ITT 6.30.14 10-Q

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                    
Commission File Number: 1-5672
ITT CORPORATION
State of Indiana
 
13-5158950
(State or Other Jurisdiction
of Incorporation or Organization)
 
(I.R.S. Employer
Identification Number)
1133 Westchester Avenue, White Plains, NY 10604
(Principal Executive Office)
Telephone Number: (914) 641-2000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer  þ
Accelerated filer   o
Non-accelerated filer  o
Smaller reporting company  o
 
  (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o    No  þ
As of July 23, 2014, there were outstanding 91.6 million shares of common stock ($1 par value per share) of the registrant.
 



TABLE OF CONTENTS
ITEM
  
PAGE
PART I – FINANCIAL INFORMATION
1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.
 
 
 
 
 
 
 
3.
4.
 
PART II – OTHER INFORMATION
 
1.
1A.
2.
3.
4.
5.
6.
 
 


FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Some of the information included herein includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995 (the Act). These forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the business and future financial results of the industry in which we operate, and other legal, regulatory and economic developments. These forward-looking statements include, but are not limited to, future strategic plans and other statements that describe the company’s business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance.
We use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target,“ “future,” “may,” “will,” “could,” “should,” “potential,” “continue,” “guidance” and other similar expressions to identify such forward-looking statements. Forward-looking statements are uncertain and to some extent unpredictable, and involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements.
Where in any forward-looking statement we express an expectation or belief as to future results or events, such expectation or belief is based on current plans and expectations of our management, expressed in good faith and believed to have a reasonable basis. However, there can be no assurance that the expectation or belief will result or will be achieved or accomplished. More information on factors that could cause actual results or events to differ materially from those anticipated is included in our reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2013 (particularly under the caption “Risk Factors”), our Quarterly Reports on Form 10-Q (including Part II, Item 1A, "Risk Factors," of this Quarterly Report on Form 10-Q) and other documents we file from time to time with the SEC.
The forward-looking statements included in this Report speak only as of the date of this Report. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (SEC). You can inspect, read and copy these reports, proxy statements and other information at the SEC's Public Reference Room, which is located at 100 F Street, N.E., Washington, D.C. 20549. You can obtain information regarding the operation of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that makes available reports, proxy statements and other information regarding issuers that file electronically.
We make available free of charge at www.itt.com (in the “Investors” section) copies of materials we file with, or furnish to, the SEC. ITT uses the Investor Relations page of its Internet site at www.itt.com (in the "Investors" section) to disclose important information to the public.
Information contained on ITT's Internet site, or that can be accessed through its Internet site, does not constitute a part of this Report. ITT has included its Internet site address only as an inactive textual reference and does not intend it to be an active link to its Internet site. Our corporate headquarters are located at 1133 Westchester Avenue, White Plains, NY 10604 and the telephone number of this location is (914) 641-2000.




PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED INCOME STATEMENTS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 
 
Three Months
 
Six Months
For the Periods Ended June 30
2014
 
2013
 
2014
 
2013
Revenue
$
663.0

 
$
609.2

 
$
1,337.5

 
$
1,217.4

Costs of revenue
448.2

 
411.4

 
907.9

 
829.1

Gross profit
214.8

 
197.8

 
429.6

 
388.3

General and administrative expenses
69.5

 
66.6

 
147.2

 
135.7

Sales and marketing expenses
56.3

 
57.5

 
111.6

 
109.3

Research and development expenses
18.6

 
16.4

 
36.3

 
32.8

Asbestos-related costs, net
15.9

 
15.9

 
31.7

 
31.9

Operating income
54.5

 
41.4

 
102.8

 
78.6

Interest and non-operating expenses, net
0.5

 
2.2

 
1.6

 
4.9

Income from continuing operations before income tax expense
54.0

 
39.2

 
101.2

 
73.7

Income tax expense
12.4

 
14.4

 
25.4

 
29.4

Income from continuing operations
41.6

 
24.8

 
75.8

 
44.3

(Loss) income from discontinued operations, including tax benefit (expense) of $2.5, $0.3, $3.0 and $(0.2), respectively
(2.9
)
 
1.1

 
(3.9
)
 
2.8

Net income
38.7

 
25.9

 
71.9

 
47.1

Less: Income attributable to noncontrolling interests
0.4

 
0.1

 
1.4

 
0.5

Net income attributable to ITT Corporation
$
38.3

 
$
25.8

 
$
70.5

 
$
46.6

Amounts attributable to ITT Corporation:
 
 
 
 
 
 
 
Income from continuing operations, net of tax
$
41.2

 
$
24.7

 
$
74.4

 
$
43.8

(Loss) income from discontinued operations, net of tax
(2.9
)
 
1.1

 
(3.9
)
 
2.8

Net income
$
38.3

 
$
25.8

 
$
70.5

 
$
46.6

Earnings (loss) per share attributable to ITT Corporation:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Continuing operations
$
0.45

 
$
0.27

 
$
0.81

 
$
0.48

Discontinued operations
(0.03
)
 
0.02

 
(0.04
)
 
0.03

Net income
$
0.42

 
$
0.29

 
$
0.77

 
$
0.51

Diluted:
 
 
 
 
 
 
 
Continuing operations
$
0.44

 
$
0.27

 
$
0.80

 
$
0.47

Discontinued operations
(0.03
)
 
0.01

 
(0.04
)
 
0.03

Net income
$
0.41

 
$
0.28

 
$
0.76

 
$
0.50

Weighted average common shares – basic
91.7

 
90.4

 
91.5

 
91.2

Weighted average common shares – diluted
93.0

 
91.6

 
92.8

 
92.4

Cash dividends declared per common share
$
0.11

 
$
0.10

 
$
0.22

 
$
0.20

The accompanying Notes to Consolidated Condensed Financial Statements are an integral part of the above income statements.

1

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(IN MILLIONS) 
 
Three Months
 
Six Months
For the Periods Ended June 30
2014
 
2013
 
2014
 
2013
Net income
$
38.7

 
$
25.9

 
$
71.9

 
$
47.1

Other comprehensive income:
 
 
 
 
 
 
 
Net foreign currency translation adjustment
1.6

 
0.8

 
(0.9
)
 
(25.2
)
Net change in postretirement benefit plans, net of tax benefits of $0.2, $0, $0.6, and $0, respectively
0.7

 
3.1

 
1.3

 
5.9

Other comprehensive income (loss)
2.3

 
3.9

 
0.4

 
(19.3
)
Comprehensive income
41.0

 
29.8

 
72.3

 
27.8

Less: Comprehensive income attributable to noncontrolling interests
0.4

 
0.1

 
1.4

 
0.5

Comprehensive income attributable to ITT Corporation
$
40.6

 
$
29.7

 
$
70.9

 
$
27.3

Disclosure of reclassification and other adjustments to postretirement benefit plans
 
 
 
 
 
 
 
Reclassification adjustments:
 
 
 
 
 
 
 
Amortization of prior service costs, net of tax expense of $(0.5), $0, $(1.0), and $0, respectively (see Note 13)
$
(0.8
)
 
$
0.1

 
$
(1.7
)
 
$
0.2

Amortization of net actuarial loss, net of tax benefits of $0.7, $0, $1.6, and $0, respectively (see Note 13)
1.5

 
3.0

 
3.0

 
6.7

Other adjustments:
 
 
 
 
 
 
 
Unrealized change in net actuarial loss, net of tax expense of $0
—

 
—

 
—

 
(1.0
)
Net change in postretirement benefit plans, net of tax
$
0.7

 
$
3.1

 
$
1.3

 
$
5.9

The Notes to Consolidated Condensed Financial Statements are an integral part of the above statements of comprehensive income.

2

CONSOLIDATED CONDENSED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 
 
June 30,
2014
 
December 31,
2013
 
(Unaudited)
 
 
 
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
 
$
527.7

 
 
$
507.3

Receivables, net
 
575.3

 
 
496.7

Inventories, net
 
309.0

 
 
315.9

Other current assets
 
345.6

 
 
345.6

Total current assets
 
1,757.6

 
 
1,665.5

Plant, property and equipment, net
 
443.0

 
 
426.2

Goodwill
 
659.6

 
 
659.8

Other intangible assets, net
 
101.0

 
 
106.9

Asbestos-related assets
 
404.6

 
 
433.3

Deferred income taxes
 
299.7

 
 
303.6

Other non-current assets
 
147.0

 
 
144.9

Total non-current assets
 
2,054.9

 
 
2,074.7

Total assets
 
$
3,812.5

 
 
$
3,740.2

Liabilities and Shareholders’ Equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
 
$
343.9

 
 
$
332.7

Accrued liabilities
 
496.0

 
 
499.9

Total current liabilities
 
839.9

 
 
832.6

Asbestos-related liabilities
 
1,178.9

 
 
1,179.6

Postretirement benefits
 
240.8

 
 
243.3

Other non-current liabilities
 
285.8

 
 
277.8

Total non-current liabilities
 
1,705.5

 
 
1,700.7

Total liabilities
 
2,545.4

 
 
2,533.3

Shareholders’ equity:
 
 
 
 
 
Common stock:
 
 
 
 
 
Authorized – 250.0 shares, $1 par value per share (104.2 and 104.0 shares issued, respectively)
 
 
 
 
 
Outstanding – 91.6 shares and 91.0 shares, respectively
 
91.6

 
 
91.0

Retained earnings
 
1,381.0

 
 
1,320.3

Total accumulated other comprehensive loss
 
(209.9
)
 
 
(210.3
)
Total ITT Corporation shareholders' equity
 
1,262.7

 
 
1,201.0

Noncontrolling interests
 
4.4

 
 
5.9

Total shareholders’ equity
 
1,267.1

 
 
1,206.9

Total liabilities and shareholders’ equity
 
$
3,812.5

 
 
$
3,740.2

The accompanying Notes to Consolidated Condensed Financial Statements are an integral part of the above balance sheets.

3

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS) 
For the Six Months Ended June 30
2014
 
2013
Operating Activities
 
 
 
Net income
$
71.9

 
$
47.1

Less: (Loss) income from discontinued operations
(3.9
)
 
2.8

Less: Income attributable to noncontrolling interests
1.4

 
0.5

Income from continuing operations attributable to ITT Corporation
74.4

 
43.8

Adjustments to income from continuing operations:
 
 
 
Depreciation and amortization
42.2

 
44.6

Stock-based compensation
6.8

 
6.2

Asbestos-related costs, net
31.7

 
31.9

Asbestos-related payments, net
(6.9
)
 
(11.7
)
Changes in assets and liabilities:
 
 
 
Change in receivables
(79.3
)
 
(64.2
)
Change in inventories
5.8

 
(18.2
)
Change in accounts payable
(0.4
)
 
15.4

Change in accrued expenses
(3.5
)
 
(5.0
)
Change in accrued and deferred income taxes
0.2

 
17.3

Other, net
13.3

 
8.7

Net Cash – Operating activities
84.3

 
68.8

Investing Activities
 
 
 
Capital expenditures
(45.7
)
 
(36.8
)
Purchases of investments
(120.6
)
 
(47.8
)
Maturities of investments
135.8

 
49.9

Other, net
(2.1
)
 
1.1

Net Cash – Investing activities
(32.6
)
 
(33.6
)
Financing Activities
 
 
 
Short-term debt, net
(15.5
)
 
27.3

Long-term debt, repaid
(0.7
)
 
(5.5
)
Repurchase of common stock
(14.9
)
 
(87.9
)
Issuance of common stock
11.4

 
21.9

Dividends paid
(10.3
)
 
(9.3
)
Excess tax benefit from equity compensation activity
6.4

 
3.7

Other, net
(1.6
)
 
(1.3
)
Net Cash – Financing activities
(25.2
)
 
(51.1
)
Exchange rate effects on cash and cash equivalents
(1.6
)
 
(7.2
)
Net Cash – Operating activities of discontinued operations
(4.5
)
 
(3.7
)
Net change in cash and cash equivalents
20.4

 
(26.8
)
Cash and cash equivalents – beginning of year
507.3

 
544.5

Cash and cash equivalents – end of period
$
527.7

 
$
517.7

Supplemental Disclosures of Cash Flow Information
 
 
 
Cash paid during the year for:
 
 
 
Interest paid, net of interest received
$
0.1

 
$
0.4

Income taxes, net of refunds received
$
16.8

 
$
5.0

The accompanying Notes to Consolidated Condensed Financial Statements are an integral part of the above statements of cash flows.

4

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(IN MILLIONS)
 
Three Months
 
Six Months
For the Periods Ended June 30
2014
 
2013
 
2014
 
2013
Common Stock
 
 
 
 
 
 
 
Common stock, beginning balance
$
91.7

 
$
91.2

 
$
91.0

 
$
91.9

Activity from stock incentive plans
0.1

 
0.5

 
0.9

 
1.6

Share repurchases
(0.2
)
 
(1.4
)
 
(0.3
)
 
(3.2
)
Common stock, ending balance
91.6

 
90.3

 
91.6

 
90.3

Retained Earnings
 

 
 

 
 

 
 

Retained earnings, beginning balance
1,356.1

 
882.2

 
1,320.3

 
898.8

Net income attributable to ITT Corporation
38.3

 
25.8

 
70.5

 
46.6

Dividends declared
(10.2
)
 
(9.1
)
 
(20.3
)
 
(18.4
)
Activity from stock incentive plans
6.9

 
12.0

 
23.7

 
30.3

Share repurchases
(9.9
)
 
(38.3
)
 
(14.6
)
 
(84.7
)
Purchase of noncontrolling interest
(0.2
)
 
—

 
1.4

 
—

Retained earnings, ending balance
1,381.0

 
872.6

 
1,381.0

 
872.6

Accumulated Other Comprehensive Loss
 

 
 

 
 

 
 

Postretirement benefit plans, beginning balance
(128.6
)
 
(192.7
)
 
(129.2
)
 
(195.5
)
Net change in postretirement benefit plans
0.7

 
3.1

 
1.3

 
5.9

Postretirement benefit plans, ending balance
(127.9
)
 
(189.6
)
 
(127.9
)
 
(189.6
)
Cumulative translation adjustment, beginning balance
(83.3
)
 
(117.7
)
 
(80.8
)
 
(91.7
)
Net cumulative translation adjustment
1.6

 
0.8

 
(0.9
)
 
(25.2
)
Cumulative translation adjustment, ending balance
(81.7
)
 
(116.9
)
 
(81.7
)
 
(116.9
)
Unrealized loss on investment securities, beginning balance
(0.3
)
 
(0.3
)
 
(0.3
)
 
(0.3
)
Unrealized loss on investment securities, ending balance
(0.3
)
 
(0.3
)
 
(0.3
)
 
(0.3
)
Total accumulated other comprehensive loss
(209.9
)
 
(306.8
)
 
(209.9
)
 
(306.8
)
Noncontrolling interests
 

 
 

 
 

 
 

Noncontrolling interests, beginning balance
4.0

 
4.3

 
5.9

 
—

Reclassification of noncontrolling interest
—

 
—

 
—

 
3.9

Income attributable to noncontrolling interest
0.4

 
0.1

 
1.4

 
0.5

Purchase of noncontrolling interest
—

 
—

 
(2.9
)
 
—

Noncontrolling interests, ending balance
4.4

 
4.4

 
4.4

 
4.4

Total Shareholders' Equity
 

 
 

 
 

 
 

Total shareholders' equity, beginning balance
1,239.6

 
667.0

 
1,206.9

 
703.2

Net change in common stock
(0.1
)
 
(0.9
)
 
0.6

 
(1.6
)
Net change in retained earnings
24.9

 
(9.6
)
 
60.7

 
(26.2
)
Net change in accumulated other comprehensive loss
2.3

 
3.9

 
0.4

 
(19.3
)
Net change in noncontrolling interests
0.4

 
0.1

 
(1.5
)
 
4.4

Total shareholders' equity, ending balance
$
1,267.1

 
$
660.5

 
$
1,267.1

 
$
660.5

The accompanying Notes to Consolidated Condensed Financial Statements are an integral part of the above statements of changes in shareholders' equity.

5

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS AND SHARE AMOUNTS IN MILLIONS, UNLESS OTHERWISE STATED)
NOTE 1
DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
ITT Corporation is a diversified manufacturer of highly engineered critical components and customized technology solutions for the energy, transportation, and industrial markets. Unless the context otherwise indicates, references herein to “ITT,” “the Company,” and such words as “we,” “us,” and “our” include ITT Corporation and its subsidiaries. ITT operates through four segments: Industrial Process, consisting of engineered fluid process equipment; Motion Technologies, consisting of brake pads, shock absorbers, and damping technologies; Interconnect Solutions, consisting of highly specialized connector products; and Control Technologies, consisting of vibration and shock isolation, motion control, and fluid handling products. Financial information for our segments is presented in Note 17, “Segment Information.”
Basis of Presentation
The unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. We consistently applied the accounting policies described in ITT's Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Annual Report) in preparing these unaudited financial statements. These financial statements should be read in conjunction with the financial statements and notes thereto included in our 2013 Annual Report.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Estimates are revised as additional information becomes available. Estimates and assumptions are used for, but not limited to, asbestos-related liabilities and recoveries from insurers, revenue recognition, unrecognized tax benefits, deferred tax valuation allowances, projected benefit obligations for postretirement plans, accounting for business combinations, goodwill and other intangible asset impairment testing, environmental liabilities and recoveries from insurers, allowance for doubtful accounts and inventory valuation. Actual results could differ from these estimates.
ITT's quarterly financial periods end on the Saturday closest to the last day of the calendar quarter, except for the last quarterly period of the fiscal year, which ends on December 31st. For ease of presentation, the quarterly financial statements included herein are described as ending on the last day of the calendar quarter.
Summary of Significant Accounting Policies
Due to an increase in the number and size of complex long-term industrial pump design and build contracts, an update to the revenue recognition accounting policy disclosed in the 2013 Annual Report is provided below:
Revenue Recognition
We recognize revenue for certain long-term design and build projects using the percentage-of-completion method, based upon the percentage of costs incurred to total projected costs. Revenue and profit recognized under the percentage-of-completion method are based on management’s estimates. Amounts invoiced to customers in excess of revenue recognized are recorded as deferred revenue, until the revenue recognition criteria are satisfied. Revenue that is earned and recognized in excess of amounts invoiced is recorded as a component of receivables, net. During the performance of long-term sales contracts, estimated final contract prices and costs are reviewed periodically and revisions are made as required and recorded in income in the period in which they are determined. Provisions for estimated losses on uncompleted long-term sales contracts are made in the period in which such losses are determined and are recorded as a component of costs of revenue. We continue to apply the completed-contract method of accounting for smaller design and build contracts, including those of short-term

6

duration. Our results of operations and financial position would not vary materially had we used the percentage-of-completion method for these types of contracts.
NOTE 2
RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (FASB) issued guidance eliminating diversity in practice surrounding the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The new guidance requires entities to net an unrecognized tax benefit with a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if the carryforward would be used to settle additional tax due upon disallowance of a tax position. The adoption of this amendment on January 1, 2014 did not have a material effect on ITT's financial statements.
In March 2013, the FASB clarified that, when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity, the parent is required to release any related cumulative translation adjustment into net income. The cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The FASB also clarified that if a business combination is achieved in stages related to a previously held equity method investment (step-acquisition) that is a foreign entity, the amount of accumulated other comprehensive income that is reclassified and included in the calculation of gain or loss as of the acquisition date shall include any foreign currency translation adjustment related to that previously held investment. The adoption of these amendments on January 1, 2014 did not have a material impact to ITT's financial statements.
In February 2013, the FASB issued guidance requiring an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the amount the entity agreed to pay for the arrangement between them and the other entities that are also obligated to the liability and any additional amount the entity expects to pay on behalf of the other entities. The adoption of this guidance on January 1, 2014 did not have a material impact to ITT's financial statements.
Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB amended the existing accounting standards for revenue recognition. The amendments are based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Adoption of the amendments is required in the first quarter of fiscal 2017. Early adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or with the cumulative effect recognized as of the date of initial application. ITT is currently evaluating the impact of these amendments and the transition alternatives on ITT's financial statements.
In April 2014, the FASB issued guidance that raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and other disposals that do not meet the definition of a discontinued operation. The new guidance defines a discontinued operation as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results. The new guidance will become effective on January 1, 2015, with early adoption permitted. While we do not expect a material impact on ITT’s financial statements upon adoption, the effects on future periods will depend upon the nature and significance of future disposals.

7

NOTE 3
RESTRUCTURING ACTIONS
The table below summarizes the restructuring costs presented within general and administrative expenses in our Consolidated Condensed Income Statements for the three and six months ended June 30, 2014 and 2013.
 
Three Months
 
Six Months
For the Periods Ended June 30
2014
 
2013
 
2014
 
2013
Severance costs
$
1.3

 
$
3.3

 
$
16.6

 
$
8.7

Asset write-offs
1.3

 
—

 
1.3

 
—

Other restructuring costs
1.2

 
0.1

 
1.2

 
0.2

Total restructuring costs
$
3.8

 
$
3.4

 
$
19.1

 
$
8.9

By segment:
 
 
 
 
 
 
 
Industrial Process
$
2.0

 
$
0.2

 
$
2.9

 
$
0.6

Motion Technologies
0.2

 
2.1

 
0.2

 
2.5

Interconnect Solutions
1.6

 
1.0

 
16.0

 
5.4

Control Technologies
—

 
—

 
—

 
—

Corporate and Other
—

 
0.1

 
—

 
0.4

The following table displays a rollforward of the restructuring accruals, presented on our Consolidated Condensed Balance Sheet within accrued liabilities, for the six months ended June 30, 2014 and 2013.
For the Six Months Ended June 30
2014
 
2013
Restructuring accruals - 1/1
$
14.7

 
$
7.8

Restructuring costs
19.1

 
8.9

Cash payments
(9.2
)
 
(10.0
)
Asset write-offs
(1.3
)
 
—

Foreign exchange translation and other
—

 
—

Restructuring accrual - 6/30
$
23.3

 
$
6.7

By accrual type:
 
 
 
Severance accrual
$
21.0

 
$
6.6

Facility carrying and other costs accrual
2.3

 
0.1

Interconnect Solutions Turnaround Activities
In 2013, we initiated a comprehensive restructuring plan to improve the overall cost structure of our Interconnect Solutions (ICS) segment. The costs incurred during the six months ended June 30, 2014 of $16.0, primarily relate to employee severance for approximately 250 planned headcount reductions, associated with an action to move certain production lines from one location to another existing lower cost manufacturing site. The costs incurred during the six months ended June 30, 2013 of $5.4 primarily related to employee severance for 72 headcount reductions across our global operating locations. To date, we have incurred $34.1 under the ICS turnaround plan spanning the past 18 months, and related to these previously announced actions, we expect to incur further restructuring costs of approximately $2.0 over the next nine months. The following table provides a rollforward of the restructuring accrual associated with the ICS turnaround activities.
For the Six Months Ended June 30
2014
Restructuring accruals - 1/1
$
8.0

Restructuring costs
16.0

Cash payments
(6.1
)
Asset write-offs
(1.3
)
Restructuring accruals - 6/30
$
16.6


8

NOTE 4
INCOME TAXES
For the three months ended June 30, 2014, the Company recognized income tax expense of $12.4 representing an effective tax rate of 23.0% compared to income tax expense of $14.4, and an effective tax rate of 36.7%, for the three months ended June 30, 2013. For the six months ended June 30, 2014, the Company recognized income tax expense of $25.4 representing an effective tax rate of 25.1% compared to income tax expense of $29.4, and an effective tax rate of 39.9%, for the six months ended June 30, 2013. The tax rate for 2014 is lower than the prior year due to the absence of a valuation allowance that was recorded in 2013 against U.S. deferred tax assets and an increase in income during 2014 that is eligible for the tax holiday in Korea.
The Company operates in various tax jurisdictions and is subject to examination by tax authorities in these jurisdictions. The Company is currently under examination in several jurisdictions including Germany, Italy, Korea, the United Kingdom and the U.S. The calculation of our tax liability for unrecognized tax benefits includes dealing with uncertainties in the application of complex tax laws and regulations in various tax jurisdictions. Due to the complexity of some uncertainties the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit. The settlement of an examination could result in changes in amounts attributable to us through the Tax Matters Agreement entered into with Exelis, Inc. and Xylem, Inc. Over the next twelve months, the net amount of the tax liability for unrecognized tax benefits in foreign and domestic jurisdictions could change by approximately $85.0 million due to changes in audit status, expiration of statutes of limitations and other events.   
NOTE 5
EARNINGS PER SHARE
The following table provides a reconciliation of the data used in the calculation of basic and diluted earnings per share from continuing operations attributable to ITT Corporation for the three and six months ended June 30, 2014 and 2013. 
 
Three Months
 
Six Months
For the Periods Ended June 30
2014
 
2013
 
2014
 
2013
Weighted average common shares outstanding
91.7

 
90.4

 
91.5

 
91.1

Add: Weighted average restricted stock awards outstanding(a)
—

 
—

 
—

 
0.1

Basic weighted average common shares outstanding
91.7

 
90.4

 
91.5

 
91.2

Add: Dilutive impact of outstanding equity awards
1.3

 
1.2

 
1.3

 
1.2

Diluted weighted average common shares outstanding
93.0

 
91.6

 
92.8

 
92.4

(a)
Restricted stock awards containing rights to non-forfeitable dividends which participate in undistributed earnings with common shareholders are considered participating securities for purposes of computing earnings per share.
The following table provides the number of shares underlying stock options excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2014 and 2013 because they were anti-dilutive. 
 
Three Months
 
Six Months
For the Periods Ended June 30
2014
 
2013
 
2014
 
2013
Anti-dilutive stock options
0.2

 
0.4

 
0.2

 
0.2

Average exercise price
$
43.51

 
$
26.79

 
$
43.51

 
$
26.79

Year of expiration
2024

 
2023

 
2024

 
2023

In addition, 0.2 of outstanding employee return on invested capital (ROIC) awards were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2014, as the three-year performance metric related to the ROIC awards has not yet been achieved.

9

NOTE 6
RECEIVABLES, NET 
 
June 30,
2014
 
December 31,
2013
Trade accounts receivable
 
$
547.1

 
 
 
$
463.9

 
Notes receivable
 
5.3

 
 
 
6.3

 
Other
 
32.5

 
 
 
39.1

 
Receivables, gross
 
584.9

 
 
 
509.3

 
Less: Allowance for doubtful accounts
 
9.6

 
 
 
12.6

 
Receivables, net
 
$
575.3

 
 
 
$
496.7

 
NOTE 7
INVENTORIES, NET 
 
June 30,
2014
 
December 31,
2013
Finished goods
 
$
58.6

 
 
 
$
49.9

 
Work in process
 
64.9

 
 
 
94.8

 
Raw materials
 
173.4

 
 
 
166.7

 
Inventoried costs related to long-term contracts
 
73.7

 
 
 
85.4

 
Total inventory before progress payments
 
370.6

 
 
 
396.8

 
Less: Progress payments
 
(61.6
)
 
 
 
(80.9
)
 
Inventories, net
 
$
309.0

 
 
 
$
315.9

 
NOTE 8
OTHER CURRENT AND NON-CURRENT ASSETS 
 
June 30,
2014
 
December 31,
2013
Short-term investments
 
$
96.8

 
 
 
$
112.9

 
Asbestos-related current assets
 
84.5

 
 
 
84.5

 
Current deferred income taxes
 
58.9

 
 
 
59.5

 
Prepaid income taxes
 
46.9

 
 
 
23.6

 
Other
 
58.5

 
 
 
65.1

 
Other current assets
 
$
345.6

 
 
 
$
345.6

 
Other employee benefit-related assets
 
$
96.9

 
 
 
$
95.5

 
Capitalized software costs
 
14.9

 
 
 
14.6

 
Environmental-related assets
 
11.6

 
 
 
11.7

 
Equity method investments
 
4.7

 
 
 
4.7

 
Other
 
18.9

 
 
 
18.4

 
Other non-current assets
 
$
147.0

 
 
 
$
144.9

 

10

NOTE 9
PLANT, PROPERTY AND EQUIPMENT, NET 
 
June 30,
2014
 
December 31,
2013
Land and improvements
 
$
27.6

 
 
 
$
26.8

 
Machinery and equipment
 
861.0

 
 
 
834.5

 
Buildings and improvements
 
215.6

 
 
 
211.6

 
Furniture, fixtures and office equipment
 
75.8

 
 
 
74.6

 
Construction work in progress
 
69.9

 
 
 
59.8

 
Other
 
8.7

 
 
 
8.5

 
Plant, property and equipment, gross
 
1,258.6

 
 
 
1,215.8

 
Less: Accumulated depreciation
 
(815.6
)
 
 
 
(789.6
)
 
Plant, property and equipment, net
 
$
443.0

 
 
 
$
426.2

 
Depreciation expense of $16.7 and $33.7 was recognized in the three and six months ended June 30, 2014, respectively, and $14.9 and $30.5 was recognized in the three and six months ended June 30, 2013, respectively.
NOTE 10
GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
The following table provides a rollforward of the carrying amount of goodwill for the six months ended June 30, 2014 by segment. 
 
Industrial
Process
 
Motion
Technologies
 
Interconnect
Solutions
 
Control
Technologies
 
Total
Goodwill - December 31, 2013
 
$
351.0

 
 
 
$
49.8

 
 
 
$
73.9

 
 
 
$
185.1

 
 
$
659.8

Goodwill acquired
 
1.2

 
 
 
—

 
 
 
—

 
 
 
—

 
 
1.2

Foreign currency
 
(0.9
)
 
 
 
(0.5
)
 
 
 
—

 
 
 
—

 
 
(1.4
)
Goodwill - June 30, 2014
 
$
351.3

 
 
 
$
49.3

 
 
 
$
73.9

 
 
 
$
185.1

 
 
$
659.6

Other Intangible Assets, Net 
 
June 30, 2014
 
December 31, 2013
 
Gross
Carrying
Amount
 
Accumulated Amortization
 
Net Intangibles
 
Gross
Carrying
Amount
 
Accumulated Amortization
 
Net Intangibles
Customer relationships
 
$
85.8

 
 
 
$
(35.7
)
 
 
 
$
50.1

 
 
 
$
84.9

 
 
 
$
(31.9
)
 
 
 
$
53.0

 
Proprietary technology
 
30.1

 
 
 
(9.0
)
 
 
 
21.1

 
 
 
30.3

 
 
 
(7.6
)
 
 
 
22.7

 
Patents and other
 
16.3

 
 
 
(14.2
)
 
 
 
2.1

 
 
 
16.4

 
 
 
(13.0
)
 
 
 
3.4

 
Finite-lived intangible total
 
132.2

 
 
 
(58.9
)
 
 
 
73.3

 
 
 
131.6

 
 
 
(52.5
)
 
 
 
79.1

 
Indefinite-lived intangibles
 
27.7

 
 
 
—

 
 
 
27.7

 
 
 
27.8

 
 
 
—

 
 
 
27.8

 
Other Intangible Assets
 
$
159.9

 
 
 
$
(58.9
)
 
 
 
$
101.0

 
 
 
$
159.4

 
 
 
$
(52.5
)
 
 
 
$
106.9

 
Amortization expense related to finite-lived intangible assets was $3.3 and $6.3 for the three and six months ended June 30, 2014, respectively, and $3.9 and $11.5 for the three and six months ended June 30, 2013, respectively.

11

NOTE 11
ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES 
 
June 30,
2014
 
December 31,
2013
Compensation and other employee-related benefits
 
$
160.8

 
 
 
$
178.5

 
Asbestos-related liabilities
 
84.5

 
 
 
85.1

 
Customer-related liabilities
 
68.3

 
 
 
55.6

 
Accrued income taxes and other tax-related liabilities
 
49.5

 
 
 
29.8

 
Environmental liabilities and other legal matters
 
30.4

 
 
 
38.5

 
Accrued warranty costs
 
27.6

 
 
 
28.6

 
Short-term loans and current maturities of long-term debt
 
24.2

 
 
 
39.8

 
Other accrued liabilities
 
50.7

 
 
 
44.0

 
Accrued liabilities
 
$
496.0

 
 
 
$
499.9

 
Deferred income taxes and other tax-related accruals
 
$
116.3

 
 
 
$
116.2

 
Environmental liabilities
 
81.3

 
 
 
85.1

 
Compensation and other employee-related benefits
 
41.7

 
 
 
43.8

 
Other
 
46.5

 
 
 
32.7

 
Other non-current liabilities
 
$
285.8

 
 
 
$
277.8

 
NOTE 12
DEBT
 
June 30,
2014
 
December 31,
2013
Commercial Paper
 
$
22.5

 
 
 
$
38.0

 
Current maturities of long-term debt
 
1.3

 
 
 
1.3

 
Current capital leases
 
0.4

 
 
 
0.5

 
Short-term loans and current maturities of long-term debt
 
24.2

 
 
 
39.8

 
Non-current maturities of long-term debt
 
7.1

 
 
 
7.6

 
Non-current capital leases
 
1.4

 
 
 
1.5

 
Long-term debt and capital leases
 
8.5

 
 
 
9.1

 
Total debt and capital leases
 
$
32.7

 
 
 
$
48.9

 
Our outstanding commercial paper as of June 30, 2014 had a weighted average interest rate of 0.44% and maturity terms less than one month from the date of issuance.

12

NOTE 13
POSTRETIREMENT BENEFIT PLANS
The following tables provide the components of net periodic benefit cost for pension plans and other employee-related benefit plans for the three and six months ended June 30, 2014 and 2013. 
 
2014
 
2013
Three Months Ended June 30
Pension
 
Other
Benefits
 
Total
 
Pension
 
Other
Benefits
 
Total
Service cost
 
$
1.3

 
 
 
$
0.4

 
 
 
$
1.7

 
 
 
$
1.6

 
 
 
$
0.8

 
 
 
$
2.4

 
Interest cost
 
3.9

 
 
 
1.9

 
 
 
5.8

 
 
 
3.4

 
 
 
2.0

 
 
 
5.4

 
Expected return on plan assets
 
(5.2
)
 
 
 
(0.1
)
 
 
 
(5.3
)
 
 
 
(4.9
)
 
 
 
(0.2
)
 
 
 
(5.1
)
 
Amortization of prior service cost (benefit)
 
0.2

 
 
 
(1.5
)
 
 
 
(1.3
)
 
 
 
0.2

 
 
 
(0.1
)
 
 
 
0.1

 
Amortization of net actuarial loss
 
1.5

 
 
 
0.8

 
 
 
2.3

 
 
 
2.1

 
 
 
0.9

 
 
 
3.0

 
Net periodic benefit cost
 
$
1.7

 
 
 
$
1.5

 
 
 
$
3.2

 
 
 
$
2.4

 
 
 
$
3.4

 
 
 
$
5.8

 
 
2014
 
2013
Six Months Ended June 30
Pension
 
Other
Benefits
 
Total
 
Pension
 
Other
Benefits
 
Total
Service cost
 
$
2.5

 
 
 
$
0.9

 
 
 
$
3.4

 
 
 
$
3.4

 
 
 
$
1.5

 
 
 
$
4.9

 
Interest cost
 
7.8

 
 
 
3.9

 
 
 
11.7

 
 
 
7.0

 
 
 
4.1

 
 
 
11.1

 
Expected return on plan assets
 
(10.4
)
 
 
 
(0.3
)
 
 
 
(10.7
)
 
 
 
(9.8
)
 
 
 
(0.3
)
 
 
 
(10.1
)
 
Amortization of prior service cost (benefit)
 
0.4

 
 
 
(3.0
)
 
 
 
(2.6
)
 
 
 
0.4

 
 
 
(0.2
)
 
 
 
0.2

 
Amortization of net actuarial loss
 
3.1

 
 
 
1.5

 
 
 
4.6

 
 
 
4.5

 
 
 
2.2

 
 
 
6.7

 
Net periodic benefit cost
 
$
3.4

 
 
 
$
3.0

 
 
 
$
6.4

 
 
 
$
5.5

 
 
 
$
7.3

 
 
 
$
12.8

 
During the fourth quarter of 2013, management approved changes to certain of our defined benefit pension and postretirement plans, including the merging of plans and the elimination of future benefit accruals for plan participants as of December 31, 2013.
During the three months ended June 30, 2014 and 2013, we made contributions to our global postretirement plans of $2.7 and $3.2, respectively. During the six months ended June 30, 2014 and 2013, we made contributions to our global postretirement plans of $4.8 and $5.8, respectively. We do not expect to make material contributions to our global pension plans during the remainder of 2014.
During the three months ended June 30, 2014 and 2013, we amortized $0.7 and $3.1, net of tax, respectively, from accumulated other comprehensive income into earnings related to prior service cost and net actuarial loss. Similarly, during the six months ended June 30, 2014 and 2013, we amortized $1.3 and $6.9, net of tax, into earnings, respectively. No other reclassifications from accumulated other comprehensive income into earnings were recognized during any of the presented periods.

13

NOTE 14
LONG-TERM INCENTIVE EMPLOYEE COMPENSATION
Our long-term incentive plan (LTIP) is comprised of three components: non-qualified stock options (NQOs), restricted stock units (RSUs), and performance units (PSUs). The majority of RSUs settle in shares; however RSUs granted to international employees settle in cash. The PSU awards are accounted for as two distinct awards based on both a relative total shareholder return (TSR) performance metric component and a return on invested capital (ROIC) performance metric component. Each component is equally weighted and settled in shares dependent upon the performance achieved following a three-year performance period. TSR awards granted prior to 2013 settle in cash. Awards that settle in cash are accounted for as liability-based awards.
LTIP costs are primarily recorded within general and administrative expenses, and are reduced by an estimated forfeiture rate. The following table provides the components of these costs for the three and six months ended June 30, 2014 and 2013.
 
Three Months
 
Six Months
For the Periods Ended June 30
2014
 
2013
 
2014
 
2013
Equity-based awards
$
3.4

 
$
3.2

 
$
6.8

 
$
6.2

Liability-based awards
1.9

 
—

 
1.9

 
0.9

Total share-based compensation expense
$
5.3

 
$
3.2

 
$
8.7

 
$
7.1

At June 30, 2014, there was $27.2 of estimated unrecognized compensation cost related to unvested equity-based awards that is expected to be recognized ratably over a weighted-average period of 2.2 years. Total estimated unrecognized compensation cost projected to be incurred for unvested liability-based awards as of June 30, 2014 was $4.3; this is expected to be recognized ratably over a weighted-average period of 1.7 years.
Year-to-Date 2014 LTIP Activity
The majority of our LTIP activity occurs during the first quarter of each year. The majority of LTIP grants occurred on March 4, 2014. During the six months ended June 30, 2014, we granted the following LTIP awards as provided in the table below:
 
# of Awards Granted
Grant Date Fair Value
NQOs
0.2
 
$
11.93

RSUs
0.3
 
$
43.52

TSR
0.1
 
$
48.78

ROIC
0.1
 
$
42.20

The NQOs vest either on the completion of a three-year service period or annually in three equal installments, as determined by employee level, and have a ten-year expiration period. RSUs, TSR awards, and ROIC awards vest on the completion of a three-year service period.
During the six months ended June 30, 2014 and 2013, 0.6 and 1.3 stock options were exercised resulting in proceeds of $11.4 and $21.9, respectively, and restrictions on 0.3 and 0.3 shares of restricted stock units vested and were issued, respectively.
The fair value of each NQO grant was estimated on the date of grant using a binomial lattice pricing model that incorporates multiple and variable assumptions over time, including assumptions such as employee exercise patterns, stock price volatility and changes in dividends. The following table details the weighted average assumptions used to measure fair value and the resulting grant date fair value of NQOs granted during the first six months of 2014. 
Dividend yield
1.0
%
Expected volatility
29.6
%
Expected life
5.8 years

Risk-free rates
1.8
%
Grant date fair value
$
11.93


14

Expected volatility for NQOs granted during 2014 were determined using a combination of ITT's implied volatility and the average historical volatility over a ten year period for a peer group of companies that closely align to ITT. Historical data is used to estimate option exercise and employee termination behavior within the valuation model. Option characteristics, such as vesting terms, are considered separately for valuation purposes. The expected life represents an estimate of the period of time options are expected to remain outstanding. The expected life provided above represents the weighted average of options granted with differing vesting terms. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of option grant.
The grant date fair value of RSUs corresponds to the closing price of ITT common stock on the date of grant.
The grant date fair value of the ROIC awards was based on the closing price of ITT common stock on the date of grant less the present value of expected dividend payments during the vesting period. A dividend yield of 1.0% was assumed based on ITT's annualized dividend payment of $0.44 per share and the March 4, 2014 closing stock price of $43.52. The fair value of the ROIC award is fixed on the grant date; however, a probability assessment is performed each reporting period to estimate the likelihood of achieving the ROIC targets and the amount of compensation to be recognized. The ROIC award payout is subject to a payout factor which includes a maximum and minimum payout.
The grant date fair value of TSR awards granted in 2013 and 2014 were measured using a Monte Carlo simulation, measuring potential total shareholder return for ITT relative to the other companies in the S&P 400 Capital Goods Index (the TSR Performance Group). The expected volatility of ITT's stock price was based on the historical volatility of a peer group while expected volatility for the other companies in the TSR Performance Group was based on their own stock price history. All volatility and correlation measures were based on three years of daily historical price data through March 4, 2014, corresponding to the three-year performance period of the award. The TSR award payout is subject to a multiplier which includes a maximum and minimum payout. As the grant date occurred after the beginning of the performance period, actual TSR performance between the beginning of the performance period (December 2013 average closing stock price) and the grant date was reflected in the valuation. A dividend yield of 1.0% was assumed based on ITT's annualized dividend payment of $0.44 per share and the March 4, 2014 closing stock price of $43.52.
The fair value of TSR awards granted prior to 2013 is remeasured on a quarterly basis and corresponds to ITT's total shareholder return as compared to the total shareholder return of companies within the S&P 400 Capital Goods Index, subject to a multiplier which includes a maximum and minimum payout. The relative performance ranking calculated is adjusted to reflect expected volatility over the remaining term of the award using a Monte Carlo simulation.
NOTE 15
CAPITAL STOCK
On October 27, 2006, a three-year $1 billion share repurchase program was approved by our Board of Directors. On December 16, 2008, the provisions of the share repurchase program were modified by our Board of Directors to replace the original three-year term with an indefinite term. We repurchased 0.2 shares of common stock for $10.0 during the three and six months ended June 30, 2014. We repurchased 1.4 and 3.1 shares of common stock for $39.6 and $85.2 during the three and six months ended June 30, 2013, respectively. To date, under the 2006 Share Repurchase Program, the Company has repurchased 15.5 shares for $639.3.
Separate from the 2006 Share Repurchase Program, the Company repurchased 0.1 shares and 0.1 shares for an aggregate price of $4.9 and $2.7, during the six months ended June 30, 2014 and 2013, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock units.
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 employee benefit matters, government contract issues and commercial or contractual disputes and acquisitions or divestitures. We will continue to aggressively defend all such 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.

15

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 generally allege that certain products sold by us or our former 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.
As of June 30, 2014, there were approximately 51 thousand pending active 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 (in thousands)
2014
 
2013
Pending claims – Beginning
79

 
96

New claims
2

 
2

Settlements
(2
)
 
(2
)
Dismissals(a)
(10
)
 
(19
)
Pending claims – Ending
69

 
77

Pending inactive claims(a)
18

 
18

Pending active claims
51

 
59

(a)
The 2013 dismissals reported in the table above include the dismissal of approximately 11 thousand claims that were considered pending inactive claims. No pending inactive claims were dismissed during the six months ended June 30, 2014. Inactive claims represent pending claims in Mississippi filed in 2004 or prior, which have been excluded from our asbestos measurement because the plaintiffs cannot demonstrate a significant compensable loss. As such, management believes these claims have little-to-no value.
Frequently, plaintiffs are unable to identify any ITT or Goulds Pumps product as a source of asbestos exposure. Our experience to date is that a majority of resolved claims are dismissed without any payment from the Company. Management believes that a large majority of the pending claims have little or no value. In addition, because claims are sometimes dismissed in large groups, the average cost per resolved claim can fluctuate significantly from period to period. ITT expects more asbestos-related suits will be filed in the future, and ITT will continue to aggressively defend or seek a reasonable resolution, as appropriate.
Asbestos litigation is a unique form of litigation. Frequently, the plaintiff sues a large number of defendants and does not state a specific claim amount. After filing of the complaint, the plaintiff engages defendants in settlement negotiations to establish a settlement value based on certain criteria, including the number of defendants in the case. Rarely do the plaintiffs seek to collect all damages from one defendant. Rather, they seek to spread the liability, and thus the payments, among many defendants. As a result of this and other factors, the Company is unable to estimate the maximum potential exposure to pending claims and claims estimated to be filed over the next 10 years.
Estimating our exposure to pending asbestos claims and those that may be filed in the future is subject to significant uncertainty and risk as there are multiple variables that can affect the timing, severity, quality, quantity and resolution of claims. Any predictions with respect to the variables impacting the estimate of the asbestos liability and related asset are subject to even greater uncertainty as the projection period lengthens. In light of the uncertainties and variables inherent in the long-term projection of the Company's asbestos exposures, although it is probable that the Company will incur additional costs for asbestos claims filed beyond the next 10 years, we do not believe there is a reasonable basis for estimating those costs at this time.
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 statements.

16

Income Statement Charges
In the third quarter of each year, we conduct our annual asbestos measurement with the assistance of outside consultants to review and update the underlying assumptions used in our asbestos liability and related asset estimates. In each remeasurement, the underlying assumptions are updated based on our actual experience since our previous annual remeasurement and we reassess the appropriate reference period 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. Based on this evaluation, the Company determined that no change in the estimate was warranted for the period ended June 30, 2014 other than the incremental accrual to maintain a rolling 10-year forecast period. The net asbestos charge for the three months ended June 30, 2014 and 2013 was $15.9 and $15.9, respectively, and for the six months ended June 30, 2014 and 2013 was $31.7 and $31.9, respectively.
Changes in Financial Position
The Company's estimated asbestos exposure, net of expected recoveries, for the resolution of all pending claims and claims estimated to be filed in the next 10 years was $774.3 and $746.9 as of June 30, 2014 and December 31, 2013, respectively. The following table provides a rollforward of the estimated asbestos liability and related assets for the six months ended June 30, 2014.
 
Liability
 
Asset
 
Net
Balance as of December 31, 2013
$
1,264.7

 
$
517.8

 
$
746.9

Asbestos provision
36.7

 
5.0

 
31.7

Net cash and other activity
(38.0
)
 
(33.7
)
 
(4.3
)
Balance as of June 30, 2014
$
1,263.4

 
$
489.1

 
$
774.3

Current portion
$
84.5

 
$
84.5

 
 
Noncurrent portion
$
1,178.9

 
$
404.6

 
 
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, 2014. 
 
Liability
 
Asset
 
Net
Balance as of December 31, 2013
$
94.6

 
$
11.7

 
$
82.9

Change in estimates for pre-existing accruals:
 
 
 
 
 
Continuing operations
2.8

 
—

 
2.8

Discontinued operations
0.9

 
—

 
0.9

Accruals added during the period for new matters
0.1

 
—

 
0.1

Net cash activity
(7.8
)
 
(0.1
)
 
(7.7
)
Foreign currency
0.1

 
—

 
0.1

Balance as of June 30, 2014
$
90.7

 
$
11.6

 
$
79.1


17

The following table illustrates the reasonably possible range of estimated liability, and number of active sites for environmental matters, at June 30, 2014. 
Low-end estimate
$
70.4

High end estimate
$
161.9

Number of active environmental investigation and remediation sites
55

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.
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 Employers Insurance Company et al, Sup. Ct., Los Angeles County, we are seeking recovery of costs related to property damage losses due to environmental issues. Discovery, procedural matters, changes in California law, and various appeals have prolonged this case. The Company continues to seek appropriate resolution with the various defendants in the case.
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 from the same coverage referenced above but related to asbestos product liability losses. During this coverage litigation, we entered into coverage-in-place settlement agreements with ACE (a/k/a Pacific Employers Insurance Company or PEIC), 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 Continental Casualty. In January 2012, ITT and Goulds Pumps filed a putative class action suit in federal court in Connecticut 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), (Fed Dist Ct, D. Conn., CA NO.3:12-cv-00038-RN)), alleging that Travelers is unilaterally reinterpreting language contained in older Aetna policies so as to avoid paying on asbestos claims. This action was stayed pending a decision by the Superior Court of Los Angeles County in the Cannon action on interpretation of policy language. On January 29, 2014, the Superior Court issued its opinion upholding the Goulds Pumps’ claims that it is entitled to receive reimbursement from Traveler’s for asbestos claims. The Connecticut Court has now lifted the Stay and discovery in the case is proceeding. In 2013, the Company finalized a settlement with its insurer PEIC that resolves all outstanding issues between the Company and PEIC related to the primary policies issued by PEIC during the period from 1977 to 1985. The Company and PEIC have agreed that the primary policies are exhausted and PEIC will make structured payments over time to a Qualified Settlement Fund (QSF) to be used for asbestos-related costs. The excess insurers have challenged the exhaustion of the PEIC primary policies and a trial to determine whether the policies were properly exhausted is scheduled for November 2014. The Company continues to engage other defendants in settlement negotiations as appropriate.
NOTE 17
SEGMENT INFORMATION
The Company's segments are reported on the same basis used internally for evaluating performance and for allocating resources. Our four reportable segments are referred to as: Industrial Process, Motion Technologies, Interconnect Solutions and Control Technologies.
Industrial Process manufactures engineered fluid process equipment serving a diversified mix of customers in global infrastructure industries such as oil & gas, mining, power generation, chemical and other process markets and is a provider of plant optimization and efficiency solutions and aftermarket services and parts.
Motion Technologies manufactures brake pads, shock absorbers and damping technologies for the global automotive, truck, trailer and public bus and rail transportation markets.
Interconnect Solutions manufactures a wide range of highly specialized connector products that make it possible to transfer signal and power in various electronic devices that are utilized in the aerospace and defense, industrial and transportation, oil & gas, and medical markets.
Control Technologies manufactures specialized equipment, including actuation, valves, switches, vibration isolation, custom-energy absorption, and regulators for the aerospace and defense, and industrial markets.

18

Corporate and Other consists of corporate office expenses including compensation, benefits, occupancy, depreciation, and other administrative costs, as well as charges related to certain matters, such as asbestos and environmental liabilities, that are managed at a corporate level and are not included in segment results when evaluating performance or allocating resources. Assets of the segments exclude general corporate assets, which principally consist of cash, investments, asbestos-related receivables and certain property, plant and equipment.
 
Revenue
 
Operating Income
 
Operating Margin
Three Months Ended June 30
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Industrial Process
$
289.4

 
$
268.7

 
$
25.4

 
$
28.1

 
8.8
%
 
10.5
%
Motion Technologies
198.0

 
171.4

 
34.7

 
23.3

 
17.5
%
 
13.6
%
Interconnect Solutions
103.7

 
100.3

 
12.3

 
6.7

 
11.9
%
 
6.7
%
Control Technologies
73.7

 
70.2

 
16.2

 
15.4

 
22.0
%
 
21.9
%
Total segment results
664.8

 
610.6

 
88.6

 
73.5

 
13.4
%
 
12.1
%
Asbestos-related costs, net
—

 
—

 
(15.9
)