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Debt | 9 Months Ended
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Sep. 30, 2011
Debt [Abstract] |
DEBT | NOTE 14 DEBT
|  | September 30, |  |  | December 31, |
|  | 2011 |  |  | 2010 |
Short-term loans |  | $ | 17 |  |  | $ | 1 |
Current maturities of long-term debt and other |  |  | 1,251 |  |  |  | 10 |
Current deferred gain on interest rate swaps |  |  | 43 |  |  |  | — |
Current unamortized discounts and debt issuance costs |  |  | (6 | ) |  |  | — |
Short-term borrowings and current maturities of long-term debt |  |  | 1,305 |  |  |  | 11 |
Non-current maturities of long-term debt |  |  | 1,855 |  |  |  | 1,257 |
Non-current capital leases |  |  | 16 |  |  |  | 60 |
Deferred gain on interest rate swaps |  |  | — |  |  |  | 45 |
Unamortized discounts and debt issuance costs(a) |  |  | (3 | ) |  |  | (8 | )
Long-term debt |  |  | 1,868 |  |  |  | 1,354 |
Total debt |  | $ | 3,173 |  |  | $ | 1,365 |
(a) |  | Debt issuance costs of $15 associated with the September 2011 issuance for Exelis and Xylem have been presented within Other Assets as of September 30, 2011.
Principal payments required per year on our outstanding long-term notes and debentures for the next five years and thereafter are $0, $2, $500, $0, $850 and $1,754, respectively, however we have classified $1,251 of the amounts due with maturity dates in excess of one year as a current maturity of long-term debt due to our extinguishment of this debt in October 2011. The fair value of total debt, excluding the deferred gain on interest rate swaps, was $3,360 and $1,483 as of September 30, 2011 and December 31, 2010, respectively. Fair value was primarily determined using prices for the identical security obtained from an external pricing service. The table included below provides a summary of outstanding debt with associated maturity dates and interest rates.
|  |  |  |  | September 30, |  |  | December 31, |
|  |  |  |  | 2011 |  |  | 2010 |
|  | Interest |  |  | Carrying |  |  | Fair |  |  | Carrying |  |  | Fair |
|  | Rate |  |  | Value |  |  | Value |  |  | Value |  |  | Value |
MATURITY DATE: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
May 2014 |  |  | 4.90 | % |  | $ | 500 |  |  | $ | 534 |  |  | $ | 500 |  |  | $ | 538 |
September 2016 (Xylem) |  |  | 3.55 | % |  |  | 600 |  |  |  | 611 |  |  |  | — |  |  |  | — |
October 2016 (Exelis) |  |  | 4.25 | % |  |  | 250 |  |  |  | 254 |  |  |  | — |  |  |  | — |
May 2019 |  |  | 6.125 | % |  |  | 500 |  |  |  | 572 |  |  |  | 500 |  |  |  | 553 |
October 2021 (Xylem) |  |  | 4.875 | % |  |  | 600 |  |  |  | 604 |  |  |  | — |  |  |  | — |
October 2021 (Exelis) |  |  | 5.55 | % |  |  | 400 |  |  |  | 406 |  |  |  | — |  |  |  | — |
November 2025 |  |  | 7.40 | % |  |  | 250 |  |  |  | 338 |  |  |  | 250 |  |  |  | 311 |
August 2048 |  |  | (b | ) |  |  | 1 |  |  |  | 1 |  |  |  | 1 |  |  |  | 1 |
December 2010 - 2014 |  |  | 4.70 | % |  |  | — |  |  |  | — |  |  |  | 66 |  |  |  | 69 |
Various 2011 - 2022 |  |  | (c | ) |  |  | 38 |  |  |  | 40 |  |  |  | 11 |  |  |  | 11 |
|  |  |  |  |  | $ | 3,139 |  |  | $ | 3,360 |  |  | $ | 1,328 |  |  | $ | 1,483 |
(b) |  | Variable rate debt with an interest rate of 0.07% as of September 30, 2011 and 0.19% as of December 31, 2010.
(c) |  | Includes individually immaterial short-term loans, notes, bonds and capital leases. The weighted average interest rate was 3.73% and 4.86% at September 30, 2011 and December 31, 2010, respectively.
As of September 30, 2011, we were in compliance with all covenants under outstanding debt instruments. Third Quarter 2011 Issuance of Senior Notes On September 20, 2011, Exelis Inc. (Exelis), a wholly-owned subsidiary of the Company, issued $250 million aggregate principal amount of 4.25% senior notes due 2016 (the Exelis 2016 Notes) and $400 million aggregate principal amount of 5.55% senior notes due 2021 (the Exelis 2021 Notes and, together with the Exelis 2016 Notes, the Exelis Notes) in a private placement to qualified institutional buyers pursuant to Rule 144A under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Interest on the Exelis Notes accrues from September 20, 2011 and is payable on April 1 and October 1 of each year, commencing on April 1, 2012. Exelis capitalized debt issuance costs of $6, presented within Other Assets, associated with the issuance of the Exelis Notes. The public offering price of the Exelis Notes was 99.824% of the principal amount of the Exelis 2016 Notes and 99.762% of the principal amount of the Exelis 2021 Notes. Exelis used the net proceeds received from the offering of the Exelis Notes to pay a portion of a special cash dividend to the Company and for general corporate purposes. On September 20, 2011, Xylem Inc. (Xylem), a wholly-owned subsidiary of the Company, issued $600 million aggregate principal amount of 3.550% senior notes due 2016 (the Xylem 2016 Notes) and $600 million aggregate principal amount of 4.875% senior notes due 2021 (the Xylem 2021 Notes and, together with the Xylem 2016 Notes, the Xylem Notes) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. Interest on the Xylem Notes accrues from September 20, 2011. Interest on the Xylem 2016 Notes is payable on March 20 and September 20 of each year, commencing on March 20, 2012. Interest on the Xylem 2021 Notes is payable on April 1 and October 1 of each year, commencing on April 1, 2012. Xylem capitalized debt issuance costs of $9, presented within Other Assets, associated with the issuance of the Xylem Notes. The public offering price of the Xylem Notes was 99.809% of the principal amount of the Xylem 2016 Notes and 99.935% of the principal amount of the Xylem 2021 Notes. Xylem used the net proceeds received from the offering of the Xylem Notes to pay a special cash dividend to the Company, to repay indebtedness incurred to fund its acquisition of YSI, and for general corporate purposes. The Exelis and Xylem Notes are initially guaranteed on a senior unsecured basis by ITT. The guarantee will terminate and be automatically and unconditionally released upon the distribution of the common stock of Exelis and Xylem to the holders of the Company’s common stock in connection with the spin-off of each of Exelis and Xylem from the Company. The Exelis and Xylem Notes include covenants which restrict the ability of each of Exelis and Xylem, subject to exceptions, to incur debt secured by liens and engage in sale and lease-back transactions. The Exelis and Xylem Notes also provide for customary events of default. Each of Exelis and Xylem, as the case may be, may redeem each series of the Exelis Notes or the Xylem Notes, as applicable, in whole or in part, at any time at a redemption price equal to the principal amount of the Exelis Notes or the Xylem Notes, as applicable, to be redeemed, plus a make-whole premium. If a change of control triggering event occurs (as defined in the Notes), each of Exelis or Xylem will be required to make an offer to purchase the Exelis Notes or the Xylem Notes, as applicable, at a price equal to 101% of their principal amount plus accrued and unpaid interest to the date of repurchase. On September 20, 2011, the Company and Exelis entered into a registration rights agreement with respect to the Exelis Notes (the Exelis Registration Rights Agreement) and the Company and Xylem entered into a registration rights agreement with respect to the Xylem Notes (the Xylem Registration Rights Agreement). The Company and Exelis agreed under the Exelis Registration Rights Agreement, and the Company and Xylem agreed under the Xylem Registration Rights Agreement, to (i) file a registration statement on an appropriate registration form with respect to a registered offer to exchange the Exelis Notes or Xylem Notes, as applicable, for new notes, with terms substantially identical in all material respects to the Exelis Notes or Xylem Notes, as applicable, and (ii) cause the registration statement to be declared effective under the Securities Act. If the exchange offer is not completed within 365 days after the issue date of the Notes or, if required, Exelis and Xylem, as applicable, will use its reasonable best efforts to file and to have declared effective a shelf registration statement relating to the resales of the Exelis Notes and Xylem Notes, as applicable. If Exelis or Xylem fails to satisfy this obligation (a registration default) under the Exelis Registration Rights Agreement or Xylem Registration Rights Agreement, respectively, the annual interest rate on the Exelis Notes and Xylem Notes, as applicable, will increase by 0.25%. The annual interest rate on the Exelis Notes and Xylem Notes, as applicable, will increase by an additional 0.25% for each subsequent 90-day period during which the registration default continues, up to a maximum additional interest rate of 1.00% per year. If the registration default is corrected, the applicable interest rate on such Exelis Notes or Xylem Notes, as applicable, will revert to the original level. If Exelis or Xylem must pay additional interest, Exelis or Xylem will pay it to the holders of the Exelis Notes or the Xylem Notes, as applicable, in cash on the same dates that it makes other interest payments on the Exelis Notes and Xylem Notes, as applicable, until the registration default is corrected. Termination of Capital Lease During the second quarter of 2011, we notified the lessor of our intent to terminate a sale leaseback agreement entered into in 2004 by repurchasing the leased property. The leased property includes five manufacturing and office facilities. The repurchase occurred on September 28, 2011 when ITT paid the lessor $66 million related to the capital lease obligation. The termination of the capital lease resulted in a third quarter 2011 charge of $5 which is presented within Transformation Costs in our Consolidated Condensed Income Statements. Call For Redemption of 4.90% Senior Notes due 2014 and 6.125% Senior Notes due 2019 On September 20, 2011, ITT called all of its 4.90% Senior Notes due May 2014 (the 2014 Notes) and all of its 6.125% Senior Notes due May 2019 (the 2019 Notes). The 2014 and 2019 Notes were redeemed on October 20, 2011. The redemption price for the 2014 Notes was $1,098 per $1,000 par value, plus accrued interest, and the redemption price for the 2019 Notes was $1,235 per $1,000 par value, plus accrued interest. The redemption will result in a loss on extinguishment of $167, plus incidental fees, which will be recorded in the fourth quarter as a Transformation Cost. Tender Offer for 7.40% Debentures due 2025 On September 20, 2011, we commenced a cash tender offer to purchase up to $100 in principal of our 7.40% Debentures due November 2025 (the 2025 Notes) pursuant to the satisfaction and discharge provisions of the indenture relating to the 2025 Notes. On October 19, 2011, the tender period expired and, $88 of principal was tendered. The tender offer resulted in a loss on extinguishment of $51 which will be recorded in the fourth quarter of 2011 as a Transformation Cost. Following the completion of the tender offer, on October 21, 2011, we defeased the remaining $162 of principal on the 2025 Notes pursuant to the satisfaction and discharge provisions in the indenture relating to the 2025 Notes. In order to defease the 2025 Notes, on October 20, 2011, we deposited $6 of cash and U.S. treasury securities with a aggregate purchase price of $263 in a trust account. As a result of the defeasance, the 2025 Notes have been extinguished for accounting purposes and are no longer expected to be presented in ITT’s consolidated financial statements. The defeasance resulted in a loss on extinguishment of approximately $107 which will be recorded in the fourth quarter of 2011 as a Transformation Cost. Third Quarter 2011 Interest Rate Derivatives Beginning on September 19, 2011, we entered into three forward-starting interest rate swaps and a treasury lock to hedge certain exposure associated with the our plan to extinguish the 2019 Notes and 2025 Notes. The aggregate notional amount of the four contracts is $350 and the contracts mature in October 2011. We did not attempt to qualify for hedge accounting on the contracts. Accordingly, we recognized a $2 gain from the change in fair value of the contracts from inception to September 30, 2011. This gain was recorded as a gain on extinguishment of debt within Transformation Costs. In October 2011, all four of the contracts matured and were settled in cash, resulting in a fourth quarter loss of $5 and an overall loss of $3 which will be recorded as a loss on extinguishment of debt within Transformation Costs.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 129 -Paragraph 2, 4 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20, 22 -Article 5 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 + Details
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