NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS AND SHARES (EXCEPT PER SHARE AMOUNTS) IN MILLIONS, UNLESS OTHERWISE STATED)
NOTE 1
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
ITT Inc. is a diversified manufacturer of highly engineered critical components and customized technology solutions for the energy, transportation, and industrial markets. Unless the context otherwise indicates, references herein to "ITT," "the Company," and such words as "we," "us," and "our" include ITT Inc. and its subsidiaries. ITT operates through four segments: Industrial Process, consisting of industrial pumping and complementary equipment; Motion Technologies, consisting of friction and shock and vibration equipment; Interconnect Solutions, consisting of electronic connectors; and Control Technologies, consisting of fluid handling, motion control and noise and energy absorption products. Financial information for our segments is presented in Note 3, "Segment Information."
On May 16, 2016, we consummated a corporate reorganization into a holding company structure. As a result of the reorganization ITT Inc., an Indiana corporation that was previously a wholly owned subsidiary of ITT Corporation, became the publicly traded holding company of ITT Corporation and its subsidiaries and the successor issuer to ITT Corporation under Rule 12g-3(a) under the Securities Exchange Act of 1934 (Exchange Act). As the successor issuer, ITT Inc. common stock was deemed to be registered under Section 12(b) of the Exchange Act and ITT Inc. succeeded to ITT Corporation’s obligation to file reports, proxy statements and other information required by the Exchange Act with the SEC. For additional information regarding the holding company reorganization, please refer to our Current Report on Form 8-K that we filed with the SEC on May 16, 2016.
On October 31, 2011, ITT completed the tax-free spin-off of its Defense and Information Solutions business, Exelis Inc. (Exelis), and its water-related business, Xylem Inc. (Xylem) by way of a distribution of all of the issued and outstanding shares of Exelis common stock and Xylem common stock, on a pro rata basis, to ITT shareholders of record on October 17, 2011. This transaction is referred to in this Report as the "2011 spin-off." On May 29, 2015, Harris Corporation acquired Exelis.
Basis of Presentation
The unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the SEC and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. We consistently applied the accounting policies described in ITT's Annual Report on Form 10-K for the year ended December 31,
2015
(
2015
Annual Report) in preparing these unaudited financial statements. These financial statements should be read in conjunction with the financial statements and notes thereto included in our
2015
Annual Report.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Estimates are revised as additional information becomes available. Estimates and assumptions are used for, but not limited to, asbestos-related liabilities and recoveries from insurers, revenue recognition, unrecognized tax benefits, deferred tax valuation allowances, projected benefit obligations for postretirement plans, accounting for business combinations, goodwill and other intangible asset impairment testing, environmental liabilities, allowance for doubtful accounts and inventory valuation. Actual results could differ from these estimates.
ITT's quarterly financial periods end on the Saturday that is generally closest to the last day of the calendar quarter, except for the last quarterly period of the fiscal year, which ends on December 31st. For ease of presentation, the quarterly financial statements included herein are described as ending on the last day of the calendar quarter.
NOTE 2
RECENT ACCOUNTING PRONOUNCEMENTS
The Company considers the applicability and impact of all accounting standard updates (ASUs). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.
Accounting Pronouncements Not Yet Adopted
In March 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-09 to simplify several aspects of the accounting for employee share-based payment transactions standard, including the classification of excess tax benefits and deficiencies and the accounting for employee forfeitures. The guidance is effective for the Company beginning in the first quarter of 2017. The updates to the accounting standard include the following:
|
|
•
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Excess tax benefits and deficiencies will no longer be recognized as a change in additional paid-in-capital in the equity section of the balance sheet, instead they are to be recognized in the income statement as a tax expense or benefit. In the statement of cash flows, excess tax benefits and deficiencies will no longer be classified as a financing activity, instead they will be classified as an operating activity.
|
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•
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Entities will have the option to continue to reduce share-based compensation expense during the vesting period of outstanding awards for estimated future employee forfeitures or they may elect to recognize the impact of forfeitures as they actually occur.
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•
|
The ASU also provides new guidance to other areas of the standard including minimum statutory tax withholding rules and the calculation of diluted common shares outstanding.
|
The updates are to be applied using a modified retrospective approach as a cumulative adjustment to retained earnings. Early adoption is permitted. We have yet to finalize the evaluation of the potential impact of this ASU on our financial statements, however we do not expect these changes to have a material impact.
In February 2016, the FASB issued ASU 2016-02 impacting the accounting for leases intending to increase transparency and comparability of organizations by requiring balance sheet presentation of leased assets and increased financial statement disclosure of leasing arrangements. The revised standard will require entities to recognize a liability for its lease obligations and a corresponding asset representing the right to use the underlying asset over the lease term. Lease obligations are to be measured at the present value of lease payments and accounted for using the effective interest method. The accounting for the leased asset will differ slightly depending on whether the agreement is deemed to be a financing or operating lease. For finance leases, the leased asset is depreciated on a straight-line basis and recorded separately from the interest expense in the income statement resulting in higher expense in the earlier part of the lease term. For operating leases, the depreciation and interest expense components are combined, recognized evenly over the term of the lease, and presented as a reduction to operating income. The ASU requires that assets and liabilities be presented or disclosed separately and classified appropriately as current and noncurrent. The ASU further requires additional disclosure of certain qualitative and quantitative information related to lease agreements. The new standard is effective for the Company beginning in the first quarter 2019 and early adoption is permitted. We are currently evaluating the impact of these amendments on our financial statements.
In May 2014, the FASB issued ASU 2014-09 amending the existing accounting standards for revenue recognition. The amendments are based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The new guidance will be effective for the Company beginning in its first quarter of 2018. The amendments may be applied retrospectively to each prior period presented or with the cumulative effect recognized as of the date of initial application. We are currently evaluating the impact of these amendments and the transition alternatives on our financial statements.
NOTE 3
SEGMENT INFORMATION
The Company's segments are reported on the same basis used internally for evaluating performance and for allocating resources. Our
four
reportable segments are referred to as: Industrial Process, Motion Technologies, Interconnect Solutions and Control Technologies.
Industrial Process
manufactures engineered fluid process equipment serving a diversified mix of customers in global industries such as chemical, oil and gas, mining, and other industrial process markets and is a provider of plant optimization and efficiency solutions and aftermarket services and parts.
Motion Technologies
manufactures brake components and specialized sealing solutions, shock absorbers and damping technologies primarily for the global automotive, truck and trailer, public bus and rail transportation markets.
Interconnect Solutions
manufactures and designs a wide range of highly engineered harsh environment connector solutions that make it possible to transfer signal and power between electronic devices which service global customers for the aerospace and defense, industrial and transportation, oil and gas and medical markets.
Control Technologies
manufactures specialized equipment, including actuation, fuel management, noise and energy absorption and environmental control system components, for the aerospace and defense, and industrial markets.
Corporate and Other consists of corporate office expenses including compensation, benefits, occupancy, depreciation and other administrative costs, as well as charges related to certain matters, such as asbestos and environmental liabilities, that are managed at a corporate level and are not included in segment results when evaluating performance or allocating resources. Assets of the segments exclude general corporate assets, which principally consist of cash, investments, asbestos-related assets and certain property, plant and equipment.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
Operating
Income (Loss)
|
|
Operating Margin
|
For the Three Months Ended September 30
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Industrial Process
|
$
|
195.0
|
|
|
$
|
270.6
|
|
|
$
|
4.3
|
|
|
$
|
34.0
|
|
|
2.2
|
%
|
|
12.6
|
%
|
Motion Technologies
|
238.7
|
|
|
179.9
|
|
|
45.2
|
|
|
33.0
|
|
|
18.9
|
%
|
|
18.3
|
%
|
Interconnect Solutions
|
78.6
|
|
|
82.8
|
|
|
5.8
|
|
|
3.6
|
|
|
7.4
|
%
|
|
4.3
|
%
|
Control Technologies
|
70.5
|
|
|
69.8
|
|
|
11.6
|
|
|
14.0
|
|
|
16.5
|
%
|
|
20.1
|
%
|
Total segment results
|
582.8
|
|
|
603.1
|
|
|
66.9
|
|
|
84.6
|
|
|
11.5
|
%
|
|
14.1
|
%
|
Asbestos-related benefit, net
|
—
|
|
|
—
|
|
|
68.1
|
|
|
30.3
|
|
|
—
|
|
|
—
|
|
Eliminations / Other corporate costs
|
(1.1
|
)
|
|
(1.2
|
)
|
|
(0.2
|
)
|
|
(11.0
|
)
|
|
—
|
|
|
—
|
|
Total Eliminations / Corporate and Other costs
|
(1.1
|
)
|
|
(1.2
|
)
|
|
67.9
|
|
|
19.3
|
|
|
—
|
|
|
—
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|
Total
|
$
|
581.7
|
|
|
$
|
601.9
|
|
|
$
|
134.8
|
|
|
$
|
103.9
|
|
|
23.2
|
%
|
|
17.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
Operating
Income (Loss)
|
|
Operating Margin
|
For the Nine Months Ended September 30
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Industrial Process
|
$
|
618.0
|
|
|
$
|
813.7
|
|
|
$
|
19.6
|
|
|
$
|
95.9
|
|
|
3.2
|
%
|
|
11.8
|
%
|
Motion Technologies
|
755.3
|
|
|
555.5
|
|
|
144.8
|
|
|
111.0
|
|
|
19.2
|
%
|
|
20.0
|
%
|
Interconnect Solutions
|
229.8
|
|
|
243.0
|
|
|
12.6
|
|
|
7.6
|
|
|
5.5
|
%
|
|
3.1
|
%
|
Control Technologies
|
217.2
|
|
|
210.1
|
|
|
34.0
|
|
|
40.5
|
|
|
15.7
|
%
|
|
19.3
|
%
|
Total segment results
|
1,820.3
|
|
|
1,822.3
|
|
|
211.0
|
|
|
255.0
|
|
|
11.6
|
%
|
|
14.0
|
%
|
Asbestos-related benefit, net
|
—
|
|
|
—
|
|
|
40.3
|
|
|
99.7
|
|
|
—
|
|
|
—
|
|
Eliminations / Other corporate costs
|
(3.3
|
)
|
|
(3.5
|
)
|
|
(16.0
|
)
|
|
(28.4
|
)
|
|
—
|
|
|
—
|
|
Total Eliminations / Corporate and Other costs
|
(3.3
|
)
|
|
(3.5
|
)
|
|
24.3
|
|
|
71.3
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
1,817.0
|
|
|
$
|
1,818.8
|
|
|
$
|
235.3
|
|
|
$
|
326.3
|
|
|
12.9
|
%
|
|
17.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
Capital
Expenditures
|
|
Depreciation &
Amortization
|
For the Nine Months Ended September 30
|
2016
|
|
2015
(a)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Industrial Process
|
$
|
1,030.1
|
|
|
$
|
1,097.5
|
|
|
$
|
14.9
|
|
|
$
|
13.0
|
|
|
$
|
21.0
|
|
|
$
|
20.9
|
|
Motion Technologies
|
838.5
|
|
|
779.8
|
|
|
45.5
|
|
|
28.7
|
|
|
32.7
|
|
|
20.5
|
|
Interconnect Solutions
|
312.8
|
|
|
303.2
|
|
|
2.9
|
|
|
15.6
|
|
|
9.0
|
|
|
7.9
|
|
Control Technologies
|
380.9
|
|
|
370.6
|
|
|
4.4
|
|
|
4.3
|
|
|
9.2
|
|
|
9.1
|
|
Corporate and Other
|
1,155.3
|
|
|
1,172.5
|
|
|
0.4
|
|
|
2.6
|
|
|
4.6
|
|
|
4.7
|
|
Total
|
$
|
3,717.6
|
|
|
$
|
3,723.6
|
|
|
$
|
68.1
|
|
|
$
|
64.2
|
|
|
$
|
76.5
|
|
|
$
|
63.1
|
|
|
|
(a)
|
Amounts reflect balances as of
December 31, 2015
.
|
NOTE 4
RESTRUCTURING ACTIONS
The table below summarizes the restructuring costs presented within general and administrative expenses in our Consolidated Condensed Income Statements for the
three and nine months ended
September 30, 2016
and
2015
.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Nine Months
|
For the Periods Ended September 30
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Severance costs
|
$
|
3.1
|
|
|
$
|
1.1
|
|
|
$
|
22.0
|
|
|
$
|
16.2
|
|
Asset write-offs
|
0.2
|
|
|
0.7
|
|
|
0.4
|
|
|
0.7
|
|
Other restructuring costs
|
0.7
|
|
|
—
|
|
|
1.4
|
|
|
0.9
|
|
Total restructuring costs
|
$
|
4.0
|
|
|
$
|
1.8
|
|
|
$
|
23.8
|
|
|
$
|
17.8
|
|
By segment:
|
|
|
|
|
|
|
|
Industrial Process
|
$
|
2.9
|
|
|
$
|
0.6
|
|
|
$
|
19.9
|
|
|
$
|
10.6
|
|
Motion Technologies
|
1.1
|
|
|
—
|
|
|
2.5
|
|
|
—
|
|
Interconnect Solutions
|
—
|
|
|
0.9
|
|
|
—
|
|
|
6.2
|
|
Control Technologies
|
—
|
|
|
0.3
|
|
|
0.9
|
|
|
0.8
|
|
Corporate and Other
|
—
|
|
|
—
|
|
|
0.5
|
|
|
0.2
|
|
The following table displays a rollforward of the restructuring accruals, presented on our Consolidated Condensed Balance Sheet within accrued liabilities, for the
nine months ended
September 30, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
For the Periods Ended September 30
|
2016
|
|
2015
|
Restructuring accruals - beginning balance
|
$
|
20.0
|
|
|
$
|
21.9
|
|
Restructuring costs
|
23.8
|
|
|
17.8
|
|
Cash payments
|
(22.7
|
)
|
|
(19.5
|
)
|
Asset write-offs
|
(0.4
|
)
|
|
(0.7
|
)
|
Foreign exchange translation and other
|
—
|
|
|
(0.3
|
)
|
Restructuring accrual - ending balance
|
$
|
20.7
|
|
|
$
|
19.2
|
|
By accrual type:
|
|
|
|
Severance accrual
|
$
|
19.4
|
|
|
$
|
18.2
|
|
Facility carrying and other costs accrual
|
1.3
|
|
|
1.0
|
|
We have initiated various restructuring activities throughout our businesses during the past two years, of which only those noted below are considered to be individually significant. Other less significant restructuring actions taken during 2016 and 2015 included various reduction in force initiatives and the consolidation of two sites within our Control Technologies segment to an existing lower cost location.
Industrial Process Restructuring Actions
Beginning in early 2015, we have been executing a series of restructuring actions focused on achieving efficiencies and reducing the overall cost structure of the Industrial Process segment. During the nine months ended September 30, 2016, we continued to pursue these objectives and we recognized
$19.9
of restructuring costs primarily related to severance for approximately
370
employees. During 2015, we recognized restructuring costs of
$12.2
for these actions, with
$10.6
recognized during the first nine months of 2015. Total restructuring costs under these actions through September 30, 2016 are
$32.1
mainly related to severance for approximately
570
employees. These actions are expected to be substantially complete during the next three months. However, we will continue to monitor and evaluate the need for any additional restructuring actions.
The following table provides a rollforward of the restructuring accruals associated with the Industrial Process restructuring actions.
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30
|
2016
|
|
2015
|
Restructuring accruals - beginning balance
|
$
|
4.9
|
|
|
$
|
—
|
|
Restructuring costs
|
19.9
|
|
|
10.6
|
|
Cash payments
|
(12.8
|
)
|
|
(3.1
|
)
|
Asset write-offs
|
(0.4
|
)
|
|
(0.7
|
)
|
Foreign exchange translation and other
|
0.3
|
|
|
—
|
|
Restructuring accruals - ending balance
|
$
|
11.9
|
|
|
$
|
6.8
|
|
Interconnect Solutions Restructuring Actions
Beginning in 2013, we initiated a series of restructuring actions to improve the overall cost structure of our ICS segment. These actions included headcount reductions of approximately
500
employees and the transition of certain production lines from one location to an existing lower cost manufacturing site. Payments related to these actions were completed in 2016.
In May 2015, we initiated a separate restructuring action designed to further reduce the cost structure of the ICS segment primarily through additional headcount reductions of approximately
100
employees, for which the Company recognized costs of
$6.5
during 2015. Payments related to the remaining accrual for this action are expected to be substantially completed in 2017.
The following table provides a rollforward of the restructuring accrual associated with the Interconnect Solutions restructuring actions.
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30
|
2016
|
|
2015
|
Restructuring accruals - beginning balance
|
$
|
9.4
|
|
|
$
|
17.1
|
|
Restructuring costs
|
—
|
|
|
6.2
|
|
Cash payments
|
(7.0
|
)
|
|
(12.1
|
)
|
Foreign exchange translation and other
|
(0.1
|
)
|
|
(0.2
|
)
|
Restructuring accruals - ending balance
|
$
|
2.3
|
|
|
$
|
11.0
|
|
NOTE 5
INCOME TAXES
For the three months ended
September 30, 2016
and
2015
, the Company recognized income tax expense of
$46.1
and
$11.4
with an effective tax rate of
34.3%
and
10.6%
, respectively. For the
nine months ended
September 30, 2016
and
2015
, the Company recognized income tax expense of
$75.3
and
$53.0
with an effective tax rate of
32.2%
and
16.1%
, respectively.
The higher effective tax rate in 2016 is primarily driven by an increase in the deferred tax liability on foreign earnings which are not considered indefinitely reinvested, whereas the lower effective tax rate in 2015 was primarily driven by the settlement of a U.S. income tax audit and the release of the valuation allowance on certain net deferred tax assets in China due to positive income in recent years. The Company continues to benefit from a larger mix of earnings in non-U.S. jurisdictions with favorable tax rates.
During the third quarter of 2016, the Company effectively settled the U.S. income tax audit for tax years 2012-2013. The Company recorded a tax benefit of
$3.6
in continuing operations, which primarily relates to the realization of previously unrecognized tax positions.
The Company operates in various tax jurisdictions and is subject to examination by tax authorities in these jurisdictions. The Company is currently under examination in several jurisdictions including Canada, Germany, Hong Kong, Italy, Mexico, South Korea, the U.S. and Venezuela. The estimated tax liability calculation for unrecognized tax benefits considers uncertainties in the application of complex tax laws and regulations in various tax jurisdictions. Due to the complexity of some uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the unrecognized tax benefit. Over the next 12 months, the net amount of the tax liability for unrecognized tax benefits in foreign and domestic jurisdictions could change by approximately
$18
due to changes in audit status, expiration of statutes of limitations and other events. In addition, the settlement of any future examinations relating to the 2011 and prior tax years could result in changes in amounts attributable to the Company under its existing Tax Matters Agreement with Exelis and Xylem.
NOTE 6
EARNINGS PER SHARE DATA
The following table provides a reconciliation of the data used in the calculation of basic and diluted earnings per share from continuing operations attributable to ITT for the
three and nine
months ended
September 30, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Nine Months
|
For the Periods Ended September 30
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Basic weighted average common shares outstanding
|
89.2
|
|
|
89.4
|
|
|
89.5
|
|
|
89.9
|
|
Add: Dilutive impact of outstanding equity awards
|
0.5
|
|
|
0.9
|
|
|
0.7
|
|
|
0.9
|
|
Diluted weighted average common shares outstanding
|
89.7
|
|
|
90.3
|
|
|
90.2
|
|
|
90.8
|
|
The following table provides the number of shares underlying stock options excluded from the computation of diluted earnings per share for the
three and nine
months ended
September 30, 2016
and
2015
because they were anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Nine Months
|
For the Periods Ended September 30
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Anti-dilutive stock options
|
0.7
|
|
|
0.4
|
|
|
0.7
|
|
|
0.4
|
|
Weighted average exercise price per share
|
$
|
37.99
|
|
|
$
|
42.42
|
|
|
$
|
38.47
|
|
|
$
|
42.53
|
|
Year(s) of expiration
|
2024 - 2026
|
|
|
2024 - 2025
|
|
|
2024 - 2026
|
|
|
2024 - 2025
|
|
In addition,
0.2
of outstanding PSU awards were excluded from the computation of diluted earnings per share for the three and
nine months ended
September 30, 2016
and
2015
respectively, as the necessary return on invested capital performance conditions had not yet been satisfied.
NOTE 7
RECEIVABLES, NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
Trade accounts receivable
|
|
$
|
565.9
|
|
|
|
|
$
|
554.0
|
|
|
Notes receivable
|
|
4.0
|
|
|
|
|
3.9
|
|
|
Other
|
|
41.3
|
|
|
|
|
43.1
|
|
|
Receivables, gross
|
|
611.2
|
|
|
|
|
601.0
|
|
|
Less: Allowance for doubtful accounts
|
|
(16.0
|
)
|
|
|
|
(16.1
|
)
|
|
Receivables, net
|
|
$
|
595.2
|
|
|
|
|
$
|
584.9
|
|
|
NOTE 8
INVENTORIES, NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
Finished goods
|
|
$
|
44.9
|
|
|
|
|
$
|
60.9
|
|
|
Work in process
|
|
65.0
|
|
|
|
|
56.0
|
|
|
Raw materials
|
|
171.8
|
|
|
|
|
162.9
|
|
|
Inventoried costs related to long-term contracts
|
|
44.9
|
|
|
|
|
43.0
|
|
|
Total inventory before progress payments
|
|
326.6
|
|
|
|
|
322.8
|
|
|
Less: Progress payments
|
|
(21.5
|
)
|
|
|
|
(30.1
|
)
|
|
Inventories, net
|
|
$
|
305.1
|
|
|
|
|
$
|
292.7
|
|
|
NOTE 9
OTHER CURRENT AND NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
Asbestos-related assets
|
|
$
|
66.0
|
|
|
|
|
$
|
74.5
|
|
|
Short-term investments
|
|
15.0
|
|
|
|
|
64.9
|
|
|
Prepaid income taxes
|
|
15.1
|
|
|
|
|
14.3
|
|
|
Other
|
|
43.6
|
|
|
|
|
50.7
|
|
|
Other current assets
|
|
$
|
139.7
|
|
|
|
|
$
|
204.4
|
|
|
Other employee benefit-related assets
|
|
$
|
96.0
|
|
|
|
|
$
|
92.9
|
|
|
Environmental-related assets
(a)
|
|
34.1
|
|
|
|
|
10.8
|
|
|
Capitalized software costs
|
|
34.8
|
|
|
|
|
28.2
|
|
|
Other
|
|
21.4
|
|
|
|
|
21.4
|
|
|
Other non-current assets
|
|
$
|
186.3
|
|
|
|
|
$
|
153.3
|
|
|
|
|
(a)
|
Environmental-related assets increased $23.3 primarily related to a settlement agreement and establishment of a Qualified Settlement Fund (QSF), which can be drawn upon to pay certain future environmental expenses associated with environmental remediation sites covered under the settlement agreement. See Note
17
, Commitments and Contingencies, to the Consolidated Condensed Financial Statements for further information on environmental-related matters.
|
NOTE 10
PLANT, PROPERTY AND EQUIPMENT, NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
Land and improvements
|
|
$
|
30.0
|
|
|
|
|
$
|
25.4
|
|
|
Machinery and equipment
|
|
928.0
|
|
|
|
|
909.3
|
|
|
Buildings and improvements
|
|
244.4
|
|
|
|
|
242.0
|
|
|
Furniture, fixtures and office equipment
|
|
69.3
|
|
|
|
|
66.3
|
|
|
Construction work in progress
|
|
45.6
|
|
|
|
|
42.3
|
|
|
Other
|
|
5.6
|
|
|
|
|
6.7
|
|
|
Plant, property and equipment, gross
|
|
1,322.9
|
|
|
|
|
1,292.0
|
|
|
Less: Accumulated depreciation
|
|
(872.6
|
)
|
|
|
|
(848.5
|
)
|
|
Plant, property and equipment, net
|
|
$
|
450.3
|
|
|
|
|
$
|
443.5
|
|
|
Depreciation expense of
$18.1
and
$55.5
and
$16.4
and
$50.4
was recognized in the
three and nine
months ended
September 30, 2016
and
2015
, respectively.
NOTE 11
GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
The following table provides a rollforward of the carrying amount of goodwill for the
nine months ended
September 30, 2016
by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Process
|
|
Motion
Technologies
|
|
Interconnect
Solutions
|
|
Control
Technologies
|
|
Total
|
Goodwill - December 31, 2015
|
|
$
|
312.6
|
|
|
|
|
$
|
201.0
|
|
|
|
|
$
|
69.0
|
|
|
|
|
$
|
195.7
|
|
|
|
$
|
778.3
|
|
Adjustments to purchase price allocations
|
|
—
|
|
|
|
|
0.3
|
|
|
|
|
—
|
|
|
|
|
0.4
|
|
|
|
0.7
|
|
Foreign exchange translation
|
|
4.3
|
|
|
|
|
1.2
|
|
|
|
|
0.3
|
|
|
|
|
—
|
|
|
|
5.8
|
|
Goodwill - September 30, 2016
|
|
$
|
316.9
|
|
|
|
|
$
|
202.5
|
|
|
|
|
$
|
69.3
|
|
|
|
|
$
|
196.1
|
|
|
|
$
|
784.8
|
|
Other Intangible Assets, Net
Information regarding our other intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Gross
Carrying
Amount
|
|
Accumulated Amortization
|
|
Net Intangibles
|
|
Gross
Carrying
Amount
|
|
Accumulated Amortization
|
|
Net Intangibles
|
Customer relationships
|
|
$
|
157.1
|
|
|
|
|
$
|
(56.3
|
)
|
|
|
|
$
|
100.8
|
|
|
|
|
$
|
157.4
|
|
|
|
|
$
|
(45.3
|
)
|
|
|
|
$
|
112.1
|
|
|
Proprietary technology
|
|
53.4
|
|
|
|
|
(16.2
|
)
|
|
|
|
37.2
|
|
|
|
|
54.9
|
|
|
|
|
(12.7
|
)
|
|
|
|
42.2
|
|
|
Patents and other
|
|
8.7
|
|
|
|
|
(7.5
|
)
|
|
|
|
1.2
|
|
|
|
|
8.6
|
|
|
|
|
(6.6
|
)
|
|
|
|
2.0
|
|
|
Finite-lived intangible total
|
|
219.2
|
|
|
|
|
(80.0
|
)
|
|
|
|
139.2
|
|
|
|
|
220.9
|
|
|
|
|
(64.6
|
)
|
|
|
|
156.3
|
|
|
Indefinite-lived intangibles
|
|
27.2
|
|
|
|
|
—
|
|
|
|
|
27.2
|
|
|
|
|
30.9
|
|
|
|
|
—
|
|
|
|
|
30.9
|
|
|
Other intangible assets
|
|
$
|
246.4
|
|
|
|
|
$
|
(80.0
|
)
|
|
|
|
$
|
166.4
|
|
|
|
|
$
|
251.8
|
|
|
|
|
$
|
(64.6
|
)
|
|
|
|
$
|
187.2
|
|
|
Amortization expense related to finite-lived intangible assets was
$5.5
and
$15.6
and
$3.0
and
$8.7
for the
three and nine
months ended
September 30, 2016
and
2015
, respectively.
During the second quarter of 2016, we recognized an impairment loss of
$4.1
within general and administrative expenses related to indefinite-lived trade names within our Industrial Process segment. The impairment loss was the result of the challenging economic conditions within the upstream oil and gas market.
NOTE 12
ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
Compensation and other employee-related benefits
|
|
$
|
123.5
|
|
|
|
|
$
|
138.6
|
|
|
Asbestos-related liabilities
|
|
76.1
|
|
|
|
|
88.0
|
|
|
Customer-related liabilities
|
|
41.3
|
|
|
|
|
38.0
|
|
|
Accrued income taxes and other tax-related liabilities
|
|
44.2
|
|
|
|
|
30.9
|
|
|
Environmental liabilities and other legal matters
|
|
26.0
|
|
|
|
|
24.0
|
|
|
Accrued warranty costs
|
|
18.9
|
|
|
|
|
21.7
|
|
|
Other accrued liabilities
|
|
52.6
|
|
|
|
|
51.5
|
|
|
Accrued liabilities
|
|
$
|
382.6
|
|
|
|
|
$
|
392.7
|
|
|
Deferred income taxes and other tax-related accruals
|
|
$
|
28.3
|
|
|
|
|
$
|
44.5
|
|
|
Environmental liabilities
|
|
62.1
|
|
|
|
|
72.0
|
|
|
Compensation and other employee-related benefits
|
|
33.9
|
|
|
|
|
35.6
|
|
|
Other
(a)
|
|
65.9
|
|
|
|
|
37.8
|
|
|
Other non-current liabilities
|
|
$
|
190.2
|
|
|
|
|
$
|
189.9
|
|
|
|
|
(a)
|
Increase primarily driven by deferred income associated with an insurance settlement agreement and establishment of a QSF related to our environmental liability. The deferred income will be reduced as costs for remediation sites covered under the settlement agreement are incurred. See Note
17
, Commitments and Contingencies, to the Consolidated Condensed Financial Statements for further information.
|
NOTE 13
DEBT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
Commercial paper
|
|
$
|
151.0
|
|
|
|
|
$
|
94.5
|
|
|
Short-term loans
|
|
100.0
|
|
|
|
|
150.0
|
|
|
Current maturities of long-term debt and capital leases
|
|
0.9
|
|
|
|
|
1.2
|
|
|
Short-term loans and current maturities of long-term debt
|
|
251.9
|
|
|
|
|
245.7
|
|
|
Long-term debt and capital leases
|
|
2.3
|
|
|
|
|
2.8
|
|
|
Total debt and capital leases
|
|
$
|
254.2
|
|
|
|
|
$
|
248.5
|
|
|
Commercial Paper
Commercial paper outstanding was
$151.0
and
$94.5
, had an associated weighted average interest rate of
0.97%
and
1.04%
and maturity terms less than one month from the date of issuance as of
September 30, 2016
and
December 31, 2015
, respectively.
Short-term Loans
As of
September 30, 2016
and
December 31, 2015
, we had
$100.0
and
$150.0
in outstanding borrowings under our $500 revolving credit facility, respectively, with an associated weighted average interest rate of
1.63%
and
1.55%
, respectively. Please refer to the Liquidity section within "Item 2. Management's Discussion and Analysis," for additional information on the revolving credit facility as well as our overall funding and liquidity strategy.
NOTE 14
POSTRETIREMENT BENEFIT PLANS
The following tables provide the components of net periodic benefit cost for pension plans and other employee-related benefit plans for the
three and nine
months ended
September 30, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
For the Three Months Ended September 30
|
Pension
|
|
Other
Benefits
|
|
Total
|
|
Pension
|
|
Other
Benefits
|
|
Total
|
Service cost
|
|
$
|
1.5
|
|
|
|
|
$
|
0.2
|
|
|
|
|
$
|
1.7
|
|
|
|
|
$
|
1.4
|
|
|
|
|
$
|
0.3
|
|
|
|
|
$
|
1.7
|
|
|
Interest cost
|
|
3.3
|
|
|
|
|
1.2
|
|
|
|
|
4.5
|
|
|
|
|
3.6
|
|
|
|
|
1.4
|
|
|
|
|
5.0
|
|
|
Expected return on plan assets
|
|
(5.0
|
)
|
|
|
|
(0.1
|
)
|
|
|
|
(5.1
|
)
|
|
|
|
(5.1
|
)
|
|
|
|
(0.2
|
)
|
|
|
|
(5.3
|
)
|
|
Amortization of prior service cost (benefit)
|
|
0.2
|
|
|
|
|
(1.6
|
)
|
|
|
|
(1.4
|
)
|
|
|
|
0.2
|
|
|
|
|
(2.8
|
)
|
|
|
|
(2.6
|
)
|
|
Amortization of net actuarial loss
|
|
2.0
|
|
|
|
|
1.2
|
|
|
|
|
3.2
|
|
|
|
|
2.2
|
|
|
|
|
1.3
|
|
|
|
|
3.5
|
|
|
Total net periodic benefit cost
|
|
$
|
2.0
|
|
|
|
|
$
|
0.9
|
|
|
|
|
$
|
2.9
|
|
|
|
|
$
|
2.3
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
For the Nine Months Ended September 30
|
Pension
|
|
Other
Benefits
|
|
Total
|
|
Pension
|
|
Other
Benefits
|
|
Total
|
Service cost
|
|
$
|
4.0
|
|
|
|
|
$
|
0.6
|
|
|
|
|
$
|
4.6
|
|
|
|
|
$
|
4.0
|
|
|
|
|
$
|
0.7
|
|
|
|
|
$
|
4.7
|
|
|
Interest cost
|
|
10.2
|
|
|
|
|
3.6
|
|
|
|
|
13.8
|
|
|
|
|
10.7
|
|
|
|
|
3.8
|
|
|
|
|
14.5
|
|
|
Expected return on plan assets
|
|
(15.1
|
)
|
|
|
|
(0.4
|
)
|
|
|
|
(15.5
|
)
|
|
|
|
(15.3
|
)
|
|
|
|
(0.6
|
)
|
|
|
|
(15.9
|
)
|
|
Amortization of prior service cost (benefit)
|
|
0.7
|
|
|
|
|
(4.9
|
)
|
|
|
|
(4.2
|
)
|
|
|
|
0.7
|
|
|
|
|
(8.3
|
)
|
|
|
|
(7.6
|
)
|
|
Amortization of net actuarial loss
|
|
5.7
|
|
|
|
|
3.6
|
|
|
|
|
9.3
|
|
|
|
|
6.5
|
|
|
|
|
3.5
|
|
|
|
|
10.0
|
|
|
Total net periodic benefit cost (benefit)
|
|
$
|
5.5
|
|
|
|
|
$
|
2.5
|
|
|
|
|
$
|
8.0
|
|
|
|
|
$
|
6.6
|
|
|
|
|
$
|
(0.9
|
)
|
|
|
|
$
|
5.7
|
|
|
We made contributions to our global postretirement plans of
$11.9
and
$8.2
during the
nine months ended September 30, 2016
and
2015
, respectively. We expect to make contributions of approximately
$2
to
$5
during the remainder of
2016
, principally related to our other postretirement employee benefit plans.
Amortization from accumulated other comprehensive income into earnings related to prior service cost and net actuarial loss was
$1.2
and
$3.5
and
$0.8
and
$1.9
, net of tax, for the
three and nine
months ended
September 30, 2016
and
September 30, 2015
, respectively. No other reclassifications from accumulated other comprehensive income into earnings were recognized during any of the presented periods.
NOTE 15
LONG-TERM INCENTIVE EMPLOYEE COMPENSATION
Our long-term incentive plan (LTIP) costs are primarily recorded within general and administrative expenses. The following table provides the components of LTIP costs for the
three and nine
months ended
September 30, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Nine Months
|
For the Periods Ended September 30
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Equity based awards
|
$
|
3.2
|
|
|
$
|
4.2
|
|
|
$
|
9.1
|
|
|
$
|
11.1
|
|
Liability-based awards
|
0.4
|
|
|
(0.1
|
)
|
|
1.2
|
|
|
0.8
|
|
Total share-based compensation expense
|
$
|
3.6
|
|
|
$
|
4.1
|
|
|
$
|
10.3
|
|
|
$
|
11.9
|
|
As of
September 30, 2016
, there was estimated unrecognized compensation cost of
$23.3
related to unvested equity-based awards that is expected to be recognized ratably over a weighted-average period of
2.0
years, and
$2.6
related to unvested liability-based awards that are expected to be recognized ratably over a weighted-average period of
2.0
years.
Year-to-Date
2016
LTIP Activity
The majority of our LTIP activity occurs during the first quarter of each year. During the
nine months ended
September 30, 2016
, we granted the following LTIP awards as provided in the table below:
|
|
|
|
|
|
|
|
# of Awards Granted
|
Weighted Average Grant Date Fair Value Per Share
|
Non-qualified stock options (NQOs)
|
0.4
|
|
$
|
9.16
|
|
Restricted stock units (RSUs)
|
0.3
|
|
$
|
33.28
|
|
Performance stock units (PSUs)
|
0.2
|
|
$
|
33.27
|
|
The NQOs vest either on the completion of a three-year service period or annually in three equal installments, as determined by employee level, and have a 10-year expiration period. RSUs and PSUs vest on the completion of a three-year service period.
During the
nine months ended
September 30, 2016
and
2015
,
0.4
and
0.3
NQOs were exercised resulting in proceeds of
$8.8
and
$5.5
, respectively. During each of the
nine months ended
September 30, 2016
and
2015
, RSUs of
0.3
vested and were issued. In addition,
0.2
PSUs that vested on December 31, 2015 were issued during the
nine months ended
September 30, 2016
.
The fair value of each NQO grant was estimated on the date of grant using a binomial lattice pricing model that incorporates multiple and variable assumptions over time, including assumptions such as employee exercise patterns, stock price volatility and changes in dividends. The following table details the weighted average assumptions used to measure fair value and the resulting grant date fair value for the first quarter
2016
NQO grants.
|
|
|
Dividend yield
|
1.5%
|
Expected volatility
|
32.2%
|
Expected life
|
6.0 years
|
Risk-free rates
|
1.5%
|
Weighted average grant date fair value per share
|
$9.16
|
NOTE 16
CAPITAL STOCK
On October 27, 2006, a three-year
$1 billion
share repurchase program was approved by the Board of Directors (Share Repurchase Program). On December 16, 2008, the provisions of the Share Repurchase Program were modified by the Board of Directors to replace the original three-year term with an indefinite term. During the
nine months ended
September 30, 2016
and
2015
, we repurchased
1.9
and
2.0
shares of common stock for
$66.6
and
$80.0
, respectively, under this program. To date, the Company has repurchased
20.3
shares for
$825.9
under the Share Repurchase Program.
Separate from the Share Repurchase Program, the Company repurchased
0.2
shares and
0.1
shares for an aggregate price of
$7.8
and
$3.9
, during the
nine months ended
September 30, 2016
and
2015
, respectively, in settlement of employee tax withholding obligations due upon the vesting of RSUs and PSUs.
On May 16, 2016, we canceled all
15.0
shares in our treasury account. Shares repurchased after May 16, 2016 were canceled following the repurchase.
NOTE
17
COMMITMENTS AND CONTINGENCIES
From time to time, we are involved in legal proceedings that are incidental to the operation of our businesses. Some of these proceedings allege damages relating to environmental exposures, intellectual property matters, copyright infringement, personal injury claims, employment and employee benefit matters, government contract issues and commercial or contractual disputes and acquisitions or divestitures. We will continue to defend vigorously against all claims. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information including our assessment of the merits of the particular claim, as well as our current reserves and insurance coverage, we do not expect that such legal proceedings will have a material adverse impact on our financial statements, unless otherwise noted below.
Asbestos Matters
Subsidiaries of ITT, including ITT LLC (f/k/a ITT Corporation) and Goulds Pumps LLC (f/k/a Goulds Pumps, Inc.), have been sued, along with many other legacy companies in product liability lawsuits alleging personal injury due to asbestos exposure. These claims generally allege that certain products sold by our subsidiaries prior to 1985 contained a part manufactured by a third party (
e.g.
, a gasket) which contained asbestos. To the extent these third-party parts may have contained asbestos, it was encapsulated in the gasket (or other) material and was non-friable. As of
September 30, 2016
, there were approximately
30 thousand
pending claims against ITT subsidiaries, filed in various state and federal courts alleging injury as a result of exposure to asbestos. Activity related to these asserted asbestos claims during the period was as follows:
|
|
|
|
For the Nine Months Ended September 30 (in thousands)
|
2016
|
Pending claims – Beginning
|
37
|
|
New claims
|
3
|
|
Settlements
|
(1
|
)
|
Dismissals
|
(9
|
)
|
Pending claims – Ending
|
30
|
|
Frequently, plaintiffs are unable to identify any ITT LLC or Goulds Pumps LLC products as a source of asbestos exposure. Our experience to date is that a majority of resolved claims are dismissed without any payment from ITT subsidiaries. Management believes that a large majority of the pending claims have little or no value. In addition, because claims are sometimes dismissed in large groups, the average cost per resolved claim can fluctuate significantly from period to period. ITT expects more asbestos-related suits will be filed in the future, and ITT will continue to aggressively defend or seek a reasonable resolution, as appropriate.
Asbestos litigation is a unique form of litigation. Frequently, the plaintiff sues a large number of defendants and does not state a specific claim amount. After filing complaint, the plaintiff engages defendants in settlement negotiations to establish a settlement value based on certain criteria, including the number of defendants in the case. Rarely do the plaintiffs seek to collect all damages from one defendant. Rather, they seek to spread the liability, and thus the payments, among many defendants. As a result of this and other factors, the Company is unable to estimate the maximum potential exposure to pending claims and claims estimated to be filed over the next 10 years.
Estimating our exposure to pending asbestos claims and those that may be filed in the future is subject to significant uncertainty and risk as there are multiple variables that can affect the timing, severity, quality, quantity and resolution of claims. Any predictions with respect to the variables impacting the estimate of the asbestos liability and related asset are subject to even greater uncertainty as the projection period lengthens. In light of the uncertainties and variables inherent in the long-term projection of the Company's asbestos exposures, although it is probable that the Company will incur additional costs for asbestos claims filed beyond the next 10 years, which additional costs may be material, we do not believe there is a reasonable basis for estimating those costs at this time.
The asbestos liability and related receivables reflect management's best estimate of future events. However, future events affecting the key factors and other variables for either the asbestos liability or the related receivables could cause actual costs or recoveries to be materially higher or lower than currently estimated. Due to these uncertainties, as well as our inability to reasonably estimate any additional asbestos liability for claims which may be filed beyond the next 10 years, it is difficult to predict the ultimate cost of resolving all pending and unasserted asbestos claims. We believe it is possible that future events affecting the key factors and other variables within
the next 10 years, as well as the cost of asbestos claims filed beyond the next 10 years, net of expected recoveries, could have a material adverse effect on our financial statements.
Income Statement Costs/Benefit
In the third quarter of each year, we conduct our annual remeasurement with the assistance of outside consultants in order to review and update the underlying assumptions used in our asbestos liability and related asset estimates. In each remeasurement, the underlying assumptions are updated based on our actual experience since our previous annual remeasurement, and we reassess the appropriate reference period used in determining each assumption and our expectations regarding future conditions, including inflation.
Based on the results of this study, in the third quarter of 2016, we decreased our estimated undiscounted asbestos liability, including legal fees, by
$75.9
, reflecting a decrease in costs the company estimates will be incurred to resolve all pending claims, as well as unasserted claims estimated to be filed over the next 10 years. The decrease in our estimated liability is a result of several developments, including favorable experience in dismissal rates and settlement values. These favorable factors were offset, in part, by an increase in number of cases expected to be adjudicated. Further, in the third quarter of 2016, the Company increased its estimated asbestos-related assets by
$5.9
, primarily due to an increase in expected recoveries due to a favorable court decision.
During each of the first and second quarters of 2016, we entered into a settlement agreement with an insurer to settle responsibility for multiple insurance claims. Under the terms of the settlements, the insurers agreed to a payment or specified series of payments to a QSF, resulting in a benefit of
$2.6
and a loss of
$4.7
, respectively.
During the second quarter of 2015, the Company changed its asbestos defense strategy and retained a single firm to defend the Company in all asbestos litigation. This long-term strategy streamlined the Company’s management of cases and significantly reduced defense costs. Our agreement with the defense firm was initially limited to a certain set of claims and the remaining claims were expected to transition within the next four years; however, ITT was able to transition the remaining claims during the second quarter of 2016 as a result of the settlement described above. Based on the terms of the agreement, the Company adjusted its asbestos liability and related assets and recognized a net benefit of
$4.9
and
$100.7
during the nine months ended September 30, 2016 and 2015, respectively, for the revised estimate of the cost to defend pending claims and claims expected to be filed over the next 10 years.
In addition to the charges associated with our annual remeasurement, we record a net asbestos charge each quarter to maintain a rolling 10-year forecast period. The table below summarizes the total net asbestos charges for the
three and nine months ended
September 30, 2016
and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Nine Months
|
For the Periods Ended September 30
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Asbestos provision
|
$
|
13.7
|
|
|
$
|
15.7
|
|
|
$
|
44.3
|
|
|
$
|
47.0
|
|
Net asbestos remeasurement benefit
|
(81.8
|
)
|
|
(44.8
|
)
|
|
(81.8
|
)
|
|
(44.8
|
)
|
Defense cost adjustment
|
—
|
|
|
—
|
|
|
(4.9
|
)
|
|
(100.7
|
)
|
Settlement agreements
|
—
|
|
|
(1.2
|
)
|
|
2.1
|
|
|
(1.2
|
)
|
Asbestos-related benefit, net
|
$
|
(68.1
|
)
|
|
$
|
(30.3
|
)
|
|
$
|
(40.3
|
)
|
|
$
|
(99.7
|
)
|
Changes in Financial Position
The following table provides a rollforward of the estimated asbestos liability and related assets for the
nine months ended
September 30, 2016
and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
For the Nine Months Ended September 30
|
Liability
|
|
Asset
|
|
Net
|
|
Liability
|
|
Asset
|
|
Net
|
Beginning balance
|
$
|
1,042.8
|
|
|
$
|
412.0
|
|
|
$
|
630.8
|
|
|
$
|
1,223.2
|
|
|
$
|
476.4
|
|
|
$
|
746.8
|
|
Asbestos provision
|
51.6
|
|
|
7.3
|
|
|
44.3
|
|
|
54.8
|
|
|
7.8
|
|
|
47.0
|
|
Asbestos remeasurement
|
(75.9
|
)
|
|
5.9
|
|
|
(81.8
|
)
|
|
(52.7
|
)
|
|
(7.9
|
)
|
|
(44.8
|
)
|
Defense costs adjustment
|
(4.9
|
)
|
|
—
|
|
|
(4.9
|
)
|
|
(124.2
|
)
|
|
(23.5
|
)
|
|
(100.7
|
)
|
Settlement agreements
|
—
|
|
|
(2.1
|
)
|
|
2.1
|
|
|
—
|
|
|
1.2
|
|
|
(1.2
|
)
|
Net cash activity
|
(61.8
|
)
|
|
(37.3
|
)
|
|
(24.5
|
)
|
|
(52.3
|
)
|
|
(37.1
|
)
|
|
(15.2
|
)
|
Ending balance
|
$
|
951.8
|
|
|
$
|
385.8
|
|
|
$
|
566.0
|
|
|
$
|
1,048.8
|
|
|
$
|
416.9
|
|
|
$
|
631.9
|
|
Current portion
|
$
|
76.1
|
|
|
$
|
66.0
|
|
|
|
|
$
|
87.6
|
|
|
$
|
74.5
|
|
|
|
Noncurrent portion
|
$
|
875.7
|
|
|
$
|
319.8
|
|
|
|
|
|
$
|
961.2
|
|
|
$
|
342.4
|
|
|
|
Environmental
In the ordinary course of business, we are subject to federal, state, local, and foreign environmental laws and regulations. We are responsible, or are alleged to be responsible, for ongoing environmental investigation and site remediation. These sites are in various stages of investigation or remediation and in many of these proceedings our liability is considered de minimis. We have received notification from the U.S. Environmental Protection Agency, and from similar state and foreign environmental agencies, that a number of sites formerly or currently owned or operated by ITT, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require environmental investigation or remediation. These sites include instances where we have been identified as a potentially responsible party under federal and state environmental laws and regulations.
The following table provides a rollforward of the estimated environmental liability for the
nine months ended
September 30, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30
|
2016
|
|
2015
|
Environmental liability - beginning balance
|
$
|
82.6
|
|
|
$
|
89.9
|
|
Change in estimates for pre-existing accruals
|
|
|
|
Continuing operations
|
2.4
|
|
|
1.4
|
|
Discontinued operations
|
0.7
|
|
|
(2.8
|
)
|
Net cash activity
|
(10.2
|
)
|
|
(9.1
|
)
|
Foreign currency
|
—
|
|
|
(0.4
|
)
|
Environmental liability - ending balance
|
$
|
75.5
|
|
|
$
|
79.0
|
|
In the fourth quarter of 2015, ITT entered into a settlement agreement with one of our insurance providers whereby the provider agreed to pay the net present value of the remaining limits of the policy amounting to approximately
$34.2
. In the first quarter of 2016, the Company received
$2.0
in cash and
$32.2
was deposited into a QSF which can be drawn upon to pay certain future environmental expenses associated with remediation sites covered under the policy, including sites owned by a former subsidiary of the Company. The Company recorded
$23.0
of deferred income related to the settlement representing the excess of QSF monies over the probable liabilities associated with the covered remediation sites. In addition to the QSF asset, there is a receivable of
$2.0
from other third parties for reimbursement of environmental costs. The total environmental-related asset as of
September 30, 2016
and December 31, 2015 was
$34.1
and
$12.8
, respectively.
We are currently involved with
40
active environmental investigation and remediation sites. At
September 30, 2016
, we have estimated the potential high-end liability range of environmental-related matters to be
$127.7
.
As actual costs incurred at identified sites in future periods may vary from our current estimates given the inherent uncertainties in evaluating environmental exposures, management believes it is possible that the outcome of these uncertainties may have a material adverse effect on our financial statements.
Other Matters
The Company is responding to a civil subpoena from the Department of Defense, Office of the Inspector General, which was issued in the second quarter of 2015 as part of an investigation being led by the Civil Division of the U.S. Department of Justice. The subpoena and related investigation involve certain products manufactured by the Company’s Interconnect Solutions segment that are purchased or used by the U.S. government. The Company is cooperating with the government and is unable to estimate the timing or outcome of this matter.
NOTE 18
ACQUISITIONS
Wolverine Automotive Holdings
On
October 5, 2015
, we completed the acquisition of
Wolverine Automotive Holdings Inc.
, the parent company of Wolverine Advanced Materials LLC (Wolverine). Wolverine is a manufacturer of customized technologies for automotive braking systems and specialized sealing solutions for harsh operating environments across a range of industries. The purchase price of
$307.0
, net of cash acquired, was funded through a combination of cash and borrowings from our revolving credit facility. Wolverine had approximately
680
employees globally as of
September 30, 2016
. Wolverine reported 2014 revenues of
$154
, including
$17
of sales to ITT.
The allocation of the purchase price is based on the fair value of assets acquired, liabilities assumed and non-controlling interests in Wolverine as of October 5, 2015 and a preliminary estimate of fair value for deferred income taxes. Our assessment of fair value of deferred income taxes will be finalized during the fourth quarter of 2016 and changes to the preliminary estimates will be recorded as adjustments to those deferred income tax assets and liabilities with a corresponding adjustment to goodwill.
The goodwill of
$161.9
, which has been assigned to the Motion Technologies segment, is not deductible for income tax purposes. Other intangibles acquired include existing customer relationships, proprietary technology, and trade names.
Allocation of Purchase Price for Wolverine
|
|
|
|
|
|
|
Cash
|
$
|
8.5
|
|
Receivables
|
31.6
|
|
Inventory
|
35.0
|
|
Plant, property and equipment
|
28.5
|
|
Goodwill
|
161.9
|
|
Other intangible assets
|
86.0
|
|
Other assets
|
12.3
|
|
Accounts payable and accrued liabilities
|
(21.2
|
)
|
Postretirement liabilities
|
(14.6
|
)
|
Other liabilities
|
(12.5
|
)
|
Net assets acquired
|
$
|
315.5
|
|
Pro forma results of operations have not been presented because the acquisition was not deemed material at the acquisition date.
NOTE 19
SUBSEQUENT EVENTS
Agreement to Acquire Axtone Railway Group
On
November 3, 2016
, we entered into an agreement to acquire Axtone Railway Group (Axtone) for cash consideration of
$118
. The final purchase price is subject to a customary net working capital adjustment. Axtone, with estimated 2016 revenue of
$80
and approximately
660
employees, is a manufacturer of highly engineered and customized energy absorption solutions for railway and other harsh-environment industrial markets, including springs, buffers and coupler components that are critical safety technologies. The acquisition is expected to close in the first quarter of 2017, subject to customary closing conditions and appropriate regulatory approvals. Axtone will be reported within the Motion Technologies segment.
Pension Settlement
ITT has initiated a program offering certain former U.S. employees with a vested pension benefit an option to take a one-time lump sum distribution as part of ITT’s overall plan to de-risk its pension plans. Based on an estimate of participants expected to accept the offer, ITT expects to recognize a non-cash pretax pension settlement charge of approximately
$18
to
$20
in the fourth quarter of 2016.
The impact of the settlement will not materially impact the plans' funded status, future pension expense, or require additional contributions to the plans.