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Discontinued Operations | 12 Months Ended
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Dec. 31, 2011
Discontinued Operations [Abstract] |
Discontinued Operations | NOTE 4 Discontinued Operations NOTE 4 Discontinued Operations On October 31, 2011, the Company completed the Distribution of Exelis and Xylem (see Note 1). ITT was designated as the accounting and legal spinnor with respect to the Distribution. In connection with the Distribution, ITT received a net cash transfer (the Contribution) of $683 and $988 from Exelis and Xylem, respectively. 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 Xylem or Exelis, nor do we expect significant continuing cash flows from Exelis or Xylem. As a result, 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 all periods presented. During 2010 we sold CAS, Inc. (CAS), a component of our prior Defense & Information Solutions segment, engaging in systems engineering and technical assistance (SETA) for the U.S. Government. The sale of CAS was completed on September 8, 2010, resulting in proceeds from the sale of $237. Subsequent to this divestiture, we do not have any significant continuing involvement in the operations of CAS, nor do we expect significant continuing cash flows from CAS. Accordingly, the financial position and results of operations from CAS are reported as a discontinued operation for the 2010 and 2009 periods. Interest expense was not allocated to the divested businesses for any of the periods presented. Amounts presented for 2010 and 2009 have been adjusted to reflect certain immaterial corrections, primarily relating to income taxes, to the amounts previously reported in the consolidated financial statements. See Note 23, “Immaterial Corrections,” for further information. The tables below provides the operating results of discontinued operations through the date of disposal or distribution and certain Transformation costs that were incurred by ITT but qualified for classification within discontinued operations.
Year Ended 2011 |  | Exelis |  | Xylem |  | Other(b) |  | Total
Revenue |  |  | $ | 4,916 |  |  |  | $ | 3,107 |  |  |  | $ | – |  |  |  | $ | 8,023 |
Transformation costs |  |  |  | 31 |  |  |  |  | 75 |  |  |  |  | 134 |  |  |  |  | 240 |
Earnings (loss) before income taxes |  |  |  | 473 |  |  |  |  | 321 |  |  |  |  | (108 | ) |  |  |  | 686 |
Income tax expense (benefit) |  |  |  | 194 |  |  |  |  | 70 |  |  |  |  | (26 | ) |  |  |  | 238 |
Income (loss) from discontinued operations |  |  | $ | 279 |  |  |  | $ | 251 |  |  |  | $ | (82 | ) |  |  | $ | 448 |
Year Ended 2010 |  | Exelis(a) |  | Xylem |  | CAS |  | Other(b) |  | Total
Revenue |  |  | $ | 5,893 |  |  |  | $ | 3,192 |  |  |  | $ | 160 |  |  |  | $ | – |  |  |  | $ | 9,245 |
Earnings before income taxes |  |  |  | 718 |  |  |  |  | 395 |  |  |  |  | 13 |  |  |  |  | 12 |  |  |  |  | 1,138 |
Gain on sale of disposal before tax |  |  |  | – |  |  |  |  | – |  |  |  |  | 125 |  |  |  |  | – |  |  |  |  | 125 |
Income tax expense |  |  |  | 251 |  |  |  |  | 51 |  |  |  |  | – |  |  |  |  | 25 |  |  |  |  | 327 |
Income (loss) from discontinued operations |  |  | $ | 467 |  |  |  | $ | 344 |  |  |  | $ | 138 |  |  |  | $ | (13 | ) |  |  | $ | 936 |
Year Ended 2009 |  | Exelis(a) |  | Xylem |  | CAS |  | Other(b) |  | Total
Revenue |  |  | $ | 6,059 |  |  |  | $ | 2,839 |  |  |  | $ | 231 |  |  |  | $ | – |  |  |  | $ | 9,129 |
Earnings (loss) before income taxes |  |  |  | 727 |  |  |  |  | 285 |  |  |  |  | 15 |  |  |  |  | (12 | ) |  |  |  | 1,015 |
Income tax expense |  |  |  | 253 |  |  |  |  | 14 |  |  |  |  | 6 |  |  |  |  | 2 |  |  |  |  | 275 |
Income (loss) from discontinued operations |  |  | $ | 474 |  |  |  | $ | 271 |  |  |  | $ | 9 |  |  |  | $ | (14 | ) |  |  | $ | 740 |
(a) | CAS was a component of our Defense and Information Solutions business, which was distributed as Exelis. The table above presents Exelis without CAS, which was disposed during 2010.
(b) | Amounts presented in the “Other” column within the tables above 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 provide no future benefit to the Company. See Note 3, “Company Transformation” for further information.
The table below provides the major components of assets and liabilities at December 31, 2010 that were included in the Distribution and includes those assets and liabilities that were distributed to Exelis and Xylem which were not part of their historical operations.
|  | Exelis |  | Xylem |  | Total
Cash and cash equivalents |  |  | $ | 18 |  |  |  | $ | 808 |  |  |  | $ | 826 |
Receivables, net |  |  |  | 958 |  |  |  |  | 690 |  |  |  |  | 1,648 |
Inventories, net |  |  |  | 239 |  |  |  |  | 389 |  |  |  |  | 628 |
Other current assets |  |  |  | 188 |  |  |  |  | 167 |  |  |  |  | 355 |
Total current assets |  |  |  | 1,403 |  |  |  |  | 2,054 |  |  |  |  | 3,457 |
Plant, Property and Equipment, net |  |  |  | 462 |  |  |  |  | 465 |  |  |  |  | 927 |
Goodwill |  |  |  | 2,156 |  |  |  |  | 1,617 |  |  |  |  | 3,773 |
Other intangible assets |  |  |  | 258 |  |  |  |  | 416 |  |  |  |  | 674 |
Other non-current assets |  |  |  | 243 |  |  |  |  | 248 |  |  |  |  | 491 |
Total assets |  |  |  | 4,522 |  |  |  |  | 4,800 |  |  |  |  | 9,322 |
Accounts payable |  |  |  | 326 |  |  |  |  | 321 |  |  |  |  | 647 |
Accrued liabilities and other current liabilities |  |  |  | 884 |  |  |  |  | 361 |  |  |  |  | 1,245 |
Total current liabilities |  |  |  | 1,210 |  |  |  |  | 682 |  |  |  |  | 1,892 |
Postretirement benefits |  |  |  | 1,223 |  |  |  |  | 257 |  |  |  |  | 1,480 |
Other non-current liabilities |  |  |  | 113 |  |  |  |  | 324 |  |  |  |  | 437 |
Total liabilities |  |  | $ | 2,546 |  |  |  | $ | 1,263 |  |  |  | $ | 3,809 |
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 agreement and master transition services agreement. Information on the agreements utilized to effectuate the Distribution are 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, e.g., the bond litigation, referenced in Note 20, “Commitments and Contingencies,” will be shared 21% to ITT, 40% to Exelis, and 39% 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 will not be 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, 2011, 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, 2011, there is a tax indemnification liability recorded of $4 due to Xylem. 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. 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 extend for a period of 3 to 24 months and are intended to help ensure an orderly transition for each of Exelis, Xylem and ITT following the Distribution. During November and December of 2011, we billed Exelis and Xylem approximately $22, 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, following the Distribution, amount to less than $1. As of December 31, 2011, we have an aggregate receivable and payable, associated with transactions related to the Master Transition Services Agreement, of less than $1 each. Subcontract Pending Novation On October 31, 2011, we entered into a Subcontract Agreement Pending Novation with Exelis through which ITT engaged Exelis as a subcontractor for approximately 425 U.S. government contracts. Exelis will be obligated to directly perform to the contract specifications to the satisfaction of the U.S. Government as if the contracts had been novated. The Subcontract Agreement Pending Novation will remain in effect until the earlier of the U.S. Government’s agreement to novate is completed or performance under the contract is completed. ITT and Exelis are working with the U.S. Government to finalize the novation of the underlying contracts and do not expect any disruptions as a result of this process. All rights and benefits conferred or accruing under the contracts pending novation inure to Exelis. Pursuant to the terms of the Subcontract Agreement Pending Novation, ITT is obligated to immediately deposit all proceeds it receives under such government contracts into a bank account controlled by Exelis. Exelis has indemnified ITT against claims and liabilities related to the U.S. Government contracts pending novation arising in connection with performance under the contracts. While the novation is pending, ITT does not have the ability to significantly influence Exelis’ performance under the contracts as Exelis acts as the contracted party and has assumed control of all legal matters, including with respect to audits performed by the U.S. Government. Further, ITT has granted Exelis the right to, among other things, (i) prepare, execute and submit invoices in the name of ITT, (ii) send correspondence relating to matters under such contract in the name of ITT and (iii) otherwise exercise all rights in respect of such contract in the name of ITT. The U.S. government was billed approximately $250 from the Distribution Date through December 31, 2011 for contracts awaiting novation. Revenues and costs resulting from activities performed by Exelis on these contracts after the Distribution Date have been recorded on a net basis in ITT’s financial statements, resulting in no effect on any amounts reported in ITT’s financial statements.

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- Definition The entire disclosure for the facts and circumstances leading to the completed or expected disposal, manner and timing of disposal, the gain (loss) recognized in the income statement and the income statement caption that includes that gain (loss), amounts of revenues and pretax profit or loss reported in discontinued operations, the segment in which the disposal group was reported, and the classification (whether sold or classified as held for sale) and carrying value of the assets and liabilities comprising the disposal group. Includes all disposal groups, including those classified as components of the entity (discontinued operations). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e957-107759 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6391110&loc=d3e2941-110230 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1436-107760 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1361-107760 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 45 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6390789&loc=d3e2443-110228 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 144 -Paragraph 43-48 -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 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1474-107760 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e1020-107759 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1510-107760 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e1012-107759 + Details
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