Item 1. BUSINESS

GENERAL

At Pentair plc, we believe the health of our world depends on reliable access to clean, safe water. We deliver a comprehensive range of smart, sustainable water solutions to homes, business and industry around the world. Whether it’s improving, moving or enjoying water, we help manage the world’s most precious resource. Smart, Sustainable Water Solutions. For Life.

In 2019, Pentair plc was comprised of three reportable business segments: Aquatic Systems, Filtration Solutions and Flow Technologies. See below for further discussion of each of these segments.

Pentair strategy

Our vision is to be the leading residential and commercial water treatment company. As a pure play water company, we are:

•	Focused on strategies to advance pool growth and accelerate residential and commercial water treatment;

•	Accelerated by innovation and digital transformation; and

•	Grounded in Win Right values and utilizing the Pentair Integrated Management System (“PIMS”) consisting of lean enterprise, growth and talent management to drive sustained and consistent performance.

Unless the context otherwise indicates, references herein to “Pentair,” the “Company,” and such words as “we,” “us,” and “our” include Pentair plc and its consolidated subsidiaries. We are an Irish public limited company that was formed in 2014. We are the successor to Pentair Ltd., a Swiss corporation formed in 2012, and Pentair, Inc., a Minnesota corporation formed in 1966 and our wholly-owned subsidiary, under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Although our jurisdiction of organization is Ireland, we manage our affairs so that we are centrally managed and controlled in the United Kingdom (the “U.K.”) and therefore have our tax residency in the U.K.

HISTORY AND DEVELOPMENT

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. The Valves & Controls business was previously disclosed as a stand-alone reporting segment.

On April 30, 2018, Pentair completed the separation of its Electrical business from the rest of Pentair (the “Separation”) by means of a dividend in specie of the Electrical business, which was effected by the transfer of the Electrical business from Pentair to nVent Electric plc (“nVent”) and the issuance by nVent of ordinary shares directly to Pentair shareholders (the “Distribution”). On May 1, 2018, following the Separation and Distribution, nVent became an independent publicly traded company, trading on the New York Stock Exchange under the symbol “NVT.” The Company did not retain any equity interest in nVent. nVent’s historical financial results are reflected in the Company’s consolidated financial statements as a discontinued operation. Refer to Note 2 for further discussion.

Our registered principal office is located at Regal House, 70 London Road, Twickenham, London, TW13QS United Kingdom. Our management office in the United States (“U.S.”) is located at 5500 Wayzata Boulevard, Suite 900, Minneapolis, Minnesota.

BUSINESS AND PRODUCTS

The following is a brief description of each of the Company’s 2019 reportable segments and business activities. Commencing with the first quarter of 2020 we revised our segments, going from three segments to two with the two revised segments named Consumer Solutions and Industrial & Flow Technologies. The discussions below that speak to historical periods refer to the prior segments, while statements about present and future periods refer to the businesses underlying those segments and carry forward with those businesses (including our customers, seasonality and competition) in their re-segmented form. Additional information regarding this re-segmentation is found below under the section titled “New Segmentation.”

Aquatic Systems

The Aquatic Systems segment manufactures and sells a complete line of energy-efficient residential and commercial pool equipment and accessories including pumps, filters, heaters, lights, automatic controls, automatic cleaners, maintenance equipment and pool accessories. Applications for our Aquatic Systems products include residential and commercial pool maintenance, pool repair, renovation, service and construction solutions.

Brand names for Aquatic Systems include Kreepy Krauly, Pentair and Sta-Rite.

Customers

Aquatic Systems customers include businesses engaged in wholesale and retail distribution in the residential & commercial verticals. Customers in the residential & commercial verticals also include end-users and consumers. Pentair’s verticals include residential, commercial, and industrial businesses.

One customer of the Aquatic Systems segment, Pool Corporation, represented approximately 15% of our consolidated net sales in 2019, 2018 and 2017.

Seasonality

We experience seasonal demand with several end customers and end-users within Aquatic Systems. End-user demand for pool equipment follows warm weather trends and is at season highs from April to August. The magnitude of the sales increase is mitigated by employing some advance sale “early buy” programs (generally including extended payment terms and/or additional discounts).

Competition

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

Filtration Solutions

The Filtration Solutions segment designs, manufactures, markets and services innovative water solutions to meet filtration and separation challenges across residential, commercial, food & beverage and industrial applications.

Filtration Solutions offers a comprehensive product suite of components and systems that ranges from point-of-entry and point-of-use filtration, valves and automated controls for residential and commercial applications as well as advanced filtration, oil & gas separation, membrane technology, and energy recovery for food & beverage and industrial applications. Our equipment and solutions are found in water purification and sanitation systems, food service operations, food & beverage processing plants and in other applications across the globe.

The portfolio of products serves a range of industries, including use in the commercial, residential and industrial verticals. Brand names for Filtration Solutions offerings include Codeline, Everpure, Haffmans, Pelican, RainSoft, Südmo and X-Flow.

Customers

Filtration Solutions customers include businesses engaged in wholesale and retail distribution in the residential, commercial, food & beverage and industrial verticals. Customers in the residential and commercial vertical also include end-users, consumers and original equipment manufacturers.

Seasonality

We experience seasonal demand with several end customers and end-users within Filtration Solutions. End-user demand for water filtration products generally follows warm weather trends and is at seasonal highs from April to July.

Competition

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

Flow Technologies

The Flow Technologies segment manufactures and sells products ranging from light duty diaphragm pumps to high-flow turbine pumps and solid handling pumps while serving the global residential, commercial and industrial markets. These pumps are used in a range of applications, including residential and municipal wells, water treatment, wastewater solids handling, pressure boosting, fluid delivery, circulation and transfer, fire suppression, flood control, agricultural irrigation and crop spray.

Brand names for Flow Technologies include Aurora, Berkeley, Fairbanks-Nijhuis, Hydromatic, Hypro, Jung Pumpen, Pentair, Myers, Sta-Rite, and Shurflo.

Customers

Flow Technologies customers include businesses engaged in wholesale and retail distribution in the residential & commercial, food & beverage and industrial verticals. Customers also include end-users and consumers in the residential & commercial vertical.

Seasonality

We experience increased demand for residential water supply, infrastructure and agricultural products following warm weather trends, which are at season highs from April to August. The magnitude of the sales increase is mitigated by employing some advance sale “early buy” programs (generally including extended payment terms and/or additional discounts). Seasonal effects may vary from year to year and are impacted by weather patterns, particularly by temperatures, heavy flooding and droughts.

Competition

Flow Technologies faces numerous domestic and international competitors, some of which have substantially greater resources directed to the verticals in which we compete. Competition focuses on brand names, product performance (including energy-efficient offerings and required specifications), quality, service and price. We compete by offering a wide variety of innovative and high-quality products, which are competitively priced.

NEW SEGMENTATION

During the first quarter of 2020, we reorganized our business segments to better align our organization with our strategies and to better align with our customer base, resulting in a change to our reporting segments in 2020. We believe the new alignment into a business-to-consumer focused segment, Consumer Solutions, and primarily business-to-business driven segment, Industrial & Flow Technologies, better positions our teams to build upon our core strengths, more aggressively pursue our growth opportunities, increase productivity, and enhance profitability.

As part of this reorganization, the legacy Aquatic Systems reporting segment was combined with the Residential and Commercial Systems and Components businesses of the legacy Filtrations Solutions reporting segment to form the Consumer Solutions reporting segment. In addition, the Industrial Filtration and Food and Beverage businesses of the legacy Filtration Solutions reporting segment were combined with the legacy Flow Technologies reporting segment to form the Industrial & Flow Technologies reporting segment. All segment information presented throughout this Annual Report on Form 10-K, with exception of the table below, was prepared based on the reporting segments in place during 2019.

The below table presents net sales and segment income under the revised reporting segments (Consumer Solutions and Industrial & Flow Technologies) for the years ended December 31, 2019, 2018 and 2017.

	December 31
In millions	2019			2018			2017
Net Sales
Consumer Solutions	$	1,611.7		$	1,578.4		$	1,489.5
Industrial & Flow Technologies	1,344.1			1,385.4			1,354.9
Other	1.4			1.3			1.3
Consolidated	$	2,957.2		$	2,965.1		$	2,845.7
Segment income (loss)
Consumer Solutions	$	379.6		$	392.9		$	372.0
Industrial & Flow Technologies	199.0			198.8			177.2
Other	(62.3		)	(54.9		)	(52.7		)
Consolidated	$	516.3		$	536.8		$	496.5

INFORMATION REGARDING ALL REPORTABLE SEGMENTS

Backlog of orders by segment

	December 31
In millions	2019			2018			$ change			% change
Aquatic Systems	$	93.6		$	80.3		$	13.3		16.6	%
Filtration Solutions	76.1			96.2			(20.1		)	(20.9	)%
Flow Technologies	155.3			156.0			(0.7		)	(0.4	)%
Total	$	325.0		$	332.5		$	(7.5	)	(2.3	)%

A substantial portion of our revenues result from orders received and products delivered in the same month. Our backlog typically has a short manufacturing cycle and products generally ship within 90 days of the date on which a customer places an order. However, a portion of our backlog, particularly from orders for major capital projects, can take more than one year depending on the size and type of order. We record as part of our backlog all orders from external customers, which represent firm commitments, and are supported by a purchase order or other legitimate contract. We expect the majority of our backlog at December 31, 2019 will be shipped in 2020.

Research and development

We conduct research and development activities primarily in our own facilities. These efforts consist primarily of the development of new products, product applications and manufacturing processes.

Raw materials

The principal materials we use in manufacturing our products are electric motors, mild steel, stainless steel, electronic components, plastics (resins, fiberglass, epoxies), copper and paint (powder and liquid). In addition to the purchase of raw materials, we purchase some finished goods for distribution through our sales channels.

We purchase the materials we use in various manufacturing processes on the open market, and the majority is available through multiple sources which are in adequate supply. We have not experienced any significant work stoppages to date due to shortages of materials. We have certain long-term commitments, principally price commitments, for the purchase of various component parts and raw materials and believe that it is unlikely that any of these agreements would be terminated prematurely. Alternate sources of supply at competitive prices are available for most materials for which long-term commitments exist, and we believe that the termination of any of these commitments would not have a material adverse effect on our financial position, results of operations or cash flows.

Certain commodities, such as metals and resin, are subject to market and duty-driven price fluctuations. We manage these fluctuations through several mechanisms, including long-term agreements with price adjustment clauses for significant commodity market movements in certain circumstances. Prices for raw materials, such as metals and resins, may trend higher in the future.

Intellectual property

Patents, non-compete agreements, proprietary technologies, customer relationships, trademarks, trade names and brand names are important to our business. However, we do not regard our business as being materially dependent upon any single patent, non-compete agreement, proprietary technology, customer relationship, trademark, trade name or brand name.

Patents, patent applications and license agreements will expire or terminate over time by operation of law, in accordance with their terms or otherwise. We do not expect the termination of patents, patent applications or license agreements to have a material adverse effect on our financial position, results of operations or cash flows.

Employees

As of December 31, 2019, we employed approximately 9,500 people worldwide.

Captive insurance subsidiary

A portion of our property and casualty insurance program is insured through our regulated wholly-owned captive insurance subsidiary, Penwald Insurance Company (“Penwald”). Reserves for policy claims are established based on actuarial projections of ultimate losses. Accruals with respect to liabilities insured by third parties, such as liabilities arising from acquired businesses, pre-Penwald liabilities and those of certain non-U.S. operations are established.

Matters pertaining to Penwald are discussed in ITEM 3 and ITEM 8, Note 1 of the Notes to Consolidated Financial Statements – Insurance subsidiary, included in this Form 10-K.

Available information

We make available free of charge (other than an investor’s own Internet access charges) through our Internet website (http://www.pentair.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). Reports of beneficial ownership filed by our directors and executive officers pursuant to Section 16(a) of the Exchange Act are also available on our website. We are not including the information contained on our website as part of or incorporating it by reference into, this Annual Report on Form 10-K.