Item 1. BUSINESS

GENERAL

Pentair plc is a focused diversified industrial manufacturing company comprising two reporting segments: Water and Electrical. Water designs, manufactures, markets and services innovative products and solutions to meet filtration, separation, flow and water management challenges in agriculture, aquaculture, foodservice, food and beverage processing, swimming pools, water supply and disposal and a variety of industrial applications. Electrical designs, manufactures, markets, installs and services high performance products and solutions that connect and protect some of the world's most sensitive equipment, buildings and critical processes.

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.

On September 18, 2015, we acquired, as part of Electrical, all of the outstanding shares of capital stock of ERICO Global Company ("ERICO") for approximately $1.8 billion in cash (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 April 28, 2017 we completed the sale of the Valves & Controls business to Emerson Electric Co. for $3.15 billion in cash. The sale resulted in a gain of $181.1 million, net of tax. 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.

On May 9, 2017, we announced that our Board of Directors approved a plan to separate our Water business and Electrical business into two independent, publicly-traded companies (the "Proposed Separation"). The Proposed Separation is expected to occur through a tax-free spin-off of the Electrical business to Pentair shareholders.

Completion of the Proposed Separation is subject to certain customary conditions, including, among other things, final approval of the transaction by Pentair's Board of Directors, receipt of tax opinions and rulings and effectiveness of appropriate filings with the U.S. Securities and Exchange Commission (the “SEC"). Upon completion of the Proposed Separation, it is anticipated that Electrical's jurisdiction of organization will be Ireland, but that it will manage its affairs so that it will be centrally managed and controlled in the United Kingdom (the "U.K.") and therefore will have its tax residency in the U.K.

We are targeting April 30, 2018 for the completion of the Proposed Separation; however, there can be no assurance regarding the ultimate timing of the Proposed Separation or that the Proposed Separation will be completed.

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.

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. All prior period amounts related to the segment change have been retrospectively reclassified throughout this Annual Report on Form 10-K to conform to the new presentation. 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 was renamed the Electrical reporting segment.

Water

The Water segment designs, manufactures, markets and services innovative water solutions for the filtration, separation, flow and water management challenges in agriculture, foodservice, food and beverage processing, swimming pools, water supply and disposal and a variety of industrial applications.

Water provides a comprehensive portfolio of products and services to address customers’ needs for reliable and efficient movement and control of water and other fluids. This includes a full range of water treatment equipment including energy-efficient pumps, point-of-entry/point-of-use filtration, valves, UV sanitization and automation controls for residential and commercial applications, as well as engineered solutions in advanced filtration, desalination, water supply and disposal, process and control for industrial and infrastructure applications. We offer design and consulting services and our advanced water technologies are used across a wide number of industries including residential, commercial, foodservice, industrial, aquaculture, irrigation and flood control, wastewater and more. Our equipment and solutions are found in swimming pools and spas, water purification and sanitation systems, foodservice operations, food and beverage processing plants, wastewater treatment plants, flood control and storm water management facilities and in other applications across the globe.

Brand names for Water include Aurora, Berkeley, Codeline, Everpure, Fairbanks-Nijhuis, Kreepy Krauly, Haffmans, Hydromatic, Hypro, Pentair, Pentair Aquatic Eco-Systems, Sta-Rite, Shurflo, Südmo and X-Flow.

Customers

Water customers include businesses engaged in wholesale and retail distribution in the residential & commercial, food & beverage, infrastructure, and industrial verticals. Customers also include end-user and consumers in the residential & commercial vertical as well as engineering procurement contractors, and original equipment manufacturers.

Seasonality

We experience increased demand for residential water supply and pool equipment products, infrastructure and agricultural products following warm weather trends, which are at season highs from April to August. The magnitude of the sales increase is mitigated by employing some advance sale “early buy” programs (generally including extended payment terms and/or

additional discounts). Seasonal effects may vary from year to year and are impacted by weather patterns, particularly by temperatures, heavy flooding and droughts.

Competition

Water faces numerous domestic and international competitors, some of which have substantially greater resources directed to the verticals in which we compete. Competition focuses on brand names, product performance (including energy-efficient offerings and required specifications), quality, service and price. We compete by offering a wide variety of innovative and high-quality products, which are competitively priced. We believe our distribution channels and reputation for quality also provide us a competitive advantage.

Electrical

The Electrical segment designs, manufactures, markets, installs and services high performance products and solutions that connect and protect some of the world's most sensitive equipment, buildings and critical processes.

Electrical 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 Electrical offerings include CADDY, ERICO, Hoffman, LENTON, Raychem, Schroff and Tracer.

Customers

Electrical customers include electrical distributors, data center contractors, original equipment manufacturers, greenfield development contractors and maintenance contractors. Electrical has a globally installed base of customers.

Seasonality

Electrical 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 Electrical, 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 business is relatively fragmented, with a small number of large competitors and a large number of smaller suppliers. We compete by offering a wide variety of innovative and compatible products, which are competitively priced.

INFORMATION REGARDING ALL REPORTABLE SEGMENTS

Backlog of orders by segment

	December 31
In millions	2017			2016			$ change			% change
Water	$	406.9		$	375.8		$	31.1		8.3	%
Electrical	280.4			266.3			14.1			5.3
Total	$	687.3		$	642.1		$	45.2		7.0	%

A substantial portion of our revenues result from orders received and products delivered in the same month. Our backlog typically has a short manufacturing cycle and products generally ship within 90 days of the date on which a customer places an order. However, a portion of our backlog, particularly from orders for major capital projects, can take more than one year depending on the size and type of order. We record as part of our backlog all orders from external customers, which represent firm commitments, and are supported by a purchase order or other legitimate contract. We expect the majority of our backlog at December 31, 2017 will be shipped in 2018.

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 2017, 2016 and 2015 were $115.8 million, $114.1 million and $98.7 million, respectively.

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, 2017, we employed 18,400 people worldwide.

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 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.