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COMMITMENTS AND CONTINGENCIES | 6 Months Ended
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Jul. 03, 2021
Commitments and Contingencies Disclosure [Abstract] |
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES From time to time, we are involved in legal proceedings that are incidental to the operation of our business. Historically, these proceedings have alleged damages relating to asbestos and environmental exposures, intellectual property matters, copyright infringement, personal injury claims, employment and employee benefit matters, government contract issues and commercial or contractual disputes and 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 a material adverse impact on our financial statements, unless otherwise noted below. Asbestos Matters Prior to the divestiture described below, former subsidiaries of ITT, including ITT LLC and Goulds Pumps LLC, have been sued, along with many other companies in product liability lawsuits alleging personal injury due to purported asbestos exposure. These claims generally allege that certain products sold by these entities or their 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. ITT LLC and Goulds Pumps LLC are wholly owned subsidiaries of InTelCo Management LLC (InTelCo), a former subsidiary of ITT. On June 30, 2021, the Company entered into a Membership Interest Purchase Agreement (the Purchase Agreement) with Sapphire TopCo, Inc. (Buyer), a wholly owned subsidiary of Delticus HoldCo, L.P., which is a portfolio company of the private equity firm Warburg Pincus LLC. Under the Purchase Agreement, the Company transferred 100% of the equity interests of InTelCo to the Buyer, effective as of July 1, 2021, along with a cash contribution from the Company of $398. As InTelCo was the obligor for the Company's asbestos-related liabilities and policyholder of the related insurance assets through its subsidiaries ITT LLC and Goulds Pumps LLC, the rights and obligations related to these items transferred upon the sale. In addition, pursuant to the Purchase Agreement, the Buyer and InTelCo have indemnified the Company and its affiliates for asbestos-related liabilities and other product liabilities and the Company has indemnified InTelCo and its affiliates for all other historical liabilities of InTelCo. This indemnification is not subject to any cap or time limitation. In connection with the sale, the Company and its Board of Directors received a solvency opinion from an independent advisory firm that InTelCo was solvent and adequately capitalized after giving effect to the transaction. Following the completion of the transfer, the Company no longer has any obligation with respect to pending and future asbestos claims. As such, InTelco has been deconsolidated from the financial results of the Company as we no longer maintain control of the entity. Therefore, all associated assets and liabilities are no longer reported on the consolidated balance sheet. The transaction resulted in a pre-tax gain of $88.8. Additionally, the Company recorded tax expense as a result of the reversal of previously recorded deferred tax assets of $116.9, resulting in an after-tax loss of $28.1 recorded in the second quarter of 2021. The following is a summary of the impacts of the divestiture:
Cash and cash equivalents | $ | (398.0) |  |  |
Current asbestos-related assets | (91.0) |  |  |
Long-term asbestos-related assets | (310.4) |  |  |
Accrued liabilities | 91.2 |  |  |
Long-term asbestos-related liabilities | 797.0 |  |  |
Gain on divestiture of asbestos-related assets and liabilities before income tax | $ | 88.8 |  |  |
Less: income tax expense | 116.9 |  |  |
Loss on divestiture of asbestos-related assets and liabilities, net of tax | $ | (28.1) |  |  |
Asbestos-Related Costs (Benefit), Net Prior to the divestiture of the entity holding asbestos-related assets and liabilities, the Company recognized an estimated asbestos liability for pending claims and claims expected to be filed in the future, including legal fees. In the third quarter of 2020, we extended the measurement period over which we estimate the asbestos liability to include pending claims and claims estimated to be filed through 2052, including legal fees, reflecting the full time period over which we expected claims to be filed against us. Previous estimates included pending claims and claims expected to be filed over the next 10 years. Additionally, prior to the divestiture of the entity holding asbestos-related assets and liabilities, the Company recorded an asbestos-related asset composed of probable insurance recoveries. The table below summarizes the total net asbestos charges (benefits) for the three and six months ended July 3, 2021 and June 27, 2020.
| Three Months Ended |  | Six Months Ended
| July 3, 2021 |  | June 27, 2020 |  | July 3, 2021 |  | June 27, 2020
Asbestos provision(a) | $ | 12.0 |  |  | $ | 11.8 |  |  | $ | 14.4 |  |  | $ | 23.6 |
Gain on divestiture before income tax | (88.8) |  |  | — |  |  | (88.8) |  |  | — |
Insurance settlement agreements(b) | — |  |  | 4.2 |  |  | — |  |  | (48.3) |
Asbestos-related (benefit) costs, net | $ | (76.8) |  |  | $ | 16.0 |  |  | $ | (74.4) |  |  | $ | (24.7) |
(a)Includes certain administrative costs such as legal-related costs for insurance asset recoveries and transaction costs related to the divestiture of the entity holding asbestos-related assets and liabilities. The asbestos provision for the three and six months ended June 27, 2020 includes amounts to maintain a rolling 10-year provision prior to the transition to a full horizon estimate. (b)In March 2020, we finalized a settlement agreement with a group of insurers to settle responsibility for claims under certain insurance policies for a lump sum payment of $66.4, resulting in a benefit of $52.5. During June 2020, we entered into a settlement agreement with an insurer accelerating payments previously included in a buyout agreement, resulting in a loss of $4.2. The following table provides a rollforward of the estimated asbestos liability and related assets for the six months ended July 3, 2021 and June 27, 2020.
| July 3, 2021 |  | June 27, 2020
For the Six Months Ended | Liability |  | Asset |  | Net |  | Liability |  | Asset |  | Net
Beginning balance | $ | 932.0 |  |  | $ | 444.7 |  |  | $ | 487.3 |  |  | $ | 817.6 |  |  | $ | 386.8 |  |  | $ | 430.8 |
Asbestos provision(a) | 13.4 |  |  | (1.0) |  |  | 14.4 |  |  | 28.9 |  |  | 5.3 |  |  | 23.6 |
Insurance settlement agreements(b) | — |  |  | — |  |  | — |  |  | — |  |  | 48.3 |  |  | (48.3) |
Net cash activity(a) | (46.8) |  |  | (42.3) |  |  | (4.5) |  |  | (42.7) |  |  | (35.1) |  |  | (7.6) |
Divestiture of asbestos-related assets and liabilities | (888.2) |  |  | (401.4) |  |  | (486.8) |  |  | — |  |  | — |  |  | — |
Ending balance | $ | 10.4 |  |  | $ | — |  |  | $ | 10.4 |  |  | $ | 803.8 |  |  | $ | 405.3 |  |  | $ | 398.5 |
Current portion(c) | $ | 10.4 |  |  | $ | — |  |  |  |  | $ | 85.9 |  |  | $ | 85.9 |  |  |
Noncurrent portion | $ | — |  |  | $ | — |  |  |  |  | $ | 717.9 |  |  | $ | 319.4 |  |  |
(c)As of July 3, 2021, the current liability represents transaction costs related to the divestiture of the entity holding asbestos-related assets and liabilities. Environmental Matters 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 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 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 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 for the six months ended July 3, 2021 and June 27, 2020.
For the Six Months Ended | July 3, 2021 |  | June 27, 2020
Environmental liability - beginning balance | $ | 58.3 |  |  | $ | 61.9 |
Change in estimates for pre-existing accruals: |  |  |
Continuing operations | 0.1 |  |  | 1.4 |
Discontinued operations | (0.1) |  |  | (1.6) |
Accruals added during the period for new matters | 1.0 |  |  | — |
Payments | (6.7) |  |  | (2.3) |
Foreign currency | (0.1) |  |  | (0.1) |
Environmental liability - ending balance | $ | 52.5 |  |  | $ | 59.3 |
Environmental-related assets, including a Qualified Settlement Fund and estimated recoveries from insurance providers and other third parties, were $12.1 and $20.4 as of July 3, 2021 and June 27, 2020, respectively. We are currently involved with 27 active environmental investigation and remediation sites. As of July 3, 2021, we have estimated the potential high-end liability range of environmental-related matters to be $91.8. As actual costs incurred at identified sites in future periods may vary from our current estimates given the inherent uncertainties in evaluating environmental exposures, management believes it is possible that the outcome of these uncertainties may have a material adverse effect on our financial statements.

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