefit realized. The actual tax benefit realized for the years ended December 31, 2015 , and 2014 was $2.4 million and $3.1 million , respectively.
Performance share units
The following table summarizes performance share unit activity under all plans for the year ended December 31, 2016 :
Shares in millions
Number of
shares
Weighted
average
grant date
fair value
Outstanding as of January 1, 2016
—

$
—

Granted
0.3

49.53

Vested
—

—

Forfeited
—

—

Outstanding as of December 31, 2016
0.3

$
49.54

The expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued. As of December 31, 2016 , there was $7.9 million of unrecognized compensation cost related to performance share compensation

75
Pentair plc and Subsidiaries
Notes to consolidated financial statements


arrangements granted under the 2012 Plan and previous plans. That cost is expected to be recognized over a weighted-average period of 2.0 years. There were no actual tax benefits realized related to performance share compensation arrangements for the year ended December 31, 2016 .
16.
Segment Information
We classify our operations into the following business segments based primarily on types of products offered and markets served:
•
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.
•
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.
•
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.
•
Other — Other is primarily composed of unallocated corporate expenses, our captive insurance subsidiary and intermediate finance companies.
During the first quarter of 2017, we reorganized our business segments to reflect a new operating structure, resulting in a change to our reporting segments in 2017. All segment information presented in this note and throughout this Annual Report on Form 10-K was prepared based on the reporting segments in place during 2016, unless otherwise noted.
The accounting policies of our reporting segments are the same as those described in the summary of significant accounting policies. We evaluate performance based on the net sales and segment income (loss) and use a variety of ratios to measure performance of our reporting segments. These results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented. Segment income (loss) represents equity income of unconsolidated subsidiaries and operating income exclusive of intangible amortization, certain acquisition related expenses, costs of restructuring activities, "mark-to-market" gain/loss for pension and other post-retirement plans, impairments and other unusual non-operating items.

76
Pentair plc and Subsidiaries
Notes to consolidated financial statements


Financial information by reportable segment is included in the following summary:
 
2016
2015
2014
 
2016
2015
2014
In millions
Net sales
 
Segment income (loss)
Water Quality Systems
$
1,428.2

$
1,381.5

$
1,356.4

 
$
313.3

$
281.8

$
253.3

Flow & Filtration Solutions
1,363.1

1,441.6

1,603.1

 
180.7

187.2

201.3

Technical Solutions
2,116.0

1,809.3

1,728.1

 
447.2

395.0

378.1

Other
(17.3
)
(16.0
)
(20.8
)
 
(101.7
)
(108.8
)
(127.5
)
Consolidated
$
4,890.0

$
4,616.4

$
4,666.8

 
$
839.5

$
755.2

$
705.2

 
2016
2015
2014
 
2016
2015
2014
In millions
Identifiable assets (1)
 
Depreciation
Water Quality Systems
$
1,741.1

$
1,801.7

$
1,828.3

 
$
22.8

$
21.7

$
21.9

Flow & Filtration Solutions
1,724.4

1,822.8

2,040.0

 
24.0

23.6

23.7

Technical Solutions
4,419.3

4,488.4

2,117.3

 
31.6

27.6

24.2

Other
3,650.0

3,720.6

4,658.2

 
6.2

8.3

9.9

Consolidated
$
11,534.8

$
11,833.5

$
10,643.8

 
$
84.6

$
81.2

$
79.7

 
2016
2015
2014
In millions
Capital expenditures
Water Quality Systems
$
24.1

$
21.1

$
20.6

Flow & Filtration Solutions
16.7

20.4

24.9

Technical Solutions
74.5

47.4

24.0

Other
2.5

2.4

14.2

Consolidated
$
117.8

$
91.3

$
83.7

(1)
  All cash and cash equivalents and assets held for sale are included in "Other."
The following table presents a reconciliation of consolidated segment income to consolidated i ncome from continuing operations before income taxes:
In millions
2016
2015
2014
Segment income
$
839.5

$
755.2

$
705.2

Deal related costs and expenses
—

(14.3
)
—

Inventory step-up
—

(35.7
)
—

Restructuring and other
(20.6
)
(42.5
)
(63.1
)
Intangible amortization
(96.4
)
(68.1
)
(60.6
)
Pension and other post-retirement mark-to-market (loss) gain
(4.2
)
23.0

(31.5
)
Trade name impairment
(13.3
)
—

—

Redomicile related expenses
—

—

(10.3
)
Loss on sale of businesses, net
(3.9
)
(3.2
)
(0.2
)
Interest expense, net

(140.1
)
(101.9
)
(68.6
)
Income from continuing operations before income taxes
$
561.0

$
512.5

$
470.9


77
Pentair plc and Subsidiaries
Notes to consolidated financial statements


The following tables present certain geographic information by region:
 
2016
2015
2014
 
2016
2015
2014
In millions
Net sales
 
Long-lived assets
U.S.
$
2,897.1

$
2,634.0

$
2,575.9

 
$
309.5

$
285.9

$
248.9

Western Europe
796.0

727.6

793.7

 
138.6

150.7

137.6

Developing (1)
704.0

731.6

796.0

 
65.2

60.3

76.0

Other Developed (2)
492.9

523.2

501.2

 
25.3

42.9

47.2

Consolidated
$
4,890.0

$
4,616.4

$
4,666.8

 
$
538.6

$
539.8

$
509.7

(1) - Developing includes China, Eastern Europe, Latin America, the Middle East and Southeast Asia.
(2) - Other Developed includes Australia, Canada and Japan.
Net sales are based on the geographic destination of the sale. Long-lived assets represent property, plant and equipment, net of related depreciation. Net sales shipped to and long-lived assets held in Ireland for each year presented above were not material.
We offer a broad array of products and systems to multiple markets and customers for which we do not have the information systems to track revenues by primary product category. However, our net sales by segment are representative of our sales by major product category. We sell our products through various distribution channels including wholesale and retail distributors, original equipment manufacturers and home centers. No customer accounted for more than 10% of net sales in 2016 , 2015 , or 2014 .
17.
Commitments and Contingencies
Operating lease commitments
Net rental expense under operating leases was as follows:
 
Years ended December 31
In millions
2016
2015
2014
Gross rental expense
$
37.5

$
26.4

$
38.2

Sublease rental income
(0.7
)
(0.4
)
(1.0
)
Net rental expense
$
36.8

$
26.0

$
37.2

Future minimum lease commitments under non-cancelable operating leases, principally related to facilities, machinery, equipment and vehicles as of December 31, 2016 were as follows:
In millions
2017
2018
2019
2020
2021
Thereafter
Total
Minimum lease payments
$
31.0

$
24.7

$
20.1

$
14.8

$
11.1

$
12.5

$
114.2

Minimum sublease rentals
(1.2
)
(0.8
)
(0.8
)
(0.4
)
(0.4
)
(0.3
)
(3.9
)
Net future minimum lease commitments
$
29.8

$
23.9

$
19.3

$
14.4

$
10.7

$
12.2

$
110.3


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, 2016 , there were approximately 3,800 claims outstanding against our subsidiaries, of which approximately 3,300 relate to the Valves & Controls business classified as held for sale. This amount includes adjustments for claims that are not actively being prosecuted. This amount is not adjusted for claims that identify incorrect defendants, or duplicate other

78
Pentair plc and Subsidiaries
Notes to consolidated financial statements


actions. In addition, the amount does not include certain claims pending against third parties for which we have been provided an indemnification.
Periodically, we perform an analysis with the assistance of outside counsel and other experts to update our estimated asbestos-related assets and liabilities. Our estimate of the liability and corresponding insurance recovery for pending and future claims and defense costs is based on our historical claim experience and estimates of the number and resolution cost of potential future claims that may be filed. Our legal strategy for resolving claims also impacts these estimates.
Our estimate of asbestos-related insurance recoveries represents estimated amounts due to us for previously paid and settled claims and the probable reimbursements relating to our estimated liability for pending and future claims. In determining the amount of insurance recoverable, we consider a number of factors, including available insurance, allocation methodologies and the solvency and creditworthiness of insurers.
Our estimated liability for asbestos-related claims was $228.3 million and $237.9 million as of December 31, 2016 and 2015 , respectively, and was recorded in Non-current liabilities held for sale in the Consolidated Balance Sheets for pending and future claims and related defense costs. Our estimated receivable for insurance recoveries was $108.5 million and $111.0 million , respectively, at December 31, 2016 and 2015 and was recorded in Non-current assets held for sale in the Consolidated Balance Sheets.
The amounts recorded by us for asbestos-related liabilities and insurance-related assets are based on our strategies for resolving our asbestos claims and currently available information as well as estimates and assumptions. Key variables and assumptions include the number and type of new claims filed each year, the average cost of resolution of claims, the resolution of coverage issues with insurance carriers, the amounts of insurance and the related solvency risk with respect to our insurance carriers, and the indemnifications we have provided to third parties. Furthermore, predictions with respect to these variables are subject to greater uncertainty in the latter portion of the projection period. Other factors that may affect our liability and cash payments for asbestos-related matters include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms of state or federal tort legislation and the applicability of insurance policies among subsidiaries. As a result, actual liabilities or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in our calculations vary significantly from actual results.
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 $18.3 million and $22.8 million as of December 31, 2016 and 2015 , respectively, which relate primarily to the Valves & Controls business classified as held for sale and were recorded in Other current liabilities held for sale and Other non-current liabilities held for sale in the Consolidated Balance Sheets.
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.

79
Pentair plc and Subsidiaries
Notes to consolidated financial statements


Other matters
In addition to the matters described above, from time to time, we are subject to disputes, administrative proceedings and other claims arising out of the normal conduct of our business. These matters generally relate to disputes arising out of the use or installation of our products, product liability litigation, personal injury claims, commercial and contract disputes and employment related matters. On the basis of information currently available to it, management does not believe that existing proceedings and claims will have a material impact on our Consolidated Financial Statements. However, litigation is unpredictable, and we could incur judgments or enter into settlements for current or future claims that could adversely affect our financial statements.
Warranties and guarantees
In connection with the disposition of our businesses or product lines, we may agree to indemnify purchasers for various potential liabilities relating to the sold business, such as pre-closing tax, product liability, warranty, environmental, or other obligations. The subject matter, amounts and duration of any such indemnification obligations vary for each type of liability indemnified and may vary widely from transaction to transaction.
Generally, the maximum obligation under such indemnifications is not explicitly stated and as a result, the overall amount of these obligations cannot be reasonably estimated. Historically, we have not made significant payments for these indemnifications. We believe that if we were to incur a loss in any of these matters, the loss would not have a material effect on our financial condition or results of operations.
We recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.
We provide service and warranty policies on our products. Liability under service and warranty policies is based upon a review of historical warranty and service claim experience. Adjustments are made to accruals as claim data and historical experience warrant.
The changes in the carrying amount of service and product warranties for the years ended December 31, 2016 and 2015 were as follows:
 
Years ended December 31
In millions
2016
2015
Beginning balance
$
47.0

$
51.8

Service and product warranty provision
59.7

56.6

Payments
(67.3
)
(60.4
)
Foreign currency translation
(0.5
)
(1.0
)
Ending balance
$
38.9

$
47.0

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 of Flow Control from Tyco, 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, 2016 and 2015 , the outstanding value of bonds, letters of credit and bank guarantees totaled $331.0 million and $402.2 million , respectively, of which $156.6 million and $202.3 million , respectively, relate to the Valves & Controls business classified as held for sale.

80
Pentair plc and Subsidiaries
Notes to consolidated financial statements


18.
Selected Quarterly Data (Unaudited)
The following tables present 2016 and 2015 quarterly financial information:
 
2016
In millions, except per-share data
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full
Year
Net sales
$
1,190.0

$
1,301.2

$
1,210.7

$
1,188.1

$
4,890.0

Gross profit
431.3

481.8

440.9

440.1

1,794.1

Operating income
152.7

203.4

182.8

161.8

700.7

Net income from continuing operations
91.8

132.7

117.5

109.6

451.6

Income from discontinued operations, net of tax
15.6

10.1

22.9

21.4

70.0

Gain from sale of discontinued operations, net of tax
—

—

0.6

—

0.6

Net income
107.4

142.8

141.0

131.0

522.2

Earnings per ordinary share (1)
 
 
 
 
 
Basic
 
 
 
 
 
Continuing operations
$
0.50

$
0.73

$
0.65

$
0.60

$
2.49

Discontinued operations
0.09

0.06

0.13

0.12

0.39

Basic earnings per ordinary share
$
0.59

$
0.79

$
0.78

$
0.72

$
2.88

Diluted
 
 
 
 
 
Continuing operations
$
0.50

$
0.73

$
0.64

$
0.60

$
2.47

Discontinued operations
0.09

0.05

0.13

0.11

0.38

Diluted earnings per ordinary share
$
0.59

$
0.78

$
0.77

$
0.71

$
2.85


 
2015
In millions, except per-share data
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full
Year
Net sales
$
1,047.5

$
1,167.1

$
1,112.8

$
1,289.0

$
4,616.4

Gross profit
356.3

415.3

394.7

432.5

1,598.8

Operating income
120.7

170.8

152.9

171.7

616.1

Net income from continuing operations
80.0

118.4

94.7

104.0

397.1

Income (loss) from discontinued operations, net of tax
33.9

34.2

20.5

(555.4
)
(466.8
)
Loss from sale of discontinued operations, net of tax
—

(4.8
)
—

(1.9
)
(6.7
)
Net income (loss)
113.9

147.8

115.2

(453.3
)
(76.4
)
Earnings (loss) per ordinary share (1)
 
 
 
 
 
Basic
 
 
 
 
 
Continuing operations
$
0.44

$
0.66

$
0.53

$
0.58

$
2.20

Discontinued operations
0.19

0.16

0.11

(3.10
)
(2.62
)
Basic earnings (loss) per ordinary share
$
0.63

$
0.82

$
0.64

$
(2.52
)
$
(0.42
)
Diluted
 
 
 
 
 
Continuing operations
$
0.44

$
0.65

$
0.52

$
0.58

$
2.17

Discontinued operations
0.18

0.16

0.11

(3.10
)
(2.59
)
Diluted earnings (loss) per ordinary share
$
0.62

$
0.81

$
0.63

$
(2.52
)
$
(0.42
)
(1)
Amounts may not total to annual earnings because each quarter and year are calculated separately based on basic and diluted weighted-average ordinary shares outstanding during that period.
Fourth quarter 2016 includes decreases in operating income due to trade name impairment charges of $13.3 million in Technical Solutions and "mark-to-market" actuarial losses on pension and other post-retirement benefit plans of $4.2 million .


81
Pentair plc and Subsidiaries
Notes to consolidated financial statements


Fourth quarter 2015 includes decreases in operating income due to restructuring and other costs of $22.4 million and an inventory fair value step-up related to the ERICO Acquisition of $32.8 million . Fourth quarter 2015 also includes an increase in operating income of $23.0 million related to "mark-to-market" actuarial gains on pension and other post-retirement benefit plans for 2015.

Fourth quarter 2015 also includes loss from discontinued operations due to goodwill and trade name impairment charges in Valves & Controls of $554.7 million .
19.
Supplemental Guarantor Information
Pentair plc (the "Parent Company Guarantor") and Pentair Investments Switzerland GmbH (the "Subsidiary Guarantor"), fully and unconditionally, guarantee the Notes of Pentair Finance S.A. (the "Subsidiary Issuer"). The Subsidiary Guarantor is a Switzerland limited liability company formed in April 2014 and 100 percent -owned subsidiary of the Parent Company Guarantor. The Subsidiary Issuer is a Luxembourg public limited liability company formed in January 2012 and 100 percent -owned subsidiary of the Subsidiary Guarantor. The guarantees provided by the Parent Company Guarantor and Subsidiary Guarantor are joint and several.
The following supplemental financial information sets forth the Company's Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) and Condensed Consolidating Statement of Cash Flows for the years ended December 31, 2016 , 2015 and 2014 and Condensed Consolidating Balance Sheet as of December 31, 2016 and 2015 . Condensed Consolidating financial information for Pentair plc, Pentair Investments Switzerland GmbH and Pentair Finance S.A. on a stand-alone basis is presented using the equity method of accounting for subsidiaries.


82
Pentair plc and Subsidiaries
Notes to consolidated financial statements


Pentair plc and Subsidiaries
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Year Ended December 31, 2016
 
In millions
Parent
Company
Guarantor
Subsidiary
Guarantor
Subsidiary
Issuer
Non-guarantor
Subsidiaries
Eliminations
Consolidated
Total
Net sales
$
—

$
—

$
—

$
4,890.0

$
—

$
4,890.0

Cost of goods sold
—

—

—

3,095.9

—

3,095.9

Gross profit
—

—

—

1,794.1

—

1,794.1

Selling, general and administrative
15.8

—

1.2

962.3

—

979.3

Research and development
—

—

—

114.1

—

114.1

Operating (loss) income
(15.8
)
—

(1.2
)
717.7

—

700.7

Loss (earnings) from continuing operations of investment in subsidiaries
(466.0
)
(466.0
)
(578.1
)
—

1,510.1

—

Other (income) expense:

 




Loss on sale of businesses, net
—

—

—

3.9

—

3.9

Equity income of unconsolidated subsidiaries
—

—

—

(4.3
)
—

(4.3
)
Interest income
—

—

(70.3
)
(54.5
)
116.5

(8.3
)
Interest expense
—

—

181.2

83.7

(116.5
)
148.4

Income (loss) from continuing operations before income taxes
450.2

466.0

466.0

688.9

(1,510.1
)
561.0

Provision (benefit) for income taxes
(1.4
)
—

—

110.8

—

109.4

Net income (loss) from continuing operations
451.6

466.0

466.0

578.1

(1,510.1
)
451.6

Income from discontinued operations, net of tax
—

—

—

70.0

—

70.0

Gain from sale of discontinued operations, net of tax
—

—

—

0.6

—

0.6

Earnings (loss) from discontinued operations of investment in subsidiaries
70.6

70.6

70.6

—

(211.8
)
—

Net income (loss)
$
522.2

$
536.6

$
536.6

$
648.7

$
(1,721.9
)
$
522.2

Comprehensive income (loss), net of tax
 
 
 
 
 
 
Net income (loss)
$
522.2

$
536.6

$
536.6

$
648.7

$
(1,721.9
)
$
522.2

Changes in cumulative translation adjustment
(83.0
)
(83.0
)
(83.0
)
(83.0
)
249.0

(83.0
)
Changes in market value of derivative financial instruments, net of tax
(8.3
)
(8.3
)
(8.3
)
(8.3
)
24.9

(8.3
)
Comprehensive income (loss)
$
430.9

$
445.3

$
445.3

$
557.4

$
(1,448.0
)
$
430.9



83
Pentair plc and Subsidiaries
Notes to consolidated financial statements


Pentair plc and Subsidiaries
Condensed Consolidating Balance Sheet
December 31, 2016
 
In millions
Parent
Company
Guarantor
Subsidiary
Guarantor
Subsidiary
Issuer
Non-guarantor
Subsidiaries
Eliminations
Consolidated
Total
Assets
Current assets
 
 
 
 
 
 
Cash and cash equivalents
$
—

$
—

$
—

$
238.5

$
—

$
238.5

Accounts and notes receivable, net
0.1

—

—

763.9

—

764.0

Inventories
—

—

—

524.2

—

524.2

Other current assets
1.2

4.1

1.1

237.8

9.2

253.4

Current assets held for sale
—

—

—

891.9

—

891.9

Total current assets
1.3

4.1

1.1

2,656.3

9.2

2,672.0

Property, plant and equipment, net
—

—

—

538.6

—

538.6

Other assets

 




Investments in subsidiaries
4,509.5

4,471.4

9,295.5

—

(18,276.4
)
—

Goodwill
—

—

—

4,217.4

—

4,217.4

Intangibles, net
—

—

—

1,631.8

—

1,631.8

Other non-current assets
2.2

35.2

717.8

1,568.9

(2,142.0
)
182.1

Non-current assets held for sale
—

—

—

2,292.9

—

2,292.9

Total other assets
4,511.7

4,506.6

10,013.3

9,711.0

(20,418.4
)
8,324.2

Total assets
$
4,513.0

$
4,510.7

$
10,014.4

$
12,905.9

$
(20,409.2
)
$
11,534.8

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

$
—

$
—

$
0.8

$
—

$
0.8

Accounts payable
0.7

—

0.1

435.8

—

436.6

Employee compensation and benefits
0.8

—

—

165.3

—

166.1

Other current liabilities
95.2

1.2

26.7

379.2

9.2

511.5

Current liabilities held for sale
—

—

—

356.2

—

356.2

Total current liabilities
96.7

1.2

26.8

1,337.3

9.2

1,471.2

Other liabilities
 
 
 
 
 
 
Long-term debt
148.1

—

5,515.9

756.4

(2,142.0
)
4,278.4

Pension and other post-retirement compensation and benefits
—

—

—

253.4

—

253.4

Deferred tax liabilities
—

—

—

609.5

—

609.5

Other non-current liabilities
13.8

—

—

148.2

—

162.0

Non-current liabilities held for sale
—

—

—

505.9

—

505.9

Total liabilities
258.6

1.2

5,542.7

3,610.7

(2,132.8
)
7,280.4

Equity
4,254.4

4,509.5

4,471.7

9,295.2

(18,276.4
)
4,254.4

Total liabilities and equity
$
4,513.0

$
4,510.7

$
10,014.4

$
12,905.9

$
(20,409.2
)
$
11,534.8




84
Pentair plc and Subsidiaries
Notes to consolidated financial statements


Pentair plc and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2016
 
In millions
Parent
Company
Guarantor
Subsidiary
Guarantor
Subsidiary
Issuer
Non-guarantor
Subsidiaries
Eliminations
Consolidated
Total
Operating activities
 
 
 
 
 
Net cash provided by (used for) operating activities
$
522.7

$
463.1

$
469.5

$
916.2

$
(1,510.1
)
$
861.4

Investing activities
 
 
 
 
 
 
Capital expenditures
—

—

—

(117.8
)
—

(117.8
)
Proceeds from sale of property and equipment
—

—

—

24.7

—

24.7

Acquisitions, net of cash acquired
—

—

—

(25.0
)
—

(25.0
)
Net intercompany loan activity
—

—

667.3

(191.0
)
(476.3
)
—

Other
—

—

—

(5.2
)
—

(5.2
)
Net cash provided by (used for) investing activities of continuing operations
—

—

667.3

(314.3
)
(476.3
)
(123.3
)
Net cash provided by (used for) investing activities of discontinued operations
—

—

—

1.5

—

1.5

Net cash provided by (used for) investing activities
—

—

667.3

(312.8
)
(476.3
)
(121.8
)
Financing activities
 
 
 
 
 
 
Net receipts of short-term borrowings
—

—

—

0.8

—

0.8

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

—

(385.8
)
0.5

—

(385.3
)
Repayment of long-term debt
—

—

—

(0.7
)
—

(0.7
)
Net change in advances to subsidiaries
(299.8
)
(463.1
)
(778.9
)
(444.6
)
1,986.4

—

Excess tax benefits from share-based compensation
—

—

—

8.0

—

8.0

Shares issued to employees, net of shares withheld
20.7

—

—

—

—

20.7

Dividends paid
(243.6
)
—

—

—

—

(243.6
)
Net cash provided by (used for) financing activities
(522.7
)
(463.1
)
(1,164.7
)
(436.0
)
1,986.4

(600.1
)
Effect of exchange rate changes on cash and cash equivalents
—

—

27.8

(55.1
)
—

(27.3
)
Change in cash and cash equivalents
—

—

(0.1
)
112.3

—

112.2

Cash and cash equivalents, beginning of year
—

—

0.1

126.2

—

126.3

Cash and cash equivalents, end of year
$
—

$
—

$
—

$
238.5

$
—

$
238.5




85
Pentair plc and Subsidiaries
Notes to consolidated financial statements


Pentair plc and Subsidiaries
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Year Ended December 31, 2015

In millions
Parent
Company
Guarantor
Subsidiary
Guarantor
Subsidiary
Issuer
Non-guarantor
Subsidiaries
Eliminations
Consolidated
Total
Net sales
$
—

$
—

$
—

$
4,616.4

$
—

$
4,616.4

Cost of goods sold
—

—

—

3,017.6

—

3,017.6

Gross profit
—

—

—

1,598.8

—

1,598.8

Selling, general and administrative
33.7

2.2

5.3

842.8

—

884.0

Research and development
—

—

—

98.7

—

98.7

Operating (loss) income
(33.7
)
(2.2
)
(5.3
)
657.3

—

616.1

Loss (earnings) from continuing operations of investment in subsidiaries
(436.1
)
(439.7
)
(475.1
)
—

1,350.9

—

Other (income) expense:
 
 
 
 
 
 
Loss on sale of businesses, net
—

—

—

3.2

—

3.2

Equity income of unconsolidated subsidiaries
—

—

—

(1.5
)
—

(1.5
)
Interest income
—

—

(80.6
)
(33.8
)
109.7

(4.7
)
Interest expense
—

1.4

126.3

88.6

(109.7
)
106.6

Income (loss) from continuing operations before income taxes
402.4

436.1

424.1

600.8

(1,350.9
)
512.5

Provision for income taxes
5.3

—

—

110.1

—

115.4

Net income (loss) from continuing operations
397.1

436.1

424.1

490.7

(1,350.9
)
397.1

Loss from discontinued operations, net of tax
—

—

—

(466.8
)
—

(466.8
)
Loss from sale of discontinued operations, net of tax
—

—

—

(6.7
)
—

(6.7
)
Earnings (loss) from discontinued operations of investment in subsidiaries
(473.5
)
(473.5
)
(473.5
)
—

1,420.5

—

Net income (loss)
$
(76.4
)
$
(37.4
)
$
(49.4
)
$
17.2

$
69.6

$
(76.4
)
Comprehensive income (loss), net of tax
 
 
 
 
 
 
Net income (loss)
$
(76.4
)
$
(37.4
)
$
(49.4
)
$
17.2

$
69.6

$
(76.4
)
Changes in cumulative translation adjustment
(264.9
)
(264.9
)
(264.9
)
(264.9
)
794.7

(264.9
)
Changes in market value of derivative financial instruments, net of tax
0.2

0.2

0.2

0.2

(0.6
)
0.2

Comprehensive income (loss)
$
(341.1
)
$
(302.1
)
$
(314.1
)
$
(247.5
)
$
863.7

$
(341.1
)

86
Pentair plc and Subsidiaries
Notes to consolidated financial statements


Pentair plc and Subsidiaries
Condensed Consolidating Balance Sheet
December 31, 2015

In millions
Parent
Company
Guarantor
Subsidiary
Guarantor
Subsidiary
Issuer
Non-guarantor
Subsidiaries
Eliminations
Consolidated
Total
Assets
Current assets
 
 
 
 
 
 
Cash and cash equivalents
$
—

$
—

$
0.1

$
126.2

$
—

$
126.3

Accounts and notes receivable, net
0.1

—

—

773.1

—

773.2

Inventories
—

—

—

564.7

—

564.7

Other current assets
25.2

12.8

—

219.9

(37.9
)
220.0

Current assets held for sale
—

—

—

1,093.4

—

1,093.4

Total current assets
25.3

12.8

0.1

2,777.3

(37.9
)
2,777.6

Property, plant and equipment, net
—

—

—

539.8

—

539.8

Other assets
 
 
 
 
 
 
Investments in subsidiaries
4,495.6

4,486.1

10,151.1

—

(19,132.8
)
—

Goodwill
—

—

—

4,259.0

—

4,259.0

Intangibles, net
—

—

—

1,747.4

—

1,747.4

Other non-current assets
12.6

—

190.1

145.6

(187.2
)
161.1

Non-current assets held for sale
—

—

—

2,348.6

—

2,348.6

Total other assets
4,508.2

4,486.1

10,341.2

8,500.6

(19,320.0
)
8,516.1

Total assets
$
4,533.5

$
4,498.9

$
10,341.3

$
11,817.7

$
(19,357.9
)
$
11,833.5

Liabilities and Equity
Current liabilities
 
 
 
 
 
 
Accounts payable
$
0.6

$
—

$
0.3

$
402.9

$
—

$
403.8

Employee compensation and benefits
0.4

0.1

—

162.1

—

162.6

Other current liabilities
61.7

1.5

27.1

434.7

(37.9
)
487.1

Current liabilities held for sale
—

—

—

433.0

—

433.0

Total current liabilities
62.7

1.6

27.4

1,432.7

(37.9
)
1,486.5

Other liabilities
 
 
 
 
 
 
Long-term debt
453.3

1.7

4,535.5

(117.5
)
(187.2
)
4,685.8

Pension and other post-retirement compensation and benefits
—

—

—

244.6

—

244.6

Deferred tax liabilities
—

—

3.1

667.1

—

670.2

Other non-current liabilities
8.7

—

—

183.7

—

192.4

Non-current liabilities held for sale
—

—

—

545.2

—

545.2

Total liabilities
524.7

3.3

4,566.0

2,955.8

(225.1
)
7,824.7

Equity
4,008.8

4,495.6

5,775.3

8,861.9

(19,132.8
)
4,008.8

Total liabilities and equity
$
4,533.5

$
4,498.9

$
10,341.3

$
11,817.7

$
(19,357.9
)
$
11,833.5




87
Pentair plc and Subsidiaries
Notes to consolidated financial statements


Pentair plc and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2015

In millions
Parent
Company
Guarantor
Subsidiary
Guarantor
Subsidiary
Issuer
Non-guarantor
Subsidiaries
Eliminations
Consolidated
Total
Operating activities
 
 
 
 
 
 
Net cash provided by (used for) operating activities
$
(43.0
)
$
(48.7
)
$
(5.8
)
$
767.1

$
69.7

$
739.3

Investing activities
 
 
 
 
 
 
Capital expenditures
—

—

—

(91.3
)
—

(91.3
)
Proceeds from sale of property and equipment
—

—

—

4.6

—

4.6

Acquisitions, net of cash acquired
—

—

—

(1,913.9
)
—

(1,913.9
)
Net intercompany loan activity
—

—

891.0

(295.0
)
(596.0
)
—

Other
—

—

—

(3.0
)
—

(3.0
)
Net cash provided by (used for) investing activities of continuing operations
—

—

891.0

(2,298.6
)
(596.0
)
(2,003.6
)
Net cash provided by (used for) investing activities from discontinued operations
—

—

—

38.1

—

38.1

Net cash provided by (used for) investing activities
—

—

891.0

(2,260.5
)
(596.0
)
(1,965.5
)
Financing activities
 
 
 
 
 
 
Net repayments on short-term borrowings
—

—

—

(2.3
)
—

(2.3
)
Net receipts of commercial paper and revolving long-term debt
—

—

346.9

16.6

—

363.5

Proceeds from long-term debt
—

—

1,714.8

—

—

1,714.8

Repayment of long-term debt
—

—

(350.0
)
(6.6
)
—

(356.6
)
Debt issuance costs
—

—

(26.8
)
—

—

(26.8
)
Net change in advances to subsidiaries
471.7

48.7

(2,553.7
)
1,507.0

526.3

—

Excess tax benefits from share-based compensation
—

—

—

6.0

—

6.0

Shares issued to employees, net of shares withheld
3.0

—

—

16.4

—

19.4

Repurchases of ordinary shares
(200.0
)
—

—

—

—

(200.0
)
Dividends paid
(231.7
)
—

—

—

—

(231.7
)
Net cash provided by (used for) financing activities
43.0

48.7

(868.8
)
1,537.1

526.3

1,286.3

Effect of exchange rate changes on cash and cash equivalents
—

—

(16.4
)
(27.8
)
—

(44.2
)
Change in cash and cash equivalents
—

—

—

15.9

—

15.9

Cash and cash equivalents, beginning of year
—

—

0.1

110.3

—

110.4

Cash and cash equivalents, end of year
$
—

$
—

$
0.1

$
126.2

$
—

$
126.3


88
Pentair plc and Subsidiaries
Notes to consolidated financial statements



Pentair plc and Subsidiaries
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Year Ended December 31, 2014

In millions
Parent
Company
Guarantor
Subsidiary
Guarantor
Subsidiary
Issuer
Non-guarantor
Subsidiaries
Eliminations
Consolidated
Total
Net sales
$
—

$
—

$
—

$
4,666.8

$
—

$
4,666.8

Cost of goods sold
—

—

—

3,046.3

—

3,046.3

Gross profit
—

—

—

1,620.5

—

1,620.5

Selling, general and administrative
25.3

2.6

7.7

950.0

—

985.6

Research and development
—

—

—

96.4

—

96.4

Operating (loss) income
(25.3
)
(2.6
)
(7.7
)
574.1

—

538.5

Loss (earnings) from continuing operations of investment in subsidiaries
(365.1
)
(369.3
)
(360.7
)
—

1,095.1

—

Other (income) expense:
 
 
 
 
 
 
Loss on sale of businesses, net
—

—

—

0.2

—

0.2

Equity income of unconsolidated subsidiaries
—

—

—

(1.2
)
—

(1.2
)
Interest income
—

—

(92.3
)
(38.8
)
128.8

(2.3
)
Interest expense
0.7

2.1

95.6

101.3

(128.8
)
70.9

Income (loss) from continuing operations before income taxes
339.1

364.6

349.7

512.6

(1,095.1
)
470.9

Provision (benefit) for income taxes
(17.5
)
(0.5
)
(2.4
)
134.7

—

114.3

Net income (loss) from continuing operations
356.6

365.1

352.1

377.9

(1,095.1
)
356.6

Income from discontinued operations, net of tax
—

—

—

244.0

—

244.0

Loss from sale / impairment of discontinued operations, net of tax
—

—

—

(385.7
)
—

(385.7
)
Earnings (loss) from discontinued operations of investment in subsidiaries
(141.7
)
(141.7
)
(141.7
)
—

425.1

—

Net income (loss)
$
214.9

$
223.4

$
210.4

$
236.2

$
(670.0
)
$
214.9

Comprehensive income (loss), net of tax
 
 
 
 
 
 
Net income (loss)
$
214.9

$
223.4

$
210.4

$
236.2

$
(670.0
)
$
214.9

Changes in cumulative translation adjustment
(336.3
)
(336.3
)
(336.3
)
(336.3
)
1,008.9

(336.3
)
Changes in market value of derivative financial instruments, net of tax
(0.4
)
(0.4
)
(0.4
)
(0.4
)
1.2

(0.4
)
Comprehensive income (loss)
$
(121.8
)
$
(113.3
)
$
(126.3
)
$
(100.5
)
$
340.1

$
(121.8
)

89
Pentair plc and Subsidiaries
Notes to consolidated financial statements


Pentair plc and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2014

In millions
Parent
Company
Guarantor
Subsidiary
Guarantor
Subsidiary
Issuer
Non-guarantor
Subsidiaries
Eliminations
Consolidated
Total
Operating activities
 
 
 
 
 
 
Net cash provided by (used for) operating activities
$
169.0

$
208.6

$
207.0

$
1,093.8

$
(670.0
)
$
1,008.4

Investing activities
 
 
 
 
 
 
Capital expenditures
—

—

—

(83.7
)
—

(83.7
)
Proceeds from sale of property and equipment
—

—

—

1.9

—

1.9

Acquisitions, net of cash acquired
—

—

—

(12.3
)
—

(12.3
)
Net intercompany loan activity
—

—

37.8

112.2

(150.0
)
—

Other
—

—

—

0.2

—

0.2

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

—

37.8

18.3

(150.0
)
(93.9
)
Net cash provided by (used for) investing activities of discontinued operations
—

—

—

(34.4
)
—

(34.4
)
Net cash provided by (used for) investing activities
—

—

37.8

(16.1
)
(150.0
)
(128.3
)
Financing activities
 

 
 
 
 
Net receipts of short-term borrowings
—

—

—

0.5

—

0.5

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

—

458.7

9.9

—

468.6

Proceeds from long-term debt
—

—

—

2.2

—

2.2

Repayment of long-term debt
—

—

—

(16.8
)
—

(16.8
)
Debt issuance costs
—

—

(3.1
)
—

—

(3.1
)
Net change in advances to subsidiaries
741.1

(208.6
)
(747.3
)
(605.2
)
820.0

—

Excess tax benefits from share-based compensation
—

—

—

12.6

—

12.6

Shares issued to employees, net of shares withheld
—

—

—

37.0

—

37.0

Repurchases of ordinary shares
(699.2
)
—

—

(450.8
)
—

(1,150.0
)
Dividends paid
(211.4
)
—

—

—

—

(211.4
)
Purchase of noncontrolling interest
—

—

—

(134.7
)
—

(134.7
)
Net cash provided by (used for) financing activities
(169.5
)
(208.6
)
(291.7
)
(1,145.3
)
820.0

(995.1
)
Effect of exchange rate changes on cash and cash equivalents
—

—

—

(30.6
)
—

(30.6
)
Change in cash and cash equivalents
(0.5
)
—

(46.9
)
(98.2
)
—

(145.6
)
Cash and cash equivalents, beginning of year
0.5

—

47.0

208.5

—

256.0

Cash and cash equivalents, end of year
$
—

$
—

$
0.1

$
110.3

$
—

$
110.4




90


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.  CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the year ended December 31, 2016 , pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 ("the Exchange Act"). Based upon their evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the year ended December 31, 2016 to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.
Management's Annual Report on Internal Control Over Financial Reporting
The report of management required under this ITEM 9A is contained in ITEM 8 of this Annual Report on Form 10-K under the caption "Management's Report on Internal Control Over Financial Reporting."
Attestation Report of Independent Registered Public Accounting Firm
The attestation report required under this ITEM 9A is contained in ITEM 8 of this Annual Report on Form 10-K under the caption "Report of Independent Registered Public Accounting Firm."
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.  OTHER INFORMATION
None.

 

91


PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required under this item with respect to directors is contained in our Proxy Statement for our 2017 annual general meeting of shareholders under the captions "Corporate Governance Matters," "Proposal 1 Re-elect Director Nominees" and "Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by reference.
Information required under this item with respect to executive officers is contained in Part I of this Form 10-K under the caption "Executive Officers of the Registrant."
Our Board of Directors has adopted Pentair's Code of Business Conduct and Ethics and designated it as the code of ethics for the Company's Chief Executive Officer and senior financial officers. The Code of Business Conduct and Ethics also applies to all employees and directors in accordance with New York Stock Exchange Listing Standards. We have posted a copy of Pentair's Code of Business Conduct and Ethics on our website at http://pentair.com/en/about-us/leadership/corporate-governance . We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to or waivers from, Pentair's Code of Business Conduct and Ethics by posting such information on our website at http://pentair.com/en/about-us/leadership/corporate-governance .
We are not including the information contained on our website as part of, or incorporating it by reference into, this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this item is contained in our Proxy Statement for our 2017 annual general meeting of shareholders under the captions "Compensation Discussion and Analysis," "Compensation Committee Report," "Executive Compensation Tables" and "Corporate Governance Matters - Director Compensation" and is incorporated herein by reference.

92


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required under this item with respect to security ownership is contained in our Proxy Statement for our 2017 annual general meeting of shareholders under the caption "Security Ownership" and is incorporated herein by reference.
The following table summarizes, as of December 31, 2016 , information about compensation plans under which our equity securities are authorized for issuance:
Plan category
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
 
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
 
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
 
Equity compensation plans approved by security holders:
 
 
 
 
 
 
2012 Stock and Incentive Plan 
4,110,233

(1)  
$
56.54

(2)  
5,228,708

(3)  
2008 Omnibus Stock Incentive Plan  
2,199,075

(4)  
32.73

(2)  
—

(5)  
2004 Omnibus Stock Incentive Plan  
382,897

 
33.93

 
—

(5)  
Outside Directors Non-qualified Stock Option Plan 
80,000

 
34.05

 
—

(5)  
Total
6,772,205

 
$
45.65

(2)  
5,228,708

 
(1)
Consists of 3,107,651 shares subject to stock options, 706,214 shares subject to restricted stock units, and 296,368 shares subject to performance share awards.
(2)
Represents the weighted average exercise price of outstanding stock options and does not take into account outstanding restricted stock units or performance share units.
(3)
Represents securities remaining available for issuance under the 2012 Stock and Incentive Plan.
(4)
Consists of 2,199,075 shares subject to stock options.
(5)
The 2008 Omnibus Stock Incentive Plan was terminated in connection with the Merger. The 2004 Omnibus Plan and the Directors Plan were terminated in 2008. Options previously granted under these plans and restricted stock units granted under the 2008 Omnibus Stock Incentive Plan remain outstanding, but no further options or shares may be granted or issued under either plan.
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information required under this item is contained in our Proxy Statement for our 2017 annual general meeting of shareholders under the captions "Proposal 1 Re-elect Director Nominees - Director Independence" and "Corporate Governance Matters - The Board's Role and Responsibilities - Policies and Procedures Regarding Related Person Transactions" and is incorporated herein by reference.
ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required under this item is contained in our Proxy Statement for our 2017 annual general meeting of shareholders under the caption "Proposal 4 Ratify, by Non-Binding Advisory Vote, the Appointment of Deloitte & Touche LLP as the Independent Auditors of Pentair plc and to Authorize, by Binding Vote, the Audit and Finance Committee of the Board of Directors to Set the Auditors' Remuneration" and is incorporated herein by reference.

93


PART IV
ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) List of documents filed as part of this report:
 
(1) Financial Statements
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2016 , 2015 and 2014
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2016 , 2015 and 2014
Consolidated Statements of Changes in Equity for the years ended December 31, 2016 , 2015 and 2014
Notes to Consolidated Financial Statements
 
(2) Financial Statement Schedule
Schedule II — Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
 
(3) Exhibits
The exhibits of this Annual Report on Form 10-K included herein are set forth on the attached Exhibit Index.

ITEM 16.  FORM 10-K SUMMARY
None.

94


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 21, 2017 .
 
PENTAIR PLC
 
 
 
 
By
/s/ John L. Stauch
 
 
John L. Stauch
 
 
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on February 21, 2017 .
Signature
  
Title
/s/  Randall J. Hogan
  
Chairman and Chief Executive Officer
Randall J. Hogan
  
 
 
 
/s/  John L. Stauch
  
Executive Vice President and Chief Financial Officer
John L. Stauch
  
 
 
 
/s/  Mark C. Borin
  
Senior Vice President, Chief Accounting Officer and Treasurer
Mark C. Borin
  
 
 
 
*
  
Director
Glynis A. Bryan
  
 
 
 
*
  
Director
Jerry W. Burris
  
 
 
 
*
  
Director
Carol Anthony (John) Davidson
  
 
 
 
*
 
Director
Jacques Esculier
 
 
 
 
*
 
Director
Edward P. Garden
 
 
 
 
*
  
Director
T. Michael Glenn
  
 
 
 
*
  
Director
David H. Y. Ho
  
 
 
 
*
  
Director
David A. Jones
  
 
 
 
*
  
Director
Ronald L. Merriman
  
 
 
 
*
  
Director
William T. Monahan
  
 
 
 
 
*
  
Director
Billie I. Williamson
  
 
*By
/s/  Angela D. Jilek
 
Angela D. Jilek
 
Attorney-in-fact

95


Schedule II — Valuation and Qualifying Accounts
Pentair plc and Subsidiaries
 
In millions
Beginning
balance
Additions charged (reductions credited) to costs and expenses
Deductions  (1)
Other
changes  (2)
Ending
balance
Allowances for doubtful accounts
Year ended December 31, 2016
$
19.0

$
1.2

$
4.1

$
0.3

$
16.4

Year ended December 31, 2015
$
12.1

$
10.1

$
2.4

$
(0.8
)
$
19.0

Year ended December 31, 2014
$
16.6

$
0.9

$
4.0

$
(1.4
)
$
12.1

(1)
Uncollectible accounts written off, net of recoveries
(2)
Result of foreign currency effects


96


EXHIBIT INDEX
 
Exhibit
Number
 
Exhibit
2.1
 
Agreement and Plan of Merger, dated August 14, 2015, among Pentair plc, Pentair Lionel Acquisition Co., Pentair Lionel Merger Sub, Inc. and ERICO Global Company (Incorporated by reference to Exhibit 2.1 in the Current Report on Form 8-K of Pentair plc filed with the Commission on August 18, 2015 (File No. 001-11625)).
 
 
 
2.2
 
Share Purchase Agreement, dated August 18, 2016, by and between Emerson Electric Co. and Pentair plc (Incorporated by reference to Exhibit 2.1 in the Quarterly Report on Form 10-Q of Pentair plc filed with the Commission on October 25, 2016 (File No. 001-11625)).
 
 
 
3.1
 
Amended and Restated Memorandum and Articles of Association of Pentair plc (Incorporated by reference to Exhibit 3.1 in the Quarterly Report on Form 10-Q of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).
 
 
 
4.1
 
Indenture, dated as of September 24, 2012, among Pentair Finance S.A. (formerly Tyco Flow Control International Finance S.A.) (as Issuer), Pentair Ltd. (as Guarantor) and Wells Fargo Bank, National Association (as Trustee) (Incorporated by reference to Exhibit 4.1 in the Current Report on Form 8-K of Pentair Ltd. filed with the Commission on September 28, 2012 (File No. 001-11625)).
 
 
 
4.2
 
First Supplemental Indenture, dated as of September 24, 2012, among Pentair Finance S.A. (formerly Tyco Flow Control International Finance S.A.) (as Issuer), Pentair Ltd. (as Guarantor), Pentair, Inc. and Wells Fargo Bank, National Association (as Trustee) (Incorporated by reference to Exhibit 4.2 in the Current Report on Form 8-K of Pentair Ltd. filed with the Commission on September 28, 2012 (File No. 001-11625)).
 
 
 
4.3
 
Second Supplemental Indenture, dated as of September 24, 2012, among Pentair Finance S.A. (formerly Tyco Flow Control International Finance S.A.) (as Issuer), Pentair Ltd. (as Guarantor), Pentair, Inc. and Wells Fargo Bank, National Association (as Trustee) (Incorporated by reference to Exhibit 4.3 in the Current Report on Form 8-K of Pentair Ltd. filed with the Commission on September 28, 2012 (File No. 001-11625)).
 
 
 
4.4
 
Fourth Supplemental Indenture, dated as of November 26, 2012, among Pentair Finance S.A. (as Issuer), Pentair Ltd. (as Guarantor) and Wells Fargo Bank, National Association (as Trustee) (Incorporated by reference to Exhibit 4.2 in the Current Report on Form 8-K of Pentair Ltd. filed with the Commission on November 28, 2012 (File No. 001-11625)).
 
 
 
4.5
 
Fifth Supplemental Indenture, dated as of December 18, 2012, among Pentair Finance S.A. (as Issuer), Pentair Ltd. (as Guarantor) and Wells Fargo Bank, National Association (as Trustee) (Incorporated by reference to Exhibit 4.1 in the Current Report on Form 8-K of Pentair Ltd. filed with the Commission on December 18, 2012 (File No. 001-11625)).
 
 
 
4.6
 
Sixth Supplemental Indenture, dated as of May 20, 2014, among Pentair Finance S.A., Pentair Ltd., Pentair Investments Switzerland GmbH, Pentair plc and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.3 in the Current Report on Form 8-K of Pentair plc filed with the Commission on May 20, 2014 (File No. 001-11625)).
 
 
 
4.7
 
Senior Indenture, dated May 2, 2011 by and among Pentair, Inc. and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 4.5 to Pentair, Inc.'s Registration Statement on Form S-3 (Registration 333-173829)).
 
 
 
4.8
 
First Supplemental Indenture, dated as of May 9, 2011, among Pentair, Inc., the guarantors named therein and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 4.2 in the Current Report on Form 8-K of Pentair, Inc. filed with the Commission on May 9, 2011 (File No. 000-04689)).
 
 
 
4.9
 
Third Supplemental Indenture, dated October 1, 2012, among Pentair Ltd., Pentair, Inc. and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.1 in the Current Report on Form 8-K of Pentair Ltd. filed with the Commission on October 1, 2012 (File No. 001-11625)).
 
 
 
4.10
 
Fourth Supplemental Indenture, dated as of December 17, 2012, among Pentair, Inc. (as Issuer), Pentair Ltd. (as Guarantor) and Wells Fargo Bank, National Association (as Trustee) (Incorporated by reference to Exhibit 4.2 in the Current Report on Form 8-K of Pentair Ltd. filed with the Commission on December 18, 2012 (File No. 001-11625)).
 
 
 
4.11
 
Fifth Supplemental Indenture, dated as of May 20, 2014, among Pentair, Inc., Pentair Ltd., Pentair Investments Switzerland GmbH, Pentair plc and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.2 in the Current Report on Form 8-K of Pentair plc filed with the Commission on May 20, 2014 (File No. 001-11625)).
 
 
 

97


4.12
 
Amended and Restated Credit Agreement, dated as of October 3, 2014 among Pentair, plc, Pentair Investments Switzerland GmbH, Pentair Finance, S.A., Pentair, Inc. and the lenders and agents party thereto (Incorporated by reference to Exhibit 4.1 in the Current Report on Form 8-K of Pentair, plc, filed with the Commission on October 3, 2014 (File No. 001-11625)).
 
 
 
4.13
 
First Amendment, dated as of August 28, 2015, among Pentair, Pentair Investments Switzerland GmbH, Pentair Finance S.A. and the lenders and agents party thereto (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of Pentair plc filed with the SEC on September 3, 2015 (File No. 001-11625)).
 
 
 
4.14
 
Second Amendment, dated as of September 2, 2015, among Pentair, Pentair Investments Switzerland GmbH, Pentair Finance S.A. and the lenders and agents party thereto (Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K of Pentair plc filed with the Commission on September 3, 2015 (File No. 001-11625)).
 
 
 
4.15
 
Third Amendment, dated as of September 15, 2016, among Pentair, Pentair Investments Switzerland GmbH, Pentair Finance S.A. and the lenders and agent party thereto (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of Pentair plc filed with the Commission on September 16, 2016 (File No. 001-11625)).
 
 
 
4.16
 
Indenture, dated as of September 16, 2015, among Pentair Finance S.A. (as Issuer), Pentair plc (as Parent and Guarantor), Pentair Investments Switzerland GmbH (as Guarantor) and U.S. Bank National Association (as Trustee) (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of Pentair plc filed with the Commission on September 16, 2015 (File No. 001-11625)).
 
 
 
4.17
 
First Supplemental Indenture, dated as of September 16, 2015, among Pentair Finance S.A. (as Issuer), Pentair plc (as Parent and Guarantor), Pentair Investments Switzerland GmbH (as Guarantor) and U.S. Bank National Association (as Trustee) (Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K of Pentair plc filed with the SEC on September 16, 2015 (File No. 001-11625)).
 
 
 
4.18
 
Second Supplemental Indenture, dated as of September 16, 2015, among Pentair Finance S.A. (as Issuer), Pentair plc (as Parent and Guarantor), Pentair Investments Switzerland GmbH (as Guarantor) and U.S. Bank National Association (as Trustee) (Incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K of Pentair plc filed with the Commission on September 16, 2015 (File No. 001-11625)).
 
 
 
4.19
 
Third Supplemental Indenture, dated as of September 16, 2015, among Pentair Finance S.A. (as Issuer), Pentair plc (as Parent and Guarantor), Pentair Investments Switzerland GmbH (as Guarantor) and U.S. Bank National Association (as Trustee) (Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K of Pentair plc filed with the Commission on September 16, 2015 (File No. 001-11625)).
 
 
 
4.20
 
Fourth Supplemental Indenture, dated as of September 17, 2015, among Pentair Finance S.A. (as Issuer), Pentair plc (as Parent and Guarantor), Pentair Investments Switzerland GmbH (as Guarantor) and U.S. Bank National Association (as Trustee) (Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K of Pentair plc filed with the Commission on September 17, 2015 (File No. 001-11625)).
 
 
 
10.1
 
Tax Sharing Agreement, dated September 28, 2012 by and among Pentair Ltd., Tyco International Ltd. and The ADT Corporation (Incorporated by reference to Exhibit 10.1 in the Current Report on Form 8-K of Pentair Ltd. filed with the Commission on September 28, 2012 (File No. 001-11625)).
 
 
 
10.2
 
Pentair plc 2012 Stock and Incentive Plan, as amended and restated effective as of January 1, 2017.*
 
 
 
10.3
 
Form of Executive Officer Stock Option Grant Agreement for grants made prior to January 1, 2017 (Incorporated by reference to Exhibit 10.7 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).*
 
 
 
10.4
 
Form of Executive Officer Restricted Stock Unit Grant Agreement for grants made prior to January 1, 2017 (Incorporated by reference to Exhibit 10.8 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).*
 
 
 
10.5
 
Form of Executive Officer Performance Unit Grant Agreement for grants made prior to January 1, 2016(Incorporated by reference to Exhibit 10.9 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).*
 
 
 
10.6
 
Form of Non-Employee Director Stock Option Grant Agreement (Incorporated by reference to Exhibit 10.10 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).*
 
 
 
10.7
 
Form of Non-Employee Director Restricted Stock Unit Grant Agreement (Incorporated by reference to Exhibit 10.11 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).*
 
 
 

98


10.8
 
Form of Performance Share Units Grant Agreement for grants made during 2016 (Incorporated by reference to Exhibit 10.8 in the Annual Report on Form 10-K of Pentair plc filed with the Commission on February 26, 2016 (File No. 001-11625)).*
 
 
 
10.9
 
Pentair plc 2008 Omnibus Stock Incentive Plan, as amended and restated effective as of January 1, 2017.*
 
 
 
10.10
 
Pentair plc Omnibus Stock Incentive Plan, as amended and restated (Incorporated by reference to Exhibit 10.3 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).*
 
 
 
10.11
 
Pentair plc Outside Directors Nonqualified Stock Option Plan, as amended and restated (Incorporated by reference to Exhibit 10.4 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).*
 
 
 
10.12
 
Form of Assignment and Assumption Agreement, among Pentair, Inc., Pentair Ltd. and the executive officers of Pentair Ltd. relating to Key Executive Employment and Severance Agreement (Incorporated by reference to Exhibit 10.12 in the Current Report on Form 8-K of Pentair Ltd. filed with the Commission on October 1, 2012 (File No. 001-11625)).*
 
 
 
10.13
 
Form of Key Executive Employment and Severance Agreement for Randall J. Hogan (Incorporated by reference to Exhibit 10.10 in the Annual Report on Form 10-K of Pentair, Inc. for the year ended December 31, 2008 (File No. 000-04689)).*
 
 
 
10.14
 
Form of Key Executive Employment and Severance Agreement for John L. Stauch, Mark C. Borin and Angela D. Jilek (Incorporated by reference to Exhibit 10.12 in the Annual Report on Form 10-K of Pentair, Inc. for the year ended December 31, 2008 (File No. 000-04689)).*
 
 
 
10.15
 
Form of Key Executive Employment and Severance Agreement for Karl R. Frykman (Incorporated by reference to Exhibit 10.17 in the Annual Report on Form 10-K of Pentair Ltd. for the quarter ended December 31, 2013 (File No. 001-11625)).*
 
 
 
10.16
 
Form of Key Executive Employment and Severance Agreement for Beth A. Wozniak, Dennis J. Cassidy, Jr. John H. Jacko, and Karen L. Keegans (Incorporated by reference to Exhibit 10.16 in the Annual Report on Form 10-K of Pentair plc filed with the Commission on February 26, 2016 (File No. 001-11625)).*
 
 
 
10.17
 
Form of Letter regarding RSU Grants and Waiver of Certain KEESA Rights, between Pentair, Inc. and certain executives of Pentair, Inc., dated March 27, 2012 (Incorporated by reference to Exhibit 10.1 in the Current Report on Form 8-K of Pentair, Inc. filed with the Commission on March 30, 2012 (File No. 000-04689)).*
 
 
 
10.18
 
Pentair plc Compensation Plan for Non-Employee Directors, as amended and restated (Incorporated by reference to Exhibit 10.6 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).*
 
 
 
10.19
 
Pentair plc Employee Stock Purchase and Bonus Plan, as amended and restated (Incorporated by reference to Exhibit 10.5 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).*
 
 
 
10.20
 
Pentair, Inc. Non-Qualified Deferred Compensation Plan effective January 1, 1996 (Incorporated by reference to Exhibit 10.17 in the Annual Report on Form 10-K of Pentair, Inc. for the year ended December 31, 2005 (File No. 000-04689)).*
 
 
 
10.21
 
Trust Agreement for Pentair, Inc. Non-Qualified Deferred Compensation Plan between Pentair, Inc. and Fidelity Management Trust Company (Incorporated by reference to Exhibit 10.18 contained in the Annual Report on Form 10-K of Pentair, Inc. for the year ended December 31, 1995 (File No. 000-04689)).*
 
 
 
10.22
 
Amendment effective August 23, 2000 to Pentair, Inc. Non-Qualified Deferred Compensation Plan effective January 1, 1996 (Incorporated by reference to Exhibit 10.8 in the Current Report on Form 8-K of Pentair, Inc. filed with the Commission on September 21, 2000 (File No. 000-04689)).*
 
 
 
10.23
 
Pentair, Inc. Non-Qualified Deferred Compensation Plan effective January 1, 2009, as amended and restated (Incorporated by reference to Exhibit 10.12 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).*
 
 
 
10.24
 
Pentair, Inc. 1999 Supplemental Executive Retirement Plan as Amended and Restated effective August 23, 2000 (Incorporated by reference to Exhibit 10.2 in the Current Report on Form 8-K of Pentair, Inc. filed with the Commission on September 21, 2000 (File No. 000-04689)).*
 
 
 
10.25
 
Pentair, Inc. Supplemental Executive Retirement Plan effective January 1, 2009, as amended and restated (Incorporated by reference to Exhibit 10.13 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).*
 
 
 

99


10.26
 
Pentair, Inc. Restoration Plan as Amended and Restated effective August 23, 2000 (Incorporated by reference to Exhibit 10.3 in the Current Report on Form 8-K of Pentair, Inc. filed with the Commission on September 21, 2000 (File No. 000-04689)).*
 
 
 
10.27
 
Pentair, Inc. Restoration Plan effective January 1, 2009, as amended and restated (Incorporated by reference to Exhibit 10.14 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).*
 
 
 
10.28
 
Form of Deed of Indemnification for directors and executive officers of Pentair plc (Incorporated by reference to Exhibit 10.15 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).*
 
 
 
10.29
 
Form of Indemnification Agreement for directors and executive officers of Pentair plc (Incorporated by reference to Exhibit 10.16 in the Current Report on Form 8-K of Pentair plc filed with the Commission on June 3, 2014 (File No. 001-11625)).*
 
 
 
10.30
 
Letter agreement, dated September 7, 2015, among Pentair plc, Edward P. Garden, Matthew Peltz, Brian Baldwin and Trian Fund Management, L.P. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Pentair plc filed with the SEC on September 8, 2015 (File No. 001-11625)).
 
 
 
10.31
 
Form of Executive Officer Stock Option Grant Agreement for grants made on or after January 1, 2017.*
 
 
 
10.32
 
Form of Executive Officer Restricted Stock Unit Grant Agreement for grants made on or after January 2, 2017.*
 
 
 
10.33
 
Form of Executive Officer Performance Unit Grant Agreement for grants made on or after January 1, 2017.*
 
 
 
10.34
 
Separation Agreement, dated as of January 22, 2016, between Pentair Management Company and Frederick S. Koury (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Pentair plc filed with the Commission on January 28, 2016 (File No. 001-11625)).*
 
 
 
21
 
List of Pentair plc subsidiaries.
 
 
 
23
 
Consent of Independent Registered Public Accounting Firm — Deloitte & Touche LLP.
 
 
 
24
 
Power of attorney.
 
 
 
31.1
 
Certification of Chief Executive Officer.
 
 
 
31.2
 
Certification of Chief Financial Officer.
 
 
 
32.1
 
Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2
 
Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101
 
The following materials from Pentair plc's Annual Report on Form 10-K for the year ended December 31, 2016 are filed herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2016, 2015 and 2014, (ii) the Consolidated Balance Sheets as of December 31, 2016 and 2015, (iii) the Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014, (iv) the Consolidated Statements of Changes in Equity for the years ended December 31, 2016, 2015 and 2014 and (v) the Notes to the Consolidated Financial Statements.
*
Denotes a management contract or compensatory plan or arrangement.


100


PENTAIR PLC
2012 STOCK AND INCENTIVE PLAN
As Amended and Restated Effective as of January 1, 2017

1. Purpose, Effective Date and Assumed Equity Awards.
(a)      Purpose . The Pentair plc 2012 Stock and Incentive Plan has several complementary purposes: (i) to promote the growth and success of the Company by linking a significant portion of participant compensation to the increase in value of the Company’s shares; (ii) to attract and retain top quality, experienced executives and key employees by offering a competitive incentive compensation program; (iii) to reward innovation and outstanding performance as important contributing factors to the Company's growth and progress; (iv) to align the interests of executives, key employees, directors and consultants with those of the Company’s stockholders by reinforcing the relationship between participant rewards and stockholder gains obtained through the achievement by Plan participants of short-term objectives and long-term goals; and (v) to encourage executives, key employees, directors and consultants to obtain and maintain an equity interest in the Company.
(b)      History and Effective Date . This Plan became effective as of September 28, 2012 (the “Effective Date”) . This Plan was amended and restated effective as of September 30, 2013 and is again being amended and restated effective as of the Re-domicile Date in connection with the Re-domicile Merger to reflect the assumption of this Plan and all outstanding Awards by the Company and the conversion of awards that related to common shares of Pentair Ltd. at the time of the Re-domicile Merger into awards that relate to Stock.
(c)      Assumed Equity Awards . In connection with the Distribution (as defined in the Separation and Distribution Agreement (the “Distribution Agreement”), dated as of March 27, 2012, by and among Tyco International Ltd., Pentair Ltd. and The ADT Corporation) and subsequent merger as contemplated by the Merger Agreement, dated as of March 27, 2012, among Pentair Ltd., Panthro Acquisition Co., Panthro Merger Sub, Inc. and Pentair, Inc. (the “Merger Closing”), equity-based awards held by certain employees and former employees of Pentair Ltd. and its affiliates and certain directors that, prior to the Distribution, related to securities of Tyco International Ltd. were assumed by Pentair Ltd. and converted into awards that related to common shares of Pentair Ltd. Such awards (the “Assumed Awards”) are deemed Awards made under this Plan and are subject to all of the terms and conditions of this Plan except as modified by Appendix A or Appendix B to this Plan. For the avoidance of doubt, it is noted that awards that, prior to the Merger Closing, related to the common stock of Pentair, Inc. are not subject to this Plan and continue to be governed by their existing terms following the Merger Closing, and that the Assumed Awards, along with all other then-outstanding awards that related to Pentair Ltd. common shares, were converted into awards relating to Stock in connection with the Re-domicile Merger.
2.      Definitions. Capitalized terms used in this Plan have the following meanings:
(a)      “10% Stockholder” means an Eligible Employee who, as of the date an ISO is granted to such individual, owns more than ten percent (10%) of the total combined voting power of all classes of Stock then issued by the Company or a Subsidiary corporation.
(b)      “Administrator” means (i) the Committee with respect to Participants who are not Non-Employee Directors and (ii) the Non-Employee Directors of the Board (or a committee of Non-Employee Directors appointed by the Board) with respect to Participants who are non-Employee Directors.
(c)      “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Exchange Act. Notwithstanding the foregoing, for purposes of determining those individuals subject to U.S. taxation to whom an Option or Stock Appreciation Right that is exempt from Code Section 409A may be granted, the term “Affiliate” means any entity that, directly or through one or more intermediaries, is controlled by, controls, or is under common control with the Company within the meaning of Code Sections 414(b) or (c); provided that, in applying such provisions, the phrase “at least 20 percent” shall be used in place of “at least 80 percent” each place it appears therein.
(d)      “Annual Incentive Award” means the right to receive a cash payment to the extent Performance Goals are achieved (or other requirements are met) or as otherwise provided in Section 17(c).
(e)      “Award” means a grant of Options, Stock Appreciation Rights, Performance Shares, Performance Units, Restricted Stock, Restricted Stock Units, Deferred Stock Rights, an Annual Incentive Award, Dividend Equivalent Units, or any other type of award permitted under the Plan.
(f)      “Beneficial Owner” means a Person with respect to any securities that:
(i)      such Person or any of such Person’s Affiliates or Associates has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided , however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase, at any time before the issuance of such securities;
(ii)      such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has “beneficial ownership” of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including pursuant to any agreement, arrangement or understanding; provided , however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security under this clause (ii) as a result of an agreement, arrangement or understanding to vote such security if the agreement, arrangement or understanding: (A) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act and (B) is not also then reportable on a Schedule 13D under the Exchange Act (or any comparable or successor report); or
(iii)      are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person’s Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in clause (ii) above) or disposing of any voting securities of the Company.
(g)      “Board” means the Board of Directors of the Company.
(h)      “Cause” means, except as otherwise determined by the Administrator and set forth in an Award agreement, such act or omission by a Participant as is determined by the Administrator to constitute cause for termination, including but not limited to any of the following: (i) a material violation of any Company policy, including any policy contained in the Company Code of Business Conduct; (ii) embezzlement from, or theft of property belonging to, the Company or any Affiliate; (iii) willful failure to perform, or gross negligence in the performance of, or failure to perform, assigned duties; or (iv) other intentional misconduct, whether related to employment or otherwise, which has, or has the potential to have, a material adverse effect on the business conducted by the Company or its Affiliates.
(i)      “Change of Control” means the first occurrence of any of the following after the Merger Closing:
(i)      any Person (other than (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under any employee benefit plan of the Company or any of its subsidiaries, (C) an underwriter temporarily holding securities pursuant to an offering of such securities or (D) an entity owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of Stock (“Excluded Persons”)) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates after the Effective Date pursuant to express authorization by the Board that refers to this exception) representing twenty percent (20%) or more of either the then outstanding Shares or the combined voting power of the Company’s then outstanding voting securities; or
(ii)      the following individuals cease for any reason to constitute a majority of the number of Directors then serving: (A) individuals who, immediately after the Merger Closing, constituted the Board and (B) any new Director (other than a Director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of Directors, as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act) whose appointment or election by the Board or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors immediately after the Merger Closing, or whose appointment, election or nomination for election was previously so approved (collectively the “Continuing Directors”); provided , however, that individuals who are appointed to the Board pursuant to or in accordance with the terms of an agreement relating to a merger, consolidation, or share exchange involving the Company (or any direct or indirect subsidiary of the Company) after the Merger Closing shall not be deemed Continuing Directors until after such individuals are first nominated for election by a vote of at least two-thirds (2/3) of the then Continuing Directors and are thereafter elected as directors by the shareholders of the Company at a meeting of shareholders held following consummation of such merger, consolidation, or share exchange; and, provided further , that in the event the failure of any such persons appointed to the Board to be Continuing Directors results in a Change of Control, the subsequent qualification of such persons as Continuing Directors shall not alter the fact that a Change of Control occurred; or
(iii)      the consummation of a merger, consolidation or share exchange of the Company with any other entity or the issuance of voting securities of the Company in connection with a merger, consolidation or share exchange of the Company (or any direct or indirect subsidiary of the Company), in each case, which requires approval of the shareholders of the Company, other than (A) a merger, consolidation or share exchange which would result in the voting securities of the Company outstanding immediately prior to such merger, consolidation or share exchange continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger, consolidation or share exchange, or (B) a merger, consolidation or share exchange effected to implement a recapitalization of the Company (or similar transaction) in which no Person (other than an Excluded Person) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates after the Merger Closing, pursuant to express authorization by the Board that refers to this exception) representing twenty percent (20%) or more of either the then outstanding Shares or the combined voting power of the Company’s then outstanding voting securities; or
(iv)      the consummation of a plan of complete liquidation or dissolution of the Company or a sale or disposition by the Company of all or substantially all of the Company’s assets (in one transaction or a series of related transactions within any period of twenty-four (24) consecutive months), in each case, which requires approval of the shareholders of the Company, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity at least seventy-five percent (75%) of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, (x) no Change of Control shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of the Stock immediately prior to such transaction or series of transactions continue to own, directly or indirectly, in the same proportions as their ownership in the Company, an entity that owns all or substantially all of the assets or voting securities of the Company immediately following such transaction or series of transactions; and (y) for purposes of an Award (1) that provides for the payment of deferred compensation that is subject to Code Section 409A or (2) with respect to which the Company permits a deferral election, the definition of “Change of Control” shall be deemed amended to conform to the requirements of Code Section 409A to the extent necessary for the Award and deferral election to comply with Code Section 409A.

(j)      “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code includes any successor provision and the regulations promulgated under such provision.
(k)      “Commission” means the United States Securities and Exchange Commission or any successor agency.
(l)      “Committee” means the Compensation Committee of the Board (or a successor committee with the same or similar authority), or such other committee of the Board designated by the Board to administer the Plan and composed of no fewer than two directors, each of whom is a “non-employee director” within the meaning of Rule 16b-3 and an “outside director” within the meaning of Code Section 162(m)(4)(C); provided that if no such committee shall be in existence at any time, the functions of the Committee shall be carried out by the Board.
(m)      “Company” means (i) prior to the Re-domicile Date, Pentair Ltd., a Swiss company, or (ii) on and after the Re-domicile Date, Pentair plc, an Irish company, or any successor thereto.
(n)      “Consultant” means a person or entity rendering services to the Company or an Affiliate other than as an employee of any such entity or a Director.
(o)      “Covered Termination” means the involuntary termination of an employee’s employment by the Company or an Affiliate for a reason other than Cause, death or Disability. In addition, for a Participant who is a Board-appointed corporate officer at the time of the occurrence of the event(s) constituting Good Reason, a voluntary termination of employment by the Participant for such Good Reason shall be considered a “Covered Termination.”
Notwithstanding the foregoing, a Board-appointed corporate officer will not be considered to have experienced a Covered Termination unless and until the Participant executes a general release in such form and manner, and containing such reasonable and customary terms (which may include non-disparagement, non-solicitation and confidentiality covenants), as are determined by the Company, and such release becomes effective no later than sixty (60) days after the Participant’s Separation from Service (or such earlier date specified by the Company). With respect to any Award that is considered a nonqualified deferred compensation arrangement subject to Code Section 409A, if the period during which the Participant may sign the release spans two calendar years, then payment of such Awards may not be made prior to January 1 of that second calendar year.

(p)      “Deferred Stock Right” means the right to receive Stock or Restricted Stock at some future time.
(q)      “Director” means a member of the Board, and “Non-Employee Director” means a Director who is not also an employee of the Company or its Affiliates.
(r)      "Disability" means, except as otherwise determined by the Administrator and set forth in an Award agreement: (i) with respect to an ISO, the meaning given in Code Section 22(e)(3), and (ii) with respect to all other Awards, a physical or mental incapacity which qualifies an individual to collect a benefit under a long term disability plan maintained by the Company or an Affiliate, or such similar mental or physical condition which the Administrator may determine to be a disability, regardless of whether either the individual or the condition is covered by any such long term disability plan. The Administrator shall make the determination of Disability and may request such evidence of disability as it reasonably determines.
(s)      “Distribution” means the Fountain Distribution as defined in the Distribution Agreement.
(t)      “Dividend Equivalent Unit” means the right to receive a payment, in cash or Shares, equal to the cash dividends or other distributions paid with respect to a Share.
(u)      “Eligible Employee” means a key managerial, administrative or professional employee of the Company or an Affiliate.
(v)      “Exchange Act” means the Securities Exchange Act of 1934, as amended. Any reference to a specific provision of the Exchange Act includes any successor provision and the regulations and rules promulgated under such provision.
(w)      “Fair Market Value” means, per Share on a particular date, a price that is based (i) on the opening, closing, actual, high or low sale price, or the arithmetic mean of selling prices of, a Share on the New York Stock Exchange or such other exchange or automated trading system on which the Stock is then principally traded (the “Applicable Exchange”) on the applicable date, the preceding trading day or the next succeeding trading day, or (ii) the arithmetic mean of selling prices on all trading days over a specified averaging period that is within 30 days before or 30 days after the applicable date, or such arithmetic mean weighted by volume of trading on each trading day in the period, in each case as determined by the Administrator in its discretion; provided that, if an arithmetic mean of prices is used to set a grant price or an exercise price for an Option or Stock Appreciation Right, the commitment to grant the applicable Award based on such arithmetic mean must be irrevocable before the beginning of the specified averaging period in accordance with Treasury Regulation § 1.409A-1(b)(5)(iv)(A). The method of determining Fair Market Value with respect to an Award shall be determined by the Administrator and may differ depending on whether Fair Market Value is in reference to the grant, exercise, vesting, settlement, or payout of an Award; provided that, if the Administrator does not specify a different method, the Fair Market Value of a Share as of a given date shall be the closing sale price on the day as of which Fair Market Value is to be determined or, if there shall be no such sale on such date, the next preceding day on which such a sale shall have occurred. If the Stock is not traded on an established stock exchange, the Administrator shall determine in good faith the Fair Market Value of a Share. Notwithstanding the foregoing, in the case of a sale of Shares on the Applicable Exchange, the actual sale price shall be the Fair Market Value of such Shares. The Administrator also shall establish the Fair Market Value of any other property.
(x)      “Incentive Stock Option” or “ISO” means an Option that meets the requirements of Code Section 422.
(y)      “Good Reason” means, with respect to a Participant who is a Board-appointed corporate officer, (x) the definition of “Good Reason” or similar term as provided in an employment agreement in effect between the Participant and the Company or an Affiliate, or (y) in the absence thereof, the occurrence of any of the following events, without the Participant’s advance written consent:
(i)      any material breach by the Company or an Affiliate of the terms of any employment agreement in effect with the Participant;
(ii)      any reduction in any of the Participant’s base salary or percentage of base salary available as incentive compensation or bonus opportunity, or any material reduction in the Participant’s nonqualified deferred compensation retirement benefits;
(iii)      a good faith determination by the Participant that there has been a material adverse change in the Participant’s working conditions or status with the Company or an Affiliate, including but not limited to (A) a significant change in the nature or scope of the Participant’s authority, powers, functions, duties or responsibilities, or (B) a significant reduction in the level of support services, staff, secretarial and other assistance, office space and accoutrements, or (C) a significant reduction in the authority, duties or responsibilities of the supervisor to whom the Participant is required to report;
(iv)      the relocation of the Participant’s principal place of employment to a location more than fifty (50) miles from the Participant’s then-current principal place of employment with the Company or an Affiliate; or
(v)      the Company or an Affiliate requires the Participant to travel on business twenty percent (20%) in excess of the average number of days per month the Participant was required to travel during the twelve (12)-month period immediately prior to the imposition of such requirement.
A Participant’s termination shall not be considered to have occurred for “Good Reason” unless (A) within ninety (90) days following the occurrence of one of the events listed above the Participant provides written notice to the Company setting forth the specific event constituting Good Reason, (B) the Company fails to remedy the event constituting Good Reason within thirty (30) days following its receipt of the Participant’s notice, and (C) the Participant actually terminates his or her employment with the Company and its Affiliates within thirty (30) days following the end of the Company’s remedy period.
(z)      “Option” means the right to purchase Shares at a stated price for a specified period of time.
(aa)      “Participant” means an individual selected by the Administrator to receive an Award.
(bb)      “Performance Awards” means a Performance Share, a Performance Unit and an Annual Incentive Award, and any Award of Restricted Stock, Restricted Stock Units, or Deferred Stock Rights the payment or vesting of which is contingent on the attainment of one or more Performance Goals.
(cc)      “Performance Goals” means any goals the Administrator establishes that relate to one or more of the following with respect to the Company or any one or more of its Affiliates or any one or more divisions or business units of the Company or any Affiliate: net income; income from continuing operations; stockholder return; total stockholder return; stock price; Fair Market Value; earnings per share (including diluted earnings per share); net operating profit (including after tax); revenue growth; sales growth (including organic sales growth); return on equity; return on investment; return on invested capital (including after-tax); earnings before interest, taxes, depreciation and amortization; operating income; operating margin; market share; return on sales; asset reduction; cost reduction; working capital turns; cash flow (including free cash flow); and new product releases.
As to each Performance Goal, the relevant measurement of performance shall be computed in accordance with generally accepted accounting principles, if applicable; provided that, the Administrator may, at the time of establishing the Performance Goal(s), exclude the effects of (i) extraordinary, unusual and/or non-recurring items of gain or loss, (ii) gains or losses on the disposition of a business, (iii) changes in tax regulations or laws, or (iv) the effect of a merger or acquisition. Notwithstanding the foregoing, the calculation of any Performance Goal established for purposes of an Award shall be made without regard to changes in accounting methods used by the Company or in accounting standards that may be required by the Financial Accounting Standards Board after a Performance Goal relative to an Award is established and prior to the time the compensation earned by reason of the achievement of the relevant Performance Goal is paid to the Participant.
In the case of Awards that the Administrator determines will not be considered “performance‑based compensation” under Code Section 162(m), the Administrator may establish other Performance Goals not listed in this Plan.
Where applicable, the Performance Goals may be expressed, without limitation, in terms of attaining a specified level of the particular criterion or the attainment of an increase or decrease (expressed as absolute numbers, averages or percentages) in the particular criterion or achievement in relation to a peer group or other index. The Performance Goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be paid (or specified vesting will occur), and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur).
(dd)      “Performance Shares” means the right to receive Shares (including Restricted Stock) to the extent Performance Goals are achieved or as otherwise provided in Section 17(c).
(ee)      “Performance Unit” means the right to receive a payment valued in relation to a unit that has a designated dollar value or the value of which is equal to the Fair Market Value of one or more Shares, to the extent Performance Goals are achieved or as otherwise provided in Section 17(c).
(ff)          “Person” has the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof.
(gg)      “Plan” means this Pentair plc 2012 Stock and Incentive Plan, as may be amended from time to time.
(hh)      “Re-domicile Date” means the effective date of the consummation of the Re-domicile Merger.
(ii)      “Re-domicile Merger” means the merger of Pentair Ltd. with and into Pentair plc.
(jj)      “Restriction Period” means the length of time established relative to an Award during which the Participant cannot sell, assign, transfer, pledge or otherwise encumber the Stock or Stock Units subject to such Award and at the end of which the Participant obtains an unrestricted right to such Stock or Stock Units.
(kk)      “Restricted Stock” means a Share that is subject to a risk of forfeiture or restrictions on transfer, or both a risk of forfeiture and restrictions on transfer.
(ll)          “Restricted Stock Unit” means the right to receive a payment equal to the Fair Market Value of one Share.
(mm)      “Retirement” or “Retires” means, except as otherwise determined by the Administrator or set forth in an Award agreement, (i) with respect to Participants who are Eligible Employees, termination of employment from the Company and its Affiliates (for other than Cause) on or after attainment of age fifty-five (55) and completion of ten (10) years of service with the Company and its Affiliates (including for this purpose, service with Tyco International Ltd. and its Affiliates), and (ii) with respect to Non-Employee Director Participants, the Director’s removal (for other than Cause), or resignation or failure to be re-elected (for other than Cause), after the Director has served on the Board for six (6) years (including, for this purpose, service on the Board of Directors of Pentair, Inc. or Pentair Ltd.).
(nn)          “Rule 16b-3” means Rule 16b-3 promulgated by the Commission under the Exchange Act, or any successor rule or regulation thereto.
(oo)      “Section 16 Participants” means Participants who are subject to the provisions of Section 16 of the Exchange Act.
(pp)      “Share” means a share of Stock.
(qq)      “Stock” means (i) prior to the Re-domicile Date, the registered shares of the Company, nominal value CHF 0.50 per share, subject to any capital changes, or (ii) on or after the Re-domicile Date, the ordinary shares of the Company, nominal value $0.01 per share.
(rr)      “Stock Appreciation Right” or “SAR” means the right to receive a payment equal to the appreciation of the Fair Market Value of a Share during a specified period of time.
(ss)      “Subsidiary” means any corporation or limited liability company (except such an entity that is treated as a partnership for U.S. income tax purposes) in an unbroken chain of entities beginning with the Company if each of the entities (other than the last entity in the chain) owns stock or equity interests possessing more than fifty percent (50%) of the total combined voting power of all classes of stock or equity interests in one of the other entities in the chain.
3.      Administration.
(a)      Administration . In addition to the authority specifically granted to the Administrator in this Plan, the Administrator has full discretionary authority to administer this Plan, including but not limited to the authority to: (i) interpret the provisions of this Plan and any Award agreement; (ii) prescribe, amend and rescind rules and regulations relating to this Plan; (iii) correct any defect, supply any omission, or reconcile any inconsistency in this Plan, any Award or any Award agreement in the manner and to the extent it deems desirable to carry this Plan or such Award into effect; and (iv) make all other determinations necessary or advisable for the administration of this Plan. All Administrator determinations shall be made in the sole discretion of the Administrator and are final and binding on all interested parties.
Notwithstanding any provision of the Plan to the contrary, the Administrator shall have the discretion to grant an Award with any vesting condition, any Restriction Period or any performance period if the Award is granted to a newly hired or promoted Participant, or accelerate the vesting, Restriction Period or performance period of an Award, in connection with a Participant’s death, disability, Retirement or Covered Termination.
Notwithstanding the above statement or any other provision of the Plan, once established, the Committee shall have no discretion to increase the amount of compensation payable under an Award that is intended to be performance-based compensation under Code Section 162(m), although the Committee may decrease the amount of compensation a Participant may earn under such an Award.
(b)      Delegation to Other Committees or Officers . To the extent applicable law permits, the Board may delegate to another committee of the Board or to one or more officers of the Company, or the Committee may delegate to one or more officers of the Company, any or all of their respective authority and responsibility as an Administrator of the Plan; provided that no such delegation is permitted with respect to Stock-based Awards made to Section 16 Participants at the time any such delegated authority or responsibility is exercised unless the delegation is to another committee of the Board consisting entirely of Non-Employee Directors. If the Board or the Committee has made such a delegation, then all references to the Administrator in this Plan include such other committee or one or more officers to the extent of such delegation.
(c)      Indemnification . The Company will indemnify and hold harmless each member of the Board and the Committee, and each officer or member of any other committee to whom a delegation under Section 3(b) has been made, as to any acts or omissions with respect to this Plan or any Award to the maximum extent that the law and the Company’s by-laws permit.
4.      Eligibility. The Administrator may designate any of the following as a Participant from time to time, to the extent of the Administrator’s authority: any Eligible Employee, any Consultant or any Director, including a Non-Employee Director. The Administrator’s granting of an Award to a Participant will not require the Administrator to grant an Award to such individual at any future time. The Administrator’s granting of a particular type of Award to a Participant will not require the Administrator to grant any other type or amount of Award to such individual.
5.      Types of Awards. Subject to the terms of this Plan, the Administrator may grant any type of Award to any Participant it selects, but only employees of the Company or a Subsidiary may receive grants of Incentive Stock Options. Awards may be granted alone or in addition to, in tandem with, or (subject to the prohibition on repricing set forth in Section 15(e)) in substitution for any other Award (or any other award granted under another plan of the Company or any Affiliate).
6.      Shares Reserved under this Plan.
(a)      Plan Reserve . Subject to adjustment as provided in Section 17, an aggregate of Nine Million (9,000,000) Shares are reserved for issuance under this Plan, all of which may be issued pursuant to Incentive Stock Options. Such share reserve will not be depleted by the Assumed Awards. The Shares reserved for issuance may be either Shares created out of conditional, authorized or ordinary share capital or Shares reacquired at any time and now or hereafter held as treasury stock. For purposes of determining the aggregate number of Shares reserved for issuance under this Plan, any fractional Share shall be rounded to the next highest full Share.
(b)      Replenishment of Shares Under this Plan . The aggregate number of Shares reserved under Section 6(a) shall be depleted by the number of Shares with respect to which an Award is granted on or after the Effective Date; provided that the aggregate number of Shares reserved under Section 6(a) shall be depleted by one (1) Share for each Share subject to a full-value Award. For this purpose, a full-value award includes Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units (valued in relation to a Share), Deferred Stock Rights and any other similar Award under which the value of the Award is measured as the full value of a Share, rather than the increase in the value of a Share. If, however, (i) an Award (including an Assumed Award) lapses, expires, terminates or is cancelled without the issuance of Shares under the Award (whether due currently or on a deferred basis), (ii) it is determined during or at the conclusion of the term of an Award (including an Assumed Award) that all or some portion of the Shares with respect to which the Award was granted will not be issuable on the basis that the conditions for such issuance will not be satisfied, (iii) Shares are forfeited under an Award (including an Assumed Award) or (iv) Shares are issued under any Award (including an Assumed Award) and the Company subsequently reacquires them pursuant to rights reserved upon the issuance of the Shares, then such Shares shall be credited to the Plan’s reserve (in the same number as they depleted the reserve or, with respect to Assumed Awards, on a Share-for-Share basis) and may be used for new Awards under this Plan, but Shares recredited to the Plan’s reserve pursuant to clause (iv) may not be issued pursuant to Incentive Stock Options.
(c)      Participant Limitations . Subject to adjustment as provided in Section 17, no Participant may be granted Awards that could result in such Participant:
(i)      receiving Options for, and/or Stock Appreciation Rights with respect to, more than 750,000 Shares during any fiscal year of the Company;
(ii)      receiving Awards of Restricted Stock and/or Restricted Stock Units and/or Deferred Stock Rights relating to more than 500,000 Shares during any fiscal year of the Company;
(iii)      receiving Awards of Performance Shares, and/or Awards of Performance Units the value of which is based on the Fair Market Value of Shares, for more than 500,000 Shares during any fiscal year of the Company;
(iv)      receiving Awards of Performance Units, the value of which is not based on the Fair Market Value of Shares, for more than $3,000,000 during any fiscal year of the Company;
(v)      receiving Annual Incentive Awards, with performance periods ending in the same fiscal year of the Company, with respect to more than $3,500,000; or
(vi)      receiving other Stock-based Awards pursuant to Section 12 relating to more than 100,000 Shares during any fiscal year of the Company.
In all cases, determinations under this Section 6(c) should be made in a manner that is consistent with the exemption for performance‑based compensation that Code Section 162(m) provides.

7.      Options. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each Option, including but not limited to:
(a)      Whether the Option is an Incentive Stock Option or a “nonqualified stock option” which does not meet the requirements of Code Section 422;
(b)      The number of Shares subject to the Option;
(c)      The date of grant, which may not be prior to the date of the Administrator’s approval of the grant;
(d)      The exercise price, which may not be less than the Fair Market Value of the Shares subject to the Option as determined on the date of grant; provided that an Incentive Stock Option granted to a 10% Stockholder must have an exercise price at least equal to 110% of the Fair Market Value of the Shares subject to the Option as determined on the date of grant;
(e)      The terms, conditions and manner of exercise, including but not limited to, the manner of payment of the exercise price; provided that, if the aggregate Fair Market Value of the Shares subject to all Incentive Stock Options granted to the Participant (as determined on the date of grant of such Option) that become exercisable during a calendar year exceed $100,000, then such Incentive Stock Options shall be treated as nonqualified stock options to the extent such $100,000 limitation is exceeded; and
(f)      The term; provided that each Option must terminate no later than ten (10) years after the date of grant and each Incentive Stock Option granted to a 10% Stockholder must terminate no later than five (5) years after the date of grant.
In all other respects, the terms of any Incentive Stock Option should comply with the provisions of Code Section 422 except to the extent the Administrator determines otherwise. If an Option that is intended to be an Incentive Stock Option fails to meet the requirements thereof, the Option shall automatically be treated as a nonqualified stock option to the extent of such failure.
Subject to the terms and conditions of the Award, payment of the exercise price and applicable withholding taxes due upon exercise of the Option, or both, may be made in the form of Stock already owned by the Participant, which Stock shall be valued at Fair Market Value on the date the Option is exercised, or by means of any “net exercise” or similar procedure established under the Plan. A Participant who elects to make payment in Stock may not transfer fractional shares or shares of Stock with an aggregate Fair Market Value in excess of the Option exercise price plus applicable withholding taxes.
8.      Stock Appreciation Rights. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each SAR, including but not limited to:
(a)      Whether the SAR is granted independently of an Option or relates to an Option;
(b)      The number of Shares to which the SAR relates;
(c)      The date of grant, which may not be prior to the date of the Administrator’s approval of the grant;
(d)      The grant price, provided that the grant price shall not be less than the Fair Market Value of the Shares subject to the SAR as determined on the date of grant;
(e)      The terms and conditions of exercise or maturity;
(f)      The term, provided that each SAR must terminate no later than ten (10) years after the date of grant; and
(g)      Whether the SAR will be settled in cash, Shares or a combination thereof.
If an SAR is granted in relation to an Option, then unless otherwise determined by the Administrator, the SAR shall be exercisable or shall mature at the same time or times, on the same conditions and to the extent and in the proportion, that the related Option is exercisable and may be exercised or mature for all or part of the Shares subject to the related Option. Upon exercise of any number of SARs, the number of Shares subject to the related Option shall be reduced accordingly and such Option may not be exercised with respect to that number of Shares. The exercise of any number of Options that relate to an SAR shall likewise result in an equivalent reduction in the number of Shares covered by the related SAR.
9.      Performance Units and Stock Awards. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each award of Restricted Stock, Restricted Stock Units, Deferred Stock Rights, Performance Shares or Performance Units, including but not limited to:
(a)      The number of Shares and/or units to which such Award relates;
(b)      Whether, as a condition for the Participant to realize all or a portion of the benefit provided under the Award, one or more Performance Goals must be achieved during such period as the Administrator specifies;
(c)      The Restriction Period with respect to Restricted Stock or Restricted Stock Units and the period of deferral for Deferred Stock Rights;
(d)      The performance period for Performance Awards (which, subject to the provisions of Sections 13 and 17, must be at least one year for Stock-based Performance Awards);
(e)      With respect to Performance Units, whether to measure the value of each unit in relation to a designated dollar value or the Fair Market Value of one or more Shares; and
(f)      With respect to Restricted Stock Units and Performance Units, whether to settle such Awards in cash, in Shares, or a combination thereof.
During the time Restricted Stock is subject to the Restriction Period, the Participant shall have all of the rights of a stockholder with respect to the Restricted Stock, including the right to vote such Stock and, unless the Administrator shall otherwise provide, the right to receive dividends paid with respect to such Stock.
Except as otherwise provided in the Plan, at such time as all restrictions applicable to an Award of Restricted Stock, Deferred Stock Rights or Restricted Stock Units are met and the Restriction Period expires, ownership of the Stock subject to such restrictions shall be transferred to the Participant free of all restrictions except those that may be imposed by applicable law; provided that if Restricted Stock Units are paid in cash, said payment shall be made to the Participant after all applicable restrictions lapse and the Restriction Period expires.
10.      Annual Incentive Awards . Subject to the terms of this Plan, the Administrator will determine all terms and conditions of an Annual Incentive Award, including but not limited to the Performance Goals, performance period, the potential amount payable, and the timing of payment, provided that the Administrator must require that payment of all or any portion of the amount subject to the Annual Incentive Award is contingent on the achievement of one or more Performance Goals during the performance period (except as otherwise provided in Section 17(c)), although the Administrator may specify that all or a portion of the Performance Goals subject to an Award are deemed achieved upon a Participant's death, Disability or such other circumstances as the Administrator may specify.
11.      Dividend Equivalent Units. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each award of Dividend Equivalent Units, including but not limited to whether: (a) such Award will be granted in tandem with another Award; (b) payment of the Award will be made currently or credited to an account for the Participant which provides for the deferral of such amounts until a stated time; and (c) the Award will be settled in cash or Shares; provided that Dividend Equivalent Units may be granted only in connection with a “full value” Award as defined in Section 6(b).
12.      Other Stock-Based Awards. Subject to the terms of this Plan, the Administrator may grant to Participants other types of Awards, which shall be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, Shares, either alone or in addition to or in conjunction with other Awards, and payable in Stock or cash. Such Award may include the issuance of unrestricted Shares, which may be awarded in payment of director fees, in lieu of cash compensation, in exchange for cancellation of a compensation right (except as prohibited by Section 15(e)), as a bonus, upon the attainment of Performance Goals or otherwise, or rights to acquire Stock from the Company. The Administrator shall determine all terms and conditions of the Award, including but not limited to, the time or times at which such Awards shall be made, and the number of Shares to be granted pursuant to such Awards or to which such Award shall relate; provided that any Award that provides for purchase rights may not have a purchase price less than the Fair Market Value of the Shares subject to such rights as determined on the date of grant.
13.      Effect of Termination on Awards . Except as otherwise provided by the Administrator in an Award agreement or determined by the Administrator at or prior to the time of termination of a Participant’s service, the following provisions shall apply to all outstanding Awards held by a Participant at the time of his or her termination of service from the Company and its Affiliates.
(a)      Termination of Employment or Service . If a Participant’s service ends for any reason other than (i) a termination for Cause, (ii) Retirement, (iii) death, (iv) Disability or (v) a Covered Termination, then:
(i)      All Options or SARs that are not vested on the date such Participant’s service ends shall be forfeited immediately, and all Options or SARs that are vested shall be exercisable until the earlier of ninety (90) days following the Participant’s termination date and the expiration date of the Option or SAR as set forth in the applicable Award agreement. Upon such earlier date, all Options and SARs then unexercised shall be forfeited.
(ii)      All other Awards made to the Participant, to the extent not then earned, vested or paid to the Participant, shall terminate on the date the Participant’s service ends.
(b)      Retirement or Covered Termination . Subject to Section 13(c), upon the Retirement or Covered Termination of a Participant not covered by Section 13(d):
(i)      All Options and SARs that are not vested on the date of such termination shall be forfeited immediately, and all Options or SARs that are vested shall be exercisable until the earlier of ninety (90) days following the Participant’s Retirement or Covered Termination date and the expiration date of the Option or SAR. Upon such earlier date, all Options and SARs then unexercised shall be forfeited.
(ii)      All Restricted Stock, Restricted Stock Units and Deferred Stock Rights (that are not Performance Awards or for which any Performance Goals have been satisfied) shall vest on a prorated basis, based on the portion of the restriction or deferral period, as applicable, which the Participant has completed at the time of Retirement or Covered Termination, and any other terms and conditions applicable to such Awards shall be deemed to have lapsed or otherwise been satisfied.
(iii)      All Performance Awards, including Annual Incentive Awards, shall be paid in either unrestricted shares of Stock or cash, as the case may be, following the end of the performance period and based on achievement of the Performance Goals established for such Awards, as if the Participant had not retired or experienced a Covered Termination, but prorated based on the portion of the performance period which the Participant has completed at the time of Retirement or Covered Termination.
(c)      Retirement or Covered Termination of Corporate Officer . If a Participant who is a Board-appointed corporate officer either Retires after the age of sixty (60) or experiences a Covered Termination, then the following provisions shall apply in lieu of Section 13(b):
(i)      All Options or SARs shall remain outstanding (and shall continue to vest in accordance with the terms of the Award as if the Participant had continued in employment or service) until the earlier of the expiration date of the Award and the fifth anniversary of such Participant’s Retirement or Covered Termination date, as applicable; provided , however, that such extension shall result in the conversion of an Incentive Stock Option to a nonqualified stock option to the extent required under the Code. Upon such earlier date, all Options and SARs then unexercised shall be forfeited.
(ii)      All Restricted Stock, Restricted Stock Units and Deferred Stock Rights (that are not Performance Awards or for which any Performance Goals have been satisfied) shall be immediately vested, and any other terms and conditions applicable to such Awards shall be deemed to have lapsed or otherwise been satisfied.
(iii)      All Performance Awards, including Annual Incentive Awards, shall be paid in either unrestricted Shares or cash, as the case may be, following the end of the performance period and based on achievement of the Performance Goals established for such Awards, as if the Participant had not retired or experienced a Covered Termination.
Notwithstanding the foregoing, in the event of a Covered Termination, in no event shall Awards be paid or considered vested earlier than the date the general release described in Section 2(o) becomes effective.
(d)      Retirement of a Non-Employee Director . Upon Retirement of a Participant who is then a Non-Employee Director, the following provisions shall apply in lieu of Section 13(b):
(i)      All Options or SARs shall remain outstanding (and shall continue to vest in accordance with the terms of the Award as if the Participant had continued in employment or service) until the earlier of the expiration date of the Award and the fifth anniversary of such Participant’s Retirement date. Upon such earlier date, all Options and SARs then unexercised shall be forfeited.
(ii)      All Restricted Stock, Restricted Stock Units and Deferred Stock Rights (that are not Performance Awards or for which any Performance Goals have been satisfied) shall be immediately vested, and any other terms and conditions applicable to such Awards shall be deemed to have lapsed or otherwise been satisfied.
(iii)      All Performance Awards, including Annual Incentive Awards, shall be paid in either unrestricted Shares or cash, as the case may be, following the end of the performance period and based on achievement of the Performance Goals established for such Awards, as if the Participant had not retired.
(e)      Death or Disability . If a Participant’s service with the Company and its Affiliates ends due to death or Disability:
(i)      All Options and SARs shall vest immediately and shall be exercisable until the earlier of twelve (12) months following the date the Participant’s service ends and the expiration date of the Option or SAR. Upon such earlier date, all Options and SARs then unexercised shall be forfeited.
(ii)      All Restricted Stock, Restricted Stock Units and Deferred Stock Rights (that are not Performance Awards or for which any Performance Goals have been satisfied) shall be immediately vested, and any other terms and conditions applicable to such Awards shall be deemed to have lapsed or otherwise been satisfied.
(iii)      All Performance Awards, including Annual Incentive Awards, shall be paid in either unrestricted shares of Stock or cash, as the case may be, following the end of the performance period and based on achievement of the Performance Goals established for such Awards, as if the Participant had not terminated service.
(f)      Termination for Cause . If a Participant’s service with the Company and its Affiliates is terminated for Cause, all Awards and grants of every type, whether or not then vested, shall terminate no later than the Participant’s last day of service. The Administrator shall have discretion to determine whether this Section 13(f) shall apply, whether the event or conduct at issue constitutes Cause for termination and the date on which Awards to a Participant shall terminate.
(g)      Other Awards . The Administrator shall have the discretion to determine, at the time an Award is made, the effect on other Awards of the Participant’s termination of employment or service.
14.      Transferability .
(a)      Restrictions on Transfer . Awards are not transferable other than by will or the laws of descent and distribution, unless and to the extent the Administrator allows a Participant to designate in writing a beneficiary to exercise the Award or receive payment under an Award after the Participant’s death or transfer an Award as provided in subsection (b).
(b)      Permitted Transfers . If allowed by the Administrator, a Participant may transfer the ownership of some or all of the vested or earned Awards granted to such Participant, other than Incentive Stock Options, to (i) the spouse, children or grandchildren of such Participant (the “Family Members”), (ii) a trust or trust established for the exclusive benefit of such Family Members, or (iii) a partnership in which such Family Members are the only partners. Notwithstanding the foregoing, vested or earned Awards may be transferred without the Administrator’s pre-approval if the transfer is made incident to a divorce as required pursuant to the terms of a “domestic relations order” as defined in Section 414(p) of the Code; provided that no such transfer will be allowed with respect to ISOs if such transferability is not permitted by Code Section 422. Any such transfer shall be without consideration and shall be irrevocable. No Award so transferred may be subsequently transferred, except by will or applicable laws of descent and distribution. The Administrator may create additional conditions and requirements applicable to the transfer of Awards. Following the allowable transfer of an Award, such Award shall continue to be subject to the same terms and conditions as were applicable to the Award immediately prior to the transfer. For purposes of settlement of the Award, delivery of Stock upon exercise of an Award and the Plan’s Change of Control provisions, however, any reference to a Participant shall be deemed to refer to the transferee.
(c)      Restrictions on Exercisability . Each Award, and each right under any Award, shall be exercisable during the lifetime of the Participant only by such individual or, if permissible under applicable law, by such individual’s guardian or legal representative or by a permitted transferee pursuant to Section 14(b).
15.      Termination and Amendment of Plan; Amendment, Modification or Cancellation of Awards.
(a)      Term of Plan . Unless the Board or the Committee earlier terminates this Plan pursuant to Section 15(b), this Plan will terminate on the date all Shares reserved for issuance have been issued. If the term of this Plan extends beyond ten (10) years from the Effective Date, no Incentive Stock Options may be granted after such time unless the stockholders of the Company have approved an extension of this Plan.
(b)      Termination and Amendment of Plan . The Board or the Committee may amend, alter, suspend, discontinue or terminate this Plan at any time, subject to the following limitations:
(i)      the Board must approve any amendment of this Plan to the extent the Company determines such approval is required by: (A) prior action of the Board, (B) applicable corporate law, or (C) any other applicable law;
(ii)      stockholders must approve any amendment of this Plan to the extent the Company determines such approval is required by: (A) Section 16 of the Exchange Act, (B) the Code, (C) the listing requirements of any principal securities exchange or market on which the Shares are then traded, or (D) any other applicable law; and
(iii)      stockholders must approve any of the following Plan amendments: (A) an amendment to materially increase any number of Shares specified in Section 6(a), the limit on Incentive Stock Options set forth in Section 6(a) or the limits set forth in Section 6(c) (except as permitted by Section 17), (B) an amendment to expand the group of individuals that may become Participants, or (C) an amendment that would diminish the protections afforded by Section 15(e).
(c)      Amendment, Modification or Cancellation of Awards .
(i)      Except as provided in Section 15(e) and subject to the requirements of this Plan, the Administrator may modify, amend or cancel any Award, or waive any restrictions or conditions applicable to any Award or the exercise of the Award; provided that any modification or amendment that materially diminishes the rights of the Participant, or the cancellation of the Award, shall be effective only if agreed to by the Participant or any other person(s) as may then have an interest in the Award, but the Administrator need not obtain Participant (or other interested party) consent for the adjustment or cancellation of an Award pursuant to the provisions of Section 17 or the modification of an Award to the extent deemed necessary to comply with any applicable law, the listing requirements of any principal securities exchange or market on which the Shares are then traded, or to preserve favorable accounting or tax treatment of any Award for the Company, or to the extent the Administrator determines that such action does not materially and adversely affect the value of an Award or that such action is in the best interest of the affected Participant or any other person(s) as may then have an interest in the Award. Notwithstanding the foregoing, unless determined otherwise by the Administrator, any such amendment shall be made in a manner that will enable an Award intended to be exempt from Code Section 409A to continue to be so exempt, or to enable an Award intended to comply with Code Section 409A to continue to so comply.
(ii)      Any Awards granted pursuant to this Plan, and any Stock issued or cash paid pursuant to an Award, shall be subject to (A) any recoupment, clawback, equity holding, stock ownership or similar policies adopted by the Company from time to time and (B) any recoupment, clawback, equity holding, stock ownership or similar requirements made applicable by law, regulation or listing standards to the Company from time to time.
(iii)      Unless the Award agreement specifies otherwise, the Administrator may cancel any Award at any time if the Participant is not in compliance with all applicable provisions of the Award agreement and the Plan.
(d)      Survival of Authority and Awards . Notwithstanding the foregoing, the authority of the Board and the Administrator under this Section 15 and to otherwise administer the Plan will extend beyond the date of this Plan’s termination to the extent necessary to administer Awards outstanding on the date of the Plan’s termination. In addition, termination of this Plan will not affect the rights of Participants with respect to Awards previously granted to them, and all unexpired Awards will continue in force and effect after termination of this Plan except as they may lapse or be terminated by their own terms and conditions.
(e)      Repricing and Backdating Prohibited . Notwithstanding anything in this Plan to the contrary, except as provided in Section 17, neither the Administrator nor any other person may (i) amend the terms of outstanding Options or SARs to reduce the exercise or grant price of such outstanding Options or SARs; (ii) cancel outstanding Options or SARs in exchange for Options or SARs with an exercise or grant price that is less than the exercise price of the original Options or SARs; or (iii) cancel outstanding Options or SARs with an exercise or grant price above the current Share price in exchange for cash or other securities. In addition, the Administrator may not make a grant of an Option or SAR with a grant date that is effective prior to the date the Administrator takes action to approve such Award.
(f)      Foreign Participation . To assure the viability or the favorable tax or accounting treatment of Awards granted to Participants employed or residing in a country other than the U.S. or Ireland (a “foreign country”), the Administrator may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy, applicable accounting standards or custom. Moreover, the Administrator may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it determines is necessary or appropriate for such purposes. Any such amendment, restatement or alternative versions that the Administrator approves for purposes of using this Plan in a foreign country will not affect the terms of this Plan for any other country. In addition, all such supplements, amendments, restatements or alternative versions must comply with the provisions of Section 15(b)(ii).
In addition, if an Award is or becomes subject to Code Section 457A such that the amount payable or Shares issuable under such Award would be taxable to the Participant under Code Section 457A in the year such Award is no longer subject to a substantial risk of forfeiture, then the amount payable or Shares issuable under such Award shall be paid or issued to the Participant as soon as practicable after such substantial risk of forfeiture lapses (or, for Awards that are not considered nonqualified deferred compensation subject to Code Section 409A, no later than the end of the short-term deferral period permitted by Code Section 457A) notwithstanding anything in this Plan or the Award agreement to the contrary.
(g)      Code Section 409A . The provisions of Code Section 409A are incorporated herein by reference to the extent necessary for any Award that is subject to Code Section 409A to comply therewith.
16.      Taxes .
(a)      Withholding . In the event the Company or an Affiliate of the Company is required to withhold any applicable withholding or similar taxes or other amounts in respect of any income recognized by a Participant as a result of the grant, vesting, payment or settlement of an Award or disposition of any Shares acquired under an Award, the Company may deduct cash (or require an Affiliate to deduct cash) from any payments of any kind otherwise due the Participant, or with the consent of the Committee, Shares otherwise deliverable or vesting under an Award, to satisfy such tax obligations. Alternatively, the Company may require such Participant to pay to the Company, in cash, promptly on demand, or make other arrangements satisfactory to the Company regarding the payment to the Company of the aggregate amount of any such taxes and other amounts. If Shares are deliverable upon exercise or payment of an Award, the Committee may permit a Participant to satisfy all or a portion of the applicable withholding or similar tax obligations arising in connection with such Award by electing to (i) have the Company withhold Shares otherwise issuable under the Award, (ii) tender back Shares received in connection with such Award or (iii) deliver other previously owned Shares; provided that the amount to be withheld may not exceed the maximum statutory tax amount or similar obligations associated with the transaction to the extent needed for the Company to avoid an accounting charge. If an election is provided, the election must be made on or before the date as of which the amount of tax to be withheld is determined and otherwise as the Committee requires. In any case, the Company may defer making payment or delivery under any Award if any such tax may be pending unless and until indemnified to its satisfaction.
(b)      No Guarantee of Tax Treatment . Notwithstanding any provisions of the Plan, the Company does not guarantee to any Participant or any other Person with an interest in an Award that (i) any Award intended to be exempt from Code Section 409A or Code Section 457A shall be so exempt, (ii) any Award intended to comply with Code Section 409A or Code Section 422 shall so comply, (iii) any Award shall otherwise receive a specific tax treatment under any other applicable tax law, nor in any such case will the Company or any Affiliate indemnify, defend or hold harmless any individual with respect to the tax consequences of any Award.
(c)      Participant Responsibilities . If a Participant shall dispose of Stock acquired through exercise of an ISO within either (i) two (2) years after the date the Option is granted or (ii) one (1) year after the date the Option is exercised (i.e., in a disqualifying disposition), such Participant shall notify the Company within seven (7) days of the date of such disqualifying disposition. In addition, if a Participant elects, under Code Section 83, to be taxed at the time an Award of Restricted Stock (or other property subject to such Code section) is made, rather than at the time the Award vests, such Participant shall notify the Company within seven (7) days of the date the Restricted Stock subject to the election is awarded.
17.      Adjustment Provisions; Change of Control.
(a)      Adjustment of Shares . If: (i) the Company shall at any time be involved in a merger or other transaction in which the Shares are changed or exchanged; (ii) the Company shall subdivide or combine the Shares or the Company shall declare a dividend payable in Shares, other securities or other property; (iii) the Company shall effect a cash dividend the amount of which, on a per Share basis, exceeds ten percent (10%) of the Fair Market Value of a Share at the time the dividend is declared, or the Company shall effect any other dividend or other distribution on the Shares in the form of cash, or a repurchase of Shares, that the Board determines by resolution is special or extraordinary in nature or that is in connection with a transaction that the Company characterizes publicly as a recapitalization or reorganization involving the Shares; or (iv) any other event shall occur, which, in the case of this clause (iv), in the judgment of the Board or Committee necessitates an adjustment to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, then the Administrator shall, in such manner as it may deem equitable to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, adjust as applicable: (A) the number and type of Shares subject to this Plan (including the number and type of Shares described in Section 6) and which may after the event be made the subject of Awards; (B) the number and type of Shares subject to outstanding Awards; (C) the grant, purchase, or exercise price with respect to any Award; and (D) to the extent such discretion does not cause an Award that is intended to qualify as performance-based compensation under Code Section 162(m) to lose its status as such, the Performance Goals of an Award. In any such case, the Administrator may also (or in lieu of the foregoing) make provision for a cash payment to the holder of an outstanding Award in exchange for the cancellation of all or a portion of the Award (without the consent of the holder of an Award) in an amount determined by the Administrator effective at such time as the Administrator specifies (which may be the time such transaction or event is effective). In each case, with respect to Awards of Incentive Stock Options, no such adjustment may be authorized to the extent that such authority would cause this Plan to violate Code Section 422(b). Further, the number of Shares subject to any Award payable or denominated in Shares must always be a whole number, and any fractional share resulting from such adjustment shall be rounded down to the nearest whole Share. In any event, previously granted Options or SARs are subject only to such adjustments as are necessary to maintain the relative proportionate interest the Options and SARs represented immediately prior to any such event and to preserve, without exceeding, the value of such Options or SARs.
Without limitation, in the event of any reorganization, merger, consolidation, combination or other similar corporate transaction or event, whether or not constituting a Change of Control (other than any such transaction in which the Company is the continuing corporation and in which the outstanding Stock is not being converted into or exchanged for different securities, cash or other property, or any combination thereof), the Administrator may substitute, on an equitable basis as the Administrator determines, for each Share then subject to an Award and the Shares subject to this Plan (if the Plan will continue in effect), the number and kind of shares of stock, other securities, cash or other property to which holders of Stock are or will be entitled in respect of each Share pursuant to the transaction.
Notwithstanding the foregoing, in the case of a stock dividend (other than a stock dividend declared in lieu of an ordinary cash dividend) or subdivision or combination of the Shares (including a reverse stock split), if no action is taken by the Administrator, adjustments contemplated by this subsection that are proportionate shall nevertheless automatically be made as of the date of such stock dividend or subdivision or combination of the Shares; provided that the number of Shares subject to any Award payable or denominated in Shares must always be a whole number, and any fractional share resulting from such adjustment shall be rounded down to the nearest whole Share.
(b)      Issuance or Assumption . Notwithstanding any other provision of this Plan, and without affecting the number of Shares otherwise reserved or available under this Plan, in connection with any merger, consolidation, acquisition of property or stock, or reorganization, the Administrator may authorize the issuance or assumption of awards under this Plan upon such terms and conditions as it may deem appropriate.
(c)      Change of Control . To the extent a Participant’s employment, retention, change of control, severance or similar agreement with the Company or any Affiliate then in effect, if any, provides for more favorable treatment to the Participant than the provisions of this Section 17(c), such agreement shall control. In all other cases, unless provided otherwise in an Award agreement or by the Administrator prior to the Change of Control, in the event of a Change of Control:
(i)      Each Option or SAR that is then held by a Participant who is employed by or in the service of the Company or an Affiliate shall become immediately and fully vested, and, unless otherwise determined by the Board or Committee, all Options and SARs shall be cancelled on the date of the Change of Control in exchange for a cash payment equal to the excess of the Change of Control price of the Shares covered by the Option or SAR that is so cancelled over the purchase or grant price of such Shares under the Award;
(ii)      Restricted Stock, Restricted Stock Units and Deferred Stock Rights (that are not Performance Awards) that are not then vested shall vest;
(iii)      (A) All Performance Awards that are earned but not yet paid shall be paid, (B) all Performance Awards (other than Annual Incentive Awards) for which the performance period has not expired shall be cancelled in exchange for a cash payment equal to the amount that would have been due under such Award(s) if the Performance Goals (as measured at the time of the Change of Control) were to continue to be achieved at the same rate through the end of the performance period, or if higher, assuming the target Performance Goals (at 100% of the stated target level) had been met at the time of such Change of Control, and (C) all Annual Incentive Awards for which the performance period has not expired shall be cancelled in exchange for a cash payment equal to the amount that would have been due under such Award(s), determined by using the Participant’s annual base salary rate as in effect immediately before the Change of Control and by assuming the Performance Goals for such period have been fully achieved; and
(iv)      All Dividend Equivalent Units that are not vested shall vest and be paid in cash, and all other Awards that are not vested shall vest and if an amount is payable under such vested Award, such amount shall be paid in cash based on the value of the Award.
If the value of an Award is based on the Fair Market Value of a Share, Fair Market Value shall be deemed to mean the per share Change of Control price. The Administrator shall determine the per share Change of Control price paid or deemed paid in the Change of Control transaction.
Except as otherwise expressly provided in any agreement between a Participant and the Company or an Affiliate, if the receipt of any payment by a Participant under the circumstances described above would result in the payment by the Participant of any excise tax provided for in Section 280G and Section 4999 of the Code, then the Administrator may, in its discretion, reduce the amount of such payment to the extent required to prevent the imposition of such excise tax.
18.      Miscellaneous.
(a)      Other Terms and Conditions . To the extent not inconsistent with other terms of the Plan, the grant of any Award may also be subject to other provisions (whether or not applicable to the Award granted to any other Participant) as the Administrator determines appropriate, including, without limitation, provisions for:
(i)      restrictions on resale or other disposition of Shares; and
(ii)      compliance with federal or state securities laws and stock exchange requirements.
(b)      Employment and Service . The issuance of an Award shall not confer upon a Participant any right with respect to continued employment or service with the Company or any Affiliate, or the right to continue as a Director. Unless determined otherwise by the Administrator, for purposes of the Plan and all Awards, the following rules shall apply:
(i)      a Participant who transfers employment between the Company and its Affiliates, or between Affiliates, will not be considered to have terminated employment;
(ii)      a Participant who ceases to be a Non-Employee Director because he or she becomes an employee of the Company or an Affiliate, or a Participant who ceases to be employed by the Company or any Affiliate and immediately thereafter becomes a Non-Employee Director, shall not be considered to have ceased service or terminated employment, respectively, until such Participant’s service to the Company or any Affiliate in any such capacity is terminated; and
(iii)      a Participant employed by an Affiliate will be considered to have terminated employment when such entity ceases to be an Affiliate.
Notwithstanding the foregoing, for purposes of an Award that is subject to Code Section 409A, (x) if a Participant’s termination of employment or service triggers the payment of compensation under such Award, then the Participant will be deemed to have terminated employment or service upon his or her “separation from service” within the meaning of Code Section 409A; and (y) if the Participant is a “specified employee” within the meaning of Code Section 409A as of the date of his or her separation from service within the meaning of Code Section 409A, then, to the extent required by Code Section 409A, any payment made to the Participant on account of such separation from service shall not be made before a date that is six months after the date of the separation from service.
(c)      No Fractional Shares . No fractional Shares or other securities may be issued or delivered pursuant to this Plan, and the Administrator may determine whether cash, other securities or other property will be paid or transferred in lieu of any fractional Shares or other securities, or whether such fractional Shares or other securities or any rights to fractional Shares or other securities will be canceled, terminated or otherwise eliminated.
(d)      Unfunded Plan . This Plan is unfunded and does not create, and should not be construed to create, a trust or separate fund with respect to this Plan’s benefits. This Plan does not establish any fiduciary relationship between the Company and any Participant or other person. To the extent any person holds any rights by virtue of an Award granted under this Plan, such rights are no greater than the rights of the Company’s general unsecured creditors. Neither the Company nor any Subsidiary will be required to segregate any assets that may at any time be represented by Awards granted pursuant to the Plan.
(e)      Requirements of Law and Securities Exchange . The granting of Awards and the issuance of Shares in connection with an Award are subject to all applicable laws, rules and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required. Notwithstanding any other provision of this Plan or any Award agreement, the Company has no liability to deliver any Shares under this Plan or make any payment unless such delivery or payment would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity, and unless and until the Participant has taken all actions required by the Company in connection therewith. The Company may impose such restrictions on any Shares issued under the Plan as the Company determines necessary or desirable to comply with all applicable laws, rules and regulations or the requirements of any national securities exchanges.
(f)      Restrictive Legends; Representations . All Shares delivered (whether in certificated or book entry form) pursuant to any Award or the exercise thereof shall bear such legends or be subject to such stop transfer orders as the Administrator may deem advisable under the Plan or under applicable laws, rules or regulations or the requirements of any national securities exchange. The Administrator may require each Participant or other Person who acquires Shares under the Plan by means of an Award to represent to the Company in writing that such Participant or other Person is acquiring the Shares without a view to the distribution thereof.
(g)      Governing Law . This Plan, and all agreements under this Plan, will be construed in accordance with and governed by the laws of the State of Minnesota, without reference to any conflict of law principles. Any legal action or proceeding with respect to this Plan, any Award or any Award agreement, or for recognition and enforcement of any judgment in respect of this Plan, any Award or any Award agreement, may only be heard in a “bench” trial, and any party to such action or proceeding shall agree to waive its right to a jury trial.
(h)      Limitations on Actions . Any legal action or proceeding with respect to this Plan, any Award or any award agreement, must be brought within one year (365 days) after the day the complaining party first knew or should have known of the events giving rise to the complaint.
(i)      Construction . Whenever any words are used herein in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and wherever any words are used in the singular or plural, they shall be construed as though they were used in the plural or singular, as the case may be, in all cases where they would so apply. Titles of sections are for general information only, and this Plan is not to be construed with reference to such titles.
(j)      No Rights as Stockholders . A Participant who is granted an Award under the Plan will have no rights as a stockholder of the Company with respect to the Award unless and until the Shares underlying the Award are registered in the Participant's name. The right of any Participant to receive an Award by virtue of participation in the Plan will be no greater than the right of any unsecured general creditor of the Company.
(k)      Nature of Payments . All Awards made pursuant to the Plan are in consideration of services for the Company or an Affiliate. Any gain realized or income recognized pursuant to Awards under the Plan constitutes a special incentive payment to the Participant and will not be taken into account as compensation or otherwise included in the determination of benefits for purposes of any other employee benefit plan of the Company or an Affiliate, except as the Administrator otherwise provides. The adoption of the Plan will have no effect on Awards made or to be made under any other benefit plan covering an employee of the Company or an Affiliate or any predecessor or successor of the Company or an Affiliate. The grant of an Option or SAR will impose no obligation upon the Participant to exercise the Award.
(l)      Severability . If any provision of this Plan or any Award agreement or any Award (i) is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to any person or Award, or (ii) would disqualify this Plan, any Award agreement or any Award under any law the Administrator deems applicable, then such provision should be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Administrator, materially altering the intent of this Plan, Award agreement or Award, then such provision should be stricken as to such jurisdiction, person or Award, and the remainder of this Plan, such Award agreement and such Award will remain in full force and effect.
Appendix A
Terms Applicable to Awards
Resulting from Assumption and Conversion of
Tyco International Ltd. 2004 Stock and Incentive Plan Awards

The terms and conditions set forth below will apply, in lieu of the provisions of the Plan covering the same subject matter, to Assumed Awards. For purposes of this Appendix A, “Assumed Awards” means Awards that result from the assumption and conversion of awards that, prior to the Distribution, related to stock of Tyco International Ltd. and that were granted under the Tyco International Ltd. 2004 Stock and Incentive Plan. Except for the terms and conditions set forth below, such Awards will be subject to all of the terms and conditions of the Plan. For the avoidance of doubt, any references in this Appendix A to the “grant” of an Award, the “date of grant” or similar references shall be deemed to refer to the original grant of the Assumed Award and not to any assumption or conversion of the Assumed Award in connection with the Distribution or subsequent mergers.

1.      Definitions . Capitalized terms used in this Appendix have the following meanings or, if they are not defined in this Appendix A, the meanings given in the Plan.
(a)      "Cause" means misconduct that is willfully or wantonly harmful to the Company or any of its Subsidiaries, monetarily or otherwise.
(b)      "Change of Control" means the first to occur of any of the following events after the Merger Closing:
(i)      any "person" (as defined in Section 13(d) and 14(d) of the Exchange Act), excluding for this purpose, (A) the Company or any Subsidiary or (ii) any employee benefit plan of the Company or any Subsidiary (or any person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan that acquires beneficial ownership of voting securities of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly of securities of the Company representing more than 30 percent of the combined voting power of the Company's then outstanding securities; provided, however, that no Change of Control will be deemed to have occurred as a result of a change in ownership percentage resulting solely from an acquisition of securities by the Company; or
(ii)      persons who, immediately after the Merger Closing, constitute the Board (the "Incumbent Directors") cease for any reason (including without limitation, as a result of a tender offer, proxy contest, merger or similar transaction) to constitute at least a majority thereof, provided that any person becoming a Director subsequent to the Merger Closing shall be considered an Incumbent Director if such person's election or nomination for election was approved by a vote of at least 50 percent of the Incumbent Directors; but provided further , that any such person whose initial assumption of office is in connection with an actual or threatened proxy contest relating to the election of members of the Board or other actual or threatened solicitation of proxies or consents by or on behalf of a "person" (as defined in Section 13(d) and 14(d) of the Exchange Act) other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or
(iii)      consummation of a reorganization, merger or consolidation or sale or other disposition of at least 80 percent of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, all or substantially all of the individuals and entities who were the beneficial owners of outstanding voting securities of the Company immediately prior to such Business Combination beneficially own directly or indirectly more than 50 percent of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, of the company resulting from such Business Combination (including, without limitation, a company which, as a result of such transaction, owns the Company or all or substantially all of the Company's assets either directly or through one or more Subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the outstanding voting securities of the Company; or
(iv)      approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
(c)      "Change of Control Termination" shall mean an Employee's Involuntary Termination that occurs during the period beginning 60 days prior to the date of a Change of Control and ending two years after the date of such Change of Control.
(d)      "Disabled" or "Disability" means the inability of the Employee to perform the material duties pertaining to such Employee's employment due to a physical or mental injury, infirmity or incapacity for 180 days (including weekends and holidays) in any 365-day period. The existence or nonexistence of a Disability shall be determined by an independent physician selected by the Company and reasonably acceptable to the Employee.
(e)      "Employee" means any individual who performs services as an officer or employee of the Company or a Subsidiary.
(f)      "Involuntary Termination" means a Termination of Employment of the Participant initiated by the Company or a Subsidiary for any reason other than Cause, Disability or death.
(g)      "Key Employee" means an Employee who is a "covered employee" within the meaning of Code Section 162(m)(3).
(h)      "Long-Term Performance Award" means Performance Units that are earned solely on account of the attainment of a specified performance target in relation to one or more performance measures designated in the applicable Award Agreement.
(i)      "Normal Retirement" means Termination of Employment on or after a Participant has attained age 60, provided that the sum of the Participant's age and years of service with the Company is 70 or higher.
(j)      "Performance Cycle" means, with respect to any Award that vests based on performance measures, the period over which the level of performance will be assessed.
(k)      "Reporting Person" means an Employee who is subject to the reporting requirements of Section 16(a) of the Exchange Act.
(l)      "Stock-Based Award" means an Award of Restricted Stock Units.
(m)      "Target Amount" means a target Award under this Plan if the relevant performance measure is fully (100%) attained, as determined by the Committee.
(n)      "Termination of Employment" means the date of cessation of an Employee’s employment relationship with the Company or a Subsidiary for any reason, with or without Cause, as determined by the Company; provided that, with respect to (A) Awards held by an employee of Tyco International Ltd. or its subsidiaries who did not become employed by the Company or one of its subsidiaries as of the date of the Distribution and (B) Awards held by a director of Tyco International Ltd., the phrase “Termination of Employment” shall mean the date the individual terminates employment from, or service as a director of, Tyco International Ltd. (or any successor thereto) or any subsidiary or affiliate thereof.
2.      Options and Stock Appreciation Rights
(a)      Exercisability. Unless the applicable Award agreement provides otherwise, an Option or Stock Appreciation Right will become exercisable in equal annual installments over a period of four years beginning immediately after the date on which the Option or Stock Appreciation Right was granted, and will lapse 10 years after the date of grant, except as otherwise provided herein.
(b)      Death, Disability or Normal Retirement . Unless the applicable Award agreement provides otherwise, upon the death, Disability or Normal Retirement of a Participant who has outstanding Options or Stock Appreciation Rights, the unvested Options or Stock Appreciation Rights will vest. Unless the applicable Award agreement provides otherwise, the Participant's Options and Stock Appreciation Rights will lapse, and will not thereafter be exercisable, upon the earlier of (i) their original expiration date or (ii) the date that is three years after the date on which the Participant dies, incurs a Disability or incurs a Normal Retirement.
(c)      Termination of Employment After Age 55 . Unless the applicable Award agreement provides otherwise, upon the Termination of Employment of a Participant for any reason other than the Participant's death, Disability or Normal Retirement or due to a Change of Control, if the Participant has attained age 55, and the sum of the Participant's age and years of service with the Company is 60 or higher, a pro rata portion of the Participant's Options and Stock Appreciation Rights will vest so that the total number of vested Options or Stock Appreciation Rights held by the Participant at Termination of Employment (including those that have already vested as of such date) will be equal to (i) the total number of Options or Stock Appreciation Rights originally granted to the Participant under each Award multiplied by (ii) a fraction, the numerator of which is the period of time (in whole months) that have elapsed since the date of grant, and the denominator of which is four years (or such other applicable vesting term as is set forth in the Award agreement). Unless the Award agreement provides otherwise, such Participant's Options and Stock Appreciation Rights will lapse, and will not thereafter be exercisable, upon the earlier of (A) their original expiration date or (B) the date that is three years after the date of Termination of Employment.
(d)      Other Terminations . Upon the Termination of Employment of a Participant that does not meet the requirements of paragraphs (b) or (c) above, any unvested Options or Stock Appreciation Rights will be forfeited unless the Award agreement provides otherwise. Any Options or Stock Appreciation Rights that are vested as of such Termination of Employment will lapse, and will not thereafter be exercisable, upon the earlier of (A) their original expiration date or (B) the date that is six months after the date of such Termination of Employment, unless the Award agreement provides otherwise.
(e)      Deceased Participants. Options and Stock Appreciation Rights of a deceased Participant may be exercised only by the estate of the Participant or by the person given authority to exercise the Options or Stock Appreciation Rights by the Participant's will or by operation of law. If an Option or Stock Appreciation Right is exercised by the executor or administrator of a deceased Participant, or by the person or persons to whom the Option or Stock Appreciation Right has been transferred by the Participant's will or the applicable laws of descent and distribution, the Company will be under no obligation to deliver Shares or cash until the Company is satisfied that the person exercising the Option or Stock Appreciation Right is the duly appointed executor or administrator of the deceased Participant or the person to whom the Option or Stock Appreciation Right has been transferred by the Participant's will or by applicable laws of descent and distribution.
(f)      Tandem Stock Appreciation Rights. A Stock Appreciation Right granted in tandem with an Option is subject to the same terms and conditions as the related Option and will be exercisable only to the extent that the related Option is exercisable.
3.      Performance Units
(a)      Reduction of Awards. The Committee, in its discretion, may, on a case-by-case basis, reduce, but not increase, the amount of Long-Term Performance Awards payable to any Reporting Person with respect to any given Performance Cycle, provided , however, that no reduction will result in an increase in the dollar amount or number of Shares payable under any Long-Term Performance Award of a Key Employee.
(b)      Payment, Certification . No Long-Term Performance Award will vest with respect to any Reporting Person until the Committee certifies in writing the level of performance attained for the Performance Cycle in relation to the applicable performance measures. Long-Term Performance Awards awarded to Reporting Persons who are not Key Employees will be based on the performance measures and payment formulas that the Committee, in its discretion, may establish for these purposes. These performance measures and formulas may be the same as or different than the performance measures and formulas that apply to Key Employees. In applying performance measures, the Committee may, in its discretion, exclude unusual or infrequently occurring items (including any event listed below under “Adjustments” or “Change of Control”) and the cumulative effect of changes in the law, regulations or accounting rules, and may determine no later than ninety (90) days after the commencement of any applicable Performance Cycle or such shorter or longer period as complies with the applicable requirements of Code Section 162(m) and applicable regulations thereunder to exclude other items, each determined in accordance with GAAP (to the extent applicable) and as identified in the financial statements, notes to the financial statements or discussion and analysis of management.
(c)      Form of Payment . Long-Term Performance Awards in the form of Performance Units may be paid in cash or full Shares, in the discretion of the Committee, and as set forth in the Award agreement. Performance-based Restricted Stock Units and Restricted Stock will be paid in full Shares. Payment with respect to any fractional Share will be in cash in an amount based on the Fair Market Value of the Share as of the date the Performance Unit becomes payable. All such Long-Term Performance Awards shall be paid no later than the 15th day of the third month following the end of the calendar year (or, if later, following the end of the Company's fiscal year) in which such Long-Term Performance Awards are no longer subject to a substantial risk of forfeiture (as determined for purposes of Code Section 409A), except as otherwise provided in the applicable Award agreement or to the extent that a Participant has elected to defer payment under the terms of a duly authorized deferred compensation arrangement, in which case the terms of such arrangement shall govern.
(d)      Code Section 162(m) . It is the intent of the Company that Long-Term Performance Awards be "performance-based compensation" for purposes of Code Section 162(m), that this Section 3 of Appendix A to the Plan be interpreted in a manner that satisfies the applicable requirements of Code Section 162(m)(C) and related regulations, and that the Plan be operated so that the Company may take a full tax deduction for Long-Term Performance Awards. If any provision of this Plan or any Long-Term Performance Award would otherwise frustrate or conflict with this intent, the provision will be interpreted and deemed amended so as to avoid this conflict.
(e)      Retirement . If a Participant would be entitled to a Long-Term Performance Award but for the fact that the Participant's employment with the Company terminated prior to the end of the Performance Cycle, the Participant may, in the Committee's discretion, receive a Long-Term Performance Award, prorated for the portion of the Performance Cycle that the Participant completed and payable at the same time after the end of the Performance Cycle that payments to other Long-Term Performance Award recipients are made, if the sum of the Participant's age and years of service with the Company was 60 or higher at the time of Termination of Employment or if the Participant retired under a Normal Retirement. The prorated amount of any such Long-Term Performance Award paid due to retirement shall be determined based upon the actual performance achieved during the performance period relative to the pre-established goals for such performance.
4.      Other Stock-Based Awards
(a)      Vesting . Unless the Award agreement provides otherwise, restrictions on Stock-Based Awards subject to this Section 4 of Appendix A to the Plan will lapse in equal annual installments over a period of four years beginning immediately after the date of grant. If the restrictions on Stock-Based Awards have not lapsed or been satisfied as of the Participant's Termination of Employment, the Shares will be forfeited by the Participant if the termination is for any reason other than the Normal Retirement, death or Disability of the Participant or a Change of Control, except that the Award will vest pro rata with respect to the portion of the four-year vesting term (or such other vesting term as is set forth in the Award agreement) that the Participant has completed if the Participant has attained age 55, the sum of the Participant's age and years of service with the Company is 60 or higher and the Participant has satisfied all other applicable conditions established by the Committee with respect to such pro rata vesting. Unless the Award agreement provides otherwise, all restrictions on Stock-Based Awards granted pursuant to this Section 4(a) will lapse upon the Normal Retirement, death or Disability of the Participant or a Change of Control Termination.
(b)      Grant of Restricted Stock . Any Shares of Restricted Stock granted to a Participant will be registered in the name of the Participant and held for the Participant by the Company. The Participant will have all rights of a stockholder with respect to the Shares, including the right to vote and to receive dividends or other distributions, except that the Shares may be subject to a vesting schedule and will be forfeited if the Participant attempts to sell, transfer, assign, pledge or otherwise encumber or dispose of the Shares before the restrictions are satisfied or lapse.
(c)      Grant of Restricted Stock Units . Any Restricted Stock Units granted to an Employee will be paid in cash or whole Shares or a combination of cash and Shares, in the discretion of the Committee, when the restrictions on the Units lapse and any other conditions set forth in the Award agreement have been satisfied. For each Restricted Unit that vests, one Share will be paid or an amount in cash equal to the Fair Market Value of a Share as of the date on which the Restricted Unit vests.
(d)      Grant of Deferred Stock Rights . Any Deferred Stock Rights granted to an Employee will be paid in whole Shares upon the Employee's Termination of Employment if the restrictions on the Rights have lapsed. One Share will be paid for each Deferred Stock Rights that becomes payable.
(e)      Dividends and Dividend Equivalent Units . If set forth in the applicable Award agreement, dividends issued on Shares may be paid immediately or withheld and deferred in the Participant's account. In the event of a payment of dividends on Stock, the Committee may credit Restricted Stock Units with Dividend Equivalent Units in accordance with terms and conditions established in the discretion of the Committee. Dividend Equivalent Units will be subject to such vesting terms as are determined by the Committee and may be distributed immediately or withheld and deferred in the Participant's account as set forth in the applicable Award agreement. Deferred Stock Rights may, as set forth in the Award agreement, be credited with Dividend Equivalent Units or additional Deferred Stock Rights. The number of any Deferred Stock Rights credited to a Participant's account upon the payment of a dividend will be equal to the quotient produced by dividing the cash value of the dividend by the Fair Market Value of one Share as of the date the dividend is paid. The Committee will determine any terms and conditions on deferral of a dividend or Dividend Equivalent Units, including the rate of interest to be credited on deferral and whether interest will be compounded.
5.      Termination for Cause. Notwithstanding anything to the contrary herein, if a Participant incurs a Termination of Employment for Cause, then all Options, Stock Appreciation Rights, Long-Term Performance Awards, Restricted Stock Units, Restricted Stock and other Stock-Based Awards will immediately be cancelled. The exercise of any Option or Stock Appreciation Right or the payment of any Award may be delayed, in the Committee's discretion, in the event that a potential termination for Cause is pending, subject to ensuring an exemption from or compliance with Code Section 409A and the underlying regulations and rulings.
6.      Change of Control.
(a)      Acceleration . All outstanding Options and Stock Appreciation Rights will become exercisable as of the later of the effective date of a Change of Control or a Change of Control Termination for any Employee whose employment is terminated by means of a Change of Control Termination if the Awards are not otherwise vested, and all conditions will be waived with respect to outstanding Restricted Stock and Restricted Stock Units (other than Long-Term Performance Awards) and Deferred Stock Rights in such case. Each Participant who has been granted a Long-Term Performance Award that is outstanding as of the date of Change of Control, and whose employment is terminated by means of a Change of Control Termination, will be deemed to have achieved a level of performance, as of the later of the date of the Change of Control or the Change of Control Termination, that would cause all (100%) of the Participant's Target Amounts to become payable and all restrictions on the Participant's Restricted Stock Units and Shares of Restricted Stock to lapse.
(b)      Adjustment, Conversion and Payment . In addition to the foregoing, no later than 90 days after the date of a Change of Control, the Committee (as constituted prior to the date of the Change of Control) shall provide for the following actions to apply to each Award that is outstanding as of the date of Change of Control: (i) an adjustment to such Award as the Committee deems appropriate to reflect such Change of Control, (ii) the acquisition of such Award, or substitution of a new right therefor, by the acquiring or surviving corporation after such Change of Control, or (iii) the purchase of such Award, at the Participant's request, for an amount of cash equal to the amount that could have been attained upon the exercise or redemption of such Award immediately prior to the Change of Control had such Award been exercisable or payable at such time; provided that in the case of any Award that constitutes deferred compensation that is subject to Code Section 409A(a)(2), any action contemplated herein which would constitute an accelerated payment of such Award shall occur on a date specified in the applicable Award agreement, which date shall be no later than ninety (90) days after the Change of Control. Any payment made pursuant to this Section 6(b) shall include the value of any Dividend Equivalent Units credited with respect to such Award and accrued interest on such Dividend Equivalent Units. The Committee may specify how an Award will be treated in the event of a Change of Control either when the Award is granted or at any time thereafter, except as otherwise provided herein.
7.      Fractional Shares . Except as otherwise provided in Section 3(c), if a Participant acquires the right to receive a fractional Share under the Plan, the Participant will receive, in lieu of the fractional Share, a full Share as of the date of settlement.
8.      Amendment . No amendment of the Plan or any outstanding Award made without the Participant's written consent may adversely affect any right of a Participant with respect to an outstanding Award.
9.      Special Forfeiture Provision . An Award agreement may provide that the Participant may not, within two years of the Participant's Termination of Employment with the Company, enter into any employment or consultation arrangement (including service as an agent, partner, stockholder, consultant, officer or director) with any entity or person engaged in any business in which the Company or any Subsidiary is engaged without prior written approval of the Committee if, in the sole judgment of the Committee, the business is competitive with the Company or any Subsidiary or business unit or such employment or consultation arrangement would present a risk that the Participant would likely disclose Company proprietary information (as determined by the Committee). If the Committee makes a determination that this prohibition has been violated, the Participant (i) will forfeit all rights under any outstanding Option or Stock Appreciation Right that was granted subject to the Award agreement and will return to the Company the amount of any profit realized upon an exercise of all Awards during the period, as the Committee determines and sets forth in the Award agreement, beginning no earlier than six months prior to the Participant's Termination of Employment, and (ii) will forfeit and return to the Company any Performance Units, Shares of Restricted Stock, Restricted Stock Units (including any credited Dividend Equivalent Units), Deferred Stock Rights and other Stock-Based Awards that are outstanding on the date of the Participant's Termination of Employment, subject to the Award agreement, and have not vested or that became vested and remain subject to this Section 9 of Appendix A to the Plan during a period, as set forth in the Award agreement, beginning no earlier than six months prior to the Participant's Termination of Employment.

Appendix B
Terms Applicable to Awards
Resulting from Assumption and Conversion of
Tyco International Ltd. Long Term Incentive Plan
and Tyco International Ltd. Long Term Incentive Plan II Awards

The terms and conditions set forth below will apply, in lieu of the provisions of the Plan covering the same subject matter, to Assumed Awards. For purposes of this Appendix B, “Assumed Awards” means Awards that result from the assumption and conversion of awards that, prior to the Distribution, related to stock of Tyco International Ltd. and that were granted under the Tyco International Ltd. Long Term Incentive Plan or the Tyco International Ltd. Long Term Incentive Plan II. Except for the terms and conditions set forth below, such Awards will be subject to all of the terms and conditions of the Plan. For the avoidance of doubt, any references in this Appendix B to the “grant” of an Award, the “date of grant” or similar references shall be deemed to refer to the original grant of the Assumed Award and not to any assumption or conversion of the Assumed Award in connection with the Distribution or subsequent mergers.

1.      Share Certificates. Notwithstanding any provisions in the Plan respecting certificates for Shares or other securities of the Company or any Subsidiary delivered under the Plan pursuant to any Award or the exercise thereof, no action shall be taken by the Committee which would, under the laws of Bermuda, cause a separate class of securities other than Shares to be created and the Committee shall consult with appropriate legal counsel in this regard.
2.      Committee Discretion to Remove or Amend Restrictions on Transferability . Notwithstanding any restrictions on transferability of Awards referred to in the Plan, the Committee may, in its discretion, either generally or specifically, prospectively or retroactively, waive, amend, alter, suspend, discontinue, cancel or terminate any limits on transferability of Awards on such terms as the Committee may deem appropriate; provided that any of the acts described in this Section 2 of Appendix B to the Plan that would materially impair the rights of any Participant, or any holder or any beneficiary of any Award theretofore granted, shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary.
3.      Amendments to the Plan . Any amendment, alteration, suspension, discontinuation, or termination of the Plan that would impair the rights of any Participant, or any other holder or beneficiary of any Award theretofore granted, shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary.
4.      Amendments to Awards . The Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted, prospectively or retroactively, without the consent of any relevant Participant or holder or beneficiary of an Award; provided that, subject to the Committee's right to adjust Awards pursuant to the Plan and Section 5 below, (a) any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially impair the rights of any Participant, or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary; and (b) without the approval of the shareholders of the Company, no such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially increase the rights of any Participant or any holder or beneficiary of any Award, shall be effective unless the Award, after giving effect to such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination, could permissibly have been granted under the terms of the Plan (without regard to this Section 4 of Appendix B to the Plan).
5.      Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events . The Committee is hereby authorized to make adjustments in the terms and conditions of and the criteria included in, Awards in recognition of unusual or nonrecurring events affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, or to be derived by the Company.
6.      Change of Control .
(a)      In addition to the Committee's authority set forth in Section 5 above, in order to maintain the Participants' rights in the event of any Change of Control (as defined below), the Committee, as constituted before such Change of Control, is hereby authorized, and has sole discretion, as to any Award, either at the time such Award was made hereunder or any time thereafter, to take any one or more of the following actions: (i) provide for the acceleration of any time periods relating to the exercise or realization of such Award so that such Award may be exercised or realized in full on or before a date fixed by the Committee; (ii) provide for the purchase of any such Award, upon the Participant's request, for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or realization of the Participant's rights had such Award been currently exercisable or payable; (iii) make such adjustment to any such Award then outstanding as the Committee deems appropriate to reflect such Change of Control; or (iv) cause any such Award then outstanding to be assumed, or new rights substituted therefor, by the acquiring or surviving corporation after such Change of Control.
(b)      With respect to Awards resulting from the conversion of awards that, prior to the Distribution, related to stock of Tyco International Ltd. and that were granted under the Tyco International Ltd. Long Term Incentive Plan, a "Change of Control" shall mean the occurrence of any of the following events following the Merger Closing:
(i)      any "person" or "group" (as defined under Sections 13(d) and 14(d) of the Exchange Act) is or becomes the direct or indirect "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), of securities representing 50% or more of the combined voting power of the Company's then outstanding voting securities;
(ii)      individuals who either: (A) are Directors immediately following the Merger Closing, or subsequently are appointed as Directors by, or on the recommendation of, a majority of the Directors in office immediately following the Merger Closing; or (B) are subsequently appointed as Directors by, or on the recommendation of, a majority of those Directors referred to in paragraph (A) above, cease for any reason, other than death or incapacity of a Director or his retirement at a general meeting of the Company at which he is re-elected as a Director (but including as a result of any proxy contest involving the solicitation of revocable proxies under Section 14(a) of the Exchange Act), to constitute a majority of the Board;
(iii)      any "person" or "group" (other than an employee benefit plan or plans maintained by the Company or its affiliate) comes to possess, directly or indirectly, the legal right to direct the management and policies of the Company, whether through the ownership of securities, by contract or otherwise (other than solely by virtue of membership on the Board or any committee thereof);
(iv)      the Company effects a merger, amalgamation, scheme of arrangement or other combination in which the Company is not the surviving entity, or a sale or disposition of all, or substantially all, of the assets of the Company; or
(v)      a merger, amalgamation, scheme of arrangement or other combination of the Company or any Affiliate with or into another person or any analogous or similar transaction or event occurs as a result of which the voting rights exercisable at general meetings of the Company in respect of the shares of the Company in issue immediately prior to the relevant event no longer represent a majority of all the voting rights normally exercisable at general meetings of the Company in respect of the shares of the Company in issue immediately after such event.
(c)      With respect to Awards resulting from the conversion of awards that, prior to the Distribution, related to stock of Tyco International Ltd. and that were granted under the Tyco International Ltd. Long Term Incentive Plan II, a "Change of Control" shall mean the occurrence of any of the following events following the Merger Closing:
(i)      any "person" or "group" (as defined under Sections 13(d) and 14(d) of the Exchange Act) is or becomes the direct or indirect "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), of securities representing 50% or more of the combined voting power of the Company's then outstanding voting securities other than in connection with a merger, amalgamation, scheme of arrangement or other combination pursuant to which the stockholders of the Company immediately prior to such event beneficially own 50% or more of the voting rights exercisable generally of any such person which is an entity;
(ii)      such time as the Continuing Directors (as defined below) cease for any reason, other than death , incapacity or retirement of a Director, to constitute a majority of the Board (or, if applicable, the Board of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board who (A) was a member of the Board immediately following the Merger Closing or (B) was nominated or elected subsequent to such date by at least a majority of the Directors who were Continuing Directors at the time such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the Directors who were Continuing Directors at the time of such nomination or election; provided , however, that there shall be excluded from clause (B) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board;
(iii)      any "person" or "group" (other than an employee benefit plan or plans maintained by the Company or its affiliate) comes to possess, directly or indirectly, the legal right to direct the management and policies of the Company, whether through the ownership of securities, by contract or otherwise (other than solely by virtue of membership on the Board or any committee thereof);
(iv)      the Company effects a merger, amalgamation, scheme of arrangement or other combination in which the Company is not the surviving entity, or a sale or disposition of all, or substantially all, of the assets of the Company; or
(v)      a merger, amalgamation, scheme of arrangement or other combination of the Company with or into another person or any analogous or similar transaction or event occurs as a result of which the voting rights exercisable at general meetings of the Company in respect of the shares of the Company in issue immediately prior to the relevant event no longer represent a majority of all the voting rights normally exercisable at general meetings of the Company (or, if the Company is acquired by another entity in connection with such event, of such entity) in respect of the shares of the Company (or, if the Company is acquired by another entity in connection with such event, of the securities of such entity) in issue immediately after such event.
7.      Termination of Service
For purposes of Converted Awards, with respect to (a) awards held by an employee of Tyco International Ltd. or its subsidiaries who does not become employed by the Company or one of its subsidiaries as of the date of the Distribution and (b) Awards held by a director of Tyco International Ltd., the phrase “termination of employment” or “termination of service” or similar phrases shall mean the date the individual terminates employment from, or service as a director of, Tyco International Ltd. (or any successor thereto) or any subsidiary or affiliate thereof.
SCHEDULE A

SPECIAL RULES FOR GRANT OF OPTIONS AND SHARE AWARDS
IN FRANCE

SEPTEMBER 28, 2012
RECITALS
These Special Rules for France supplement and modify the Pentair plc 2012 Stock and Incentive Plan (the “Plan”), to which this document is attached. The Plan, as modified and supplemented by the special rules of this Schedule (the “French Sub-Plan”), is intended to enable Pentair plc (“Pentair”) to grant certain salaried employees and officers of its French Subsidiaries Options, the characteristics of which conform to the main requirements of Articles L.225-177 to L.225-186-1 of the French Commercial Code and Restricted Stock, Rights to Restricted Stock and Unit Awards which conform to the main requirements of Articles L.225-197-1 to L.225-197-6 of the French Commercial Code so that they all are eligible for the specific treatment under French law with respect to taxation and social security contributions .
According to Article 80 bis , III of the French Tax Code, all options granted by a non-French listed company to the salaried employees and corporate officers of a French subsidiary of such company under a plan adopted by the non-French company may benefit from the special rules on the taxation of option exercise gains as long as the foreign plan fulfils the major conditions of articles L.225-117 to L.225-186-1 of the French Commercial Code.
According to Article 80 quaterdecies , II of the French Tax Code, share awards granted for no consideration by a non-French listed company to the salaried employees and officers of a French subsidiary of such company under a plan adopted by the non-French company may benefit from the special rules on the taxation of the benefit resulting from the acquisition gains of shares as long as the foreign plan fulfils the major conditions of articles L.225-197-1 to L.225-197-6 of the French Commercial Code.
1.    DEFINITIONS

1.1
In this French Sub-Plan, all capitalized words and expressions shall have the meaning set forth in the Plan, except for those words and expressions which are solely used, and specifically defined, in this French Sub-Plan.
1.2
When used in this French Sub-Plan, the following words and expressions shall have the meanings set forth below:
Date of Grant
In respect of an Option or a French Award subject to the French Share Awards Regime, the date of grant as set by the Committee pursuant to the authority granted by the Plan.
Option Exercise Price
The price set by the Committee on the Date of Grant at which a Share may be subscribed or purchased and corresponding to the fair market value of the Share on the Date of Grant as established in accordance with Section 2.2.2.

Four Year Lock-up Period
A period of four (4) years, starting on the Date of Grant of the French Options, during which the Shares acquired from the exercise of the Option cannot be sold or transferred.

French Awards
The Awards which may be made to a French Participant and which are limited to Options, Awards of Restricted Stock, and Unit Awards; provided, that under no circumstances may a Unit Award entitle a French Participant to receive cash.
French Commercial Code (Code de Commerce)
The Commercial Code in force in France from time to time.
French Eligible Person
Salaried employees (i.e., employees with an employment contract) and corporate officers (i.e., the President, Directeur Général and Directeur Général Délégué, Membre du Directoire, Gérant de sociétés par actions) of the relevant French Subsidiary, but expressly excluding consultants and the directors of the French Subsidiary, unless they also hold a post for which an employment contract has been signed.

French Participant
In respect of French Awards, a French Eligible Person of the relevant French Subsidiary, each as selected by the Committee to participate in this French Sub-Plan.

French Share Award
Awards of Restricted Stock and Unit Awards under this French Sub-Plan that are subject to the French Share Awards Regime.

French Share Awards Regime
The main requirements of articles L.225-197-1 to L.225-197-6 of the French Commercial Code which allow certain specific tax and social benefits pursuant to the rules of Article 80 quaterdecies of the French Tax Code and article L.242-1 of the French Social Security Code and which apply to Awards of Restricted Stock, and Unit Awards under this French Sub-Plan.

French Social Security Code
The “Code de la Sécurité sociale” in force in France from time to time.
French Subsidiary
Any company established in France in which Pentair owns, directly or indirectly, ten percent (10) or more of the share capital or the voting rights of such company.

French Tax Code
The "Code Général des Impôts” (CGI) in force in France from time to time.
Stock Option Regime
The main requirements of articles L.225-177 to L.225-186-1 of the French Commercial Code which convey certain specific tax and social benefits pursuant to the rules of Articles 163 bis C and 200 A of the French Tax Code and Article L.242-1 of the French Social Security Code and which apply to Awards of Options under this French Sub-Plan.

Two Year Holding Period
A period of two (2) years, starting on the end of the vesting period related to the Awards subject to the French Share Awards Regime during which the shares of Stock arising from these Awards can neither be sold nor transferred.

1
RULES OF THE FRENCH SUB-PLAN
2.1
Rules commonly applicable to the French Stock Option and the Share Awards eligible to the respective French Stock Option Regime and French Share Awards Regime
2.1.1    General

All the Plan’s provisions shall apply to French Participants, except as modified or supplemented by the specific provisions of this French Sub-Plan.
2.1.2
French Awards
The Awards attributable to a French Participant are limited to French Awards. Other Awards cannot be granted to French Participants and the relevant provisions of the Plan governing those Awards shall accordingly not apply to the French Participants.
2.1.3    Number of Shares of Stock that May be Acquired

Notwithstanding the provisions of the Plan, no Options or French Share Awards may be granted to a French Participant who owns more than 10% of the share capital of Pentair at the Date of Grant, as required by the Commercial Code. Furthermore, the maximum number of shares of Stock that may be subscribed or purchased by each French Participant under the French Sub-Plan shall not entitle him or her to hold more than a third of Pentair’s share capital, as required by the Commercial Code.
2.1.4    Agent holding Shares of Stock during the Four Year Lock-up Period or the Two Year Holding Period

In order to ensure that no Participant sells or transfers Shares resulting from the exercise of French Awards subject to the Stock Option Regime during the Four Year Lock-up Period or the grant of French Share Awards during the Two Year Holding Period, at the time of the exercise of Options subject to the Stock Option Regime or the delivery Shares pursuant to any French Share Awards, Pentair shall deliver all such Shares to Pentair’s agent to hold such Shares until the expiration of the Four Year Lock-up Period or the Two Year Holding Period, as applicable. At any time after the expiration of the Four Year Lock-up Period or the Two Year Holding Period, as applicable, the Participant may request Pentair’s agent to (a) deliver some or all of the Shares held to the Participant or (b) sell some or all of the Stock held and deliver the proceeds to the Participant. If requested by the Participant to deliver Stock, Pentair’s agent shall deliver such Shares by means of electronic transfer to the brokerage or bank account designated by the Participant. Pentair’s agent shall deliver the Stock or sell the Stock and deliver the proceeds from the sale as soon as administratively feasible after receipt of the written request from the Participant.
2.1.5    Termination of French Awards

Section 13 of the Plan shall apply only to the extent that it does not conflict with the provisions of this French Sub-Plan and in particular with Sections 2.2.5, 2.2.6, 2.2.8, 2.3.3, 2.3.4 and 2.3.5, which shall prevail in the event of any conflict.

2.1.6
Transferability of Awards
Notwithstanding Section 12 of the Plan, Options subject to the Stock Option Regime and French Share Awards cannot be assigned, transferred, pledged, or otherwise encumbered, except as otherwise permitted in this French Sub-Plan.
2.2
Rules specifically applicable to the French Awards subject to the Stock Option Regime
2.2.1
Types of Awards to be Granted to the French Participants Subject to the Stock Option Regime
The French Awards subject to the Stock Option Regime are limited to Options.
2.2.2
Exercise Price
The Exercise Price shall be established in accordance with Section 7 of the Plan; provided, that, notwithstanding such Section 7 of the Plan, the Exercise Price set at the Date of Grant shall not be less than 80% of the average of the closing price of the Stock for the last 20 trading days preceding the Date of Grant as quoted on the principal securities exchange market on which the Shares are listed for trading.
Except in the cases provided in Section 2.2.7 below, the number of Shares covered by an Option and the Exercise Price for the Shares covered by the Option may not be changed after the Date of Grant unless authorized by French law.
2.2.3
Grant Period
No Option may be granted to a French Participant (i) within a period of 20 trading days after the date on which Pentair has declared any dividends or other form of distributions in respect of its Stock traded on a securities exchange market a general right to subscribe to the Company’s Shares ( i.e ., a rights offering), (ii) within a period of 10 trading days before and 10 trading days after the date on which the annual or consolidated financial statements of Pentair are made public, or (iii) during any period during which the management bodies of Pentair have knowledge of information which could have, if made public, a significant impact on the market price of the Shares and for a period of 10 trading days after the business date on which such information is made public.
2.2.4
Adjustment of the Price and Number of Shares of Stock in the Event of a Certain Events
If, while an Option remains unexercised, Pentair is subject to or engages in any of the corporate actions described in Section 17 of the Plan, the Committee may adjust the number of Shares that may be acquired on exercise of the Option or the Exercise Price of the Shares covered by such Option, and such adjustment shall not result in the forfeiture of the specific rules applying to liability for tax and social security contributions arising from stock options; provided, the event falls within the transactions described in article L.225-181, sub-paragraph 2 of the French Commercial Code.
2.2.5
Vesting of French Stock Option
Notwithstanding the terms of Section 7 of the Plan, the French Awards subject to the Stock Option Regime granted to French Participants under the French Sub-Plan shall vest, or become exercisable, over a term of three (3) years, with two-thirds of the Option Awards vesting on the second anniversary of the Date of Grant and the remaining one-third of the Option Awards vesting on the third anniversary of the Date of Grant.

2.2.6
Four Year Lock-up Period
No Shares which have been acquired through the exercise of Options subject to the Stock Option Regime may be sold or transferred during the Four Year Lock-up Period. In addition, such Shares must be registered in the holder’s name throughout such Four Year Lock-up Period.
Except as specifically permitted by the terms of Sections 2.2.7 and 2.2.8 of this French Sub-Plan, any sale or transfer of Shares resulting from the exercise of Options subject to the Stock Option Regime during the Four Year Lock-up Period shall result in the inapplicability of the specific rules on liability for tax and social security contributions relating to exercise option gains ("the Option Gain"), which shall then be regarded as part of the employee’s salary for tax and social security purposes. For purposes of this Section 2.2.6, the Option Gain is equal to the difference between the fair market value of the Shares when an Option is exercised and the Exercise Price.
During the Four Year Lock-up Period, the Shares shall be transferred to and held by an agent of Pentair in accordance with Section 2.1.4 of this French Sub-Plan.
Any Participant who exercises his or her French Award subject to the Stock Option Regime after a period of at least four years from the Date of Grant of such Award may sell the Shares thus acquired without any need to comply with the Four Year Lock-up Period.
The Four Year Lock-up Period shall apply even if vesting is accelerated under Section 17 of the Plan.
2.2.7
Exchange of Shares in the Event of a Restructuring of the Company
Any adjustments of the French Awards acquired under this subplan may no longer continue to qualify for the specific rules on tax and social security contributions in case of the restructuring of Pentair.
2.2.8
Exemption from the Four Year Lock-up Period
According to Article 91 ter of Schedule II to the French Tax Code, the French Participant shall no longer be subject to the Four Year Lock-up Period requirement specified in this French Sub-Plan, and he or she shall remain eligible for the specific rules on liability for tax and social security contributions in the cases set forth below:
•
If the French Participant becomes Disabled and such Disability is included in the second or third category level of Disability specified in article L 341-1 of the French Social Security Code;
•
In the event of the French Participant’s death;
•
If the French Participant’s employment is terminated by the French Participant’s employer; provided, that the Options have been exercised at least three (3) months before he or she is sent of the notice of dismissal; or
- If the French Participant is required by the French Subsidiary to retire (as defined under article L. 1237-5 of the French Labor Code) in lieu of terminating his employment; provided, that his or her Options have been exercised at least three (3) months before the end of his or her employment contract.
2.2.9
Term of Options Subject to the Stock Option Regime
Options subject to the Stock Option Regime that are granted pursuant to this French Plan will expire no later than ten (10) years less six (6) months after the Grant Date, unless otherwise specified in the applicable Award Agreement. The Option term will be extended only in the event of the death of a French Participant, but in no event will any Option be exercisable beyond six (6) months following the date of death of the French Participant or such other period as may be required to comply with French law.
2.2.10
Employee’s Social Security Contributions
If the French Participant no longer qualifies for the specific rules on liability for tax and social security contributions, the Option Gain shall be subject to tax as salary in the hands of the Participant, and the Participant shall be liable to pay social security contributions.
By accepting Options subject to the French Stock Option Regime, French Participants acknowledge that, if Shares acquired on exercise of such Options are sold before the end of the Four Year Lock-up Period, other than under circumstances permitted by Sections 2.2.7 and 2.2.8, the Option Gain will be recharacterized as salary and the relevant Pentair French Subsidiary shall have the right to levy the French Participant’s share of social security contributions as well as CSG and CRDS for which the French Participants are liable on account of the Option Gain. Such levy shall be deducted from the salary paid to the French Participant after such sale or from the sale proceeds of the Shares.
2.3
Rules Specifically Applicable to the French Awards subject to the French Share Awards Regime
2.3.1
Types of Awards to be Granted to the French Participants and Subject to the French Share Awards Regime
The French Awards subject to the French Share Awards Regime are limited to Restricted Stock Awards and Unit Awards, exclusive of Awards of cash.
2.3.2
Restrictions on the Rights Attached to the French Share Awards
(a)
Performance Units . Notwithstanding the definition of a Performance Unit in the Plan, a Performance Unit awarded to a French Participant may only consist of the right to receive an amount of Stock to the exclusion of any amount of cash. Notwithstanding Section 9(b) of the Plan, if Performance Shares are granted in tandem with Performance Units, no Performance Shares may be delivered to a French Participant and the French Participant shall not have any of the rights of a shareholder until the Performance Shares vest.
(b)
Restricted Stock Units . Notwithstanding the definition of a Restricted Stock Unit in the Plan, a Restricted Stock Unit may only include the right to receive shares of Stock to the exclusion of any amount of cash.
2.3.3
Vesting of French Share Awards
Notwithstanding Section 9 of the Plan, French Awards subject to the French Share Awards Regime shall vest over a period of four (4) years, with one half of the Award vesting after the third anniversary of the Date of Grant and the remaining one half vesting after the fourth anniversary of the Date of Grant.
Until the French Share Awards are vested, the French Participant shall have not any of the rights of a shareholder and in particular shall not be entitled to any dividends paid during the vesting period.
2.3.4    Acceleration of the Vesting of the French Share Award

Notwithstanding the provisions of Section 17 of the Plan, a Change of Control can not result in an acceleration of the date on which the French Share Awards vest prior to the second anniversary of the Date of Grant. Furthermore, the payment of the French Share Award can only be made by the delivery of Shares to the exclusion of any cash.

Notwithstanding the provisions of Section 13 of the Plan or any authority given to the Committee under Section 15 of the Plan, French Share Awards may only become immediately vested in whole or in part in accordance with the following:

-
in the event of the Disability of the French Participant, if such Disability corresponds to the second or third categories of Disability provided by article L.341-4 of the French Social Security Code;

-
upon the death of the French Participant, in which case the heirs of the French Participant may request the issuance and subsequent transfer of the Shares, if such request is made within six months after the death of the Participant;

-
upon the Retirement (as defined in the Plan) of the French Participant, provided that in no event may any French Share Awards vest prior to the second anniversary of the Date of Grant.

Except as permitted by the preceding paragraph, Section 13 of the Plan, insofar as it provides for acceleration of vesting of Share Awards or Section 15, insofar as it allows the Committee to accelerate the vesting of Share Awards, shall not apply to French Participants.
2.3.5
Two Year Holding Period
No Shares which have been acquired through French Share Awards may be sold or transferred during the Two year Holding Period. In addition, such Shares must be registered in the holder’s name throughout such Two Year Holding Period.
Except as specifically permitted by the terms of Section 2.3.6 of this French Sub-Plan, no sale or transfer of Shares resulting from the grant French Share Awards during the Two Year Holding Period is permitted and otherwise shall result in the inapplicability of the specific rules on liability for tax and social security contributions relating to the Vesting Gain, which shall then be regarded as part of the employee’s salary. For purposes of this Section, the Vesting Gain is equal to the opening price of the Shares as quoted on the principal securities exchange market on which the Shares are listed of the day the French Share Award is vested.
During the Two Year Holding Period, the Shares shall be transferred to and held by an agent of Pentair in accordance with Section 2.1.4 of this French Sub-Plan.
Notwithstanding the provisions of Section 16 of the Plan, a Change of Control cannot result in exempting a French Participant from the Two Year Holding Period, except as specified in Section 2.3.6 below in this French Sub-Plan.
2.3.6
Exceptions to the Two Year Holding Period
Notwithstanding Section 2.3.5 of this French Sub-Plan, the Two Year Holding Period shall not apply and the Shares resulting from the grant of French Share Awards may be disposed of prior to the end of such period:
•
in the event the French Participant becomes Disabled and such Disability corresponds to the second or third categories of Disability provided in article L.341-4 of the French Social Security Code; and
•
in the event of the death of the Participant, by the heirs of the French Participant.
If, during the Two Year Holding Period, the Shares resulting from the grant of French Share Awards are exchanged in connection with takeover bid involving an exchange of shares or by a merger or spin-off, division or grouping of the Shares, such exchange may be regarded as a breach of the Two Year Holding Period for French purposes; each transaction shall be reviewed. In case of loss of the specific rules, the Vesting Gain will be recharacterized as salary. .
2.3.7
Black-out Period after the Two Year Holding Period
In order to comply with article L. 225-197-1 of the French Commercial Code, French Participants shall be subject to the selling restrictions set forth follow.
After the end of the Two Year Holding Period, a French Participant shall not sell Shares resulting from the grant of French Share Awards:
•
during the 10 trading day period prior to and the 3 trading day period after the date of publication of the annual or the consolidated financial statements of Pentair; and
•
during any period during which the management bodies of Pentair have knowledge of inside information which could have, if made public, a significant impact on the market price of the Shares and the tenth trading day following the date on which such information is made public.





PENTAIR PLC
2008 OMNIBUS STOCK INCENTIVE PLAN
As Amended and Restated Effective as of January 1, 2017

1. Purpose and Effective Date.
(a)      Purpose . The Pentair plc 2008 Omnibus Stock Incentive Plan has several complementary purposes: (i) to promote the growth and success of the Company by linking a significant portion of participant compensation to the increase in value of the Company’s shares; (ii) to attract and retain top quality, experienced executives and key employees by offering a competitive incentive compensation program; (iii) to reward innovation and outstanding performance as important contributing factors to the Company 's growth and progress; (iv) to align the interests of executives, key employees, directors and consultants with those of the Company’s shareholders by reinforcing the relationship between participant rewards and shareholder gains obtained through the achievement by plan participants of short-term objectives and long-term goals; and (iv) to encourage executives, key employees, directors and consultants to obtain and maintain an equity interest in the Company.
(b)      Effective Date . This Plan became effective, and Awards were granted under this Plan: (1) with regard to Non-Employee Directors, on and after February 26, 2008, provided that any Awards made prior to the date that the Plan is approved by the Company’s shareholders shall be contingent on such shareholder approval, and (2) with regard to all other eligible individuals, the date that the Plan is approved by the Company’s shareholders. If the Company’s shareholders approve this Plan, then the Pentair, Inc. Omnibus Stock Incentive Plan (the “Prior Plan”) will terminate on the date of such shareholder approval, and no new awards will be granted under the Prior Plan after its termination date; provided that the Prior Plan will continue to govern awards outstanding as of the date of such plan’s termination and such awards shall continue in force and effect until fully distributed or terminated pursuant to their terms. The Plan terminated on September 28, 2012.
2.      Definitions. Capitalized terms used in this Plan have the following meanings:
(a)      “10% Stockholder” means an Eligible Employee who, as of the date an ISO is granted to such individual, owns more than ten percent (10%) of the total combined voting power of all classes of Stock then issued by the Company or a Subsidiary corporation.
(b)      “Administrator” means (i) the Committee with respect to Participants who are Eligible Employees and Consultants and (ii) the Non-Employee Directors of the Board (or a committee of Non-Employee Directors appointed by the Board) with respect to Participants who are Directors.
(c)      “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Exchange Act. Notwithstanding the foregoing, for purposes of determining those individuals to whom an Option or Stock Appreciation Right may be granted, the term “Affiliate” means any entity that, directly or through one or more intermediaries, is controlled by, controls, or is under common control with the Company within the meaning of Code Sections 414(b) or (c); provided that, in applying such provisions, the phrase “at least 20 percent” shall be used in place of “at least 80 percent” each place it appears therein.
(d)      “Award” means a grant of Options, Stock Appreciation Rights, Performance Shares, Performance Units, Restricted Stock, Restricted Stock Units, Deferred Stock Rights, Dividend Equivalent Units, or any other type of award permitted under the Plan.
(e)      “Board” means the Board of Directors of the Company.
(f)      “Cause” means, except as otherwise determined by the Administrator and set forth in an Award agreement, such act or omission by a Participant as is determined by the Administrator to constitute cause for termination, including but not limited to any of the following: (i) a material violation of any Company policy, including any policy contained in the Company Code of Business Conduct; (ii) embezzlement from, or theft of property belonging to the Company or any Affiliate; (iii) willful failure to perform or gross negligence in the performance of or failure to perform assigned duties; or (iv) other intentional misconduct, whether related to employment or otherwise, which has, or has the potential to have, a material adverse effect on the business conducted by the Company or its Affiliates.
(g)      “Change of Control” means a change of control of the Company, as that term is defined in the KEESA. Notwithstanding the foregoing, with respect to an Award that is considered deferred compensation subject to Code Section 409A, the definition of “Change of Control” shall be amended and interpreted in a manner that allows the definition to satisfy the requirements of a change of control under Code Section 409A solely for purposes of determining the timing of payment of such Award.
(h)      “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code includes any successor provision and the regulations promulgated under such provision.
(i)      “Committee” means the Compensation Committee of the Board (or a successor committee with the same or similar authority).
(j)      “Company” means (i) prior to September 28, 2012, Pentair, Inc., a Minnesota corporation, (ii) on and after September 28, 2012 but prior to the Re-domicile Date, Pentair Ltd., a Swiss company, or (iii) on and after the Re-domicile Date, Pentair plc, an Irish company, or any successor thereto.
(k)      “Consultant” means a person or entity rendering services to the Company or an Affiliate other than as an employee of any such entity or a Director.
(l)      “Deferred Stock Right” means the right to receive Stock or Restricted Stock at some future time.
(m)      “Director” means a member of the Board, and “Non-Employee Director” means a Director who is not also an employee of the Company or its Subsidiaries.
(n)      "Disability" means, except as otherwise determined by the Administrator and set forth in an Award agreement: (i) with respect to an ISO, the meaning given in Code Section 22(e)(3), and (ii) with respect to all other Awards, a physical or mental incapacity which qualifies an individual to collect a benefit under a long term disability plan maintained by the Company, or such similar mental or physical condition which the Administrator may determine to be a disability, regardless of whether either the individual or the condition is covered by any such long term disability plan. The Administrator shall make the determination of Disability and may request such evidence of disability as it reasonably determines.
(o)      “Dividend Equivalent Unit” means the right to receive a payment, in cash or Shares, equal to the cash dividends or other distributions paid with respect to a Share.
(p)      “Eligible Employee” means a key managerial, administrative or professional employee of the Company or an Affiliate whose position is evaluated at salary grade 40 or higher or who is in a position to make a material contribution to the continued profitable growth and long term success of the Company or an Affiliate.
(q)      “Exchange Act” means the Securities Exchange Act of 1934, as amended. Any reference to a specific provision of the Exchange Act includes any successor provision and the regulations and rules promulgated under such provision.
(r)      “Fair Market Value” means, per Share on a particular date: (i) the closing price on such date on the New York Stock Exchange, as reported in The Wall Street Journal, or if no sales of Stock occur on the date in question, on the last preceding date on which there was a sale on such market; (ii) if the Shares are not listed on the New York Stock Exchange, but are traded on another national securities exchange or in an over-the-counter market, the last sales price (or, if there is no last sales price reported, the average of the closing bid and asked prices) for the Shares on the particular date, or on the last preceding date on which there was a sale of Shares on that exchange or market; or (iii) if the Shares are neither listed on a national securities exchange nor traded in an over-the-counter market, the price determined by the Administrator.
(s)      “Incentive Stock Option” or “ISO” mean an Option that meets the requirements of Code Section 422.
(t)      “KEESA” means the Key Executive Employment and Severance Agreement between the Company and key executives, as approved by the Board and in effect from time to time.
(u)      “Option” means the right to purchase Shares at a stated price for a specified period of time.
(v)      “Participant” means an individual selected by the Administrator to receive an Award.
(w)      “Performance Awards” means a Performance Share and Performance Unit, and any Award of Restricted Stock, Restricted Stock Units, or Deferred Stock Rights the payment or vesting of which is contingent on the attainment of one or more Performance Goals.
(x)      “Performance Goals” means any goals the Administrator establishes that relate to one or more of the following with respect to the Company or any one or more of its Subsidiaries, Affiliates or other business units: net income; income from continuing operations; stockholder return; stock price appreciation; earnings per share (including diluted earnings per share); net operating profit (including after tax); revenue growth; organic sales growth; return on equity; return on investment; return on invested capital (including after-tax); earnings before interest, taxes, depreciation and amortization; operating income; operating margin; market share; return on sales; asset reduction; cost reduction; return on equity; cash flow (including free cash flow); and new product releases. As to each Performance Goal, the relevant measurement of performance shall be computed in accordance with generally accepted accounting principles, if applicable; provided that, the Administrator may, at the time of establishing the Performance Goal(s), exclude the effects of (i) extraordinary, unusual and/or non-recurring items of gain or loss, (ii) gains or losses on the disposition of a business, (iii) changes in tax regulations or laws, or (iv) the effect of a merger or acquisition. Notwithstanding the foregoing, the calculation of any Performance Goal established for purposes of an Award shall be made without regard to changes in accounting methods used by the Company or in accounting standards that may be required by the Financial Accounting Standards Board after a Performance Goal relative to an Award is established and prior to the time the compensation earned by reason of the achievement of the relevant Performance Goal is paid to the Participant. In the case of Awards that the Administrator determines will not be considered “performance‑based compensation” under Code Section 162(m), the Administrator may establish other Performance Goals not listed in this Plan. Where applicable, the Performance Goals may be expressed, without limitation, in terms of attaining a specified level of the particular criterion or the attainment of an increase or decrease (expressed as absolute numbers or a percentage) in the particular criterion or achievement in relation to a peer group or other index. The Performance Goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be paid (or specified vesting will occur), and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur).
(y)      “Performance Shares” means the right to receive Shares (including Restricted Stock) to the extent Performance Goals are achieved.
(z)      “Performance Unit” means the right to receive a payment valued in relation to a unit that has a designated dollar value or the value of which is equal to the Fair Market Value of one or more Shares, to the extent Performance Goals are achieved.
(aa)      “Person” has the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof.
(bb)      “Plan” means this Pentair plc 2008 Omnibus Stock Incentive Plan, as may be amended from time to time.
(cc)      “Re-domicile Date” means the effective date of the consummation of the merger of Pentair Ltd. with and into Pentair plc.
(dd)      “Restriction Period” means the length of time established relative to an Award during which the Participant cannot sell, assign, transfer, pledge or otherwise encumber the Stock or Stock Units subject to such Award and at the end of which the Participant obtains an unrestricted right to such Stock or Stock Units.
(ee)      “Restricted Stock” means a Share that is subject to a risk of forfeiture or restrictions on transfer, or both a risk of forfeiture and restrictions on transfer.
(ff)      “Restricted Stock Unit” means the right to receive a payment equal to the Fair Market Value of one Share.
(gg)      “Retirement” means, except as otherwise determined by the Administrator and set forth in an Award agreement, (i) with respect to Participants who are Eligible Employees or Consultants, termination of employment or service from the Company and its Affiliates (for other than Cause) on or after attainment of age fifty-five (55) and completion of ten (10) years of service with the Company and its Affiliates, and (ii) with respect to Director Participants, the Director’s removal (for other than Cause), or resignation or failure to be re-elected (for other than Cause) on or after “retirement” as defined in the Company’s retirement policy for Non-Employee Directors.
(hh)      “Section 16 Participants” means Participants who are subject to the provisions of Section 16 of the Exchange Act.
(ii)      “Share” means a share of Stock.
(jj)      “Stock” means (i) prior to September 28, 2012, the Common Stock of the Company, par value of $0.16- 2/3 per share, (ii) on and after September 28, 2012 but prior to the Re-domicile Date, the registered shares of the Company, nominal value CHF 0.50 per share, subject to any capital changes, or (iii) on or after the Re-domicile Date, the ordinary shares of the Company, nominal value $0.01 per share.
(kk)      “Stock Appreciation Right” or “SAR” means the right to receive a payment equal to the appreciation of the Fair Market Value of a Share during a specified period of time.
(ll)      “Subsidiary” means any corporation or limited liability company (except that is treated as a partnership for U.S. income tax purposes) in an unbroken chain of entities beginning with the Company if each of the entities (other than the last entity in the chain) owns stock or equity interests possessing more than fifty percent (50%) of the total combined voting power of all classes of stock or equity interests in one of the other entities in the chain.
3.      Administration.
(a)      Administration . In addition to the authority specifically granted to the Administrator in this Plan, the Administrator has full discretionary authority to administer this Plan, including but not limited to the authority to: (i) interpret the provisions of this Plan; (ii) prescribe, amend and rescind rules and regulations relating to this Plan; (iii) correct any defect, supply any omission, or reconcile any inconsistency in any Award or agreement covering an Award in the manner and to the extent it deems desirable to carry this Plan into effect; and (iv) make all other determinations necessary or advisable for the administration of this Plan. All Administrator determinations shall be made in the sole discretion of the Administrator and are final and binding on all interested parties.
Notwithstanding any provision of the Plan to the contrary, the Administrator shall have the discretion to grant an Award with any vesting condition, any Restriction Period or any performance period if the Award is granted to a newly hired or promoted Participant, or accelerate the vesting, Restriction Period or performance period of an Award, in connection with a Participant’s death, disability, Retirement or termination by the Company without Cause. Any action by the Committee to accelerate or otherwise amend an Award for reasons other than Retirement, death, Disability or a termination by the Company without Cause, or in connection with a Change of Control, shall include application of a commercially reasonable discount to the compensation otherwise payable to reflect the value of the accelerated payment
Notwithstanding the above statement or any other provision of the Plan, once established, the Committee shall have no discretion to increase the amount of compensation payable under an Award that is intended to be performance-based compensation under Code Section 162(m), although the Committee may decrease the amount of compensation a Participant may earn under such an Award.
(b)      Delegation to Other Committees or Officers . To the extent applicable law permits, the Board may delegate to another committee of the Board or to one or more officers of the Company, or the Committee may delegate to one or more officers of the Company, any or all of their respective authority and responsibility as an Administrator of the Plan; provided that no such delegation is permitted with respect to Stock-based Awards made to Section 16 Participants at the time any such delegated authority or responsibility is exercised unless the delegation is to another committee of the Board consisting entirely of Non-Employee Directors. If the Board or the Committee has made such a delegation, then all references to the Administrator in this Plan include such other committee or one or more officers to the extent of such delegation.
(c)      Indemnification . The Company will indemnify and hold harmless each member of the Board and the Committee, and each officer or member of any other committee to whom a delegation under Section 3(b) has been made, as to any acts or omissions with respect to this Plan or any Award to the maximum extent that the law and the Company’s by-laws permit.
4.      Eligibility. The Administrator may designate any of the following as a Participant from time to time, to the extent of the Administrator’s authority: any Eligible Employee, any Consultant or any Director, including a Non-Employee Director. The Administrator’s granting of an Award to a Participant will not require the Administrator to grant an Award to such individual at any future time. The Administrator’s granting of a particular type of Award to a Participant will not require the Administrator to grant any other type of Award to such individual.
5.      Types of Awards. Subject to the terms of this Plan, the Administrator may grant any type of Award to any Participant it selects, but only employees of the Company or a Subsidiary may receive grants of incentive stock options. Awards may be granted alone or in addition to, in tandem with, or in substitution for any other Award (or any other award granted under another plan of the Company or any Affiliate).
6.      Shares Reserved under this Plan.
(a)      Plan Reserve . Subject to adjustment as provided in Section 16, an aggregate of seven million five hundred thousand (7,500,000) Shares are reserved for issuance under this Plan. The Shares reserved for issuance may be either authorized and unissued Shares or shares reacquired at any time and now or hereafter held as treasury stock.
(b)      Incentive stock Option Award Limits . Subject to adjustment as provided in Section 16, the Company may issue only an aggregate of five million (5,000,000) Shares upon the exercise of incentive stock options.
(c)      Replenishment of Shares Under this Plan . The aggregate number of Shares reserved under Section 6(a) shall be depleted by the number of Shares with respect to which an Award is granted; provided that the aggregate number of Shares reserved under Section 6(a) shall be depleted by three (3) Shares for each Share subject to a full-value Award. For this purpose, a full-value award includes Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units (valued in relation to a Share), Deferred Stock Rights and any other similar Award under which the value of the Award is measured as the full value of a Share, rather than the increase in the value of a Share. If, however, an Award lapses, expires, terminates or is cancelled without the issuance of Shares or the payment of other compensation under the Award, or if Shares are forfeited under an Award, or if Shares are issued under any Award and the Company subsequently reacquires them pursuant to rights reserved upon the issuance of the Shares, then such Shares shall be recredited to the Plan’s reserve (in the same number as they depleted the reserve) and may again be used for new Awards under this Plan. Notwithstanding the foregoing, in no event shall the following Shares be recredited to the Plan’s reserve: Shares tendered in payment of the exercise price of an Option; Shares withheld to satisfy federal, state or local tax withholding obligations; and Shares purchased by the Company using proceeds from Option exercises.
(d)      Participant Limitations . Subject to adjustment as provided in Section 16, no Participant may be granted Awards that could result in such Participant:
(i)      receiving Options for, and/or Stock Appreciation Rights with respect to, more than 750,000 Shares during any fiscal year of the Company;
(ii)      receiving Awards of Restricted Stock and/or Restricted Stock Units and/or Deferred Stock Rights relating to more than 500,000 Shares during any fiscal year of the Company;
(iii)      receiving Awards of Performance Shares, and/or Awards of Performance Units the value of which is based on the Fair Market Value of Shares, for more than 500,000 Shares during any fiscal year of the Company;
(iv)      receiving Awards of Performance Units the value of which is not based on the Fair Market Value of Shares, for more than $3,000,000 during any fiscal year of the Company; or
(v)      receiving other Stock-based Awards pursuant to Section 11 relating to more than 100,000 Shares during any fiscal year of the Company.
In all cases, determinations under this Section 6(d) should be made in a manner that is consistent with the exemption for performance‑based compensation that Code Section 162(m) provides.

7.      Options. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each Option, including but not limited to:
(a)      Whether the Option is an “incentive stock option” which meets the requirements of Code Section 422, or a “nonqualified stock option” which does not meet the requirements of Code Section 422;
(b)      The number of Shares subject to the Option;
(c)      The date of grant, which may not be prior to the date of the Administrator’s approval of the grant;
(d)      The exercise price, which may not be less than the Fair Market Value of the Shares subject to the Option as determined on the date of grant; provided that an incentive stock option granted to a 10% Stockholder must have an exercise price at least equal to 110% of the Fair Market Value of the Shares subject to the Option as determined on the date of grant;
(e)      The terms and conditions of exercise; provided that, subject to the provisions of Sections 12 and 16, one-third (1/3) of each Option may not become exercisable earlier than on each of the first three (3) anniversaries of the date of grant; and provided further that if the aggregate Fair Market Value of the Shares subject to the Option (as determined on the date of grant of such Option) that become exercisable during a calendar year exceed $100,000, then such Option shall be treated as a nonqualified stock option to the extent such $100,000 limitation is exceeded.
(f)      The term; provided that each Option must terminate no later than ten (10) years after the date of grant and each incentive stock option granted to a 10% Stockholder must terminate no later than five (5) years after the date of grant.
In all other respects, the terms of any incentive stock option should comply with the provisions of Code section 422 except to the extent the Administrator determines otherwise. If an Option that is intended to be an incentive stock option fails to meet the requirements thereof, the Option shall automatically be treated as a nonqualified stock option to the extent of such failure.
Subject to the terms and conditions of the Award, vested Options may be exercised, in whole or in part, by giving notice of exercise to the Company in such manner as the Company may prescribe. This notice must be accompanied by payment in full of the exercise price in cash or by use of such other instrument as the Administrator may agree to accept.
Payment of the exercise price, applicable withholding taxes due upon exercise of the Option, or both may be made in the form of Stock already owned by the Participant, which Stock shall be valued at Fair Market Value on the date the Option is exercised. A Participant who elects to make payment in Stock may not transfer fractional shares or shares of Stock with an aggregate Fair Market Value in excess of the Option exercise price plus applicable withholding taxes. A Participant need not present Stock certificates when making payment in Stock, so long as other satisfactory proof of ownership of the Stock tendered is provided (e.g., attestation of ownership of a sufficient number of shares of Stock to pay the exercise price). The Administrator shall have the discretion to authorize or accept payment by other forms or methods or to establish a cashless exercise program, all within such limitations as may be imposed by the Plan or any applicable law.
8.      Stock Appreciation Rights. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each SAR, including but not limited to:
(a)      Whether the SAR is granted independently of an Option or relates to an Option;
(b)      The number of Shares to which the SAR relates;
(c)      The date of grant, which may not be prior to the date of the Administrator’s approval of the grant;
(d)      The grant price, provided that the grant price shall not be less than the Fair Market Value of the Shares subject to the SAR as determined on the date of grant;
(e)      The terms and conditions of exercise or maturity; provided that, subject to the provisions of Sections 12 and 16, one-third (1/3) of each SAR may not become exercisable or mature earlier than on each of the first three (3) anniversaries of the date of grant;
(f)      The term, provided that each SAR must terminate no later than ten (10) years after the date of grant; and
(g)      Whether the SAR will be settled in cash, Shares or a combination thereof.
If an SAR is granted in relation to an Option, then unless otherwise determined by the Administrator, the SAR shall be exercisable or shall mature at the same time or times, on the same conditions and to the extent and in the proportion, that the related Option is exercisable and may be exercised or mature for all or part of the Shares subject to the related Option. Upon exercise of any number of SAR, the number of Shares subject to the related Option shall be reduced accordingly and such Option may not be exercised with respect to that number of Shares. The exercise of any number of Options that relate to an SAR shall likewise result in an equivalent reduction in the number of Shares covered by the related SAR.
9.      Performance and Stock Awards. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each award of Restricted Stock, Restricted Stock Units, Deferred Stock Rights, Performance Shares or Performance Units, including but not limited to:
(a)      The number of Shares and/or units to which such Award relates;
(b)      Whether, as a condition for the Participant to realize all or a portion of the benefit provided under the Award, one or more Performance Goals must be achieved during such period as the Administrator specifies;
(c)      The period of restriction with respect to Restricted Stock or Restricted Stock Units and the period of deferral for Deferred Stock Rights (which, subject to the provisions of Sections 12 and 16, in each case may not be less than three (3) years from the date of grant);
(d)      The performance period for Performance Awards (which, subject to the provisions of Sections 12 and 16, must be at least one year);
(e)      With respect to Performance Units, whether to measure the value of each unit in relation to a designated dollar value or the Fair Market Value of one or more Shares; and
(f)      With respect to Restricted Stock Units and Performance Units, whether to settle such Awards in cash, in Shares, or a combination thereof.
During the time Restricted Stock is subject to the Period of Restriction, the Participant shall have all of the rights of a shareholder with respect to the Restricted Stock, including the right to vote such Stock and, unless the Administrator shall otherwise provide, the right to receive dividends paid with respect to such Stock.
Except as otherwise provided in the Plan, at such time as all restrictions applicable to an Award of Restricted Stock, Deferred Stock Rights or Restricted Stock Units are met and the Restriction Period expires, ownership of the Stock subject to such restrictions shall be transferred to the Participant free of all restrictions except those that may be imposed by applicable law; provided that if Restricted Stock Units are paid in cash, said payment shall be made to the Participant after all applicable restrictions lapse and the Restriction Period expires.
10.      Dividend Equivalent Units. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each award of Dividend Equivalent Units, including but not limited to whether: (a) such Award will be granted in tandem with another Award; (b) payment of the Award be made currently or credited to an account for the Participant which provides for the deferral of such amounts until a stated time; and (c) the Award will be settled in cash or Shares; provided that Dividend Equivalent Units may be granted only in connection with a “full value” Award as defined in Section 6(c).
11.      Other Stock-Based Awards. Subject to the terms of this Plan, the Administrator may grant to Participants other types of Awards, which shall be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, Shares, either alone or in addition to or in conjunction with other Awards, and payable in Stock or cash. Without limitation, such Award may include the issuance of shares of unrestricted Stock, which may be awarded in payment of director fees, in lieu of cash compensation, in exchange for cancellation of a compensation right, as a bonus, or upon the attainment of Performance Goals or otherwise, or rights to acquire Stock from the Company. The Administrator shall determine all terms and conditions of the Award, including but not limited to, the time or times at which such Awards shall be made, and the number of Shares to be granted pursuant to such Awards or to which such Award shall relate; provided that any Award that provides for purchase rights shall be priced at 100% of Fair Market Value on the date of the Award.
12.      Effect of Termination on Awards . Except as otherwise provided by the Administrator in an Award Agreement or, subject to Section 3(a), as determined by the Administrator at the time of termination of a Participant’s service:
(a)      Termination of Employment or Service . If a Participant’s service with the Company and its Affiliates as an employee or Director ends for any reason other than (i) a termination for Cause, (ii) Retirement, (iii) death or (iv) Disability, then:
(i)      Any outstanding Options or SARs, to the extent otherwise exercisable on the date such Participant’s service ends, shall be exercisable no later than ninety (90) days following the Participant’s termination date or, if earlier, the expiration date of the Option or SAR. At the conclusion of such ninety (90) day period, all such Options and SARs then unexercised shall be forfeited.
(ii)      All other Awards made to the Participant, to the extent not then earned or paid to the Participant, shall terminate no later than the Participant’s last day of employment, or service as a Director.
(b)      Retirement of Corporate Officer or Director . Upon Retirement of a Participant who is then a Board-appointed corporate officer or a Director:
(i)      Any outstanding Options or SARs shall remain outstanding (and shall continue to vest in accordance with the terms of the Award as if the Participant had continued in employment or service) until the earlier of the expiration date of the Award and the fifth anniversary of such Participant’s Retirement date; provided , however, that such extension shall result in the conversion of an incentive stock option to a nonqualified stock option to the extent required under the Code.
(ii)      All Restricted Stock, Restricted Stock Units and Deferred Stock Rights (that are not Performance Awards) outstanding on the Participant’s Retirement date shall be immediately vested, and any other terms and conditions applicable to such Awards shall be deemed to have lapsed or otherwise been satisfied. Payment for all such Awards shall be made to the Participant in either unrestricted shares of Stock or cash, depending on the payment terms applicable to such Award.
(iii)      All Performance Awards outstanding on the Participant’s Retirement date shall be paid in either unrestricted shares of Stock or cash, as the case may be, following the end of the performance period and based on achievement of the Performance Goals established for such Awards, as if the Participant had not retired.
(iv)      Notwithstanding the provisions of Section 2(ff), effective for Awards granted on or after July 29, 2008, the provisions of subsections 12(b)(i), (ii) and (iii) shall apply only with respect to the termination of employment or service from the Company and its Affiliates (for other than Cause) of a Board-appointed corporate officer, on or after attainment of age sixty (60) and completion of ten (10) years of service with the Company and its Affiliates.
(c)      Retirement of Other Participants . Upon (A) Retirement of a Participant who is then a Board-appointed corporate officer prior to the attainment of age sixty (60) (with respect to Awards granted on or after July 29, 2008), or (B) Retirement of a Participant who is not then a Board-appointed corporate officer or a Director::
(i)      Any Options and SARs exercisable on such Participant’s Retirement date shall be exercisable no later than ninety (90) days following such date or, if earlier, the expiration date of the Option or SAR. At the end of such ninety (90) day period, all Options and SARs then unexercised shall be forfeited.
(ii)      All Restricted Stock, Restricted Stock Units and Deferred Stock Rights (that are not Performance Awards) shall vest on a prorated basis, based on the portion of the restriction or deferral period, as applicable, which the Participant has completed at the time of Retirement and any other terms and conditions applicable to such Awards shall be deemed to have lapsed or otherwise been satisfied.
(iii)      All Performance Awards outstanding on the Participant’s Retirement date shall be paid in either unrestricted shares of Stock or cash, as the case may be, following the end of the performance period and based on achievement of the Performance Goals established for such Awards, as if the Participant had not retired, but prorated based on the portion of the performance period which the Participant has completed at the time of Retirement.
(d)      Death or Disability . If a Participant’s service with the Company and its Affiliates ends due to death or Disability:
(i)      All Options and SARs shall vest immediately and shall be exercisable until the earlier of twelve (12) months following the date the Participant’s service ends and the expiration date of the Option or SAR. Upon such earlier date, all Options and SARs then unexercised shall be forfeited.
(ii)      All Restricted Stock, Restricted Stock Units and Deferred Stock Rights (that are not Performance Awards or for which any Performance Goals have been satisfied) shall be immediately vested, and any other terms and conditions applicable to such Awards shall be deemed to have lapsed or otherwise been satisfied.
(iii)      All Performance Awards shall be paid in either unrestricted shares of Stock or cash, as the case may be, following the end of the performance period and based on achievement of the Performance Goals established for such Awards, as if the Participant had not terminated service.
(e)      Termination for Cause . If a Participant’s employment with the Company and its Affiliates or service as a Director is terminated for Cause, all Awards and grants of every type, whether or not then vested, shall terminate no later than the Participant’s last day of employment. The Committee shall have discretion to determine whether this Section 12(f) shall apply, whether the event or conduct at issue constitutes Cause for termination and the date on which Awards to a Participant shall terminate.
(f)      Consultants and Other Stock-Based Awards . The Committee shall have the discretion to determine, at the time an Award is made, the effect of the termination of service of a Consultant on Awards held by such individual, and the effect on Other Stock-Based Awards of the Participant’s termination of employment or service with the Company and its Affiliates.
13.      Transferability .
(a)      Restrictions on Transfer . Awards are not transferable other than by will or the laws of descent and distribution, unless and to the extent the Administrator allows a Participant to designate in writing a beneficiary to exercise the Award or receive payment under an Award after the Participant’s death or transfer an Award as provided in subsection (b).
(b)      Permitted Transfers . If allowed by the Administrator, a Participant may transfer the ownership of some or all of the vested or earned Awards granted to such Participant, other than incentive stock options to (i) the spouse, children or grandchildren of such Participant (the “Family Members”), (ii) a trust or trust established for the exclusive benefit of such Family Members, or (iii) a partnership in which such Family Members are the only partners. Notwithstanding the foregoing, vested or earned Awards may be transferred without the Administrator’s pre-approval if the transfer is made incident to a divorce as required pursuant to the terms of a “domestic relations order” as defined in Section 414(p) of the Code; provided that no such transfer will be allowed with respect to ISOs if such transferability is not permitted by Code Section 422. Any such transfer shall be without consideration and shall be irrevocable. No Award so transferred may be subsequently transferred, except by will or applicable laws of descent and distribution. The Administrator may create additional conditions and requirements applicable to the transfer of Awards. Following the allowable transfer of a vested Option, such Option shall continue to be subject to the same terms and conditions as were applicable to the Option immediately prior to the transfer. For purposes of settlement of the Award, delivery of Stock upon exercise of an Option and the Plan’s Change of Control provisions, however, any reference to a Participant shall be deemed to refer to the transferee.
14.      Termination and Amendment of Plan; Amendment, Modification or Cancellation of Awards.
(a)      Term of Plan . The Plan terminated on September 28, 2012 .
(b)      Termination and Amendment . The Board or the Committee may amend, alter, suspend, discontinue or terminate this Plan at any time, subject to the following limitations:
(i)      the Board must approve any amendment of this Plan to the extent the Company determines such approval is required by: (A) action of the Board, (B) applicable corporate law, or (C) any other applicable law;
(ii)      shareholders must approve any amendment of this Plan to the extent the Company determines such approval is required by: (A) Section 16 of the Exchange Act, (B) the Code, (C) the listing requirements of any principal securities exchange or market on which the Shares are then traded, or (D) any other applicable law; and
(iii)      shareholders must approve any of the following Plan amendments: (A) an amendment to materially increase any number of Shares specified in Section 6(a), 6(b) or the limits set forth in Section 6(d) (except as permitted by Section 16), (B) an amendment to expand the group of individuals that may become Participants, or (C) an amendment that would diminish the protections afforded by Section 14(e) or that would materially change the minimum vesting and performance requirements of an Award as required in the Plan.
(c)      Amendment, Modification or Cancellation of Awards . Except as provided in Section 14(e) and subject to the requirements of this Plan, the Administrator may modify, amend or cancel any Award; or waive any restrictions or conditions applicable to any Award or the exercise of the Award, provided that any modification or amendment that materially diminishes the rights of the Participant, or the cancellation of the Award, shall be effective only if agreed to by the Participant or any other person(s) as may then have an interest in the Award, but the Administrator need not obtain Participant (or other interested party) consent for the adjustment or cancellation of an Award pursuant to the provisions of Section 16 or the modification of an Award to the extent deemed necessary to comply with any applicable law, the listing requirements of any principal securities exchange or market on which the Shares are then traded, or to preserve favorable accounting or tax treatment of any Award for the Company. Notwithstanding the foregoing, unless determined otherwise by the Administrator, any such amendment shall be made in a manner that will enable an Award intended to be exempt from Code Section 409A to continue to be so exempt, or to enable an Award intended to comply with Code Section 409A to continue to so comply.
(d)      Survival of Authority and Awards . Notwithstanding the foregoing, the authority of the Board and the Administrator under this Section 14 and to otherwise administer the Plan will extend beyond the date of this Plan’s termination. In addition, termination of this Plan will not affect the rights of Participants with respect to Awards previously granted to them, and all unexpired Awards will continue in force and effect after termination of this Plan except as they may lapse or be terminated by their own terms and conditions.
(e)      Repricing and Backdating Prohibited . Notwithstanding anything in this Plan to the contrary, and except for the adjustments provided in Section 16, neither the Administrator nor any other person may decrease the exercise price for any outstanding Option or SAR after the date of grant nor allow a Participant to surrender an outstanding Option or SAR to the Company as consideration for the grant of a new Option or SAR with a lower exercise price. In addition, the Administrator may not make a grant of an Option or SAR with a grant date that is effective prior to the date the Administrator takes action to approve such Award.
(f)      Foreign Participation . To assure the viability of Awards granted to Participants employed or residing in foreign countries, the Administrator may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Administrator may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it determines is necessary or appropriate for such purposes. Any such amendment, restatement or alternative versions that the Administrator approves for purposes of using this Plan in a foreign country will not affect the terms of this Plan for any other country. In addition, all such supplements, amendments, restatements or alternative versions must comply with the provisions of Section 14(b)(ii).
In addition, if an Award is held by a Participant who is employed or residing in a foreign country and the amount payable or Shares issuable under such Award would be taxable to the Participant under Code Section 457A in the year such Award is no longer subject to a substantial risk of forfeiture, then the amount payable or Shares issuable under such Award shall be paid or issued to the Participant as soon as practicable after such substantial risk of forfeiture lapses (or, for Awards that are not considered nonqualified deferred compensation subject to Code Section 409A, no later than the end of the short-term deferral period permitted by Code Section 457A) notwithstanding anything in this Plan or the Award Agreement to contrary.
(g)      Code Section 409A . The provisions of Code Section 409A are incorporated herein by reference to the extent necessary for any Award that is subject to Code Section 409A to comply therewith.
15.      Taxes .
(a)      Withholding . In the event the Company or an Affiliate of the Company is required to withhold any Federal, state or local taxes or other amounts in respect of any income recognized by a Participant as a result of the grant, vesting, payment or settlement of an Award or disposition of any Shares acquired under an Award, the Company may deduct (or require an Affiliate to deduct) from any payments of any kind otherwise due the Participant cash, or with the consent of the Committee, Shares otherwise deliverable or vesting under an Award, to satisfy such tax obligations. Alternatively, the Company may require such Participant to pay to the Company, in cash, promptly on demand, or make other arrangements satisfactory to the Company regarding the payment to the Company of the aggregate amount of any such taxes and other amounts. If Shares are deliverable upon exercise or payment of an Award, the Committee may permit a Participant to satisfy all or a portion of the Federal, state and local withholding tax obligations arising in connection with such Award by electing to (a) have the Company withhold Shares otherwise issuable under the Award, (b) tender back Shares received in connection with such Award or (c) deliver other previously owned Shares; provided that the amount to be withheld may not exceed the maximum statutory tax amount or similar obligations associated with the transaction to the extent needed for the Company to avoid an accounting charge. If an election is provided, the election must be made on or before the date as of which the amount of tax to be withheld is determined and otherwise as the Committee requires. In any case, the Company may defer making payment or delivery under any Award if any such tax may be pending unless and until indemnified to its satisfaction.
(b)      No Guarantee of Tax Treatment . Notwithstanding any provisions of the Plan, the Company does not guarantee to any Participant or any other Person with an interest in an Award that (i) any Award intended to be exempt from Code Section 409A shall be so exempt, (ii) any Award intended to comply with Code Section 409A or Code Section 422 shall so comply, (iii) any Award shall otherwise receive a specific tax treatment under any other applicable tax law, nor in any such case will the Company or any Affiliate indemnify, defend or hold harmless any individual with respect to the tax consequences of any Award.
(c)      Participant Responsibilities . If a Participant shall dispose of Stock acquired through exercise of an ISO within either (i) two (2) years after the date the Option is granted or (ii) one (1) year after the date the Option is exercised (i.e., in a disqualifying disposition), such Participant shall notify the Company within seven (7) days of the date of such disqualifying disposition. In addition, if a Participant elects, under Code Section 83, to be taxed at the time an Award of Restricted Stock (or other property subject to such Code section) is made, rather than at the time the Award vests, such Participant shall notify the Company within seven (7) days of the date the Restricted Stock subject to the election is awarded.
16.      Adjustment Provisions; Change of Control.
(a)      Adjustment of Shares . If: (i) the Company shall at any time be involved in a merger or other transaction in which the Shares are changed or exchanged; (ii) the Company shall subdivide or combine the Shares or the Company shall declare a dividend payable in Shares, other securities or other property; (iii) the Company shall effect a cash dividend the amount of which, on a per Share basis, exceeds ten percent (10%) of the Fair Market Value of a Share at the time the dividend is declared, or the Company shall effect any other dividend or other distribution on the Shares in the form of cash, or a repurchase of Shares, that the Board determines by resolution is special or extraordinary in nature or that is in connection with a transaction that the Company characterizes publicly as a recapitalization or reorganization involving the Shares; or (iv) any other event shall occur, which, in the case of this clause (iv), in the judgment of the Board or Committee necessitates an adjustment to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, then the Administrator shall, in such manner as it may deem equitable to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, adjust as applicable: (A) the number and type of Shares subject to this Plan (including the number and type of Shares described in Sections 6(a), (b) and (d)) and which may after the event be made the subject of Awards; (B) the number and type of Shares subject to outstanding Awards; (C) the grant, purchase, or exercise price with respect to any Award; and (D) to the extent such discretion does not cause an Award that is intended to qualify as performance-based compensation under Code Section 162(m) to lose its status as such, the Performance Goals of an Award. In each case, with respect to Awards of incentive stock options, no such adjustment may be authorized to the extent that such authority would cause this Plan to violate Code Section 422(b).
Without limitation, in the event of any reorganization, merger, consolidation, combination or other similar corporate transaction or event, whether or not constituting a Change of Control (other than any such transaction in which the Company is the continuing corporation and in which the outstanding Stock is not being converted into or exchanged for different securities, cash or other property, or any combination thereof), the Administrator may substitute, on an equitable basis as the Administrator determines, for each Share then subject to an Award and the Shares subject to this Plan (if the Plan will continue in effect), the number and kind of shares of stock, other securities, cash or other property to which holders of Stock are or will be entitled in respect of each Share pursuant to the transaction.
Notwithstanding the foregoing, in the case of a stock dividend (other than a stock dividend declared in lieu of an ordinary cash dividend) or subdivision or combination of the Shares (including a reverse stock split), if no action is taken by the Administrator, adjustments contemplated by this subsection that are proportionate shall nevertheless automatically be made as of the date of such stock dividend or subdivision or combination of the Shares.
(b)      Issuance or Assumption . Notwithstanding any other provision of this Plan, and without affecting the number of Shares otherwise reserved or available under this Plan, in connection with any merger, consolidation, acquisition of property or stock, or reorganization, the Administrator may authorize the issuance or assumption of awards under this Plan upon such terms and conditions as it may deem appropriate.
(c)      Change of Control . If the Participant has in effect an employment, retention, change of control, severance or similar agreement with the Company or any Affiliate that discusses the effect of a Change of Control on the Participant’s Awards, then such agreement shall control. In all other cases, unless provided otherwise in an Award agreement, in the event of a Change of Control:
(i)      Each Option or SAR that is then held by a Participant who is employed by or in the service of the Company or an Affiliate shall become immediately and fully vested, and, unless otherwise determined by the Board or Committee, all Options and SARs shall be cancelled on the date of the Change of Control in exchange for a cash payment equal to the excess of the Change of Control price of the Shares covered by the Option or SAR that is so cancelled over the purchase or grant price of such Shares under the Award;
(ii)      Restricted Stock, Restricted Stock Units and Deferred Stock Rights (that are not Performance Awards) that are not then vested shall vest;
(iii)      All Performance Awards that are earned but not yet paid shall be paid, and all Performance Awards for which the performance period has not expired shall be cancelled in exchange for a cash payment equal to the amount that would have been due under such Award(s) if the Performance Goals (as measured at the time of the Change of Control) were to continue to be achieved at the same rate through the end of the performance period, or if higher, assuming the target Performance Goals had been met at the time of such Change of Control; and
(iv)      All Dividend Equivalent Units that are not vested shall vest and be paid in cash, and all other Awards that are not vested shall vest and if an amount is payable under such vested Award, such amount shall be paid in cash based on the value of the Award.
If the value of an Award is based on the Fair Market Value of a Share, Fair Market Value shall be deemed to mean the per share Change of Control price. The Administrator shall determine the per share Change of Control price paid or deemed paid in the Change of Control transaction.
Except as otherwise expressly provided in any agreement between a Participant and the Company or an Affiliate, if the receipt of any payment by a Participant under the circumstances described above would result in the payment by the Participant of any excise tax provided for in Section 280G and Section 4999 of the Code, then the amount of such payment shall be reduced to the extent required to prevent the imposition of such excise tax.
17.      Miscellaneous.
(a)      Other Terms and Conditions . The grant of any Award may also be subject to other provisions (whether or not applicable to the Award granted to any other Participant) as the Administrator determines appropriate, including, without limitation, provisions for:
(i)      the payment of the purchase price of Options by delivery of cash or other Shares or other securities of the Company (including by attestation) having a then Fair Market Value equal to the purchase price of such Shares, or by delivery (including by fax) to the Company or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions to a broker‑dealer to sell or margin a sufficient portion of the Shares and deliver the sale or margin loan proceeds directly to the Company to pay for the exercise price;
(ii)      restrictions on resale or other disposition of Shares; and
(iii)      compliance with federal or state securities laws and stock exchange requirements.
(b)      Employment and Service . The issuance of an Award shall not confer upon a Participant any right with respect to continued employment or service with the Company or any Affiliate, or the right to continue as a Director. Unless determined otherwise by the Administrator, for purposes of the Plan and all Awards, the following rules shall apply:
(i)      a Participant who transfers employment between the Company and its Affiliates, or between Affiliates, will not be considered to have terminated employment;
(ii)      a Participant who ceases to be a Non-Employee Director because he or she becomes an employee of the Company or an Affiliate shall not be considered to have ceased service as a Non-Employee Director with respect to any Award until such Participant’s termination of employment with the Company and its Affiliates;
(iii)      a Participant who ceases to be employed by the Company or an Affiliate and immediately thereafter becomes a Non-Employee Director, a non-employee director of an Affiliate, or a consultant to the Company or any Affiliate shall not be considered to have terminated employment until such Participant’s service as a director of, or consultant to, the Company and its Affiliates has ceased; and
(iv)      a Participant employed by an Affiliate will be considered to have terminated employment when such entity ceases to be an Affiliate.
Notwithstanding the foregoing, for purposes of an Award that is subject to Code Section 409A, if a Participant’s termination of employment or service triggers the payment of compensation under such Award, then the Participant will be deemed to have terminated employment or service upon his or her “separation from service” within the meaning of Code Section 409A.
(c)      No Fractional Shares . No fractional Shares or other securities may be issued or delivered pursuant to this Plan, and the Administrator may determine whether cash, other securities or other property will be paid or transferred in lieu of any fractional Shares or other securities, or whether such fractional Shares or other securities or any rights to fractional Shares or other securities will be canceled, terminated or otherwise eliminated.
(d)      Unfunded Plan . This Plan is unfunded and does not create, and should not be construed to create, a trust or separate fund with respect to this Plan’s benefits. This Plan does not establish any fiduciary relationship between the Company and any Participant or other person. To the extent any person holds any rights by virtue of an Award granted under this Plan, such rights are no greater than the rights of the Company’s general unsecured creditors.
(e)      Requirements of Law and Securities Exchange . The granting of Awards and the issuance of Shares in connection with an Award are subject to all applicable laws, rules and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required. Notwithstanding any other provision of this Plan or any award agreement, the Company has no liability to deliver any Shares under this Plan or make any payment unless such delivery or payment would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity, and unless and until the Participant has taken all actions required by the Company in connection therewith. The Company may impose such restrictions on any Shares issued under the Plan as the Company determines necessary or desirable to comply with all applicable laws, rules and regulations or the requirements of any national securities exchanges.
(f)      Governing Law . This Plan, and all agreements under this Plan, will be construed in accordance with and governed by the laws of the State of Minnesota, without reference to any conflict of law principles. Any legal action or proceeding with respect to this Plan, any Award or any award agreement, or for recognition and enforcement of any judgment in respect of this Plan, any Award or any award agreement, may only be heard in a “bench” trial, and any party to such action or proceeding shall agree to waive its right to a jury trial.
(g)      Limitations on Actions . Any legal action or proceeding with respect to this Plan, any Award or any award agreement, must be brought within one year (365 days) after the day the complaining party first knew or should have known of the events giving rise to the complaint.
(h)      Construction . Whenever any words are used herein in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and wherever any words are used in the singular or plural, they shall be construed as though they were used in the plural or singular, as the case may be, in all cases where they would so apply. Title of sections are for general information only, and this Plan is not to be construed with reference to such titles.
(i)      Severability . If any provision of this Plan or any award agreement or any Award (i) is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to any person or Award, or (ii) would disqualify this Plan, any award agreement or any Award under any law the Administrator deems applicable, then such provision should be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Administrator, materially altering the intent of this Plan, award agreement or Award, then such provision should be stricken as to such jurisdiction, person or Award, and the remainder of this Plan, such award agreement and such Award will remain in full force and effect.


Executive Officer Version

PENTAIR PLC 2012 STOCK AND INCENTIVE PLAN
GRANT AGREEMENT
STOCK OPTIONS

[Name of Grantee]:

The Compensation Committee has awarded you the following grant under the Pentair plc 2012 Stock and Incentive Plan (the “Plan”).

Grant Information

Number of Stock Options Granted: ______________

Expiration Date: 10 th anniversary of the Date of Grant

Vesting Schedule: The options vest over the following schedule:

1/3 of the options on the first anniversary of the Date of Grant
1/3 of the options on the second anniversary of the Date of Grant
1/3 of the options on the third anniversary of the Date of Grant

Type of Option: Incentive stock options to the extent permitted under the Plan

Specific terms of this grant not described above, such as the Date of Grant and the Grant Price, are set forth in the cover letter that accompanies this grant agreement.

Terms and Conditions of this Grant

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Your Stock Options may be exercised only after they become vested. Your Stock Options may not be exercised after the expiration date set forth above, or the earlier date that these Stock Options terminate in connection with your termination of service in accordance with the terms of the Plan. Stock Options can only be exercised if the Fair Market Value of the Shares being exercised exceeds the grant price for those Shares. Only whole Shares will be issued; any fractional Share otherwise issuable under this award will be rounded up to the nearest whole Share.

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If your service with the Company terminates (for any reason except for Cause), you may exercise those Stock Options which have vested as of the last day of your service for up to 90 days after your termination date or, if earlier, the expiration date of the Stock Options. Exceptions are made for termination of service due to such reasons as death, Retirement or Disability, in accordance with the terms of the Plan. If your service with the Company terminates for Cause, all of your Stock Options (both vested and unvested) shall terminate no later than your last day of service. In addition, if after your service terminates the Company determines that your service could have been terminated for Cause had all relevant facts been known at the time of your termination, then the Company may terminate all of your Stock Options (whether vested or unvested) immediately upon such determination, and you will be prohibited from exercising your Stock Options thereafter. In such event, you will be notified of the termination of your Stock Options.

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You have no shareholder rights (e.g. dividends, voting) with respect to the underlying Shares you may purchase by the exercise of these Stock Options until after you have purchased the Shares.

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You must pay the grant price and any applicable withholding taxes due upon exercise by one of the methods available under the Company’s exercise procedures, which may include (1) paying by cash or check, (2) swapping previously-acquired mature Shares or (3) arranging a cashless exercise through the Company’s designated broker. Please refer to the relevant materials provided by the plan administrator for more details.

General

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The grant of this Plan award to you does not limit in any way the right of the Company to terminate your service at any time for any reason, nor does it guarantee you will receive Plan awards in subsequent years.

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The vesting of this award may be suspended or delayed as a result of a leave of absence.

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In addition to the terms and conditions contained in this grant agreement, this award is subject to the provisions of the Plan document and Prospectus as well as applicable rules and regulations issued under local tax and securities laws and New York Stock Exchange rules. Capitalized terms used in this grant agreement have the meanings given in the Plan.

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If the Compensation Committee of the Pentair plc Board of Directors (the “Committee”) determines that recoupment of incentive compensation paid to you pursuant to this grant agreement is required under any law or any recoupment policy of the Company, then your Stock Options will terminate immediately on the date of such determination to the extent required by such law or recoupment policy, any prior exercise of your Stock Options may be deemed to be rescinded, and the Committee may recoup any such incentive compensation in accordance with such recoupment policy or as required by law. The Company shall have the right to offset against any other amounts due from the Company to you the amount owed by you hereunder.

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The Committee may amend or modify the Plan at any time but generally such changes will apply to future Plan awards. The Committee may also amend or modify this award, but most changes will require your consent.

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As a condition to the grant of this award, you agree (with such agreement being binding upon your legal representatives, guardians, legatees or beneficiaries) that this agreement will be interpreted by the Committee and that any interpretation by the Committee of the terms of this agreement or the Plan, and any determination made by the Committee under this agreement or the Plan, will be final, binding and conclusive.
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If you are an officer or other employee of the Company and this option is designated as an “incentive stock option” and if you sell Shares which were acquired through the exercise of this option within two years from the date of grant or one year from the date of exercise, you must notify the Company’s stock plan administrator of the sale to permit proper treatment of the compensation expense.

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For purposes of this agreement, the word “Company” means Pentair plc or any of its subsidiaries or any of their business units.

Confidentiality, Non-Competition, Non-Solicitation and Non-Disparagement
As a result of your intimate familiarity with proprietary and confidential information of the Company, this grant agreement is subject to the restrictions set forth below. Any violation of these sections will result in a rescission of the Award made under this grant agreement and a forfeiture of any rights you have with respect thereto.

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Confidentiality . You agree that you will treat during employment and thereafter, as private and privileged, any information, data, figures, projections, estimates, marketing plans, customer lists, lists of contract workers, tax records, personnel records, accounting procedures, formulas, contracts, business partners, alliances, ventures and all other confidential information you acquire while working for the Company. You agree that you will not release any such information to any person, firm, corporation or other entity at any time, except as may be required by law, or as agreed to in writing by the Company. You acknowledge that any violation of this non-disclosure provision shall entitle the Company to appropriate injunctive relief and to any damages which it may sustain due to the improper disclosure. However, you shall not be held in breach of this provision if you disclose confidential information to a federal, state or local government official, either directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law.
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Non-Solicitation . You agree that, for a twenty-four (24) month period following your termination (voluntary or involuntary) from the Company, you will not, for yourself or any third party, directly or indirectly, (i) solicit or accept competitive business from any customer of the Company, or (ii) solicit any employee of the Company for the purpose of hiring such person or otherwise entice, induce or encourage, directly or indirectly, any such employee to leave their employment.
You agree that engaging in any of the following activities will be a violation of the above paragraph: (1) soliciting for a hire or soliciting for retainer as an independent consultant or as contingent worker any employee of the Company; (2) participating in the recruitment of any employee of the Company; (3) serving as a reference for an employee of the Company; (4) offering an opinion regarding the candidacy as a potential employee, independent consultant or contingent worker of an individual employed by the Company; (5) assisting or encouraging any third party to pursue an employee of the Company for potential employment, independent consulting or contingent worker opportunities; or (6) assisting or encouraging any employee of the Company to leave their current position in order to be an employee, independent consultant or contingent worker for a third party.
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Non-Competition . You agree that, for a twenty-four (24) month period following your termination (voluntary or involuntary) from the Company, you will not, for yourself or for any third party, directly or indirectly, in whole or in part, provide services, whether as an employee, employer, owner, operator, manager, advisor, consultant, agent, partner, director, stockholder, officer, volunteer, intern, or any other similar capacity, to any entity anywhere in the World engaged in a business that is competitive with the Company. Notwithstanding the prior sentence, you are not prohibited from providing services to a competing entity if: (1) the duties and services provided by you to the competitor are not, in whole or in part, substantially similar to the duties and services you provided to the Company; and (2) the duties and services provided by you to the competitor are not reasonably likely to cause you to reveal trade secrets, know-how, customer lists, customer contracts, customer needs, business strategies, marketing strategies, product development, proprietary information and confidential information concerning the business of the Company. Nothing in this grant agreement prohibits you from purchasing or owning less than five percent (5%) of the publicly traded securities of any corporation, provided that your ownership represents a passive investment and that you are not a controlling person of, or a member of a group that controls, the corporation.
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Non-Disparagement . You agree that you will not make disparaging remarks of any sort or otherwise communicate any disparaging comments to any other person or entity, about the Company and any of its divisions, subsidiaries, predecessors and successors, and any affiliated entities and persons, and all of their respective past and present employees, agents, insurers, officials, officers and directors. However, you shall not be held in breach of this provision if you disclose confidential information to a federal, state or local government official, either directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law.
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Effect of Breach . By accepting this award, you agree that in light of the award conferred to you under this grant agreement, the narrow and restrictive covenants imposed above are reasonable and will not result in any hardship to you. Further, you acknowledge and agree that a breach of any obligation under this grant agreement will result in irreparable injury to the Company and that such harm may not be compensable entirely with monetary damages. The Company reserves all rights to seek any and all remedies and damages permitted under law, including, but not limited to, injunctive relief, equitable relief and compensatory damages. In connection with any suit at law or in equity under this grant agreement, the Company shall be entitled to an accounting, and to the repayment of all profits, compensation, commissions, fees, or other remuneration which you or any other entity or person has either directly or indirectly realized on its behalf or on behalf of another and/or may realize, as a result of, growing out of, or in connection with the violation which is the subject of the suit. Further, in the event of your breach of the above sections, you shall disgorge the value of all payments and benefits conferred to you by virtue of this grant agreement, including, but not limited to, the cash or shares awarded. In addition to the foregoing, the Company shall be entitled to collect from you any reasonable attorney’s fees and costs occurred in brining any action against you or otherwise to enforce the terms of this grant agreement.



Executive Officer RSU Award

PENTAIR PLC 2012 STOCK AND INCENTIVE PLAN
GRANT AGREEMENT
RESTRICTED STOCK UNITS

[Name of Grantee]:

The Compensation Committee has awarded you the following grant under the Pentair plc 2012 Stock and Incentive Plan (the “Plan”).

Grant Information

Number of Restricted Stock Units Granted: ______________

Vesting Schedule: The units vest over the following schedule:

1/3 of the units on the first anniversary of the Date of Grant
1/3 of the units on the second anniversary of the Date of Grant
1/3 of the units on the third anniversary of the Date of Grant

This grant also includes Dividend Equivalent Units, which are described below.

Specific terms of this grant not specified above, such as the Date of Grant and any performance thresholds for vesting, are set forth in the cover letter that accompanies this grant agreement.

Terms and Conditions of this Grant

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The Restricted Stock Units become “vested” on the vesting dates noted above, provided any required performance goals have been satisfied. The Shares underlying the Restricted Stock Units will be issued upon vesting. In the event the vesting date falls on a weekend day or holiday, the Restricted Stock Units will vest and Shares will be issued on the next trading day.

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Only whole Shares will be issued; any fractional Share otherwise issuable under this award will be rounded up to the nearest whole Share.

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You may defer these Restricted Stock Units under the employer’s non-qualified deferred compensation plan. If you make a deferral election, then the Restricted Stock Units subject to that election will not be paid upon vesting, but will instead be paid pursuant to the terms of the non-qualified deferred compensation plan.

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Each Restricted Stock Unit includes one Dividend Equivalent Unit. A Dividend Equivalent Unit entitles you to a cash payment equal to the cash dividends declared on a Share of stock during the vesting period. Payment of the Dividend Equivalent Units will be made to you in cash as soon as practicable after the dividend payment date. Dividend Equivalent Units are not eligible for dividend reinvestment.

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If your employment with the Company terminates (voluntarily or involuntarily) before your Restricted Stock Units are 100% vested, then all nonvested Restricted Stock Units will be forfeited. Exceptions to this rule are made for certain types of terminations, including termination due to death, Disability, Retirement or a Covered Termination, in accordance with the terms of the Plan.

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If the Restricted Stock Units vest upon termination of employment, then the Shares underlying the Restricted Stock Units that vest will be issued promptly after your termination. If, however, you are a “specified employee” within the meaning of Code Section 409A at the time of your termination and if the Restricted Stock Units vest due to your Retirement, termination as a result of Disability or Covered Termination, then the issuance of the Shares for those vested Restricted Stock Units will be delayed for six months following your termination to the extent needed to comply with Code Section 409A.

•
The Restricted Stock Units will also vest upon a Change of Control provided you are still employed with the Company immediately prior to the Change of Control. The term “Change of Control” as applied to your Restricted Stock Units is modified to comply with Code Section 409A.

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You cannot vote Restricted Stock Units.

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You may not sell, assign, transfer, pledge as collateral or otherwise dispose of your Restricted Stock Units at any time during the vesting period.

Taxation of Award
•
The Fair Market Value of the Shares that are issued upon vesting of the Restricted Stock Units and the cash paid in respect of Dividend Equivalent Units generally will be considered taxable compensation, and may be subject to withholding taxes.

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If you are Retirement eligible while this award is in effect, or if you are eligible to retain this award on a termination that is not an involuntary termination within the meaning of Code Section 409A, then the value of your Restricted Stock Units that would be vested if you actually retired or terminated will be subject to Federal Insurance Contributions Act (“FICA”) taxes even if the award is not yet paid. Normally, such FICA taxes will be withheld at the end of the calendar year. A similar rule applies upon termination due to Disability if the issuance of the Shares is subject to the 6-month delay under Code Section 409A.

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If we or any of our affiliates is required to withhold any applicable withholding or similar taxes or other amounts in respect of any income recognized by you as a result of the grant, vesting, payment or settlement of the Restricted Stock Units or disposition of any Shares acquired under an Award, we may deduct cash (or require an affiliate to deduct cash) from any payments of any kind otherwise due to you, or, with the consent of the Committee, Shares otherwise deliverable or vesting, to satisfy such tax obligations. Alternatively, we may require you to pay to us or an affiliate, in cash, promptly on demand, or make other arrangements (including our redemption, repurchase or other reacquisition of Shares otherwise delivered or deliverable to you) satisfactory to us regarding the payment to us or an affiliate of the aggregate amount of any such taxes and other amounts.

•
For information about the methods of payment of your tax withholding obligations, please refer to the relevant materials provided by the plan administrator.

General

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The grant of this Plan award to you does not limit in any way the right of the Company to terminate your employment at any time for any reason, nor does it guarantee you will receive Plan awards in subsequent years.

•
The vesting of this award may be suspended or delayed as a result of a leave of absence.

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In addition to the terms and conditions contained in this grant agreement, this award is subject to the provisions of the Plan document and Prospectus as well as applicable rules and regulations issued under local tax and securities laws and New York Stock Exchange rules. Capitalized terms used in this grant agreement have the meanings given in the Plan.

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If the Compensation Committee of the Pentair plc Board of Directors (the “Committee”) determines that recoupment of incentive compensation paid to you pursuant to this grant agreement is required under any law or any recoupment policy of the Company, then your Restricted Stock Units will terminate immediately on the date of such determination to the extent required by such law or recoupment policy and the Committee may recoup any such incentive compensation in accordance with such recoupment policy or as required by law. The Company shall have the right to offset against any other amounts due from the Company to you the amount owed by you hereunder.

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The Committee may amend or modify the Plan at any time but generally such changes will apply to future Plan awards. The Committee may also amend or modify this award, but most changes will require your consent.

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As a condition to the grant of this award, you agree (with such agreement being binding upon your legal representatives, guardians, legatees or beneficiaries) that this agreement will be interpreted by the Committee and that any interpretation by the Committee of the terms of this agreement or the Plan, and any determination made by the Committee under this agreement or the Plan, will be final, binding and conclusive.

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For purposes of this agreement, the word “Company” means Pentair plc or any of its subsidiaries or any of their business units.

Confidentiality, Non-Competition, Non-Solicitation and Non-Disparagement
As a result of your intimate familiarity with proprietary and confidential information of the Company, this grant agreement is subject to the restrictions set forth below. Any violation of these sections will result in a rescission of the Award made under this grant agreement and a forfeiture of any rights you have with respect thereto.

•
Confidentiality . You agree that you will treat during employment and thereafter, as private and privileged, any information, data, figures, projections, estimates, marketing plans, customer lists, lists of contract workers, tax records, personnel records, accounting procedures, formulas, contracts, business partners, alliances, ventures and all other confidential information you acquire while working for the Company. You agree that you will not release any such information to any person, firm, corporation or other entity at any time, except as may be required by law, or as agreed to in writing by the Company. You acknowledge that any violation of this non-disclosure provision shall entitle the Company to appropriate injunctive relief and to any damages which it may sustain due to the improper disclosure. However, you shall not be held in breach of this provision if you disclose confidential information to a federal, state or local government official, either directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law.
•
Non-Solicitation . You agree that, for a twenty-four (24) month period following your termination (voluntary or involuntary) from the Company, you will not, for yourself or any third party, directly or indirectly, (i) solicit or accept competitive business from any customer of the Company, or (ii) solicit any employee of the Company for the purpose of hiring such person or otherwise entice, induce or encourage, directly or indirectly, any such employee to leave their employment.
You agree that engaging in any of the following activities will be a violation of the above paragraph: (1) soliciting for a hire or soliciting for retainer as an independent consultant or as contingent worker any employee of the Company; (2) participating in the recruitment of any employee of the Company; (3) serving as a reference for an employee of the Company; (4) offering an opinion regarding the candidacy as a potential employee, independent consultant or contingent worker of an individual employed by the Company; (5) assisting or encouraging any third party to pursue an employee of the Company for potential employment, independent consulting or contingent worker opportunities; or (6) assisting or encouraging any employee of the Company to leave their current position in order to be an employee, independent consultant or contingent worker for a third party.
•
Non-Competition . You agree that, for a twenty-four (24) month period following your termination (voluntary or involuntary) from the Company, you will not, for yourself or for any third party, directly or indirectly, in whole or in part, provide services, whether as an employee, employer, owner, operator, manager, advisor, consultant, agent, partner, director, stockholder, officer, volunteer, intern, or any other similar capacity, to any entity anywhere in the World engaged in a business that is competitive with the Company. Notwithstanding the prior sentence, you are not prohibited from providing services to a competing entity if: (1) the duties and services provided by you to the competitor are not, in whole or in part, substantially similar to the duties and services you provided to the Company; and (2) the duties and services provided by you to the competitor are not reasonably likely to cause you to reveal trade secrets, know-how, customer lists, customer contracts, customer needs, business strategies, marketing strategies, product development, proprietary information and confidential information concerning the business of the Company. Nothing in this grant agreement prohibits you from purchasing or owning less than five percent (5%) of the publicly traded securities of any corporation, provided that your ownership represents a passive investment and that you are not a controlling person of, or a member of a group that controls, the corporation.
•
Non-Disparagement . You agree that you will not make disparaging remarks of any sort or otherwise communicate any disparaging comments to any other person or entity, about the Company and any of its divisions, subsidiaries, predecessors and successors, and any affiliated entities and persons, and all of their respective past and present employees, agents, insurers, officials, officers and directors. However, you shall not be held in breach of this provision if you disclose confidential information to a federal, state or local government official, either directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law.
•
Effect of Breach . By accepting this award, you agree that in light of the award conferred to you under this grant agreement, the narrow and restrictive covenants imposed above are reasonable and will not result in any hardship to you. Further, you acknowledge and agree that a breach of any obligation under this grant agreement will result in irreparable injury to the Company and that such harm may not be compensable entirely with monetary damages. The Company reserves all rights to seek any and all remedies and damages permitted under law, including, but not limited to, injunctive relief, equitable relief and compensatory damages. In connection with any suit at law or in equity under this grant agreement, the Company shall be entitled to an accounting, and to the repayment of all profits, compensation, commissions, fees, or other remuneration which you or any other entity or person has either directly or indirectly realized on its behalf or on behalf of another and/or may realize, as a result of, growing out of, or in connection with the violation which is the subject of the suit. Further, in the event of your breach of the above sections, you shall disgorge the value of all payments and benefits conferred to you by virtue of this grant agreement, including, but not limited to, the cash or shares awarded. In addition to the foregoing, the Company shall be entitled to collect from you any reasonable attorney’s fees and costs occurred in brining any action against you or otherwise to enforce the terms of this grant agreement.




Executive Officer PSU Award


PENTAIR PLC 2012 STOCK AND INCENTIVE PLAN
GRANT AGREEMENT
PERFORMANCE SHARE UNITS

[Name of Grantee]:

The Compensation Committee has awarded you the following grant under the Pentair plc 2012 Stock and Incentive Plan (the “Plan”). Unless you decline this grant agreement within 90 days, you agree to be bound by all of the provisions contained in this grant agreement, including the terms in the grant notification provided to you by the plan administrator or by the Company, and the Plan.

Grant Information

Performance Share Units Granted: [Insert Target number]

Performance Period: January 1, _______ through December 31, _________

Specific terms of this grant not specified above are set forth in the grant notification provided to you.

Terms and Conditions of this Grant

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A Performance Share Unit entitles you to receive one share of Company stock following the end of the Performance Period, to the extent the Performance Goal(s) for this award are met during the Performance Period, provided you remain employed until the end of the Performance Period, except as provided below. Additional information about the Performance Goals for this award are described in the Appendix to this grant agreement or in supplemental communications. The Shares that are earned will be issued to you within 2½ months after the Performance Period has been completed, following the date the level of achievement of the Performance Goals has been determined. Only whole Shares will be issued; any fractional Share otherwise issuable under this award will be rounded up to the nearest whole Share.
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Each Performance Share Unit includes one Dividend Equivalent Unit. A Dividend Equivalent Unit entitles you to an additional Performance Share Unit, determined by dividing the cash dividend declared on a Share of stock prior to the date the shares are issued hereunder by the Fair Market Value of a Share on the date the dividend is paid, and then rounding down to the nearest whole share. The cash dividend amounts representing a fractional share will be accumulated and converted into one additional Performance Share Unit when the accumulated cash dividends equal the Fair Market Value of a share. These additional Performance Share Units will be subject to the same vesting and performance requirements, and will be issued at the same time, as the underlying Performance Share Units to which they relate.
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If your employment with the Company terminates (voluntarily or involuntarily) before the last day of the Performance Period, then all Performance Share Units will be forfeited, except as described below.
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If you are a Board-appointed officer either at the beginning of the Performance Period (or date of grant of this award, if later) or at the date of your termination, then the terms of the Plan apply to your Performance Share Units.
•
If you are not a Board-appointed officer (as described above), then:
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If your termination is due to death or Disability, then you (or your estate, following your death) will be issued Shares promptly following your termination date equal to the Performance Share Units you would earn if the target Performance Goals had been met; or
•
If your termination is due to Retirement or a Covered Termination, then you will be issued Shares promptly following your termination date equal to the Performance Share Units you would earn if the target Performance Goals had been met, but pro-rated based on the portion of the Performance Period during which you were employed.
•
You will be considered to have a “Covered Termination” if the Company or an Affiliate terminates your employment for a reason other than Cause, death or Disability. In addition, if you are a Board-appointed corporate officer, your termination of employment for “Good Reason” (as defined in the Plan) will also be considered a Covered Termination, but only if you execute a general release of claims (which may include non-disparagement, non-solicitation and confidentiality covenants) as requested by the Company.
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You cannot vote Performance Share Units.

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You may not sell, assign, transfer, pledge as collateral or otherwise dispose of your Performance Share Units at any time.

Taxation of Award

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The Fair Market Value of the Shares that are issued under this award generally will be considered taxable compensation, and may be subject to withholding taxes. Withholding for taxes will be governed by the Plan.

•
Please see the attached “Country Specific Terms and Conditions” for more information regarding the tax consequences of this award. For information about the methods of payment of your tax withholding obligations, please refer to the relevant materials provided by the plan administrator.

Confidentiality, Non-Competition, Non-Solicitation and Non-Disparagement
As a result of your intimate familiarity with proprietary and confidential information of the Company, this grant agreement is subject to the restrictions set forth below. Any violation of these sections will result in a rescission of the Award made under this grant agreement and a forfeiture of any rights you have with respect thereto.

•
Confidentiality . You agree that you will treat during employment and thereafter, as private and privileged, any information, data, figures, projections, estimates, marketing plans, customer lists, lists of contract workers, tax records, personnel records, accounting procedures, formulas, contracts, business partners, alliances, ventures and all other confidential information you acquire while working for the Company. You agree that you will not release any such information to any person, firm, corporation or other entity at any time, except as may be required by law, or as agreed to in writing by the Company. You acknowledge that any violation of this non-disclosure provision shall entitle the Company to appropriate injunctive relief and to any damages which it may sustain due to the improper disclosure. However, you shall not be held in breach of this provision if you disclose confidential information to a federal, state or local government official, either directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law.
•
Non-Solicitation . You agree that, for a twenty-four (24) month period following your termination (voluntary or involuntary) from the Company, you will not, for yourself or any third party, directly or indirectly, (i) solicit or accept competitive business from any customer of the Company, or (ii) solicit any employee of the Company for the purpose of hiring such person or otherwise entice, induce or encourage, directly or indirectly, any such employee to leave their employment.
You agree that engaging in any of the following activities will be a violation of the above paragraph: (1) soliciting for a hire or soliciting for retainer as an independent consultant or as contingent worker any employee of the Company; (2) participating in the recruitment of any employee of the Company; (3) serving as a reference for an employee of the Company; (4) offering an opinion regarding the candidacy as a potential employee, independent consultant or contingent worker of an individual employed by the Company; (5) assisting or encouraging any third party to pursue an employee of the Company for potential employment, independent consulting or contingent worker opportunities; or (6) assisting or encouraging any employee of the Company to leave their current position in order to be an employee, independent consultant or contingent worker for a third party.
•
Non-Competition . You agree that, for a twenty-four (24) month period following your termination (voluntary or involuntary) from the Company, you will not, for yourself or for any third party, directly or indirectly, in whole or in part, provide services, whether as an employee, employer, owner, operator, manager, advisor, consultant, agent, partner, director, stockholder, officer, volunteer, intern, or any other similar capacity, to any entity anywhere in the World engaged in a business that is competitive with the Company. Notwithstanding the prior sentence, you are not prohibited from providing services to a competing entity if: (1) the duties and services provided by you to the competitor are not, in whole or in part, substantially similar to the duties and services you provided to the Company; and (2) the duties and services provided by you to the competitor are not reasonably likely to cause you to reveal trade secrets, know-how, customer lists, customer contracts, customer needs, business strategies, marketing strategies, product development, proprietary information and confidential information concerning the business of the Company. Nothing in this grant agreement prohibits you from purchasing or owning less than five percent (5%) of the publicly traded securities of any corporation, provided that your ownership represents a passive investment and that you are not a controlling person of, or a member of a group that controls, the corporation.
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Non-Disparagement . You agree that you will not make disparaging remarks of any sort or otherwise communicate any disparaging comments to any other person or entity, about the Company and any of its divisions, subsidiaries, predecessors and successors, and any affiliated entities and persons, and all of their respective past and present employees, agents, insurers, officials, officers and directors. However, you shall not be held in breach of this provision if you disclose confidential information to a federal, state or local government official, either directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law.
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Effect of Breach . By accepting this award, you agree that in light of the award conferred to you under this grant agreement, the narrow and restrictive covenants imposed above are reasonable and will not result in any hardship to you. Further, you acknowledge and agree that a breach of any obligation under this grant agreement will result in irreparable injury to the Company and that such harm may not be compensable entirely with monetary damages. The Company reserves all rights to seek any and all remedies and damages permitted under law, including, but not limited to, injunctive relief, equitable relief and compensatory damages. In connection with any suit at law or in equity under this grant agreement, the Company shall be entitled to an accounting, and to the repayment of all profits, compensation, commissions, fees, or other remuneration which you or any other entity or person has either directly or indirectly realized on its behalf or on behalf of another and/or may realize, as a result of, growing out of, or in connection with the violation which is the subject of the suit. Further, in the event of your breach of the above sections, you shall disgorge the value of all payments and benefits conferred to you by virtue of this grant agreement, including, but not limited to, the cash or shares awarded. In addition to the foregoing, the Company shall be entitled to collect from you any reasonable attorney’s fees and costs occurred in brining any action against you or otherwise to enforce the terms of this grant agreement.
General

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The attached “Country Specific Terms and Conditions” contains additional provisions applicable to this award.

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The grant of this Plan award to you does not limit in any way the right of the Company to terminate your employment at any time for any reason, nor does it guarantee you will receive Plan awards in subsequent years.

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The vesting of this award may be suspended or delayed as a result of a leave of absence.

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In addition to the terms and conditions contained in this grant agreement, this award is subject to the provisions of the Plan document and Prospectus as well as applicable rules and regulations issued under local tax and securities laws and New York Stock Exchange rules.

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Capitalized terms used in this grant agreement have the meanings given in the Plan, except as modified in the “Country Specific Terms and Conditions.”

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If the Compensation Committee of the Pentair plc Board of Directors (the “Committee”) determines that recoupment of incentive compensation paid to you pursuant to this grant agreement is required under any law or any recoupment policy of the Company, then your Performance Share Units will terminate immediately on the date of such determination to the extent required by such law or recoupment policy and the Committee may recoup any such incentive compensation in accordance with such recoupment policy or as required by law. The Company shall have the right to offset against any other amounts due from the Company to you the amount owed by you hereunder.

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The Committee may amend or modify the Plan at any time but generally such changes will apply to future Plan awards. The Committee may also amend or modify this award, but most changes will require your consent.

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As a condition to the grant of this award, you agree (with such agreement being binding upon your legal representatives, guardians, legatees or beneficiaries) that this agreement will be interpreted by the Committee and that any interpretation by the Committee of the terms of this agreement or the Plan, and any determination made by the Committee under this agreement or the Plan, will be final, binding and conclusive.

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For purposes of this agreement, the word “Company” means Pentair plc or any of its subsidiaries or any of their business units.
Country Specific Terms and Conditions

United States of America

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Deferral Election . Certain grantees may be eligible to defer their Performance Share Units under the employer’s non-qualified deferred compensation plan. If such a grantee makes a deferral election, then the Performance Share Units subject to that election will not be paid following the end of the Performance Period, but will instead be paid pursuant to the terms of the non-qualified deferred compensation plan.
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Delay in Payment. If you are a “specified employee” within the meaning of Code Section 409A as of the date of your termination of employment due to Disability, Retirement or a Covered Termination, then, to the extent required by Code Section 409A, any payment due as a result of such termination will be delayed until the date that is six months after the date of such termination. In addition, if the payment of the Shares will be made in the following calendar year as a result of the six month delay, then the value of your Performance Share Units that vest upon such termination of employment will be subject to Federal Insurance Contributions Act (“FICA”) taxes at the end of the calendar year in which your termination of employment occurs.
Australia
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Shareholder Approval Requirement . To the extent you are an individual whose termination benefits are subject to Sections 200 to 200J of the Corporations Act 2001, the Performance Share Units are contingent upon the Company’s satisfaction of the shareholder approval requirements thereunder. These shareholder approval requirements are a legal formality, and the Company intends to satisfy them in full at the time your Performance Share Units are granted. As a technical matter, however, to the extent the Company is unable to satisfy such requirements, your Performance Share Units will be null and void, and you will not have any claims against the Company to receive any payment or other benefits in lieu of the Performance Share Units.
Mexico
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Commercial Relationship . You expressly recognize that participation in the Plan and Pentair plc’s grant of Performance Share Units to you does not constitute an employment relationship between you and Pentair plc. You have been granted Performance Share Units as a consequence of the commercial relationship between Pentair plc and Pentair plc’s Affiliate in Mexico that employs you, and Pentair plc’s Affiliate in Mexico is your sole employer. Based on the foregoing, (a) you expressly recognize the Plan and the benefits derived from participation in the Plan will not establish any rights between you and Pentair plc’s Affiliate in Mexico that employs you, (b) the Plan and the benefits you may derive from participation in the Plan are not part of the employment conditions and/or benefits provided by Pentair plc’s Affiliate in Mexico that employs you, and (c) any modifications or amendments of the Plan by Pentair plc, or a termination of the Plan by Pentair plc, shall not constitute a change or impairment of the terms and conditions of your employment with Pentair plc’s Affiliate in Mexico that employs you.
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Extraordinary Item of Compensation . You expressly recognize and acknowledge that participation in the Plan is a result of the discretionary and unilateral decision of Pentair plc, as well as your free and voluntary decision to participate in the Plan in accordance with the terms and conditions of the Plan and this agreement. As such, you acknowledge and agree that Pentair plc may, in its sole discretion, amend and/or discontinue your participation in the Plan at any time and without any liability. The value of the Performance Share Units is an extraordinary item of compensation outside the scope of your employment contract, if any. The Performance Share Units are not part of your regular or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits, or any similar payments, which are the exclusive obligations of Pentair plc’s Affiliate in Mexico that employs you.
Singapore
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Qualifying Person Exemption . The grant of Performance Share Units under the Plan is being made pursuant to the “Qualifying Person” exemption under section 273(1)(f) of the Securities and Futures Act (Chapter 289, 2006 Ed.) (“SFA”). The Plan has not been lodged or registered as a prospectus with the Monetary Authority of Singapore.
Spain
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Termination for Cause . Notwithstanding anything to the contrary in the Plan or this agreement, “Cause” shall be defined in the Plan, irrespective of whether the termination is or is not considered a fair termination (i.e., “despido procedente”) under Spanish legislation.
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Labor Acknowledgement .
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In accepting the award, you consent to participation in the Plan and acknowledge that you have received a copy of the Plan (or a copy of the Plan has otherwise been made available to you). You understand that Pentair plc has unilaterally, gratuitously and discretionally decided to grant Performance Share Units under the Plan to individuals who may be employees of Pentair plc or its Affiliates throughout the world. The decision is a limited decision that is entered into upon the express assumption and condition that any grant will not economically or otherwise bind Pentair plc or any of its Affiliates. Consequently, you understand that the Performance Share Units are granted on the assumption and condition that the Performance Share Units and any amount received upon vesting of the Performance Share Units is not part of any employment contract (either with Pentair plc or any Affiliate) and shall not be considered a mandatory benefit, salary for any purposes (including severance compensation) or any other right whatsoever. In addition, you understand that the Performance Share Units would not be granted to you but for the assumptions and conditions referred to herein. Thus, you acknowledge and freely accept that should any or all of the assumptions be mistaken or should any of the conditions not be met for any reason, the grant of Performance Share Units as provided in this agreement shall be null and void.
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Further, the Performance Share Units are a conditional right and can be forfeited in the case of, or affected by, your termination of employment. This will be the case, for example, even if (a) you are considered to be unfairly terminated without good cause; (b) you are terminated for disciplinary or objective reasons or due to a collective dismissal; (c) you terminate employment due to a change of work location, duties or any other employment or contractual condition; or (d) you terminate employment due to unilateral breach of contract of Pentair plc or any of its Affiliates. Consequently, upon termination of employment for any of the reasons set forth above, you may automatically lose any rights to the unvested Performance Share Units granted as of the date of your termination of employment, as described in the Plan and this agreement, and you acknowledge and agree that the terms of the Plan and this agreement shall govern in such circumstances.
United Kingdom
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Income Tax and National Insurance Contribution Withholding . The following provision supplements the “Tax-Related Items” provision below: If payment or withholding of the income tax due in connection with the Performance Share Units is not made within ninety (90) days of the event giving rise to the income tax liability or such other period specified in Section 222(1)(c) of the U.K. Income Tax (Earnings and Pensions) Act 2003 (the “Due Date”), the amount of any uncollected income tax shall constitute a loan owed by you to the Pentair plc Affiliate that employs you, effective as of the Due Date. You agree that the loan will bear interest at the then-current official rate of Her Majesty’s Revenue & Customs (“HMRC”), it shall be immediately due and repayable, and the Company may recover it at any time thereafter by any of the means referred to in the “Tax-Related Items” provision below. Notwithstanding the foregoing, if you are a director or executive officer of Pentair plc (within the meaning of Section 13(k) of the U.S. Securities and Exchange Act of 1934, as amended), you will not be eligible for a loan from the Company to cover the income tax liability. In the event that you are a director or executive officer and the income tax is not collected from or paid by you by the Due Date, the amount of any uncollected income tax will constitute a benefit to you on which additional income tax and national insurance contributions (“NICs”) will be payable. You will be responsible for reporting any income tax and for reimbursing the Company the value of any employee NICs due on this additional benefit.
All Countries Other than the United States of America
Tax-Related Items .

1.
You acknowledge that, regardless of any action Pentair plc or your employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related items related to the grant or your participation in the Plan (“Tax-Related Items”), the ultimate liability for all Tax-Related Items is and remains your responsibility and may exceed the amount actually withheld by the Company or the Employer.
2.
You acknowledge that the Company and/or the Employer (a) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the grant, including, but not limited to, the vesting, settlement or payment of the Performance Share Units; and (b) does not commit to and is under no obligation to structure the terms of the grant or any aspect of the grant to reduce or eliminate your liability for Tax-Related Items or achieve any particular tax result.
3.
If you have become subject to tax in more than one jurisdiction between the date of the grant and the date of any relevant taxable event, you acknowledge that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
4.
Prior to any relevant taxable or tax withholding event, as applicable, you will pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, subject to the Company’s authorization, you agree that the Company and/or the Employer, or their respective agents, at their discretion, may satisfy the obligations with regard to all Tax-Related Items by deducting (or requiring an Affiliate to deduct) from any payments of any kind otherwise due to you cash or Shares.
5.
To avoid negative accounting treatment, the Company or the Employer may withhold or account for Tax-Related Items (including withholding pursuant to applicable tax equalization policies of the Company or its affiliates) by considering applicable statutory withholding amounts or other applicable withholding rates.
6.
You will pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of your participation in the Plan that cannot be satisfied by the means described above. You will abide by any disclosure laws that govern the earning or issuance of Performance Share Units granted to you, as well as the transfer or repatriation of cash proceeds received with respect to the grant.
7.
Except as otherwise set forth above, the tax withholding with respect to the grant shall be governed by the terms of the Plan.

One-Time Grant; No Service Contract .

1.
Nothing contained in the Plan or the grant will affect the right of the Company or the Employer to terminate your employment or service (as otherwise may be permitted under local law). The adoption and maintenance of the Plan does not constitute an inducement to, or condition of, your employment or service. The Plan is a discretionary plan that may be amended or terminated by Pentair plc, in its sole discretion, at any time, and your participation is voluntary. Furthermore, the amount of any payments under the grant and the future value of the Shares is unknown and cannot be predicted with certainty. You understand that the grant of Plan awards to you does not entitle you to benefits in lieu of Performance Share Units in the future, even if such awards have been granted repeatedly in the past. The grant is not intended to replace your pension rights or compensation.

2.
Any payment or benefit paid to you with respect to the grant is an extraordinary item of compensation and will not be considered to be part of your normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company, the Employer or any Affiliate.

3.
In consideration of the grant, no claim or entitlement to compensation or damages shall arise from forfeiture of the grant resulting from termination of your employment by the Company or the Employer (for any reason whatsoever and whether or not in breach of local labor laws) and you irrevocably release the Company and the Employer from any such claim that may arise. If, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by accepting the grant, you shall have been deemed irrevocably to have waived your entitlement to pursue such claim.

4.
In the event of involuntary termination of your employment (whether or not in breach of local labor laws), your right to receive grants of awards under the Plan, if any, will terminate effective as of the date that you are no longer actively employed and will not be extended by any notice period mandated under local law (e.g., active employment would not include a period of “garden leave” or similar period pursuant to local law).

Data Privacy .

1.
You hereby explicitly unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in the grant agreement, the Plan, the Prospectus and related information by and among, as applicable, the Employer, and the Company and its Affiliates for the exclusive purpose of implementing, administering and managing your participation in the Plan.

2.
You understand that the Company, the Employer, and any Affiliate may hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares or directorships held in the Company or an Affiliate and details of all incentive awards or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in your favor (“Data”), for the purpose of implementing, administering and managing the Plan.

3.
You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than your country.

4.
You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative.

5.
You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan.

6.
You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan.

7.
You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents in this grant agreement, in any case without cost, by contacting in writing your local human resources representative. You understand, however, that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you should contact your local human resources representative.

Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. You consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company. You also agree that all on-line acknowledgements shall have the same force and effect as a written signature.

Other Requirements . You acknowledge that the Company reserves the right to impose other requirements on your participation in the Plan, the grant and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

Forum Selection .

1.
Any party bringing a legal action or proceeding against any other party arising out of or relating to this grant shall bring the legal action or proceeding in the United States District Court for the District of Minnesota or any of the courts of the State of Minnesota, U.S.A.

2.
You waive, and the Company waives, to the fullest extent permitted by law, (a) any objection which you or the Company may now or later have to the laying of venue of any legal action or proceeding arising out of or relating to this grant brought in any court of the State of Minnesota, U.S.A., or the United States District Court for the District of Minnesota, including, without limitation, a motion to dismiss on the grounds of forum non conveniens or lack of subject matter jurisdiction; and (b) any claim that any action or proceeding brought in any such court has been brought in an inconvenient forum.

3.
You submit, and the Company submits, to the exclusive jurisdiction (both personal and subject matter) of (a) the United States District Court for the District of Minnesota and its appellate courts, and (b) any court of the State of Minnesota, U.S.A., and its appellate courts, for the purposes of all legal actions and proceedings arising out of or relating to this grant.

No Regulatory Approval . You acknowledge that this grant agreement has not been reviewed or approved by any regulatory authority.
Language Consent . By accepting this grant, you confirm that you have read and understood this grant agreement, the Plan, the Prospectus and related information provided to you, all of which were provided in the English language, and you accept the terms of those documents accordingly.

 





Exhibit 21

Pentair plc and subsidiaries as of December 31, 2016
Name of Company
 
Jurisdiction of Incorporation
Alberta Electronic Company Limited
 
Hong Kong
Alliance Integrated Systems, Inc.
 
United States
Aplex Industries, Inc.
 
United States
Biffi Italia S.r.l.
 
Italy
Century Mfg. Co.
 
United States
Chansuba Pumps Private Limited (1)
 
India
Chemat GmbH Armaturen fur Industrie - und Nuklearanlage
 
Germany
Combinatie Nijuis-Ippel V.o.f. (2)
 
Netherlands
Conception et Representation de Technologie de Controle C.R.T. Controle
 
France
Crosby Valve, LLC
 
United States
Davies Pumps & Co Limited
 
New Zealand
Edward Barber & Company Limited
 
United Kingdom
Edward Barber (U.K.) Limited
 
United Kingdom
Electronic Enclosures, LLC
 
United States
Emirates Techno Casting FZE
 
United Arab Emirates
Emirates Techno Casting Holdings Limited (3)
 
United Arab Emirates
Emirates Techno Casting LLC
 
United Arab Emirates
Epps, Ltd.
 
Mauritius
Erichs Armatur AB (2)
 
Sweden
ERICO B.V.
 
Netherlands
ERICO Canada Inc.
 
Canada
ERICO Chile Comercial e Industrial Ltda.
 
Chile
ERICO del Pacifico Comercial e Idustrial Limitada
 
Chile
ERICO do Brasil Comércio de Indústria Ltda.
 
Brazil
ERICO Europa (G.B.) Limited
 
United Kingdom
ERICO Europe B.V.
 
Netherlands
ERICO Europe Holding B.V.
 
Netherlands
ERICO France Sarl
 
France
ERICO Global Company
 
United States
ERICO GmbH
 
Germany
ERICO International Corporation
 
United States
ERICO Italia S.r.l.
 
Italy
ERICO Lightning Technologies (Pty) Ltd.
 
Australia
ERICO Limited
 
Hong Kong
ERICO Ltd.
 
China
ERICO México, S.A. de C.V.
 
Mexico
ERICO Pacific Ltd.
 
Taiwan
ERICO Poland SP. z.o.o
 
Poland
ERICO Products Australia (Pty) Ltd.
 
Australia
ERICO US Holding LLC
 
United States
ETC International Holdings, Ltd.
 
Virgin Islands, British
ETE Coliban Pty Limited
 
Australia
EuroPentair GmbH
 
Germany
Everpure Japan K.K.
 
Japan
FARADYNE Motors (Suzhou) Co., Ltd (2)
 
China
Faradyne Motors LLC (2)
 
United States
FC QSF, LLC
 
United States
FilterSoft, LLC
 
United States
Fleck Controls, Inc.
 
United States




Flow Control Holding GmbH & Co. KG
 
Germany
Flow Control Holding Verwaltungs GmbH
 
Germany
Flow Control Technologies S.A. (4)
 
France
Flow Control US Holding Corporation
 
United States
Generale de Robinetterie Industrielle et de Systemes de Surete (GRISS) S.A. (4)
 
France
Goyen Controls Co Pty Ltd.
 
Australia
Goyen Controls Co UK Limited
 
United Kingdom
Goyen Valve LLC
 
United States
Great American Aquaculture, LLC
 
United States
Greenspan Environmental Technology Pty Ltd.
 
Australia
Greenspan Singapore Private Limited
 
Singapore
Greenspan Technology Pty Ltd.
 
Australia
Gulf Valve FZE
 
United Arab Emirates
Haffmans B.V.
 
Netherlands
Haffmans North America, Inc.
 
United States
Hawley Group Canada Limited
 
Canada
Hindle Cockburns Limited
 
United Kingdom
Hiter Industria e Comercio de Controles Termo-Hidraulicos Ltda.
 
Brazil
Hoffman Enclosures (Mex.), LLC
 
United States
Hoffman Enclosures Inc.
 
United States
Hoffman Enclosures Mexico, S. de R.L. de C.V.
 
Mexico
Hoffman Schroff PTE Ltd
 
Singapore
Holding Nijhuis Pompen B.V.
 
Netherlands
Hypro EU Limited
 
United Kingdom
Infinite Water Solutions Private Limited (2)
 
India
Ingenieuer-und Reparatur-Transfer GmbH (5)
 
Germany
J.R. Clarkson Company LLC, The
 
United States
JCF Fluid Flow India Private Limited (6)
 
India
Jung Pumpen GmbH
 
Germany
Keystone Asia Pacific (Pty) Ltd.
 
Australia
Keystone Canada Co.
 
Canada
Keystone Germany Holdings Corp.
 
United States
Keystone Valve (Korea) LLC
 
Korea, Republic of
Keystone Valve (U.K.) Ltd.
 
United Kingdom
Limited Liability Company Pentair Rus
 
Russian Federation
Lincoln Automotive Company
 
United States
McNeil (Ohio) Corporation
 
United States
Mecafrance (Deutschland) GmbH
 
Germany
MECAIR S.r.l.
 
Italy
Milperra Developments (Pty) Ltd.
 
Australia
Moraine Properties, LLC
 
United States
Nano Terra, Inc. (7)
 
United States
Neotecha AG
 
Switzerland
Nijhuis International B.V.
 
Netherlands
Nijhuis Pompen B.V.
 
Netherlands
Nijhuis Pompen BVBA
 
Belgium
Nijhuis Pompen Exploitatiemaatschappij B.V.
 
Netherlands
Nijhuis Pompen GmbH
 
Germany
Optima Enclosures Limited
 
United Kingdom
Panthro Acquisition Co.
 
United States
Pentair (NZ) Limited
 
New Zealand
Pentair Actuation & Controls, LLC
 
United States
Pentair Aquatic Eco-Systems (Canada), Inc.
 
Canada




Pentair Aquatic Eco-Systems, Inc.
 
United States
Pentair Asia PTE Ltd.
 
Singapore
Pentair Australia Holdings Pty Limited
 
Australia
Pentair Bermuda Holdings
 
Bermuda
Pentair Bermuda, LLC
 
United States
Pentair Beteiligungs GmbH
 
Germany
Pentair Brazil Holding S.à r.l.
 
Luxembourg
Pentair Canada, Inc.
 
Canada
Pentair Chile SpA
 
Chile
Pentair Clean Process Technologies India Private Limited
 
India
Pentair DMP Corp.
 
United States
Pentair Electronic Packaging de Mexico, S. de R.L. de C.V.
 
Mexico
Pentair Electronics & Electrical Protection China Co., Ltd.
 
China
Pentair Enclosures Inc.
 
United States
Pentair Enclosures S. de R.L. de C.V.
 
Mexico
Pentair Engineered Products (UK) Ltd
 
United Kingdom
Pentair Environmental Systems Ltd
 
United Kingdom
Pentair Epsilon Limited
 
Bermuda
Pentair European Security Holdings SA
 
France
Pentair European Steel Strip Limited
 
United Kingdom
Pentair Federal Pump, LLC
 
United States
Pentair Filtration Solutions, LLC
 
United States
Pentair Finance Group GmbH
 
Switzerland
Pentair Finance Holding GmbH
 
Switzerland
Pentair Finance S.A.
 
Luxembourg
Pentair Flow Control (Beijing) Co., Ltd.
 
China
Pentair Flow Control (Shanghai) Co., Ltd.
 
China
Pentair Flow Control AG
 
Switzerland
Pentair Flow Control Chile Holding LLC
 
United States
Pentair Flow Control Company LLC
 
United States
Pentair Flow Control Holding NL B.V.
 
Netherlands
Pentair Flow Control Holdings Ltd
 
Isle of Man
Pentair Flow Control International Holdings A, LLC
 
United States
Pentair Flow Control International Holdings B, LLC
 
United States
Pentair Flow Control International Holdings C, LLC
 
United States
Pentair Flow Control International Holdings D, LLC
 
United States
Pentair Flow Control International (Pty) Ltd.
 
Australia
Pentair Flow Control Italia S.r.l.
 
Italy
Pentair Flow Control Middle East FZE
 
United Arab Emirates
Pentair Flow Control Pacific (Pty) Ltd.
 
Australia
Pentair Flow FZE
 
United Arab Emirates
Pentair Flow Services AG
 
Switzerland
Pentair Flow Technologies de Mexico S. de R.L. de C.V.
 
Mexico
Pentair Flow Technologies, LLC
 
United States
Pentair France SARL
 
France
Pentair Germany GmbH
 
Germany
Pentair Global Holdings B.V.
 
Netherlands
Pentair Global S.à r.l.
 
Luxembourg
Pentair Gulf Holding Limited
 
United Arab Emirates
Pentair Hidro Filtros do Brasil Indústria e Comércio de Filtros Ltda.
 
Brazil
Pentair Holding III (Denmark) ApS
 
Denmark
Pentair Holdings C.V.
 
Netherlands
Pentair Holdings S.à r.l.
 
Luxembourg




Pentair Holdings, Inc.
 
United States
Pentair Housing, Inc.
 
United States
Pentair Housing, LP
 
United States
Pentair Iceland Holdings Ehf.
 
Iceland
Pentair International (UK) Ltd.
 
United Kingdom
Pentair International Armaturen Holding GmbH
 
Germany
Pentair International Holding S.à.r.l.
 
Luxembourg
Pentair International PLT Deutschland GmbH
 
Germany
Pentair International PLT Klartechnik GmbH
 
Germany
Pentair International PLT Umwelttechnik GmbH
 
Germany
Pentair International S.à r.l.
 
Switzerland
Pentair Investments Switzerland GmbH
 
Switzerland
Pentair Ireland Limited
 
Ireland
Pentair Janus Holding LLC
 
United States
Pentair Janus Holdings
 
Bermuda
Pentair Kenya Limited
 
Kenya
Pentair Lionel Acquisition Co.
 
United States
Pentair Luxembourg S.à r.l.
 
Luxembourg
Pentair Management Company
 
United States
Pentair Manufacturing Belgium BVBA
 
Belgium
Pentair Manufacturing France S.A.S.
 
France
Pentair Manufacturing Italy, S.r.l.
 
Italy
Pentair Manufacturing UK Limited
 
United Kingdom
Pentair Middle East FZE
 
United Arab Emirates
Pentair Middle East Holdings, LLC
 
United States
Pentair Nanosoft Bermuda Holdings
 
Bermuda
Pentair Nanosoft US Holdings, LLC
 
United States
Pentair Netherlands Holding B.V.
 
Netherlands
Pentair Pacific Rim (Water) Limited (8)
 
Hong Kong
Pentair Pacific Rim Limited (8)
 
Hong Kong
Pentair Pipe Systems Pte. Ltd.
 
Singapore
Pentair Poland Sp. z.o.o.
 
Poland
Pentair Project Services Canada, Inc.
 
Canada
Pentair Residential Filtration, LLC
 
United States
Pentair Sales Australia (Pty) Ltd.
 
Australia
Pentair Sales Holding, LLC
 
United States
Pentair Sales Ireland Limited
 
Ireland
Pentair Sales UK Limited
 
United Kingdom
Pentair Sales US, LLC
 
United States
Pentair Sanmar Limited (9)
 
India
Pentair Services France S.A.S.
 
France
Pentair Services Holding GmbH
 
Switzerland
Pentair Shenzhen Enclosure Company, Ltd.
 
China
Pentair SSC Australia (Pty) Ltd.
 
Australia
Pentair SSC UK Limited
 
United Kingdom
Pentair SSC US Co.
 
United States
Pentair Steinhauer GmbH
 
Germany
Pentair Sudmo GmbH
 
Germany
Pentair Tamimi LLC (10)
 
Saudi Arabia
Pentair Taunus Eletrometalurgica Ltda
 
Brazil
Pentair Technical Products Holdings, Inc.
 
United States
Pentair Technical Products India Private Limited
 
India
Pentair Technical Products S.à r.l.
 
Luxembourg




Pentair Technical Products Service Co.
 
United States
Pentair Technical Products, Inc.
 
United States
Pentair Technical Products, S. de R.L. de C.V.
 
Mexico
Pentair Technical Services L.L.C. (5)
 
United Arab Emirates
Pentair Technical Solutions Europe Gmbh
 
Switzerland
Pentair Technical Solutions GmbH
 
Germany
Pentair Technical Solutions Japan Co., Ltd.
 
Japan
Pentair Technical Solutions Nordic AB
 
Sweden
Pentair Technical Solutions S.r.l.
 
Italy
Pentair Technical Solutions S.A.S
 
France
Pentair Technical Solutions Shanghai Co., Ltd.
 
China
Pentair Technical Solutions UK Limited
 
United Kingdom
Pentair Teknoloji Sistemleri Ticaret Limited Sirketi
 
Turkey
Pentair Thermal (Shanghai) Co., Ltd.
 
China
Pentair Thermal (Shanghai) Engineering Co., Ltd.
 
China
Pentair Thermal Management Belgium NV
 
Belgium
Pentair Thermal Management Canada Ltd.
 
Canada
Pentair Thermal Management Czech, s.ro.
 
Czech Republic
Pentair Thermal Management France S.A.S
 
France
Pentair Thermal Management Germany GmbH
 
Germany
Pentair Thermal Management Holdings B LLC
 
United States
Pentair Thermal Management Holdings Germany GmbH
 
Germany
Pentair Thermal Management Holdings LLC
 
United States
Pentair Thermal Management India Private Limited
 
India
Pentair Thermal Management Korea Ltd.
 
Korea, Republic of
Pentair Thermal Management KZ LLP
 
Kazakhstan
Pentair Thermal Management LLC
 
United States
Pentair Thermal Management Netherlands B.V.
 
Netherlands
Pentair Thermal Management Norway AS
 
Norway
Pentair Thermal Management Polska Sp. z.o.o.
 
Poland
Pentair Thermal Management Romania SRL
 
Romania
Pentair Trading (Shanghai) Co., Ltd.
 
China
Pentair Transport, Inc.
 
United States
Pentair Tubing Limited
 
United Kingdom
Pentair UK Group Limited
 
United Kingdom
Pentair UK Holdings Limited
 
United Kingdom
Pentair Valves & Controls (Sichuan) Co., Ltd.
 
China
Pentair Valves & Controls (Taiwan) Ltd.
 
Taiwan
Pentair Valves & Controls (Thailand) Ltd.
 
Thailand
Pentair Valves & Controls Africa (Pty) Ltd.
 
South Africa
Pentair Valves & Controls Argentina S.A.
 
Argentina
Pentair Valves & Controls Brasil Ltda.
 
Brazil
Pentair Valves & Controls Canada Inc.
 
Canada
Pentair Valves & Controls Chile S.A.
 
Chile
Pentair Valves & Controls Czech s.r.o.
 
Czech Republic
Pentair Valves & Controls de Mexico, S.A. de C.V.
 
Mexico
Pentair Valves & Controls del Uruguay S.A.
 
Uruguay
Pentair Valves & Controls Denmark A/S
 
Denmark
Pentair Valves & Controls France S.C.A. (11)
 
France
Pentair Valves & Controls Germany GmbH
 
Germany
Pentair Valves & Controls Hong Kong Limited
 
Hong Kong
Pentair Valves & Controls Hungary Ltd.
 
Hungary
Pentair Valves & Controls Italia S.r.l.
 
Italy
Pentair Valves & Controls Japan Co., Ltd.
 
Japan




Pentair Valves & Controls Malaysia Sdn. Bhd.
 
Malaysia
Pentair Valves & Controls Netherlands B.V.
 
Netherlands
Pentair Valves & Controls Peru S.A.
 
Peru
Pentair Valves & Controls Polska Sp. z.o.o.
 
Poland
Pentair Valves & Controls Singapore Pte Ltd.
 
Singapore
Pentair Valves & Controls South Africa (Pty) Ltd.
 
South Africa
Pentair Valves & Controls US LP
 
United States
Pentair Valves & Controls, LLC
 
United States
Pentair Valves and Controls India Private Limited (11)
 
India
Pentair Valves and Controls U.A.E., Inc. (5)
 
United States
Pentair Valves Limited
 
United Kingdom
Pentair Valvulas & Controles VZ, C.A.
 
Venezuela, Bolivarian Republic of
Pentair Verwaltungs GmbH and Co. KG
 
Germany
Pentair Water (Suzhou) Co. Ltd.
 
China
Pentair Water Asia Pacific Pte. Ltd.
 
Singapore
Pentair Water Australia (Pty) Ltd
 
Australia
Pentair Water Belgium BVBA
 
Belgium
Pentair Water Brazil LLC
 
United States
Pentair Water Corp.
 
United States
Pentair Water do Brasil Ltda.
 
Brazil
Pentair Water France S.A.S
 
France
Pentair Water Group, Inc.
 
United States
Pentair Water Holdings (Pty) Ltd.
 
Australia
Pentair Water Holdings, LLC
 
United States
Pentair Water India Private Limited
 
India
Pentair Water Italy s.r.l.
 
Italy
Pentair Water Latinamérica S.A.
 
Argentina
Pentair Water New Zealand Limited
 
New Zealand
Pentair Water Operations Australia (Pty) Ltd.
 
Australia
Pentair Water Polska Sp. z.o.o
 
Poland
Pentair Water Pool and Spa, Inc.
 
United States
Pentair Water Proces Technologie Holding B.V.
 
Netherlands
Pentair Water Process Technology B.V.
 
Netherlands
Pentair Water Purification Systems (Shanghai) Co. Ltd.
 
China
Pentair Water South Africa (Pty) Ltd.
 
South Africa
Pentair Water Spain, S.L.
 
Spain
Pentair Water Treatment (OH) Company
 
United States
Pentair Water Treatment Company
 
United States
Pentair Water Treatment Private Limited
 
India
Pentair Water, LLC
 
United States
Pentair Water-Mexico, S. de R.L. de C.V.
 
Mexico
Pentair Waterworks (Pty) Ltd.
 
South Africa
Pentair, Inc.
 
United States
Penwald Insurance Company
 
United States
Peocon Ehf.
 
Iceland
PFAM, Inc.
 
United States
Plymouth Products, Inc.
 
United States
PNR Technical Solutions Finland Oy
 
Finland
Porter-Cable de Mexico S.A. de C.V.
 
Mexico
Productos ERICO S.A.
 
Spain
PT Pentair Indonesia (12)
 
Indonesia
PTG Accessories Corp.
 
United States
Purification Valley C.V.  (8)
 
Netherlands




Raychem HTS Limited
 
United Kingdom
SABO-Armaturen Service GmbH
 
Germany
Safety Systems UK Pte. Ltd.
 
Singapore
Sakhi-Raimondi Valves (India) Pvt Ltd. (11)
 
India
Schroff Co. Ltd. Taiwan
 
Taiwan
Schroff S.r.l.
 
Italy
Schroff UK Limited
 
United Kingdom
Seghers-Applied (Pty) Ltd.
 
Australia
Sempell GmbH
 
Germany
Seneca Enterprises Co.
 
United States
Spensall Engineering Limited
 
United Kingdom
Sta-Rite de Mexico, S.A. de C.V.
 
Mexico
Sta-Rite de Puerto Rico, Inc.
 
Puerto Rico
Sta-Rite Industries, LLC
 
United States
Steel Support Systems Limited
 
United Kingdom
Südmo (UK) Ltd.
 
United Kingdom
Taiwan Valve Co., Ltd.
 
Taiwan
Tracer Construction LLC
 
United States
Tracer Industries Canada Limited
 
Canada
Tracer Industries Management LLC
 
United States
Tracer Industries, Inc.
 
United States
Tupelo Real Estate, LLC
 
United States
TV&C GP Holding, LLC
 
United States
Urban Organics Pentair Group, LLC (13)
 
United States
Urban Organics Schmidt Real Estate Group, LLC
 
United States
Urban Organics St. Paul, LLC
 
United States
Vaki A/S
 
Iceland
Vaki Aquaculture Systems Ehf.
 
Iceland
Vaki Chile Ltda
 
Chile
Vaki Scotland Ltd.
 
United Kingdom
Voltea Ltd. (14)
 
United Kingdom
Webster Electric Company, LLC
 
United States
Westlock Controls Corporation
 
United States
Westlock Controls Holdings, Inc.
 
United States
Westlock Controls Limited
 
United Kingdom
Westlock Equipamentos de Controle Ltda.
 
Brazil
WICOR Industries Australia (Pty) Ltd.
 
Australia
X-Flow B.V.
 
Netherlands
Yabaida Electronics (Shenzhen) Company Limited
 
China
(1)  
47% owned
(2)  
50% owned
(3)  
1% owned
(4)  
99.94% owned
(5)  
49% owned
(6)  
99.34% owned
(7)  
4.81% owned
(8)  
99% owned
(9)  
40% owned
(10)  
70% owned
(11)  
99.99% owned
(12)  
99.66% owned
(13)  
69.87% owned
(14)  
10% owned









Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-184150, 333-184151 and 333-184152 on Form S-8 and Registration Statement Nos. 333-204066 and 333-209769 on Form S-3 of our reports dated February 21, 2017 , relating to the consolidated financial statements and consolidated financial statement schedule of Pentair plc and subsidiaries, and the effectiveness of Pentair plc and subsidiaries' internal control over financial reporting, appearing in this Annual Report on Form 10-K of Pentair plc and subsidiaries for the year ended December 31, 2016 .
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 21, 2017





Exhibit 24

Power of Attorney

KNOW ALL MEN BY THESE PRESENTS that the undersigned directors of Pentair plc, an entity organized under the laws of Ireland, hereby constitute and appoint John L. Stauch and Angela D. Lageson, or either of them, his/her attorney-in-fact and agent, with full power of substitution, for the purpose of signing on his/her behalf as a director of Pentair plc the Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission within the next sixty days, and to file the same, with all exhibits thereto and other supporting documents, with the Commission, granting unto such attorney-in-fact, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.

Date: February 21, 2017
 
Signature
  
Title
 
 
/s/ Glynis A. Bryan
  
Director
Glynis A. Bryan
  
 
 
 
/s/ Jerry W. Burris
  
Director
Jerry W. Burris
  
 
 
 
/s/ Carol A. Davidson
  
Director
Carol A. Davidson
  
 
 
 
 
/s/ Jacques Esculier
  
Director
Jacques Esculier
  
 
 
 
 
/s/ Edward P. Garden
  
Director
Edward P. Garden
  
 
 
 
/s/ T. Michael Glenn
  
Director
T. Michael Glenn
  
 
 
 
/s/ David H. Y. Ho
  
Director
David H. Y. Ho
  
 
 
 
/s/ David A. Jones
  
Director
David A. Jones
  
 
 
 
/s/ Ronald L. Merriman
  
Director
Ronald L. Merriman
  
 
 
 
/s/ William T. Monahan
  
Director
William T. Monahan
  
 
 
 
/s/ Billie I. Williamson
  
Director
Billie I. Williamson
  
 






Exhibit 31.1

Certification

I, Randall J. Hogan, certify that:

1.
I have reviewed this annual report on Form 10-K of Pentair plc;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:
February 21, 2017
/s/ Randall J. Hogan
 
 
Randall J. Hogan
 
 
Chairman and Chief Executive Officer





Exhibit 31.2

Certification

I, John L. Stauch, certify that:

1.
I have reviewed this annual report on Form 10-K of Pentair plc;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:
February 21, 2017
/s/ John L. Stauch
 
 
John L. Stauch
 
 
Executive Vice President and Chief Financial Officer





Exhibit 32.1

Certification of CEO Pursuant To
18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 Of The Sarbanes-Oxley Act Of 2002

In connection with the Annual Report of Pentair plc (the “Company”) on Form 10-K for the period ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Randall J. Hogan, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:

(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date:
February 21, 2017
/s/ Randall J. Hogan
 
 
Randall J. Hogan
 
 
Chairman and Chief Executive Officer






Exhibit 32.2

Certification of CFO Pursuant To
18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 Of The Sarbanes-Oxley Act Of 2002

In connection with the Annual Report of Pentair plc (the “Company”) on Form 10-K for the period ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John L. Stauch, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:

(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date:
February 21, 2017
/s/ John L. Stauch
 
 
John L. Stauch
 
 
Executive Vice President and Chief Financial Officer