Pentair plc and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
|
|
|
|
|
|
|
|
|
March 31,
2016
|
December 31,
2015
|
In millions, except per-share data
|
Assets
|
Current assets
|
|
|
Cash and cash equivalents
|
$
|
158.1
|
|
$
|
126.3
|
|
Accounts and notes receivable, net of allowances of $99.6 and $103.7, respectively
|
1,268.7
|
|
1,167.7
|
|
Inventories
|
1,197.7
|
|
1,174.3
|
|
Other current assets
|
381.4
|
|
309.3
|
|
Total current assets
|
3,005.9
|
|
2,777.6
|
|
Property, plant and equipment, net
|
951.8
|
|
942.8
|
|
Other assets
|
|
|
Goodwill
|
5,250.0
|
|
5,255.4
|
|
Intangibles, net
|
2,461.0
|
|
2,490.1
|
|
Other non-current assets
|
361.5
|
|
367.6
|
|
Total other assets
|
8,072.5
|
|
8,113.1
|
|
Total assets
|
$
|
12,030.2
|
|
$
|
11,833.5
|
|
Liabilities and Equity
|
Current liabilities
|
|
|
Current maturities of long-term debt and short-term borrowings
|
$
|
0.7
|
|
$
|
0.7
|
|
Accounts payable
|
579.0
|
|
578.8
|
|
Employee compensation and benefits
|
222.6
|
|
262.9
|
|
Other current liabilities
|
665.3
|
|
644.1
|
|
Total current liabilities
|
1,467.6
|
|
1,486.5
|
|
Other liabilities
|
|
|
Long-term debt
|
4,837.1
|
|
4,685.8
|
|
Pension and other post-retirement compensation and benefits
|
285.9
|
|
287.2
|
|
Deferred tax liabilities
|
828.7
|
|
844.2
|
|
Other non-current liabilities
|
526.7
|
|
521.0
|
|
Total liabilities
|
7,946.0
|
|
7,824.7
|
|
Equity
|
|
|
Ordinary shares $0.01 par value, 426.0 authorized, 180.7 and 180.5 issued at March 31, 2016 and December 31, 2015, respectively
|
1.8
|
|
1.8
|
|
Additional paid-in capital
|
2,874.8
|
|
2,860.3
|
|
Retained earnings
|
1,839.3
|
|
1,791.7
|
|
Accumulated other comprehensive loss
|
(631.7
|
)
|
(645.0
|
)
|
Total equity
|
4,084.2
|
|
4,008.8
|
|
Total liabilities and equity
|
$
|
12,030.2
|
|
$
|
11,833.5
|
|
See accompanying notes to condensed consolidated financial statements.
Pentair plc and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions
|
March 31,
2016
|
March 28,
2015
|
Operating activities
|
|
|
Net income
|
$
|
107.4
|
|
$
|
113.9
|
|
Loss from discontinued operations, net of tax
|
—
|
|
4.3
|
|
Adjustments to reconcile net income from continuing operations to net cash provided by (used for) operating activities of continuing operations
|
|
|
Equity income of unconsolidated subsidiaries
|
(0.9
|
)
|
(0.5
|
)
|
Depreciation
|
33.5
|
|
32.4
|
|
Amortization
|
37.6
|
|
27.6
|
|
Deferred income taxes
|
(13.6
|
)
|
5.7
|
|
Share-based compensation
|
16.1
|
|
9.7
|
|
Excess tax benefits from share-based compensation
|
(0.5
|
)
|
(2.8
|
)
|
Gain on sale of assets
|
(2.3
|
)
|
(1.2
|
)
|
Changes in assets and liabilities, net of effects of business acquisitions
|
|
|
Accounts and notes receivable
|
(90.7
|
)
|
(85.8
|
)
|
Inventories
|
(11.7
|
)
|
(88.2
|
)
|
Other current assets
|
(51.2
|
)
|
(71.0
|
)
|
Accounts payable
|
(4.2
|
)
|
(60.2
|
)
|
Employee compensation and benefits
|
(43.7
|
)
|
(33.7
|
)
|
Other current liabilities
|
22.3
|
|
38.8
|
|
Other non-current assets and liabilities
|
(13.1
|
)
|
(15.2
|
)
|
Net cash provided by (used for) operating activities of continuing operations
|
(15.0
|
)
|
(126.2
|
)
|
Net cash provided by (used for) operating activities of discontinued operations
|
—
|
|
(7.0
|
)
|
Net cash provided by (used for) operating activities
|
(15.0
|
)
|
(133.2
|
)
|
Investing activities
|
|
|
Capital expenditures
|
(38.2
|
)
|
(34.8
|
)
|
Proceeds from sale of property and equipment
|
6.3
|
|
2.3
|
|
Acquisitions, net of cash acquired
|
(0.1
|
)
|
(3.0
|
)
|
Net cash provided by (used for) investing activities of continuing operations
|
(32.0
|
)
|
(35.5
|
)
|
Net cash provided by (used for) investing activities of discontinued operations
|
—
|
|
54.9
|
|
Net cash provided by (used for) investing activities
|
(32.0
|
)
|
19.4
|
|
Financing activities
|
|
|
Net receipts of short-term borrowings
|
0.7
|
|
—
|
|
Net receipts of commercial paper and revolving long-term debt
|
138.4
|
|
406.0
|
|
Repayments of long-term debt
|
(0.7
|
)
|
(0.4
|
)
|
Excess tax benefits from share-based compensation
|
0.5
|
|
2.8
|
|
Shares issued to employees, net of shares withheld
|
(1.6
|
)
|
8.7
|
|
Repurchases of ordinary shares
|
—
|
|
(200.0
|
)
|
Dividends paid
|
(60.1
|
)
|
(57.5
|
)
|
Net cash provided by (used for) financing activities
|
77.2
|
|
159.6
|
|
Effect of exchange rate changes on cash and cash equivalents
|
1.6
|
|
(25.1
|
)
|
Change in cash and cash equivalents
|
31.8
|
|
20.7
|
|
Cash and cash equivalents, beginning of period
|
126.3
|
|
110.4
|
|
Cash and cash equivalents, end of period
|
$
|
158.1
|
|
$
|
131.1
|
|
See accompanying notes to condensed consolidated financial statements.
Pentair plc and Subsidiaries
Condensed Consolidated Statements of Changes in Equity (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Ordinary shares
|
|
Treasury shares
|
Additional paid-in capital
|
Retained earnings
|
Accumulated
other
comprehensive loss
|
Total
|
Number
|
Amount
|
|
Number
|
Amount
|
Balance - December 31, 2015
|
180.5
|
|
$
|
1.8
|
|
|
—
|
|
$
|
—
|
|
$
|
2,860.3
|
|
$
|
1,791.7
|
|
$
|
(645.0
|
)
|
$
|
4,008.8
|
|
Net income
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
107.4
|
|
—
|
|
107.4
|
|
Other comprehensive income, net of tax
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
13.3
|
|
13.3
|
|
Dividends declared
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
(59.8
|
)
|
—
|
|
(59.8
|
)
|
Exercise of options, net of shares tendered for payment
|
0.1
|
|
—
|
|
|
—
|
|
—
|
|
3.2
|
|
—
|
|
—
|
|
3.2
|
|
Issuance of restricted shares, net of cancellations
|
0.2
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Shares surrendered by employees to pay taxes
|
(0.1
|
)
|
—
|
|
|
—
|
|
—
|
|
(4.8
|
)
|
—
|
|
—
|
|
(4.8
|
)
|
Share-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
16.1
|
|
—
|
|
—
|
|
16.1
|
|
Balance - March 31, 2016
|
180.7
|
|
$
|
1.8
|
|
|
—
|
|
$
|
—
|
|
$
|
2,874.8
|
|
$
|
1,839.3
|
|
$
|
(631.7
|
)
|
$
|
4,084.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 income
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
113.9
|
|
—
|
|
113.9
|
|
Other comprehensive loss, net of tax
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(174.3
|
)
|
(174.3
|
)
|
Dividends declared
|
—
|
|
—
|
|
|
—
|
|
—
|
|
1.5
|
|
—
|
|
—
|
|
1.5
|
|
Share repurchase
|
(3.1
|
)
|
—
|
|
|
—
|
|
—
|
|
(200.0
|
)
|
—
|
|
—
|
|
(200.0
|
)
|
Exercise of options, net of shares tendered for payment
|
—
|
|
—
|
|
|
0.3
|
|
16.0
|
|
(3.8
|
)
|
—
|
|
—
|
|
12.2
|
|
Issuance of restricted shares, net of cancellations
|
—
|
|
—
|
|
|
0.2
|
|
7.7
|
|
(7.7
|
)
|
—
|
|
—
|
|
—
|
|
Shares surrendered by employees to pay taxes
|
—
|
|
—
|
|
|
(0.1
|
)
|
(2.6
|
)
|
(0.9
|
)
|
—
|
|
—
|
|
(3.5
|
)
|
Share-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
9.7
|
|
—
|
|
—
|
|
9.7
|
|
Balance - March 28, 2015
|
199.3
|
|
$
|
2.0
|
|
|
(19.5
|
)
|
$
|
(1,230.8
|
)
|
$
|
4,048.8
|
|
$
|
2,157.9
|
|
$
|
(554.6
|
)
|
$
|
4,423.3
|
|
See accompanying notes to condensed consolidated financial statements.
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
1.
Basis of Presentation and Responsibility for Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements of Pentair plc (formerly Pentair Ltd.) and its subsidiaries ("we," "us," "our," "Pentair," or "the Company") have been prepared following the requirements of the U.S. Securities and Exchange Commission ("SEC") for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America can be condensed or omitted.
We are responsible for the unaudited financial statements included in this document. The financial statements include all normal recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. As these are condensed financial statements, one should also read our consolidated financial statements and notes thereto, which are included in our Annual Report on Form 10-K for the year ended
December 31, 2015
.
Revenues, expenses, cash flows, assets and liabilities can and do vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be indicative of those for a full year.
Our fiscal year ends on December 31. Beginning in 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.
New accounting standards
In March 2016, the Financial Accounting Standards Board ("FASB") issued a new accounting standard that will change certain aspects of accounting for share-based payments to employees, including the accounting for income taxes, forfeitures and statutory withholding requirements, as well as classification in the statement of cash flows. The new standard is effective for annual and interim periods beginning after December 15, 2016. We have not yet determined the impact this standard will have on our financial condition or results of operations.
In February 2016, the FASB issued new accounting requirements regarding accounting for leases, which requires an entity to recognize both assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The new standard is effective for fiscal years 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.
In November 2015, the FASB issued a new accounting standard which clarifies and simplifies the balance sheet classification of deferred tax assets and liabilities. Under the new standard, all deferred tax assets and liabilities are required to be classified as non-current in a classified balance sheet. The new standard is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period, and early adoption is permitted. We have not yet determined the impact this standard will have on our financial condition.
In April 2015, the FASB issued a new accounting standard which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The new standard was effective for annual and interim periods beginning after December 15, 2015. We adopted the new standard during the first quarter of 2016 and, as a result, reclassified unamortized debt issuance costs of $23.5 million from
Other current assets
and
Other non-current assets
to
Long-term debt
on the Condensed Consolidated Balance Sheet as of
December 31, 2015
.
In May 2014, the FASB issued new accounting requirements for the recognition of revenue from contracts with customers. The new requirements 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. Early adoption is permitted for reporting periods beginning after December 15, 2016. We have not yet determined the potential effects on our financial condition or results of operations.
|
|
2.
|
Acquisitions and Divestitures
|
Acquisitions
On September 18, 2015, we acquired, as part of Technical Solutions, all of the outstanding shares of capital stock of ERICO Global Company ("ERICO") for approximately
$1.8 billion
(the "ERICO Acquisition"). ERICO is a leading global manufacturer and marketer of engineered electrical and fastening products for electrical, mechanical and civil applications.
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
ERICO has employees in 30 countries across the world with recognized brands including CADDY fixing, fastening and support products; ERICO electrical grounding, bonding and connectivity products and LENTON engineered systems.
The purchase price has been preliminarily allocated based on the estimated fair value of assets acquired and liabilities assumed at the date of the ERICO Acquisition. The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. These changes will primarily relate to income tax-related items. We expect the purchase price allocation to be completed in the second quarter of 2016. There can be no assurance that such finalization will not result in material changes from the preliminary purchase price allocations.
The following table summarizes our preliminary 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 at
March 31, 2016
:
|
|
|
|
|
|
|
|
In millions
|
As Previously
Reported
|
As
Revised
|
Cash
|
$
|
11.8
|
|
$
|
11.8
|
|
Accounts receivable
|
75.9
|
|
75.9
|
|
Inventories
|
102.4
|
|
102.1
|
|
Other current assets
|
2.9
|
|
2.8
|
|
Property, plant and equipment
|
53.4
|
|
53.4
|
|
Identifiable intangible assets
|
1,033.8
|
|
1,033.8
|
|
Goodwill
|
1,061.9
|
|
1,037.4
|
|
Current liabilities
|
(97.2
|
)
|
(94.3
|
)
|
Deferred income taxes, including current
|
(418.8
|
)
|
(396.8
|
)
|
Other liabilities
|
(8.0
|
)
|
(8.0
|
)
|
Purchase price
|
$
|
1,818.1
|
|
$
|
1,818.1
|
|
The excess of purchase price over tangible net assets and identified intangible assets acquired has been preliminarily allocated to goodwill in the amount of
$1,037.4 million
, none of which is expected to be deductible for income tax purposes. Identifiable intangible assets acquired as part of the ERICO Acquisition include
$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.
The following unaudited pro forma consolidated condensed financial results of operations are presented as if the ERICO Acquisition was consummated on January 1, 2014:
|
|
|
|
|
|
Three months ended
|
In millions, except per-share data
|
March 28,
2015
|
Pro forma net sales
|
$
|
1,599.1
|
|
Pro forma net income from continuing operations
|
121.0
|
|
Pro forma earnings per ordinary share - continuing operations
|
|
Basic
|
$
|
0.67
|
|
Diluted
|
0.66
|
|
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, 2014.
In April 2015, we acquired, as part of Technical Solutions, 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
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
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. Identified intangible assets acquired consisted of customer relationships of
$53.3 million
, with an estimated useful life of 17 years. The pro forma impact of this acquisition was deemed to not be material.
Discontinued operations
During the first and second quarters of 2015, we sold the remaining portions of the Water Transport business in Australia 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:
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions
|
March 31,
2016
|
March 28,
2015
|
Net sales
|
$
|
—
|
|
$
|
18.6
|
|
Cost of goods sold
|
—
|
|
18.1
|
|
Gross profit
|
$
|
—
|
|
$
|
0.5
|
|
|
|
|
Loss from discontinued operations before income taxes
|
$
|
—
|
|
$
|
(5.6
|
)
|
Income tax benefit
|
—
|
|
1.3
|
|
Loss from discontinued operations, net of tax
|
$
|
—
|
|
$
|
(4.3
|
)
|
Total share-based compensation expense for the
three months ended
March 31, 2016
and
March 28, 2015
was as follows:
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions
|
March 31,
2016
|
March 28,
2015
|
Restricted stock units
|
$
|
7.0
|
|
$
|
6.2
|
|
Stock options
|
5.4
|
|
3.5
|
|
Performance share units
|
3.7
|
|
—
|
|
Total share-based compensation expense
|
$
|
16.1
|
|
$
|
9.7
|
|
In the first quarter of
2016
, we issued our annual share-based compensation grants under the Pentair plc 2012 Stock and Incentive Plan to eligible employees. The total number of awards issued was approximately
1.7 million
, of which
1.1 million
were stock options,
0.3 million
were restricted stock units and
0.3 million
were performance share units. The weighted-average grant date fair value of the stock options, restricted stock units and performance share units issued was
$10.23
,
$49.21
and
$49.21
, respectively.
We estimated the fair value of each stock option award issued in the annual share-based compensation grant using a Black-Scholes option pricing model, modified for dividends and using the following assumptions:
|
|
|
|
|
2016
Annual Grant
|
Risk-free interest rate
|
1.57
|
%
|
Expected dividend yield
|
2.47
|
%
|
Expected share price volatility
|
27.3
|
%
|
Expected term (years)
|
5.9
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
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 share price volatility, we considered a rolling average of historical volatility measured over a period approximately equal to the expected option term. The risk-free interest 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.
During the
three months ended
March 31, 2016
and the year ended
December 31, 2015
, we continued execution of certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business. Initiatives during the
three months ended
March 31, 2016
included the reduction in hourly and salaried headcount of approximately
50
employees, consisting of approximately
10
in Water Quality Systems,
20
in Flow & Filtration Solutions and
20
in Technical Solutions. Initiatives during the year ended
December 31, 2015
included the reduction in hourly and salaried headcount of approximately
3,000
employees, consisting of approximately
100
in Water Quality Systems,
200
in Flow & Filtration Solutions,
200
in Technical Solutions and
2,500
in Valves & Controls.
Restructuring related costs included in
Selling, general and administrative
expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) included costs for severance and other restructuring costs as follows:
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions
|
March 31,
2016
|
March 28,
2015
|
Severance and related costs
|
$
|
0.8
|
|
$
|
—
|
|
Other
|
(0.1
|
)
|
—
|
|
Total restructuring costs
|
$
|
0.7
|
|
$
|
—
|
|
Other restructuring costs primarily consist of asset impairment and various contract termination costs.
Restructuring costs (benefits) by reportable segment for the
three months ended
March 31, 2016
and
March 28, 2015
were as follows:
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions
|
March 31,
2016
|
March 28,
2015
|
Water Quality Systems
|
$
|
0.5
|
|
$
|
—
|
|
Flow & Filtration Solutions
|
(1.1
|
)
|
—
|
|
Technical Solutions
|
0.2
|
|
—
|
|
Valves & Controls
|
0.2
|
|
—
|
|
Other
|
0.9
|
|
—
|
|
Consolidated
|
$
|
0.7
|
|
$
|
—
|
|
Activity in the restructuring accrual recorded in
Other current liabilities
and
Employee compensation and benefits
in the Condensed Consolidated Balance Sheets is summarized as follows for the
three months ended
March 31, 2016
:
|
|
|
|
|
In millions
|
March 31,
2016
|
Beginning balance
|
$
|
91.2
|
|
Costs incurred
|
0.8
|
|
Cash payments and other
|
(20.7
|
)
|
Ending balance
|
$
|
71.3
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Basic and diluted earnings per share were calculated as follows:
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions, except per-share data
|
March 31,
2016
|
March 28,
2015
|
Net income
|
$
|
107.4
|
|
$
|
113.9
|
|
Net income from continuing operations
|
$
|
107.4
|
|
$
|
118.2
|
|
Weighted average ordinary shares outstanding
|
|
|
Basic
|
180.7
|
|
180.1
|
|
Dilutive impact of stock options, restricted stock units and performance share units
|
1.7
|
|
2.6
|
|
Diluted
|
182.4
|
|
182.7
|
|
Earnings (loss) per ordinary share
|
|
|
Basic
|
|
|
Continuing operations
|
$
|
0.59
|
|
$
|
0.66
|
|
Discontinued operations
|
—
|
|
(0.03
|
)
|
Basic earnings per ordinary share
|
$
|
0.59
|
|
$
|
0.63
|
|
Diluted
|
|
|
Continuing operations
|
$
|
0.59
|
|
$
|
0.65
|
|
Discontinued operations
|
—
|
|
(0.03
|
)
|
Diluted earnings per ordinary share
|
$
|
0.59
|
|
$
|
0.62
|
|
Anti-dilutive stock options excluded from the calculation of diluted earnings per share
|
3.1
|
|
1.2
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
|
|
6.
|
Supplemental Balance Sheet Information
|
|
|
|
|
|
|
|
|
In millions
|
March 31,
2016
|
December 31,
2015
|
Inventories
|
|
|
Raw materials and supplies
|
$
|
461.9
|
|
$
|
433.0
|
|
Work-in-process
|
244.5
|
|
249.2
|
|
Finished goods
|
491.3
|
|
492.1
|
|
Total inventories
|
$
|
1,197.7
|
|
$
|
1,174.3
|
|
Other current assets
|
|
|
Cost in excess of billings
|
$
|
122.2
|
|
$
|
114.4
|
|
Prepaid expenses
|
128.1
|
|
84.6
|
|
Deferred income taxes
|
114.6
|
|
96.7
|
|
Other current assets
|
16.5
|
|
13.6
|
|
Total other current assets
|
$
|
381.4
|
|
$
|
309.3
|
|
Property, plant and equipment, net
|
|
|
Land and land improvements
|
$
|
160.7
|
|
$
|
161.9
|
|
Buildings and leasehold improvements
|
511.3
|
|
518.8
|
|
Machinery and equipment
|
1,235.0
|
|
1,287.6
|
|
Construction in progress
|
88.6
|
|
79.3
|
|
Total property, plant and equipment
|
1,995.6
|
|
2,047.6
|
|
Accumulated depreciation and amortization
|
1,043.8
|
|
1,104.8
|
|
Total property, plant and equipment, net
|
$
|
951.8
|
|
$
|
942.8
|
|
Other non-current assets
|
|
|
Asbestos-related insurance receivable
|
$
|
110.3
|
|
$
|
111.0
|
|
Deferred income taxes
|
63.8
|
|
62.8
|
|
Other non-current assets
|
187.4
|
|
193.8
|
|
Total other non-current assets
|
$
|
361.5
|
|
$
|
367.6
|
|
Other current liabilities
|
|
|
Deferred revenue and customer deposits
|
$
|
90.6
|
|
$
|
94.6
|
|
Dividends payable
|
59.6
|
|
59.6
|
|
Billings in excess of cost
|
30.7
|
|
32.0
|
|
Accrued warranty
|
59.5
|
|
59.8
|
|
Other current liabilities
|
424.9
|
|
398.1
|
|
Total other current liabilities
|
$
|
665.3
|
|
$
|
644.1
|
|
Other non-current liabilities
|
|
|
Asbestos-related liabilities
|
$
|
235.4
|
|
$
|
237.9
|
|
Taxes payable
|
67.1
|
|
71.1
|
|
Other non-current liabilities
|
224.2
|
|
212.0
|
|
Total other non-current liabilities
|
$
|
526.7
|
|
$
|
521.0
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
|
|
7.
|
Goodwill and Other Identifiable Intangible Assets
|
The changes in the carrying amount of goodwill by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
December 31,
2015
|
Purchase
accounting
adjustments
|
Foreign currency
translation/other
|
March 31,
2016
|
Water Quality Systems
|
$
|
1,121.1
|
|
$
|
—
|
|
$
|
3.5
|
|
$
|
1,124.6
|
|
Flow & Filtration Solutions
|
882.7
|
|
—
|
|
12.1
|
|
894.8
|
|
Technical Solutions
|
2,255.2
|
|
(24.5
|
)
|
3.5
|
|
2,234.2
|
|
Valves & Controls
|
996.4
|
|
—
|
|
—
|
|
996.4
|
|
Total goodwill
|
$
|
5,255.4
|
|
$
|
(24.5
|
)
|
$
|
19.1
|
|
$
|
5,250.0
|
|
Identifiable intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
In millions
|
Cost
|
Accumulated
amortization
|
Net
|
|
Cost
|
Accumulated
amortization
|
Net
|
Finite-life intangibles
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
2,085.5
|
|
$
|
(450.4
|
)
|
$
|
1,635.1
|
|
|
$
|
2,078.7
|
|
$
|
(415.8
|
)
|
$
|
1,662.9
|
|
Trade names
|
1.8
|
|
(1.2
|
)
|
0.6
|
|
|
1.8
|
|
(1.2
|
)
|
0.6
|
|
Proprietary technology and patents
|
250.6
|
|
(120.1
|
)
|
130.5
|
|
|
249.3
|
|
(114.2
|
)
|
135.1
|
|
Total finite-life intangibles
|
2,337.9
|
|
(571.7
|
)
|
1,766.2
|
|
|
2,329.8
|
|
(531.2
|
)
|
1,798.6
|
|
Indefinite-life intangibles
|
|
|
|
|
|
|
|
Trade names
|
694.8
|
|
—
|
|
694.8
|
|
|
691.5
|
|
—
|
|
691.5
|
|
Total intangibles, net
|
$
|
3,032.7
|
|
$
|
(571.7
|
)
|
$
|
2,461.0
|
|
|
$
|
3,021.3
|
|
$
|
(531.2
|
)
|
$
|
2,490.1
|
|
Intangible asset amortization expense was
$37.6 million
and
$27.6 million
for the three months ended
March 31, 2016
and
March 28, 2015
, respectively.
Estimated future amortization expense for identifiable intangible assets during the remainder of
2016
and the next five years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q2-Q4
|
|
|
|
|
|
In millions
|
2016
|
2017
|
2018
|
2019
|
2020
|
2021
|
Estimated amortization expense
|
$
|
113.2
|
|
$
|
150.1
|
|
$
|
148.6
|
|
$
|
146.1
|
|
$
|
139.3
|
|
$
|
134.2
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Debt and the average interest rates on debt outstanding were as follows:
|
|
|
|
|
|
|
|
|
|
In millions
|
Average
interest rate at
March 31, 2016
|
Maturity
Year
|
March 31,
2016
|
December 31,
2015
|
Commercial paper
|
1.628%
|
2019
|
$
|
169.4
|
|
$
|
179.5
|
|
Revolving credit facilities
|
1.936%
|
2019
|
1,330.0
|
|
1,181.4
|
|
Senior notes - fixed rate
|
1.875%
|
2017
|
350.0
|
|
350.0
|
|
Senior notes - fixed rate
|
2.900%
|
2018
|
500.0
|
|
500.0
|
|
Senior notes - fixed rate
|
2.650%
|
2019
|
250.0
|
|
250.0
|
|
Senior notes - fixed rate - Euro
|
2.450%
|
2019
|
559.8
|
|
548.4
|
|
Senior notes - fixed rate
|
3.625%
|
2020
|
400.0
|
|
400.0
|
|
Senior notes - fixed rate
|
5.000%
|
2021
|
500.0
|
|
500.0
|
|
Senior notes - fixed rate
|
3.150%
|
2022
|
550.0
|
|
550.0
|
|
Senior notes - fixed rate
|
4.650%
|
2025
|
250.0
|
|
250.0
|
|
Capital lease obligations and other
|
1.734%
|
2016
|
0.7
|
|
0.7
|
|
Unamortized debt issuance costs and discounts
|
N/A
|
N/A
|
(22.1
|
)
|
(23.5
|
)
|
Total debt
|
|
|
4,837.8
|
|
4,686.5
|
|
Less: Current maturities and short-term borrowings
|
|
|
(0.7
|
)
|
(0.7
|
)
|
Long-term debt
|
|
|
$
|
4,837.1
|
|
$
|
4,685.8
|
|
In September 2015, Pentair plc, Pentair Finance S.A. ("PFSA") and Pentair Investments Switzerland GmbH ("PISG"), a 100-percent owned subsidiary of Pentair plc and the 100-percent owner of PFSA, completed public offerings (the "September 2015 Offerings") of
$500 million
aggregate principal amount of PFSA's
2.90%
Senior Notes due
2018
,
$400 million
aggregate principal amount of PFSA's
3.625%
Senior Notes due
2020
,
$250 million
aggregate principal amount of PFSA's
4.65%
Senior Notes due
2025
and
€500 million
aggregate principal amount of PFSA's
2.45%
Senior Notes due
2019
. Pentair plc used the net proceeds from the September 2015 Offerings to finance the ERICO Acquisition.
The Senior Notes issued in the September 2015 Offerings,
1.875%
Senior Notes due
2017
,
2.65%
Senior Notes due
2019
,
$373.0 million
of the
5.00%
Senior Notes due
2021
and
3.15%
Senior Notes due
2022
issued by PFSA and
$127.0 million
of the
5.00%
Senior Notes due
2021
issued by Pentair, Inc. (collectively, the "Notes") are guaranteed as to payment by Pentair plc and PISG.
In October 2014, Pentair plc, PISG, PFSA and Pentair, Inc. entered into an amended and restated credit agreement (the "Credit Facility"), with Pentair plc and PISG as guarantors and PFSA and Pentair, Inc. as borrowers. The Credit Facility had a maximum aggregate availability 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) following the ERICO Acquisition from 3.50 to 1.00 on the last day of each fiscal quarter to the amounts specified below. Additionally, in September 2015, Pentair plc, PISG and PFSA entered into a Second Amendment to the Credit Facility (the "Second Amendment," and together with the First Amendment, the "Amendments"), which, among other things, increased the maximum aggregate availability to
$2,500.0 million
.
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
March 31, 2016
and
December 31, 2015
, PFSA had
$169.4 million
and
$179.5 million
, respectively, of commercial paper outstanding, all of which
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
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 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, and in addition to (but without duplication of) the fees, costs and expenses referred above, any fees, costs and expenses, in an aggregate amount not to exceed
$50.0 million
, incurred in connection with the ERICO Acquisition and any related incurrence, issuance, repayment or refinancing of debt ("EBITDA") for the four consecutive fiscal quarters then ended (the "Leverage Ratio") to exceed (a) 4.50 to 1.00 as of the last day of any period of four consecutive fiscal quarters ending on or prior to June 30, 2016; (b) 4.25 to 1.00 as of the last day of the period of four consecutive fiscal quarters ending on September 30, 2016; (c) 4.00 to 1.00 as of the last day of the period of four consecutive fiscal quarters ending on December 31, 2016; (d) 3.75 to 1.00 as of the last day of the period of four consecutive fiscal quarters ending after December 31, 2016 but before June 30, 2017; and (e)
3.50
to 1.00 as of the last day of the period of four consecutive fiscal quarters ending after June 30, 2017, 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
March 31, 2016
,
we were in compliance with all financial covenants in our debt agreements
.
Total availability under the Credit Facility was
$1,000.6 million
as of
March 31, 2016
, which was limited to
$429.7 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
$51.3 million
, of which
none
was outstanding at
March 31, 2016
. Borrowings under these credit facilities bear interest at variable rates.
Debt outstanding, excluding unamortized issuance costs and discounts, at
March 31, 2016
matures on a calendar year basis as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q2-Q4
|
|
|
|
|
|
|
|
In millions
|
2016
|
2017
|
2018
|
2019
|
2020
|
2021
|
Thereafter
|
Total
|
Contractual debt obligation maturities
|
$
|
0.7
|
|
$
|
350.0
|
|
$
|
500.0
|
|
$
|
2,309.2
|
|
$
|
400.0
|
|
$
|
500.0
|
|
$
|
800.0
|
|
$
|
4,859.9
|
|
|
|
9.
|
Derivatives and Financial Instruments
|
Derivative financial instruments
We are exposed to market risk related to changes in foreign currency exchange rates and interest rates on our floating rate indebtedness. To manage the volatility related to these exposures, 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 and interest 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. To hedge currency exposure related to certain non-functional currency intercompany debt, we have entered into cross-currency swap contracts for periods consistent with the underlying debt.
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
At
March 31, 2016
and
December 31, 2015
, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts of
$576.4 million
and
$331.5 million
, respectively. The impact of these contracts on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) is not material for any period presented.
Gains or losses on foreign currency contracts designated as hedges are reclassified out of Accumulated Other Comprehensive Loss ("AOCI") and into
Selling, general and administrative
expense in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) upon settlement. Such reclassifications during the
three months ended
March 31, 2016
and
March 28, 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
€500.0 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
March 31, 2016
, we had deferred foreign currency gains of
$5.0 million
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 instruments:
|
|
•
|
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; and
|
|
|
•
|
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.
|
The recorded amounts and estimated fair values of total debt, excluding unamortized issuance costs and discounts, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
In millions
|
Recorded
Amount
|
Fair
Value
|
|
Recorded
Amount
|
Fair
Value
|
Variable rate debt
|
$
|
1,500.1
|
|
$
|
1,500.1
|
|
|
$
|
1,360.9
|
|
$
|
1,360.9
|
|
Fixed rate debt
|
3,359.8
|
|
3,399.0
|
|
|
3,349.1
|
|
3,395.4
|
|
Total debt
|
$
|
4,859.9
|
|
$
|
4,899.1
|
|
|
$
|
4,710.0
|
|
$
|
4,756.3
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Financial assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
In millions
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Recurring fair value measurements
|
|
|
|
|
Foreign currency contract liabilities
|
$
|
—
|
|
$
|
(32.7
|
)
|
$
|
—
|
|
$
|
(32.7
|
)
|
Deferred compensation plan assets
(1)
|
39.6
|
|
6.2
|
|
—
|
|
45.8
|
|
Total recurring fair value measurements
|
$
|
39.6
|
|
$
|
(26.5
|
)
|
$
|
—
|
|
$
|
13.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
In millions
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Recurring fair value measurements
|
|
|
|
|
Foreign currency contract assets
|
$
|
—
|
|
$
|
0.1
|
|
$
|
—
|
|
$
|
0.1
|
|
Foreign currency contract liabilities
|
—
|
|
(7.6
|
)
|
—
|
|
(7.6
|
)
|
Deferred compensation plan assets
(1)
|
43.8
|
|
7.0
|
|
—
|
|
50.8
|
|
Total recurring fair value measurements
|
$
|
43.8
|
|
$
|
(0.5
|
)
|
$
|
—
|
|
$
|
43.3
|
|
Nonrecurring fair value measurements
|
|
|
|
|
Goodwill
(2)
|
$
|
—
|
|
$
|
—
|
|
$
|
996.4
|
|
$
|
996.4
|
|
Trade name intangibles
(3)
|
—
|
|
—
|
|
138.1
|
|
138.1
|
|
Total nonrecurring fair value measurements
|
$
|
—
|
|
$
|
—
|
|
$
|
1,134.5
|
|
$
|
1,134.5
|
|
|
|
(1)
|
Deferred compensation plan assets include mutual funds, common/collective trusts and cash equivalents for payment of certain non-qualified benefits for retired, terminated and active employees. The fair value of mutual funds and cash equivalents were based on quoted market prices in active markets. The underlying investments in the common/collective trusts primarily include intermediate and long-term debt securities, corporate debt securities, equity securities and fixed income securities. The overall fair value of the common/collective trusts are based on observable inputs.
|
|
|
(2)
|
During the fourth quarter of 2015, we performed a goodwill impairment test for our Valves & Controls reporting unit using the required two-step process as of December 31, 2015. As a result, we recorded a non-cash goodwill impairment charge of
$515.2 million
. The first step of this process includes comparing the fair value to the carrying value of the reporting unit to which the goodwill is allocated to identify potential impairment. If the fair value of the reporting unit exceeds its carrying value, goodwill allocated to that reporting unit is considered not impaired. If the inverse result is observed, the reporting unit is considered to be impaired and step two of the test to measure the amount of impairment must be completed.
|
The fair value of the 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. Actual results may differ from those used in our valuations.
Step two compares the implied fair value of the goodwill with the carrying value of that goodwill. If the carrying value of the goodwill exceeds its implied fair value, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of its assets and liabilities as if the reporting unit had been acquired in a business combination and its fair value was the purchase price paid to acquire the reporting unit.
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
|
|
(3)
|
During the fourth quarter of 2015, we performed an impairment test for our Valves & Controls trade names. As a result, we recorded a pre-tax, non-cash trade name impairment charge of
$39.5 million
. 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.
|
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. The provision for income taxes consists of provisions for U.K. and international income taxes. We operate in an international environment with operations in various locations outside the U.K. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates.
The effective income tax rate for the
three months ended
March 31, 2016
was
20.5%
, compared to
23.0%
for the
three months ended
March 28, 2015
. We continue to actively pursue initiatives to reduce our effective tax rate. The tax rate in any quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution.
The liability for uncertain tax positions was
$66.5 million
and
$69.9 million
at
March 31, 2016
and
December 31, 2015
, respectively. We record penalties and interest related to unrecognized tax benefits in
Provision for income taxes
and
Net interest expense
, respectively, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), which is consistent with our past practices.
Components of net periodic benefit cost for our pension plans for the
three months ended
March 31, 2016
and
March 28, 2015
were as follows:
|
|
|
|
|
|
|
|
|
U.S. pension plans
|
|
Three months ended
|
In millions
|
March 31,
2016
|
March 28,
2015
|
Service cost
|
$
|
2.8
|
|
$
|
3.5
|
|
Interest cost
|
4.1
|
|
3.7
|
|
Expected return on plan assets
|
(2.9
|
)
|
(2.5
|
)
|
Net periodic benefit cost
|
$
|
4.0
|
|
$
|
4.7
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. pension plans
|
|
Three months ended
|
In millions
|
March 31,
2016
|
March 28,
2015
|
Service cost
|
$
|
2.5
|
|
$
|
2.6
|
|
Interest cost
|
3.7
|
|
3.8
|
|
Expected return on plan assets
|
(3.8
|
)
|
(4.1
|
)
|
Net periodic benefit cost
|
$
|
2.4
|
|
$
|
2.3
|
|
Components of net periodic benefit cost for our other post-retirement plans for the
three months ended
March 31, 2016
and
March 28, 2015
were not material.
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
.
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
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
. During the three months ended
March 28, 2015
, we repurchased
3.1 million
of our shares for
$200.0 million
pursuant to this authorization. There were
no
share repurchases during the
three months ended
March 31, 2016
pursuant to this authorization. As of
March 31, 2016
, we had
$800.0 million
remaining available for share repurchases under this authorization.
Dividends payable
On February 23, 2016, the Board of Directors declared a quarterly cash dividend of
$0.33
payable on May 6, 2016 to shareholders of record at the close of business on April 22, 2016. Additionally, on December 8, 2015, the Board of Directors declared a quarterly cash dividend of
$0.33
which was paid on February 12, 2016 to shareholders of record at the close of business on January 29, 2016 and approved a plan to increase the 2016 annual cash dividend to
$1.34
, which is intended to be paid in four quarterly installments of
$0.33
in each of the first and second quarters of 2016 and
$0.34
in each of the third and fourth quarters of 2016. As a result, the balance of dividends payable included in
Other current liabilities
on our Condensed Consolidated Balance Sheets was
$59.6 million
at
March 31, 2016
and
December 31, 2015
.
We evaluate performance based on net sales and segment income (loss) and use a variety of ratios to measure performance of our reporting segments. During the third quarter of 2015, we updated our segment income (loss) measure to exclude intangible amortization in order to better reflect the performance of our reporting segments. Segment income (loss) represents equity income of unconsolidated subsidiaries and operating income (loss) exclusive of intangible amortization, certain acquisition related expenses, costs of restructuring activities, "mark-to-market" gain/loss for pension and other post-retirement plans, impairments and other unusual non-operating items.
Financial information by reportable segment is as follows:
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions
|
March 31,
2016
|
March 28,
2015
|
Net sales
|
|
|
Water Quality Systems
|
$
|
331.5
|
|
$
|
306.9
|
|
Flow & Filtration Solutions
|
337.7
|
|
350.1
|
|
Technical Solutions
|
524.6
|
|
395.8
|
|
Valves & Controls
|
387.0
|
|
429.2
|
|
Other
|
(5.3
|
)
|
(7.0
|
)
|
Consolidated
|
$
|
1,575.5
|
|
$
|
1,475.0
|
|
Segment income (loss)
|
|
|
Water Quality Systems
|
$
|
61.7
|
|
$
|
51.8
|
|
Flow & Filtration Solutions
|
39.5
|
|
36.4
|
|
Technical Solutions
|
112.8
|
|
77.6
|
|
Valves & Controls
|
25.3
|
|
55.4
|
|
Other
|
(29.5
|
)
|
(21.9
|
)
|
Consolidated
|
$
|
209.8
|
|
$
|
199.3
|
|
Pentair plc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
The following table presents a reconciliation of consolidated segment income to consolidated operating income:
|
|
|
|
|
|
|
|
|
Three months ended
|
In millions
|
March 31,
2016
|
March 28,
2015
|
Segment income
|
$
|
209.8
|
|
$
|
199.3
|
|
Restructuring and other
|
(0.7
|
)
|
—
|
|
Intangible amortization
|
(37.6
|
)
|
(27.6
|
)
|
Equity income of unconsolidated subsidiaries
|
(0.9
|
)
|
(0.5
|
)
|
Operating income
|
$
|
170.6
|
|
$
|
171.2
|
|
|
|
14.
|
Commitments and Contingencies
|