OPERATIONS


Forward-looking statements
This report contains statements that we believe to be "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements, other than statements of historical fact are
forward-looking statements. Without limitation, any statements preceded or
followed by or that include the words "targets," "plans," "believes," "expects,"
"intends," "will," "likely," "may," "anticipates," "estimates," "projects,"
"should," "would," "could," "positioned," "strategy," "future" or words, phrases
or terms of similar substance or the negative thereof, are forward-looking
statements. These forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties, assumptions and other
factors, some of which are beyond our control, which could cause actual results
to differ materially from those expressed or implied by such forward-looking
statements. These factors include the overall impact of the COVID-19 pandemic on
our business; the duration and severity of the COVID-19 pandemic; actions that
may be taken by us, other businesses and governments to address or otherwise
mitigate the impact of the COVID-19 pandemic, including those that may impact
our ability to operate our facilities, meet production demands, and deliver
products to our customers; the negative impacts of the COVID-19 pandemic on the
global economy, our customers and suppliers, and customer demand; overall global
economic and business conditions impacting our business, including the strength
of housing and related markets; demand, competition and pricing pressures in the
markets we serve; volatility in currency exchange rates; failure of markets to
accept new product introductions and enhancements; the ability to successfully
identify, finance, complete and integrate acquisitions; the ability to achieve
the benefits of our restructuring plans and cost reduction initiatives; risks
associated with operating foreign businesses; the impact of material cost and
other inflation; the impact of seasonality of sales and weather conditions; our
ability to comply with laws and regulations; the impact of changes in laws,
regulations and administrative policy, including those that limit U.S. tax
benefits or impact trade agreements and tariffs; the outcome of litigation and
governmental proceedings; and the ability to achieve our long-term strategic
operating goals. Additional information concerning these and other factors is
contained in our filings with the U.S. Securities and Exchange Commission (the
"SEC"), including this Annual Report on Form 10-K. All forward-looking
statements speak only as of the date of this report. Pentair assumes no
obligation, and disclaims any obligation, to update the information contained in
this report.
Overview
Pentair plc and its consolidated subsidiaries ("we," "us," "our," "Pentair" or
the "Company") is a pure play water industrial manufacturing company comprised
of two reporting segments: Consumer Solutions and Industrial & Flow
Technologies. We classify our operations into business segments based primarily
on types of products offered and markets served. For the year ended December 31,
2020, the Consumer Solutions and Industrial & Flow Technologies segments
represented approximately 58% and 42% of total revenues, respectively.
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.
On April 30, 2018, we completed the separation of our 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 and the issuance by nVent of nVent ordinary
shares directly to Pentair shareholders (the "Distribution"). We did not retain
an equity interest in nVent. The results of the Electrical business have been
presented as discontinued operations for all periods presented. The Electrical
business was previously disclosed as a stand-alone reporting segment.
In February 2019, as part of Consumer Solutions, we completed the acquisitions
of Aquion, Inc. ("Aquion") and Pelican Water Systems ("Pelican") for $163.4
million and $121.1 million, respectively, in cash, net of cash acquired and
final working capital true-ups. Aquion offers a diverse line of water
conditioners, water filters, drinking-water purifiers, ozone and ultraviolet
disinfection systems, reverse osmosis systems and acid neutralizers for the
residential and commercial water treatment industry. Pelican provides
residential whole home water treatment systems.
COVID-19 Pandemic
In March 2020, the World Health Organization declared the COVID-19 outbreak a
pandemic. The COVID-19 pandemic continues to spread throughout the United States
("U.S.") and the world, with the continued potential for significant impact. The
COVID-19 pandemic has resulted in governments around the world implementing
increasingly stringent measures to help control the spread of the virus,
including quarantines, "shelter-in-place" and "stay-at-home" orders, travel
restrictions, business curtailments, limits on gatherings, and other measures.
In addition, governments and central banks in several parts of the world have
enacted fiscal and monetary stimulus measures to counteract the economic impacts
of the COVID-19 pandemic. The effects of the COVID-19 pandemic have had and may
continue to have an unfavorable impact on certain parts of our business.

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Health and safety
From the earliest signs of the outbreak, we have taken proactive action to
protect the health and safety of our employees, customers, and suppliers. We
have enacted rigorous safety measures in our sites, including implementing
social distancing protocols, implementing working from home arrangements for
those employees who do not need to be physically present on the manufacturing
floor and do not provide manufacturing-support activities, suspending travel,
extensively and frequently disinfecting our workspaces, conducting temperature
monitoring at our facilities, and providing or accommodating the wearing of
facial coverings to those employees who must be physically present in their
workplace and where facial coverings are required by local government orders. We
expect to continue to implement these measures until we determine that the
COVID-19 pandemic is adequately contained for purposes of our business, and we
may take further actions as government authorities require or recommend or as we
determine to be in the best interests of our employees, customers, and
suppliers. For the year ended December 31, 2020, we incurred $10.4 million of
costs related to providing for the health and safety of our employees specific
to the COVID-19 pandemic.
Operations
We have important manufacturing operations in the U.S. and around the world that
have been affected by the COVID-19 pandemic, and we have taken certain actions
to help curb its spread. Government-mandated measures providing for business
curtailments or shutdowns generally exclude certain essential businesses and
services, including businesses that manufacture and sell products that are
considered essential to daily lives or otherwise operate in essential or
critical sectors. While substantially all of our manufacturing facilities are
considered essential and have remained operational, we have experienced
intermittent partial or full factory closures at certain facilities as a result
of these measures or the need to sanitize the facilities and address employee
well-being. We also experienced brief interruptions in operations due to
government-mandated shutdowns at our sites in India, Italy, and New Zealand
during the year ended December 31, 2020. While sanitation-related closures or
governmental shutdowns may occur again in the future, all of our manufacturing
facilities currently remain operational. In addition, we have experienced
disruptions at some of our facilities with higher absenteeism due to the
COVID-19 pandemic.
Supply
The COVID-19 pandemic has impacted our factory productivity and supply chain.
Certain of our suppliers, particularly in our pool and flow businesses, faced
difficulties maintaining operations in light of manufacturing shutdowns and
interruptions due to the COVID-19 pandemic, which negatively impacted our
production and contributed to an increase in backlog. During the third quarter
of 2020, we identified second source suppliers and increased supply for key
items in our pool business to reduce the production and capacity challenges we
encountered in the second quarter of 2020 as a result of supply chain issues and
increased demand. These supply chain and capacity challenges have led to higher
transportation and labor costs in order to timely deliver finished goods to our
customers. Restrictions or disruptions of transportation, such as reduced
availability of air transport, port closures and increased border controls or
closures, have in certain cases resulted, and may continue to result, in higher
costs and delays, both for obtaining raw materials and components and shipping
finished goods to customers, which could harm our profitability, make our
products less competitive, or cause our customers to seek alternative suppliers.
Although we regularly monitor the financial health and operations of companies
in our supply chain, and use alternative suppliers when necessary and available,
financial hardship or government restrictions on our suppliers or sub-suppliers
caused by the COVID-19 pandemic could cause a disruption in our ability to
obtain raw materials or components required to manufacture our products and
adversely affect our operations.
Demand
The COVID-19 pandemic has significantly increased economic and demand
uncertainty. We have experienced and expect to continue to experience reductions
in customer demand in several of our end-markets.
Within our Consumer Solutions segment, the COVID-19 pandemic has impacted demand
in each of our businesses. Our pool business has experienced high demand as
consumers sheltered-in-place and have spent more time at home. While
shelter-in-place orders impacted our ability to reach our customers in our
residential water treatment business at the beginning of the second quarter of
2020, we started to see stabilization in demand in this business towards the end
of the second quarter and then saw demand rebound in the second half of 2020 as
consumers became more comfortable allowing dealers back into their homes to test
their water and install new systems. Our commercial filtration business was
negatively impacted by restaurant and hospitality industry closures or
operations at limited capacity across North America and Europe in the second
quarter and to a lesser extent in the second half of 2020. New or extended
government-mandated shutdowns could impact demand for our Consumer Solutions
products in the future.

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Within our Industrial & Flow Technologies segment, demand for our residential
flow products was initially negatively impacted due to store closures as a
result of state-wide orders in the U.S. However, sell through improved
throughout the year driven by pent up demand from the earlier closures. Demand
continued to remain soft in our commercial and infrastructure flow businesses,
but stabilized in the third quarter of 2020. In our industrial filtration
business, demand is mostly driven by customer capital spending, which was
reduced and/or delayed beginning in the second quarter of 2020 across most
industries served. In addition, lower asset utilization drove down demand in
industrial filtration aftermarket sales. Furthermore, many of our commercial
customers have been negatively impacted due to worldwide lockdowns as a result
of the COVID-19 pandemic. While we are preparing for this business to remain
under pressure in the near term, we expect long-term demand drivers for this
business not to be significantly changed.
The current COVID-19 pandemic or continued spread of COVID-19 has caused a
global economic slowdown, and a possibility of a global recession. In the event
of a recession, demand for our products would decline and our business and
results of operations would be adversely affected.
Cost mitigation actions
With the continuing uncertainty in light of the COVID-19 pandemic, we have taken
steps across our organization to align costs with lower sales volumes. These
steps include renegotiation with suppliers to reduce input costs, driving
manufacturing direct labor reductions in line with volume drop, delaying,
reducing or eliminating purchased services and travel and, where appropriate,
temporary furloughs and hiring freezes. Additionally, we are proactively
managing our working capital and reviewing our capital spending plan, but have
not deferred strategic ongoing initiatives. We also continue to monitor
government economic stabilization efforts and have participated in certain
legislative provisions, such as deferring estimated tax payments, and may apply
for job retention credits.
We continue to monitor the rapidly evolving situation including the development
of vaccines and their distribution to address the COVID-19 virus and guidance
from international and domestic authorities, including federal, state and local
public health authorities, and may take additional actions based on their
requirements and recommendations. In these circumstances, there may be
developments outside our control requiring us to adjust our operating plan. As
such, given the dynamic nature of this situation, we cannot reasonably estimate
the impacts of the COVID-19 pandemic on our financial condition, results of
operations or cash flows in the future. In addition, see   Part I    -I    TEM
  1A, "Risk Factors,"   included herein for our risk factors regarding risks
associated with the COVID-19 pandemic.
Key Trends and Uncertainties Regarding Our Existing Business
The following trends and uncertainties affected our financial performance in
2020, and will likely impact our results in the future:
•There are many uncertainties regarding the COVID-19 pandemic, including the
anticipated duration and severity of the pandemic, the extent of worldwide
social, political and economic disruption it may continue to cause and the
development and distribution of vaccines to address the COVID-19 virus. The
broader implications of the COVID-19 pandemic on our business, financial
condition, results of operations and cash flows cannot be determined at this
time, and ultimately will be affected by a number of evolving factors including
the length of time that the pandemic continues and the impact of vaccines on it,
its effect on the demand for our products and services, our supply chain, and
our manufacturing capacity, as well as the impact of governmental regulations
imposed in response to the pandemic. See further discussion above under
"COVID-19 Pandemic" for key trends and uncertainties with regard to the COVID-19
pandemic.
•During 2020, we executed certain business restructuring initiatives unrelated
to the COVID-19 pandemic aimed at reducing our fixed cost structure and
realigning our business. We expect these actions to continue into 2021 and to
drive margin growth.
•We have identified specific product and geographic market opportunities that we
find attractive and continue to pursue, both within and outside the U.S. We are
reinforcing that our businesses more effectively address these opportunities
through research and development and additional sales and marketing resources.
Unless we successfully penetrate these markets, our core sales growth will
likely be limited or may decline.
•We have experienced material and other cost inflation. We strive for
productivity improvements, and we implement increases in selling prices to help
mitigate this inflation. We expect the current economic environment will result
in continuing price volatility for many of our raw materials, and we are
uncertain as to the timing and impact of these market changes.
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In 2021, our operating objectives remain to focus on delivering our core while
continuing to build out our future. We expect to execute these objectives by:
•Delivering revenue growth in our core businesses;
•Delivering income and cash by managing price/cost inflation, prioritization of
growth investments and addressing the cost structures as necessary;
•Continued focus on capital allocation through:
•Commitment to maintain our investment grade rating;
•Return cash to shareholders through dividends and buybacks; and
•Supplement our business with strategically-aligned mergers and acquisitions.
•Focused growth initiatives that accelerate our investments in digital,
technology and services expansion; and
•Building a high performance growth culture and delivering on our commitments
while living our Win Right values.

CONSOLIDATED RESULTS OF OPERATIONS
The consolidated results of operations were as follows:
                                                     Years ended December 31                            % / point change
In millions                                       2020         2019         2018               2020 vs 2019          2019 vs 2018
Net sales                                     $ 3,017.8    $ 2,957.2    $ 2,965.1                      2.0     %            (0.3)    %
Cost of goods sold                              1,960.2      1,905.7      1,917.4                      2.9     %            (0.6)    %
Gross profit                                    1,057.6      1,051.5      1,047.7                      0.6     %             0.4     %
% of net sales                                     35.0  %      35.6  %      35.3  %                  (0.6)  pts             0.3   pts

Selling, general and administrative               520.5        540.1        534.3                     (3.6)    %             1.1     %
% of net sales                                     17.2  %      18.3  %      18.0  %                  (1.1)  pts             0.3   pts
Research and development                           75.7         78.9         76.7                     (4.1)    %             2.9     %
% of net sales                                      2.5  %       2.7  %       2.6  %                  (0.2)  pts             0.1   pts

Operating income                                  461.4        432.5        436.7                      6.7     %            (1.0)    %
% of net sales                                     15.3  %      14.6  %      14.7  %                   0.7   pts            (0.1)  pts

Loss (gain) on sale of businesses                   0.1         (2.2)         7.3                           N.M.                  N.M.
Loss on early extinguishment of debt                  -            -         17.1                           N.M.                  N.M.
Net interest expense                               23.9         30.1         32.6                    (20.6)    %            (7.7)    %
Other expense (income)                              5.3         (2.9)        (0.1)                          N.M.                  N.M.

Income from continuing operations before
income taxes                                      432.1        407.5        379.8                      6.0     %             7.3     %
Provision for income taxes                         75.0         45.8         58.1                     63.8     %           (21.2)    %
  Effective tax rate                               17.4  %      11.2  %      15.3  %                   6.2   pts            (4.1)  pts


N.M. Not Meaningful
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Net sales
The components of the consolidated net sales change were as follows:
                   2020 vs 2019   2019 vs 2018
Volume                    0.4  %        (3.9) %
Price                     0.9            2.6
  Core growth             1.3           (1.3)
Acquisition               0.5            2.5
Currency                  0.2           (1.5)
Total                     2.0  %        (0.3) %


The 2.0 percent increase in consolidated net sales in 2020 from 2019 was
primarily the result of:
•selective increases in selling prices to mitigate inflationary cost increases;
•increased sales due to the Aquion and Pelican acquisitions in February 2019 and
other small acquisitions in our Consumer Solutions segment in the fourth quarter
of 2019 and first half of 2020;
•volume increase in our Consumer Solutions segment mainly driven by our pool
business;
•volume increase in our residential and irrigation flow businesses in our
Industrial & Flow Technologies segment; and
•favorable foreign currency effects in 2020 compared to the prior year.
This increase was partially offset by:
•sales volume declines in certain businesses within our Industrial & Flow
Technologies segment due to the impacts of the COVID-19 pandemic.
Gross profit
The 0.6 percentage point decrease in gross profit as a percentage of net sales
in 2020 from 2019 was primarily the result of:
•unfavorable mix within the pool and commercial and infrastructure flow
businesses;
•lower volumes within our commercial water supply, water disposal, industrial
filtration and food and beverage businesses;
•higher transportation and labor costs due to increased demand in our pool
business;
•costs related to providing for the health and safety of our employees specific
to the COVID-19 pandemic of $8.6 million for the year ended December 31, 2020;
and
•inflationary increases related to certain raw materials.
This decrease was partially offset by:
•increased productivity due to higher volumes in our pool business;
•selective increases in selling prices to mitigate impacts of inflation; and
•increased productivity due to cost actions such as temporary furloughs and
hiring freezes in response to the COVID-19 pandemic driving manufacturing
efficiencies and lower operating expenses.
Selling, general and administrative ("SG&A")
The 1.1 percentage point decrease in SG&A expense as a percentage of net sales
in 2020 from 2019 was driven by:
•asset impairment charges of $21.2 million in 2019;
•reduction in travel and entertainment, trade show and advertising expenses due
to the COVID-19 pandemic; and
•restructuring and other costs of $15.4 million in 2020, compared to $21.0
million in 2019.
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This decrease was partially offset by:
•higher employee compensation incentive expense compared to the prior year.
Net interest expense
The 20.6 percent decrease in net interest expense in 2020 from 2019 was the
result of:
•cross currency swaps entered into in June 2019 and December 2019 resulting in
more interest income in 2020 than in the prior period;
•lower interest rate revolving credit facilities replacing higher interest rate
fixed rate debt that matured during the second half of 2019; and
•strong cash flows in 2020 leading to lower overall debt levels.
Provision for income taxes
The 6.2 percentage point increase in the effective tax rate in 2020 from 2019
was primarily due to:
•the unfavorable impact of discrete items, including items related to the CARES
Act, and items related to final regulations as part of the Tax Cuts and Jobs Act
of 2017 that place limitations on the deductibility of certain interest expense
for U.S. tax purposes.

2019 Comparison with 2018
A discussion of changes in our consolidated results of operations and liquidity
and capital resources from the year ended December 31, 2019 to December 31, 2018
can be found in Part II, ITEM 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations of our Annual Report on Form 10-K
for the year ended December 31, 2019, which was filed with the SEC on February
25, 2020. However, such discussion is not incorporated by reference into, and
does not constitute a part of, this Annual Report on Form 10-K.

SEGMENT RESULTS OF OPERATIONS
The summary that follows provides a discussion of the results of operations of
our two reportable segments (Consumer Solutions and Industrial & Flow
Technologies). Each of these segments is comprised of various product offerings
that serve multiple end users.

We evaluate performance based on net sales and segment income and use a variety
of ratios to measure performance of our reporting segments. Segment income
represents equity income of unconsolidated subsidiaries and operating income
exclusive of intangible amortization, certain acquisition related expenses,
costs of restructuring activities, impairments and other unusual non-operating
items.
Consumer Solutions
The net sales and segment income for Consumer Solutions were as follows:
                              Years ended December 31                  % / point change
      In millions          2020         2019         2018         2020 vs 2019   2019 vs 2018
      Net sales        $ 1,742.9    $ 1,611.7    $ 1,578.4            8.1     %      2.1     %
      Segment income       419.1        379.6        392.9           10.4     %     (3.4)    %
      % of net sales        24.0  %      23.6  %      24.9  %         0.4   pts     (1.3)  pts


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Net sales The components of the change in Consumer Solutions net sales were as follows:


                   2020 vs 2019   2019 vs 2018
Volume                    6.3  %        (6.2) %
Price                     0.8            3.3
  Core growth             7.1           (2.9)
Acquisition               1.0            5.8
Currency                    -           (0.8)
Total                     8.1  %         2.1  %


The 8.1 percent increase in net sales for Consumer Solutions in 2020 from 2019
was primarily the result of:
•increased sales volume across several of the product lines in our pool business
due to consumers' desire to invest in their pools and backyards while
sheltering-in-place due to the COVID-19 pandemic;
•higher sales volumes in our residential filtration product lines in North
America and China during the second half of 2020;
•selective increases in selling prices to mitigate impacts of inflation; and
•increased sales due to the Aquion and Pelican acquisitions that occurred in
February 2019 and other small acquisitions in the fourth quarter of 2019 and
during 2020.
This increase was partially offset by:
•sales decreases for 2020 due to lower demand in the water treatment business as
government-mandated shutdown and shelter-in-place orders and commercial closures
due to the COVID-19 pandemic impacting the ability to reach customers; and
•higher-than-usual rebate activity that lowered price due to sales growth in our
pool business.
The 2.1 percent increase in net sales for Consumer Solutions in 2019 from 2018
was primarily the result of:
•increased sales due to the acquisitions of Aquion and Pelican in the first
quarter of 2019; and
•selective increases in selling prices to mitigate inflationary cost increases.
This increase was partially offset by:
•sales volume declines in our pool business due to cold, wet weather during the
first half of 2019 in key markets;
•higher than anticipated inventory levels in some of our key distribution
channels impacting our pool business during the first nine months of 2019;
•sales volume declines in our residential and commercial components business;
and
•unfavorable foreign currency effects compared to the same period of the prior
year.
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Segment income
The components of the change in Consumer Solutions segment income from the prior
period were as follows:
                                                  2020         2019
                 Growth                          1.1   pts   (1.4)  pts
                 Acquisition (divestiture)       0.4         (0.4)
                 Inflation                      (1.3)        (2.9)
                 Productivity/Price              0.2          3.4
                 Total                           0.4   pts   (1.3)  pts


The 0.4 percentage point increase in segment income for Consumer Solutions as a
percentage of net sales in 2020 from 2019 was primarily the result of:
•increased sales volume in our pool business;
•reduction in travel and entertainment, trade show and advertising expenses due
to the COVID-19 pandemic and other cost reduction initiatives;
•impact of Aquion and Pelican acquisitions; and
•selective increases in selling prices to mitigate the impacts of inflation.
This increase was partially offset by:
•lower sales volume in the higher margin commercial filtration business;
•higher sales rebates and employee incentive compensation expense in line with
increased sales in our pool business;
•higher transportation and labor costs due to increased demand in our pool
business; and
•inflationary increases related to certain raw materials.
The 1.3 percentage point decrease in segment income for Consumer Solutions as a
percentage of net sales in 2019 from 2018 was primarily the result of:
•declines in core sales volume in our pool business resulting in unfavorable
sales mix;
•increased investment in both research and development and sales and marketing
to drive growth; and
•inflationary increases related to raw material and labor costs.
This decrease was partially offset by:
•selective increases in selling prices to mitigate inflationary cost increases;
and
•productivity and cost savings generated from PIMS initiatives, including lean
and supply management practices.

Industrial & Flow Technologies
The net sales and segment income for Industrial & Flow Technologies were as
follows:
                              Years ended December 31                  % / point change
      In millions          2020         2019         2018         2020 vs 2019   2019 vs 2018
      Net sales        $ 1,273.6    $ 1,344.1    $ 1,385.4           (5.2)    %     (3.0)    %
      Segment income       164.6        199.0        198.8          (17.3)    %      0.1     %
      % of net sales        12.9  %      14.8  %      14.3  %        (1.9)  pts      0.5   pts


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Net sales
The components of the change in Industrial & Flow Technologies net sales were as
follows:
                               2020 vs 2019   2019 vs 2018
Volume                               (6.5) %        (1.4) %
Price                                 0.9            1.9
  Core growth                        (5.6)           0.5
Acquisition (divestiture)               -           (1.3)
Currency                              0.4           (2.2)
Total                                (5.2) %        (3.0) %


The 5.2 percent decrease in net sales for Industrial & Flow Technologies in 2020
from 2019 was primarily the result of:
•decreased sales volume in our commercial water supply and water disposal,
industrial filtration and food and beverage businesses due to less project sales
as a result of customers deferring their capital spending and less service and
aftermarket revenue driven by reduced consumption and travel restrictions from
government-mandated shutdowns and "shelter-in-place" orders due to the COVID-19
pandemic;
•decreased sales volume in our residential and irrigation flow businesses in the
first half of 2020 due to market conditions resulting from the COVID-19
pandemic.
This decrease was partially offset by:
•increased sales volume in our residential and irrigation flow businesses in the
second half of 2020 due to strong demand in the residential water supply, water
disposal and specialty spray product lines;
•sales growth in our infrastructure business as a result of strong backlog
entering 2020;
•selective increases in selling prices to mitigate inflationary cost increases;
and
•favorable foreign currency effects compared to the same period of the prior
year.
The 3.0 percent decrease in net sales for Industrial & Flow Technologies in 2019
from 2018 was primarily the result of:
•decreased sales volume in our agriculture-related business due to cold, wet
weather in the first half of 2019;
•unfavorable foreign currency effects compared to the same period of the prior
year; and
•the impact of divestitures in our agriculture-related business in Brazil and
commercial flow business in Australia.

This decrease was partially offset by:
•increased sales volume in our industrial filtration and food and beverage
businesses; and
•selective increases in selling prices to mitigate inflationary cost increases.
Segment income
The components of the change in Industrial & Flow Technologies segment income
from the prior period were as follows:
                                              2020        2019
                     Growth                 (2.5)  pts   0.4   pts

                     Inflation              (1.0)       (2.5)
                     Productivity/Price      1.6         2.6
                     Total                  (1.9)  pts   0.5   pts


The 1.9 percentage point decrease in segment income for Industrial & Flow
Technologies as a percentage of net sales in 2020 from 2019 was primarily the
result of:
•decreased sales volumes in our residential and irrigation flow business in the
first half of 2020 due to the COVID-19 pandemic, which resulted in decreased
leverage on fixed operating expenses;
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•decreased sales volume in our commercial water supply and water disposal,
industrial filtration and food and beverage businesses due to the COVID-19
pandemic along with unfavorable mix within our commercial and infrastructure
flow and industrial filtration businesses; and
•inflationary increases related to raw material and labor costs.
This decrease was partially offset by:
•selective increases in selling prices to mitigate inflationary cost increases;
•lower sales incentive expense in line with decreased sales; and
•increased productivity due to cost actions driving manufacturing efficiencies
and lower operating expenses.
The 0.5 percentage point increase in segment income for Industrial & Flow
Technologies as a percentage of net sales in 2019 from 2018 was primarily the
result of:
•selective increases in selling prices to mitigate inflationary cost increases;
•increased productivity; and
•increased volume and favorable mix in our industrial filtration and food and
beverage businesses.

This increase was partially offset by: •inflationary increases related to raw material and labor costs. BACKLOG OF ORDERS BY SEGMENT


                                                December 31
In millions                        2020      2019     $ change   % change
Consumer Solutions               $ 459.1   $ 138.2   $  320.9     232.2  %

Industrial & Flow Technologies 288.7 251.2 37.5 14.9 % Total

$ 747.8   $ 389.4   $  358.4      92.0  %


A substantial portion of our revenues result from orders received and products
delivered in the same month. Our backlog typically has a short manufacturing
cycle and products generally ship within 90 days of the date on which a customer
places an order. However, a portion of our backlog, particularly from orders for
major capital projects, can take more than one year depending on the size and
type of order. We record, as part of our backlog, all orders from external
customers, which represent firm commitments, and are supported by a purchase
order or other legitimate contract. The increase in our backlog at December 31,
2020 compared to 2019 was mainly a result of increased demand in our pool
business. We expect the majority of our backlog at December 31, 2020 will be
shipped in 2021.

LIQUIDITY AND CAPITAL RESOURCES
We generally fund cash requirements for working capital, capital expenditures,
equity investments, acquisitions, debt repayments, dividend payments and share
repurchases from cash generated from operations, availability under existing
committed revolving credit facilities and in certain instances, public and
private debt and equity offerings. Our primary revolving credit facility has
generally been adequate for these purposes, although we have negotiated
additional credit facilities or completed debt and equity offerings as needed to
allow us to complete acquisitions.
We experience seasonal cash flows primarily due to seasonal demand in a number
of markets. Consistent with historical trends, we experienced seasonal cash
usage in the first quarter of 2020 and drew on our revolving credit facility to
repay commercial paper and to fund our operations. This cash usage reversed in
the second quarter of 2020 as the seasonality of our businesses peaked.
Consistent with historical seasonal patterns, the second quarter of 2020
generated significant cash to fund our operations and we used this cash to
significantly reduce the draw on our revolving credit facility. We continued to
experience strong cash flow in the second half of 2020, causing our revolving
credit facility balance to remain low at December 31, 2020 compared to the prior
year end.
End-user demand for pool and certain pumping equipment follows warm weather
trends and is at seasonal highs from April to August. The magnitude of the sales
spike is partially mitigated by employing some advance sale "early buy" programs
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(generally including extended payment terms and/or additional discounts). Demand
for residential and agricultural water systems is also impacted by weather
patterns, particularly by temperature, heavy flooding and droughts.
We expect to continue to have sufficient cash and borrowing capacity to support
working capital needs and capital expenditures, to pay interest and service debt
and to pay dividends to shareholders quarterly. We believe our existing
liquidity position, coupled with our currently anticipated operating cash flows,
will be sufficient to meet our cash needs arising in the ordinary course of
business for the next twelve months. Although the impact of the COVID-19
pandemic on our future results is uncertain, we believe we are well-positioned
to manage our business and have the ability and sufficient capacity to meet
these cash requirements by using available cash, internally generated funds and
borrowing under our committed and uncommitted credit facilities. We are
committed to maintaining investment grade credit ratings and a solid liquidity
position.
Summary of Cash Flows
Cash flows from continuing operations were as follows:
                                      Years ended December 31
In millions                         2020        2019       2018

Cash provided by (used for):


  Operating activities                $574.2      $345.2    $458.1
  Investing activities               (117.9)     (331.9)    (61.7)
  Financing activities               (435.9)      (17.1)   (407.9)


Operating activities
In 2020, net cash provided by operating activities of continuing operations
primarily reflects net income from continuing operations of $432.2 million, net
of non-cash depreciation and amortization. Additionally, the Company had a cash
inflow of $109.5 million as a result of changes in net working capital,
primarily the result of accounts receivables collections and reduced accounts
receivables due to the pool business early buy program shipments with extended
payment terms moving from the fourth quarter of 2020 into 2021 due to continued
strong demand.
In 2019, net cash provided by operating activities of continuing operations
primarily reflects net income from continuing operations of $462.9 million, net
of non-cash depreciation, amortization and asset impairment, partially offset by
a cash outflow of $105.4 million as a result of changes in net working capital
and $20.9 million of pension and other post-retirement plan contributions,
including $11.1 million of contributions made in conjunction with the
termination of the Pentair Salaried Plan during 2019.
Investing activities
Net cash used for investing activities of continuing operations in 2020
primarily reflects capital expenditures of $62.2 million and cash paid for
acquisitions of $58.0 million in our Consumer Solutions reporting segment, net
of cash acquired.
Net cash used for investing activities of continuing operations in 2019
primarily reflects capital expenditures of $58.5 million and cash paid for the
Aquion and Pelican acquisitions, partially offset by $15.3 million of proceeds
received from divestitures primarily related to our former aquaculture business.
Financing activities
In 2020, net cash used for financing activities primarily relates to repayment
of commercial paper and revolving long-term debt of $117.5 million, repayment of
the 3.625% Senior Notes due in 2020 of $74.0 million, $150.2 million of share
repurchases and dividend payments of $127.1 million.
In 2019, net cash used for financing activities primarily relates to repayment
of senior notes due in 2019 totaling $401.5 million, $150.0 million of share
repurchases and payment of dividends of $122.7 million, partially offset by
proceeds from long-term debt of $600.0 million and net receipts of commercial
paper and revolving long-term debt of $51.5 million.

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Free Cash Flow
In addition to measuring our cash flow generation or usage based upon operating,
investing and financing classifications included in the Consolidated Statements
of Cash Flows, we also measure our free cash flow. We have a long-term goal to
consistently generate free cash flow that equals or exceeds 100 percent
conversion of net income. Free cash flow is a non-GAAP financial measure that we
use to assess our cash flow performance. We believe free cash flow is an
important measure of liquidity because it provides us and our investors a
measurement of cash generated from operations that is available to pay
dividends, repurchase shares and repay debt. In addition, free cash flow is used
as a criterion to measure and pay compensation-based incentives. Our measure of
free cash flow may not be comparable to similarly titled measures reported by
other companies.
The following table is a reconciliation of free cash flow:
                                                                       Years ended December 31
In millions                                                        2020     

2019 2018 Net cash provided by operating activities of continuing operations

$     574.2    $    345.2    $    458.1
Capital expenditures of continuing operations                       (62.2)  

(58.5) (48.2) Proceeds from sale of property and equipment of continuing operations

                                                            0.1           0.6           0.2
Free cash flow from continuing operations                     $     512.1    $    287.3    $    410.1
Net cash (used for) provided by operating activities of
discontinued
operations                                                           (0.6)          7.8         (19.0)
Capital expenditures of discontinued operations                         -             -          (7.4)
Proceeds from sale of property and equipment of discontinued
operations                                                              -             -           2.3
Free cash flow                                                $     511.5    $    295.1    $    386.0


Debt and Capital
In April 2018, Pentair, Pentair Investments Switzerland GmbH ("PISG"), Pentair
Finance S.à r.l ("PFSA") and Pentair, Inc. entered into a credit agreement,
providing for an $800.0 million senior unsecured revolving credit facility with
a term of five years (the "Senior Credit Facility"), with Pentair and PISG as
guarantors and PFSA and Pentair, Inc. as borrowers. In June 2020, Pentair
assumed the PISG guarantee. The Senior Credit Facility has a maturity date of
April 25, 2023. Borrowings under the Senior Credit Facility bear interest at a
rate equal to an adjusted base rate or the London Interbank Offered Rate, plus,
in each case, an applicable margin. The applicable margin is based on, at PFSA's
election, Pentair's leverage level or PFSA's public credit rating. In May 2019,
PFSA executed an increase of the Senior Credit Facility by $100.0 million for a
total commitment up to $900.0 million in the aggregate.
In December 2019, the Senior Credit Facility was amended to provide for the
extension of term loans in an aggregate amount of $200.0 million (the "Term
Loans"). The Term Loans are in addition to the Senior Credit Facility
commitment. In addition, PFSA has the option to further increase the Senior
Credit Facility in an aggregate amount of up to $300.0 million, through a
combination of increases to the total commitment amount of the Senior Credit
Facility and/or one or more tranches of term loans in addition to the Term
Loans, subject to customary conditions, including the commitment of the
participating lenders.
PFSA is authorized to sell short-term commercial paper notes to the extent
availability exists under the Senior Credit Facility. PFSA uses the Senior
Credit Facility as back-up liquidity to support 100% of commercial paper
outstanding. PFSA had no commercial paper outstanding as of December 31, 2020
and $117.8 million as of December 31, 2019, all of which was classified as
long-term debt as we have the intent and the ability to refinance such
obligations on a long-term basis under the Senior Credit Facility.
In March 2020, the commercial paper market began to experience high levels of
volatility due to uncertainty related to the COVID-19 pandemic. The volatility
impacted both market access to and pricing of commercial paper. As a cost
mitigation action, we withdrew our credit ratings to access the commercial paper
market in the second quarter of 2020 and continued to use the revolving credit
facility, along with cash generated from operations, to fund our general
operations. As of December 31, 2020, total availability under the Senior Credit
Facility was $863.9 million.
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Our debt agreements contain various financial covenants, but the most
restrictive covenants are contained in the Senior Credit Facility. The Senior
Credit Facility contains covenants requiring us not to permit (i) the ratio of
our consolidated debt (net of our consolidated unrestricted cash in excess of
$5.0 million but not to exceed $250.0 million) to our consolidated net income
(excluding, among other things, non-cash gains and losses) before interest,
taxes, depreciation, amortization and non-cash share-based compensation expense
("EBITDA") on the last day of any period of four consecutive fiscal quarters to
exceed 3.75 to 1.00 (the "Leverage Ratio") and (ii) the ratio of our EBITDA to
our consolidated interest expense, 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 Senior 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. Our debt agreements contain various
financial covenants. As of December 31, 2020, we were in compliance with all
financial covenants in our debt agreements.
In addition to the Senior Credit Facility, we have various other credit
facilities with an aggregate availability of $21.4 million, of which there were
no outstanding borrowings at December 31, 2020. Borrowings under these credit
facilities bear interest at variable rates.
We have $103.8 million aggregate principal amount of fixed rate senior notes
maturing in the next twelve months. We classified this debt as long-term as of
December 31, 2020 as we have the intent and ability to refinance such obligation
on a long-term basis under the Senior Credit Facility.
As of December 31, 2020, we had $56.9 million of cash held in certain countries
in which the ability to repatriate is limited due to local regulations or
significant potential tax consequences.
We expect to continue to have sufficient cash and borrowing capacity to support
working capital needs and capital expenditures, to pay interest and service debt
and to pay dividends to shareholders quarterly. We believe we have the ability
and sufficient capacity to meet these cash requirements by using available cash
and internally generated funds and to borrow under our committed and uncommitted
credit facilities.
Authorized shares
Our authorized share capital consists of 426.0 million ordinary shares with a
par value of $0.01 per share.
Share Repurchases
In May 2018, the Board of Directors authorized the repurchase of our ordinary
shares up to a maximum dollar limit of $750.0 million (the "2018
Authorization"). The 2018 Authorization expires on May 31, 2021. On December 8,
2020, the Board of Directors authorized the repurchase of our ordinary shares up
to a maximum dollar limit of $750.0 million (the "2020 Authorization"). The 2020
Authorization expires on December 31, 2025. The 2020 Authorization supplements
the 2018 Authorization.
During the year ended December 31, 2019, we repurchased 4.0 million of our
ordinary shares for $150.0 million under the 2018 Authorization.
During the year ended December 31, 2020, we repurchased 3.7 million of our
ordinary shares for $150.2 million under the 2018 Authorization. As of
December 31, 2020, we had $99.7 million and $750.0 million available for share
repurchases under the 2018 Authorization and 2020 Authorization, respectively.
Dividends
On December 8, 2020, the Board of Directors approved a 5 percent increase in the
Company's regular quarterly dividend rate (from $0.19 per share to $0.20 per
share) that was paid on February 5, 2021 to shareholders of record at the close
of business on January 22, 2021. The balance of dividends payable included in
Other current liabilities on our Consolidated Balance Sheets was $33.2 million
at December 31, 2020. Dividends paid per ordinary share were $0.76, $0.72 and
$1.05 for the years ended December 31, 2020, 2019 and 2018, respectively.
Under Irish law, the payment of future cash dividends and repurchases of shares
may be paid only out of Pentair plc's "distributable reserves" on its statutory
balance sheet. Pentair plc is not permitted to pay dividends out of share
capital, which includes share premiums. Distributable reserves may be created
through the earnings of the Irish parent company and through a reduction in
share capital approved by the Irish High Court. Distributable reserves are not
linked to a GAAP reported amount (e.g., retained earnings). Our distributable
reserve balance was $8.8 billion and $6.6 billion as of December 31, 2020 and
2019, respectively.

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Supplemental guarantor information
Pentair plc (the "Parent Company Guarantor"), fully and unconditionally,
guarantees the senior notes of PFSA (the "Subsidiary Issuer"). The Subsidiary
Issuer is a Luxembourg private limited liability company and 100 percent-owned
subsidiary of the Parent Company Guarantor.
The Parent Company Guarantor is a holding company established to own directly
and indirectly substantially all of its operating and other subsidiaries. The
Subsidiary Issuer is a holding company formed to own directly and indirectly
substantially all of its operating and other subsidiaries and to issue debt
securities, including the senior notes. The Parent Company Guarantor's principal
source of cash flow, including cash flow to make payments on the senior notes
pursuant to the guarantees, is dividends from its subsidiaries. The Subsidiary
Issuer's principal source of cash flow is interest income from its subsidiaries.
None of the subsidiaries of the Parent Company Guarantor or the Subsidiary
Issuer is under any direct obligation to pay or otherwise fund amounts due on
the senior notes or the guarantees, whether in the form of dividends,
distributions, loans or other payments. In addition, there may be statutory and
regulatory limitations on the payment of dividends from certain subsidiaries of
the Parent Company Guarantor or the Subsidiary Issuer. If such subsidiaries are
unable to transfer funds to the Parent Company Guarantor or the Subsidiary
Issuer and sufficient cash or liquidity is not otherwise available, the Parent
Company Guarantor or the Subsidiary Issuer may not be able to make principal and
interest payments on their outstanding debt, including the senior notes or the
guarantees.
The following table presents summarized financial information as of December 31,
2020 for the Parent Company Guarantor and Subsidiary Issuer on a combined basis
after elimination of (i) intercompany transactions and balances among the
guarantors and issuer and (ii) equity in earnings from and investments in any
subsidiary that is a non-Guarantor or issuer.
                                                                December 31,
 In millions                                                        2020
 Current assets (1)                                      $                    8.2
 Noncurrent assets (2)                                                    1,040.9
 Current liabilities (3)                                                    608.3
 Noncurrent liabilities (4)                                               1,283.0

(1) Includes assets due from non-guarantor subsidiaries of $2.8 million.

(2) Includes assets due from non-guarantor subsidiaries of $1,028.5 million.

(3) Includes liabilities due to non-guarantor subsidiaries of $556.6 million.

(4) Includes liabilities due to non-guarantor subsidiaries of $495.2 million.




The Parent Company Guarantor and Subsidiary Issuer do not have material results
of operations on a combined basis.
Contractual obligations
The following summarizes our significant contractual obligations that impact our
liquidity:
                                                                       Years ended December 31
In millions                                  2021       2022       2023       2024       2025      Thereafter      Total
Debt obligations                          $ 103.8    $  88.3    $ 236.1    $     -    $  19.3    $     400.0    $   847.5
Interest obligations on fixed-rate debt      24.3       21.7       18.9       18.9       18.9           72.0        174.7
Operating lease obligations, net of
sublease rentals                             26.2       22.9       19.5       14.8        6.0            9.5         98.9
Purchase and marketing obligations           26.9        8.5        4.6        3.8        3.8            6.2         53.8
Pension and other post-retirement plan
contributions                                 8.5        8.6        8.7        8.8        8.6           40.3         83.5

Total contractual obligations, net $ 189.7 $ 150.0 $ 287.8 $ 46.3 $ 56.6 $ 528.0 $ 1,258.4




The majority of the purchase obligations represent commitments for raw materials
to be utilized in the normal course of business. For purposes of the above
table, arrangements are considered purchase obligations if a contract specifies
all significant terms, including fixed or minimum quantities to be purchased, a
pricing structure and approximate timing of the transaction.
In addition to the summary of significant contractual obligations, we will incur
annual interest expense on outstanding variable rate debt. As of December 31,
2020, variable interest rate debt was $236.1 million at a weighted average
interest rate of 1.23%.
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The total gross liability for uncertain tax positions at December 31, 2020 was
estimated to be $46.3 million. We record penalties and interest related to
unrecognized tax benefits in Provision for income taxes and Net interest
expense, respectively, which is consistent with our past practices. As of
December 31, 2020, we had recorded $0.2 million for the possible payment of
penalties and $4.6 million related to the possible payment of interest.
Off-balance sheet arrangements
At December 31, 2020, we had no off-balance sheet financing arrangements.

COMMITMENTS AND CONTINGENCIES
We have been, and in the future may be, made parties to a number of actions
filed or have been, and in the future may be, given notice of potential claims
relating to the conduct of our business, including those relating to commercial
or contractual disputes with suppliers, customers or parties to acquisitions and
divestitures, intellectual property matters, environmental, asbestos, safety and
health matters, product liability, the use or installation of our products,
consumer matters, and employment and labor matters.
While we believe that a material impact on our consolidated financial position,
results of operations or cash flows from any such future claims or potential
claims is unlikely, given the inherent uncertainty of litigation, a remote
possibility exists that a future adverse ruling or unfavorable development could
result in future charges that could have a material impact. We do and will
continue to periodically reexamine our estimates of probable liabilities and any
associated expenses and receivables and make appropriate adjustments to such
estimates based on experience and developments in litigation. As a result, the
current estimates of the potential impact on our consolidated financial
position, results of operations and cash flows for the proceedings and claims
described in ITEM 8, Note 15 of the Notes to Consolidated Financial Statements
could change in the future.
Product liability claims
We are subject to various product liability lawsuits and personal injury claims.
A substantial number of these lawsuits and claims are insured and accrued for by
Penwald, our captive insurance subsidiary. See discussion in ITEM 1 and ITEM 8,
Note 1 of the Notes to Consolidated Financial Statements - Insurance subsidiary.
Penwald records a liability for these claims based on actuarial projections of
ultimate losses. For all other claims, accruals covering the claims are
recorded, on an undiscounted basis, when it is probable that a liability has
been incurred and the amount of the liability can be reasonably estimated based
on existing information. The accruals are adjusted periodically as additional
information becomes available. We have not experienced significant unfavorable
trends in either the severity or frequency of product liability lawsuits or
personal injury claims.
Stand-by letters of credit, bank guarantees and bonds
In certain situations, Tyco International Ltd., Pentair Ltd.'s former parent
company ("Tyco"), guaranteed performance by the flow control business of Pentair
Ltd. ("Flow Control") to third parties or provided financial guarantees for
financial commitments of Flow Control. In situations where Flow Control and Tyco
were unable to obtain a release from these guarantees in connection with the
spin-off of Flow Control from Tyco, we will indemnify Tyco for any losses it
suffers as a result of such guarantees.
In 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, 2020 and 2019, the outstanding value of bonds, letters of
credit and bank guarantees totaled $99.1 million and $91.3 million,
respectively.

NEW ACCOUNTING STANDARDS
See ITEM 8, Note 1 of the Notes to Consolidated Financial Statements, included
in this Form 10-K, for information pertaining to recently adopted accounting
standards or accounting standards to be adopted in the future.


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CRITICAL ACCOUNTING POLICIES
We have adopted various accounting policies to prepare the consolidated
financial statements in accordance with GAAP. Our significant accounting
policies are more fully described in ITEM 8, Note 1 of the Notes to Consolidated
Financial Statements. Certain accounting policies require the application of
significant judgment by management in selecting the appropriate assumptions for
calculating financial estimates. By their nature, these judgments are subject to
an inherent degree of uncertainty. These judgments are based on our historical
experience, terms of existing contracts, our observance of trends in the
industry and information available from other outside sources, as appropriate.
We consider an accounting estimate to be critical if:
•it requires us to make assumptions about matters that were uncertain at the
time we were making the estimate; and
•changes in the estimate or different estimates that we could have selected
would have had a material impact on our financial condition or results of
operations.
Our critical accounting estimates include the following:
Impairment of goodwill and indefinite-lived intangibles
Goodwill
Goodwill represents the excess of the cost of acquired businesses over the net
of the fair value of identifiable tangible net assets and identifiable
intangible assets purchased and liabilities assumed.
We test our goodwill for impairment at least annually during the fourth quarter
or more frequently if events or changes in circumstances indicate that the asset
might be impaired. We perform our annual or interim goodwill impairment test by
comparing the fair value of the relevant reporting unit with its carrying
amount. We would recognize an impairment charge for the amount by which the
carrying amount exceeds the reporting unit's fair value; however, the loss
recognized would not exceed the total amount of goodwill allocated to that
reporting unit.
We have the option to perform a qualitative assessment to determine whether it
is necessary to perform the quantitative goodwill impairment test. However, we
may elect to perform the quantitative goodwill impairment test even if no
indications of a potential impairment exist.
During 2020, a quantitative assessment was performed. The fair value of each
reporting unit was determined using a discounted cash flow analysis and market
approach. Projecting discounted future cash flows requires us to make
significant estimates regarding future revenues and expenses, projected capital
expenditures, changes in working capital and the appropriate discount rate. Use
of the market approach consists of comparisons to comparable publicly-traded
companies that are similar in size and industry. The non-recurring fair value
measurement is a "Level 3" measurement under the fair value hierarchy. For the
2020 annual impairment test, the estimated fair value exceeded the carrying
value in each of our reporting units, therefore, no impairment charge was
required.
During 2019, a qualitative assessment was performed. We determined that it was
more likely than not that the fair value of the reporting units exceeded their
respective carrying values. Factors considered in the analysis included the last
discounted cash flow fair value assessment of reporting units and the calculated
excess fair value over carrying amount, financial performance, forecasts and
trends, market capitalization, regulatory and environmental issues,
macro-economic conditions, industry and market considerations, raw material
costs and management stability. We also consider the extent to which each of the
adverse events and circumstances identified affect the comparison of the
respective reporting unit's fair value with its carrying amount. We place more
weight on the events and circumstances that most affect the respective reporting
unit's fair value or the carrying amount of its net assets. We consider positive
and mitigating events and circumstances that may affect its determination of
whether it is more likely than not that the fair value exceeds the carrying
amount.
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 the first day of the fourth quarter each year for those
identifiable assets not subject to amortization.

                                       37
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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.

There was no impairment charge recorded in any of the years presented for
identifiable intangible assets.
Pension and other post-retirement plans
We sponsor U.S. and non-U.S. defined-benefit pension and other post-retirement
plans. The amounts recognized in our consolidated financial statements related
to our defined-benefit pension and other post-retirement plans are determined
from actuarial valuations. Inherent in these valuations are assumptions,
including: expected return on plan assets, discount rates, rate of increase in
future compensation levels and health care cost trend rates. These assumptions
are updated annually and are disclosed in ITEM 8, Note 11 to the Notes to
Consolidated Financial Statements. Differences in actual experience or changes
in assumptions may affect our pension and other post-retirement obligations and
future expense.
We recognize changes in the fair value of plan assets and net actuarial gains or
losses for pension and other post-retirement benefits annually in the fourth
quarter each year ("mark-to-market adjustment") and, if applicable, in any
quarter in which an interim re-measurement is triggered. Net actuarial gains and
losses occur when the actual experience differs from any of the various
assumptions used to value our pension and other post-retirement plans or when
assumptions change as they may each year. The primary factors contributing to
actuarial gains and losses each year are (1) changes in the discount rate used
to value pension and other post-retirement benefit obligations as of the
measurement date and (2) differences between the expected and the actual return
on plan assets. This accounting method also results in the potential for
volatile and difficult to forecast mark-to-market adjustments. Mark-to-market
adjustments resulted in a pre-tax loss of $6.7 million in 2020, a pre-tax gain
of $3.4 million in 2019 and a pre-tax loss of $3.6 million in 2018. The
remaining components of pension expense, including service and interest costs
and the expected return on plan assets, are recorded on a quarterly basis as
ongoing pension expense.
Discount 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. There are no known or anticipated changes in our discount
rate assumptions that will impact our pension expense in 2021.
Expected rate of return
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 long-term market
indices.
Loss contingencies
Accruals are recorded for various contingencies including legal proceedings,
self-insurance and other claims that arise in the normal course of business. The
accruals are based on judgment, the probability of losses and, where applicable,
the consideration of opinions of internal and/or external legal counsel and
actuarial determined estimates. Additionally, we record receivables from third
party insurers when recovery has been determined to be probable.
Income taxes
In determining taxable income for financial statement purposes, we must make
certain estimates and judgments. These estimates and judgments affect the
calculation of certain tax liabilities and the determination of the
recoverability of certain of the deferred tax assets, which arise from temporary
differences between the tax and financial statement recognition of revenue and
expense. In evaluating our ability to recover our deferred tax assets we
consider all available positive and negative evidence including our past
operating results, the existence of cumulative losses in the most recent years
and our forecast of future taxable income. In estimating future taxable income,
we develop assumptions including the amount of future pre-tax operating income,
the reversal of temporary differences and the implementation of feasible and
prudent tax planning strategies. These assumptions require significant judgment
about the forecasts of future taxable income and are consistent with the plans
and estimates we are using to manage the underlying businesses.

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We currently have recorded valuation allowances that we will maintain until
when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will be realized. Our income tax expense
recorded in the future may be reduced to the extent of decreases in our
valuation allowances. The realization of our remaining deferred tax assets is
primarily dependent on future taxable income in the appropriate jurisdiction.
Any reduction in future taxable income including but not limited to any future
restructuring activities may require that we record an additional valuation
allowance against our deferred tax assets. An increase in the valuation
allowance could result in additional income tax expense in such period and could
have a significant impact on our future earnings.
Changes in tax laws and rates could also affect recorded deferred tax assets and
liabilities in the future. Management records the effect of a tax rate or law
change on the Company's deferred tax assets and liabilities in the period of
enactment. Future tax rate or law changes could have a material effect on the
Company's financial condition, results of operations or cash flows.
In addition, the calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations in a multitude of
jurisdictions across our global operations. We perform reviews of our income tax
positions on a quarterly basis and accrue for uncertain tax positions. We
recognize potential liabilities and record tax liabilities for anticipated tax
audit issues in the tax jurisdictions in which we operate based on our estimate
of whether, and the extent to which, additional taxes will be due. These tax
liabilities are reflected net of related tax loss carryforwards. As events
change or resolution occurs, these liabilities are adjusted, such as in the case
of audit settlements with taxing authorities. The ultimate resolution may result
in a payment that is materially different from our current estimate of the tax
liabilities. If our estimate of tax liabilities proves to be less than the
ultimate assessment, an additional charge to expense would result. If payment of
these amounts ultimately proves to be less than the recorded amounts, the
reversal of the liabilities would result in tax benefits being recognized in the
period when we determine the liabilities are no longer necessary.

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