EX-99.1 2 d464939dex991.htm EX-99.1 EX-99.1
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LOGO

[                    ], 2018

Dear Pentair Shareholder:

On May 9, 2017, we announced a plan to separate our Water business and our Electrical business into two independent, publicly-traded companies. The separation will occur through a spin-off of a newly formed company named nVent Electric plc, which will contain our Electrical business. Pentair, the existing publicly-traded company, will continue to own our Water business. Both companies will benefit from leading positions in their respective industries, well-recognized brands, attractive margin profiles, strong cash flow generation and compelling growth opportunities.

To implement the separation, Pentair will transfer its Electrical business to nVent, and in return, nVent will issue ordinary shares to Pentair shareholders, pro rata to their respective holdings. Subject to the approval of the Pentair board of directors, each Pentair shareholder will receive one nVent ordinary share for each Pentair ordinary share held as of the close of business on April 17, 2018, the record date for the distribution. The distribution will generally be tax-free to Pentair shareholders for U.S. federal income tax purposes, except for cash received in lieu of fractional shares.

No vote of Pentair shareholders is required for the distribution. You do not need to take any action to receive nVent ordinary shares to which you are entitled as a Pentair shareholder, and you do not need to pay any consideration or surrender or exchange your Pentair shares.

I encourage you to read the attached information statement, which is being provided to all Pentair shareholders who hold Pentair ordinary shares on the record date for the distribution. The information statement describes the separation in detail and contains important business and financial information about nVent.

I believe the separation provides tremendous opportunities for our businesses and our shareholders, as we work to continue building long-term shareholder value. We appreciate your continuing support of Pentair, and look forward to your future support of both companies.

Sincerely,

 

LOGO

Randall J. Hogan

Chairman and Chief Executive Officer

Pentair plc


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LOGO

[                    ], 2018

Dear Future nVent Shareholder:

I am pleased to welcome you as a future shareholder of nVent, whose shares we intend to list on the New York Stock Exchange under the symbol “NVT”.

We are a leading global provider of electrical connection and protection solutions. We believe our inventive electrical solutions enable safer systems and ensure a more secure world. Our breadth of high performance products and solutions, depth of industry expertise across our premier brands, and global footprint enable us to solve our customers’ demanding problems, improving their utilization, lowering their costs, and minimizing downtime.

As an independent, publicly-traded company, we believe we will be well-positioned to execute our growth strategy focused on customer experience, product innovation and international growth. We have a proven track record of successfully integrating and delivering value from acquisitions and we will look to pursue a disciplined acquisition strategy in the future to complement our growth.

Our talented senior management team with experience at Pentair and other leading industrial companies, along with our deeply-committed employees, are dedicated to building upon our culture of customer focus, operational excellence and continuous improvement.

We believe our strengths and discipline will translate into an attractive return for you, our shareholders.

I invite you to learn more about nVent and our strategic initiatives by reading the attached information statement. Thank you in advance for your support as a future shareholder of nVent.

Sincerely,

 

LOGO

Beth A. Wozniak

Chief Executive Officer

nVent Electric plc


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Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended.

 

Preliminary and Subject to Completion, dated April 4, 2018

INFORMATION STATEMENT

nVent Electric plc

 

 

This information statement is being furnished in connection with the distribution of ordinary shares of nVent Electric plc (“nVent”), which will hold the Electrical business of Pentair plc (“Pentair”), to Pentair shareholders.

Subject to the approval of the Pentair board of directors, for each Pentair ordinary share you hold of record as of the close of business on April 17, 2018, the record date for the distribution (the “record date”), you will receive one nVent ordinary share. You will receive cash in lieu of any fractional nVent ordinary shares that you would have received after application of the above ratio. We expect nVent ordinary shares to be distributed to you on April 30, 2018. We refer to the date of the distribution of nVent ordinary shares as the “distribution date.” As discussed under “The Separation—Trading Between the Record Date and Distribution Date,” if you sell your Pentair ordinary shares in the “regular-way” market after the record date and before the distribution date, you also will be selling your right to receive nVent ordinary shares in connection with the separation.

The distribution is intended to be tax-free to Pentair shareholders for U.S. federal income tax purposes, except for cash received in lieu of fractional shares. The distribution is subject to certain conditions, including the receipt of a private letter ruling from the U.S. Internal Revenue Service (“IRS”) and the receipt of an opinion of Deloitte Tax LLP confirming that the distribution and certain related transactions will qualify for non-recognition of gain or loss to Pentair and its shareholders pursuant to Section 355 and related provisions of the Internal Revenue Code of 1986, as amended (the “Code”), except to the extent of cash received in lieu of fractional shares.

No vote of Pentair shareholders is required in connection with the distribution. Therefore, you are not being asked for a proxy, and you are requested not to send us a proxy, in connection with the distribution. You do not need to pay any consideration, exchange or surrender your existing Pentair ordinary shares or take any other action to receive your nVent ordinary shares.

There is no current trading market for nVent ordinary shares, although we expect that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the record date for the distribution, and we expect “regular-way” trading of nVent ordinary shares to begin on the first trading day following the completion of the separation. We intend to apply to have nVent ordinary shares listed on the New York Stock Exchange (“NYSE”) under the symbol “NVT.” Following the distribution, Pentair will continue to trade on the NYSE under the symbol “PNR.”

In reviewing this information statement, you should carefully consider the matters described under “Risk Factors” beginning on page 23.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

This document is not a prospectus within the meaning of the Companies Act 2014 of Ireland (as amended), the Prospectus Directive (2003/71/EC) Regulations 2005 of Ireland (as amended) or the Prospectus Rules issued by the Central Bank of Ireland. No offer of shares to the public is made, or will be made, that requires the publication of a prospectus pursuant to Irish prospectus law within the meaning of the above legislation. This document has not been approved or reviewed by or registered with the Central Bank of Ireland or any other competent authority or regulatory authority in the European Economic Area. This document does not constitute investment advice or the provision of investment services within the meaning of the European Communities (Markets in Financial Instruments) Regulations 2007 of Ireland (as amended) or the Markets in Financial Instruments Directive (2004/39/EC). Neither Pentair nor nVent is an authorized investment firm within the meaning of the European Communities (Markets in Financial Instruments) Regulations 2007 of Ireland (as amended) or the Markets in Financial Instruments Directive (2004/39/EC) and the recipients of this document should seek independent legal and financial advice in determining their actions in respect of or pursuant to this document.

The date of this information statement is [                ], 2018.

This information statement will be made publicly available at www.materialnotice.com beginning [                ], 2018, and notices of this information statement’s availability will be first sent to Pentair shareholders on or about [                ], 2018.


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TABLE OF CONTENTS

 

     Page  

Questions and Answers about the Separation

     1  

Information Statement Summary

     9  

Risk Factors

     23  

Cautionary Statement Concerning Forward-Looking Statements

     45  

The Separation

     46  

Dividends

     52  

Capitalization

     53  

Selected Historical Combined Financial Data

     54  

Unaudited Pro Forma Combined Financial Statements

     56  

Business

     60  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     69  

Management

     89  

Directors

     91  

Compensation Discussion and Analysis

     99  

Executive Compensation

     115  

Director Compensation

     142  

Certain Relationships and Related Person Transactions

     143  

Material U.S. Federal Income Tax Consequences

     151  

Material Irish Tax Consequences

     155  

Material U.K. Tax Consequences

     157  

Description of Material Indebtedness

     159  

Security Ownership of Certain Beneficial Owners and Management

     161  

Description of nVent’s Share Capital

     163  

Where You Can Find More Information

     181  

Index to Financial Statements

     F-1  

NOTE REGARDING THE USE OF CERTAIN TERMS, TRADEMARKS, TRADE NAMES AND SERVICE MARKS

Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about nVent assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references in this information statement to “nVent,” “we,” “us,” “our” and “our company” refer to nVent Electric plc, an Irish public limited company, and its subsidiaries. Unless the context otherwise requires, references to the “Electrical business” refer to the business and operations of Pentair’s Electrical business as they were historically managed as part of Pentair and its subsidiaries prior to the completion of the separation. References in this information statement to “Pentair” refer to Pentair plc, an Irish public limited company, and its subsidiaries, including the Electrical business prior to completion of the separation. References in this information statement to the “separation” refer to the separation of the Electrical business from Pentair and the creation, as a result of the distribution, of an independent, publicly-traded company, nVent, which will hold the assets and liabilities associated with the Electrical business after the distribution. References in this information statement to the “distribution” refer to the distribution on Pentair ordinary shares outstanding on the record date that will be satisfied by nVent’s issuance of its ordinary shares to the persons entitled to receive the distribution. References to “dollars” or “$” refer to U.S. dollars. References to “U.S.” refer to the United States of America and references to “U.K.” refer to the United Kingdom.

We own or have rights to use the trademarks, trade names and service marks that we use in conjunction with the operation of our business. We own or have rights to use the following trademarks that appear in this information statement: “Caddy,” “Erico,” “Hoffman,” “nVent,” “Raychem,” “Schroff” and “Tracer”. These

 

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trademarks are registered trademarks or the subject of pending trademark applications in the U.S. and other jurisdictions. We license the “Raychem” trademark from a third party. Each trademark, trade name or service mark of any other company appearing in this information statement is, to our knowledge, owned by such other company. Solely for convenience, the trademarks, trade names and service marks referred to in this information statement are listed without the ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our right to use such trademarks, service marks and trade names.

 

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QUESTIONS AND ANSWERS ABOUT THE SEPARATION

 

What is nVent and why is Pentair distributing nVent ordinary shares?

nVent was incorporated in Ireland on May 30, 2017 for the purpose of holding Pentair’s Electrical business following the separation. The separation of Pentair’s Electrical business from Pentair and the distribution of nVent ordinary shares to Pentair shareholders are intended to provide you with equity investments in two separate companies that will be able to focus on each of their respective businesses. We expect that the separation will result in enhanced long-term performance of each business for the reasons discussed in “The Separation—Reasons for the Separation.”

 

Why am I receiving this document?

Pentair is delivering this document to you because you are a holder of Pentair ordinary shares. If you are a holder of Pentair ordinary shares as of the close of business on April 17, 2018, the record date of the distribution, you are entitled to receive one nVent ordinary share for each Pentair ordinary share that you hold at the close of business on such date. This document will help you understand how the separation will affect your investment in Pentair and your investment in nVent after the separation.

 

How will the separation work?

Currently, all of nVent’s issued shares are held beneficially by an Irish corporate services provider (which is not a subsidiary of Pentair). Prior to the transfer by Pentair to nVent of the Electrical business, which will occur prior to the distribution, we will have no business operations. Pentair will transfer its Electrical business to us in return for which we will issue nVent ordinary shares to Pentair shareholders, pro rata to their respective holdings. For the purposes of Irish law, this will be treated as Pentair having made a dividend in specie, or a non-cash dividend, to its shareholders. In connection with these transactions, we will acquire by surrender the shares currently held by the Irish corporate services provider referred to above for no consideration, following which we will cancel these shares. Immediately following the distribution, the persons entitled to receive nVent ordinary shares in the distribution will own all of the outstanding nVent ordinary shares.

 

Why is the separation of nVent structured in this manner?

Pentair believes that a distribution of nVent ordinary shares that is tax-free to Pentair shareholders for U.S. federal income tax purposes is an efficient way to separate the Electrical business of Pentair in a manner that will create long-term value for Pentair, nVent, and their respective shareholders.

 

What is the record date for the distribution?

The record date for the distribution will be April 17, 2018.

 

When will the distribution occur?

We expect the distribution of nVent ordinary shares to occur on April 30, 2018, to holders of record of Pentair ordinary shares at the close of business on the record date.

 

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What do shareholders need to do to participate in the distribution?

Pentair shareholders as of the record date will not be required to take any action to receive nVent ordinary shares in the distribution, but you are urged to read this entire information statement carefully. No shareholder approval of the distribution is required. You are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing Pentair ordinary shares or take any other action to receive your nVent ordinary shares. The distribution will not affect the number of outstanding Pentair ordinary shares or any rights of Pentair shareholders, although immediately following the distribution, we expect the market value of each outstanding Pentair ordinary share to be lower than the “regular-way” trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the value of the Electrical business held by nVent.

 

Will I receive physical certificates representing nVent ordinary shares following the separation?

No. Following the separation, we will not issue physical certificates representing nVent ordinary shares. If you own Pentair ordinary shares as of the close of business on the record date, Pentair, with the assistance of Computershare Trust Company, N.A., the distribution agent (“Computershare”), will electronically distribute nVent ordinary shares to you in book-entry form by way of registration in the “direct registration system” (if you hold the shares in your own name as a registered shareholder) or to your bank or brokerage firm on your behalf or through the systems of the Depository Trust Company (“DTC”) (if you hold the shares through a bank or brokerage firm that uses DTC). Computershare will mail you a book-entry account statement that reflects your nVent ordinary shares, or your bank or brokerage firm will credit your account for the nVent ordinary shares. See “The Separation—When and How You Will Receive nVent Ordinary Shares in the Distribution.”

 

How many nVent ordinary shares will I receive in the distribution?

Subject to the approval of the Pentair board of directors, you will receive one nVent ordinary share for each Pentair ordinary share you hold as of the close of business on the record date. Based on approximately 178.3 million Pentair ordinary shares outstanding as of March 5, 2018, a total of approximately 178.3 million nVent ordinary shares will be distributed. For additional information on the distribution, see “The Separation.”

 

Will nVent issue fractional ordinary shares in the distribution?

No. We will not issue fractional shares in the distribution. Fractional shares that Pentair shareholders would otherwise have been entitled to receive will be aggregated and sold in the public market by the distribution agent. The aggregate net cash proceeds of these sales will be distributed pro rata (based on the fractional share such holder would otherwise be entitled to receive) to those shareholders who would otherwise have been entitled to receive fractional shares.

 

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Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts paid in lieu of fractional shares.

 

What are the conditions to the distribution?

The distribution is subject to the following conditions, among others:

 

    the receipt of a private letter ruling from the IRS, which remains in full force and effect and has not been modified or amended in any material respect adversely affecting the intended tax-free treatment of the distribution and certain related transactions;

 

    the receipt of a tax opinion dated as of the distribution date from Deloitte Tax LLP, in form and substance acceptable to Pentair, which tax opinion will rely on the effectiveness of the IRS ruling, substantially to the effect that, subject to the accuracy of, and compliance with, certain representations, assumptions and covenants, for U.S. federal income tax purposes, the distribution and certain related transactions will qualify for non-recognition of gain or loss to Pentair and its shareholders pursuant to Section 355 and related provisions of the Code, except to the extent of cash received in lieu of fractional shares;

 

    the internal restructuring transactions and the transfer of assets and liabilities to nVent contemplated by the separation and distribution agreement to be completed prior to the distribution shall have been completed;

 

    the debt financing contemplated to be obtained in connection with the separation, as described in the separation and distribution agreement, having been obtained;

 

    the transaction agreements relating to the separation shall have been duly executed and delivered by the parties;

 

    no order, injunction or decree issued by any governmental authority or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the related transactions being in effect;

 

    any actions and filings necessary or appropriate under applicable U.S. federal, U.S. state or other securities laws shall have been taken or made, and, where applicable, have become effective or been accepted by the applicable governmental authority;

 

    any governmental approvals necessary to consummate the separation, the distribution and related transactions will have been obtained and be in full force and effect;

 

    the separation and distribution shall not violate or result in a breach of applicable law or any material contract of Pentair or nVent or any of their respective subsidiaries;

 

    the approval for listing on the NYSE of nVent ordinary shares to be delivered to the Pentair shareholders in the distribution having been obtained, subject to official notice of issuance;

 

   

the U.S. Securities and Exchange Commission (the “SEC”) declaring effective the registration statement of which this

 

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information statement forms a part, with no order suspending the effectiveness of the registration statement in effect and no proceedings for such purposes pending before or threatened by the SEC;

 

    the mailing (or delivery by electronic means) of this information statement to the holders of Pentair ordinary shares as of the record date for the distribution; and

 

    no other event or development existing or having occurred that, in the judgment of Pentair’s board of directors, in its sole discretion, makes it inadvisable to effect the separation, the distribution and other related transactions.

 

  We cannot assure you that any or all of these conditions will be met. For a complete discussion of all of the conditions to the distribution, see “The Separation—Conditions to the Distribution.”

 

What is the expected date of completion of the separation?

The completion and timing of the separation is dependent upon the satisfaction of a number of conditions. We expect nVent ordinary shares to be distributed on April 30, 2018 to the holders of record of Pentair ordinary shares at the close of business on the record date. However, no assurance can be provided as to the timing of the separation or that all conditions to the separation will be met.

 

Can Pentair decide to cancel the distribution even if all of the conditions have been met?

Yes. The distribution is subject to the satisfaction or waiver of certain conditions. See “The Separation—Conditions to the Distribution.” Until the distribution has occurred, Pentair has the right to terminate the distribution, even if all of the conditions are satisfied, if at any time the board of directors of Pentair determines that the distribution is not in the best interests of Pentair and its shareholders or that market conditions or other circumstances are such that it is not advisable at that time to separate the Electrical business from the remainder of Pentair.

 

What if I want to sell my Pentair ordinary shares or my nVent ordinary shares?

You should consult with your financial advisors, such as your broker, bank, other nominee or tax advisor. If you decide to sell any Pentair ordinary shares before the distribution date, you should make sure your broker, bank or other nominee understands whether you want to sell your Pentair ordinary shares with or without your entitlement to nVent ordinary shares pursuant to the distribution.

 

What is “regular-way” and “ex-distribution” trading?

Beginning on or shortly before the record date and continuing up to and through the distribution date, it is expected that there will be two markets in Pentair ordinary shares: a “regular-way” market and an “ex-distribution” market. Pentair ordinary shares that trade in the “regular-way” market will trade with an entitlement to nVent ordinary

 

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shares distributed pursuant to the distribution. Pentair ordinary shares that trade in the “ex-distribution” market will trade without an entitlement to nVent ordinary shares distributed pursuant to the distribution. Pentair cannot predict the trading prices of its ordinary shares before, on or after the distribution date.

 

Where will I be able to trade nVent ordinary shares?

We intend to apply to list nVent ordinary shares on the NYSE under the symbol “NVT.” We anticipate that trading in nVent ordinary shares will begin on a “when-issued” basis on or shortly before the record date and will continue up to and through the distribution date and that “regular-way” trading in nVent ordinary shares will begin on the first trading day following the completion of the separation. If trading begins on a “when-issued” basis, you may purchase or sell nVent ordinary shares up to and through the distribution date, but your transaction will not settle until after the distribution date. We cannot predict the trading prices of nVent ordinary shares before, on or after the distribution date.

 

What will happen to the listing of Pentair ordinary shares?

Pentair ordinary shares will continue to trade on the NYSE after the distribution under the symbol “PNR.”

 

Will the number of Pentair ordinary shares that I own change as a result of the distribution?

No. The number of Pentair ordinary shares that you own will not change as a result of the distribution.

 

Will the distribution affect the market price of my Pentair ordinary shares?

Yes. As a result of the distribution, Pentair expects the trading price of Pentair ordinary shares immediately following the distribution to be lower than the “regular-way” trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the value of the Electrical business held by nVent. There can be no assurance that the aggregate market value of the Pentair ordinary shares and the nVent ordinary shares following the separation will be higher or lower than the market value of Pentair ordinary shares if the separation and distribution did not occur. This means, for example, that the combined trading prices of one Pentair ordinary share and one nVent ordinary share after the distribution may be equal to, greater than or less than the trading price of one Pentair ordinary share before the distribution.

 

What are the material U.S. federal income tax consequences of the separation?

The distribution is conditioned on the receipt by Pentair of a private letter ruling from the IRS on certain issues relating to the qualification of the distribution and certain related transactions as tax-free under Section 355 and related provisions of the Code. This condition requires that the IRS ruling remain in full force and effect and not be modified or amended in any respect adversely affecting the

 

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intended tax-free treatment of the distribution and certain related transactions. The distribution is further conditioned on the receipt of a tax opinion from Deloitte Tax LLP, in form and substance acceptable to Pentair, which tax opinion will rely on the effectiveness of the IRS ruling, substantially to the effect that, for U.S. federal income tax purposes, the distribution and certain related transactions will qualify for non-recognition of gain or loss to Pentair and its shareholders pursuant to Section 355 and related provisions of the Code, except to the extent of cash received in lieu of fractional shares. See “The Separation—Conditions to the Distribution.” Assuming that the distribution satisfies the requirements necessary for non-recognition of gain or loss to Pentair’s shareholders under Section 355 of the Code, for U.S. federal income tax purposes, except for gain realized on the receipt of cash paid in lieu of fractional shares, no gain or loss generally will be recognized by, or be includible in the income of, a holder of Pentair ordinary shares solely as a result of the receipt of nVent ordinary shares in the distribution. You should, however, consult your own tax advisor as to the particular tax consequences to you. The U.S. federal income tax consequences of the separation are described in more detail under “Material U.S. Federal Income Tax Consequences.”

 

How will I determine my tax basis for U.S. federal income tax purposes in the Pentair ordinary shares I continue to hold and the nVent ordinary shares I receive in the distribution?

Assuming that the distribution is tax-free to Pentair shareholders, except for cash received in lieu of fractional shares, your tax basis for U.S. federal income tax purposes in the Pentair ordinary shares held by you immediately prior to the distribution will be allocated between such Pentair ordinary shares and the nVent ordinary shares received by you in the distribution (including any fractional share deemed received) in proportion to the relative fair market values of each immediately following the distribution. Pentair will provide its shareholders with information to enable them to compute their tax basis in both the Pentair and nVent ordinary shares. This information will be posted on Pentair’s website, www.pentair.com.

 

What are the material Irish tax consequences of the separation?

The distribution will not give rise to Irish stamp duty for Pentair shareholders. Irish stamp duty may, depending on the manner in which the nVent ordinary shares are held, be payable in respect of transfers of nVent ordinary shares after the separation. You should consult your own tax advisor as to the particular tax consequences to you. The Irish tax consequences of the separation are described in more detail under “Material Irish Tax Consequences.”

 

What are the material U.K. tax consequences of the separation?

Pentair shareholders should generally not be liable for U.K. tax on income or chargeable gains in respect of the acquisition of nVent ordinary shares in connection with the distribution. You should

 

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consult your own tax advisor as to the particular tax consequences to you. The U.K. tax consequences of the separation are described in more detail under “Material U.K. Tax Consequences.”

 

What will nVent’s relationship be with Pentair following the separation?

We will enter into a separation and distribution agreement with Pentair to effect the separation and provide a framework for nVent’s relationship with Pentair after the separation and will enter into various other agreements, including a tax matters agreement, a transition services agreement and an employee matters agreement. These agreements will provide for the separation between nVent and Pentair of the assets, employees, liabilities and obligations (including its property, tax matters, environmental matters and employee benefit matters) of Pentair and its subsidiaries attributable to periods prior to, at and after nVent’s separation from Pentair and will govern the relationship between nVent and Pentair subsequent to the completion of the separation. For additional information regarding the separation and distribution agreement and other transaction agreements, see “Risk Factors—Risks Relating to the Separation” and “Certain Relationships and Related Person Transactions—Agreements with Pentair.”

 

Who will manage nVent after the separation?

We will benefit from a management team with an extensive background in the Electrical business. Led by Randall J. Hogan, who will be our non-executive Chairman of the Board after the separation, and Beth A. Wozniak, who will be our Chief Executive Officer after the separation, our management team will possess deep knowledge of, and extensive experience in, its industry. None of the management and directors of nVent will be directors or employees of Pentair following the separation. For more information regarding our management and directors, see “Management” and “Directors.”

 

Are there risks associated with owning nVent ordinary shares?

Yes. Our business is subject to both general and specific risks relating to our business, the industry in which we operate, our ongoing contractual relationships with Pentair and our status as a separate, publicly-traded company. There also are risks relating to the separation, certain tax matters, our jurisdiction of incorporation and ownership of nVent ordinary shares. These risks are described in the “Risk Factors” section of this information statement beginning on page 23. You are encouraged to read that section carefully.

 

Does nVent plan to pay dividends?

We currently anticipate paying a regular cash dividend. The declaration and payment of any dividends in the future will be subject to the sole discretion of our board of directors and will depend upon many factors. See “Dividends.”

 

Will nVent incur any debt prior to or at the time of the distribution?

Yes. nVent Finance S.à r.l., which will be a wholly-owned subsidiary of nVent after the separation and which we refer to as “nVent Finance,” has issued $800.0 million of senior unsecured notes,

 

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consisting of $300.0 million of 3.950% senior notes due 2023 and $500.0 million of 4.550% senior notes due 2028. In addition, nVent Finance has entered into a credit agreement with a syndicate of banks providing for a five-year $200.0 million senior unsecured term loan facility, which we expect will be drawn upon prior to the completion of the separation, and a five-year $600.0 million senior unsecured revolving credit facility, which we expect will be undrawn upon the completion of the separation. Pursuant to these financing arrangements, we expect to have approximately $1.0 billion of indebtedness upon completion of the separation. In connection with the separation, nVent Finance will transfer to Pentair all cash in excess of $50.0 million of nVent and its subsidiaries, including cash from the net proceeds of this indebtedness, as consideration for the contribution of the assets of the Electrical business to nVent Finance by Pentair. We expect that Pentair will use the proceeds of such cash transfer to repay certain outstanding debt of Pentair. See “Description of Material Indebtedness” and “Risk Factors—Risks Relating to the Separation.”

 

Who will be the distribution agent, transfer agent and registrar for the nVent ordinary shares?

Computershare will be the distribution agent, transfer agent and registrar for nVent ordinary shares. For questions relating to the transfer or mechanics of the distribution, you should contact:

 

  Computershare

250 Royall Street

Canton, MA 02021

(877) 498-8861

 

Where can I find more information about Pentair and nVent?

Before the distribution, if you have any questions relating to Pentair’s business performance, you should contact:

 

  Pentair plc

Investor Relations

5500 Wayzata Boulevard, Suite 600

Minneapolis, MN 55416

(763) 656-5575

 

  After the distribution, nVent shareholders who have any questions relating to our business performance should contact us at:

 

  nVent Electric plc

Investor Relations

1665 Utica Avenue

St. Louis Park, MN 55416

(763) 656-1880

 

  The nVent investor website www.nVent.com/investors will be operational as of April 30, 2018.

 

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INFORMATION STATEMENT SUMMARY

The following is a summary of material information discussed in this information statement. This summary may not contain all of the details concerning the separation or other information that may be important to you. To better understand the separation and our business and financial position, you should carefully review this entire information statement. Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about nVent assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references in this information statement to “nVent,” “we,” “us,” “our” and “our company” refer to nVent Electric plc, an Irish public limited company, and its subsidiaries. Unless the context otherwise requires, references to the “Electrical business” refer to the business and operations of Pentair’s Electrical business as they were historically managed as part of Pentair and its subsidiaries prior to completion of the separation. References in this information statement to “Pentair” refer to Pentair plc, an Irish public limited company, and its subsidiaries, including the Electrical business prior to completion of the separation. References in this information statement to the “separation” refer to the separation of the Electrical business from Pentair and the creation, as a result of the distribution, of an independent, publicly-traded company, nVent, which will hold the assets and liabilities associated with the Electrical business after the distribution. References in this information statement to the “distribution” refer to the dividend on Pentair ordinary shares outstanding on the record date that will be satisfied by nVent’s issuance of its ordinary shares to the persons entitled to receive the dividend.

The Company

nVent is a leading global provider of electrical connection and protection solutions. We believe our inventive electrical solutions enable safer systems and ensure a more secure world. We design, manufacture, market, install, and service high performance products and solutions that connect and protect some of the world’s most sensitive equipment, buildings, and critical processes. We offer a comprehensive range of enclosures, electrical connections and fastening, and thermal management solutions across industry-leading brands that are recognized globally for quality, reliability, and innovation. Our principal office is in London, United Kingdom and our management office in the United States is in Minneapolis, Minnesota. We were incorporated under the laws of Ireland on May 30, 2017.

Our broad range of products and solutions connect and protect our customers’ mission-critical equipment from hazardous conditions, improving their utilization, lowering costs, and minimizing downtime. The cost of our products typically represents a small proportion of the total cost of our customers’ end systems as well as the potential cost of failure that our products help avoid. We have a portfolio of premier, industry-leading brands, including Caddy, Erico, Hoffman, Raychem, Schroff, and Tracer, some of which have a history spanning over 100 years, that cover a wide range of verticals, including Industrial, Commercial & Residential, Energy, and Infrastructure.

Our roots within Pentair trace back to the acquisition of Federal-Hoffman Corporation in 1988, which included the Hoffman enclosures brand. From that starting point we have grown both organically and via acquisition. Our Enclosures business first applied lean principles within the organization in the 1990s, leveraging its culture of customer service and operational excellence. In 2012, Pentair merged with Tyco International Ltd.’s Flow Control division, which included our Thermal Management business and the Raychem brand, a global leader in heat tracing solutions. In 2015, Pentair acquired ERICO Global Company, a leading global manufacturer of superior engineered electrical and fastening products, which operates as our Electrical & Fastening Solutions business, broadening our product offering and enabling us to provide additional global solutions to our combined customers.

We aim to continue our journey as “One nVent” organization, with unified focus on commercial excellence, digital transformation, scaled and integrated technology, including Internet of Things (“IoT”), and global



 

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presence and capabilities. As we scale our capabilities under our umbrella brand of nVent, we expect to expand our products and solutions and continue to differentiate our company by creating solutions that solve problems for our customers.

Our strategy and culture is grounded in the values and purpose of Pentair. From Pentair Integrated Management System (“PIMS”), we have derived a set of lean growth and talent management processes, designed to improve business performance, evaluate growth opportunities, and develop and retain employees. Through consistent application of these processes, we have been able to foster a culture of innovation, retain focus on the customer, and profitably grow our business. We will continue to use and improve these processes as an independent company to continue to drive sustained and profitable growth.

We estimate that the size of the global industries we serve was $60 billion in 2017 revenue. Those industries are highly fragmented, which provides us with attractive opportunities to execute our growth strategies.

 

nVent 2017 Sales Breakdown—$2.1 billion

By Segment

  

By Geography

  

By Vertical

LOGO    LOGO    LOGO

We are a global business operating across a diverse range of industries. We support our customers with a workforce of 8,600 employees around the world. We operate domestically and internationally with over 50 sales offices and over 30 manufacturing and distribution centers across North America, Europe, Asia, Australia, and South America. We leverage our global workforce and footprint to respond to our customers’ requirements for consistent, high quality and innovative solutions.



 

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We sell our products both through distributors and direct to customer channels. We have a diverse distribution network with over 8,000 channel partners, ranging from electrical distributors to maintenance contractors. Our Electrical & Fastening Solutions, Enclosures—Hoffman brand and Thermal Management—Commercial and Infrastructure products are principally sold through distributors. In addition, our Thermal Management— Industrial and Enclosures—Schroff brand products are primarily sold direct to customers, ranging from leading blue-chip companies to independent sub-contractors. We have long lasting relationships with our distributors and customers.

 

LOGO

We operate across three segments: Enclosures, Thermal Management, and Electrical & Fastening Solutions, which contributed 44 percent, 30 percent, and 26 percent to our sales in 2017, respectively.

Enclosures: Enclosures provides innovative solutions that protect, connect, and manage heat in critical electronics, communication, control, and power equipment. From metallic and non-metallic enclosures to cabinets, subracks, and backplanes, it offers the physical infrastructure to host, connect, and protect server and network equipment, as well as indoor and outdoor protection for broadband voice, data, and video surveillance applications in Industrial, Infrastructure, Commercial, and Energy verticals. In 2017, Enclosures had sales of $0.93 billion.

Thermal Management: Thermal Management provides electric thermal solutions that connect and protect critical buildings, infrastructure, industrial processes, and people. Its thermal management systems include heat tracing, floor heating, fire-rated and specialty wiring, sensing, and snow melting and de-icing solutions for use in Energy, Industrial, Commercial & Residential, and Infrastructure verticals. Its highly reliable and easy to install solutions lower total cost of ownership to building owners, facility managers, operators, and end users. In 2017, Thermal Management had sales of $0.62 billion.

Electrical & Fastening Solutions: Electrical & Fastening Solutions provides fastening solutions that connect and protect electrical and mechanical systems and civil structures. Its engineered electrical and fastening products are used across a wide range of verticals, including Commercial, Industrial, Infrastructure, and Energy. In 2017, Electrical & Fastening Solutions had sales of $0.54 billion.



 

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Competitive Strengths

We believe we differentiate ourselves through the following competitive strengths, including:

Leading Provider of Inventive Solutions that Connect and Protect Sensitive Equipment and Maximize Customer Efficiency

We are a leading global provider of inventive solutions that connect and protect our customers’ mission-critical processes and equipment. We believe our comprehensive product offering, ability to customize solutions to unique customer requirements, and track record of superior quality, performance, and reliability positions us as a “go-to” electrical and thermal connection and protection solutions provider. Our products are critical components of our customers’ systems and relied upon to perform in challenging environments where cost of failure is high and our product cost is low. Furthermore, we enhance efficiency of our customers’ processes by improving utilization, lowering installation and maintenance costs, and minimizing downtime through industry-leading product performance.

Strong Industry Positions, Global Footprint and Leading Brands

We benefit from leading industry positions across our Enclosures, Thermal Management, and Electrical & Fastening Solutions segments. Our leadership positions are supported by the breadth of our global footprint, with product development, manufacturing, and distribution capabilities that enable us to meet local market requirements. Our global reach has facilitated entry into new markets and provides the infrastructure and experience to accelerate growth internationally.

We have a portfolio of premier brands, including Caddy, Erico, Hoffman, Raychem, Schroff, and Tracer, with long-standing reputations for innovation, quality, and reliability. We are a leading innovator in many of the spaces in which we operate. We developed the first self-regulating heating cable for industrial use, which automatically adjusts power output to compensate for temperature changes. We also developed the Hoffman Watershed, which was the first fit-for-purpose enclosure for the food & beverage industry to protect critical equipment in heavy wash-down applications.

Diversified Across Products, Verticals, Brands, Channels, and Customers

We offer a diverse range of electrical connection and protection products with sales distributed across a broad range of verticals, brands, channels, and customers. We offer several product lines including communications & electronics protection, controls & electrical protection, industrial heat tracing, and thermal building solutions that are sold across the Industrial, Commercial & Residential, Energy and Infrastructure verticals.

Attractive Margins and Strong Cash Flow Generation

We benefit from industry-leading margins and a track record of strong cash flow generation. Over the past three years, our combined segment income margins1 have consistently been over 19 percent, maintained through our culture of operational efficiency and our global footprint. We have consistently generated strong cash flow from operations and free cash flow.1 Implementation of our lean, growth, and talent management processes across our organization helps to ensure we are continually improving and building sustainable performance and helps us maintain a culture of operational excellence and continuous improvement.

 

1 

Combined segment income margin and free cash flow are non-GAAP measures. See “—Other Financial Measures” for more information regarding non-GAAP measures, including a reconciliation to the relevant GAAP measure.



 

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Experienced Management Team with a Proven Track Record of Integrating Acquisitions

We are led by a senior management team with an average of over 20 years of industry experience with Pentair and other leading industrial companies. We benefit from our team’s industry knowledge and track record of successful product innovation and financial performance. Additionally, our senior management team has extensive experience executing and integrating bolt-on and transformational acquisitions. Our team was instrumental in the successful integration of Erico and delivery on cost synergy targets within the envisaged time frame.

Growth Strategies

Pursue Continued Growth Transformation and Business Optimization Through “One nVent” Organization

We stand to benefit from our continued evolution and integration as “One nVent” organization and organic growth focused transformation. Through adopting a customer-led orientation and an enhanced digital strategy across our segments and brands, we aim to achieve commercial excellence and improve customer experience by making it easier and faster for customers to search, select, price and quote our products. We believe a unified approach to our customers will enhance our lead generation capabilities, enable cross-selling opportunities for our sales force, and increase our share of customers’ wallets. We expect further integration across nVent and aim to accelerate our product innovation as we encourage technology sharing across our business.

Capitalize on Identified Organic Growth Opportunities

We have identified several high-potential sectors where we see opportunities to deliver the breadth of our company-wide capabilities to drive continued organic growth. In Commercial, we seek to become our customers’ global connection and protection partner with solutions that are easy to install, deliver productivity and ensure safety and reliability. In Infrastructure, we aim to provide a unified go to market approach with solutions that optimize efficiency through innovation and customer service, with connection and protection solutions. In Industrial, we aim to innovate and create differentiation with specified products for our end-users that enhance reliability and reduce the maintenance costs of our products.

Product Innovation to Leverage Attractive Global Secular Trends

We plan to continue to invest in the development of innovative products and solutions that take advantage of key secular trends, including rising safety standards, the IoT, building automation, and increasing efficiency and regulatory requirements. Rising safety standards globally, including in fire protection and seismic standards, call for innovative solutions that enable our customers to meet those standards in a cost-efficient manner. For example, we recently launched the world’s first low-smoke, zero-halogen fire-rated wiring that meets enhanced fire protection standards while reducing space requirements and total project cost.

The growth in smart products and connected solutions requires an ever increasing number of enclosures designed to exact specifications and high tolerances. For example, we offer a smart and scalable cooling solution for data centers that reduces energy consumption and results in substantial cost savings for customers. We expect to increase product differentiation and average selling prices in all of our segments through building automated and connected devices.

Grow Globally in Europe and Developing Regions

We aim to grow our global presence both in Europe and through selective investments in developing regions. In Europe, we are targeting expansion of product categories and brands that have strong positions in North America but remain underpenetrated in Europe. We plan to expand our regional team, enhance channel coverage including



 

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expanding our digital platform, and differentiate our products and solutions by focusing on product flexibility and technical expertise. For example, to meet heightened fire resistance standards in Germany, we developed a fire-rated, metal pressure clip that meets standards, prevents cable damage and allows for easy installation in tight spaces.

In developing regions, we plan to enhance our existing local capabilities and focus on creating localized products and solutions to better serve our customers. For example, we believe significant infrastructure development initiatives in Asia present substantial opportunities for us to expand across our segments. We aim to invest across our supply chain and position our product roadmap around key growth verticals in these regions to capitalize on growth opportunities.

Accelerate Growth Through Targeted Bolt-on Acquisitions

Our company is built on a history of successful strategic acquisitions that evidence our integration capabilities. We believe we have developed a strong pipeline of compelling acquisition candidates that complement existing products, expand geographic reach, and enhance our technical expertise and capabilities. We believe our industry standing, culture of operational excellence, and M&A integration experience position us well to continue to pursue disciplined strategic acquisitions.

Summary of Risk Factors

An investment in nVent ordinary shares is subject to a number of risks, including risks relating to our business, risks relating to the separation, risks relating to our jurisdiction of incorporation in Ireland and tax residency in the U.K. and risks relating to nVent ordinary shares. The following list of risk factors is not exhaustive. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.

Risks Relating to Our Business

 

    General global economic and business conditions affect demand for our products.

 

    We compete in attractive markets with a high level of competition, which may result in pressure on our profit margins and limit our ability to maintain or increase the market share of our products.

 

    Volatility in currency exchange rates could have a material adverse effect on our financial condition, results of operations and cash flows.

 

    Our future growth is dependent upon our ability to adapt our products, services and organization to meet the demands of local markets in both developed and emerging economies and by developing or acquiring new technologies that achieve market acceptance with acceptable margins.

 

    A sustained downturn in the energy industry, due to oil and gas prices decreasing or otherwise, could decrease demand for some of our products and services.

 

    We may not be able to identify, finance and complete suitable acquisitions and investments, and any completed acquisitions and investments could be unsuccessful or consume significant resources.

 

    We may not achieve some or all of the expected benefits of our business initiatives.

 

    Our success depends on attracting and retaining qualified personnel.

 

    Our backlog may fluctuate and material amounts of cancellations or reductions of orders or a failure to deliver our backlog on time could affect our future sales.

 

    Our future revenue depends in part on our ability to bid and win new contracts.


 

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    We are exposed to political, regulatory, economic and other risks that arise from operating a multinational business.

 

    Violations of the U.S. Foreign Corrupt Practices Act and similar anti-corruption laws outside the U.S. could have a material adverse effect on us.

 

    Our failure to satisfy international trade compliance regulations, and changes in U.S. government sanctions, could have a material adverse effect on us.

 

    A material disruption at any of our manufacturing facilities could cause us to be unable to meet customer demands or increase our costs.

 

    We may experience material cost and other inflation.

 

    A disruption in the availability, price or quality of products or materials that we manufacture and source from various countries throughout the world could have a material adverse effect on our results of operations.

 

    Our Thermal Management segment’s dependence on subcontractors and third party suppliers and manufacturers with respect to projects could have a material adverse effect on us.

 

    Our Thermal Management segment may lose money on fixed-price contracts, and it is exposed to liquidated damages charges in many of its customer contracts.

 

    Intellectual property challenges may hinder our ability to develop, engineer and market our products, and we may incur significant costs in our efforts to successfully avoid, manage, defend and litigate intellectual property matters.

 

    Changes in U.S. administrative policy, including changes to existing trade agreements, could have a material adverse effect on us.

 

    We have significant goodwill and intangible assets and future impairment of our goodwill and intangible assets could have a material adverse effect on our results of operations.

 

    Deterioration in the credit quality of our customers could have a material adverse effect on us.

 

    Seasonality of sales and weather conditions could have a material adverse effect on our financial results.

 

    We are exposed to potential environmental laws, liabilities and litigation.

 

    We are exposed to certain regulatory and financial risks related to climate change.

 

    Increased information technology security threats and computer crime pose a risk to our systems, networks, products and services, and we are exposed to potential regulatory, financial and reputational risks relating to the protection of our data.

 

    We may be negatively impacted by litigation, including product liability claims.

 

    Our share price may fluctuate significantly.

Risks Relating to the Separation

 

    We have no history operating as an independent company. We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent company, and we may experience increased costs after the separation.

 

    Our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly-traded company and may not be an accurate indicator of our future results of operations.


 

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    As an independent, publicly-traded company, we may not enjoy the same benefits that we did as a segment of Pentair.

 

    We may not achieve some or all of the expected benefits of the separation, and the separation may materially adversely affect our business.

 

    As we build our information technology infrastructure and transition our data to our own systems, we could incur substantial additional costs and experience temporary business interruptions.

 

    Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the separation and distribution.

 

    Pentair may fail to perform under various transaction agreements that will be executed as part of the separation or we may fail to have necessary systems and services in place where certain of the transaction agreements expire.

 

    Potential indemnification liabilities to Pentair pursuant to the transaction agreements could materially adversely affect us.

 

    We may have received more favorable terms from unaffiliated third parties than the terms we will receive in our agreements with Pentair.

 

    Challenges in the commercial and credit environment may materially adversely affect our ability to issue debt on acceptable terms and our future access to capital.

 

    After the separation, we will have indebtedness, which could restrict our ability to pay dividends and have a negative impact on our financing options and liquidity position.

 

    We may need additional financing in the future to meet our capital needs or to make acquisitions, and such financing may not be available on favorable or acceptable terms, and may be dilutive to existing shareholders.

 

    If the distribution fails to qualify as a tax-free transaction for U.S. federal income tax purposes, then nVent, Pentair and Pentair shareholders could be subject to significant tax liability or tax indemnity obligations.

 

    We might not be able to engage in desirable strategic transactions and equity issuances following the distribution because of restrictions relating to U.S. federal income tax requirements for tax-free distributions.

 

    We will share responsibility for certain of our and Pentair’s income tax liabilities for tax periods prior to and including the distribution date.

Risks Relating to our Jurisdiction of Incorporation in Ireland and Tax Residency in the U.K.

 

    We are subject to changes in law and other factors that may not allow us to maintain a worldwide effective corporate tax rate that is competitive in our industry.

 

    A change in nVent’s tax residency could have a negative effect on our future profitability, and may trigger taxes on dividends or exit charges.

 

    Legislative action in the U.S. could materially adversely affect us.

 

    There is no guarantee that the High Court of Ireland approval of the creation of distributable reserves required for the payment of dividends to our shareholders will be forthcoming.

 

    Irish law differs from the laws in effect in the U.S. and may afford less protection to holders of our securities.


 

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    Irish law imposes restrictions on certain aspects of capital management.

 

    Transfers of nVent ordinary shares may be subject to Irish stamp duty.

 

    nVent ordinary shares, received by means of a gift or inheritance, could be subject to Irish capital acquisitions tax.

Risks Relating to nVent Ordinary Shares

 

    We cannot be certain that an active trading market for nVent ordinary shares will develop or be sustained after the distribution, and following the distribution, our share price may fluctuate significantly.

 

    A number of nVent ordinary shares are or will be eligible for future sale, which may cause our share price to decline.

 

    We cannot guarantee the timing, amount or payment of dividends on nVent ordinary shares.

 

    Your percentage of ownership in nVent may be diluted in the future.

 

    Certain provisions in our articles of association, among other things, could prevent or delay an acquisition of us, which could decrease our share price.

The Separation

On May 9, 2017, Pentair announced a plan to separate its Water business and its Electrical business into two independent, publicly-traded companies. Pentair also announced it anticipated that the transaction will be in the form of a spin-off of nVent by Pentair to its shareholders that will be tax-free for U.S. federal income tax purposes.

nVent was incorporated in Ireland on May 30, 2017, for the purpose of holding Pentair’s Electrical business following the separation. Currently, all of our issued shares are held beneficially by an Irish corporate services provider.

On April 3, 2018, the Pentair board of directors approved the transfer of Pentair’s Electrical business to us in return for which we will issue nVent ordinary shares to Pentair shareholders on the basis of one nVent ordinary share for each Pentair ordinary share held on the record date, subject to the satisfaction of the conditions to the distribution.

Immediately prior to the distribution, Pentair will transfer its Electrical business to us in return for which we will issue nVent ordinary shares to Pentair shareholders, pro rata to their respective holdings. Prior to the transfer by Pentair to us of the Electrical business, we will have no business operations. In connection with these transactions, we will acquire by surrender the shares currently held by the Irish corporate services provider referred to above for no consideration, following which we will cancel these shares. Immediately following the distribution, the persons entitled to receive nVent ordinary shares in the distribution will own all of the outstanding nVent ordinary shares.

On April 30, 2018, the expected distribution date, each person who holds Pentair ordinary shares at the close of business on the record date will receive one nVent ordinary share for each Pentair ordinary share held at the close of business on the record date, as described below. You will receive cash in lieu of any fractional nVent ordinary shares which you would have received after the application of the above ratio. Immediately following the distribution, the persons entitled to receive nVent ordinary shares in the distribution will own all of the outstanding nVent ordinary shares. You will not be required to make any payment, surrender or exchange your



 

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Pentair ordinary shares or take any other action to receive your nVent ordinary shares in the distribution. The distribution of nVent ordinary shares as described in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see “The Separation—Conditions to the Distribution.”

Our Post-Separation Relationship with Pentair

In connection with the separation, we and Pentair will enter into a separation and distribution agreement and various other agreements, including a tax matters agreement, a transition services agreement and an employee matters agreement. These agreements will provide a framework for our relationship with Pentair after the separation and provide for the allocation between us and Pentair of Pentair’s assets, employees, liabilities and obligations (including its property, tax matters, environmental matters and employee benefit matters) attributable to periods prior to, at and after our separation from Pentair. For additional information regarding the separation and distribution agreement and other transaction agreements, see “Risk Factors—Risks Relating to the Separation” and “Certain Relationships and Related Person Transactions—Agreements with Pentair.”

Reasons for the Separation

The Pentair board of directors determined that the creation of two independent, publicly-traded companies, with nVent operating Pentair’s Electrical businesses, and Pentair operating its Water businesses is in the best interests of Pentair and its shareholders for a number of reasons, including that such separation is expected to:

 

    Create two companies that will benefit from leading positions in their respective industries, well-recognized brands, attractive margin profiles, strong cash flow generation and compelling growth opportunities.

 

    Enable enhanced strategic focus and simplified corporate structure with improved clarity into business performance and growth opportunities for management of each company to focus on their respective businesses and opportunities for long-term growth and profitability.

 

    Provide each company with greater flexibility to pursue their own strategies for growth, both organic and through acquisitions, and capital allocation without having to consider the potential impact on the businesses of the other company.

 

    Create two independent capital structures that are expected to be well-capitalized and have the financial profile and management talent to be successful, profitable and sustainable independent companies and afford each company direct access to the debt and equity capital markets to fund their respective growth strategies and to establish an appropriate capital structure for their business needs.

 

    Increase business transparency and provide a clearer investment thesis for investors to allow evaluation of the separate investment identities of each company, including the distinct merits, performance and future prospects of their respective businesses, and provide investors with a more targeted investment opportunity.

 

    Enhance each company’s flexibility to establish appropriate compensation policies, including equity-based compensation policies that are reflective of the performance of its operations and are designed to attract and retain skilled employees.

The Pentair board of directors also considered a number of potentially negative factors in evaluating the separation, including:

 

    The potential loss of operational synergies from operating as a consolidated entity, as we will need to make investments to replicate or outsource from other providers certain facilities, systems, infrastructure and personnel to which we will no longer have access after our separation from Pentair.


 

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    The potential increased costs for each of the companies operating as stand-alone companies, including costs related to initiatives to develop our independent ability to operate without access to Pentair’s existing operational and administrative infrastructure.

 

    The potential exposure to operating in fewer industries thereby reducing the ability to mitigate downturns in one business against the others.

 

    The potential disruptions to each company’s respective business as a result of the separation, which will require significant amounts of management’s time and effort.

 

    The risk that Pentair would not achieve the expected benefits of the separation.

 

    The risk that Pentair may not be able to successfully execute the separation.

 

    The incurrence of one-time costs of the separation, including financial advisor, accounting, legal and other advisor costs, recruiting and relocation costs associated with hiring new key senior management personnel, and costs related to establishing a new brand identity in the marketplace.

For more information, see the sections entitled “The Separation—Reasons for the Separation” and “Risk Factors—Risks Related to the Separation” included elsewhere in this information statement. In determining to pursue the separation, the Pentair board of directors concluded that the potential benefits of the separation outweighed these factors.

nVent Corporate Information

The address of our principal office is The Mille, 1000 Great West Road, 8th Floor (East), London, TW8 9DW, United Kingdom. Our management office in the United States will be located at 1665 Utica Avenue, St. Louis Park, Minnesota 55416. Our website is www.nVent.com. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated herein, and you should not rely on any such information in making an investment decision.

Reason for Furnishing this Information Statement

This information statement is being furnished solely to provide information to Pentair shareholders who will receive nVent ordinary shares in the distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any of our securities. The information contained in this information statement is believed by us to be accurate as of the date set forth on its cover. Changes may occur after that date and neither Pentair nor nVent will update this information except in the normal course of their respective disclosure obligations and practices.

This document is not a prospectus within the meaning of the Companies Act 2014 of Ireland (as amended) (the “Irish Companies Act”), the Prospectus Directive (2003/71/EC) Regulations 2005 of Ireland (as amended) or the Prospectus Rules issued by the Central Bank of Ireland. No offer of shares to the public is made, or will be made, that requires the publication of a prospectus pursuant to Irish prospectus law within the meaning of the above legislation. This document has not been approved or reviewed by or registered with the Central Bank of Ireland or any other competent authority or regulatory authority in the European Economic Area. This document does not constitute investment advice or the provision of investment services within the meaning of the European Communities (Markets in Financial Instruments) Regulations 2007 of Ireland (as amended) or the Markets in Financial Instruments Directive (2004/39/EC). Neither Pentair nor nVent is an authorized investment firm within the meaning of the European Communities (Markets in Financial Instruments) Regulations 2007 of Ireland (as amended) or the Markets in Financial Instruments Directive (2004/39/EC) and the recipients of this document should seek independent legal and financial advice in determining their actions in respect of or pursuant to this document.



 

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Summary Historical and Unaudited Pro Forma Combined Financial Data

The following table sets forth summary historical combined financial data for nVent for the periods indicated below. The summary combined statement of income data for each of the years ended December 31, 2017, 2016 and 2015, and the combined balance sheet data as of December 31, 2017 and 2016 set forth below are derived from our audited combined financial statements included in the “Index to Financial Statements” section of this information statement.

Our historical combined financial statements include general corporate expenses of Pentair that were not historically charged to nVent for certain support functions that are provided on a centralized basis, such as expenses related to executive management, finance, audit, legal, information technology, human resources, communications, facilities and employee benefits and compensation. These costs may not be representative of the future costs we will incur as an independent, publicly-traded company. In addition, our historical combined financial statements do not reflect changes that we expect to experience in the future as a result of the separation, including changes in the financing, operations, cost structure and personnel needs of our business. Consequently, the historical financial data included herein may not be indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we been operating as a stand-alone public company during the periods presented, including changes that will occur in our operations and capitalization as a result of the separation.

The unaudited pro forma combined statement of income data for the year ended December 31, 2017 gives effect to the separation as if it had occurred on January 1, 2017, the first day of fiscal year 2017. The unaudited pro forma combined balance sheet data as of December 31, 2017 gives effect to the separation as if it had occurred on December 31, 2017. The pro forma adjustments are based upon available information and assumptions that nVent believes are reasonable. The summary unaudited pro forma combined financial statements have been presented for informational purposes only. The statements are not necessarily indicative of our results of operations or financial condition had the separation been completed on the date assumed. Also, they may not reflect the results of operations or financial condition which would have resulted had we been operating as an independent, publicly-traded company during such periods. In addition, they are not necessarily indicative of our future results of operations or financial condition. Please see the notes to the unaudited pro forma combined financial statements included elsewhere in this information statement for a discussion of adjustments reflected in the unaudited pro forma combined financial statements.



 

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The summary combined financial data presented below should be read in conjunction with “Selected Historical Combined Financial Data,” “Unaudited Pro Forma Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our combined financial statements and accompanying notes included in the “Index to Financial Statements” section of this information statement.

 

     Years ended December 31  

In millions

   Pro Forma
2017

(unaudited)
     2017      2016      2015  

Combined Statement of Income Data

           

Net sales

   $ 2,097.9      $ 2,097.9      $ 2,116.0      $ 1,809.3  

Income before income taxes

     284.7        313.3        315.0        265.9  

Net income

     331.3        361.7        259.1        210.1  

 

     As of December 31  

In millions

   Pro Forma
2017

(unaudited)
     2017      2016  

Combined Balance Sheet Data

        

Total assets

   $ 4,750.1      $ 4,725.0      $ 4,493.8  

Total debt

     991.5        —          —    

Total equity

     2,824.9        3,791.3        3,485.7  

Other Financial Measures

We believe that certain non-GAAP measures, such as combined segment income, combined segment income margin and free cash flow, when presented in conjunction with comparable GAAP measures, are useful because they are appropriate measures for evaluating our operating performance or liquidity. These measures should be considered in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented below may not be comparable to similarly titled measures reported by other companies.



 

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We believe segment income and segment income margin are important measures of operating performance because the measures exclude amounts that we do not consider part of our core operating results when assessing performance. Management uses segment income and segment income margin to evaluate our historical and prospective financial performance and trends as well as our performance relative to competitors and peers. In addition, segment income is used as a criterion to measure and pay compensation-based incentives. The following table presents a reconciliation of combined income before income taxes to combined segment income and combined operating income margin to combined segment income margin:

 

     Years ended December 31  

In millions

   2017     2016     2015  

Net sales

   $ 2,097.9     $ 2,116.0     $ 1,809.3  
  

 

 

   

 

 

   

 

 

 

Income before income taxes

     313.3       315.0       265.9  

Interest expense

     0.2       1.4       1.1  
  

 

 

   

 

 

   

 

 

 

Operating income

     313.5       316.4       267.0  

    % of net sales (operating income margin)

     14.9     15.0     14.8

Restructuring and other

     13.0       12.3       15.7  

Intangible amortization

     61.4       60.8       31.6  

Inventory step-up

     —         —         35.7  

Pension and other post-retirement mark-to-market (gain) loss

     (3.0     10.8       (12.5

Deal related costs and expenses

     —         —         14.0  

Trade name impairment

     16.4       13.3       —    

Separation costs

     16.1       —         —    
  

 

 

   

 

 

   

 

 

 

Segment income

   $ 417.4     $ 413.6     $ 351.5  

    % of net sales (segment income margin)

     19.9     19.5     19.4

In addition to measuring our cash flow generation or usage based upon operating, investing and financing classifications included in the Combined Statements of Cash Flows, we also measure our free cash flow. Free cash flow is a non-GAAP financial measure that we use to assess our liquidity 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, make acquisitions, repay debt and repurchase shares. In addition, free cash flow is used as a criterion to measure and pay compensation-based incentives. The following table is a reconciliation of free cash flow:

 

     Years ended December 31  

In millions

   2017      2016      2015  

Net cash provided by (used for) operating activities

   $ 409.7      $ 364.0      $ 343.9  

Capital expenditures

     (31.8      (74.5      (47.4

Proceeds from sale of property and equipment

     4.2        5.9        0.6  
  

 

 

    

 

 

    

 

 

 

Free cash flow

   $ 382.1      $ 295.4      $ 297.1  
  

 

 

    

 

 

    

 

 

 


 

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RISK FACTORS

You should carefully consider the following risks and other information in this information statement in evaluating us and nVent ordinary shares. Any of the following risks could materially and adversely affect our business, financial condition, results of operations or cash flows. The risk factors generally have been separated into four groups: risks relating to our business, risks relating to the separation, risks relating to our jurisdiction of incorporation in Ireland and tax residency in the U.K. and risks relating to nVent ordinary shares.

Risks Relating to Our Business

General global economic and business conditions affect demand for our products.

We compete in various geographic regions and product markets around the world. Among these, the most significant are global industrial markets and residential markets. We expect to experience fluctuations in revenues and results of operations due to economic and business cycles. Important factors for our business and the businesses of our customers include the overall strength of the economy and our customers’ confidence in the economy, industrial and governmental capital spending, the strength of the residential and commercial real estate markets, unemployment rates, availability of consumer and commercial financing, interest rates and energy and commodity prices. The businesses of many of our industrial customers are to varying degrees cyclical and have experienced periodic downturns. While we attempt to minimize our exposure to economic or market fluctuations by serving a balanced mix of end markets and geographic regions, any of the above factors, individually or in the aggregate, or a significant or sustained downturn in a specific end market or geographic region could reduce demand for our products and services, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We compete in attractive markets with a high level of competition, which may result in pressure on our profit margins and limit our ability to maintain or increase the market share of our products.

The markets for our products and services are geographically diverse and highly competitive. We compete against large and well-established national and global companies, as well as regional and local companies and lower-cost manufacturers. We compete based on technical expertise, reputation for quality and reliability, timeliness of delivery, previous installation history, contractual terms and price. Some of our competitors, in particular smaller companies, attempt to compete based primarily on price, localized expertise and local relationships, especially with respect to products and applications that do not require a great deal of engineering or technical expertise. In addition, during economic downturns average selling prices tend to decrease as market participants compete more aggressively on price. If we are unable to continue to differentiate our products, services and solutions, or if we are forced to cut prices or to incur additional costs to remain competitive, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Volatility in currency exchange rates could have a material adverse effect on our financial condition, results of operations and cash flows.

Sales outside of the U.S. for the year ended December 31, 2017 accounted for 42 percent of our net sales. Our financial statements reflect translation of items denominated in non-U.S. currencies to U.S. dollars. Therefore, if the U.S. dollar strengthens in relation to the principal non-U.S. currencies from which we derive revenue as compared to a prior period, our U.S. dollar-reported revenue and income will effectively be decreased to the extent of the change in currency valuations and vice-versa. For the year ended December 31, 2017, foreign currency translations had a 0.5 percent positive impact on our net sales. Fluctuations in foreign currency exchange rates, most notably the strengthening of the U.S. dollar against the euro, could have a material adverse effect on our reported revenue in future periods. In addition, currency variations could have a material adverse effect on margins on sales of our products in countries outside of the U.S. and margins on sales of products that include components obtained from suppliers located outside of the U.S.

 

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Our future growth is dependent upon our ability to adapt our products, services and organization to meet the demands of local markets in both developed and emerging economies and by developing or acquiring new technologies that achieve market acceptance with acceptable margins.

We operate in global markets that are characterized by customer demand that is often global in scope but localized in delivery. We compete with thousands of smaller regional and local companies that may be positioned to offer products produced at lower cost than ours, or to capitalize on highly localized relationships and knowledge that are difficult for us to replicate. Also, in several emerging markets potential customers prefer local suppliers, in some cases because of existing relationships and in other cases because of local legal restrictions or incentives that favor local businesses. Accordingly, our future success depends upon a number of factors, including our ability to adapt our products, services, organization, workforce and sales strategies to fit localities throughout the world, particularly in high-growth emerging markets; identify emerging technological and other trends in our target end markets; and develop or acquire competitive products and services and bring them to market quickly and cost-effectively. The failure to effectively adapt our products or services could have a material adverse effect on our business, financial condition, results of operations and cash flows.

A sustained downturn in the energy industry, due to oil and gas prices decreasing or otherwise, could decrease demand for some of our products and services.

A portion of our revenue historically has been generated by end-users in the oil and gas markets where we serve all three major categories of customers in the petroleum industry—upstream exploration/production, midstream transportation and downstream refining. The businesses of most of our customers in the energy industry are, to varying degrees, cyclical and historically have experienced periodic downturns. Profitability in the energy industry is highly sensitive to supply and demand cycles and commodity prices, which historically have been volatile, and our customers in this industry have tended to delay large capital projects, including expensive maintenance and upgrades, during industry downturns. Customer project delays and cancellations may limit our ability to realize value from our backlog as expected and cause fluctuations in the timing or the amount of revenue earned and the profitability of our business in a particular period. In addition, such delays and cancellations may lead to significant fluctuations in results of operations from quarter to quarter, making it difficult to predict our financial performance on a quarterly basis.

Demand for a portion of our products and services depends upon the level of capital expenditure by companies in the energy industry, which depends, in part, on energy prices. Prices of oil and gas are volatile and within the past three years, the price of crude oil has declined significantly. We have experienced suspensions or delays in large capital projects within the energy sector, especially in the upstream exploration and production sector, and most notably in Canada. A sustained downturn in the capital expenditures of our customers, whether due to a decrease in the market price of oil and gas or otherwise, may delay projects, decrease demand for our products and services and cause downward pressure on the prices we charge, which, in turn, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may not be able to identify, finance and complete suitable acquisitions and investments, and any completed acquisitions and investments could be unsuccessful or consume significant resources.

Our business strategy is expected to include acquiring businesses and making investments that complement our existing business. We expect to analyze and evaluate the acquisition of strategic businesses or product lines with the potential to strengthen our industry position or enhance our existing set of product and service offerings. We may not be able to identify suitable acquisition candidates, obtain financing or have sufficient cash necessary for acquisitions or successfully complete acquisitions in the future. Acquisitions and investments may involve significant cash expenditures, debt incurrences, equity issuances, operating losses and expenses. Acquisitions involve numerous other risks, including:

 

    diversion of management time and attention from daily operations;

 

    difficulties integrating acquired businesses, technologies and personnel into our business;

 

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    difficulties in obtaining and verifying the financial statements and other business information of acquired businesses;

 

    inability to obtain required regulatory approvals;

 

    potential loss of key employees, key contractual relationships or key customers of acquired companies or of ours;

 

    assumption of the liabilities and exposure to unforeseen liabilities of acquired companies, including risks relating to the U.S. Foreign Corrupt Practices Act (the “FCPA”); and

 

    dilution of interests of holders of nVent ordinary shares through the issuance of equity securities or equity-linked securities.

It may be difficult for us to complete transactions quickly and to integrate acquired operations efficiently into our business operations. Any acquisitions or investments may not be successful and may ultimately result in impairment charges and have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may not achieve some or all of the expected benefits of our business initiatives.

In order to align our resources with our growth strategies, operate more efficiently and control costs, we may periodically announce restructuring plans, which may include workforce reductions, global plant closures and consolidations, asset impairments and other cost reduction initiatives. We may undertake restructuring actions and workforce reductions in the future. As these plans and actions are complex, we may not be able to achieve the operating efficiencies to reduce costs or realize benefits that were anticipated in connection with these initiatives. If we are unable to execute these initiatives as planned, we may not realize all or any of the anticipated benefits, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our success depends on attracting and retaining qualified personnel.

Our ability to sustain and grow our business requires us to hire, retain and develop a highly skilled and diverse management team and workforce. Failure to ensure that we have the depth and breadth of personnel with the necessary skill set and experience, or the loss of key employees, could impede our ability to deliver our growth objectives and execute our strategy.

Our backlog may fluctuate and material amounts of cancellations or reductions of orders or a failure to deliver our backlog on time could affect our future sales.

Our backlog is comprised of the portion of firm signed purchase orders or other written contractual commitments received from customers that we have not recognized as revenue. Backlog may increase or decrease based on the addition of large multi-year projects and their subsequent completion. Backlog may also be favorably or unfavorably affected by foreign currency rate fluctuations. The dollar amount of backlog as of December 31, 2017 was $280.4 million. The timing of our recognition of revenue out of our backlog is subject to a variety of factors that may cause delays, many of which, including fluctuations in our customers’ delivery schedules, are beyond our control. Such delays may lead to significant fluctuations in results of operations from quarter to quarter, making it difficult to predict our financial performance on a quarterly basis. Further, while we have historically experienced few order cancellations and the amount of order cancellations has not been material compared to our total contract volume, if we were to experience a significant amount of cancellations of or reductions in purchase orders, it would reduce our backlog and, consequently, our future sales and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

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Our future revenue depends in part on our ability to bid and win new contracts.

Our future revenue and overall results of operations require us to successfully bid on new contracts and, in particular, contracts for large greenfield projects, which are frequently subject to competitive bidding processes. Our revenue from major projects depends in part on the level of capital expenditures in some of our principal end markets, including the energy, chemical processing and power generation industries. In addition, if we fail to replace completed or canceled large greenfield projects with new order volume of the same magnitude, our backlog will decrease. The number of such projects we win in any year fluctuates, and is dependent upon the number of projects available and our ability to bid successfully for such projects. Contract proposals and negotiations are complex and frequently involve a lengthy bidding and selection process, which is affected by a number of factors, such as competitive position, market conditions, financing arrangements and required governmental approvals. If negative market conditions arise, or if we fail to secure adequate financial arrangements or required governmental approvals, we may not be able to pursue particular projects or win new contracts, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are exposed to political, regulatory, economic and other risks that arise from operating a multinational business.

Sales outside of the U.S. for the year ended December 31, 2017 accounted for 42 percent of our net sales. Further, our business obtains some products, components and raw materials from non-U.S. suppliers. Accordingly, our business is subject to the political, regulatory, economic and other risks that are inherent in operating in numerous countries. These risks include:

 

    changes in general economic and political conditions in countries where we operate, particularly in emerging markets;

 

    relatively more severe economic conditions in some international markets than in the U.S.;

 

    the difficulty of enforcing agreements and collecting receivables through non-U.S. legal systems;

 

    the difficulty of communicating and monitoring standards and directives across our global facilities;

 

    trade protection measures and import or export licensing requirements and restrictions;

 

    the possibility of terrorist action affecting us or our operations;

 

    the threat of nationalization and expropriation;

 

    the imposition of tariffs, exchange controls or other trade restrictions;

 

    difficulty in staffing and managing widespread operations in non-U.S. labor markets;

 

    changes in tax treaties, laws or rulings that could have a material adverse impact on our effective tax rate;

 

    limitations on repatriation of earnings;

 

    the difficulty of protecting intellectual property in non-U.S. countries; and

 

    changes in and required compliance with a variety of non-U.S. laws and regulations.

Our success depends in part on our ability to anticipate and effectively manage these and other risks. We cannot assure you that these and other factors will not have a material adverse effect on our international operations or on our business as a whole.

Violations of the U.S. Foreign Corrupt Practices Act and similar anti-corruption laws outside the U.S. could have a material adverse effect on us.

The FCPA and similar anti-corruption laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of

 

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obtaining or retaining business. Recent years have seen a substantial increase in anti-bribery law enforcement activity, with more frequent and aggressive investigations and enforcement proceedings by both the U.S. Department of Justice and the SEC, increased enforcement activity by non-U.S. regulators and increases in criminal and civil proceedings brought against companies and individuals. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that are recognized as having governmental and commercial corruption and in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. Because many of our customers and end users are involved in infrastructure construction and energy production, they are often subject to increased scrutiny by regulators. We cannot assure you that our internal control policies and procedures will always protect us from reckless or criminal acts committed by our employees or third-party intermediaries. In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, including the FCPA, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may require self-disclosure to governmental agencies and result in criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on our reputation, business, financial condition, results of operations and cash flows.

Our failure to satisfy international trade compliance regulations, and changes in U.S. government sanctions, could have a material adverse effect on us.

Our global operations require importing and exporting goods and technology across international borders on a regular basis. Certain of the products we manufacture are “dual use” products, which are products that may have both civil and military applications, or may otherwise be involved in weapons proliferation, and are often subject to more stringent export controls. From time to time, we obtain or receive information alleging improper activity in connection with imports or exports. Our policy mandates strict compliance with U.S. and non-U.S. trade laws applicable to our products. However, even when we are in strict compliance with law and our policies, we may suffer reputational damage if certain of our products are sold through various intermediaries to entities operating in sanctioned countries. When we receive information alleging improper activity, our policy is to investigate that information and respond appropriately, including, if warranted, reporting our findings to relevant government authorities. Nonetheless, our policies and procedures may not always protect us from actions that would violate U.S. and/or non-U.S. laws. Any improper actions could subject us to civil or criminal penalties, including material monetary fines, or other adverse actions including denial of import or export privileges, and could damage our reputation and business prospects.

In addition, from time to time, the U.S. government has imposed sanctions restricting U.S. companies from conducting business with specified non-U.S. individuals and companies. In particular, the U.S. government recently imposed sanctions through several executive orders and legislation restricting U.S. companies from conducting business with specified Russian and Ukrainian individuals and companies. While we believe that the executive orders currently do not preclude us from conducting business with our current customers or vendors in Russia, the sanctions imposed by the U.S. government may be expanded in the future to restrict us from engaging with them. If we are unable to conduct business with new or existing customers or vendors or pursue business opportunities in Russia or Ukraine, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

A material disruption at any of our manufacturing facilities could cause us to be unable to meet customer demands or increase our costs.

If operations at any of our manufacturing facilities were to be disrupted as a result of significant equipment failures, natural disasters, earthquakes, power outages, fires, explosions, terrorism, adverse weather conditions, labor disputes or other reasons, we may be unable to fill customer orders and otherwise meet customer demand for our products, which could have a material adverse effect our business, financial condition, results of operations and cash flows. Interruptions in production, in particular at our manufacturing facilities, could

 

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increase our costs and reduce our sales. Any interruption in production capability could require us to make substantial capital expenditures to fill customer orders. We maintain property damage insurance that we believe to be adequate to provide for reconstruction of facilities and equipment, as well as business interruption insurance to mitigate losses resulting from any production interruption or shutdown caused by an insured loss. However, any recovery under our insurance policies may not offset the lost sales or increased costs that may be experienced during the disruption of operations, which could have a material adverse effect our business, financial condition, results of operations and cash flows.

We may experience material cost and other inflation.

In the past, we have experienced material cost and other inflation in a number of our businesses. We strive for productivity improvements and implement increases in selling prices to help mitigate cost increases in raw materials (especially metals and resins), energy and other costs such as pension, health care and insurance. We continue to implement operational initiatives in order to mitigate the impacts of this inflation and continuously reduce our costs. However, these actions may not be successful in managing our costs or increasing our productivity. Continued cost inflation or failure of our initiatives to generate cost savings or improve productivity could have a material adverse effect on our business, financial condition, results of operations and cash flows.

A disruption in the availability, price or quality of products or materials that we manufacture and source from various countries throughout the world could have a material adverse effect on our results of operations.

Our business is subject to risks associated with global manufacturing and sourcing. We use a variety of raw materials in the production of our products including steel, aluminum, brass, copper, bronze, zinc, nickel and plastics. We also purchase certain electrical and electronic components from a number of suppliers. Significant shortages in the availability of these materials or price increases could increase our operating costs and adversely impact the competitive positions of our products. We rely on materials, components and finished goods that are sourced from or manufactured outside the U.S., including Mexico, China and other countries, and these countries may experience political or trade instability, which could disrupt our supply of products or materials. We rely on our suppliers to produce high quality materials, components and finished goods according to our specifications. Although we have quality control procedures in place, there is a risk that products may not meet our specifications which could impact our ability to ship quality products to our customers on a timely basis.

Our Thermal Management segment’s dependence on subcontractors and third party suppliers and manufacturers with respect to projects could have a material adverse effect on us.

Our Thermal Management segment often relies on third party subcontractors as well as third party suppliers and manufacturers to complete projects. To the extent that we cannot engage subcontractors or acquire supplies or materials from third parties for these projects, our ability to complete a project in a timely fashion or at a profit may be impaired. If the amount we are required to pay for these goods and services exceeds the amount we have estimated in bidding for fixed-price contracts, we could experience losses on these contracts. In addition, if a subcontractor, supplier or manufacturer is unable to deliver its services or materials according to the negotiated contract terms for any reason, including the deterioration of its financial condition or over-commitment of its resources, we may be required to purchase the services or materials from another source at a higher price. This may reduce the profit to be realized or result in a loss on a project for which the services or materials were needed.

Our Thermal Management segment may lose money on fixed-price contracts, and it is exposed to liquidated damages charges in many of its customer contracts.

Our Thermal Management segment often agrees to provide products and services under fixed-price or unit price contracts, including our turnkey solutions. Under these contracts, we are typically responsible for all cost overruns, other than the amount of any cost overruns resulting from requested changes in order specifications.

 

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Our actual costs and any gross profit realized on these fixed-price contracts could vary from the estimated costs on which these contracts were originally based. This may occur for various reasons, including errors in estimates or bidding, changes in availability and cost of labor and raw materials and unforeseen technical and logistical challenges, including with managing our geographically widespread operations and use of third party subcontractors, suppliers and manufacturers in many countries. These variations and the risks inherent in our Thermal Management segment’s projects may result in reduced profitability or losses on projects. Depending on the size of a project, variations from estimated contract performance could have a material adverse effect on our results of operations. In addition, many of our Thermal Management segment’s customer contracts, including fixed-price contracts, contain liquidated damages provisions in the event that we fail to perform our obligations thereunder in a timely manner or in accordance with the agreed terms, conditions and standards.

Intellectual property challenges may hinder our ability to develop, engineer and market our products, and we may incur significant costs in our efforts to successfully avoid, manage, defend and litigate intellectual property matters.

Patents, non-compete agreements, proprietary technologies, customer relationships, trademarks, trade names and brand names are important to our business. Intellectual property protection, however, may not preclude competitors from developing products similar to ours or from challenging our names or products. Our pending patent applications, and our pending copyright and trademark registration applications, may not be allowed or competitors may challenge the validity or scope of our patents, copyrights or trademarks. In addition, our patents, copyrights, trademarks and other intellectual property rights may not provide us a significant competitive advantage. Over the past few years, we have noticed an increasing tendency for participants in our markets to use challenges to intellectual property as a means to compete. Patent and trademark challenges increase our costs to develop, engineer and market our products. We may need to spend significant resources monitoring our intellectual property rights and we may or may not be able to detect infringement by third parties. If we fail to successfully enforce our intellectual property rights or register new patents, our competitive position could suffer, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

From time to time, we receive notices from third parties alleging intellectual property infringement. Any dispute or litigation involving intellectual property could be costly and time-consuming due to the complexity and the uncertainty of intellectual property litigation. Our intellectual property portfolio may not be useful in asserting a counterclaim, or negotiating a license, in response to a claim of infringement or misappropriation. In addition, as a result of such claims, we may lose our rights to utilize critical technology, may be required to pay substantial damages or license fees with respect to the infringed rights or may be required to redesign our products at a substantial cost, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Changes in U.S. administrative policy, including changes to existing trade agreements, could have a material adverse effect on us.

As a result of changes to U.S. administrative policy, there may be changes to existing trade agreements, like the North American Free Trade Agreement, greater restrictions on free trade generally, significant increases in tariffs on goods imported into the U.S. particularly tariffs on products manufactured in Mexico, among other possible changes. Changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently manufacture and sell products, and any resulting negative sentiments towards the U.S. as a result of such changes, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

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We have significant goodwill and intangible assets and future impairment of our goodwill and intangible assets could have a material adverse effect on our results of operations.

We test goodwill and other indefinite-lived intangible assets for impairment on at least an annual basis, and more frequently if circumstances warrant, by comparing the estimated fair value of our reporting unit to its respective carrying values on its balance sheets. As of December 31, 2017, our goodwill and intangible assets were $3.5 billion and represented 74 percent of our total assets. Changes in economic and operating conditions impacting the assumptions used in our impairment tests could result in future goodwill and intangible asset impairment charges.

Deterioration in the credit quality of our customers could have a material adverse effect on us.

We have an extensive customer base of original equipment manufacturers, contractors, telecommunications companies and retail and hardware outlets. Deterioration in the credit quality of several major customers could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Seasonality of sales and weather conditions could have a material adverse effect on our financial results.

We generally experience increased demand for Thermal Management products and services during the fall and winter months in the Northern Hemisphere and increased demand for Electrical & Fastening Solutions products during the spring and summer months in the Northern Hemisphere. Seasonality and weather conditions could have a material adverse effect on our results of operations.

We are exposed to potential environmental laws, liabilities and litigation.

We are subject to U.S. federal, state, local and non-U.S. laws and regulations governing our environmental practices, public and worker health and safety, and the indoor and outdoor environment. Compliance with these environmental, health and safety regulations could require us to satisfy environmental liabilities, increase the cost of manufacturing our products or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows. Any violations of these laws by us could cause us to incur unanticipated liabilities. We are also required to comply with various environmental laws and maintain permits, some of which are subject to renewal from time to time, for many of our businesses and we could suffer if we are unable to renew existing permits or to obtain any additional permits that we may require. Compliance with environmental requirements also could require significant operating or capital expenditures or result in significant operational restrictions. We cannot assure you that we have been or will be at all times in compliance with environmental and health and safety laws. If we violate these laws, we could be fined, criminally charged or otherwise sanctioned by regulators.

We have been named as defendant, target or a potentially responsible party (“PRP”) in a number of environmental clean-ups relating to our current or former business units. We may be named as a PRP at other sites in the future for existing business units, as well as both divested and acquired businesses. In addition to clean-up actions brought by governmental authorities, private parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances.

Certain environmental laws impose liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances at their properties or at properties at which they have disposed of hazardous substances. The cost of clean-up and other environmental liabilities can be difficult to accurately predict. In addition, environmental requirements change and tend to become more stringent over time. Our eventual environmental clean-up costs and liabilities could exceed the amount of our current reserves.

We are exposed to certain regulatory and financial risks related to climate change.

Climate change is receiving ever increasing attention worldwide. Many scientists, legislators and others attribute global warming to increased levels of greenhouse gases, which has led to significant legislative and regulatory

 

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efforts to limit greenhouse gas emissions. The U.S. Environmental Protection Agency (“EPA”) has published findings that emissions of carbon dioxide, methane, and other greenhouse gases (“GHGs”) present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to the warming of the earth’s atmosphere and other climate changes. Based on these findings, the EPA has implemented regulations that require reporting of GHG emissions, or that limit emissions of GHGs from certain mobile or stationary sources. In addition, the U.S. Congress and federal and state regulatory agencies have considered other legislation and regulatory proposals to reduce emissions of GHGs, and many states have already taken legal measures to reduce emissions of GHGs, primarily through the development of GHG inventories, GHG permitting and/or regional GHG cap-and-trade programs. It is uncertain whether, when and in what form a federal mandatory carbon dioxide emissions reduction program, or other state programs, may be adopted. Similarly, certain countries have adopted the Kyoto Protocol and/or the Paris Accord, and these and other existing international initiatives or those under consideration could affect our international operations. To the extent our customers, particularly our energy and industrial customers, are subject to any of these or other similar proposed or newly enacted laws and regulations, we are exposed to risks that the additional costs by customers to comply with such laws and regulations could impact their ability or desire to continue to operate at similar levels in certain jurisdictions as historically seen or as currently anticipated, which could negatively impact their demand for our products and services. These actions could also increase costs associated with our operations, including costs for raw materials and transportation. Because it is uncertain what laws will be enacted, we cannot predict the potential impact of such laws on our future financial condition, results of operations and cash flows.

Increased information technology security threats and computer crime pose a risk to our systems, networks, products and services, and we are exposed to potential regulatory, financial and reputational risks relating to the protection of our data.

We rely upon information technology systems and networks in connection with a variety of business activities, some of which are managed by third parties. Additionally, we collect and store data that is sensitive to nVent and its employees, customers, dealers and suppliers. As our business increasingly interfaces with employees, customers, dealers and suppliers using information technology systems and networks, we are subject to an increased risk to the secure operation of these systems and networks and to additional laws and regulatory requirements regarding data privacy, including the European Union General Data Protection Regulation. The secure operation of these information technology systems and networks, and the processing and maintenance of this data is critical to our business operations and strategy. Information technology security threats — from user error to attacks designed to gain unauthorized access to our systems, networks and data — are increasing in frequency and sophistication. Attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of the data we process and maintain and pose a risk of theft to our assets. Establishing systems and processes to address these threats and changes in legal requirements relating to data collection and storage may increase our costs. We have experienced data breaches, and, although we have determined such data breaches to be immaterial and such data breaches have not had a material adverse effect on our financial condition, results of operations or cash flows, there can be no assurance of similar results in the future. Should future attacks succeed in the theft of assets, exporting sensitive data or financial information or controlling sensitive systems or networks, it could expose us and our employees, customers, dealers and suppliers to the theft of assets, misuse of information or systems, the compromising of confidential information, manipulation and destruction of data, defective products, production downtimes and operations disruptions, and breach of privacy, which may require notification under data privacy and other applicable laws. The occurrence of any of these events could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows. In addition, such breaches in security could result in litigation, regulatory action and potential liability and the costs and operational consequences of implementing further data protection measures.

 

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We may be negatively impacted by litigation, including product liability claims.

Our business exposes us to potential litigation, such as product liability claims relating to the design, manufacture and sale of our products. While we currently maintain what we believe to be suitable product liability insurance, we may not be able to maintain this insurance on acceptable terms and this insurance may not provide adequate protection against potential or previously existing liabilities. In addition, we self-insure a portion of product liability claims. Successful claims against us for significant amounts could have a material adverse effect on our product reputation, business, financial condition, results of operations and cash flows.

Our share price may fluctuate significantly.

We cannot predict the prices at which nVent ordinary shares may trade. The market price of nVent ordinary shares may fluctuate widely, depending on many factors, some of which may be beyond our control, including:

 

    actual or anticipated fluctuations in our results of operations due to factors related to our business;

 

    success or failure of our business strategy;

 

    our quarterly or annual earnings, or those of other companies in our industry;

 

    our ability to obtain third-party financing as needed;

 

    announcements by us or our competitors of significant acquisitions or dispositions;

 

    changes in accounting standards, policies, guidance, interpretations or principles;

 

    changes in earnings estimates by us or securities analysts or our ability to meet those estimates;

 

    the operating and share price performance of other comparable companies;

 

    investor perception of us;

 

    natural or other environmental disasters that investors believe may affect us;

 

    overall market fluctuations;

 

    results from any material litigation, including asbestos claims, government investigations or environmental liabilities;

 

    changes in laws and regulations affecting our business; and

 

    general economic conditions and other external factors.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations could have a material adverse effect on our share price.

Risks Relating to the Separation

We have no history operating as an independent company. We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent company, and we may experience increased costs after the separation.

Our business has historically operated as part of Pentair’s corporate organization and Pentair has assisted us by providing certain corporate functions. Following the separation, Pentair will provide some of these functions to us for a specified time period, as described in “Certain Relationships and Related Person TransactionsAgreements with Pentair.” We will need to make investments to replicate or outsource from other providers certain facilities, systems, infrastructure and personnel to which we will no longer have access after our separation from Pentair. These initiatives to develop our independent ability to operate without access to

 

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Pentair’s existing operational and administrative infrastructure will have a cost to implement. We may not be able to operate our business efficiently or at comparable costs, and our profitability may decline.

Our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly-traded company and may not be an accurate indicator of our future results of operations.

The historical information about us in this information statement refers to our business as operated by and integrated with Pentair. Our historical and pro forma financial information included in this information statement is derived from the consolidated financial statements and accounting records of Pentair. Accordingly, the historical and pro forma financial information included in this information statement does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly-traded company during the periods presented or those that we will achieve in the future primarily as a result of the factors described below:

 

    Our business has historically been operated by Pentair as part of its broader corporate organization, rather than as an independent company. Pentair or one of its affiliates performed various corporate functions for nVent, such as accounting, information technology and finance. Our historical and pro forma financial results reflect allocations of corporate expenses from Pentair for such functions and are likely to be less than the expenses we would have incurred had we operated as a separate, publicly-traded company. In addition, we expect to incur additional annual expenses related to the separation, including with respect to, among other things, directors and officers liability insurance, director fees, reporting fees with the SEC, NYSE listing fees, transfer agent fees, increased auditing and legal fees, which expenses may be significant.

 

    Generally, our working capital and capital for our general corporate purposes have historically been provided as part of the corporate-wide cash management policies of Pentair. Following the completion of the separation, we may need to obtain additional financing from lenders, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements.

 

    After the completion of the separation, the cost of capital for our business may be higher than Pentair’s cost of capital prior to completion of the separation.

Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as a company separate from Pentair. For additional information about the past financial performance of our business and the basis of presentation of the historical combined financial statements and the unaudited pro forma combined financial statements of our business, see “Selected Historical Combined Financial Data,” “Unaudited Pro Forma Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statements and accompanying notes included in the “Index to Financial Statements” section of this information statement.

As an independent, publicly-traded company, we may not enjoy the same benefits that we did as a segment of Pentair.

Currently, our business is integrated with the other businesses of Pentair. We are able to use Pentair’s size and purchasing power in procuring various goods and services and have shared economies of scope and scale in costs, employees, vendor relationships and customer relationships. Although we will enter into transition agreements with Pentair, these arrangements may not fully capture the benefits we have enjoyed as a result of being integrated with Pentair and may result in us paying higher amounts than in the past for these services. As a separate, independent company, we may be unable to obtain goods and services at the prices and terms obtained prior to the separation, which could decrease our overall profitability. This could have an adverse effect on our financial condition, results of operations and cash flows following the completion of the separation.

 

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We may not achieve some or all of the expected benefits of the separation, and the separation may materially adversely affect our business.

We may not be able to achieve the full strategic and financial benefits expected to result from the separation, or such benefits may be delayed or not occur at all. The separation is expected to provide the following benefits, among others: (i) allowing Pentair and us to focus exclusively on their own businesses and their distinct needs, and pursue unique opportunities for long-term growth and profitability; (ii) more efficient allocation of capital for both Pentair and us and (iii) direct access by us to the capital markets.

We may not achieve these and other anticipated benefits for a variety of reasons, including, among others: (a) the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business; (b) following the separation, we may be more susceptible to market fluctuations and other adverse events than if it were still a part of Pentair; (c) following the separation, our business will be less diversified than Pentair’s business prior to completion of the separation; and (d) the actions required to separate Pentair’s and our respective businesses could disrupt our operations. If we fail to achieve some or all of the benefits expected to result from the separation, or if such benefits are delayed, it could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.

As we build our information technology infrastructure and transition our data to our own systems, we could incur substantial additional costs and experience temporary business interruptions.

After the separation, we will continue to install and implement information technology infrastructure to support our critical business functions, particularly in relation to areas outside the U.S., including systems relating to accounting and reporting, manufacturing process control, customer service, inventory control and distribution. We may incur temporary interruptions in business operations if we cannot transition effectively from Pentair’s existing transactional and operational systems and data centers and the transition services that support these functions as we replace these systems. We may not be successful in effectively and efficiently implementing our new systems and transitioning our data, and we may incur substantially higher costs for implementation than currently anticipated. Our failure to avoid operational interruptions as we implement the new systems and replace Pentair’s information technology services, or our failure to implement the new systems and replace Pentair’s services effectively and efficiently, could disrupt our business and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the separation and distribution.

Our financial results previously were included within the consolidated results of Pentair. Although we believe that our reporting and control systems were appropriate for those of subsidiaries of a public company, we were not directly subject to reporting and other requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result of the separation and distribution, we will be directly subject to reporting and other obligations under the Exchange Act. Beginning with our Annual Report on Form 10-K for the year ending December 31, 2018, we intend to comply with Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), which will require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm addressing these assessments. These reporting and other obligations will place significant demands on our management, administrative and operational resources, including accounting and information technology resources.

The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. Under the Sarbanes-Oxley Act, we are required to maintain effective disclosure controls and procedures and internal controls over financial reporting. To comply with these requirements, we anticipate that we will need to implement additional financial and management controls, reporting systems and procedures and

 

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hire additional accounting, finance and information technology staff. If we are unable to upgrade our financial and management controls, reporting systems, information technology and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired. Moreover, until we complete the creation of the corporate infrastructure necessary to operate as an independent public company, including hiring of additional staff and establishment of financial reporting information systems, we will be reliant on Pentair for services relating to some of our internal controls over financial reporting. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.

Pentair may fail to perform under various transaction agreements that will be executed as part of the separation or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.

In connection with the separation, we and Pentair will enter into a separation and distribution agreement and will enter into various other agreements, including a tax matters agreement, a transition services agreement and an employee matters agreement. These agreements are discussed in greater detail in “Certain Relationships and Related Person Transactions—Agreements with Pentair.” Certain of these agreements will provide for the performance of services by each company for the benefit of the other for a period of time after the separation. We will rely on Pentair to satisfy its performance and payment obligations under these agreements. If Pentair is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties or losses.

If we do not have in place our own systems and services, or if we do not have agreements with other providers of these services when the transaction or long-term agreements terminate, we may not be able to operate our business effectively and our profitability may decline. We will be in the process of creating our own, or engaging third parties to provide, systems and services to replace many of the systems and services Pentair currently provides to us. We may not be successful in effectively or efficiently implementing these systems and services or in transitioning data from Pentair’s systems to our systems. These systems and services may also be more expensive or less efficient than the systems and services Pentair is expected to provide during the transition period.

Potential indemnification liabilities to Pentair pursuant to the transaction agreements could materially adversely affect us.

Under the separation and distribution agreement, the tax matters agreement, the transition services agreement and the employee matters agreement, Pentair will agree to indemnify us for certain liabilities, and we will agree to indemnify Pentair for certain liabilities, as discussed further in “Certain Relationships and Related Person Transactions—Agreements with Pentair.” Such indemnities may be significant and could negatively impact our business, particularly indemnities relating to our actions that could impact the tax-free nature of the distribution. If we are required to indemnify Pentair under the circumstances set forth in the transaction agreements, we may be subject to substantial liabilities.

We may have received more favorable terms from unaffiliated third parties than the terms we will receive in our agreements with Pentair.

We will enter into agreements with Pentair in connection with the separation, including a separation and distribution agreement, a tax matters agreement, a transition services agreement and an employee matters agreement. Since such agreements were negotiated in the context of a separation while our business was still operated by and part of Pentair, the terms of such agreements may be less favorable than the terms that would have resulted from arm’s-length negotiations between unaffiliated third parties. Arm’s-length negotiations between Pentair and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms to the unaffiliated third party. See “Certain Relationships and Related Person Transactions—Agreements with Pentair.”

 

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Challenges in the commercial and credit environment may materially adversely affect our ability to issue debt on acceptable terms and our future access to capital.

Our ability to issue debt or enter into other financing arrangements on acceptable terms could be materially adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers or if other significantly unfavorable changes in economic conditions occur. In addition, volatility in the world financial markets could increase borrowing costs or affect our ability to access the capital markets, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. These conditions may adversely affect our ability to obtain targeted credit ratings prior to and following the separation.

After the separation, we will have indebtedness, which could restrict our ability to pay dividends and have a negative impact on our financing options and liquidity position.

Immediately following the separation, after giving effect to the new financing arrangements that nVent Finance has entered into in connection with the separation and after giving effect to the application of the net proceeds of such financing, we expect to have a total combined indebtedness for borrowed money of approximately $1.0 billion. We may also incur additional indebtedness in the future. See “Description of Material Indebtedness.” Our indebtedness may impose restrictions on us that could have material adverse consequences by:

 

    requiring a substantial portion of our cash flow from operations to make payments on this debt following the separation;

 

    making it more difficult to satisfy debt service and other obligations;

 

    increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing;

 

    increasing our vulnerability to general adverse economic and industry conditions;

 

    reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our business;

 

    limiting our flexibility in planning for, or reacting to, changes in our business and the industry;

 

    placing us at a competitive disadvantage relative to our competitors that may not be as highly leveraged with debt; and

 

    limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase ordinary shares.

To the extent that we incur additional indebtedness, the risks described above could increase. In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to repay all of the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance our debt.

In addition, our credit agreement and indentures contain customary financial covenants, including those that limit the amount of our debt, which may restrict the operations of our business and our ability to incur additional debt. Our ability to meet the financial covenants can be affected by events beyond our control, and we cannot provide assurance that we will meet those tests. A breach of any of these covenants could result in a default under our credit agreement or indentures. Upon the occurrence of an event of default under our credit agreement or indentures, the lenders or trustee could elect to declare all amounts outstanding thereunder to be immediately due and payable and, in the case of credit agreement lenders, terminate all commitments to extend further credit. If the lenders or trustees accelerate the repayment of borrowings, we cannot provide assurance that we will have sufficient assets to repay our indebtedness. Furthermore, acceleration of any obligation under any of our material

 

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debt instruments will permit the holders of our other material debt to accelerate their obligations, which could have a material adverse effect on our financial condition.

See “Description of Material Indebtedness.”

We may need additional financing in the future to meet our capital needs or to make acquisitions, and such financing may not be available on favorable or acceptable terms, and may be dilutive to existing shareholders.

We may need to seek additional financing for general corporate purposes. For example, we may need to increase our investment in research and development activities or need funds to make acquisitions. We may be unable to obtain any desired additional financing on terms that are favorable or acceptable to us. We expect to have an investment grade credit rating from one or more primary credit rating agencies that rates our debt. If we lose these investment grade credit ratings or if adequate funds are not available to us on acceptable terms, we may be unable to fund our expansion, successfully develop or enhance products, or respond to competitive pressures, any of which could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows. If we raise additional funds through the issuance of equity securities, nVent shareholders will experience dilution of their ownership interest.

If the distribution fails to qualify as a tax-free transaction for U.S. federal income tax purposes, then nVent, Pentair and Pentair shareholders could be subject to significant tax liability or tax indemnity obligations.

Pentair has requested from the IRS a private letter ruling on certain issues relating to the qualification of the distribution and certain related transactions as tax-free under Section 355 and related provisions of the Code. The IRS ruling does not address all of the requirements for tax-free treatment of the distribution and the related transactions. In addition, Pentair expects to receive an opinion from Deloitte Tax LLP substantially to the effect that, subject to the accuracy of, and compliance with, certain representations, assumptions and covenants, for U.S. federal income tax purposes, the distribution and certain related transactions will qualify for non-recognition of gain or loss to Pentair and its shareholders pursuant to Section 355 and related provisions of the Code, except to the extent of cash received in lieu of fractional shares. The opinion will rely on the IRS ruling as to matters covered by the IRS ruling. Pentair’s receipt of the IRS ruling and the tax opinion is a condition to the completion of the distribution.

The IRS ruling and the tax opinion will rely on certain facts and assumptions, certain representations from Pentair and nVent regarding the past and future conduct of their respective businesses and other matters and certain undertakings made by Pentair and nVent. Notwithstanding the IRS ruling and tax opinion, the IRS could determine on audit that the distribution should be treated as a taxable transaction if it determines that any of these facts, assumptions, representations or undertakings is not correct or has been violated, or that the distribution should be taxable for other reasons, including as a result of a significant change in stock or asset ownership after the distribution, or if the IRS were to disagree with the conclusions of the tax opinion that are not covered by the IRS ruling. If the distribution is ultimately determined to be taxable, the distribution could be treated as a taxable dividend to you for U.S. federal income tax purposes, and you could incur significant U.S. federal income tax liability. In addition, Pentair and/or we could incur significant U.S. federal income tax liabilities or tax indemnification obligations, whether under applicable law or the tax matters agreement that we will enter into with Pentair, if it is ultimately determined that certain related transactions undertaken in anticipation of the distribution are taxable. To the extent we incur any tax liability or indemnification obligation under applicable law or the tax matters agreement, there could be a material adverse effect on our business, financial condition, results of operations and cash flows in future reporting periods.

We might not be able to engage in desirable strategic transactions and equity issuances following the distribution because of restrictions relating to U.S. federal income tax requirements for tax-free distributions.

Our ability to engage in significant equity transactions could be limited or restricted after the distribution in order to preserve, for U.S. federal income tax purposes, the tax-free nature of the distribution by Pentair. Even if the

 

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distribution otherwise qualifies for tax-free treatment under Section 355 of the Code, it may result in corporate-level taxable gain to Pentair and certain of its affiliates under Section 355(e) of the Code if 50 percent or more, by vote or value, of nVent ordinary shares or Pentair ordinary shares are acquired or issued as part of a plan or series of related transactions that includes the distribution. Any acquisitions or issuances of nVent ordinary shares or Pentair ordinary shares within two years after the distribution will generally be presumed to be part of such a plan, although we or Pentair may be able to rebut that presumption.

To preserve the tax-free treatment to Pentair of the distribution, under the tax matters agreement, we expect that we will be prohibited from taking or failing to take any action that prevents the distribution and related transactions from being tax-free. Further, for the two-year period following the distribution, without obtaining the consent of Pentair, a private letter ruling from the IRS or an unqualified opinion of a nationally recognized law firm or accounting firm, we may be prohibited from, among other things:

 

    approving or allowing any transaction that results in a change in ownership of more than a specified percentage of nVent ordinary shares when combined with any other changes in ownership of nVent ordinary shares,

 

    redeeming or repurchasing equity securities,

 

    selling or otherwise disposing of substantially all of our assets, or

 

    engaging in certain internal transactions.

These restrictions may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business. Moreover, we expect that the tax matters agreement will also provide that we will be responsible for all or a specified portion of any taxes imposed on Pentair or any of its affiliates as a result of the failure of the distribution or the internal transactions to qualify for favorable treatment under the Code unless such failure is attributable to certain actions taken after the distribution by Pentair.

We will share responsibility for certain of our and Pentair’s income tax liabilities for tax periods prior to and including the distribution date.

In connection with the distribution, we will enter into a tax matters agreement with Pentair, which will govern our rights and obligations and those of Pentair for certain pre-distribution tax liabilities, as more fully described under “Certain Relationships and Related Person Transactions—Agreements with Pentair—Tax Matters Agreement.” To the extent we are responsible for any liability under the tax matters agreement, there could be a material adverse effect on our business, financial condition, results of operations and cash flows in future reporting periods.

Risks Relating to Our Jurisdiction of Incorporation in Ireland and Tax Residency in the U.K.

We are subject to changes in law and other factors that may not allow us to maintain a worldwide effective corporate tax rate that is competitive in our industry.

We cannot give any assurance as to what our effective tax rate will be after the distribution, because of, among other things, uncertainty regarding the tax policies of the jurisdictions where we operate. Our actual effective tax rate may vary from our expectation and that variance may be material. Also, the tax laws of the U.S., the U.K., Ireland and other jurisdictions could change in the future, and such changes could cause a material change in our worldwide effective corporate tax rate. In particular, legislative action could be taken by the U.S., the U.K., Ireland or the European Union which could override tax treaties or modify tax statutes or regulations upon which we expect to rely and adversely affect our effective tax rate. We cannot predict the outcome of any specific legislative proposals. If proposals were enacted that had the effect of disregarding our incorporation in Ireland or limiting our ability as an Irish company to maintain tax residency in the U.K. and take advantage of the tax

 

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treaties among the U.S., the U.K. and Ireland, we could be subject to increased taxation, which could materially adversely affect our financial condition, results of operations, cash flows or our effective tax rate in future reporting periods.

A change in nVent’s tax residency could have a negative effect on our future profitability, and may trigger taxes on dividends or exit charges.

nVent intends to manage its affairs so that it is centrally managed and controlled in, and effectively managed from, the U.K. and therefore has its tax residency only in the U.K. However, we cannot assure you that nVent will continue to be resident only in the U.K. for tax purposes.

Under current Irish legislation, a company is regarded as resident for tax purposes in Ireland if it is centrally managed and controlled in Ireland, or, in certain circumstances, if it is incorporated in Ireland. Under current U.K. legislation, a company that is centrally managed and controlled in the U.K. is regarded as resident in the U.K. for taxation purposes unless it is treated as resident in another jurisdiction pursuant to any appropriate double tax treaty with the U.K. Other jurisdictions may also seek to assert taxing jurisdiction over nVent.

Where a company is treated as tax resident under the domestic laws of both the U.K. and Ireland, article 4(3) of the Double Tax Convention between Ireland and the U.K. (the “residence tie-breaker”) currently provides that the company shall be treated as resident only in one of those two jurisdictions if its place of effective management is situated in that jurisdiction.

The Organisation for Economic Co-operation and Development has proposed a number of measures relating to the tax treatment of multinationals, some of which are to be implemented by amending double tax treaties through a multilateral instrument (the “MLI”). The MLI has been signed by a number of countries, including Ireland and the U.K. The MLI allows signatories to opt into or out of certain changes: the effect for a given double tax convention depends on the options chosen by the two contracting states. Ireland and the U.K. have indicated they intend to change the residence tie-breaker so that it will depend on a ruling by the tax authorities of the two contracting states, instead of an objective application of the place of effective management test. Accordingly, if Ireland and the U.K. maintain their position and enough other countries ratify the MLI, the residence tie-breaker would be amended to depend on a determination by Irish Revenue Commissioners and the U.K. HM Revenue and Customs. It is not certain when this will take place nor what factors will be taken into account in making the determination, but nVent does not expect such a determination to alter its tax residency.

It is possible that in the future, whether as a result of a change in law (including the entry into force of the MLI or a change to the intention of Ireland or the U.K. in relation to the MLI) or the practice of any relevant tax authority or as a result of any change in the conduct of nVent’s affairs, nVent could become, or be regarded as having become, resident in a jurisdiction other than the U.K. If nVent ceases to be resident in the U.K. and becomes resident in another jurisdiction, it may be subject to U.K. exit charges, and could become liable for additional tax charges in the other jurisdiction (including dividend withholding taxes or corporate income tax charges). If nVent were to be treated as resident in more than one jurisdiction, it could be subject to taxation in multiple jurisdictions. If, for example, nVent were considered to be a tax resident of Ireland, nVent could become liable for Irish corporation tax and any dividends paid by it could be subject to Irish dividend withholding tax.

Legislative action in the U.S. could materially adversely affect us.

Legislative action may be taken by the U.S. Congress which, if ultimately enacted, could limit the availability of tax benefits or deductions that we currently claim, override tax treaties upon which we rely, or otherwise affect the taxes that the U.S. imposes on our worldwide operations. Such changes could materially adversely affect our effective tax rate and/or require us to take further action, at potentially significant expense, to seek to preserve our effective tax rate.

 

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There is no guarantee that the High Court of Ireland approval of the creation of distributable reserves required for the payment of dividends to our shareholders will be forthcoming.

Under Irish law, dividends must be paid (and share repurchases must generally be funded) out of “distributable reserves,” which we will not have immediately following the distribution. See “Description of nVent’s Share Capital—Dividends” and “Description of nVent’s Share Capital—Share Repurchases, Redemptions and Conversions.” Immediately after the separation, we will not have any “distributable reserves.” Immediately following the separation and the distribution, we will capitalize the merger reserve which will be created as a result of the distribution. We then intend to undertake an Irish legal process pursuant to which we will convert up to our entire share premium account to “distributable reserves.” This process will require the approval of the High Court of Ireland. See “Dividends—Creation of Distributable Reserves.” Although we are not aware of any reason why the High Court of Ireland would not approve the creation of distributable reserves in this manner, the issuance of the required order is a matter for the discretion of the High Court of Ireland and there is no guarantee that such approval will be forthcoming. In the event that distributable reserves of nVent are not created, no distributions by way of dividends, share repurchases or otherwise will be permitted under Irish law until such time as we have created sufficient distributable reserves from our operating activities.

Irish law differs from the laws in effect in the U.S. and may afford less protection to holders of our securities.

It may not be possible to enforce court judgments obtained in the U.S. against us in Ireland based on the civil liability provisions of the U.S. federal or state securities laws. In addition, there is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of U.S. courts obtained against us or our directors or officers based on the civil liabilities provisions of the U.S. federal or state securities laws or hear actions against us or those persons based on those laws. We have been advised that the U.S. currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Ireland.

As an Irish company, we are governed by the Irish Companies Act, which differs in some material respects from laws generally applicable to U.S. corporations and shareholders, including, among others, differences relating to interested director and officer transactions and shareholder lawsuits. Likewise, the duties of directors and officers of an Irish company generally are owed to the company only. Shareholders of Irish companies generally do not have a personal right of action against directors or officers of the company and may exercise such rights of action on behalf of the company only in limited circumstances. Accordingly, holders of our securities may have more difficulty protecting their interests than would holders of securities of a corporation incorporated in a jurisdiction of the U.S.

In addition, our articles of association will provide that the Irish courts have exclusive jurisdiction to determine any and all derivative actions in which a holder of nVent ordinary shares asserts a claim in the name of nVent, actions asserting a claim of breach of a fiduciary duty of any of the directors of nVent and actions asserting a claim arising pursuant to any provision of Irish law or our articles of association. Under Irish law, the proper claimant for wrongs committed against nVent, including by our directors, is considered to be nVent itself. Irish law permits a shareholder to initiate a lawsuit on behalf of a company such as nVent only in limited circumstances and requires court permission to do so.

Irish law imposes restrictions on certain aspects of capital management.

Irish law allows nVent shareholders to pre-authorize shares to be issued by our board of directors without further shareholder approval for up to a maximum of five years. Our current authorization will therefore lapse approximately five years after the distribution unless renewed by shareholders and we cannot guarantee that such renewal will always be approved. Additionally, subject to specified exceptions, including the opt-out that will be included in our articles of association upon consummation of the distribution, Irish law grants statutory

 

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pre-emptive rights to existing shareholders to subscribe for new issuances of shares for cash. This opt-out also expires approximately five years after the distribution unless renewed by further shareholder approval, and we cannot guarantee that such renewal of the opt-out from pre-emptive rights will always be approved. We cannot assure you that these Irish legal restrictions will not interfere with our capital management. See “Description of nVent’s Share Capital—Capital Structure” and “Description of nVent’s Share Capital—Preemption Rights, Share Warrants and Share Options.”

Transfers of nVent ordinary shares may be subject to Irish stamp duty.

Transfers of nVent ordinary shares effected by means of the transfer of book entry interests in the DTC will not be subject to Irish stamp duty. However, if you hold your nVent ordinary shares directly, rather than beneficially through DTC, any transfer of your nVent ordinary shares could be subject to Irish stamp duty (currently at the rate of 1 percent of the higher of the price paid or the market value of the shares acquired). Payment of Irish stamp duty is generally a legal obligation of the transferee.

We currently intend to pay (or cause one of our affiliates to pay) stamp duty in connection with share transfers made in the ordinary course of trading by a seller who holds shares directly to a buyer who holds the acquired shares beneficially. In other cases we may, in our absolute discretion, pay (or cause one of our affiliates to pay) any stamp duty. Our articles of association will provide that, in the event of any such payment, we (i) may seek reimbursement from the buyer, (ii) will have a lien against the shares acquired by such buyer and any dividends paid on such shares and (iii) may set-off the amount of the stamp duty against future dividends on such shares. Parties to a share transfer may assume that any stamp duty arising in respect of a transaction in nVent ordinary shares has been paid unless one or both of such parties is otherwise notified by us.

nVent ordinary shares, received by means of a gift or inheritance, could be subject to Irish capital acquisitions tax.

Irish capital acquisitions tax (“CAT”) could apply to a gift or inheritance of nVent ordinary shares irrespective of the place of residence, ordinary residence or domicile of the parties. This is because nVent ordinary shares will be regarded as property situated in Ireland. The person who receives the gift or inheritance has primary liability for CAT. Gifts and inheritances passing between spouses are exempt from CAT. Children have a tax-free threshold of €310,000 per lifetime in respect of taxable gifts or inheritances received from their parents for periods on or after October 12, 2016.

Risks Relating to nVent Ordinary Shares

We cannot be certain that an active trading market for nVent ordinary shares will develop or be sustained after the distribution, and following the distribution, our share price may fluctuate significantly.

A public market for nVent ordinary shares does not currently exist. We anticipate that on or prior to the record date for the distribution, trading of nVent ordinary shares will begin on a “when-issued” basis and will continue through the distribution date. However, we cannot guarantee that an active trading market will develop or be sustained for nVent ordinary shares after the distribution. We also cannot predict the effect of the distribution on the trading prices of nVent ordinary shares or whether the combined market value of nVent ordinary shares and Pentair ordinary shares will be less than, equal to or greater than the market value of Pentair ordinary shares prior to the distribution.

The market price of nVent ordinary shares may fluctuate significantly due to a number of factors, some of which may be beyond our control, including:

 

    actual or anticipated fluctuations in our results of operations;

 

    changes in earnings estimated by securities analysts or our ability to meet those estimates;

 

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    the operating and share price performance of comparable companies;

 

    changes to the regulatory and legal environment in which we operate;

 

    the trading volume and liquidity of nVent ordinary shares; and

 

    U.S. and worldwide economic conditions.

In addition, when the market price of a company’s ordinary shares drops significantly, shareholders often institute securities class action lawsuits against the company. A lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management and other resources.

A number of nVent ordinary shares are or will be eligible for future sale, which may cause our share price to decline.

Any sales of substantial amounts of nVent ordinary shares in the public market or the perception that such sales might occur, in connection with the distribution or otherwise, may cause the market price of electrical ordinary shares to decline. Upon completion of the distribution, based on approximately 178.3 million Pentair ordinary shares outstanding as of March 5, 2018, we expect that we will have an aggregate of approximately 178.3 million of nVent ordinary shares issued and outstanding. These shares will be tradable without restriction or further registration under the U.S. Securities Act of 1933, as amended (the “Securities Act”), unless the shares are owned by one of our “affiliates,” as that term is defined in Rule 405 under the Securities Act.

We are unable to predict whether large amounts of nVent ordinary shares will be sold in the open market following the distribution. We are also unable to predict whether a sufficient number of buyers would be in the market at that time.

We cannot guarantee the timing, amount or payment of dividends on nVent ordinary shares.

Although we expect to pay regular cash dividends following the separation, the timing, declaration, amount and payment of future dividends to shareholders will fall within the discretion of our board of directors. The board’s decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, industry practice, legal requirements, regulatory constraints and other factors that the board deems relevant. For more information, see “Dividends.” Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and access capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividend if we commence paying dividends.

Your percentage of ownership in nVent may be diluted in the future.

In the future, your percentage ownership in nVent may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that we expect to be granting to our directors, officers and employees. Such issuances may have a dilutive effect on our earnings per share, which could materially adversely affect the market price of nVent ordinary shares. In addition, certain Pentair equity awards held by nVent employees and Pentair employees will convert into nVent equity awards in connection with the separation.

In addition, our articles of association will entitle our board of directors, without shareholder approval, to cause us to issue preferred shares with such terms as our board of directors may determine. Preferred shares may be preferred as to dividends, rights on a winding up or voting in such manner as our directors may resolve. The preferred shares may also be redeemable at the option of the holder of the preferred shares or at our option, and may be convertible into or exchangeable for shares of any other class or classes of nVent shares, depending on the terms of such preferred shares. The terms of one or more classes or series of preferred shares could dilute the voting power or reduce the value of nVent ordinary shares. For example, we could grant the holders of preferred shares the right to elect some number of our directors in all events or on the happening of specified events or the

 

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right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred shares could affect the residual value of nVent ordinary shares. See “Description of nVent’s Share Capital.”

Certain provisions in our articles of association, among other things, could prevent or delay an acquisition of us, which could decrease our share price.

Our articles of association contain provisions that could have the effect of deterring coercive takeover practices, inadequate takeover bids and unsolicited offers. These provisions include, among others:

 

    provisions of our articles of association that allow our board of directors to adopt a shareholder rights plan (commonly known as a “poison pill”) upon such terms and conditions as our board of directors deems expedient and in our best interests, subject to applicable law;

 

    a provision of our articles of association that generally prohibits us from engaging in a business combination with an interested shareholder for a period of three years following the date the person became an interested shareholder, subject to certain exceptions;

 

    rules regarding how shareholders may present proposals or nominate directors for election at shareholder meetings;

 

    the right of our board of directors to issue preferred shares without shareholder approval in certain circumstances, subject to applicable law; and

 

    the ability of our board of directors to fill vacancies on our board of directors in certain circumstances.

We believe these provisions will provide some protection to nVent shareholders from coercive or otherwise unfair takeover tactics. These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some shareholders and could delay or prevent an acquisition that our board of directors determines is in the best interests of nVent and its shareholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

In addition, several mandatory provisions of Irish law could prevent or delay an acquisition of nVent. For example, Irish law does not permit shareholders of an Irish public limited company to take action by written consent with less than unanimous consent. We also will be subject to various provisions of Irish law relating to mandatory bids, voluntary bids, requirements to make a cash offer and minimum price requirements, as well as substantial acquisition rules and rules requiring the disclosure of interests in nVent ordinary shares in certain circumstances. Also, Irish companies, including nVent, may only alter their memorandum of association and articles of association with the approval of the holders of at least 75 percent of the company’s shares present and voting in person or by proxy at a general meeting of the company.

For additional information on these and other provisions of our articles of association and Irish law that could be considered to have an anti-takeover effect, see “Description of nVent’s Share Capital—Anti-Takeover Provisions.”

The agreements that we will enter into with Pentair in connection with the separation generally will require Pentair’s consent to any assignment by us of our rights and obligations under the agreements. The consent and termination rights set forth in these agreements might discourage, delay or prevent a change of control that shareholders may consider favorable. For a more detailed description of these agreements, see “Certain Relationships and Related Person Transactions—Agreements with Pentair.”

Moreover, an acquisition or further issuance of nVent ordinary shares after the separation could trigger the application of Section 355(e) of the Code, even if the distribution and certain related transactions undertaken in connection therewith otherwise qualify for tax-free treatment. Under Section 355(e) of the Code, we and/or Pentair could incur tax upon certain transactions undertaken in anticipation of the distribution if 50 percent or

 

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more, by vote or value, of nVent ordinary shares or Pentair ordinary shares are acquired or issued as part of a plan or series of related transactions that include the separation. The process for determining whether an acquisition or issuance triggering these provisions has occurred is complex, inherently factual and subject to interpretation. Any acquisitions or issuances of nVent ordinary shares or Pentair ordinary shares within two years after the distribution are presumed to be part of such a plan, although we or Pentair, as applicable, may be able to rebut that presumption. Moreover, under the tax matters agreement that we will enter into with Pentair, we will be restricted from engaging in certain transactions within two years of the distribution which potentially could trigger application of Section 355(e) of the Code. See “Certain Relationships and Related Person Transactions—Agreements with Pentair—Tax Matters Agreement.” During such period, these restrictions may limit the ability that we, or a potential acquirer of nVent, have to pursue certain strategic transactions that might increase the value of nVent ordinary shares.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This information statement and other materials Pentair and nVent have filed or will file with the SEC contain, or will contain, certain forward-looking statements regarding business strategies, market potential, future financial performance and other matters. 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,” “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. In particular, information included under “Risk Factors,” “The Separation,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contain forward-looking statements. All forward-looking statements speak only as of the date of this information statement. Except as may be required by law, we assume no obligation, and disclaim any obligation, to update the information contained in this information statement. Factors that could cause actual results or events to differ materially from those anticipated include the matters described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

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THE SEPARATION

Background

On May 9, 2017, Pentair announced a plan to separate its Water business and its Electrical business into two independent, publicly-traded companies. Pentair also announced it anticipated that the transaction will be in the form of a spin-off of nVent by Pentair to its shareholders that will be tax-free for U.S. federal income tax purposes.

nVent was incorporated in Ireland on May 30, 2017, for the purpose of holding Pentair’s Electrical business following the separation.

On April 3, 2018, the Pentair board of directors approved the transfer of Pentair’s Electrical business to us in return for which we will issue nVent ordinary shares to Pentair shareholders on the basis of one nVent ordinary share for each Pentair ordinary share held on the record date, subject to the satisfaction of the conditions to the distribution.

Currently, all of our issued shares are held beneficially by an Irish corporate services provider (which is not a subsidiary of Pentair). Immediately prior to the distribution, Pentair will transfer its Electrical business to us in return for which we will issue nVent ordinary shares to Pentair shareholders, pro rata to their respective holdings. Prior to the transfer by Pentair to us of the Electrical business, we will have no business operations. Immediately following the distribution, the persons entitled to receive nVent ordinary shares in the distribution will own all of the outstanding nVent ordinary shares.

On April 30, 2018, the expected distribution date, each person who holds Pentair ordinary shares at the close of business on the record date will receive one nVent ordinary share for each Pentair ordinary share held at the close of business on the record date, as described below. You will receive cash in lieu of any fractional nVent ordinary shares which you would have received after the application of the above ratio. Immediately following the distribution, the persons entitled to receive nVent ordinary shares in the distribution will own all of the outstanding nVent ordinary shares. You will not be required to make any payment, surrender or exchange your Pentair ordinary shares or take any other action to receive your nVent ordinary shares in the distribution. In connection with these transactions, we will acquire by surrender the shares currently held by the Irish corporate services provider referred to above for no consideration, following which we will cancel these shares.

The distribution of nVent ordinary shares as described in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see “—Conditions to the Distribution.”

Reasons for the Separation

The Pentair board of directors determined that the creation of two independent, publicly-traded companies, with nVent operating Pentair’s Electrical businesses, and Pentair operating its Water businesses is in the best interests of Pentair and its shareholders and approved the plan of separation. A wide variety of factors were considered by the Pentair board of directors in evaluating the creation of two independent, publicly-traded companies. Among other things, the Pentair board of directors considered the following potential benefits:

 

    Industry Leading, Pure Play Companies. Create two companies that will benefit from leading positions in their respective industries, well-recognized brands, attractive margin profiles, strong cash flow generation and compelling growth opportunities.

 

    Strategic Focus. Enable enhanced strategic focus and simplified corporate structure with improved clarity into business performance and growth opportunities for management of each company to focus on their respective businesses and opportunities for long-term growth and profitability.

 

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    Greater Ability to Invest in Growth. Provide each company with greater flexibility to pursue their own strategies for growth, both organic and through acquisitions, and capital allocation without having to consider the potential impact on the businesses of the other company.

 

    Strong Financial Positioning. Create two independent capital structures that are expected to be well-capitalized and have the financial profile and management talent to be successful, profitable and sustainable independent companies and afford each company direct access to the debt and equity capital markets to fund their respective growth strategies and to establish an appropriate capital structure for their business needs.

 

    Investor Perspectives. Increase business transparency and provide a clearer investment thesis for investors to allow evaluation of the separate investment identities of each company, including the distinct merits, performance and future prospects of their respective businesses, and provide investors with a more targeted investment opportunity.

 

    Management and Employee Incentives. Enhance each company’s flexibility to establish appropriate compensation policies, including equity-based compensation policies that are reflective of the performance of its operations and are designed to attract and retain skilled employees.

Neither we nor Pentair can assure you that, following the separation, any of the benefits described above or otherwise will be realized to the extent anticipated or at all.

The Pentair board of directors also considered a number of potentially negative factors in evaluating the separation, including:

 

    Loss of Operational Synergies. The potential loss of operational synergies from operating as a consolidated entity, as we will need to make investments to replicate or outsource from other providers certain facilities, systems, infrastructure and personnel to which we will no longer have access after our separation from Pentair.

 

    Increased Costs. The potential increased costs for each of the companies operating as stand-alone companies, including costs related to initiatives to develop our independent ability to operate without access to Pentair’s existing operational and administrative infrastructure.

 

    Exposure to Fewer Industries. The potential exposure to operating in fewer industries thereby reducing the ability to mitigate downturns in one business against the others.

 

    Disruptions to the Business. The potential disruptions to each company’s respective business as a result of the separation, which will require significant amounts of management’s time and effort.

 

    Inability to Realize Anticipated Benefits of the Separation. The risk that Pentair would not achieve the expected benefits of the separation.

 

    Execution Risks of the Separation. The risk that Pentair may not be able to successfully execute the separation.

 

    One-time Costs of the Separation. The incurrence of one-time costs of the separation, including financial advisor, accounting, legal and other advisor costs, recruiting and relocation costs associated with hiring new key senior management personnel, and costs related to establishing a new brand identity in the marketplace.

For more information, see the sections entitled “The Separation—Reasons for the Separation” and “Risk Factors—Risks Related to the Separation” included elsewhere in this information statement. In determining to pursue the separation, the Pentair board of directors concluded that the potential benefits of the separation outweighed these factors.

 

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When and How You Will Receive nVent Ordinary Shares in the Distribution

With the assistance of Computershare, we expect to issue nVent ordinary shares on April 30, 2018, the distribution date, to all holders of outstanding Pentair ordinary shares at the close of business on April 17, 2018, the record date for the distribution. Computershare, which currently serves as the transfer agent and registrar for Pentair ordinary shares, will serve as the distribution agent in connection with the distribution and the transfer agent and registrar for nVent ordinary shares.

If you own Pentair ordinary shares as of the close of business on the record date, Pentair, with the assistance of Computershare, will electronically distribute nVent ordinary shares to you in book-entry form by way of registration in the “direct registration system” (if you hold the shares in your own name as a registered shareholder) or to your bank or brokerage firm on your behalf or through the systems of DTC (if you hold the shares through a bank or brokerage firm that uses DTC).

Direct registration form refers to a method of recording share ownership when no physical share certificates are issued to shareholders, as is the case in this distribution. If you are a registered shareholder, Computershare will then mail you a direct registration account statement that reflects your nVent ordinary shares.

Most Pentair shareholders hold their Pentair ordinary shares through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the shares in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your Pentair ordinary shares through a bank or brokerage firm, your bank or brokerage firm will credit your account for the nVent ordinary shares that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having shares held in “street name,” we encourage you to contact your bank or brokerage firm.

If you sell Pentair ordinary shares in the “regular-way” market up to and including the distribution date, you will be selling your right to receive nVent ordinary shares in the distribution.

Transferability of Shares You Receive

nVent ordinary shares distributed to holders in connection with the distribution will be transferable without registration under the Securities Act, except for nVent ordinary shares received by persons who may be deemed to be our affiliates. Persons who may be deemed to be our affiliates after the distribution generally include individuals or entities that control, are controlled by or are under common control with us, which may include certain of our executive officers, directors or principal shareholders. Securities held by our affiliates will be subject to resale restrictions under the Securities Act. Our affiliates will be permitted to sell nVent ordinary shares only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.

The Number of nVent Ordinary Shares You Will Receive

Subject to the approval of the Pentair board of directors, for each Pentair ordinary share that you own at the close of business on April 17, 2018, the record date, you will receive one nVent ordinary share on the distribution date. Pentair will not distribute any fractional shares to its shareholders. Instead, the transfer agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate cash proceeds (net of discounts and commissions) of the sales pro rata (based on the fractional share such holder would otherwise be entitled to receive) to each holder who otherwise would have been entitled to receive a fractional share in the distribution. The transfer agent, in its sole discretion, without any influence by Pentair or us, will determine when, how, through which broker-dealer and at what price to sell the whole shares. Any broker-dealer used by the transfer agent will not be an affiliate of either Pentair or us. Neither we nor Pentair will be able to guarantee any minimum sale price in connection with the sale of these shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.

 

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The aggregate net cash proceeds of these sales will be taxable for U.S. federal income tax purposes. For an explanation of the material U.S. federal income tax consequences of the distribution, see “Material U.S. Federal Income Tax Consequences.” We estimate that it will take approximately two weeks from the distribution date for the distribution agent to complete the distributions of the aggregate net cash proceeds. If you are the registered holder of Pentair ordinary shares, you will receive a check from the distribution agent in an amount equal to your pro-rata share of the aggregate net cash proceeds of the sales. If you hold your Pentair ordinary shares through a bank or brokerage firm, your bank or brokerage firm will receive, on your behalf, your pro-rata share of the aggregate net cash proceeds of the sales and will electronically credit your account for your share of such proceeds.

Results of the Distribution

After our separation from Pentair, we will be an independent, publicly-traded company. The actual number of nVent ordinary shares to be distributed will be determined at the close of business on April 17, 2018, the record date for the distribution. The distribution will not affect the number of the outstanding Pentair ordinary shares. No fractional nVent ordinary shares will be distributed.

In connection with the separation, we and Pentair will enter into a separation and distribution agreement and various other agreements, including a tax matters agreement, a transition services agreement and an employee matters agreement. These agreements will effect the separation, provide a framework for our relationship with Pentair after the separation and provide for the allocation between us and Pentair of Pentair’s assets, employees, liabilities and obligations (including its property, tax matters, environmental matters and employee benefit matters) attributable to periods prior to, at and after our separation from Pentair. For a more detailed description of these agreements, see “Certain Relationships and Related Person Transactions—Agreements with Pentair.”

Market for nVent Ordinary Shares

There is currently no public trading market for nVent ordinary shares. We intend to apply for authorization to list nVent ordinary shares on the NYSE under the symbol “NVT.” We have not and will not set the initial price of nVent ordinary shares. The initial price will be established by the public markets.

We cannot predict the price at which nVent ordinary shares will trade after the distribution. In fact, the combined trading prices, after the distribution, of an nVent ordinary share that a Pentair shareholder will receive in the distribution and a Pentair ordinary share held at the record date may not equal the “regular-way” trading price of a Pentair ordinary share immediately prior to completion of the separation. The price at which nVent ordinary shares trade may fluctuate significantly, particularly until an orderly public market develops. Trading prices for nVent ordinary shares will be determined in the public markets and may be influenced by many factors. See “Risk Factors—Risks Relating to nVent Ordinary Shares.”

Trading Between the Record Date and Distribution Date

Beginning on or shortly before the record date and continuing up to and including the distribution date, Pentair expects that there will be two markets in Pentair ordinary shares: a “regular-way” market and an “ex-distribution” market. Pentair ordinary shares that trade on the “regular-way” market will trade with an entitlement to nVent ordinary shares distributed pursuant to the distribution. Pentair ordinary shares that trade on the “ex-distribution” market will trade without an entitlement to nVent ordinary shares distributed pursuant to the distribution. Therefore, if you sell Pentair ordinary shares in the “regular-way” market up to and including through the distribution date, you will be selling your right to receive nVent ordinary shares in the distribution. If you own Pentair ordinary shares at the close of business on the record date and sell those shares on the “ex-distribution” market up to and including through the distribution date, you will receive nVent ordinary shares that you are entitled to receive pursuant to your ownership as of the record date of Pentair ordinary shares.

 

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Furthermore, beginning on or shortly before the record date and continuing up to and including the distribution date, we expect that there will be a “when-issued” market in nVent ordinary shares. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for nVent ordinary shares that will be distributed to holders of Pentair ordinary shares on the distribution date. If you own Pentair ordinary shares at the close of business on the record date, you will be entitled to nVent ordinary shares distributed pursuant to the distribution. You may trade this entitlement to nVent ordinary shares, without the Pentair ordinary shares you own, on the “when-issued” market. On the first trading day following the distribution date, “when-issued” trading with respect to nVent ordinary shares will end, and “regular-way” trading will begin.

Conditions to the Distribution

We expect that the distribution will be effective at 12:01 a.m., Eastern Time, on April 30, 2018, which is the distribution date, provided that the following conditions have been satisfied (or waived by Pentair in its sole discretion):

 

    the receipt of a private letter ruling from the IRS, which remains in full force and effect and has not been modified or amended in any material respect adversely affecting the intended tax-free treatment of the distribution and certain related transactions;

 

    the receipt of a tax opinion dated as of the distribution date from Deloitte Tax LLP, in form and substance acceptable to Pentair, which tax opinion will rely on the effectiveness of the IRS ruling, substantially to the effect that, subject to the accuracy of, and compliance with, certain representations, assumptions and covenants, for U.S. federal income tax purposes, the distribution and certain related transactions will qualify for non-recognition of gain or loss to Pentair and its shareholders pursuant to Section 355 and related provisions of the Code, except to the extent of cash received in lieu of fractional shares;

 

    the internal restructuring transactions and the transfer of assets and liabilities to nVent contemplated by the separation and distribution agreement to be completed prior to the distribution shall have been completed;

 

    the debt financing contemplated to be obtained in connection with the separation, as described in the separation and distribution agreement, having been obtained;

 

    the transaction agreements relating to the separation shall have been duly executed and delivered by the parties;

 

    no order, injunction or decree issued by any governmental authority or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the related transactions being in effect;

 

    any actions and filings necessary or appropriate under applicable U.S. federal, U.S. state or other securities laws shall have been taken or made, and, where applicable, have become effective or been accepted by the applicable governmental authority;

 

    any governmental approvals necessary to consummate the separation, the distribution and related transactions will have been obtained and be in full force and effect;

 

    the separation and distribution shall not violate or result in a breach of applicable law or any material contract of Pentair or nVent or any of their respective subsidiaries;

 

    the approval for listing on the NYSE of nVent ordinary shares to be delivered to the Pentair shareholders in the distribution having been obtained, subject to official notice of issuance;

 

    the SEC declaring effective the registration statement of which this information statement forms a part, with no order suspending the effectiveness of the registration statement in effect and no proceedings for such purposes pending before or threatened by the SEC;

 

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    the mailing (or delivery by electronic means) of this information statement to the holders of Pentair ordinary shares as of the record date for the distribution; and

 

    no other event or development existing or having occurred that, in the judgment of Pentair’s board of directors, in its sole discretion, makes it inadvisable to effect the separation, the distribution and other related transactions.

Pentair will have the sole and absolute discretion to determine (and change) the terms of, and whether to proceed with, the distribution and, to the extent it determines to so proceed, to determine the record date, the distribution date and the distribution ratio. Pentair does not intend to notify its shareholders of any modifications to the terms of the separation that, in the judgment of its board of directors, are not material. For example, the Pentair board of directors might consider material such matters as significant changes to the distribution ratio, the assets to be contributed or the liabilities to be assumed in the separation. To the extent that the Pentair board of directors determines that any modifications by Pentair materially change the material terms of the distribution, Pentair will notify Pentair shareholders in a manner reasonably calculated to inform them about the modification as may be required by law, by, for example, publishing a press release, filing a Current Report on Form 8-K or circulating a supplement to this information statement.

 

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DIVIDENDS

Dividend Policy

Following the distribution, we expect to pay a regular cash dividend. Subject to us having sufficient “distributable reserves”, the timing, declaration, amount of and payment of any dividends following the separation are within the discretion of our board of directors and will depend upon many factors, including our financial condition, earnings, sufficiency of distributable reserves, capital requirements of our operating subsidiaries, debt service obligations, covenants associated with certain of our debt service obligations, legal requirements, regulatory constraints, ability to gain access to capital markets and other factors deemed relevant by our board of directors. Moreover, if we determine to pay any dividend in the future, there can be no assurance that we will continue to pay such dividends or the amount of such dividends.

Creation of Distributable Reserves

Under Irish law, dividends and distributions (including by way of the payment of cash dividends or share repurchases) may be made only from “distributable reserves” on our unconsolidated balance sheet prepared in accordance with the Irish Companies Act. In addition, no distribution or dividend may be paid or made by us unless our net assets are equal to, or exceed, the aggregate of our share capital that has been paid up or that is payable in the future plus non-distributable reserves, and the distribution does not reduce our net assets below such aggregate. For more information regarding distributable reserves, see “Description of nVent’s Share Capital—Dividends” and “Description of nVent’s Share Capital—Share Repurchases, Redemptions and Conversions.”

Immediately following the separation and the distribution, our unconsolidated balance sheet will not contain any distributable reserves and we will capitalize the merger reserve which will be created as a result of the distribution. At that time, our unconsolidated balance sheet will show “shareholders’ equity” which will be comprised entirely of “share capital” (equal to the aggregate par value of nVent ordinary shares issued in the distribution) and “share premium” (equal to (a) the aggregate value of Pentair’s nVent business at the time of its transfer to nVent less (b) the share capital). We therefore will not have the ability to pay dividends (or make other forms of distributions) immediately following the distribution until we obtain the court approval described below or create distributable reserves as a result of the profitable operation of our business.

Following the separation and distribution, we expect to capitalize the reserves created pursuant to the internal restructuring transactions related to the distribution and implement a court-approved reduction of that capital in order to create a reserve of an equivalent amount of distributable reserves to support the payment of possible future dividends or future share repurchases. The current nominee shareholder of nVent is expected to pass a resolution that would (subject to the approval of the High Court of Ireland) create distributable reserves following the distribution by converting to distributable reserves up to all of our share premium. To complete this process, we will seek the approval of the High Court of Ireland, which is required for the creation of distributable reserves to be effective, as soon as practicable following the distribution. The approval of the High Court of Ireland is expected to be obtained within approximately two months of the consummation of the distribution, but is dependent on a number of factors, such as the case load of the High Court of Ireland at the time of our initial application, and court vacations.

Until the approval of the High Court of Ireland is obtained or distributable reserves are created as a result of the profitable operation of our business, we will not have sufficient distributable reserves to make distributions by way of dividends, share repurchases or otherwise. Although we are not aware of any reason why the High Court of Ireland would not approve the creation of distributable reserves, there is no guarantee that we will obtain such approval.

 

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CAPITALIZATION

The following table presents our unaudited cash and capitalization as of December 31, 2017 on a historical basis, and on a pro forma basis to give effect to the separation as if it occurred on December 31, 2017. You can find an explanation of the pro forma adjustments, including our financing transaction, made to the historical combined financial statements under “Unaudited Pro Forma Combined Financial Statements.” The capitalization table below should be read together with “Selected Historical Combined Financial Data,” “Unaudited Pro Forma Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our combined financial statements and accompanying notes included in the “Index to Financial Statements” section of this information statement.

We are providing the capitalization table below for informational purposes only. The capitalization table below may not reflect the capitalization or financial condition that would have resulted had we been operated as a stand-alone public company at that date and is not necessarily indicative of our future capitalization or financial condition.

 

 

     As of December 31, 2017  

In millions

   Historical      Pro forma,
as adjusted
(unaudited)
 

Cash and cash equivalents(1)

   $ 26.9      $ 50.0  
  

 

 

    

 

 

 

Debt:

     

Short-term borrowings and current maturities of long-term debt

     —          —    

Revolving credit facility(2)

     —          —    

Term loan facility(2)

     —          199.2  

Senior notes(3)

     —          792.3  
  

 

 

    

 

 

 

Total debt(4)

     —          991.5  
  

 

 

    

 

 

 

Equity:

     

Ordinary shares, $.01 par value

     —          1.8  

Additional paid-in capital

     —          2,880.2  

Net Parent investment

     3,848.4        —    

Accumulated other comprehensive loss

     (57.1      (57.1
  

 

 

    

 

 

 

Total equity

   $ 3,791.3      $ 2,824.9  
  

 

 

    

 

 

 

Total capitalization

   $ 3,791.3      $ 3,816.4  
  

 

 

    

 

 

 
(1) In connection with the separation, we will transfer to Pentair all cash in excess of $50.0 million of nVent and its subsidiaries, including cash from the net proceeds from the incurrence of the debt described in notes (2) and (3) below, and thus have $50.0 million in cash and cash equivalents as reflected on our Unaudited Pro Forma Combined Balance Sheet.
(2) On March 23, 2018, nVent Finance entered into a credit agreement providing for a five-year $200.0 million senior unsecured term loan facility, net of approximately $0.8 million in estimated financing costs, which we expect will be drawn upon prior to the completion of the separation, and a five-year $600.0 million senior unsecured revolving credit facility, which we expect will be undrawn upon completion of the separation. See “Description of Material Indebtedness.”
(3) On March 26, 2018, nVent Finance issued $800.0 million of senior unsecured notes, consisting of $300.0 million of 3.950% senior notes due 2023 and $500.0 million of 4.550% senior notes due 2028. The amount reflects proceeds from the issuance, net of approximately $7.7 million in estimated financing costs and original issue discounts. See “Description of Material Indebtedness.”
(4) Prior to the separation and distribution, we expect to incur indebtedness in the amount of $1.0 billion ($991.5 million, net of estimated financing costs and original issue discounts of approximately $8.5 million).

 

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SELECTED HISTORICAL COMBINED FINANCIAL DATA

The following table presents the selected historical combined financial data for nVent for the periods indicated below. The combined statement of income data for each of the years ended December 31, 2017, 2016 and 2015, and the combined balance sheet data as of December 31, 2017 and 2016 set forth below are derived from our audited combined financial statements included in the “Index to Financial Statements” section of this information statement. The combined statement of income data for each of the years ended December 31, 2014 and 2013 and the combined balance sheet data as of December 31, 2015, 2014 and 2013 are derived from our unaudited combined financial statements that are not included in this information statement. The unaudited combined financial statements have been prepared on the same basis as the audited combined financial statements and in the opinion of our management, include all adjustments necessary for a fair presentation of the information set forth herein.

Our historical combined financial statements include certain expenses of Pentair that were allocated to nVent for certain support functions that are provided on a centralized basis, such as executive management, finance, audit, legal, information technology, human resources, communications, facilities and employee benefits and compensation. These costs may not be representative of the future costs we will incur as an independent, publicly-traded company. In addition, our historical financial information does not reflect changes that we expect to experience in the future as a result of the separation, including changes in the financing, operations, cost structure and personnel needs of our business. Consequently, the financial data included herein may not be indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we been operating as a stand-alone public company during the periods presented, including changes that will occur in our operations and capitalization as a result of the separation. See “Unaudited Pro Forma Combined Financial Statements” for a further description of the anticipated changes.

The selected historical combined financial data presented below should be read in conjunction with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our combined financial statements and accompanying notes included in the “Index to Financial Statements” section of this information statement.

 

     Years ended December 31  

In millions

   2017      2016      2015      2014      2013  

Combined statements of income data

              

Net sales

   $ 2,097.9      $ 2,116.0      $ 1,809.3      $ 1,728.0      $ 1,663.5  

Income before income taxes

     313.3        315.0        265.9        277.3        258.9  

Net income

     361.7        259.1        210.1        212.2        185.5  

Pro forma earnings per ordinary share (1)

              

Basic

   $ 1.99      $ 1.43      $ 1.16      $ 1.17      $ 1.02  

Diluted

   $ 1.97      $ 1.41      $ 1.14      $ 1.16      $ 1.01  

Weighted average ordinary shares outstanding

              

Basic (2)

     181.7        181.7        181.7        181.7        181.7  

Diluted (3)

     183.7        183.7        183.7        183.7        183.7  

 

(1) Pro forma earnings per ordinary share is computed using net income and the basic and diluted weighted average ordinary shares outstanding described in (2) and (3) below. Net income reflected in the table above used to compute pro forma earnings per ordinary share for each respective period does not include pro forma adjustments reflected in the “Unaudited Pro Forma Combined Financial Statements”.
(2) The number of nVent ordinary shares used to compute basic and diluted earnings per share is based on the number of nVent ordinary shares assumed to be outstanding on the record date, based on the number of ordinary shares of Pentair outstanding on December 31, 2017, the most recent date for which information is available, assuming a distribution ratio of one ordinary share of nVent for each Pentair ordinary share outstanding as of the close of business on the record date.

 

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(3) The number of shares used to compute diluted earnings per share is based on the number of nVent ordinary shares, as described in (2) above, plus the additional number of shares that would be issued upon exercise of all dilutive outstanding options and vesting of outstanding restricted stock awards.

 

     As of December 31  

In millions

   2017      2016      2015      2014      2013  

Combined balance sheets data

              

Total assets

   $ 4,725.0      $ 4,493.8      $ 4,564.4      $ 2,205.9      $ 2,124.4  

Total equity

     3,791.3        3,485.7        3,506.7        1,605.4        1,590.8  

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma combined financial statements are derived from the historical combined financial statements of nVent prepared in accordance with accounting principles generally accepted in the U.S., which are included in the “Index to Financial Statements” section of this information statement.

The unaudited pro forma combined statements of income for the year ended December 31, 2017 give effect to the separation as if it had occurred on January 1, 2017, the first day of fiscal year 2017. The unaudited pro forma combined balance sheet as of December 31, 2017 gives effect to the separation as if it had occurred on December 31, 2017. These unaudited pro forma combined financial statements include adjustments that give effect to events that are (i) directly attributable to the separation and related transaction agreements, (ii) factually supportable and (iii) with respect to the statement of operations, expected to have a continuing impact on nVent, such as:

 

    the expected incurrence of $1.0 billion of long-term indebtedness as described in the accompanying notes;

 

    a transfer to Pentair of all cash in excess of $50.0 million of nVent and its subsidiaries, including cash from the net proceeds from the incurrence of long-term indebtedness described above; and

 

    the issuance of approximately 181.7 million of our $0.01 par value ordinary shares.

The combined financial statements of nVent include general corporate expenses of Pentair that were not historically charged to nVent for certain support functions that are provided on a centralized basis, such as expenses related to executive management, finance, audit, legal, information technology, human resources, communications, facilities and employee benefits and compensation. These general corporate expenses are included in the Combined Statements of Income within Selling, general and administrative expenses. The amount allocated was $65.7 million for the year ended December 31, 2017, of which $31.0 million was historically recorded to the Electrical segment in Pentair’s consolidated financial statements. These expenses have been allocated to nVent on the basis of direct usage when identifiable, with the remainder allocated based on a proportional basis of net sales, headcount or other measures.

Management believes that such allocations for these support functions are reasonable; however, they may not be indicative of the financial position, results of operations and cash flows that would have been achieved had we operated as an independent, publicly-traded company for the periods presented. Effective as of the separation, we will assume responsibility for all of these functions and related costs. nVent will incur incremental costs as an independent, publicly-traded company, including costs to replace services previously provided by Pentair as well as other stand-alone costs. Due to the scope and complexity of these activities, the amount and timing of these incremental costs could vary and, therefore, are not included within the unaudited pro forma combined financial statements.

The assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma combined financial statements. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information, and we believe such assumptions are reasonable under the circumstances.

The unaudited pro forma combined financial statements have been presented for informational purposes only. The statements are not necessarily indicative of our results of operations or financial condition had the separation been completed on the dates assumed. Also, they may not reflect the results of operations or financial condition which would have resulted had we been operating as an independent, publicly-traded company during such periods. In addition, they are not necessarily indicative of our future results of operations or financial condition.

The following unaudited pro forma combined financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our combined financial statements and accompanying notes included in the “Index to Financial Statements” section of this information statement.

 

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nVent

Unaudited Pro Forma Combined Income Statement

Year Ended December 31, 2017

 

In millions

   Historical     Pro forma
adjustments
    Pro forma  

Net sales

   $ 2,097.9     $ —       $ 2,097.9  

Cost of goods sold

     1,256.0       —         1,256.0  
  

 

 

   

 

 

   

 

 

 

Gross profit

     841.9       —         841.9  

Selling, general and administrative

     485.9       (16.1 )(a)      469.8  

Research and development

     42.5       —         42.5  
  

 

 

   

 

 

   

 

 

 

Operating income

     313.5       16.1       329.6  

Interest expense

     0.2       44.7 (b)      44.9  
  

 

 

   

 

 

   

 

 

 

Income before income taxes

     313.3       (28.6     284.7  

Provision (benefit) for income taxes

     (48.4     1.8 (c)      (46.6
  

 

 

   

 

 

   

 

 

 

Net income

   $ 361.7     $ (30.4   $ 331.3  
  

 

 

   

 

 

   

 

 

 

Pro forma earnings per ordinary share

      

Basic

       (d   $ 1.82  

Diluted

       (e   $ 1.80  
    

 

 

   

 

 

 

Weighted average ordinary shares outstanding

      

Basic

       (d     181.7  

Diluted

       (e     183.7  
    

 

 

   

 

 

 

See accompanying notes to unaudited pro forma combined financial statements.

 

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nVent

Unaudited Pro Forma Combined Balance Sheet

December 31, 2017

 

In millions

   Historical     Pro forma
adjustments
        Pro forma  

Assets

 

Current assets

        

Cash and cash equivalents

   $ 26.9     $ 23.1     (f)   $ 50.0  

Accounts and notes receivable, net

     349.3       —           349.3  

Inventories

     224.1       —           224.1  

Other current assets

     132.3       —           132.3  
  

 

 

   

 

 

     

 

 

 

Total current assets

     732.6       23.1         755.7  

Property, plant and equipment, net

     265.8       —           265.8  

Other assets

        

Goodwill

     2,238.2       —           2,238.2  

Intangibles, net

     1,236.6       —           1,236.6  

Other non-current assets

     251.8       2.0     (i)     253.8  
  

 

 

   

 

 

     

 

 

 

Total other assets

     3,726.6       2.0         3,728.6  
  

 

 

   

 

 

     

 

 

 

Total assets

   $ 4,725.0     $ 25.1       $ 4,750.1  
  

 

 

   

 

 

     

 

 

 

Liabilities and Equity

 

Current liabilities

        

Current maturities of long-term debt and short-term borrowings

   $ —       $ —         $ —    

Accounts payable

     174.1       —           174.1  

Employee compensation and benefits

     75.5       —           75.5  

Other current liabilities

     141.3       —           141.3  
  

 

 

   

 

 

     

 

 

 

Total current liabilities

     390.9       —           390.9  

Other liabilities

        

Long-term debt

     —         991.5     (g)     991.5  

Pension and other post-retirement compensation and benefits

     176.7       —           176.7  

Deferred tax liabilities

     279.4       —           279.4  

Other non-current liabilities

     86.7       —           86.7  
  

 

 

   

 

 

     

 

 

 

Total liabilities

     933.7       991.5         1,925.2  

Equity

        

Ordinary shares, $.01 par value

     —         1.8     (h)     1.8  

Additional paid-in capital

     —         2,880.2     (f) (h)     2,880.2  

Net Parent investment

     3,848.4       (3,848.4   (h)     —    

Accumulated other comprehensive loss

     (57.1     —           (57.1
  

 

 

   

 

 

     

 

 

 

Total equity

     3,791.3       (966.4       2,824.9  
  

 

 

   

 

 

     

 

 

 

Total liabilities and equity

   $ 4,725.0     $ 25.1       $ 4,750.1  
  

 

 

   

 

 

     

 

 

 

See accompanying notes to unaudited pro forma combined financial statements.

 

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nVent

Notes to Unaudited Pro Forma Combined Financial Statements

(in millions, except per share data)

(a) Reflects the removal of non-recurring separation costs directly related to the separation that were incurred during the historical year ended December 31, 2017 that will not have a continuing impact. These costs were primarily for legal, tax, accounting and other professional fees.

(b) Represents interest expense, and amortization of debt issuance costs and amortization of original issue discounts related to approximately $1.0 billion of long-term indebtedness that we have incurred or expect to incur as described in (g). We expect the weighted-average interest rate on the debt to be approximately 4.5 percent. Interest expense was calculated assuming constant debt levels throughout the periods. Interest expense may be higher or lower if our actual interest rate or credit ratings change. A 1/8 percent change to the annual interest rate would change interest expense by approximately $1.3 million on an annual basis.

(c) Reflects the tax effects of the pro forma adjustments at the applicable statutory income tax rates in the respective jurisdictions. The effective tax rate of nVent could be different (either higher or lower) depending on activities subsequent to the separation.

(d) The number of nVent ordinary shares used to compute basic earnings per share is based on the number of nVent ordinary shares assumed to be outstanding on the record date, based on the number of ordinary shares of Pentair outstanding on December 31, 2017, the most recent date for which information is available, assuming a distribution ratio of one ordinary share of nVent for each Pentair ordinary share outstanding as of the close of business on the record date.

(e) The number of shares used to compute diluted earnings per share is based on the number of nVent ordinary shares, as described in (d) above, plus the additional number of shares that would be issued upon the exercise of all dilutive outstanding options and vesting of outstanding restricted stock awards.

(f) Reflects a $966.4 million cash transfer to Pentair prior to the separation based on the assumed net proceeds of the long-term indebtedness described in (g) below and nVent’s retention of $50.0 million of cash.

(g) Reflects the anticipated incurrence of $1.0 billion of long-term indebtedness, net of estimated debt issuance costs and original issue discounts of approximately $7.1 million and $1.4 million, respectively. The long-term indebtedness consists of $800.0 million of senior unsecured notes issued by nVent Finance, at a weighted average estimated fixed interest rate of 4.5 percent, and a $200.0 million senior unsecured term loan of nVent Finance, which we expect will be drawn upon prior to the separation, at a weighted average estimated interest rate of 3.7 percent.

(h) Reflects the pro forma recapitalization of our equity. As of the distribution date, Pentair’s net investment in our business will be exchanged to reflect the distribution of our ordinary shares to Pentair’s shareholders. Pentair’s shareholders will receive shares based on an expected distribution ratio of one ordinary share of nVent for each Pentair ordinary share outstanding as of the close of business on the record date. The pro forma recapitalization would be as follows:

 

In millions

   December 31,
2017
 

Reclassification of Parent’s net investment

   $ 3,848.4  

Cash distribution described in (f)

     (966.4
  

 

 

 

Total Parent net investment/shareholders’ equity

     2,882.0  

nVent ordinary shares described in (d)

     1.8  
  

 

 

 

Total capital in excess of par

     2,880.2  
  

 

 

 

(i) Reflects debt issuance costs of $2.0 million expected to be incurred and capitalized with respect to the five-year $600.0 million senior unsecured revolving credit facility, which we expect will be undrawn upon completion of the separation.

 

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BUSINESS

The Company

nVent is a leading global provider of electrical connection and protection solutions. We believe our inventive electrical solutions enable safer systems and ensure a more secure world. We design, manufacture, market, install, and service high performance products and solutions that connect and protect some of the world’s most sensitive equipment, buildings, and critical processes. We offer a comprehensive range of enclosures, electrical connections and fastening, and thermal management solutions across industry-leading brands that are recognized globally for quality, reliability, and innovation. Our principal office is in London, United Kingdom and our management office in the United States is in Minneapolis, Minnesota. We were incorporated under the laws of Ireland on May 30, 2017.

Our broad range of products and solutions connect and protect our customers’ mission-critical equipment from hazardous conditions, improving their utilization, lowering costs, and minimizing downtime. The cost of our products typically represents a small proportion of the total cost of our customers’ end systems as well as the potential cost of failure that our products help avoid. We have a portfolio of premier, industry-leading brands, including Caddy, Erico, Hoffman, Raychem, Schroff, and Tracer, some of which have a history spanning over 100 years, that cover a wide range of verticals, including Industrial, Commercial & Residential, Energy, and Infrastructure.

Our roots within Pentair trace back to the acquisition of Federal-Hoffman Corporation in 1988, which included the Hoffman enclosures brand. From that starting point we have grown both organically and via acquisition. Our Enclosures business first applied lean principles within the organization in the 1990s, leveraging its culture of customer service and operational excellence. In 2012, Pentair merged with Tyco International Ltd.’s Flow Control division, which included our Thermal Management business and the Raychem brand, a global leader in heat tracing solutions. In 2015, Pentair acquired ERICO Global Company, a leading global manufacturer of superior engineered electrical and fastening products, which operates as our Electrical & Fastening Solutions business, broadening our product offering and enabling us to provide additional global solutions to our combined customers.

We aim to continue our journey as “One nVent” organization, with unified focus on commercial excellence, digital transformation, scaled and integrated technology, including Internet of Things (“IoT”), and global presence and capabilities. As we scale our capabilities under our umbrella brand of nVent, we expect to expand our products and solutions and continue to differentiate our company by creating solutions that solve problems for our customers.

Our strategy and culture is grounded in the values and purpose of Pentair. From Pentair Integrated Management System (“PIMS”), we have derived a set of lean growth and talent management processes, designed to improve business performance, evaluate growth opportunities, and develop and retain employees. Through consistent application of these processes, we have been able to foster a culture of innovation, retain focus on the customer, and profitably grow our business. We will continue to use and improve these processes as an independent company to continue to drive sustained and profitable growth.

 

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We estimate that the size of the global industries we serve was $60 billion in 2017 revenue. Those industries are highly fragmented, which provides us with attractive opportunities to execute our growth strategies.

 

nVent 2017 Sales Breakdown—$2.1 billion

By Segment

 

By Geography

 

By Vertical

LOGO   LOGO   LOGO

We are a global business operating across a diverse range of industries. We support our customers with a workforce of 8,600 employees around the world. We operate domestically and internationally with over 50 sales offices and over 30 manufacturing and distribution centers across North America, Europe, Asia, Australia, and South America. We leverage our global workforce and footprint to respond to our customers’ requirements for consistent, high quality and innovative solutions.

We sell our products both through distributors and direct to customer channels. We have a diverse distribution network with over 8,000 channel partners, ranging from electrical distributors to maintenance contractors. Our Electrical & Fastening Solutions, Enclosures—Hoffman brand and Thermal Management—Commercial and Infrastructure products are principally sold through distributors. In addition, our Thermal Management—Industrial and Enclosures—Schroff brand products are primarily sold direct to customers, ranging from leading blue-chip companies to independent sub-contractors. We have long lasting relationships with our distributors and customers.

 

LOGO

We operate across three segments: Enclosures, Thermal Management, and Electrical & Fastening Solutions, which contributed 44 percent, 30 percent, and 26 percent to our sales in 2017, respectively.

 

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Enclosures: Enclosures provides innovative solutions that protect, connect, and manage heat in critical electronics, communication, control, and power equipment. From metallic and non-metallic enclosures to cabinets, subracks, and backplanes, it offers the physical infrastructure to host, connect, and protect server and network equipment, as well as indoor and outdoor protection for broadband voice, data, and video surveillance applications in Industrial, Infrastructure, Commercial, and Energy verticals. In 2017, Enclosures had sales of $0.93 billion.

Thermal Management: Thermal Management provides electric thermal solutions that connect and protect critical buildings, infrastructure, industrial processes, and people. Its thermal management systems include heat tracing, floor heating, fire-rated and specialty wiring, sensing, and snow melting and de-icing solutions for use in Energy, Industrial, Commercial & Residential, and Infrastructure verticals. Its highly reliable and easy to install solutions lower total cost of ownership to building owners, facility managers, operators, and end users. In 2017, Thermal Management had sales of $0.62 billion.

Electrical & Fastening Solutions: Electrical & Fastening Solutions provides fastening solutions that connect and protect electrical and mechanical systems and civil structures. Its engineered electrical and fastening products are used across a wide range of verticals, including Commercial, Industrial, Infrastructure, and Energy. In 2017, Electrical & Fastening Solutions had sales of $0.54 billion.

Competitive Strengths

We believe we differentiate ourselves through the following competitive strengths, including:

Leading Provider of Inventive Solutions that Connect and Protect Sensitive Equipment and Maximize Customer Efficiency

We are a leading global provider of inventive solutions that connect and protect our customers’ mission-critical processes and equipment. We believe our comprehensive product offering, ability to customize solutions to unique customer requirements, and track record of superior quality, performance, and reliability positions us as a “go-to” electrical and thermal connection and protection solutions provider. Our products are critical components of our customers’ systems and relied upon to perform in challenging environments where cost of failure is high and our product cost is low. Furthermore, we enhance efficiency of our customers’ processes by improving utilization, lowering installation and maintenance costs, and minimizing downtime through industry-leading product performance.

Strong Industry Positions, Global Footprint and Leading Brands

We benefit from leading industry positions across our Enclosures, Thermal Management, and Electrical & Fastening Solutions segments. Our leadership positions are supported by the breadth of our global footprint, with product development, manufacturing, and distribution capabilities that enable us to meet local market requirements. Our global reach has facilitated entry into new markets and provides the infrastructure and experience to accelerate growth internationally.

We have a portfolio of premier brands, including Caddy, Erico, Hoffman, Raychem, Schroff, and Tracer, with long-standing reputations for innovation, quality, and reliability. We are a leading innovator in many of the spaces in which we operate. We developed the first self-regulating heating cable for industrial use, which automatically adjusts power output to compensate for temperature changes. We also developed the Hoffman Watershed, which was the first fit-for-purpose enclosure for the food & beverage industry to protect critical equipment in heavy wash-down applications.

Diversified Across Products, Verticals, Brands, Channels, and Customers

We offer a diverse range of electrical connection and protection products with sales distributed across a broad range of verticals, brands, channels, and customers. We offer several product lines including communications &

 

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electronics protection, controls & electrical protection, industrial heat tracing, and thermal building solutions that are sold across the Industrial, Commercial & Residential, Energy and Infrastructure verticals.

Attractive Margins and Strong Cash Flow Generation

We benefit from industry-leading margins and a track record of strong cash flow generation. Over the past three years, our combined segment income margins have consistently been over 19 percent, maintained through our culture of operational efficiency and our global footprint. We have consistently generated strong cash flow from operations and free cash flow. Implementation of our lean, growth, and talent management processes across our organization helps to ensure we are continually improving and building sustainable performance and helps us maintain a culture of operational excellence and continuous improvement.

Experienced Management Team with a Proven Track Record of Integrating Acquisitions

We are led by a senior management team with an average of over 20 years of industry experience with Pentair and other leading industrial companies. We benefit from our team’s industry knowledge and track record of successful product innovation and financial performance. Additionally, our senior management team has extensive experience executing and integrating bolt-on and transformational acquisitions. Our team was instrumental in the successful integration of Erico and delivery on cost synergy targets within the envisaged time frame.

Growth Strategies

Pursue Continued Growth Transformation and Business Optimization Through “One nVent” Organization

We stand to benefit from our continued evolution and integration as “One nVent” organization and organic growth focused transformation. Through adopting a customer-led orientation and an enhanced digital strategy across our segments and brands, we aim to achieve commercial excellence and improve customer experience by making it easier and faster for customers to search, select, price and quote our products. We believe a unified approach to our customers will enhance our lead generation capabilities, enable cross-selling opportunities for our sales force, and increase our share of customers’ wallets. We expect further integration across nVent and aim to accelerate our product innovation as we encourage technology sharing across our business.

Capitalize on Identified Organic Growth Opportunities

We have identified several high-potential sectors where we see opportunities to deliver the breadth of our company-wide capabilities to drive continued organic growth. In Commercial, we seek to become our customers’ global connection and protection partner with solutions that are easy to install, deliver productivity and ensure safety and reliability. In Infrastructure, we aim to provide a unified go to market approach with solutions that optimize efficiency through innovation and customer service, with connection and protection solutions. In Industrial, we aim to innovate and create differentiation with specified products for our end-users that enhance reliability and reduce the maintenance costs of our products.

Product Innovation to Leverage Attractive Global Secular Trends

We plan to continue to invest in the development of innovative products and solutions that take advantage of key secular trends, including rising safety standards, the IoT, building automation, and increasing efficiency and regulatory requirements. Rising safety standards globally, including in fire protection and seismic standards, call for innovative solutions that enable our customers to meet those standards in a cost-efficient manner. For example, we recently launched the world’s first low-smoke, zero-halogen fire-rated wiring that meets enhanced fire protection standards while reducing space requirements and total project cost.

 

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The growth in smart products and connected solutions requires an ever increasing number of enclosures designed to exact specifications and high tolerances. For example, we offer a smart and scalable cooling solution for data centers that reduces energy consumption and results in substantial cost savings for customers. We expect to increase product differentiation and average selling prices in all of our segments through building automated and connected devices.

Grow Globally in Europe and Developing Regions

We aim to grow our global presence both in Europe and through selective investments in developing regions. In Europe, we are targeting expansion of product categories and brands that have strong positions in North America but remain underpenetrated in Europe. We plan to expand our regional team, enhance channel coverage including expanding our digital platform, and differentiate our products and solutions by focusing on product flexibility and technical expertise. For example, to meet heightened fire resistance standards in Germany, we developed a fire-rated, metal pressure clip that meets standards, prevents cable damage and allows for easy installation in tight spaces.

In developing regions, we plan to enhance our existing local capabilities and focus on creating localized products and solutions to better serve our customers. For example, we believe significant infrastructure development initiatives in Asia present substantial opportunities for us to expand across our segments. We aim to invest across our supply chain and position our product roadmap around key growth verticals in these regions to capitalize on growth opportunities.

Accelerate Growth Through Targeted Bolt-on Acquisitions

Our company is built on a history of successful strategic acquisitions that evidence our integration capabilities. We believe we have developed a strong pipeline of compelling acquisition candidates that complement existing products, expand geographic reach, and enhance our technical expertise and capabilities. We believe our industry standing, culture of operational excellence, and M&A integration experience position us well to continue to pursue disciplined strategic acquisitions.

Reportable Segments

Enclosures

Our Enclosures business provides innovative solutions to connect and protect critical electronics, communication, control, and power equipment. We are a leader in the enclosures sector, and our key brands, Hoffman and Schroff, have a long history of solving customers’ problems by providing high quality solutions. In 2017, the approximate breakdown of sales by geography was 66 percent in the United States and 34 percent throughout the rest of the world.

Hoffman provides enclosure solutions for challenging operating environments and is one of the largest brands of enclosures in North America and a leader globally. The offerings connect and protect critical control and power equipment through a comprehensive range of solutions used by panel builders, OEMs and directly by other end-users, including customized products for hazardous environments. The Hoffman brand is over 70 years old and is recognized for delivering superior building, testing, certification and overall product quality. Hoffman’s product customization and global footprint, along with reputation, have helped it garner long-standing relationships with many of the world’s largest industrial companies.

Schroff provides highly-customized and technologically-advanced enclosures and is one of our largest brands of enclosures in Europe. These products connect and protect mission-critical electronics and communications equipment by providing a wide range of innovative standard products and customized solutions. Schroff’s innovation is demonstrated by its constant flow of new product designs, including a focus on smart products

 

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capable of providing connectivity and remote management. The Schroff brand is a leader in ease of doing business due to its product flexibility and customer-first focus—approximately one-half of all Schroff products are customized.

Thermal Management

Our Thermal Management business provides electric thermal solutions that connect and protect critical buildings, infrastructure, industrial processes, and people. Its highly reliable and easy to install solutions lower total cost of ownership to building owners, facility managers, operators, and end users. Thermal Management’s products have been installed in some of the world’s most iconic buildings, including the Shard in London, Eiffel Tower in Paris, and Burj Khalifa in the UAE. In 2017, the approximate breakdown of sales by geography was 40 percent in the United States and 60 percent throughout the rest of the world.

For Industrial and Energy, we provide industrial heat-tracing and wiring, control and monitoring, sensing, engineering, and construction services under industry leading Raychem and Tracer brands, primarily serving the oil & gas and power industries. Products and solutions include heat tracing for freeze protection and process temperature maintenance, temperature control and monitoring systems, heat-traced tubing bundles, instrument winterization, and tank heating systems. For Commercial and Infrastructure, we provide products and services primarily under our Raychem brand. Applications include pipe freeze protection, roof and gutter de-icing, surface snow melting, hot water temperature maintenance, floor heating, and freeze and frost prevention for hospitals, sports venues, hotels, commercial offices, and education facilities.

Electrical & Fastening Solutions

Our Electrical & Fastening Solutions business provides fastening solutions that connect and protect electrical and mechanical systems and civil structures. Our Caddy fastening solutions reduce total cost of ownership, provide design flexibility, and increase structural integrity by providing innovative products through global end-user application expertise and intimacy. In 2017, the approximate breakdown of sales by geography was 66 percent in the United States and 34 percent throughout the rest of the world.

We are a global leader in fastening solutions with spring steel and specialty metal fixings and reinforced steel connections, and its products are primarily marketed under the Caddy brand. Fastening’s products reduce total installed cost, provide design flexibility and increase structural integrity in electrical and mechanical fastening applications through inventive products and solutions and customer intimacy. Fastening’s products are targeted towards Commercial and Industrial verticals with applications in fire & seismic, data & telecommunications, and heating, ventilation & air conditioning. Fastening’s products are primarily used by electricians, telecommunications installers, and roof top contractors.

We are also a global leader in bonding, grounding, lightning protection, and low voltage power distribution products and solutions. These products are primarily marketed under the Erico brand. We offer a comprehensive range of facility electrical connection and protection solutions to protect against electrical transients to improve safety and reliability of electrical systems. Our products reduce total cost of ownership and provide design flexibility by offering maintenance free and reliable products and global end-user application expertise and intimacy. These products and solutions are primarily used by electricians, panel builders, energy contractors, and lightning protection installers.

Competition

We believe that we are a global leader in each of our segments. Given the range of products and services we offer, we encounter a wide variety of competitors, including large, global competitors, established regional competitors, and niche competitors in select regions. We face increased competition in a number of our verticals as a result of new local competitors who compete on price and increased consolidation in specific segments. The

 

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Enclosures segment faces significant competition in the verticals it serves, particularly within the communications industry, where product design, prototyping, global supply, price competition, and customer service are significant factors. The Thermal Management segment serves industries and verticals that are highly fragmented, and competes with local and niche suppliers. The Electrical & Fastening Solutions segment serves industries and verticals that are relatively fragmented, with a small number of large competitors and a large number of smaller competitors. Competition for our Thermal Management and Electrical & Fastening Solutions segments focuses on product performance, quality, service and price.

Our success depends on a variety of factors, including technical expertise, reputation for quality and reliability, timeliness of delivery, previous installation history, contractual terms, and price. As many of our products sell through electrical distributors, data center contractors, original equipment manufacturers, greenfield development contractors and maintenance contractors, our success also depends on building and partnering with a strong channel and distribution network.

Seasonality

We generally experience increased demand for Thermal Management products and services during the fall and winter months in the Northern Hemisphere and increased demand for Electrical & Fastening Solutions products during the spring and summer months in the Northern Hemisphere.

Backlog of Orders by Segment

 

     December 31  

Dollars in millions

   2017      2016      $ Change      % Change  

Enclosures

   $ 132.4      $ 98.3      $ 34.1        34.6

Thermal Management

     123.4        153.9        (30.5      (19.8

Electrical & Fastening Solutions

     24.6        14.1        10.5        74.5  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 280.4      $ 266.3      $ 14.1        5.3
  

 

 

    

 

 

    

 

 

    

 

 

 

A substantial portion of our revenues result from orders received and product delivered in the same month. Our backlog typically has a short manufacturing cycle and products generally ship within 90 days of the date on which a customer places an order. However, a portion of our backlog, particularly from orders for major capital projects, can take more than one year depending on the size and type of order. We record as part of our backlog all orders from external customers, which represent firm commitments, and are supported by a purchase order or other legitimate contract. We expect the majority of our backlog at December 31, 2017 will be shipped in 2018. Despite the favorable long-term outlook for our end-markets, we experience volatility in the level of our backlog depending on the end-market and may continue to do so over the medium and longer term.

Segment and Geographic Information

Reporting segment and geographical financial information is contained in Note 12 of the notes to our combined financial statements included in the “Index to Financial Statements” section of this information statement.

Research and Development

We conduct research and development activities primarily in our own facilities. These efforts consist primarily of the development of new products, product applications and manufacturing processes. Research and development expenditures during 2017 and 2016 were $42.5 million and $40.6 million, respectively.

Raw Materials

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

 

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

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

Intellectual Property

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

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

Environmental

We have been named as defendant, target or a PRP in a number of environmental clean-ups relating to our current or former business units. We may be named as a PRP at other sites in the future for existing business units, as well as both divested and acquired businesses. In addition to clean-up actions brought by governmental authorities, private parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances.

Certain environmental laws impose liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances at their properties or at properties at which they have disposed of hazardous substances.

Our accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. It can be difficult to estimate reliably the final costs of investigation and remediation due to various factors. In our opinion, the amounts accrued are appropriate based on facts and circumstances as currently known. As of December 31, 2017, our recorded reserves for environmental matters were not material. We do not anticipate these environmental conditions will have a material adverse effect on our financial position, results of operations or cash flows. However, unknown conditions, new details about existing conditions or changes in environmental requirements may give rise to environmental liabilities that will exceed the amount of our current reserves and could have a material adverse effect in the future.

Employees

As of December 31, 2017, we employed 8,600 people worldwide.

 

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Properties

Our principal office will be located in leased premises in London, U.K., and our management office in the U.S. will be located in leased premises in Minneapolis, Minnesota. Our operations are conducted in facilities throughout the world. These facilities house manufacturing and distribution operations, as well as sales and marketing, engineering and administrative offices.

We carry out our Enclosures manufacturing operations at 3 plants located in the U.S. and at 9 plants located in 9 other countries. In addition, Enclosures has 9 distribution facilities, and 19 sales offices located in numerous countries throughout the world.

We carry out our Thermal Management manufacturing operations at 2 plants located in the U.S. and at 2 plants located in 1 other country. In addition, Thermal Management has 10 distribution facilities, 28 sales offices and 2 service centers located in numerous countries throughout the world.

We carry out our Electrical & Fastening Solutions manufacturing operations at 3 plants located in the U.S. and at 2 plants located in 2 other countries. In addition, Electrical & Fastening Solutions has 5 distribution facilities and 6 sales offices located in numerous countries throughout the world.

We believe that our production facilities are suitable for their purpose and are adequate to support our business.

Legal Proceedings

We have been made parties to a number of actions filed or have been given notice of potential claims relating to the conduct of our business, including those pertaining to commercial disputes, product liability, asbestos, environmental, safety and health, patent infringement and employment matters.

While we believe that a material impact on our 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 adverse 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 financial position, results of operations and cash flows for the proceedings and claims described in the notes to our combined financial statements could change in the future.

We are subject to various product liability lawsuits and personal injury claims. Currently, substantial number of these lawsuits and claims are insured and accrued for by Pentair’s captive insurance subsidiary. Pentair’s captive insurance subsidiary records a liability for these claims based on actuarial projections of ultimate losses. After the separation, we expect that these lawsuits and claims will be insured and accrued for by a captive insurance subsidiary of nVent. 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.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations refers to and should be read in conjunction with the audited combined financial statements and the corresponding notes, and the selected historical combined financial data, each included elsewhere in this information statement. The financial information included herein may not necessarily reflect our financial position, results of operations and cash flows in the future or what our financial position, results of operations and cash flows would have been had we been an independent, publicly-traded company during the periods presented. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements as a result of many factors, including, but not limited to, those discussed under headings “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements.”

Executive Summary

Overview

nVent is a leading global provider of electrical connection and protection solutions. We believe our inventive electrical solutions enable safer systems and ensure a more secure world. We design, manufacture, market, install, and service high performance products and solutions that connect and protect some of the world’s most sensitive equipment, buildings, and critical processes. We offer a comprehensive range of enclosures, electrical connections and fastening, and thermal management solutions across industry-leading brands that are recognized globally for quality, reliability, and innovation.

We classify our operations into business segments based primarily on types of products offered and markets served. We operate across three segments: Enclosures, Thermal Management, and Electrical & Fastening Solutions, which contributed 44 percent, 30 percent and 26 percent to our net sales in 2017, respectively.

Separation from Pentair

On May 9, 2017, Pentair announced its board of directors approved a plan to separate Pentair’s Water business and its Electrical business into two independent, publicly-traded companies. The separation is expected to occur through a tax-free distribution of the Electrical business to Pentair shareholders.

We are targeting April 30, 2018 for the completion of the separation; however, there can be no assurance regarding the ultimate timing of the separation or that the separation will be completed. Completion of the separation is subject to certain customary conditions, including, among other things, final approval of the transaction by Pentair’s board of directors, receipt of tax opinions and rulings and effectiveness of appropriate filings with the SEC. See “The Separation—Conditions to the Distribution.” Upon completion of the separation, nVent’s jurisdiction of incorporation will be Ireland, but nVent will manage its affairs so that it will be centrally managed and controlled in the U.K. and therefore will have its tax residency in the U.K.

nVent was incorporated in Ireland on May 30, 2017, for the purpose of holding Pentair’s Electrical business following the separation. Immediately prior to the distribution, Pentair will transfer its Electrical business to us in return for which we will issue ordinary shares of nVent to Pentair shareholders, pro rata to their respective holdings. Prior to the transfer by Pentair to us of Pentair’s Electrical business, we will have no business operations. Immediately following the distribution, the persons entitled to receive ordinary shares of nVent in the distribution will own all of the outstanding ordinary shares of nVent.

Pentair and nVent will enter into an agreement (the “Separation Agreement”) that will identify the assets to be transferred, the liabilities to be assumed, and the contracts to be transferred to Pentair and nVent as part of the separation, and will provide for when and how these transfers will occur. nVent’s combined financial statements are representative of the Separation Agreement that is expected to be entered into at the time of the separation.

 

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ERICO Acquisition

On September 18, 2015, we acquired all of the outstanding shares of capital stock of ERICO Global Company (“ERICO”) for approximately $1.8 billion in cash (the “ERICO Acquisition”). ERICO is a leading global manufacturer and marketer of engineered electrical and fastening products for electrical, mechanical and civil applications. ERICO has recognized brands including CADDY fixing, fastening and support products and ERICO electrical grounding, bonding and connectivity products. The legacy ERICO business comprises the Electrical & Fastening Solutions reporting segment.

Key Trends and Uncertainties Regarding Our Existing Business

The following trends and uncertainties affected our financial performance in 2017 and 2016 and will likely impact our results in the future:

 

    During 2017 and 2016, we continued execution of certain business restructuring initiatives aimed at reducing our fixed cost structure and, during 2017, began realigning our business in contemplation of the separation. We expect that these actions will contribute to margin growth in 2018.

 

    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 our businesses to 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.

In 2018, our operating objectives include the following:

 

    Complete execution of the separation to create an industry leading pure-play electrical business.

 

    Driving operating excellence through lean enterprise initiatives, with specific focus on sourcing and supply management, cash flow management and lean operations;

 

    Achieving differentiated revenue growth through new products and solutions, and market expansion in key developing regions;

 

    Optimizing our technological capabilities to increasingly generate innovative new and connected products; and

 

    Focusing on developing global talent in light of our global presence.

Cost Allocations

nVent’s historical combined financial statements have been prepared on a stand-alone basis and are derived from Pentair’s consolidated financial statements and accounting records. Therefore, these financial statements reflect, in conformity with accounting principles generally accepted in the U.S. (“GAAP”), nVent’s financial position, results of operations, comprehensive income and cash flows as the business was historically operated as part of Pentair prior to the separation. They may not be indicative of nVent’s future performance and do not necessarily reflect what nVent’s combined results of operations, financial condition and cash flows would have been had nVent operated as a separate, publicly traded company during the periods presented, particularly because nVent expects that many changes will occur in nVent’s operations and capitalization as a result of the separation from Pentair.

 

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The combined financial statements of nVent include general corporate expenses of Pentair for certain support functions that are provided on a centralized basis, such as expenses related to executive management, finance, audit, legal, information technology, human resources, communications, facilities and employee benefits and compensation. These general corporate expenses are included in the Combined Statements of Income and Comprehensive Income within Selling, general and administrative expenses. The amounts allocated were $65.7 million, $75.7 million and $71.8 million for the years ended December 31, 2017, 2016 and 2015, respectively, of which $31.0 million, $31.0 million and $26.8 million, respectively, were historically recorded to the Electrical segment in Pentair’s consolidated financial statements. These expenses have been allocated to nVent on the basis of direct usage when identifiable, with the remainder allocated based on a proportional basis of net sales, headcount or other measures.

Pentair maintains self-insurance programs at the corporate level. nVent is a participant in Pentair’s self-insurance program, including general product liability, workers’ compensation, and vehicle liability. Liabilities associated with these risks are estimated in part by considering historical claims experience, demographic factors, and other actuarial assumptions. The annual cost is allocated to all of the participating businesses using methodologies deemed reasonable by management. Costs related to Pentair’s general insured risks of $7.6 million, $7.6 million and $7.3 million were allocated to nVent for the years ended December 31, 2017, 2016 and 2015, respectively. All obligations pursuant to these programs have historically been obligations of Pentair. No self-insurance reserves have been allocated to nVent as these reserves represent obligations of Pentair, which are not transferable.

Pentair’s external debt and related interest expense have not been allocated to nVent for any of the periods presented as nVent was not the legal obligor of the debt and no portion of the borrowings is being assumed by nVent as part of the separation.

nVent considers the allocation methodology regarding Pentair’s general corporate expenses to be reasonable for all periods presented. Nevertheless, the combined financial statements of nVent may not reflect the actual expenses that would have been incurred and may not reflect nVent’s combined results of operations, financial position and cash flows had it been a stand-alone company during the periods presented. Actual costs that would have been incurred if nVent had been a stand-alone company would depend on multiple factors including organization structure, capital structure and strategic decisions made in various areas, including information technology and infrastructure. Transactions between nVent and Pentair have been included in related party transactions in these combined financial statements and are considered to be effectively settled at the time the transaction is recorded. The total net effect of the settlement of these transactions is reflected in the Combined Statements of Cash Flows as a financing activity and in the Combined Balance Sheets as Net Parent investment. The Net Parent investment represents Pentair’s historical investment in nVent, the net effect of cost allocations from transactions with Pentair, net transfers of cash and assets to Pentair and nVent’s accumulated earnings.

Combined Results of Operations—Years Ended December 31, 2017, 2016 and 2015

 

     Years ended December 31     % point change  

In millions

   2017     2016     2015     2017 vs 2016     2016 vs 2015  

Net sales

   $ 2,097.9     $ 2,116.0     $ 1,809.3       (0.9 )%      17.0

Cost of goods sold

     1,256.0       1,280.2       1,139.2       (1.9 )%      12.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     841.9       835.8       670.1       0.7     24.7

% of net sales

     40.1 %      39.5 %      37.0 %      0.6  pts      2.5  pts 

Selling, general and administrative

     485.9       478.8       373.8       1.5     28.1

% of net sales

     23.2 %      22.6 %      20.7 %      0.6  pts      1.9  pts 

Research and development

     42.5       40.6       29.3       4.7     38.6

% of net sales

     2.0 %      1.9 %      1.6 %      0.1  pts      0.3  pts 

Operating income

     313.5       316.4       267.0       (0.9 )%      18.5

 

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     Years ended December 31     % point change  

In millions

   2017     2016     2015     2017 vs 2016     2016 vs 2015  

% of net sales

     14.9 %      15.0 %      14.8 %      (0.1 ) pts      0.2  pts 

Income before income taxes

     313.3       315.0       265.9       (0.5 )%      18.5

Provision (benefit) for income taxes

     (48.4     55.9       55.8       (186.6 )%      0.2

Effective tax rate

     (15.4 )%      17.7 %      21.0 %      (33.1 ) pts      (3.3 ) pts 

Net Sales

The components of the change in nVent net sales were as follows:

 

     2017 vs 2016     2016 vs 2015  

Volume

     (2.2 )%      (2.1 )% 

Price

     0.1       (0.4
  

 

 

   

 

 

 

Core growth

     (2.1     (2.5

Acquisition

     0.7       20.6  

Currency

     0.5       (1.1
  

 

 

   

 

 

 

Total

     (0.9 )%      17.0
  

 

 

   

 

 

 

The 0.9 percent decrease in net sales in 2017 from 2016 was primarily the result of:

 

    sales decline in our energy business of approximately 5% as a result of the impact of three large Canadian Oil Sands projects in our Thermal Management segment in 2016 that did not recur in 2017; and

 

    sales decline in our infrastructure business of approximately 1% driven by performance in both Enclosures and Electrical & Fastening Solutions.

These decreases were partially offset by:

 

    increased sales volume in our industrial business of approximately 3%, primarily as a result of increased volumes in the U.S.;

 

    increased sales related to a business acquisition that occurred in the first quarter of 2017; and

 

    favorable foreign currency effects.

The 17.0 percent increase in net sales in 2016 from 2015 was primarily the result of:

 

    sales of $512.6 million in 2016 as a result of the ERICO Acquisition, compared to sales of $147.0 million in 2015; and

 

    core growth of approximately 1% in the commercial business.

These increases were partially offset by:

 

    continued slowdown in capital spending, particularly in the energy business, driving core sales declines of approximately 2.5%; and

 

    a strong U.S. dollar causing unfavorable foreign currency effects.

 

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Gross Profit

The 0.6 percentage point increase in gross profit as a percentage of sales in 2017 from 2016 was primarily the result of:

 

    favorable mix as a result of the decline in lower margin project sales and growth in higher margin product sales; and

 

    higher contribution margin as a result of savings generated from our lean and supply management practices.

These increases were partially offset by:

 

    inflationary increases related to labor costs and certain raw materials; and

 

    higher cost of sales due to manufacturing footprint rationalization and a new U.S. distribution center. We expect these investments will result in increased productivity and operating leverage in future periods.

The 2.5 percentage point increase in gross profit as a percentage of sales in 2016 from 2015 was primarily the result of:

 

    a decrease in cost of goods sold of $35.7 million in 2016 compared to 2015 as a result of inventory fair value step-up recorded as part of the ERICO Acquisition in 2015; and

 

    higher contribution margin as a result of savings generated from our lean and supply management practices.

These increases were partially offset by:

 

    unfavorable mix as a result of lower margin project sales; and

 

    inflationary increases related to raw materials and labor costs.

Selling, General and Administrative (“SG&A”)

The 0.6 percentage point increase in SG&A expense as a percentage of sales in 2017 from 2016 was primarily the result of:

 

    $16.1 million of non-recurring separation costs incurred in 2017 to prepare nVent to operate as an independent stand-alone public company, primarily related to legal, advisory and other professional fees; and

 

    lower sales volume in our energy and infrastructure businesses, which resulted in decreased leverage on operating expenses.

These increases were partially offset by:

 

    “mark-to-market” actuarial gains related to pension and other post-retirement benefit plans of $3.0 million in 2017, compared to “mark-to-market” actuarial losses of $10.8 million in 2016;

 

    cost control and savings generated from back-office consolidation, reduction in personnel and other lean initiatives; and

 

    increased sales volume in the industrial business, which resulted in increased leverage on operating expenses.

The 1.9 percentage point increase in SG&A expense as a percentage of sales in 2016 from 2015 was primarily the result of:

 

    an increase in intangible asset amortization of $29.2 million as a result of the ERICO Acquisition that occurred at the end of the third quarter in 2015;

 

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    “mark-to-market” actuarial losses related to pension and other post-retirement benefit plans of $10.8 million in 2016, compared to “mark-to-market” actuarial gains of $12.5 million in 2015;

 

    a non-cash impairment charge of $13.3 million related to a trade name intangible asset in Thermal Management in 2016; and

 

    increased investment in sales and marketing to drive growth.

These increases were partially offset by:

 

    deal related costs and expenses of $14.0 million in 2015, which did not reoccur in 2016;

 

    savings generated from back-office consolidation, reduction in personnel and other lean initiatives; and

 

    restructuring costs of $12.3 million in 2016, compared to $15.7 million in 2015.

Following the separation, the composition of nVent’s SG&A expenses will change. nVent will no longer receive an allocation of costs from Pentair associated with certain corporate or other functions and will incur costs associated with operating as a stand-alone public company. As a result, SG&A expenses and the SG&A expense ratio calculated from nVent’s results of operations prior to the separation may not be indicative of nVent’s expenses or ratio following the separation.

Provision (Benefit) for Income Taxes

The 33.1 percentage point decrease in the effective tax rate in 2017 from 2016 was primarily the result of:

 

    a net provisional tax benefit of $84.8 million recognized in 2017 as a result of the enactment of U.S. tax reform legislation; and

 

    the mix of global earnings toward lower tax jurisdictions.

The 3.3 percentage point decrease in the effective tax rate in 2016 from 2015 was primarily due to:

 

    the mix of global earnings toward lower tax jurisdictions; and

 

    the unfavorable tax impact of transaction costs in 2015 related to the ERICO Acquisition, which did not reoccur in 2016.

In nVent’s combined financial statements, income tax expense has been calculated on a separate return basis although, with respect to certain entities, nVent’s operations have historically been included in the tax returns filed by the respective Pentair entities of which nVent’s business was a part. In the future, as a stand-alone entity, nVent will file income tax returns on its own behalf and its effective tax rate may differ from those in the historical periods. We expect our effective tax rate to approximate 18% in future periods.

Segment Results of Operations—Years Ended December 31, 2017, 2016 and 2015

The summary that follows provides a discussion of the results of operations of each of our three reportable segments (Enclosures, Thermal Management and Electrical & Fastening Solutions). Each of these segments comprises various product offerings that serve various verticals and end users.

We evaluate performance based on sales and segment income and use a variety of ratios to measure performance of our reporting segments. Segment income represents operating income 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.

 

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Enclosures

The net sales and segment income for the Enclosures segment were as follows:

 

     Years ended December 31     % / point change  

In millions

   2017     2016     2015     2017 vs
2016
    2016 vs
2015
 

Net sales

   $ 934.9     $ 911.2     $ 959.4       2.6     (5.0 )% 

Segment income

     161.0       182.1       203.9       (11.6 )%      (10.7 )% 

% of net sales

     17.2     20.0     21.3     (2.8 ) pts      (1.3 ) pts 

Net Sales

The components of the change in the Enclosures segment net sales were as follows:

 

     2017 vs
2016
    2016 vs
2015
 

Volume

     3.0     (3.8 )% 

Price

     (0.6     (0.6
  

 

 

   

 

 

 

Core growth

     2.4       (4.4

Currency

     0.2       (0.6
  

 

 

   

 

 

 

Total

     2.6     (5.0 )% 
  

 

 

   

 

 

 

The 2.6 percent increase in Enclosures sales in 2017 from 2016 was primarily the result of:

 

    increased sales volume of approximately 3.5% in the industrial business, primarily as a result of increased volumes in the U.S.; and

 

    favorable foreign currency effects.

These increases were partially offset by:

 

    continued slowdown in capital spending, particularly in the infrastructure business, driving sales volume decline of approximately 2%.

The 5.0 percent decrease in Enclosures sales in 2016 from 2015 was primarily the result of:

 

    continued slowdown in capital spending driving core sales declines; and

 

    a strong U.S. dollar causing unfavorable foreign currency effects.

Segment Income

The components of the change in the Enclosures segment income as a percentage of net sales from the prior period were as follows:

 

     2017      2016  

Growth

     1.6  pts       (0.9 ) pts 

Inflation

     (2.4      (1.0

Productivity/Price

     (2.0      0.6  
  

 

 

    

 

 

 

Total

     (2.8 ) pts       (1.3 ) pts 
  

 

 

    

 

 

 

The 2.8 percentage point decrease in segment income for Enclosures as a percentage of net sales in 2017 from 2016 was primarily the result of:

 

    inflationary increases related to labor costs and certain raw materials;

 

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    higher cost of sales due to manufacturing footprint rationalization and a new U.S. distribution center. We expect these investments will result in increased productivity and operating leverage in future periods; and

 

    lower sales volume in the infrastructure business, which resulted in decreased leverage on operating expenses.

These decreases were partially offset by:

 

    increased sales volume in the industrial business, which resulted in increased leverage on operating expenses.

The 1.3 percentage point decrease in segment income for Enclosures as a percentage of net sales in 2016 from 2015 was primarily the result of:

 

    lower core sales, which resulted in decreased leverage on operating expenses; and

 

    inflationary increases related to labor costs and certain raw materials.

These decreases were partially offset by:

 

    restructuring costs of $3.4 million in 2016, compared to $12.1 million in 2015; and

 

    higher contribution margin as a result of savings generated from our lean and supply management practices.

Thermal Management

The net sales and segment income for the Thermal Management segment were as follows:

 

     Years ended December 31     % / point change  

In millions

   2017     2016     2015     2017 vs
2016
    2016 vs
2015
 

Net sales

   $ 622.2     $ 692.2     $ 702.9       (10.1 )%      (1.5 )% 

Segment income

     145.3       121.6       153.2       19.5     (20.6 )% 

% of net sales

     23.4     17.6     21.8     5.8  pts      (4.2 ) pts 

Net Sales

The components of the change in the Thermal Management segment net sales were as follows:

 

     2017 vs
2016
    2016 vs
2015
 

Volume

     (11.3 )%      0.4

Price

     —         —    
  

 

 

   

 

 

 

Core growth

     (11.3     0.4  

Currency

     1.2       (1.9
  

 

 

   

 

 

 

Total

     (10.1 )%      (1.5 )% 
  

 

 

   

 

 

 

The 10.1 percent decrease in Thermal Management sales in 2017 from 2016 was primarily the result of:

 

    lower project sales volume as a result of the impact of three large Canadian Oil Sands projects in 2016 that did not recur in 2017.

 

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This decrease was partially offset by:

 

    increased sales volume of approximately 1.5% in the industrial business, primarily as a result of increased volumes in Western Europe and certain developing regions; and

 

    favorable foreign currency effects.

The 1.5 percent decrease in Thermal Management sales in 2016 from 2015 was primarily the result of:

 

    a strong U.S. dollar causing unfavorable foreign currency effects; and

 

    continued slowdown in capital spending, particularly in the energy business, driving core sales declines of approximately 3.5%.

These decreases were partially offset by:

 

    core growth of approximately 2.5% in the industrial business and approximately 1.5% in the commercial business.

Segment Income

The components of the change in the Thermal Management segment income as a percentage of net sales from the prior period were as follows:

 

     2017      2016  

Growth

     1.6  pts       (3.7 ) pts 

Inflation

     (0.7      (0.8

Productivity/Price

     4.9        0.3  
  

 

 

    

 

 

 

Total

     5.8  pts       (4.2 ) pts 
  

 

 

    

 

 

 

The 5.8 percentage point increase in segment income for Thermal Management as a percentage of net sales in 2017 from 2016 was primarily the result of:

 

    favorable mix as a result of the decline in lower margin project sales and growth in higher margin product sales;

 

    increased sales volume in the industrial business, which resulted in increased leverage on operating expenses; and

 

    higher contribution margin as a result of savings generated from our lean and supply management practices.

These increases were partially offset by:

 

    inflationary increases related to labor costs and certain raw materials.

The 4.2 percentage point decrease in segment income for Thermal Management as a percentage of net sales in 2016 from 2015 was primarily the result of:

 

    lower margin project sales not offsetting the decline in higher margin product sales; and

 

    inflationary increases related to labor costs and certain raw materials.

These decreases were partially offset by:

 

    higher contribution margin as a result of savings generated from our lean and supply management practices.

 

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Electrical & Fastening Solutions

The net sales and segment income for the Electrical & Fastening Solutions segment were as follows:

 

     Years ended December 31     % / point change  

In millions

   2017     2016     2015     2017 vs
2016
    2016 vs
2015
 

Net sales

   $ 540.8     $ 512.6     $ 147.0       5.5     248.7

Segment income

     140.7       143.5       37.8       (2.0 )%      279.6

% of net sales

     26.0     28.0     25.7     (2.0 ) pts      2.3  pts 

Net Sales

The components of the change in the Electrical & Fastening Solutions segment net sales were as follows:

 

     2017 vs
2016
    2016 vs
2015
 

Volume

     0.9     (2.5 )% 

Price

     1.3       (1.4
  

 

 

   

 

 

 

Core growth

     2.2       (3.9

Acquisition

     2.8       253.1  

Currency

     0.5       (0.5
  

 

 

   

 

 

 

Total

     5.5     248.7
  

 

 

   

 

 

 

The 5.5 percent increase in Electrical & Fastening Solutions sales in 2017 from 2016 was primarily the result of:

 

    increased sales related to a business acquisition that occurred in the first quarter of 2017;

 

    selective increases in selling prices to mitigate inflationary cost increases;

 

    increased sales volume of approximately 1% in the energy and industrial businesses, primarily as a result of increased volumes in the U.S.; and

 

    favorable foreign currency effects.

The 248.7 percent increase in Electrical & Fastening Solutions sales in 2016 from 2015 was primarily the result of:

 

    one quarter of activity in 2015 compared to a full year in 2016 as a result of the ERICO Acquisition; and

 

    core growth of approximately 10% in the commercial business.

These increases were partially offset by:

 

    continued slowdown in capital spending, particularly in the industrial and energy businesses, driving core sales declines of approximately 7% and 4.5%, respectively; and

 

    a strong U.S. dollar causing unfavorable foreign currency effects.

 

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Segment Income

The components of the change in Electrical & Fastening Solutions segment income as a percentage of net sales from the prior period were as follows:

 

     2017      2016  

Growth/Acquisition

     (0.2 ) pts       (0.2 ) pts 

Inflation

     (3.0      (3.0

Productivity/Price

     1.2        5.5  
  

 

 

    

 

 

 

Total

     (2.0 ) pts       2.3  pts 
  

 

 

    

 

 

 

The 2.0 percentage point decrease in segment income for Electrical & Fastening Solutions as a percentage of net sales in 2017 from 2016 was primarily the result of:

 

    inflationary increases related to labor costs and certain raw materials.

This decrease was partially offset by:

 

    higher contribution margin as a result of savings generated from our lean and supply management practices; and

 

    increased sales volume in the energy and industrial businesses, which resulted in increased leverage on operating expenses.

The 2.3 percentage point increase in segment income for Electrical & Fastening Solutions as a percentage of net sales in 2016 from 2015 was primarily the result of:

 

    strong contribution and integration synergies as a result of the ERICO Acquisition; and

 

    higher core sales in the commercial business, which resulted in increased leverage on operating expenses.

These increases were partially offset by:

 

    lower core sales in the industrial and energy businesses, which resulted in decreased leverage on operating expenses; and

 

    inflationary increases related to labor costs and certain raw materials.

Liquidity and Capital Resources

The primary source of liquidity for our businesses is cash flows provided by operations, which have historically been swept to Pentair to support its overall cash management strategy. Transfers of cash to and from Pentair’s cash management system have been reflected in the Net Parent investment in the historical Combined Balance Sheets, Statements of Cash Flows, and Statements of Changes in Equity.

Upon completion of the separation, our capital structure and sources of liquidity will change significantly from our historical capital structure. Our businesses will no longer participate in cash management and funding arrangements with Pentair. We expect to continue to have cash requirements to support working capital needs and capital expenditures, to pay interest and service debt and to pay dividends to shareholders quarterly. We believe we will have the ability and sufficient capacity to meet these cash requirements by using available cash and internally generated funds and to borrow under committed and uncommitted credit facilities.

 

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In connection with the separation, nVent Finance has entered into certain financing arrangements. See “Description of Material Indebtedness” for a discussion of such financing arrangements. We intend to focus on increasing our cash flow and repaying debt, while continuing to fund our research and development, marketing and capital investment initiatives. Our intent is to maintain investment grade metrics and a solid liquidity position.

We have grown our businesses in significant part in the past through acquisitions financed by credit provided under Pentair’s revolving credit facilities and from time to time, by private or public debt issuance. Pentair’s primary revolving credit facilities have generally been adequate for these purposes, although Pentair has negotiated additional credit facilities as needed to allow us to complete acquisitions. We intend to issue commercial paper to fund our financing needs on a short-term basis and to use a revolving credit facility as back-up liquidity to support commercial paper.

Historical Cash Flows

The following table reflects the major categories of cash flows for the years ended December 31, 2017, 2016 and 2015. For additional details, please see the Statements of Cash Flows in the combined financial statements.

 

     Years ended December 31  

In millions

   2017      2016      2015  

Net cash provided by (used for) operating activities

   $ 409.7      $ 364.0      $ 343.9  

Net cash provided by (used for) investing activities

     (41.2      (68.6      (1,957.0

Net cash provided by (used for) financing activities

     (359.5      (308.9      1,614.0  

Operating Activities

nVent has generated significant cash flows from operations in each of the last three years.

Cash provided by operating activities was $409.7 million in 2017, compared to $364.0 million in 2016. Cash provided by operating activities in 2017 primarily reflects Net income of $368.3 million, net of non-cash items such as depreciation and amortization, remeasurement of deferred income taxes as a result of the enactment of U.S. tax reform legislation, trade name impairment and pension and other post-retirement expense, and decreases in net working capital during 2017.

Cash provided by operating activities was $364.0 million in 2016, or $20.1 million higher than in 2015. The increase in cash provided by operating activities was due primarily to a $115.2 million increase in Net income, net of non-cash items such as depreciation and amortization, trade name impairment and pension and other post-retirement expense; partially offset by increases in net working capital during 2016.

Investing Activities

Net cash used for investing activities was $41.2 million in 2017, or $27.4 million lower than in the comparable period in 2016. Net cash used for investing activities was $68.6 million in 2016, or $1,888.4 million lower than in 2015. The following investing activities impacted our cash flow:

Acquisitions

In 2015, we paid cash of $1,806.3 million, net of cash acquired, to acquire ERICO Global Company during the third quarter and cash of $96.0 million, net of cash acquired, to acquire Nuheat Industries Limited (“Nuheat”) during the second quarter. During the fourth quarter of 2015, we paid an additional $0.9 million related to the Nuheat acquisition in settlement of a working capital adjustment. In January 2017, we completed an acquisition with a purchase price of $13.6 million in cash, net of cash acquired.

 

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Capital expenditures

Capital expenditures in 2017, 2016 and 2015 were $31.8 million, $74.5 million and $47.4 million respectively. We anticipate capital expenditures for fiscal 2018 to be approximately $40 million, primarily for capacity expansions of manufacturing facilities located in our low-cost countries, developing new products and general maintenance.

Financing Activities

Net cash used for or provided from financing activities in all periods presented reflect net transactions with Pentair resulting from operating and investing activities discussed above.

Dividends

Please see “Dividends” in this information statement for a discussion regarding dividend policy and creation of distributable reserves.

Contractual Obligations

The following summarizes our significant contractual obligations as of December 31, 2017 that impact our liquidity:

 

     Years ended December 31  

In millions

   2018      2019      2020      2021      2022      Thereafter      Total  

Operating lease obligations, net of sublease rentals

   $ 14.6      $ 13.4      $ 11.3      $ 8.9      $ 7.9      $ 8.6      $ 64.7  

Purchase obligations

     33.2        —          —          —          —          —          33.2  

Pension and other post-retirement plan contributions

     5.9        6.5        6.3        6.8        7.1        44.8        77.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations, net

   $ 53.7      $ 19.9      $ 17.6      $ 15.7      $ 15.0      $ 53.4      $ 175.3  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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.

The table above does not reflect any financing that we may incur in connection with the separation. The total gross liability for uncertain tax positions at December 31, 2017 was estimated to be $24.6 million. We record penalties and interest related to unrecognized tax benefits in Provision for income taxes and Interest expense, respectively, which is consistent with our past practices. As of December 31, 2017, we had recorded $2.0 million for the possible payment of penalties and $6.6 million related to the possible payment of interest.

 

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Other Financial Measures

In addition to measuring our cash flow generation or usage based upon operating, investing and financing classifications included in the Combined Statements of Cash Flows, we also measure our free cash flow. Free cash flow is a non-GAAP financial measure that we use to assess our liquidity 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, make acquisitions, repay debt and repurchase shares. 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

   2017      2016      2015  

Net cash provided by (used for) operating activities

   $ 409.7      $ 364.0      $ 343.9  

Capital expenditures

     (31.8      (74.5      (47.4

Proceeds from sale of property and equipment

     4.2        5.9        0.6  
  

 

 

    

 

 

    

 

 

 

Free cash flow

   $ 382.1      $ 295.4      $ 297.1  
  

 

 

    

 

 

    

 

 

 

Off-balance Sheet Arrangements

At December 31, 2017, we had no off-balance sheet financing arrangements.

Commitments and Contingencies

We have been made parties to a number of actions filed or have been given notice of potential claims relating to the conduct of our business, including those pertaining to commercial disputes, product liability, environmental, safety and health, patent infringement and employment 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 Note 13 of the Notes to Combined Financial Statements included in the “Index to Financial Statements” section of this information statement could change in the future.

Stand-by Letters of Credit, Bank Guarantees and Bonds

In disposing of assets or businesses, we often provide representations, warranties and indemnities to cover various risks including unknown damage to assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities and unidentified tax liabilities and legal fees related to periods prior to disposition. We do not have the ability to reasonably estimate the potential liability due to the inchoate and unknown nature of these potential liabilities. However, we have no reason to believe that these uncertainties would have a material adverse effect on our financial position, results of operations or cash flows.

In the ordinary course of business, we are required to commit to bonds, letters of credit and bank guarantees that require payments to our customers for any non-performance. The outstanding face value of these instruments fluctuates with the value of our projects in process and in our backlog. In addition, we issue financial stand-by letters of credit primarily to secure our performance to third parties under self-insurance programs.

 

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As of December 31, 2017 and 2016, the outstanding value of bonds, letters of credit and bank guarantees totaled $72.3 million and $50.0 million, respectively.

New Accounting Standards

See Note 1 of the Notes to Combined Financial Statements, included in the “Index to Financial Statements” section of this information statement, for information pertaining to recently adopted accounting standards or accounting standards to be adopted in the future.

Critical Accounting Policies

We have adopted various accounting policies to prepare the combined financial statements in accordance with GAAP. Our significant accounting policies are more fully described in Note 1 of the Notes to Combined Financial Statements included in the “Index to Financial Statements” section of this information statement. Certain of our 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:

Cost Allocations

The combined financial statements of nVent include general corporate expenses of Pentair for certain support functions that are provided on a centralized basis, such as expenses related to executive management, finance, audit, legal, information technology, human resources, communications, facilities and employee benefits and compensation. These general corporate expenses are included in the Combined Statements of Income and Comprehensive Income within Selling, general and administrative expenses. The amounts allocated were $65.7 million, $75.7 million and $71.8 million for the years ended December 31, 2017, 2016 and 2015, respectively, of which $31.0 million, $31.0 million and $26.8 million, respectively, were historically allocated to the Electrical segment in Pentair’s consolidated financial statements. These expenses have been allocated to nVent on the basis of direct usage when identifiable, with the remainder allocated based on a proportional basis of net sales, headcount or other measures.

Pentair maintains self-insurance programs at the corporate level. nVent is a participant in Pentair’s self-insurance program, including general product liability, workers’ compensation, and vehicle liability. Liabilities associated with these risks are estimated in part by considering historical claims experience, demographic factors, and other actuarial assumptions. The annual cost is allocated to all of the participating businesses using methodologies deemed reasonable by management. Costs related to Pentair’s general insured risks of $7.6 million, $7.6 million and $7.3 million were allocated to nVent for the years ended December 31, 2017, 2016 and 2015, respectively. All obligations pursuant to these programs have historically been obligations of Pentair. No self-insurance reserves have been allocated to nVent as these reserves represent obligations of Pentair, which are not transferable.

Pentair’s external debt and related interest expense have not been allocated to nVent for any of the periods presented as nVent was not the legal obligor of the debt and no portion of the borrowings is being assumed by nVent as part of the separation.

 

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nVent considers the allocation methodology regarding Pentair’s general corporate expenses to be reasonable for all periods presented. Nevertheless, the combined financial statements of nVent may not reflect the actual expenses that would have been incurred and may not reflect nVent’s combined results of operations, financial position and cash flows had it been a stand-alone company during the periods presented. Actual costs that would have been incurred if nVent had been a stand-alone company would depend on multiple factors including organization structure, capital structure and strategic decisions made in various areas, including information technology and infrastructure. Transactions between nVent and Pentair have been included in related party transactions in these combined financial statements and are considered to be effectively settled at the time the transaction is recorded. The total net effect of the settlement of these transactions is reflected in the Combined Statements of Cash Flows as a financing activity and in the Combined Balance Sheets as Net Parent investment. The Net Parent investment represents Pentair’s historical investment in nVent, the net effect of cost allocations from transactions with Pentair, net transfers of cash and assets to Pentair and nVent’s accumulated earnings. See Note 9 of the Notes to Combined Financial Statements included in the “Index to Financial Statements” section of this information statement for a further description of related party transactions and Net Parent investment.

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.

Goodwill is tested annually for impairment and is tested for impairment more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is performed using a two-step process. In the first step, the fair value of each reporting unit is compared with the carrying amount of the reporting unit, including goodwill. If the estimated fair value is less than the carrying amount of the reporting unit there is an indication that goodwill impairment exists and a second step must be completed in order to determine the amount of the goodwill impairment, if any, that should be recorded. In the second step, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation.

The fair value of each reporting unit is determined using a discounted cash flow analysis and market approach. Projecting discounted future cash flows requires us to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital and the appropriate discount rate. Use of the market approach consists of comparisons to comparable publicly-traded companies that are similar in size and industry. Actual results may differ from those used in our valuations.

In developing our discounted cash flow analysis, assumptions about future revenues and expenses, capital expenditures and changes in working capital are based on our annual operating plan and long-term business plan for each of our reporting units. These plans take into consideration numerous factors including historical experience, anticipated future economic conditions, changes in raw material prices and growth expectations for the industries and end markets we participate in.

In estimating fair value using the market approach, we identify a group of comparable publicly-traded companies for each reporting unit that are similar in terms of size and product offering. These groups of comparable companies are used to develop multiples based on total market-based invested capital as a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”). We determine our estimated values by applying these comparable EBITDA multiples to the operating results of our reporting units. The ultimate fair value of each reporting unit is determined considering the results of both valuation methods.

We did not recognize any goodwill impairment losses in 2017, 2016 or 2015.

 

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Identifiable Intangible Assets

Our primary identifiable intangible assets include: customer relationships, trade names and trademarks, proprietary technology, backlog and patents. Identifiable intangibles with definite lives are amortized and those identifiable intangibles with indefinite lives are not amortized. Identifiable intangible assets that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangible assets not subject to amortization are tested for impairment annually or more frequently if events warrant. We complete our annual impairment test during the fourth quarter each year for those identifiable assets not subject to amortization.

The impairment test 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.

During the fourth quarter of 2017, we recorded an impairment charge of $13.0 million related to a trade name in Electrical & Fastening Solutions as a result of lower forecasted sales volume in our annual impairment evaluation. We also recorded an impairment charge of $3.4 million related to certain trade names in Thermal Management as a result of rebranding strategies implemented in the fourth quarter of 2017. An impairment charge of $13.3 million was recorded in 2016 related to a trade name in Thermal Management as the result of a rebranding strategy implemented in the fourth quarter of 2016. The trade name impairment charges were recorded in Selling, general and administrative in our Combined Statements of Income and Comprehensive Income.

There were no impairment charges recorded in 2015 for identifiable intangible assets.

Pension and Other Post-Retirement Plans

We sponsor defined-benefit pension plans and a post-retirement health plan (“Direct Plans”). The defined benefit plans cover certain non-U.S. employees and retirees, and the pension benefits are based principally on an employee’s years of service and/or compensation levels near retirement. Certain nVent employees participate in defined benefit pension plans and post-retirement health plans (“Shared Plans”) sponsored by Pentair, which also includes other Pentair participants. nVent accounts for these plans as multi-employer benefit plans. Accordingly, nVent does not record an asset or liability to recognize the funded status of these plans. However, nVent does record its share of the allocated expense, including net actuarial gains or losses described below.

The amounts recognized in our combined 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 and rate of increase in future compensation levels. These assumptions are updated annually and are disclosed for our Direct Plans in Note 10 to the Notes to Combined Financial Statements included in the “Index to Financial Statements” section of this information statement. 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 remeasurement is triggered. Net actuarial gains and losses occur when the actual experience differs from any of the various assumptions used to value our pension and other post-retirement plans or when assumptions change as they may each year. The 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

 

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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 gain of $3.0 million in 2017, pre-tax charge of $10.8 million in 2016 and pre-tax gain of $12.5 million in 2015. 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 Rate

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. This discount rates for our Direct Plans (which are non U.S. plans) ranged from 0.50 percent to 3.50 percent in 2017, 0.50 percent to 4.00 percent in 2016 and 0.50 percent to 4.25 percent in 2015. There are no known or anticipated changes in our discount rate assumption that will impact our pension expense in 2018.

Expected Rate of Return

Our expected rate of return on plan assets for our Direct Plans ranged from 1.00 percent to 5.50 percent in 2017, 1.00 percent to 5.50 percent in 2016 and 1.00 percent to 6.00 percent in 2015. The expected rate of return is designed to be a long-term assumption that may be subject to considerable year-to-year variance from actual returns. In developing the expected long-term rate of return, we considered our historical returns, with consideration given to forecasted economic conditions, our asset allocations, input from external consultants and broader longer-term market indices.

See Note 10 of the Notes to Combined Financial Statements included in the “Index to Financial Statements” section of this information statement for further information regarding pension and other post-retirement plans.

Loss Contingencies

Accruals are recorded for various contingencies including legal proceedings 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 actuarially determined estimates. Additionally, we record receivables from third party insurers when recovery has been determined to be probable.

See Note 13 of the Notes to Combined Financial Statements included in the “Index to Financial Statements” section of this information statement for further information regarding loss contingencies.

Income Taxes

nVent’s operations have historically been included in Pentair’s U.S. federal and state income tax returns, and all income taxes have been paid by Pentair. Income tax expense and other income tax related information contained in these Combined Financial Statements are presented on a separate return approach as if nVent filed its own tax returns. Under this approach, the provision for income taxes represents income tax paid or payable (or received or receivable) for the current year plus the change in deferred taxes during the year calculated as if nVent was a stand-alone taxpayer filing hypothetical income tax returns where applicable. Current income tax liabilities are assumed to be immediately settled with Pentair and are relieved through the Net Parent investment account and the Net transfers from (to) Parent in the Combined Statements of Cash Flows.

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

 

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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.

We maintain valuation allowances with respect to our deferred tax assets unless it is more likely than not that all or a portion of such 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 nVent’s deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on nVent’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. We recognize the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is more likely than not to be realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments. We are exposed to various market risks, including foreign currency rates.

Interest Rate Risk

We expect that as of the date of the separation, we will have approximately $1.0 billion of aggregate debt outstanding, and that this amount will consist of $200.0 million of floating-rate debt and $800.0 million of fixed-rate debt. Based on the amount of floating-rate debt that we expect to be outstanding at the time of the separation, a 100 basis point increase or decrease in interest rates would result in a $2.0 million increase or decrease in interest incurred, respectively. If the base interest rate in our credit facilities increases in the future, then the floating rate debt could have a material effect on our interest expense. Based on the amount of fixed-rate debt that we expect to be outstanding at the time of the separation, a 100 basis point increase or decrease in interest rates would result in a $54.5 million decrease or a $59.4 million increase in fair value, respectively.

 

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Foreign Currency Risk

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. Periodically, we use derivative financial instruments to manage these risks. The functional currencies of our foreign operating locations are generally the local currency in the country of domicile. We manage these operating activities at the local level and revenues, costs, assets and liabilities are generally denominated in local currencies, thereby mitigating the risk associated with changes in foreign exchange. However, our results of operations and assets and liabilities are reported in U.S. dollars and thus will fluctuate with changes in exchange rates between such local currencies and the U.S. dollar.

From time to time, we may enter into foreign currency contracts to hedge certain foreign currency risks. As the majority of our foreign currency contracts have an original maturity date of less than one year, there is no material risk of fluctuations in the value of these contracts. Counterparties to all derivative contracts are major financial institutions. All instruments are entered into for other than trading purposes. At December 31, 2017 and 2016, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts of $10.7 million and $7.4 million, respectively. Changes in the fair value of all derivatives are recognized immediately in income unless the derivative qualifies as a hedge of future cash flows. Gains and losses related to a hedge are deferred and recorded in the Combined Balance Sheets as a component of Accumulated other comprehensive income (loss) and subsequently recognized in the Combined Statements of Income and Comprehensive Income when the hedged item affects earnings. The major accounting policies and utilization of these instruments is described more fully in Note 1 of the Notes to Combined Financial Statements included in the “Index to Financial Statements” section of this information statement.

 

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MANAGEMENT

Executive Officers Following the Separation

The following table sets forth information as of December 31, 2017 regarding those persons who are expected to serve as our executive officers following the separation. While some of these executive officers are currently executive officers or employees of Pentair, after the separation, none of these individuals will be executive officers or employees of Pentair.

 

Name

   Age     

Position

Beth A. Wozniak

     53      Chief Executive Officer

Michael B. Faulconer

     48      President of Thermal Management

Lynnette R. Heath

     50      Executive Vice President and Chief Human Resources Officer

Jon D. Lammers

     53      Executive Vice President, General Counsel and Secretary

Stacy P. McMahan

     54      Executive Vice President and Chief Financial Officer

Thomas F. Pettit

     48      Executive Vice President and Chief Integrated Supply Chain Officer

Joseph A. Ruzynski

     42      President of Enclosures

Benjamin R. Sommerness

     46      Executive Vice President, Chief Growth and Strategy Officer

Robert J. van der Kolk

     49      President of Electrical & Fastening Solutions

Randolph A. Wacker

     53      Senior Vice President and Chief Accounting Officer

Beth A. Wozniak. Ms. Wozniak will be the Chief Executive Officer of nVent. Ms. Wozniak is currently President of Pentair’s Electrical segment and has served in that role since 2017. Ms. Wozniak previously served as President of Pentair’s Flow & Filtration Solutions Global Business Unit from 2015 – 2016. Ms. Wozniak was President of the Environmental and Combustion Controls unit of Honeywell International Inc. (a software-industrial company) from 2011 – 2015 and President of the Sensing and Controls Unit of Honeywell International Inc. from 2006 – 2011, and she held various leadership positions at Honeywell International Inc. and its predecessor AlliedSignal Inc. from 1990 – 2006.

Michael B. Faulconer. Mr. Faulconer will be the President of Thermal Management of nVent. Mr. Faulconer is currently the Vice President of Pentair’s Thermal Management Strategic Business Unit of the Electrical segment and has served in that role since January 2017. Mr. Faulconer previously served as the Vice President of Pentair’s Thermal Building Solutions Unit from 2014 – 2016. He was the Vice President, Marketing of Pentair’s Thermal Management Unit from 2010 – 2013. Mr. Faulconer held various general management and marketing leadership roles with Tyco Thermal Controls in the U.S. and Asia from 2001 – 2010. From 1991 – 2000, Mr. Faulconer held various sales roles with Valquip Corporation.

Lynnette R. Heath. Ms. Heath will be the Executive Vice President and Chief Human Resources Officer of nVent. Ms. Heath was the Senior Vice President, Global Human Resources of Entrust Datacard (a privately held global security and identity company) from 2009 – 2017. Ms. Heath previously held various human resources roles with General Electric Company from 2000 – 2009, with McKesson Corporation from 1996 – 2000 and with Northern States Power Company (n/k/a Xcel Energy Inc.) from 1992 – 1996.

Jon D. Lammers. Mr. Lammers will be the Executive Vice President, General Counsel and Secretary of nVent. Mr. Lammers was an attorney at Foulston Siefkin LLP (a Kansas-based law firm) from 2016 – 2017. Mr. Lammers previously served as Senior Vice President, General Counsel and Secretary of Spirit Aerosystems Holdings, Inc. (a designer and manufacturer of aerostructures) from 2012 – 2016. He held various senior legal roles, including Deputy North American General Counsel and Asia Pacific General Counsel with Cargill Inc. from 1997 – 2012. Prior to his corporate experience, Mr. Lammers practiced law at Oppenheimer, Wolff & Donnelly (n/k/a Fox Rothschild LLP) from 1993 – 1997 and Paul Hastings LLP from 1991 – 1993.

Stacy P. McMahan. Ms. McMahan will be the Executive Vice President and Chief Financial Officer of nVent. Previously, Ms. McMahan was the Chief Financial Officer of The Spectranetics Corporation (a developer and

 

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manufacturer of single-use medical devices) beginning in September 2015. Ms. McMahan was the Senior Vice President, Chief Financial Officer and Treasurer of MSA Safety, Inc. (a global industrial company protecting the health and safety of industrial workers) from 2013 – 2015 and the Senior Vice President, Finance of MSA Safety, Inc. from 2012 – 2013. Previously, she served over 20 years in the life science industry, most recently as Vice President, Finance for the Customer Channels Group of Thermo Fisher Scientific from 2011 to 2012 where she directed the channel finance function supporting research, safety and healthcare customers and suppliers. Ms. McMahan served over six years with the Johnson & Johnson family of companies as the Vice President of Finance and Chief Financial Officer for Johnson & Johnson Customer & Logistics Services and Johnson & Johnson Health Care Systems; the World Wide Vice President of Finance and Chief Financial Officer for DePuy Orthopaedics; and Executive Director of Finance for Ethicon Endo-Surgery.

Thomas F. Pettit. Mr. Pettit will be the Executive Vice President and Chief Integrated Supply Chain Officer of nVent. Mr. Pettit is currently the Operations Vice President of Pentair and has served in that role since 2015. Mr. Pettit previously served as the Chief Operating Officer for BioScrip, Inc. (a provider of infusion and home care management solutions) from 2014 – 2015. He was the Senior Vice President and General Manager for Ryder Supply Chain Solutions from 2013 – 2014 (a commercial fleet management, dedicated transportation and supply chain solutions company). Mr. Pettit was the Operations Vice President for Pentair from 2008 – 2013. Mr. Pettit was the Vice President, Finance and Global Supply Chain for ADC Telecommunications, Inc. from 2005 – 2008. He worked for General Electric Company as a Sourcing Leader from 2002 – 2003 and then as a Product General Manager from 2003 – 2005. Mr. Pettit held various consulting positions with Towers Perrin General Management Services and McKinsey & Company, Inc. from 1995 – 2002.

Joseph A. Ruzynski. Mr. Ruzynski will be the President of Enclosures of nVent. Mr. Ruzynski is currently the Vice President of Pentair’s Enclosures Strategic Business Unit and has served in that role since January 2017. Mr. Ruzynski previously served as Vice President of Pentair’s Engineered Projects Strategic Business Group in its Valves & Controls Global Business Unit from 2016 – 2017 and Vice President of Pentair’s Fluid Motion Business Group from 2015 – 2016. He was the Vice President, Operations of Pentair’s Equipment Protection and Technical Solutions Global Business Units from 2012 – 2014, and held various supply leadership positions with Pentair from 2003 – 2012. Mr. Ruzynski was a Manager with Ernst & Young from 1997 – 2003.

Benjamin R. Sommerness. Mr. Sommerness will be the Executive Vice President, Chief Growth and Strategy Officer of nVent. Mr. Sommerness was the Vice President of Global Strategy and Transformation of Smiths Medical, a division of Smiths Group, PLC (a global manufacturer of specialty medical devices), from 2010 – 2017. Mr. Sommerness previously was President of Talmadge Consulting, Inc. from 2009 – 2010, Vice President, Business Development of G&K Services, Inc. in 2009 and a Principal of Boston Consulting Group from 2001 – 2009.

Robert J. van der Kolk. Mr. van der Kolk will be the President of Electrical & Fastening Solutions of nVent. Mr. van der Kolk is currently the Vice President of Pentair’s Engineered & Fastening Solutions Strategic Business Unit of the Electrical segment and has served in that role since 2015. Mr. van der Kolk previously served as the Executive Vice President, Sales for ERICO from 2011 – 2015, and held various sales, development, and manufacturing leadership roles with ERICO from 2001 – 2008. Mr. van der Kolk held Plant Superintendent and Production Management roles for Cargill in the Netherlands and Germany from 1993 – 2001.

Randolph A. WackerMr. Wacker will be the Senior Vice President and Chief Accounting Officer of nVent. Mr. Wacker is currently the Assistant Corporate Controller of Pentair and has served in that role since 2005. Previously, Mr. Wacker was the U.S. Controller of Computer Network Technologies from 2004 – 2005. He served over 10 years in corporate controlling and external reporting roles in various public companies. Mr. Wacker also served as an accountant with the public accounting firm Larson, Allen, Weishair & Co., LLP (n/k/a CliftonLarsonAllen) from 1988 – 1993.

 

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DIRECTORS

Board of Directors Following the Separation

The following table sets forth information as of December 31, 2017 regarding those persons who are expected to serve on our board of directors following the separation. While some of these directors are currently directors or employees of Pentair, after the separation, none of these individuals will be directors or employees of Pentair.

 

Name

   Age     

Position

Brian M. Baldwin

     35     

Director

Jerry W. Burris

     54     

Director

Susan M. Cameron

     59     

Director

Michael L. Ducker

     64     

Director

David H. Y. Ho

     58     

Director

Randall J. Hogan

     62     

Chairman of the Board

Ronald L. Merriman

     73     

Director

William T. Monahan

     70     

Lead Director

Herbert K. Parker

     59     

Director

Beth A. Wozniak

     53     

Chief Executive Officer and Director

Brian M. Baldwin. Mr. Baldwin is a Partner and Senior Analyst of Trian Fund Management, L.P., a multi-billion dollar investment management firm, and he has served as a member of the investment team of Trian since August 2007. Since 2015, Mr. Baldwin has attended meetings of the board of directors of Pentair in an observer capacity. Prior to joining Trian, Mr. Baldwin was an analyst at Merrill Lynch Global Private Equity from July 2005 until July 2007. Mr. Baldwin will bring expertise in the areas of corporate strategy development, finance, accounting, mergers & acquisitions and the broader industrial sector. As a senior member of Trian’s investment team, he has worked with numerous public companies to implement operational, strategic, and corporate governance improvements.

Jerry W. Burris. Mr. Burris has served as a director of Pentair since 2007. Mr. Burris is the former President and Chief Executive Officer of Associated Materials Group, Inc., a manufacturer of professionally installed exterior building products, serving in that role from 2011 until 2014. Between 2008 and 2011, he was President, Precision Components of Barnes Group Inc. From 2006 until 2008, Mr. Burris was the President of Barnes Industrial, a global precision components business within Barnes Group. Prior to joining Barnes Group, Mr. Burris worked at General Electric Company, where he served as president and chief executive officer of Advanced Materials Quartz and Ceramics; GE Healthcare where he was general manager of global services; GE Industrial Systems and Honeywell Integration where he was head of global supply chain sourcing. Mr. Burris is also a director of Schramm, Inc., a portfolio company of GenNx360 Capital Partners, and Midwest Can Company, a manufacturer of portable gas cans. Mr. Burris will bring to our board of directors significant experience in management of global manufacturing operations and related processes, such as supply chain management, quality control and product development. Mr. Burris will provide our board of directors with insight into operating best practices and current developments in a variety of management contexts. Mr. Burris has served on the board of directors of Fifth Third Bancorp since 2016.

Susan M. Cameron. Ms. Cameron is the retired Executive Chairman of the board of directors of Reynolds American, Inc., a publicly-traded tobacco company, serving in that role from January 2017 – July 2017. From 2014 to December 2016, Ms. Cameron served as the President and Chief Executive Officer of Reynolds American, Inc. Ms. Cameron previously held various executive and board leadership positions at Reynolds American, Inc. from 2004 until her retirement in 2011. Prior to joining Reynolds American, Inc., Ms. Cameron held various marketing, management and executive positions at Brown & Williamson Tobacco Corporation, a U.S. tobacco company, from 1981 to 2004. Ms. Cameron has considerable experience in the executive leadership and marketing functions of a public company and will bring to our board of directors strong leadership skills, marketing and brand leadership expertise and essential insights and perspectives regarding the strategic and

 

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operational opportunities and challenges of a global manufacturing business. Ms. Cameron has served on the board of directors of the following public companies: Reynolds American, Inc. since 2013 and from 2004 – 2011, Tupperware Brands Corporation since 2011 and R.R. Donnelly & Sons Company from 2009 – 2016.

Michael L. Ducker. Mr. Ducker is the President and Chief Executive Officer of FedEx Freight, a segment of FedEx Corporation, a global provider of supply chain, transportation, business and related information services, and has served in that role since 2015. From 2009 to 2015, Mr. Ducker held the positions of Executive Vice President and Chief Operating Officer and President of International for FedEx Express, a segment of FedEx Corporation. From 1978 to 2009, Mr. Ducker held various executive and management positions with FedEx Express. He has been based in Milan, Italy, Singapore and Hong Kong at different stages in his career. Mr. Ducker is also a director of Amway Corporation, a privately held direct selling business. Mr. Ducker’s significant senior executive and international experience coupled with his extensive expertise in complex operations and logistics will complement the strength of our board of directors. Mr. Ducker’s current position as Chief Executive Officer of FedEx Freight provides him with knowledge of a number of important areas, including leadership, risk assessment and operational issues. Mr. Ducker has served on the board of directors of International Flavors & Fragrances Inc. since 2014.

David H. Y. Ho. Mr. Ho has served as a director of Pentair since 2007. Mr. Ho is Chairman and founder of Kiina Investment Limited, a venture capital firm that invests in start-up companies in the technology, media, and telecommunications industries, and has significant executive experience with global technology companies. From 2007 until his retirement in 2008, he served as the Chairman of the Greater China Region for Nokia Siemens Networks, a telecommunications infrastructure company that is a joint venture between Finland-based Nokia Corporation and Germany-based Siemens AG. Between 2002 and 2007, Mr. Ho served in various capacities for Nokia China Investment Limited, the Chinese operating subsidiary of Nokia Corporation, a multinational telecommunications company. Mr. Ho is also a director of China COSCO Shipping Corporation, formerly China Ocean Shipping Company, a Chinese state owned enterprise (since 2016), and China Mobile Communications Corporation, a Chinese state owned enterprise (since 2016), and was a director of Sinosteel Corporation from 2008 to 2012 and Dong Fang Electric Corporation from 2009 to 2015. Mr. Ho will bring extensive experience and business knowledge of global markets in diversified industries, with a strong track record in establishing and building businesses in China, and management expertise in operations, mergers, acquisitions and joint ventures in the area. Mr. Ho has served on the board of directors of the following public companies: Air Products and Chemicals, Inc. since 2013, Qorvo, Inc. since 2015, Owens-Illinois Inc. from 2008 – 2012 and 3Com Corporation from 2008 – 2010.

Randall J. Hogan. Mr. Hogan will be a non-executive Chairman of the Board. Mr. Hogan has served as Pentair’s Chief Executive Officer since January 1, 2001 and Chairman of Pentair’s board of directors since May 1, 2002. From December 1999 through December 2000, Mr. Hogan was Pentair’s President and Chief Operating Officer. From March 1998 to December 1999, he was Executive Vice President and President of Pentair’s Electrical and Electronic Enclosures Group. Mr. Hogan also held leadership roles with United Technologies Corporation as President of the Carrier Transicold Division; Pratt & Whitney Industrial Turbines as Vice President and General Manager; General Electric Company in executive positions in a variety of functions such as marketing, product management, and business development and planning; and McKinsey & Company as a consultant. Mr. Hogan has significant leadership experience both with Pentair and predecessor employers demonstrating a wealth of operational management, strategic, organizational and business transformation acumen. His deep knowledge of business in general and our businesses, strengths and opportunities in particular, as well as his experience as a director in two other complex global public companies will allow him to make significant contributions to the board of directors. Mr. Hogan has served on the board of directors of the following public companies: Medtronic plc since 2015 and Covidien plc from 2007 – 2015.

Ronald L. Merriman. Mr. Merriman has served as a director of Pentair since 2004. He has also served as Managing Director of Merriman Partners, and Managing Director of O’Melveny & Myers LLP. He is the retired Vice Chair of KPMG, a global accounting and consulting firm, where he served for 30 years in various positions,

 

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including as a member of the Executive Management Committee and as a member of the Board of Directors. Mr. Merriman also led KPMG’s Global Transportation & Logistics Practice and its Global Healthcare Practice and served as its U.S. Liaison Partner for Asia. Mr. Merriman’s extensive accounting and financial background will strengthen our Audit and Finance Committee and its processes. In addition, his global experience will assist us in our expansion into overseas markets. Mr. Merriman has served on the board of directors of the following public companies: Realty Income Corporation since 2005, Aircastle Limited since 2006 and Haemonetics Corporation from 2005 – 2017.

William T. Monahan. Mr. Monahan will be the Lead Director of our board of directors. Mr. Monahan is currently the Lead Director of Pentair and has served as a director of Pentair since 2001. In 2006, Mr. Monahan served as a director and the Interim Chief Executive Officer of Novelis, Inc., a global leader in aluminum rolled products and aluminum can recycling. From 1995 to 2004, Mr. Monahan was Chairman of the board of directors and Chief Executive Officer of Imation Corp., a manufacturer of magnetic and optical data storage media. He was involved in worldwide marketing with Imation and prior to that he held numerous leadership roles at 3M Company. Mr. Monahan will bring to our Board a wealth of global operational and management experience, as well as a deep understanding of our business gained as a long serving member of Pentair’s board of directors. Mr. Monahan has extensive service as a board member and chief executive officer at companies in a number of different industries. His broad international perspective on business operations will be instrumental as we become more global. Mr. Monahan has served on the board of directors of the following public companies: Mosaic Company since 2004, Hutchinson Technology, Inc. from 2000 – 2013, Solutia Inc. from 2008 – 2012, Novelis, Inc. from 2005 – 2007 and Imation Corp. from 1995 – 2004.

Herbert K. Parker. Mr. Parker is the retired Executive Vice President – Operational Excellence of Harman International Industries, Inc., a worldwide developer, manufacturer and marketer of audio products, lighting solutions and electronic systems, serving in that role from January 2015 until 2017. From 2008 to December 2014, Mr. Parker was the Executive Vice President and Chief Financial Officer of Harman Industries, Inc. Previously, Mr. Parker served in various financial positions with ABB Ltd. (known as ABB Group), a global power and technology company, from 1980 to 2008, including as Chief Financial Officer of the Americas region. Mr. Parker began his career as a staff accountant with C-E Systems. Mr. Parker will bring to our board of directors extensive experience in financial reporting, accounting and Sarbanes-Oxley compliance for public companies. His experience serving as a financial executive with multiple public companies provides him with subject matter expertise in finance, asset management and other areas of risk oversight. Mr. Parker has served on the board of directors of the following public companies: TriMas Corporation since 2015 and TMS International Corp. from 2012 – 2013.

Beth A. Wozniak. Ms. Wozniak will be the Chief Executive Officer of nVent. Ms. Wozniak is currently President of Pentair’s Electrical segment and has served in that role since 2017. Ms. Wozniak previously served as President of Pentair’s Flow & Filtration Solutions Global Business Unit from 2015 – 2016. Ms. Wozniak was President of the Environmental and Combustion Controls unit of Honeywell International Inc. (a software-industrial company) from 2011 – 2015 and President of the Sensing and Controls unit of Honeywell International Inc. from 2006 – 2011, and she held various leadership positions at Honeywell International Inc. and its predecessor AlliedSignal Inc. from 1990 – 2006. Ms. Wozniak will bring extensive experience in leading complex, global businesses operations and will contribute leadership expertise and insights to our Board.

Committees of the Board of Directors

Effective upon the completion of the separation, our board of directors is expected to have the following standing committees: an Audit and Finance Committee, a Compensation Committee and a Governance Committee. Committee members will generally meet in executive session without management present at each meeting.

 

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Audit and Finance Committee

The Audit and Finance Committee is expected to consist of Ronald L. Merriman (Chair), Susan M. Cameron, William T. Monahan and Herbert K. Parker, each of whom is expected to be independent under the NYSE and SEC rules. It is expected that each of the members of the Committee will be financially literate under NYSE rules and one or more members of the Committee will qualify as “audit committee financial experts” under SEC rules. The Audit and Finance Committee will be responsible, among other things, for assisting our board of directors with oversight of our accounting and financial reporting processes, oversight of our financing strategy, investment policies and financial condition, audits of our financial statements, and monitoring the effectiveness of our systems of internal control, internal audit and risk management. These responsibilities will include the integrity of the financial statements, compliance with legal and regulatory requirements, the independence and qualifications of our external auditor and the performance of our internal audit function and of the external auditor. The Committee will be directly responsible for the appointment, compensation, evaluation, terms of engagement (including retention and termination) and oversight of the independent registered public accounting firm. The Committee will hold meetings periodically with our independent and internal auditors, our board of directors and management to review and monitor the adequacy and effectiveness of reporting, internal controls, risk assessment and compliance with our policies.

Compensation Committee

The Compensation Committee is expected to consist of Jerry W. Burris (Chair), Brian M. Baldwin, Michael L. Ducker and David H. Y. Ho, each of whom is expected to be independent under NYSE and SEC rules. The Compensation Committee will set and administer the policies that govern executive compensation. This will include establishing and reviewing executive base salaries and administering cash bonus and equity-based compensation under our Stock and Incentive Plan. The Committee will also set the Chief Executive Officer’s compensation based on our board of director’s annual evaluation of his or her performance. The Committee will engage an independent compensation consulting firm to aid the Committee in its annual review of our executive compensation programs for continuing appropriateness and reasonableness and to make recommendations regarding executive officer compensation levels and structures. In reviewing our compensation programs, the Committee will also consider other sources to evaluate external market, industry and peer company practices. A more complete description of the Compensation Committee’s practices can be found under “Compensation Discussion and Analysis” under the headings “Comparative Framework” and “Compensation Consultant.”

Governance Committee

The Governance Committee is expected to consist of David H. Y. Ho (Chair), Jerry W. Burris, Brian M. Baldwin and Michael L. Ducker, each of whom is expected to be independent under NYSE rules. The Governance Committee will be responsible for, among other things, identifying individuals qualified to become directors and recommending nominees to our board of directors for election at annual general meetings. In addition, the Committee will monitor developments in director compensation and, as appropriate, recommend changes in director compensation to our board of directors. The Committee will also be responsible for reviewing annually and recommending to our board of directors changes to our Corporate Governance Principles and administering our annual board of directors and board committee self-assessment. Finally, the Committee will oversee public policy matters and compliance with our Code of Business Conduct and Ethics.

Director Independence

Our board of directors, based on the recommendation of the Governance Committee, will determine the independence of each director based upon the NYSE listing standards and the categorical standards of independence in the Corporate Governance Principles to be adopted by our board of directors. Based on these standards, it is anticipated that our board of directors will determine all of our non-employee directors other than Mr. Hogan (i.e., Brian M. Baldwin, Jerry W. Burris, Susan M. Cameron, Michael L. Ducker, David H. Y. Ho,

 

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Ronald L. Merriman and William T. Monahan, Herbert K. Parker) will be independent and have no material relationship with us (including our directors and officers) that would interfere with their exercise of independent judgment. Mr. Hogan cannot be considered independent under NYSE rules until three years after the distribution because he was the Chief Executive Officer of Pentair. Ms. Wozniak (the only employee who is a director) cannot be considered independent under NYSE rules because she is our Chief Executive Officer. In determining independence, our board of directors and Governance Committee will consider circumstances where a director serves as an employee of another company that is a customer or supplier.

Director Qualifications; Diversity and Tenure

Our board of directors’ contributions and effectiveness depend on the character and abilities of each director individually as well as on their collective strengths. Accordingly, the Governance Committee and our board of directors will evaluate candidates based on several criteria. Directors will be chosen with a view to bringing to our board of directors a variety of experience and backgrounds and establishing a core of business advisers with financial and management expertise. The Committee and our board of directors will also consider candidates with substantial experience outside the business community, such as in the public, academic or scientific communities. In addition, the Committee and our board of directors will consider the tenure of incumbent directors, with the goal of having a mix of shorter-tenured directors who provide fresh perspectives and longer-tenured directors who provide experience regarding our company and its business.

When considering candidates for election as directors, the Committee and our board of directors will be guided by the following principles, which are expected to be included in our Corporate Governance Principles to be adopted by our board of directors:

 

    at least a majority of our board of directors must consist of independent directors;

 

    each director should be chosen without regard to gender, sexual orientation, race, religion or national origin;

 

    each director should be an individual of the highest character and integrity and have an inquiring mind, vision and the ability to work well with others;

 

    each director should be free of any conflict of interest that would violate any applicable law or regulation or interfere with the proper performance of his or her responsibilities as a director;

 

    each director should possess substantial and significant experience that could be important to us in the performance of his or her duties;

 

    each director should have sufficient time available to devote to our affairs; and

 

    each director should have the capacity and desire to represent the balanced, best interests of the shareholders as a whole and not primarily the interests of a special interest group or constituency and be committed to enhancing long-term shareholder value.

Our policies on director qualifications will emphasize our commitment to diversity at our board of directors level—diversity not only of gender, sexual orientation, race, religion or national origin but also diversity of experience, expertise and training. The Governance Committee in the first instance will be charged with observing these policies, and will strive in reviewing each candidate to assess the fit of his or her qualifications with the needs of our board of directors and our company at that time, given the then current mix of directors’ attributes. Board composition, effectiveness and processes will be subject areas of our annual board self-assessment, which is described in more detail below under “—Board and Committee Self-Assessments.”

Shareholder Recommendations, Nominations and Proxy Access

Our Corporate Governance Principles to be adopted by our board of directors will provide that the Governance Committee will consider persons properly recommended by shareholders to become nominees for election as directors in accordance with the criteria described above under “—Director Qualifications; Diversity and

 

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Tenure.” Recommendations for consideration by the Governance Committee, together with appropriate biographical information concerning each proposed nominee, should be sent in writing to c/o Corporate Secretary, nVent Electric plc, The Mille, 1000 Great West Road, 8th Floor (East), London, TW8 9DW, United Kingdom.

Our articles of association will set forth procedures to be followed by shareholders who wish to nominate candidates for election as directors in connection with an annual general meeting. All such nominations must be accompanied by certain background and other information specified in our articles of association and submitted within the timing requirements set forth in our articles of association. See “Description of nVent’s Share Capital—Advance Notice Provisions” for more information.

In addition, eligible shareholders may under certain circumstances be able to nominate and include in our proxy materials a specified number of candidates for election as directors under the proxy access provisions in our articles of association. All such nominations must be accompanied by certain background and other information specified in our articles of association and submitted within the timing requirements set forth in our articles of association. See “Description of nVent’s Share Capital—Proxy Access” for more information.

Compensation Committee Interlocks and Insider Participation

During the year ended December 31, 2017, we were not an independent company, and we did not have a compensation committee or any other committee serving a similar function. Decisions as to the compensation of those who are expected serve as our executive officers were made by Pentair, as described in “Compensation Discussion and Analysis.”

The Board’s Role and Responsibilities

Risk Oversight

We will institute an enterprise-wide risk management system to assess, monitor and mitigate risks that arise in the course of our business. Our board of directors as a whole, and not a separate committee, will oversee our risk management process. Each of our board committees will focus on specific risks within their respective areas of responsibility, but the overall enterprise risk management process will be overseen by the full board. Our chief financial officer and general counsel will be the primary personnel responsible to our board of directors in the planning, assessment and reporting of our risk profile. Our board of directors will review an assessment of, and a report on, our risk profile on a regular basis.

Oversight in Company Strategy

It is anticipated that at least once per year, our board of directors and senior management will engage in an in-depth strategic review of our outlook and strategies, which is designed to create long-term shareholder value and serves as the foundation upon which goals are established. Throughout the year, our board of directors will monitor management’s progress against such goals.

Oversight in Succession Planning

It is anticipated that at least once annually, usually as part of the annual talent review process, our board of directors will discuss and review the succession plans for the Chief Executive Officer position and other executive officers and key contributors. The directors are expected to become familiar with potential successors for key management positions through various means, including annual talent reviews, presentations to our board of directors and communications outside of meetings. Our succession planning process will be an organization-wide practice designed to proactively identify, develop and retain the leadership talent that is critical for our future business success.

 

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Communicating with Shareholders and other Stakeholders

We believe that maintaining an active dialogue with our shareholders will be important to our long-term success. We value the opinions of shareholders and other stakeholders and will welcome their views throughout the year on key issues.

If you wish to communicate with our board of directors, non-employee directors as a group or any individual director, including the Chairman of the Board, Lead Director or any director who chairs executive sessions of the board, you may send a letter addressed to the relevant party, c/o Corporate Secretary, nVent Electric plc, The Mille, 1000 Great West Road, 8th Floor (East), London, TW8 9DW, United Kingdom. Any such communications will be forwarded directly to the addressee(s).

Board Structure and Process

As part of our commitment to the highest standards of corporate governance and ethics, our board of directors will adopt a set of Corporate Governance Principles that will set out our policies on:

 

    selection and composition of our board of directors;

 

    board leadership;

 

    board composition and performance;

 

    responsibilities of our board of directors;

 

    our board of directors’ relationship to senior management;

 

    meeting procedures;

 

    committee matters; and

 

    succession planning and leadership development.

Our board of directors will regularly review and, if appropriate, revise the Corporate Governance Principles and other governance instruments, including the charters of the Audit and Finance, Compensation and Governance Committees, in accordance with rules of the SEC and the NYSE. Our board of directors will also adopt a Code of Business Conduct and Ethics and designate it as the code of ethics for our Chief Executive Officer and senior financial officers.

Copies of these documents will be available, free of charge, on our website at www.nVent.com/investors.

Board Leadership Structure

We do not anticipate having a policy requiring the positions of Chairman of the Board and Chief Executive Officer to be held by different persons. Rather, our board of directors will have the discretion to determine whether the positions should be combined or separated. Following the separation, our board of directors’ leadership structure is expected to include separate roles of Chairman of the Board and Chief Executive Officer, with Randall J. Hogan serving as Chairman of the Board and Beth A. Wozniak serving as Chief Executive Officer. Mr. Hogan has wide-ranging, in-depth knowledge of our business arising from his many years of service to Pentair, and, as a result, we believe that he will provide effective leadership to our board of directors as Chairman of the Board. We believe this leadership structure will be beneficial for us because it will demonstrate to our employees and other shareholders that nVent is under strong leadership, coordinated closely between a separate Chairman and Chief Executive Officer.

We expect that William T. Monahan will serve as Lead Director. The independent directors are expected to annually appoint one independent director to serve as Lead Director so long as the Chairman of the Board is not an independent director. The role of the Lead Director will be to provide independent leadership to our board of directors, act as liaison between and among the non-employee directors and our company, and to seek to ensure

 

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that our board of directors operates independently of management. The Lead Director’s principal responsibilities will include:

 

    chairing the board of directors in the absence of the Chairman of the Board;

 

    presiding over all executive sessions of independent directors;

 

    in conjunction with the Chairman of the Board and the Chair of the Compensation Committee, reporting to the Chief Executive Officer on the board’s annual review of his or her performance;

 

    in conjunction with the Chairman of the Board, approving the agenda for Board meetings, including scheduling to assure sufficient time for discussion of all agenda items;

 

    in conjunction with the Chairman of the Board and board committee chairs, ensuring an appropriate flow of information to the directors;

 

    holding one-on-one discussions with individual directors where requested by directors or the board; and

 

    carrying out other duties as requested by the board.

Board and Committee Self-Assessments

Our board of directors will conduct an annual self-assessment of the board and each board committee. The assessment process will consist of a written evaluation comprising both quantitative scoring and narrative comments on a range of topics, including the composition and structure of our board of directors, the type and frequency of communications and information provided to our board of directors and the committees, our board’s effectiveness in carrying out its functions and responsibilities, the effectiveness of the committee structure, directors’ preparation and participation in the meetings and the values and culture displayed by our board members. The evaluation responses will be compiled by a third party and shared with the Lead Director and Governance Committee Chair who will lead a discussion of the assessment results at the following board meeting.

In addition, a verbal assessment will be conducted in independent executive session at the end of every board and Committee meeting. This assessment includes a discussion of various aspects of our board’s or Committee’s effectiveness.

Board Education

Board education will be an ongoing, year-round process, which will begin when a director joins our board of directors. Upon joining our board of directors, new directors will be provided with a comprehensive orientation to our company, including our business, strategy and governance. For example, new directors are expected to participate in one-on-one introductory meetings with our senior business and functional leaders. On an ongoing basis, directors will receive presentations on a variety of topics related to their work on our board of directors and within the industry, both from senior management and from experts outside of the company. Directors will also be able to enroll in continuing education programs sponsored by third parties at our expense.

Attendance at Meetings

Members of our board of directors will be expected to attend all scheduled meetings of our board of directors and the board committees on which they serve. In each regularly scheduled meeting, the independent directors will be expected to meet in executive session, without the Chief Executive Officer or other members of management present. We will expect our directors to attend our annual general meetings.

 

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COMPENSATION DISCUSSION AND ANALYSIS

Introduction

The Electrical business is currently part of Pentair, and nVent’s Compensation Committee has yet to be formed. This Compensation Discussion and Analysis describes the historical compensation practices of Pentair and attempts to outline certain aspects of nVent’s anticipated compensation structure for its executive officers following the separation. While nVent discussed its anticipated programs and policies with the Compensation Committee of Pentair’s board of directors (which we refer to as the “Pentair Compensation Committee”), they remain subject to the review and approval of nVent’s own compensation committee (which we refer to as the “nVent Compensation Committee”). Following the separation, the compensation of nVent’s executive officers will be determined by the nVent Compensation Committee consistent with the compensation and benefit plans, programs and policies adopted by nVent. Additional information about nVent’s expected executive officer team following the separation is set forth in the section of this information statement entitled “Management—Executive Officers Following the Separation.” The nVent Compensation Committee will review these practices, and may make adjustments to support nVent’s strategies to remain market competitive.

For purposes of the following Compensation Discussion and Analysis and executive compensation disclosures, the individuals listed below are referred to collectively as our “Named Executive Officers.” They are the persons who are expected to be appointed to serve as our Chief Executive Officer, our Chief Financial Officer and our other three most highly compensated executive officers, based on fiscal 2017 compensation from Pentair.

 

    Beth A. Wozniak, Chief Executive Officer. Prior to the separation, Ms. Wozniak served as President of the Electrical business.

 

    Stacy P. McMahan, Executive Vice President and Chief Financial Officer. Ms. McMahan commenced employment with Pentair on October 2, 2017.

 

    Benjamin R. Sommerness, Executive Vice President, Chief Growth and Strategy Officer. Mr. Sommerness commenced employment with Pentair on December 11, 2017.

 

    Joseph A. Ruzynski, President of Enclosures. Prior to the separation, Mr. Ruzynski served as Strategic Business Unit Vice President for Enclosures.

 

    Lynnette R. Heath, Executive Vice President and Chief Human Resources Officer. Ms. Heath commenced employment with Pentair on December 4, 2017.

The historical decisions relating to the compensation of Ms. Wozniak, who served as an executive officer of Pentair in fiscal year 2017 and prior years, were made by the Pentair Compensation Committee. The historical decisions for Mr. Ruzynski, who was not an executive officer of Pentair, were established by Pentair through its processes for non-executive officer compensation. Each of Ms. McMahan, Mr. Sommerness and Ms. Heath were hired in 2017 to specifically fill executive officer positions with nVent at the time of the separation, and as such, their compensation for 2017 was set at their time of hire by the Pentair Compensation Committee.

Overview of Compensation Program, Philosophy and Objectives

Historical

The Pentair Compensation Committee sets and administers the policies governing Pentair’s executive compensation, including:

 

    establishing and reviewing executive base salaries;

 

    overseeing Pentair’s annual compensation plans;

 

    overseeing Pentair’s long-term equity-based compensation plans;

 

    approving all awards under those plans for Pentair’s executive officers;

 

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    annually evaluating risk considerations associated with Pentair’s executive compensation programs; and

 

    annually approving all compensation decisions for Pentair’s executive officers.

The Pentair Compensation Committee believes that the most effective executive compensation program aligns executive initiatives with shareholders’ economic interests. The Pentair Compensation Committee seeks to accomplish this by rewarding the achievement of specific annual, long-term and strategic goals that create lasting shareholder value. The Pentair Compensation Committee follows the below objectives when designing and setting compensation for its executive officers, including those within the Electrical business:

 

    compensation should motivate and reward executives for achieving financial and strategic objectives;

 

    compensation should align management and shareholder interests by encouraging employee stock ownership;

 

    compensation should provide rewards commensurate with individual and company performance;

 

    compensation should encourage growth and innovation; and

 

    compensation should attract and retain top-quality executives and key employees.

To balance the objectives described above, the Pentair executive compensation program uses the following direct compensation elements:

 

    base salary, to provide fixed compensation competitive in the marketplace;

 

    annual incentive compensation, to reward short-term performance against specific financial targets and individual goals; and

 

    long-term incentive compensation, to link management incentives to long-term value creation and shareholder return.

Pentair also provides retirement and other benefits to attract and retain executives over the long-term.

Going Forward

Our executive compensation philosophy of nVent will be developed and established by the nVent Compensation Committee following the separation. It is expected that after the separation, we will follow similar objectives as described above when designing and setting compensation for our Named Executive Officers. In addition, we anticipate that our executive compensation program will be comprised of compensation elements similar to those provided to Pentair’s executive officers.

Comparative Framework

Historical

In setting compensation for its executive officers, including Ms. Wozniak, the Pentair Compensation Committee uses competitive compensation data from an annual total compensation study of selected peer companies and other relevant survey sources to inform its decisions about overall compensation opportunities and specific compensation elements. Additionally, the Pentair Compensation Committee uses multiple reference points when establishing targeted compensation levels. The Pentair Compensation Committee applies judgment and discretion in establishing targeted pay levels, taking into account not only competitive market data, but also factors such as company, business unit and individual performance, scope of responsibility, critical needs and skill sets, experience, leadership potential and succession planning. In setting compensation for 2017 for Ms. Wozniak, the Pentair Compensation Committee engaged Aon Hewitt to provide the annual total compensation study of

 

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selected peer groups referred to above. The companies in Pentair’s peer group were selected because they each share the following characteristics:

 

    publicly-traded on a major exchange;

 

    similar in business scope and/or operations to Pentair’s business units and global in nature;

 

    within a reasonable revenue range (generally 0.5x to 3x) compared to Pentair’s revenue; and

 

    engaged in the same or a similar industry to Pentair, based on Global Industry Classification Standard (“GICS”) code: industrial machinery, electrical components and equipment, agricultural and farm machinery, building products, electronic components, industrial conglomerates and security and alarm services.

In late 2016, in anticipation of Pentair’s sale of its Valves & Controls business, the Pentair Compensation Committee asked Aon Hewitt to provide recommendations concerning potential changes to Pentair’s peer group. Based on Aon Hewitt’s review and recommendations and the foregoing criteria, the Pentair Compensation Committee approved changes to Pentair’s group of peer companies for benchmarking purposes with respect to 2017 compensation, consisting of the following 18 companies (the “Pentair Comparator Group”):

 

AGCO Corporation

  

Colfax Corporation

  

Cummins Inc.

Danaher Corporation

  

Dover Corporation

  

Flowserve Corporation

Hubbell Inc.

  

Illinois Tool Works Inc.

  

Ingersoll-Rand plc

Masco Corp.

  

Parker-Hannifin Corporation

  

Regal Beloit Corporation

Rockwell Automation, Inc.

  

Stanley Black & Decker, Inc.

  

The Timken Company

Trinity Industries, Inc.   

W.W. Grainger, Inc.

   Xylem Inc.

The Pentair Comparator Group companies had revenues ranging from approximately $2.872 billion to $17.600 billion, with median revenues of approximately $7.049 billion. Pentair’s revenue for 2017 was $4.9 billion.

Going Forward

The Pentair Compensation Committee, with recommendations from Aon Hewitt, adopted an initial peer group for nVent for benchmarking purposes. To establish our peer group, Pentair’s Compensation Committee sought companies similar to nVent in size and characteristics, using the same criteria it used to establish Pentair’s peer group, listed above (i.e. publicly traded on a major exchange, similar in business scope and/or operations, within a reasonable revenue range and engaged in the same or similar industry to nVent). Based on such criteria, the Pentair Compensation Committee selected the following companies as our initial peer group for benchmarking purposes (the “nVent Comparator Group”):

 

A. O. Smith Corporation

  

Actuant Corporation

  

Acuity Brands, Inc.

Atkore International Group Inc.

  

Belden Inc.

  

Colfax Corporation

EnerSys

  

Generac Holdings Inc.

  

General Cable Corporation

Hubbell Incorporated

  

IDEX Corporation

  

Lincoln Electric Holdings, Inc.

Littelfuse, Inc.

  

Regal Beloit Corporation

  

Snap-on Incorporated

The Timken Company

  

Valmont Industries, Inc.

  

Woodward, Inc.

The nVent Comparator Group companies had revenues ranging from approximately $1.0 billion to $3.9 billion, with median revenues of approximately $2.4 billion. nVent’s revenue for 2017 was $2.1 billion.

Following the separation, the nVent Compensation Committee will review the nVent Comparator Group on a periodic basis and determine whether any changes are appropriate based on its view of our competitive environment. Like Pentair, we also expect that the nVent Compensation Committee will use multiple reference points when establishing targeted compensation levels for nVent’s executive officers in addition to using competitive compensation data from the nVent Comparator Group.

 

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Cash and Equity Compensation

Historical

The below discussion relates to decisions made by the Pentair Compensation Committee in connection with cash and equity compensation paid to our Named Executive Officers by Pentair in 2017.

Base Salaries

During 2017, Pentair provided each of our Named Executive Officers with a fixed base salary. Base salaries for Pentair’s executive officers, including Ms. Wozniak, were set by Pentair’s Compensation Committee. In setting base salaries for its executive officers, the Pentair Compensation Committee generally references comparable positions at peer companies based on available market data, which include published survey data and proxy statement data for Pentair’s Comparator Group, but did not set base salaries based on a particular peer group benchmark or any single factor. Base salaries for non-executive officers, such as Mr. Ruzynski, were set according to Pentair’s general process for determining non-executive officer salaries, which includes input from each officer’s manager and approval by the Chief Executive Officer. In December 2016, the Pentair Compensation Committee undertook its annual review of base salaries for its executive officers and other management personnel, in accordance with its normal procedures. Ms. Wozniak did not receive a base salary increase in 2017. Mr. Ruzynski received an annual merit increase of 2.5 percent in 2017.

In connection with each of Ms. McMahan’s, Mr. Sommerness’s and Ms. Heath’s commencement of employment on October 2, 2017, December 11, 2017, and December 4, 2017, respectively, the Compensation Committee set their base salaries based on a wide range of factors, including their anticipated scope of responsibilities at nVent, a market review, the individual’s prior compensation level and arm’s length negotiations with each individual.

Differences in 2017 base salaries among our Named Executive Officers were the result of numerous factors such as competitive conditions for the executive officer’s position within the Pentair Comparator Group and in the broader employment market, as well as the executive officer’s level of responsibility, experience and individual performance.

Annual Incentive Compensation and Cash Bonuses

Pentair pays a portion of its cash compensation to its senior management as incentive compensation tied to annual business performance as measured against annual goals established by the Pentair Compensation Committee. In 2017, Pentair provided cash annual incentive compensation to its executive officers and other key employees, including Ms. Wozniak, Ms. McMahan and Mr. Ruzynski, under the Management Incentive Plan (“MIP”). Because Pentair hired Mr. Sommerness and Ms. Heath late in 2017, they were not eligible to participate in the MIP in 2017. MIP awards were granted under the Pentair plc 2012 Stock and Incentive Plan and payouts were determined by a pre-established formula. The Pentair Compensation Committee had no discretion to increase formula-derived incentive compensation under the MIP.

For Pentair’s executive officers, including Ms. Wozniak, the Pentair Compensation Committee set target payouts under the MIP in 2017 as a percentage of the executive’s base salary. Such percentage and target amounts were determined based on the Pentair Compensation Committee’s review of Aon Hewitt’s recommendations, relevant survey data, recommendations of the Chief Executive Officer, competitive conditions for officer’s position within the Pentair Comparator Group and in the broader employment market, as well as the officer’s performance, level of responsibility and experience. The Pentair Compensation Committee did not set target incentive compensation opportunities based on a particular peer group benchmark or any single factor.

For non-executive officers, including Mr. Ruzynski, each officer’s manager set target payouts under the MIP as a percentage of the executive’s base salary, subject to approval by the Chief Executive Officer.

 

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The Pentair Compensation Committee set Ms. McMahan’s target payout under the MIP as a percentage of her annual base salary at the time that she was hired in October 2017 based on a variety of factors, including arm’s length negotiations with Ms. McMahan and market data, including proxy statement data for comparable positions in the nVent Comparator Group. However, the Compensation Committee decided that Ms. McMahan’s payout under the MIP, if any, would be prorated to reflect that she was only employed with Pentair for the final quarter of 2017.

The MIP targets, expressed as a percentage and a dollar amount based on 2017 base salary, were as follows:

 

     Target as a %
of Salary
    Target ($)      Prorated
Target ($)
 

Beth Wozniak

     80   $ 388,000        N/A  

Stacy McMahan

     75   $ 375,000      $ 93,750  

Ben Sommerness

                  N/A  

Joseph Ruzynski

     45   $ 131,456        N/A  

Lynnette Heath

                  N/A  

Depending on actual company performance, Ms. Wozniak, Ms. McMahan and Mr. Ruzynski could earn 0 to 2.4 times the target (or, with respect to Ms. McMahan, the prorated target) indicated above.

The Pentair Compensation Committee approved the performance metrics for the MIP that applied to each of Ms. Wozniak, Ms. McMahan and Mr. Ruzynski. The performance metrics selected for 2017 were recommended to the Pentair Compensation Committee by Pentair’s Chief Executive Officer based on each metric’s alignment with Pentair’s overall business goals. The MIP performance metrics approved by the Pentair Compensation Committee for each of Ms. Wozniak, Ms. McMahan and Mr. Ruzynski, as well as the weight assigned to each performance goal and the corresponding payout level, are set forth in the tables below.

Ms. Wozniak’s and Ms. McMahan’s MIP performance goals were based on Pentair’s company-wide performance, as follows:

 

Financial Performance Measure

  Weight    

Threshold

(Required for any
payout; payouts

begin at 50%)

 

Target

(100% payout)

 

Superior
Performance
(200% payout)

 

Excellence

(300% payout)

Segment Income (income before income taxes excluding interest expense, loss on sale of businesses, restructuring, intangible amortization, pension and other post-retirement mark-to-market loss and tradename impairment)

    40   $840 million   $900 million   $940 million   $975 million

Free Cash Flow (cash from operating activities less capital expenditures, plus proceeds from sale of property and equipment)

    30   $530 million   $590 million   $650 million   N/A

Income from Growth (income generated by sales growth (price, mix, and volume))

    30   $0   $30 million   $110 million   N/A

 

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Because Mr. Ruzynski served as Pentair’s Strategic Business Unit Vice President for Enclosures during 2017, his MIP performance goals were primarily based on Pentair’s Enclosure business unit, other than the SDF factor which was based on a Pentair company-wide EBITDA hurdle and Mr. Ruzynski’s individual performance, as follows:

 

Financial Performance Measure

  Weight    

Threshold
(Required for any
payout; payouts
begin at 75%)

 

Target

(100% payout)

 

Superior
Performance
(200% payout)

 

Excellence
(300% payout)

Segment Income (income before income taxes excluding interest expense, loss on sale of businesses, restructuring, intangible amortization, pension and other post-retirement mark-to-market loss and tradename impairment)

    40   $175 million   $189.2 million   $197.6 million   $205 million

Income from Growth (income generated by sales growth (price, mix, and volume))

    40   $3.1 million   $7.3 million   $15.7 million   N/A

Individual Strategy Deployment (“SDF”) (contingent on Pentair company-wide EBITDA hurdle, defined as earnings before interest, taxes, depreciation and amortization)

    20   EBITDA of $975 million was required for any payout   N/A

The Pentair Compensation Committee set target levels for each of the performance metrics so they aligned with the corporate objectives in Pentair’s annual operating plan. To provide an added performance incentive, the Pentair Compensation Committee determined the amount of incentive compensation related to each performance goal (other than the EBITDA/Individual SDF metric) would be scaled according to the amount by which the measure exceeded or fell short of the target. The Pentair Compensation Committee also determined the performance goals for each metric should include a threshold level below which no incentive compensation would be earned.

In the case of the combined EBITDA/SDF metric applicable to Mr. Ruzynski, if the EBITDA threshold was not attained, no award would be made for this performance goal. If the EBITDA threshold was attained, then Mr. Ruzynski would be eligible for up to the maximum payout under this component of the award. The Pentair Compensation Committee retained the discretion to reduce, but not to increase, the amount of the payout under this component based upon the his individual performance, as measured according to the SDF. The SDF measures an individual executive’s performance against expectations in the attainment of corporate strategic goals. Mr. Ruzynski’s SDF was recommended by his managers and approved by the Chief Executive Officer.

The actual incentive compensation earned by each of our Named Executive Officers was determined by multiplying the eligible target incentive compensation amount by a multiplier determined as described above. For Ms. Wozniak and Ms. McMahan, actual results as measured by the performance goals under the MIP were as follows:

 

Financial Performance Measure

  Weight     Actual
Financial
Results
    Payout %     Weighted
Payout %
 

Segment Income (As Adjusted for the MIP)

    40     882.7       92.8     37.1

Free Cash Flow

    30     627.0       161.7     48.5

Income from Growth

    30     68.0       147.5     44.2

Actual results for Mr. Ruzynski were as follows:

 

Financial Performance Measure

  Weight     Actual
Financial
Results
    Payout %     Weighted
Payout %
 

Segment Income (As Adjusted for the MIP)

    40     155.5       0.0     0.0

Income from Growth

    40     13.0       167.9     67.2

SDF (contingent on Pentair company-wide EBITDA hurdle)

    20     982.8       110.0     22.0

 

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Adjustments to operating income for factors specified in the MIP included: restructuring and other charges ($32.0 million), separation costs ($53.1 million), intangible and other asset impairment ($32.0 million), pension “mark to market” losses ($1.6 million), intangible asset amortization ($97.7 million), and foreign exchange impact (-$14.5 million). Adjustments to free cash flow for factors specified in the MIP include separation costs of $16.1 million. These adjustments for factors specified in the MIP are the same as those used to calculate Pentair’s segment income as disclosed elsewhere in this information statement.

Pentair determined that Mr. Ruzynski’s performance in 2017 met or exceeded individual performance expectations with respect to the EBITDA/SDF component, and as such, the payout percentage for his EBITDA/SDF measure was 110 percent. Based on the foregoing, the Named Executive Officers received the MIP payouts that are reflected in the “Non-Equity Incentive Plan Compensation” column under “Executive Compensation—Summary Compensation Table.”

Other Cash Bonuses

Mr. Sommerness and Ms. Heath each received a sign-on bonus of $700,000 and $500,000, respectively, based on arm’s length negotiations with Pentair to address compensation forfeitures related to his or her prior employment. These sign-on bonuses are subject to a clawback if the individual’s employment with Pentair or nVent terminates within the first two years.

Pentair also paid Mr. Ruzynski a one-time bonus amount in 2017 equal to $500,000 to recognize his time and efforts in connection with Pentair’s sale of its Valves & Controls business.

2017 Long-Term Incentive Compensation

In 2017, the Pentair Compensation Committee awarded long-term incentive compensation under the Pentair plc 2012 Stock and Incentive Plan to each of our Named Executive Officers. As it does each year, the Pentair Compensation Committee referenced benchmark data (including compensation surveys, Pentair Comparator Group information and other data provided by its independent compensation consultant) in setting target dollar award levels for each of its executive officers, including Ms. Wozniak, and for each position or grade level. Ms. Wozniak’s target long-term incentive compensation was set at a competitive level based on competitive conditions in the Pentair Comparator Group data. Mr. Ruzynski’s target long-term incentive compensation was set in accordance with Pentair’s standard practice for other executives, which includes recommendations by each officer’s manager and approval by the Chief Executive Officer. Because they joined Pentair late in 2017, neither Ms. McMahan, Mr. Sommerness or Ms. Heath were eligible to participate in Pentair’s long-term incentive program for 2017.

The Pentair Compensation Committee approved in December 2016 the elements and mix of long-term incentive compensation granted under the Pentair plc 2012 Stock and Incentive Plan. The Pentair Compensation Committee granted each then-serving executive officer, including Ms. Wozniak, a mix of the following components, effective January 3, 2017: stock options, restricted stock units and performance share units. Mr. Ruzynski was granted a mix of stock options, restricted stock units and performance share units effective March 1, 2017 in accordance with Pentair’s long-term incentive program for non-officer executives under the Pentair plc 2012 Stock and Incentive Plan.

Pentair balanced its long-term incentive compensation program vehicles to create an equal focus on shareholder wealth creation, the creation of a sustaining business and assuring leadership commitment to the long-term success of the enterprise. Each component was equally weighted, representing one-third of the total long-term incentive award value for each of our Named Executive Officers. The components had the features described below:

Stock options: The Pentair Compensation Committee determined that it would grant ten-year stock options, with one third of the options vesting on each of the first, second and third anniversaries of the grant date, as in prior years.

 

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Restricted stock units: Each restricted stock unit represents the right to receive one Pentair ordinary share upon vesting and includes one dividend equivalent unit, which entitles the holder to a cash payment equal to all cash dividends declared on Pentair ordinary shares from and after the date of grant. One-third of the restricted stock units would vest on each of the first three anniversaries of the grant date if the performance hurdles described below under “Impact of Tax Considerations” were met.

Performance share units: Each performance share unit represents the right to receive one of Pentair’s ordinary shares at the end of a three-year performance period if specified performance goals are achieved. For the performance share units granted in 2017 relating to the performance period 2017-2019, the Compensation Committee selected adjusted earnings per share (“EPS”) and average return on equity (“ROE”):

 

Metrics

   Weight     Threshold
(50% payout)
     Target
(100% payout)
     Superior
Performance
(200% payout)
     Excellence
(300% payout)
 

Adjusted EPS

     75   $ 3.45      $ 3.85      $ 4.25      $ 4.50  

Average ROE

     25     10%        12%        14%        16%  

Payouts would be scaled for performance between threshold and target and between target and maximum.

The number of shares subject to the stock options, restricted stock units and performance share units, and the values of the awards granted to our Named Executive Officers by Pentair in 2017 are reflected under “Executive Compensation—Grants of Plan-Based Awards Table.”

The value of restricted stock units that vested for each of our Named Executive Officers in 2017 and the value of options exercised by each of our Named Executive Officer in 2017 are shown in the table under “Executive Compensation—Option Exercises and Stock Vested.”

2017 New Hire Equity Grants

Although Ms. McMahan, Mr. Sommerness and Ms. Heath did not participate in Pentair’s long term incentive program with respect to 2017, Pentair awarded each of the forgoing a “new hire equity grant” upon their commencement of employment in the form of restricted stock units with a grant date fair value of $500,000, $1,250,000 and $600,000, respectively. The Pentair Compensation Committee determined the size of the new hire grants based on the value of the individual’s forfeited equity awards from his or her previous employer and based on arm’s-length negotiations with Ms. McMahan, Mr. Sommerness and Ms. Heath. The restricted stock units will vest upon the fourth anniversary of the date of grant, provided that the individual remains employed by either Pentair or nVent through such date. The number of shares subject to the restricted stock units are reflected under “Executive Compensation—Grants of Plan-Based Awards Table.”

Going Forward

The nVent Compensation Committee will be responsible for setting base salary levels for each of our executive officers, including our Named Executive Officers, following the separation. We anticipate that the nVent Compensation Committee will develop an annual and long-term incentive plan that will align our executive officers’ compensation with shareholder value creation. We expect that, at least initially, our annual and long-term incentive plans will be similar to the Pentair annual and long-term incentive plans described above, except that we do not anticipate including an individual performance metric, such as SDF, in our annual incentive plan design for our officers.

Prior Long-Term Incentive Grants

Prior to 2016, the Pentair Compensation Committee granted cash settled performance units rather than performance share units to its executive officers and certain other employees. Each performance unit entitled the

 

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holder to a cash payment following the end of the three-year performance period, if Pentair achieved specified company performance goals on metrics established by the Pentair Compensation Committee. During 2015, the Pentair Compensation Committee granted such cash settled performance units to its executive officers and certain other employees, including Mr. Ruzynski, relating to the three-year performance period 2015-2017. The performance goals selected by the Pentair Compensation Committee for the 2015-2017 performance period were core sales growth and return on invested capital, each weighted 50 percent. Subject to establishment of the bonus pool and depending on cumulative company performance over the three-year performance period, Pentair would pay nothing if the threshold were not met, 50 percent of the target value if the threshold were met, 100 percent of the target value if the target were met and 200 percent of the target value if the maximum were met. Payouts would be scaled for performance between threshold and target and between target and maximum.

The performance goals selected by the Pentair Compensation Committee for the 2015-2017 performance period, as well as the weighting, potential payout levels, actual performance and actual payout percentages were as follows:

 

Financial Performance Measure

  Weight    

Threshold

(50% payout)

 

Target

(100% payout)

 

Maximum

(200% payout)

 

Actual

  Actual Payout
(% of Target)
 

Compounded Annual Growth Rate (“CAGR”)(1) of Revenue in 2015-2017 Compared to 2014

    50   1.0% CAGR   3.0% CAGR   6.0% CAGR  

-8.7% CAGR

    0.0

Return on Invested Capital (“ROIC”) in 2015-2017 Compared to 2014

    50   100 basis point increase   250 basis point increase   450 basis point increase  

30 basis point decrease

    0.0

2015 Program Total Weighted Performance

              0.0

 

(1) CAGR excludes the impact of changes in foreign currency exchange rates.

Based on the forgoing, Mr. Ruzynski received no payout with respect to the 2015-2017 cash settled performance units. Pentair has not made grants of cash settled performance units since 2015, and we do not anticipate granting cash settled performance units following the separation.

Stock Ownership Guidelines

Historical

Pentair maintains stock ownership guidelines for its executive officers to motivate them to become significant shareholders, to further encourage long-term performance and growth, and to align their interests with those of shareholders generally. The Pentair Compensation Committee monitors executives’ compliance with these guidelines and periodically reviews the definition of “stock ownership” to reflect the practices of companies in the Pentair Comparator Group. “Stock ownership” currently includes ordinary shares owned by the officer both directly and indirectly, the pro-rated portion of unvested restricted stock, restricted stock units, and shares held in Pentair’s employee stock ownership plan or Pentair’s employee stock purchase plan. Stock ownership does not include performance share units until they are earned at the end of the performance period. The Pentair Compensation Committee determined that, over a period of five years from appointment, certain executives should accumulate and hold ordinary shares equal to specified multiples of base salary. The multiples of base salary required by the guidelines are as follows:

 

Executive Level

  Stock Ownership Guidelines
(as a multiple of salary)
 

Chief Executive Officer

    6.0x base salary  

Executive Vice President and Chief Financial Officer

    3.0x base salary  

Senior Vice President, Chief Human Resources Officer;

    2.5x base salary  

Senior Vice President and General Counsel;

 

Segment Presidents

 

Other key executives

    2.0x base salary  

 

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For 2017, Ms. Wozniak’s stock ownership guideline was at 2.5x base salary. The Pentair stock ownership guidelines did not pertain to the rest of our Named Executive Officers since they were not executive officers in 2017.

Stock Ownership for the Named Executive Officers as of December 31, 2017

 

     Share
Ownership
     12/31/17
Market Value
($)(1)
     Ownership
Guideline
($)
     Meets
Guideline
 

Beth Wozniak

     18,073        1,276,301        1,212,500        Yes  

Stacy McMahan

     296        20,904        N/A        N/A  

Ben Sommerness

     245        17,302        N/A        N/A  

Joseph Ruzynski

     5,557        392,443        N/A        N/A  

Lynnette Heath

     160        11,299        N/A        N/A  

 

(1) The amounts in this column were calculated by multiplying the closing market price of Pentair ordinary shares on the last trading day of Pentair’s most recently completed fiscal year of $70.62 by the number of shares owned.

Going Forward

Subject to approval by the nVent Compensation Committee following the separation, we intend to adopt stock ownership guidelines summarized in the table below. Each of our executive officers covered by the guidelines, including our Named Executive Officers, will have a period of five years from the date of the separation to accumulate and hold ordinary shares equal to their applicable multiple of base salary. The multiples of base salary that will be required by our guidelines are as follows:

 

Executive Level

  Stock Ownership Guidelines
(as a multiple of salary)
 

Chief Executive Officer

    6.0x base salary  

Executive Vice President and Chief Financial Officer

    3.0x base salary  

Executive Vice President and Chief Integrated Supply Chain Officer;

    2.5x base salary  

Executive Vice President and Chief Human Resources Officer;

 

Executive Vice President and General Counsel;

 

Executive Vice President and Chief Growth and Strategy Officer;

 

Segment Presidents

 

Other key executives

    2.0x base salary  

Compensation Policies

Historical

Equity Holding Policy

Pentair maintains an equity holding policy under which executive officers subject to Pentair’s stock ownership guidelines are required to retain 100 percent of the net number of shares acquired under equity awards until the ownership guidelines are satisfied.

This policy may be waived to the extent its application to any individual executive officer would cause undue hardship to the executive officer.

 

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Clawback Policy

Pentair maintains a clawback policy under which certain incentive compensation earned by Pentair’s executive officers may be recouped if the executive officer’s fraud or intentional misconduct is a significant contributing factor to a restatement of financial results. The incentive compensation subject to this policy includes cash bonuses, cash performance units and equity-based awards subject to performance-based vesting conditions to the extent the compensation was paid, credited or earned during the year after the financial results were first disclosed.

Policy Prohibiting Hedging And Pledging

Pentair maintains, and we expect to maintain, a policy that prohibits our executive officers and directors from engaging in hedging or pledging transactions involving our ordinary shares or other Pentair securities.

Going Forward

We expect that the nVent Compensation Committee will adopt a similar equity holding policy, clawback policy, and policy prohibiting hedging and pledging following the separation.

Retirement and Other Benefits

Historical

Pentair provides its executives and other employees with a number of retirement and other benefits, such as medical, dental, life insurance and disability coverage. Pentair aims to provide employee and executive benefits at levels that reflect competitive market levels.

Retirement

Pentair executives and employees participate in a number of retirement and similar plans. Such plans include a defined benefit pension plan for employees hired on or before December 31, 2007 and a defined contribution 401(k) plan, which is widely available to Pentair’s U.S. full-time employees. The 401(k) plan includes a company provided match and a companion employee stock ownership plan to which Pentair contributes on behalf of all eligible employees. In addition, Pentair also provides a Supplemental Executive Retirement Plan (“SERP”), which is an unfunded, nonqualified defined benefit plan, to its executive officers and other key employees. These plans are described in detail below under “Executive Compensation—Pension Benefits.”

Medical, Dental, Life Insurance and Disability Coverage

Employee benefits such as medical, dental, life insurance and disability coverage are available to substantially all of Pentair’s full-time U.S.-based participants through Pentair’s active employee plans. In addition to these benefits for active employees, Pentair provides post-retirement medical, dental and life insurance coverage to certain retirees in accordance with the legacy company plans which applied at the time the employees were hired.

Pentair provides up to one and a half times annual salary (up to $1,000,000) in life insurance, and up to $15,000 per month in long-term disability coverage. The value of these benefits is not required to be included in the Summary Compensation Table since they are made available to all full-time U.S. salaried employees.

Other Paid Time-Off Benefits

Pentair also provides vacation and other paid holidays to all employees, including our Named Executive Officers, which Pentair has determined to be comparable to those provided at other large companies.

 

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Deferred Compensation

Pentair sponsors a non-qualified deferred compensation program, called the Sidekick Plan, for U.S. executives within or above the pay grade that has a midpoint annual salary of $176,900 in 2017. This plan permits executives to defer up to 25 percent of their base salary and 75 percent of their annual cash incentive compensation. Executives also may defer receipt of restricted stock units or performance share units. Pentair normally makes contributions to the Sidekick Plan on behalf of participants with respect to each participant’s contributions from that portion of his or her income above the maximum imposed by the U.S. Internal Revenue Code of 1986, as amended (the “Code”), which was $270,000 in 2017, but below the Sidekick Plan’s compensation limit of $700,000. Please see the narrative following the “Nonqualified Deferred Compensation Table” below for additional information on Pentair’s contributions.

Participants in the Sidekick Plan may invest their account balances in a number of possible mutual fund investments. Fidelity Investments Institutional Services Co. provides these investment vehicles for participants and handles all allocation and accounting services for the Plan. Pentair does not guarantee or subsidize any investment earnings under the Plan, and Pentair’s ordinary shares are not a permitted investment choice under the Plan, although deferred restricted stock units and performance share units are automatically invested in shares.

Amounts deferred, if any, under the Sidekick Plan by our Named Executive Officers are included in the “Salary” and “Non-Equity Incentive Plan Compensation” columns under “Executive Compensation—Summary Compensation Table.” Pentair’s contributions allocated to the Named Executive Officers under the Sidekick Plan are included in the “All Other Compensation” column under “Executive Compensation—Summary Compensation Table.”

Going Forward

As of December 31, 2017, Pentair froze benefits under its Pension Plan, so we do not intend to provide this benefit to our employees following the separation. We do, however, intend to sponsor a 401(k) plan that includes a company provided match. We plan to continue to provide SERP benefits to our executive officers and key employees following the separation that currently participate in the Pentair SERP, but do not intend to provide SERP benefits to any other officers or employees. We anticipate that both the 401(k) plan and SERP will operate similarly to Pentair’s current 401(k) plan and SERP described below under “Executive Compensation—Pension Benefits.”

We also anticipate that we will sponsor a non-qualified deferred compensation program for our U.S. executive officers, and that we will provide similar medical, dental, life, and disability insurance options and paid-time off benefits similar to those that Pentair currently provides its employees.

Perquisites and Other Personal Benefits

Historical

Pentair provides its executive officers with a perquisite program (the “Flex Perq Program”) under which executive officers receive a cash perquisite allowance in an amount that the Pentair Compensation Committee believes is customary, reasonable and consistent with its overall compensation program to better enable Pentair to attract and retain superior employees for key positions. The Pentair Compensation Committee periodically reviews market data provided by Aon Hewitt to assess the levels of perquisites provided to such executive officers.

For 2017, Ms. Wozniak’s total aggregate annual allowance under the Flex Perq Program was $40,000. Since Mr. Ruzynski was not a Pentair executive officer in 2017, he did not receive an annual allowance. Pentair’s Compensation Committee also decided not to provide a Flex Perq benefit to Ms. McMahan, Mr. Sommerness or Ms. Heath. Pentair also provides its executive officers with reimbursement for an annual executive physical and

 

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reimbursement for fitness center fees pursuant to a broad-based policy that applies generally to U.S. employees. The amounts of the annual allowance under the Flex Perq Program and the executive physical and fitness center reimbursement are included in the “All Other Compensation” column under “Executive Compensation—Summary Compensation Table” and are set forth in more detail in footnote 7 to that table.

Going Forward

Following the separation, we do not anticipate providing a perquisite allowance to any of our executive officers, but we do plan to provide reimbursement for executive physicals.

Expatriate Benefits

Historical

For Pentair employees who are assigned to an international location outside of their home country or country of primary residence, Pentair provides customary expatriate benefits. During 2017, one of our Named Executive Officers, Mr. Ruzynski, was assigned by Pentair to Switzerland and received such benefits. The expatriate benefits provided to Mr. Ruzynski included relocation expenses, housing expenses, educational expenses for dependent children, a cost of living adjustment, use of a company car in Switzerland, tax consulting services and home leave travel and language training for Mr. Ruzynski and his family. Mr. Ruzynski also received a tax equalization benefit designed to absorb the additional tax burden resulting from his assignment to Switzerland. Due to his reassignment to Switzerland, Mr. Ruzynski’s compensation was subject to higher taxes than would have been the case if he had been assigned only in the United States. In addition, some of the expatriate benefits provided to Mr. Ruzynski in connection with his assignment resulted in additional taxation to him. The tax equalization benefit was designed to make Mr. Ruzynski whole for these effects and ensure that, on an after-tax basis, Mr. Ruzynski received the same level of compensation that he would have received had he not been assigned to Switzerland.

Pentair believed that these expatriate benefits and tax equalization benefits were standard in the marketplace and that the cost of providing the benefits was reasonable in light of the benefits received by having Mr. Ruzynski assigned outside his home country. The aggregate incremental cost to Pentair of providing these benefits to Mr. Ruzynski are included in the “All Other Compensation” column under “Executive Compensation—Summary Compensation Table” and are set forth in more detail in footnote 7 to that table.

Going Forward

Mr. Ruzynski was repatriated to the U.S. in early 2017, but it is expected that we will provide similar expatriate benefits for employees assigned to an international location upon the separation.

Severance and Change-in-Control Benefits

Historical

Pentair provides severance and change-in-control benefits to selected executives to provide for continuity of management upon a threatened or completed change in control. These benefits are designed to provide economic protection to key executives following a change in control of the company so that executives can remain focused on the business without undue personal concern. Pentair also believes that these benefits allow executives to consider the best interests of the company and its shareholders due to the economic security afforded by these benefits.

We explain these benefits more fully below under “Executive Compensation—Potential Payments Upon Termination or Change in Control—Historical.”

 

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Going Forward

Please see below under “Executive Compensation—Potential Payments Upon Termination or Change in Control—Going Forward” for a description of the benefits that we intend to provide our Named Executive Officers upon a change in control.

Impact of Tax Considerations on Compensation Decisions

Historical

For 2017, Section 162(m) of the Code limited to $1,000,000 the amount of compensation that publicly traded companies, including Pentair, could deduct with respect to its Chief Executive Officer and three other most highly paid executive officers (other than the Chief Financial Officer), except for performance-based compensation meeting certain requirements, including periodic shareholder approval of the benefit plans under which the company pays such performance-based compensation. Pentair’s annual and long-term cash incentive compensation granted in 2017 was generally performance-based compensation meeting those requirements and, as such, fully deductible. The Pentair Compensation Committee included a performance hurdle on grants of restricted stock units in 2017 that required Pentair to meet a specified goal for adjusted net income for any vesting to take place. This performance condition was intended to make the restricted stock units eligible to be treated as performance-based compensation. Stock options granted under the Pentair plc 2012 Stock and Incentive Plan are also treated as performance-based compensation. At the 2013 Annual General Meeting, Pentair shareholders approved the performance goals under the Pentair plc 2012 Stock and Incentive Plan, making awards granted under the Plan eligible to be treated as performance-based compensation under Section 162(m) if the Pentair Compensation Committee elects to make the awards otherwise compliant with the applicable requirements of Section 162(m).

The Pentair Compensation Committee also considered the impact of other tax provisions, such as the restrictions on deferred compensation set forth in Section 409A of the Code, and attempted to structure compensation in a tax-efficient manner, both for Pentair’s executive officers and for Pentair. To maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, the Pentair Compensation Committee has not adopted a policy requiring all compensation to be deductible. It is also possible that compensation believed to be deductible under Section 162(m) may not be deductible.

Going Forward

The Tax Cuts and Jobs Act made significant changes to Section 162(m) that will impact public companies, including Pentair and nVent, beginning in 2018. Starting with the 2018 fiscal year, only performance-based compensation that is paid pursuant to a binding contract in effect on November 2, 2017 will be exempt from the $1,000,000 deduction limit. Accordingly, any compensation that we pay in the future pursuant to new compensation arrangements entered into after November 2, 2017, even if performance-based, will count towards the $1,000,000 deduction limit. In addition, the $1,000,000 deduction limit will apply to a broader group of executives, including any individual who serves as a company’s Chief Executive Officer or Chief Financial Officer at any time after January 1, 2018, plus any executive who is among a company’s three most highly compensation executive officers for any fiscal year beginning with 2018.

As a result of the changes made to Section 162(m) by the Tax Cuts and Jobs Act and to maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, we anticipate that some of the compensation that we provide to our executive officers may not be deductible in the future.

Compensation Consultant

Historical

During 2017, the Pentair Compensation Committee continued to retain Aon Hewitt, an external compensation consultant, to advise the Pentair Compensation Committee on executive compensation issues. The Pentair

 

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Compensation Committee evaluated the independence of Aon Hewitt and the individual representatives of Aon Hewitt who served as the Pentair Compensation Committee’s consultants based on the factors required by the NYSE. Aon Hewitt is a wholly owned subsidiary of Aon plc, which provides insurance brokerage and benefit administrative outsourcing services to Pentair. For the year ended December 31, 2017, Pentair paid Aon plc approximately $476,521 for these services and Aon Hewitt approximately $279,915 for executive compensation consulting for the Pentair Compensation Committee. The decision to engage Aon plc for insurance brokerage and benefit administrative outsourcing services was made by management and was not approved by the Pentair Board or the Pentair Compensation Committee. The Pentair Compensation Committee concluded, based on the evaluation described above, that the services performed by Aon plc with respect to insurance and benefits administration did not raise a conflict of interest or impair Aon Hewitt’s ability to provide independent advice to the Pentair Compensation Committee regarding executive compensation matters.

At the direction of the Pentair Compensation Committee, Aon Hewitt advises the Pentair Compensation Committee in implementing and overseeing appropriate compensation programs and policies. As part of this process, Aon Hewitt provides the Pentair Compensation Committee with comparative market data based on analyses of the practices of the Pentair Comparator Group defined above under “Comparative Framework” and relevant survey data. The comparative market data that Aon Hewitt provides address the structure of the compensation programs maintained by the Pentair Comparator Group companies as well as the amount of compensation they provide. Aon Hewitt provides guidance on industry best practices and advises the Pentair Compensation Committee in determining appropriate ranges for base salaries, annual incentives and equity compensation for each senior executive position.

Going Forward

The nVent Compensation Committee will determine the external compensation consultant for nVent upon their appointment.

Equity Award Practices

Historical

The Pentair Compensation Committee reviews and approves all equity awards to newly hired or promoted executives at regular meetings throughout the year. As a rule, the Pentair Compensation Committee grants awards to newly hired or promoted executives that are effective the earlier of the last day of the month following the date of hire or promotion or the last day of the month following the date of the Committee meeting at which the grant is approved. If the last day of such month is a day on which the NYSE is not open for trading, then the grant date will be the first day of the following month on which the NYSE is open for trading. The Pentair Compensation Committee has also given Pentair’s Chief Executive Officer discretion to grant equity awards to non-executive officers as required throughout the year (other than normal annual grants, which are granted by the Pentair Compensation Committee) within the guidelines of the Pentair plc 2012 Stock and Incentive Plan, up to a maximum grant date value of $2,000,000 total for 2017. Pentair’s Chief Executive Officer provides a summary report to the Pentair Compensation Committee Chair disclosing the aggregate awards granted by the CEO during the preceding fiscal year. All options are granted with an exercise price equal to fair market value based on the closing share price on the effective day of grant.

Going Forward

Following the separation, the nVent Compensation Committee will establish its own equity award practices, though we expect that our equity award practices will be similar to Pentair’s practices described above.

 

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Evaluating the Chief Executive Officer’s Performance

Historical

The Pentair Board and the Pentair Compensation Committee employ a formal rating process to evaluate the Pentair Chief Executive Officer’s performance. As part of this process, the Board reviews financial and other relevant data related to the performance of the Chief Executive Officer at each meeting of the Board throughout the year. At the end of the year, each independent director provides an evaluation and rating of the Chief Executive Officer’s performance in various categories. The Pentair Compensation Committee Chair submits a consolidated rating report and the Pentair Compensation Committee’s recommendations regarding the Chief Executive Officer’s compensation to the independent directors for review and ratification. The Pentair Lead Director chairs a discussion with the independent directors in executive session without the Chief Executive Officer present. From that discussion, the Pentair Compensation Committee finalizes the Chief Executive Officer’s performance rating. The Pentair Compensation Committee Chair and the Lead Director review the final performance rating results and commentary with the Chief Executive Officer. The Pentair Compensation Committee takes the performance rating and financial data into account in determining the Chief Executive Officer’s compensation and the adoption of goals and objectives for the Chief Executive Officer for the following year.

Going Forward

We expect to employ a formal rating process to evaluate nVent’s Chief Executive Officer’s performance following the separation, similar to the process used by Pentair that is described above.

 

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EXECUTIVE COMPENSATION

Historical Compensation of Executive Officers Prior to the Separation

The information provided below reflects compensation earned by each of our Named Executive Officers at Pentair and the design and objectives of the Pentair compensation programs in place prior to the separation. Ms. Wozniak is currently, and was as of December 31, 2017, an executive officer of Pentair. Accordingly, the compensation decisions regarding Ms. Wozniak were made by the Pentair Compensation Committee. Mr. Ruzynski was not an executive officer of Pentair during fiscal year 2017, and thus the historical decisions for his compensation were established by Pentair through its processes for non-executive officer compensation. Ms. McMahan, Mr. Sommerness and Ms. Heath were each hired during the last quarter of 2017, and the compensation for each was set by the Pentair Compensation Committee at the time of hire. Executive compensation decisions following the separation will be made by the nVent Compensation Committee. All references in the following tables to stock options, restricted stock units and performance share units relate to awards granted by Pentair in respect of Pentair ordinary shares.

The amounts and forms of compensation reported below are not necessarily indicative of the compensation that nVent executive officers will receive following the separation, which could be higher or lower, because historical compensation was determined by the Pentair Compensation Committee based on its review of Aon Hewitt’s recommendations, relevant survey data, recommendations of the Chief Executive Officer, competitive conditions for the officer’s position within the Pentair Comparator Group and in the broader employment market, as well as the officer’s performance, level of responsibility and experience. Future compensation levels at nVent will be determined based on the compensation policies, programs and procedures to be established by the nVent Compensation Committee.

Summary Compensation Table

The table below summarizes the total compensation earned from Pentair by each of our Named Executive Officers for the years noted in the table.

 

(a)

  (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)  

Name and Principal Position

  Year     Salary
(1)($)
    Bonus
(2)($)
    Stock
Awards
($)(3)
    Option
Awards
($)(4)
    Non-Equity
Incentive Plan
Compensation
($)(1)(5)
    Change in
Pension
Value and
Non-Qualified
Deferred
Compensation
Earnings
($)(6)
    All Other
Compensation
($)(7)
    Total
Compensation
($)
 

Beth Wozniak

    2017       485,000       —         975,009       324,994     $ 503,826       297,769       75,162     $ 2,661,760  

Chief Executive Officer(8)

    2016       485,000       —       666,660       332,988       226,447       212,586       54,461       1,978,142  
    2015       145,133       100,000       875,016       875,297       —       —       11,972       2,007,418  

Stacy McMahan

Executive Vice President and

Chief Financial Officer(8)

    2017       125,000       —         499,984       —       $ 121,736       —       152,766     $ 899,486  

Ben Sommerness

Executive Vice President and

Chief Growth and Strategy

Officer(8)

    2017       24,242       700,000       1,249,999       —       —       —       —       1,974,241  

Joseph Ruzynski

    2017       290,938       500,000       150,010       74,997     $ 117,208       45,649       134,165     $ 1,312,967  

President of Enclosures(8)

    2016       276,192       —       133,322       66,599       147,871       41,214       512,436       1,177,634  

Lynnette Heath

Executive Vice President and

Chief Human Resources Officer(8)

    2017       29,830       500,000       600,032       —       —       —       —       1,129,862  

 

(1) Amounts shown in the “Salary” and “Non-Equity Incentive Plan Compensation” columns are not reduced by any deferrals under Pentair’s nonqualified deferred compensation plans.

 

(2)

The amount shown in column (d) for Ms. McMahan, Mr. Sommerness and Ms. Heath represents the sign-on award they received in connection with their commencement of employment with Pentair. For Mr. Ruzynski, the amount reflects the one-time bonus he received

 

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  in connection with Pentair’s sale of its Valves & Controls business. Each of these awards are discussed in the Compensation Discussion and Analysis under the heading “Cash and Equity Compensation—Historical—Other Cash Bonuses.

 

(3) The amounts in column (e) represent the aggregate grant date fair value, computed in accordance with the Financial Accounting Standards Board Accounting Standards Codification 718 (“ASC 718”), of restricted stock units and performance share units granted during each year. The values attributable to the 2017 grants of restricted stock units were as follows: Ms. Wozniak—$324,984; Ms. McMahan—$499,984; Mr. Sommerness—$1,249,999; Mr. Ruzynski—$75,005; and Ms. Heath—$600,032. The values attributable to the 2017 grants of performance share units were based on the probable outcome of the performance conditions at the time of grant, and were as follows: Ms. Wozniak—$650,025; and Mr. Ruzynski—$75,005. The maximum values of the 2017 grants of performance share units at the time of grant assuming that the highest level of performance conditions were attained, were as follows: Ms. Wozniak—$1,950,075; and Mr. Ruzynski—$225,015. Additional assumptions used in the calculation of the amounts in column (e) are included in footnote 11 to the audited combined financial statements included in the “Index to Financial Statements” section of this information statement.

 

(4) The amounts in column (f) represent the aggregate grant date fair value, computed in accordance with ASC 718, of stock options granted during each year. Assumptions used in the calculation of these amounts are included in footnote 11 to the audited combined financial statements included in the “Index to Financial Statements” section of this information statement.

 

(5) The amounts in column (g) with respect to 2017 reflect cash awards to the named individuals pursuant to awards under the MIP in 2017, which were determined by the Pentair Compensation Committee at its February 26, 2018 meeting and, to the extent not deferred by the executive, paid shortly thereafter. Mr. Sommerness and Ms. Heath did not receive MIP awards in 2017.

 

(6) The amounts in column (h) reflect the increase in the actuarial present value of the Named Executive Officer’s accumulated benefits under all of Pentair’s pension plans determined using interest rate and mortality rate assumptions consistent with those used in Pentair’s financial statements. Pentair does not provide any above market or preferential earnings on amounts deferred under Pentair’s non-qualified deferred compensation plan.

 

(7) The table below shows the components of column (i) for 2017, which include perquisites and other personal benefits; and Pentair’s contributions under the Sidekick Plan, RSIP/ESOP Plan and the Employee Stock Purchase Plan:

 

     (A)      (B)      (C)      (D)  

Name

   Perquisites
under the
Flex Perq
Program
($)(a)
     Other
Perquisites
and Personal
Benefits
($)(b)
     Contributions
under Defined
Contribution
Plans

($)(c)
     Matches under the
Employee Stock
Purchase Plan

($)
 

Beth Wozniak

     40,000        6,488        26,425        2,249  

Stacy McMahan

     —        152,766        —          —    

Ben Sommerness

     —        —          —          —    

Joseph Ruzynski

     —        121,898        12,028        239  

Lynnette Heath

     —        —          —          —    

 

  (a) The amount shown in column (A) for Ms. Wozniak reflects the amount paid to or for the benefit of Ms. Wozniak under the Flex Perq Program, which is designed to provide corporate officers and other key executives with an expense allowance for certain personal and business-related benefits.

 

  (b) The amounts shown in column (B) consist of the wellness program rewards, fitness center reimbursement, and the cost of an annual executive physical for Ms. Wozniak, relocation benefits in the amount of $152,766 for Ms. McMahan, and expatriate benefits in the amount of $121,898 provided to Mr. Ruzynski. The wellness program rewards and the fitness center reimbursement were provided pursuant to broad-based policies that apply generally to U.S. employees.

 

  (c) The amount shown in column (C) for each individual reflects amounts contributed by Pentair to the RSIP/ESOP Plan and the Sidekick Plan during 2017. In the case of the Sidekick Plan, the amounts contributed by Pentair during 2017 relate to salary deferrals in 2016.

 

(8) Because Mr. Ruzynski did not serve as executive officers at Pentair, the Summary Compensation Table includes only two years of compensation in accordance with applicable Securities and Exchange Commission regulations. Because Ms. McMahan, Mr. Sommerness and Ms. Heath were hired by Pentair during 2017, the Summary Compensation Table includes only one year of compensation.

 

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Grants of Plan-Based Awards in 2017

 

                Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards(2)
    Estimated Future Payouts
Under Equity Incentive Plan
Awards(3)
                         

(a)

  (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)