NOTE 15

Debt

At December 31, ITT’s outstanding debt, including debt assumed in the Bornemann acquisition, was:


	2012		2011
Short-term loans	$	12.7	$	2.1
Current maturities of long-term debt		3.6		0.3
Current capital leases		0.5		–
Short-term loans and current maturities of long-term debt		16.8		2.4
Non-current maturities of long-term debt		8.5		4.0
Non-current capital leases		1.6		0.1
Long-term debt and capital leases		10.1		4.1
Total debt and capital leases	$	26.9	$	6.5

Long-term debt carries an interest rate ranging from 4.20% to 5.25%. As the Bornemann debt was assumed in the acquisition on November 28, 2012 and recorded at fair value, the carrying value at December 31, 2012 approximates fair value.

Principal payments over the next five years and thereafter are as follows:


2013	$	14.9
2014		2.1
2015		2.1
2016		1.9
2017 and thereafter		5.9

Assumption of Bornemann Debt

We assumed 32.7 Euro-denominated debt in connection with the acquisition of Bornemann. Of the debt assumed at the acquisition date, 17.0 Euro was repaid by December 31, 2012. Certain of the Bornemann debt instruments, which remain outstanding at December 31, 2012, contain provisions allowing the lenders to call the debt at their discretion in the event of a change in control. Based on the terms of the debt agreements, ITT’s acquisition of Bornemann constituted a change in control. Accordingly, since the debt is callable by the lender at any time, the debt has been classified as a current maturity of long-term debt. In addition, certain of the Bornemann debt instruments, which remain outstanding at December 31, 2012, provided the lender with a security interest on Bornemann assets. At December 31, 2012, approximately $10.9 of Bornemann assets were pledged as collateral to a lender.

At the time of ITT’s acquisition of Bornemann, Bornemann had two interest rate swaps outstanding, both of which remain outstanding at December 31, 2012. The aggregate notional of the interest rate swaps was $7.9 and the fair value of the interest rate swaps was $0.2. The interest rate swaps entered into by Bornemann 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.

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 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, 2012, our interest coverage ratio and leverage ratio were within the prescribed thresholds.

Extinguishment of Debt

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 $166.7, 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 $100.0 in principal of our 7.40% Debentures due November 2025 (the 2025 Notes). On October 19, 2011, the tender period expired and, $87.6 of principal was tendered. The tender offer resulted in a loss on extinguishment of $51.4 which was recorded as a transformation cost.

Following the completion of the tender offer, on October 21, 2011, we extinguished the remaining $162.4 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 $6.0 of cash and U.S. treasury securities with an aggregate purchase price of $263.2 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 $106.8 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 $66.1 related to the capital lease obligation. The termination of the capital lease resulted in a charge of $4.6 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 $1,251.0, we recognized a previously deferred gain of $42.9 on a terminated interest rate swap and expensed previously deferred debt issuance costs and unamortized debt discounts of $6.1. 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 $3.0.