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Debt
 12 Months Ended
Dec. 31, 2011
Debt [Abstract]  
Debt NOTE 16 Debt

NOTE 16

Debt

 

 

                     
     2011   2010

Short-term loans

     $ 2       $ –  

Current maturities of long-term debt and other

       –         10  

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

       2         10  

Non-current maturities of long-term debt

       4         1,256  

Non-current capital leases

       –         57  

Deferred gain on interest rate swaps

       –         45  

Unamortized discounts and debt issuance costs

       –         (8 )

Long-term debt

       4         1,350  

Total debt

     $ 6       $ 1,360  
                     

During 2011, we reclassified the presentation of amounts reported within the long-term debt balance sheet account as of December 31, 2010, related to non-current capital leases by reclassifying $57 from non-current maturities of long-term debt to non-current capital leases. This reclassification had no impact on amounts reported within the 2010 Consolidated Income Statements or net cash from financing activities within the Consolidated Statements of Cash Flows.

Revolving Credit Facility

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 LIBO rate, adjusted for statutory reserve requirements, plus 1%, in each case, plus an applicable margin.

Our obligations under the credit facility are unconditionally guaranteed by each of our 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, 2011, our interest coverage ratio and leverage ratio were well in excess of the minimum requirements.

 

Long-Term Debt

The following table summarizes the carrying and fair value of our long-term outstanding notes and debentures by maturity date at December 31, 2010. The fair value of our outstanding commercial paper and short-term loans approximates carrying value.

 

 

                               
        2010
     Interest
Rate		   Carrying
Value		   Fair
Value

MATURITY DATE:

                              

May 2014

       4.90 %     $ 500       $ 538  

May 2019

       6.125 %       500         553  

November 2025

       7.40 %       250         311  

August 2048

       (a )       1         1  

December 2011 – 2014

       4.70 %       66         69  

Various 2011 – 2022

       (b )       6         6  
                $ 1,323       $ 1,478  

 

(a) Variable rate debt with an interest rate of 0.19% as of December 31, 2010.

 

(b) Includes individually immaterial notes, bonds and capital leases. The weighted average interest rate was 4.86% at December 31, 2010.

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 resulted in a loss on extinguishment of $167, plus incidental fees, which was recorded 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). 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 was recorded as a Transformation cost.

Following the completion of the tender offer, on October 21, 2011, we extinguished 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 discharge the 2025 Notes, on October 20, 2011, we deposited $6 of cash and U.S. treasury securities with an aggregate purchase price of $263 in a trust account. As a result of the satisfaction and discharge, the 2025 Notes have been extinguished for accounting purposes and are no longer presented in ITT’s consolidated financial statements. The satisfaction and discharge resulted in a loss on extinguishment of approximately $107 which was recorded as a Transformation Cost.

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 charge of $5 which was recorded as a Transformation Cost. Four of the five properties were distributed to either Exelis or Xylem on the Distribution Date.

Other Actions Associated with Extinguishment of Debt

In connection with the debt extinguishment of $1,251, we recognized a previously deferred gain of $43 on a terminated interest rate swap and expensed previously deferred debt issuance costs and an unamortized debt discounts of $6. In addition, in September 2011 we entered into three forward-starting interest rate swaps and treasury lock to hedge certain exposure associated with the plan to extinguish the 2019 Notes and 2025 Notes. In October 2011, all four of the contracts matured and were settled in cash, resulting in a loss of $3.