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.

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.

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 increases 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.

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 decreases 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 increases 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 increases 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.

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 decreases 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.

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 increases 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.

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 increases 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 increases 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;

•	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 decreases 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 decreases were partially offset by:

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

•	core sales growth in our food & beverage business; and

•	core growth in developing regions, including Eastern Europe and Southeast Asia.

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 increases 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.

These increases 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 increases 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 increases were partially offset by:

•	a strong U.S. dollar causing unfavorable foreign currency effects;

•	lower core sales volumes in our infrastructure business, primarily due to broad-based slowing of global capital spending; and

•	a decrease in demand for products in developing regions.

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 decreases 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 decreases were partially offset by:

•	higher core sales volumes in our energy and commercial businesses, which resulted in increased leverage on operating expenses; and

•	selective increases in selling prices to mitigate inflationary cost increases.

LIQUIDITY AND CAPITAL RESOURCES

We generally fund cash requirements for working capital, capital expenditures, equity investments, acquisitions, debt repayments, dividend payments and share repurchases from cash generated from operations, availability under existing committed revolving credit facilities and in certain instances, public and private debt and equity offerings. We have grown our businesses in significant part in the past through acquisitions financed by credit provided under our revolving credit facilities and from time to time, by private or public debt issuance. Our primary revolving credit facilities have generally been adequate for these purposes, although we have negotiated additional credit facilities as needed to allow us to complete acquisitions. We intend to issue commercial paper to fund our financing needs on a short-term basis and to use our revolving credit facility as back-up liquidity to support commercial paper.

We are focusing on increasing our cash flow and repaying existing debt, while continuing to fund our research and development, marketing and capital investment initiatives. Our intent is to maintain investment grade ratings and a solid liquidity position.

We experience seasonal cash flows primarily due to seasonal demand in a number of markets within Flow & Filtration Solutions and Water Quality Systems. We generally borrow in the first quarter of our fiscal year for operational purposes, which usage reverses in the second quarter as the seasonality of our businesses peaks. End-user demand for pool and certain pumping equipment follows warm weather trends and is at seasonal highs from April to August. The magnitude of the sales spike is partially mitigated by employing some advance sale "early buy" programs (generally including extended payment terms and/or

additional discounts). Demand for residential and agricultural water systems is also impacted by weather patterns, particularly by heavy flooding and droughts. Additionally, Technical Solutions generally experiences increased demand for thermal protection products and services during the fall and winter months in the Northern Hemisphere.

Operating activities

Cash provided by operating activities of continuing operations was $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

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 41st consecutive year we have increased dividends.

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%.

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

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

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.

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.

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

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.