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, 2017. 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, 2017, 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, 2017. 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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Pentair plc

London, United Kingdom

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Pentair plc and subsidiaries (the "Company") as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule listed in the Index at Item 15 as of and for the year ended December 31, 2017, of the Company and our report dated February 27, 2018 expressed an unqualified opinion on those financial statements and financial statement schedule.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Minneapolis, Minnesota

February 27, 2018

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Pentair plc

London, United Kingdom

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Pentair plc and subsidiaries (the "Company") as of December 31, 2017 and 2016, 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, 2017, the related notes, and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2018 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Minneapolis, Minnesota

February 27, 2018

We have served as the Company's auditor since 1977.

Pentair plc and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income (Loss)

	Years ended December 31
In millions, except per-share data	2017			2016			2015
Net sales	$	4,936.5		$	4,890.0		$	4,616.4
Cost of goods sold	3,107.4			3,095.9			3,017.6
Gross profit	1,829.1			1,794.1			1,598.8
Selling, general and administrative	1,032.5			979.3			884.0
Research and development	115.8			114.1			98.7
Operating income	680.8			700.7			616.1
Other (income) expense
Loss on sale of businesses	4.2			3.9			3.2
Loss on early extinguishment of debt	101.4			—			—
Equity income of unconsolidated subsidiaries	(1.3		)	(4.3		)	(1.5		)
Interest income	(9.9		)	(8.3		)	(4.7		)
Interest expense	97.2			148.4			106.6
Income from continuing operations before income taxes	489.2			561.0			512.5
Provision for income taxes	9.2			109.4			115.4
Net income from continuing operations	480.0			451.6			397.1
Income (loss) from discontinued operations, net of tax	5.4			70.0			(466.8		)
Gain (loss) from sale / impairment of discontinued operations, net of tax	181.1			0.6			(6.7		)
Net income (loss)	$	666.5		$	522.2		$	(76.4	)
Comprehensive income (loss), net of tax
Net income (loss)	$	666.5		$	522.2		$	(76.4	)
Changes in cumulative translation adjustment (inclusive of divestiture of business reclassified to gain from sale of $374.2 for the year ended December 31, 2017)	497.5			(83.0		)	(264.9		)
Changes in market value of derivative financial instruments, net of tax	(4.6		)	(8.3		)	0.2
Comprehensive income (loss)	$	1,159.4		$	430.9		$	(341.1	)
Earnings (loss) per ordinary share
Basic
Continuing operations	$	2.64		$	2.49		$	2.20
Discontinued operations	1.03			0.39			(2.62		)
Basic earnings (loss) per ordinary share	$	3.67		$	2.88		$	(0.42	)
Diluted
Continuing operations	$	2.61		$	2.47		$	2.17
Discontinued operations	1.02			0.38			(2.59		)
Diluted earnings (loss) per ordinary share	$	3.63		$	2.85		$	(0.42	)
Weighted average ordinary shares outstanding
Basic	181.7			181.3			180.3
Diluted	183.7			183.1			182.6

See accompanying notes to consolidated financial statements.

Pentair plc and Subsidiaries

Consolidated Balance Sheets

	December 31
In millions, except per-share data	2017			2016
Assets
Current assets
Cash and cash equivalents	$	113.3		$	238.5
Accounts and notes receivable, net of allowances of $22.6 and $25.6, respectively	831.6			764.0
Inventories	581.0			524.2
Other current assets	222.9			253.4
Current assets held for sale	—			891.9
Total current assets	1,748.8			2,672.0
Property, plant and equipment, net	545.5			538.6
Other assets
Goodwill	4,351.1			4,217.4
Intangibles, net	1,558.4			1,631.8
Other non-current assets	429.9			182.1
Non-current assets held for sale	—			2,292.9
Total other assets	6,339.4			8,324.2
Total assets	$	8,633.7		$	11,534.8
Liabilities and Equity
Current liabilities
Current maturities of long-term debt and short-term borrowings	$	—		$	0.8
Accounts payable	495.7			436.6
Employee compensation and benefits	186.6			166.1
Other current liabilities	517.1			511.5
Current liabilities held for sale	—			356.2
Total current liabilities	1,199.4			1,471.2
Other liabilities
Long-term debt	1,440.7			4,278.4
Pension and other post-retirement compensation and benefits	285.6			253.4
Deferred tax liabilities	394.8			609.5
Other non-current liabilities	275.4			162.0
Non-current liabilities held for sale	—			505.9
Total liabilities	3,595.9			7,280.4
Equity
Ordinary shares $0.01 par value, 426.0 authorized, 180.3 and 181.8 issued at December 31, 2017 and December 31, 2016, respectively	1.8			1.8
Additional paid-in capital	2,797.7			2,920.8
Retained earnings	2,481.7			2,068.1
Accumulated other comprehensive loss	(243.4		)	(736.3		)
Total equity	5,037.8			4,254.4
Total liabilities and equity	$	8,633.7		$	11,534.8

See accompanying notes to consolidated financial statements.

Pentair plc and Subsidiaries

Consolidated Statements of Cash Flows

	Years ended December 31
In millions	2017			2016			2015
Operating activities
Net income (loss)	$	666.5		$	522.2		$	(76.4	)
(Income) loss from discontinued operations, net of tax	(5.4		)	(70.0		)	466.8
(Gain) loss from sale / impairment of discontinued operations, net of tax	(181.1		)	(0.6		)	6.7
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	(1.3		)	(4.3		)	(1.5		)
Depreciation	85.2			84.6			81.2
Amortization	97.7			96.4			68.1
Loss on sale of businesses	4.2			3.9			3.2
Deferred income taxes	(159.7		)	(16.1		)	(2.3		)
Share-based compensation	39.6			34.2			33.0
Trade name and other impairment	32.0			13.3			—
Loss on early extinguishment of debt	101.4			—			—
Excess tax benefits from share-based compensation	—			(8.0		)	(6.0		)
Amortization of bridge financing debt issuance costs	—			—			10.8
Pension and other post-retirement expense	29.2			31.8			9.4
Pension and other post-retirement contributions	(15.7		)	(13.5		)	(12.7		)
Changes in assets and liabilities, net of effects of business acquisitions
Accounts and notes receivable	(30.9		)	21.3			(6.2		)
Inventories	(29.4		)	34.3			54.7
Other current assets	(5.9		)	(15.8		)	(27.3		)
Accounts payable	32.6			38.0			10.6
Employee compensation and benefits	10.2			7.0			(15.6		)
Other current liabilities	(29.3		)	51.6			(16.6		)
Other non-current assets and liabilities	34.1			(107.9		)	17.8
Net cash provided by (used for) operating activities of continuing operations	674.0			702.4			597.7
Net cash provided by (used for) operating activities of discontinued operations	(53.8		)	159.0			141.6
Net cash provided by (used for) operating activities	620.2			861.4			739.3
Investing activities
Capital expenditures	(70.9		)	(117.8		)	(91.3		)
Proceeds from sale of property and equipment	7.9			24.7			4.6
Proceeds from sale of businesses and other	2,759.4			(5.2		)	(3.0		)
Acquisitions, net of cash acquired	(59.5		)	(25.0		)	(1,913.9		)
Net cash provided by (used for) investing activities of continuing operations	2,636.9			(123.3		)	(2,003.6		)
Net cash provided by (used for) investing activities of discontinued operations	(6.5		)	1.5			38.1
Net cash provided by (used for) investing activities	2,630.4			(121.8		)	(1,965.5		)
Financing activities
Net receipts (repayments) of short-term borrowings	(0.8		)	0.8			(2.3		)
Net receipts (repayments) of commercial paper and revolving long-term debt	(913.1		)	(385.3		)	363.5
Proceeds from long-term debt	—			—			1,714.8
Repayment of long-term debt	(2,009.3		)	(0.7		)	(356.6		)
Debt issuance costs	—			—			(26.8		)
Premium paid on early extinguishment of debt	(94.9		)	—			—
Excess tax benefits from share-based compensation	—			8.0			6.0
Shares issued to employees, net of shares withheld	37.2			20.7			19.4
Repurchases of ordinary shares	(200.0		)	—			(200.0		)
Dividends paid	(251.7		)	(243.6		)	(231.7		)
Net cash provided by (used for) financing activities	(3,432.6		)	(600.1		)	1,286.3
Effect of exchange rate changes on cash and cash equivalents	56.8			(27.3		)	(44.2		)
Change in cash and cash equivalents	(125.2		)	112.2			15.9
Cash and cash equivalents, beginning of year	238.5			126.3			110.4
Cash and cash equivalents, end of year	$	113.3		$	238.5		$	126.3

See accompanying notes to consolidated financial statements.

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
Number		Amount				Number		Amount
Balance - December 31, 2014	202.4		$	2.0			(19.9	)	$	(1,251.9	)	$	4,250.0		$	2,044.0		$	(380.3	)	$	4,663.8
Net loss	—		—				—		—			—			(76.4		)	—			(76.4		)
Other comprehensive loss, net of tax	—		—				—		—			—			—			(264.7		)	(264.7		)
Tax benefit of share-based compensation	—		—				—		—			5.7			—			—			5.7
Dividends declared	—		—				—		—			1.5			(175.9		)	—			(174.4		)
Share repurchase	(3.1	)	—				—		—			(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
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		)
Share-based compensation	—		—				—		—			33.0			—			—			33.0
Balance - December 31, 2015	180.5		$	1.8			—		$	—		$	2,860.3		$	1,791.7		$	(645.0	)	$	4,008.8
Net income	—		—				—		—			—			522.2			—			522.2
Other comprehensive loss, net of tax	—		—				—		—			—			—			(91.3		)	(91.3		)
Tax benefit of share-based compensation	—		—				—		—			5.5			—			—			5.5
Dividends declared	—		—				—		—			—			(245.8		)	—			(245.8		)
Exercise of options, net of shares tendered for payment	1.0		—				—		—			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		)
Share-based compensation	—		—				—		—			34.2			—			—			34.2
Balance - December 31, 2016	181.8		$	1.8			—		$	—		$	2,920.8		$	2,068.1		$	(736.3	)	$	4,254.4
Net income	—		—				—		—			—			666.5			—			666.5
Other comprehensive income, net of tax	—		—				—		—			—			—			492.9			492.9
Dividends declared	—		—				—		—			—			(252.9		)	—			(252.9		)
Share repurchases	(3.0	)	—				—		—			(200.0		)	—			—			(200.0		)
Exercise of options, net of shares tendered for payment	1.2		—				—		—			45.6			—			—			45.6
Issuance of restricted shares, net of cancellations	0.4		—				—		—			—			—			—			—
Shares surrendered by employees to pay taxes	(0.1	)	—				—		—			(8.3		)	—			—			(8.3		)
Share-based compensation	—		—				—		—			39.6			—			—			39.6
Balance - December 31, 2017	180.3		$	1.8			—		$	—		$	2,797.7		$	2,481.7		$	(243.4	)	$	5,037.8

See accompanying notes to consolidated financial statements.

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 two reporting segments: Water and Electrical.

Proposed separation

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 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.

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 with 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.

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. 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. 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, we allow 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 estimate 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 primarily 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 2017, 2016 and 2015 were $115.8 million, $114.1 million and $98.7 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, 2017 or December 31, 2016.

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.

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 2017 or 2016 in conjunction with restructuring activities. During 2015 we recorded $5.1 million of asset impairment 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 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. 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 2023 are projected to grow at a perpetual growth rate of 3.0%.

Discount rate assumptions for each reporting unit take into consideration our assessment of risks inherent in the future cash flows of the respective reporting unit and our weighted-average cost of capital. We utilized discount rates ranging from 9.0% to 9.5% in determining the discounted cash flows in our fair value analysis.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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 2017, 2016 and 2015 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 our former Valves & Controls business 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 $25.2 million was recorded in 2017 related to certain trade names in Water and Electrical as a result of lower forecasted sales volume or rebranding strategies implemented in the fourth quarter of 2017. An impairment charge of $13.3 million was recorded in 2016 related to a trade name in Electrical 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 our former Valves & Controls business 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).

Income taxes

We use the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. We maintain valuation allowances unless it is more likely than not that all or a portion of the deferred tax assets will be realized. Changes in valuation allowances from period to period are included in our tax provision in the period of change. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Pension and other post-retirement plans

We sponsor U.S. and non-U.S. defined-benefit pension and other post-retirement plans. The pension and other post-retirement benefit costs for company-sponsored benefit plans are determined from actuarial assumptions and methodologies, including discount rates and expected returns on plan assets. These assumptions are updated annually and are disclosed in Note 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.

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, 2017 and 2016, reserves for policy claims were $61.5 million ($13.2 million included in Other current liabilities and $48.3 million included in Other non-current liabilities) and $63.0 million ($13.2 million included in Other current liabilities and $49.8 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 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 ("PSUs") 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 PSUs 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, the effective portion of changes in the fair value of the derivative are recorded in Accumulated other comprehensive income (loss) ("AOCI") as a separate component of equity in the Consolidated Balance Sheets and are recognized in the Consolidated Statements of Operations and Comprehensive Income (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.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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.

New accounting standards

In March 2017, the Financial Accounting Standards Board ("FASB") issued a new accounting standard which requires the presentation of all components of net periodic benefit cost other than service costs outside of operating income. Only the service cost component will be included in operating income and eligible for capitalization in assets. The new guidance related to the presentation of the components of net periodic benefit cost within the Consolidated Statement of Operations will be applied retrospectively. The new guidance limiting the capitalization of net periodic benefit cost in assets to the service cost component will be applied prospectively. The new standard is effective for fiscal years beginning after December 15, 2017, and interim periods within that reporting period. We adopted this standard on January 1, 2018. As a result of adoption, $10.7 million and $13.3 million of pension and post-retirement expense and $12.7 million of pension and post-retirement benefit will be reclassified out of operating income for the years ended December 31, 2017, 2016 and 2015, respectively.

In March 2016, the FASB issued a new accounting standard for share-based payments. The guidance simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of excess tax benefits in the Consolidated Statements of Cash Flows. We adopted the new standard in the first quarter of 2017. The impact of the adoption resulted in the following:

•	All excess tax benefits and deficiencies arising from employee share-based payment awards, and dividends on those awards, will be recognized within income taxes in the period in which they occur rather than within additional paid-in-capital. Our adoption of this requirement under the new standard had no material impact for the year ended December 31, 2017.

•	The Company no longer presents excess tax benefits within cash flows from financing activities in the Consolidated Statements of Cash Flows; instead these are now reflected within cash flows from operating activities. The Company elected to apply this change prospectively.

•	The Company elected not to change its policy on accounting for forfeitures and continues to estimate the total number of awards for which the requisite service period will not be rendered.

•	The Company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of our diluted earnings per share for the year ended December 31, 2017. This increased diluted weighted average common shares outstanding by less than 300,000 shares for the year ended December 31, 2017.

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 requirements are effective for annual reporting periods 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.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

In May 2014, the FASB issued new accounting requirements for the recognition of revenue from contracts with customers. The new rules require entities to recognize revenue when they transfer control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. 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. We adopted the new revenue guidance as of January 1, 2018, using the modified retrospective transition method of adoption applied to those contracts which were not completed as of that date. An adjustment will be recorded to our 2018 beginning retained earnings for the cumulative effect of the change. In preparation for adoption of the new guidance, we have implemented appropriate changes to our business processes, systems and controls to support preparation of financial information and have reached conclusions on key accounting assessments related to the standard. As a result of these assessments, the adoption of the new standard will not have a material impact on our consolidated financial statements, including the presentation of revenues in our consolidated statements of operations.

2.	Acquisitions

Material acquisition

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 of 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 and ERICO electrical grounding, bonding and connectivity products.

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 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:

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 was allocated to goodwill in the amount of $1,031.0 million, none of which is deductible for income tax purposes. Identifiable intangible assets acquired as part of the ERICO Acquisition included $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.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

The following unaudited pro forma consolidated condensed financial results of operations for the year ended December 31, 2015 is presented as if the ERICO Acquisition was consummated on January 1, 2015, the beginning of the comparable prior annual reporting period:

	Year ended December 31
In millions, except share and per-share data	2015
Pro forma net sales	$	5,002.6
Pro forma net income from continuing operations	460.4
Pro forma earnings per ordinary share - continuing operations
Basic	$	2.55
Diluted	2.52

The unaudited pro forma net income from continuing operations 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, 2015.

Other acquisitions

During 2017, we completed acquisitions with purchase prices totaling $59.5 million in cash, net of cash acquired. Identifiable intangible assets acquired included $19.1 million of definite-lived customer relationships with an estimated useful life of 11 years.

In November 2016, we completed an acquisition as part of Water with a purchase price of $25.0 million in cash, net of cash acquired.

In April 2015, we acquired, as part of Electrical, 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. Definite-lived intangible assets acquired consisted of customer relationships of $53.3 million, with an estimated useful life of 17 years.

The pro forma impact of these acquisitions was not material.

3.	Discontinued Operations

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. Transaction costs of $56.4 million related to the sale of Valves & Controls were incurred during the year ended December 31, 2017 and were recorded within Gain (loss) from sale/impairment of discontinued operations before income taxes presented below.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

During 2015, we sold the remainder of our Water Transport business, of which a portion was sold in 2014, 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	2017			2016			2015
Net sales	$	450.3		$	1,639.4		$	1,858.6
Cost of goods sold	339.7			1,177.1			1,271.2
Gross profit	110.6			462.3			587.4
Selling, general and administrative	103.3			367.6			457.8
Research and development	5.7			18.2			21.2
Impairment of goodwill and trade names	—			—			554.7
Operating Income (loss)	$	1.6		$	76.5		$	(446.3	)
Income (loss) from discontinued operations before income taxes	$	2.4		$	77.2		$	(445.5	)
Provision for income taxes	(3.0		)	7.2			21.3
Income (loss) from discontinued operations, net of tax	$	5.4		$	70.0		$	(466.8	)
Gain (loss) from sale / impairment of discontinued operations before income taxes	$	183.5		$	0.6		$	(6.7	)
Provision for income taxes	2.4			—			—
Gain (loss) from sale / impairment of discontinued operations, net of tax	$	181.1		$	0.6		$	(6.7	)

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	2017			2016
Accounts and notes receivable, net	$	—		$	365.4
Inventories	—			491.5
Other current assets	—			35.0
Current assets held for sale	$	—		$	891.9
Property, plant and equipment, net	$	—		$	361.5
Goodwill	—			996.4
Intangibles, net	—			703.5
Asbestos-related insurance receivable	—			108.5
Other non-current assets	—			123.0
Non-current assets held for sale	$	—		$	2,292.9
Accounts payable	$	—		$	151.4
Employee compensation and benefits	—			61.5
Other current liabilities	—			143.3
Current liabilities held for sale	$	—		$	356.2
Pension and other post-retirement compensation and benefits	$	—		$	32.2
Deferred tax liabilities	—			162.8
Asbestos-related liabilities	—			228.3
Other non-current liabilities	—			82.6
Non-current liabilities held for sale	$	—		$	505.9

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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	2017			2016			2015
Net income (loss)	$	666.5		$	522.2		$	(76.4	)
Net income from continuing operations	$	480.0		$	451.6		$	397.1
Weighted average ordinary shares outstanding
Basic	181.7			181.3			180.3
Dilutive impact of stock options and restricted stock awards	2.0			1.8			2.3
Diluted	183.7			183.1			182.6
Earnings (loss) per ordinary share
Basic
Continuing operations	$	2.64		$	2.49		$	2.20
Discontinued operations	1.03			0.39			(2.62		)
Basic earnings (loss) per ordinary share	$	3.67		$	2.88		$	(0.42	)
Diluted
Continuing operations	$	2.61		$	2.47		$	2.17
Discontinued operations	1.02			0.38			(2.59		)
Diluted earnings (loss) per ordinary share	$	3.63		$	2.85		$	(0.42	)
Anti-dilutive stock options excluded from the calculation of diluted earnings per share	1.8			1.2			1.3

5.	Restructuring

During 2017, 2016 and 2015, we initiated and continued execution of certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business, specifically in 2017 as part of the contemplation of the Proposed Separation. The 2017 initiatives included a reduction in hourly and salaried headcount of approximately 500 employees, which included 250 in Water and 250 in Electrical. The 2016 initiatives included the reduction in hourly and salaried headcount of approximately 650 employees, which included 300 in Water and 350 in Electrical. The 2015 initiatives included the reduction in hourly and salaried headcount of approximately 500 employees, which included 300 in Water and 200 in Electrical.

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	2017			2016			2015
Severance and related costs	$	57.1		$	24.5		$	34.5
Other	1.6			—			6.8
Total restructuring costs	$	58.7		$	24.5		$	41.3

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	2017			2016			2015
Water	$	23.6		$	10.5		$	17.4
Electrical	16.8			12.3			15.7
Other	18.3			1.7			8.2
Consolidated	$	58.7		$	24.5		$	41.3

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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	2017			2016
Beginning balance	$	25.4		$	37.1
Costs incurred	57.1			24.5
Cash payments and other	(42.7		)	(36.2		)
Ending balance	$	39.8		$	25.4

6.	Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the years ended December 31, 2017 and 2016 by reportable segment were as follows:

In millions	December 31, 2016			Acquisitions/ divestitures			Foreign currency translation/other			December 31, 2017
Water	$	1,994.6		$	27.3		$	91.0		$	2,112.9
Electrical	2,222.8			5.3			10.1			2,238.2
Total goodwill	$	4,217.4		$	32.6		$	101.1		$	4,351.1

In millions	December 31, 2015			Acquisitions/ divestitures			Purchase accounting adjustments			Foreign currency translation/other			December 31, 2016
Water	$	2,003.8		$	20.8		$	—		$	(30.0	)	$	1,994.6
Electrical	2,255.2			—			(30.9		)	(1.5		)	2,222.8
Total goodwill	$	4,259.0		$	20.8		$	(30.9	)	$	(31.5	)	$	4,217.4

Accumulated goodwill impairment losses were $200.5 million as of December 31, 2017 and 2016.

Identifiable intangible assets consisted of the following at December 31:

	2017										2016
In millions	Cost			Accumulated amortization			Net				Cost			Accumulated amortization			Net
Definite-life intangibles
Customer relationships	$	1,513.9		$	(437.5	)	$	1,076.4			$	1,478.0		$	(346.7	)	$	1,131.3
Trade names	1.5			(1.4		)	0.1				1.8			(1.4		)	0.4
Proprietary technology and patents	131.9			(94.2		)	37.7				141.3			(100.3		)	41.0
Total finite-life intangibles	1,647.3			(533.1		)	1,114.2				1,621.1			(448.4		)	1,172.7
Indefinite-life intangibles
Trade names	444.2			—			444.2				459.1			—			459.1
Total intangibles	$	2,091.5		$	(533.1	)	$	1,558.4			$	2,080.2		$	(448.4	)	$	1,631.8

Identifiable intangible asset amortization expense in 2017, 2016 and 2015 was $97.7 million, $96.4 million and $68.1 million, respectively.

In 2017, we recorded an impairment charge for trade name intangible assets of $25.2 million in Water and Electrical. In 2016, we recorded an impairment charge for trade name intangible assets of $13.3 million in Electrical.

Estimated future amortization expense for identifiable intangible assets during the next five years is as follows:

In millions	2018			2019			2020			2021			2022
Estimated amortization expense	$	96.3		$	89.2		$	84.0		$	77.5		$	70.0

Pentair plc and Subsidiaries

Notes to consolidated financial statements

7.	Supplemental Balance Sheet Information

	December 31
In millions	2017			2016
Inventories
Raw materials and supplies	$	255.1		$	223.5
Work-in-process	83.0			67.3
Finished goods	242.9			233.4
Total inventories	$	581.0		$	524.2
Other current assets
Cost in excess of billings	$	121.4		$	107.7
Prepaid expenses	80.7			68.7
Prepaid income taxes	15.3			67.2
Other current assets	5.5			9.8
Total other current assets	$	222.9		$	253.4
Property, plant and equipment, net
Land and land improvements	$	72.6		$	66.2
Buildings and leasehold improvements	354.5			335.0
Machinery and equipment	1,011.6			932.5
Construction in progress	35.1			68.6
Total property, plant and equipment	1,473.8			1,402.3
Accumulated depreciation and amortization	928.3			863.7
Total property, plant and equipment, net	$	545.5		$	538.6
Other non-current assets
Prepaid income taxes	$	254.3		$	—
Deferred income taxes	43.0			39.0
Deferred compensation plan assets	49.4			47.9
Other non-current assets	83.2			95.2
Total other non-current assets	$	429.9		$	182.1
Other current liabilities
Dividends payable	$	63.1		$	61.8
Accrued warranty	41.0			38.9
Accrued rebates	92.7			78.2
Billings in excess of cost	29.9			22.5
Income taxes payable	31.1			87.3
Accrued restructuring	39.8			25.4
Other current liabilities	219.5			197.4
Total other current liabilities	$	517.1		$	511.5
Other non-current liabilities
Income taxes payable	$	92.7		$	36.1
Self-insurance liabilities	48.3			49.8
Deferred compensation plan liabilities	49.4			47.9
Foreign currency contract liabilities	47.2			5.4
Other non-current liabilities	37.8			22.8
Total other non-current liabilities	$	275.4		$	162.0

Pentair plc and Subsidiaries

Notes to consolidated financial statements

8.	Supplemental Cash Flow Information

	Years ended December 31
In millions	2017			2016			2015
Cash paid for interest, net	$	107.2		$	143.4		$	76.9
Cash paid for income taxes, net	362.1			145.1			182.8

9.	Accumulated Other Comprehensive Income (Loss)

Components of AOCI consist of the following:

	December 31
In millions	2017			2016
Cumulative translation adjustments	$	(221.4	)	$	(718.9	)
Change in market value of derivative financial instruments, net of tax	(22.0		)	(17.4		)
Accumulated other comprehensive loss	$	(243.4	)	$	(736.3	)

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, 2017	2017			2016
Commercial paper	2.340%	2019	$	34.0		$	398.7
Revolving credit facilities	3.064%	2019	28.4			576.8
Senior notes - fixed rate (1)	1.875%	2017	—			350.0
Senior notes - fixed rate (1)	2.900%	2018	255.3			500.0
Senior notes - fixed rate (1)	2.650%	2019	250.0			250.0
Senior notes - fixed rate - Euro (1)	2.450%	2019	594.4			520.7
Senior notes - fixed rate (1)	3.625%	2020	74.0			400.0
Senior notes - fixed rate (1)	5.000%	2021	103.8			500.0
Senior notes - fixed rate (1)	3.150%	2022	88.3			550.0
Senior notes - fixed rate (1)	4.650%	2025	19.3			250.0
Other	N/A	N/A	—			0.8
Unamortized issuance costs and discounts	N/A	N/A	(6.8		)	(17.8		)
Total debt			1,440.7			4,279.2
Less: Current maturities and short-term borrowings			—			(0.8		)
Long-term debt			$	1,440.7		$	4,278.4
(1) Senior notes guaranteed as to payment by Pentair plc and PISG ("the Notes")

In October 2014, Pentair plc, Pentair Investments Switzerland GmbH ("PISG"), Pentair Finance S.à r.l. ("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 of $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

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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 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.

In May 2017, we repurchased aggregate principal of certain series of outstanding notes totaling $1,659.3 million. All costs associated with the repurchases were recorded as Loss on early extinguishment of debt, including $6.5 million of unamortized deferred financing costs.

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, 2017 and 2016, we had $34.0 million and $398.7 million, respectively, of commercial paper outstanding, all of which was classified as long-term as we have the intent and 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 3.50 to 1.00 as of the last day of the period of four consecutive fiscal quarters 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, 2017, we were in compliance with all financial covenants in our debt agreements.

Total availability under the Credit Facility was $2,437.6 million as of December 31, 2017, which was limited to $1,897.5 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 $30.0 million, of which there were no outstanding borrowings at December 31, 2017. Borrowings under these credit facilities bear interest at variable rates.

We have $255.3 million of fixed rate senior notes maturing in September 2018. We classified this debt as long-term as of December 31, 2017 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, 2017 matures on a calendar year basis as follows:

In millions	2018			2019			2020			2021			2022			Thereafter			Total
Contractual debt obligation maturities	$	—		$	1,162.1		$	74.0		$	103.8		$	88.3		$	19.3		$	1,447.5

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. 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

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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.

At December 31, 2017 and 2016, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts of $481.4 million and $475.6 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) when the hedged item affects earnings. Such reclassifications during 2017, 2016 and 2015 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, 2017 and 2016, we had a deferred foreign currency loss of $29.6 million and a gain of $44.2 million, respectively, in AOCI associated with the net investment hedge activity.

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.

Fair value of financial instruments

The following methods were used to estimate the fair values of each class of financial instrument:

•	short-term financial instruments (cash and cash equivalents, accounts and notes receivable, accounts and notes payable and variable-rate debt) — recorded amount approximates fair value because of the short maturity period;

•	long-term fixed-rate debt, including current maturities — fair value is based on market quotes available for issuance of debt with similar terms, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance;

•	foreign currency contract agreements — fair values are determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance; and

•

deferred compensation plan assets (mutual funds, common/collective trusts and cash equivalents for payment of certain non-qualified benefits for retired, terminated and active employees) — fair value of mutual funds and cash equivalents are based on quoted market prices in active markets that are classified as Level 1 in the valuation hierarchy defined by the accounting guidance; fair value of common/collective trusts are based on observable inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

The recorded amounts and estimated fair values of total debt, excluding unamortized issuance costs and discounts, at December 31 were as follows:

	2017							2016
In millions	Recorded Amount			Fair Value				Recorded Amount			Fair Value
Variable rate debt	$	62.4		$	62.4			$	976.3		$	976.3
Fixed rate debt	1,385.1			1,424.0				3,320.7			3,427.1
Total debt	$	1,447.5		$	1,486.4			$	4,297.0		$	4,403.4

Financial assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows:

Recurring fair value measurements	December 31, 2017
In millions	Level 1			Level 2			Level 3			Total
Foreign currency contract assets	$	—		$	0.6		$	—		$	0.6
Foreign currency contract liabilities	—			(47.2		)	—			(47.2		)
Deferred compensation plan assets	42.8			6.6			—			49.4
Total recurring fair value measurements	$	42.8		$	(40.0	)	$	—		$	2.8
Nonrecurring fair value measurements (1)

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 plan assets	41.6			6.3			—			47.9
Total recurring fair value measurements	$	41.6		$	6.4		$	—		$	48.0
Nonrecurring fair value measurements (1)

(1)

During the fourth quarter of 2017, we completed our annual intangible assets impairment review. As a result, we recorded a pre-tax non-cash impairment charge of $25.2 million for trade name intangibles in 2017. The impairment charge reduced the total carrying value of the impacted trade name intangibles to $27.0 million. 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 zero. 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.

12.	Income Taxes

Income from continuing operations before income taxes consisted of the following:

	Years ended December 31
In millions	2017			2016			2015
Federal (1)	$	(32.8	)	$	(25.6	)	$	(21.8	)
International (2)	522.0			586.6			534.3
Income from continuing operations before income taxes	$	489.2		$	561.0		$	512.5

(1)	"Federal" reflects United Kingdom ("U.K.") income from continuing operations before income taxes.

(2)	"International" reflects non-U.K. income from continuing operations before income taxes.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

The provision for income taxes consisted of the following:

	Years ended December 31
In millions	2017			2016			2015
Currently payable
Federal (1)	$	0.5		$	(0.1	)	$	—
International (2)	183.8			125.6			117.7
Total current taxes	184.3			125.5			117.7
Deferred
Federal (1)	—			(0.4		)	1.2
International (2)	(175.1		)	(15.7		)	(3.5		)
Total deferred taxes	(175.1		)	(16.1		)	(2.3		)
Total provision for income taxes	$	9.2		$	109.4		$	115.4

(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	2017		2016		2015
Federal statutory income tax rate (1)	19.3		20.0		20.3
Tax effect of international operations (2)	(11.3	)	(11.8	)	(6.5	)
Change in valuation allowances	8.0		9.7		6.9
Withholding taxes	0.4		0.9		0.6
Interest limitations	0.6		0.6		0.7
Non-deductible transaction costs	0.7		0.1		0.5
Excess tax benefits on stock-based compensation	(1.7	)	—		—
Tax effect of U.S. tax reform	(17.3	)	—		—
Tax effect of early extinguishment of debt	3.2		—		—
Effective tax rate	1.9		19.5		22.5

(1)	The statutory rate for 2017, 2016 and 2015 reflects the U.K. statutory rate of 19.3%, 20.0% and 20.3%, respectively.

(2)	The tax effect of international operations consists of non-U.K. jurisdictions.

Reconciliations of the beginning and ending gross unrecognized tax benefits were as follows:

	Years ended December 31
In millions	2017			2016			2015
Beginning balance	$	71.1		$	45.6		$	40.3
Gross increases for tax positions in prior periods	5.3			27.4			4.7
Gross decreases for tax positions in prior periods	(5.0		)	(4.8		)	(1.5		)
Gross increases based on tax positions related to the current year	1.8			2.0			1.3
Gross decreases related to settlements with taxing authorities	(35.7		)	(3.4		)	(1.9		)
Reductions due to statute expiration	(2.2		)	(0.8		)	(1.4		)
Gross (decreases) increases due to currency fluctuations	1.3			(0.2		)	(2.5		)
Gross increases due to acquisitions	—			5.3			6.6
Ending balance	$	36.6		$	71.1		$	45.6

We record gross unrecognized tax benefits in Other current liabilities and Other non-current liabilities in the Consolidated Balance Sheets. Included in the $36.6 million of total gross unrecognized tax benefits as of December 31, 2017 was $34.9 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, 2017 may decrease by a range of zero to $16.9 million during 2018, primarily as

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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 $35.7 million gross decrease during 2017 for settlements with taxing authorities consists primarily of a 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 decrease related to settlements with taxing authorities 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. During 2017, the IRS completed their examination of 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 2003 to present are under audit by tax authorities in various jurisdictions, including Canada, China, Germany, India, the Netherlands and New Zealand. We anticipate that several of these audits may be concluded in the foreseeable future.

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, 2017 and 2016, we have liabilities of $2.3 million and $2.4 million, respectively, for the possible payment of penalties and $9.4 million and $11.0 million, respectively, for the possible payment of interest expense, which are recorded in Other current liabilities in the Consolidated Balance Sheets.

Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as "temporary differences." We record the tax effect of these temporary differences as "deferred tax assets" (generally items that can be used as a tax deduction or credit in future periods) and "deferred tax liabilities" (generally items for which we received a tax deduction but the tax impact has not yet been recorded in the Consolidated Statements of Operations and Comprehensive Income (Loss)).

Deferred taxes were recorded in the Consolidated Balance Sheets as follows:

	December 31
In millions	2017			2016
Other non-current assets	43.0			39.0
Deferred tax liabilities	394.8			609.5
Net deferred tax liabilities	$	351.8		$	570.5

The tax effects of the major items recorded as deferred tax assets and liabilities were as follows:

	December 31
In millions	2017			2016
Deferred tax assets
Accrued liabilities and reserves	$	55.2		$	83.2
Pension and other post-retirement compensation and benefits	53.8			48.9
Employee compensation and benefits	43.5			76.6
Tax loss and credit carryforwards	811.7			391.0
Total deferred tax assets	964.2			599.7
Valuation allowance	792.4			380.8
Deferred tax assets, net of valuation allowance	171.8			218.9
Deferred tax liabilities
Property, plant and equipment	16.5			23.6
Goodwill and other intangibles	484.7			733.7
Other liabilities	22.4			32.1
Total deferred tax liabilities	523.6			789.4
Net deferred tax liabilities	$	351.8		$	570.5

Included in tax loss and credit carryforwards in the table above is a deferred tax asset of $28.7 million as of December 31, 2017 related to foreign tax credit carryover from the tax period ended December 31, 2017 and related to transition taxes. The entire amount is subject to a valuation allowance. The foreign tax credit is eligible for carryforward until the tax period ending December 31, 2027.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

As of December 31, 2017, tax loss carryforwards of $4,052.9 million were available to offset future income. A valuation allowance of $762.2 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 2016 to 2017 were primarily related to internal restructuring transactions 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 primarily relate to non-U.S. carryforwards of $3,961.0 million which are subject to varying expiration periods. Non-U.S. carryforwards of $2,253.0 million are located in jurisdictions with unlimited tax loss carryforward periods, while the remainder will begin to expire in 2018. In addition, there were $91.9 million of state tax loss carryforwards as of December 31, 2017, which will expire in future years through 2037.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

Given the significance of the Act, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. SAB 118 allows registrants to record provisional amounts during a one year “measurement period.” The measurement period is deemed to have ended earlier when the registrant has obtained, prepared, and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared, or analyzed.

The Company has calculated its best estimate of the impact of the Act in its year end income tax provision in accordance with its understanding of the Act and guidance available as of the date of this filing and as a result has recorded a provisional income tax benefit of $84.8 million in the fourth quarter of 2017, the period in which the legislation was enacted. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was a decrease to income tax expense of $147.7 million. The remeasurement of deferred taxes requires further analysis regarding the state tax impacts of the remeasurement, the impact of the Act on the taxation of executive compensation arrangements, changes to tax capitalization provisions and other aspects of the Act that may impact our tax balances.

The amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was an increase to income tax expense of $62.9 million. The determination of the transition tax requires additional analysis regarding the amount and composition of the company’s historical foreign earnings and foreign tax credit position, which is expected to be completed in the second half of 2018. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.

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 would freeze certain U.S. pension plans as of December 31, 2017. As such, employees in these U.S. pension plans will no longer earn service credits and the Company will no longer incur service cost related to these plans.

In November 2017, our Board of Directors approved amendments to terminate the Pentair Salaried Plan (the "Salaried Plan"), a U.S. qualified pension plan. The Salaried Plan discontinued accruing benefits on December 31, 2017 and the termination was effective December 31, 2017. It is expected to take 18 to 24 months from the date of the approved amendment to complete the termination of the Salaried Plan.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

At December 31, 2017, the projected benefit obligation of the Salaried Plan was $369.0 million and the plan assets were $355.4 million. There were approximately 2,610 active participants in the Salaried Plan, of which 2,048 were either active employees or terminated vested participants who had not yet begun to receive their benefits as of December 31, 2017. The Salaried Plan participants will not be adversely affected by the plan termination. Those participants whose plan benefits are not in pay status by July 1, 2018 will be given the opportunity to elect a lump sum (or monthly annuity) during a special election window. For all participants whose Salaried Plan benefits are not paid in a lump sum, Pentair will purchase an annuity for them with an annuity provider after the special election window and after all required government approvals for the termination of the pension plan are received.

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, 2017 and 2016:

	U.S. pension plans							Non-U.S. pension plans							Other post-retirement plans
In millions	2017			2016				2017			2016				2017			2016
Change in benefit obligations
Benefit obligation beginning of year	$	413.3		$	396.9			$	186.8		$	173.4			$	36.9		$	38.8
Service cost	10.3			11.2				8.0			6.6				0.2			0.2
Interest cost	16.3			16.4				4.2			4.1				1.3			1.5
Actuarial loss (gain)	40.0			0.9				(8.5		)	16.8				0.2			(0.5		)
Foreign currency translation	—			—				23.7			(9.2		)		—			—
Benefits paid	(16.9		)	(12.1		)		(7.0		)	(4.9		)		(3.0		)	(3.1		)
Benefit obligation end of year	$	463.0		$	413.3			$	207.2		$	186.8			$	35.6		$	36.9
Change in plan assets
Fair value of plan assets beginning of year	$	344.4		$	327.7			$	45.7		$	46.6			$	—		$	—
Actual return on plan assets	42.4			24.6				2.1			3.0				—			—
Company contributions	4.6			4.2				8.2			5.8				2.9			3.1
Foreign currency translation	—			—				3.7			(4.8		)		—			—
Benefits paid	(16.9		)	(12.1		)		(8.5		)	(4.9		)		(2.9		)	(3.1		)
Fair value of plan assets end of year	$	374.5		$	344.4			$	51.2		$	45.7			$	—		$	—
Funded status
Benefit obligations in excess of the fair value of plan assets	$	(88.5	)	$	(68.9	)		$	(156.0	)	$	(141.1	)		$	(35.6	)	$	(36.9	)

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	2017			2016				2017			2016				2017			2016
Other non-current assets	$	—		$	0.8			$	3.8		$	3.2			$	—		$	—
Current liabilities	(6.0		)	(4.4		)		(3.6		)	(2.9		)		(3.1		)	(3.2		)
Non-current liabilities	(82.5		)	(65.3		)		(156.2		)	(141.4		)		(32.5		)	(33.7		)
Benefit obligations in excess of the fair value of plan assets	$	(88.5	)	$	(68.9	)		$	(156.0	)	$	(141.1	)		$	(35.6	)	$	(36.9	)

The accumulated benefit obligation for all defined benefit plans was $656.7 million and $585.9 million at December 31, 2017 and 2016, respectively.

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	2017			2016				2017			2016
U.S. pension plans
Projected benefit obligation	$	463.0		$	87.2			$	463.0		$	87.2
Fair value of plan assets	374.5			17.5				374.5			17.5
Accumulated benefit obligation	N/A			N/A				460.3			86.3
Non-U.S. pension plans
Projected benefit obligation	$	182.4		$	165.2			$	170.3		$	165.2
Fair value of plan assets	22.6			20.9				11.4			20.9
Accumulated benefit obligation	NA			NA				160.5			155.7

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	2017			2016			2015				2017			2016			2015
Service cost	$	10.3		$	11.2		$	14.0			$	8.0		$	6.6		$	7.8
Interest cost	16.3			16.4			14.9				4.2			4.1			3.9
Expected return on plan assets	(11.5		)	(11.4		)	(10.0		)		(1.5		)	(1.5		)	(1.6		)
Net actuarial (gain) loss	9.1			(12.4		)	(18.0		)		(7.4		)	17.2			(2.4		)
Net periodic benefit expense	$	24.2		$	3.8		$	0.9			$	3.3		$	26.4		$	7.7

Components of net periodic benefit expense for our other post-retirement plans for the years ended December 31 2017, 2016 and 2015, 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	2017 (1)		2016		2015			2017		2016		2015			2017		2016		2015
Discount rate	3.39	%	4.02	%	4.21	%		2.18	%	2.00	%	2.52	%		3.40	%	3.80	%	3.95	%
Rate of compensation increase	4.00	%	4.00	%	4.00	%		2.93	%	2.91	%	2.90	%		—		—		—

(1)	The benefit obligation for the Salaried Plan as of December 31, 2017 was determined using assumptions reflecting the termination of the plan. As a result, the weighted-average assumptions for U.S. pension plans as December 31, 2017 reflected in the table above do not include the Salaried Plan.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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	2017		2016		2015			2017		2016		2015			2017		2016		2015
Discount rate	4.02	%	4.21	%	3.63	%		2.00	%	2.52	%	2.30	%		3.80	%	3.95	%	3.60	%
Expected long-term return on plan assets	4.11	%	4.28	%	3.65	%		3.02	%	3.29	%	3.57	%		—		—		—
Rate of compensation increase	4.00	%	4.00	%	4.00	%		2.91	%	2.90	%	2.89	%		—		—		—

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 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 3.39%, 4.02% and 4.21% in 2017, 2016 and 2015, respectively. The discount rates on our non-U.S. pension plans ranged from 0.50% to 3.50%, 0.50% to 4.00% and 0.50% to 4.25% in 2017, 2016 and 2015, respectively. There are no known or anticipated changes in our discount rate assumptions that will impact our pension expense in 2018.

Expected rates of return

Our expected rates of return on U.S. pension plan assets were 4.11%, 4.28% and 3.65% for 2017, 2016 and 2015, respectively. The expected rates of return on non-U.S. pension plan assets ranged from 1.00% to 5.50%, 1.00% to 5.50% and 1.00% to 6.00% in 2017, 2016 and 2015, 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 12.30%, 7.50% and (3.20)% in 2017, 2016 and 2015, 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:

	2017		2016
Healthcare cost trend rate assumed for following year	6.6	%	7.0	%
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, 2017:

	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	0.7			(0.6		)

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Pension plans assets

Objective

The primary objective of our investment strategy is to meet the pension obligation to our employees at a reasonable cost to us. This is primarily accomplished through growth of capital and safety of the funds invested.

Asset allocation

Our actual overall asset allocation for our U.S. and non-U.S. pension plans as compared to our investment policy goals as of December 31 was as follows:

	U.S. pension plans
	Actual					Target
Percentages	2017		2016			2017		2016
Fixed income	99	%	99	%		100	%	100	%
Alternative	1	%	1	%		—	%	—	%

	Non-U.S. pension plans
	Actual					Target
Percentages	2017		2016			2017		2016
Equity securities	22	%	23	%		24	%	23	%
Fixed income	53	%	46	%		51	%	48	%
Alternative	22	%	26	%		23	%	27	%
Cash	3	%	5	%		2	%	2	%

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Fair value measurement

The fair values of our pension plan assets and their respective levels in the fair value hierarchy as of December 31, 2017 and December 31, 2016 were as follows:

	December 31, 2017
In millions	Level 1			Level 2			Level 3			Total
Cash and cash equivalents	$	—		$	2.8		$	—		$	2.8
Fixed income:
Corporate and non U.S. government	—			289.5			—			289.5
U.S. treasuries	—			43.2			—			43.2
Mortgage-backed securities	—			3.3			—			3.3
Other	—			63.1			—			63.1
Global equity securities:
Small cap equity	—			1.2			—			1.2
International equity	—			10.2			—			10.2
Other investments	—			11.3			1.1			12.4
Total fair value of plan assets	$	—		$	424.6		$	1.1		$	425.7

	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

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

•	Cash and cash equivalents: Cash consists of cash held in bank accounts and 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.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Activity for our Level 3 pension plan assets held during the years ended December 31, 2017 and 2016 was not material.

Cash flows

Contributions

Pension contributions totaled $12.8 million and $10.0 million in 2017 and 2016, respectively. Our 2018 pension contributions are expected to be approximately $18.0 million to $21.0 million. The 2018 expected contributions will equal or exceed our minimum funding requirements.

Estimated future benefit payments

The following benefit payments, which reflect expected future service or payout from termination, as appropriate, are expected to be paid by the plans for the years ended December 31 as follows:

In millions	U.S. pension plans			Non-U.S. pension plans			Other post- retirement plans
2018	$	203.7		$	5.2		$	3.1
2019	178.3			5.8			3.0
2020	6.7			5.5			2.9
2021	6.7			6.1			2.8
2022	6.8			6.3			2.7
Thereafter	33.6			41.1			11.7

Savings plan

We have a 401(k) plan (the "401(k) plan") with an employee share ownership ("ESOP") bonus component, which covers certain union and all non-union U.S. employees who met certain age requirements. Under the 401(k) plan, eligible U.S. employees could voluntarily contribute a percentage of their eligible compensation. We matched contributions made by employees who met certain eligibility and service requirements. During 2017, 2016 and 2015, our matching contribution was 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 met certain service requirements received a discretionary ESOP contribution equal to 1.5% of annual eligible compensation.

As of January 1, 2018, the 401(k) company match contribution was changed to a dollar-for-dollar (100%) matching contribution on up to 5% of employee eligible earnings, contributed as before-tax contributions. This change will replace the ESOP component discussed above and offers the same 5% total company match.

Our combined expense for the 401(k) plan and the ESOP was $27.9 million, $27.1 million and $26.5 million in 2017, 2016 and 2015, respectively.

Other retirement compensation

Total other accrued retirement compensation, primarily related to deferred compensation and supplemental retirement plans, was $62.9 million and $61.0 million as of December 31, 2017 and 2016, respectively, and is included in Pension and other post-retirement compensation and benefits and Other non-current liabilities in the Consolidated Balance Sheets.

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

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.

In December 2015, we repurchased 3.1 million of our ordinary shares for $200 million under the 2014 authorization.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

During the year ended December 31, 2017, we repurchased 3.0 million of our ordinary shares for $200.0 million under the 2014 authorization. We have $600.0 million remaining availability for repurchases under the 2014 authorization.

Dividends payable

On December 5, 2017, the Board of Directors declared a quarterly cash dividend of $0.35 that was paid on February 9, 2018 to shareholders of record at the close of business on January 26, 2018. Additionally, the Board of Directors approved a plan to increase the 2018 annual cash dividend to $1.40, 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 $63.1 million at December 31, 2017. Dividends paid per ordinary share were $1.38, $1.34 and $1.28 for the years ended December 31, 2017, 2016 and 2015, respectively.

15.	Share Plans

Share-based compensation expense

Total share-based compensation expense for 2017, 2016 and 2015 was as follows:

	December 31
In millions	2017			2016			2015
Restricted stock units	$	17.5		$	17.3		$	21.6
Stock options	10.5			10.4			11.4
Performance share units	11.6			6.5			—
Total share-based compensation expense	$	39.6		$	34.2		$	33.0

Share incentive plans

In 2012, our Board of Directors, and Tyco International Ltd. ("Tyco") as our sole shareholder at the time, 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, 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 canceling and reissuing awards at lower prices.

The 2008 Omnibus Stock Incentive Plan as Amended and Restated (the "2008 Plan") terminated in 2012. Prior grants of restricted stock units and stock options made under the 2008 Plan and earlier stock incentive plans outstanding at the time of termination 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 one-third each year 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 commencing on the grant date, subject to continuous employment and certain other conditions. Restricted shares and restricted stock units are valued at market value on the date of grant and are expensed over the vesting period.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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 granting of performance share units 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, 2017:

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, 2017	5.7		$	45.72
Granted	0.9		59.09
Exercised	(1.2	)	37.00
Forfeited	(0.2	)	60.03
Expired	—		—
Outstanding as of December 31, 2017	5.2		$	49.49		5.5	$	113.7
Options exercisable as of December 31, 2017	3.4		$	46.00		4.0	$	87.5
Options expected to vest as of December 31, 2017	1.8		$	56.13		8.3	$	25.8

Fair value of options granted

The weighted average grant date fair value of options granted under Pentair plans in 2017, 2016 and 2015 was estimated to be $12.59, $9.74 and $16.40 per share, respectively. The total intrinsic value of options that were exercised during 2017, 2016 and 2015 was $34.3 million, $27.1 million and $20.8 million, respectively. At December 31, 2017, the total unrecognized compensation cost related to stock options was $9.8 million. This cost is expected to be recognized over a weighted average period of 2.0 years.

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
	2017			2016			2015
Risk-free interest rate	1.65	%		1.56	%		1.60	%
Expected dividend yield	2.35	%		2.49	%		1.97	%
Expected share price volatility	26.9	%		27.3	%		30.4	%
Expected term (years)	6.3			5.9			6.0

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, 2017, 2016 and 2015 was $46.0 million, $31.6 million and $28.7 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $7.8 million, $5.5 million and $4.8 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Restricted stock units

The following table summarizes restricted stock unit activity under all plans for the year ended December 31, 2017:

Shares in millions	Number of shares		Weighted average grant date fair value
Outstanding as of January 1, 2017	0.7		$	55.31
Granted	0.4		61.27
Vested	(0.4	)	56.73
Forfeited	(0.1	)	54.35
Outstanding as of December 31, 2017	0.6		$	57.96

As of December 31, 2017, there was $39.6 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 2.8 years. The total fair value of shares vested during the years ended December 31, 2017, 2016 and 2015, was $21.7 million, $27.2 million and $26.0 million, respectively. For the years ended December 31, 2017 and 2016, there was no actual tax benefit realized. The actual tax benefit realized for the years ended December 31, 2015 was $2.4 million.

Performance share units

The following table summarizes performance share unit activity under all plans for the year ended December 31, 2017:

Shares in millions	Number of shares		Weighted average grant date fair value
Outstanding as of January 1, 2017	0.3		$	49.54
Granted	0.2		58.40
Vested	—		—
Forfeited	—		—
Outstanding as of December 31, 2017	0.5		$	53.56

The expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued. As of December 31, 2017, there was $10.5 million of unrecognized compensation cost related to performance share compensation arrangements granted under the 2012 Plan and previous plans. That cost is expected to be recognized over a weighted-average period of 1.6 years. There were no actual tax benefits realized related to performance share compensation arrangements for the year ended December 31, 2017.

16.	Segment Information

We classify our operations into the following business segments based primarily on types of products offered and markets served:

•	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.

•	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.

•	Other — Other is primarily composed of unallocated corporate expenses, our captive insurance subsidiary and intermediate finance companies.

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

Pentair plc and Subsidiaries

Notes to consolidated financial statements

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.

Financial information by reportable segment is included in the following summary:

	2017			2016			2015				2017			2016			2015
In millions	Net sales										Segment income (loss)
Water	$	2,844.4		$	2,777.7		$	2,808.3			$	546.0		$	494.0		$	469.0
Electrical	2,097.9			2,116.0			1,809.3				447.0			447.2			395.0
Other	(5.8		)	(3.7		)	(1.2		)		(95.8		)	(101.7		)	(108.8		)
Consolidated	$	4,936.5		$	4,890.0		$	4,616.4			$	897.2		$	839.5		$	755.2

	2017			2016			2015				2017			2016			2015
In millions	Identifiable assets (1)										Depreciation
Water	$	3,667.1		$	3,465.5		$	3,624.5			$	45.6		$	46.8		$	45.3
Electrical	4,634.1			4,419.3			4,488.4				34.3			31.6			27.6
Other	332.5			3,650.0			3,720.6				5.3			6.2			8.3
Consolidated	$	8,633.7		$	11,534.8		$	11,833.5			$	85.2		$	84.6		$	81.2

		2017			2016			2015
In millions		Capital expenditures
Water		$	36.1		$	40.8		$	41.5
Electrical		31.8			74.5			47.4
Other		3.0			2.5			2.4
Consolidated		$	70.9		$	117.8		$	91.3

(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 income from continuing operations before income taxes:

In millions	2017			2016			2015
Segment income	$	897.2		$	839.5		$	755.2
Deal related costs and expenses	—			—			(14.3		)
Inventory step-up	—			—			(35.7		)
Restructuring and other	(30.7		)	(20.6		)	(42.5		)
Separation costs	(53.1		)	—			—
Intangible amortization	(97.7		)	(96.4		)	(68.1		)
Pension and other post-retirement mark-to-market (loss) gain	(1.6		)	(4.2		)	23.0
Trade name and other impairment	(32.0		)	(13.3		)	—
Loss on sale of businesses	(4.2		)	(3.9		)	(3.2		)
Loss on early extinguishment of debt	(101.4		)	—			—
Interest expense, net	(87.3		)	(140.1		)	(101.9		)
Income from continuing operations before income taxes	$	489.2		$	561.0		$	512.5

Pentair plc and Subsidiaries

Notes to consolidated financial statements

The following tables present certain geographic information by region:

	2017			2016			2015				2017			2016			2015
In millions	Net sales										Long-lived assets
U.S.	$	2,973.7		$	2,897.1		$	2,634.0			$	301.4		$	309.5		$	285.9
Western Europe	827.2			796.0			727.6				61.7			138.6			150.7
Developing (1)	723.7			704.0			731.6				157.1			65.2			60.3
Other Developed (2)	411.9			492.9			523.2				25.3			25.3			42.9
Consolidated	$	4,936.5		$	4,890.0		$	4,616.4			$	545.5		$	538.6		$	539.8
(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 2017, 2016, or 2015.

17.	Commitments and Contingencies

Operating lease commitments

Net rental expense under operating leases was as follows:

	Years ended December 31
In millions	2017			2016			2015
Gross rental expense	$	40.4		$	37.5		$	26.4
Sublease rental income	(0.3		)	(0.7		)	(0.4		)
Net rental expense	$	40.1		$	36.8		$	26.0

Future minimum lease commitments under non-cancelable operating leases, principally related to facilities, machinery, equipment and vehicles as of December 31, 2017 were as follows:

In millions	2018			2019			2020			2021			2022			Thereafter			Total
Minimum lease payments	$	34.3		$	29.1		$	21.2		$	15.6		$	13.1		$	15.1		$	128.4
Minimum sublease rentals	(0.3		)	—			—			—			—			—			(0.3		)
Net future minimum lease commitments	$	34.0		$	29.1		$	21.2		$	15.6		$	13.1		$	15.1		$	128.1

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.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Generally, the maximum obligation under such indemnifications is not explicitly stated and as a result, the overall amount of these obligations cannot be reasonably estimated. Historically, we have not made significant payments for these indemnifications. We believe that if we were to incur a loss in any of these matters, the loss would not have a material effect on our financial position, results of operations or cash flows.

We recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. In connection with the disposition of the Valves & Controls business, we agreed to indemnify Emerson Electric Co. for certain pre-closing tax liabilities. During the second quarter of 2017, we recorded a liability representing the fair value of our expected future obligation for this matter.

We provide service and warranty policies on our products. Liability under service and warranty policies is based upon a review of historical warranty and service claim experience. Adjustments are made to accruals as claim data and historical experience warrant.

The changes in the carrying amount of service and product warranties for the years ended December 31, 2017 and 2016 were as follows:

	Years ended December 31
In millions	2017			2016
Beginning balance	$	38.9		$	47.0
Service and product warranty provision	64.1			59.7
Payments	(62.7		)	(67.3		)
Foreign currency translation	0.7			(0.5		)
Ending balance	$	41.0		$	38.9

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. "Flow Control" refers to Pentair Ltd. prior to the Merger. 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, 2017 and 2016, the outstanding value of bonds, letters of credit and bank guarantees totaled $201.5 million and $331.0 million, respectively.

Pentair plc and Subsidiaries

Notes to consolidated financial statements

18.	Selected Quarterly Data (Unaudited)

The following tables present 2017 and 2016 quarterly financial information:

	2017
In millions, except per-share data	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Full Year
Net sales	$	1,183.5		$	1,265.3		$	1,226.8		$	1,260.9		$	4,936.5
Gross profit	422.3			483.2			455.3			468.3			1,829.1
Operating income	138.4			212.8			192.2			137.4			680.8
Net income from continuing operations	80.7			68.3			127.1			203.9			480.0
Income (loss) from discontinued operations, net of tax	7.1			(5.2		)	—			3.5			5.4
Gain (loss) from sale of discontinued operations, net of tax	—			200.6			(1.7		)	(17.8		)	181.1
Net income	87.8			263.7			125.4			189.6			666.5
Earnings per ordinary share (1)
Basic
Continuing operations	$	0.44		$	0.38		$	0.70		$	1.12		$	2.64
Discontinued operations	0.04			1.07			(0.01		)	(0.07		)	1.03
Basic earnings per ordinary share	$	0.48		$	1.45		$	0.69		$	1.05		$	3.67
Diluted
Continuing operations	$	0.44		$	0.37		$	0.69		$	1.11		$	2.61
Discontinued operations	0.04			1.06			(0.01		)	(0.07		)	1.02
Diluted earnings per ordinary share	$	0.48		$	1.43		$	0.68		$	1.04		$	3.63

	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

(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 2017 includes decreases in operating income due to $30.7 million of separation costs, $25.2 million of trade name and other impairment charges and $1.6 million of "mark-to-market" actuarial losses on pension and other post-retirement benefit plans. Second quarter 2017 includes decreases in net income from continuing operations due to a $101.4 million loss on early extinguishment of debt. First quarter 2017 includes decreases in operating income due to $20.9 million of restructuring

Pentair plc and Subsidiaries

Notes to consolidated financial statements

and other costs. Fourth quarter 2016 includes decreases in operating income due to trade name impairment charges of $13.3 million in Electrical and "mark-to-market" actuarial losses on pension and other post-retirement benefit plans of $4.2 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.à r.l. (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, 2017, 2016 and 2015 and Condensed Consolidating Balance Sheet as of December 31, 2017 and 2016. Condensed Consolidating financial information for Pentair plc, Pentair Investments Switzerland GmbH and Pentair Finance S.à r.l. on a stand-alone basis is presented using the equity method of accounting for subsidiaries.

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, 2017

In millions	Parent Company Guarantor			Subsidiary Guarantor			Subsidiary Issuer			Non-guarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	—		$	—		$	4,936.5		$	—		$	4,936.5
Cost of goods sold	—			—			—			3,107.4			—			3,107.4
Gross profit	—			—			—			1,829.1			—			1,829.1
Selling, general and administrative	4.1			0.6			—			1,027.8			—			1,032.5
Research and development	—			—			—			115.8			—			115.8
Operating (loss) income	(4.1		)	(0.6		)	—			685.5			—			680.8
Loss (earnings) from continuing operations of investment in subsidiaries	(483.2		)	(482.6		)	(644.4		)	—			1,610.2			—
Other (income) expense:
Loss on sale of businesses	—			—			—			4.2			—			4.2
Loss on early extinguishment of debt	—			—			91.0			10.4			—			101.4
Equity income of unconsolidated subsidiaries	—			—			—			(1.3		)	—			(1.3		)
Interest income	—			(0.6		)	(69.2		)	(63.7		)	123.6			(9.9		)
Interest expense	—			—			139.9			80.9			(123.6		)	97.2
Income (loss) from continuing operations before income taxes	479.1			482.6			482.7			655.0			(1,610.2		)	489.2
Provision (benefit) for income taxes	(0.9		)	—			—			10.1			—			9.2
Net income (loss) from continuing operations	480.0			482.6			482.7			644.9			(1,610.2		)	480.0
Income from discontinued operations, net of tax	—			—			—			5.4			—			5.4
Gain from sale of discontinued operations, net of tax	—			—			—			181.1			—			181.1
Earnings (loss) from discontinued operations of investment in subsidiaries	186.5			186.5			186.5			—			(559.5		)	—
Net income (loss)	$	666.5		$	669.1		$	669.2		$	831.4		$	(2,169.7	)	$	666.5
Comprehensive income (loss), net of tax
Net income (loss)	$	666.5		$	669.1		$	669.2		$	831.4		$	(2,169.7	)	$	666.5
Changes in cumulative translation adjustment	497.5			497.5			497.5			497.5			(1,492.5		)	497.5
Changes in market value of derivative financial instruments, net of tax	(4.6		)	(4.6		)	(4.6		)	(4.6		)	13.8			(4.6		)
Comprehensive income (loss)	$	1,159.4		$	1,162.0		$	1,162.1		$	1,324.3		$	(3,648.4	)	$	1,159.4

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Pentair plc and Subsidiaries

Condensed Consolidating Balance Sheet

December 31, 2017

In millions	Parent Company Guarantor			Subsidiary Guarantor			Subsidiary Issuer			Non-guarantor Subsidiaries			Eliminations			Consolidated Total
Assets
Current assets
Cash and cash equivalents	$	—		$	—		$	—		$	113.3		$	—		$	113.3
Accounts and notes receivable, net	—			—			—			831.6			—			831.6
Inventories	—			—			—			581.0			—			581.0
Other current assets	10.8			1.8			1.5			239.3			(30.5		)	222.9
Total current assets	10.8			1.8			1.5			1,765.2			(30.5		)	1,748.8
Property, plant and equipment, net	—			—			—			545.5			—			545.5
Other assets
Investments in subsidiaries	5,205.1			5,109.6			7,156.1			—			(17,470.8		)	—
Goodwill	—			—			—			4,351.1			—			4,351.1
Intangibles, net	—			—			—			1,558.4			—			1,558.4
Long-term intercompany debt	—			94.1			614.0			(708.1		)	—			—
Other non-current assets	2.2			—			—			2,317.1			(1,889.4		)	429.9
Total other assets	5,207.3			5,203.7			7,770.1			7,518.5			(19,360.2		)	6,339.4
Total assets	$	5,218.1		$	5,205.5		$	7,771.6		$	9,829.2		$	(19,390.7	)	$	8,633.7
Liabilities and Equity
Current liabilities
Accounts payable	1.4			—			—			494.3			—			495.7
Employee compensation and benefits	0.4			—			—			186.2			—			186.6
Other current liabilities	99.6			0.4			9.4			438.2			(30.5		)	517.1
Total current liabilities	101.4			0.4			9.4			1,118.7			(30.5		)	1,199.4
Other liabilities
Long-term debt	48.4			—			2,652.8			628.9			(1,889.4		)	1,440.7
Pension and other post-retirement compensation and benefits	—			—			—			285.6			—			285.6
Deferred tax liabilities	—			—			—			394.8			—			394.8
Other non-current liabilities	30.5			—			—			244.9			—			275.4
Total liabilities	180.3			0.4			2,662.2			2,672.9			(1,919.9		)	3,595.9
Equity	5,037.8			5,205.1			5,109.4			7,156.3			(17,470.8		)	5,037.8
Total liabilities and equity	$	5,218.1		$	5,205.5		$	7,771.6		$	9,829.2		$	(19,390.7	)	$	8,633.7

Pentair plc and Subsidiaries

Notes to consolidated financial statements

Pentair plc and Subsidiaries

Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2017

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	$	677.0		$	670.6		$	661.3		$	781.0		$	(2,169.7	)	$	620.2
Investing activities
Capital expenditures	—			—			—			(70.9		)	—			(70.9		)
Proceeds from sale of property and equipment	—			—			—			7.9			—			7.9
Proceeds from sale of businesses	—			—			2,765.6			(6.2		)	—			2,759.4
Acquisitions, net of cash acquired	—			—			—			(59.5		)	—			(59.5		)
Net intercompany loan activity	—			(58.9		)	103.7			172.6			(217.4		)	—
Net cash provided by (used for) investing activities of continuing operations	—			(58.9		)	2,869.3			43.9			(217.4		)	2,636.9
Net cash provided by (used for) investing activities of discontinued operations	—			—			—			(6.5		)	—			(6.5		)
Net cash provided by (used for) investing activities	—			(58.9		)	2,869.3			37.4			(217.4		)	2,630.4
Financing activities
Net repayments of short-term borrowings	—			—			—			(0.8		)	—			(0.8		)
Net receipts (repayments) of commercial paper and revolving long-term debt	—			—			(914.7		)	1.6			—			(913.1		)
Repayment of long-term debt	—			—			(1,917.8		)	(91.5		)	—			(2,009.3		)
Premium paid on early extinguishment of debt	—			—			(86.0		)	(8.9		)	—			(94.9		)
Net change in advances to subsidiaries	(262.5		)	(611.7		)	(685.9		)	(827.0		)	2,387.1			—
Shares issued to employees, net of shares withheld	37.2			—			—			—			—			37.2
Repurchases of ordinary shares	(200.0		)	—			—			—			—			(200.0		)
Dividends paid	(251.7		)	—			—			—			—			(251.7		)
Net cash provided by (used for) financing activities	(677.0		)	(611.7		)	(3,604.4		)	(926.6		)	2,387.1			(3,432.6		)
Effect of exchange rate changes on cash and cash equivalents	—			—			73.8			(17.0		)	—			56.8
Change in cash and cash equivalents	—			—			—			(125.2		)	—			(125.2		)
Cash and cash equivalents, beginning of year	—			—			—			238.5			—			238.5
Cash and cash equivalents, end of year	$	—		$	—		$	—		$	113.3		$	—		$	113.3

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	—			—			—			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

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

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
Proceeds from sale of businesses, net	—			—			—			(5.2		)	—			(5.2		)
Acquisitions, net of cash acquired	—			—			—			(25.0		)	—			(25.0		)
Net intercompany loan activity	—			—			667.3			(191.0		)	(476.3		)	—
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 from 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

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
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	—			—			—			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	)

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		)	—
Proceeds from sale of businesses and 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 of 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