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 September 30, 2015
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 October 29, 2015, there were outstanding 89.5 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. 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 U.S. Securities and Exchange Commission (the SEC), including our Annual Report on Form 10-K for the year ended December 31, 2014 (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 Quarterly Report on Form 10-Q (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 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. We use the Investor Relations page of our website at www.itt.com (in the "Investors" section) to disclose important information to the public.
Information contained on our website, or that can be accessed through our website, does not constitute a part of this Report. We have included our website address only as an inactive textual reference and do not intend it to be an active link to our website. 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
 
Nine Months
For the Periods Ended September 30
2015
 
2014
 
2015
 
2014
Revenue
$
601.9

 
$
657.1

 
$
1,818.8

 
$
1,994.6

Costs of revenue
407.0

 
437.2

 
1,211.0

 
1,345.1

Gross profit
194.9

 
219.9

 
607.8

 
649.5

General and administrative expenses
60.2

 
69.1

 
186.8

 
216.3

Sales and marketing expenses
43.1

 
53.5

 
139.2

 
165.1

Research and development expenses
18.0

 
20.1

 
55.2

 
56.4

Asbestos-related benefit, net
(30.3
)
 
(42.5
)
 
(99.7
)
 
(10.8
)
Operating income
103.9

 
119.7

 
326.3

 
222.5

Interest and non-operating (income) expenses, net
(4.0
)
 
0.7

 
(2.5
)
 
2.3

Income from continuing operations before income tax expense
107.9

 
119.0

 
328.8

 
220.2

Income tax expense
11.4

 
38.0

 
53.0

 
63.4

Income from continuing operations
96.5

 
81.0

 
275.8

 
156.8

Income (loss) from discontinued operations, including tax benefit of $19.7, $1.8, $23.7 and $4.8, respectively
34.2

 
(0.3
)
 
39.3

 
(4.2
)
Net income
130.7

 
80.7

 
315.1

 
152.6

Less: Income attributable to noncontrolling interests
—

 
0.4

 
—

 
1.8

Net income attributable to ITT Corporation
$
130.7

 
$
80.3

 
$
315.1

 
$
150.8

Amounts attributable to ITT Corporation:
 
 
 
 
 
 
 
Income from continuing operations, net of tax
$
96.5

 
$
80.6

 
$
275.8

 
$
155.0

Income (loss) from discontinued operations, net of tax
34.2

 
(0.3
)
 
39.3

 
(4.2
)
Net income
$
130.7

 
$
80.3

 
$
315.1

 
$
150.8

Earnings (loss) per share attributable to ITT Corporation:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Continuing operations
$
1.08

 
$
0.88

 
$
3.07

 
$
1.69

Discontinued operations
0.38

 
—

 
0.44

 
(0.04
)
Net income
$
1.46

 
$
0.88

 
$
3.51

 
$
1.65

Diluted:
 
 
 
 
 
 
 
Continuing operations
$
1.07

 
$
0.87

 
$
3.04

 
$
1.67

Discontinued operations
0.38

 
(0.01
)
 
0.43

 
(0.05
)
Net income
$
1.45

 
$
0.86

 
$
3.47

 
$
1.62

Weighted average common shares – basic
89.4

 
91.6

 
89.9

 
91.5

Weighted average common shares – diluted
90.3

 
92.9

 
90.8

 
92.9

Cash dividends declared per common share
$
0.1183

 
$
0.11

 
$
0.3549

 
$
0.33

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
 
Nine Months
For the Periods Ended September 30
2015
 
2014
 
2015
 
2014
Net income
$
130.7

 
$
80.7

 
$
315.1

 
$
152.6

Other comprehensive income (loss):
 
 
 
 
 
 
 
Net foreign currency translation adjustment
(24.4
)
 
(53.3
)
 
(72.2
)
 
(54.2
)
Net change in postretirement benefit plans, net of tax impacts of $0.1, $10.8, $0.5 and $11.4, respectively
0.8

 
19.0

 
1.9

 
20.3

Other comprehensive loss
(23.6
)
 
(34.3
)
 
(70.3
)
 
(33.9
)
Comprehensive income
107.1

 
46.4

 
244.8

 
118.7

Less: Comprehensive income attributable to noncontrolling interests
—

 
0.4

 
—

 
1.8

Comprehensive income attributable to ITT Corporation
$
107.1

 
$
46.0

 
$
244.8

 
$
116.9

Disclosure of reclassification and other adjustments to postretirement benefit plans
 
 
 
 
 
 
 
Reclassification adjustments (see Note 14):
 
 
 
 
 
 
 
Amortization of prior service benefit, net of tax expense of $(1.2), $(0.6), $(3.0) and $(1.5), respectively
$
(1.4
)
 
$
(0.8
)
 
$
(4.6
)
 
$
(2.5
)
Amortization of net actuarial loss, net of tax benefits of $1.3, $0.8, $3.5 and $2.4, respectively
2.2

 
1.6

 
6.5

 
4.6

Other adjustments:
 
 
 
 
 
 
 
Unrealized change in net actuarial loss, net of tax expense of $0.0, $10.6, $0.0 and $10.6, respectively
—

 
18.2

 
—

 
18.2

Net change in postretirement benefit plans, net of tax
$
0.8

 
$
19.0

 
$
1.9

 
$
20.3

The accompanying 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) 
 
September 30,
2015
 
December 31,
2014
 
(Unaudited)
 
 
 
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
 
$
504.9

 
 
$
584.0

Receivables, net
 
567.8

 
 
500.1

Inventories, net
 
299.7

 
 
302.3

Other current assets
 
198.7

 
 
249.8

Total current assets
 
1,571.1

 
 
1,636.2

Plant, property and equipment, net
 
414.4

 
 
443.9

Goodwill
 
622.7

 
 
632.1

Other intangible assets, net
 
106.6

 
 
91.4

Asbestos-related assets
 
342.4

 
 
374.0

Deferred income taxes
 
272.5

 
 
304.1

Other non-current assets
 
148.6

 
 
149.8

Total non-current assets
 
1,907.2

 
 
1,995.3

Total assets
 
$
3,478.3

 
 
$
3,631.5

Liabilities and Shareholders’ Equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Commercial paper
 
$
10.5

 
 
$
—

Accounts payable
 
291.9

 
 
309.6

Accrued liabilities
 
414.8

 
 
465.8

Total current liabilities
 
717.2

 
 
775.4

Asbestos-related liabilities
 
961.2

 
 
1,116.6

Postretirement benefits
 
238.8

 
 
249.7

Other non-current liabilities
 
194.2

 
 
269.5

Total non-current liabilities
 
1,394.2

 
 
1,635.8

Total liabilities
 
2,111.4

 
 
2,411.2

Shareholders’ equity:
 
 
 
 
 
Common stock:
 
 
 
 
 
Authorized – 250.0 shares, $1 par value per share (104.5 and 104.3 shares issued, respectively)
 
 
 
 
 
Outstanding – 89.5 shares and 91.0 shares, respectively
 
89.5

 
 
91.0

Retained earnings
 
1,665.3

 
 
1,445.1

Total accumulated other comprehensive loss
 
(391.5
)
 
 
(321.2
)
Total ITT Corporation shareholders' equity
 
1,363.3

 
 
1,214.9

Noncontrolling interests
 
3.6

 
 
5.4

Total shareholders’ equity
 
1,366.9

 
 
1,220.3

Total liabilities and shareholders’ equity
 
$
3,478.3

 
 
$
3,631.5

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 Nine Months Ended September 30
2015
 
2014
Operating Activities
 
 
 
Net income
$
315.1

 
$
152.6

Less: Income (loss) from discontinued operations
39.3

 
(4.2
)
Less: Income attributable to noncontrolling interests
—

 
1.8

Income from continuing operations attributable to ITT Corporation
275.8

 
155.0

Adjustments to income from continuing operations:
 
 
 
Depreciation and amortization
63.1

 
64.2

Stock-based compensation
11.1

 
10.8

Asbestos-related benefit, net
(99.7
)
 
(10.8
)
Asbestos-related payments, net
(15.2
)
 
(8.9
)
Changes in assets and liabilities:
 
 
 
Change in receivables
(77.2
)
 
(93.5
)
Change in inventories
(6.3
)
 
(6.3
)
Change in accounts payable
(0.4
)
 
1.2

Change in accrued expenses
(26.1
)
 
4.1

Change in accrued and deferred income taxes
21.9

 
5.0

Other, net
0.1

 
11.1

Net Cash – Operating activities
147.1

 
131.9

Investing Activities
 
 
 
Capital expenditures
(64.2
)
 
(74.4
)
Acquisitions, net of cash acquired
(53.5
)
 
(2.8
)
Purchases of investments
(73.0
)
 
(165.1
)
Maturities of investments
68.2

 
207.0

Proceeds from sale of businesses and other assets
8.6

 
3.4

Proceeds from insurance recovery
2.5

 
—

Other, net
—

 
(0.6
)
Net Cash – Investing activities
(111.4
)
 
(32.5
)
Financing Activities
 
 
 
Short-term debt, net
10.5

 
(38.0
)
Long-term debt, repaid
(2.1
)
 
(1.2
)
Repurchase of common stock
(83.9
)
 
(25.5
)
Proceeds from issuance of common stock
5.5

 
14.3

Dividends paid
(21.6
)
 
(20.4
)
Excess tax benefit from equity compensation activity
3.2

 
8.4

Other, net
(1.8
)
 
(1.5
)
Net Cash – Financing activities
(90.2
)
 
(63.9
)
Exchange rate effects on cash and cash equivalents
(23.9
)
 
(15.1
)
Net Cash – Operating activities of discontinued operations
(0.7
)
 
(5.1
)
Net change in cash and cash equivalents
(79.1
)
 
15.3

Cash and cash equivalents – beginning of year
584.0

 
507.3

Cash and cash equivalents – end of period
$
504.9

 
$
522.6

Supplemental Disclosures of Cash Flow Information
 
 
 
Cash paid during the year for:
 
 
 
Interest
$
1.0

 
$
1.1

Income taxes, net of refunds received
$
24.7

 
$
47.8

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
 
Nine Months
For the Periods Ended September 30
2015
 
2014
 
2015
 
2014
Common Stock
 
 
 
 
 
 
 
Common stock, beginning balance
$
89.4

 
$
91.6

 
$
91.0

 
$
91.0

Activity from stock incentive plans
0.1

 
0.2

 
0.6

 
1.1

Share repurchases
—

 
(0.2
)
 
(2.1
)
 
(0.5
)
Common stock, ending balance
89.5

 
91.6

 
89.5

 
91.6

Retained Earnings
 

 
 

 
 

 
 

Retained earnings, beginning balance
1,540.9

 
1,381.0

 
1,445.1

 
1,320.3

Net income attributable to ITT Corporation
130.7

 
80.3

 
315.1

 
150.8

Dividends declared
(10.6
)
 
(10.2
)
 
(32.1
)
 
(30.4
)
Activity from stock incentive plans
4.5

 
8.7

 
19.0

 
32.4

Share repurchases
(0.2
)
 
(10.3
)
 
(81.8
)
 
(25.0
)
Purchase of noncontrolling interest
—

 
—

 
—

 
1.4

Retained earnings, ending balance
1,665.3

 
1,449.5

 
1,665.3

 
1,449.5

Accumulated Other Comprehensive Loss
 

 
 

 
 

 
 

Postretirement benefit plans, beginning balance
(143.1
)
 
(127.9
)
 
(144.2
)
 
(129.2
)
Net change in postretirement benefit plans
0.8

 
19.0

 
1.9

 
20.3

Postretirement benefit plans, ending balance
(142.3
)
 
(108.9
)
 
(142.3
)
 
(108.9
)
Cumulative translation adjustment, beginning balance
(224.5
)
 
(81.7
)
 
(176.7
)
 
(80.8
)
Net cumulative translation adjustment
(24.4
)
 
(53.3
)
 
(72.2
)
 
(54.2
)
Cumulative translation adjustment, ending balance
(248.9
)
 
(135.0
)
 
(248.9
)
 
(135.0
)
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
(391.5
)
 
(244.2
)
 
(391.5
)
 
(244.2
)
Noncontrolling interests
 

 
 

 
 

 
 

Noncontrolling interests, beginning balance
5.4

 
4.4

 
5.4

 
5.9

Income attributable to noncontrolling interests
—

 
0.4

 
—

 
1.8

Dividend to noncontrolling interest shareholders
(1.8
)
 
—

 
(1.8
)
 
—

Purchase of noncontrolling interest
—

 
—

 
—

 
(2.9
)
Noncontrolling interests, ending balance
3.6

 
4.8

 
3.6

 
4.8

Total Shareholders' Equity
 

 
 

 
 

 
 

Total shareholders' equity, beginning balance
1,267.8

 
1,267.1

 
1,220.3

 
1,206.9

Net change in common stock
0.1

 
—

 
(1.5
)
 
0.6

Net change in retained earnings
124.4

 
68.5

 
220.2

 
129.2

Net change in accumulated other comprehensive loss
(23.6
)
 
(34.3
)
 
(70.3
)
 
(33.9
)
Net change in noncontrolling interests
(1.8
)
 
0.4

 
(1.8
)
 
(1.1
)
Total shareholders' equity, ending balance
$
1,366.9

 
$
1,301.7

 
$
1,366.9

 
$
1,301.7

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 AND BASIS OF PRESENTATION
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 industrial pumping and complementary equipment; Motion Technologies, consisting of friction and shock and vibration equipment; Interconnect Solutions, consisting of electronic connectors; and Control Technologies, consisting of fluid handling, motion control, and noise and energy absorption products. Financial information for our segments is presented in Note 3, “Segment Information.”
On October 31, 2011, ITT completed the tax-free spin-off of its Defense and Information Solutions business, Exelis Inc. (Exelis), and its water-related businesses, Xylem Inc. (Xylem) by way of a distribution of all of the issued and outstanding shares of Exelis common stock and Xylem common stock, on a pro rata basis, to ITT shareholders of record on October 17, 2011. This transaction is referred to in this Report as the “2011 spin-off.” On May 29, 2015, Harris Corporation acquired Exelis.
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, 2014 (2014 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 2014 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 that is generally 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.

6

NOTE 2
RECENT ACCOUNTING PRONOUNCEMENTS
The Company considers the applicability and impact of all accounting standard updates (ASUs). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.
Accounting Pronouncements Not Yet Adopted
In July 2015, the Financial Accounting Standards Board (FASB) amended the existing accounting standards for inventory, requiring that an entity measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendment applies to all inventory that is measured using a method other than last-in, first-out (LIFO) or the retail inventory method. The new guidance will be effective for the Company beginning in its first quarter of 2017 and will be applied prospectively. The adoption of this amendment is not expected to have a material impact to ITT's financial statements.
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. The new guidance will be effective for the Company beginning in its first quarter of 2018. 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.
NOTE 3
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 chemical, oil and gas, mining, and other industrial process markets and is a provider of plant optimization and efficiency solutions and aftermarket services and parts.
Motion Technologies manufactures brake components, shock absorbers and damping technologies for the global automotive, truck and trailer, public bus and rail transportation markets.
Interconnect Solutions manufactures and designs a wide range of highly engineered harsh environment connector solutions that make it possible to transfer signal and power between electronic devices which service global customers for the aerospace and defense, industrial and transportation, oil and gas, and medical markets.
Control Technologies manufactures specialized equipment, including actuation, fuel management, noise and energy absorption, and environmental control system components, for the aerospace and defense, and industrial markets.
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 assets and certain property, plant and equipment.

7


 
Revenue
 
Operating 
Income (Loss)
 
Operating Margin
Three Months Ended September 30
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Industrial Process
$
270.6

 
$
292.7

 
$
34.0

 
$
31.0

 
12.6
%
 
10.6
%
Motion Technologies
179.9

 
197.0

 
33.0

 
36.5

 
18.3
%
 
18.5
%
Interconnect Solutions
82.8

 
98.4

 
3.6

 
11.2

 
4.3
%
 
11.4
%
Control Technologies
69.8

 
70.7

 
14.0

 
15.7

 
20.1
%
 
22.2
%
Total segment results
603.1

 
658.8

 
84.6

 
94.4

 
14.1
%
 
14.4
%
Asbestos-related benefit, net
—

 
—

 
30.3

 
42.5

 
—

 
—

Eliminations / Other corporate costs
(1.2
)
 
(1.7
)
 
(11.0
)
 
(17.2
)
 
—

 
—

Total Eliminations / Corporate and Other costs
(1.2
)
 
(1.7
)
 
19.3

 
25.3

 
—

 
—

Total
$
601.9

 
$
657.1

 
$
103.9

 
$
119.7

 
17.3
%
 
18.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
Operating Income (Loss)
 
Operating Margin
Nine Months Ended September 30
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Industrial Process
$
813.7

 
$
867.6

 
$
95.9

 
$
80.7

 
11.8
%
 
9.3
%
Motion Technologies
555.5

 
612.8

 
111.0

 
111.4

 
20.0
%
 
18.2
%
Interconnect Solutions
243.0

 
302.1

 
7.6

 
20.5

 
3.1
%
 
6.8
%
Control Technologies
210.1

 
217.3

 
40.5

 
47.4

 
19.3
%
 
21.8
%
Total segment results
1,822.3

 
1,999.8

 
255.0

 
260.0

 
14.0
%
 
13.0
%
Asbestos-related benefit, net
—

 
—

 
99.7

 
10.8

 
—

 
—

Eliminations / Other corporate costs
(3.5
)
 
(5.2
)
 
(28.4
)
 
(48.3
)
 
—

 
—

Total Eliminations / Corporate and Other costs
(3.5
)
 
(5.2
)
 
71.3

 
(37.5
)
 
—

 
—

Total
$
1,818.8

 
$
1,994.6

 
$
326.3

 
$
222.5

 
17.9
%
 
11.2
%
 
Total Assets
 
Capital
Expenditures
 
Depreciation &
Amortization
Nine Months Ended September 30
2015
 
2014(a)
 
2015
 
2014
 
2015
 
2014
Industrial Process
$
1,114.5

 
$
1,152.3

 
$
13.0

 
$
26.5

 
$
20.9

 
$
21.3

Motion Technologies
449.4

 
450.1

 
28.7

 
32.5

 
20.5

 
21.9

Interconnect Solutions
368.6

 
365.4

 
15.6

 
8.5

 
7.9

 
8.9

Control Technologies
380.8

 
334.1

 
4.3

 
1.3

 
9.1

 
7.5

Corporate and Other
1,165.0

 
1,329.6

 
2.6

 
5.6

 
4.7

 
4.6

Total
$
3,478.3

 
$
3,631.5

 
$
64.2

 
$
74.4

 
$
63.1

 
$
64.2

(a)
Amounts reflect balances as of December 31, 2014.

8

NOTE 4
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 nine months ended September 30, 2015 and 2014.
 
Three Months
 
Nine Months
For the Periods Ended September 30
2015
 
2014
 
2015
 
2014
Severance costs
$
1.1

 
$
2.2

 
$
16.2

 
$
18.8

Asset write-offs
0.7

 
—

 
0.7

 
1.3

Other restructuring costs
—

 
0.9

 
0.9

 
2.1

Total restructuring costs
$
1.8

 
$
3.1

 
$
17.8

 
$
22.2

By segment:
 
 
 
 
 
 
 
Industrial Process
$
0.6

 
$
1.6

 
$
10.6

 
$
4.5

Motion Technologies
—

 
0.1

 
—

 
0.3

Interconnect Solutions
0.9

 
0.4

 
6.2

 
16.4

Control Technologies
0.3

 
—

 
0.8

 
—

Corporate and Other
—

 
1.0

 
0.2

 
1.0

The following table displays a rollforward of the restructuring accruals, presented on our Consolidated Condensed Balance Sheet within accrued liabilities, for the nine months ended September 30, 2015 and 2014.
For the Nine Months Ended September 30
2015
 
2014
Restructuring accruals - beginning balance
$
21.9

 
$
14.7

Restructuring costs
17.8

 
22.2

Cash payments
(19.5
)
 
(13.0
)
Asset write-offs
(0.7
)
 
(1.3
)
Foreign exchange translation and other
(0.3
)
 
(0.5
)
Restructuring accrual - ending balance
$
19.2

 
$
22.1

By accrual type:
 
 
 
Severance accrual
$
18.2

 
$
20.0

Facility carrying and other costs accrual
1.0

 
2.1

2015 Interconnect Solutions Restructuring Actions
In May 2015, we announced a restructuring action for the Company's Interconnect Solutions (ICS) segment to reduce overall costs and better align the segment with current market conditions. The Company expects to incur cash restructuring costs, principally involuntary severance, of approximately $12 for 110 employees, which represents 6% of the ICS global workforce. The Company expects to substantially complete these actions in the next twelve months. The following table provides a rollforward of the restructuring accruals associated with the 2015 ICS restructuring action.
For the Nine Months Ended September 30
2015
Restructuring accruals - beginning balance
$
—

Restructuring costs
6.4

Cash payments
(4.8
)
Restructuring accruals - ending balance
$
1.6


9

2015 Industrial Process Restructuring Actions
In March 2015, we announced a series of restructuring actions in the Company's Industrial Process segment related to a strategic reorganization of the business and to achieve efficiencies and reduce the overall cost structure. The Company expects to incur cash restructuring costs, principally involuntary severance costs of approximately $15 to $16 and other non-cash restructuring costs of approximately $2 in aggregate related to this action. The costs incurred during the nine months ended September 30, 2015 primarily relate to employee severance for approximately 200 planned headcount reductions. We expect to incur the remaining restructuring costs of approximately $6 to $7 over the next 3 to 6 months related to this action. The following table provides a rollforward of the restructuring accruals associated with the 2015 Industrial Process restructuring actions.
For the Nine Months Ended September 30
2015
Restructuring accruals - beginning balance
$
—

Restructuring costs
10.6

Cash payments
(3.1
)
Asset write-offs
(0.7
)
Restructuring accruals - ending balance
$
6.8

2013 / 2014 Interconnect Solutions Restructuring Actions
In 2013, we initiated a comprehensive restructuring plan to improve the overall cost structure of the Company's ICS segment, including the transition of certain production lines from one location to another existing lower cost manufacturing site. During 2015, we reversed $0.2 of a previously estimated restructuring liability and made cash payments of $7.3, resulting in a remaining liability of $9.4 as of September 30, 2015. The remaining liability, which is primarily related to employee severance, is expected to be fully satisfied over the next 18 months. We do not expect to incur any additional charges related to this restructuring action.
NOTE 5
INCOME TAXES
For the three months ended September 30, 2015 and 2014, the Company recognized income tax expense of $11.4 and $38.0, respectively, representing an effective tax rate of 10.6% and 31.9%, respectively. For the nine months ended September 30, 2015 and 2014, the Company recognized income tax expense of $53.0 and $63.4, respectively, representing an effective tax rate of 16.1% and 28.8%, respectively. The lower effective tax rate in 2015 is primarily resulting from the settlement of a U.S. income tax audit and the release of the valuation allowance on certain net deferred tax assets in China due to positive income in recent years. The Company continues to benefit from earnings eligible for a tax holiday in South Korea, as well as a larger mix of earnings in non-U.S. jurisdictions with favorable tax rates.
During the third quarter, the Company effectively settled the U.S. income tax audit for tax years 2009-2011. The Company recorded a tax benefit of $18.0 in continuing operations, which includes a net tax benefit of $8.0 from favorable audit adjustments and $10.0 from the recognition of previously unrecognized tax positions. In addition, this U.S. income tax audit resulted in tax benefit of $20.9 related to discontinued operations, which includes net tax expense of $17.4 from unfavorable audit adjustments and a tax benefit of $38.3 from the recognition of previously unrecognized tax positions. In accordance with the existing Tax Matters Agreement entered into between the Company, Exelis, and Xylem in connection with the 2011 spin-off (the Tax Matters Agreement), the Company is entitled to reimbursement for a portion of the tax liability and has recorded a receivable of $1.6 and $13.2 in continuing and discontinued operations, respectively.
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 Canada, Germany, Hong Kong, Italy, Mexico, South Korea, the U.S. and Venezuela. The estimated tax liability calculation 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 the current estimate of the unrecognized tax benefit. Over the next 12 months, the net amount of the tax liability for unrecognized tax benefits in foreign and domestic jurisdictions could change by approximately $17.7 due to changes in audit status, expiration of statutes of limitations and other events. The settlement of any future examinations could result in changes in amounts attributable to the Company under its existing Tax Matters Agreement with Exelis and Xylem.

10

NOTE 6
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 for the three and nine months ended September 30, 2015 and 2014. 
 
Three Months
 
Nine Months
For the Periods Ended September 30
2015
 
2014
 
2015
 
2014
Basic weighted average common shares outstanding
89.4

 
91.6

 
89.9

 
91.5

Add: Dilutive impact of outstanding equity awards
0.9

 
1.3

 
0.9

 
1.4

Diluted weighted average common shares outstanding
90.3

 
92.9

 
90.8

 
92.9

The following table provides the number of shares underlying stock options excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2015 and 2014 because they were anti-dilutive. 
 
Three Months
 
Nine Months
For the Periods Ended September 30
2015
 
2014
 
2015
 
2014
Anti-dilutive stock options
0.4
 
 
0.2

 
0.4

 
0.2

Average exercise price
$
42.42
 
 
$
43.51

 
$
42.53

 
$
43.51

Year(s) of expiration
2024 - 2025
 
 
2024

 
2024 - 2025

 
2024

In addition, 0.2 of outstanding return on invested capital (ROIC) awards were excluded from the computation of diluted earnings per share for both the three and nine months ended September 30, 2015 and 2014 respectively, as the necessary performance conditions have not been yet been satisfied.
NOTE 7
RECEIVABLES, NET 

September 30,
2015

December 31,
2014
Trade accounts receivable

$
535.6




$
476.8


Notes receivable

3.2




6.1


Other

43.2




30.5


Receivables, gross

582.0




513.4


Less: Allowance for doubtful accounts

(14.2
)



(13.3
)

Receivables, net

$
567.8




$
500.1


NOTE 8
INVENTORIES, NET 
 
September 30,
2015
 
December 31,
2014
Finished goods
 
$
62.6

 
 
 
$
70.5

 
Work in process
 
68.0

 
 
 
59.9

 
Raw materials
 
155.9

 
 
 
148.5

 
Inventoried costs related to long-term contracts
 
51.4

 
 
 
61.4

 
Total inventory before progress payments
 
337.9

 
 
 
340.3

 
Less: Progress payments
 
(38.2
)
 
 
 
(38.0
)
 
Inventories, net
 
$
299.7

 
 
 
$
302.3

 

11

NOTE 9
OTHER CURRENT AND NON-CURRENT ASSETS 
 
September 30,
2015
 
December 31,
2014
Asbestos-related assets
 
$
74.5

 
 
 
$
102.4

 
Current deferred income taxes
 
58.4

 
 
 
56.2

 
Short-term investments
 
10.3

 
 
 
5.4

 
Prepaid income taxes
 
10.6

 
 
 
25.9

 
Other
 
44.9

 
 
 
59.9

 
Other current assets
 
$
198.7

 
 
 
$
249.8

 
Other employee benefit-related assets
 
$
92.0

 
 
 
$
93.0

 
Capitalized software costs
 
29.2

 
 
 
26.8

 
Other
 
27.4

 
 
 
30.0

 
Other non-current assets
 
$
148.6

 
 
 
$
149.8

 
NOTE 10
PLANT, PROPERTY AND EQUIPMENT, NET 
 
September 30,
2015
 
December 31,
2014
Land and improvements
 
$
22.0

 
 
 
$
24.0

 
Machinery and equipment
 
871.9

 
 
 
870.3

 
Buildings and improvements
 
222.5

 
 
 
228.8

 
Furniture, fixtures and office equipment
 
64.3

 
 
 
65.8

 
Construction work in progress
 
34.3

 
 
 
44.5

 
Other
 
6.2

 
 
 
7.8

 
Plant, property and equipment, gross
 
1,221.2

 
 
 
1,241.2

 
Less: Accumulated depreciation
 
(806.8
)
 
 
 
(797.3
)
 
Plant, property and equipment, net
 
$
414.4

 
 
 
$
443.9

 
Depreciation expense of $16.4 and $50.4 and $18.5 and $52.2 was recognized in the three and nine months ended September 30, 2015 and the three and nine months ended September 30, 2014, respectively.
NOTE 11
GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
The following table provides a rollforward of the carrying amount of goodwill for the nine months ended September 30, 2015 by segment. 
 
Industrial
Process
 
Motion
Technologies
 
Interconnect
Solutions
 
Control
Technologies
 
Total
Goodwill - December 31, 2014
 
$
331.9

 
 
 
$
43.9

 
 
 
$
71.2

 
 
 
$
185.1

 
 
$
632.1

Acquired
 
—

 
 
 
—

 
 
 
—

 
 
 
13.3

 
 
13.3

Allocated to Divestiture
 
—

 
 
 
—

 
 
 
—

 
 
 
(2.7
)
 
 
(2.7
)
Foreign currency
 
(14.7
)
 
 
 
(3.6
)
 
 
 
(1.7
)
 
 
 
—

 
 
(20.0
)
Goodwill - September 30, 2015
 
$
317.2

 
 
 
$
40.3

 
 
 
$
69.5

 
 
 
$
195.7

 
 
$
622.7

Goodwill acquired during 2015 relates to the Hartzell Aerospace acquisition. Refer to Note 18, Acquisitions, for additional information.

12

Goodwill of $2.7 was written-off during the second quarter of 2015 in connection with the sale of an industrial product line within our Control Technologies segment that occurred in June 2015. The sale of this product line resulted in a net gain of $0.1, which included the allocation of this goodwill.
Other Intangible Assets, Net 
 
September 30, 2015
 
December 31, 2014
 
Gross
Carrying
Amount
 
Accumulated Amortization
 
Net Intangibles
 
Gross
Carrying
Amount
 
Accumulated Amortization
 
Net Intangibles
Customer relationships
 
$
96.3

 
 
 
$
(41.4
)
 
 
 
$
54.9

 
 
 
$
83.1

 
 
 
$
(38.3
)
 
 
 
$
44.8

 
Proprietary technology
 
35.3

 
 
 
(11.0
)
 
 
 
24.3

 
 
 
28.1

 
 
 
(9.9
)
 
 
 
18.2

 
Patents and other
 
8.7

 
 
 
(6.2
)
 
 
 
2.5

 
 
 
15.2

 
 
 
(13.1
)
 
 
 
2.1

 
Finite-lived intangible total
 
140.3

 
 
 
(58.6
)
 
 
 
81.7

 
 
 
126.4

 
 
 
(61.3
)
 
 
 
65.1

 
Indefinite-lived intangibles
 
24.9

 
 
 
—

 
 
 
24.9

 
 
 
26.3

 
 
 
—

 
 
 
26.3

 
Other Intangible Assets
 
$
165.2

 
 
 
$
(58.6
)
 
 
 
$
106.6

 
 
 
$
152.7

 
 
 
$
(61.3
)
 
 
 
$
91.4

 
The fair value of intangible assets acquired in connection with the purchase of Hartzell Aerospace, based on a preliminary valuation, included $17.1 of customer relationships, $9.6 of proprietary technology, and $1.9 of backlog. These intangible assets will be amortized straight-line over their estimated useful lives of 20 years, 20 years, and 12 months, respectively. See Note 18, Acquisitions, for additional information.
Amortization expense related to finite-lived intangible assets was $3.0 and $8.7 and $2.5 and $8.8 for the three and nine months ended September 30, 2015 and the three and nine months ended September 30, 2014, respectively.
NOTE 12
ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES 
 
September 30,
2015
 
December 31,
2014
Compensation and other employee-related benefits
 
$
146.8

 
 
 
$
176.5

 
Asbestos-related liabilities
 
87.6

 
 
 
106.6

 
Customer-related liabilities
 
41.7

 
 
 
41.3

 
Accrued income taxes and other tax-related liabilities
 
39.8

 
 
 
28.0

 
Environmental liabilities and other legal matters
 
27.0

 
 
 
31.6

 
Accrued restructuring
 
19.2

 
 
 
21.9

 
Accrued warranty costs
 
22.2

 
 
 
29.4

 
Other accrued liabilities
 
30.5

 
 
 
30.5

 
Accrued liabilities
 
$
414.8

 
 
 
$
465.8

 
Deferred income taxes and other tax-related accruals
 
$
53.9

 
 
 
$
112.2

 
Environmental liabilities
 
69.0

 
 
 
80.2

 
Compensation and other employee-related benefits
 
35.2

 
 
 
38.6

 
Other
 
36.1

 
 
 
38.5

 
Other non-current liabilities
 
$
194.2

 
 
 
$
269.5

 
NOTE 13
COMMERCIAL PAPER
Commercial paper outstanding as of September 30, 2015 was $10.5, with an associated weighted average interest rate of 0.68% and maturity terms less than one month from the date of issuance. There was no commercial paper outstanding as of December 31, 2014.

13

NOTE 14
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 nine months ended September 30, 2015 and 2014. 
 
2015
 
2014
Three Months Ended September 30
Pension
 
Other
Benefits
 
Total
 
Pension
 
Other
Benefits
 
Total
Service cost
 
$
1.4

 
 
 
$
0.3

 
 
 
$
1.7

 
 
 
$
1.2

 
 
 
$
0.5

 
 
 
$
1.7

 
Interest cost
 
3.6

 
 
 
1.4

 
 
 
5.0

 
 
 
3.9

 
 
 
2.0

 
 
 
5.9

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

 
 
 
(2.8
)
 
 
 
(2.6
)
 
 
 
0.1

 
 
 
(1.5
)
 
 
 
(1.4
)
 
Amortization of net actuarial loss
 
2.2

 
 
 
1.3

 
 
 
3.5

 
 
 
1.6

 
 
 
0.8

 
 
 
2.4

 
Total net periodic benefit cost
 
$
2.3

 
 
 
$
—

 
 
 
$
2.3

 
 
 
$
1.7

 
 
 
$
1.6

 
 
 
$
3.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
2014
Nine Months Ended September 30
Pension
 
Other
Benefits
 
Total
 
Pension
 
Other
Benefits
 
Total
Service cost
 
$
4.0

 
 
 
$
0.7

 
 
 
$
4.7

 
 
 
$
3.7

 
 
 
$
1.4

 
 
 
$
5.1

 
Interest cost
 
10.7

 
 
 
3.8

 
 
 
14.5

 
 
 
11.7

 
 
 
5.9

 
 
 
17.6

 
Expected return on plan assets
 
(15.3
)
 
 
 
(0.6
)
 
 
 
(15.9
)
 
 
 
(15.5
)
 
 
 
(0.5
)
 
 
 
(16.0
)
 
Amortization of prior service cost (benefit)
 
0.7

 
 
 
(8.3
)
 
 
 
(7.6
)
 
 
 
0.5

 
 
 
(4.5
)
 
 
 
(4.0
)
 
Amortization of net actuarial loss
 
6.5

 
 
 
3.5

 
 
 
10.0

 
 
 
4.7

 
 
 
2.3

 
 
 
7.0

 
Total net periodic benefit cost
 
$
6.6

 
 
 
$
(0.9
)
 
 
 
$
5.7

 
 
 
$
5.1

 
 
 
$
4.6

 
 
 
$
9.7

 
We made contributions to our global postretirement plans of $8.2 and $7.7 during the nine months ended September 30, 2015 and 2014, respectively. We expect to make additional contributions of approximately $2 to $5 during the remainder of 2015, principally related to our other postretirement employee benefit plans.
Amortization from accumulated other comprehensive income into earnings related to prior service cost and net actuarial loss was $0.8 and $1.9, and $0.8 and $2.1, net of tax, during the three and nine months ended September 30, 2015 and 2014, respectively. No other reclassifications from accumulated other comprehensive income into earnings were recognized during any of the presented periods.
NOTE 15
LONG-TERM INCENTIVE EMPLOYEE COMPENSATION
Our long-term incentive plan (LTIP) costs are primarily recorded within general and administrative expenses. The following table provides the components of LTIP costs for the three and nine months ended September 30, 2015 and 2014.
 
Three Months
 
Nine Months
For the Periods Ended September 30
2015
 
2014
 
2015
 
2014
Equity based awards
$
4.2

 
$
4.0

 
$
11.1

 
$
10.8

Liability-based awards
(0.1
)
 
1.0

 
0.8

 
2.9

Total share-based compensation expense
$
4.1

 
$
5.0

 
$
11.9

 
$
13.7

At September 30, 2015, there was estimated unrecognized compensation cost of $25.8 related to unvested equity-based awards that is expected to be recognized ratably over a weighted-average period of 2.1 years, and $2.4 related to unvested liability-based awards that are expected to be recognized ratably over a weighted-average period of 2.0 years.

14

Year-to-Date 2015 LTIP Activity
The majority of our LTIP activity occurs during the first quarter of each year. The majority of LTIP grants occurred on February 25, 2015. During the nine months ended September 30, 2015, we granted the following LTIP awards as provided in the table below: