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WE ARE
INVESTED
FOR THE FUTURE
ITT Corporation • 2013 Annual Report
At ITT, we have a clear vision of where the
world’s key industries are heading and
how we can help them get there. Over the
past two years, we have built on that
expertise by establishing our foundation
as a focused multi-industrial company
while further developing the capabilities
that will help us continue to solve our
customers’ most critical problems.
Today, we are a leading manufacturer of
highly engineered, critical components and
customized technology solutions for the
energy, transportation and industrial
markets. Our portfolio has strength and
durability, balance and diversity. Our
businesses are aligned with global growth
drivers – urbanization, a growing middle
class and sustainable development – and
our products provide solutions for
customers in key end markets that
underpin our modern way of life.
Our work is made possible by the talent
and innovative thinking of our more than
9,400 committed employees in more than
35 countries. Together, they serve
customers in well over 100 countries and
are outstanding ambassadors for our
long-standing brands – including Goulds
pumps, Cannon connectors, KONI shock
absorbers and Enidine energy absorption
components, to name a few – that are
recognized and trusted globally.
Thanks to the contributions of our people,
ITT generated great results in 2013 and
positioned our company for further
growth and success in the years ahead.
We’re making the right moves today and
investing in the capabilities to ensure the
ITT legacy extends and expands far into
the future.
12%
18%
21%*
20%*
End Markets
Industrial
2013 total
revenue growth
2013 emerging market
revenue growth
2013 adjusted
segment operating
income growth
2013 adjusted
EPS growth
Energy
Balanced
& Diverse
Transportation
Geography
E. Europe, Middle East & Africa
Asia Pacific
Latin America
Western Europe
30%
Emerging
Markets
Business Mix
North America
Industrial Process
Control Technologies
$2.5B
Interconnect Solutions
Motion Technologies
Charts represent 2013 revenue profile.
* For a reconciliation of non-GAAP to GAAP results, please see our website at itt.com/investors.
Dear Shareowners, Employees,
Customers and Friends,
In life and in business, progress is often achieved not by
the great leap or enormous stride but by steady steps in the
right direction that reflect a day-to-day commitment and
investment in one’s success.
Over the past two years, ITT has embraced that approach
by consistently investing for growth while delivering a solid
track record of premier performance and results. Our 2013
full-year results are the latest reflection of our success, with
total revenue up 12 percent to $2.5 billion and organic
revenue up 6 percent, adjusted earnings per share from
continuing operations up 20 percent to $2.02 and adjusted
segment operating income up 21 percent.
These are outstanding results and reflect the commitment
and winning spirit of our more than 9,400 employees
around the world. However, while we are all pleased with
our progress, we’re also continually envisioning what’s
ahead. Each day our employees invest themselves in finding
new ways of solving complex problems, leveraging
technology and working smarter to serve our customers in
the energy, transportation and industrial markets.
In 2013, that forward thinking contributed to our results
and will continue to create value and growth for years to
come. Our focus has been and will remain on opportunities
to expand in key markets, provide a premier customer
experience, drive operational excellence and deploy
capital effectively.
• We have furthered the ability of our teams to serve the
oil and gas industry in key markets such as Asia and
North America by enhancing our research, development
and production capabilities for our pump facilities.
• We are driving our ability to better meet the needs of our
customers in the world’s largest automobile market by
expanding our brake pad production and research and
development facilities in China.
streamlined and ensuring that every system, process,
program and activity helps us deliver a premier
customer experience. Thanks to our commitment to
Lean and our focus on operational excellence, we
delivered a second year of more than $100 million in
gross productivity savings.
• We are helping ensure our people have the skills and
resources to meet evolving customer needs through
enhancing our talent management processes and
supporting programs to engage employees in building
a high-performing, rewarding culture that retains and
attracts world-class talent.
This isn’t all we accomplished in 2013 but it represents the
strong foundation we have in place and our commitment
to driving profitable growth and value creation. This
commitment is also reflected in our five-year strategy, which
sets forth how our unique market positions and capabilities
will drive our winning aspirations in the years ahead.
Oliver Wendell Holmes once said, “The great thing in the
world is not so much where we stand as in what direction
we are moving.” When I look ahead, I could not be more
excited to be part of this company at this moment. At ITT,
we are on our way to achieving the characteristics of all
great growth companies – from premier financial
performance, to market differentiation and customer focus,
to a winning culture and best-in-class talent and capabilities.
We are invested in our future and dreaming big for the
benefit of ITT shareowners, customers and employees.
We look forward to making this journey with each of you.
Sincerely,
• In every corner of the organization, we are embracing
Lean practices that are making our operations more
Denise L. Ramos
Chief Executive Officer and President
2013 Annual Report | 1
INVESTED
Two years ago, ITT took one of its first steps as a focused
multi-industrial company by developing and deploying The ITT Way,
a strategic roadmap that galvanized our people around our
company’s uniqueness, the relatedness across our businesses
and how we differentiate ourselves in the marketplace.
In 2013, we continued our journey by
building on that foundation and
enhancing our strategic framework to
focus even more sharply on creating
premium solutions, delivering a premier
customer experience and operating in
the most efficient and effective way
possible. Inherent in our approach
was the importance of both investing
in the business and delivering financial
performance at the same time.
Today, we see exactly where we want
to go, and across the company we are
all invested in bringing our strategy to
life and becoming a business that
makes an enduring impact on the
markets we serve and creates
sustainable value for our stakeholders.
Our Winning Aspiration
We solve critical problems.
At ITT, our customers in the energy,
transportation and industrial markets
depend on us to solve their most
critical problems, and we focus on
partnering with them to find
solutions to their unique challenges.
We not only apply our unique
engineering and technology capabilities,
we also leverage our flexible and
efficient manufacturing to meet our
customers’ requirements. Whether
it’s the need for sophisticated
pumping equipment, a smarter brake
pad or lighter-weight aerospace
components, ITT’s innovative thinkers
have the answer.
We create highly engineered
solutions. Our commitment to creating
highly engineered, customized solutions
is demonstrated by our continuing
investment in research and development,
where we have consistently maintained
above-peer investment levels at nearly
3 percent of revenue. In 2013 that
commitment was reflected by our
investment to expand our global
capabilities for the automotive and oil
and gas markets. Building on this success,
we plan to further increase our spending
on R&D in 2014.
We build partnerships. Given the
nature of our products and services,
we have long-term relationships with
customers that endure through the life
2 | ITT Corporation
WHERE WE PLAY
We have aligned our portfolio so that it is
balanced across select markets, geographies
and customer segments. We have long held
niche positions in key markets such as energy,
transportation and industrial, and we will
continue to grow with these customers. We
are also well-aligned with global growth trends,
and we’re building on our global footprint and
strong emerging market presence.
In addition, we are continually enhancing our
aftermarket capabilities, which currently drive
about 30 percent of our revenue, to ensure that
we excel in meeting our customers’ service and
maintenance requirements while supporting
the latest platforms among original equipment
manufacturers.
of their ITT products, and customers
know they can rely on us for valued
service and replacement parts long
after the initial sale. An important part
of this equation is our talented people,
who provide vital insight and
collaboration on some of the most
sophisticated and demanding
assignments. From laboratories to the
field, we are an integral part of our
customers’ businesses, working
side-by-side with them – not as
providers, but as partners.
We create enduring impact.
At ITT, we design and manufacture
sophisticated components for key
industries that support the global macro
trends that are defining our future,
including an expanding middle class,
urbanization and sustainable develop-
ment. Our products and solutions –
from our advanced pumps and brake
pads to our harsh-environment
connectors and innovative energy
absorption devices – are often invisible
because they are part of larger machines
and manufacturing processes. However,
they make an invaluable contribution to
our modern way of life and drive our
ability to create enduring impact for our
stakeholders around the world.
HOW WE WIN
Our competitive advantage comes through providing differentiating
value for customers through a premier customer experience, defined
by a broad portfolio of products and services, combined with quality,
delivery, responsiveness, speed and service.
Our advantage also comes through providing optimized custom
solutions by partnering with customers to find cost-effective answers
to their unique challenges and leveraging our engineering and
technology capabilities and our flexible and efficient manufacturing.
Most important, we win through the efforts of our more than 9,400
engaged employees around the world who are helping us build a healthy,
high-performing culture that supports our growth and our future.
All of these competitive advantages are being supported by our
commitment to Lean, which will enable us to provide an enhanced
experience to all of our customers by improving quality, speed,
agility, service and value.
2013 Annual Report | 3
INDUSTRIAL PROCESS
Seneca Falls, NY • 3,470 employees
Pumps, valves, monitoring and control systems, water
treatment and aftermarket services for the oil and
gas, chemical, mining, pulp and paper, power and
biopharmaceutical markets
• Amory, Mississippi
• Baroda, India
• Cheongwon, South Korea
• Choongbuk, South Korea
• City of Industry, California
• Dammam, Saudi Arabia
• Lancaster, Pennsylvania
• Obernkirchen, Germany
• Wangara, Australia
• Salto, Brazil
• Shanghai, China
• Southaven, Mississippi
• Tizayuca, Mexico
Global Service Capabilities
CONTROL TECHNOLOGIES
Valencia, CA • 970 employees
Highly engineered motion control and vibration
isolation products and solutions for the industrial,
aerospace and defense markets
• Billerica, Massachusetts
• Orchard Park, New York
• Westminster,
South Carolina
• Wuxi, China
ITT WORLD HEADQUARTERS
White Plains, NY
ITT has more than 155 locations
globally representing manufacturing,
office and sales, and global service
facilities, including the identified
locations by segment.
INTERCONNECT SOLUTIONS
Santa Ana, CA • 2,230 employees
Connectors and interconnects for the oil and gas,
medical, industrial and transportation, and
aerospace and defense markets
• Basingstoke, England
• Lainate, Italy
• Nogales, Mexico
• Santa Rosa, California
• Shenzhen, China
• Weinstadt, Germany
MOTION TECHNOLOGIES
Lainate, Italy • 2,455 employees
Shock absorbers, brake pads and friction materials
for the automotive and rail markets
• Barge, Italy
• Termoli, Italy
• Hebron, Kentucky
• Kelsterbach, Germany
• Novi, Michigan
• Ostrava, Czech Republic
• Oud-Beijerland,
Netherlands
• Vauda Canavese, Italy
• Wuxi, China
4 | ITT Corporation
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
Form 10-K
ANNUAL REPORT
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
Commission File No. 1-5672
ITT CORPORATION
Incorporated in the State of Indiana
13-5158950
(I.R.S. Employer Identification No.)
1133 Westchester Avenue, White Plains, NY 10604
(Principal Executive Office)
Telephone Number: (914) 641-2000
Securities registered pursuant to Section 12(b) of the Act, all of which are registered on The New York Stock Exchange, Inc.:
COMMON STOCK, $1 PAR VALUE
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files. Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant on June 30, 2013 was approximately
$2.6 billion. As of February 6, 2014, there were outstanding 91.4 million shares of common stock, $1 par value, of the registrant.
Portions of the Registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A
for its 2014 Annual Meeting of Shareholders are incorporated by reference in Part II and Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
ITEM
PART I
1
1A
1B
2
3
4
*
Description of Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers of the Registrant
PART II
5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Performance Graph
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
6
7
7A
8
9
9A
9B
PART III
10
11
12
13
14
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedule
PART IV
15
Signatures
Exhibit Index
*
Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
PAGE
1
14
21
22
23
23
23
25
27
29
59
59
59
60
61
63
63
63
63
63
64
II-1
II-3
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Some of the information included herein includes forward-looking statements intended to qualify for the safe harbor
from liability established by the Private Securities Litigation Reform Act of 1995 (the Act). These forward-looking
statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections
about the business and future financial results of the industry in which we operate, and other legal, regulatory and
economic developments. These forward-looking statements include, but are not limited to, future strategic plans and
other statements that describe the company’s business strategy, outlook, objectives, plans, intentions or goals, and
any discussion of future operating or financial performance.
We use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target,“ “future,”
“may,” “will,” “could,” “should,” “potential,” “continue,” “guidance” and other similar expressions to identify such
forward-looking statements. Forward-looking statements are uncertain and to some extent unpredictable, and involve
known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially
from those expressed or implied in, or reasonably inferred from, such forward-looking statements.
Where, in any forward-looking statement we express an expectation or belief as to future results or events, such
expectation or belief is based on current plans and expectations of our management, expressed in good faith and
believed to have a reasonable basis. However, there can be no assurance that the expectation or belief will result or
will be achieved or accomplished. More information on factors that could cause actual results or events to differ
materially from those anticipated is included under the caption “Risk Factors,” and in other documents filed from time
to time with the SEC.
The forward-looking statements included in this report speak only as of the date of this report. We undertake no
obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the Securities and
Exchange Commission (SEC). You can inspect, read and copy these reports, proxy statements and other information
at the SEC's Public Reference Room, which is located at 100 F Street, N.E., Washington, D.C. 20549. You can obtain
information regarding the operation of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains a website at www.sec.gov that makes available reports, proxy statements and other information
regarding issuers that file electronically.
We make available free of charge at www.itt.com (in the “Investors” section) copies of materials we file with, or
furnish to, the SEC. ITT uses the Investor Relations page of its Internet site at www.itt.com (in the "Investors" section)
to disclose important information to the public.
Information contained on ITT's Internet site, or that can be accessed through its Internet site, does not constitute a
part of this Annual Report on Form 10-K. ITT has included its Internet site address only as an inactive textual reference
and does not intend it to be an active link to its Internet site. Our corporate headquarters are located at 1133 Westchester
Avenue, White Plains, NY 10604 and the telephone number of this location is (914) 641-2000.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(In millions, except per share amounts, unless otherwise stated)
COMPANY OVERVIEW
ITT Corporation is a diversified manufacturer of highly engineered critical components and customized technology
solutions for the energy, transportation and industrial markets. Building on its heritage of engineering, ITT partners
with its customers to deliver enduring solutions to the key industries that underpin our modern way of life. With
approximately 9,400 employees in more than 35 countries and sales in over 100 countries, we are committed to
creating long-term sustainable value for all of our stakeholders. That goal is reflected in The ITT Way, which focuses
on three main principles of leading with technology, differentiating with customers and optimizing our work.
ITT is a global company with a balanced and diversified portfolio, positioned to capitalize on enduring macro trends
such as energy creation and efficiency, resource scarcity, large-scale urbanization, and the growing middle class in
emerging economies. In 2013, 64% of our sales were outside the U.S., including 30% from emerging growth markets.
Further, approximately 30% of our revenue is derived from aftermarket products and services where we capture
repeatable revenues from our large installed base of specialized products. Additionally, approximately 35% of our
revenue is derived from positions our products hold on long-lived customer platforms. Similar to the aftermarket, these
are also long-term recurring revenues.
We manufacture components that are integral to the operation of systems and manufacturing processes in our
key markets. Our products provide enabling functionality for applications where reliability and performance are critically
important to our customers and the users of their products. For example, our industrial pumps serve the critical function
of transporting inorganic fluids throughout chemical processes at petrochemical plants. The pumps are critical to the
production requirements of our customers' plants and their reliability helps our customers meet the delivery time and
quality expectations of the users of the petrochemical products they produce.
Our product and service offerings are organized in four segments: Industrial Process, Motion Technologies,
Interconnect Solutions, and Control Technologies. These businesses generally operate within niche positions in large,
attractive markets where specialized engineered solutions are required to support the needs of large industrial,
transportation, and energy customers.
Industrial Process manufactures engineered fluid process equipment serving a diversified mix of customers in
global infrastructure industries such as oil & gas, mining, power generation, chemical and other process markets
and is a provider of plant optimization and efficiency solutions and aftermarket services and parts.
Motion Technologies manufactures brake pads, shock absorbers and damping technologies for the global
automotive, truck, trailer and public bus and rail transportation markets.
Interconnect Solutions manufactures a wide range of highly specialized connector products that make it possible
to transfer signal and power in various electronic devices that are utilized in the aerospace and defense, industrial
and transportation, oil & gas, and medical markets.
Control Technologies manufactures specialized equipment, including actuation, valves, switches, vibration
isolation, custom-energy absorption, and regulators for the aerospace and defense, and industrial markets.
The table below provides revenue by segment for each of the last three years. See section titled “Segment
Information” in Company Overview and Note 22, “Segment Information” to the Consolidated Financial Statements for
further information about each of our segments.
(In Millions)
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Eliminations
Revenue
1
2013
$ 1,107.4
721.8
395.5
278.2
(6.0)
$ 2,496.9
$
2012
955.8
626.2
375.7
277.1
(7.0)
$ 2,227.8
$
2011
766.7
634.4
417.8
285.5
(18.8)
$ 2,085.6
Unless the context otherwise indicates, references herein to “ITT,” “the Company,” and such words as “we,” “us,”
and “our” include ITT Corporation and its subsidiaries. ITT Corporation was incorporated as ITT Industries, Inc. on
September 5, 1995 in the State of Indiana. On July 1, 2006, ITT Industries, Inc. changed its name to ITT Corporation.
Business Strengths and Strategies
Management believes that the Company has several competitive advantages that allow it to sustain and grow its
market positions. ITT is a diversified industrial technology company with established businesses that share five unifying
characteristics:
1. The design and manufacture of highly engineered products for critical applications
2. Leaders in attractive and defensible niches
3. Global footprint and highly diversified
4. Longstanding brands and operating history
5. Proven management system and leadership
As a result, a significant strength for ITT is that our businesses share a common, repeatable operating model.
Each business is a leader in applying its technology and engineering expertise to solve some of the most pressing
challenges of our customers. Our applied engineering aptitude provides a special business fit with our customers given
the critical nature of their applications. This in turn provides us with unique insight to our customers' requirements and
enables us to develop solutions to better assist our customers achieve their business goals. Our technology and
customer intimacy together produce opportunities to capture recurring revenue streams, aftermarket opportunities and
long-lived original equipment manufacturer (OEM) platforms. ITT possesses a core competency operating this unified
model across businesses in order to create value. These businesses also tend to operate in varying business cycles,
which reduces exposures to any one economic cycle.
The oil & gas business in our Industrial Process segment is representative of the capability that many of ITT’s
businesses have to generate profitable growth from our common operating model. In 2007, Industrial Process began
to pursue growth in the oil & gas market because of its long-term attractiveness, our existing engineering capabilities
and brand strength, and the aftermarket potential. We started by investing in our technology through product line
extensions and we continue to aggressively build on our portfolio. This has allowed us to expand through pursuing
adjacent markets. To supplement these organic growth drivers, we expanded our strategic footprint and increased
proximity to our customers through new facilities in India in 2008 and Saudi Arabia in 2009. The acquisitions of Canberra
Pumps in Brazil during 2010 and Blakers Pump Engineers in Australia during 2011 provided an opportunity to realize
additional growth opportunities in global oil & gas markets, while the acquisition of Joh. Heinr. Bornemann GmbH
(Bornemann) in 2012 provides us with a leadership position in the upstream oil & gas market worldwide, especially
with respect to multi-phase boosting. Additionally, we have been actively upgrading and expanding our global
capabilities to accommodate highly complex pumps that are used in the oil & gas market. For example, we held the
grand opening of our Eastern Hemisphere Center of Excellence in Korea in 2013 where we relocated and expanded
our testing and production capabilities. We are also significantly expanding our Western Hemisphere Center of
Excellence in Seneca Falls, New York to increase production and test capabilities of complex oil & gas pumps. These
actions have led to a compound annual growth rate for oil & gas market revenues in our Industrial Process business
of 17.6% from 2007 to 2013.
ITT also possesses strong leading brands, such as Goulds Pumps, Bornemann, Cannon, KONI, Enidine and ITT,
in many of its niche markets. These brands are associated with quality, reliability, durability, and engineering excellence.
The Company’s brand extends internationally and is very well recognized in emerging growth markets including China,
India, Brazil and Saudi Arabia.
In addition to branding efforts, another strength is our collective utilization of our well-established ITT Management
System (IMS), which is the data-driven framework we use to manage our businesses for superior performance. IMS
also serves as a guide for the decisions and actions of our employees. The IMS consists of four core integrated
processes:
1. Profitable Growth – Integrated front-end processes consisting of robust strategic planning, commercial
excellence and new product development focused on driving sustainable profitable growth, strengthening our
leadership positions in existing markets, and successfully moving into attractive adjacencies.
2. Resource Optimization – Integrated decision-making and resource deployment processes consisting of
efficient capital allocation across a portfolio of strategic options and effective deployment of critical resources
and assets across the integrated supply chain that aligns our sourcing, manufacturing and footprint strategies
with our business strategies.
2
3. Operational Excellence – Integrated execution and continuous improvement processes consisting of Value-
Based Lean Six Sigma (VBLSS) and goal deployment focused on customer satisfaction, breakthrough growth,
and ongoing optimization of our work to drive customer loyalty, pricing power, and productivity through
alignment, engagement and empowerment of our co-workers.
4. Leadership and Learning – Integrated talent and performance management processes focused on creating
strategic advantage by providing ongoing development opportunities to our diverse talent and targeted training
for ITT leaders to build deeper bench strength and accelerate next generation leaders. Our Partnership for
Performance system aligns employee goals with the goals of the business.
We deploy the IMS in each of our segments and we have implemented a system of enterprise councils composed
of leaders from each business who focus on core growth and winning capability building across ITT in the areas of:
1) Commercial Excellence; 2) Operational Excellence; and 3) Technology and Innovation. We have also implemented
the ITT Risk Center of Excellence which strengthens ITT’s risk management process through proactive cross functional
risk assessments and Global Sourcing which coordinates sourcing initiatives. While our activities may vary significantly
between each of our segments, our subject matter leaders in this collaborative cross-functional, cross-business
approach provide us with the opportunity to leverage best practices and our collective strengths in areas such as
customer relationship management, product development, coordinated sourcing initiatives, innovation, technology
sharing, and risk management.
These strengths support a balanced operating strategy designed to increase the Company's earnings and financial
returns. The elements of this strategy are disciplined organic growth through global market expansion and new product
development, combined with operational improvements through the IMS that focus on reducing costs and cycle times
and improving productivity, quality, and safety on a continuing basis. We believe we can drive growth by helping our
existing customers grow, while cultivating new customers through geographic and product expansion. While the IMS
is principally an internal tool, IMS benefits our customers through our continuous improvement efforts which are centered
on exceeding our customer’s requirements.
Our long-term goals are to drive average annual organic revenue growth of approximately 5%-7%, with
corresponding operating margin expansion of 50-70 basis points, achieve an adjusted free cash flow conversion rate
of greater than 105%, and deliver adjusted earnings per share growth of 10%-15% per year. In 2013, we added a
return on invested capital (ROIC) metric to our long-term incentive plan to emphasize management's focus on driving
increased shareholder value. We intend to reach these goals through a combination of leveraging our niche market
positions, continuing to expand globally by following and supporting our customers and their growth, introducing new
products, reducing costs, increasing productivity, and effectively deploying capital. ITT’s strategy to achieve these
goals consists of the following key areas:
Differentiated Customer Experience
ITT places significant focus on managing the relationships it has with its customers through a formalized process
referred to as Value-Based Commercial Excellence (VBCE). VBCE is a continuous improvement process which our
businesses use to strategically price our products and services, develop our value propositions, and assist our
customers to solve their toughest business challenges through a robust voice of customer process and measurement
system leading to a deep holistic understanding and customer insight. ITT is able to accomplish this by providing an
efficient and productive customer experience through advanced order configuration, on-time delivery, and reliable
products and services. In addition, ITT has key strategic account relationships throughout the industries we serve.
Strategic accounts are customer partnerships, often global in scale, which promote the shared benefits of improved
business processes between ITT and its customers. Our strategic account agreements promote customer intimacy,
optimized service and delivery performance, and provide growth and profit improvement opportunities. In some
instances we are able to leverage these relationships across segments. For example, both Industrial Process and
Interconnect Solutions supply products and services to certain oil & gas customers through Industrial Process’s strategic
account relationships. Additionally, ITT’s Global Supply Chain Services (GSCS) capabilities and operational excellence
initiatives are key supporting elements to the premier customer experience.
The Company views its customer relationships as its primary vehicle for growth and technological advancement.
Understanding our customer’s growth plans and challenges allows ITT’s businesses to tailor and deliver reliable and
timely products and services. The benefits from our differentiated customer experience approach often cross geographic
regions as well. For instance, in 2013, Motion Technologies secured a U.S. platform win with a Japanese automotive
manufacturer stemming from a relationship developed from R&D activities in Wuxi, China.
The Company has a core competency in application engineering because a majority of our products feature leading
technologies that operate in harsh environments. Harsh environments reflect challenging surrounding conditions such
as the extreme cold and darkness of outer space or the high pressure of the ocean floor. For example, our electrical
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connectors are built specifically to service satellites in space and our oil & gas drilling products are designed to function
under the intense pressure of the ocean floor.
In addition, to further satisfy the company's customer base, ITT has differentiated itself in the critical arena of
technology and research & development (R&D). ITT has a proven track record in new product development and
introduction. ITT’s approach to technology is to work with its customers in tailoring the right approach to a particular
customer need or problem. In our Industrial Process business, our engineers work with our customers in a number of
highly challenging environments to improve the way our pumps are installed and operated. This allows our customers
to run their processes more reliably and cost effectively by using less energy, which is the largest operating cost in a
pump’s life cycle.
Focused Geographic and Aftermarket Market Expansion
ITT is a global company with 64% of its 2013 revenue derived from international markets, including 30% from
emerging growth markets. Accordingly, ITT has located approximately half of its manufacturing facilities outside of the
U.S. to lower costs, achieve strategic proximity to customers and further increase international sales and market share.
For example, ICS has had a long-term presence at its Shenzhen, Guangdong Province, China facility which produces
products for both domestic consumption in China and for global customers. Shenzhen is a low-cost manufacturing
site that also possesses component fabrication capabilities such as metal stamping, plating, machining and injection
molding. The Shenzhen site is staffed with engineers who design specific products for the Asia Pacific and China
region.
Because of the global nature of our businesses, ITT benefits from opportunities in emerging growth markets and
in developed markets. For example, Motion Technologies is the leading manufacturer of automotive brake pads in
Europe. One of the largest growth opportunities for this European-based business is the developed market in North
America, which presents a tremendous opportunity. To connect with the opportunity in North America, Motion
Technologies has a research, engineering and sales center in Michigan in order to be located close to, and work directly
with, customers on the design and development of brake pads specifically tailored to the North American market.
In addition, we have and expect to continue to expand our R&D capabilities to make products that are relevant to
local markets. Our focus is on products where reliability and engineered solutions are valued. We have established
R&D technology centers in key markets such as India and China. Industrial Process opened its state-of-the-art Korea
engineered pump Center of Excellence in order to continue to capture a larger share of the burgeoning oil & gas market
in the Eastern Hemisphere. Industrial Process is also expanding its R&D capabilities in North America to serve a
growing customer base. In 2012, Motion Technologies opened a R&D center and production facility in Wuxi, China,
focused on expanding and enhancing braking technologies for the local transportation market.
In addition to geographic expansion opportunities, expanding our base of reoccurring revenue streams in the
aftermarket is a key source of our growth. Aftermarket sources accounted for $760.7, $644.3 and $620.0 of our 2013,
2012, and 2011 revenue, respectively. Our Industrial Process, Motion Technologies, and Control Technologies
segments benefit from repeat sales of original products, consumable spare parts, and services as a result of our large,
global, and growing installed base of products. Aftermarket business generally carries higher margins than original
product sales and tends to be a more stable, recurring revenue stream than project-based businesses. The key drivers
of aftermarket demand are the wear and tear on critical components in harsh environment applications. We develop
our aftermarket business through our end user sales channels and dedicated service personnel. The Company views
this as a valuable source of future earnings and is actively marketing its capabilities while investing in technologies
that reduce the customer’s total life cycle cost. For example, our Industrial Process business has an established
international service center network with eight Pump Repair and Overhaul shops (PRO shops) in the U.S. and facilities
in Argentina, Australia, Brazil, Canada, Chile, China, Columbia, England, Saudi Arabia, Singapore, Thailand, and
Venezuela.
Control Technologies provides aftermarket spares and repair services for commercial and military aircraft platforms.
Our up-front investments to gain positions on aircraft platforms generate long-term repeatable aftermarket
revenue. Control Technologies provides aftermarket services through our FAR 145 certified repair station located in
our facility. Our dedicated sales channels have strong relationships with global airlines and we have a partnership
agreement with a large MRO facility that has regional presence and certifications in China.
Motion Technologies also has recurring revenue streams from automotive and rail platform content. Its products
generally serve on long-term platforms whereby once the original equipment products are sold, aftermarket parts are
needed to replace and extend the life of a vehicle. Our up-front investments to gain positions on automotive platforms
generate long-term repeatable OE revenue, while also providing replacement pad opportunities in certain markets.
Another example of a recurring revenue stream is on various aerospace platforms where ICS has been supplying
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content for many decades, such as with our rectangular and circular connectors which have been used in commercial
and military aerospace applications for over 45 years.
Operational Excellence
The Company strives to increase its profit margins and improve its competitive position in all of its businesses
through its operational excellence strategy. The core elements of this strategy are VBLSS, GSCS, VBCE and shared
service utilization. These strategies enable the Company to realize operating efficiencies, increase customer
satisfaction, and increase free cash flow while lowering operating costs, streamlining processes, eliminating waste
and improving cycle times.
The ITT culture has long embraced VBLSS as its central operating tenet. VBLSS encompasses lean manufacturing
as well as continuous process improvement in other critical areas such as customer service and order entry and
fulfillment. Our intent is to drive ever increasing levels of quality, speed, and efficiency throughout the organization. In
2012, we launched an enterprise-wide lean transformation initiative with the goal of improving all elements of a lean
enterprise that encompasses not only core lean, problem solving and continuous improvement principles but also
leadership, talent and cultural aspects. We are targeting achievement and sustainment of a lean assessment score
of 80% within the next 3-5 years at our significant revenue producing facilities representing approximately 80% of ITT’s
total revenue. Driving the lean enterprise as a top priority coupled with significant investments and partnering with
outside experts is making a measurable impact on our performance, including customer and safety metrics.
GSCS, which includes low-cost region sourcing and leverage through a shared buying channel, has enabled us
to mitigate the effects of inflation and increasing material costs in order to maintain or improve profitability. Certain
operations, including shared services, are leveraged among the Company’s segments resulting in additional cost
savings and synergies through the consolidation of operations and reduced general and administrative expenses.
Effective Capital Deployment
Effective capital deployment and a disciplined focus on liquidity and cash management is a major part of how we
achieve our financial performance goals. ITT’s businesses operate in growing and highly fragmented markets, which
allows for increasing market share opportunities. ITT estimates the sum of its served addressable markets to be in
excess of $35 billion worldwide. Given these dynamics and ITT’s technology investments, global reach and vibrant
brands, the Company believes it has the opportunity to continue to expand geographically, broaden its product lines,
improve its market position, and increase earnings through revenue growth and operational efficiencies on an organic
basis and through targeted acquisitions. ITT continues to prioritize deploying capital for organic growth and then
acquisitive growth. ITT’s acquisition strategy generally targets firms in similar businesses and end-markets that produce
unique and differentiated products, services, and technologies.
Targeted Leverage of Our Capabilities
In addition to the key elements of the strategy described above, ITT leverages its diverse set of resources and
capabilities across its businesses in order to maximize the Company’s value creation potential. By working cohesively
across our businesses, we are enhancing products and performance and making strong progress in driving long-term
profitable growth. The Company is continually evaluating cross-business revenue synergies, cost saving and value
creating opportunities and views the following assets and capabilities as core to this objective:
•
•
ITT Brand – The ITT brand is well regarded and widely recognized by most key stakeholders and markets,
particularly in emerging growth markets. This provides our segments with brand recognition for new products
in key emerging growth markets such as Brazil, China, and India.
Integrated Councils – Cross business operational councils in areas such as operations, commercial excellence,
technology and new product development, and global sourcing. While our activities may vary significantly
between each of our segments, our subject matter leaders in this collaborative cross-functional, cross-business
approach provide us with the opportunity to leverage best practices and our collective strengths in areas such
as customer relationship management, product development, coordinated sourcing initiatives, innovation, and
technology sharing.
• Strategic Accounts – Further development and expansion of our global strategic account program to bring the
combined technical capabilities of multiple ITT businesses to address incremental customer opportunities.
• Sourcing – Indirect sourcing activities across ITT's businesses are managed centrally to better leverage our
third-party contracts and pricing and to evaluate vendor performance.
• Shared Functional Excellence – Centralizing our processes and services so that all four of our businesses
can have access to the best resources and better utilize these systems to create additional value, including
shared service locations in North America and Europe to reduce overhead costs and improve effectiveness.
In information technology, we are focused on utilizing social collaboration and data analytics to drive value
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across ITT. Similarly, we are enhancing the way we approach our most valuable asset, our people. We are
continuing to develop a comprehensive talent and human resource capability that will unite and strengthen
our collective ability to attract talent, and consolidate and streamline policies and procedures with technological
capabilities that support it all.
• Our Culture – Our people are at the center of all we do, and our values of respect, responsibility and integrity
are central to who we are as a company. They are the standards to which we hold ourselves and they guide
our words and actions every day. Our values are also the foundation of The ITT Way, which is how we
differentiate ourselves, operate to grow and create value. It is our model for how we create enduring impact
for all of our stakeholders.
Segment Information
Industrial Process
The Industrial Process segment is a global manufacturer of industrial pumps, valves and related equipment, and
is a provider of plant optimization and efficiency solutions and aftermarket services and parts. Headquartered in Seneca
Falls, New York, its operations include five primary product categories:
Goulds Pumps
Goulds Pumps is the largest product category in the Industrial Process segment and is a market leader with over
160 years of product design history and is focused on customer needs primarily in the oil & gas, chemical, mining,
general industrial, pulp & paper, and power markets. The Goulds Pumps brand is among the most widely recognized
brands in the global pump industry. Goulds has a broad portfolio of centrifugal pumps including ANSI (American National
Standard Institute) and ISO (International Standards Organization) chemical pumps, API (American Petroleum Institute)
pumps for the petrochemical and oil & gas industry, slurry and process pumps for the mining industry and paper stock
pumps for the pulp & paper industry. Our portfolio also includes vertical, axial flow, multi-stage and other pumps that
are used in a multitude of industries.
Industrial Process has transformed its Goulds Pumps business considerably over the past five years. Investments
have been made in this business to expand our portfolio of products, augment our testing and global R&D capabilities,
automate the order entry processes, and strengthen our global manufacturing, service and aftermarket capabilities.
Industrial Process has been successful in penetrating target markets, like oil & gas and petrochemical by upgrading
existing products and infrastructure, increasing global engineering resources, enhancing global product and project
management and driving operational excellence.
Bornemann
Bornemann, acquired during the fourth quarter of 2012, is a manufacturer of pumps and systems utilized in the
oil & gas, marine, food and pharmaceutical industries with over a 150 year history. The Bornemann acquisition provided
the Industrial Process business with leading edge technologies and multiphase application expertise that strategically
aligned with other aspects of the Industrial Process business and further expanded ITT’s presence in global oil and
gas markets. Technologies include twin screw pumps, multiphase boosting system pumps and progressive cavity
pumps. Bornemann twin screw pumps are rotating displacement pumps that are ideal for mixtures of crude oil, gas,
water and the finest solids. Twin screw pumps can be used onshore, offshore and sub-sea and the dry running
technology also allow the presence of gases. The multiphase boosting system pumps provide a complete system
solution for a wide range of performance conditions and harsh environmental conditions. Progressive cavity pumps
are used to convey a wide range of media, in particular highly viscous and abrasive materials such as slurry, crude oil
and greases. Progressive cavity pumps are an optimum solution to conveying tasks where the conveyed product is
too viscous and flows too poorly to be pumped by other types of pumps.
ITT Engineered Valves
ITT Engineered Valves is a manufacturer of process valves for the biopharmaceutical, mining, power, pulp and
paper and general industrial markets. ITT Engineered Valves has over 65 years of experience in design, fabrication
and engineering of market leading industrial knife-gate (Fabri-Valve) and sanitary diaphragm valves (Pure-Flo). Pure-
Flo is a leading provider of sanitary valves to the global biopharmaceutical market.
ITT PRO Services
ITT PRO Services is the aftermarket solutions offering which strives to extend equipment life in its customers’
facilities. PRO Services provides an array of services focused on reducing equipment total cost of ownership and
increasing plant output by minimizing downtime. The typical services provided include parts supply, inventory
optimization, field service, energy and reliability assessments, repairs, upgrades and overall equipment maintenance.
PRO Services offerings include ProShop Repair and Upgrades, ProCast, ProSmart, Goulds Pumps Parts, PumpSmart,
and Plant Performance Services.
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ITT C’treat
ITT C’treat is a leading provider of water treatment systems for offshore oil and gas production platforms and has
been in business since 1980. Its skid-mounted, reverse osmosis watermakers convert seawater to drinking water and
process water for the world’s largest offshore oil & gas exploration and production corporations.
Industrial Process services an extensive base of customers from large multi-national engineering, procurement
and construction firms (EPC) to regional distributors with thousands of customers. We estimate this segment’s served
addressable market to be in excess of $14 billion worldwide. In 2013, Industrial Process’ customers operated in the
oil & gas (35%), chemical & petrochemical (22%), general industrial (18%), mining (12%), pulp & paper (7%) and
power (6%) markets. These customers are geographically distributed with a regional mix of North America (49%), Asia
Pacific (16%), Latin America (15%), Middle East & Africa (11%) and Europe (9%).
Industrial Process recognizes that serving the customer before, during and after installation is critical. We utilize
global and diversified sales channel structures. End-users are serviced by an extensive network of independent
industrial distributors (primarily in North America), which account for approximately 27% of sales, and representatives
which complement our customer-focused direct sales and service organization. We also have focused channels
dedicated to supporting the EPC firms as their needs are often different from those of other customers.
The pump and valve markets served are highly competitive. For most of our products there are hundreds of regional
competitors and a limited number of larger global peers. We consider our larger competitors to include Flowserve
Corporation, Sulzer Pumps, SPX Corporation, Ebara Corporation, The Weir Group PLC, Colfax Corporation, Gemu
Valves, Inc., and KSB. Primary customer purchase decision drivers include price, delivery times and on-time delivery
performance, brand recognition and reputation, perceived quality, breadth of product offerings, commercial terms,
technical support and localization. Pricing is typically very competitive for large projects because of the engineering
complexity and increased potential for aftermarket opportunities for the original equipment provider.
Our ability to compete is based on having a wide range of engineered industrial pumps designed to meet our
customers’ most demanding applications and our capacity to provide customers with an array of after sale services
and support. For large projects, our breadth of product offering is an important sales factor as it simplifies the customer’s
procurement process. Industrial Process’ ability to expand its product portfolio has been, and is expected to continue
to be, a competitive strength.
We benefit from our large global installed base of products, which, because of their function in the processes in
which they are installed, require frequent maintenance, repair and replacement. The frequency of repair and
maintenance services depends on utilization levels, as well as, the conditions and environment in which they operate.
Our direct and distributor channels provide market leading service to our customers. As we increase the number of
our global installations, we will continue to add service centers and personnel. By positioning our facilities close to
customers, we are able to provide quicker responses to their growing aftermarket needs.
The Industrial Process segment demonstrates ITT’s ability to achieve the Premier Customer Experience because
the organization works with its customers over the life cycle of the installation and operation of its products in the
customers’ facilities or its customers’ end users in the case of an EPC firm. Industrial Process is able to accomplish
this because of its extensive global customer relationships, breadth of product offering, product availability, project
management skills, and aftermarket and reliability services.
Motion Technologies
Motion Technologies, headquartered in Lainate, Italy, is a global manufacturer of highly engineered and durable
components, consisting of brake pads, shock absorbers and damping technologies for the transportation industry. The
transportation industry encompasses both personal and public transport equipment, such as passenger cars, light and
heavy-duty commercial and military vehicles, buses and rail transportation. Motion Technologies consists of two product
categories, Friction Technologies and KONI. Friction Technologies provides the automotive market with high-
performance, high-quality brake pads while KONI provides the transportation industry with shock absorber and damping
equipment. Motion Technologies primarily serves the high-end of the transportation industry, with a reputation for quality
products and a focus on new product development and operational excellence.
We believe that Motion Technologies is positioned and structured to benefit from the anticipated global growth in
the transportation industry. We believe this growth will be driven by increasing urban and middle class populations
especially in emerging markets, creating a significant need for additional mass transit infrastructure and individual
desire for automobile ownership.
Friction Technologies
Our Friction Technologies business applies innovative research of new friction materials and productive
technologies to manufacture a range of brake pads installed as original equipment (OE pads) on cars and light to
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heavy duty commercial vehicles. Our dedication to customers and to the advancement of braking technologies has
built a legacy of quality, reliable products that meet the demands of customers across the globe. Demand for Motion
Technologies’ products stem from a variety of end customers and automotive platforms around the world. OE pads
are sold either directly to original equipment manufacturers (OEM) or to Tier-1 and Tier-2 brake manufacturers. Our
OE pads are designed to meet customer specifications and environmental regulations, and to satisfy an array of
geographic applications. Most automobile OEM platforms (car model) require specific brake pad formulations and
have demanding delivery and volume schedules.
Friction Technologies manufactures aftermarket brake pads designed for the automotive service and repairs
market. This market consists of both OE dealers, also referred to as original equipment spares (OES) networks, and
independent aftermarket (AM) networks. Brake pads sold within the OES network generally match the specifications
of an original auto platform OE brake pad, while our catalog of AM pads feature technology designed to provide up to
a range of braking performance levels. Within the service and repairs market, pads are sold either directly to OE
manufacturers or Tier-1 and Tier-2 brake manufacturers (such as Continental or TRW) or indirectly through independent
distributor channels. Historically, revenue for Friction Technologies has been generally balanced between OE pads
and AM pads.
Combined sales to Continental and TRW, Motion Technologies' two largest customers, were approximately 46%
of 2013 Motion Technologies revenue, however, approximately 20% of this revenue is directly attributable to OES
supply agreements signed directly with automakers. In addition, all OE pad contracts are through brake manufacturers
even in cases where automakers specify the use of our pads in the braking system.
KONI
The KONI business organizes its various performance shock absorber products into three main product groups:
railway rolling stock; car & racing; and bus, truck & trailer. Each product group is managed by a dedicated team for
product development and engineering, manufacturing, and sales & marketing, thus assuring the best possible
concentration of product specialization and know-how.
Railway Rolling Stock provides a wide range of equipment for passenger rail, locomotives, freight cars, high speed
trains and light rail. Offerings include hydraulic shock absorbers (primary, lateral and inter-car), yaw dampers as well
as visco-elastic and hydraulic buffers. Revenue opportunities for our rail damping systems are balanced between OE
and AM customers. Sales are either directly to train manufacturers and train operators carrying out scheduled train
maintenance programs or indirectly through distributors.
Car & Racing features performance shock absorbers often using our Frequency Selective Damping (FSD)
technology. FSD products are used by car and racing enthusiasts who desire to modify their cars for increased handling
performance and comfort. KONI car shock absorbers are sold all over the world, through a distribution network that
markets KONI products into specific geographies or customer groups.
Bus, Truck & Trailer manufactures shock absorbers and bus dampers, destined to both OE and AM customers.
The rail damping systems and bus dampers market have attractive growth prospects because mass transit systems
are benefiting from ongoing large-scale urbanization trends and infrastructure investments. The long-term, enduring
nature of these factors fosters a market environment that tends to demonstrate mitigated levels of cyclicality. In addition,
train and bus vehicles are sustainable transportation modes that reduce traffic congestion and smog levels in urban
areas.
Motion Technologies has a market reputation derived from many years of mutual collaboration with major OE
manufacturers and is focused on customer satisfaction, quality and on-time delivery. Motion Technologies has a global
manufacturing footprint, with production facilities in Western Europe, Eastern Europe and China.
Motion Technologies competes in markets primarily served by large, well-established national and global
companies. The brake pads and linings market, which we estimate to be in excess of $7 billion, includes companies
such as Nisshinbo Automotive Corporation, Akebono Brake Corporation, and Federal-Mogul Corporation. Key
competitive drivers within the brake pad business include technical expertise, formulation development capabilities,
scale production, product performance, high-quality standards, customer intimacy, reputation and the ability to meet
demanding delivery and volume schedules in a reduced amount of time. OE and OES customers usually require long-
lasting and well-established relationships, based on mutual trust, local proximity and a wide range of cooperative
activities, starting from the design to the sampling, prototyping and testing phases of brake pads. Within the independent
AM pads market, Motion Technologies is a leading European provider in a highly fragmented global market.
Competitive drivers in the rail damping systems business include price, technical expertise and product
performance. Rail damping systems are considered critical components because of safety requirements and thus they
have to be specifically designed according to many different train applications, and must satisfy strict compliance
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requirements. We estimate the rail damping systems and bus dampers segments have a combined addressable market
of approximately $0.6 billion. Motion Technologies is a global leader in the rail dampers component of the complete
rail damper system.
Interconnect Solutions
Headquartered in Santa Ana, California, Interconnect Solutions (ICS) designs and manufactures a broad range
of highly engineered connectors and cable assemblies for critical applications in harsh environments that make it
possible to transfer signal and power in an increasingly connected world. ICS also provides custom products for unique
applications using its engineering expertise to solve difficult connectivity problems and reliability challenges. Through
the Cannon, VEAM and BIW Connector Systems brands, our product portfolio and customized engineered connector
solutions serve customers in the aerospace and defense, industrial and transportation, oil & gas, medical, and
communications markets. In the oil & gas market, ICS is a major solution provider for down-hole electric submersible
pump applications. Within the aerospace and defense markets, ICS has a rich legacy and demonstrated track record
of providing a broad portfolio of industry standards-based products as well as customer specific solutions across a
broad range of mission critical systems applications. Across all markets, ICS is considered a leading company in the
harsh environment niche because of our technological capabilities, customer relationships, cost performance and
global footprint.
For each of its four key growth markets, oil and gas, medical, transportation and industrial, and aerospace and
defense, ICS has an established and dedicated team of individuals that are accountable and empowered to meet
customer expectations and drive innovation and growth. Each dedicated market team includes a general manager
and personnel from sales and marketing, engineering, operations and finance.
Our technological capabilities in filtering, sealing, contact geometry, composite materials and plating allow us to
deliver innovative connector solutions that address our customers’ unique and challenging requirements. Our product
portfolio includes high performance, military-specification, and commercial electrical connectors of the following types:
Circular, Rectangular, Radio Frequency, Fiber Optic, D-sub Miniature, Micro-Miniature and cable assemblies.
Applications include avionics, commercial and military aircraft, rail, industrial automation and production, medical
imaging and diagnostics, construction, agriculture and military equipment. ICS currently has eight production facilities,
including two in the United States, and one in Mexico, Italy, Germany, England, China and Japan, providing geographic
proximity and the highest level of customer support to over 2,500 global customers. Products are sold either directly
to OEM’s, contract manufacturers and cable system operators or indirectly through our partnerships with leading
distribution companies, creating an extensive global distribution channel. We have long-lasting relationships with our
distributor partners, as many have been selling ICS products for over 70 years. Sales to distributors represented
approximately 32% of 2013 ICS revenue.
We estimate the global market for connectors and related products to be approximately $44 billion in 2013. ICS
competes with a large number of competitors in a highly fragmented industry. We estimate our addressable market to
be approximately $5.5 billion in 2013. The major competitors for these products are Amphenol Corporation, Deutsch
(TE Connectivity Ltd.), Souriau (Esterline) and Glenair, Inc.
Control Technologies
Control Technologies, headquartered in Valencia, California, specializes in highly engineered aerospace
components and industrial products. We offer an extensive portfolio of qualified products such as fuel management,
actuation and noise absorption components in the aerospace market and a range of products that manage motion
and absorb energy in a variety of industrial markets. Our application expertise allows us to offer customized solutions
using modular platforms that effectively deliver our technologies for various customer applications. We have strong
aftermarket opportunities, particularly in our aerospace business, and a broad customer base with no single customer
accounting for more than 12% of Control Technologies revenue. Control Technologies’ distribution network represents
approximately 20% of revenue.
CT Aerospace
CT Aerospace designs and manufactures flow control and actuation components, motion control, energy absorption
and vibration isolation products primarily for commercial aerospace, military and other markets. We estimate the served
addressable market for CT Aerospace to be in excess of $6 billion worldwide. Our aircraft component products consist
of fuel and water pumps, valves, electro-mechanical rotary and linear actuators, and pressure, temperature, limit, and
flow switches for various aircraft systems. Our aircraft interior products include a variety of engineered elastomer
aircraft interior isolators to protect equipment and keep the interior of the aircraft quiet, stowage bin rate controls, rotary
hinge dampers and actuators, and seat recline locks and control cables. We also provide electromechanical seat
actuation for premium seating products. Defense products generally include energy absorption applications and
aerospace components. Most of our products are sold direct to the customer by our in-house sales force. We utilize
a small third-party business for government spare parts distribution. CT Aerospace also has a well-established Federal
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Aviation Agency (FAA) certified repair station which focuses on the aftermarket. The repair station also carries ISO9001/
AS9100 and European Aviation Safety Agency (EASA) accreditations.
Our products are custom designed for specific customer applications. We have a highly skilled engineering group
for R&D, application engineering and qualification. We conduct fundamental research internally, with universities, and
with our customers. We leverage our technical capability to provide innovative and reliable solutions for our customers.
Our flow control and actuation products meet reliability requirements through a unique patented shunt disc technology
for pressure and temperature switch applications for hostile environments. In addition, our actuator utilizes a patented
optical technology for enhanced reliability. Our pumps have the ability to run dry for extended periods, minimizing
potential fire ignition sources in fuel system applications and provide high reliability. Our energy absorption products
use patented technology to provide innovative solutions, such as self-compensating valves to allow for wide load
variations. Our leading noise/vibration isolation products use patented innovations to improve noise control, reduce
weight, and reduce installation time.
CT Aerospace sells a wide range of products to the aerospace industry and has many customers globally. Our
business is neither dependent on one or a small number of customers. Our customers are predominantly commercial
airframe manufacturers, airframe systems manufacturers, interior manufacturers, seat manufacturers, commercial
airlines and defense contractors. We have positions with the leading commercial airframe and systems manufacturers
such as Boeing, B/E Aerospace, Parker-Hannifin, Eaton, Woodward, Safran, and Honeywell. We have significant
content in a number of large commercial transport platforms. We also have significant content on regional and business
aircrafts. These platforms provide a long life cycle of original equipment and aftermarket sales.
In the highly regulated aerospace market, we benefit from our large installed base of products. We compete by
offering a wide portfolio of reliable products, coupled with advanced application expertise and customer support. We
believe application expertise and our reputation for quality significantly enhance our market position. Our ability to
collaborate with our customers to deliver a wide range of product offerings has allowed us to compete effectively, to
cultivate and maintain customer relationships, and to expand into new markets.
Competitors range from large multi-national corporations to small privately held firms. Our markets are often
fragmented and thus there are several types of competitors. CT Aerospace competitors include Circor Aerospace,
Inc., Hydra Electric, Lord Corporation, and Hutchinson Worldwide. Competition in these markets focuses on application
expertise with effective solutions, product delivery and performance, previous installation history, quality, price and
customer support. We have been successful in establishing long-term supply agreements with a number of our larger
customers, thereby increasing opportunities to win future business.
Given the highly fragmented nature of the aerospace repair & overhaul industry, CT Aerospace competes with a
large number of Maintenance Repair and Overhaul (MRO) businesses. Some airlines have established repair and
overhaul capabilities which makes them competitors as well. We compete in the repair and overhaul segment of our
business by offering a high quality service with increased reliability, coupled with advanced technical expertise.
CT Industrial
CT Industrial designs and manufactures energy absorption, precision motion control, and natural gas regulators
primarily for heavy industry, infrastructure, automation, and energy markets. We estimate the served addressable
market for CT Industrial is over $3 billion globally. Our energy absorption products consist of customized shocks
absorbers, vibration isolators and dampers. CT Industrial possesses a specialized set of skills and capabilities in the
energy absorption business. Our precision motion control products consist of servomotors, actuators, and controllers.
CT Industrial has solid positions in China, Europe, and North America. It has a broad customer base including end
users, OEM’s, and distributors. Channels to market include direct, commissioned representation and buy-resell
distributors. Our ability to collaborate with our customers to deliver comprehensive product offerings has allowed us
to compete effectively.
Competitors change depending on the product line and range from large multi-national corporations to small
privately held firms. CT Industrial is one of the leaders in energy absorption, focusing on the automation, heavy industrial
energy and infrastructure markets.
The energy absorption, precision motion control and natural gas regulators businesses are highly fragmented and
we compete with a global group of industry participants. The main competitors in the energy absorption infrastructure
and automation market are Taylor Devices and ACE (a subsidiary of Kaydon). The main competitor in the servomotor
product line is Kollmorgen. Parker-Hannifin Corporation is a leading competitor in the pneumatic actuation market.
CT Industrial will continue to focus on delivery lead times, quality and performance while enhancing our application
engineering offering. The development of new customer service strategies will create a differentiated service offering
and improve turnaround time in product, quotations and service communications.
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Other Company Information
Materials
All of our businesses require various OEM products, manufactured components and raw materials, the availability
and prices of which may fluctuate. The principal OEM products and manufactured components assembled into our
products include motors, castings, mechanical seals, machined castings, metal fabrications and miscellaneous metal,
plastic, or electronic components. The primary raw materials used in manufacturing our products include steel, gold,
copper, nickel, iron, aluminum, and tin, as well as specialty alloys, including titanium. Materials are purchased in various
forms, such as sheet, bar, rod and wire stock, pellets and metal powders.
Our global sourcing initiatives continue to expand and are designed to capitalize on sources in emerging growth
markets and other low-cost sources of purchased goods balanced with efficient coordinated global logistics. Raw
materials, supplies and product subassemblies are purchased from third-party suppliers, contract manufacturers, and
commodity dealers. For most of our products, we have existing alternate sources of supply, or such materials are
readily available. In some instances we depend on a single source of supply, manufacturing or assembly or participate
in commodity markets that may be subject to a limited number of suppliers.
We continually monitor the business conditions of our supply chain to maintain our market position and to avoid
potential supply disruptions. There have been no raw materials shortages that have had a material adverse impact on
our business as a whole, and we have been able to develop a robust supply chain such that we do not anticipate
shortages of such materials in the future.
Although some cost increases may be recovered through increased prices to customers, our operating results are
generally exposed to such fluctuations. We attempt to control such costs through fixed-priced contracts with suppliers
and various other cost containment strategies, such as our Global Supply Chain Services initiative. We typically acquire
materials and components through a combination of blanket and scheduled purchase orders to support our materials
requirements for an average of four to eight weeks, with the exception of some specialty materials. From time to time,
we experience price volatility or supply constraints for raw materials based on market supply and demand dynamics.
In limited circumstances, we may have to obtain scarce components for higher prices on the spot market, which may
have a negative impact on gross margin and can periodically create a disruption to production and delivery. We also
acquire certain inventory in anticipation of supply constraints or enter into longer-term pricing commitments with vendors
to improve the priority, price and availability of supply. We evaluate hedging opportunities to mitigate or minimize the
risk of operating margin erosion resulting from the volatility of commodity prices.
Manufacturing Methods
We utilize two primary methods of fulfilling demand for products: build-to-order and engineer-to-order. Build-to-
order consists of assembling a group of products with the same pre-defined specifications, generally for our OEM
customers. Engineer-to-order consists of assembling a customized system for a customer’s individual order
specifications. In both cases, we offer design, integration, test and other production value-added services. We employ
build-to-order capabilities to maximize manufacturing and logistics efficiencies by producing high volumes of basic
product configurations. Engineering products to order permits the configuration of units to meet the customized
requirements of our customers. Our inventory management and distribution practices in both build-to-order and
engineer-to-order seek to minimize inventory holding periods, and improve customer delivery performance.
Backlog
Delivery schedules vary from customer to customer based on their requirements. For example, large complex
projects in specialized markets such as oil & gas and mining at Industrial Process require longer lead times and
production cycles. Delivery delays could arise from supply chain limitations, internal production challenges, changes
in the customer’s requirements, or technical difficulties. Total backlog, representing firm orders that have been received,
acknowledged and entered into our production systems, was $1,093 and $1,017 at December 31, 2013 and 2012,
respectively. Total backlog at December 31, 2013 was comprised of 62% from Industrial Process, 18% from Motion
Technologies, 11% from ICS, and 9% from Control Technologies. We expect to satisfy nearly all December 31, 2013
backlog commitments during 2014.
Intellectual Property
We generally seek patent protection for those inventions and improvements that are likely to be incorporated into
our products or where proprietary rights are expected to improve our competitive position. The highly customized
application engineering embedded within our products, our proprietary rights and our knowledge capabilities all
contribute to enhancing our competitive position.
While we own and control a significant number of patents, trade secrets, confidential information, trademarks,
trade names, copyrights, and other intellectual property rights which, in the aggregate, are of material importance to
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our business, management believes that our Company, as a whole, as well as each of our core segments, is not
materially dependent on any one intellectual property right or related group of such rights. Patents, patent applications,
and license agreements will expire or terminate over time by operation of law, in accordance with their terms or
otherwise. As the portfolio of our patents, patent applications, and license agreements has evolved over a long period
of time, we do not expect the expiration of any specific patent or other intellectual property right to have a material
adverse effect on our financial statements.
Research and Development
R&D is a key element of ITT’s engineering culture and is generally focused on the design and development of
products and solutions that anticipate customer needs and emerging trends. ITT’s track record for new product
development and introduction is strong given our approach to R&D which is designed to work with our customers to
tailor a solution to a particular customer need or problem. As a result, our R&D is based on taking technology quickly
to the tangible phase, increasing the competitive offering, and increasing the customer service experience through
engineered application solutions.
Product development efforts at Industrial Process focus on technologies that reduce customer’s total cost of
ownership. We continue to significantly expand our API pump coverage to service the oil & gas market. We have
continued to add sizes to our multistage product families for high pressure and high temperature applications and
expand the range of single double suction pumps for oil & gas market applications. IP has continued to expand the
Goulds Pumps XHD Extra Heavy Duty Lined Slurry Pump which has been designed for even the toughest slurry
applications, such as primary metals and mineral processing. The XHD model features patent pending features that
provide superior service and easier maintenance than other slurry pumps. An exciting area of technology advancement
within our PRO Services product category is our PumpSmart product family. In 2013, IP launched the Medium Voltage
PumpSmart Product line for advanced control of high power pumping systems. A new line of very large Vertical
Circulating Water Pumps has been released for high flow applications in power and other industrial applications.
Motion Technologies R&D activities focus on the design and development of products and solutions that either
meet specific customers’ needs or anticipate new market trends and environmental regulations. In 2013, Motion
Technologies tackled new regulatory challenges concerning the use of copper and became the first friction manufacturer
to release copper-free material for commercial vehicle applications. This successful formulation relied on both product
innovation as well as innovative processes in thermal treatment. During 2013, Motion Technologies continued to invest
in its R&D centers around the world, including the new R&D center in Wuxi, China, to enable ITT to provide the
appropriate engineering solutions with responsive service to our customers and for the development of new local
product launches.
ICS has re-invigorated its focus on research and development and subsequently seen a notable increase in its
new product pipeline. The majority of 2013 product developments were targeting reduced size, weight and cost
requirements; environmental standards compliance; and a general expansion of our existing product lines. The launch
of our MKJ Series 5 miniature circular connector completes the MKJ product line offering developed as a smaller,
lighter and lower cost alternative to traditional 38999-style connectors. The launch of our CA-Blue line of circular
connectors for the transportation and industrial markets, the stainless steel version of our D-Sub connectors, and the
TiCu version of our Universal Contact line address the latest North American and European environmental
requirements, such as RoHS compliance, while new variants of our Micro and Nano product lines offer enhanced EMI
(electromagnetic interference) shielding capability providing increased environmental protection.
Control Technologies R&D efforts are aimed at producing innovative technologies that solve our customer’s critical
issues. For example, CT Industrial is currently developing a series of liquid spring devices for hydro-electric turbines.
The technology, termed VES (Visco-Elastic Support), decouples the turbine from the civil structure and provides reduced
thermal forces in the bearing support, thus increasing turbine life. In addition, CT Aerospace is developing vibration
isolators for helicopters to reduce rotor vibration and noise, and a high endurance electromechanical actuator for
regional jets to improve fuel efficiency.
We anticipate our investments in future R&D activities will moderately increase from current spending levels to
ensure a continuing flow of innovative, high quality products and maintain our competitive position in the markets we
serve. Such activities are conducted in laboratory and engineering facilities at several of our major manufacturing
locations, as well as in our dedicated R&D facilities strategically positioned close to our customers. During 2013, 2012
and 2011, we recognized R&D expenses of $67.3, $62.7, and $63.5, respectively, which are 2.7%, 2.8%, and 3.0%,
of revenues, respectively.
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Cyclicality and Seasonality
Many of the businesses in which we operate are subject to specific industry and general economic cycles. Our
Interconnect Solutions business tends to be impacted more in the early portion of an economic cycle, while the
automotive and aerospace components businesses tend to expand in the middle portion of the economic cycle and
the industrial pump business typically benefits from late cycle expansion.
Our businesses experience limited seasonal variations, with demand generally at an annual low during summer
months (our third quarter) mainly attributable to manufacturing shutdowns and the planned industrial maintenance
activities of our customers. Revenue impacts from the limited seasonal variations are typically mitigated by our backlog
of orders that allow us to adjust levels of production across the summer months.
Environmental Matters
We are subject to stringent federal, state, local, and foreign environmental laws and regulations concerning air
emissions, water discharges and waste disposal. In the U.S., these include but are not limited to the Federal Clean
Air Act, the Clean Water Act, the Resource, Conservation and Recovery Act, and the Comprehensive Environmental
Response, Compensation and Liability Act. Environmental requirements are significant factors affecting our operations.
We have established an internal program to assess compliance with applicable environmental requirements for our
facilities. The program, which includes periodic audits of many of our locations, including our major operating facilities,
is designed to identify problems in a timely manner, correct deficiencies and prevent future noncompliance.
We closely monitor our environmental responsibilities, together with trends in the environmental laws. In addition,
we have purchased insurance protection against certain environmental risks arising from our business activities.
Environmental laws and regulations are subject to change, however, the nature and timing of such changes, if any, is
difficult to predict. 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.
Accruals for environmental liabilities 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. Our estimated liability is undiscounted and is reduced to reflect the participation of other potentially
responsible parties in those instances where it is probable that such parties are legally responsible and financially
capable of paying their respective share of the relevant costs. Such estimates are subject to change and may be
affected by many factors, such as new information about a site, evolving scientific knowledge about risk associated
with any contamination involved, developments affecting remediation technology, and enforcement by regulatory
authorities.
Employees
As of December 31, 2013, we had approximately 9,400 employees, of which approximately 3,400 were located
in the U.S. Approximately 15% of our U.S. employees are represented by unions. We also have unionized employees
in Italy, Germany, and Brazil. No one unionized facility accounts for more than 20% of ITT total revenues. Although
our relations with our employees are strong and we have not experienced any material strikes or work stoppages
recently, no assurances can be made that we will not experience these or other types of conflicts with labor unions,
works councils, other groups representing employees or our employees generally, or that any future negotiations with
our labor unions will not result in significant increases in our cost of labor.
Company Transformation
On October 31, 2011 (the Distribution Date), ITT completed the tax-free spin-off (referred to herein as the
Distribution) of its Defense and Information Solutions business, Exelis Inc. (Exelis), and its water-related businesses,
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. Exelis and Xylem are
now independent companies trading on the New York Stock Exchange under the symbols “XLS” and “XYL”, respectively.
The Distribution was made pursuant to a Distribution Agreement, dated October 25, 2011, among ITT, Exelis and
Xylem (the Distribution Agreement). Following the Distribution, ITT did not own any shares of common stock of Exelis
or Xylem. All information herein has been restated to reflect the Distribution, and the results of Exelis and Xylem are
presented as discontinued operations in all periods.
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ITEM 1A. RISK FACTORS
We are subject to a wide range of factors that could materially affect future developments and performance. Because
of these factors, past performance may not be a reliable indicator of future results. Set forth below and elsewhere in
this document are descriptions of the risks and uncertainties that could cause our actual results to differ materially
from the results contemplated by the forward-looking statements contained in this document. The most significant
factors affecting our business and operations include the following:
Business and Operating Risks
Our exposure to pending and future asbestos claims and related liabilities, assets, and cash flows are subject
to significant uncertainties.
ITT, including its subsidiary Goulds Pumps, Inc., has been joined as a defendant in numerous lawsuits and claims
in which the plaintiffs claim damages for personal injury arising from exposure to asbestos in connection with certain
products sold or distributed that may have contained asbestos. We expect to be named as defendants in similar actions
in the future. We record an estimated liability related to pending claims and claims estimated to be filed over the next
10 years based on a number of key assumptions, including the plaintiffs’ propensity to sue, claim acceptance rates,
disease type, settlement values and defense costs. These assumptions are derived from ITT’s recent experience and
reflect the Company’s expectations about future claim activities. These assumptions about the future may or may not
prove accurate, and accordingly, the Company may incur additional liabilities in the future. A change in one or more
of the inputs used to estimate our asbestos liability could materially change the estimated liability and associated cash
flows for pending claims and those estimated to be filed in the next 10 years. Although it is probable that the Company
will incur additional costs for asbestos claims filed beyond the next 10 years, we do not believe there is a reasonable
basis for estimating those costs at this time.
We record an asset that represents our best estimate of probable recoveries from our insurers for the estimated
asbestos liabilities. There are significant assumptions made in developing estimates of asbestos-related recoveries,
such as policy triggers, policy or contract interpretation, the methodology for allocating claims to policies, and the
continued solvency of the Company’s insurers. Certain of our primary coverage-in-place agreements are exhausted
or will be exhausted in the next several months, which may result in higher net cash outflows until excess carriers
begin accepting claims for reimbursement. Performance by our insurers could differ from the assumptions underlying
the recognized asset and could result in lower collections of receivables than are currently expected to reduce the
Company’s asbestos costs.
Due to these uncertainties, as well as our inability to reasonably estimate any additional asbestos liability for claims
that may be filed beyond the next 10 years, it is not possible to predict the ultimate outcome of the cost, nor potential
recoveries, of resolving the pending and all unasserted asbestos claims. Additionally, we believe it is possible that 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.
Many uncertainties exist surrounding asbestos litigation. The Company will continue to evaluate its estimated
asbestos-related liability and corresponding estimated insurance reimbursement, as well as the underlying assumptions
and process used to derive these amounts. Changes in estimates related to these uncertainties may result in increases
or decreases to the net asbestos liability, particularly if the quality or number of claims or settlement or defense costs
change significantly, if there are significant developments in the trend of case law or court procedures, or if legislation
or another alternative solution is implemented; however, the Company is currently unable to estimate such future
changes. Although the resolution of asbestos claims takes many years, the effect of changes in our estimates related
to our pending or estimated future claims in any given period could be material to our financial statements.
In addition, as part of the Distribution, ITT indemnified Exelis and Xylem with respect to asserted and unasserted
asbestos claims that relate to the presence or alleged presence of asbestos in products manufactured, repaired or
sold prior to the Distribution Date, subject to limited exceptions.
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Our operating results and our ability to maintain liquidity or procure capital may be adversely affected by
unfavorable economic and capital market conditions associated with global sales and operations and the
uncertain geopolitical environment. Adverse conditions in the markets we serve could adversely affect demand
for our products.
We have experienced and expect to continue to experience fluctuations in revenues and operating results due to
economic and business cycles. Important factors impacting our businesses include the overall strength of the global
economy and our customers’ confidence in local and global macroeconomic conditions, industrial spending, interest
rates, availability of commercial financing for our customers and unemployment rates.
We serve a diverse mix of customers in global infrastructure industries which can be volatile. The markets in which
our business operates include automotive, aerospace, oil & gas, industrial, mining, chemical and defense, each of
which is impacted by specific industry and general economic cycles. Our revenues, operating results and profitability
have varied in the past and may vary from quarter to quarter in the future and can be negatively impacted by volatility
in the end markets we serve. We have undertaken measures to reduce the impact of this volatility through diversification
of markets we serve and expansion of geographic regions in which we operate. We may be adversely affected by
disruptions in financial markets or downturns in macroeconomic conditions in specific countries or regions, or in the
various industries in which the Company operates or be subject to adverse changes in the availability and cost of
capital, interest rates, tax rates, or regulations in the jurisdictions in which the Company operates.
Our international operations, including sales of U.S. exports, comprise a growing portion of our operations and
are a strategic focus for continued future growth. Our strategy calls for increasing sales in overseas markets, including
emerging growth markets such as Central and South America, China, India and the Middle East. In 2013, 64% of our
total sales were to customers operating outside of the United States. Both our sales from international operations and
export sales are subject in varying degrees to risks inherent to doing business outside the United States. These risks
include the following:
• Possibility of unfavorable circumstances arising from host country laws or regulations;
• Currency exchange rate fluctuations and restrictions on currency repatriation;
• Potential negative consequences from changes to taxation policies;
• The disruption of operations from labor and political disturbances;
• Our ability to hire and maintain qualified staff in these regions; and
• Changes in tariff and trade barriers and import and export licensing requirements.
Instability in the global credit markets, including the recent European economic and financial difficulties related to
sovereign debt issues in certain countries and the instability in the geopolitical environment in many parts of the world,
may continue to put pressure on global economic conditions. If global economic and market conditions, or economic
conditions in key markets, deteriorate further we may experience material impacts on our financial statements.
Adverse changes to financial conditions could jeopardize certain counterparty obligations, including those of our
insurers and customers. Restrictive credit markets may also result in customers extending terms for payment and may
result in our having higher customer receivables with increased risk of default. We closely monitor the credit worthiness
of our insurers and customers and evaluate their ability to service their obligations to us. A tightening of credit markets
may reduce funds available to our customers to pay for or buy our products and services for an unknown, but perhaps
lengthy, period.
Should market conditions deteriorate, this may adversely affect our ability to manage inventory levels and maintain
current levels of profitability. If, for any reason, we lose access to our currently available lines of credit, or if we are
required to raise additional capital, we may be unable to do so or we may be able to do so only on unfavorable terms.
We are exposed to fluctuations in foreign currency exchange rates, particularly with respect to the Euro, Chinese
Renminbi, South Korean Won, Hong Kong Dollar, Mexican Peso, British Pound, Czech Koruna, Australian Dollar,
Venezuelan Bolivar, and Canadian Dollar. As we continue to grow our business internationally, our operating results
could be affected by the relative strength of the European, Asian and developing economies and the impact of currency
exchange rate fluctuations. Any significant change in the value of currencies of the countries in which we do business
relative to the value of the U.S. Dollar could affect our ability to sell products competitively and control our cost structure,
which could have a material adverse effect on our financial statements. In addition to the general risks that we face
outside the U.S., we now conduct more of our operations in emerging growth markets than we have in the past, which
could involve additional uncertainties, including risks that governments may impose limitations on our ability to repatriate
funds; governments may impose withholding or other taxes on remittances and other payments to us, or the amount
of any such taxes may increase; governments may seek to nationalize our assets; or governments may impose or
increase investment barriers or other restrictions affecting our business. In addition, emerging growth markets pose
15
other uncertainties, including the protection of our intellectual property, pressure on the pricing of our products, and
risks of political instability.
A substantial portion of our earnings is generated by our foreign subsidiaries and repatriation of those earnings
to the U.S. may be inefficient from a tax perspective. Any payment of distributions, loans or advances to us by our
foreign subsidiaries could be subject to restrictions on, or taxation of, dividends on repatriation of earnings under
applicable local law, monetary transfer restrictions and foreign currency exchange regulations in the jurisdictions in
which our subsidiaries operate. The cost of compliance with increasingly complex and often conflicting regulations
worldwide can also impair our flexibility in modifying product, marketing, pricing, or other strategies for growing our
businesses, as well as our ability to improve productivity and maintain acceptable profit margins.
Failure to compete successfully in our markets could adversely affect our business.
We provide products and services into competitive markets. We believe the principal points of competition in our
markets are product performance, reliability and innovation, application expertise, brand reputation, energy efficiency,
product life cycle cost, timeliness of delivery, proximity of service centers, effectiveness of our distribution channels
and price.
Maintaining and improving our competitive position will require continued investment by us in manufacturing,
research and development, engineering, marketing, customer service and support, and our distribution networks. We
may not be successful in maintaining our competitive position. Our competitors may develop products that are superior
to our products, or may develop more efficient or effective methods of providing products and services or may adapt
more quickly than we do to new technologies or evolving customer requirements. Pricing pressures also could cause
us to adjust the prices of certain products to stay competitive. We may not be able to compete successfully with existing
or new competitors.
Our operating costs are subject to fluctuations, particularly due to changes in commodity prices, raw materials,
energy and related utilities, freight, and cost of labor. In order to remain competitive, we may not be able to recuperate
all or a portion of these higher costs from our customers through product price increases. Further, our ability to realize
financial benefits from VBLSS activities may not be able to mitigate fully or in part these manufacturing and operating
cost increases and, as a result, could negatively impact our profitability.
Quality problems with our manufacturing processes or finished goods could harm our reputation for producing
high-quality products and erode our competitive advantage, sales, and market share.
We manufacture key components that are integral to the operation of systems and manufacturing processes in
the energy, transportation and industrial markets. Our products provide enabling functionality for applications where
reliability and performance are critically important to our customers and the users of their products. As such, quality
is extremely important to us and our customers due to the serious and costly consequences of product failure. Our
quality certifications are critical to the marketing success of our goods and services. If we fail to meet these standards,
our reputation could be damaged, we could lose customers, and our revenue and results of operations could be
materially adversely affected. Aside from specific customer standards, our success in part depends on our ability to
manufacture to exact tolerances precision-engineered components, subassemblies, and finished devices from multiple
materials. If our components fail to meet these standards or fail to adapt to evolving standards, our reputation as a
manufacturer of high-quality components will be harmed, our competitive advantage could be damaged, and we could
lose customers and market share.
Our business exposes us to potential product liability risks that are inherent in the design, manufacture, and
marketing of products for the markets we serve. In addition, many of the devices we manufacture and sell are designed
to be used in harsh environments for long periods of time where the cost of failure is high. Component failures,
manufacturing defects, design flaws, or inadequate disclosure of product-related risks or product-related information
could result in an unsafe condition or injury to, or death of, an end user of our products. The occurrence of such a
problem could result in product liability claims or a recall of, or safety alert relating to, one or more of our products
which could ultimately result, in certain cases, in the removal of such products from the marketplace and claims
regarding costs associated therewith. Product liability claims or product recalls in the future, regardless of their ultimate
outcome, could have a material adverse effect on our business and reputation and on our ability to attract and retain
customers for our products.
16
Our business could be adversely affected by raw material price volatility and the inability of suppliers to meet
quality and delivery requirements, and provide us with certifications relating to conflict minerals.
Our business relies on third-party suppliers for raw materials, components, and contract manufacturing services
to produce our products. The supply of raw materials to the Company and to its component parts suppliers and the
supply of castings, motors, and other critical components could be interrupted for a variety of reasons, including
availability and pricing. Prices for raw materials necessary for production have fluctuated significantly in the past and
significant increases could adversely affect the Company’s results of operations and profit margins. Due to pricing
pressure or other factors, the Company may not be able to pass along increased raw material and components parts
prices to its customers in the form of price increases or its ability to do so could be delayed. Consequently, our results
of operations and financial condition may be adversely affected.
For most of our products, we have existing alternate sources of supply, or such materials are readily available. In
some instances we depend on a single source of supply, manufacturing or assembly or participate in commodity
markets that may be subject to a limited number of suppliers. Delays in obtaining supplies may result from a number
of factors affecting our suppliers, including production interruptions at suppliers, capacity constraints, labor disputes,
the impaired financial condition of a particular supplier, the ability of suppliers to meet regulatory requirements, and
suppliers’ allocations to other purchasers. Any delay in our suppliers’ abilities to provide us with sufficient quality and
flow of materials, price increases, or decreased availability of raw materials or commodities could impair our ability to
deliver products to our customers and, accordingly, could have an adverse effect on our business, results of operations
and financial position.
Since our supply chain is complex, ultimately we may not be able to sufficiently discover the origin of the Conflict
Minerals (generally defined as the minerals tin, tantalum, titanium and gold which have been extracted from the
Democratic Republic of the Congo or adjoining countries) used in our products through the due diligence procedures
that we implement, which may adversely affect our reputation with our customers, shareholders, and other stakeholders.
In such event, we may also face difficulties in satisfying customers who require that all of our products are certified as
conflict mineral free. If we are not able to meet such requirements, customers may choose not to purchase our products,
which could adversely affect our sales and the value of portions of our inventory. Further, there may be only a limited
number of suppliers offering conflict free minerals and, as a result, we cannot be sure that we will be able to obtain
metals, if necessary, from such suppliers in sufficient quantities or at competitive prices. Any one or a combination of
these various factors could harm our business, reduce market demand for our products, and adversely affect our profit
margins, net sales, and overall financial results.
If we fail to manage the distribution of our products and services effectively, our revenue, gross margin and
profitability could suffer. A significant portion of our revenue is derived from a single customer.
We use a variety of sales channels to sell our products and services, including third-party distributors, agents, and
resellers. Successfully managing these sales channels is a complex process as we sell a broad mix of products through
a network of over 800 distributors, agents, and resellers. Moreover, since each distribution method has distinct risks
and profit margins, our failure to implement the most advantageous balance in the delivery model for our products and
services could adversely affect our revenue and profit margins. In addition, changes to the sales channels could
introduce additional complexity to the sales and inventory management processes and could cause disruptions to
customer service or create channel conflicts.
Further, we must manage inventory effectively, particularly with respect to sales to distributors, which involves
forecasting demand and potential pricing issues. Distributors may increase orders during periods of product shortages,
cancel orders if their inventory is too high or delay orders in anticipation of new products. Our reliance on indirect
distribution methods may reduce visibility to end-customer demand, generating a time lag to the market trend with
potential negative impacts on strategic decisions, including pricing and operational decisions.
Our financial results could be adversely affected by the loss of a distributor, the loss or deterioration of some
distribution or reseller arrangements, channel conflicts including the consolidation of third-party distributors, or if the
financial conditions of our channel partners were to weaken. It is not unreasonable to suspect that some of our
distributors may have insufficient financial resources and may not be able to withstand changes in business conditions,
including economic weakness, leading to a slowness or difficulty in the cash collection process.
A significant portion of our total revenue (and a significant portion of the revenue of our Motion Technologies
segment) is derived from a single customer, whom we sell to through OE pad contracts and OES supply agreements
with automakers and which is also a third-party distributor for us in the independent aftermarket channel.
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Changes in our effective tax rates as a result of changes in the realizability of our deferred tax assets, the
geographic mix of earnings, tax examinations or disputes, tax authority rulings, or changes in the tax laws
applicable to us may adversely affect our financial results.
The Company is subject to income taxes in the U.S. and in various foreign jurisdictions. We exercise significant
judgment in calculating our provision for income taxes and other tax liabilities. In the ordinary course of our business,
there are many transactions and calculations where the ultimate tax determination is uncertain. Furthermore, changes
in domestic or foreign income tax laws and regulations, or their interpretation, could result in higher or lower income
tax rates assessed or changes in the taxability of certain sales or the deductibility of certain expenses, thereby affecting
our income tax expense and profitability.
Any significant increase in our future effective tax rates could reduce net income for future periods. Given the
global nature of our business, a number of factors may increase our future effective tax rates, including:
• Decisions to repatriate non-U.S. earnings for which we have not previously provided for U.S. income taxes;
• Changes in the geographic mix of our profits among jurisdictions with differing statutory income tax rates;
• Sustainability of historical income tax rates in the jurisdictions in which we conduct business;
• Changes in tax laws applicable to us;
• The resolution of issues arising from tax audits with various tax authorities; and
• Changes in the valuation of our deferred tax assets, deferred tax liabilities and deferred tax asset valuation
allowances.
The amount of income taxes and other taxes we have paid are subject to ongoing audits by U.S. federal, state
and local tax authorities and by non-U.S. authorities. If these audits result in assessments different from amounts paid
or reserved, future financial results may include unfavorable tax adjustments. We are currently under routine
examination by the U.S. Internal Revenue Service and other tax authorities, and we may be subject to additional
examinations in the future. The tax authorities may disagree with our tax treatment of certain material items and thereby
increase our tax liability. Failure to sustain our position in these matters could result in a material adverse effect on
our financial statements.
Failure to retain our existing senior management, engineering and other key personnel or the inability to attract
and retain new qualified personnel could negatively impact our ability to operate or grow our business.
Our success will continue to depend to a significant extent on our ability to retain or attract a significant number
of employees in senior management, engineering and other key personnel. The ability to attract or retain employees
will depend on our ability to offer competitive compensation, training and cultural benefits. We will need to continue to
develop a roster of qualified talent to support business growth and replace departing employees. A failure to retain or
attract highly skilled personnel could adversely affect our operating results or ability to operate or grow our business.
We rely on our information systems in our operations. Our information system structure could make it more
difficult to cost-effectively implement changes. Security breaches could adversely affect our business and
results of operations.
Our information systems infrastructure is centralized, but our information system applications are both centralized
and decentralized. The centralized infrastructure presents a risk in that a potential security breach could have a
company-wide impact. The decentralized applications could result in significant replacement costs were the Company
to decide to replace a number of the independent operating systems or consolidate operating systems. The inter-
relationship of information systems also presents an additional risk when upgrading or replacing information systems.
Additionally, we are planning numerous initiatives over the next several years to upgrade or replace existing Enterprise
Resource Planning (ERP) systems. Implementing new systems may result in unintended changes to the way in which
production is performed and transactions are processed. Our ability to execute these ERP systems implementations
will directly impact our potential risk exposure during this implementation period.
The efficient operation of our business is dependent on computer hardware and software systems. While we
believe we have taken many steps to protect our information systems, even the most well-protected information systems
are vulnerable to internal and external security breaches including those by computer hackers and cyber terrorists.
The unavailability of our information systems, the failure of these systems to perform as anticipated for any reason or
any significant breach of security could disrupt our business and could result in decreased performance and increased
overhead costs, causing an adverse effect on our business, reputation and financial statements.
18
Portfolio management strategies for growth, including cost-saving initiatives, may not meet expectations.
We regularly review our portfolio of businesses and pursue growth through the acquisition of other companies,
assets and product lines that either complement or expand our existing business. Although we conduct what we believe
to be a prudent level of investigation regarding the operating and financial condition of the businesses we purchase,
a level of risk remains regarding the actual operating condition of these businesses. Until we actually assume operating
control of these business assets and their operations, we may not be able to ascertain the actual value or understand
the potential liabilities of the acquired entities and their operations. Acquisitions involve a number of risks and present
financial, managerial and operational challenges that could have a material adverse effect on our reputation and
business, including that an acquired business could under-perform relative to our expectations, the failure to realize
expected synergies, integration of technology, operations, personnel and financial and other systems, the possibility
that we have acquired substantial undisclosed liabilities, potentially insufficient internal controls over financial activities
or financial reporting at an acquired company that could impact us on a consolidated basis, diversion of management
attention from other businesses, loss of key employees of the acquired businesses, and customer dissatisfaction or
performance.
Our portfolio reviews also include the potential for cost-saving initiatives through restructuring, realignment and
other initiatives. We strive for and expect to achieve cost savings in connection with certain initiatives, including:
(i) manufacturing process and supply chain rationalization; (ii) streamlining redundant administrative overhead and
support activities; and (iii) restructuring and repositioning organizations. Cost savings expectations are inherently
estimates that are difficult to predict and we cannot provide assurance that we will achieve expected, or any, actual
cost savings. Our restructuring activities may place substantial demands on our management, which could lead to the
diversion of management’s attention from other business priorities and result in a reduced customer focus.
The level of returns on postretirement benefit plan assets, changes in interest rates and other factors could
affect our earnings and cash flows in future periods.
A portion of our current and retired employee population is covered by pension and other employee-related defined
benefit plans (collectively, postretirement benefit plans). We may experience significant fluctuations in costs related
to postretirement benefit plans as a result of macroeconomic factors, such as interest rates, that are beyond our control.
The cost of our postretirement plans is incurred over long periods of time and involves various factors and uncertainties
during those periods, which can be volatile and unpredictable, including the rates of return on postretirement benefit
plan assets and discount rates used to calculate liabilities and expenses. Management develops each assumption
using relevant Company experience in conjunction with market-related data. Our liquidity, cash flows and financial
statements could be materially affected by significant changes in key economic indicators, volatility in the financial
markets, future legislation and other governmental regulatory actions.
We make contributions to fund our postretirement benefit plans when considered necessary or advantageous to
do so. The macro-economic factors discussed above, including the return on postretirement benefit plan assets and
the minimum funding requirements established by local government funding or taxing authorities, or established by
other agreements, may influence future funding requirements. A significant decline in the fair value of our plan assets,
or other adverse changes to our overall pension and other employee-related benefit plans could require increased
funding contributions and could adversely affect our financial statements. Future minimum funding requirements will
depend primarily on the return on plan assets and discount rate. Depending on these factors, the level of future minimum
contributions could be material.
Other Risks, Including Litigation and Regulatory Risk
Changes in environmental laws or regulations, the discovery of previously unknown or more extensive
contamination, or the failure of a potentially responsible party to perform may adversely affect our financial
results.
We could be affected by changes in environmental laws or regulations, including, for example, those imposed in
response to vapor intrusion or climate change concerns.
Environmental laws and regulations allow for the assessment of substantial fines and criminal sanctions as well
as facility shutdowns to address violations, and may require the installation of costly pollution control equipment or
operational changes to limit emissions or discharges.
Accruals for environmental liabilities 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. Our estimated liability is undiscounted and is reduced to reflect the participation of other potentially
responsible parties in those instances where it is probable that such parties are legally responsible and financially
capable of paying their respective share of the relevant costs. Such estimates are subject to change and may be
affected by many factors, such as new information about a site, evolving scientific knowledge about risk associated
19
with any contamination involved, developments affecting remediation technology, and enforcement by regulatory
authorities.
We record an asset that represents our best estimate of probable recoveries from our insurers for the estimated
environmental liabilities. There are significant assumptions made in developing estimates of environmental-related
recoveries, such as policy triggers, policy or contract interpretation, and the continued solvency of the Company’s
insurers. Performance by our insurers could differ from the assumptions underlying the recognized asset and could
result in lower collections of receivables than are currently expected.
Developments such as the adoption of new environmental laws and regulations, violations by us of such laws and
regulations, discovery of previously unknown or more extensive contamination, litigation involving environmental
impacts, our inability to recover costs associated with any such developments, or financial insolvency of other potentially
responsible parties could have a material adverse effect on our financial statements.
Failure to comply with the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation,
as well as export controls and trade sanctions, could result in fines or criminal penalties.
We operate in a number of countries throughout the world, including countries known to have a reputation for
corruption. We are committed to doing business in accordance with applicable anti-corruption laws. We are subject,
however, to the risk that we, our affiliated entities, or the respective officers, directors, employees and agents of ITT
may take action determined to be in violation of such anti-corruption laws, including but not limited to, the U.S. Foreign
Corrupt Practices Act of 1977 and the U.K. Bribery Act of 2010, as well as trade sanctions administered by the Office
of Foreign Assets Control, or OFAC, and the U.S. Department of Commerce. Any such violation could result in substantial
fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely
affect our business, results of operations or financial position. In addition, actual or alleged violations could damage
our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations
is expensive and can consume significant time and attention of our senior management.
We are subject to laws, regulations and potential liability relating to claims, complaints and proceedings,
including those related to product and other matters.
We are subject to various laws, ordinances, regulations and other requirements of government authorities in the
U.S. and in foreign countries. Any violations or failure to comply with securities laws, trade or tax rules or similar
regulations could create a substantial liability for us, and also could cause harm to our reputation. Changes in laws,
ordinances, regulations or other government policies, the nature, timing, and effect of which are uncertain, may
significantly increase our expenses and liabilities.
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 product liability, personal injury claims, employment and employee
benefit matters and commercial or contractual disputes, sometimes related to acquisitions or divestitures. Additionally,
we may become subject to significant claims of which we are currently unaware or the claims of which we are aware
may result in our incurring a significantly greater liability than we anticipate or can estimate.
We may be responsible for U.S. Federal income tax liabilities that relate to the Distribution.
In connection with the Distribution, we received a U.S. Internal Revenue Service (IRS) Ruling stating that ITT and
its shareholders will not recognize any taxable income, gain, or loss for U.S. Federal income tax purposes as a result
of the Distribution. The IRS Ruling, while generally binding upon the IRS, is based on certain factual statements and
representations. If any such factual statements or representations were incomplete or untrue in any material respect,
or if the facts on which the IRS Ruling was based are materially different from the facts at the time of the Distribution,
the IRS could modify or revoke the IRS Ruling retroactively.
Certain requirements for tax-free treatment that are not covered in the IRS Ruling are addressed in an opinion of
counsel delivered in connection with the Distribution. An opinion of counsel is not binding on the IRS. Accordingly, the
IRS may reach conclusions with respect to the Distribution that are different from the conclusions reached in the
opinion. Like the IRS Ruling, the opinion is based on certain factual statements and representations, which, if incomplete
or untrue in any material respect, could alter counsel’s conclusions.
If all or a portion of the Distribution does not qualify as a tax-free transaction because any of the factual statements
or representations in the IRS Ruling or the legal opinion are incomplete or untrue, or because the facts upon which
the IRS Ruling is based are materially different from the facts at the time of the Distribution, ITT would recognize a
substantial gain for U.S. Federal income tax purposes. In such case, under U.S. Treasury regulations, each member
of the ITT consolidated group at the time of the Distribution would be severally liable for the resulting entire amount
of any U.S. Federal income tax liability.
20
Even if the Distribution otherwise qualifies as a tax-free transaction for U.S. Federal income tax purposes, the
Distribution will be taxable to ITT (but not to ITT shareholders) pursuant to Section 355(e) of the Internal Revenue
Code if there are one or more acquisitions (including issuances) of the stock of ITT, Exelis or Xylem, representing 50%
or more, measured by vote or value, of the then-outstanding stock of any such corporation, and the acquisition or
acquisitions are deemed to be part of a plan or series of related transactions that include the Distribution. Any acquisition
of ITT, Exelis or Xylem common stock within two years before or after the Distribution (with exceptions, including public
trading by less-than-5% shareholders and certain compensatory stock issuances) generally will be presumed to be
part of such a plan unless that presumption is rebutted. The tax liability resulting from the application of Section 355
(e) would be substantial. In addition, under U.S. Treasury regulations, each member of the ITT consolidated group at
the time of the Distribution would be severally liable for the resulting U.S. Federal income tax liability.
Each of Exelis and Xylem has agreed not to enter into any transaction that could cause any portion of the Distribution
to be taxable to ITT, including under Section 355(e). Pursuant to the Tax Matters Agreement entered into in connection
with the Distribution, ITT, Exelis and Xylem have agreed to indemnify each other for any tax liabilities resulting from
such transactions and transactions entered into by them. These obligations may discourage, delay or prevent a change
of control of our Company.
The Distribution may expose us to potential liabilities.
In connection with the Distribution we may be exposed to potential liabilities. As part of the Distribution Agreement,
ITT, Exelis, and Xylem indemnified each other with respect to such parties’ assumed or retained liabilities pursuant to
the Distribution Agreement and breaches of the Distribution Agreement or related spin agreements. There can be no
assurance that the indemnity from Exelis and Xylem will be sufficient to protect us against the full amount of these and
other liabilities, or that each of Exelis and Xylem will be able to fully satisfy its indemnification obligations. Third-parties
could also seek to hold us responsible for any of the liabilities that each of Exelis and Xylem has agreed to assume.
Even if we ultimately succeed in recovering from Exelis and Xylem any amounts for which we are held liable, we may
be temporarily required to bear these losses ourselves. In addition, performance on indemnities that we provided Exelis
and Xylem may be significant. Each of these risks could negatively affect our business, results of operations and
financial position.
Anti-takeover provisions in our organizational documents and Indiana law could delay or prevent a change
in control.
Certain provisions of our articles of incorporation and by-laws may delay or prevent a merger or acquisition that
a shareholder may consider favorable. For example, the articles of incorporation authorize our Board of Directors to
issue one or more series of preferred stock. In addition, the articles of incorporation and by-laws, among other things,
do not permit action by written consent of the shareholders. These provisions may also discourage acquisition proposals
or delay or prevent a change in control, which could harm our stock price. Indiana law also imposes some restrictions
on mergers and other business combinations between any holder of 10% or more of our outstanding common stock
and us as well as certain restrictions on the voting rights of “control shares” of an “issuing public corporation.”
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
21
ITEM 2. PROPERTIES
We operate in 33 countries through 158 locations, of which 129 locations are leased. Our properties total 7.2 million
square feet, of which 3.7 million square feet are leased. We consider the offices, plants, warehouses, and other
properties that we own or lease to be in good condition and generally suitable for their intended purpose. We believe
these properties are adequate for the Company’s needs and will generally allow for expansion of capacity if needed.
The following table details our quantitatively or qualitatively significant locations by segment.
LOCATION
Corporate Headquarters
White Plains, New York
Industrial Process
Seneca Falls, New York
Choongbuk, South Korea
Obernkirchen, Germany
Amory, Mississippi
Lancaster, Pennsylvania
City of Industry, California
Southaven, Mississippi
Salto, Brazil
Shanghai, China
Baroda, India
Tizayuca, Mexico
Cheongwon, South Korea
Wangara, Australia
Dammam, Saudi Arabia
Motion Technologies
Oud Beijerland, Netherlands
Barge, Italy
Wuxi, China
Ostrava, Czech Republic
Vauda Canavese, Italy
Termoli, Italy
Hebron, Kentucky
Kelsterbach, Germany
Novi, Michigan
Interconnect Solutions
Santa Ana, California
Nogales, Mexico
Shenzhen, China
Weinstadt, Germany
Basingstoke, England
Lainate, Italy
Santa Rosa, CA
Control Technologies
Valencia, California
Orchard Park, New York
Westminster, South Carolina
Wuxi, China
Billerica, Massachusetts
SQ FT
(IN ‘000S)
OWNED /
LEASED
54
973
190
176
110
89
74
69
68
66
60
46
39
28
27
379
317
303
261
97
94
42
28
16
364
358
294
231
179
52
35
200
92
66
39
24
Leased
Owned
Owned
Owned
Leased
Owned
Owned
Leased
Owned
Leased
Leased
Owned
Owned
Leased
Leased
Owned
Owned
Leased
Leased
Owned
Owned
Leased
Leased
Leased
Owned
Owned
Leased
Owned
Leased
Leased
Leased
Leased
Owned
Owned
Leased
Owned
22
ITEM 3. LEGAL PROCEEDINGS
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 personal injury claims, environmental exposures, intellectual
property matters, commercial or contractual disputes, sometimes related to acquisitions or divestitures, and
employment and employee benefit matters. We will continue to defend vigorously against all claims. See information
provided below and Note 20, Commitments and Contingencies, to the Consolidated Financial Statements for further
information.
Asbestos Proceedings
ITT, including its subsidiary Goulds Pumps, Inc., has been joined as a defendant with numerous other companies
in product liability lawsuits alleging personal injury due to asbestos exposure. These claims allege that certain of our
products sold 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. Frequently, the plaintiffs are unable to identify any ITT or Goulds Pump product as a source of
asbestos exposure. In addition, a large percentage of claims pending against the Company have been placed on
inactive dockets because the plaintiff cannot demonstrate a significant compensable loss. Our experience to date is
that a majority of resolved claims have been dismissed without payment by the Company.
We record a liability for pending asbestos claims and asbestos claims estimated to be filed over the next 10 years.
While it is probable that we will incur additional costs for future claims to be filed against the Company, a liability for
potential future claims beyond the next 10 years is not reasonably estimable due to a number of factors. As of
December 31, 2013, we have recorded an undiscounted asbestos-related liability for pending claims and unasserted
claims estimated to be filed over the next 10 years of $1,264.7, including expected legal fees, and an associated asset
of $517.8 which represents estimated recoveries from insurers, resulting in a net asbestos exposure of $746.9.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company, as of February 1, 2014, are listed below.
NAME
Denise L. Ramos
Aris C. Chicles
Mary Beth Gustafsson
Munish Nanda
Robert J. Pagano, Jr.
Luca Savi
Thomas M. Scalera
Neil W. Yeargin
Steven C. Giuliano
AGE
57
52
54
49
51
47
42
48
44
CURRENT TITLE
Chief Executive Officer and President
Executive Vice President
Senior Vice President and General Counsel
Senior Vice President and President, Control Technologies
Senior Vice President and President, Industrial Process
Senior Vice President and President, Motion Technologies
Senior Vice President and Chief Financial Officer
Senior Vice President and President, Interconnect Solutions
Vice President and Chief Accounting Officer
Denise L. Ramos was appointed Chief Executive Officer, President and a director of the Company in October 2011.
She previously served as Senior Vice President and Chief Financial Officer of the Company since 2007. Prior to
joining the Company, Ms. Ramos served as Chief Financial Officer for Furniture Brands International from 2005
to 2007. From 2000 to 2005, Ms. Ramos served as Senior Vice President and Corporate Treasurer at Yum! Brands,
Inc. and Chief Financial Officer for the U.S. division of KFC Corporation. Ms. Ramos began her career in 1979 at
Atlantic Richfield Company (ARCO), where she had more than twenty years of business and financial experience
serving in a number of increasingly responsible finance positions, including Corporate General Auditor and Assistant
Treasurer. Ms. Ramos is on the Board of Trustees for the Manufacturers Alliance for Productivity and Innovation
and was recently included in the Top 100 Women Leaders in Science, Technology, Engineering, and Math
publication by STEMconnector. She is also a member of the Business Roundtable and the Business Council.
23
Aris C. Chicles has served as our Executive Vice President since October 2011, and as our Senior Vice President,
Strategy and Corporate Development from August 2007 to October 2011. Prior to joining us, Mr. Chicles served
as Vice President, Corporate Business Development at American Standard, a manufacturer of plumbing and other
products, from 2000 to 2006 and he had a 17-year career from 1983 to 2000 with Owens Corning Inc., a leading
provider of building materials systems and composite solutions, in a series of progressively responsible operational
positions.
Mary Beth Gustafsson has served as our Senior Vice President and General Counsel since February 2014. Prior to
joining us, Ms. Gustafsson served as Executive Vice President, General Counsel and Corporate Secretary of First
Solar Inc., a global provider of comprehensive photovoltaic solar systems, from 2009 to 2013 and from 2008 to
2009 as Vice President, General Counsel. Ms. Gustafsson was previously Senior Vice President, General Counsel
and Secretary of Trane (formerly American Standard Companies, Inc.), a global manufacturer of commercial and
residential heating, ventilation and air conditioning equipment, from 2005 to 2008.
Munish Nanda has served as our Senior Vice President and President, Control Technologies since April 2011 and as
our Vice President and Director, Integrated Supply Chain for ITT’s Fluid and Motion Control Group from April 2008
to April 2011. Prior to joining us, Mr. Nanda served in various operating leadership and general management
positions with Thermo Fisher Scientific Corp. from July 2001 to April 2008, a provider of laboratory operations
management solutions and technologies, and Honeywell Inc. from August 2000 to July 2001, a diversified
technology and manufacturing company.
Robert J. Pagano, Jr. has served as our Senior Vice President and President, Industrial Process since October 2011,
and as our President, ITT Industrial Products group from 2009 to 2011. Prior to that Mr. Pagano served as Vice
President, Finance from 2006 to 2009. Mr. Pagano joined the Company in 1997 following the acquisition by the
Company of Goulds Pumps and has served in various leadership roles within the Company. Prior to joining us,
Mr. Pagano worked at KPMG Peat Marwick as an auditor.
Luca Savi has served as our Senior Vice President and President, Motion Technologies since November 2011. Prior
to joining us, Mr. Savi served as Chief Operating Officer, Comau Body Welding at Comau, a subsidiary of the Fiat
Group responsible for producing and serving advanced manufacturing systems, from 2009 to 2011 and prior to
that as Chief Executive Officer, Comau North America from 2007 to 2009 and Chief Executive Officer, Comau
China from 2004 to 2007. Mr. Savi previously held senior leadership roles at Honeywell International, Royal Dutch
Shell and Ferruzzi-Montedison Group.
Thomas M. Scalera has served as our Senior Vice President and Chief Financial Officer since October 2011, and he
previously served as Vice President, Corporate Finance from 2010 to 2011 and Director, Investor Relations and
Financial Planning and Analysis from 2008 to 2010. Prior to joining us, Mr. Scalera held senior financial roles with
R.R. Donnelley, Dover Corp., and PricewaterhouseCoopers, LLP.
Neil W. Yeargin has served as our Senior Vice President and President, Interconnect Solutions since February 2013.
Prior to joining us, Mr. Yeargin held several leadership roles at Invensys plc, a global maker of software, systems
and controls, most recently serving as Senior Vice President, Global Commercial Business from 2011 to 2013 and
prior to that as Vice President and General Manager, Americas/APAC from 2008 to 2011. Mr. Yeargin previously
held leadership roles in operations, supply chain and process improvement with Cooper Industries and Honeywell
Inc. (formerly Allied Signal).
Steven C. Giuliano has served as our Vice President and Chief Accounting Officer since January 2014. Prior to joining
us, Mr. Giuliano served as Vice President and Chief Financial Officer of Arch Chemicals, Inc., a global biocides
company, from 2007 to 2011. Mr. Giuliano was Controller of Arch Chemicals from 1999 through 2007, while
assuming increasing levels of responsibility.
24
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
COMMON STOCK – MARKET PRICES AND DIVIDENDS
The table below reflects the range of market prices of our common stock as reported in the consolidated transaction
reporting system of the New York Stock Exchange (NYSE), the principal market in which this security is traded (under
the trading symbol “ITT”).
Three Months Ended:
March 31
June 30
September 30
December 31
2013
2012
High
Low
High
Low
$ 29.38
30.93
36.51
43.66
$ 23.83
25.94
29.11
35.06
$ 25.59
23.33
21.85
23.46
$ 19.52
16.88
17.22
19.79
We declared dividends of $0.10 and $0.091 per share of common stock in each of the four quarters of 2013 and
2012, respectively. In the first quarter of 2014, we declared a dividend of $0.11 per share for shareholders of record
on March 14, 2014. The amount and timing of dividends payable on our common stock are within the sole discretion
of our Board of Directors and will be based on, and affected by, a number of factors, including our financial position
and results of operations, available cash, expected capital spending plans, prevailing business conditions, and other
factors the Board deems relevant. Therefore, there can be no assurance as to what level of dividends, if any, will be
paid in the future.
There were approximately 11,355 holders of record of our common stock on February 11, 2014.
EQUITY COMPENSATION PLAN INFORMATION
The equity compensation plan information called for by Item 5(a) is set forth under the caption “Equity Compensation
Plan Information” in our Proxy Statement for the 2014 Annual Meeting of Shareholders.
During the fiscal year ended December 31, 2013, no equity securities of the Company were sold by the Company
that were not registered under the Securities Act of 1933, as amended.
ISSUER PURCHASES OF EQUITY SECURITIES
Not applicable.
25
PERFORMANCE GRAPH
CUMULATIVE TOTAL RETURN
Based upon an initial investment on December 31, 2008 of $100 with dividends reinvested
ITT Corporation
S&P 400 Mid-Cap
S&P 400 Industrial Machinery
S&P 400 Capital Goods(a)
12/31/2008
$ 100.00
$ 100.00
$ 100.00
$ 100.00
12/31/2009
$ 110.29
$ 137.38
$ 131.62
$ 137.05
12/31/2010
$ 117.98
12/31/2011
$ 134.51
12/31/2012
$ 166.06
12/31/2013
$ 311.16
$ 173.98
$ 170.97
$ 201.54
$ 268.97
$ 172.45
$ 170.45
$ 208.00
$ 284.79
$ 185.78
$ 177.31
$ 222.29
$ 319.52
(a) The S&P 400 Capital Goods index will replace the S&P 400 Industrial Machinery index within our performance
graph in future Annual Report on Form 10-K filings. The S&P 400 Capital Goods index is the index utilized by
the Company as the performance group for the long-term incentive plan total shareholder return awards.
This graph is not, and is not intended to be, indicative of future performance of our common stock. This graph
shall not be deemed “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of
1934, as amended (the Exchange Act), and should not be deemed to be incorporated by reference into any of our
prior or subsequent filings under the Securities Act of 1933, as amended.
26
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical financial data derived from the Consolidated Financial Statements for
each of the five years presented. The selected financial data should be read in conjunction with, and is qualified in its
entirety by reference to, Management’s Discussion and Analysis of Financial Condition and Results of Operations and
the Consolidated Financial Statements and the Notes thereto.
(In Millions, except per share amounts)
Results of Operations
Revenue
Gross profit
Gross margin
Asbestos costs(a)
Transformation costs(b)
Other operating costs(c)
Operating income (loss)
Operating margin
Income tax (benefit) expense(d)
Income (loss) from continuing operations
attributable to ITT Corporation
Earnings from discontinued operations,
net of tax(e)
Net income (loss) attributable to ITT
Corporation
Income (loss) from continuing
operations per basic share
Income (loss) from discontinued
operations per basic share
Net income (loss) per basic share
Income (loss) from continuing
operations per diluted share
Income (loss) from discontinued
operations per diluted share
Net income (loss) per diluted share
Dividends declared
Financial Position
Cash and cash equivalents(f)
Total assets(g)
Total debt and capital leases(h)
2013
2012
2011
2010
2009
$ 2,496.9
799.8
$ 2,227.8
$2,085.6
$ 1,890.7
$ 1,757.3
680.2
645.0
603.9
560.0
32.0%
32.8
2.2
581.2
183.6
7.4%
(309.6)
30.5%
50.9
13.0
464.8
151.5
6.8%
39.6
30.9 %
31.9 %
31.9 %
100.4
396.1
393.4
(244.9)
(11.7)%
260.6
384.8
—
399.7
(180.6)
(9.6)%
(142.2)
237.5
—
439.9
(117.4)
(6.7)%
(95.9)
487.7
109.5
(576.5)
(130.4)
(109.1)
0.8
15.9
447.0
$
$
$
$
$
$
$
$
$
488.5
5.36
0.01
5.37
5.28
0.01
5.29
0.40
507.3
3,740.2
48.9
$
$
$
$
$
$
$
$
$
125.4
$ (129.5)
1.18
0.17
1.35
1.16
0.17
1.33
0.364
$
$
$
$
$
(6.22)
4.82
(1.40)
(6.22)
4.82
$
(1.40)
$ 1.591
544.5
$ 689.8
3,386.1
3,671.5
26.9
6.5
934.7
804.3
(1.42)
10.17
8.75
(1.42)
10.17
8.75
2.00
206.0
$
$
$
$
$
$
$
$
$
737.9
628.8
(1.20)
8.09
6.89
(1.20)
8.09
6.89
1.70
186.6
$
$
$
$
$
$
$
$
$
12,616.4
1,359.6
11,195.5
1,493.8
(a) In 2009, we began recognizing asbestos liabilities for claims estimated to be filed over the next 10 years, net of
estimated recoveries. It is probable that we will incur additional liabilities for asbestos claims filed beyond the
next 10 years and such liabilities may be material. See Note 20, “Commitments and Contingencies,” to the
Consolidated Financial Statements for further information.
(b) In 2011, $396.1 of transformation costs were incurred to effectuate the Distribution of Exelis and Xylem
(transformation costs), including debt extinguishment costs of $296.8. See Note 6, “Company Transformation,”
to the Consolidated Financial Statements for further information.
(c) The increase in other operating costs from 2012 to 2013 primarily relate to an additional eleven months of
Bornemann operations during 2013 as well as higher selling, general and administrative costs associated with
increased spending on a number of entity-wide initiatives and organic revenue growth.
(d) The 2013 tax benefit of $309.6 includes the release of a U.S. deferred tax valuation allowance of $374.6 that
was initially established in 2011. The 2011 tax expense of $260.6 includes a $340.7 valuation allowance for U.S.
27
federal and state deferred tax assets as it became more likely than not that these deferred tax assets would not
be realized, a $69.3 tax expense for undistributed foreign earnings that were no longer considered indefinitely
reinvested, and a $30.9 tax benefit from an increase in state deferred tax assets which were re-measured based
on enacted tax rates using different state apportionment factors as a result of the Distribution.
(e) Discontinued operations include the results of the Shape Cutting Businesses (disposed of in 2012), Exelis
(disposed of in 2011), Xylem (disposed of in 2011) and transformation costs of $240.1 recorded during 2011.
Amounts presented within discontinued operations are costs directly related to the Distribution, primarily advisory
fees and information technology costs, which provide no future benefit to the Company.
(f) The decline in cash and cash equivalents from 2011 to 2012 was primarily due to the acquisition of Bornemann
for $193.2 net of cash acquired. The increase in cash and cash equivalents from 2010 to 2011 was primarily due
to receipt of a net cash transfer (the Contribution) of $683.0 and $988.0 from Exelis and Xylem, respectively, in
connection with the Distribution, offset in part by the extinguishment of $1,251.0 of long-term debt in October
2011. For all periods, cash and cash equivalents excludes cash and cash equivalents held by discontinued
operations at the balance sheet date. See Management’s Discussion & Analysis, Liquidity section for further
information.
(g) The increase in total assets from 2012 to 2013 is primarily due to the release of a U.S. deferred tax valuation
allowance of $374.6. The decline in total assets from 2011 to 2012 is primarily due to a reduction in asbestos-
related assets and liabilities resulting from a Settlement Agreement executed during the third quarter of 2012.
See Note 20, Commitments and Contingencies, to the Consolidated Financial Statements for further information.
The decline in total assets from 2010 to 2011 is primarily attributable to the Distribution of Exelis and Xylem on
October 31, 2011, which had total combined assets of $9,322.6 as of December 31, 2010. The assets of Exelis
and Xylem, although presented as discontinued operations, are included in total assets for 2009 and 2010.
(h) Total debt as of December 31, 2011 reflects the extinguishment of $1,251.0 of long-term debt in October 2011.
28
ITEM 7.
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As we noted earlier on page 3 of this Annual Report on Form 10-K, this Part II, Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” and Part II, Item 7A, “Quantitative and Qualitative
Disclosures about Market Risk” (along with other sections of this Annual Report), may contain forward-looking
statements. These forward-looking statements are not historical facts, but rather are based on current expectations,
estimates, assumptions and projections about the business and future financial results of the industry in which we
operate, and other legal, regulatory and economic developments. These forward-looking statements include, but are
not limited to, future strategic plans and other statements that describe the company’s business strategy, outlook,
objectives, plans, intentions or goals, and any discussion of future operating or financial performance.
We use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target,“ “future,”
“may,” “will,” “could,” “should,” “potential,” “continue,” “guidance” and other similar expressions to identify such forward-
looking statements. Forward-looking statements are uncertain and to some extent unpredictable, and involve known
and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from
those expressed or implied in, or reasonably inferred from, such forward-looking statements.
The risk factors discussed in Part I, Item 1A, “Risk Factors,” and other risks identified in this Annual Report on
Form 10-K could cause our actual results to differ materially from those expressed in forward-looking statements.
There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect
to have a material adverse effect on our business.
OVERVIEW
ITT Corporation is a diversified manufacturer of highly engineered critical components and customized technology
solutions for growing industrial markets. Building on its heritage of innovation, ITT partners with its customers to deliver
enduring solutions to the key industries that underpin our modern way of life. We manufacture key components that
are integral to the operation of systems and manufacturing processes in the energy, transportation and industrial
markets. Our products provide enabling functionality for applications where reliability and performance are critically
important to our customers and the users of their products.
Our businesses share a common, repeatable operating model. Each business applies technology and engineering
expertise to solve our customer’s most pressing challenges. Our applied engineering aptitude provides a superior
business fit with our customers given the critical nature of their applications. This in turn provides us with a unique
insight to our customer’s requirements and enables us to develop solutions to assist our customers achieve their
business goals. Our technology and customer intimacy in tandem produce opportunities to capture recurring revenue
streams, aftermarket opportunities, and long lived original equipment manufacturer (OEM) platforms.
Our product and service offerings are organized into four segments: Industrial Process, Motion Technologies,
Interconnect Solutions, and Control Technologies. These businesses generally operate within niche positions in large,
attractive markets where specialized engineered solutions are required to support the needs of large industrial,
transportation, and energy customers.
Industrial Process manufactures engineered fluid process equipment serving a diversified mix of customers in global
infrastructure industries such as oil & gas, mining, power generation, chemical and other process markets and is
a provider of plant optimization and efficiency solutions and aftermarket services and parts.
Motion Technologies manufactures brake pads, shock absorbers and damping technologies for the global automotive,
truck, trailer and public bus and rail transportation markets.
Interconnect Solutions manufactures a wide range of highly specialized connector products that make it possible to
transfer signal and power in various electronic devices that are utilized in the aerospace and defense, industrial
and transportation, oil & gas markets, and medical markets.
Control Technologies manufactures specialized equipment, including actuation, valves, switches, vibration isolation,
custom-energy absorption, and regulators for the aerospace and defense, and industrial markets.
29
EXECUTIVE SUMMARY
During 2013, we continued on our strategic growth path emphasizing on our key growth areas; Market Expansion,
Differentiated Customer Experience, Operational Excellence, and Effective Capital Deployment. We geared towards
margin improvement through various operational initiatives, while leveraging our strengths to further expand our global
capabilities and reach. We invested in capacity expansion, technology, and R&D projects to drive organic growth and
continued to advance our acquisition pipeline. We implemented a series of strategic objectives, including front-end
realignment and on-time delivery initiatives, to grow the top-line in Interconnect Solutions' core markets, while improving
the overall cost structure of the segment.
One of our key operational priorities is to execute VBLSS transformations at each of our significant revenue-
producing facilities in the next three to five years, with the goal of improving the overall depth and breadth across all
elements of process efficiency. VBLSS encompasses lean enterprise as well as continuous process improvement in
other critical areas such as customer service and order entry and fulfillment. Our intent is to drive ever increasing levels
of quality, speed, and efficiency throughout the organization to help drive margin improvement and customer
performance. We are still in the early stages of our five-year lean transformation initiative but we are already seeing
significant improvements on numerous key performance indicators. One such indicator, on-time delivery which helps
us deliver a premier customer experience, has improved at a majority of our businesses during the year. At ITT, we
are extending the lean concept beyond manufacturing to deliver a differentiated value to our customers by improving
overall service and responsiveness. We have also engaged in sourcing initiatives that have delivered supply chain
savings that exceeded our expectations and reflect the increased leverage our global strategic sourcing council has
provided.
Our Industrial Process segment pursued opportunities in the growing global oil & gas markets and looked for
opportunities to expand their aftermarket business, while integrating Bornemann to fully leverage its technology and
our distribution network. Our Motion Technologies segment continues to expand our share of the automotive market
with our advanced braking technologies by further penetrating the Asia-Pacific and North American regions. Control
Technologies is focused on expanding their customer base, especially internationally, and to increase our direct
customer contact to complement our extensive distributor network.
During 2013, we increased capital spending by $39.1 to $122.9 on expanding capacity through the construction
of a new South Korea oil & gas production facility that will play a key role in advancing our energy strategy by becoming
our Energy Center of Excellence for the Eastern Hemisphere. We have also committed to and began construction on
the expansion of our Seneca Falls, New York facility, which is our Energy Center of Excellence for the Western
Hemisphere and Global R&D Center of Excellence. Additionally, we completed an expansion of our research and
development and testing capabilities and will be adding capacity and reorganizing our existing facility to accommodate
larger, more complex industrial pumps and to meet the growing demands of our customers.
We also returned $124.3 to shareholders in 2013 through a combination of share repurchases and dividends and
invested $28.4 in restructuring initiatives. The restructuring initiatives focused on accelerating the turnaround efforts
in certain businesses and we are implementing restructuring actions accordingly. Interconnect Solutions is one of those
turnaround businesses, for which we have taken a holistic approach to deliver sustainable performance enhancements
to our customers. We have focused on the front end and better coordination of connecting our engineering, marketing
and sales directly with our key strategic channel partners and customers. We are also working to better align the
manufacturing and overhead cost structure with the future strategy of the business. We are dedicated to reclaiming
our leading position with our customers by providing innovative, high quality, reliable, highly engineered harsh
environment connectors when the customer needs them. As a result of this focus, our Interconnect Solutions business
illustrated preliminary benefits of this strategy, expanding its operating margin by 180 basis points from 2012.
From a results standpoint, 2013 was a strong year as we experienced positive results from each of our four
segments. On a consolidated basis, we delivered revenue growth of 12.1% and organic revenue growth of 6.3%. The
organic revenue growth was primarily driven by share gains in the automotive brake pad markets in China and Western
Europe and by global sales of oil and gas pumps. Offsetting this growth were declines from pump equipment destined
for the mining market and baseline pumps for the chemical and industrial markets. In addition, we won numerous
positions on key strategic contracts and orders during 2013, which drove a 6.9% increase in organic orders received.
Consolidated operating income was $183.6 for the year, representing a $32.1 or 21.2% increase from the prior year,
due to improved segment operating performance reflecting higher sales volume and net savings of approximately $42
from our VBLSS, sourcing, and restructuring initiatives and a year-over-year reduction in asbestos-related costs of
$18.1 primarily related to a settlement agreement in 2013. We also continued our repositioning of the organization
following the 2011 spin-offs of Exelis and Xylem, incurring costs of $23.0 (repositioning costs) during 2013, primarily
related to the exit transition service agreements and creating IT infrastructure modifications. Net income from continuing
30
operations was $487.7 during 2013, which included a $374.6 release of a U.S. deferred tax valuation allowance,
resulting in earnings of $5.28 per diluted share, reflecting growth of 355.2% over the prior year.
Adjusted income from continuing operations was $186.3 for 2013, reflecting an increase of $28.3, or 17.9%, over
the prior year. Our adjusted income from continuing operations translated into $2.02 per diluted share, a $0.34 per
share, or 20.2%, increase over the prior year. See the “Key Performance Indicators and Non-GAAP Measures,” for
reconciliation of non-GAAP measures.
DISCUSSION OF FINANCIAL RESULTS
2013 VERSUS 2012
Revenue
Gross profit
Gross margin
Operating expenses
Operating expense to revenue ratio
Operating income
Operating margin
Interest and non-operating expenses, net
Income tax (benefit) expense
Effective tax rate
Income from continuing operations attributable to ITT Corporation
Earnings from discontinued operations, net of tax
Net income attributable to ITT Corporation
REVENUE
2013
2012
$ 2,496.9
799.8
$ 2,227.8
680.2
32.0 %
616.2
24.7 %
183.6
7.4 %
3.1
(309.6)
(171.5)%
487.7
0.8
$ 488.5
30.5%
528.7
23.7%
151.5
6.8%
2.4
39.6
26.6%
109.5
15.9
125.4
$
Change
12.1 %
17.6 %
150bp
16.6 %
100bp
21.2 %
60bp
29.2 %
(881.8 )%
(19,81)bp
345.4 %
(95.0 )%
289.6 %
Revenue for the year ended December 31, 2013 increased $269.1, or 12.1%, over the prior year, primarily driven
by our fourth quarter 2012 acquisition of Bornemann, which represented $136.0 of the increase. The Industrial Process
segment saw organic revenue gains during the year from global expansion in the oil & gas market. In addition, we
experienced growth of $95.6, or 15.3%, from our Motion Technologies segment primarily due to year-over-year OEM
volume growth from expanded global brake pad market share gains and increased aftermarket demand. Our
Interconnect Solutions segment also generated sales growth of $19.8, or 5.3%, with increased sales in all core market
categories.
The following table illustrates revenue generated with a specific country or region for the years ended December 31,
2013 and 2012, the corresponding percentage change, and the organic growth. See below for further discussion of
year-over-year revenue activity at the segment level. See the section titled "Key Performance Indicators and Non-
GAAP Measures" for a definition and reconciliation of organic revenue growth.
$
2013
896.2
266.7
144.7
438.7
1,746.3
200.2
124.3
144.1
140.5
141.5
750.6
$ 2,496.9
$
2012
869.3
200.5
118.2
401.1
1,589.1
198.3
103.1
114.3
113.6
109.4
638.7
$ 2,227.8
Change
3.1%
33.0%
22.4%
9.4%
9.9%
1.0%
20.6%
26.1%
23.7%
29.3%
17.5%
12.1%
Organic
Growth
0.9 %
19.7 %
17.2 %
1.7 %
4.7 %
(8.5)%
11.2 %
19.8 %
17.8 %
24.8 %
10.2 %
6.3 %
United States
Germany
France
Other developed markets
Total developed markets
South and Central America(a)
Eastern Europe and Russia
Middle East and Africa
China and Hong Kong
Other emerging growth markets
Total emerging growth markets
Total Revenue
(a) Includes Mexico
31
The following table illustrates the year-over-year revenue results from each of our segments for the years ended
December 31, 2013 and 2012.
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Eliminations
Total Revenue
Industrial Process
2013
$ 1,107.4
721.8
395.5
278.2
(6.0)
$ 2,496.9
$
2012
955.8
626.2
375.7
277.1
(7.0)
$ 2,227.8
Change
15.9 %
15.3 %
5.3 %
0.4 %
(14.3)%
12.1 %
Organic
Growth
3.7%
12.7%
5.9%
0.7%
—
6.3%
Industrial Process revenue for the year ended December 31, 2013 increased $151.6, or 15.9%, year-over-year,
primarily related to our fourth quarter 2012 acquisition of Bornemann. This acquisition provided $136.0 of incremental
year-over-year revenue during 2013. Organic revenue increased 3.7% primarily due to gains in the global oil & gas
market of approximately 21%, as well as increased shipments of project pumps in the North American chemical market.
In addition, organic revenue growth reflected strength in aftermarket sales of approximately 15% as compared to the
prior year. The growth in these areas during 2013 was partially offset by year-over-year weakness for North American
baseline pumps and valves, delays in large global project shipments, as well as lower activity in the global mining and
general industrial markets.
Orders for the year ended December 31, 2013 increased $207.1, or 21.7%, as compared to the prior year, primarily
reflecting Bornemann orders of $170.6. Organic orders increased $39.6, or 4.1%, due to an increase in parts orders
and increased project business globally, partially offset by lower baseline business and valves orders in North America.
The level of order and shipment activity related to engineered pumps can vary from period to period, which may impact
year-over-year comparisons.
Backlog as of December 31, 2013 was $681.7 an increase of $53.2, or 8.5%, over December 31, 2012, with a
significant portion related to complex project business expected to ship in the first half of 2014. This expectation coupled
with the potential for lower levels of baseline pump shipments due to the order declines experienced during the fourth
quarter of 2013 may have an unfavorable impact on margins during the first half of 2014. For the full year of 2014, we
expect revenue to exceed 2013 levels stemming from anticipated growth in the oil & gas market and benefits from our
aftermarket-related growth investments.
Motion Technologies
Motion Technologies revenue for the year ended December 31, 2013 increased $95.6, or 15.3%, compared to the
prior year, reflecting significant gains in both OEM and aftermarket within the Friction Technologies business. Foreign
currency translation favorably impacted revenue growth by $16.1, resulting in organic revenue growth of 12.7%, over
the prior year.
Our aftermarket revenues, which are predominately generated within Europe and include OES and independent
aftermarket channels, grew by approximately 15% during 2013 reflecting the benefits from a number of new business
awards and campaigns from automakers. Additionally, during 2013, we began to generate OES volumes from OE
platforms in China.
The strong growth in OEM automotive brake pad volume was driven by Europe and China. The growth in Europe
resulted from of our increasing number of automotive platforms and share gains, despite continued economic
challenges. According to the European Automobile Manufacturers’ Association (ACEA), car sales in Europe were 11.9
units in 2013, a year-over-year decrease of 1.7%.
The Chinese automotive market saw a significant increase in car sales during 2013, approximately 14% according
to China Association of Automobile Manufacturers (CAAM). Our investments and strategic focus to gain market share
in the region led to growth of approximately 54% in China.
Motion Technologies 2013 revenue growth was partially offset by a decline in revenue from the KONI business
primarily related to the delay of various rail infrastructure projects in China and lower orders of military-related shock
absorbers in the U.S.
Orders increased during 2013 by 18.8% year-over-year to $743.9, including a favorable impact from foreign
currency of $16.1, reflecting significant fourth quarter order growth from Friction Technologies and KONI. We are
anticipating revenue growth throughout 2014 primarily fueled by further year-over-year OE production increases in
China and Europe.
32
Interconnect Solutions
Interconnect Solutions revenue for the year ended December 31, 2013 increased by $19.8, or 5.3%, compared
to the prior year, due to growth in each of our served core markets, attributable to improving macro-economic conditions
affecting the connector industry and by increased operational execution. Our growth in the aerospace and defense
market of 11.9%, was driven by benefits from funded U.S. programs unaffected by the U.S. sequestration and by strong
demand from commercial airline manufacturers. Growth in the communications market of 6.0% was driven by a recent
position win with a major Smartphone manufacturer and a corresponding production ramp-up during 2013. Growth in
the industrial and transportation market of 3.0% reflected increases in North America and Europe as well as growth
from sales of medical-related connector equipment. Growth in the oil & gas market of 7.0% primarily reflects increased
distribution activity in North and South America.
Orders increased during 2013 by 4.3% to $400.3, primarily reflecting year-over-year gains from the aerospace
and defense and industrial markets.
Control Technologies
Control Technologies revenue for the year ended December 31, 2013 increased by $1.1, or 0.4% as compared
to the prior year reflecting growth in our aerospace commercial OEM products of approximately 20%, offset by a decline
in revenue from our defense and industrial market product applications and an aerospace aftermarket program that
is nearing its end of life in 2014. Our defense products applications revenue is down approximately 12% for the year,
mainly due to programs impacted by the U.S. government sequestration. Revenue from industrial product applications
declined approximately 5%, primarily driven by a decline in energy absorption equipment sales due to the completion
of two large infrastructure projects during the prior year and lower sales of precision motion control products.
Orders decreased during 2013 by 2.7% to $276.0, primarily due to large orders received during the fourth quarter
of 2012 related to our seat actuation systems. Orders received during 2013 were also impacted by lower defense-
related orders and the aerospace aftermarket program that is nearing its end of life. These declines were partially
offset by order growth of approximately 30% from commercial OEM product applications driven by improved content
levels and higher aircraft production rates.
GROSS PROFIT
Gross profit for the year ended December 31, 2013 was $799.8, an increase of $119.6 primarily from net savings
related to global sourcing and VBLSS initiatives combined with contributions from our Bornemann acquisition. In
addition, increased sales volumes were partially offset by an unfavorable change in price and sales mix across
segments. The table below provides gross profit and gross margin by segment for the year ended December 31, 2013
and 2012.
2013
2012
$ 361.7
193.4
129.7
113.7
1.3
$ 799.8
$ 294.8
160.4
111.8
111.8
1.4
$ 680.2
32.7%
26.8%
32.8%
40.9%
32.0%
30.8%
25.6%
29.8%
40.3%
30.5%
Change
22.7 %
20.6 %
16.0 %
1.7 %
(7.1)%
17.6 %
190bp
120bp
300bp
60bp
150bp
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Corporate and Other
Total gross profit
Gross margin:
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Consolidated
33
OPERATING EXPENSES
Operating expenses for the year ended December 31, 2013 increased $87.5 compared to the prior year, primarily
driven by increased costs from the Bornemann business and costs to restructure and reposition the Company following
the 2011 spin-offs, partially offset by lower asbestos-related costs. The following table provides further information by
expense type, as well as a breakdown of operating expense by segment.
Sales and marketing expenses
General and administrative expenses
Research and development expenses
Asbestos-related costs, net
Transformation costs
Total operating expenses
By Segment:
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Corporate & Other
2013
$ 216.2
297.7
67.3
32.8
2.2
2012
$ 180.4
221.7
62.7
50.9
13.0
$ 616.2
$ 528.7
$ 249.7
$ 195.5
93.1
115.5
58.4
99.5
77.3
104.9
53.5
97.5
Change
19.8 %
34.3 %
7.3 %
(35.6)%
(83.1)%
16.6 %
27.7 %
20.4 %
10.1 %
9.2 %
2.1 %
Sales and marketing expenses for the year ended December 31, 2013 increased $35.8 primarily due to costs from
the Bornemann business.
General and administrative (G&A) expenses for the year ended December 31, 2013 increased $76.0, including
incremental year-over-year 2013 expenses of $18.6 associated with the Bornemann business. In addition, during 2013
we recorded restructuring charges of $28.4, an increase of $14.4, primarily related to the Interconnect Solutions
turnaround strategy. We estimate our 2013 restructuring actions will yield approximately $18 in annual net savings.
Additionally, during 2013 we incurred costs to reposition the organization (repositioning costs) of $23.0 following the
2011 spin-offs of Exelis and Xylem. Repositioning costs primarily consisted of costs to exit transition services
agreements, IT infrastructure modifications, and other various actions and resulted in an increase to G&A expenses
of $14.3. The Company expects to incur additional repositioning costs and payments of approximately $10 during
2014 primarily related to the continued expansion of our human resources capabilities. In addition, 2013 was unfavorably
impacted by higher corporate G&A expenses following the 2012 recognition of an insurance-related asset on
environmental exposures and higher prior year environmental insurance recoveries.
R&D costs increased 7.3% year-over-year, as we continued to invest in new product developments in targeted
growth markets at each segment. As a percentage of revenue, R&D costs declined to 2.7% in 2013 from 2.8% in 2012,
primarily as a function of our year-over-year revenue growth. We anticipate our investments in future R&D activities
will moderately increase from current spending levels to ensure a continuing flow of innovative, high quality products
and maintain our competitive position in the markets we serve.
We recognized transformation costs of $2.2 and $13.0, including $1.3 and $4.3 that was reflected in results of our
business segments, during 2013 and 2012, respectively. Transformation costs reflect expenses incurred in connection
with activities taken to complete the separation following the Distribution. As of December 31, 2013, activities related
to the Distribution are substantially complete. See Note 6, "Company Transformation" in our Notes to the Consolidated
Financial Statements for further information.
Asbestos-Related Costs, Net
During 2013, we recognized net asbestos-related costs of $32.8, reflecting a decrease of $18.1 compared to the
prior year, primarily related to a $31.0 benefit recognized in connection with a settlement agreement with an insurer
in 2013 compared to a $5.8 benefit due to a settlement in 2012. Additionally, a distribution received from an insolvent
insurer resulted in a separate $5.8 benefit in 2012. We experienced $2.4 favorability compared to the prior year in
connection with our annual remeasurement. Based on the results of our 2013 remeasurement, performed in the third
quarter of each year, we decreased our estimated undiscounted asbestos liability, including legal fees, by $65.0 which
is a result of several developments, including an expectation of lower defense costs relative to indemnities paid over
the projection period and favorable experience in the ratio of cases dismissed versus settled. These favorable impacts
were offset in part by an increase in expected average settlement values.
34
Also in connection with the 2013 remeasurement the Company reduced its estimated asbestos-related assets by
$65.5, which was primarily the result of the decrease in the estimated liability and changes in our recovery assumptions.
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.
See Note 20, “Commitments and Contingencies,” in our Notes to the Consolidated Financial Statements for further
information on our asbestos-related liabilities and assets.
OPERATING INCOME
Operating income for 2013 was $183.6, reflecting an increase of 21.2% over the prior year primarily due to segment
operating income growth of $34.2 and lower asbestos-related and transformation costs of $28.9, partially offset by an
increase in other corporate costs. The following table illustrates the 2013 and 2012 operating income and operating
margin by segments and at the consolidated level.
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Segment operating income
Asbestos-related costs, net
Transformation costs(a)
Other corporate costs
Total corporate and other costs
Total operating income (loss)
Operating margin:
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Segment operating margin
Consolidated operating margin
2013
2012
$ 112.0
$
100.3
14.2
55.3
281.8
(32.8)
(0.9)
(64.5)
(98.2)
99.3
83.1
6.9
58.3
247.6
(50.9)
(8.7)
(36.5)
(96.1)
$ 183.6
$ 151.5
10.1%
13.9%
3.6%
19.9%
11.3%
7.4%
10.4%
13.3%
1.8%
21.0%
11.1%
6.8%
Change
12.8 %
20.7 %
105.8 %
(5.1 )%
13.8 %
(35.6 )%
(89.7 )%
76.7 %
2.2 %
21.2 %
(30)bp
60bp
180bp
(110)bp
20bp
60bp
(a) Reflects only the transformation costs incurred at the corporate level. Transformation costs of $1.3 and $4.3 are
presented within segment operating income for 2013 and 2012, respectively
Industrial Process operating income for the year ended December 31, 2013 increased $12.7, or 12.8%, while
operating margin declined 30 basis points to 10.1%, as favorability from increased sales volume and VBLSS and
sourcing cost reduction initiatives were partially offset by an $8.1 increase in amortization expense related to intangible
assets acquired during the Bornemann acquisition. In addition, operating income and margin was unfavorably impacted
by an increase of approximately $7.0 in strategic investment costs primarily related to facility expansion expenses and
an aftermarket expansion initiative and an increase in restructuring expenses of $4.2 primarily related to the closure
of a non-core construction pump business.
Motion Technologies operating income for the year ended December 31, 2013 increased $17.2 resulting in a 60
basis point improvement in operating margin. The increase in operating income and margin was primarily due to higher
sales volumes and net savings from sourcing, VBLSS, and restructuring initiatives. These benefits were partially offset
by higher maintenance costs and unfavorable pricing impacts. In addition, our 2013 operating income was unfavorably
impacted by an inventory valuation adjustment, an increase in warranty and restructuring costs, and higher bad debt
expense.
Interconnect Solutions operating income increased $7.3 for the year ended December 31, 2013, resulting in
operating income of $14.2 and a 180 basis point increase in operating margin. Operating income was favorably impacted
by net savings from restructuring, sourcing, and VBLSS initiatives as well as higher sales volume but had an unfavorable
sales mix impact. These benefits were also partially offset by an increase in restructuring costs of $10.0, as well as
an unfavorable impact of $1.3 from foreign currency fluctuations.
35
Control Technologies operating income for the year ended December 31, 2013 decreased $3.0, reflecting a 110
basis point decline in operating margin. The year-over-year decrease was primarily driven by an unfavorable change
in sales mix, an increase in strategic investment expenses, an unfavorable impact from foreign currency fluctuations,
and a pension curtailment charge. These items were partially offset by net cost reductions from VBLSS, sourcing, and
pricing initiatives of approximately $8.2.
Other corporate costs increased $28.0 primarily due to higher repositioning costs related to system separation
activities, as well as a prior year benefit recorded related to the recognition of an insurance-related asset on
environmental exposures. Other corporate costs for 2013 were also impacted by higher compensation and benefit-
related costs which include higher annual and long-term incentive plan expenses.
INTEREST AND NON-OPERATING EXPENSES, NET
Interest expense
Interest income
Miscellaneous expense (income), net
Total interest and non-operating expenses, net
2013
6.3
5.0
1.8
3.1
$
$
2012
0.1
2.8
5.1
2.4
$
$
Change
6,200.0 %
78.6 %
(64.7)%
29.2 %
Interest expense increased by $6.2 during 2013, primarily due to a year-over-year unfavorable movement in
accrued interest associated with unrecognized tax benefits.
Interest income increased by $2.2 during 2013, primarily due to interest received during 2013 in connection with
a settlement of legacy receivables and payables with a former ITT entity, partially offset by lower year-over-year interest
earned on cash deposit balances.
Miscellaneous expenses (income), net decreased $3.3 during 2013, primarily due to a change in the presentation
of income from noncontrolling interests. Income from noncontrolling interests was $2.3 during 2012.
INCOME TAX EXPENSE
For the year ended December 31, 2013, the Company recognized an income tax benefit of $309.6 representing
an effective tax rate of (171.5)%, compared to income tax expense of $39.6, and an effective tax rate of 26.6% for
2012. Our effective tax rate in 2013 differs from the statutory tax rate primarily as a result of the release of the valuation
allowance that was initially recorded in 2011 as discussed below.
The Company released the valuation allowance against its U.S. deferred tax assets and recorded a tax benefit of
$374.6 during 2013. The valuation allowance was originally recorded in 2011 on U.S. deferred tax assets, in part, due
to a cumulative three-year loss position resulting primarily from previous asbestos remeasurement charges. This
cumulative loss position was considered a significant source of negative evidence and limited our ability to weigh other
subjective evidence such as our projections for future growth. The Company generated U.S. adjusted income in 2012
and 2013 and is now in a cumulative three year income position. Based on positive evidence, including the three year
cumulative positive income and the absence of any significant negative evidence, management determined that it is
more likely than not that the Company's U.S. deferred tax assets will be realized except for certain deferred tax assets
attributable to state net operating losses and tax credits.
As a result of a cumulative loss, the Company established a valuation allowance on foreign net deferred tax assets
in Brazil and the U.K. The Company continues to maintain a valuation allowance against certain foreign net deferred
tax assets, primarily in Luxembourg, Germany and China. Overall, the increase in the foreign valuation allowance of
$29.0 is primarily attributable to foreign net operating loss carryforwards in Luxembourg.
Our 2013 effective tax rate also reflected a tax charge $11.0 for the deferred tax liabilities for the undistributed
earnings generated in Hong Kong, Japan, and South Korea which are no longer considered to be indefinitely reinvested.
We continue to provide deferred taxes on certain undistributed earnings in Luxembourg. We have not provided for
deferred taxes on the remaining excess of financial reporting over tax bases of investments in foreign subsidiaries in
the amount of $506.6 because we plan to reinvest such earnings indefinitely outside the U.S. While the amount of
U.S. federal income taxes, if such earnings are distributed in the future, cannot be determined, such taxes may be
reduced by tax credits and other tax deductions.
36
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAX
Income from discontinued operations decreased by $15.1 during 2013 primarily due to the sale of our former shape
cutting product lines which generated a gain on sale of $9.0. In addition, the 2012 results include a $5.6 benefit from
the settlement of an asbestos-related matter, $6.9 of after-tax costs related to the spin-off of Exelis and Xylem, and a
tax benefit of $5.9 primarily related to the completion of tax examinations and changes in unrecognized tax benefits.
During 2013, income from discontinued operations included a net after-tax loss of $1.3 related to a settlement of legacy
receivables and payables with a former ITT entity.
DISCUSSION OF FINANCIAL RESULTS
2012 VERSUS 2011
Revenue
Gross profit
Gross margin
Operating expenses
Operating expense to revenue ratio
Operating income (loss)
Operating margin
Interest and non-operating expenses, net
Income tax expense
Effective tax rate
Income (loss) from continuing operations
Earnings from discontinued operations, net of tax
Net income (loss)
REVENUE
2012
2011
$ 2,227.8
680.2
$2,085.6
645.0
30.5%
528.7
23.7%
151.5
6.8%
2.4
39.6
26.6%
109.5
15.9
125.4
$
30.9 %
889.9
42.7 %
(244.9)
(11.7)%
71.0
260.6
(82.5)%
(576.5)
447.0
$ (129.5)
Change
6.8 %
5.5 %
(40)bp
(40.6 )%
(1,900)bp
161.9 %
1,850bp
(96.6 )%
(84.8 )%
10,910bp
119.0 %
(96.4 )%
196.8 %
Revenue for the year ended December 31, 2012 increased $142.2, or 6.8%, reflecting growth in the global industrial
pump market and share gains in global automotive, partially offset by revenue declines at ICS and Control Technologies.
The total increase was partially offset by unfavorable foreign currency fluctuations of $58.9, which primarily related to
a weakening of the Euro relative to the U.S. Dollar that affected Motion Technologies.
The following table illustrates revenue generated with a specific country or region for the years ended December 31,
2012 and 2011, the corresponding percentage change, the organic growth. See below for further discussion of year-
over-year revenue activity at the segment level.
$
2012
869.3
200.5
118.2
401.1
1,589.1
198.4
103.1
114.3
113.6
109.3
638.7
$ 2,227.8
$
2011
779.6
229.8
126.9
360.9
1,497.2
178.1
105.5
98.2
115.0
91.6
588.4
$ 2,085.6
Change
11.5 %
(12.8)%
(6.9)%
11.1 %
6.1 %
11.4 %
(2.3)%
16.4 %
(1.2)%
19.3 %
8.5 %
6.8 %
Organic
Growth
11.8 %
(5.3)%
0.4 %
6.8 %
7.1 %
14.6 %
4.4 %
16.5 %
(2.2)%
18.3 %
10.3 %
7.9 %
United States
Germany
France
Other developed markets
Total developed markets
South and Central America(a)
Eastern Europe and Russia
Middle East and Africa
China and Hong Kong
Other emerging growth markets
Total emerging growth markets
Total Revenue
(a) Includes Mexico
37
The following table illustrates the year-over-year revenue results from each of our segments for the years ended
December 31, 2012 and 2011.
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Eliminations
Total Revenue
Industrial Process
$
2012
955.8
626.2
375.7
277.1
(7.0)
$ 2,227.8
$
2011
766.7
634.4
417.8
285.5
(18.8)
$ 2,085.6
Change
24.7 %
(1.3)%
(10.1)%
(2.9)%
(62.8)%
6.8 %
Organic
Growth
20.2 %
6.0 %
(7.9)%
(2.9)%
—
7.9 %
The Industrial Process segment reported sales during 2012 with revenue reaching $955.8, an increase of $189.1,
or 24.7%, from 2011. This growth partially reflected benefits from our acquisitions of Blakers and Bornemann, which
combined to provide $39.4 of additional revenue during 2012. Organic revenue growth of $155.1 or 20.2% was fueled
by gains in the engineered project business and volume growth across most geographic regions and end-markets.
Geographically, North America was our strongest region, providing revenue growth of 25.8% with significant strength
coming from North American oil & gas and chemical production, as well as improved plant utilization and new product
development, primarily our expanded range of single and two-stage pumps. In addition, our past investments in the
oil & gas and mining markets continued to drive positive results during 2012, which supported revenue growth of
approximately 28.0% during 2012 and helped to drive a second consecutive year of record shipments. Pricing pressure
stemming from the increasingly competitive project business environment resulted in a 0.7% year-over-year decline
in revenue, which partially offset the growth from additional sales volume.
Orders increased by 4.2% to $954.9 for 2012, or 1.0% on an organic basis, reflecting strong activity in the first
half of the year, which gradually slowed during the second half of the year. The second half slowdown in orders was
primarily the result of economic uncertainty, primarily in the U.S., during the latter half of 2012, which led to a declining
trend in baseline equipment order activity and slowdowns and delays of project business. These factors impacted our
fourth quarter 2012 orders and resulted in a 4.4% decline in organic orders as compared to the fourth quarter of 2011.
Motion Technologies
The Motion Technologies segment had a strong year of sales growth during 2012. Although revenue declined $8.2
or 1.3% from 2011, this decline was attributable to unfavorable foreign currency impacts of $46.5 or 7.3% primarily
related to a weakening of the Euro relative to the U.S. Dollar. On an organic basis, 2012 revenue increased 6.0%
despite the extremely difficult European automotive industry conditions due to the Eurozone financial crisis. According
to the European Automobile Manufacturers’ Association (ACEA), car sales in Europe were 12.1 units in 2012, the
lowest level since 1995, a year-over-year decline of 8.2%, as banks were reluctant to finance new car purchases for
customers. The 2012 growth was primarily the result of a growing market share from our expanding presence in
emerging growth markets and platform wins in the U.S.; however, we also maintained positive growth within Europe
of 0.7%, excluding the impact of foreign currency translation, due to our increasing number of positions on new and
existing auto platforms and the consumer demand for these platform models.
During 2012, aggregate sales to emerging growth markets on a constant currency basis grew by 36.5%, over the
prior year, with 78.3% growth from China. To facilitate further growth within the Asia Pacific region, we completed
construction of a R&D Center of Excellence and production center in Wuxi, China at the end of 2012 that began
production in early 2013.
In 2012, we grew in North America mainly through market share gains at Ford that reflect our robust and innovative
technical solutions.
Orders decreased during 2012 by 2.5% year-over-year to $626.3, including an unfavorable impact from foreign
currency of 7.1%, or $45.3. On an organic basis, orders increased by 4.6%, reflecting growth of 7.1% during the first
half of 2012 which leveled out during the second half of 2012 to 1.8%.
Interconnect Solutions
The Interconnect Solutions segment had a challenging year during 2012 as revenue declined by $42.1 or 10.1%
from the prior year. This decline was primarily due to a loss of market share in the communications, aerospace and
transportation markets and inventory re-balancing by our primary U.S. distributor due to the significant decline in
connector industry demand entering 2012. In addition, our 2012 revenues were negatively impacted by an overall
weakness within the harsh environment connector industry. Within the communications market, 2012 revenue declined
22.3% due to a loss of market share by one of our key Smartphone customers. In the aerospace market, 2012 revenue
38
declined 14.1% primarily due to weaker demand for our products from commercial aerospace subcontractors. Within
the transportation market revenue declined 22.9%, primarily due to weak economic conditions, resulting in many rail
project delays in Europe and China. However, positive results were experienced in the oil & gas market with project
wins in the Middle East and North America resulting in revenue growth of 12.0% over the prior year. We also saw
revenue growth in Japan and Korea of 13.0% in the aggregate due, in part, to benefits from Japan’s recovery from
the 2011 tsunami and floods and increased sales of medical-related connector applications.
Control Technologies
The Control Technologies segment revenue for the year declined $8.4, or 2.9%, from the prior year results which
included $16.1 of revenue related to a seat program on a Chinese rail infrastructure project that was completed at the
end of 2011. Revenue from the remaining Control Technologies businesses grew 2.9% during 2012. Year-over-year
growth in our commercial OEM product applications of $15.6, or 12.3%, was driven by the expansion of our Enivate
SkyMotion power seat actuation system onto new aerospace platforms and Boeing 787 production ramp-up, which
offset a $2.5 decline in actuator sales due to an aerospace aftermarket program that was nearing completion. Revenue
from defense-related products declined $7.3, or 14.5%, during 2012 primarily due to the reduction of funding for certain
U.S. Department of Defense programs. CT Industrial revenue was relatively flat year-over-year as growth in energy
absorption equipment and natural gas valves was offset by declines in Europe.
GROSS PROFIT
Gross profit for 2012 was $680.2, representing a $35.2 increase, or 5.5%, from 2011. Benefits from increased
sales volume from Industrial Process and Motion Technologies and net savings from productivity, sourcing and VBLSS
initiatives were partially offset by lower volume and an unfavorable change in sales mix at Interconnect Solutions.
Gross profit was also impacted by unfavorable product pricing attributable to the competitive project business
environment and increased levels of project business at Industrial Process during 2012. In addition, foreign currency
unfavorably impacted our 2012 gross margin by $15.1, primarily due to the weakening of the Euro relative to the U.S.
Dollar. The year-over-year decline in gross margin of 40 basis points primarily reflects the volume decline at Interconnect
Solutions and unfavorable changes in sales mix and pricing. The following table illustrates the gross profit and gross
margin results of our segments for 2012 and 2011.
2012
2011
$ 294.8
160.4
111.8
111.8
1.4
$ 680.2
$ 244.3
156.9
133.6
109.5
0.7
$ 645.0
30.8%
25.6%
29.8%
40.3%
30.5%
31.9%
24.7%
32.0%
38.4%
30.9%
Change
20.7 %
2.2 %
(16.3 )%
2.1 %
100.0 %
5.5 %
(110)bp
90bp
(220)bp
190bp
(40)bp
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Corporate and Other
Total gross profit
Gross margin:
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Consolidated
39
OPERATING EXPENSES
Operating expenses for 2012 decreased $361.2, or 40.6%, from the prior year, which was primarily driven by lower
Corporate & Other expenses of $417.9. The decline in Corporate & Other expenses primarily relate to lower year-
over-year transformation costs and asbestos-related costs, which were partially offset by additional company-wide
G&A expenses of $55.4 for 2012. Further discussion of the changes in operating expenses is provided below. The
following table provides further information by expense type, as well as a breakdown of operating expense by segment.
Sales and marketing expenses
General and administrative expenses
Research and development expenses
Asbestos-related costs, net
Transformation costs
Total operating expenses
By Segment:
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Corporate & Other
$
$
$
2012
180.4
221.7
62.7
50.9
13.0
528.7
195.5
77.3
104.9
53.5
97.5
$
$
$
2011
163.6
166.3
63.5
100.4
396.1
889.9
152.8
71.6
95.8
54.3
515.4
Change
10.3 %
33.3 %
(1.3)%
(49.3)%
(96.7)%
(40.6)%
27.9 %
8.0 %
9.5 %
(1.5)%
(81.1)%
Sales and marketing expenses for 2012 increased $16.8, or 10.3% year-over-year, primarily due to increased
compensation and other selling expenses associated with the increase in revenue from Industrial Process, as well as
additional costs from our Blakers and Bornemann acquisitions. As a percent of revenue, sales and marketing expenses
were 8.1% in 2012 compared to 7.8% in 2011.
G&A expenses for 2012 increased $55.4, or 33.3% year-over-year, due to various factors including increased
restructuring expenses, an unfavorable change in foreign currency, costs incurred to reposition the organization
following the Distribution (repositioning costs), lost cost leverage resulting from the Distribution related to higher
standalone facility and infrastructure costs, additional costs related to our fourth quarter 2011 acquisition of Blakers,
an increase in strategic investments and an increase in acquisition-related costs. The increase in G&A expenses was
partially offset by the recognition of an asset for potential recoveries from environmental insurance policies.
R&D costs were relatively flat year-over-year, as we continued to invest in new product developments in targeted
growth markets at each segment. As a percentage of revenue, R&D costs declined to 2.8% in 2012 from 3.0% in 2011,
primarily as a function of our year-over-year revenue growth.
For the full year 2012, asbestos-related costs, net decreased to $50.9 from $100.4. This decrease was primarily
related to the effect of our annual asbestos remeasurement in the third quarter. In the third quarter of 2012, we
recognized net asbestos related costs of $2.9, reflecting a decrease of $38.0 as compared to the prior year. The
decrease in the cost recognized as part of the annual remeasurement in 2012 is a result of several developments,
including an expectation of lower defense costs as a percentage of indemnities paid over the projection period and a
reduction in the assumed rate of increase in future average settlement values. These favorable factors were offset, in
part, by an increasing number of cases expected to be adjudicated, increased activity in several higher-cost jurisdictions,
an increase in average settlement values and an increase in lung cancer activity. The decrease in costs from the annual
remeasurement also reflects changes in our asbestos-related assets, primarily as a result of the decrease in the
estimated liability and, to a lesser extent, reductions in expected recovery rates from certain insurers, offset in part by
benefits from the Settlement Agreement (described in the paragraph below).
The Settlement Agreement, executed in September 2012, accelerated the cost sharing provisions of a previous
agreement with the entity (the counterparty) that had previously acquired the disposed business. Under the terms of
the Settlement Agreement, the counterparty assumed full responsibility for pending and future asbestos-related claims
filed against the disposed business. As part of the Settlement Agreement, ITT also agreed to relinquish certain insurance
assets of the disposed business. As a result of the Settlement Agreement, ITT’s asbestos-related liabilities were reduced
by $245.2 while the asbestos-related assets were reduced by $233.8. In addition, under the Settlement Agreement,
ITT received a $10.0 cash payment from the counterparty for past and future costs that would otherwise have been
paid by the surrendered insurance. Income from continuing operations reflects a benefit of $5.8 from the Settlement
Agreement, while income from discontinued operations reflects a benefit of $5.6 from the Settlement Agreement.
40
See Note 20, “Commitments and Contingencies” to the Consolidated Financial Statements for further information
on our asbestos-related liability and assets.
We recognized transformation costs of $13.0 during 2012, a decline of $383.1 from 2011 in connection with activities
taken to create the revised organizational structure and to complete the Distribution. Transformation costs incurred
during 2012 primarily relate to advisory services performed during the first half of the year and facility-related costs to
separate locations previously shared with Xylem businesses. Transformation costs incurred during 2011 included a
$296.8 loss associated with extinguishing substantially all outstanding debt in connection with the Distribution, a $55.0
impairment charge related to a decision to discontinue development of an information technology consolidation initiative
and $36.8 of employee retention and other compensation costs. Employee retention and other compensation costs
incurred during 2011 include $16.8 of compensation costs recognized in connection with the retirement of Steven R.
Loranger, our former Chairman, President and Chief Executive Officer in October 2011.
OPERATING INCOME (LOSS)
Operating income for 2012 was $151.5, as compared to an operating loss of $244.9 for 2011. The increase in
operating income and operating margin is primarily due to lower asbestos-related costs and transformation costs,
offset in part by lower operating income at ICS and higher corporate costs. The following table illustrates the 2012 and
2011 operating income and operating margin by segments and at the consolidated level.
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Segment operating income
Asbestos-related costs, net
Transformation costs
Other corporate costs
Total corporate and other costs
Total operating income (loss)
Operating margin:
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Segment operating margin
Consolidated operating margin
2012
2011
$
99.3
83.1
6.9
58.3
247.6
(50.9)
(8.7)
(36.5)
(96.1)
$ 151.5
$ 91.5
85.3
37.8
55.2
269.8
(100.4)
(391.2)
(23.1)
(514.7)
$ (244.9)
10.4%
13.3%
1.8%
21.0%
11.1%
6.8%
11.9 %
13.4 %
9.0 %
19.3 %
12.8 %
(11.7)%
Change
8.5 %
(2.6 )%
(81.7 )%
5.6 %
(8.2 )%
(49.3 )%
(97.8 )%
58.0 %
(81.3 )%
161.9 %
(150)bp
(10)bp
(720)bp
170bp
(170)bp
1,850bp
Industrial Process operating income for 2012 increased $7.8, or 8.5%, compared to the prior year, as the benefit
from increased sales volume of $31.8 and net savings from productivity, sourcing and VBLSS initiatives of approximately
$20.0 was partially offset by weaker project pricing and negative sales mix of $6.1. In addition, operating income was
unfavorably impacted by higher year-over-year corporate expense allocations, lost leverage resulting from the
Distribution related to higher standalone facility and infrastructure costs, higher warranty costs, an increase in strategic
investment spending, unfavorable foreign currency effects, and acquisition impacts and costs related to Bornemann.
Operating margin for 2012 declined 150 basis points to 10.4%, as a result of the drivers mentioned above.
Motion Technologies operating income for 2012 declined $2.2, or 2.6%, compared to the prior year, resulting in a
10 basis point decline in operating margin. The decline in operating income was primarily due to foreign currency
translation effects which reduced operating income by $8.7, and resulted in a 40 basis point decline in operating margin.
Operating income benefited by $13.4 from higher sales volume; however, this benefit was reduced by competitive
pricing actions and an unfavorable change in sales mix, resulting in a net improvement of 30 basis points in operating
margin. Operating income was also unfavorably impacted by expenses incurred in connection with the development
of a new R&D Center of Excellence and production facility in Wuxi, China. These items were partially offset by net
savings from productivity, sourcing and VBLSS initiatives of approximately $18.0, which provided an approximate
benefit of 290 basis points to operating margin.
Interconnect Solutions operating income for 2012 declined $30.9, or 81.7%, resulting in a 720 basis point decline
in operating margin. The decline in operating income was due to lower sales volumes which negatively impacted
operating income by $16.5 and operating margin by 360 basis points, an $11.7 unfavorable change in product mix
41
primarily due to lower sales of our Universal Connector product line that impacted operating margin by 290 basis points
and a prior year gain of $3.6 on the June 2011 sale of a product line that decreased operating margin by 90 basis
points. In light of difficult market conditions, during the third and fourth quarters of 2012 restructuring actions were
initiated to reduce European costs and improve global efficiency, resulting in a 2012 charge of $7.3, an increase of
$4.4 over the prior year.
Control Technologies operating income for 2012 increased $3.1, or 5.6%, resulting in a 170 basis point
improvement. The increase was primarily due to productivity, sourcing, VBLSS and pricing initiatives that provided a
270 basis point improvement, which were partially offset by the impact of lower volume and unfavorable mix of $4.5
and additional recurring costs following the Distribution of $5.2 resulting in a combined decline in operating margin of
180 basis points.
Other corporate costs increased $13.4, or 58.0%, during 2012, primarily due to the cancellation of a $10.0 bond
guarantee during 2011 and $7.8 of repositioning costs incurred during 2012, partially offset by the recognition of a
$10.8 asset related to environmental insurance policies during 2012.
INTEREST AND NON-OPERATING EXPENSES, NET
Interest expense
Interest income
Miscellaneous expense (income), net
Total interest and non-operating expenses, net
2012
0.1
2.8
5.1
2.4
$
$
2011
$ 76.4
4.1
(1.3)
$ 71.0
Change
(99.9)%
(31.7)%
(492.3)%
(96.6)%
Interest expense decreased by $76.3 during 2012, due to the extinguishment of $1,251.0 of long-term debt during
the fourth quarter of 2011, and a $3.9 reversal of accrued interest expense associated with unrecognized tax benefits
primarily related to the completion of a U.S. federal tax examination.
INCOME TAX EXPENSE
For the year ended December 31, 2012, the Company recognized an income tax expense of $39.6 representing
an effective tax rate of 26.6%. Our effective tax rate in 2012 differs from the statutory tax rate primarily as a result of
$29.3 of tax benefits from tax exempt interest which benefited the effective tax rate by 19.7%, changes in the recognition
of previously unrecognized tax benefits of $19.6 related to the completion of tax examinations which benefited the
effective tax rate by 13.2% and an increase in tax expense of $41.2 related to the recognition of an additional valuation
allowance which increased the effective tax rate by 27.7%.
For the year ended December 31, 2011, the Company recorded income tax expense of $260.6, an effective tax
rate of (82.5)%, The primary difference between the effective rate in 2012 and 2011 was the recognition of a valuation
allowance against certain deferred tax assets in 2011 which decreased the effective tax rate benefit by 108.1%. Of
the valuation allowance, $340.7 was initially recorded in 2011 as a result of our cumulative three year loss position as
of December 31, 2011. This was considered a significant source of negative evidence and limited our ability to consider
other subjective evidence such as our projections for future growth. Despite income in 2012, the Company continued
to be in a three-year cumulative loss position at the end of 2012, and it was determined that the size and frequency
of the losses from continuing operations in recent prior years and the uncertainty associated with projecting future
taxable income supported the conclusion that a valuation allowance was required to reduce the deferred tax assets.
Accordingly, we continued to record a valuation allowance against our deferred tax assets in the U.S., Luxembourg,
Germany and China as of December 31, 2012, which was $493.9 on that date. The valuation allowance as of December
31, 2012 represented an increase of $58.7 over the prior year, primarily due to an increase of $20.1 attributable to
U.S. federal and state net operating losses and net temporary differences and an increase of $35.7 attributable to
foreign net operating loss carryforwards primarily in Luxembourg and China and net temporary differences.
Our 2011 effective tax rate also reflected, as a result of the Distribution and its impacts on the Company’s expected
liquidity, investment opportunities and other factors, a determination that certain earnings generated in Luxembourg,
Japan, and South Korea were no longer considered to be indefinitely reinvested. As a result of the change in intent,
the Company recorded $69.3 of deferred tax liability on those undistributed foreign earnings during 2011 which
decreased the effective tax rate benefit by 21.8%. As of December 31, 2012, we continued to provide for taxes on
these undistributed foreign earnings and accrued an additional $2.1 deferred tax liability. The Company also recorded
a $30.9 tax benefit in 2011 from an increase in state deferred tax assets which resulted in a 9.7% increase in the
effective tax rate benefit. As a consequence of the Distribution, certain state deferred tax assets were re-valued based
on enacted tax rates using different state apportionment factors, increasing the future state tax benefit. The Company
recorded a tax benefit of $23.0 for various tax credits, resulting in a tax rate benefit of 7.2%.
42
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAX
During 2012, the Company completed the sale of its Shape Cutting Businesses. The financial position and results
of operations of the Shape Cutting Businesses for 2012 and 2011 are reported as a discontinued operation.
On October 31, 2011, the Company completed the Distribution of Exelis and Xylem. The operating results of Exelis
and Xylem through the date of the Distribution have been classified in the consolidated financial statements as
discontinued operations for 2011.
The tables included below provide the operating results of discontinued operations through the date of disposal
or distribution. Amounts presented in the “Other” column within the tables below relate to various divested ITT
businesses accounted for as discontinued operations in the year of divestiture for which legacy liabilities remain, as
well as certain transformation costs which were directly related to the Distribution and provided no future benefit to
the Company.
Year Ended 2012
Revenue
Earnings from discontinued operations, before income taxes
Gain on sale, before income taxes
Income tax benefit
Earnings from discontinued operations, net of tax
Shape
Cutting
Businesses
30.2
$
0.6
9.0
—
9.6
$
Shape
Cutting
Businesses
33.5
$
—
Other
$ —
0.4
—
(5.9)
6.3
$
Total
$ 30.2
1.0
9.0
(5.9)
$ 15.9
Other
$ —
134.1
Total
$ 8,057.1
240.1
Year Ended 2011
Revenue
Transformation costs
Earnings (loss) from discontinued operations,
before income taxes
Income tax expense (benefit)
Earnings (loss) from discontinued operations,
net of tax
Exelis
$4,916.1
31.2
Xylem
$3,107.5
74.8
473.0
193.6
321.5
70.3
(2.5)
(1.1)
(108.9)
(26.7)
683.1
236.1
$ 279.4
$ 251.2
$
(1.4)
$ (82.2)
$
447.0
LIQUIDITY AND CAPITAL RESOURCES
Funding and Liquidity Strategy
Our funding needs are monitored and strategies are executed to meet overall liquidity requirements, including the
management of our capital structure on both a short- and long-term basis. We expect to fund our ongoing working
capital, dividends, capital expenditures and financing requirements through cash flows from operations and cash on
hand or by accessing the commercial paper market. If our access to the commercial paper market were adversely
affected, we believe that alternative sources of liquidity, including our 2011 Revolving Credit Agreement, described
below, would be sufficient to meet our short-term funding requirements.
We manage our worldwide cash requirements considering available funds among the many subsidiaries through
which we conduct business and the cost effectiveness with which those funds can be accessed. We have identified
and continue to look for opportunities to access cash balances in excess of local operating requirements to meet global
liquidity needs in a cost-efficient manner. A majority of our cash and cash equivalents is held by our international
subsidiaries. We have and plan to transfer cash between certain international subsidiaries and the U.S. and other
international subsidiaries when it is cost effective to do so. Our intent is generally to indefinitely reinvest these funds
outside of the U.S. consistent with our overall intention to support growth and expand in markets outside the U.S.
through the development of products, increase non-U.S. capital spending, and potentially acquire foreign
businesses. However, we have determined that certain undistributed foreign earnings generated in Luxembourg,
Japan, Hong Kong, and South Korea should not be considered permanently reinvested outside of the U.S. Net
distributions from foreign countries totaled $43.9 during 2013. The timing and amount of future remittances, if any,
remains under evaluation.
The amount and timing of dividends payable on our common stock are within the sole discretion of our Board of
Directors and will be based on, and affected by, a number of factors, including our financial position and results of
operations, available cash, expected capital spending plans, prevailing business conditions, and other factors the
43
Board deems relevant. Therefore, there can be no assurance as to what level of dividends, if any, will be paid in the
future. Aggregate dividends paid in 2013 were $36.4, compared to $34.2 in 2012 and $193.0 in 2011, reflecting per
share amounts of $0.40, $0.364, and $1.591, respectively. In connection with the Distribution, ITT decreased its
quarterly dividend from $0.50 per share to $0.091 per share. In the first quarter of 2014, we declared a dividend of
$0.11 per share for shareholders of record on March 14, 2014.
Significant factors that affect our overall management of liquidity include our credit ratings, the adequacy of
commercial paper and supporting bank lines of credit, and the ability to attract long-term capital on satisfactory terms.
We assess these factors along with current market conditions on a continuous basis, and as a result, may alter the
mix of our short- and long-term financing when it is advantageous to do so.
We access the commercial paper market to supplement the cash flows generated internally to provide additional
short-term funding for strategic investments and other funding requirements. We manage our short-term liquidity
through the use of our commercial paper program by adjusting the level of commercial paper borrowings as opportunities
to deploy additional capital arise and it is cost effective to do so. As of December 31, 2013, we had an outstanding
commercial paper balance of $38.0 and averaged an outstanding balance of $47.7 during the year.
Credit Facilities
On October 25, 2011 we entered into a four-year revolving $500 credit agreement (the 2011 Revolving Credit
Agreement). The 2011 Revolving Credit Agreement is intended to provide access to additional liquidity and be a source
of funding for the commercial paper program, if needed. Our policy is to maintain unused committed bank lines of
credit in an amount greater than outstanding commercial paper balances. The interest rate for borrowings under the
2011 Revolving Credit Agreement is generally based on the London Interbank Offered Rate (LIBOR), plus a spread,
which reflects our debt rating. The provisions of the 2011 Revolving Credit Agreement require that we maintain an
interest coverage ratio, as defined, of at least 3.0 times and a leverage ratio, as defined, of not more than 3.0 times.
At December 31, 2013, we had no amounts outstanding under the 2011 Revolving Credit Agreement and our interest
coverage ratio and leverage ratio were within the prescribed thresholds.
Our credit ratings as of December 31, 2013 are as follows:
Rating Agency
Standard & Poor’s
Moody’s Investors Service
Fitch Ratings
Short-Term
Ratings
A-3
P-3
F2
Long-Term
Ratings
BBB-
N/A
A -
As we no longer have long-term debt securities outstanding or a current Shelf Registration Statement filed with
the SEC, Moody’s Investors Service does not currently provide a long-term rating for ITT. Please refer to the rating
agency websites and press releases for more information.
44
Sources and Uses of Liquidity
Our principal source of liquidity is our cash flow generated from operating activities, which provides us with the
ability to meet the majority of our short-term funding requirements. The following table summarizes net cash derived
from operating, investing, and financing activities for the three years ended December 31, 2013, 2012, and 2011.
Operating activities
Investing activities
Financing activities
Foreign exchange
Total net cash flow (used in) from continuing operations
Net cash used in discontinued operations
Less: Cash distributed to Exelis and Xylem
Net change in cash and cash equivalents
2013
$ 226.6
(188.8)
(58.3)
(0.4)
(20.9)
(16.3)
—
(37.2)
$
$
2012
$ 247.1
(274.7)
(108.0)
(4.0)
$ (139.6)
(5.7)
—
$ (145.3)
2011
$ (322.4)
(106.5)
922.3
(9.4)
$ 484.0
(426.5)
(400.0)
$ (342.5)
Net cash of $226.6 was provided by operating activities for the year ended December 31, 2013, representing a
decrease of $20.5 from the prior year, primarily attributable to the collection of a significant 2012 income tax refund
which stemmed from an overpayment during 2011. Cash activity related to net income tax payments and refunds
resulted in a 2013 year-over-year decline to cash flow from operations of $122.8. This unfavorable impact was offset
by an increased source of cash from segment operating income after non-cash adjustments of $67.8. However, the
year-over-year change in work capital balances resulted in a higher cash usage of $10.2 during 2013, primarily related
to changes in the level of trade receivables and payables. In addition, the year-over-year change in net cash from
operating activities benefited from lower global postretirement plan contributions of $59.1 and lower net payments for
transformation and repositioning activities of $22.5. In addition, the year-over-year movement included an unfavorable
change in corporate accounts receivable of $17.6, primarily related to higher 2012 cash receipts from Xylem and Exelis
associated with the 2011 spin-off, as well as higher consolidated 2013 restructuring-related cash payments of $7.4.
Net cash provided by operating activities was $247.1 for 2012, representing an increase of $569.5 from 2011. The
increase in operating cash flow was primarily attributable to net income tax refunds of $100.9 during 2012 as compared
to net income tax payments of $140.0 during 2011, resulting in a year-over-year change of $240.9. The refunds received
in 2012 were primarily related to tax benefits associated with transformation costs incurred in 2011. Additional year-
over-year cash flow sources and uses include a decline in cash paid for transformation costs of $307.7 offset by an
increase in cash contributions to global postretirement plans of $40.2 and a lower cash use associated with changes
in working capital of $74.0, primarily related to changes in the level of trade receivables and inventory. Net cash
payments for asbestos decreased by $1.9 compared to 2011.
Net cash used in investing activities decreased by $85.9 during 2013 compared to 2012 primarily due to the
acquisition of Bornemann in the fourth quarter of 2012. Capital expenditures during 2013 of $122.9 reflect an increase
of $39.1 from the prior year primarily associated with capacity expansion projects in South Korea, Seneca Falls, New
York, and Wuxi, China to support growth in global automotive and energy markets. Net cash from investing activities
was also impacted by additional purchases of short-term time deposit investments of $33.8, net of maturities, during
2013 and the sale of the Shape Cutting businesses which generated proceeds of $39.5 during 2012.
Net cash used in investing activities increased by $168.2 in 2012 compared to 2011 due to the acquisition of
Bornemann in the fourth quarter of 2012 and the purchase of short-term time deposit investments of $38.2, partially
offset by proceeds of $38.4 from the sale of the Shape Cutting Businesses as well as lower capital expenditures of
$18.5.
Net cash used in financing activities decreased by $49.7 in 2013 compared to 2012 primarily due to an increase
in net short-term debt borrowings of $50.2 and a $28.9 decrease in share repurchases as compared to the prior year.
This year-over-year cash inflow benefit was partially offset by a $20.9 decline in proceeds associated with employee
stock issuance activity, net of excess tax benefits.
Net cash used in financing activities was $108.0 during 2012, compared to cash provided by financing activities
of $922.3 during 2011. The year-over-year change primarily reflects the net effects of the Distribution, including the
Contribution paid to ITT by Exelis and Xylem and the net effect of the global cash pooling in which Exelis and Xylem
participated prior to the Distribution, offset by the repayment of substantially all outstanding long-term debt, commercial
paper and capital leases with the proceeds from the Distribution. Other significant financing cash flows in 2012 include
repurchases of common stock of $116.8 and net repayments on borrowings of $24.5.
45
Our average daily outstanding commercial paper balance for the years ended 2013, 2012, and 2011 was $47.7,
$10.1, and $127.6, respectively. The maximum outstanding commercial paper during each of those respective years
was $103.5, $55.0 and $408.0, respectively. We had outstanding commercial paper of $38.0 as of December 31, 2013.
Net cash used related to discontinued operations for the year ended December 31, 2013 is primarily due to the
settlement of legacy receivables and payables with a former ITT entity, resulting in a net cash payment by ITT of $15.3.
Asbestos
Based on the estimated undiscounted asbestos liability as of December 31, 2013 for claims filed or estimated to
be filed over the next 10 years, we have estimated that we will be able to recover approximately 41% of the asbestos
indemnity and defense costs from our insurers. Actual insurance reimbursements may vary significantly from period
to period and the anticipated recovery rate is expected to decline over time due to gaps in our insurance coverage,
reflecting uninsured periods, the insolvency of certain insurers, prior settlements with our insurers, and our expectation
that certain insurance policies will exhaust within the next 10 years. In the tenth year of our estimate, our insurance
recoveries are currently projected to be 30%. Additionally, future recovery rates may be impacted by other factors,
such as future insurance settlements, insolvencies, and judicial determinations relevant to our coverage program,
which are difficult to predict and subject to a high degree of uncertainty.
The Company has negotiated with certain of its excess insurers to reimburse the Company for a portion of its
settlement and/or defense costs as incurred, frequently referred to as “coverage-in-place” agreements. Under
coverage-in-place agreements, an insurer’s policies remain in force and the insurer undertakes to provide coverage
for the Company’s present and future asbestos claims on specified terms and conditions that address, among other
things, the share of asbestos claims costs to be paid by the insurer, payment terms, claims handling procedures and
the expiration of the insurer’s obligations. The Company has entered into policy buyout agreements with certain insurers
confirming the aggregate amount of available coverage under the subject policies and setting forth a schedule for
future payments to a Qualified Settlement Fund, to be disbursed for future asbestos costs. Collectively, these
agreements are designed to facilitate an orderly resolution and collection of ITT’s insurance and to mitigate issues
that insurers may raise regarding their responsibility to respond to claims.
As of December 31, 2013, the Company has entered into coverage-in-place agreements and policy buyout
agreements representing approximately 59% of our recorded asset. Certain of our primary coverage-in-place
agreements are exhausted or will be exhausted in the next several months, which may result in higher net cash outflows
until excess carriers begin accepting claims for reimbursement. While there are overall limits on the aggregate amount
of insurance available to the Company with respect to asbestos claims, those overall limits were not reached by the
estimated liability recorded by the Company at December 31, 2013.
Further, there is uncertainty in estimating when cash payments related to the recorded asbestos liability will be
fully expended and such cash payments will continue for a number of years beyond the next 10 years due to the
significant proportion of future claims included in the estimated asbestos liability and the delay between the date a
claim is filed and when it is resolved. Subject to these inherent uncertainties, it is expected that cash payments related
to pending claims and claims to be filed in the next 10 years will extend through approximately 2029.
Although asbestos cash outflows can vary significantly from year to year, our current net cash outflows, net of tax
benefits, are projected to average $10 to $20 over the next five years, as compared to an average of $14 over the
past three annual periods, and increase to an average of approximately $35 to $45 over the remainder of the projection
period.
In light of the uncertainties and variables inherent in the long-term projection of the Company's asbestos exposures
and potential recoveries, although it is probable that the Company will incur additional costs for asbestos claims filed
beyond the next 10 years, we do not believe there is a reasonable basis for estimating the number of future claims,
the nature of future claims, or the cost to resolve future claims for years beyond the next 10 years at this time. Accordingly,
no liability or related asset has been recorded for any costs that may be incurred for claims asserted subsequent to
2023.
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 not possible to predict the ultimate outcome of the cost of resolving
the pending and estimated unasserted asbestos claims. We believe it is possible that the 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.
46
Funding of Postretirement Plans
The following table provides a summary of the funded status of our postretirement benefit plans as of December 31,
2013 and 2012.
2013
2012
Fair value of plan assets
Projected benefit obligation
Funded status
2.0 $
9.2 $ 278.0 $ 247.1 $
84.8
(82.8) $ (157.4) $ (254.6) $ (56.5) $
532.6
166.6
303.6
U.S.
Pension
$ 266.8 $
281.2
$ (14.4) $
Non-U.S.
Pension
Other
Benefits
Total
U.S.
Pension
Non-U.S.
Pension
Other
Benefits
2.0 $
Total
7.9 $ 257.0
83.4
600.0
213.0
(81.4) $ (205.1) $ (343.0)
The funded status of our U.S. pension plans improved $42.1 during 2013 due to better than expected asset returns,
an increase in the discount rate, and certain plan design changes. Our non-U.S. pension plans are typically not funded
due to local regulations and the funded status as of December 31, 2013 was consistent with that of the prior year. The
funded status of our other benefit plans improved $47.7 during 2013 due to changes in plan design and an increase
in the discount rate.
While we make contributions to our postretirement benefit plans when considered necessary or advantageous to
do so, the minimum funding requirements established by local government funding or taxing authorities, or established
by other agreements, may influence future contributions. Funding requirements under U.S. Internal Revenue Service
(IRS) rules are a major consideration in making contributions to our U.S. postretirement benefit plans. During 2013
and 2012, we contributed $11.9 and $71.0 to our postretirement benefit plans, respectively, $0.9 and $58.3 of which
was to U.S. pension plans, $8.2 and $9.7 was to other employee-related benefit plans, and $2.8 and $3.0 was to non-
U.S. pension plans.
While the Company has significant discretion in making voluntary contributions, the Employee Retirement Income
Security Act of 1974, as amended by the Pension Protection Act of 2006 and further amended by the Worker, Retiree,
and Employer Recovery Act of 2008 and applicable Internal Revenue Code regulations mandate minimum funding
thresholds. Failure to satisfy the minimum funding thresholds could result in restrictions on our ability to amend a plan
or make benefit payments. In general, certain benefit restrictions apply when the Adjusted Funding Target Attainment
Percentage (AFTAP) of a plan is less than 80%. When the AFTAP is between 80% and 60%, there is a restriction on
plan amendments and a partial restriction on accelerated benefit payments (i.e., lump sum payments cannot exceed
50% of the value of the participants total benefit). Full benefit restrictions apply if the plan’s AFTAP falls below 60%.
As of December 31, 2013, the funding percentages of all ITT U.S. Qualified pension plans exceeded 80% as calculated
using the AFTAP approach.
Future minimum funding requirements will depend primarily on the return on plan assets and discount rate, both
determined using AFTAP guidelines. Depending on these factors, and the resulting funded status of our U.S. pension
plans, the level of future minimum contributions could be material. We currently estimate that the 2014 contributions
to our global postretirement benefit plans will be approximately $15.0.
Capital Resources
Long-term debt is raised through the offering of debt securities primarily within the U.S. capital markets. Long-
term debt is generally defined as any debt with an original maturity greater than 12 months.
As of December 31, 2013, we have sources of long- and short-term funding including access to the capital markets
through an available $500 commercial paper program and unused credit lines, as well as general market access to
longer-term markets. Our commercial paper program is supported by the 2011 Revolving Credit Agreement and our
policy is to maintain unused committed bank lines of credit in an amount greater than outstanding commercial paper
balances. As of December 31, 2013, we have $462.0 of bank lines of credit available in excess of our commercial
paper balance.
The table below provides long-term debt outstanding and capital lease obligations at December 31, 2013 and
2012.
Current portion of long-term debt and capital leases
Non-current portion of long-term debt and capital leases
Total long-term debt and capital leases
$
2013
1.8
9.1
$ 10.9
$
2012
4.1
10.1
$ 14.2
47
Contractual Obligations
ITT’s commitment to make future payments under long-term contractual obligations was as follows, as of
December 31, 2013:
Contractual Obligations
Short and long-term debt, including
interest and capital leases
Operating leases
Purchase obligations(a)
Other long-term obligations(b)
Total
Payments Due By Period
Total
Less Than
1 Year
1-3 Years
3-5 Years
$
12.5
129.7
126.1
130.3
$ 398.6
$
$
2.1
15.0
124.7
17.5
159.3
$
$
3.9
26.0
1.4
32.2
63.5
$
$
2.6
19.3
—
30.7
52.6
More Than
5 Years
$
$
3.9
69.4
—
49.9
123.2
In addition to the amounts presented in the table above, we have recorded liabilities for pending asbestos claims
and asbestos claims estimated to be filed over the next 10 years and uncertain tax positions of $1,264.7 and $111.0,
respectively, in our Consolidated Balance Sheet at December 31, 2013. These amounts have been excluded from the
contractual obligations table due to an inability to reasonably estimate the timing of payments in individual years. In
addition, while we make contributions to our postretirement benefit plans when considered necessary or advantageous
to do so, the minimum funding requirements established by local government funding or taxing authorities, or established
by other agreements, may influence future contributions. As such, expected contributions to our postretirement benefit
plans have been excluded from the table above.
(a) Represents unconditional purchase agreements that are enforceable and legally binding and that specify all
significant terms to purchase goods or services, including fixed or minimum quantities to be purchased; fixed,
minimum or variable price provisions; and the approximate timing of the transaction. Purchase agreements that
are cancellable without penalty have been excluded.
(b) Other long-term obligations include amounts recorded on our December 31, 2013 Consolidated Balance Sheet,
including estimated environmental payments and employee compensation agreements. We estimate, based on
historical experience that we will spend between $10 and $15 per year on environmental investigation and
remediation. We are contractually required to spend a portion of these monies based on existing agreements
with various governmental agencies and other entities. At December 31, 2013, our recorded environmental
liability was $94.6.
Off-Balance Sheet Arrangements
Off-balance sheet arrangements represent transactions, agreements or other contractual arrangements with
unconsolidated entities, where an obligation or contingent interest exists. Our off-balance sheet arrangements, as of
December 31, 2013, consist of indemnities related to acquisition and disposition agreements and certain third-party
guarantees.
Indemnities
As part of the Distribution, ITT provided certain indemnifications and cross-indemnifications among ITT, Exelis and
Xylem, subject to limited exceptions with respect to employee claims. The indemnifications address a variety of subjects,
including asserted and unasserted product liability matters (e.g., asbestos claims, product warranties) which relate to
products manufactured, repaired and/or sold prior to the Distribution Date. The indemnifications are indefinite. In
addition, ITT, Exelis and Xylem agreed to certain cross-indemnifications with respect to other liabilities and obligations.
ITT expects Exelis and Xylem to fully perform under the terms of the Distribution Agreement and therefore has not
recorded a liability for matters for which we have been indemnified. In addition, both Exelis and Xylem have made
asbestos indemnity claims that could give rise to material payments under the indemnity provided by ITT; such claims
are included in our estimate of asbestos liabilities.
Since ITT’s incorporation in 1920, we have acquired and disposed of numerous entities. The related acquisition
and disposition agreements contain various representation and warranty clauses and may provide indemnities for a
misrepresentation or breach of the representations and warranties by either party. The indemnities address a variety
of subjects; the term and monetary amounts of each such indemnity are defined in the specific agreements and may
be affected by various conditions and external factors. Many of the indemnities have expired either by operation of
law or as a result of the terms of the agreement. We do not have a liability recorded for these indemnifications and
are not aware of any claims or other information that would give rise to material payments under such indemnities.
48
Guarantees
We have a number of guarantees, letters of credit and similar arrangements outstanding at December 31, 2013
primarily pertaining to commercial or performance guarantees and insurance matters. We have not recorded any
material loss contingencies under these guarantees, letters of credit and similar arrangements as of December 31,
2013 as the likelihood of nonperformance by the underlying obligors is considered remote. From time to time, we may
provide certain third-party guarantees that may be affected by various conditions and external factors, some of which
could require that payments be made under such guarantees. We do not consider the maximum exposure or current
recorded liabilities under our third-party guarantees to be material either individually or in the aggregate. We do not
believe such payments would have a material adverse impact on our consolidated financial statements.
KEY PERFORMANCE INDICATORS AND NON-GAAP MEASURES
Management reviews key performance indicators including revenue, segment operating income and margins,
earnings per share, orders growth, and backlog, among others. In addition, we consider certain measures to be useful
to management and investors when evaluating our operating performance for the periods presented. These measures
provide a tool for evaluating our on-going operations and management of assets from period to period. This information
can assist investors in assessing our financial performance and measures our ability to generate capital for deployment
among competing strategic alternatives and initiatives, including, but not limited to, dividends, acquisitions and share
repurchases. These metrics, however, are not measures of financial performance under accounting principles generally
accepted in the United States of America (GAAP) and should not be considered a substitute for measures determined
in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly
titled measures reported by other companies, to be key performance indicators:
•
“organic revenue” and “organic orders” are defined as revenue and orders, excluding the impacts of foreign currency
fluctuations and acquisitions and divestitures made during the current year. Divestitures include sales of insignificant
portions of our business that did not meet the criteria for presentation as a discontinued operation. The period-
over-period change resulting from foreign currency fluctuations assumes no change in exchange rates from the
prior period. A reconciliation of organic revenue from revenue for the years ended December 31, 2013 and 2012
is provided below.
Industrial
Process
Motion
Technologies
Interconnect
Solutions
Control
Technologies
Eliminations
Total
ITT
%
Change
2012 Revenue
Organic growth
Acquisitions/(divestitures), net
Foreign currency translation
Total change in revenue
2013 Revenue
$
955.8
35.0
122.7
(6.1)
151.6
$ 1,107.4
$
$
626.2
79.5
—
16.1
95.6
721.8
$
$
375.7
22.3
—
(2.5)
19.8
395.5
$
$
277.1
2.0
—
(0.9)
1.1
278.2
$
$
(7.0) $ 2,227.8
139.9
1.1
122.7
—
(0.1)
6.5
269.1
1.0
(6.0) $ 2,496.9
6.3%
5.5%
0.3%
12.1%
2011 Revenue
Organic growth
Acquisitions/(divestitures), net
Foreign currency translation
Total change in revenue
2012 Revenue
Industrial
Process
Motion
Technologies
Interconnect
Solutions
Control
Technologies
Eliminations
Total
ITT
%
Change
$
766.7
$
634.4
$
417.8
$
285.5
$
(18.8) $ 2,085.6
155.1
39.4
(5.4)
189.1
38.3
—
(46.5)
(8.2)
(32.8)
(2.2)
(7.1)
(42.1)
(8.3)
—
(0.1)
(8.4)
11.6
—
0.2
11.8
163.9
37.2
7.9 %
1.8 %
(58.9)
(2.9)%
142.2
6.8 %
$
955.8
$
626.2
$
375.7
$
277.1
$
(7.0) $ 2,227.8
49
•
“adjusted income from continuing operations” and “adjusted income from continuing operations per diluted share”
are defined as income from continuing operations and income from continuing operations per diluted share, adjusted
to exclude special items that include, but are not limited to, asbestos-related costs, transformation and repositioning
costs, restructuring costs, certain acquisition-related expenses, income tax settlements or adjustments, and other
unusual or infrequent non-operating items. Special items represent significant charges or credits, on an after-tax
basis, that impact current results, but may not be related to the Company’s ongoing operations and performance.
A reconciliation of adjusted income from continuing operations, including adjusted earnings per diluted share, is
provided below.
Income (loss) from continuing operations attributable to ITT Corporation
Tax-related special items(a)
Restructuring costs, net of tax benefit of $6.2, $3.6, and $1.7, respectively
Legacy items, net of tax(b)
Transformation and repositioning costs, net of tax(d)
Bornemann acquisition-related expenses, net of tax(e)
Interest income, net of tax(f)
2013
2012
2011
$ 487.7
$ 109.5
$ (576.5)
(363.7)
22.2
21.3
16.3
5.7
(3.2)
(5.2)
10.4
29.0
14.2
5.4
(5.3)
381.7
3.0
54.4
256.6
—
(1.3)
Adjusted income from continuing operations
$ 186.3
$ 158.0
$ 117.9
Income (loss) from continuing operations attributable to ITT Corporation per diluted
share
Adjusted income from continuing operations per diluted share
$
$
5.28
2.02
$
$
1.16
1.68
$ (6.22)
$
1.20
(a) The following table details significant components of the tax-related special items. See Note 7, “Income Taxes,”
to our Consolidated Financial Statements for further information.
Change in deferred tax asset valuation allowance
Charge on undistributed foreign earnings
Impacts of tax audit closure
Return to accrual adjustment
Change in uncertain tax positions
Change in state tax rates
Other
Net tax-related special items
2013
$ (375.3)
$
11.0
1.4
(2.8)
(0.4)
—
2.4
$ (363.7)
$
2012
29.4
—
(8.2)
(9.3)
(13.9)
—
(3.2)
(5.2)
2011
$ 340.7
69.3
—
—
—
(30.9)
2.6
$ 381.7
(b) The following table details significant components of the legacy items, included as a special item. See Note 20,
“Commitments and Contingencies,” to our Consolidated Financial Statements for further information regarding
net asbestos-related costs and environmental insurance-related asset.
Net asbestos-related costs
Environmental insurance-related asset(c)
Cancellation of bond guarantee
Other
Pre-tax total
Tax benefit
Legacy items, net of tax
2013
32.8
$
$
—
—
—
32.8
(11.5)
2012
50.9
(6.7)
—
—
44.2
(15.2)
2011
$ 100.4
—
(10.0)
(4.6)
85.8
(31.4)
$
21.3
$
29.0
$
54.4
(c) The environmental insurance-related asset special item specifically relates to the benefit realized upon the initial
establishment of the asset during 2012.
50
(d) The following table provides a reconciliation of transformation and repositioning costs to transformation and
repositioning costs, net of tax, included as a special item. Repositioning costs primarily consisted of costs to exit
transition services agreements, IT infrastructure modifications, and other various actions. See Note 6, “Company
Transformation” to the Consolidated Financial Statements for further information regarding transformation costs.
Transformation costs
Repositioning costs
Pre-tax total
Tax-related transformation costs
Tax benefit
2013
2.2
$
2012
13.0
$
$
23.0
25.2
—
(8.9)
8.7
21.7
—
(7.5)
Transformation and repositioning costs, net of tax
$
16.3
$
14.2
$
2011
396.1
—
396.1
3.5
(143.0)
256.6
(e) Bornemann acquisition-related expenses include certain costs to acquire and integrate Bornemann as well as
backlog-related intangible asset amortization and product line exit costs and reflect tax benefits of $2.2 and $1.5
for 2013 and 2012, respectively.
(f) The interest income special items primarily relate to the reduction of accrued interest due to tax audits and are
reflected net of tax expense of $1.7, $2.2, and $0.7, respectively.
•
“adjusted free cash flow” is defined as net cash provided by operating activities less capital expenditures, cash
payments for transformation and repositioning costs, net asbestos cash flows and other significant items that
impact current results which management believes are not related to our ongoing operations and performance.
Due to other financial obligations and commitments, including asbestos-related payments, the entire adjusted free
cash flow may not be available for discretionary purposes. A reconciliation of free cash flow is provided below.
•
“adjusted free cash flow conversion” is defined as adjusted free cash flow divided by adjusted income from
continuing operations.
Net cash from continuing operations
Capital expenditures(g)
Transformation and repositioning cash payments
Net asbestos cash flows
Discretionary pension contribution, net of tax
Adjusted free cash flow
Adjusted income from continuing operations
Adjusted free cash flow conversion
2013
2012
2011
$ 226.6
$ 247.1
$ (322.4)
(118.1)
30.6
25.4
—
(78.5)
53.1
20.1
29.2
(84.6)
355.0
22.0
—
$ 164.5
$ 271.0
$ (30.0)
186.3
88.3%
158.0
171.5%
117.9
(25.4)%
(g) Capital expenditures represent capital expenditures as reported in the Consolidated Statement of Cash Flows,
less capital expenditures associated with transformation and repositioning activities. Capital expenditures
associated with transformation and repositioning activities were $4.8, $5.3 and $17.7 for the years ended
December 31, 2013, 2012, and 2011.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements and related disclosures in accordance with GAAP requires us to make
judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes. Significant accounting policies used in the preparation of the financial statements are discussed in Note 1,
“Description of Business, Basis of Presentation and Summary of Significant Accounting Policies,” to the Consolidated
Financial Statements. An accounting policy is deemed critical if it requires an accounting estimate to be made based
on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably
could have been used, or if changes to the estimate that are reasonably possible could materially affect the financial
statements. Senior management has discussed the development, selection and disclosure of these estimates with
the Audit Committee of ITT’s Board of Directors.
The accounting estimates and assumptions discussed below are those that we consider most critical to fully
understanding our financial statements and evaluating our results as they are inherently uncertain, involve the most
subjective or complex judgments, include areas where different estimates reasonably could have been used, and the
use of an alternative estimate that is reasonably possible could materially affect the financial statements. We base our
51
estimates on historical experience and other data and assumptions believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Management believes that the accounting estimates employed and the resulting
balances reported in the Consolidated Financial Statements are reasonable; however, actual results could differ
materially from our estimates and assumptions.
Asbestos Matters
ITT, including its subsidiary Goulds Pumps, Inc., has been joined as a defendant with numerous other companies
in product liability lawsuits alleging personal injury due to asbestos exposure. These claims allege that certain products
sold by us or 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. In certain other cases, it is alleged that former ITT companies were
distributors for other manufacturers’ products that may have contained asbestos.
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. The methodology used to project future asbestos costs is based largely on the Company’s experience in a
reference period, including the last few years, for claims filed, settled and dismissed, and is supplemented by
management’s expectations of the future. This experience is compared to the results of previously conducted
epidemiological studies by estimating the number of individuals likely to develop asbestos-related diseases. Those
studies were undertaken in connection with an independent analysis of the population of U.S. workers across eleven
different industry and occupation categories believed to have been exposed to asbestos. Using information for the
industry and occupation categories relevant to the Company, an estimate is developed of the number of claims estimated
to be filed against the Company over the next 10 years, as well as the aggregate settlement costs that would be
incurred to resolve both pending and estimated future claims based on the average settlement costs by disease during
the reference period. In addition, the estimate is augmented for the costs of defending asbestos claims in the tort
system using a forecast based on recent experience, as well as discussions with the Company’s external defense
counsel. The asbestos liability has not been discounted to present value due to the inability to reliably forecast the
timing of future cash flows. The Company retains a consulting firm to assist management in estimating our potential
exposure to pending asbestos claims and for claims estimated to be filed over the next 10 years. The methodology to
project future asbestos costs is one in which the underlying assumptions are separately assessed for their
reasonableness and then each is used as an input to the liability estimate. Our assessment of the underlying
assumptions concludes on one value for each assumption.
The liability estimate is most sensitive to assumptions surrounding mesothelioma and lung cancer claims, as
together, the estimated costs to resolve pending and estimated future mesothelioma and lung cancer claims represent
more than 90% of the estimated asbestos exposure, but only 17% of pending claims. The assumptions related to
mesothelioma and lung cancer that are most significant include the number of new claims forecast to be filed against
the Company in the future, the projected average settlement costs (including the rate of inflation assumed), the
percentage of claims against the Company that are dismissed without a settlement payment, and the cost to defend
against filed claims.
These assumptions are interdependent, and no one factor predominates in estimating the asbestos liability. While
there are other potential inputs to the model used to estimate our asbestos exposures for pending and estimated future
claims, our methodology relies on the best input available in the circumstances for each individual assumption and
does not create a range of reasonably possible outcomes. Projecting future asbestos costs is subject to numerous
variables and uncertainties that are inherently difficult to predict. In addition to the uncertainties surrounding the key
assumptions, additional uncertainty related to asbestos claims arises from the long latency period prior to the
manifestation of an asbestos-related disease, changes in available medical treatments and changes in medical costs,
changes in plaintiff behavior resulting from bankruptcies of other companies that are potential defendants or co-
defendants, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and
the impact of potential legislative or judicial changes.
The forecast period used to estimate our potential exposure to pending and projected asbestos claims is a judgment
based on a number of factors, including the number and type of claims filed, recent experience with pending claims
activity and whether that experience is expected to continue into the future, the jurisdictions where claims are filed,
the effect of any legislative or judicial developments, and the likelihood of any comprehensive asbestos legislation at
the federal level. These factors have both positive and negative effects on the dynamics of asbestos litigation in the
tort system and, accordingly, our estimate of the asbestos exposure. Developments related to asbestos tend to be
long-cycle, changing over multi-year periods. Accordingly, we monitor these and other factors and periodically assess
whether an alternative forecast period is appropriate.
52
We record a corresponding asbestos-related asset that represents our best estimate of probable recoveries related
to the recorded asbestos liability. In developing this estimate, the Company considers coverage-in-place and other
settlement agreements with its insurers, as well as a number of additional factors. These additional factors include
expected levels of future cost recovery, the financial viability of the insurance companies, the method by which losses
will be allocated to the various insurance policies and the years covered by those policies, the extent to which settlement
and defense costs will be reimbursed by the insurance policies, and interpretation of the various policy and contract
terms and limits and their interrelationships. The asbestos-related asset has not been discounted to present value due
to the inability to reliably forecast the timing of future cash flows.
The Company retains an insurance consulting firm to assist management in estimating probable recoveries for
pending asbestos claims and for claims estimated to be filed over the next 10 years based on the analysis of policy
terms, the likelihood of recovery provided by external legal counsel assuming the continued viability of those insurance
carriers that are currently solvent, incorporating risk mitigation judgments where policy terms or other factors are not
certain, and allocating asbestos settlement and defense costs between our insurers.
Based on the estimated undiscounted asbestos liability as of December 31, 2013 (for claims filed or estimated to
be filed over the next 10 years), we have estimated that we will be able to recover approximately 41% of asbestos
indemnity and defense costs from our insurers. However, there is uncertainty in estimating when cash payments related
to the recorded asbestos liability will be fully expended and such cash payments will continue for a number of years
beyond the next 10 years due to the significant proportion of future claims included in the estimated asbestos liability
and the lag time between the date a claim is filed and when it is resolved. Actual insurance reimbursements may vary
from period to period and the anticipated recovery rate is expected to decline over time due to gaps in our insurance
coverage, reflecting uninsured periods, the insolvency of certain insurers, prior settlements with our insurers, and our
expectation that certain policies from some of our primary insurers will exhaust within the next 10 years. In the tenth
year of our estimate, our insurance recoveries are currently projected to be approximately 30%. Future recovery rates
may be impacted by other factors, such as future insurance settlements, unforeseen insolvencies and judicial
determinations relevant to our coverage program, which are difficult to predict and subject to a high degree of uncertainty.
Our estimated asbestos liability and related receivables are based on management’s best estimate of future events
largely based on past experience; however, past experience may not prove a reliable predictor of the future. Future
events affecting the key assumptions and other variables for either the asbestos liability or the related receivables
could cause actual costs and recoveries to be materially higher or lower than currently estimated. For example, a
significant upward or downward trend in the number of claims filed, depending on the nature of the alleged injury, the
jurisdiction where filed and the quality of the product identification, or a significant upward or downward trend in the
costs of defending claims, could change the estimated liability, as would substantial adverse verdicts at trial that
withstand appeal. A legislative solution, structured settlement transaction, or significant change in relevant case law
could also change the estimated liability. Further, the bankruptcy of an insurer or settlements with our insurers, whether
through coverage-in-place agreements or policy buyouts, could change the estimated amount of recoveries.
Furthermore, any predictions with respect to the variables impacting our 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 and potential recoveries,
although it is probable that the Company will incur additional costs for asbestos claims filed beyond the next 10 years,
we do not believe there is a reasonable basis for estimating the number of future claims, the nature of future claims,
or the cost to resolve future claims for years beyond the next 10 years at this time. Accordingly, no accrual or receivable
has been recorded for any costs which may be incurred for claims asserted subsequent to 2023.
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 not possible to predict the ultimate cost of resolving all pending and
estimated unasserted asbestos claims. We believe it is possible that the 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.
In the third quarter each year we conduct a detailed asbestos remeasurement with the assistance of outside
consultants to review and update, as appropriate, the underlying assumptions used to estimate our asbestos liability
and related assets, including a reassessment of the time horizon over which a reasonable estimate of unasserted
claims can be projected. In addition, as part of our ongoing review of our estimated asbestos exposure and related
receivables, each quarter we assess the most recent data available underlying the key assumptions related to
mesothelioma and lung cancer (e.g., claims filed, claims settled and dismissed and related acceptance rates, average
settlement values), comparing the data to the expectations on which the most recent annual liability and asset estimates
were based. In addition to evaluating ITT’s claims experience, the Company also considers additional quantitative and
qualitative factors such as significant appellate rulings and legislative developments, and their respective effects on
53
estimated future filings and settlement values, and trends in the tort system. Our quarterly procedures also involve a
review of our assumed recovery rates, considering changes in the financial wherewithal of the insurers and the effect
of settlements or other agreements with insurers. Provided the quarterly review does not indicate a more detailed
evaluation of our asbestos exposure is required, each quarter, we record a net asbestos expense to maintain a rolling
10-year time horizon.
Revenue Recognition
Revenue is derived from the sale of products and services to customers. We recognize revenue when persuasive
evidence of an arrangement exists, the sales price is fixed or determinable, collectability is reasonably assured and
delivery has occurred. For product sales, other than long-term construction and production-type contracts (referred to
as design and build arrangements), we recognize revenue at the time title and risks and rewards of ownership pass
to the customer, which is generally when products are shipped, and the contractual terms have been fulfilled. Certain
contracts with customers require delivery, installation, testing, certification or other acceptance provisions to be satisfied
before revenue is recognized. In instances where contractual terms include a provision for customer acceptance,
revenue is recognized when either (i) we have previously demonstrated that the product meets the specified criteria
based on either seller or customer-specified objective criteria or (ii) on formal acceptance received from the customer
where the product has not been previously demonstrated to meet customer-specified objective criteria.
We recognize revenue on product sales to channel partners, including resellers, distributors or value-added solution
providers at the time of sale when the channel partners have economic substance apart from ITT and ITT has completed
its obligations related to the sale. Revenue on service and repair contracts is recognized after services have been
agreed to by the customer and rendered or over the service period.
We enter into contracts to sell our products and services, and while the majority of our sales agreements contain
standard terms and conditions, certain agreements contain multiple elements or non-standard terms and conditions.
Where sales agreements contain multiple elements or non-standard terms and conditions, judgment is required to
determine the appropriate accounting, including whether the deliverables specified in these agreements should be
treated as separate units of accounting for revenue recognition purposes, and, if so, how the transaction price should
be allocated among the elements and when to recognize revenue for each element.
When a sale involves multiple deliverables, the entire fee from the arrangement is allocated to each unit of
accounting based on the relative selling price of the deliverable to all other deliverables in the contract. Revenue for
multiple element arrangements is recognized when the appropriate revenue recognition criteria for the individual
deliverable have been satisfied. The allocation of sales price between elements may impact the timing of revenue
recognition, but will not change the total revenue recognized on the arrangement. For agreements that contain multiple
deliverables, we recognize revenue based on the relative selling price if the deliverable has stand-alone value to the
customer and, in arrangements that include a general right of return relative to the delivered element, performance of
the undelivered element is considered probable and substantially in the Company’s control. The selling price for a
deliverable is based on vendor-specific objective evidence of selling price (VSOE), if available, third-party evidence
of selling price (TPE), if VSOE is not available, or best estimated selling price (BESP), if neither VSOE nor TPE is
available.
The deliverables in our arrangements with multiple elements include various products and may include related
services, such as installation and start-up services. We allocate arrangement consideration based on the relative
selling prices of the separate units of accounting determined in accordance with the hierarchy described above. For
deliverables that are sold separately, we establish VSOE based on the price when the deliverable is sold separately.
We establish TPE, generally for services, based on prices similarly situated customers pay for similar services from
third party vendors. For those deliverables for which we are unable to establish VSOE or TPE, we estimate the selling
price considering various factors including market and pricing trends, geography, product customization, and profit
objectives.
We recognize revenue on certain design and build projects using the completed contract method. Provisions for
estimated losses, if any, on uncompleted design and build arrangements, are recognized in the period in which such
losses are determined. Due to the long-term nature of the contracts, these estimates are subject to uncertainties and
require significant judgment and may consider historical performance, the complexity of the work to be performed, the
estimated time to complete the project, and other economic factors such as inflation.
Additionally, accruals for estimated expenses related to sales returns and warranties are made at the time products
are sold. Reserves for sales returns, rebates and other allowances are established using historical information on the
frequency of returns for a particular product and period over which products can be returned. Future market conditions
and product transitions may require us to take actions to increase customer incentive offerings, possibly resulting in
a reduction in revenue at the time the incentive is offered.
54
For distributors and resellers, our typical return period is less than 180 days. Warranty accruals are established
using historical information on the nature, frequency and average cost of warranty claims and estimates of future costs.
Our standard product warranty terms generally include post-sales support and repairs or replacement of a product at
no additional charge for a specified period of time. While we engage in extensive product quality programs and
processes, we base our estimated warranty obligation on product warranty terms offered to customers, ongoing product
failure rates, materials usage, service delivery costs incurred in correcting a product failure, as well as specific product
class failures outside of our baseline experience and associated overhead costs. If actual product failure rates, repair
rates or any other post-sales support costs differ from these estimates, revisions to the estimated warranty liability
would be required.
Income Taxes
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of differences
between the financial reporting and tax bases of assets and liabilities, applying currently enacted tax rates in effect
for the year in which we expect the differences will reverse. We periodically assess the likelihood that we will be able
to recover our deferred tax assets and reflect any changes to our estimate of the amount we are more likely than not
to realize as a valuation allowance, with a corresponding adjustment to earnings or other comprehensive income (loss),
as appropriate. The ultimate realization of deferred tax assets depends on the generation of future taxable income
(including the reversals of deferred tax liabilities) during the periods in which those deferred tax assets will become
deductible.
The Company assesses all available positive and negative evidence regarding the realizability of its deferred tax
assets. Significant judgment is required in assessing the need for any valuation allowance recorded against deferred
tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including the future
reversal of existing taxable temporary differences, taxable income in carryback periods, prudent and feasible tax
planning strategies, estimated future taxable income, and whether we have a recent history of losses. The valuation
allowance can be affected by changes to tax regulations, interpretations and rulings, changes to enacted statutory tax
rates, and changes to future taxable income estimates.
Our effective tax rate reflects the impact of certain undistributed foreign earnings for which we have not provided
U.S. taxes because we plan to reinvest such earnings indefinitely outside the U.S. We plan foreign earnings remittance
amounts based on projected cash flow needs, as well as the working capital and long-term investment requirements
of our foreign subsidiaries and our domestic operations. Based on these assumptions, we estimate the amount we
will distribute to the U.S. and accrue U.S. federal taxes on these planned foreign remittance amounts. Material changes
in our estimates of cash, working capital and long-term investment requirements in the various jurisdictions in which
we do business could impact our effective tax rate. Our provision for income taxes could be adversely impacted by
changes in our geographic mix of earnings or changes in the enacted tax rates in the jurisdictions in which we conduct
our business.
The calculation of our deferred and other tax balances involves significant management judgment when dealing
with uncertainties in the application of complex tax regulations and rulings in a multitude of taxing jurisdictions across
our global operations. The Company is routinely audited by U.S. federal, state and foreign tax authorities, the results
of which could result in proposed assessments against the Company. We recognize potential liabilities and record tax
liabilities for anticipated tax audit issues based on our estimate of whether, and to the extent to which, additional taxes
will be due. Furthermore, we recognize the tax benefit from an uncertain tax position only if it is more likely than not
that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the
position in consideration of applicable tax statutes and related interpretations and precedents and the expected outcome
of the proceedings (or negotiations) with the taxing authorities. Tax benefits recognized in the financial statements
from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized
on ultimate settlement.
We adjust our liability for uncertain tax positions in light of changing facts and circumstances; however, the ultimate
resolution of a tax examination may differ from the amounts recorded in the financial statements for a number of
reasons, including the Company’s decision to settle rather than litigate a matter, relevant legal precedent related to
similar matters, and the Company’s success in supporting its filing positions with the tax authorities. If our estimate of
tax liabilities proves different than the ultimate outcome, such differences will affect the provision for income taxes in
the period in which such determination is made.
Postretirement Plans
ITT sponsors numerous defined benefit pension and other postretirement benefit plans for employees around the
world (collectively, postretirement benefit plans). Postretirement benefit obligations for domestic plans are generally
determined on a flat dollar benefit formula and years of service. Foreign plan benefit obligations are primarily determined
based on participant years of service, future compensation, and age at retirement or termination. The determination
55
of projected benefit obligations and the recognition of expenses related to postretirement benefit plans are dependent
on various assumptions that are judgmental and developed in consultation with our actuaries and other advisors. The
assumptions involved in the measurement of our postretirement benefit plan obligations and net periodic postretirement
costs primarily relate to discount rates, long-term expected rates of return on plan assets, and mortality and termination
rates. Actual results that differ from our assumptions are accumulated and are amortized over the estimated future
working life, or remaining lifetime, of the plan participants depending on the nature of the retirement plan.
Significant Assumptions
Management develops each assumption using relevant Company experience, in conjunction with market-related
data for each individual country in which such plans exist. All assumptions are reviewed with external advisors and
adjusted as necessary. The table included below provides the weighted average assumptions used to estimate our
defined benefit pension obligations and costs as of and for the years ended 2013 and 2012.
Obligation Assumptions:
Discount rate
Cost Assumptions:
Discount rate
Expected return on plan assets
2013
2012
U.S.
Int’l
U.S.
Int’l
4.8%
3.2%
4.1%
3.1%
4.1%
8.0%
3.1%
4.7%
4.8%
8.0%
4.8%
4.7%
The assumed discount rates reflect our expectation of the present value of expected future cash payments for
benefits at the measurement date. A decrease in the discount rate increases the present value of benefit obligations
and increases net periodic postretirement cost. We base the discount rate assumption on investment yields of high-
quality fixed income securities at the measurement date during the benefit payment period. The discount rates were
determined by considering an interest rate yield curve comprised of high quality corporate bonds, with maturities
between zero and thirty years. Annual benefit payments are then discounted to present value using this yield curve to
develop a single-point discount rate matching the plan’s expected payment characteristics. Our weighted average
discount rate for all postretirement benefit plan obligations, including foreign affiliate plans, at December 31, 2013 is
4.5%.
We determine our expected return on plan assets by evaluating both historical returns and estimates of future
returns. Specifically, we estimate future returns based on independent estimates of asset class returns weighted by
the target investment allocation and evaluate historical broad market returns over long-term time frames based on our
target asset allocation, which is detailed in Note 17, “Postretirement Benefit Plans,” to the Consolidated Financial
Statements. Based on this approach, our weighted average expected return on plan assets for all postretirement
benefit plans, including foreign affiliate plans, at December 31, 2013 is 8.0%.
Prior to the Distribution of Exelis and Xylem, the Company’s U.S. postretirement plans participated in a master
trust that invested in asset classes that historically generated asset returns in excess of the expected long-term rate
of return on plan assets. With the distribution of certain postretirement benefit plans and their respective plan assets
to Exelis and Xylem, we developed a new target asset allocation that is expected to generate a lower level of returns
on plan assets than were realized in the past. Accordingly, in 2012, we reduced our long-term expected rate of return
on plan assets. For postretirement plans that participate in the current master trust and participated in the master trust
distributed to Exelis, the chart below shows actual returns compared to the expected long-term returns for our
U.S. postretirement plans that were utilized in the calculation of the net periodic postretirement cost for each respective
year.
Expected long-term rate of return on plan assets
Actual rate of return on plan assets
2013
8.0%
14.2%
2012
8.0%
11.1%
2011
9.0 %
(3.2)%
For the recognition of net periodic postretirement cost, the calculation of the expected return on plan assets is
generally derived using a market-related value of plan assets based on average asset values at the measurement
date over the last five years. The use of fair value, rather than a market-related value, of plan assets could materially
affect net periodic postretirement cost.
56
Assumption Sensitivity
We estimate that every twenty-five basis point change in the discount rate impacts net periodic postretirement
costs by approximately $0.7 and the funded status of our postretirement benefit plans by approximately $15.2. We
estimate that every twenty-five basis point change in the expected rate of return on plan assets impacts net periodic
postretirement costs by approximately $0.7. Similarly, every five percentage point change in the fair value of plan
assets impacts the funded status by approximately $13.9.
Goodwill and Other Intangible Assets
We review goodwill and indefinite-lived intangible assets for impairment annually and whenever events or changes
in circumstances indicate the carrying value of an asset may not be recoverable. We also review the carrying value
of our finite-lived intangible assets for potential impairment when impairment indicators arise. We conduct our annual
impairment tests as of the first day of the fourth quarter. When reviewing for impairment, we may opt to make an initial
qualitative evaluation, which considers present events and circumstances, to determine the likelihood of impairment.
If the likelihood of impairment is not considered to be more likely than not, then no further testing is performed. We
perform a two-step impairment test for goodwill. In the first step, we compare the estimated fair value of each reporting
unit to its carrying value. If the estimated fair value of the reporting unit exceeds the carrying value of the net assets
assigned to that reporting unit, goodwill is not impaired and we are not required to perform further testing. If the carrying
value of the net assets assigned to the reporting unit exceeds its fair value, then we must perform the second step of
the impairment test in order to measure the impairment loss to be recorded, if any. If the carrying value of a reporting
unit’s goodwill exceeds its implied fair value, then we record an impairment loss equal to the difference. In our annual
impairment test for indefinite-lived intangible assets, we compare the fair value of those assets to their carrying value.
We recognize an impairment loss when the estimated fair value of the indefinite-lived intangible asset is less than its
carrying value.
We estimate the fair value of our reporting units using an income approach. Under the income approach, we
calculate fair value based on the present value of estimated future cash flows. We estimate the fair value of our
indefinite-lived intangible assets using the relief from royalty method. The relief from royalty method estimates the
portion of a company’s earnings attributable to an intellectual property asset based on an assumed royalty rate that
the company would have paid had the asset not been owned.
Determining the fair value of a reporting unit or an indefinite-lived intangible asset is judgmental in nature and
involves the use of significant estimates and assumptions, particularly related to future operating results and cash
flows. These estimates and assumptions include, but are not limited to, revenue growth rates and operating margins
used to calculate projected future cash flows, risk-adjusted discount rates, assumed royalty rates, future economic
and market conditions and the identification of appropriate market comparable data. In addition, the identification of
reporting units and the allocation of assets and liabilities to the reporting units when determining the carrying value of
each reporting unit also requires judgment. Goodwill is tested for impairment at the reporting unit level, which, based
on the applicable accounting guidance, is either the operating segment or one level below (e.g., the divisions of our
Control Technology segment). The fair value of our reporting units and indefinite-lived intangible assets are based on
estimates and assumptions that are believed to be reasonable. Significant changes to these estimates and assumptions
could adversely impact our conclusions. Actual future results may differ from those estimates. Further, had different
reporting units been identified or had different valuation techniques or assumptions been utilized, the results of our
impairment tests could have resulted in an impairment loss, which could have been material.
The 2013 annual goodwill impairment test indicated that the fair value of each reporting unit was significantly in
excess of its respective carrying value. The reporting unit with the lowest passing margin as of the 2013 goodwill
impairment test had $37.0 of goodwill and had a passing margin of 61%. Accordingly, no reporting unit with significant
goodwill was considered to be at risk of failing step one of the goodwill impairment test. In order to evaluate the
sensitivity of the fair value estimates on the goodwill impairment test, we applied a hypothetical 100 basis point increase
to the discount rates utilized, a ten percent reduction in expected future cash flows, and reduced the assumed future
growth rates of each reporting unit by 100 basis points. These hypothetical changes did not result in any reporting unit
failing step one of the impairment test.
Further, our 2013 annual indefinite-lived intangible asset impairment test did not result in an impairment charge
as the estimated fair value of the assets exceeded their carrying values. For one indefinite-lived intangible asset, we
performed a qualitative assessment of the asset’s recoverability due to the significant amount by which the asset’s fair
value has historically exceeded its carrying value. As a result of this assessment, it was determined that it was not
more likely than not that the asset was impaired and a quantitative test was not performed.
57
Environmental Liabilities
We are subject to various federal, state, local and foreign environmental laws and regulations that require
environmental assessment or remediation efforts. Accruals for environmental exposures 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. Significant judgment is required to determine both the
likelihood of a loss and the estimated amount of loss. Engineering studies, probability techniques, historical experience
and other factors are used to identify and evaluate remediation alternatives and their related costs in estimating our
reserve for environmental liabilities. Our environmental reserve of $94.6 at December 31, 2013, represents
management’s estimate of undiscounted costs expected to be incurred related to environmental assessment or
remediation efforts, as well as related legal fees, without regard to potential recoveries from insurance companies or
other third parties. Our estimated liability is reduced to reflect the participation of other potentially responsible parties
in those instances where it is probable that such parties are legally responsible and financially capable of paying their
respective share of the relevant costs. Our environmental accruals are reviewed and adjusted for progress of
investigation and remediation efforts and as additional technical or legal information become available, such as the
impact of negotiations with regulators and other potentially responsible parties, settlements, rulings, advice of legal
counsel, and other current information.
We closely monitor our environmental responsibilities, together with trends in the environmental laws.
Environmental remediation reserves are subject to numerous inherent uncertainties that affect our ability to estimate
our share of the costs. Such uncertainties involve incomplete information regarding particular sites and other potentially
responsible parties, uncertainty regarding the nature and extent of contamination at each site, the extent of remediation
required under existing regulations, our share of any remediation liability, if any, widely varying cost estimates associated
with potential alternative remedial approaches, the length of time required to remediate a particular site, the potential
effects of continuing improvements in remediation technology, and changes in environmental standards and regulatory
requirements. While environmental laws and regulations are subject to change, the nature of such change is inherently
unpredictable and the timing of potential changes is uncertain. The effect of legislative or regulatory changes on
environmental standards could be material to the Company’s financial statements. Additionally, violations by us of such
laws and regulations, discovery of previously unknown or more extensive contamination, litigation involving
environmental impacts, our inability to recover costs associated with any such developments, or financial insolvency
of other potentially responsible parties could have a material adverse effect on our financial statements.
Although it is not possible to predict with certainty the ultimate costs of environmental remediation, the reasonably
possible range of our estimated environmental liability at December 31, 2013 was $73.3 to $168.0.
Recent Accounting Pronouncements
See Note 2, “Recent Accounting Pronouncements,” in the Notes to the Consolidated Financial Statements for a
complete discussion of recent accounting pronouncements. There were no new pronouncements which we expect to
have a material impact on our financial statements in future periods.
58
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of our global operating and financing activities, we are exposed to market risks from changes in foreign
currency exchange rates, interest rates, and commodity prices, which may adversely affect our operating results and
financial position. The impact from changes in market conditions is generally minimized through our normal operating
and financing activities. However, we may use derivative instruments, primarily forward contracts, interest rate swaps
and futures contracts, to manage some of these exposures. We do not use derivative financial instruments for trading
or other speculative purposes. To minimize the risk of counterparty non-performance, derivative instruments are entered
into with major financial institutions and there is no significant concentration with any one counterparty. A summary of
our accounting policies for derivatives is included in Note 1, “Description of Business, Basis of Presentation and
Summary of Significant Accounting Policies,” to the Consolidated Financial Statements.
Foreign Currency Exchange Rate Exposures
Our foreign currency exchange rate risk relates to receipts from customers, payments to suppliers and intercompany
transactions denominated in foreign currencies. As of December 31, 2013, we had a total of three derivative contracts
in place with an aggregate notional amount of $13.1 and related net fair value less than $0.1. These forward contracts
are all short-term in duration, generally maturing within three months from contract date. The derivative contracts offset
specific risks related to receipts from customers and intercompany transactions. Our principal currency exposures
relate to the Euro, Chinese Renminbi, South Korean Won, Hong Kong Dollar, Mexican Peso, British Pound, Czech
Koruna, Brazilian Real, Australian Dollar and Canadian Dollar. We estimate that a hypothetical 10% adverse movement
in foreign currency rates to which we are exposed would not be material to our financial statements.
Effective January 1, 2010, Venezuela was determined to be a highly inflationary economy and we changed the
functional currency of our operations in Venezuela to the U.S. dollar. On February 8, 2013, Venezuela announced a
devaluation of the Bolivar which resulted in our recognition of a $1.2 remeasurement charge. Given our limited presence
in Venezuela, the devaluation, as well as the highly inflationary accounting treatment has not resulted in, nor is it
expected to have, a material impact on our financial statements.
Interest Rate Exposures
As of December 31, 2013, we do not have a material exposure to interest rate risk as our outstanding long-term debt
is $8.9 and a significant portion is fixed rate in nature.
As of December 31, 2013, we had four interest rate swaps outstanding with an aggregate notional amount of $11.9
and a fair value of $0.6. These interest rate swap agreements modify our exposure to interest rate risk by converting
a portion of the floating-rate debt to a fixed rate. Changes in the fair value of the interest rate swaps are recorded in
earnings as the interest rate swaps do not qualify for hedge accounting.
We issue commercial paper, which exposes us to changes in interest rates. As of December 31, 2013, we had a
$38.0 outstanding commercial paper balance with an associated weighted average interest rate of 0.44%. We do not
account for our long-term debt using the fair value option.
Commodity Price Exposures
Portions of our business are exposed to volatility in the prices of certain commodities, such as steel, gold, copper,
nickel, iron, aluminum and tin, as well as specialty alloys, including titanium. Our primary exposure to commodity price
volatility resides with the use of these materials in purchased component parts. We generally maintain long-term fixed
price contracts on raw materials and component parts; however, we are prone to exposure as these contracts expire.
We evaluate hedging opportunities to mitigate or minimize the risk of operating margin erosion resulting from the
volatility of commodity prices. We estimate that a hypothetical 10% adverse movement in prices for raw metal
commodities would not be material to the financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
59
ITEM 9A.
CONTROLS AND PROCEDURES
Attached as exhibits to the Form 10-K are certifications of the Company’s Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), which are required in accordance with Rule 13a-14 of the Exchange Act of 1934 (Act), as
amended.
(a) Evaluation of Disclosure Controls and Procedures
The Company, with the participation of various levels of management, including the CEO and CFO, conducted an
evaluation of effectiveness of the design and operation of our disclosure controls and procedures (as defined in the
Rules 13a-15(e) and 15d-15(e) of the Act) as of December 31, 2013. Based on such evaluation, such officers have
concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures
are effective.
The Company's Disclosure Committee has the responsibility of considering and evaluating the materiality of
information and reviewing disclosure obligations on a timely basis. The Disclosure Committee meets regularly and
assists the CEO and the CFO in designing, establishing, reviewing and evaluating the Company’s disclosure controls
and procedures.
(b) Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Act. The Company’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with accounting principles generally accepted
in the United States of America.
Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, completely, accurately and fairly reflect the transactions and dispositions of the
Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of the financial statements in accordance with accounting principles generally accepted in the United States of America;
(iii) provide reasonable assurance that Company receipts and expenditures are made only in accordance with the
authorization of management and the directors of the Company, and (iv) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect
on the Consolidated Financial Statements. Internal control over financial reporting includes the controls themselves,
monitoring and internal auditing practices and actions taken to correct deficiencies as identified.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2013. Management based this assessment on criteria for effective internal control over financial reporting
described in the 1992 “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations
(COSO) of the Treadway Commission. Management’s assessment included an evaluation of the design of the
Company’s internal control over financial reporting and testing of the operational effectiveness of its internal control
over financial reporting. Management reviewed the results of its assessment with the Audit Committee of our Board
of Directors.
Based on this assessment, management determined that, as of December 31, 2013, the Company maintained
effective internal control over financial reporting.
The Company’s management, including the CEO and the CFO, does not expect that our internal controls over
financial reporting, because of inherent limitations, will prevent or detect all errors and all fraud. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management’s assessment, included herein, should be read in conjunction with the certifications and the report
issued by Deloitte & Touche LLP (Deloitte & Touche), an independent registered public accounting firm, as stated in
their report, which appears subsequent to Item 9B in this Annual Report on Form 10-K.
(c) Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the last fiscal quarter that have
materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
60
ITEM 9B.
OTHER INFORMATION
Disclosure pursuant to Section 219 of the Iran Threat Reduction & Syria Human Rights Act (ITRA)
This disclosure is made pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012
which added a new subsection (r) to section 13 of the Exchange Act (Section 13(r)) requiring a public reporting issuer
to disclose in its annual or quarterly reports whether it or any affiliates have knowingly engaged in specified activities
or transactions relating to Iran, including activities conducted outside the United States by non-U.S. affiliates in
compliance with local law.
In its 2012 Annual Report, ITT described its acquisition of all the shares of Bornemann in November 2012, as well
as certain activities of Bornemann in Iran and the wind down of those activities in accordance with a General License
issued on December 26, 2012 (the General License) by the OFAC. As permitted by the General License, on or before
March 8, 2013, Bornemann completed the wind-down activities and ceased all activities in Iran. As required to be
disclosed by Section 13(r), the gross revenues and operating income to Bornemann from its Iranian activities
subsequent to its acquisition by ITT were Euros 2.2 million and Euros 1.5 million, respectively. Prior to its acquisition
by ITT, Bornemann issued a performance bond to its Iranian customer in the amount of Euros 1.3 million (the Bond).
Bornemann requested that the Bond be cancelled prior to March 8, 2013; however, the former customer refused this
request and as a result the Bond has remained outstanding. Bornemann did not receive gross revenues or operating
income, or pay interest, with respect to the performance bond in 2013, however, Bornemann did pay fees in 2013 of
approximately Euros 43 thousand to the German financial institution which is maintaining the performance bond.
61
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
ITT Corporation
White Plains, New York
We have audited the internal control over financial reporting of ITT Corporation and subsidiaries (the “Company”)
as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and effected by
the company's board of directors, management, and other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have
a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial
reporting to future periods are subject to the risk that the controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2013, based on the criteria established in Internal Control - Integrated Framework (1992) issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements as of and for the year ended December 31, 2013 of the Company
and our report dated February 21, 2014 expressed an unqualified opinion on those financial statements.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
February 21, 2014
62
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by this Item 10 is incorporated by reference from the information provided under the sections
entitled “Matters to be Considered at the Annual Meeting-Proposal 1. Election of Directors,” “Corporate Governance
and Related Matters-Board and Committee Membership-Audit Committee,” “Other Matters-Section 16(a) Beneficial
Ownership Reporting Compliance,” and “Audit Committee Report” in our Proxy Statement for the 2014 Annual Meeting
of Shareholders (the “2014 Proxy Statement”).
Information required by this Item 10 with respect to executive officers of the Company is contained under the
heading “Executive Officers of the Company” in Part I of this Form 10-K.
ITT has adopted corporate governance principles and charters for each of its standing committees. The principles
address director qualification standards, election and selection of an independent presiding director, as well as
responsibilities, access to management and independent advisors, compensation, orientation and continuing
education, management succession principles and board and committee self-evaluation. The corporate governance
principles and charters are available on the Company’s website at www.itt.com/investors/governance/. A copy of the
corporate governance principles and charters is also available to any shareholder who requests a copy from the
Company’s secretary.
ITT has also adopted a written code of ethics, the “Code of Conduct,” which is applicable to all directors, employees
and officers (including the Company’s principal executive officer, principal financial officer, principal accounting officer
or controller, or person performing similar functions). The Company’s Code of Conduct is available on our website at
www.itt.com. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment
to, or waiver from, a provision of our Code of Conduct by posting such information on our website at www.itt.com.
Pursuant to New York Stock Exchange (NYSE) Listing Company Manual Section 303A.12(a), the Company
submitted a Section 12(a) CEO Certification to the NYSE in 2013. The Company also filed with the SEC, as exhibits
to the Company’s current Annual Report on Form 10-K, the certifications required under Section 302 of the Sarbanes-
Oxley Act for its Chief Executive Officer and Chief Financial Officer.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 is incorporated by reference to the discussion under the headings “2013 Non-
Management Director Compensation,” “Executive Compensation,” “Compensation Discussion and Analysis,”
“Compensation Committee Report” and “Corporate Governance and Related Matters-Compensation Committee
Interlocks and Insider Participation” in our 2014 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by this Item 12 is incorporated by reference to the discussion under the caption “Stock
Ownership of Directors and Executive Officers,” “Beneficial Ownership of ITT Common Stock” and “Equity
Compensation Plan Information” in our 2014 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Information required by this item is incorporated by reference to the discussions under the captions “Corporate
Governance and Related Matters-Policies for Approving Related Party Transactions” and “Corporate Governance and
Related Matters-Director Independence,” in our 2014 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information about the fees for 2013 and 2012 for professional services rendered by our independent registered
public accounting firm is incorporated by reference to the discussion under the heading “Proposal 2. Ratification of
Appointment of the Independent Registered Public Accounting Firm” of our 2014 Proxy Statement. Our Audit
Committee’s policy on pre-approval of audit and permissible non-audit services of our independent registered public
accounting firm is also incorporated by reference to the discussion under the heading “Proposal 2. Ratification of
Appointment of the Independent Registered Public Accounting Firm” of our 2014 Proxy Statement.
63
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as a part of this report:
1. See Index to Consolidated Financial Statements appearing on page 64 for a list of the financial statements
filed as a part of this report.
2. See Exhibit Index beginning on pages II-3 for a list of the exhibits filed or incorporated herein as a part of this
report.
(b) Financial Statement Schedules are omitted because of the absence of the conditions under which they are
required or because the required information is included in the Consolidated Financial Statements filed as part
of this report.
64
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2013, 2012 and
2011
Notes to Consolidated Financial Statements:
Note 1 – Description of Business, Basis of Presentation and Summary of Significant Accounting Policies
Note 2 – Recent Accounting Pronouncements
Note 3 – Acquisitions
Note 4 – Discontinued Operations
Note 5 – Restructuring Actions
Note 6 – Company Transformation
Note 7 – Income Taxes
Note 8 – Earnings Per Share
Note 9 – Receivables, Net
Note 10 – Inventories, Net
Note 11 – Other Current and Non-Current Assets
Note 12 – Plant, Property and Equipment, Net
Note 13 – Goodwill and Other Intangible Assets, Net
Note 14 – Accrued Liabilities and Other Non-Current Liabilities
Note 15 – Leases and Rentals
Note 16 – Debt
Note 17 – Postretirement Benefit Plans
Note 18 – Long-Term Incentive Employee Compensation
Note 19 – Capital Stock
Note 20 – Commitments and Contingencies
Note 21 – Guarantees, Indemnities and Warranties
Note 22 – Segment Information
Supplemental Financial Data:
Selected Quarterly Financial Data (Unaudited)
PAGE
66
67
68
69
70
71
72
72
78
79
80
83
84
84
88
88
89
89
89
90
91
91
92
93
101
105
105
111
112
114
114
65
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
ITT Corporation
White Plains, New York
We have audited the accompanying consolidated balance sheets of ITT Corporation and subsidiaries (the
“Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive
income, cash flows, and changes in shareholders’ equity for each of the three years in the period ended December 31,
2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position
of ITT Corporation and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2013, based on the criteria
established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated February 21, 2014 expressed an unqualified opinion on the
Company’s internal control over financial reporting.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
February 21, 2014
66
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31
Revenue
Costs of revenue
Gross profit
Sales and marketing expenses
General and administrative expenses
Research and development expenses
Asbestos-related costs, net
Transformation costs
Operating income (loss)
Interest expense
Interest income
Miscellaneous expense (income), net
Income (loss) from continuing operations before income tax
Income tax (benefit) expense
Income (loss) from continuing operations
Income from discontinued operations, net of tax
Net income (loss)
Less: Income attributable to noncontrolling interests
ITT CORPORATION AND SUBSIDIARIES
2013
$ 2,496.9
1,697.1
2012
$ 2,227.8
1,547.6
2011
$ 2,085.6
1,440.6
799.8
216.2
297.7
67.3
32.8
2.2
183.6
6.3
5.0
1.8
180.5
(309.6)
490.1
0.8
490.9
2.4
680.2
180.4
221.7
62.7
50.9
13.0
151.5
0.1
2.8
5.1
149.1
39.6
109.5
15.9
125.4
—
645.0
163.6
166.3
63.5
100.4
396.1
(244.9)
76.4
4.1
(1.3)
(315.9)
260.6
(576.5)
447.0
(129.5)
—
Net income (loss) attributable to ITT Corporation
$ 488.5
$ 125.4
$ (129.5)
Amounts attributable to ITT Corporation:
Income (loss) from continuing operations, net of tax
$ 487.7
$ 109.5
$ (576.5)
Income from discontinued operations, net of tax
Net income (loss)
0.8
15.9
447.0
$ 488.5
$ 125.4
$ (129.5)
Earnings (loss) per share attributable to ITT Corporation:
Basic Earnings Per Share:
Continuing operations
Discontinued operations
Net income (loss)
Diluted Earnings Per Share:
Continuing operations
Discontinued operations
Net income (loss)
Weighted average common shares – basic
Weighted average common shares – diluted
$
$
$
$
5.36
0.01
5.37
5.28
0.01
5.29
91.0
92.3
$
$
$
$
1.18
0.17
1.35
1.16
0.17
1.33
93.0
94.1
$
$
$
$
(6.22)
4.82
(1.40)
(6.22)
4.82
(1.40)
92.8
92.8
Cash dividends declared per common share
$
0.40
$ 0.364
$ 1.591
The accompanying Notes to Consolidated Financial Statements are an integral part of the above statements of operations.
67
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN MILLIONS)
YEARS ENDED DECEMBER 31
Net income (loss)
Other comprehensive income (loss):
Net foreign currency translation adjustment
Net change in postretirement benefit plans, net of tax impacts of ($38.8),
$0, and $399.0, respectively
Net change in unrealized loss on investment securities, net of tax impacts
of $0, $1.0, and $7.8, respectively
Other comprehensive income (loss)
Comprehensive income (loss)
Less: Comprehensive income attributable to noncontrolling interests
2013
$ 490.9
2012
$ 125.4
2011
$ (129.5)
10.9
66.3
—
77.2
568.1
2.4
4.7
(38.8)
(42.3)
(508.5)
1.0
(36.6)
88.8
—
(12.8)
(560.1)
(689.6)
—
Comprehensive income (loss) attributable to ITT Corporation
$ 565.7
$ 88.8
$ (689.6)
Disclosure of reclassification adjustments and other adjustments to
postretirement benefit plans
Reclassification adjustments:
Amortization of prior service costs, net of tax benefit of $(0.1), $0, and
$(1.0), respectively (See Note 17)
Amortization of net actuarial loss, net of tax benefit of $(4.8), $0, and
$(42.1), respectively (See Note 17)
0.3
8.5
0.8
10.9
1.6
68.7
Other adjustments:
Prior service credit, net of tax expense of $(7.1), $0, and $(1.0),
respectively
Net actuarial gain (loss), net of tax (expense) benefit of $(26.8), $0, and
$443.1, respectively
Unrealized change from foreign currency translation
$ 11.9
$
3.1
$
2.0
46.1
(0.5)
(56.7)
(0.4)
(580.8)
—
Net change in postretirement benefit plans, net of tax
$ 66.3
$ (42.3)
$ (508.5)
Disclosure of reclassification adjustments and other adjustments to
unrealized loss on investment securities
Reclassification adjustments:
Realized losses (gains) arising during the period, net of tax expense of
$0, $1.0, and $6.1, respectively(a)
Other adjustments:
Unrealized holding losses arising during period, net of tax benefit of $0,
$0, and $1.7, respectively
Net change in unrealized loss on investment securities, net of tax
—
—
—
$
$
1.0
(10.0)
$
$
—
1.0
$
(2.8)
$ (12.8)
(a) The reclassification adjustment related to the realized gains from investment securities during 2011 was presented within
general and administrative expenses.
The accompanying Notes to Consolidated Financial Statements are an integral part of the statements of comprehensive income.
68
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31
Assets
Current assets:
Cash and cash equivalents
Receivables, net
Inventories, net
Other current assets
Total current assets
Plant, property and equipment, net
Goodwill
Other intangible assets, net
Asbestos-related assets
Deferred income taxes
Other non-current assets
Total non-current assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
Accrued liabilities
Total current liabilities
Asbestos-related liabilities
Postretirement benefits
Other non-current liabilities
Total non-current liabilities
Total liabilities
Shareholders’ Equity:
Common stock:
Authorized – 250 shares, $1 par value per share (104.0 shares issued(a))
Outstanding – 91.0 shares and 92.1, respectively(a)
Retained earnings
Accumulated other comprehensive loss:
Postretirement benefit plans
Cumulative translation adjustments
Unrealized loss on investment securities
Total ITT Corporation shareholders' equity
Noncontrolling interests
Total shareholders’ equity
2013
2012
$
507.3
496.7
315.9
345.6
$
544.5
440.3
304.2
251.4
1,665.5
1,540.4
426.2
659.8
106.9
433.3
303.6
144.9
2,074.7
373.1
651.4
123.3
525.3
21.4
151.2
1,845.7
$ 3,740.2
$ 3,386.1
$
332.7
499.9
832.6
1,179.6
243.3
277.8
1,700.7
2,533.3
$
347.0
458.3
805.3
1,255.0
330.3
292.3
1,877.6
2,682.9
91.0
1,320.3
(129.2)
(80.8)
(0.3)
1,201.0
5.9
1,206.9
91.9
898.8
(195.5)
(91.7)
(0.3)
703.2
—
703.2
Total liabilities and shareholders’ equity
$ 3,740.2
$ 3,386.1
(a) Shares issued and outstanding include unvested restricted common stock of 0.2 at December 31, 2012. No unvested
restricted common stock was outstanding as of December 31, 2013.
The accompanying Notes to Consolidated Financial Statements are an integral part of the above balance sheets.
69
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
YEARS ENDED DECEMBER 31
Operating Activities
Net income (loss)
Less: income from discontinued operations
Less: income attributable to noncontrolling interests
Income (loss) from continuing operations attributable to ITT Corporation
Adjustments to income (loss) from continuing operations
$
2013
490.9
0.8
2.4
487.7
86.9
13.1
32.8
2.2
(364.0)
(25.4)
(7.1)
(11.9)
(60.7)
(10.7)
4.5
40.5
28.6
10.1
226.6
(122.9)
(240.2)
168.2
0.7
2.3
3.1
(188.8)
25.4
(6.4)
—
34.8
(87.9)
8.7
(36.4)
—
—
3.5
(58.3)
(0.4)
(16.3)
—
—
—
(16.3)
(37.2)
544.5
507.3
—
507.3
$
2012
125.4
15.9
—
109.5
71.1
12.4
50.9
13.0
34.1
(20.1)
(47.3)
(71.0)
(17.7)
(8.7)
(4.3)
(10.1)
84.1
51.2
247.1
(83.8)
(38.2)
—
(193.2)
39.5
1.0
(274.7)
(24.8)
(1.0)
1.3
58.0
(116.8)
6.4
(34.2)
—
—
3.1
(108.0)
(4.0)
(3.2)
(0.1)
(2.4)
—
(5.7)
(145.3)
689.8
544.5
—
544.5
2011
$ (129.5)
447.0
—
(576.5)
71.3
11.5
100.4
396.1
302.4
(22.0)
(355.0)
(30.8)
(71.0)
(37.0)
3.3
34.8
(97.5)
(52.4)
(322.4)
(102.3)
—
—
(15.6)
10.4
1.0
(106.5)
3.5
(1,318.7)
—
60.0
(6.6)
7.2
(193.0)
1,671.0
699.9
(1.0)
922.3
(9.4)
561.2
(467.3)
(527.1)
6.7
(426.5)
57.5
1,032.3
1,089.8
(400.0)
689.8
Depreciation and amortization
Stock-based compensation
Asbestos-related costs, net
Transformation costs
Deferred income taxes
Asbestos-related payments, net
Transformation-related payments
Contributions to postretirement plans
Changes in assets and liabilities (net of acquisitions):
Change in receivables
Change in inventories
Change in accounts payable
Change in accrued expenses
Change in accrued income taxes
Other, net
Net Cash – Operating activities
Investing Activities
Capital expenditures
Purchases of investments
Maturities of investments
Acquisitions, net of cash acquired
Proceeds from sale of discontinued operations and other assets
Other, net
Net Cash – Investing activities
Financing Activities
Short-term debt, net
Long-term debt repaid
Long-term debt issued
Proceeds from issuance of common stock
Repurchase of common stock
Excess tax benefit from equity compensation activity
Dividends paid
Contributions from Exelis and Xylem, net
Distributions of Exelis and Xylem, net
Other, net
Net Cash – Financing activities
Exchange rate effects on cash and cash equivalents
Discontinued operations:
Operating activities
Investing activities
Financing activities
Exchange rate effects on cash and cash equivalents
Net Cash – Discontinued operations
Net change in cash and cash equivalents
Cash and cash equivalents – beginning of year
Cash and cash equivalents – end of year
Less: Cash and cash equivalents distributed to Exelis and Xylem
Cash and Cash Equivalents of Continuing Operations – End of Period
Supplemental Cash Flow Disclosures
Cash paid (received) during the year for:
Interest
Income taxes, net of refunds received
The accompanying Notes to Consolidated Financial Statements are an integral part of the above statements of cash flows.
70
0.9
21.9
$
2.3
$ (100.9)
80.2
140.0
$
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
ITT CORPORATION AND SUBSIDIARIES
(IN MILLIONS)
YEARS ENDED DECEMBER 31
Common Stock
Common stock, beginning balance
Activity from stock incentive plans
Share repurchases
Common stock, ending balance
Retained Earnings
Retained earnings, beginning balance
Net income (loss)
Cash dividends declared on common stock
Activity from stock incentive plans
Share repurchases
Distribution of Exelis and Xylem
Purchase of noncontrolling interest
Retained earnings, ending balance
Accumulated Other Comprehensive Loss
Postretirement benefit plans, beginning balance
Net change in postretirement benefit plans
Distribution of Exelis and Xylem
Postretirement benefit plans, ending balance
Cumulative translation adjustment, beginning balance
Net cumulative translation adjustment
Distribution of Exelis and Xylem
Cumulative translation adjustments, ending balance
Unrealized (loss) gain on investment securities,
beginning balance
Net change in unrealized gain (loss) on investment
securities
Unrealized (loss) gain on investment securities, ending
balance
Total accumulated other comprehensive loss
Noncontrolling Interests
Noncontrolling interests, beginning balance
Reclassification of noncontrolling interests
Income attributable to noncontrolling interests
Other
Noncontrolling interests, ending balance
Total Shareholders’ Equity
Total shareholders’ equity, beginning balance
Net change in common stock
Net change in retained earnings
Net change in accumulated other comprehensive loss
Net change in noncontrolling interests
Total shareholders’ equity, ending balance
SHARES
2012
2013
2011
2013
DOLLARS
2012
91.9
2.3
(3.2)
91.0
93.1
4.0
(5.2)
91.9
91.5 $
1.7
(0.1)
93.1 $
91.9 $ 93.1 $
2.3
(3.2)
91.0 $ 91.9 $
4.0
(5.2)
2011
91.5
1.7
(0.1)
93.1
$ 898.8 $ 852.6 $ 5,441.9
(129.5)
125.4
(147.2)
(34.2)
103.4
74.1
(6.5)
(111.6)
(4,409.5)
(7.3)
—
(0.2)
852.6
488.5
(36.7)
54.4
(84.7)
—
—
$ 1,320.3 $ 898.8 $
$ (195.5) $ (153.2) $(1,359.5)
(508.5)
— 1,714.8
$ (129.2) $ (195.5) $ (153.2)
66.3
—
(42.3)
$
$
$
(91.7) $ (96.4) $
10.9
—
4.7
—
(80.8) $ (91.7) $
275.8
(38.8)
(333.4)
(96.4)
(0.3) $
(1.3) $
11.5
—
1.0
(12.8)
(0.3) $
(1.3)
$
$ (210.3) $ (287.5) $ (250.9)
(0.3) $
$
$
— $
3.9
2.4
(0.4)
5.9 $
— $
—
—
—
— $
—
—
—
—
—
$ 703.2 $ 694.8 $ 4,461.2
1.6
(4,589.3)
821.3
—
694.8
(0.9)
421.5
77.2
5.9
(1.2)
46.2
(36.6)
—
$ 1,206.9 $ 703.2 $
The accompanying Notes to Consolidated Financial Statements are an integral part of the above statements of changes in shareholders’ equity.
71
ITT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS AND SHARE AMOUNTS IN MILLIONS, UNLESS OTHERWISE STATED)
NOTE 1
DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Description of Business
ITT Corporation 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 Corporation and its subsidiaries.
ITT operates through four segments: Industrial Process consisting of industrial pumping and complementary equipment;
Motion Technologies consisting of friction and shock & vibration equipment; Interconnect Solutions (ICS) consisting
of electronic connectors; and Control Technologies consisting of fluid handling, motion control and vibration and shock
isolation products. Financial information for our segments is presented in Note 22, “Segment Information.”
Basis of Presentation
The Consolidated Financial Statements and Notes thereto were prepared in conformity with accounting principles
generally accepted in the United States of America (GAAP).
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 and recoveries from
insurers, allowance for doubtful accounts and inventory valuation. Actual results could differ from these estimates.
Certain prior year amounts have been reclassified to conform to the current year presentation, as described within
these Notes to the Consolidated Financial Statements.
Significant Accounting Policies
Principles of Consolidation
Our consolidated financial statements include the accounts of all majority-owned subsidiaries. ITT consolidates
companies in which it has a controlling financial interest or when ITT is considered the primary beneficiary of a variable
interest entity. We account for investments in companies over which we have the ability to exercise significant influence,
but do not hold a controlling interest under the equity method, and we record our proportionate share of income or
losses in the Consolidated Statements of Operations. The results of companies acquired or disposed of during the
fiscal year are included in the Consolidated Financial Statements from the effective date of acquisition or up to the
date of disposal or distribution. All intercompany transactions have been eliminated.
Revenue Recognition
Revenue is derived from the sale of products and services to customers. The following revenue recognition policies
describe the manner in which we account for different classes of revenue transactions.
Revenue is recognized when persuasive evidence of an arrangement exists, the sales price is fixed or determinable,
collectability is reasonably assured and delivery has occurred or services have been rendered. For product sales,
other than long-term construction and production-type contracts (referred to as design and build arrangements), we
recognize revenue at the time title and risks and rewards of ownership pass to the customer, which is generally when
products are shipped, and the contractual terms have been fulfilled. Certain contracts with customers require delivery,
installation, testing, certification or other acceptance provisions to be satisfied before revenue is recognized. In instances
where contractual terms include a provision for customer acceptance, revenue is recognized when either (i) we have
previously demonstrated that the product meets the specified criteria based on either seller or customer-specified
objective criteria or (ii) on formal acceptance received from the customer where the product has not been previously
demonstrated to meet customer-specified objective criteria.
We recognize revenue on product sales to channel partners, including resellers, distributors or value-added solution
providers at the time of sale when the channel partners have economic substance apart from ITT and ITT has completed
its obligations related to the sale. Revenue on service and repair contracts is recognized after services have been
agreed to by the customer and rendered or over the service period.
72
ITT CORPORATION AND SUBSIDIARIES
For multiple deliverable arrangements, we recognize revenue based on the relative selling price if the deliverable
has stand-alone value to the customer and, in arrangements that include a general right of return relative to the delivered
element, performance of the undelivered element is considered probable and substantially in the Company’s control.
The selling price for a deliverable is based on vendor-specific objective evidence of selling price (VSOE), if available,
third-party evidence of selling price (TPE), if VSOE is not available, or best estimated selling price (BESP), if neither
VSOE nor TPE is available.
The deliverables in our arrangements with multiple elements include various products and may include related
services, such as installation and start-up services. We allocate arrangement consideration based on the relative
selling prices of the separate units of accounting determined in accordance with the hierarchy described above. For
deliverables that are sold separately, we establish VSOE based on the price when the deliverable is sold separately.
We establish TPE, generally for services, based on prices similarly situated customers pay for similar services from
third party vendors. For those deliverables for which we are unable to establish VSOE or TPE, we estimate the selling
price considering various factors including market and pricing trends, geography, product customization, and profit
objectives. Revenue for multiple element arrangements is recognized when the appropriate revenue recognition criteria
for the individual deliverable have been satisfied.
We recognize revenue on certain design and build projects using the completed contract method. Amounts invoiced
to customers in excess of revenue recognized are recorded as a reduction of inventory to the extent project costs have
accumulated within inventory or as deferred revenue, within accrued liabilities, until the revenue recognition criteria
are satisfied.
During the performance of design and build arrangements, estimated final contract prices and costs are reviewed
quarterly. Provisions for estimated losses on uncompleted design and build arrangements are recognized in the period
in which such losses are determined. Provisions for estimated losses are recorded as a component of costs of revenue.
We record a reduction in revenue at the time of sale for estimated product returns, rebates and other allowances,
based on historical experience and known trends.
Revenue is reported net of any required taxes collected from customers and remitted to government authorities,
with the collected taxes recorded as current liabilities until remitted to the relevant government authority.
Shipping and Handling Costs
Shipping and handling costs are recorded as a component of costs of revenue.
Product Warranties
Our standard product warranty terms generally include post-sales support and repairs or replacement of a product
at no additional charge for a specified period of time. Accruals for estimated expenses related to product warranties
are made at the time revenue is recognized and are recorded as a component of costs of revenue. We estimate the
liability for warranty claims based on our standard warranties, the historical frequency of claims and the cost to replace
or repair our products under warranty. Factors that influence our warranty liability include the number of units sold, the
length of warranty term, historical and anticipated rates of warranty claims and the cost per claim.
Asbestos-Related Liabilities and Assets
ITT has been named as a defendant in numerous product liability lawsuits alleging personal injury due to asbestos
exposure. We accrue the estimated value of pending claims and unasserted claims estimated to be filed over the next
10 years, including legal fees, on an undiscounted basis. Assumptions utilized in estimating the liability for both pending
and unasserted claims include: disease type, average settlement costs, percentage of claims settled or dismissed,
the number of claims estimated to be filed against the Company in the future and the costs to defend such claims.
The Company has also recorded an asbestos-related asset, composed of insurance receivables. The asbestos-
related asset represents our best estimate of probable recoveries from third parties for pending claims, as well as
unasserted claims estimated to be filed over the next 10 years. In developing this estimate, the Company considers
coverage-in-place and other settlement agreements with its insurers, as well as a review of expected levels of future
cost recovery, the financial viability of the insurance companies, the method by which losses will be allocated to the
various insurance policies and the years covered by those policies, and interpretation of the various policy and contract
terms and limits and their interrelationships.
In the third quarter each year we conduct an asbestos remeasurement with the assistance of outside consultants
to review and update, as appropriate, the underlying assumptions used to estimate our asbestos liability and related
assets, including a reassessment of the time horizon over which a reasonable estimate of unasserted claims can be
projected. In addition, as part of our ongoing review of our net asbestos exposure, each quarter we assess the most
recent data available for the key inputs and assumptions, comparing the data to the expectations on which the most
recent annual liability and asset estimates were based. Provided the quarterly review does not indicate a more detailed
73
ITT CORPORATION AND SUBSIDIARIES
evaluation of our asbestos exposure is required, each quarter we record a net asbestos expense to maintain a rolling
10-year time horizon.
Postretirement Benefit Plans
ITT sponsors pension and other employee-related defined benefit plans (collectively, postretirement benefit plans)
for employees around the world. Postretirement benefit obligations are generally determined, where applicable, based
on participant years of service, future compensation, and age at retirement or termination. The determination of
projected benefit obligations and the recognition of expenses related to postretirement benefit plans are dependent
on various assumptions that are judgmental. The assumptions involved in the measurement of our postretirement
benefit plan obligations and net periodic postretirement costs primarily relate to discount rates, long-term expected
rates of return on plan assets, mortality and termination rates, and other factors. Management develops each
assumption using relevant Company experience in conjunction with market-related data for each individual country in
which such plans exist. Actual results that differ from our assumptions are accumulated and are amortized over the
estimated future working life, or remaining lifetime, of the plan participants depending on the nature of the retirement
plan. For the recognition of net periodic postretirement cost, the calculation of the long-term expected return on plan
assets is generally derived using a market-related value of plan assets based on yearly average asset values at the
measurement date over the last 5 years.
The fair value of plan assets is estimated based on market prices or estimated fair value at the measurement date.
The funded status of each plan is recorded on our balance sheet. Actuarial gains and losses and prior service
costs or credits that have not yet been recognized through net income are recorded in accumulated other comprehensive
income within shareholders’ equity, net of taxes, until they are amortized as a component of net periodic postretirement
cost.
Research & Development
Research and development (R&D) activities are charged to expense as incurred and are reported as a component
of operating income within the R&D expense line.
Stock-Based Compensation
Stock-based awards issued to employees and non-employee directors include non-qualified stock options,
restricted stock awards, restricted stock units, performance units, and certain liability-based awards. Performance
units include a total shareholder return (TSR) component and a return on invested capital (ROIC) component which
are accounted for as two distinct awards. Compensation costs resulting from share-based payment transactions are
recognized primarily within general and administrative expenses, at fair value over the requisite service period (typically
three years) on a straight-line basis. The amount of compensation recognized includes an adjustment based on an
estimate of awards ultimately expected to vest. The fair value of a non-qualified stock option is determined on the date
of grant using a binomial lattice pricing model incorporating multiple and variable assumptions over time, including
assumptions such as employee exercise patterns, stock price volatility and changes in dividends. The fair value of
restricted stock awards and restricted stock units is determined using the closing price of the Company’s common
stock on date of grant. The fair value of TSR equity awards is measured at grant date using a Monte Carlo simulation,
measuring potential total shareholder return for ITT relative to the other companies in the S&P 400 Capital Goods
Index. The fair value of the ROIC awards was based on the closing price of ITT common stock on the date of grant
less the present value of expected dividend payments during the vesting period. The fair value of our liability-based
awards, including cash awards under our TSR award plan, granted prior to 2013, is measured using a Monte Carlo
simulation and is remeasured at the end of each reporting period.
Restructuring
We periodically initiate management approved restructuring activities to achieve cost savings through reduced
operational redundancies and to strategically position ourselves in the market in response to prevailing economic
conditions and associated customer demand. Costs associated with restructuring actions can include severance,
infrastructure charges to vacate facilities or consolidate operations, contract termination costs and other related
charges. For involuntary separation plans, a liability is recognized when it is probable and reasonably estimable. For
voluntary separation plans, a liability is recognized when the employee irrevocably accepts the voluntary termination.
For one-time termination benefits, such as additional severance pay or benefit payouts, and other exit costs, such as
lease termination costs, the liability is measured and recognized initially at fair value in the period in which the liability
is incurred, with subsequent changes to the liability recognized as adjustments in the period of change. Restructuring
costs are presented within general and administrative expenses.
74
ITT CORPORATION AND SUBSIDIARIES
Income Taxes
We determine the provision for income taxes using the asset and liability approach. Under this approach, deferred
income tax assets and liabilities are determined based on the estimated future tax effects of differences between the
financial reporting and tax bases of assets and liabilities, applying currently enacted tax rates in effect for the year in
which we expect the differences will reverse. The ultimate realization of deferred tax assets is dependent on the
generation of future taxable income (including the reversals of deferred tax liabilities) during the periods in which those
deferred tax assets will become deductible.
We record a valuation allowance against our deferred tax assets when it is more likely than not that all or a portion
of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, the Company considers
all available positive and negative evidence regarding the realizability of its deferred tax assets, including the future
reversal of existing taxable temporary differences, taxable income in carryback periods, prudent and feasible tax
planning strategies, estimated future taxable income, and whether we have a recent history of losses. The valuation
allowance can be affected by changes to tax regulations, interpretations and rulings, changes to enacted statutory tax
rates, and changes to future taxable income estimates.
We have not provided deferred tax liabilities for the impact of U.S. income taxes on undistributed foreign earnings
which we plan to reinvest indefinitely outside the U.S. We plan foreign earnings remittance amounts based on projected
cash flow needs, as well as the working capital and long-term investment requirements of foreign subsidiaries and our
domestic operations.
Furthermore, we recognize the tax benefit from an uncertain tax position only if it is more likely than not that the
tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position in
consideration of applicable tax statutes and related interpretations and precedents and the expected outcome of the
proceedings (or negotiations) with the taxing authorities. Tax benefits recognized in the financial statements from such
a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized on
ultimate settlement.
Earnings Per Share
Basic earnings per common share considers the weighted average number of common shares outstanding, as
well as outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends. Diluted
earnings per share considers the outstanding shares utilized in the basic earnings per share calculation as well as the
dilutive effect of outstanding stock options and restricted stock that do not contain rights to nonforfeitable dividends.
Diluted shares outstanding include the dilutive effect of in-the-money options, unvested restricted stock units and
unvested performance stock units. The dilutive effect of such equity awards is calculated based on the average share
price for each reporting period using the treasury stock method. Common stock equivalents are excluded from the
computation of earnings per share if they have an anti-dilutive effect.
Cash and Cash Equivalents
ITT considers all highly liquid investments purchased with an original maturity or remaining maturity at time of
purchase of three months or less to be cash equivalents. Cash equivalents primarily include fixed-maturity time deposits
and money market investments. We record the fixed maturity time deposits at amortized cost and accrue interest
during the maturity period.
Concentrations of Credit Risk
Financial instruments that potentially subject ITT to significant concentrations of credit risk consist principally of
cash and cash equivalents, accounts receivable from trade customers, investments and derivatives. We maintain cash
and cash equivalents with various financial institutions located in different geographical regions, and our policy is
designed to limit exposure to any individual counterparty. As part of our risk management processes, we perform
periodic evaluations of the relative credit standing of the financial institutions. We have not sustained any material
credit losses during the previous three years from financial instruments held at financial institutions.
Credit risk with respect to accounts receivable is generally diversified due to the large number of entities comprising
ITT’s customer base and their dispersion across many different industries and geographic regions. However, our largest
customer represents approximately 10% of the December 31, 2013 outstanding trade accounts receivable balance.
ITT performs ongoing credit evaluations of the financial condition of its third-party distributors, resellers and other
customers and requires collateral, such as letters of credit and bank guarantees, in certain circumstances.
Allowance for Doubtful Accounts
We determine our allowance for doubtful accounts using a combination of factors to reduce our trade receivables
balances to their estimated net realizable amount. We maintain an allowance for doubtful accounts based on a variety
of factors; including the length of time receivables are past due, macroeconomic trends and conditions, significant
one-time events, historical experience and the financial condition of our customers. We record a specific reserve for
75
ITT CORPORATION AND SUBSIDIARIES
individual accounts when we become aware of specific customer circumstances, such as in the case of bankruptcy
filings or deterioration in the customer’s operating results or financial position. The past due or delinquency status of
a receivable is based on the contractual payment terms of the receivable. If circumstances related to the specific
customer change, we adjust estimates of the recoverability of receivables as appropriate.
Inventories
Inventories, which include the costs of material, labor and overhead, are stated at the lower of cost or market, with
cost generally computed on a first-in, first-out (FIFO) basis. Estimated losses from obsolete and slow-moving inventories
are recorded to reduce inventory values to their estimated net realizable value and are charged to cost of sales. At
the point of loss recognition, a new cost basis for that inventory is established and subsequent changes in facts and
circumstances do not result in a recovery in carrying value. Inventories valued under the last-in, first-out (LIFO) method
represent 15.3% and 16.3% of total 2013 and 2012 inventories, respectively. We have a LIFO reserve of $9.2 and
$8.1 recorded as of December 31, 2013 and 2012, respectively.
Cost of sales is generally reported using standard cost techniques with full overhead absorption that approximates
actual cost.
Plant, Property and Equipment
Plant, property and equipment, including capitalized interest applicable to major project expenditures, are recorded
at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:
buildings and improvements – five to 40 years, machinery and equipment – two to 10 years, furniture and office
equipment – three to seven years, and other – five to 40 years. Leasehold improvements are depreciated over the life
of the lease or the asset, whichever is shorter. Fully depreciated assets are retained in property and accumulated
depreciation accounts until disposal. Repairs and maintenance costs are expensed as incurred.
The Company enters into operating and capital leases for the use of premises and equipment. Rent expense
related to operating lease agreements are recorded on a straight line basis, considering lease incentives and escalating
rental payments.
Capitalized Internal Use Software
Costs incurred in the preliminary project stage of developing or acquiring internal use software are expensed as
incurred. After the preliminary project stage is completed, management has approved the project and it is probable
that the project will be completed and the software will be used for its intended purpose, ITT capitalizes certain internal
and external costs incurred to acquire or create internal use software, principally related to software coding, designing
system interfaces and installation and testing of the software. ITT amortizes capitalized internal use software costs
using the straight-line method over the estimated useful life of the software, generally from three to seven years.
Investments
As of December 31, 2013 and 2012, we held investments in time deposits with a cost of $112.9 and $38.2,
respectively, having an original maturity exceeding three months at the time of purchase. These investments mature
within four months of the balance sheet date and have been presented in other current assets as short-term investments
on the Consolidated Balance Sheet. These investments have been classified as held-to-maturity and are recorded at
amortized cost, which approximates fair value at December 31, 2013 and 2012. We did not realize any gains or losses
from the maturity of our investments during 2013 or 2012. Interest income recognized from these investments during
2013 or 2012 was not material to our results of operations.
Investments in corporate-owned life insurance (COLI) policies are recorded at their cash surrender values as of
the balance sheet date. The Company’s investments in COLI policies are included in other non-current assets in the
consolidated balance sheets and were $93.6 and $87.7 at December 31, 2013 and 2012, respectively. Changes in
the cash surrender value during the period are recorded as a gain or loss within operating expenses and were not
material in the years ended December 31, 2013, 2012 and 2011. These investments were made with the intention of
utilizing them as a long-term funding source for deferred compensation obligations, which as of December 31, 2013
and 2012 were approximately $17.5 and $17.0, respectively, however, the COLI policies do not represent a committed
funding source for these obligations and as such they are subject to claims from creditors, and we can designate them
for another purpose at any time.
Long-Lived Asset Impairment
Long-lived assets, including intangible assets with finite lives and capitalized internal use software, are tested for
impairment whenever events or changes in circumstances indicate their carrying value may not be recoverable. We
assess the recoverability of long-lived assets based on the undiscounted future cash flow the assets are expected to
generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from
the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value
76
ITT CORPORATION AND SUBSIDIARIES
of the asset. When an impairment is identified, we reduce the carrying amount of the asset to its estimated fair value
based on a discounted cash flow approach or, when available and appropriate, to comparable market values.
Goodwill and Intangible Assets
Goodwill represents purchase consideration paid in a business combination that exceeds the values assigned to
the net assets of the acquired business. Intangible assets include customer relationships, proprietary technology,
trademarks, patents and other intangible assets. Intangible assets with a finite life are generally amortized on a straight-
line basis over an estimated economic useful life, which generally range from 10-20 years, and are tested for impairment
if indicators of impairment are identified. Certain of our intangible assets have an indefinite life, namely certain brands
and trademarks.
Goodwill and indefinite-lived intangible assets are not amortized, but rather are tested for impairment annually (or
more frequently if impairment indicators arise, such as changes to the reporting unit structure, significant adverse
changes in the business climate or an adverse action or assessment by a regulator). We conduct our annual impairment
testing on the first day of the fourth fiscal quarter. When reviewing for impairment, we may opt to make an initial
qualitative evaluation which considers present events and circumstances, to determine the likelihood of impairment.
If the likelihood of impairment is not considered to be more likely than not, then no further testing is performed. For
goodwill, if it is considered to be more likely than not that the asset is impaired, then a two-step quantitative impairment
test is performed. In the first step, the estimated fair value of each reporting unit is compared to the carrying value of
the net assets assigned to that reporting unit. If the estimated fair value of the reporting unit exceeds its carrying value,
goodwill is not impaired and the second step of the impairment test is not performed. If the carrying value of the reporting
unit exceeds its estimated fair value, then the second step of the impairment test is performed in order to measure the
impairment loss to be recorded, if any. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value,
then we record an impairment loss equal to the difference. For indefinite-lived intangibles, if it is considered to be more
likely than not that the asset is impaired, we compare the fair value of those assets to their carrying value. We recognize
an impairment loss when the estimated fair value of the indefinite-lived intangible asset is less than its carrying value.
We estimate the fair value of our reporting units using an income approach. Under the income approach, we
estimate fair value based on the present value of estimated future cash flows. We estimate the fair value of our indefinite-
lived intangible assets using the relief from royalty method. The relief from royalty method estimates the portion of a
company’s earnings attributable to an intellectual property asset based on an assumed royalty rate that the company
would have paid had the asset not been owned.
Business Combinations
ITT allocates the purchase price of its acquisitions to the tangible and intangible assets acquired, liabilities assumed,
and non-controlling interests in the acquiree based on their estimated fair value at the acquisition date. Changes to
acquisition date fair values prior to the expiration of the measurement period, a period not to exceed 12 months from
date of acquisition, are recorded as an adjustment to the associated goodwill. Changes to acquisition date fair values
after expiration of the measurement period are recorded in earnings. The excess of the acquisition price over those
estimated fair values is recorded as goodwill. Acquisition-related expenses are expensed as incurred and the costs
associated with restructuring actions initiated after the acquisition are recognized separately from the business
combination.
Commitments and Contingencies
We record accruals for commitments and loss contingencies for those which are both probable and the amount
can be reasonably estimated. In addition, legal fees are accrued for cases where a loss is probable and the related
fees can be reasonably estimated. Significant judgment is required to determine both probability and the estimated
amount of loss. We review these accruals quarterly and adjust the accruals to reflect the impact of negotiations,
settlements, rulings, advice of legal counsel, and other current information.
Environmental-Related Liabilities and Assets
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.
Our estimated liability is reduced to reflect the participation of other potentially responsible parties in those instances
where it is probable that such parties are legally responsible and financially capable of paying their respective shares
of the relevant costs. Accruals for environmental liabilities are primarily included in other non-current liabilities at
undiscounted amounts and exclude claims for recoveries from insurance companies or other third parties.
During 2012, the Company established an insurance asset related to its environmental exposures. The
environmental-related asset represents our best estimate of probable recoveries from third parties for costs incurred
in past periods, as well as costs estimated to be incurred in future periods. In developing this estimate, the Company
77
reviews the expected levels of future cost recovery, the financial viability of the insurance companies, the sites and
claims covered by those policies, and our interpretation of the various policy and contract terms and limits.
Environmental costs and related recoveries are recorded within general and administrative expenses in the
ITT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations.
Foreign Currency Translation
The national currencies of our foreign subsidiaries are generally the functional currencies. Balance sheet accounts
are translated at the exchange rate in effect at the end of each period, except for equity which is translated at historical
rates; income statement accounts are translated at the average rates of exchange prevailing during the period. Gains
and losses resulting from foreign currency translation are reflected in the cumulative translation adjustments component
of shareholders’ equity.
For foreign subsidiaries that do not use the local currency as their functional currency, foreign currency assets and
liabilities are remeasured to the foreign subsidiary’s functional currency using end of period exchange rates, except
for nonmonetary balance sheet accounts, which are remeasured at historical exchange rates.
For transactions denominated in other than the functional currency, revenue and expenses are remeasured at
average exchange rates in effect during the reporting period in which the transactions occurred, except for expenses
related to nonmonetary assets and liabilities. Transaction gains or losses from foreign currency remeasurement are
reported in general and administrative expenses.
Fair Value Measurements
We determine fair value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. We prioritize the inputs to valuation
techniques used to measure fair value into three broad levels based on the observability of the lowest level input that
is significant to the fair value measure. The fair value hierarchy gives the highest priority to quoted prices in active
markets for identical assets or liabilities (Level 1), then to quoted market prices for similar assets or liabilities in active
markets or quoted market prices of identical assets in less active markets (Level 2) and gives the lowest priority to
unobservable inputs (Level 3).
Derivative Financial Instruments
ITT may use derivative financial instruments, primarily foreign currency forward contracts, to mitigate exposure
from foreign currency exchange rate fluctuations as it pertains to receipts from customers, payments to suppliers and
intercompany transactions. In connection with the Bornemann acquisition, we assumed certain foreign currency
contracts related to forecasted transactions with third-parties. We record derivatives at their fair value as either an
asset or liability and include adjustments to reflect changes in the fair value of our derivatives in earnings as the
contracts are not designated as hedges. The differentials paid or received on interest rate swap agreements are
recognized as adjustments to interest expense. As of December 31, 2013 and 2012, the notional amount of our foreign
currency derivatives was $13.1 and $48.0, respectively, and our interest rate swaps was $11.9 and $7.9, respectively.
The amount of gains and losses recorded related to our foreign currency contracts and interest rate swaps, and the
net fair value of our outstanding derivative contracts was not material as of and for the years ended December 31,
2013, 2012 and 2011.
Derivative contracts involve the risk of non-performance by the counterparty. The fair value of our foreign currency
contracts has been determined using the net position of the contracts and the applicable spot rates and forward rates
as of the reporting date.
NOTE 2
RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Pronouncements Not Yet Adopted
In July 2013, the Financial Accounting Standards Board (FASB) issued guidance eliminating diversity in practice
surrounding the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss,
or a tax credit carryforward exists. The new guidance requires entities to net an unrecognized tax benefit with a deferred
tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if the carryforward would
be used to settle additional tax due upon disallowance of a tax position. The adoption of this amendment on January
1, 2014 is not expected to have a material effect on ITT's financial statements.
In March 2013, the FASB clarified that, when a reporting entity (parent) ceases to have a controlling financial
interest in a subsidiary or group of assets that is a business within a foreign entity, the parent is required to release
any related cumulative translation adjustment into net income. The cumulative translation adjustment should be
released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the
78
ITT CORPORATION AND SUBSIDIARIES
foreign entity in which the subsidiary or group of assets had resided. The FASB also clarified that if a business
combination is achieved in stages related to a previously held equity method investment (step-acquisition) that is a
foreign entity, the amount of accumulated other comprehensive income that is reclassified and included in the calculation
of gain or loss as of the acquisition date shall include any foreign currency translation adjustment related to that
previously held investment. The adoption of these amendments on January 1, 2014 is not expected to have a material
impact to ITT's financial statements.
In February 2013, the FASB issued guidance requiring an entity to measure obligations resulting from joint and
several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the amount
the entity agreed to pay for the arrangement between them and the other entities that are also obligated to the liability
and any additional amount the entity expects to pay on behalf of the other entities. The adoption of these amendments
on January 1, 2014 is not expected to have a material impact to ITT's financial statements.
NOTE 3
ACQUISITIONS
On November 28, 2012, we acquired all issued and outstanding stock of the privately held Joh. Heinr. Bornemann
GmbH (Bornemann) for a final purchase price of $192.5, net of cash acquired. Bornemann, a supplier and servicer of
multiphase pumping systems serving the global oil & gas, industrial, food and pharmaceutical markets, has more than
550 employees globally and is reported within the Industrial Process segment. The acquisition was funded with cash
on hand. The final allocation of the purchase price, presented below, is based on the fair value of assets acquired,
liabilities assumed and noncontrolling interests in Bornemann as of November 28, 2012.
Cash
Receivables
Inventory
Deferred tax assets
Plant, property and equipment
Goodwill
Other intangibles
Other assets
Accounts payable
Accrued liabilities
Deferred revenue
Deferred tax liabilities
Short and long-term debt and capital leases
Postretirement obligations
Other liabilities
Net assets acquired
$
11.9
29.9
44.7
14.6
29.8
147.3
58.7
9.2
(9.6)
(30.1)
(10.2)
(23.1)
(44.4)
(15.0)
(9.3)
$ 204.4
The goodwill arising from the acquisition is primarily related to the planned geographic expansion of Bornemann
operations and is not expected to be deductible for income tax purposes. All of the goodwill has been assigned to the
Industrial Process segment. Other intangibles acquired include customer relationships, proprietary technology and
trademarks.
During 2011, we spent $15.6, net of cash acquired, on acquisitions that were not material individually or in the
aggregate to our results of operations or financial position. The most significant of these acquisitions was Blakers
Pump Engineers Unit Trust (Blakers) on October 27, 2011. Blakers, reported within the Industrial Process segment,
is a supplier of process and industrial pumping equipment serving customers in the oil & gas, mining, power, and
general markets.
Our financial statements include the results of operations and cash flows from each of our acquisitions prospectively
from their respective acquisition date. Pro forma results of operations have not been presented because neither
acquisition was deemed material at the acquisition date.
79
ITT CORPORATION AND SUBSIDIARIES
NOTE 4
DISCONTINUED OPERATIONS
Results from discontinued operations reflect income of $0.8 for the year ended December 31, 2013 primarily related
to a reversal of warranty reserves and legal-related contingencies associated with previously disposed businesses,
partially offset by a settlement of legacy receivables and payables with a former ITT entity, resulting in a net loss of
$1.3.
During 2012, the Company completed the sale of its shape cutting product lines, including the Kaliburn and Burny
brands as well as the web tension control products and custom engineered systems sold under the Cleveland Motion
Controls brand (collectively referred to herein as the Shape Cutting Businesses). The sale was completed on
November 13, 2012, resulting in net proceeds from the sale of $38.4 which is included in investing activities on our
Consolidated Statement of Cash Flows. Subsequent to this divestiture, we do not have any significant continuing
involvement in the operations of these businesses, nor do we expect significant continuing cash flows. Accordingly,
the financial position and results of operations of the Shape Cutting Businesses are reported as a discontinued operation
for 2012 and 2011.
Summarized operating results from the Shape Cutting Businesses presented within earnings from discontinued
operations are provided in the tables below. Interest expense was not allocated to the divested businesses for any of
the periods presented. Amounts presented in the “Other” column within the tables below relate to various divested ITT
businesses accounted for as discontinued operations in the year of divestiture for which legacy liabilities remain, as
well as certain transformation costs which were directly related to the Distribution and provided no future benefit to
the Company. See Note 6, “Company Transformation” for further information.
Year Ended 2012
Revenue
Shape
Cutting
Businesses
30.2
$
Earnings from discontinued operations before income taxes
Gain on sale before tax
Income tax expense (benefit)
Earnings from discontinued operations, net of tax
$
0.6
9.0
—
9.6
Other
$ —
0.4
—
(5.9)
$ 6.3
Total
$ 30.2
1.0
9.0
(5.9)
$ 15.9
On October 31, 2011, the Company completed the Distribution of Exelis (previously referred to as ITT’s Defense &
Information Solutions segment) and Xylem (previously referred to as the water-related businesses), from the Company
into two independent, publicly traded companies via a tax-free Distribution to shareholders (the Distribution). ITT was
designated as the accounting and legal spinnor with respect to the Distribution. The Distribution was made pursuant
to a Distribution Agreement, dated October 25, 2011, among ITT, Exelis and Xylem (the Distribution Agreement). With
the completion of these separations, the Company disposed of its water-related businesses and Defense segment in
their entirety and ceased to consolidate their financial position and results of operations in its consolidated financial
statements. Accordingly, the Company has presented the results of operations of its former water-related businesses
and Defense segment as discontinued operations in the consolidated financial statements for 2011.
In connection with the Distribution, ITT received a net cash transfer (the Contribution) of $683.0 and $988.0 from
Exelis and Xylem, respectively, which is included in financing activities on our Consolidated Statement of Cash Flows.
No gain or loss was recognized in connection with the Distribution. While we are a party to a Distribution Agreement
and several other agreements, including a Tax Matters Agreement, Benefits and Compensation Matters Agreement
and Master Transition Services Agreement, we have determined we do not have significant continuing involvement in
the operations of Exelis or Xylem, nor do we expect significant continuing cash flows from Exelis or Xylem. Summarized
operating results from Exelis, Xylem, and the Shape Cutting Businesses presented within earnings from discontinued
operations are provided in the tables below.
80
Year Ended 2011
Revenue
Transformation costs
Earnings (loss) from discontinued operations
before income taxes
Income tax expense (benefit)
Earnings (loss) from discontinued operations,
net of tax
ITT CORPORATION AND SUBSIDIARIES
Shape
Cutting
Businesses
33.5
$
—
(2.5)
(1.1)
Other
$ —
134.1
(108.9)
(26.7)
Total
$ 8,057.1
240.1
683.1
236.1
Exelis
$ 4,916.1
31.2
Xylem
$ 3,107.5
74.8
473.0
193.6
321.5
70.3
$ 279.4
$ 251.2
$
(1.4)
$ (82.2)
$ 447.0
In order to effect the Distribution and govern ITT’s relationship with Exelis and Xylem after the Distribution, ITT
entered into a Distribution Agreement and several other agreements, including a Tax Matters Agreement, Employee
Benefits and Compensation Matters Agreement and Master Transition Services Agreement. Information on the
agreements utilized to effectuate the Distribution is provided below.
Distribution Agreement
The Distribution Agreement between ITT and Exelis and Xylem contains the key provisions relating to the separation
of the businesses of Exelis and Xylem from ITT and the distribution of the shares of Exelis and Xylem common stock
to our shareholders. The Distribution Agreement provides the framework for the allocation, transfer and assumption
of assets and liabilities among ITT, Exelis and Xylem as well as the settlement or extinguishment of certain liabilities
and other obligations between and among ITT, Exelis and Xylem. Under the Distribution Agreement, we agreed to
indemnify Exelis and Xylem and their respective subsidiaries and affiliates, subject to limited exceptions with respect
to certain employee claims, against claims and liabilities related to the past operation of ITT’s business (other than
the liabilities of the divested businesses) and Exelis and Xylem agreed to indemnify us against claims and liabilities
related to their respective businesses. The Distribution Agreement establishes that certain liabilities will be shared
21% to ITT, 39% to Exelis, and 40% to Xylem.
In connection with the Distribution, ITT retained certain material contingent legacy liabilities involving asbestos
and environmental matters. See Note 20, “Commitments and Contingencies,” for information regarding asbestos and
environmental related contingencies.
Tax Matters Agreement
On October 25, 2011, we entered into a Tax Matters Agreement with Exelis and Xylem that governs the respective
rights, responsibilities and obligations of the companies after the Distribution with respect to tax liabilities and benefits,
tax attributes, tax contests and other tax sharing regarding U.S. Federal, state, local and foreign income taxes, other
tax matters and related tax returns. Exelis and Xylem have liability with ITT to the U.S. Internal Revenue Service (IRS)
for the consolidated U.S. Federal income taxes of the ITT consolidated group relating to the taxable periods in which
Exelis and Xylem were part of that group. However, the Tax Matters Agreement specifies the portion, if any, of this tax
liability for which ITT, Exelis and Xylem will bear responsibility, and ITT, Exelis and Xylem agreed to indemnify each
other against any amounts for which they are not responsible. The Tax Matters Agreement also provides special rules
for allocating tax liabilities in the event that the Distribution is determined to not be tax-free. The Tax Matters Agreement
provides for certain covenants that may restrict our ability to pursue strategic or other transactions that otherwise could
maximize the value of our business and may discourage or delay a change of control that may be considered favorable.
Though valid as between the parties, the Tax Matters Agreement is not binding on the IRS.
Pursuant to the Tax Matters Agreement, as the shared income tax liabilities are settled, ITT will make payments
up to certain specified thresholds, with payments in excess of those specified thresholds shared among ITT, Exelis,
and Xylem. If payments to the taxing authorities are less than certain specified thresholds, ITT will make payments up
to the remaining specified thresholds to Exelis and Xylem. Settlement is expected to occur as the audit process by
applicable taxing authorities is completed for the impacted years and cash payments are made. Given the nature of
the shared tax liabilities, the maximum amount of potential future payments is not determinable. Any such cash
payments, when they occur, will reduce the liability for uncertain tax positions as such payments represent an equivalent
reduction of risk. At December 31, 2013, ITT’s accrual for uncertain tax positions includes amounts related to certain
shared tax liabilities; however, no receivables from Exelis or Xylem have been recorded as our estimate of their portion
of the shared tax liabilities is not more than the amounts currently accrued for the uncertain tax position. If our estimate
of exposures to the shared tax liabilities increases above the specified threshold, a receivable would be recorded. At
December 31, 2013 and 2012, the financial statements include a net tax-related liability of $0.7 and $0.8, respectively,
due to Exelis and Xylem in the aggregate.
81
ITT CORPORATION AND SUBSIDIARIES
Adjustments in the future for the impact of filing final income tax returns in certain jurisdictions where those returns
include a combination of ITT, Exelis and Xylem legal entities and for certain amended income tax returns for the periods
prior to the Distribution may be recorded to either shareholders’ equity or the statement of income depending on the
specific item giving rise to the adjustment. During 2012, $7.0 was recorded directly to shareholders’ equity as part of
the Distribution of Exelis and Xylem.
Benefits and Compensation Matters Agreement
On October 25, 2011, we entered into a Benefits and Compensation Matters Agreement with Exelis and Xylem
that governs the respective rights, responsibilities and obligations of Exelis, Xylem and ITT after the Distribution with
respect to transferred employees, defined benefit pension plans, defined contribution pension plans, nonqualified
pension plans, employee health and welfare benefit plans, incentive plans, corporate-owned life insurance, stock equity
awards, foreign benefit plans, director plans and collective bargaining agreements. The Benefits and Compensation
Matters Agreement provides for the allocation and treatment of assets and liabilities arising out of incentive plans,
pension plans and employee welfare benefit programs in which Exelis and Xylem employees participated prior to the
Distribution. Generally, Exelis and Xylem assumed or retained sponsorship of, and liabilities relating to, employee
compensation and benefit programs relating to Exelis and Xylem current employees.
The Benefits and Compensation Matters Agreement also provided that outstanding ITT equity awards would be
equitably adjusted in connection with the Distribution. All outstanding ITT equity awards held by employees of Exelis
as of the Distribution Date were substituted for Exelis equity awards and all outstanding ITT equity awards held by
employees of Xylem as of the Distribution Date were substituted for Xylem equity awards. As described in Note 18,
“Long-Term Incentive Employee Compensation,” the substitution preserved the economic value of the cancelled ITT
equity awards for employees of Exelis and Xylem as of the Distribution Date. Subject to the applicable transition period
with respect to certain benefit plans or programs, after the Distribution, employees of Exelis and Xylem no longer
participate in ITT’s plans or programs, and Exelis and Xylem have established or maintained plans or programs for
their employees.
Master Transition Services Agreement
On October 25, 2011, we entered into a Master Transition Services Agreement with Exelis and Xylem, under which
each of Exelis and Xylem or their respective affiliates provide us with certain services (including information technology,
financial, procurement and human resource services, benefits support services and other specified services), and we
or certain of our affiliates provide each of Exelis and Xylem certain services (including information technology, human
resources services and other specified services). These services will initially be provided at cost with scheduled,
escalating increases to up to cost plus 10% and generally extended for a period of 3 to 24 months from the Distribution
Date and are intended to help ensure an orderly transition for each of Exelis, Xylem and ITT following the Distribution.
During 2013 and 2012, we billed Exelis and Xylem a total of $6.7 and $10.7, respectively, associated with activities
performed under the Master Transition Services Agreement. During 2011, we billed Exelis and Xylem a total of
approximately $22.0, primarily relating to active employee health benefits which continued to be administered by ITT.
On January 1, 2012, the administration of the employee health benefit plans was transferred to Exelis and Xylem.
Total billings by Exelis and Xylem to ITT during 2013 and 2012 amounted to $0.8 and $1.3, respectively. As of
December 31, 2013 and 2012, we have an aggregate receivable and payable, associated with transactions related to
the Master Transition Services Agreement, of less than $0.1 each.
82
ITT CORPORATION AND SUBSIDIARIES
NOTE 5
RESTRUCTURING ACTIONS
We have initiated various restructuring activities throughout the business during the past three years, of which
only the Interconnect Solutions turnaround activities is considered to be individually significant. See further discussion
on this plan below. Other less significant restructuring actions during 2013 include reduction in force initiatives,
geographic sales presence realignment, and the exit of a non-core construction pump business. We also undertook
various restructuring actions during 2012 primarily focused on reducing operating costs through reduction in force
initiatives. The components of all restructuring costs incurred during each of the previous three years ended are
presented in the table below.
By component:
Severance costs
Asset write-offs
Other restructuring costs
Total restructuring costs
By segment:
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Corporate and Other
2013
2012
2011
$ 22.3
$ 10.9
3.9
2.2
0.2
2.9
$ 28.4
$ 14.0
$
4.5
5.1
17.2
0.4
1.2
$
0.3
2.2
7.2
0.8
3.5
$
$
$
3.5
—
1.2
4.7
0.4
—
2.9
1.4
—
The following table displays a rollforward of the restructuring accruals, presented on our Consolidated Balance
Sheet within accrued liabilities, for each of the previous two years ended.
Restructuring accruals - 1/1
Restructuring costs
Cash payments
Asset write-offs
Foreign exchange translation and other
Restructuring accrual - 12/31
By accrual type:
Severance accrual
Facility carrying and other costs accrual
$
2013
7.8
28.4
(17.1)
(3.9)
(0.5)
$ 14.7
$ 13.0
1.7
$
$
$
2012
4.0
14.0
(9.7)
(0.2)
(0.3)
7.8
7.8
—
The following is a rollforward of employee position eliminations associated with restructuring activities through
2013:
Planned reductions - 1/1
Additional planned reductions
Actual reductions
Planned reductions - 12/31
83
2013
10
275
(178)
107
2012
29
149
(168)
10
ITT CORPORATION AND SUBSIDIARIES
Interconnect Solutions Turnaround Activities
During 2013, we initiated a comprehensive restructuring action to improve the overall cost structure of our
Interconnect Solutions. The charges incurred during 2013 under this action primarily related to employee severance
for 180 planned headcount reductions, and to a lesser extent, asset write-offs. We expect to incur further restructuring
costs of approximately $20.0 under this plan, primarily during 2014, related to geographic footprint consolidation. The
following table provides a rollforward of the restructuring accrual associated with the Interconnect Solutions turnaround
activities.
Restructuring accruals - 1/1
Restructuring costs
Cash payments
Asset Write-Offs
Foreign exchange translation and other
Restructuring accruals - 12/31
NOTE 6
COMPANY TRANSFORMATION
2013
—
18.1
(6.1)
(3.9)
(0.1)
8.0
$
$
On October 31, 2011, the Company completed the Distribution of Exelis and Xylem. In connection with activities
taken to create the revised organizational structure and to complete the Distribution (referred to herein as transformation
costs) we recognized pre-tax expenses of $2.2, $20.8 and $636.2, respectively, during 2013, 2012 and 2011. We have
presented $2.2, $13.0, and $396.1, respectively, of the pre-tax transformation costs within income from continuing
operations and the remainder within income from discontinued operations. Transformation costs incurred during 2011
primarily relate to losses on the extinguishment of debt, asset impairments, and employee retention and severance.
Amounts presented within discontinued operations are costs directly related to the Distribution, primarily advisory fees
and information technology costs, which provide no future benefit to the Company. Transformation-related activities
were substantially complete as of December 31, 2013. See Note 4, “Discontinued Operations,” for additional
information.
NOTE 7
INCOME TAXES
For each of the years ended December 31, 2013, 2012, and 2011 the tax data related to continuing operations is as
follows:
Income (loss) components:
United States
International
Income (loss) from continuing operations before income tax
Income tax expense (benefit) components:
Current income tax expense (benefit):
United States – federal
United States – state and local
International
Total current income tax expense (benefit)
Deferred income tax expense (benefit) components:
United States – federal
United States – state and local
International
Total deferred income tax expense (benefit)
Income tax expense (benefit)
Effective income tax rate
2013
2012
2011
$
28.5
152.0
180.5
$
33.0
116.1
149.1
$ (464.4)
148.5
(315.9)
10.6
4.2
39.6
54.4
(331.2)
(36.7)
3.9
(364.0)
$ (309.6)
(171.5)%
$
(32.6)
(8.7)
46.8
5.5
40.1
9.9
(15.9)
34.1
39.6
26.6%
(78.9)
(12.1)
49.2
(41.8)
318.2
(14.6)
(1.2)
302.4
$ 260.6
(82.5)%
84
A reconciliation of the income tax expense (benefit) for continuing operations from the U.S. statutory income tax
rate to the effective income tax rate is as follows for each of the years ended December 31, 2013, 2012, and 2011:
ITT CORPORATION AND SUBSIDIARIES
Tax provision at U.S. statutory rate
Valuation allowance on deferred tax assets
Tax exempt interest
Tax on undistributed foreign earnings
Foreign tax rate differential
Audit settlements & unrecognized tax benefits
U.S. permanent items
U.S. tax on foreign earnings
Other adjustments
State and local income tax
Medicare Part D subsidy
Change in state tax rate
Effective income tax rate
2013
35.0 %
(191.1)
(17.5)
6.1
(5.8)
3.8
(1.3)
(0.7)
(0.6)
0.6
—
—
(171.5)%
2012
35.0%
27.7
(19.7)
1.3
(3.0)
(13.2)
0.5
0.5
(2.8)
1.4
(1.1)
—
26.6%
2011
35.0 %
(108.1)
4.1
(21.8)
1.2
—
—
0.4
(3.9)
0.5
0.4
9.7
(82.5)%
Our effective tax rate in 2013 was affected by changes in unrecognized tax benefits of approximately $5.9 and
includes the completion of tax examinations and lapses in the statute of limitations.
As a result of investment opportunities and other factors, and their impact on the Company’s expected liquidity, a
determination was made that certain earnings generated in Hong Kong, Luxembourg, Japan, and South Korea are
not indefinitely reinvested. In 2013, the Company recorded an additional $11.0 of deferred tax liability on the
undistributed foreign earnings. We have not provided for deferred taxes on the remaining excess of financial reporting
over tax bases of investments in foreign subsidiaries in the amount of $506.6 because we plan to reinvest such earnings
indefinitely outside the U.S. While the amount of U.S. federal income taxes, if such earnings are distributed in the
future, cannot be determined, such taxes may be reduced by tax credits and other tax deductions.
We operate under tax holidays in China and Korea, which are effective through December 31, 2014 and 2015,
respectively. The tax holidays are conditional upon our meeting certain research, employment and/or investment
thresholds. The impact of these holidays decreased foreign taxes by $1.8 or $0.02 per diluted share in 2013.
Deferred tax assets and liabilities include the following:
Deferred Tax Assets:
Accruals
Asbestos
Employee benefits
Credit carryforwards
Loss carryforwards
Other
Subtotal
Valuation allowance
Net deferred tax assets
Deferred Tax Liabilities:
Undistributed earnings
Intangibles
Accelerated depreciation
Investment
Total deferred tax liabilities
Net deferred tax assets
85
2013
2012
$
64.5
272.7
106.6
47.2
125.2
34.4
650.6
$ (135.3)
515.3
(82.3)
(58.8)
(25.8)
(0.4)
$ (167.3)
$ 348.0
$
65.2
296.7
137.2
46.1
119.3
40.1
704.6
$ (536.7)
167.9
(71.4)
(59.2)
(25.0)
(0.7)
$ (156.3)
11.6
$
Deferred taxes are presented in the Consolidated Balance Sheets as follows:
ITT CORPORATION AND SUBSIDIARIES
Current assets
Non-current assets
Current liabilities
Other non-current liabilities
Net deferred tax assets
$
2013
59.5
303.6
—
(15.1)
$
2012
19.9
21.4
(3.5)
(26.2)
$ 348.0
$
11.6
The Company released the valuation allowance against its U.S. deferred tax assets and recorded a tax benefit of
$374.6 during 2013. The valuation allowance was originally recorded in 2011 on U.S. deferred tax assets, in part, due
to a cumulative three-year loss position resulting primarily from previous asbestos remeasurement charges. This
cumulative loss position was considered a significant source of negative evidence and limited our ability to weigh other
subjective evidence such as our projections for future growth. The Company generated U.S. adjusted income in 2012
and 2013 and is now in a cumulative three year income position. Based on positive evidence, including the three year
cumulative positive income and the absence of any significant negative evidence, management determined that it is
more likely than not that the Company's U.S. deferred tax assets will be realized except for certain deferred tax assets
attributable to state net operating losses and tax credits.
As a result of a cumulative loss, the Company established a valuation allowance on foreign net deferred tax assets
in Brazil and the U.K. The Company continues to maintain a valuation allowance against certain foreign net deferred
tax assets, primarily in Luxembourg, Germany and China. Overall, the increase in the foreign valuation allowance of
$29.0 is primarily attributable to foreign net operating loss carryforwards in Luxembourg.
We have the following tax attributes available for utilization at December 31, 2013:
Attribute
U.S. federal net operating losses
U.S. state net operating losses
U.S. federal tax credits
U.S. state tax credits
Foreign net operating losses
$
Amount
2.1
1,348.4
39.0
8.2
281.4
First Year of
Expiration
12/31/2023
12/31/2014
12/31/2020
12/31/2014
12/31/2014
We have approximately $166.4 of net operating loss carryforwards in Luxembourg as of December 31, 2013 that
do not expire.
Shareholders’ equity at December 31, 2013 and 2012 includes excess income tax benefits related to stock-based
compensation in 2013 and 2012 of approximately $8.7 and $6.4, respectively.
86
ITT CORPORATION AND SUBSIDIARIES
Uncertain Tax Positions
We recognize income tax benefits from uncertain tax positions only if, based on the technical merits of the position,
it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The tax benefits
recognized in the Consolidated Financial Statements from such positions are measured based on the largest benefit
that has a greater than 50% likelihood of being realized upon ultimate settlement.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for each of the years ended
December 31, 2013, 2012, and 2011 is as follows:
Unrecognized tax benefits – January 1
Additions for:
Prior year tax positions
Current year tax positions
Assumed in Acquisition
Reductions for:
Prior year tax positions
Settlements
Expiration of Statute of Limitations
Unrecognized tax benefits – December 31
2013
$ 208.8
2012
$ 198.7
2011
$ 203.4
1.6
8.0
—
(55.4)
(1.0)
(0.8)
48.4
0.8
3.8
(4.8)
(33.6)
(4.5)
1.5
15.1
—
(21.2)
—
(0.1)
$ 161.2
$ 208.8
$ 198.7
As of December 31, 2013, $53.4 and $57.6 of the unrecognized tax benefits would affect the effective tax rate for
continuing operations and discontinued operations respectively, if realized. Over the next twelve months, the net amount
of the tax liability for unrecognized tax benefits in foreign and domestic jurisdictions could change by $87.9 due to
changes in audit status, expiration of statutes of limitations and other events.
See Note 4, “Discontinued Operations” for discussion of the Tax Matters Agreement.
In many cases, uncertain tax positions are related to tax years that remain subject to examination by the relevant
taxing authorities. The Company is currently under examination in the Czech Republic, Germany, Italy, Korea, the U.K.
and the U.S. The settlement of an examination could result in changes in amounts attributable to us through the Tax
Matters Agreement entered into with Exelis and Xylem. Currently, we cannot reasonably estimate the amount of such
changes.
The following table summarizes the earliest open tax years by major jurisdiction as of December 31, 2013:
Jurisdiction
Czech Republic
Germany
Italy
Japan
Korea
United States
Earliest
Open Year
2008
2006
2007
2010
2008
2009
We classify interest relating to tax matters as a component of interest expense and tax penalties as a component
of income tax expense in our Consolidated Statements of Operations. During 2013 and 2012, we recognized $2.0 and
$(3.9) in net interest expense (income) from continuing operations related to tax matters, respectively. We had $17.5
and $13.6 of interest accrued from continuing and discontinued operations related to tax matters as of December 31,
2013 and 2012, respectively.
87
ITT CORPORATION AND SUBSIDIARIES
NOTE 8
EARNINGS PER SHARE
The following table provides a reconciliation of the data used in the calculation of basic and diluted common shares
outstanding for the three years ended December 31, 2013, 2012 and 2011.
Weighted average common shares outstanding
Add: Weighted average restricted stock awards outstanding(a)
Basic weighted average common shares outstanding
Add: Dilutive impact of stock options and restricted stock units
Diluted weighted average common shares outstanding
2013
90.9
0.1
91.0
1.3
92.3
2012
92.7
0.3
93.0
1.1
94.1
2011
92.2
0.6
92.8
—
92.8
(a) Restricted stock awards containing rights to non-forfeitable dividends which participate in undistributed earnings
with common shareholders are considered participating securities for purposes of computing earnings per share.
The following table provides the number of shares underlying stock options excluded from the computation of
diluted earnings per share for the three years ended December 31, 2013, 2012 and 2011 because they were anti-
dilutive.
Anti-dilutive stock options
Average exercise price
Year(s) of expiration
$
2013
0.2
26.83 $
2023
2012
2.0
2011
2.1
21.47 $
16.70
2014-2022
2013-2022
In addition, 0.1 of outstanding employee return on invested capital (ROIC) awards were excluded from the
computation of diluted earnings per share for the year ended December 31, 2013, as the performance period related
to ROIC awards has not been achieved.
NOTE 9
RECEIVABLES, NET
Trade accounts receivable
Notes receivable
Other
Receivables, gross
Less: allowance for doubtful accounts
Receivables, net
2013
$ 463.9
2012
$ 403.3
6.3
39.1
509.3
12.6
5.6
44.3
453.2
12.9
$ 496.7
$ 440.3
Receivables related to progress billings of $6.4 have been reclassified as of December 31, 2012 from the "Other"
caption to the "Trade Accounts Receivable" caption to conform to the current period presentation.
The following table displays a rollforward of the allowance for doubtful accounts for the years ended December 31,
2013, 2012, and 2011.
Allowance for doubtful accounts – January 1
Charges to income
Write-offs
Foreign currency and other
$
2013
12.9
1.8
(1.7)
(0.4)
$
2012
12.9
1.6
(1.6)
—
$
2011
12.6
2.8
(2.2)
(0.3)
Allowance for doubtful accounts – December 31
$
12.6
$
12.9
$
12.9
88
NOTE 10
INVENTORIES, NET
Finished goods
Work in process
Raw materials
Inventoried costs related to long-term contracts
Total inventory before progress payments
Less – progress payments
Inventories, net
NOTE 11
OTHER CURRENT AND NON-CURRENT ASSETS
Short-term investments
Asbestos-related current assets
Prepaid income tax
Current deferred income taxes
Other
Other current assets
Other employee benefit-related assets
Capitalized software costs
Environmental related assets
Equity method investments
Other
Other non-current assets
NOTE 12
PLANT, PROPERTY AND EQUIPMENT, NET
Land and improvements
Machinery and equipment
Buildings and improvements
Furniture, fixtures and office equipment
Construction work in progress
Other
Plant, property and equipment, gross
Less: accumulated depreciation
Plant, property and equipment, net
ITT CORPORATION AND SUBSIDIARIES
$
2013
49.9
94.8
166.7
85.4
396.8
(80.9)
$
2012
64.1
60.5
136.6
91.7
352.9
(48.7)
$ 315.9
$ 304.2
2013
$ 112.9
$
84.5
23.6
59.5
65.1
2012
38.2
82.6
66.7
19.9
44.0
$ 345.6
$ 251.4
$
95.5
14.6
11.7
4.7
18.4
$
87.7
13.4
12.3
8.6
29.2
$ 144.9
$ 151.2
$
2013
26.8
834.5
211.6
74.6
59.8
8.5
$
2012
18.0
785.4
184.6
69.9
43.7
9.0
1,215.8
(789.6)
1,110.6
(737.5)
$
426.2
$
373.1
Depreciation expense of $63.4, $54.6 and $56.4 was recognized in 2013, 2012 and 2011, respectively.
89
NOTE 13
GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
Changes in the carrying amount of goodwill for the years ended December 31, 2013 and 2012 by segment are
as follows:
ITT CORPORATION AND SUBSIDIARIES
Goodwill - December 31, 2011
Goodwill acquired
Adjustments to purchase price allocations
Foreign currency
Industrial
Process
$ 193.2 $
Motion
Technologies
46.9
Interconnect
Solutions
Control
Technologies
$
72.3 $
Total
185.1 $ 497.5
146.5
2.6
3.2
—
—
0.9
—
—
0.7
—
—
—
146.5
2.6
4.8
Goodwill - December 31, 2012
$ 345.5 $
47.8
$
73.0 $
185.1 $ 651.4
Adjustments to purchase price allocations
Foreign currency
0.8
4.7
—
2.0
—
0.9
—
—
0.8
7.6
Goodwill - December 31, 2013
$ 351.0 $
49.8
$
73.9 $
185.1 $ 659.8
Goodwill of $12.9 was disposed of during 2012 in connection with the sale of the Shape Cutting businesses on
November 13, 2012. See Note 4, “Discontinued Operations” for further information.
Goodwill acquired during 2012 relates to the Bornemann acquisition. The purchase price allocation adjustment of
$0.8 during 2013 is due to a fair value adjustment to certain environmental and royalty-related liabilities that existed
at the acquisition date, partially offset by the receipt of $0.7 from the finalization of the Bornemann purchase price. As
these amounts are not considered material, the adjustments were not retrospectively applied as if the accounting for
the business combination had been completed at the acquisition date.
Based on the results of our 2013 annual impairment test, we determined that no impairment of goodwill existed
as of the measurement date in 2013. Based on the results of our 2012 annual impairment test and subsequent test
performed following the sale of the Shape Cutting Businesses, we determined that no impairment of goodwill existed
as of either measurement date in 2012. However, future goodwill impairment tests could result in a charge to earnings.
We will continue to evaluate goodwill on an annual basis as of the beginning of our fourth fiscal quarter and whenever
events and changes in circumstances indicate there may be a potential impairment.
Other Intangible Assets
Information regarding our other intangible assets is as follows:
Customer relationships
Proprietary technology
Patents and other
Finite-lived intangible total
Indefinite-lived intangibles
Other Intangible Assets
December 31, 2013
December 31, 2012
Gross
Carrying
Amount
$
84.9
30.3
16.4
131.6
27.8
Accumulated
Amortization
Net
Intangibles
$
(31.9) $
(7.6)
(13.0)
(52.5)
—
53.0
22.7
3.4
79.1
27.8
Gross
Carrying
Amount
$
84.7
29.5
18.0
132.2
27.4
Accumulated
Amortization
Net
Intangibles
$
(25.1) $
(4.9)
(6.3)
(36.3)
—
59.6
24.6
11.7
95.9
27.4
$ 159.4
$
(52.5) $
106.9
$ 159.6
$
(36.3) $
123.3
Intangible assets related to the acquisition of Bornemann included $11.4 of trademarks, $17.6 of customer
relationships, and $17.1 of proprietary technology. The trademarks have been assigned an indefinite life. The customer
relationships are expected to be amortized over a weighted average period of 9.6 years and the proprietary technology
is expected to be amortized over a weighted average period of 12.2 years.
Indefinite-lived intangibles consist of brands and trademarks. Based on the results of its annual impairment tests,
we determined that no impairment of the indefinite-lived intangibles existed as of the measurement date in 2013 or
2012. However, future impairment tests could result in a charge to earnings. We will continue to evaluate the indefinite-
lived intangible assets on an annual basis as of the beginning of our fourth fiscal quarter and whenever events and
changes in circumstances indicate there may be a potential impairment.
90
Customer relationships, proprietary technology and patents and other are amortized over weighted average lives
of approximately 13.6 years, 12.3 years and 11.4 years, respectively.
Amortization expense related to intangible assets for 2013, 2012 and 2011 was $17.6, $10.2 and $8.7, respectively.
Estimated amortization expense for each of the five succeeding years is as follows:
ITT CORPORATION AND SUBSIDIARIES
Year
2014
2015
2016
2017
2018
NOTE 14
ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES
Compensation and other employee-related benefits
Asbestos-related liability
Short-term loans and current maturities of long-term debt
Accrued income taxes and other tax-related liabilities
Customer-related liabilities
Environmental and other legal matters
Accrued warranty costs
Other accrued liabilities
Accrued and other current liabilities
Deferred income taxes and other tax-related accruals
Environmental liabilities
Compensation and other employee-related benefits
Other
Other non-current liabilities
NOTE 15
LEASES AND RENTALS
Estimated
Amortization
Expense
11.8
$
10.0
9.5
8.7
7.3
2013
$ 178.5
2012
$ 147.7
85.1
39.8
29.8
55.6
38.5
28.6
44.0
92.4
16.8
32.4
54.6
38.6
28.6
47.2
$ 499.9
$ 116.2
$ 458.3
$ 135.1
85.1
43.8
32.7
84.9
41.3
31.0
$ 277.8
$ 292.3
ITT leases certain offices, manufacturing buildings, land, machinery, automobiles, computers and other equipment.
The majority of leases expire at various dates through 2027 and may include renewal and payment escalation clauses.
ITT often pays maintenance, insurance and tax expense related to leased assets. Rental expenses under operating
leases were $14.7, $14.3 and $15.3 for 2013, 2012 and 2011, respectively. Future minimum operating lease payments
under non-cancellable operating leases with an initial term in excess of one year as of December 31, 2013 are shown
below.
2014
2015
2016
2017
2018
2019 and thereafter
Total minimum lease payments
91
$ 15.0
13.7
12.3
9.9
9.4
69.4
$ 129.7
NOTE 16
DEBT
Commercial Paper
Short-term loans
Current maturities of long-term debt
Current capital leases
Short-term loans and current maturities of long-term debt
Non-current maturities of long-term debt
Non-current capital leases
Long-term debt and capital leases
Total debt and capital leases
ITT CORPORATION AND SUBSIDIARIES
$
$
2013
38.0
—
1.3
0.5
39.8
7.6
1.5
9.1
$
48.9
$
2012
—
12.7
3.6
0.5
16.8
8.5
1.6
10.1
26.9
Our outstanding commercial paper as of December 31, 2013 had a weighted average interest rate of 0.44% and
maturity terms less than one month from the date of issuance.
The fair value of long-term debt as of December 31, 2013 approximates the carrying value and carries an interest
rate ranging from 4.20% to 5.40%. At December 31, 2013, assets of $10.3 were pledged as collateral.
At December 31, 2013, we had four interest rate swaps outstanding, with an aggregate notional amount of $11.9
and fair value of $0.6. The interest rate swaps convert floating-rate debt to a fixed rate. Changes in the fair value of
the interest rate swaps are recorded in earnings as the interest rate swaps do not qualify for hedge accounting.
Principal payments over the next five years and thereafter are as follows:
2014
2015
2016
2017
2018
Thereafter
Revolving Credit Facility
$ 39.8
1.8
1.5
1.3
0.9
3.6
On October 25, 2011, we entered into a competitive advance and revolving credit facility agreement (2011 Revolving
Credit Agreement) with a consortium of third party lenders including JP Morgan Chase Bank, N.A., as administrative
agent, and Citibank, N.A. as syndication agent. Upon its effectiveness at the Distribution, this agreement replaced our
existing $1,500 three-year revolving credit facility due August 2013. The 2011 Revolving Credit Agreement provides
for a four-year maturity with a one-year extension option upon satisfaction of certain conditions, and comprises an
aggregate principal amount of up to $500 of (i) revolving extensions of credit (the revolving loans) outstanding at any
time, (ii) competitive advance borrowing option which will be provided on an uncommitted competitive advance basis
through an auction mechanism (the competitive advances), and (iii) letters of credit in a face amount up to $100 at
any time outstanding. Subject to certain conditions, we are permitted to terminate permanently the total commitments
and reduce commitments in minimum amounts of $10. We are also permitted, subject to certain conditions, to request
that lenders increase the commitments under the facility by up to $200 for a maximum aggregate principal amount of
$700. Voluntary prepayments are permitted in minimum amounts of $50.
At our election, the interest rate per annum applicable to the competitive advances will be based on either (i) a
Eurodollar rate determined by reference to LIBOR, plus an applicable margin offered by the lender making such loans
and accepted by us or (ii) a fixed percentage rate per annum specified by the lender making such loans. At our election,
interest rate per annum applicable to the revolving loans will be based on either (i) a Eurodollar rate determined by
reference to LIBOR, adjusted for statutory reserve requirements, plus an applicable margin or (ii) a fluctuating rate of
interest determined by reference to the greatest of (a) the prime rate of JPMorgan Chase Bank, N.A., (b) the federal
funds effective rate plus one-half of 1% or (c) the 1-month LIBOR rate, adjusted for statutory reserve requirements,
plus 1%, in each case, plus an applicable margin. We had no amounts outstanding under the revolving credit facility
as of December 31, 2013.
92
ITT CORPORATION AND SUBSIDIARIES
Our obligations under the credit facility are unconditionally guaranteed by each of our significant direct or indirect
domestic subsidiaries.
The credit facility contains customary affirmative and negative covenants that, among other things, will limit or
restrict our ability to: incur additional debt or issue guarantees; create liens; enter into certain sale and lease-back
transactions; merge or consolidate with another person; sell, transfer, lease or otherwise dispose of assets; liquidate
or dissolve; and enter into restrictive covenants. Additionally, the 2011 Revolving Credit Agreement requires us not to
permit the ratio of consolidated total indebtedness to consolidated earnings before interest, taxes, depreciation and
amortization (EBITDA) (leverage ratio) to exceed 3.00 to 1.00 at any time, or the ratio of consolidated EBITDA to
consolidated interest expense (interest coverage ratio) to be less than 3.00 to 1.00. At December 31, 2013, our interest
coverage ratio and leverage ratio were within the prescribed thresholds.
2011 Debt Extinguishment
During 2011, ITT extinguished long-term debt of $1,251.0, resulting in a loss of $324.9, plus incidental fees, which
was recorded as a transformation cost. In connection with the extinguishment, we recognized a previously deferred
gain of $42.9 on a terminated interest rate swap and expensed $6.1 of previously deferred debt issuance costs and
unamortized debt discounts. Also during 2011, we terminated a capital lease by purchasing the leased properties which
resulted in a charge of $4.6 recorded as a transformation cost. The leased properties include five manufacturing and
office facilities, four of which were distributed to either Exelis or Xylem on the Distribution Date.
NOTE 17
POSTRETIREMENT BENEFIT PLANS
Defined Contribution Plans
Substantially all of ITT’s U.S. and certain international employees are eligible to participate in a defined contribution
plan. ITT sponsors numerous defined contribution savings plans, which allow employees to contribute a portion of
their pre-tax and/or after-tax income in accordance with specified guidelines. Several of the plans require us to match
a percentage of the employee contributions up to certain limits. Company contributions charged to income amounted
to $15.3, $13.5, and $8.2 for 2013, 2012 and 2011, respectively.
At the Distribution Date, the ITT Corporation Retirement Savings Plan for Salaried Employees was created, which
increased Company contributions from a maximum of 3.5% of base pay to 6% or 7%, depending on age and years of
service, of total eligible pay which includes base pay, overtime and qualified bonuses. Additionally, for five years
subsequent to the Distribution Date, the Company will provide transition credits to certain employees up to 5% of
eligible pay.
The ITT Stock Fund, an investment option under the ITT Corporation Retirement Savings Plan for Salaried
Employees and the ITT Hourly Savings Plan, is considered an employee stock ownership plan and, as a result,
participants in the ITT Stock Fund may receive dividends in cash or may reinvest such dividends into the ITT Stock
Fund. The ITT Stock Fund held approximately 0.3 shares of ITT common stock at December 31, 2013.
Defined Benefit Plans
ITT sponsors several defined benefit pension plans which have approximately 2,400 active participants; however,
most of these plans have been closed to new participants for several years. As of December 31, 2013, of our total
projected benefit obligation, the ITT Pension Plan for Bargaining Unit Employees Seneca Falls represented 35%, the
ITT Consolidated Hourly Pension Plan represented 38%, other U.S. plans represented 4% and international pension
plans represented 23%. The U.S. plans are generally for hourly employees with a flat dollar benefit formula based on
years of service. International plan benefits are primarily determined based on participant years of service, future
compensation, and age at retirement or termination.
ITT also provides health care and life insurance benefits for eligible U.S. employees upon retirement. In some
cases, the plan is still open to new employees, but for the majority of our businesses these plans are closed to new
participants. The majority of the liability pertains to retirees with postretirement medical insurance.
During 2013, management approved changes to certain of our defined benefit pension and postretirement plans,
including the merging of plans and the elimination of future benefit accruals for plan participants as of December 31,
2013. These changes resulted in a decrease to ITT's net postretirement liability of $23.3 and a curtailment loss of $1.2.
Future defined contribution plan changes were also approved increasing Company contributions for most U.S. hourly
employees to a maximum of 6.0% of total eligible pay.
93
Balance Sheet Information
Amounts recognized as assets or liabilities in the Consolidated Balance Sheets for postretirement benefit plans
reflect the funded status. The following table provides a summary of the funded status of our postretirement benefit
plans and the presentation of the funded status within our Consolidated Balance Sheet as of December 31, 2013 and
2012.
ITT CORPORATION AND SUBSIDIARIES
Fair value of plan assets
Projected benefit obligation
Funded status
Amounts reported within:
Non-current assets
Accrued liabilities
Non-current liabilities
2013
Other
Benefits
9.2
$
166.6
$ (157.4)
$
—
(8.4)
(149.0)
Pension
$ 268.8
366.0
$ (97.2)
$
1.9
(4.8)
(94.3)
Total
$ 278.0
532.6
Pension
$ 249.1
387.0
2012
Other
Benefits
7.9
$
213.0
Total
$ 257.0
600.0
$ (254.6)
$ (137.9)
$ (205.1)
$ (343.0)
$
1.9
$
(13.2)
(243.3)
—
(4.2)
$
—
(8.5)
(133.7)
(196.6)
$
—
(12.7)
(330.3)
A portion of our projected benefit obligation includes amounts that have not yet been recognized as expense in
our results of operations. Such amounts are recorded within accumulated other comprehensive loss until they are
amortized as a component of net periodic postretirement cost. The following table provides a summary of amounts
recorded within accumulated other comprehensive loss at December 31, 2013 and 2012.
Net actuarial loss
Prior service cost (benefit)
Total
2013
Other
Benefits
39.4
$
Total
$ 166.3
(22.2)
(19.4)
Pension
$ 175.7
4.8
$
17.2
$ 146.9
$ 180.5
2012
Other
Benefits
75.0
(3.7)
71.3
$
$
Total
$ 250.7
1.1
$ 251.8
Pension
$ 126.9
2.8
$ 129.7
The following table provides a rollforward of the projected benefit obligations for our U.S. and international pension
plans for the years ended December 31, 2013 and 2012.
Change in benefit obligation
Benefit obligation – January 1
Service cost
Interest cost
Amendments
Actuarial (gain) loss
Benefits and expenses paid
Assumed in acquisition
Foreign currency translation
Benefit obligation – December 31
2013
2012
U.S.
Int’l
Total
U.S.
Int’l
Total
$ 303.6
4.9
12.1
0.1
(22.9)
(16.6)
—
—
$ 281.2
$
83.4
$ 387.0
$ 277.8
$
52.3
$ 330.1
1.7
2.5
—
(1.8)
(3.2)
—
2.2
6.6
14.6
0.1
(24.7)
(19.8)
—
2.2
4.8
12.9
—
24.2
(16.1)
—
—
1.0
2.5
—
14.8
(3.1)
15.0
0.9
5.8
15.4
—
39.0
(19.2)
15.0
0.9
$
84.8
$ 366.0
$ 303.6
$
83.4
$ 387.0
94
The following table provides a rollforward of the projected benefit obligations for our other employee-related defined
benefit plans for the years ended December 31, 2013 and 2012.
ITT CORPORATION AND SUBSIDIARIES
Change in benefit obligation
Benefit obligation – January 1
Service cost
Interest cost
Amendments
Actuarial (gain) loss
Benefits paid
2013
2012
$ 213.0
$ 191.8
2.9
8.3
(19.0)
(30.4)
(8.2)
2.5
9.5
(3.1)
22.0
(9.7)
Benefit obligation – December 31
$ 166.6
$ 213.0
The following table provides a rollforward of the pension plan assets and the funded status for our U.S. and
international pension plans for the years ended December 31, 2013 and 2012.
Change in plan assets
Plan assets – January 1
Actual return on plan assets
Employer contributions
Benefits and expenses paid
Plan assets – December 31
Funded status at end of year
$ 247.1
35.4
0.9
(16.6)
$ 266.8
$ (14.4)
$
2.0
0.1
2.8
(2.9)
$
2.0
$ (82.8)
U.S.
2013
Int’l
Total
U.S.
$ 249.1
$ 182.3
$
35.5
3.7
(19.5)
22.6
58.3
(16.1)
$ 268.8
$ 247.1
$
2012
Int’l
2.0
0.1
3.0
(3.1)
2.0
Total
$ 184.3
22.7
61.3
(19.2)
$ 249.1
$ (97.2)
$ (56.5)
$ (81.4)
$ (137.9)
The following table provides a rollforward of the other employee-related defined benefit plan assets and the funded
status for the years ended December 31, 2013 and 2012.
Change in plan assets
Plan assets – January 1
Actual return on plan assets
Employer contributions
Benefits paid
Plan assets – December 31
Funded status at end of year
2013
2012
$
$
7.9
1.3
8.2
(8.2)
9.2
$
$
7.5
0.4
9.7
(9.7)
7.9
$ (157.4)
$ (205.1)
The accumulated benefit obligation for all defined benefit pension plans was $363.0 and $383.7 at December 31,
2013 and 2012, respectively. The following table provides information for pension plans with an accumulated benefit
obligation in excess of plan assets.
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
95
2013
$ 237.7
234.6
138.6
2012
$ 387.0
383.7
249.1
Income Statement Information
The following table provides the components of net periodic postretirement cost and other amounts recognized
in other comprehensive loss for each of the years ended December 31, 2013, 2012 and 2011 as they pertain to our
defined benefit pension plans.
ITT CORPORATION AND SUBSIDIARIES
Net periodic postretirement cost
Service cost
Interest cost
Expected return on plan assets
Amortization of net actuarial loss (gain)
Amortization of prior service cost
Net periodic postretirement cost
Effect of curtailment / Special termination
benefit
Total net periodic postretirement cost
Other changes in plan assets and
benefit obligations recognized in other
comprehensive loss
Net actuarial (gain) loss
Amortization of net actuarial (loss) gain
Amortization of prior service cost
Foreign currency translation
Total change recognized in other
comprehensive loss
Total impact from net periodic
postretirement cost and changes in other
comprehensive loss
2013
2012
2011
U.S.
Int’l
Total
U.S.
Int’l
Total
U.S.
Int’l
Total
$
4.9
$
12.1
(19.5)
1.7
2.5
$
6.6
$
4.8
$
14.6
12.9
(0.1)
(19.6)
(18.2)
8.3
0.8
6.6
1.2
7.8
0.6
—
4.7
—
4.7
8.9
0.8
11.3
1.2
12.5
6.5
0.9
6.9
—
6.9
1.0
2.5
(0.1)
(0.2)
—
3.2
—
3.2
$
5.8
$
5.6
$
15.4
13.4
(18.3)
(18.9)
6.3
0.9
10.1
—
10.1
3.7
1.2
5.0
2.5
7.5
0.9
2.5
(0.1)
(0.1)
—
3.2
—
3.2
$
6.5
15.9
(19.0)
3.6
1.2
8.2
2.5
10.7
(40.0)
(8.3)
(0.8)
—
(1.8)
(0.6)
—
0.5
(41.8)
19.8
14.8
34.6
(8.9)
(0.8)
0.5
(6.5)
(0.9)
—
0.2
—
0.4
(6.3)
(0.9)
0.4
51.6
(3.7)
(2.8)
—
(1.1)
50.5
0.1
—
—
(3.6)
(2.8)
—
(49.1)
(1.9)
(51.0)
12.4
15.4
27.8
45.1
(1.0)
44.1
$ (41.3) $
2.8
$ (38.5) $ 19.3
$ 18.6
$ 37.9
$ 52.6
$
2.2
$ 54.8
Additionally, during 2011, ITT recorded expenses of approximately $15.3 related to the participation of ITT
employees in the former U.S. ITT Salaried Retirement Plan (SRP). In connection with the Distribution, Exelis became
the plan sponsor of the SRP and assumed all assets and liabilities of the plan. ITT's U.S. salaried employees ceased
to accrue retirement benefits under the SRP and all benefits accrued as of the Distribution Date were frozen.
96
The following table provides the components of net periodic postretirement cost and other amounts recognized
in other comprehensive loss for each of the years ended December 31, 2013, 2012 and 2011 as they pertain to other
employee-related defined benefit plans.
ITT CORPORATION AND SUBSIDIARIES
Net periodic postretirement cost
Service cost
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Amortization of prior service credit
Total net periodic postretirement cost
Other changes in plan assets and benefit obligations recognized in
other comprehensive loss
Net actuarial (gain) loss
Prior service credit
Amortization of net actuarial loss
Amortization of prior service credit
Total changes recognized in other comprehensive loss
Total impact from net periodic postretirement cost and changes in other
comprehensive loss
2013
2012
2011
$
2.9
8.3
(0.6)
4.3
(0.4)
14.5
(31.1)
(19.0)
(4.3)
0.4
(54.0)
$
2.5
9.5
(0.5)
4.6
(0.1)
16.0
22.1
(3.1)
(4.6)
0.1
14.5
$
1.8
9.5
(0.6)
2.6
(0.1)
13.2
14.5
—
(2.6)
0.1
12.0
$ (39.5)
$
30.5
$
25.2
The following table provides the estimated net actuarial loss and prior service cost that is expected to be amortized
from accumulated other comprehensive income into net periodic postretirement cost during 2014.
Net actuarial loss
Prior service cost (credit)
Total
Postretirement Plan Assumptions
Pension
6.6
$
0.6
7.2
$
Other
Benefits
2.3
$
(6.0)
(3.7)
$
Total
8.9
(5.4)
3.5
$
$
The determination of projected benefit obligations and the recognition of expenses related to postretirement benefit
plans are dependent on various assumptions that are judgmental and developed in consultation with external advisors.
Management develops each assumption using relevant Company experience in conjunction with market-related data
for each individual country in which such plans exist. Assumptions are reviewed annually and adjusted as necessary.
The actuarial assumptions are based on the provisions of the applicable accounting pronouncements, review of various
market data and discussion with our external advisors. Changes in these assumptions could materially affect our
financial statements.
The following table provides the weighted-average assumptions used to determine projected benefit obligations
and net periodic postretirement cost, as they pertain to our defined benefit pension plans.
Obligation Assumptions:
Discount rate
Rate of future compensation increase
Cost Assumptions:
Discount rate
Expected return on plan assets
97
2013
2012
U.S.
Int’l
U.S.
Int’l
4.8%
N/A
4.1%
8.0%
3.2%
3.4%
3.1%
4.7%
4.1%
N/A
4.8%
8.0%
3.1%
3.2%
4.8%
4.7%
The following table provides the weighted-average assumptions used to determine projected benefit obligations
and net periodic postretirement cost, as they pertain to other employee-related defined benefit plans.
ITT CORPORATION AND SUBSIDIARIES
Obligation Assumptions:
Discount rate
Cost Assumptions:
Discount rate
Expected return on plan assets
2013
2012
4.7%
4.1%
8.0%
4.1%
4.8%
8.0%
The assumed discount rates reflect our expectation of the present value of expected future cash payments for
benefits at the measurement date. We base the discount rate assumption on investment yields of high-quality fixed
income securities at the measurement date during the expected benefits payment period. The discount rates were
determined by considering an interest rate yield curve comprised of high quality corporate bonds, with maturities
generally between zero and thirty years. Annual benefit payments are then discounted to present value using this yield
curve to develop a single-point discount rate matching the plan’s payment characteristics.
The rate of future compensation increase assumption for foreign plans reflects our long-term actual experience
and future and near-term outlook. The rate of future compensation increase assumption is not applicable for U.S. plans
because the benefit formula is based on a years of service approach.
The expected long-term rate of return on assets reflects the expected returns for each major asset class in which
the plans invest, the weight of each asset class in the target mix, the correlations among asset classes and their
expected volatilities. Our expected return on plan assets is estimated by evaluating both historical returns and estimates
of future returns based on our target asset allocation. Specifically, we estimate future returns based on independent
estimates of asset class returns weighted by the target investment allocation.
Prior to the Distribution of Exelis and Xylem, the Company’s U.S. postretirement plans participated in a master
trust that invested in asset classes that historically generated asset returns in excess of the expected long-term rate
of return on plan assets. With the distribution of certain postretirement benefit plans and their respective plan assets
to Exelis and Xylem, we developed a new target asset allocation that is expected to generate a lower level of returns
on plan assets than were realized in the past. Based on this approach, in 2012 our weighted average estimate of the
long-term annual rate of return on assets for pension plans was reduced to 8%. For postretirement plans that participate
in the current master trust and participated in the master trust distributed to Exelis, the chart below shows actual returns
compared to the expected long-term returns for our postretirement plans that were utilized in the calculation of the net
periodic postretirement cost for each respective year.
Expected rate of return on plan assets
Actual rate of return on plan assets
2013
8.0%
14.2%
2012
8.0%
11.1%
2011
9.0 %
(3.2)%
For the recognition of net periodic postretirement cost, the calculation of the expected return on plan assets is
generally derived using a market-related value of plan assets based on average asset values at the measurement
date over the last five years. The use of fair value, rather than a market-related value, of plan assets could materially
affect net periodic postretirement cost.
The assumed rate of future increases in the per capita cost of health care (the health care trend rate) is 8.0% for
pre-age 65 retirees and 6.3% for post-age 65 retirees for 2014, decreasing ratably to 4.5% in 2021. Increasing the
health care trend rates by one percent per year would have the effect of increasing the benefit obligation by $18.2 and
the aggregate annual service and interest cost components by $2.0. A decrease of one percent in the health care trend
rate would reduce the benefit obligation by $15.6 and the aggregate annual service and interest cost components by
$1.6. To the extent that actual experience differs from these assumptions, the effect will be amortized over the average
future working life or life expectancy of the plan participants.
98
ITT CORPORATION AND SUBSIDIARIES
Investment Policy
The investment strategy for managing worldwide postretirement benefit plan assets is to seek an optimal rate of
return relative to an appropriate level of risk for each plan. Investment strategies vary by plan, depending on the specific
characteristics of the plan, such as plan size and design, funded status, liability profile and legal requirements.
Substantially all of the postretirement benefit plan assets are managed on a commingled basis in a master
investment trust. With respect to the master investment trust, the Company allows itself broad discretion to invest
tactically to respond to changing market conditions, while staying reasonably within the target asset allocation ranges
prescribed by its investment guidelines. In making these asset allocation decisions, the Company takes into account
recent and expected returns and volatility of returns for each asset class, the expected correlation of returns among
the different investments, as well as anticipated funding and cash flows. To enhance returns and mitigate risk, the
Company diversifies its investments by strategy, asset class, geography and sector.
The following table provides the allocation of plan assets held in the master investment trust by asset category,
as of December 31, 2013 and 2012, and the related targeted asset allocation ranges by asset category.
U.S. equities
International equities
Fixed income
Cash and other
2013
37%
30%
32%
1%
Target
Allocation
Range
30-40 %
20-40 %
25-45 %
0-5 %
2012
35%
29%
35%
1%
The strategies and allocations of plan assets outside of the U.S. are managed locally and may differ significantly
from those in the U.S. In general and as of December 31, 2013, non-U.S. plan assets of approximately $2.0 are
managed closely to their strategic allocations.
Fair Value of Plan Assets
In measuring plan assets at fair value, a fair value hierarchy is applied which categorizes and prioritizes the inputs
used to estimate fair value into three levels. The fair value hierarchy is based on maximizing the use of observable
inputs and minimizing the use of unobservable inputs when measuring fair value. Classification within the fair value
hierarchy is based on the lowest level input that is significant to the fair value measurement. The three levels of the
fair value hierarchy are defined as follows:
•
•
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs are other than quoted prices included within level 1 that are observable for the asset or liability,
either directly or indirectly. Level 2 inputs include quoted prices (in non-active markets or in active markets for
similar assets or liabilities), inputs other than quoted prices that are observable, and inputs that are derived
principally from or corroborated by observable market data by correlation or other means.
•
Level 3 inputs are unobservable inputs for the assets or liabilities.
In certain instances, fair value is estimated using quoted market prices obtained from external pricing services. In
obtaining such data from the pricing service, the Company has evaluated the methodologies used to develop the
estimate of fair value in order to assess whether such valuations are representative of fair value, including net asset
value (NAV). Additionally, in certain circumstances, the Company may adjust NAV reported by an asset manager when
sufficient evidence indicates NAV is not representative of fair value.
The following is a description of the valuation methodologies and inputs used to measure fair value for major
categories of investments.
• Equities – Open ended mutual funds, collective trusts and commingled funds are measured at NAV. These
funds are generally classified within Level 2 of the fair value hierarchy.
• Fixed income – U.S. government securities are generally valued using quoted prices of securities with similar
characteristics. Corporate bonds and notes are generally valued by using pricing models (e.g., discounted
cash flows), quoted prices of securities with similar characteristics or broker quotes. Fixed income securities
are generally classified in Level 2 of the fair value hierarchy. Other employee benefit plan assets include an
investment in a structured security valued using broker quotes. Due to the significance of unobservable inputs
involved in the broker quote, the investment is classified within Level 3 of the fair value hierarchy.
99
The following table provides the fair value of plan assets held by our postretirement benefit plans, at December 31,
2013 and 2012, by asset class.
ITT CORPORATION AND SUBSIDIARIES
2013
Equities:
U.S.
International
Emerging Markets
Fixed income
Cash and other
Total
2012
Equities:
U.S.
International
Emerging Markets
Fixed income
Cash and other
Total
Pension
Other Benefits
Total
Level 2
Total
Level 3
$
$
98.2
56.6
25.5
85.0
3.5
$
98.2
56.6
25.5
85.0
3.5
$ 268.8
$ 268.8
$
—
—
—
9.2
—
9.2
$
$
—
—
—
9.2
—
9.2
Pension
Other Benefits
Total
Level 2
Total
Level 3
$
$
86.9
46.0
26.2
86.1
3.9
$
86.9
46.0
26.2
86.1
3.9
$ 249.1
$ 249.1
$
—
—
—
7.9
—
7.9
$
$
—
—
—
7.9
—
7.9
There have been no significant realized or unrealized gains and losses, purchases, sales, settlements or transfers
of assets within our other employee-related benefit plans measured using significant unobservable inputs (Level 3).
Contributions
While we make contributions to our postretirement benefit plans when considered necessary or advantageous to
do so, the minimum funding requirements established by local government funding or taxing authorities, or established
by other agreements, may influence future contributions. Funding requirements under IRS rules are a major
consideration in making contributions to our post-retirement plans. In addition, we fund certain of our international
pension plans in countries where funding is allowable and tax-efficient. During 2013 and 2012, we contributed $11.9
and $71.0 to our postretirement benefit plans, respectively, of which $0.9 and $58.3 was to U.S. pension plans.
We anticipate making contributions to our global postretirement plans of $15.0 during 2014, of which $1.8 has
been made in the first quarter.
Estimated Future Benefit Payments
The following table provides the projected timing of payments for benefits earned to date and the expectation that
certain future service will be earned by current active employees for our pension and other employee-related benefit
plans.
2014
2015
2016
2017
2018
2019 – 2022
U.S.
Pension
16.3
$
Int’l
Pension
5.0
$
Other
Benefits
10.5
$
16.7
17.2
17.7
18.1
95.4
4.2
4.0
4.3
4.1
22.1
10.7
10.9
11.0
11.0
53.2
100
ITT CORPORATION AND SUBSIDIARIES
NOTE 18
LONG-TERM INCENTIVE EMPLOYEE COMPENSATION
The 2011 Omnibus Incentive Plan (2011 Incentive Plan) was approved by shareholders and established in May
of 2011 to provide for the awarding of options on common shares and full value restricted common shares or units to
employees and non-employee directors. The number of shares initially available for issuance to participants under the
2011 Incentive Plan was 4.6. The 2011 Incentive Plan replaced the ITT Amended and Restated 2003 Equity Incentive
Plan (2003 Incentive Plan) on a prospective basis and no future grants will be made under the 2003 Incentive Plan.
However, any shares remaining available for issuance under the 2003 Incentive Plan became available for grant under
the 2011 Incentive Plan as of the date the 2011 Incentive Plan was approved by shareholders. In connection with the
Distribution, and per the terms of the 2011 Incentive Plan, an equitable adjustment which preserved the intrinsic value
of the awards after giving effect to the distribution of Exelis and Xylem was made (referred to as the Equitable
Adjustment). As of December 31, 2013, 40.2 shares were available for future grants under the 2011 Incentive Plan.
ITT makes shares available for the exercise of stock options or vesting of restricted shares or units by purchasing
shares in the open market or by issuing shares from treasury stock.
Prior to 2013, our long-term incentive plan (LTIP) was comprised of three components: non-qualified stock options
(NQOs), restricted stock units (RSUs), and a total shareholder return award (TSR). The majority of RSUs settle in
shares; however RSUs granted to international employees are settled in cash. We account for NQOs and equity settled
RSUs as equity-based compensation awards while cash-settled TSR awards granted prior to 2013 and cash settled
RSUs are accounted for as liability-based awards. Beginning in 2013, we replaced the TSR component of our LTIP
with a Performance Unit award component. Performance Unit (PSU) awards are based on both a relative total
shareholder return metric as well as a return on invested capital (ROIC) metric, equally weighted, providing a balance
between relative and absolute long-term performance. The PSU awards will settle in shares, dependent upon
performance, following a three-year performance period to further align payouts with stock price performance. The
PSU awards are accounted for as two distinct awards, an ROIC award and a TSR award. We account for NQOs,
RSUs, ROIC awards, and share-settled TSR awards granted in 2013 as equity-based compensation awards.
Long-term incentive employee compensation costs are primarily recorded within general and administrative
expenses, and are reduced by an estimated forfeiture rate. These costs impacted our consolidated results of operations
as follows:
Share-based compensation expense, equity-based awards
Share-based compensation expense, liability-based awards
Total share-based compensation expense in operating income (loss)(a)
2013
$ 13.3
3.8
2012
$ 12.9
1.9
2011
$ 23.3
2.1
$ 17.1
$ 14.8
$ 25.4
(a) Share-based compensation expense incurred during 2013, 2012, and 2011 includes $0.2, $0.5 and $4.7,
respectively, classified as a transformation cost in the Consolidated Statements of Operations related to the
modification of equity awards. Also, included in 2011 is $8.3 of accelerated expense recognition primarily related
to the retirement of Steven R. Loranger, our former Chairman, President and Chief Executive Officer.
At December 31, 2013, there was $18.7 of total unrecognized compensation cost related to non-vested equity
awards. This cost is expected to be recognized ratably over a weighted-average period of 2.1 years. Additionally,
unrecognized compensation cost related to liability-based awards was $4.2, which is expected to be recognized ratably
over a weighted-average period of 1.6 years.
Conversion and Cancellation of Outstanding Equity at Spin Date
In connection with the Distribution, ITT modified its outstanding equity awards on October 31, 2011 (the modification
date). For equity awards issued through employee compensation arrangements, the awards were generally modified
such that, following the Distribution, the employee only held equity in their future employer and the intrinsic value of
the awards was preserved through the Equitable Adjustment. Awards held by members of the Board of Directors were
modified so that the awardee continued to hold an award in each of the three companies following the Distribution.
As a result of the Equitable Adjustment, an option modification expense of $7.9 was recorded during 2011 for
awards that were fully vested on the modification date. The option modification included $3.2 of expense allocated to
discontinued operations for employees who transferred to Exelis or Xylem. In addition, $0.2 and $0.5 of incremental
fair value was amortized during 2013 and 2012, respectively, for awards unvested on the modification date for
employees who remained with ITT.
101
Pursuant to the completion of the Distribution on October 31, 2011, 1.2 stock options and 0.5 restricted equity
awards held by the employees of Exelis and Xylem were converted to equity awards in the underlying common stock
of their respective employer and were cancelled as ITT equity awards.
ITT CORPORATION AND SUBSIDIARIES
Non-Qualified Stock Options
Options generally vest over or at the conclusion of a three-year period and are exercisable in seven or ten-year
periods, except in certain instances of death, retirement or disability. Options granted between 2004 and 2009 were
awarded with a contractual term of seven years. Options granted prior to 2004 and after 2009 were awarded with a
contractual term of ten years. The exercise price per share is the fair market value of the underlying common stock
on the date each option is granted.
A summary of the status of our NQOs as of December 31, 2013, 2012 and 2011 and changes during the years
then ended is presented below.
2013
2012
2011
Stock Options
Outstanding – January 1
Granted
Exercised
Cancelled or expired
Outstanding on Distribution Date
before Equitable Adjustment
Outstanding on Distribution Date
after Equitable Adjustment
November/December 2011 Activity:
Granted
Exercised
Outstanding – December 31
Options exercisable – December 31
Shares
4.3
0.4
(1.9)
(0.1)
—
—
—
—
2.7
1.5
Weighted
Average
Exercise
Price
18.46
$
26.82
17.37
16.15
—
—
—
—
$
$
20.46
18.34
Weighted
Average
Exercise
Price
16.70
$
22.80
15.35
17.21
—
—
—
—
$
$
18.46
17.10
Weighted
Average
Exercise
Price
85.08
$
115.36
76.27
92.76
88.52
16.18
20.28
13.87
16.70
16.03
$
$
Shares
3.7
0.3
(0.7)
(1.3) (b)
2.0
8.0
0.7
(0.7)
8.0
6.3
Shares
8.0
0.4
(3.8)
(0.3)
—
—
—
—
4.3
2.9
(b) Includes 1.2 shares cancelled in connection with the Distribution of Exelis and Xylem, with a corresponding
weighted average exercise price of $92.20.
The aggregate intrinsic value of options exercised (which is the amount by which the stock price exceeded the
exercise price of the options on the date of exercise) during 2013, 2012 and 2011 was $26.3, $24.7 and $29.8,
respectively.
The amount of cash received from the exercise of stock options was $34.8, $58.0 and $61.6 for 2013, 2012 and
2011, respectively. The income tax benefit realized during 2013, 2012 and 2011 associated with stock option exercises
and lapses of restricted stock was $13.4, $11.0 and $16.7, respectively. We classify the cash flows attributable to
excess tax benefits arising from stock option exercises and restricted stock lapses as a financing activity. Excess tax
benefits arising from stock option exercises and restricted stock lapses were $8.7, $6.4 and $7.2 for 2013, 2012 and
2011, respectively. The following table summarizes information about ITT’s stock options at December 31, 2013:
Range of
Exercise
Prices
$12-$15
$15-$20
$20-$25
$25-$30
Number
0.5
0.4
1.4
0.4
2.7
Options Outstanding
Weighted
Average
Remaining
Contractual Life
(in years)
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
14.0
9.7
31.9
5.8
61.4
Number
0.5
0.4
0.6
—
1.5
1.1 $ 13.19 $
4.5
7.1
9.2
6.0 $ 20.46 $
19.92
21.39
26.82
Options Exercisable
Weighted
Average
Remaining
Contractual Life
(in years)
Weighted
Average
Exercise
Price
1.1 $ 13.19 $
4.5
6.1
—
4.2 $ 18.34 $
19.92
20.94
—
Aggregate
Intrinsic
Value
14.0
9.7
15.0
—
38.7
102
ITT CORPORATION AND SUBSIDIARIES
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on ITT’s
closing stock price of $43.42 as of December 31, 2013, which would have been received by the option holders had
all option holders exercised their options as of that date. There was no options “out-of-the-money” as of December 31,
2013.
As of December 31, 2013, the total number of stock options expected to vest (including those that have already
vested) was 2.6. These stock options have a weighted-average exercise price of $20.37, an aggregate intrinsic value
of $60.6 and a weighted-average remaining contractual life of 5.1 years.
The fair value of each option grant was estimated on the date of grant using the binomial lattice pricing model
which incorporates multiple and variable assumptions over time, including assumptions such as employee exercise
patterns, stock price volatility and changes in dividends. The following are weighted-average assumptions for 2013,
2012 and 2011:
Dividend yield
Expected volatility
Expected life (in years)
Risk-free rates
2013
1.5%
29.9%
6.4
1.1%
2012
1.6%
34.1%
6.9
1.4%
November 7,
2011 Grants
1.8%
39.3%
7.0
1.5%
2011
Grants Before
Distribution
1.7%
24.7%
7.0
3.1%
Weighted-average grant date fair value
$ 6.62
$ 6.71
$
6.97
$
29.70
Expected volatilities for option grants prior to the Distribution were based on ITT’s stock price history, including
implied volatilities from traded options on our stock. Expected volatilities for option grants subsequent to the Distribution
were based on a peer average of historical and implied volatility. ITT uses historical data to estimate option exercise
and employee termination behavior within the valuation model. Option characteristics are considered separately for
valuation purposes. We utilized two employee groups for option grant valuation purposes for periods prior to the
distribution and have utilized one group for all subsequent option grant valuations. The expected life represents an
estimate of the period of time options are expected to remain outstanding. The expected life provided above represents
the weighted average of expected behavior for certain groups of employees who have historically exhibited different
behavior. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of option grant.
Restricted Stock Units and Performance Units
Beginning in 2011, the Compensation Committee of the Board of Directors elected to grant RSUs to employees,
as opposed to restricted stock awards (RSAs) which were awarded in periods prior to 2011. The Committee decided
to grant RSUs rather than RSAs in 2011 because RSUs provide a consistent tax treatment for domestic and international
employees. RSUs provide the same economic risk or reward as RSAs, but recipients do not have voting rights and
do not receive cash dividends during the restriction period. Dividend equivalents on RSUs, which are subject to
forfeiture, are accrued and paid in cash upon vesting of the RSU, which typically occurs three years from the date of
grant. If an employee retires or is terminated other than for cause, a pro rata portion of the RSU may vest. The fair
value of restricted stock awards and restricted stock units is determined using the closing price of the Company’s
common stock on date of grant.
The fair value of the ROIC awards was based on the closing price of ITT common stock on the date of grant less
the present value of expected dividend payments during the vesting period. A dividend yield of 1.49% was assumed
based on ITT's annualized dividend payment of $0.40 per share and the March 5, 2013 closing stock price of $26.76.
The fair value of the ROIC award is fixed on the grant date; however, a probability assessment is performed each
reporting period to estimate the likelihood of achieving the ROIC targets and the amount of compensation to be
recognized. The ROIC award payout is subject to a payout factor which includes a maximum and minimum payout.
The fair value of the TSR award was measured using a Monte Carlo simulation, measuring potential total
shareholder return for ITT relative to the other companies in the S&P 400 Capital Goods Index (the TSR Performance
Group). The expected volatility of ITT's stock price was based on the historical volatility of a peer group while expected
volatility for the other companies in the TSR Performance Group was based on their own stock price history. All volatility
and correlation measures were based on three years of daily historical price data through March 5, 2013, corresponding
to the three-year performance period of the award. The TSR award payout is subject to a multiplier which includes a
maximum and minimum payout. As the grant date occurred after the beginning of the performance period, actual TSR
performance between the beginning of the performance period (December 2012 average closing stock price) and the
103
grant date was reflected in the valuation. A dividend yield of 1.49% was assumed based on ITT's annualized dividend
payment of $0.40 per share and the March 5, 2013 closing stock price of $26.76
The table below provides a rollforward of outstanding RSUs, PSUs, and RSAs for each of the years ended December
31, 2013, 2012 and 2011.
ITT CORPORATION AND SUBSIDIARIES
2013
2012
2011
Restricted Stock and
Performance Units
Outstanding – January 1
Granted
Lapsed
Canceled
Outstanding on Distribution Date
before equitable adjustment
Outstanding on Distribution Date
after equitable adjustment
November/December 2011
Activity:
Granted
0.6
(0.4)
(0.1)
—
—
—
Outstanding – December 31
1.3 $
Weighted
Average Grant
Date Fair Value
21.06
Shares
1.2 $
Weighted
Average Grant
Date Fair
Value
18.55
Shares
1.4 $
Weighted
Average
Grant Date
Fair Value
89.70
115.18
99.53
95.30
93.42
17.94
20.27
18.55
$
$
Shares
0.9
0.3
(0.3)
(0.6) (c)
0.3
1.0
0.4
1.4
28.16
20.25
22.68
—
—
—
24.17
0.4
(0.5)
(0.1)
—
—
—
1.2 $
22.56
15.21
20.58
—
—
—
21.06
(c) Includes a total of 0.5 RSUs and RSAs canceled in connection with the Distribution of Exelis and Xylem, with a
corresponding weighted average grant date fair value of $95.14.
The table below provides the number of the outstanding equity settled RSUs, PSU's, RSA's and cash settled RSUs
as of December 31, 2013, 2012 and 2011.
Equity settled RSUs
Cash settled RSUs
PSUs
RSAs
2013
1.0
0.1
0.2
—
2012
0.9
0.1
—
0.2
2011
0.8
0.1
—
0.5
As of December 31, 2013, the total number of RSUs and PSUs expected to vest was 0.9 and 0.3, respectively.
The number of PSUs expected to vest is based on current performance estimates.
Total Shareholder Return Awards
The TSR award plan is a performance-based cash award incentive program provided to key employees of ITT.
TSR awards, granted prior to 2013, are accounted for as liability-based awards. The fair value of outstanding awards
is determined at the conclusion of the three-year performance period by measuring ITT’s total shareholder return
percentage against the total shareholder return performance of other stocks generally comprising the S&P 400 Capital
Goods Index. We reassess the fair value of our TSR awards at the end of each reporting period using actual total
shareholder return data over the performance period to date as well as a Monte Carlo simulation for potential future
price movements. Payment, if any, typically occurs during the first quarter of each year and is based on the TSR
performance comparison measured against targets established at the time of the award. No payments were made
during either 2013, 2012, or 2011 under the TSR award plan. The estimated TSR liability as of December 31, 2013 is
$3.8.
In connection with the Distribution, a proportionate number of outstanding TSR awards vested corresponding to
the percentage of time passed between original grant date and October 31, 2011 (the vested portion). The fair value
of the vested portion on October 31, 2011 was nil, as the performance factor for each TSR grant was below the minimum
threshold. The unvested portion of TSR awards (the percent of time remaining between October 31, 2011 and the
awards originally stated vesting date) were modified depending on the year of grant. The unvested portion of the 2010
and 2011 TSR awards were modified through the granting of RSU awards with a grant date fair value equal to the
unvested portion at target. The replacement RSU awards maintain the vesting date established in the original TSR
104
award agreement. No compensation expense was recognized in connection with these modifications as the incremental
fair value resulting from the modification pertains to the unvested portion of the original TSR award. The deferred
compensation cost of $2.2, as of the modification date, was recognized straight-line over the remaining vesting periods
which concluded on December 31, 2013.
ITT CORPORATION AND SUBSIDIARIES
NOTE 19
CAPITAL STOCK
ITT has authority to issue an aggregate of 300 shares of capital stock, of which 250 shares have been designated
as Common Stock having a par value of $1 per share and 50 shares have been designated as Preferred Stock not
having any par or stated value. There was no Preferred Stock outstanding as of December 31, 2013 and 2012.
The stockholders of ITT common stock are entitled to receive dividends when and as declared by ITT’s Board of
Directors. Dividends are paid quarterly. Dividends declared were $0.40, $0.364 and $1.591 per common share in 2013,
2012, and 2011, respectively.
On October 27, 2006, a three-year $1 billion share repurchase program (2006 Share Repurchase Program) was
approved by our Board of Directors. On December 16, 2008, the provisions of the share repurchase program were
modified by our Board of Directors to replace the original three-year term with an indefinite term. During 2013 and
2012, we repurchased 3.1 and 5.1 shares of common stock for $85.2 and $113.4, respectively. Through
December 2013, we had repurchased 15.3 shares for $629.3, including commissions, under the $1 billion share
repurchase program.
Separate from the 2006 Share Repurchase Program, the Company repurchased 0.1 shares, 0.1 shares, and 0.1
shares for an aggregate price of $2.7, $3.4, and $6.6, during 2013, 2012 and 2011, respectively, in settlement of
employee tax withholding obligations due upon the vesting of restricted stock or stock units.
We make shares available for the exercise of stock options and vesting of restricted stock by purchasing shares
in the open market or by issuing shares from treasury stock. During 2013, 2012, and 2011, we issued 2.3 shares,
4.0 shares, and 1.7 shares, respectively, related to equity compensation arrangements. As of December 31, 2013 and
2012, 13.0 shares and 11.9 shares of Common Stock were held in our treasury account, respectively.
On October 31, 2011, the distribution of Exelis and Xylem from ITT was completed. On October 31, 2011, the
stockholders of record as of the Record Date received one share of Xylem common stock and one share of Exelis
common stock for each share of ITT common stock held as of the Record Date. The Distribution was completed
pursuant to a Distribution Agreement, effective as of October 25, 2011, among ITT, Exelis and Xylem.
On October 31, 2011, we completed the 1:2 Reverse Stock Split. The par value of our common stock remained
$1 per share following the 1:2 Reverse Stock Split. All preferred and common stock shares available, issued and
outstanding, as well as share prices and earnings per share give effect to the 1:2 Reverse Stock Split in all periods
presented. Cash payments made to settle fractional shares resulting from the 1:2 Reverse Stock Split were immaterial.
NOTE 20
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, sometimes related to 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 any material adverse impact
on our financial statements, unless otherwise noted below.
Asbestos Matters
Background
ITT, including its subsidiary Goulds Pumps, Inc., has been joined as a defendant with numerous other companies
in product liability lawsuits alleging personal injury due to asbestos exposure. These claims generally allege that certain
products sold by us or 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.
105
As of December 31, 2013, there were 61 thousand pending active claims against ITT, including Goulds Pumps,
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:
ITT CORPORATION AND SUBSIDIARIES
(in thousands)
Pending claims – Beginning
New claims
Settlements
Dismissals(a)
Pending claims – Ending
Pending inactive claims(a)
Pending active claims
2013
96
5
(3)
(19)
79
18
61
2012
105
4
(1)
(12)
96
29
67
2011
104
5
(2)
(2)
105
39
66
(a) The 2013, 2012, and the 2011 dismissals reported in the table above include the dismissal of approximately 12
thousand ,12 thousand, and 10 thousand claims respectively, which were considered pending inactive claims.
Inactive claims represent pending claims in Mississippi filed prior to 2004, which have been excluded from our
asbestos measurement because the plaintiffs cannot demonstrate a significant compensable loss. As such,
management believes these claims have little to no value.
Frequently, plaintiffs are unable to identify any ITT or Goulds Pumps product as a source of asbestos exposure.
Our experience to date is that a majority of resolved claims are dismissed without any payment from the Company.
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, as well as the number of open claims,
can fluctuate significantly from period to period. The average cost per resolved claim, including indemnity and defense
costs, for the past three years, has been within a range of $3 to $19 thousand. ITT expects more asbestos-related
suits will be filed in the future, and ITT will aggressively defend or seek a reasonable resolution, as appropriate.
Estimating the Liability and Related Asset
The Company records an asbestos liability, including legal fees, for costs estimated to be incurred to resolve all
pending claims, as well as unasserted claims estimated to be filed against the Company over the next 10 years. The
asbestos liability has not been discounted to present value due to an inability to reliably forecast the timing of future
cash flows. The methodology used to estimate our asbestos liability for pending claims and claims estimated to be
filed over the next 10 years relies on and includes the following:
•
interpretation of a widely accepted forecast of the population likely to have been exposed to asbestos in the
workplace;
• widely accepted epidemiological studies estimating the number of people likely to develop mesothelioma and
lung cancer from exposure to asbestos;
•
•
•
•
•
•
•
•
the Company’s historical experience with the filing of non-malignant claims against it and the historical
relationship between non-malignant and malignant claims filed against the Company;
analysis of the number of likely asbestos personal injury claims to be filed against the Company based on
such epidemiological and historical data and the Company’s recent claims experience;
analysis of the Company’s pending cases, by disease type;
analysis of the Company’s recent experience to determine the average settlement value of claims, by disease
type;
analysis of the Company's recent experience in the ratio of settled claims to total resolved claims, by disease
type;
analysis of the Company’s defense costs in relation to its indemnity costs;
adjustment for inflation in the average settlement value of claims and defense costs estimated to be paid in
the future; and
analysis of the Company’s recent experience with regard to the length of time to resolve asbestos claims.
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 of the 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, the Company is unable to estimate the maximum potential
exposure to pending claims and claims estimated to be filed over the next 10 years.
106
ITT CORPORATION AND SUBSIDIARIES
The forecast period used to estimate our potential liability to pending and projected asbestos claims is a judgment
based on a number of factors, including the number and type of claims filed, recent experience with pending claims
activity and whether that experience is expected to continue into the future, the jurisdictions where claims are filed,
the effect of any legislative or judicial developments, and the likelihood of any comprehensive asbestos legislation at
the federal level. These factors have both positive and negative effects on the dynamics of asbestos litigation in the
tort system and, accordingly, our estimate of the asbestos exposure. Developments related to asbestos tend to be
long-cycle, changing over multi-year periods. Accordingly, we monitor these and other factors and periodically assess
whether an alternative forecast period is appropriate.
The Company retains a consulting firm to assist management in estimating the potential liability for pending asbestos
claims and for claims estimated to be filed over the next 10 years based on the methodology described above. Our
methodology determines a point estimate based on our assessment of the value of each underlying assumption, rather
than a range of reasonably possible outcomes. Projecting future asbestos costs is subject to numerous variables and
uncertainties that are inherently difficult to predict. In addition to the uncertainties surrounding the key assumptions
discussed above, additional uncertainty related to asbestos claims and estimated costs arises from the long latency
period prior to the manifestation of an asbestos-related disease, changes in available medical treatments and changes
in medical costs, changes in plaintiff behavior resulting from bankruptcies of other companies that are or could be co-
defendants, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and
the impact of potential legislative or judicial changes. At December 31, 2013, approximately 35% of the recorded
asbestos liability relates to pending claims, with the remainder relating to claims estimated to be filed over the next 10
years.
We record a corresponding asbestos-related asset that represents our best estimate of probable recoveries from
our insurers for the estimated asbestos liabilities. Consistent with the asbestos liability, the asbestos-related asset has
not been discounted to present value due to the inability to reliably forecast the timing of future cash flows. In developing
this estimate, the Company considers coverage-in-place and other agreements with its insurers, as well as a number
of additional factors. These additional factors reviewed include the financial viability of our insurance carriers and any
related solvency issues, the method by which losses will be allocated to the various insurance policies and the years
covered by those policies, the extent to which settlement and defense costs will be reimbursed by the insurance policies
and interpretation of the various policy and contract terms and limits and their interrelationships, and various judicial
determinations relevant to our insurance programs. The timing and amount of reimbursements will vary due to a time
lag between when ITT pays an amount to defend or settle a claim and when a reimbursement is received from an
insurer, differing policy terms and certain gaps in our insurance coverage as a result of uninsured periods, insurer
insolvencies, and prior insurance settlements. Approximately 86% of our estimated receivables are due from insurers
that had credit ratings of A- or better from A.M. Best as of December 31, 2013.
In addition, the Company retains an insurance consulting firm to assist management in estimating probable
recoveries for pending asbestos claims and for claims estimated to be filed over the next 10 years based on the analysis
of policy terms, the likelihood of recovery provided by external legal counsel, and incorporating risk mitigation judgments
where policy terms or other factors are not certain. The aggregate amount of insurance available to the Company for
asbestos-related claims was acquired over many years and from many different carriers. Amounts deemed not
recoverable generally are due from insurers that are insolvent, or result from disagreements with the insurers over
policy terms, coverage limits or coverage disputes. Such limitations in our insurance coverage are expected to result
in projected payments to claimants substantially exceeding the probable insurance recovery.
The Company has negotiated with certain of its insurers to reimburse the Company for a portion of its indemnity
and defense costs through “coverage-in-place” agreements or policy buyout agreements. The agreements are designed
to facilitate the collection of ITT’s insurance portfolio, to mitigate issues that insurers may raise regarding their
responsibility to respond to claims, and to promote an orderly exhaustion of the policies. These agreements, in the
aggregate, represent approximately 59% of the recorded asbestos-related asset as of December 31, 2013.
After reviewing our portfolio of insurance policies, with consideration given to applicable deductibles, retentions
and policy limits, the solvency and historical payment experience of various insurance carriers, existing insurance
settlements, and the advice of outside counsel with respect to the applicable insurance coverage law relating to the
terms and conditions of its insurance policies, ITT believes that its recorded receivable for insurance recoveries is
probable of collection.
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
107
ITT CORPORATION AND SUBSIDIARIES
will incur additional costs for asbestos claims filed beyond the next 10 years which could be material to the financial
statements, 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 not possible 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 Charges
In the third quarter of each year, we conduct our asbestos remeasurement with the assistance of outside consultants
to review and update the underlying assumptions used in our asbestos liability and related asset estimates and to
determine the cost 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. In each remeasurement, the underlying assumptions are updated based
on actual experience since the previous annual remeasurement and we reassess the appropriate reference period of
years of experience used in determining each assumption and our expectations regarding future conditions, including
inflation. Based on the results of the remeasurement, we decreased our estimated undiscounted asbestos liability,
including legal fees, by $65.0, $75.8, and $44.1 in 2013, 2012, and 2011, respectively.
The decrease in our estimated liability in 2013 is a result of several developments, including an expectation of
lower defense costs relative to indemnities paid over the projection period and favorable experience in the ratio of
cases dismissed versus settled. These favorable impacts were offset in part by an increase in average settlement
values, an increasing number of cases expected to be adjudicated, and by increased activity in several higher-cost
jurisdictions.
The decrease in our estimated liability in 2012 is a result of several developments, including an expectation of
lower defense costs as a percentage of indemnities paid over the projection period and a reduction in the assumed
rate of increase in future average settlement values. These favorable factors were offset in part by an increasing number
of cases expected to be adjudicated, increased activity in several higher-cost jurisdictions, an increase in average
settlement values and an increase in lung cancer activity.
The decrease in our estimated liability in 2011 was a result of several developments; including a reduction in the
assumed rate of increase in future average settlement costs and an expectation of lower defense costs as a percentage
of indemnities paid. These favorable factors were offset in part by increased activity in several higher-cost jurisdictions,
increasing the number of cases expected to be adjudicated.
Further, in the third quarters of 2013, 2012 and 2011 the Company reduced its estimated asbestos-related assets
by $65.5, $78.7, and $75.8, respectively, based on the results of the remeasurement. The decrease in our asbestos-
related assets is primarily the result of the decrease in the estimated liability and changes in our recovery assumptions.
At each balance sheet date, ITT compares current asbestos claims and resolution activity and changes in insurer credit
ratings to the results of the most recent annual remeasurement to assess whether the recorded asbestos liability and
related asset remain appropriate. In addition to the charges associated with our annual measurement, we record a net
asbestos charge each quarter to maintain a rolling 10-year forecast period.
The tables below summarize the total net asbestos charges for the years ended December 31, 2013, 2012 and 2011.
Continuing operations:
Asbestos provision
Asbestos remeasurement, net
Settlement Agreement
Net asbestos charge - continuing operations
Discontinued Operations:
Asbestos provision
Asbestos remeasurement, net
Settlement Agreement
Net asbestos charge - discontinued operations
Total net asbestos charge
2013
2012
2011
$
$
63.3
0.5
(31.0)
32.8
—
—
—
—
32.8
$
$
53.8
2.9
(5.8)
50.9
0.5
—
(5.6)
(5.1)
45.8
$
$
59.5
40.9
—
100.4
2.8
(9.2)
—
(6.4)
94.0
108
Changes in Financial Position
The following table provides a rollforward of the estimated asbestos liability and related assets for the years ended
December 31, 2013 and 2012.
ITT CORPORATION AND SUBSIDIARIES
Liability
$ 1,347.4
11.4
—
—
(94.1)
$ 1,264.7
85.1
1,179.6
2013
Asset
607.9
$
(52.4)
—
31.0
(68.7)
517.8
84.5
433.3
$
Net
739.5
$
Liability
$ 1,667.9
63.8
—
(31.0)
(25.4)
746.9
$
6.6
11.5
(245.2)
(93.4)
$ 1,347.4
92.4
1,255.0
2012
Asset
954.2
$
(50.2)
11.0
(233.8)
(73.3)
607.9
82.6
525.3
$
Net
713.7
$
56.8
0.5
(11.4)
(20.1)
739.5
$
Balance as of January 1
Changes in estimate during
the period:
Continuing operations
Discontinued operations
Settlement Agreement
Net cash activity
Balance as of December 31
Current portion
Noncurrent portion
2013 Settlement Agreement
During 2013, ITT executed a final settlement agreement (the 2013 Settlement) with an insurer to settle responsibility
for multiple categories of insured claims, including pending and future product liability claims. Under the terms of the
2013 Settlement, the insurer agreed to a specified series of payments over the course of the next five years, resulting
in a one-time benefit of $31.0.
2012 Settlement Agreement
In 2012, we executed an agreement (the 2012 Settlement) with the entity (the counterparty) that acquired a business
disposed by ITT in 1986. The 2012 Settlement accelerates the cost sharing provisions of a previous agreement with
the counterparty. Prior to executing the 2012 Settlement, claims subject to the previous cost sharing agreement where
ITT was not a named defendant were excluded from the count of pending claims; however, our recorded asbestos
liability included an estimate of exposure to all claims subject to the cost sharing agreement.
Under the terms of the 2012 Settlement, the counterparty assumed full responsibility for all pending and future
asbestos-related claims filed against the disposed business, whether they were served on ITT or the counterparty.
However, if the disposed business and other ITT entities were both named in a claim, ITT continues to be responsible
for defending the ITT portion(s) of the claim and thus those cases remain in the Company’s count of pending claims
and in our estimated asbestos liability. ITT also agreed that certain insurance rights will remain with the pending and
future claims filed against the disposed business, benefiting the counterparty.
As a result of the 2012 Settlement, ITT’s asbestos-related liabilities were reduced by $245.2, while the asbestos-
related assets were reduced by $233.8. The reduction in the asbestos liability results from eliminating the liability for
all asbestos claims filed and estimated to be filed over the next 10 years against the disposed business. In addition,
under the 2012 Settlement, ITT received a $10.0 cash payment from the counterparty for past and future costs which
would otherwise have been paid by the surrendered insurance. Income from continuing operations reflects a benefit
of $5.8 from the 2012 Settlement, while income from discontinued operations reflects a benefit of $5.6 from the 2012
Settlement.
Future Cash Flows:
We estimate that we will be able to recover approximately 41% of the asbestos indemnity and defense costs for
pending claims as well as unasserted claims estimated to be filed over the next 10 years from our insurers. Actual
insurance reimbursements will vary from period to period and the anticipated recovery rate is expected to decline over
time due to gaps in our insurance coverage, reflecting uninsured periods, the insolvency of certain insurers, prior
settlements with our insurers, and our expectation that certain insurance policies will exhaust within the next 10 years.
Certain of our primary coverage-in-place agreements are exhausted or will be exhausted in the next several months,
which may result in higher net cash outflows until excess carriers begin accepting claims for reimbursement. In the
tenth year of our estimate, our insurance recoveries are currently projected to be 30%. Additionally, future recovery
rates may be impacted by other factors, such as future insurance settlements, insolvencies, and judicial determinations
relevant to our coverage program, which are difficult to predict and subject to a high degree of uncertainty.
Further, there is uncertainty in estimating when cash payments related to the recorded asbestos liability will be
fully expended. Such cash payments will continue for a number of years beyond the next 10 years due to the significant
proportion of future claims included in the estimated asbestos liability and the delay between the date a claim is filed
109
and when it is resolved. Subject to these inherent uncertainties, it is expected that net cash payments related to pending
claims and claims estimated to be filed in the next 10 years will extend through approximately 2029.
Annual net cash outflows, net of tax benefits, are projected to average $10 to $20 over the next five years, as
compared to an annual average of $14 over the past three annual periods, and increase to an average of approximately
$35 to $45 over the remainder of the projection period.
ITT CORPORATION AND SUBSIDIARIES
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 and/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 and/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 and/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 and related assets for the years
ended December 31, 2013 and 2012.
Balance as of January 1
Changes in estimates for pre-
existing accruals:
Continuing operations
Discontinued operations
Accruals added during the period
for new matters
Net cash activity
Foreign currency
Balance as of December 31
$
Liability
96.1
$
8.5
1.5
0.5
(12.1)
0.1
94.6
2013
Asset
12.3
$
(0.1)
—
—
(0.5)
—
11.7
$
Net
83.8
$
Liability
$ 101.8
8.6
1.5
0.5
(11.6)
0.1
82.9
$
7.1
(1.4)
—
(11.5)
0.1
$ 96.1
2012
Asset
$ —
10.8
1.5
—
—
—
$ 12.3
Net
$ 101.8
(3.7)
(2.9)
—
(11.5)
0.1
$ 83.8
The following table illustrates the reasonably possible range of estimated liability, and number of active sites for
environmental matters.
Low-end range
High end range
Number of active environmental investigation and remediation sites
2013
$
73.3
$ 168.0
60
2012
$
76.9
$ 167.1
58
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.
In 2012, the Company recorded a $12.3 asset related to an insurance policy that is responsive to environmental
exposures. The asset reflects the Company’s best estimate of costs that are expected to be reimbursed by the insurer
for past costs incurred and costs expected to be incurred in the future subject to the various policy terms and limits.
The timing and amount of reimbursements will vary and may not be received in the same periods as costs are
incurred. Prior to 2012, we had not recorded an asset for potential recoveries because future receipts were not
considered probable due to uncertainties associated with the interpretation of policy terms, the insurer’s cost review
and approval process, and the pattern of performance of the insurer. In the first half of 2012, the performance of the
insurer stabilized and disagreements on coverage for certain sites were resolved with the insurer. Based on these
events, combined with a longer history of experience with the insurer, the Company determined it was probable that
the insurer would perform in the future in accordance with the terms of the policy and that the amount of potential
recovery could be reasonably estimated.
110
ITT CORPORATION AND SUBSIDIARIES
Other Matters
The Company is involved in coverage litigation with various insurers seeking recovery of costs incurred in connection
with certain environmental and product liabilities. In a suit filed in 1991, ITT Corporation, et al. v. Pacific Employers
Insurance Company et al, Sup. Ct., Los Angeles County, we are seeking recovery of costs related to property damage
losses due to environmental issues. Discovery, procedural matters, changes in California law, and various appeals
have prolonged this case. For several years, the case was on appeal before the California Court of Appeals from a
decision by the California Superior Court dismissing certain claims made by ITT.
On February 13, 2003, we commenced an action, Cannon Electric, Inc. v. Affiliated FM Ins. Co., Sup. Ct., Los
Angeles County, seeking recovery of costs from the same coverage referenced above but related to asbestos product
liability losses. During this coverage litigation, we entered into coverage-in-place settlement agreements with ACE,
Wausau and Utica Mutual dated April 2004, September 2004, and February 2007, respectively. These agreements
provide specific coverage for the Company’s legacy asbestos liabilities. In the first quarter of 2012, Goulds Pumps
resolved its claims against Fireman’s Fund and Continental Casualty. In January 2012, ITT and Goulds Pumps filed
a putative class action suit in federal Court in Connecticut against Travelers Casualty and Surety Company (ITT
Corporation and Goulds Pumps Inc., v. Travelers Casualty and Surety Company (f/k/a Aetna Casualty and Surety
Company), (Fed Dist Ct, CA NO.3:12-cv-00038-RN)), alleging that Travelers is unilaterally reinterpreting language
contained in older Aetna policies so as to avoid paying on asbestos claims. This action was stayed pending a decision
by the Superior Court of Los Angeles County in the Cannon action on interpretation of policy language. On January
29, 2014, the Superior Court issued its opinion upholding the Goulds Pumps’ claims that it is entitled to receive
reimbursement from Traveler’s for asbestos claims. Goulds Pumps has filed a Motion to Lift the Stay in the Connecticut
action. In 2013, the Company finalized a settlement with its insurer PEIC that resolves all outstanding issues between
the Company and PEIC related to the primary policies issued by PEIC during the period from 1977 to 1985. PEIC has
agreed to make structured payment overtime to a Qualified Settlement Fund (QSF) to be used for asbestos related
costs. The Company continues to engage other defendants in settlement negotiations as appropriate.
NOTE 21
GUARANTEES, INDEMNITIES AND WARRANTIES
Indemnities
As part of the Distribution, ITT provided certain indemnifications and cross-indemnifications among ITT, Exelis and
Xylem, subject to limited exceptions with respect to certain employee claims and other liabilities and obligations. The
indemnifications address a variety of subjects, including asserted and unasserted product liability matters (e.g.,
asbestos claims, product warranties) which relate to products manufactured, repaired and/or sold prior to the Distribution
Date. The indemnifications are indefinite. ITT expects Exelis and Xylem to fully perform under the terms of the
Distribution Agreement and therefore has not recorded a liability for matters for which we have been indemnified. In
addition, both Exelis and Xylem have made asbestos indemnity claims that could give rise to material payments under
the indemnity provided by ITT; such claims are included in our estimate of asbestos liabilities.
Since ITT’s incorporation in 1920, we have acquired and disposed of numerous entities. The related acquisition
and disposition agreements contain various representation and warranty clauses and may provide indemnities for a
misrepresentation or breach of the representations and warranties by either party. The indemnities address a variety
of subjects; the term and monetary amounts of each such indemnity are defined in the specific agreements and may
be affected by various conditions and external factors. Many of the indemnities have expired either by operation of
law or as a result of the terms of the agreement. We do not have a liability recorded for these indemnifications and
are not aware of any claims or other information that would give rise to material payments under such indemnities.
Guarantees
We have $131.7 of guarantees, letters of credit and similar arrangements outstanding at December 31, 2013
primarily pertaining to commercial or performance guarantees and insurance matters. We have not recorded any
material loss contingencies under these guarantees, letters of credit and similar arrangements as of December 31,
2013 as the likelihood of nonperformance by ITT is considered remote. From time to time, we may provide certain
third-party guarantees that may be affected by various conditions and external factors, some of which could require
that payments be made under such guarantees. We do not consider the maximum exposure or current recorded
liabilities under our third-party guarantees to be material either individually or in the aggregate. We do not believe such
payments would have a material adverse impact on our financial statements on a consolidated basis.
Warranties
ITT warrants numerous products, the terms of which vary widely. In general, ITT warrants its products against
defect and specific non-performance. In certain markets, such as automotive, aerospace and rail, liability for product
defects could extend beyond the selling price of the product and could be significant if the defect interrupts production
111
or results in a recall. The table included below provides changes in the product warranty accrual for December 31,
2013 and 2012.
ITT CORPORATION AND SUBSIDIARIES
Warranty accrual – January 1
Warranty expense
Assumed in acquisition
Payments
Foreign currency and other
Warranty accrual – December 31
NOTE 22
SEGMENT INFORMATION
2013
28.6 $
8.6
—
(8.1)
(0.5)
28.6 $
2012
25.2
10.0
1.9
(8.7)
0.2
28.6
$
$
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
infrastructure industries such as oil & gas, mining, power generation, chemical and other process markets and is
a provider of plant optimization and efficiency solutions and aftermarket services and parts.
Motion Technologies manufactures brake pads, shock absorbers and damping technologies for the global automotive,
truck, trailer and public bus and rail transportation markets.
Interconnect Solutions manufactures a wide range of highly specialized connector products that make it possible to
transfer signal and power in various electronic devices that are utilized in the aerospace and defense, industrial
and transportation, oil & gas markets, and medical markets.
Control Technologies manufactures specialized equipment, including actuation, valves, switches, vibration isolation,
custom-energy absorption, and regulators 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 receivables and certain property, plant and equipment.
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Total segment results
Asbestos-related costs, net
Transformation costs
Eliminations / Other
corporate costs
Total Eliminations /
Corporate and Other costs
Total
2013
$ 1,107.4
721.8
395.5
278.2
2,502.9
—
—
(6.0)
(6.0)
Operating Income (Loss)
Operating Margin
Revenue
2012
$ 955.8
626.2
375.7
277.1
2,234.8
—
—
2011
$ 766.7
634.4
417.8
285.5
2,104.4
—
—
2013
$ 112.0
100.3
14.2
55.3
281.8
(32.8)
(0.9)
2012
$ 99.3
83.1
6.9
58.3
247.6
(50.9)
(8.7)
2011
$ 91.5
85.3
37.8
55.2
269.8
(100.4)
(384.9)
(7.0)
(18.8)
(64.5)
(36.5)
(29.4)
(7.0)
(18.8)
(98.2)
(96.1)
(514.7)
2013
10.1%
13.9%
3.6%
19.9%
11.3%
—
—
—
—
2012
2011
10.4% 11.9 %
13.3% 13.4 %
9.0 %
21.0% 19.3 %
11.1% 12.8 %
1.8%
—
—
—
—
—
—
—
—
$ 2,496.9
$ 2,227.8
$ 2,085.6
$ 183.6
$ 151.5
$ (244.9)
7.4%
6.8% (11.7)%
112
ITT CORPORATION AND SUBSIDIARIES
Assets
Capital
Expenditures
Depreciation
and Amortization
2013
$ 1,132.7
466.2
364.6
344.7
1,432.0
$ 3,740.2
2012
$ 1,044.8
405.6
362.6
347.0
1,226.1
$ 3,386.1
2013
$ 63.0
31.7
15.6
5.7
6.9
$ 122.9
2012
$ 35.0
27.1
11.2
6.1
4.4
$ 83.8
2011
$ 25.3
33.3
16.6
5.3
21.8
$ 102.3
2013
$ 31.0
29.6
10.6
10.0
5.7
$ 86.9
2012
$ 17.3
27.8
10.0
9.3
6.7
$ 71.1
2011
$ 13.0
27.3
9.7
10.3
11.0
$ 71.3
Industrial Process
Motion Technologies
Interconnect Solutions
Control Technologies
Corporate and Other
Total
Geographic Information
United States
Germany
Other developed markets
Other emerging growth markets
Total
2013
$ 896.2
266.7
583.4
750.6
$2,496.9
Revenue(a)
2012
$ 869.3
200.5
519.3
638.7
$2,227.8
2011
$ 779.6
229.8
487.8
588.4
$2,085.6
(a) Revenue to external customers is attributed to individual regions based upon the destination of product or service
delivery.
Geographic Information
United States
Italy
Germany
South Korea
China
Other developed markets
Other emerging growth markets
Total
Plant, Property &
Equipment, Net
2013
$ 151.0
78.7
51.8
40.5
31.3
22.0
50.9
$ 426.2
2012
$ 127.3
78.4
50.6
19.1
20.5
21.1
56.1
$ 373.1
The following table provides revenue by product category, net of intercompany balances.
Pumps and complementary products
Pump support and maintenance services
Friction products
Shock absorber equipment
Connectors equipment
CT Aerospace products
CT Industrial products
Total
2013
$ 1,010.8
96.6
619.6
102.0
394.9
192.6
80.4
$ 2,496.9
$
2012
879.0
76.8
517.6
107.0
375.4
185.4
86.6
$ 2,227.8
$
2011
692.3
66.7
524.1
110.3
412.7
192.2
87.3
$ 2,085.6
During 2013 and 2012, a single customer accounted for 10.1% and 13.4% of consolidated ITT revenue, respectively.
No individual customer accounted for more than 10% of consolidated ITT revenue during 2011.
113
SUPPLEMENTAL FINANCIAL DATA
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
ITT CORPORATION AND SUBSIDIARIES
Revenue
Gross profit
Income (loss) from continuing
operations attributable to ITT
Corporation(a)
Earnings (loss) from discontinued
operations
Net income attributable to ITT
Corporation(a)
Basic earnings (loss) per share
attributable to ITT Corporation:
Continuing operations
Discontinued operations
Net income
Diluted earnings (loss) per share
attributable to ITT Corporation:
Continuing operations
Discontinued operations
Net income
Common stock price per share:
2013 Quarters
2012 Quarters
Fourth
Third
Second
First
Fourth
Third
Second
First
$ 645.5
$ 634.0
$ 609.2
$ 608.2
$ 554.3
$ 547.5
$ 557.9
$ 568.1
208.6
202.9
197.8
190.5
173.4
166.2
170.4
170.2
10.9
433.0
24.7
19.1
0.3
(2.3)
1.1
1.7
11.2
430.7
25.8
20.8
$
$
$
$
0.12
—
0.12
0.12
—
0.12
$
$
$
$
4.79
(0.03)
4.76
4.71
(0.02)
4.69
$
$
$
$
0.27
0.02
0.29
0.27
0.01
0.28
$
$
$
$
0.21
0.02
0.23
0.21
0.02
0.23
$
$
$
$
22.1
10.3
32.4
0.24
0.11
0.35
0.24
0.11
0.35
60.7
12.3
73.0
0.65
0.14
0.79
0.65
0.13
0.78
$
$
$
$
16.2
10.5
0.6
(7.3)
16.8
3.2
$
$
$
$
0.18
—
0.18
0.17
0.01
0.18
$
$
$
$
0.11
(0.08)
0.03
0.11
(0.08)
0.03
High
Low
Close
$ 43.66
$ 36.51
$ 30.93
$ 29.38
$ 23.46
$ 21.85
$ 23.33
$ 25.59
$ 35.06
$ 29.11
$ 25.94
$ 23.83
$ 19.79
$ 17.22
$ 16.88
$ 19.52
$ 43.42
$ 35.95
$ 29.41
$ 28.43
$ 23.46
$ 20.15
$ 17.60
$ 22.94
Dividends per share
$
0.10
$
0.10
$
0.10
$
0.10
$ 0.091
$ 0.091
$ 0.091
$ 0.091
(a) During the third quarter of 2013, the Company released the valuation allowance against its U.S. deferred tax
assets and recorded a tax benefit of $374.6.
114
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
ITT Corporation
(Registrant)
By:
/S/ STEVEN C. GIULIANO
Steven C. Giuliano
Vice President and Chief Accounting Officer
(Principal accounting officer)
February 21, 2014
II-1
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/S/ DENISE L. RAMOS
Denise L. Ramos
(Principal executive officer)
/S/ THOMAS M. SCALERA
Thomas M. Scalera
(Principal financial officer)
/S/ STEVEN C. GIULIANO
Steven C. Giuliano
(Principal accounting officer)
Chief Executive Officer,
President and Director
Senior Vice President and
Chief Financial Officer
Vice President and
Chief Accounting Officer
February 21, 2014
February 21, 2014
February 21, 2014
/S/ ORLANDO D. ASHFORD
Director
February 21, 2014
Orlando D. Ashford
/S/ G. PETER D’ALOIA
Director
February 21, 2014
G. Peter D’Aloia
/S/ DONALD DEFOSSET, JR.
Director
February 21, 2014
Donald DeFosset, Jr.
/S/ CHRISTINA A. GOLD
Director
February 21, 2014
Christina A. Gold
/S/ RICHARD P. LAVIN
Director
February 21, 2014
Richard P. Lavin
/S/ FRANK T. MACINNIS
Director
February 21, 2014
Frank T. MacInnis
/S/ REBECCA A. MCDONALD
Director
February 21, 2014
Rebecca A. McDonald
/S/ DONALD J. STEBBINS
Director
February 21, 2014
Donald J. Stebbins
II-2
EXHIBIT INDEX
Exhibit
Number Description
3.1
ITT Corporation’s Articles of Amendment and
Restated Articles of Incorporation, effective as of
October 31, 2011
3.2
Amended and Restated By-laws of ITT
Location
Filed herewith.
Incorporated by reference to Exhibit 3.1 of ITT Corporation’s
Form 8-K Current Report dated October 5, 2011
(CIK No. 216228, File No. 1-5672).
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Distribution Agreement, dated as of October 25,
2011, among ITT Corporation, Xylem Inc. and Exelis
Inc.
Incorporated by reference to Exhibit 10.1 of ITT Corporation’s
Form 10-Q for the quarter ended September 30, 2011 (CIK
No. 216228, File No. 1-5672).
Benefits and Compensation Matters Agreement,
dated as of October 25, 2011, among ITT
Corporation, Xylem Inc. and Exelis Inc.
Incorporated by reference to Exhibit 10.2 of ITT Corporation’s
Form 10-Q for the quarter ended September 30, 2011 (CIK
No. 216228, File No. 1-5672).
First Amendment to Benefits and Compensation
Matters Agreement
Incorporated by reference as Exhibit 10.1 of ITT Corporation’s
Form 10-Q for the quarter ended June 30, 2013
Tax Matters Agreement, dated as of October 25,
2011, among ITT Corporation, Xylem Inc. and Exelis
Inc.
Incorporated by reference to Exhibit 10.3 of ITT Corporation’s
Form 10-Q for the quarter ended September 30, 2011 (CIK
No. 216228, File No. 1-5672).
Master Transition Services Agreement, dated as of
October 25, 2011, among ITT Corporation, Xylem
Inc. and Exelis Inc.
Incorporated by reference to Exhibit 10.4 of ITT Corporation’s
Form 10-Q for the quarter ended September 30, 2011 (CIK
No. 216228, File No. 1-5672).
ITT Transitional Trademark License Agreement -
Exelis, dated as of October 25, 2011, between ITT
Manufacturing Enterprises LLC and Exelis Inc.
Incorporated by reference to Exhibit 10.5 of ITT Corporation’s
Form 10-Q for the quarter ended September 30, 2011 (CIK
No. 216228, File No. 1-5672).
Master Lease Agreement and Master Sublease
Agreement, dated as of October 25, 2011 and
September 30, 2011, respectively
Incorporated by reference to Exhibit 10.6 of ITT Corporation’s
Form 10-Q for the quarter ended September 30, 2011 (CIK
No. 216228, File No. 1-5672).
Four-Year Competitive Advance and Revolving
Credit Facility Agreement, dated as of October 25,
2011 among ITT Corporation and Other Parties
Signatory Thereto
Incorporated by reference to Exhibit 10.7 of ITT Corporation’s
Form 10-Q for the quarter ended September 30, 2011 (CIK
No. 216228, File No. 1-5672).
10.9**
Share Purchase Agreement dated October 14, 2012
between Moller-Bornemann Gmbh, Wulfing
Vermogensverwaltung GbR, BWK GmbH
Unternehmensbeteiligungsgesellschaft, (as Sellers)
and ITT Germany Holdings GmbH (as Purchaser)
10.10
Agreement and Plan of Merger
10.11 *
ITT Corporation Retirement Savings Plan for
Salaried Employees (effective October 31, 2011)
ITT Corporation Special Senior Executive
Severance Pay Plan amended and restated as of
December 31, 2008 (previously amended and
restated as of July 13, 2004) and formerly known as
ITT Industries Special Senior Executive Severance
Pay Plan
ITT Corporation Senior Executive Severance Pay
Plan amended and restated as of July 1, 2013
(previously known as the ITT Industries, Inc. Senior
Executive Severance Pay Plan, dated
December 20, 1995, amended and restated as of
December 31, 2008)
10.12 *
10.13 *
II-3
Incorporated by reference to Exhibit 10.8 of ITT Corporation’s
Form 10-K/A for the year ended December 31, 2012 (CIK No.
216228, File No. 1-5672).
Incorporated by reference to Exhibit 2.1 and 2.2 to ITT
Corporation’s Form 8-K dated September 18, 2007 (CIK
No. 216228, File No. 1-5672).
Incorporated by reference to Exhibit 4.4 of ITT Corporation’s
Registration Statement on Form S-8 as filed on October 28,
2011 (CIK No. 216228, File No. 1-5672).
Incorporated by reference to Exhibit 10.9 of ITT Corporation’s
Form 10-K for the year ended December 31, 2008 (CIK No.
216228, File No. 1-5672).
Incorporated by reference to Exhibit 10.1of ITT Corporation’s
Form 10-Q for the quarter ended September 30, 2013 (CIK
No. 216228, File No. 1-5672).
Exhibit
Number Description
10.14 *
ITT Corporation Enhanced Severance Pay Plan
(amended and restated as of July 13, 2004) and
formerly known as ITT Industries Enhanced
Severance Pay Plan (amended and restated as of
July 13, 2004). Amended and restated as of
December 31, 2008
Location
Incorporated by reference to Exhibit 10.11 of ITT Corporation’s
Form 10-K for the year ended December 31, 2008 (CIK No.
216228, File No. 1-5672).
10.15*
ITT Deferred Compensation Plan (Effective as of
January 1, 1995 as amended and restated as of
October 31, 2011)
Incorporated by reference to Exhibit 4.5 of ITT Corporation’s
Registration Statement on Form S-8 as filed on October 28,
2011 (CIK No. 216228, File No. 1-5672).
10.16 *
ITT Corporation Deferred Compensation Plan for
Non-Employee Directors
10.17 *
ITT Excess Savings Plan amended and restated
effective December 31, 2008
10.18 * Non-Employee Director Compensation Agreement
10.19*
2011 Omnibus Incentive Plan
Incorporated by reference to Exhibit 10.48 of ITT Corporation’s
Form 10-Q for the quarter ended September 30, 2008 (CIK
No. 216228, File No. 1-5672).
Incorporated by reference to Exhibit 10.17 of ITT Corporation’s
Form 10-K for the year ended December 31, 2008 (CIK No.
216228, File No. 1-5672).
Incorporated by reference to Exhibit 10.1 to ITT Industries’
Form 8-K Current Report dated December 1, 2005 (CIK
No. 216228, File No. 1-5672).
Incorporated by reference to Exhibit 4.3 of ITT Corporation’s
Registration Statement on Form S-8 as filed on October 28,
2011 (CIK No. 216228, File No. 1-5672).
10.20 *
10.21 *
10.22*
10.23
10.24
10.25
10.26
ITT Corporation Annual Incentive Plan for Executive
Officers, amended and restated as of January 1,
2013
Incorporated by reference to Exhibit 10.2 of ITT Corporation’s
Form 10-Q for the quarter ended June 30, 2013 (CIK No.
216228, File No. 1-5672).
ITT 1997 Annual Incentive Plan (amended and
restated as of July 13, 2004) formerly known as ITT
Industries 1997 Annual Incentive Plan (amended
and restated as of July 13, 2004)
ITT 2003 Equity Incentive Plan, amended and
restated as of February 15, 2008 and approved by
shareholders on May 13, 2008 (previously amended
and restated as of July 13, 2004 and subsequently
amended as of December 18, 2006) and previously
known as ITT Industries, Inc. 2003 Equity Incentive
Plan
Incorporated by reference to Exhibit 10.13 of ITT Industries’
Form 10-Q for the quarter ended September 30, 2004 (CIK
No. 216228, File No. 1-5672).
Incorporated by reference to Exhibit 10.5 of ITT Corporation’s
Form 10-Q for the quarter ended June 30, 2008 (CIK No.
216228, File No. 1-5672).
ITT Corporation Form of 2013 Performance Unit
Award Agreement
Incorporated by reference to Exhibit 10.01 of ITT Corporation’s
Form 10-Q for the quarter ended June 30, 2013
ITT Corporation Form of 2013 Non-Qualified Stock
Option Award Agreement (Band A)
Incorporated by reference to Exhibit 10.02 of ITT Corporation’s
Form 10-Q for the quarter ended June 30, 2013
ITT Corporation Form of 2013 Restricted Stock Unit
Agreement
Incorporated by reference to Exhibit 10.03 of ITT Corporation’s
Form 10-Q for the quarter ended June 30, 2013
ITT Corporation Form of 2013 Restricted Stock Unit
Agreement (Cash Settled)
Incorporated by reference to Exhibit 10.04 of ITT Corporation’s
Form 10-Q for the quarter ended June 30, 2013
10.27 *
ITT Corporation Form of 2012 Non-Qualified Stock
Option Agreement (Band A Employees)
10.28*
ITT Corporation Form of 2012 Non-Qualified Stock
Option Agreement (Non-Band A Employees)
10.29 *
ITT Corporation Form of 2012 Restricted Stock Unit
Agreement
10.30 *
ITT Corporation Form of 2012 TSR Award
Agreement
Incorporated by reference to Exhibit 10.01 of ITT Corporation’s
Form 10-Q for the quarter ended March 31, 2012 (CIK No.
216228, File No. 1-5672).
Incorporated by reference to Exhibit 10.02 of ITT Corporation’s
Form 10-Q for the quarter ended March 31, 2012 (CIK No.
216228, File No. 1-5672).
Incorporated by reference to Exhibit 10.03 of ITT Corporation’s
Form 10-Q for the quarter ended March 31, 2012 (CIK No.
216228, File No. 1-5672).
Incorporated by reference to Exhibit 10.04 of ITT Corporation’s
Form 10-Q for the quarter ended March 31, 2012 (CIK No.
216228, File No. 1-5672).
II-4
Exhibit
Number Description
10.31 *
ITT Corporation Form of 2011 Non-Qualified Stock
Option Agreement (Band A Employees)
10.32
ITT Corporation Form of 2011 Non-Qualified Stock
Option Agreement (Non-Band A Employees)
10.33 *
ITT Corporation Form of 2011 Restricted Stock
Award Agreement
10.34*
ITT Corporation Form of 2011 TSR Award
Agreement
10.35 *
Form of 2005 Non-Qualified Stock Option Award
Agreement for Band A Employees
10.36
Form of 2005 Non-Qualified Stock Option Award
Agreement for Band B Employees
10.37*
Form of 2006 Non-Qualified Stock Option Award
Agreement for Band A Employees
10.38
Form of 2006 Non-Qualified Stock Option Award
Agreement for Band B Employees
Location
Incorporated by reference to Exhibit 10.01 of ITT Corporation’s
Form 10-Q for the quarter ended March 31, 2011 (CIK No.
216228, File No. 1-5672).
Incorporated by reference to Exhibit 10.02 of ITT Corporation’s
Form 10-Q for the quarter ended March 31, 2011(CIK No.
216228, File No. 1-5672).
Incorporated by reference to Exhibit 10.03 of ITT Corporation’s
Form 10-Q for the quarter ended March 31, 2011(CIK No.
216228, File No. 1-5672).
Incorporated by reference to Exhibit 10.04 of ITT Corporation’s
Form 10-Q for the quarter ended March 31, 2011(CIK No.
216228, File No. 1-5672).
Incorporated by reference to Exhibit 10.3 of ITT Industries’
Form 10-K for the year ended December 31, 2004 (CIK No.
216228, File No. 1-5672).
Incorporated by reference to Exhibit 10.4 of ITT Industries’
Form 10-K for the year ended December 31, 2004 (CIK
No. 216228, File No. 1-5672).
Incorporated by reference to Exhibit 10.34 of ITT Industries’
Form 10-Q for the quarter ended March 31, 2006 (CIK
No. 216228, File No. 1-5672).
Incorporated by reference to Exhibit 10.35 of ITT Industries’
Form 10-Q for the quarter ended March 31, 2006 (CIK
No. 216228, File No. 1-5672).
10.39*
ITT Corporation Form of 2009 Non-Qualified Stock
Option Agreement
(Band A)
Incorporated by reference to Exhibit 10.56 of ITT Corporation’s
Form 10-Q for the quarter ended March 31, 2009 (CIK No.
216228, File No. 1-5672).
10.40 *
ITT Corporation Form of 2009 Non-Qualified Stock
Option Agreement (Non Band A)
Incorporated by reference to Exhibit 10.57 of ITT Corporation’s
Form 10-Q for the quarter ended March 31, 2009 (CIK No.
216228, File No. 1-5672).
10.41 *
Employment Agreement dated as of October 4,
2011 and effective as of October 31, 2011 between
ITT Corporation and Denise L. Ramos.
Incorporated by reference to Exhibit 10.1 of ITT Corporation’s
Form 8-K/A dated October 17, 2011 (CIK No. 216228, File No.
1-5672).
10.42 *
Steve Loranger Resignation Agreement
10.43
Form of indemnification agreement with directors
Incorporated by reference to Exhibit 10.1 of ITT Corporation’s
Form 8-K dated October 14, 2011 (CIK No. 216228, File No.
1-5672).
Incorporated by reference to Exhibit 10(h) to ITT Industries’
Form 10-K for the fiscal year ended December 31, 1996 (CIK
No. 216228, File No. 1-5672).
11
12
21
22
Statement re computation of per share earnings
Not required to be filed.
Statement re computation of ratios
Subsidiaries of the Registrant
Filed herewith.
Filed herewith.
Published report regarding matters submitted to
vote of Security holders
Not required to be filed.
23.1
Consent of Deloitte & Touche LLP
Filed herewith.
Power of attorney
Certification pursuant to Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
Certification pursuant to Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
None.
Filed herewith.
Filed herewith.
24
31.1
31.2
II-5
Location
This Exhibit is intended to be furnished in accordance with
Regulation S-K Item 601(b) (32) (ii) and shall not be deemed
to be filed for purposes of Section 18 of the Securities
Exchange Act of 1934 or incorporated by reference into any
filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except as shall be expressly set forth
by specific reference.
This Exhibit is intended to be furnished in accordance with
Regulation S-K Item 601(b) (32) (ii) and shall not be deemed
to be filed for purposes of Section 18 of the Securities
Exchange Act of 1934 or incorporated by reference into any
filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except as shall be expressly set forth
by specific reference.
Submitted electronically with this report.
Exhibit
Number Description
32.1
Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
32.2
Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
101
The following materials from ITT Corporation’s
Annual Report on Form 10-K for the year ended
December 31, 2013, formatted in XBRL (Extensible
Business Reporting Language): (i) Consolidated
Statements of Operations, (ii) Consolidated
Statements of Comprehensive Income (Loss),
(iii) Consolidated Balance Sheets, (iv) Consolidated
Statements of Cash Flows, (v) Consolidated
Statements of Changes in Shareholders’ Equity and
(vi) Notes to Consolidated Financial Statements
* Management compensatory plan
** The registrant has requested confidential treatment with respect to portions of this exhibit. Those portions have
been omitted from the exhibit and filed separately with the U.S. Securities and Exchange Commission.
II-6
EXHIBIT 31.1
CERTIFICATION OF DENISE L. RAMOS PURSUANT TO SEC. 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Denise L. Ramos, certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2013 of ITT Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 21, 2014
/S/ DENISE L. RAMOS
Denise L. Ramos
Chief Executive Officer and President
EXHIBIT 31.2
CERTIFICATION OF THOMAS M. SCALERA PURSUANT TO SEC. 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas M. Scalera, certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2013 of ITT Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 21, 2014
/S/ THOMAS M. SCALERA
Thomas M. Scalera
Senior Vice President and
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of ITT Corporation (the “Company”) on Form 10-K for the year ended
December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I,
Denise L. Ramos, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/S/ DENISE L. RAMOS
Denise L. Ramos
Chief Executive Officer and President
February 21, 2014
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report of ITT Corporation (the Company) on Form 10-K for the year ended
December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report), I,
Thomas M. Scalera, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/S/ THOMAS M. SCALERA
Thomas M. Scalera
Senior Vice President and
Chief Financial Officer
February 21, 2014
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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ITT Board of Directors
Shareowner Information
Frank T. MacInnis
Chairman of the ITT Board of Directors and Former
Chairman and Chief Executive Officer, EMCOR Group, Inc.
Denise L. Ramos
Chief Executive Officer and President
Orlando D. Ashford
President, Talent, Marsh & McLennan Cos.
G. Peter D’Aloia
Former Senior Vice President and Chief Financial Officer,
American Standard Companies, Inc.
Donald DeFosset, Jr.
Former Chairman, Chief Executive Officer and
President, Walter Industries, Inc.
Christina A. Gold
Former Chief Executive Officer, President and
Director, The Western Union Company, Inc.
Richard P. Lavin
Chief Executive Officer and President,
Commercial Vehicle Group, Inc.
Rebecca A. McDonald
Former Chief Executive Officer, Laurus Energy, Inc.
Donald J. Stebbins
Former Chairman, Chief Executive Officer and
President, Visteon Corp.
ITT Leadership Team
Denise L. Ramos
Chief Executive Officer and President
Aris C. Chicles
Executive Vice President
Mary Beth Gustafsson
Senior Vice President and General Counsel
Munish Nanda
Senior Vice President and President, Control Technologies
Robert J. Pagano, Jr.
Senior Vice President and President, Industrial Process
Luca Savi
Senior Vice President and President, Motion Technologies
Thomas M. Scalera
Senior Vice President and Chief Financial Officer
Neil W. Yeargin
Senior Vice President and President, Interconnect Solutions
INDEPENDENT AUDITORS
Deloitte & Touche LLP
333 Ludlow Street
Stamford, CT 06902
TRANSFER AGENT & REGISTRAR
Wells Fargo Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
(800) 254-2823
www.shareowneronline.com
ANNUAL MEETING OF SHAREOWNERS
The annual meeting will be held at 9 a.m. EDT on
Tuesday, May 20, 2014 at: ITT Corporation World Headquarters,
1133 Westchester Avenue, White Plains, NY 10604.
CORPORATE GOVERNANCE
Copies of the ITT Code of Conduct, Corporate
Governance Principles and Committee Charters are
available through our website: www.itt.com.
OMBUDSPERSON PROGRAM
The ITT Ombudsperson Program encourages employees to
report possible violations of our Code of Corporate Conduct
or other misconduct. The ITT Ombudsperson can be
contacted at: (800) 777-1738.
WORLD HEADQUARTERS
ITT Corporation
1133 Westchester Avenue
White Plains, NY 10604
Tel: (914) 641-2000
www.itt.com
FOR GENERAL CORPORATE INFORMATION, CONTACT:
Kathleen Bark
Reputation and Media
kathleen.bark@itt.com
FOR FINANCIAL AND INDUSTRY INFORMATION, CONTACT:
Melissa Trombetta
Investor Relations
melissa.trombetta@itt.com
Design: Eisenman Associates
Printing: Harty Press, Inc.
Executive Photography: Jim Schnepf
Copyright 2014 ITT Corporation. ITT, the “Engineered Blocks” symbol
and “Engineered for life” are registered trademarks of ITT Manufacturing
Enterprises, LLC, and are used under license.
Scan this QR code to
view this report online
1133 Westchester Avenue
White Plains, NY 10604
914.641.2000
www.itt.com
©2014 ITT Corporation
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