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Commitments and Contingencies | 12 Months Ended
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Dec. 31, 2021
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | COMMITMENTS AND CONTINGENCIES From time to time, we are involved in litigation, claims, government inquiries, investigations and proceedings, including but not limited to those relating to environmental exposures, intellectual property matters, personal injury claims, regulatory matters, commercial and government contract issues, employment and employee benefit matters, commercial or contractual disputes, and securities matters. 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 financial statements, unless otherwise noted below. However, there can be no assurance that an adverse outcome in any of the proceedings described below will not result in material fines, penalties or damages, changes to the Company's business practices, loss of (or litigation with) customers or a material adverse effect on our financial statements. Asbestos Matters Prior to the divestiture described below, former subsidiaries of ITT, including ITT LLC and Goulds Pumps LLC, had been sued, along with many other companies in product liability lawsuits alleging personal injury due to asbestos exposure. These claims generally alleged that certain products sold by 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. 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 to InTelCo. 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 legacy 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 relating to these matters. As such, InTelCo has been deconsolidated from our 2021 financial results, 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. The following table summarizes the impacts that resulted from the divestiture of InTelCo.
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 legacy asbestos-related assets and liabilities before income tax | $ | 88.8 |  |  |
Less: income tax expense | 116.9 |  |  |
Loss on divestiture of legacy asbestos-related assets and liabilities, net of tax | $ | (28.1) |  |  |
Estimating the Liability and Related Asset Prior to the divestiture of the entity holding legacy 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. We conducted an annual remeasurement to review and update the underlying assumptions used to estimate our asbestos liability and related assets, including a reassessment of the time horizon over which a reasonable estimate of unasserted claims can be projected. In 2020, we extended our projection to include pending claims and claims expected to be filed through 2052, reflecting the full time period over which we expected asbestos-related claims to be filed against InTelCo. Previous estimates included pending claims and claims expected to be filed over the next 10 years. Our ability to reasonably estimate the liability over the full time horizon resulted from the culmination of various factors, including: •We observed stability in our data, particularly our experience in the number and percentage of claims compensated by InTelCo, the amounts paid to settle claims, and related defense costs, subsequent to the implementation of our one-firm defense strategy. •Favorable developments in our insurance coverage litigation, including a stipulation filed with the court in 2020, upon which we subsequently entered into a coverage-in-place agreement with a group of insurers regarding the remaining available and solvent limits of a significant coverage block, and our experience with insurance settlements, provided additional certainty with respect to the availability of insurance to reimburse us for certain asbestos-related expenses and the overall net exposure of InTelCo. Overall, we believed there was greater predictability of outcomes from insurance settlements and stability of underlying inputs used in calculating the gross liability. As a result, we believed the uncertainty in calculating the net liability was reduced and we had sufficient reliability to transition to a full time horizon. Consequently, in 2020, we increased our estimated undiscounted asbestos liability, including legal fees, by $155.7. As of December 31, 2020, the liability for pending claims and claims estimated to be filed through 2052 was $932.0. The asbestos liability was not discounted to present value as the timing of future cash flows may vary. The methodology used to estimate our asbestos liability for pending claims and claims estimated to be filed through 2052 determined a point estimate based on our assessment of the value of each underlying assumption, rather than a range of reasonably possible outcomes, and relied on and included the following: •interpretation of a widely accepted forecast of the population likely to have been exposed to asbestos in the workplace; •widely accepted epidemiological studies estimating the number of people likely to develop mesothelioma and lung cancer from exposure to asbestos; •InTelCo's historical experience with the filing of non-malignant claims against it and the historical relationship between non-malignant and malignant claims filed against InTelCo; •analysis of the number of likely asbestos personal injury claims to be compensated by InTelCo based on such epidemiological and historical data and InTelCo’s recent claims experience in settling and dismissing claims; •analysis of InTelCo’s pending cases, by disease type; •analysis of InTelCo’s recent experience to determine the expected settlement value of claims, by disease type; •analysis of InTelCo’s recent experience in the ratio of settled claims to total resolved claims, by disease type; and •analysis of InTelCo’s defense costs, including agreements in place with external counsel. In addition, prior to the divestiture of InTelCo, we recorded a corresponding undiscounted asbestos-related asset that represented our best estimate of probable recoveries from our insurers for the estimated asbestos liabilities. In developing this estimate, the Company considered coverage-in-place and other agreements with its insurers, and a number of additional factors. These additional factors reviewed include the financial viability of our insurance carriers and any related solvency issues, the method by which losses would be allocated to the various insurance policies and the years covered by those policies, the extent to which settlement and defense costs would be reimbursed by the insurance policies and interpretation of the various policy and contract terms and limits and their interrelationships, and various judicial determinations relevant to our insurance programs. As a result of the extension of the measurement period during 2020, we increased the asbestos-related asset b y $19.8, re presenting additional recoveries due to the increase in the estimated liability for certain claims. Settlement Agreements The Company periodically entered into settlement agreements with insurers to settle responsibility for insurance claims. Under the terms of the settlements, the insurers agreed to a payment or specified series of payments to a Qualified Settlement Fund for past costs and/or agree to provide coverage for certain future asbestos claims on specified terms and conditions. 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. In December 2020, ITT entered into a coverage-in-place agreement with a group of insurers resulting in a benefit of $52.1. Asbestos-Related (Benefit) Costs, Net The table below summarizes the total net asbestos-related (benefit) costs for the years ended December 31, 2021, 2020 and 2019.
| 2021 |  | 2020 |  | 2019
Asbestos provision, net(a) | $ | 14.4 |  |  | $ | 30.8 |  |  | $ | 47.9 |
Gain on divestiture before income tax | (88.8) |  |  | — |  |  | — |
Asbestos remeasurement, net(b) | — |  |  | 135.9 |  |  | (68.1) |
Settlement agreements and other | — |  |  | (100.4) |  |  | — |
Asbestos-related (benefit) costs, net | $ | (74.4) |  |  | $ | 66.3 |  |  | $ | (20.2) |
Changes in Financial Position The following table provides a rollforward of the estimated asbestos liability and related assets for the years ended December 31, 2021 and 2020.
| 2021 |  | 2020
| Liability |  | Asset |  | Net |  | Liability |  | Asset |  | Net
Balance as of January 1 | $ | 932.0 |  |  | $ | 444.7 |  |  | $ | 487.3 |  |  | $ | 817.6 |  |  | $ | 386.8 |  |  | $ | 430.8 |
Asbestos provision(a) | 13.4 |  |  | (1.0) |  |  | 14.4 |  |  | 37.1 |  |  | 6.3 |  |  | 30.8 |
Asbestos remeasurement(b) | — |  |  | — |  |  | — |  |  | 155.7 |  |  | 19.8 |  |  | 135.9 |
Settlement agreements | — |  |  | — |  |  | — |  |  | — |  |  | 100.4 |  |  | (100.4) |
Net cash activity and other(a) | (57.2) |  |  | (42.3) |  |  | (14.9) |  |  | (78.4) |  |  | (68.6) |  |  | (9.8) |
Divestiture of legacy asbestos-related assets and liabilities | (888.2) |  |  | (401.4) |  |  | (486.8) |  |  |  |  |  |  |
Balance as of December 31 | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 932.0 |  |  | $ | 444.7 |  |  | $ | 487.3 |
Current portion | — |  |  | — |  |  |  |  | 91.4 |  |  | 91.0 |  |  |
Noncurrent portion | — |  |  | — |  |  |  |  | 840.6 |  |  | 353.7 |  |  |
(a)2021 includes costs related to the divestiture of InTelCo as well as certain administrative costs such as legal-related costs for insurance asset recoveries. 2020 included amounts to maintain a rolling 10-year provision prior to the transition in 2020 to full horizon. (b)In 2020, we extended our projection to include pending claims and claims expected to be filed through 2052, which reflected the full time period over which we expected asbestos-related claims to be filed against InTelCo. 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 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 or operated by the Company, 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. Accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. The following table provides a rollforward of the estimated current and long-term environmental liability for the years ended December 31, 2021 and 2020.
| 2021 |  | 2020
Balance as of January 1 | $ | 58.3 |  |  | $ | 61.9 |
Changes in estimates for pre-existing accruals: |  |  |
Continuing operations | 1.8 |  |  | 1.4 |
Discontinued operations | — |  |  | (1.5) |
Accruals added during the period for new matters | 1.8 |  |  | — |
Net cash activity | (7.6) |  |  | (3.7) |
Foreign currency | (0.2) |  |  | 0.2 |
Balance as of December 31 | $ | 54.1 |  |  | $ | 58.3 |
Environmental-related assets, including a qualified settlement fund (QSF) and estimated recoveries from insurance providers and other third parties, were $12.5 and $18.6 as of December 31, 2021 and 2020, respectively. In 2020, the environmental QSF was amended to cover remediation activities for additional sites. Prior to this amendment, there was $7.2 of deferred income representing the excess of assets in the QSF over the probable liabilities associated with the previously covered sites. As a result of the amendment, we recognized income of $7.2, including $1.3 related to discontinued operations. The following table illustrates the reasonably possible high range of estimated liability, and number of active sites for environmental matters.
| 2021 |  | 2020
High end range | $ | 93.8 |  |  | $ | 97.6 |
Number of active environmental investigation and remediation sites | 26 |  |  | 27 |
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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