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Commitments and Contingencies | 6 Months Ended
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Jun. 30, 2012
Commitments and Contingencies [Abstract] |
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES NOTE 16 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 pension 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 cash flow, results of operations, or financial condition, 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 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. As of June 30, 2012, there were 96,023 open 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:
For the Six Months Ended June 30 |  | 2012 |  |  | 2011 |
Pending claims – Beginning |  |  | 105,486 |  |  |  | 103,575 |
New claims |  |  | 2,093 |  |  |  | 2,829 |
Settlements |  |  | (602 | ) |  |  | (731 | )
Dismissals |  |  | (10,954 | ) |  |  | (1,357 | )
Pending claims – Ending |  |  | 96,023 |  |  |  | 104,316 |
Frequently, plaintiffs are unable to identify any ITT or Goulds Pumps product as a source of asbestos exposure. In addition, in a large majority of claims pending against the Company, plaintiffs are unable to demonstrate any injury. Many of the pending claims reflected above have been placed on inactive dockets (including 29,431 claims in Mississippi). Our experience to date is that a substantial portion of resolved claims are dismissed without payment by the Company. As a result, management believes that a large majority of the pending claims have little or no value. In the six month period ended June 30, 2012, 10,954 pending claims, substantially all of which were filed in Mississippi and were inactive, were dismissed. 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. Income Statement Charges In the third quarter, we conduct an annual study with the assistance of outside consultants to review and update the underlying assumptions used in our asbestos liability and related asset estimates. During this study, the underlying assumptions are updated based on our actual experience since our last annual study, a reassessment of the appropriate reference period of years of experience used in determining each assumption and our expectations regarding future conditions, including inflation. As part of our ongoing review of our net asbestos exposure, each quarter we assess the most recent qualitative and quantitative 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. 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. During the second quarter of 2012, we received a distribution totaling $8.3 from certain insolvent insurers. As a result, we reduced our asbestos related asset by $2.5 and recognized $5.8 in continuing operations as a reduction to the net asbestos charge for the quarter. The tables below summarize the net asbestos charges for the three and six months ended June 30, 2012 and 2011.
|  | 2012 |  |  | 2011 |
Three Months Ended June 30 |  | Pre-tax |  |  | After-tax |  |  | Pre-tax |  |  | After-tax |
Continuing operations |  | $ | 9.6 |  |  | $ | 5.9 |  |  | $ | 15.9 |  |  | $ | 10.7 |
Discontinued operations |  |  | 0.7 |  |  |  | 0.4 |  |  |  | — |  |  |  | — |
Total |  | $ | 10.3 |  |  | $ | 6.3 |  |  | $ | 15.9 |  |  | $ | 10.7 |
|  | 2012 |  |  | 2011 |
Six Months Ended June 30 |  | Pre-tax |  |  | After-tax |  |  | Pre-tax |  |  | After-tax |
Continuing operations |  | $ | 22.3 |  |  | $ | 13.5 |  |  | $ | 31.5 |  |  | $ | 19.8 |
Discontinued operations |  |  | 0.7 |  |  |  | 0.5 |  |  |  | 2.8 |  |  |  | 1.8 |
Total |  | $ | 23.0 |  |  | $ | 14.0 |  |  | $ | 34.3 |  |  | $ | 21.6 |
Changes in Financial Position The Company’s estimated undiscounted asbestos exposure, net of expected recoveries from insurers and other responsible parties, for the resolution of all pending claims and claims estimated to be filed in the next 10 years was $720.4 and $713.7 as of June 30, 2012 and December 31, 2011, respectively. The following table provides a rollforward of the estimated asbestos liability and related assets for the six months ended June 30, 2012.
|  | Liability |  |  | Asset |  |  | Net |
Balance as of December 31, 2011 |  | $ | 1,667.9 |  |  | $ | 954.2 |  |  | $ | 713.7 |
Changes in estimate during the period: |  |  |  |  |  |  |  |  |  |  |  |
Continuing operations |  |  | 42.0 |  |  |  | 19.7 |  |  |  | 22.3 |
Discontinued operations |  |  | 7.8 |  |  |  | 7.1 |  |  |  | 0.7 |
Net cash activity |  |  | (55.5 | ) |  |  | (39.2 | ) |  |  | (16.3 | )
Balance as of June 30, 2012 |  | $ | 1,662.2 |  |  | $ | 941.8 |  |  | $ | 720.4 |
Current portion |  |  | 135.4 |  |  |  | 117.8 |  |  |  |  |
Noncurrent portion |  |  | 1,526.8 |  |  |  | 824.0 |  |  |  |  |
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 position, results of operations and cash flows. 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 six months ended June 30, 2012.
|  | Liability |  |  | Asset |  |  | Net |
Environmental liability – December 31, 2011 |  | $ | 101.8 |  |  | $ | — |  |  | $ | 101.8 |
Change in estimates for pre-existing accruals: |  |  |  |  |  |  |  |  |  |  |  |
Continuing operations |  |  | 1.7 |  |  |  | 6.7 |  |  |  | (5.0 | )
Discontinued operations |  |  | (0.8 | ) |  |  | 1.5 |  |  |  | (2.3 | )
Accruals added during the period for new matters |  |  | — |  |  |  | — |  |  |  | — |
Payments |  |  | (5.8 | ) |  |  | — |  |  |  | (5.8 | )
Environmental liability – June 30, 2012 |  | $ | 96.9 |  |  | $ | 8.2 |  |  | $ | 88.7 |
The following table illustrates the reasonably possible range of estimated liability, and number of active sites for environmental matters, at June 30, 2012.
Low-end estimate |  | $ | 77.5 |
High end estimate |  | $ | 167.3 |
Number of active environmental investigation and remediation sites |  |  | 66 |
While actual costs to be incurred at identified sites in future periods may vary from our current estimates given the inherent uncertainties in evaluating environmental exposures, we do not anticipate changes in our estimated liabilities for identified sites will have a material adverse effect on our consolidated financial position, results of operations or cash flows. In the second quarter of 2012, the Company recorded an 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. Historically, 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. Over the past several months, the performance of the insurer stabilized and agreements 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. Of the $8.2 asset recorded in the second quarter of 2012, $6.7 was recognized in income from continuing operations, while the remaining $1.5 was reflected in income from discontinued operations. 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 Indemnity Corporation et al, Sup. Ct., Los Angeles County, we are seeking recovery of costs related to environmental losses. 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. In 2011, ITT filed a Motion for Summary Judgment on Pacific Indemnity’s obligation to pay defense costs. That motion is currently pending before the court. Mandatory settlement conferences are anticipated to be held in 2012. 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 related to asbestos product liability losses described above. 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 reached an agreement-in-principle to resolve its claims with another insurer. In January 2012, ITT and Goulds Pumps filed a putative class action 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)), alleging that Travelers is unilaterally reinterpreting language contained in older Aetna policies so as to avoid paying on asbestos claims. We continue to negotiate settlement agreements with other insurers, where appropriate. On December 20, 2011, the Ad Hoc Committee of ITT Bondholders filed a Complaint in New York State court alleging that ITT breached the early redemption provisions of certain bonds issued in 2009. In 2009, ITT issued $500 in bonds maturing in 2019 at an interest rate of 6.125%. The documents governing the bonds contained certain provisions governing early redemptions. On September 20, 2011, ITT notified the holders of the debt that it intended to redeem the bonds on October 20, 2011 in accordance with the terms of the governing documents. On October 18, 2011, the redemption price was disclosed. This matter was resolved in July 2012 for an immaterial amount.

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